<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
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)
DECEMBER 17, 1999
EEX CORPORATION
(Exact name of Registrant as specified in its charter)
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<CAPTION>
TEXAS 1-12905 75-2421863
<S> <C> <C>
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
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2500 CityWest Boulevard, Suite 1400, Houston, Texas 77042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code (713)243-3100
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ITEM 2. Acquisition or Disposition of Assets
On December 17, 1999, EEX Corporation (the "Company") closed the previously
announced purchase of oil and gas assets of Tesoro Petroleum Corporation. The
Stock Purchase Agreement dated as of October 8, 1999, between EEX Operating LLC
("EEX Operating") and Tesoro Petroleum Corporation and Tesoro Gas Resources
Company, Inc. was amended on December 16, 1999, and three corollary purchase
agreements were entered into on December 17, 1999. The amendment and purchase
agreements provide for the purchase of (i) all of the member interests in four
limited liability companies which, together, own all of the partnership
interests of Tesoro E&P Company, L.P. (whose name was changed after closing to
EEX E&P Company, L.P., "E&P"), owner of the oil and gas assets ("Oil and Gas
Interests"), and (ii) all of the issued and outstanding stock of Tesoro Natural
Gas Company and Tesoro Gathering Company, which together own all of the
partnership interests in Tesoro Pipeline Company, L.P., which owns partnership
interests in pipeline and gathering systems ("Pipeline Interests"). EEX
Operating acquired the Pipeline Interests. The adjusted purchase price for the
Oil and Gas Interests was $209.1 million and for the Pipeline Interests, $5.7
million.
The oil and gas assets are located principally in South Texas and the Gulf Coast
and include natural gas fields that currently produce approximately 80 million
cubic feet of gas equivalent per day. The preliminary estimate by the Company's
outside reserve engineers of year end net total proved reserves is approximately
175 billion cubic feet equivalent.
The Oil and Gas Interests were acquired by EEX Reserves Funding LLC ("Reserves
Funding"), a limited liability company half-owned by subsidiaries of the
Company, EEX Operating (49%) and EEX Capital, Inc. (1%), and half-owned by Bob
West Treasure L.L.C. ("Treasure"). EEX Capital is the managing member of
Reserves Funding.
E&P is managed through an operating services agreement with the Company. The
Company has established an office in San Antonio with approximately 30
employees.
At the same time E&P entered into a forward sale of natural gas with Treasure.
E&P received $105 million for its obligation to deliver approximately 50 billion
cubic feet of natural gas during the next five years. Treasure receives an
adjusted index price monthly for the committed volume. In the event production
is not delivered, the obligation may be settled with a cash payment from E&P.
Treasure also has a lien on E&P's oil and gas properties as security in the
event the committed volumes are not delivered or cash payment is not made. The
forward sale agreement also enables E&P to act as Treasure's marketing agent to
market the committed production. E&P, at its discretion, may terminate the
prepayment obligation by paying Treasure a predetermined amount. The Company
assigned to Treasure certain hedges related to the production to be delivered
and has agreed to cause E&P to perform certain of its obligations under the
forward sale agreement, as further described in Exhibit 99.8 to this report.
The Company loaned Reserves Funding $100 million in a convertible subordinated
note which was used as part of the purchase price. The note and any future
advances made to Reserves Funding may be converted into equity interests in
Reserves Funding when the forward sale has terminated.
2
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EEX Capital also entered into a call option to purchase Treasure's equity
interest in Reserves Funding at the lower of fair market value or $5.0 million
at any time after settlement of the forward sale. This call option is payable in
either cash or common stock of EEX Corporation at the Company's option.
ITEM 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The financial statements required by this item are not included with this report
and will be filed by amendment within 60 days of the date this report must be
filed.
(b) Pro forma financial information.
The pro forma financial information required by this item are not included with
this report and will be filed by amendment within 60 days of the date this
report must be filed.
(c) Exhibits.
99.1 First Amendment to Stock Purchase Agreement dated December 16, 1999,
effective October 8, 1999, among Tesoro Petroleum Corporation, Tesoro Gas
Resources Company, Inc., EEX Operating LLC and EEX Corporation
99.2 Purchase Agreement dated December 17, 1999 between Tesoro Petroleum
Corporation and Tesoro Gas Resources Company, Inc. and EEX Operating LLC
(sale of membership interests in Tesoro Grande LLC)
99.3 Purchase Agreement dated December 17, 1999 between Tesoro Petroleum
Corporation and Tesoro Gas Resources Company, Inc. and EEX Operating LLC
(sale of membership interests in Tesoro Reserves, LLC)
99.4 Purchase Agreement dated December 17, 1999 between Tesoro Petroleum
Corporation and Tesoro Gas Resources Company, Inc. and EEX Operating LLC
(sale of membership interests in Tesoro Southeast LLC)
99.5 Natural Gas Prepaid Forward Sale Contract dated December 17, 1999
between EEX E&P Company, L.P. and Bob West Treasure L.L.C.
99.6 Call Agreement dated December 17, 1999, between EEX Capital, Inc. and
Bob West Treasure L.L.C.
99.7 Subordinated Convertible Note dated December 17, 1999, from EEX
Reserves Funding LLC to EEX Corporation
99.8 EEX Corporation Undertaking dated December 17, 1999
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EEX Corporation
By: /s/ T. E. Coats
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T. E. Coats
Vice President and
Controller
Date: December 29, 1999
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Exhibit Index
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Exhibit No. Description
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99.1 First Amendment to Stock Purchase Agreement dated December 16, 1999, effective October 8,
1999, among Tesoro Petroleum Corporation, Tesoro Gas Resources Company, Inc., EEX
Operating LLC and EEX Corporation
99.2 Purchase Agreement dated December 17, 1999 between Tesoro Petroleum Corporation and Tesoro
Gas Resources Company, Inc. and EEX Operating LLC (sale of membership interests in Tesoro
Grande LLC)
99.3 Purchase Agreement dated December 17, 1999 between Tesoro Petroleum Corporation and Tesoro
Gas Resources Company, Inc. and EEX Operating LLC (sale of membership interests in Tesoro
Reserves, LLC)
99.4 Purchase Agreement dated December 17, 1999 between Tesoro Petroleum Corporation and Tesoro
Gas Resources Company, Inc. and EEX Operating LLC (sale of membership interests in Tesoro
Southeast LLC)
99.5 Natural Gas Prepaid Forward Sale Contract dated December 17, 1999 between EEX E&P Company,
L.P. and Bob West Treasure L.L.C.
99.6 Call Agreement dated December 17, 1999, between EEX Capital, Inc. and Bob West Treasure
L.L.C.
99.7 Subordinated Convertible Note dated December 17, 1999, from EEX Reserves Funding LLC to EEX
Corporation
99.8 EEX Corporation Undertaking dated December 17, 1999
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FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Amendment") is
dated December 16, 1999, but effective as of October 8, 1999, among Tesoro
Petroleum Corporation, a Delaware corporation ("TPC"), Tesoro Gas Resources
Company, Inc., a Delaware corporation ("TGRC"), EEX Operating LLC, a Delaware
limited liability company ("EEX Operating"), and EEX Corporation, a Texas
corporation ("EEX Corporation"), for the limited purposes set forth herein and
in the Agreement.
Capitalized terms used and not otherwise defined, or defined as amended, in
this Amendment shall have the meanings given such terms in the Agreement.
WITNESSETH:
-----------
WHEREAS, TPC, TGRC, EEX Operating and EEX Corporation (for limited
purposes), entered into a Stock Purchase Agreement (the "Agreement") dated
October 8, 1999 providing for the sale by TPC and TGRC to EEX Operating of all
shares of capital stock of Tesoro Exploration and Production Company, a Delaware
corporation ("Exploration") and Tesoro Reserves Company, a Delaware corporation
("Reserves"), together with the partnership interests owned by Reserves and
Exploration in Tesoro E&P Company, L.P., a Delaware limited partnership (the
"E&P Partnership"); and
WHEREAS, Section 2.9 of the Agreement provides for the Parties to enter
into put and call options for the purchase of the stock of Tesoro Natural Gas
Company, a Delaware corporation ("Natural Gas"), and Tesoro Gathering Company, a
Delaware corporation ("Gathering"), together with the partnership interests (i)
owned by Natural Gas and Gathering in Tesoro Pipeline Company, L.P., a Delaware
limited partnership (the "Pipeline Partnership"), and (ii) owned by Natural Gas
and the Pipeline Partnership in the Starr-Zapata Partnership and the Starr
County Gathering System; and
WHEREAS, Section 9.12(b) of the Agreement provides for the Parties to
cooperate, at no cost or liability to Buyer, to enable Seller, at Seller's
election, to transfer the Operating Assets (as defined in the Agreement) to
Buyer in a manner enabling the transfer to qualify as a like-kind exchange of
property by Seller within the meaning of Section 1031 of the Code; and
WHEREAS, in connection with a financing contemplated by Section 9.12(c) of
the Agreement, the Agreement will be amended to provide for the possibility of
(i) two separate buyers, one of which will purchase the Common Stock, and the
other of which will purchase the Membership Interests, and (ii) EEX Operating,
which is executing this Amendment in its capacities as the purchaser of the
Common Stock and the Membership Interests, to transfer its rights and
obligations as the buyer of the Common Stock and/or the Membership Interests to
an Affiliate of EEX Operating; and
WHEREAS, in order to effect the sale contemplated by Section 2.9, the like-
kind exchange contemplated by Section 9.12 of the Agreement and the separation
of the buyers of the Common Stock and the Membership Interests, the Parties have
agreed to amend the Agreement in accordance with the terms of this Amendment;
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NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
1. Changes to Article I, Definitions.
----------------------------------
a. New Defined Terms The following defined terms shall be added to
-----------------
Article I of the Agreement:
"Amendment" shall mean this First Amendment to Stock Purchase Agreement
dated December 16, 1999, among Tesoro Petroleum Corporation, Tesoro Gas
Resources Company, Inc. and EEX Operating LLC, and EEX Corporation, for
limited purposes.
"Coastal" shall mean Coastal States Gas Transmission Company, a Delaware
corporation.
"E&P Buyer" shall mean the buyer of the Membership Interests, and shall
initially be EEX Operating LLC, a Delaware limited liability company.
"E&P Closing Settlement Price" shall mean the E&P Settlement Price
calculated in accordance with the best information available to the Seller
prior to Closing, as reflected on the E&P Settlement Statement delivered
prior to Closing pursuant to Article X and Section 13.2(a).
"E&P Final Settlement Price" shall mean the E&P Settlement Price calculated
in accordance with the best information available to the Parties during the
one hundred twenty (120) day period after Closing, as reflected on the E&P
Final Statement agreed upon pursuant to Article XIII.
"E&P Final Statement" shall mean the final accounting statement with
respect to the Membership Interests to be agreed upon by the Parties no
later than one hundred twenty (120) days after Closing pursuant to Section
13.2(b).
"E&P Partnership" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"E&P Property Package" shall mean the Properties listed on Schedule I.
"E&P Purchase Price" shall have the meaning given such term in Section
3.1(a) hereof.
"E&P Settlement Price" shall have the meaning set forth in Section 3.2.
"E&P Settlement Statement" shall mean the accounting statement calculating
the E&P Settlement Price described in Section 13.2(a).
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"Exploration and Production Assets" shall mean all property rights and
interests of the E&P Partnership being sold hereunder in the lands and
leases described in Exhibit B, as set forth in Section 2.4(a).
"Exploration LLC" shall mean Tesoro Exploration and Production Company,
LLC, a Delaware limited liability company.
"Grande" shall mean Tesoro Grande Company, LLC, a Delaware limited
liability company.
"Grande Property Package" shall mean the Properties listed on Schedule II.
"Grande Qualified Intermediary" shall mean Bank One Exchange Corporation,
in its capacity as a qualified intermediary to implement a like-kind
exchange of the Grande Property Package under Section 1031 of the Code.
"LLC Purchase Agreements" shall have the meaning set forth in Section
12.2(g) hereof.
"LLCs" shall mean Grande, Southeast, Exploration LLC and Reserves LLC.
"Membership Interests" shall mean all issued and outstanding membership
interests in Exploration LLC, Reserves LLC, Grande and Southeast,
collectively.
"Pipeline Buyer" shall mean the buyer of the Common Stock, and shall
initially be EEX Operating LLC, a Delaware limited liability company.
"Pipeline Closing Settlement Price" shall mean the Settlement Price
calculated in accordance with the best information available to the Seller
prior to Closing, as reflected on the Settlement Statement delivered prior
to Closing pursuant to Article X and Section 13.2(a).
"Pipeline Final Settlement Price" shall mean the Pipeline Settlement Price
calculated in accordance with the best information available to the Parties
during the one hundred twenty (120) day period after Closing, as reflected
on the Pipeline Final Statement agreed upon pursuant to Article XIII.
"Pipeline Final Statement" shall mean the final accounting statement with
respect to the Common Stock to be agreed upon by the Parties no later than
one hundred twenty (120) days after Closing pursuant to Section 13.2(b).
"Pipeline Partnership" shall mean Tesoro Pipeline Company, L.P., a Delaware
limited partnership.
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"Pipeline Properties" shall mean the pipelines and appurtenances, and
rights-of-ways, easements, servitudes, licenses, permits and other rights
and interests in the pipelines listed on Exhibit B-1 attached hereto.
"Pipeline Purchase Price" shall have the meaning given such term in Section
3.1(a) hereof.
"Pipeline Settlement Price" shall have the meaning set forth in Section
3.3.
"Pipeline Settlement Statement" shall mean the accounting statement
calculating the Pipeline Settlement Price described in Section 13.2(a).
"Qualified Intermediary" shall mean both, or either, as applicable, the
Southeast Qualified Intermediary and the Grande Qualified Intermediary.
"Reserves LLC" shall mean Tesoro Reserves Company, LLC, a Delaware limited
liability company.
"Southeast" shall mean Tesoro Southeast Company, LLC, a Delaware limited
liability company.
"Southeast Property Package" shall mean the Properties listed on Schedule
III.
"Southeast Qualified Intermediary" shall mean 44 Exchange Services L.L.C.,
in its capacity as a qualified intermediary to implement a like-kind
exchange of the Southeast Property Package under Section 1031 of the Code.
b. Amended Definitions: The following defined terms in Article I of the
--------------------
Agreement shall be amended to read as follows:
"Agreement" shall mean this Stock Purchase Agreement, as amended.
"Allocated Values" shall mean the monetary value allocated to each Property
or group of Properties, the Pipeline Properties and the Hedging Contracts
in Exhibit A.
"Balance Sheets" shall mean the unaudited combined financial balance sheet
of the Subsidiaries and the Partnership as of June 30, 1999, attached
hereto as Exhibits C and C-1.
"Buyer" shall mean (i) EEX Operating LLC, a Delaware limited liability company,
if acting as both the E&P Buyer and the Pipeline Buyer or (ii) the E&P Buyer and
the Pipeline Buyer, collectively, if the E&P Buyer and the Pipeline Buyer are
different Persons.
"Common Stock" shall mean all issued and outstanding shares of common stock
of Natural Gas and Gathering, collectively; further, during the period
Exploration and Reserves remain as corporations, prior to their conversion
to limited liability companies,
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then the term "Common Stock" shall also include all issued and outstanding
shares of common stock of Exploration and Reserves.
"Consent to Assignment" shall mean an existing contractual or legal right
of any third party to consent to a Partnership's assignment of an Operating
Asset or an interest in an Operating Asset to Buyer under such terms as are
set forth in this Agreement.
"Operating Assets" shall mean the Exploration and Production Assets, the
Pipeline Properties and, otherwise, all property rights and interests of
the Partnership being sold hereunder in the lands and leases described in
Exhibit B and Exhibit B-1, as set forth in Section 2.4.
"Partnership" shall mean either or both of the E&P Partnership and the
Pipeline Partnership, as the context may require.
"Preferential Right to Purchase" shall mean the right of any third party
under an existing contract or agreement allowing that third party to
purchase a Property or either of the Starr Partnership's interest in a
Pipeline Property whenever Seller proposes to transfer its interests in a
Partnership under terms such as are set forth in this Agreement.
"Purchase Price" shall mean the sum of the E&P Purchase Price and the
Pipeline Purchase Price.
"Subsidiaries" shall mean Exploration LLC (and Exploration, its predecessor
corporation), Reserves LLC (and Reserves, its predecessor corporation),
Grande, Southeast, Natural Gas and Gathering, collectively.
"Transaction" shall mean the purchase and sale of the Common Stock and the
Membership Interests pursuant to this Agreement and the related
transactions contemplated herein.
c. The following defined terms in Article I of the Agreement shall be
deleted in their entirety:
"Closing Settlement Price"
"Final Settlement Price"
"Final Statement"
"Settlement Price"
"Settlement Statement"
2. Changes to Article II, Purchase And Sale.
-----------------------------------------
a. Section 2.1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
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2.1 Sale of Membership Interests and Common Stock. Subject to the terms
---------------------------------------------
and conditions of this Agreement, (a) Seller agrees to sell and assign to
E&P Buyer, and E&P Buyer agrees to purchase and pay for, at Closing, all
the Membership Interests, and (b) Seller agrees to sell and assign to
Pipeline Buyer, and Pipeline Buyer agrees to purchase and pay for, at
Closing, all the Common Stock.
b. Section 2.2 of the Agreement is hereby amended and restated in its
entirety to read as follows:
2.2 Effect of Sale. The sale of the Membership Interests at Closing shall
--------------
transfer to E&P Buyer all of Seller's rights in the LLCs, and the sale of
the Common Stock at Closing shall transfer to Pipeline Buyer all of
Seller's rights in Natural Gas and Gathering. On the Closing Date, the
Subsidiaries shall hold certain interests, assets and liabilities, as set
forth in this Article II. Except as otherwise specifically set forth in
this Agreement, the transfer of Seller's rights in the Subsidiaries shall
assign to Buyer all of Seller's beneficial right, title, interest and
obligations in and to such interests, assets and liabilities held by the
Subsidiaries.
c. Section 2.3 of the Agreement is hereby amended and restated in its
entirety to read as follows:
2.3 Partnership. On the Closing Date, the E&P Partnership and the
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Pipeline Partnership shall be owned in the following manner:
(a) E&P Partnership Exploration LLC, Grande, Southeast and Reserves
---------------
LLC shall collectively own all rights and interests in the E&P
Partnership. Exploration LLC shall be the sole general partner in the
E&P Partnership, and Grande, Southeast and Reserves LLC shall be the
sole limited partners in the E&P Partnership. The partnership rights
and interests described in this Section 2.3(a) shall pass to E&P Buyer
as an attribute of the sale of the Membership Interests pursuant to
this Agreement.
(b) Pipeline Partnership. Natural Gas and Gathering shall
---------------------
collectively own all rights and interests in the Pipeline Partnership.
Natural Gas shall be the sole general partner, owning a one percent
(1%) partnership interest, and Gathering shall be the sole limited
partner, owning a ninety-nine percent (99%) partnership interest in
the Pipeline Partnership. The partnership rights and interests
described in this Section 2.3(b) shall pass to Pipeline Buyer as an
attribute of the sale of the Common Stock pursuant to this Agreement.
(c) Starr Partnerships. On the Closing Date, (i) Pipeline Partnership
------------------
shall be the 49% partner and Natural Gas shall be the 1% partner of
Starr-Zapata Partnership and (ii) Pipeline Partnership shall be the
69% partner and Natural Gas shall be the 1% partner of the Starr
County Gathering System. The partnership rights and interests
described in this Section 2.3(c) shall pass to Pipeline Buyer as an
attribute of the sale of the Common Stock pursuant to this Agreement.
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d. The introductory paragraph of Section 2.4 of the Agreement is amended
and restated in its entirety to read as follows:
On the Closing Date, the Partnership and the Starr Partnerships shall
own the Operating Assets, subject to the Permitted Encumbrances, and
excluding the items set forth on Schedule 2.4 and as otherwise limited
herein as follows:
e. The following paragraph (c) is added to Section 2.4 of the Agreement:
(c) Pipeline Assets.
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(i) Rights, title and interests of the Pipeline Partnership and
the Starr Partnerships in the Pipeline Properties in Starr,
Edwards, Val Verde and Zapata Counties, Texas, as described in
Exhibit B-1;
(ii) Rights, obligations, title and interests of the Pipeline
Partnership and the Starr Partnerships in and to permits, orders,
abstracts of title, leases, deeds, operating agreements,
participation agreements, and other agreements and instruments
applicable to the Pipeline Properties;
(iii) Rights, obligations, title and interests in easements,
rights of way, licenses and permits and all other rights,
privileges, benefits and powers conferred upon the owner and
holder of interests in the Pipeline Properties.
(iv) Rights and interests in records and maps, contract files
and records, accounting files, data and records, all computer
software and other materials (whether electronically stored or
otherwise) used or held for use by Seller, the Subsidiaries, the
Pipeline Partnership or the Starr Partnerships, or any of their
direct or indirect parents, subsidiaries or other Affiliates
(other than Coastal), regarding ownership or operation of the
Pipeline Properties, and other files, documents and records of
Seller, the Subsidiaries, the Pipeline Partnership or the Starr
Partnerships, or any of their direct or indirect parents,
subsidiaries or other Affiliates (other than Coastal), which
relate to the Pipeline Properties.
f. Section 2.9 of the Agreement is hereby deleted in its entirety.
3. Changes to Article III, Purchase Price and Settlement Price.
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a. Section 3.1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
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3.1 Purchase Price.
--------------
(a) Purchase Price. The monetary consideration ("E&P Purchase Price")
---------------
for the sale and conveyance of all the Membership Interests to E&P
Buyer, effective as of the date of Closing, is E&P Buyer's payment of
$215,253,969 in cash. The monetary consideration ("Pipeline Purchase
Price") for the sale and conveyance of all the Common Stock to
Pipeline Buyer, effective as of the date of Closing, is Pipeline
Buyer's payment of $6,746,031 in cash.
(b) Allocation of E&P Purchase Price. The E&P Purchase Price shall
---------------------------------
be allocated among the Grande Property Package, the Southeast Property
Package and the E&P Property Package as follows:
(i) Grande Property Package -- $115,304,126
(ii) Southeast Property Package -- $ 14,426,631
(iii) E&P Property Package -- $ 85,523,212
Total -- $215,253,969
(c) The parties agree that the allocation of the E&P Purchase Price
provided herein, and any inability to allocate the E&P Purchase Price
as provided herein, shall not affect the total E&P Purchase Price paid
by E&P Buyer under this Agreement, and the total adjustments to the
E&P Purchase Price described in this Agreement (including without
limitation Section 3.2 and Article XIII).
(d) None of the E&P Buyer, the Pipeline Buyer, or any Affiliate of
either Buyer shall be obligated to pay Seller the E&P Purchase Price,
the Pipeline Purchase Price, or any amounts for any of the Membership
Interests or the Common Stock, or pursuant to indemnification claims,
except pursuant to this Agreement.
b. Section 3.2 of the Agreement is hereby amended and restated in its
entirety to read as follows:
3.2 E&P Settlement Price. Pursuant to the provisions as described
--------------------
below, the E&P Purchase Price to be paid by E&P Buyer will be subject to
certain adjustments made at Closing and within one hundred twenty (120)
days thereafter, as set forth in Article XIII, to determine the E&P
Settlement Price amount that will actually be paid by E&P Buyer. The E&P
Settlement Price will be allocated separately for the E&P Property Package,
the Grande Property Package and the Southeast Property Package, and shall
be calculated as follows:
(a) Increases. The E&P Purchase Price shall be increased by the
following amounts:
<PAGE>
(i) An amount equal to the expenses attributable to the Membership
Interests, the E&P Partnership or the Properties (without
duplication) properly accrued in accordance with GAAP and past
practice, and as provided for in Section 13.3, attributable to
the period from the Effective Time to the end of business on
the Closing Date; provided, however, that such expenses shall
exclude all (1) depreciation, depletion and amortization, (2)
income and franchise taxes, (3) one-half of the amount accrued
by the Subsidiaries and the Partnership under incentive
compensation arrangements for the Retained Employees, as
provided in Section 9.9(c), and (4) severance obligations and
other amounts accrued under any employment retention and
management stability agreements, as provided in Section 9.9(b);
provided, further, however that Seller, the Subsidiaries and
the Partnership shall be permitted to accrue no more than
$40,000 per month from the close of business on June 30, 1999
to the Closing Date for corporate general and administrative
expenses;
(ii) An amount equal to the capital expenditures relating to the
Business attributable to the Membership Interests, the E&P
Partnership or the Properties (without duplication), properly
accrued in accordance with GAAP and past practice attributable
to the period from the Effective Time to the end of business on
the Closing Date; and
(iii) The amount of change in Working Capital attributable to the
Membership Interests, the E&P Partnership or the Properties
(without duplication) between the Effective Time and the end of
business on the Closing Date, if the amount of change is a
positive number.
(b) Decreases. The E&P Purchase Price shall be decreased by the
following amounts:
(i) An amount equal to the revenues properly accrued in accordance
with GAAP and past practice attributable to the Membership
Interests, the E&P Partnership or the Properties (without
duplication) and attributable to the period from the Effective
Time to the end of business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment, subject to
the application of Section 13.1;
(iii) The amount of the Allocated Value of any Properties that third
parties shall have purchased before the Closing through the
exercise of Preferential Rights to Purchase or pursuant to any
other sale permitted by Section 9.2(a); and
(iv) The amount, stated as a positive number, of any change in
Working Capital attributable to the Membership Interests, the
E&P Partnership or the Properties (without duplication) between
the Effective Time and the end of business on the Closing Date,
if and only if, the amount of change is a negative number.
<PAGE>
The E&P Purchase Price as adjusted pursuant to this Section 3.2 is herein
called the "E&P Settlement Price."
c. The following Section 3.3 is hereby added to the Agreement:
3.3 Pipeline Settlement Price. Pursuant to the provisions as
-------------------------
described below, the Pipeline Purchase Price to be paid by Pipeline Buyer
will be subject to certain adjustments made at Closing and within one
hundred twenty (120) days thereafter, as set forth in Article XIII, to
determine the Pipeline Settlement Price amount that will actually be paid
by Pipeline Buyer, and shall be calculated as follows:
(a) Increases. The Pipeline Purchase Price shall be increased by the
following amounts:
(i) An amount equal to the expenses attributable to the Common
Stock (excluding Reserves and Exploration), the Pipeline
Partnership or the Pipeline Properties (without duplication)
properly accrued in accordance with GAAP and past practice, and
as provided for in Section 13.3, attributable to the period
from the Effective Time to the end of business on the Closing
Date; provided, however, that such expenses shall exclude all
(1) depreciation, depletion and amortization, (2) income and
franchise taxes, (3) amounts accrued by the Subsidiaries and
the Partnership under incentive compensation arrangements for
the Retained Employees, as provided in Section 9.9(c), and (4)
severance obligations and other amounts accrued under any
employment retention and management stability agreements, as
provided in Section 9.9(b); provided, further, however that
Seller, the Subsidiaries and the Partnership shall not be
permitted to accrue any corporate general and administrative
expenses from the close of business on June 30, 1999 to the
Closing Date;
(ii) An amount equal to the capital expenditures relating to the
Business attributable to the Common Stock (excluding Reserves
and Exploration), the Pipeline Partnership or the Pipeline
Properties (without duplication), properly accrued in
accordance with GAAP and past practice attributable to the
period from the Effective Time to the end of business on the
Closing Date; and
(iii) The amount of change in Working Capital attributable to the
Common Stock (excluding Reserves and Exploration), the Pipeline
Partnership or the Pipeline Properties (without duplication),
between the Effective Time and the end of business on the
Closing Date, if the amount of change is a positive number.
(b) Decreases. The Pipeline Purchase Price shall be decreased by the
following amounts:
<PAGE>
(i) An amount equal to the revenues attributable to the Common
Stock (excluding Reserves and Exploration), the Pipeline
Partnership or the Pipeline Properties (without duplication)
properly accrued in accordance with GAAP and past practice
attributable to the period from the Effective Time to the end
of business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment, subject to
the application of Section 13.1;
(iii) The amount of the Allocated Value of the Pipeline Properties
that third parties shall have purchased before the Closing
through the exercise of Preferential Rights to Purchase or
pursuant to any other sale permitted by Section 9.2(a); and
(iv) The amount, stated as a positive number, of any change in
Working Capital, attributable to the Common Stock (excluding
Reserves and Exploration), the Pipeline Partnership or the
Pipeline Properties (without duplication), between the
Effective Time and the end of business on the Closing Date, if
and only if, the amount of change is a negative number.
The Pipeline Purchase Price as adjusted pursuant to this Section 3.2 is
herein called the "Pipeline Settlement Price."
4. Changes to Article IV, Representations and Warranties.
a. Section 4.1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
(a) Disclosure. To Seller's Knowledge, the representations and
----------
warranties set forth in this Section 4.1 of this Agreement, the exhibits to
this Agreement, and the information, documents and Balance Sheets provided
under the terms of this Agreement represent full and fair disclosure as of
the date of this Agreement and do not contain any untrue statement of any
material fact or omit any material fact necessary in order to make the
facts stated not misleading.
b. Paragraph (e) of Section 4.2 of the Agreement is amended and restated
in its entirety to read as follows:
(e) Investment Intent. The Common Stock and the Membership Interests
-----------------
are being purchased for Buyer's own account and not with a view to, or for
resale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act. Buyer understands that the
Common Stock and the Membership Interests have not been registered under
the Securities Act by reason of their issuance in transactions exempt from
the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) thereof. Buyer is knowledgeable, competent, and
<PAGE>
experienced in the oil and gas industry and has independently evaluated and
interpreted the technical data and other information regarding the
Operating Assets prior to entering into this Agreement, understands and is
financially able to bear the risk associated with ownership of the
Subsidiaries and the Partnership, and will independently conduct all the
due diligence investigations and reviews of all matters concerning the
Subsidiaries, the Partnership and the Operating Assets as it deems
necessary prior to Closing. Buyer acknowledges that Buyer is not relying
upon any statement or representations made by Seller concerning the present
or future value of, or anticipated income, costs, or profits, if any, to be
derived from, the Subsidiaries, the Partnership or the Operating Assets,
and Buyer has relied solely upon its independent inspections, estimates,
computations, evaluations, reports, studies, knowledge and other
information regarding the Subsidiaries, the Partnership and the Operating
Assets.
c. The following Section 4.3 shall be added to the Agreement as follows:
4.3 Seller's Representations and Warranties to Be Made at Closing.
-------------------------------------------------------------
Effective as of the Closing Date, Seller shall represent and warrant that:
(a) Disclosure. To Seller's Knowledge, the representations and warranties
----------
set forth in this Section 4.3, the exhibits to this Agreement, and the
information, documents and Balance Sheets provided under the terms of this
Agreement represent full and fair disclosure as of the Closing Date and do
not contain any untrue statement of any material fact or omit any material
fact necessary in order to make the facts stated not misleading.
(b) Authorization and Enforceability.
--------------------------------
(i) This Agreement and the Transaction have been duly
authorized by each Seller.
(ii) Neither the execution and delivery of this Agreement by
Seller, nor the consummation by Seller of the transactions
contemplated hereby, will violate or conflict with, or
result in the acceleration of rights, benefits or
obligations under, (1) any provision of any Seller's,
Subsidiary's, Partnership's or Starr Partnership's
respective Charters, Bylaws, management agreements,
limited liability company agreements, operating agreements
or partnership agreements, or (2) any applicable statute,
law, regulation or Governmental Order to which Seller or
the Subsidiaries or the Partnerships or the assets and
properties of such entities, including without limitation
the Operating Assets, are bound or subject.
(iii) This Agreement has been duly executed and delivered by
each Seller and constitutes the valid and binding
obligation of each Seller, enforceable against it in
accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency or other laws
relating to or affecting the enforcement of creditors'
rights generally and general principles of equity
(regardless of
<PAGE>
whether such enforceability is considered in a proceeding
in equity or at law).
(iv) Except as set forth on Schedule 4.1(b)(iv), or as
otherwise specifically provided herein, the execution,
delivery, and performance of this Agreement (assuming that
all applicable consents are received and all applicable
Preferential Rights to Purchase individual Operating
Assets are waived) will not (A) be in violation of any
provisions of any regulation or order that could
reasonably be expected to adversely affect the ownership
or operations of the Operating Asset affected thereby or
give rise to damages, penalties or claims of third
parties, or (B) result in the breach of, or constitute a
default under, any indenture or other material agreement
or instrument to which any Seller, Subsidiary, Partnership
or Starr Partnership is bound.
(v) Except as set forth on Schedule 4.1(b)(v) or as otherwise
specifically provided herein, no consent, waiver,
approval, order or authorization of, notice to, or
registration, declaration, designation, qualification or
filing with, any Governmental Authority or third Person,
domestic or foreign, is or has been or will be required on
the part of Seller in connection with the execution and
delivery of this Agreement or the consummation by Seller
of the transactions contemplated hereby or thereby, other
than (A) consents and Preferential Rights to Purchase
affecting individual Operating Assets; (B) filings
required (1) to form Grande and Southeast under Delaware
law, (2) to convert Reserves into Reserves LLC under
Delaware law and (3) to convert Exploration into
Exploration LLC under Delaware law; (C) tax filings or (D)
where the failure to obtain such consents, waivers,
approvals, orders or authorizations or to make or effect
such registrations, declarations, designations,
qualifications or filings (1) is not reasonably likely to
prevent or materially delay consummation of the
transactions contemplated by this Agreement (2) could
reasonably be expected to adversely affect the Business or
(3) could give rise to damages, penalties or claims of
third parties.
<PAGE>
(c) Organizational Status.
---------------------
(i) Each Seller: (1) is a corporation duly organized, validly
existing and in good standing under the laws of Delaware,
(2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business
and properties require such qualification, and (3)
possesses all requisite authority and power to conduct its
business and execute, deliver and comply with the terms
and provisions of this Agreement and to perform all of its
obligations hereunder. There are no pending or threatened
Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of any Seller.
(ii) Exploration LLC (1) is a limited liability company duly
organized, validly existing and in good standing under the
laws of Delaware, (2) is duly qualified to transact
business in each jurisdiction where the nature and extent
of its business and properties require such qualification,
and (3) possesses all requisite authority and power to
conduct its business. There are no pending or threatened
Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of Exploration
LLC.
(iii) Reserves LLC (1) is a limited liability company duly
organized, validly existing and in good standing under the
laws of Delaware, (2) is duly qualified to transact
business in each jurisdiction where the nature and extent
of its business and properties require such qualification,
and (3) possesses all requisite authority and power to
conduct its business. There are no pending or threatened
Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of Reserves
LLC.
(iv) Grande(1) is a limited liability company duly organized,
validly existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business in
each jurisdiction where the nature and extent of its
business and properties require such qualification, and
(3) possesses all requisite authority and power to conduct
its business. There are no pending or threatened Actions
(or basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of Grande.
(v) Southeast (1) is a limited liability company duly
organized, validly existing and in good standing under the
laws of Delaware, (2) is duly qualified to transact
business in each jurisdiction where the nature and extent
of its business and properties require such qualification,
and (3) possesses all requisite authority and power to
conduct its business. There are no pending or threatened
Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of Southeast.
<PAGE>
(vi) The E&P Partnership (1) is a limited partnership duly
organized, validly existing and in good standing under the
laws of Delaware, (2) is duly qualified to transact
business in each jurisdiction where the nature and extent
of its business and properties require such qualification,
and (3) possesses all requisite authority and power to
conduct its business. There are no pending or threatened
Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of the E&P
Partnership.
(vii) The Pipeline Partnership (1) is a limited partnership duly
organized, validly existing and in good standing under the
laws of Delaware, (2) is duly qualified to transact
business in each jurisdiction where the nature and extent
of its business and properties require such qualification,
and (3) possesses all requisite authority and power to
conduct its business. There are no pending or threatened
Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of the Pipeline
Partnership.
(viii) Gathering (1) is a corporation duly organized, validly
existing and in good standing under the laws of Delaware,
(2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business
and properties require such qualification, and (3)
possesses all requisite authority and power to conduct its
business. There are no pending or threatened Actions (or
basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of Gathering.
(ix) Natural Gas (1) is a corporation duly organized, validly
existing and in good standing under the laws of Delaware,
(2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business
and properties require such qualification, and (3)
possesses all requisite authority and power to conduct its
business. There are no pending or threatened Actions (or
basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of Natural Gas.
(x) Starr-Zapata Partnership (1) is a general partnership duly
formed and validly existing under the laws of Texas and
(2) possesses all requisite authority and power to conduct
its business. To Seller's Knowledge, there are no pending
or threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or rehabilitation of
Starr-Zapata Partnership.
(xi) Starr County Gathering System (1) is a general partnership
duly formed and validly existing under the laws of Texas
and (2) possesses all requisite authority and power to
conduct its business. To Seller's Knowledge, there are no
pending or threatened Actions (or basis therefor) for the
<PAGE>
dissolution, liquidation, insolvency, or rehabilitation of
Starr County Gathering System.
(d) Subsidiary and Other Equity Interests.
-------------------------------------
(i) Exploration LLC has no subsidiaries and does not own any
stock or other interest in any other corporation,
partnership, joint venture, or other business entity, with
the exception of the E&P Partnership.
(ii) Reserves LLC has no subsidiaries and does not own any
stock or other interest in any other corporation,
partnership, joint venture, or other business entity, with
the exception of the E&P Partnership.
(iii) Grande has no subsidiaries and does not own any stock or
other interest in any other corporation, partnership,
joint venture, or other business entity, with the
exception of the E&P Partnership.
(iv) Southeast has no subsidiaries and does not own any stock
or other interest in any other corporation, partnership,
joint venture, or other business entity, with the
exception of the E&P Partnership.
(v) The E&P Partnership has no subsidiaries and does not own
any stock or other interest in any other corporation,
partnership, joint venture, or other business entity.
(vi) Natural Gas has no subsidiaries and does not own any stock
or other interest in any other corporation, partnership,
joint venture, or other business entity, with the
exception of the Pipeline Partnership and the Starr
Partnerships.
(vii) Gathering has no subsidiaries and does not own any stock
or other interest in any other corporation, partnership,
joint venture, or other business entity, with the
exception of the Pipeline Partnership.
(viii) The Pipeline Partnership has no subsidiaries and does not
own any stock or other interest in any other corporation,
partnership, joint venture, or other business entity, with
the exception of the Starr Partnerships.
(ix) Starr-Zapata Pipe Line has no subsidiaries and does not
own any stock or other interest in any other corporation,
partnership, joint venture, or other business entity.
(ix) Starr County Gathering System has no subsidiaries and does
not own any stock or other interest in any other
corporation, partnership, joint venture, or other business
entity
(e) Membership Interests and Partnership Interests.
-----------------------------------------------
<PAGE>
(i) Exploration LLC has authorized membership interests, of
which all are issued and outstanding and owned by Tesoro
Gas Resources Company, Inc. The membership interests of
Exploration LLC have been duly authorized by Exploration
LLC, and the membership interests of Exploration LLC owned
by Tesoro Gas Resources Company, Inc. are validly issued
and outstanding, fully paid and nonassessable. There are
no preemptive rights, or authorized or outstanding
subscriptions, options, consents to assignment or rights
of first refusal, convertible securities, warrants, calls,
stock appreciation rights, phantom stock, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller or Exploration
LLC to issue or to transfer (or preventing the transfer
of) any membership interests, capital stock or other
equity interest in Exploration LLC.
(ii) Reserves LLC has authorized membership interests, of which
all are issued and outstanding and owned by Tesoro Gas
Resources Company, Inc. The membership interests of
Reserves LLC have been duly authorized by Reserves, and
the membership interests of Reserves LLC owned by Tesoro
Gas Resources Company, Inc. are validly issued and
outstanding, fully paid and nonassessable. There are no
preemptive rights, subscriptions, options, consents to
assignment or rights of first refusal, convertible
securities, warrants, calls, stock appreciation rights,
phantom stock, profit participation, or other similar
rights, or other agreements or commitments obligating
Seller or Reserves LLC to issue or to transfer (or
preventing the transfer of) any membership interests,
capital stock or other equity interest in Reserves LLC.
(iii) Grande has authorized membership interests, of which all
are issued and outstanding and owned by Tesoro Gas
Resources Company, Inc. The membership interests of Grande
have been duly authorized by Grande, and the membership
interests of Grande owned by Tesoro Gas Resources Company,
Inc. are validly issued and outstanding, fully paid and
nonassessable. There are no preemptive rights,
subscriptions, options, consents to assignment or rights
of first refusal, convertible securities, warrants, calls,
stock appreciation rights, phantom stock, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller or Grande to
issue or to transfer (or preventing the transfer of) any
membership interests, capital stock or other equity
interest in Grande.
(iv) Southeast has authorized membership interests, of which
all are issued and outstanding and owned by Tesoro Gas
Resources Company, Inc. The membership interests of
Southeast have been duly authorized by Southeast, and the
membership interests of
<PAGE>
Southeast owned by Tesoro Gas Resources Company, Inc. are
validly issued and outstanding, fully paid and
nonassessable. There are no preemptive rights,
subscriptions, options, consents to assignment or rights
of first refusal, convertible securities, warrants, calls,
stock appreciation rights, phantom stock, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller or Southeast
to issue or to transfer (or preventing the transfer of)
any membership interests, capital stock or other equity
interest in Southeast.
(v) In the E&P Partnership, the entire Series A limited
partnership interest is held by Reserves LLC, the entire
Series B limited partnership interest is held by Grande,
the entire Series C limited partnership interest is held
by Southeast, and the general partnership interest is held
by Exploration LLC. Such interests are duly authorized
under the agreement governing the E&P Partnership, as
currently amended, and are valid. There are no preemptive
rights, or authorized or outstanding subscriptions,
options, consents to assignment or rights of first
refusal, convertible securities, warrants, calls,
appreciation rights, phantom interests, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller, the
Partnership, Reserves LLC, Grande, LLC, Southeast, LLC or
Exploration to issue or to transfer (or preventing the
transfer of) any equity interest in the E&P Partnership.
(vi) Seller has delivered to Buyer correct and complete copies
of each Subsidiary's, each Partnership's and each Starr
Partnership's respective Charter, Bylaws, organizational
documents, management agreement, limited liability company
agreement, operating agreement or partnership agreement,
as amended to date, and the minute books of each
Subsidiary and Partnership. No Subsidiary, Partnership or
Starr Partnership is in breach of any provision of its
Charter, Bylaws organizational documents, management
agreement, limited liability company agreement, operating
agreement or partnership agreement.
(vii) Natural Gas has authorized capital stock consisting of
1,000 shares of $1.00 par value common stock, of which
1,000 shares are issued and outstanding, with all of such
shares owned by Tesoro Petroleum Corporation. The common
stock has been duly authorized by Natural Gas and the
shares owned by Tesoro Petroleum Corporation are validly
issued and outstanding, fully paid and nonassessable.
There are no preemptive rights, or authorized or
outstanding subscriptions, options, consents to assignment
or rights of first refusal, convertible securities,
warrants, calls, stock appreciation rights, phantom stock,
profit
<PAGE>
participation, or other similar rights, or other
agreements or commitments obligating Seller or Natural Gas
to issue or to transfer (or preventing the transfer of)
any common stock or other equity interest in Natural Gas.
(viii) Gathering has authorized capital stock consisting of 1,000
shares of $1.00 par value common stock, of which 1,000
shares are issued and outstanding, with all of such shares
owned by Tesoro Gas Resources Company, Inc. The common
stock has been duly authorized by Gathering, and the
shares owned by Tesoro Gas Resources Company, Inc. are
validly issued and outstanding, fully paid and
nonassessable. There are no preemptive rights,
subscriptions, options, consents to assignment or rights
of first refusal, convertible securities, warrants, calls,
stock appreciation rights, phantom stock, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller or Gathering
to issue or to transfer (or preventing the transfer of)
any common stock or other equity interest in Gathering.
(ix) In the Pipeline Partnership, a 99% limited partnership
interest is held by Gathering, and a 1% general
partnership interest is held by Natural Gas. Such
interests are duly authorized under the agreement forming
the Pipeline Partnership and are valid. There are no
preemptive rights, or authorized or outstanding
subscriptions, options, consents to assignment or rights
of first refusal, convertible securities, warrants, calls,
appreciation rights, phantom interests, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller, the Pipeline
Partnership, Natural Gas or Gathering to issue or to
transfer (or preventing the transfer of) any equity
interest in the Pipeline Partnership.
(x) In Starr County Gathering, a 69% general partnership
interest is held by Pipeline, a 1% general partnership
interest is held by Natural Gas, and a 30% general
partnership interest is held by Coastal. Such interests
have been duly authorized under the agreement forming
Starr County Gathering, and are valid. Except as set forth
in the Starr County Joint Venture Agreement, there are no
preemptive rights, or authorized or outstanding
subscriptions, options, consents to assignment or rights
of first refusal, convertible securities, warrants, calls,
appreciation rights, phantom interests, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller, the Pipeline
Partnership, Natural Gas, Starr County Gathering, or, to
Seller's Knowledge, Coastal, to issue or to transfer (or
preventing the transfer of) any equity interest in Starr
County Gathering.
<PAGE>
(xi) In the Starr-Zapata Partnership, a 49% general partnership
interest is held by Pipeline, a 1% general partnership
interest is held by Natural Gas, and a 50% general
partnership interest is held by Coastal. Such interests
have been duly authorized under the agreement forming the
Starr-Zapata Partnership, and are valid. Except as set
forth in the Starr-Zapata Partnership Agreement, there are
no preemptive rights, or authorized or outstanding
subscriptions, options, consents to assignment or rights
of first refusal, convertible securities, warrants, calls,
appreciation rights, phantom interests, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller, the Pipeline
Partnership, Natural Gas, Starr County Gathering, or, to
Seller's Knowledge, Coastal to issue or to transfer (or
preventing the transfer of) any equity interest in Starr
County Gathering.
(f) Title to Stock, Partnership Interests and Assets.
------------------------------------------------
(i) All of the issued and outstanding membership interests of
Exploration LLC, Reserves LLC, Grande and Southeast, which
consist only of the Membership Interests, are owned of
record and beneficially with good and valid title by
Tesoro Gas Resources Company, Inc., free and clear of any
Encumbrance. Upon delivery to E&P Buyer of the
certificates for the Membership Interests in the manner
and with the powers described in Section 12.2(b), assuming
that E&P Buyer pays the consideration contemplated by this
Agreement and has no notice of any adverse claim, good and
valid title to the Membership Interests will have been
transferred to E&P Buyer, free and clear of any
Encumbrances. Neither Tesoro Petroleum Corporation nor
Tesoro Gas Resources Company, Inc. has received any notice
of any adverse claim to their interests in and to the
title to the Membership Interests.
(ii) All of the issued and outstanding partnership interests in
the E&P Partnership are owned of record and beneficially
with good and valid title by Reserves LLC, Grande,
Southeast and Exploration LLC as described in Section
4.3(e)(v), free and clear of any Encumbrance. Neither
Reserves LLC, Grande, Southeast nor Exploration LLC has
received any notice of any adverse claim to their
respective interests in the Partnership.
(iii) Each Subsidiary and Partnership has good title to all of
the assets and properties (except the Operating Assets)
which it owns or purports to own, including the Financial
Assets and Liabilities reflected on the Balance Sheets,
except for properties sold, consumed or otherwise disposed
of in the ordinary course of business since the date of
the Balance Sheets, free and clear of any Encumbrances
other than Permitted Encumbrances.
<PAGE>
(iv) All of the issued and outstanding shares of capital stock
of Natural Gas and Gathering, which consist only of the
Common Stock, are owned of record and beneficially by
Tesoro Petroleum Corporation and Tesoro Gas Resources
Company, Inc., respectively, free and clear of any
Encumbrance. Upon delivery to Pipeline Buyer in the manner
and with the powers described in Section 12.2(a) of the
certificates for the Common Stock of Natural Gas and
Gathering, assuming that Pipeline Buyer pays the
consideration contemplated by the Agreement and has no
notice of any adverse claim, good and valid title to the
Common Stock represented by such certificate will have
been transferred to Buyer, free and clear of any
Encumbrances. Neither Tesoro Petroleum Corporation nor
Tesoro Gas Resources Company, Inc. has received any notice
of any adverse claim to their respective title to the
Common Stock.
(v) All of the issued and outstanding partnership interests in
the Pipeline Partnership are owned of record and
beneficially with good and valid title by Natural Gas and
Gathering, free and clear of any Encumbrance. Neither
Natural Gas nor Gathering has received any notice of any
adverse claim to their respective interests in the
Pipeline Partnership.
(vi) All of the issued and outstanding partnership interests in
the Starr Partnerships are owned of record and
beneficially with good and valid title by Pipeline,
Natural Gas and Coastal, and with respect to Pipeline and
Natural Gas, free and clear of any Encumbrance. Neither
Natural Gas nor Pipeline has received any notice of any
adverse claim to their respective interests in the Starr
Partnerships.
(g) Litigation. Except as set forth in Schedule 4.1(g), no Seller,
----------
Subsidiary, Partnership or Starr Partnership has been served with and, to
Seller's Knowledge, there are no pending or threatened Actions before any
Governmental Authority against or affecting any Seller, Subsidiary,
Partnership or Starr Partnership or any of the Operating Assets, which, if
adversely determined, either would be reasonably expected to expose any
Subsidiary, Partnership or Starr Partnership to a risk of loss of greater
than $100,000 after the Effective Time or would interfere with Seller's
ability or right to execute and deliver this Agreement or consummate the
transactions contemplated by this Agreement.
(h) Labor Matters. Except as set forth on Schedule 4.1(h), there are
-------------
no contracts, agreements, or other arrangements whereby the Subsidiaries or
the Partnership are obligated to compensate or provide health and welfare
benefit plans or retirement benefits to any employees or other persons,
except for employment agreements that are terminable at will, without
breach or penalty. To Sellers' Knowledge, each Seller, Subsidiary,
Partnership and Starr Partnership is in compliance with all federal, state,
and local laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours and is not engaged in any
unfair labor practice with regard to those persons employed in connection
with a Subsidiary's, Partnership's or Starr Partnership's operations. No
employee of any Subsidiary, Partnership or Starr
<PAGE>
Partnership is covered under any collective bargaining agreement. There is
no unfair labor practice complaint against any Subsidiary, Partnership or
Starr Partnership pending or, to Seller's Knowledge, threatened before the
National Labor Relations Board or any comparable state or local
Governmental Authority. There is no labor strike, slowdown or work stoppage
pending or, to Seller's Knowledge, threatened against or directly affecting
a Subsidiary, Partnership or Starr Partnership and no grievance or any
Action arising out of or under collective bargaining agreements is pending
or, to Seller's Knowledge, threatened against any Subsidiary, Partnership
or Starr Partnership.
(i) Taxes.
-----
(i) Except as set forth in Schedule 4.1(i), each Seller,
Subsidiary and Partnership has timely filed or caused to
be timely filed (or will timely file or cause to be timely
filed) with the appropriate Taxing Authorities all Tax
Returns required to be filed on or prior to the Closing
Date by or with respect to such Subsidiary or Partnership
(or their respective Operating Assets) and has timely paid
or adequately provided for (or will timely pay or
adequately provide for) all Taxes shown thereon as owing,
except where the failure to file such Tax Returns or pay
any such Taxes would not, or could not reasonably be
expected to, in the aggregate, result in losses or costs
or expenses to the Subsidiaries, the Partnership and the
Starr Partnerships in excess of $100,000 after the Closing
Date.
(ii) Sellers and the Subsidiaries are members of an affiliated
group of corporations which file consolidated federal
income tax returns ("Tesoro Group") with Tesoro Petroleum
Corporation as the common parent ("Tesoro Parent"). The
Tesoro Group has been subject to normal and routine
audits, examinations and adjustments of Taxes from time to
time, but there are no current audits or audits for which
written notification has been received (in either case,
with respect to or which include the Subsidiaries), other
than those set forth in Schedule 4.1(i). There are no
written agreements with any Taxing Authority with respect
to or including the Subsidiaries which will in any way
affect the Subsidiaries' liability for Taxes after the
Closing Date.
(iii) Except as set forth in Schedule 4.1(i), no assessment,
deficiency or adjustment for any Taxes has been asserted
in writing or, to the knowledge of Sellers, is proposed
with respect to any Tax Return of, or which includes, the
Subsidiaries.
(iv) Except as set forth in Schedule 4.1(i), there is not in
force any extension of time with respect to the due date
for the filing of any Tax Return of or with respect to or
which includes the Subsidiaries or any waiver or agreement
for any extension of time for the assessment or payment of
any Tax of or with respect to or which includes the
Subsidiaries.
<PAGE>
(v) Except for Taxes due with respect to Tax Returns that will
be paid by Tesoro Parent (and not subject to reimbursement
by the Subsidiaries), the accounting records of the
Subsidiaries will include immediately prior to the Closing
Date adequate provisions for the payment of all Taxes of
the Subsidiaries for all taxable periods or portions
thereof through the Closing Date.
(vi) All Tax allocation or sharing agreements or arrangements
have been or will be canceled on or prior to the Closing
Date. No payments are or will become due by the
Subsidiaries after the Closing Date pursuant to any such
agreement or arrangement.
(vii) Except as set forth on Schedule 4.1(i), none of the
Sellers or the Subsidiaries will, as a result of the
transactions contemplated by this Agreement, be obligated
to make a payment after the Closing Date to an individual
that would be a "parachute payment" as defined in Section
280G of the Code without regard to whether such payment is
reasonable compensation for personal services performed or
to be performed in the future.
(viii) The Subsidiaries have not participated in or cooperated
with an international boycott within the meaning of
Section 999 of the Code.
(ix) No Subsidiary has filed a consent under Code Section
341(f) concerning collapsible corporations.
(x) No Subsidiary or Partnership has been a United States real
property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified
in Code Section 897(c)(1)(A)(ii).
(xi) All monies required to be withheld by either Seller, any
Subsidiary or any Partnership and paid to Taxing
Authorities for all Taxes have been (i) collected or
withheld and either paid to the respective Taxing
Authorities or set aside in accounts for such purpose or
(ii) properly reflected in the Balance Sheets.
(j) Balance Sheets.
--------------
(i) The Balance Sheets have been prepared in accordance with
GAAP applied on a basis consistent with prior periods,
except as described in the notes thereto, which will
reflect that the Partnership and the Subsidiaries have
been accounted for as part of a consolidated financial
group with their affiliates and not as completely separate
stand-alone entities.
(ii) The Balance Sheets present fairly, in all material
respects, the financial condition of the combined
Partnership and the Subsidiaries as of June 30, 1999. The
books and records of the
<PAGE>
Subsidiaries and the Partnership from which the Balance
Sheets were prepared were complete and accurate in all
material respects at the time of such preparation.
(iii) Each Subsidiary and Partnership has no Liabilities, except
for Liabilities (1) reflected in the Balance Sheets, (2)
incurred by the Subsidiaries or the Partnership in the
ordinary course of business and consistent with past
practices since the date of the Balance Sheets, or (3)
which are Permitted Encumbrances, (4) for which the Buyer
is being indemnified hereunder, or (5) which individually
amount to a loss or liability of not greater than $100,000
or in the aggregate amount to a loss or liability of not
greater than $250,000. As used in this subparagraph, the
term "Liabilities" excludes any Liabilities not required
to be reflected in the Balance Sheets under GAAP.
(k) Absence of Certain Changes. Except as set forth in Schedule
--------------------------
4.1(k), or as otherwise contemplated by this Agreement (including without
limitation Sections 2.5, 2.6, 9.4(b) and 10.6), since the close of business
on June 30, 1999:
(i) no Subsidiary, Partnership or Starr Partnership has sold,
leased, transferred, or assigned any assets other than
surplus equipment not necessary for operations of the
Business having a value less than $25,000 and for a
reasonable consideration;
(ii) no Subsidiary, Partnership or Starr Partnership has
incurred, assumed or become subject to any additional
indebtedness for money borrowed or purchase money
indebtedness, including capitalized leases;
(iii) no Subsidiary, Partnership or Starr Partnership has
entered into any transaction not in the ordinary course of
business, except as contemplated by this Agreement;
(iv) there have been no additional Encumbrances placed on the
assets of any Subsidiary, Partnership or Starr Partnership
other than Permitted Encumbrances;
(v) no event has occurred which constitutes a Material Adverse
Effect;
(vi) no Subsidiary, Partnership or Starr Partnership has made
any loan to, or entered into any contract with (other than
severance agreements for which Seller shall remain
responsible), any of its directors or officers;
(vii) no Subsidiary has issued, sold, or otherwise disposed of
any of its interests in any Partnership, and no Subsidiary
or Partnership has issued, sold or otherwise disposed of
any of its interests in any Starr Partnership;
<PAGE>
(viii) there has been no change made or authorized to the
Charter, Bylaws or Partnership Agreement of any
Subsidiary, Partnership or Starr Partnership;
(ix) no Subsidiary, Partnership or Starr Partnership has
canceled, compromised, waived, or released any debt or
Action (or series of related debts or Actions) involving
more than fifty thousand dollars ($50,000);
(x) no Subsidiary, Partnership or Starr Partnership has
delayed or postponed the payment of accounts payable or
other Liabilities owed either involving more than $50,000
(individually or in the aggregate), other than amounts
which Seller reasonably and in good faith disputes;
(xi) no Subsidiary, Partnership or Starr Partnership has made
any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans,
and acquisitions) involving more than $50,000;
(xii) no Subsidiary, Partnership or Starr Partnership has made
any capital expenditure (or series of related capital
expenditures) involving more than $50,000, except in
connection with operations conducted pursuant to Section
9.2(f);
(xiii) no Subsidiary, Partnership or Starr Partnership has
entered into any Contract (or series of related
Contracts) involving more than $50,000 other than (i) to
effectuate operations set forth on Schedule 9.2(f) or
(ii) constituting joint operating agreements or oil and
gas leases entered into in the ordinary course of
business or (iii) contracts with officers and directors
for which the Seller shall remain responsible;
(xiv) to Seller's Knowledge, no Subsidiary, Partnership or
Starr Partnership has materially breached any Contract by
which it is bound or to which any of its assets is
subject; and
(xv) no Subsidiary or Partnership has declared, set aside, or
paid any dividend or made any distribution with respect
to its interests in any Partnership or Starr Partnership
(whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its interests in any
Partnership or Starr Partnership, other than in the
ordinary course of business or as contemplated by this
Agreement.
(l) Compliance With Law. Since June 30, 1999, no Subsidiary,
-------------------
Partnership or Starr Partnership has violated any law, statute or
regulation which have subjected them to fines or penalties (nor to Seller's
Knowledge have any third parties violated any Applicable Law for which any
Subsidiary, Partnership or Starr Partnership may have any responsibility)
that individually or in the aggregate exceed $100,000. As of the date of
this Agreement, to Seller's Knowledge, each Subsidiary, Partnership and
Starr
<PAGE>
Partnership is in compliance in all material respects with all laws,
statutes or regulations applicable to such Subsidiary, Partnership and
Starr Partnership, except where the noncompliance with which would not, in
the aggregate, result in the imposition on the Subsidiaries, the
Partnership and the Starr Partnerships of fines or penalties that
individually or in the aggregate could reasonably be expected to exceed
$100,000.
(m) Operating Assets.
----------------
(i) Seller represents that as of Closing, each Seller's,
Partnership's and Starr Partnership's interest in the
Operating Assets shall be free and clear of any liens other
than Permitted Encumbrances.
(ii) To Seller's Knowledge, the Operating Assets are being
operated in compliance in all material respects with all
applicable federal, state or local laws, and the rules and
regulations of any agency or authority having jurisdiction.
(iii) Except as set forth in Schedule 4.1(m)(iii), each
Subsidiary, Partnership and Starr Partnership possess all
permits, licenses, orders, approvals and authorizations
required by any applicable law, statute, regulation or
Governmental Order, or by the property and contract rights
of third Persons, reasonably necessary to permit the
operation of the Business in the manner currently conducted
by the Subsidiaries, the Partnership and the Starr
Partnerships, except where the failure to possess such
permit, license, order, approval, authorization or rights
would not result in losses, costs or expenses to the
Subsidiaries, the Partnership and the Starr Partnerships,
in the aggregate, in excess of $100,000. No Subsidiary,
Partnership or Starr Partnership has received written
notice from any Governmental Authority that any such
permit, license, order, approval or authorization has been,
or will be, revoked or terminated.
(iv) Except as set forth in Schedule 4.1(m)(iv), immediately
before the Closing Date, the Subsidiaries, the Partnership
and the Starr Partnerships will hold or have the right to
use in the Business all of the assets and properties
(including all licenses and agreements) currently being
used (except those disposed of or expiring in the ordinary
course of business or otherwise as contemplated or
permitted by this Agreement) or which are reasonably
necessary to permit the operation of the Business in the
manner currently conducted by the Subsidiaries, the
Partnership and the Starr Partnerships. Since June 30,
1999, the Subsidiaries, the Partnership and the Starr
Partnerships have conducted no business other than the
Business.
(n) No Brokers' Fees. Except for Credit Suisse First Boston, the fees
----------------
and expenses of which will be paid by Seller, neither Seller nor any of its
directors, officers or employees has employed any broker, finder or
investment banker or incurred any
<PAGE>
Liability for any brokerage fees, commissions, finders' fees or similar
fees in connection with the transactions contemplated by this Agreement.
Buyer shall have no responsibility whatsoever, contingent or otherwise, for
any brokers' or finders' fees incurred by any Seller, Subsidiary or
Partnership relating to the Transaction.
(o) Suspense Funds. Schedule 4.1(o) is a true and correct list as of
--------------
August 31, 1999 of all amounts held by the E&P Partnership and/or the
Subsidiaries in suspense accounts, or otherwise, related to the Properties
for the benefit or account of any other Person.
(p) Insurance. As listed on Schedule 4.1(p) Seller, the Subsidiaries,
---------
the Partnership and the Starr Partnerships maintain insurance on and bonds
with respect to the Operating Assets, as set forth on Schedule 4.1(p),
covering such risks and with such deductible amounts as are consistent with
general oil and gas industry practice.
(q) Contracts on Production. Except as set forth on Schedule 4.1(q),
-----------------------
there are no Contracts involving the purchase, marketing, brokering or sale
of Production that require a dedication of Production for a term in excess
of three (3) months that will not be terminable without penalty or other
liability at the sole discretion of the Subsidiaries or the Partnership
upon not more than one (1) month's notice, except for commitments under
operating agreements.
(r) Equipment. Since June 30, 1999, neither Seller, the Subsidiaries,
---------
any Partnership nor the Starr Partnerships, nor to Seller's Knowledge the
operator of any of the Operating Assets, has removed any of the equipment,
facilities or other property from the Operating Assets except in the
ordinary course of business.
(s) Tax Partnerships. Except as disclosed in Schedule 4.1(s), no
----------------
Property is subject to, or considered to be held by, any partnership for
federal income tax purposes, other than tax partnerships under joint
operating agreements.
(t) Disclaimer. Except as otherwise expressly set forth in this
----------
Article and elsewhere in this Agreement, Seller and the Affiliates of
Seller expressly disclaim any representations or warranties of any kind or
nature, express or implied, as to the condition, value or quality of the
assets or properties currently or formerly used, operated, owned, leased,
controlled, possessed, occupied or maintained by the Subsidiaries or the
Partnership, and SELLERS AND ALL OTHER TESORO AFFILIATES SPECIFICALLY
DISCLAIM ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE,
SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO SUCH
ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP
THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT,
IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING ACQUIRED "AS
IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, WITH ALL
FAULTS, AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND INVESTIGATION
THEREOF.
<PAGE>
(u) Environmental Matters. Except as set forth on Schedule 4.1(u), to
---------------------
Seller's Knowledge:
(i) There are no underground storage tanks, as defined in
Applicable Environmental Law, on the Properties or any of
the Operating Assets which constitute a violation of
Environmental Law.
(ii) The Operating Assets contain no friable asbestos, mercury
or polychlorinated biphenyls above 50 ppm or other
Hazardous Substances which constitute a violation of
Applicable Environmental Law.
(iii) The Operating Assets have been used solely for oil and gas
operations and related operations. Except for the
production, storage and transportation of oil, gas and
other hydrocarbons and the storage and disposal of brine in
the ordinary course of business consistent with prevailing
oil and gas industry practices, the Operating Assets have
not been used to dispose of Hazardous Substances. No
Hazardous Substances have been disposed of that would cause
an adverse material impact to any of the Operating Assets.
(iv) There have been no spills or releases of any Hazardous
Substance related to the ownership or operation of the
Operating Assets which constitutes a violation of
Applicable Environmental Law, except for matters that have
been addressed and have no continuing adverse consequence
to any Seller, Subsidiary, Partnership or Starr Partnership
or any of the Operating Assets.
(v) There are no Actions pending or threatened against any
Partnership, Subsidiary, Starr Partnership or either Seller
with respect to any of the Operating Assets relating to the
violation of, liability under, or noncompliance with, any
Applicable Environmental Law; the discharge, disposal or
release of a Hazardous Substance; or the exposure of a
Person or property to a Hazardous Substance. No Seller,
Subsidiary, Partnership or Starr Partnership has any
current contingent liability in connection with the release
of Hazardous Substances.
(vi) The Operating Assets have been, and are operating, in
material compliance under all Applicable Environmental
Laws.
(vii) Each Seller, Subsidiary, Partnership and Starr Partnership
has provided (or within five Business Days from the date
hereof will provide) Buyer all environmental audits, tests,
results of investigations and analyses that have been
performed with respect to the Operating Assets.
(v) Contracts. Except as set forth on Schedule 4.1(v) or Section
---------
4.1(q) and in joint operating agreements entered into in the normal course
of business, the Operating
<PAGE>
Assets are not subject to any instrument, agreement or other Contract
evidencing or related to indebtedness for borrowed money. All of the
existing Contracts between any Subsidiary, Partnership, Starr Partnership
and/or either Seller and any of their respective Affiliates with respect to
sales, services or support to any of the Operating Assets or operations on
the Operating Assets shall terminate except for such Contracts otherwise
indicated on Schedule 4.1(v) to survive Closing. Except as set forth on
Schedule 4.1(v) and other than Consents to Assignment or Preferential
Rights to Purchase, to Seller's Knowledge, no Contracts to which any
Seller, Subsidiary, Partnership or Starr Partnership is a party or a
successor-in-interest and to which Buyer will be subject after the
Effective Time contain any provision that prevents Buyer from owning,
managing and operating the Operating Assets in accordance with the
Partnership's or Starr Partnerships' past practices.
(w) Seismic Information. At Closing, subject to the terms of the
-------------------
License Agreement, neither Seller nor any affiliate of Seller other than
the Subsidiaries and the Partnership shall have any further right to any of
the seismic data of the Subsidiaries or the Partnership which has been
assigned or leased to the Subsidiaries, the Partnership and/or the Buyer.
(x) Wells. Except to the extent set forth on Schedule 4.1(x), to
-----
Seller's Knowledge, no well included in the Properties is subject to
material penalties on allowables because of any overproduction or any other
violation of Applicable Law. Except for the wells included in the
Properties and listed in Schedule 4.1(x), there are no wells included in
the Properties that Seller, the Subsidiaries or the E&P Partnership, or to
Seller's Knowledge the operator of such wells, are currently obligated by
Applicable Law, Applicable Environmental Law or order of any Governmental
Authority to plug and abandon within a time certain or that have been shut-
in or temporarily abandoned.
(y) Expenditure Obligations. Except as set forth on Schedule 9.2(f),
-----------------------
the Subsidiaries and the Partnership have not executed or are not otherwise
contractually bound by any authority for expenditure with respect to any of
the Operating Assets under any operating agreement, unit operating
agreement, or other similar agreements that will obligate any of the
Subsidiaries, the Partnership or Buyer to pay, after the Effective Time,
more than $50,000 for a single project, operation or expenditure. Except as
set forth on Schedule 9.2(f), with respect to authorizations for
expenditure relating to any of the Operating Assets, which obligate any
Subsidiary, Partnership or Buyer to pay more than $50,000, (i) there are no
outstanding calls under such authorizations for expenditures for payments
which are due or which the Subsidiaries or the Partnership have committed
to make which have not been made; (ii) there are no material operations
with respect to which any of the Subsidiaries and/or the Partnership has
become a non-consenting party where the effect of such non-consent is not
disclosed on Exhibit B, and (iii) there are no commitments for the
expenditures of funds for drilling or other capital projects other than
projects with respect to which the operator is not required under the
applicable operating agreement to seek consent.
(z) Payout. To Seller's Knowledge, the payout balances with respect
------
to any of the Properties operated by the Partnership that are subject to
future change on account of
<PAGE>
reversionary interests, non-consent penalties or similar agreements or
arrangements are set forth on Schedule 4.1(z) and are correct as of the
dates shown on such statements.
(aa) Absence of Certain Changes Regarding Properties. Since June 30,
-----------------------------------------------
1999, except as listed on Schedule 4.1(k), each Subsidiary, Partnership and
Starr Partnership:
(i) has maintained and operated each of the Operating Assets
operated by it as a reasonably prudent operator consistent
with prevailing oil and gas industry practice;
(ii) has used reasonable efforts consistent with its past
practices to cause each of the Operating Assets not
operated by them to be maintained and operated in a good
and workmanlike manner and in substantially the same manner
as theretofore operated;
(iii) has paid timely their share of all costs and expenses
attributable to the Operating Assets, except for such costs
and expenses that they were contesting in good faith by
appropriate action;
(iv) has performed all accounting, royalty disbursement and
reporting requirements, as applicable, related thereto for
the Production; and
(v) has not agreed, whether in writing or otherwise, to take
any action described in this Section 4.3(aa).
(bb) Schedule 1B states all liens and mortgages that prior to the Closing
encumbered the Membership Interests, the Common Stock or the Operating Assets,
securing obligations of any Seller, Subsidiary or Partnership (other than those
items listed in clause (ii) through (ix) of the definition of "Permitted
Encumbrances"), and all of the liens and mortgages listed on Schedule 1B have
been released, insofar as they encumber the Membership Interests, the Common
Stock or the Operating Assets.
5. Changes to Article V, Access to Information and Inspection.
----------------------------------------------------------
There are no amendments to Article V of the Agreement.
6. Changes to Article VI, Title
----------------------------
There are no amendments to Article VI of the Agreement.
7. Changes to Article VII, Environmental
-------------------------------------
There are no amendments to Article VII of the Agreement.
8. Changes to Article VIII, Casualty Loss and Condemnation
-------------------------------------------------------
There are no amendments to Article VIII of the Agreement.
<PAGE>
9. Changes to Article IX, Covenants
--------------------------------
a. Paragraph (f)(ii)(3) of Section 9.2 of the Agreement is hereby amended
and restated in its entirety to read as follows:
(3) If (A) Buyer advances any funds pursuant to subparagraph (2), and (B)
the Membership Interests are not assigned to E&P Buyer and the Common Stock is
not assigned to Pipeline Buyer at Closing, and (C) Seller does not reimburse
Buyer for all advances made by Buyer with respect to such Operating Assets
pursuant to subparagraph (2) within thirty (30) days after this Agreement
terminates, then Buyer shall own and be entitled to any right of any Partnership
that would have lapsed but for such payment, and in the case of operations,
Seller shall be entitled to receive the penalty which such Partnership, as non-
consenting party, would have suffered under the applicable operating agreement
with respect to such operations as if Buyer were a consenting party thereunder.
b. Section 9.4 is hereby amended and restated in its entirety to read as
follows:
9.4 Covenants Regarding Corporate and Financial Matters.
---------------------------------------------------
(a) Through the Closing Date, except as set forth in
Section 9.4(b) or in Schedule 9.4 or as contemplated by this Agreement
(including without limitation Sections 2.5 and 2.6) or otherwise
consented to or approved by Buyer in writing, which consent or
approval shall not be unreasonably withheld, Seller shall cause each
Subsidiary, Partnership and Starr Partnership not to:
(i) Amend the Charter, Bylaws, management agreements, limited
liability company agreements, operating agreements or other
organizational or management documents of any the Subsidiaries or
amend the partnership agreements of the Partnership or the Starr
Partnerships;
(ii) Incur, assume or become subject to any additional
indebtedness for money borrowed or purchase money indebtedness,
except in the ordinary course of business and consistent with
past practices;
(iii) Except as necessary to effect the transactions
contemplated herein, declare or pay any dividend or make any
other distribution to any shareholder of any of the Subsidiaries
or any partner of any Partnership or Starr Partnership;
(iv) Redeem or otherwise acquire any shares of capital stock of
any of the Subsidiaries or issue any capital stock, membership
interests or other equity interests in any the Subsidiaries or
any option, warrant or right relating thereto or any securities
exchangeable for or convertible into any such shares;
<PAGE>
(v) Permit or allow any Subsidiary's, Partnership's or Starr
Partnership's assets or properties to be subject to any
additional Encumbrance (other than Permitted Encumbrances) or
sell, transfer, lease or otherwise dispose of any such assets or
properties, other than surplus equipment not necessary for
operations of the Business and sold for a reasonable
consideration of less than $25,000;
(vi) Make any change in any method of accounting or accounting
practice or policy, other than those required by GAAP;
(vii) Engage in any transactions with an Affiliate of Seller,
other than transactions in the ordinary course and consistent
with past practices;
(viii) Make any changes in the method of selling natural gas,
condensate, oil or products thereof which is not consistent with
past practices;
(ix) Enter into any new derivative or Hedging Contracts with
respect to natural gas, condensate, oil, products thereof,
interest or any other commodities or other financial
instruments; or
(x) Agree, whether in writing or otherwise, to do any of the
foregoing.
(b) Prior to the Closing Date, Seller covenants to take the
following actions to reorganize the E&P Partnership and ownership of the
E&P Partnership:
(i) Contribute the limited partnership interest in the Pipeline
Partnership owned by Tesoro Gas Resources Company, Inc. to Gathering.
(ii) Form Grande and Southeast as Delaware limited liability
companies, with all Membership Interests in each being wholly owned by
Tesoro Gas Resources Company, Inc.
(iii) Contribute all of the capital stock of Exploration to Tesoro Gas
Resources Company, Inc.
(iv) Convert Exploration and Reserves into Delaware limited liability
companies, each of whose sole member is Tesoro Gas Resources Company,
Inc.
(v) Amend the limited partnership agreement of the E&P Partnership
to provide for establishment of series limited partnership interests,
and approve resolutions of the partners in the E&P Partnership
resulting in allocation of profits and losses and distributions from
specific partnership property to specific series of limited partners,
all initially to be held by Reserves LLC, as follows:
(1) Series A Properties listed on Schedule I
("E&P Property Package")
(2) Series B Properties listed on Schedule II
("Grande Property Package")
<PAGE>
(3) Series C Properties listed on Schedule III
("Southeast Property Package")(vi) Dividend the Series B and
Series C limited partnership interests in the E&P Partnership from
Reserves LLC to Tesoro Gas Resources Company, Inc.
(vii) Contribute the Series B limited partnership interest in the E&P
Partnership from Tesoro Gas Resources Company, Inc. to Grande and the
Series C limited partnership interest in the E&P Partnership from
Tesoro Gas Resources Company, Inc. to Southeast.
c. Section 9.5 of the Agreement is hereby amended and restated in its
entirety to read as follows:
9.5 No Solicitation of Transactions. Except as otherwise permitted
-------------------------------
herein, from the date of this Agreement through the Closing Date, neither
Seller nor any of their representatives, Affiliates, directors, officers,
employees, subsidiaries or agents will (a) solicit, consider, encourage or
accept any other offers to acquire any of the Membership Interests or the
Common Stock or a Subsidiary's interest or a Partnership's interest in a
Partnership or a Starr Partnership or (b) solicit, consider, encourage or
accept any other offers to acquire any of the assets or properties of any
Partnership (other than as permitted by this Agreement) or (c) assist any
third Person in preparing or soliciting such an offer. Seller shall not
have, and shall cause such representatives, Affiliates, directors,
officers, employees, subsidiaries and agents not to have any discussions,
conversations, negotiations or other communication with any Person(s)
expressing an interest in any such offer.
d. Paragraph (a) of Section 9.10 of the Agreement is hereby amended and
restated in its entirety to read as follows:
(a) Each of Buyer and Seller, as promptly as practicable after the
Agreement Date, shall (i) deliver, or cause to be delivered, all notices
and make, or cause to be made, all such declarations, designations,
registrations, filings and submissions under all statutes, laws,
regulations and Governmental Orders applicable to it as may be required for
it to consummate the sale of the Membership Interests and the Common Stock
and the other transactions contemplated hereby in accordance with the terms
of this Agreement; (ii) use commercially reasonable efforts to obtain, or
cause to be obtained, all authorizations, approvals, orders, consents and
waivers from all Persons necessary to consummate the foregoing; and (iii)
use commercially reasonable efforts to take, or cause to be taken, all
other actions necessary, proper or advisable in order for it to fulfill its
respective obligations hereunder and to carry out the intentions of the
parties expressed herein. The preceding sentence notwithstanding, neither
party shall have any obligation to waive any condition herein for its
benefit or any performance hereunder by any other party.
e. Section 9.12 of the Agreement is hereby amended to add a new
subsection (c) to read as follows and to renumber existing subsection (c)
as subsection (d):
<PAGE>
(c) Seller shall reimburse Buyer for Buyer's reasonable costs and
expenses incurred in connection with evaluating and implementing the
like kind exchange transaction, including without limitation, legal
and accounting fees incurred in connection with evaluating and
implementing the like kind exchange transaction and revising this
Agreement. Seller shall reimburse Buyer in cash for such costs and
expenses within ten (10) days after receiving a notice from Buyer
describing such costs and expenses in reasonable detail, and
requesting payment.
f. Section 9.14 of the Agreement is hereby amended and restated in its
entirety as follows:
9.14 Performance of Covenants with Respect to Starr Partnerships.
-----------------------------------------------------------
Seller shall perform, or shall cause the Subsidiaries or the Partnership to
perform, the covenants set forth in Sections 9.1, 9.2, 9.4, 9.5, 9.6, 9.10,
9.11 and 9.12 with respect to the Starr Partnerships to the extent
permitted by the Starr-County Joint Venture Agreement or the Starr-Zapata
Partnership Agreement.
g. Section 9.15 of the Agreement is hereby amended and restated in its
entirety as follows:
9.15 Covenant and Indemnity with Respect to Cash Flow. Seller
------------------------------------------------
covenants to use its best efforts to insure that after the Closing all
cash, checks, wire transfers and other cash flow attributable to the
Operating Assets received by Seller or any Affiliate of Seller will be
transferred on the same day such cash flow is received by Seller or such
Affiliate of Seller to an account designated by Buyer prior to the Closing
(such that the transfer is recorded by the transferring bank on the same
day such cash flow is received by Seller or an Affiliate of Seller).
Seller agrees to indemnify and hold the Buyer Group harmless for any
Damages asserted against, resulting to, imposed upon or incurred by the
Buyer Group arising from any breach of this covenant.
h. Section 9.16 of the Agreement is hereby deleted.
i. Section 9.17 of the Agreement is hereby deleted.
10. Changes to Article X, Pre-Closing Procedures.
--------------------------------------------
a. Section 10.5 of the Agreement is hereby amended and restated in its
entirety to read as follows:
10.5 Wire Transfer Instructions. At least two (2) Business Days
--------------------------
prior to the Closing Date, Seller shall provide to E&P Buyer and Pipeline
Buyer wire transfer instructions designating a bank account and Federal
Reserve ABA designation ID number, at a bank within the United States of
America where the E&P Closing Settlement Price and the Pipeline Closing
Settlement Price shall be transferred. For sales through Qualified
Intermediaries, such accounts shall be the accounts established by the
Qualified Intermediaries for this transaction.
<PAGE>
b. A new Section 10.6 is hereby added to the Agreement as follows:
10.6 Qualified Intermediaries. Seller may assign to Qualified
------------------------
Intermediaries its rights to proceeds of the sale of the membership
interests of Grande and Southeast as follows:
(a) Seller may assign to the Grande Qualified Intermediary, as a
qualified intermediary under Section 1031 of the Code, all of Seller's
rights in the proceeds of the sale of the membership interests in Grande,
for the portion of the Purchase Price allocated to the Grande Property
Package. Seller is selling and assigning to E&P Buyer all of the membership
interests in Grande, for the portion of the Purchase Price allocated to the
Grande Property Package, pursuant to this Agreement and, subject to Section
21.4, an agreement in the form attached as Exhibit II to this Agreement,
and all proceeds owed Seller for the sale of Grande will be paid to the
Grande Qualified Intermediary.
(b) Seller and Reserves LLC may assign to the Southeast Qualified
Intermediary, as a qualified intermediary under Section 1031 of the Code,
all of Seller's rights in the proceeds of the sale of the membership
interests in Southeast, for the portion of the Purchase Price allocated to
the Southeast Property Package. Seller is selling and assigning to E&P
Buyer all of the membership interests in Southeast, for the portion of the
Purchase Price allocated to the Southeast Property Package, pursuant to
this Agreement and, subject to Section 21.4, an agreement in the form
attached as Exhibit III to this Agreement, and all proceeds owed Seller for
the sale of Southeast will be paid to the Southeast Qualified Intermediary.
11. Changes to Article XI, Closing Conditions
-----------------------------------------
a. Paragraph (a) of Section 11.2 of the Agreement is hereby amended and
restated in its entirety to read as follows:
(a) Representations. Except as provided otherwise in Section 9.13,
---------------
the representations and warranties of Seller contained in Section 4.3
(other than with respect to paragraphs (u), (w), (x), (y), (z) and (aa) of
Section 4.3) shall be true and correct in all material respects on the
Closing Date as though made on and as of that date; provided, however, that
the accuracy of the representations and warranties in subparagraphs (k)(i),
(ix), (x), (xi), (xii) and (xiii) of Section 4.3 shall, for purposes of
satisfying this condition, not be affected to the extent of inaccuracies
resulting solely from Buyer unreasonably withholding its prior written
consent (after written request by Seller duly provided to Buyer) to the
action taken by (or omission of) Seller, the Subsidiaries or the
Partnership which caused such representations and warranties to be
inaccurate.
b. Paragraph (c) of Section 11.2 of the Agreement is hereby amended and
restated in its entirety to read as follows:
<PAGE>
(c) Corporate Certificates and Opinion. The Seller shall have
----------------------------------
delivered to Buyer: (i) a certificate of an executive officer of each
Seller, dated the Closing Date, certifying on behalf of such Seller that
the representations made in Section 4.3, are true and correct as of the
Closing Date; (ii) a certificate of incumbency for each Seller, (iii) a
certificate of good standing for the E&P Partnership and the Pipeline
Partnership as Delaware limited partnerships, and for each Seller and each
of the Subsidiaries as Delaware corporations or as Delaware LLCs, as
applicable; (iv) certified resolutions of the Boards of Directors of each
Seller, authorizing each Seller to enter into this Agreement and the
Transaction and to perform its obligations at Closing; and (v) an opinion
of counsel for the Seller, acceptable to Buyer, dated the Closing Date, as
to such matters as may reasonably be requested by Buyer and its counsel and
are typical for transactions such as the Transaction.
c. The following is added as a new paragraph (k) of Section 11.2 of
the Agreement:
(k) Seller shall have delivered proof, acceptable to Buyer in its
reasonable discretion, of the effectiveness of a post-effective amendment to
Seller's Registration Statement on Form S-3 (Reg. No. 333-51789), as amended,
removing any entities being transferred hereunder (including, without
limitation, Exploration, the E&P Partnership, Natural Gas and the Pipeline
Partnership) as co-registrants under such registration statement.
12. Changes to Article XII, Closing
-------------------------------
a. Section 12.1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
12.1 Closing. The closing of the Transaction (the "Closing") shall
-------
be held on December 17, 1999 (the "Closing Date"), at 9:00 a.m. Houston
time, at the office of Seller's counsel, 1301 McKinney, Suite 5100,
Houston, Texas 77010, or at such other date or place as the parties may
direct; provided, however, that if all conditions to Closing set forth in
Article XI have not been waived or satisfied prior to December 17, 1999,
the Closing Date shall be on the second Business Day following the waiver
or satisfaction of such conditions.
b. Section 12.2 of the Agreement is hereby amended and restated in its
entirety to read as follows:
12.2 Seller's Closing Obligations. At Closing, Seller shall deliver
----------------------------
to Buyer the following:
(a) Stock certificates representing all of the Common Stock, duly
endorsed in blank or with separate duly executed stock powers duly endorsed
in blank;
<PAGE>
(b) The certificates representing membership interests for each of
Reserves LLC, Exploration LLC, Grande and Southeast, respectively, duly
endorsed in blank or with separate duly executed powers duly endorsed in
blank;
(c) The stock books, stock ledgers, minute books, organizational
documents and corporate seal for each of the Subsidiaries who are
corporations;
(d) All organizational documents and books and records of Grande,
Southeast, Reserves LLC and Exploration LLC;
(e) All books and records of the E&P Partnership and the Pipeline
Partnership;
(f) The resignations of the officers, managers and directors of each
of the Subsidiaries, the E&P Partnership and the Pipeline Partnership;
(g) Executed originals of (i) the Purchase Agreement covering the
sale of the membership interests in Reserves LLC, (ii) the Purchase
Agreement covering the sale of the membership interests of Grande, and
(iii) the Purchase Agreement covering the sale of the membership interests
of Southeast (collectively, the "LLC Purchase Agreements"), using the
respective forms attached as Exhibit I, Exhibit II and Exhibit III to this
Agreement;
(h) Instruments assigning Seller's rights under each such Purchase
Agreement of Grande and Southeast to a respective Qualified Intermediary;
(i) A certificate of each Seller signed under penalties of perjury
(i) stating that it is not a foreign corporation, foreign partnership,
foreign trust or foreign estate, (ii) providing its U.S. Employer
Identification Number (if applicable) and (iii) providing its address, all
pursuant to Section 1445 of the Code.
(j) Such other documents or authorizations as Buyer may reasonably
request, or as might be reasonably necessary to assign all of Seller's
interest in the Subsidiaries, each Partnership, the Starr Partnerships and
the Operating Assets to Buyer in accordance with the provisions hereof;
(k) The certificates of Seller referred to in Section 11.2(c) hereof;
(l) The opinion of counsel referred to in Section 11.2(c) hereof; and
(m) Releases, in a form acceptable to Buyer, of all liens and
mortgages listed on Schedule 1B.
c. Section 12.3 is hereby amended to read as follows:
12.3 Buyer's Closing Obligations. At Closing, Buyer shall deliver to
---------------------------
Seller the following:
(a) The E&P Closing Settlement Price and the Pipeline Closing
Settlement Price, paid in immediately available funds, by wire transfer
into the U.S. bank account designated by Seller for the Membership
Interests and the Common Stock; proceeds for
<PAGE>
sale of each of Grande and Southeast shall be paid by wire transfer to the
account designated by the Qualified Intermediary for such sale;
(b) The certificates of Buyer referred to in Section 11.1(c) hereof;
(c) The opinions of counsel referred to in Section 11.1(c) hereof;
and
(d) Executed originals of the LLC Purchase Agreements using the
respective forms attached as Exhibit I, Exhibit II and Exhibit III to the
Agreement;
13. Changes to Article XIII, Adjustment Basket; Proration of Revenues
-----------------------------------------------------------------
and Costs
---------
a. Section 13.2 of the Agreement is hereby amended and restated in its
entirety to read as follows:
(a) Pre-Closing Settlement Statements. The E&P Settlement Statement
---------------------------------
and the Pipeline Settlement Statement are attached hereto as Exhibit IV and
Exhibit V, respectively.
(b) Final Statements.
----------------
(i) As soon as practicable after the Closing Date, but in no
event later than one hundred twenty (120) days thereafter, E&P Buyer shall
prepare and submit to Seller a draft E&P Final Statement, which shall show
the calculation of the adjusted E&P Final Settlement Price, as allocated to
the E&P Property Package, the Grande Property Package and the Southeast
Property Package, based upon the best information then available. Such E&P
Final Statement shall separately break out and allocate the estimated
accounting adjustments and/or prorations of amounts attributable to the E&P
Settlement Price, as allocated to each of the E&P Property Package, the
Grande Property Package and the Southeast Property Package. Seller shall
have the right to audit such E&P Final Statement and all supporting data
and accountings. As soon as practicable after receipt of the E&P Final
Statement, but in any event within thirty (30) days after receipt thereof,
Seller shall deliver to E&P Buyer a written report containing the changes,
if any, which Seller proposes be made to such E&P Final Statement. If no
response is made by Seller within such thirty (30) day period, it shall be
presumed that Seller concurs with such E&P Final Statement, and such E&P
Final Statement shall be the basis for the E&P Final Settlement Price. If
Seller submits a response, the Seller and E&P Buyer shall cooperate in good
faith to produce not later than one hundred eighty (180) days after the
Closing Date as accurate an E&P Final Statement as possible based upon the
information then available. After agreement upon an E&P Final Statement
setting forth the E&P Final Settlement Price, the difference between such
E&P Final Settlement Price and the E&P Closing Settlement Price paid at
Closing shall be paid within five (5) Business Days thereafter by the Party
owing the same.
(ii) As soon as practicable after the Closing Date, but in no
event later than one hundred twenty (120) days thereafter, Pipeline Buyer
shall prepare and submit to Seller a draft Pipeline Final Statement, which
shall show the calculation of the adjusted
<PAGE>
Pipeline Final Settlement Price, based upon the best information then
available. Seller shall have the right to audit such Pipeline Final
Statement and all supporting data and accountings. As soon as practicable
after receipt of the Pipeline Final Statement, but in any event within
thirty (30) days after receipt thereof, Seller shall deliver to Pipeline
Buyer a written report containing the changes, if any, which Seller
proposes be made to such Pipeline Final Statement. If no response is made
by Seller within such thirty (30) day period, it shall be presumed that
Seller concurs with such Pipeline Final Statement, and such Pipeline Final
Statement shall be the basis for the Pipeline Final Settlement Price for
the Common Stock. If Seller submits a response, the Seller and E&P Buyer
shall cooperate in good faith to produce not later than one hundred eighty
(180) days after the Closing Date as accurate a Pipeline Final Statement as
possible based upon the information then available. After agreement upon a
Pipeline Final Statement setting forth the Pipeline Final Settlement Price
for the Common Stock, the difference between such Pipeline Final Settlement
Price and the Pipeline Closing Settlement Price paid at Closing shall be
paid within five (5) Business Days thereafter by the Party owing the same.
b. Section 13.3 of the Agreement is hereby amended to add the following
paragraph (c):
(c) Taxes and tax prorations attributable to each of the E&P Property
Package, the Grande Property Package, the Southeast Property Package and
the Common Stock shall be allocated and accounted for separately, provided
that such allocation shall not affect the total division of tax burdens and
the total tax prorations hereunder.
14. Changes to Article XIV, Post-Closing Procedures
-----------------------------------------------
There are no amendments to Article XIV to the Agreement.
15. Changes to Article XV, Survival, Indemnities
--------------------------------------------
a. Section 15.1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
15.1 Survival. All representations, warranties or covenants made
--------
herein, except for those in Sections 4.1(a), 4.1(e), 4.1(f), 4.1(g),
4.1(i), 4.1(k), 4.1(l), 4.1(m), 4.1(n), 4.1(o), 4.1(q), 4.1(u), 4.1(v),
4.1(w), 4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating
Assets only), 4.2(e), 4.2(i), 4.3(a), 4.3(e), 4.3(f), 4.3(g), 4.3(i),
4.3(k), 4.3(l), 4.3(m), 4.3(n), 4.3(o), 4.3(q), 4.3(u), 4.3(v), 4.3(w),
4.3(x), 4.3(y), 4.3(z), 4.3(aa), 4.3(bb) (with respect to Operating Assets
only), Sections 5.6, 7.1, 7.2, 7.3, 7.4, 8.3, 9.1, 9.2(e), 9.9(d), 9.12(b),
9.12(c), 9.13, 9.14 and 9.15, and Articles XV, XVI, XVII and XXI, shall
survive for two years from the Closing Date. The covenants made in Section
9.13 shall survive until the Parties reach agreement on the E&P Final
Statement and the Pipeline Final Statement pursuant to Section 13.2. The
representations and warranties or covenants made in Sections 4.1(a),
4.1(g), 4.1(k), 4.1(l), 4.1(m), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w),
4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to
<PAGE>
Operating Assets only), 4.3(a), 4.3(g), 4.3(k), 4.3(l), 4.3(m), 4.3(o),
4.3(q), 4.3(u), 4.3(v), 4.3(w), 4.3(x), 4.3(y), 4.3(z), 4.3(aa), 4.3(bb)
and Section 9.1 shall not survive Closing and shall automatically expire
upon Closing. The representations, releases, covenants, indemnities,
defenses and hold harmless obligations and other obligations referenced in
Sections 4.1(e), 4.1(f), 4.1(i), 4.1(n), 4.2(e), 4.2(i), 4.3(e), 4.3(f),
4.3(i), 4.3(n), 5.6, 7.1, 7.2, 7.3, 7.4, 8.3, 9.2(e), 9.9(d), 9.12(b),
9.12(c), 9.14 and 9.15 and this Article XV, and all provisions of Articles
XVI, XVII and XXI, shall each survive Closing, and each shall continue to
remain fully enforceable in accordance with its terms.
b. Section 15.2 of the Agreement is hereby amended and restated in its
entirety as follows:
15.2 Buyer's Indemnity. EXCEPT AS EXPRESSLY AND SPECIFICALLY
-----------------
INDICATED OTHERWISE IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION
SECTIONS 9.9(D) AND 15.3), AFTER THE CLOSING DATE, BUYER SHALL AND HEREBY
DOES RELEASE, DEFEND, INDEMNIFY, SAVE, AND HOLD HARMLESS SELLER AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS,
CONTRACTORS AND AGENTS, AGAINST ANY AND ALL DAMAGES WHICH ARISE OUT OF OR
IN CONNECTION WITH THE OWNERSHIP OF, OPERATION OF, PRODUCTION FROM OR
ACCOUNTING BY, INCOME OF OR PAYMENTS BY THE PARTNERSHIP, THE SUBSIDIARIES
OR THE OPERATING ASSETS, AT ANY TIME EITHER BEFORE OR AFTER THE EFFECTIVE
TIME, OR WHICH ARISE OUT OF ANY ENVIRONMENTAL CONDITION OR OTHER HAZARDOUS
CONDITION RELATING TO OR AFFECTING ANY OPERATING ASSET AT ANY TIME EITHER
BEFORE OR AFTER THE EFFECTIVE TIME, INCLUDING WITHOUT LIMITATION, ALL SUCH
COSTS, CLAIMS OR LIABILITIES ARISING OUT OF SELLER'S NEGLIGENCE OR STRICT
LIABILITY.
c. Section 15.3 of the Agreement is hereby amended and restated in its
entirety as follows:
15.3 Seller's Indemnity.
------------------
(a) SUBJECT TO THE TERMS AND CONDITIONS OF THIS ARTICLE XV, SELLER
SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS PARENT OR
SUBSIDIARY COMPANIES, PARTNERS AND OTHER AFFILIATES (INCLUDING AFTER
CLOSING, THE SUBSIDIARIES AND THE PARTNERSHIP), AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND
AGENTS (HEREINAFTER COLLECTIVELY REFERRED TO AS THE "BUYER GROUP"), FROM
AND AGAINST ANY AND ALL DAMAGES ASSERTED AGAINST, RESULTING TO, IMPOSED
UPON, OR INCURRED BY THE BUYER GROUP, DIRECTLY OR INDIRECTLY, BY
<PAGE>
REASON OF OR RESULTING FROM OR RELATING TO (I) ANY BREACH BY SELLER (FOR
WHICH SELLER SHALL BE RESPONSIBLE) OF ITS SURVIVING REPRESENTATIONS,
WARRANTIES, COVENANTS OR AGREEMENTS CONTAINED IN THIS AGREEMENT, (II) ANY
LIABILITIES OF THE SUBSIDIARIES AND THE PARTNERSHIP WHICH ARE UNRELATED TO
THE OPERATING ASSETS, (III) ANY LIABILITIES OF THE SUBSIDIARIES AND THE
PARTNERSHIP FOR INCOME TAXES PRIOR TO CLOSING, AND (IV) ANY EXISTING
LIABILITIES OF THE SUBSIDIARIES AND THE PARTNERSHIP OWED UNDER FEDERAL
LEASES FOR PRIOR ROYALTIES RELATED TO THE PERIOD OF TIME PRIOR TO CLOSING.
(b) SELLER HEREBY AGREES TO AND DOES INDEMNIFY, DEFEND AND HOLD
HARMLESS E&P BUYER AND PIPELINE BUYER FROM AND AGAINST ANY DAMAGES
RESULTING FROM CLAIMS BY COASTAL AND/OR ITS ASSIGNS RELATING TO ANY ADVERSE
TAX CONSEQUENCES TO COASTAL AND/OR ITS ASSIGNS ARISING AS A RESULT OF THE
TRANSACTIONS AND/OR THE TRANSACTIONS OCCURRING PURSUANT TO THE LLC PURCHASE
AGREEMENTS.
16. Changes to Article XVI, Tax Matters
-----------------------------------
a. Section 16.2(e) of the Agreement is amended and restated in its
entirety as follows:
(e) Seller shall cause the Pipeline Partnership to make an election
under Section 754 of the Code to adjust the basis of the assets of such
partnerships, and shall use its reasonable efforts to cause the Starr
Partnerships, if permitted by the applicable Charter, to make an election
under Section 754 of the Code to adjust the basis of the assets of such
partnerships. Seller must amend all internal partnership agreements
accordingly prior to the Closing Date.
b. Section 16.2(j) of the Agreement shall be amended and restated in its
entirety to read as follows:
(j) Both Seller and Buyer will join in making a timely and effective
election under Section 338(h)(10) of the Code (and any comparable provision
of foreign, state or local law) with respect to the purchase by Buyer of
the stock of Gathering hereunder (together with the elections under Section
338(g) of the Code and any comparable provision of foreign, state or local
law, the "Section 338(h)(10) Elections"). At the Closing, Seller and Buyer
shall execute IRS Form 8023, completed to the extent reasonably practicable
for Gathering. Seller and Buyer agree to take all other action and file
all other necessary reports to elect validly pursuant to Section 338(h)(10)
of the Code to treat the Transaction as a sale of assets as opposed to a
sale of the stock of Gathering. Within 120 days after the Closing Date,
Buyer shall deliver to Seller any additional information or required
schedules thereto and any similar forms under applicable state or local law
(the "Forms") with respect to Taxes relating to Buyer's purchase of the
stock of Gathering and its interests in Pipeline. Provided that the
information on such Forms is, in
<PAGE>
the reasonable determination of Seller, correct and complete in all
material respects, Seller will consent to the filing of such Forms. Seller
and Buyer shall cooperate fully with each other and make available to each
other such Tax data and other information as may be reasonably required by
Seller or Buyer in order to prepare and timely file the Forms and any other
required statements or schedules. With respect to the Sections 338(h)(10)
Elections, the Modified Aggregate Deemed Sales Price as defined in Treas.
Reg. Section 1.338(h)(10)-1 shall be allocated among the stock of Gathering
pursuant to Treas. Reg. Section 1.338(h)(10)-1. The Buyer and the Seller
shall use their good faith best efforts to agree upon such allocation. The
Seller shall provide to the Buyer a schedule and supporting material
reflecting such allocation for the Buyer's review and consent, which
consent shall not be unreasonably withheld. The parties shall take no
action inconsistent with, or fail to take any action necessary for the
validity of, the Section 338(h)(10) Elections for Gathering, and shall
adopt and utilize the asset values determined from such allocation for the
purpose of all tax returns filed by them, and shall not voluntarily take
any action inconsistent therewith upon examination of any tax return, in
any refund claim, in any litigation or otherwise with respect to such tax
returns. In the event that Buyer and Seller are unable to resolve any
disagreements regarding the allocation of the "modified aggregate deemed
sales price" (as defined under applicable Treasury Regulations) among the
assets or other aspects of the Forms, Buyer (i) shall be entitled to file
the Forms, but only if either the information not agreed upon is deleted or
the Forms reflect that the information has not been agreed upon; or (ii) if
acceptable to Buyer and Seller within 30 days after notice of such
disagreement, the matter in dispute shall be resolved as soon as
practicable by a "Big Five" independent accounting firm or, if the
disagreement involves valuation, to a nationally recognized appraisal firm
mutually satisfactory to the parties (but in no event longer than 30 days),
which resolution shall be binding and conclusive upon Buyer and Seller
without further appeal therefrom. Buyer and Seller shall bear equally the
fees and expenses of such firm. Buyer will timely file the Forms, and any
required supplements thereto, in the manner prescribed by Treasury
Regulation 1.338(h)(10)-1(d) or the corresponding provisions of applicable
foreign, state or local law, and will provide written evidence to Seller
that it has done so. Buyer and Seller agree that neither of them will take,
or permit any of their Affiliates to take, any action to modify or revoke
the elections contained in or the content of any Forms without the express
written consent of the other.
<PAGE>
17. Changes to Article XVII, Default and Remedies
---------------------------------------------
a. Section 17.3 of the Agreement shall be amended and restated in its
entirety to read as follows:
17.3 Waiver of Extraordinary Damages. TO THE FULL EXTENT ALLOWED BY
-------------------------------
LAW, AND EXCEPT AS MAY BE INCLUDED IN THIRD PARTY DAMAGES SUBJECT TO ANY
INDEMNITY OBLIGATION HEREUNDER, THE PARTIES HEREBY WAIVE AND RELEASE ANY
RIGHTS OR CLAIMS TO PUNITIVE OR EXEMPLARY DAMAGES RESULTING FROM A BREACH
OF THIS AGREEMENT. THE PARTIES HEREBY WAIVE THE APPLICATION OF THE TEXAS
DECEPTIVE TRADE PRACTICES- CONSUMER PROTECTION ACT TO THE TRANSACTION.
b. Section 17.4 of the Agreement shall be amended and restated in its
entirety to read as follows:
17.4 Waiver of Jury Trial. SELLER AND BUYER DO HEREBY IRREVOCABLY
--------------------
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL
BY JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTION.
18. Changes to Article XVIII, Notices.
----------------------------------
Section 18.1 of the Agreement is amended such that copies of notices to the
E&P Buyer or the Pipeline Buyer shall be delivered to the following address
instead of the address listed in the Agreement prior to this Amendment:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Attention: Michael E. Dillard, P.C.
Fax Number: (214) 969-4343
Phone Number: (214) 969-2876
19. Changes to Article XIX, Confidentiality and Disclosure.
-------------------------------------------------------
There are no amendments to Article XIX to the Agreement.
20. Changes to Article XX, Termination.
-----------------------------------
There are no amendments to Article XX to the Agreement.
<PAGE>
21. Changes to Article XX, Miscellaneous.
-------------------------------------
a. Section 21.1 of the Agreement shall be amended and restated to read in
its entirety as follows:
21.1 Entire Agreement. This Agreement, as amended, together with the
----------------
LLC Purchase Agreements, embody the entire agreement between the Parties
(superseding all prior agreements, negotiations, representations,
discussions, arrangements and understandings related to the subject matter
hereof), and may be supplemented, altered, amended, modified or revoked
only by a written instrument signed by each of the Parties; provided,
however, the Confidentiality Agreement dated June 17, 1999, between the
Parties shall remain effective until Closing. If the sale of the Operating
Assets to Buyer is not consummated, then the Confidentiality Agreement
shall remain effective as stated therein.
b. Section 21.4 of the Agreement shall be amended and restated to read in
its entirety as follows:
21.4 Interpretation. Words of any gender used in this Agreement
--------------
shall be held and construed to include any other gender, and words in the
singular shall be held to include the plural, unless the context otherwise
requires. None of the terms or conditions of this Agreement, including any
Exhibits or Schedules hereto, shall be construed for or against any Party
hereto on the basis that such Party did or did not author the same. All
terms of this Agreement and the Exhibits shall be harmonized, but in the
event of any conflict between the definition of a term in Article I and a
more complete description or limitation of such term in a subsequent
Article, the subsequent Article shall prevail. The LLC Purchase Agreements
are being executed in connection with this Agreement, and the instruments
shall be harmonized, to the extent possible, provided however, that no
Party shall be entitled to receive duplicate payments (including, without
limitation, duplicate payment of any purchase price) or other relief
regarding the same matters under both this Agreement, as amended and an LLC
Purchase Agreement. In the event of any conflict, redundancy or
inconsistency between the terms of this Agreement, as amended, and an LLC
Purchase Agreement or any other agreements or documents executed in
connection with this Transaction (including without limitation any
conflict, redundancy or inconsistency with respect to the provisions
relating to indemnification, payment of purchase price, adjustments to the
purchase price, transfer of the Common Stock or Membership Interests,
representations, warranties and covenants), the provisions of this
Agreement, as amended, shall control and prevail. The Article and Section
headings are for convenience only and shall have no significance in the
interpretation hereof.
c. Section 21.9 of the Agreement shall be amended and restated in its
entirety as follows:
21.9 Binding Effect, Assignment. All the terms, provisions,
--------------------------
covenants, representations, warranties and conditions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
Parties and, except as otherwise
<PAGE>
prohibited, their respective successors; however, this Agreement and the
rights and obligations hereunder shall not be assignable or delegable by
any Party without the express written consent of the non-assigning or non-
delegating Parties, which consent may be withheld for any or no reason;
provided that Buyer may assign some or all its rights, duties and
obligations under this Agreement to an Affiliate of EEX Corporation. Any
assignment or delegation requiring consent which is made without such
consent will be void.
d. Section 21.15 of the Agreement shall be amended by adding the
following as a new sentence at the end thereof:
If E&P Buyer and Pipeline Buyer are different Persons as a result of a
permitted assignment of the rights and obligations of either E&P Buyer or
Pipeline Buyer hereunder, E&P Buyer and Pipeline Buyer shall be jointly and
severally liable for all of the duties and obligations of E&P Buyer and
Pipeline Buyer hereunder.
e. Section 21.17 of the Agreement shall be amended and restated in its
entirety as follows:
21.17 EEX Corporation Guarantee. EEX Corporation (a) agrees to be
-------------------------
jointly and severally liable with E&P Buyer and Pipeline Buyer for all of
E&P Buyer's and Pipeline Buyer's payment obligations under this Agreement
and (b) irrevocably and unconditionally guarantees the performance by E&P
Buyer and Pipeline Buyer of their respective indemnity obligations under
Article XV.
22. Addition of Exhibits and Schedules.
-----------------------------------
The Agreement is amended to add the following exhibits and schedules to the
Agreement, each of which is attached to this Amendment:
Exhibit B-1 Pipeline Properties
Exhibit C-1 Pipeline Balance Sheet
Exhibit I Reserves LLC Purchase Agreement
Exhibit II Grande LLC Purchase Agreement
Exhibit III Southeast LLC Purchase Agreement
Exhibit IV E&P Settlement Statement
Exhibit V Pipeline Settlement Statement
Schedule I E&P Property Package
Schedule II Grande Property Package
Schedule III Southeast Property Package
<PAGE>
23. General Amendment Provisions.
-----------------------------
The parties hereto acknowledge that the terms of the Agreement, as amended
by this Amendment, shall continue in full force and effect. This Amendment
shall be governed and construed and enforced in accordance with the laws of the
State of Texas, without giving effect to principles of conflict of laws. This
Amendment may be executed in any number of counterparts, and each and every
counterpart shall be deemed for all purposes one agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their duly authorized officers as of the date first above written.
SELLER BUYER
- ------ -----
TESORO PETROLEUM EEX OPERATING LLC
CORPORATION
By: EEX CORPORATION
By:________________________________ By:______________________________
Name:______________________________ Name:____________________________
Title:_____________________________ Title:___________________________
TESORO GAS RESOURCES EEX CORPORATION, for purposes of
COMPANY, INC. Section 21.17
By:________________________________ By:______________________________
Name:______________________________ Name:____________________________
Title:_____________________________ Title:___________________________
<PAGE>
PURCHASE AGREEMENT
Dated as of December 17, 1999,
by and between
TESORO PETROLEUM CORPORATION
and
TESORO GAS RESOURCES COMPANY, INC.
as "Seller"
and
EEX OPERATING LLC
as "Buyer"
<PAGE>
SCHEDULES
- ---------
1A HEDGING CONTRACTS
1B PERMITTED ENCUMBRANCES
2.6(a) RETAINED LIABILITIES
4.1(b)(iv) NO CONFLICT - SELLER
4.1(b)(v) CONSENTS AND WAIVERS - SELLER
4.1(g) LITIGATION
4.1(h) LABOR MATTERS
4.1(i) TAXES
4.1(k) ABSENCE OF CERTAIN CHANGES
4.1(m)(iii) PERMITS AND LICENSES
4.1(m)(iv) EXCEPTIONS TO RIGHT TO USE ASSETS
4.1(o) SUSPENSE FUNDS
4.1(p) INSURANCE
4.1(q) CONTRACTS ON PRODUCTION
4.1(s) TAX PARTNERSHIPS
4.1(u) ENVIRONMENTAL CONDITIONS
4.1(v) CONTRACTS
4.1(x) WELLS
4.1(z) PAYOUT BALANCES
9.2 EXCEPTIONS TO PRE-CLOSING OPERATING COVENANTS
9.2(f) COMMITTED EXPENDITURES
9.4 EXCEPTIONS TO PRE-CLOSING FINANCIAL COVENANTS
EXHIBITS
- --------
A ALLOCATED VALUES
B LEASES AND RELATED PIPELINES
C SUBSIDIARIES AND PARTNERSHIP BALANCE SHEET
D SETTLEMENT STATEMENT
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is dated December 17, 1999, but effective as of the
Effective Time, between Tesoro Petroleum Corporation, a Delaware corporation,
and Tesoro Gas Resources Company, Inc., a Delaware corporation, collectively as
"Seller", and EEX Operating LLC, a Delaware limited liability company, as
"Buyer".
WITNESSETH:
-----------
WHEREAS, Tesoro Gas Resources Company, Inc. owns all of the Membership
Interests in Tesoro Grande LLC, a Delaware limited liability company ("Grande");
and
WHEREAS, Tesoro Petroleum Corporation, a Delaware corporation, and Tesoro
Gas Resources Company, Inc., a Delaware corporation, collectively as "Seller",
and EEX Operating LLC, a Delaware limited liability company, as "Buyer", and EEX
Corporation, entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement") dated October 8, 1999 providing for the sale by Seller to Buyer of
all shares of capital stock of Tesoro Exploration and Production Company, a
Delaware corporation ("Exploration") and Tesoro Reserves Company, a Delaware
corporation ("Reserves"), together with the partnership interests in Tesoro E&P
Company, L.P., a Delaware limited partnership (the "Partnership"); and
WHEREAS, the Partnership owns certain assets used in the business of the
exploration, production, gathering, transportation and marketing of oil, natural
gas, condensate and associated hydrocarbons; and
WHEREAS, on the date of the Stock Purchase Agreement, Exploration and
Reserves were the two partners in the Partnership, in which Exploration was the
general partner owning a 1% interest and Reserves was the limited partner owning
a 99% interest; and
WHEREAS, the Partnership was converted into a series limited partnership,
with the entire Series B limited partnership interest being transferred to
Grande, insofar as such interest covers the revenues, expenses, profits and
losses from the Properties described in Exhibit B; and
WHEREAS, Section 9.12 of the Stock Purchase Agreement provides for the
Parties to cooperate at no cost or liability to Buyer, to enable Seller at
Seller's election, to transfer the Operating Assets to Buyer in a manner
enabling the transfer to qualify as a part of a like-kind exchange of property
by Seller within the meaning of Section 1031 of the Code; and
WHEREAS, the Stock Purchase Agreement has been amended to provide for such
a like-kind exchange of property, among other purposes, by a First Amendment to
Stock Purchase Agreement dated December 16, 1999 (the "Amendment"); and
WHEREAS, to facilitate such a like-kind exchange transaction, Seller has
arranged to assign its interests in the proceeds of the sale of Grande and its
interest in the Properties to Bank One Exchange Corporation, as a Qualified
Intermediary;
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WHEREAS, the Parties have agreed to restructure the Transaction set forth
in the Stock Purchase Agreement, to allow the separate sale of Grande and its
interest in the Properties through the Qualified Intermediary; and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from
Seller all issued and outstanding Membership Interests of Grande, including all
of Grande's rights and interests in the Partnership and the Properties, under
the terms and conditions set forth in this Agreement and the Stock Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
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"Accepting Party" shall have the meaning set forth in Section 16.1(e).
"Accounts Receivable" shall have the meaning set forth in Section 13.4.
"Action" means any action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.
"Adjustment Assets and Liabilities" shall mean the items set forth in
Section 2.7.
"Affiliate" shall have the same meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Agreement" shall mean this Purchase Agreement.
"Allocated Value" shall mean the monetary value allocated to each Property
or group of Properties and the Hedging Contracts on Exhibit A.
"Amendment" shall mean the First Amendment to Stock Purchase Agreement
dated December 16, 1999, by and among Tesoro Petroleum Corporation, a Delaware
corporation, Tesoro Gas Resources Company, Inc., a Delaware corporation, and EEX
Operating LLC, a Delaware limited liability company, and EEX Corporation, a
Texas corporation, for the limited purposes set forth therein
"APO" shall mean "after payout", as such payout may be established under
the respective farmout agreements, joint operating agreements, participation
interests and similar agreements affecting each Property, including payouts
providing reversionary rights of parties who have elected not to participate in
an operation under a joint operating agreement. If there are multiple
outstanding payouts affecting any particular well or Property, then the APO
interest shall mean the interests after all applicable payouts have occurred.
If at the Effective Time there are no outstanding payout balances affecting any
particular well or Property, then the listed APO interest in such well or
Property shall reflect the Partnership's WI and NRI at the Effective Time.
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"Applicable Environmental Laws" means all Applicable Laws in effect
pertaining to (i) pollution, or the protection of the environment, including
those relating to waste materials and/or hazardous substances, (ii) the
protection of Persons or property from actual or potential exposure (or the
effects of exposure) to an actual or potential spill or release of Hazardous
Substances or petroleum or produced brine or (iii) the manufacture, processing,
production, gathering, transportation, use, treatment, storage or disposal of a
Hazardous Substance or petroleum or produced brine.
"Applicable Law" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Authority to
which a specified Person, Operating Asset or property is subject.
"Balance Sheets" shall mean the unaudited combined financial balance sheet
of Grande and the Partnership as of June 30, 1999, attached hereto as Exhibit C.
"Books and Records" shall mean all of the following which pertain to the
conduct of the Business: books, records, manuals and other materials, accounting
books and records, continuing property records for property, plant and
equipment, land and lease files, title opinions, suspense records, production
records, any inventories of equipment and property, well files, engineering
files, maps, surveys, electric logs, seismic records, geological and geophysical
files, and all other technical data, division order files, contract files, other
files, computer tapes, disks, other storage media and records, advertising
matter, correspondence, lists of customers and suppliers, maps, photographs,
production data, sales and promotional materials and records, purchasing
materials and records, work and recent salary history for personnel, credit
records, manufacturing and quality control records and procedures, patent and
trademark files and disclosures, litigation files, leases, oil and gas leases,
deeds, easements and other instruments relating to the Business, any copies of
Tax Returns filed by or with respect to Grande or the Partnership, including
copies of all work papers and calculations relating to Grande and the
Partnership in support of such Tax Returns, and any comparable information with
respect to predecessors of Grande or the Partnership to the extent available,
and copies of any other applicable accounting and tax records of the Seller and
the Partnership pertaining to the Business.
"BPO" shall mean "before payout", as such payout may be established under
the respective farmout agreements, joint operating agreements, participation
interests and similar agreements affecting each Property, including payouts
providing reversionary rights of parties who have elected not to participate in
an operation under a joint operating agreement. If at the Effective Time there
is an outstanding payout balance affecting any particular well or Property, the
listed BPO interest in such well or Property shall reflect the Partnership's WI
and NRI at the Effective Time.
"Business" shall mean the Partnership's business of exploring for,
developing, producing, gathering, transporting and marketing natural gas,
condensate and oil.
"Business Day" shall mean any day exclusive of Saturdays, Sundays and
national holidays.
"Buyer Group" shall have the meaning set forth in Section 15.3.
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"Buyer's Knowledge" shall mean knowledge of Buyer and management employees
of Buyer's ultimate parent, EEX Corporation, with knowledge of Buyer's
activities, including the negotiation of this Agreement.
"Bylaws" shall mean a corporation's bylaws, code of regulations or
equivalent document.
"Charter" shall mean a company's management agreement, articles of
association, articles of incorporation, certificate of incorporation or
equivalent organizational documents.
"Closing" shall have the meaning set forth in Section 12.1.
"Closing Date" shall have the meaning set forth in Section 12.1.
"Closing Settlement Price" shall mean the Settlement Price calculated in
accordance with the best information available to the Seller prior to Closing,
as reflected on the Settlement Statement delivered prior to Closing pursuant to
Article X and Section 13.1(a).
"Code" shall mean the United States Internal Revenue Code of 1986 and any
successor statute thereto, as amended.
"Consent to Assignment" shall mean an existing contractual or legal right
of any third party to consent to the Partnership's assignment of a Property to
Buyer under such terms as are set forth in this Agreement.
"Contracts" shall mean all of the contracts that govern or relate to the
ownership or operation of the Operating Assets (including without limitation,
the wells, facilities and equipment associated therewith and the production
therefrom, acreage contribution agreements, assignments, bidding agreements,
bottom-hole agreements, contribution agreements, drilling contracts, dry-hole
agreements, exploration agreements, development agreements, farm-in and farmout
agreements, gas balancing agreements, joint venture agreements, production,
sales, marketing and/or brokerage contracts, gas processing agreements,
operating agreements, participation agreements, service contracts, storage
contracts, gathering agreements, transportation agreements, treating contracts,
water rights agreements and the unitization, unit operating, communitization and
pooling declarations, agreements and orders that create or govern units). To
the extent that Seller, Grande or the Partnership have rights of indemnification
or warranty rights with respect to any Operating Asset or any part of an
Operating Asset, the same shall be included in the meaning of "Contracts."
"Damages" shall mean any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses, expert fees and expenses and court costs), of any nature whatsoever.
"Effective Time" shall mean July 1, 1999, at 12:00 a.m. local time for each
Operating Asset.
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<PAGE>
"Encumbrance" shall mean any interest (including any security interest),
pledge, mortgage, lien, charge, adverse claim or other right of third Persons.
"Environmental Conditions" shall have the meaning set forth in Section 7.3
of the Stock Purchase Agreement.
"Exploration LLC" shall mean Tesoro Exploration and Production LLC, a
Delaware limited liability company.
"Final Settlement Price" shall mean the Settlement Price calculated in
accordance with the best information available to the Parties during the one
hundred twenty (120) day period after Closing, as reflected on the Final
Statement agreed upon pursuant to Article XIII.
"Final Statement" shall mean the final accounting statement to be agreed
upon by the Parties no later than one hundred twenty (120) days after Closing
pursuant to Section 13.1(b).
"Financial Assets and Liabilities" shall mean the assets, liabilities and
other financial items on the Balance Sheets, effective as of 11:59 p.m. on June
30, 1999, (i) as adjusted for revenues, income, expenses and other assets and
liabilities incurred between the Effective Time and the Closing Date and
included within the Adjustment Assets and Liabilities, and (ii) as adjusted for
the Pre-Closing Financial Adjustments and (iii) as otherwise adjusted as
provided herein. The term "Financial Assets" shall not include any assets,
liabilities or other financial items included within the Operating Assets.
"GAAP" shall mean U.S. generally accepted accounting principles, unless
expressly described otherwise.
"Governmental Authority" shall mean any international, national, Federal,
state, municipal or local government, governmental authority, regulatory or
administrative agency, governmental commission, department, board, bureau,
agency or instrumentality, court, tribunal, arbitrator or arbitral body.
"Governmental Order" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Grande" shall mean Tesoro Grande LLC, a Delaware limited liability company
"Hazardous Substance" means a substance, chemical, pollutant, waste or
other material (i) that consists, wholly or in part, of a substance that is
regulated as toxic or hazardous to human health or the environment under any
Environmental Law or (ii) that exists in a condition or under circumstances that
constitute a violation of any Environmental Law. "Hazardous Substance" includes
without limitation any "hazardous substance" under the Comprehensive
Environmental Response, Compensation and Liability Act, any "hazardous chemical"
under the Occupational Safety and Health Act, any "hazardous material" under the
Hazardous Materials Transportation Act, any "hazardous chemical substance" under
the Federal Water Pollution Control Act and any "hazardous waste" under the
Resource Conservation and Recovery Act.
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"Hedging Contracts" shall mean those natural gas derivative pricing
contracts listed on Schedule 1A.
"Income Taxes" shall mean any Taxes, including franchise taxes, which are
based upon or in respect of income.
"Indemnified Party" shall mean any Party or other Person entitled to an
indemnity under Article XV of this Agreement, with respect to the indemnity so
owed.
"Indemnifying Party" shall mean a Party owing an indemnity to any other
Party or Person under Article XV of this Agreement, with respect to the
indemnity so owed.
"Lender" shall have the meaning set forth in Section 9.12(d).
"Liabilities" shall mean any and all debts, claims, liabilities and
obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, mature or unmatured or determined or indeterminable.
"Material Adverse Effect" shall mean any event with respect to, change in,
or effect on, Grande, the Partnership or the Business which, individually or in
the aggregate, is reasonably likely to have a material adverse effect on the
Business, or the financial results of operations, assets or properties or
financial condition of Grande and the Partnership, taken as a whole, but the
term "Material Adverse Effect" shall not include any change in market conditions
or other conditions affecting the oil and gas exploration and production
industry generally.
"Membership Interests" shall mean shall mean all issued and outstanding
membership interests in Grande.
"NORM" shall have the meaning set forth in Section 7.2.
"NRI" shall mean the decimal net revenue interest in oil and gas production
from a Property.
"Operating Assets" shall mean all property rights and interests of the
Partnership being sold hereunder in the lands and leases described in Exhibit B,
as set forth in Section 2.4.
"Other Taxes" shall mean all Taxes other than Income Taxes.
"Parties" shall mean Buyer and Seller, collectively.
"Partnership" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"Partnership Agreement" means the Agreement of Limited Partnership of the
Partnership, as amended.
"Party" shall mean either Buyer or Seller.
"Permitted Encumbrances" shall include any Encumbrance which is: (i) listed
on Schedule 1B, for which a duly executed release in recordable form will be
delivered to Buyer at
6
<PAGE>
or before Closing; (ii) a lien securing amounts claimed for services provided by
operators or other oil field contractors which are not yet due and owing or
which are being contested in good faith, through adequate procedures; (iii) a
statutory lien arising for Taxes not yet delinquent or which are being contested
in good faith, through adequate procedures; (iv) a reservation, exception,
limitation, encumbrance or burden expressly included within a recorded oil and
gas lease constituting part of a Property with respect to which Seller or the
Partnership is not in default at Closing which does not reduce the Partnership's
NRI in such Property below the respective decimal interests set forth in Exhibit
A; (v) any royalty, overriding royalty or other production burden affecting any
Property which does not and will not reduce the Partnership's NRI in such
Property below the respective decimal interests set forth in Exhibit A; (vi) any
joint operating agreement containing terms and conditions reasonable and
customary in the industry (other than a Preferential Right to Purchase that is
exercised prior to Closing or a required Consent to Assignment, or a
reversionary right that is not reflected in the BPO and APO interests on Exhibit
A); (vii) the right of a third party under any equipment rental or lease
contract, oilfield service contract, production sales contract or transportation
contract affecting any Property, which either may be terminated by the parties
thereto without penalty or does not extend for a term of more than sixty days
after the Closing Date; (viii) any other easement, operating right, concurrent
use right or similar encumbrance that does not affect the Partnership's rights
to a Property or reduce the production revenues attributable thereto or increase
the costs associated with ownership or operation of that Property; and (ix) a
severance tax, production tax, occupation tax, ad valorem tax or similar tax of
general application.
"Person" shall include any individual, trustee, firm, corporation,
partnership, limited liability company, Governmental Authority or other entity,
whether acting in an individual, fiduciary or any other capacity.
"Post-Closing Return" shall have the meaning set forth in Section 16.2(c).
"Pre-Closing Financial Adjustments" shall mean those certain financial
accounting adjustments and payments set forth in Section 2.6.
"Pre-Closing Period" shall have the meaning set forth in Section 16.2(c).
"Pre-Closing Return" shall have the meaning set forth in Section 16.2(c).
"Preferential Right to Purchase" shall mean the right of any third party
under an existing contract or agreement allowing that third party to purchase
the Partnership's interest in a Property whenever Seller proposes to transfer
its interests in the Partnership under terms such as are set forth in this
Agreement and the Stock Purchase Agreement.
"Production" shall mean all oil, natural gas, condensate, natural gas
liquids, and other hydrocarbons or products produced from or attributable to the
Properties.
"Properties" shall mean, collectively, (i) all valid and existing oil and
gas leaseholds and mineral fee rights, and all rights and interests appurtenant
thereto, which are owned by the Partnership in the lands and leases described on
Exhibit B attached hereto, including without limitation all oil and gas WIs,
NRIs, mineral fee interests, oil, gas and mineral deeds, leases
7
<PAGE>
and/or subleases, royalties, overriding royalties, leasehold interests, mineral
servitudes, production payments and net profits interests, fee mineral
interests, surface estates, fee estates, royalty interests, overriding royalty
interests, or other non-working or carried interests, reversionary rights,
farmout and farmin rights, operating rights, pooled or unitized acreage, and all
other rights, privileges and interests in such oil, gas and other minerals (and
the production thereof), and other mineral rights of every nature now owned by
the Partnership in such lands and leases listed on Exhibit B hereto, (ii) all of
the contractual rights to interests described in (i) above and in all units in
which such interests are pooled, communitized or unitized, and in any other oil,
gas and/or mineral leases or assets arising pursuant to the terms of the oil and
gas leases listed on Exhibit B hereto, and any other rights and agreements or
contracts affecting or relating to interests described in (i) above, or to
Production, whether or not listed on Exhibit B, including any tenements,
appurtenances, surface leases, easements, permits, licenses, servitudes,
franchises or rights of way.
"Property" shall mean any individual one of the Properties.
"Property Tax Period" shall have the meaning set forth in Section 13.2(a).
"Property Taxes" shall have the meaning set forth in Section 13.2(a).
"Proposed Settlement" shall have the meaning set forth in Section 16.1(e).
"Purchase Price" shall have the meaning set forth in Section 3.1.
"Qualified Intermediary" shall mean Bank One Exchange Corporation, in its
capacity as a qualified intermediary to implement a like-kind exchange of the
Properties under Section 1031 of the Code.
"Refusing Party" shall have the meaning set forth in Section 16.1(e).
"Reserves LLC" shall mean Tesoro Reserves Company, LLC, a Delaware limited
liability company.
"Seller" shall mean, collectively, Tesoro Petroleum Corporation, a Delaware
corporation, and Tesoro Gas Resources Company, Inc., a Delaware corporation.
"Seller's Knowledge" shall mean actual knowledge of any fact, circumstance
or condition by the officers or management employees (including those with
titles of "Manager", "Vice President" and "President" or those in the internal
legal department of Seller, Grande and the Partnership who provide specific
advice related to the operations of the Business) of Seller, Grande and the
Partnership involved and knowledge of any fact, circumstance or condition which
such officer or management employee would have been aware of with the exercise
of reasonable diligence and inquiry in the course of his or her duties.
"Settlement Price" shall have the meaning set forth in Section 3.2.
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"Settlement Statement" shall mean the accounting statement calculating the
Settlement Price, to be furnished by Seller to Buyer prior to Closing, pursuant
to Article X and Section 13.1(a).
"Southeast" shall mean Tesoro Southeast LLC, a Delaware limited liability
company.
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement dated
October 8, 1999, as amended by the Amendment, by and among Tesoro Petroleum
Corporation, a Delaware corporation, Tesoro Gas Resources Company, Inc., a
Delaware corporation, and EEX Operating LLC, a Delaware limited liability
company, and EEX Corporation, a Texas corporation, for the limited purposes set
forth therein.
"Straddle Period" shall have the meaning set forth in Section 16.1(e).
"Straddle Return" shall have the meaning set forth in Section 16.2(c).
"Subsidiaries" shall mean Exploration LLC, Grande, Southeast and Reserves
LLC, collectively.
"Tax" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, parking, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 50A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, ad valorem,
value added, alternative or add-on minimum, estimated tax, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, including such item for which Liability arises as a transferee
or successor-in-interest.
"Tax Claim" shall have the meaning set forth in Section 16.1(c).
"Tax Return" shall mean any return, declaration, report, claim for refund,
information return or statement relating to Taxes, including any schedules or
attachments thereto, and including any amendment thereof.
"Taxing Authority" shall mean any Governmental Authority responsible for
the imposition or collection of any Tax.
"Tesoro Group" shall have the meaning set forth in Section 4.1(i).
"Tesoro Parent" shall have the meaning set forth in Section 4.1(i).
"Transaction" shall mean the purchase and sale of the Membership Interests
pursuant to this Agreement and the related transactions contemplated herein.
"WI" shall mean a working interest under an oil and gas lease or other
Contract affecting a Property which shall reflect the decimal interest for
participation in the decisions, costs and risks concerning operations.
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"Working Capital" shall mean, at any time, the difference between (a) the
sum of the amounts on the line items "cash", "accounts receivable",
"inventories" and "prepayment and other" on the Balance Sheet, less (b) the sum
of the amounts on the line items "accounts payable" and "accrued liabilities" on
the Balance Sheet; all as computed in accordance with GAAP and past practice for
Grande and the Partnership except as expressly provided herein, and in a manner
as reflected on the Balance Sheets; provided, however, that the amounts on the
line items "prepayment and other", "accounts payable" and "accrued liabilities"
on the Balance Sheet shall not include the impact of any amounts referred to in
the first proviso in Section 3.2(a)(i); and provided further, that the stated
amount of Working Capital shall be reduced by the amount of inventories that
existed as of the Effective Time.
"Working Capital Accounts" shall mean the line items "cash", "accounts
receivable", "inventories", "prepayment and other", "accounts payable" and
"accrued liabilities" on the Balance Sheet, all as computed in accordance with
GAAP and past practice for Grande and the Partnership, and in a manner as
reflected on the Balance Sheets; provided, however, that the line items
"prepayment and other", "accounts payable" and "accrued liabilities" shall not
include the impact of any items referred to in the first proviso in Section
3.2(a)(i).
ARTICLE II.
PURCHASE AND SALE
-----------------
2.1 Sale of Membership Interests. Subject to the terms and conditions of
----------------------------
this Agreement, Seller agrees to sell and assign to Buyer, and Buyer agrees to
purchase and pay for, at Closing, all of the Membership Interests.
2.2 Effect of Sale. The sale of the Membership Interests at Closing
--------------
shall transfer to Buyer all of Seller's rights in Grande. On the Closing Date,
Grande shall hold certain interests, assets and liabilities, as set forth in
this Article II. Except as otherwise specifically set forth in this Agreement,
the transfer of Seller's rights in Grande shall assign to Buyer all of Seller's
beneficial right, title, interest and obligations in and to such interests,
assets and liabilities held by Grande.
2.3 Partnership. On the Closing Date, Exploration LLC and Grande shall
-----------
own the rights and interests in the Partnership, insofar as they pertain to the
Properties. Exploration LLC shall be the general partner of the Partnership and
Grande shall own the entire Series B limited partnership interest in the
Partnership insofar as it pertains to allocable revenues and expenses
attributable to the Properties. The partnership rights and interests of Grande
described in this Section 2.3 shall pass to Buyer as an attribute of the sale of
the Membership Interests pursuant to this Agreement.
2.4 Operating Assets. On the Closing Date, the Partnership shall own the
----------------
Operating Assets, subject to the Permitted Encumbrances, as follows:
(a) Exploration and Production Assets.
---------------------------------
(i) the Properties;
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(ii) All the interests in oil and gas wells described on Exhibit A,
together with an interest in the production, compression,
treating, dehydration or processing facilities and other real
or tangible personal property appurtenances and fixtures, which
are located on the lands covered by or within the Properties or
are being used by the Partnership in connection with the
operations on the Properties or Production;
(iii) Subject to the license granted under the License Agreement
(with respect to the rights covered thereby), rights and
interests in geological data and records, seismic data, whether
in digital or paper format, well logs, well files, geological
data, records and maps, land and contract files and records,
accounting files, data and records, computer hardware and
software and other materials (whether electronically stored or
otherwise) used or held for use by Seller, Grande or the
Partnership, or any of their direct or indirect parents,
subsidiaries or other Affiliates, regarding ownership of the
Properties or operations and Production which relate to the
Properties, and other files, documents and records which relate
to the Properties;
(iv) Rights, obligations, title and interests in and to permits,
orders, contracts, abstracts of title, leases, deeds,
unitization agreements, pooling agreements, operating
agreements, farmout agreements, participation agreements,
division of interest statements, division orders, participation
agreements, and other agreements and instruments applicable to
the Properties;
(v) All the rights, obligations, title and interests of Seller in
and to all easements, rights of way, certificates, licenses and
permits and all other rights, privileges, benefits and powers
conferred upon the owner and holder of interests in the
Properties, or concerning software used in conjunction with
ownership or operation of the Properties;
(vi) All the rights, title and interests of Seller and the
Partnership in and to the Bob West Field compression facility
and the Bob West Field amine plant;
(vii) Rights, title, obligations and interests in or concerning any
gas imbalances affecting the Properties; and
(viii) All office equipment, computer equipment, light tables,
drafting tables, drafting equipment, office supplies, facsimile
machines, pool cars and any other equipment or furniture not
herein named which is utilized by the Partnership in its day to
day operations.
(b) Leased Assets. To the extent any of the items of office equipment
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listed in Section 2.4(a) above are leased and not owned, Seller, Grande and the
Partnership shall use their best efforts to cause such leases to be assigned to
Buyer at Closing.
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2.5 Financial Assets and Liabilities. On the Closing Date, the
--------------------------------
Partnership shall own the Financial Assets and Liabilities. Grande shall be
allocated its share of the Partnership's respective Financial Assets and
Liabilities attributable to ownership and operation of the Properties in
proportion to its ownership of the Partnership's interests in the Properties.
The Financial Assets and Liabilities at Closing of the Partnership and each
partner in the Partnership shall be computed by Seller in accordance with GAAP,
and shall be allocated to the Properties and the partners in the Partnership in
accordance with the Partnership Agreement. The Financial Assets and Liabilities
shall be adjusted from those set forth on the Balance Sheet to reflect certain
Pre-Closing Financial Adjustments and the Adjustment Assets and Liabilities, as
set forth in Sections 2.6 and 2.7.
2.6 Pre-Closing Financial Adjustments. Prior to the Closing Date, Seller
---------------------------------
shall make certain accounting adjustments and payments regarding the assets,
liabilities and equity of the Partnership and Grande, to the effect that Sellers
shall remove all intercompany accounts involving the Partnership, Grande and
their Affiliates, and all intercompany liabilities shall have been removed. At
Closing the only assets and liabilities of the Partnership and Grande shall be
the Operating Assets and the Adjustment Assets and Liabilities.
(a) Certain Accounts. Immediately prior to the Closing, Seller shall
----------------
take, and shall cause Grande and the Partnership to take, all necessary action
deemed appropriate to adjust the Balance Sheets to account for those items that
are to be retained by Seller, as set forth in Schedule 2.6(a). In doing so,
Seller shall take, and shall cause Grande and the Partnership to take, all
necessary actions deemed appropriate so that the Balance Sheets as of the
Closing Date, as adjusted to reflect such actions, will show zero for those line
items listed in Schedule 2.6(a) as financial items that are to be retained by
Seller.
(b) Pre-Closing Cash Distribution. Immediately prior to the Closing,
-----------------------------
Tesoro Gas Resources Company, Inc. shall cause Grande to pay to it an amount
equal to the arithmetic mean of Seller's and Buyer's good faith estimates of the
consolidated cash and cash equivalents (other than amounts in suspense accounts)
of Grande as of the Closing Date.
(c) Changes in Balance Sheets Due to Continuing Operations. Buyer and
------------------------------------------------------
Seller expressly recognize that the assets and liabilities of Grande and the
Partnership shall be affected by the effects of ongoing ownership and operation
of the Operating Assets between the Effective Time and the Closing Date. These
changes shall be handled exclusively by adjustments to the Settlement Price as
set forth in Section 3.2 and Article XIII.
2.7 Adjustment Assets and Liabilities. At Closing, the Partnership shall
---------------------------------
retain, to the extent permitted by applicable law and regulations, the following
interests:
(a) All rights, obligations, liabilities, title and interests of Seller
and the Partnership in and to all Hedging Contracts in effect at the Effective
Time or thereafter;
(b) All Working Capital Accounts; and
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(c) All rights to future proceeds, defenses and indemnities owed under any
bonds or insurance policies covering the Operating Assets, the Partnership,
Grande or the Business for policy periods prior to the Closing Date, for losses,
claims or occurrences, as applicable, arising prior to the Closing Date.
ARTICLE III.
PURCHASE PRICE AND SETTLEMENT PRICE
-----------------------------------
3.1 Purchase Price. The monetary consideration ("Purchase Price") for
--------------
the sale and conveyance of all the Membership Interests to Buyer, effective as
of the date of Closing, is Buyer's payment of $115,304,126 in cash.
3.2 Settlement Price. Pursuant to the provisions as described below, the
----------------
Purchase Price to be paid by Seller will be subject to certain adjustments made
at Closing and within one hundred twenty (120) days thereafter, as set forth in
Article XIII, to determine the Settlement Price amount that will actually be
paid by Buyer. The Settlement Price will be calculated as follows:
(a) Increases. The Purchase Price shall be increased by the following
---------
amounts:
(i) An amount equal to the expenses properly accrued in accordance
with GAAP and past practice, and allocated to Grande under the
Partnership Agreement, and as provided for in Section 13.3,
attributable to the period from the Effective Time to the end
of business on the Closing Date; provided, however, that such
expenses shall exclude all (1) depreciation, depletion and
amortization, (2) income and franchise taxes, (3) one-half of
the amount accrued by and the Partnership and allocated to
Grande under the Partnership Agreement, incentive compensation
arrangements for the Retained Employees, as provided in Section
9.9(c), and (4) severance obligations and other amounts accrued
under any employment retention and management stability
agreements, as provided in Section 9.9(b); provided, further,
however that Seller and the Partnership shall be permitted to
accrue no more than $40,000 per month from the close of
business on June 30, 1999 to the Closing Date for corporate
general and administrative expenses;
(ii) An amount equal to the capital expenditures relating to the
Business properly accrued in accordance with GAAP and past
practice and allocated to Grande under the Partnership
Agreement, attributable to the period from the Effective Time
to the end of business on the Closing Date; and
(iii) The amount of change in Working Capital and allocated to Grande
under the Partnership Agreement between the Effective Time and
the end of business on the Closing Date, if the amount of
change is a positive number.
(b) Decreases. The Settlement Price shall be decreased by the following
---------
amounts:
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<PAGE>
(i) An amount equal to the revenues properly accrued in accordance
with GAAP and past practice and allocated to Grande under the
Partnership Agreement attributable to the period from the
Effective Time to the end of business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment allocated to
Grande under the Partnership Agreement, subject to the
application of Section 13.1;
(iii) The amount, stated as a positive number, of any change in
Working Capital and allocated to Grande under the Partnership
Agreement between the Effective Time and the end of business on
the Closing Date, if and only if, the amount of change is a
negative number.
The Purchase Price as adjusted pursuant to this Section 3.2 is herein called the
"Settlement Price".
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Seller's Representations and Warranties. Effective as of the Closing
---------------------------------------
Date, Seller shall represent and warrant that:
(a) Disclosure. To Seller's Knowledge, the representations and warranties
----------
set forth in this Section 4.1 of this Agreement, the exhibits to this Agreement,
and the information, documents and Balance Sheets provided under the terms of
this Agreement represent full and fair disclosure as of the Closing Date and do
not contain any untrue statement of any material fact or omit any material fact
necessary in order to make the facts stated not misleading.
(b) Authorization and Enforceability.
--------------------------------
(i) This Agreement and the Transaction have been duly authorized by
each Seller.
(ii) Neither the execution and delivery of this Agreement by Seller,
nor the consummation by Seller of the transactions contemplated
hereby, will violate or conflict with, or result in the
acceleration of rights, benefits or obligations under, (1) any
provision of any of Seller's, Grande's or the Partnerships'
respective Charters, Bylaws, management agreements, limited
liability company agreements, operating agreements or
partnership agreements, or (2) any applicable statute, law,
regulation or Governmental Order to which Seller or Grande or
the Partnerships or the assets and properties of such entities,
including without limitation the Operating Assets, are bound or
subject.
(iii) This Agreement has been duly executed and delivered by each
Seller and constitutes the valid and binding obligation of each
Seller, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting
14
<PAGE>
the enforcement of creditors' rights generally and general
principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(iv) Except as set forth on Schedule 4.1(b)(iv), or as otherwise
specifically provided herein, the execution, delivery, and
performance of this Agreement (assuming that all applicable
consents are received and all applicable Preferential Rights to
Purchase individual Operating Assets are waived) will not (A)
be in violation of any provisions of any regulation or order
that could reasonably be expected to adversely affect the
ownership or operations of the Operating Asset affected thereby
or give rise to damages, penalties or claims of third parties,
or (B) result in the breach of, or constitute a default under,
any indenture or other material agreement or instrument to
which Seller, Grande or the Partnerships are bound, or (C)
cause the recognition of gain for which the Buyer (or, after
the Closing, the Subsidiaries) will be responsible for the tax
thereon or subject any Subsidiary or its assets to any Tax
other than Tax for which Seller is responsible under Article
XVI;
(v) Except as set forth on Schedule 4.1(b)(v) or as otherwise
specifically provided herein, no consent, waiver, approval,
order or authorization of, notice to, or registration,
declaration, designation, qualification or filing with, any
Governmental Authority or third Person, domestic or foreign, is
or has been or will be required on the part of Seller in
connection with the execution and delivery of this Agreement or
the consummation by Seller of the transactions contemplated
hereby or thereby, other than (A) consents and Preferential
Rights to Purchase affecting individual Operating Assets; (B)
filings required (1) to form Grande under Delaware law; (C) tax
filings or (D) where the failure to obtain such consents,
waivers, approvals, orders or authorizations or to make or
effect such registrations, declarations, designations,
qualifications or filings (1) is not reasonably likely to
prevent or materially delay consummation of the transactions
contemplated by this Agreement (2) could reasonably be expected
to adversely affect the Business or (3) could give rise to
damages, penalties or claims of third parties.
(c) Organizational Status.
---------------------
(i) Each Seller: (1) is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, (2)
is duly qualified to transact business in each jurisdiction
where the nature and extent of its business and properties
require such qualification, and (3) possesses all requisite
authority and power to conduct its business and execute,
deliver and comply with the terms and provisions of this
Agreement and to perform all of its obligations hereunder.
There are no pending or threatened Actions (or basis therefor)
for the dissolution, liquidation, insolvency, or rehabilitation
of any Seller.
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<PAGE>
(ii) Grande(1) is a limited liability company duly organized,
validly existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business and
properties require such qualification, and (3) possesses all
requisite authority and power to conduct its business. There
are no pending or threatened Actions (or basis therefor) for
the dissolution, liquidation, insolvency, or rehabilitation of
Grande.
(iii) The Partnership (1) is a limited partnership duly organized,
validly existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business and
properties require such qualification, and (3) possesses all
requisite authority and power to conduct its business. There
are no pending or threatened Actions (or basis therefor) for
the dissolution, liquidation, insolvency, or rehabilitation of
the Partnership.
(d) Subsidiary and Other Equity Interests.
-------------------------------------
(i) Grande has no subsidiaries and does not own any stock or other
interest in any other corporation, partnership, joint venture,
or other business entity, with the exception of the
Partnership.
(ii) The Partnership has no subsidiaries and does not own any stock
or other interest in any other corporation, partnership, joint
venture, or other business entity.
(e) Membership Interests and Partnership Interests.
-----------------------------------------------
(i) Grande has authorized membership interests, of which all are
issued and outstanding and owned by Tesoro Gas Resources
Company, Inc. The membership interests have been duly
authorized by Grande, and the membership interests owned by
Tesoro Gas Resources Company, Inc. are validly issued and
outstanding, fully paid and nonassessable. There are no
preemptive rights, subscriptions, options, consents to
assignment or rights of first refusal, convertible securities,
warrants, calls, stock appreciation rights, phantom stock,
profit participation, or other similar rights, or other
agreements or commitments obligating Seller or Grande to issue
or to transfer (or preventing the transfer of) any membership
interests, capital stock or other equity interest in Grande.
(ii) In the Partnership, the entire Series B limited partnership
interest (representing a 100% interest in all of the capital
and assets of Series C) is held by Grande. Exploration LLC is
the general partner of the Partnership (representing a 1%
interest in all of the capital and assets of Series A). Such
interests are duly authorized under the agreement governing the
Partnership, as currently amended, and are valid. There are no
preemptive rights, or authorized or outstanding subscriptions,
options, consents to assignment or rights of first refusal,
convertible securities, warrants, calls, appreciation rights,
phantom interests, profit participation, or other similar
rights, or other agreements or commitments obligating Seller,
the
16
<PAGE>
Partnership, Reserves LLC, Grande, Southeast or Exploration LLC
to issue or to transfer (or preventing the transfer of) any
equity interest in the Partnership.
(iii) Seller has delivered to correct and complete copies of Grande's
and the Partnership's respective Charter, Bylaws, management
agreement, limited liability company agreement, operating
agreement or partnership agreement, as amended to date, and the
minute books of Grande and the Partnership. Neither Grande nor
the Partnership is in breach of any provision of its Charter,
Bylaws, management agreement, limited liability company
agreement, operating agreement or partnership agreement.
(f) Title to Membership Interests, Partnership Interests and Assets.
---------------------------------------------------------------
(i) The Membership Interests constitute all of the issued and
outstanding membership interests and other equity interests in
Grande. All of the issued and outstanding membership interests
of Grande are owned of record and beneficially with good and
valid title by Tesoro Gas Resources Company, Inc., free and
clear of any Encumbrance. Upon delivery to Buyer of the
certificates representing the Membership Interests in the
manner and with the powers described in Section 12.2(a),
assuming that Buyer pays the consideration contemplated by this
Agreement and has no notice of any adverse claim, good and
valid title to the Membership Interests will have been
transferred to Buyer, free and clear of any Encumbrances.
Neither Tesoro Petroleum Corporation nor Tesoro Gas Resources
Company, Inc. has received any notice of any adverse claim to
their title to the Membership Interests.
(ii) All of the issued and outstanding partnership interests in the
Partnership are owned of record and beneficially with good and
valid title by Reserves LLC, Grande, Southeast, and Exploration
LLC, free and clear of any Encumbrance. Neither Reserves LLC,
Grande, Southeast, nor Exploration LLC has received any notice
of any adverse claim to their respective interests in the
Partnership.
(iii) Grande and the Partnership have good title to all of the assets
and properties (except the Operating Assets) which they own or
purport to own, including the Financial Assets and Liabilities
reflected on the Balance Sheets and allocable to the Properties
under the Partnership Agreement, except for properties sold,
consumed or otherwise disposed of in the ordinary course of
business since the date of the Balance Sheets, free and clear
of any Encumbrances other than Permitted Encumbrances.
(g) Litigation. Except as set forth in Schedule 4.1(g), none of Seller,
----------
Grande or the Partnership have been served with and, to Seller's Knowledge,
there are no pending or threatened Actions before any Governmental Authority
against or affecting Seller, Grande, the Partnership or the Operating Assets,
which, if adversely determined, either would be reasonably expected to expose
Grande or the Partnership to a risk of loss after the Effective Time or would
interfere with
17
<PAGE>
Seller's ability or right to execute and deliver this Agreement or consummate
the transactions contemplated by this Agreement.
(h) Labor Matters. Except as set forth on Schedule 4.1(h), there are no
-------------
contracts, agreements, or other arrangements whereby Grande or the Partnership
are obligated to compensate or provide health and welfare benefit plans or
retirement benefits to any employees or other persons, except for employment
agreements that are terminable at will, without breach or penalty. To Sellers'
Knowledge, Seller, Grande and the Partnership are in compliance with all
federal, state, and local laws respecting employment and employment practices,
terms and conditions of employment, and wages and hours and are not engaged in
any unfair labor practice with regard to those persons employed in connection
with Grande's or the Partnership's operations. No employee of Grande is covered
under any collective bargaining agreement. There is no unfair labor practice
complaint against Grande pending or, to Seller's Knowledge, threatened before
the National Labor Relations Board or any comparable state or local Governmental
Authority. There is no labor strike, slowdown or work stoppage pending or, to
Seller's Knowledge, threatened against or directly affecting Grande, and no
grievance or any Action arising out of or under collective bargaining agreements
is pending or, to Seller's Knowledge, threatened against Grande.
(i) Taxes.
-----
(i) Except as set forth in Schedule 4.1(i), Seller, and the
Partnership have timely filed or caused to be timely filed (or
will timely file or cause to be timely filed) with the
appropriate Taxing Authorities, all Tax Returns required to be
filed on or prior to the Closing Date by or with respect to
Sellers and the Partnership (or their respective Operating
Assets) and have timely paid or adequately provided for (or
will timely pay or adequately provide for) all Taxes shown
thereon as owing, except where the failure to file such Tax
Returns or pay any such Taxes would not, or could not
reasonably be expected to, in the aggregate, result in losses
or costs or expenses to Grande's interests or the Partnership
after the Closing Date.
(ii) Sellers are members of an affiliated group of corporations
which file consolidated federal income tax returns ("Tesoro
Group") with Tesoro Petroleum Corporation as the common parent
("Tesoro Parent"). Grande is not required to and does not file
federal income tax returns as a taxpaying entity, and, for
purposes of federal income taxation, Grande is accounted for
and included as a part of Tesoro Gas Resources Company, Inc..
The Tesoro Group has been subject to normal and routine audits,
examinations and adjustments of Taxes from time to time, but
there are no current audits or audits for which written
notification has been received, other than those set forth in
Schedule 4.1(i). There are no written agreements with any
Taxing Authority with respect to or including Grande's
interests which will in any way affect liability for Taxes
attributable to Grande's interests after the Closing Date.
(iii) Except as set forth in Schedule 4.1(i), no assessment,
deficiency or adjustment for any Taxes has been asserted in
writing or, to the knowledge
18
<PAGE>
of Sellers, is proposed with respect to any Tax Return of, or
which includes, Grande's interests.
(iv) Except as set forth in Schedule 4.1(i), there is not in force
any extension of time with respect to the due date for the
filing of any Tax Return of or with respect to or which
includes Grande's interests or any waiver or agreement for any
extension of time for the assessment or payment of any Tax of
or with respect to or which includes Grande's interests.
(v) Except for Taxes due with respect to Tax Returns that will be
paid by Tesoro Parent (and not subject to reimbursement by
Grande), the accounting records of Grande will include
immediately prior to the Closing Date adequate provisions for
the payment of all Taxes allocable to Grande's interests for
all taxable periods or portions thereof through the Closing
Date.
(vi) All Tax allocation or sharing agreements or arrangements have
been or will be canceled on or prior to the Closing Date. No
payments are or will become due by Grande after the Closing
Date pursuant to any such agreement or arrangement.
(vii) Except as set forth on Schedule 4.1(i), none of the Sellers or
Grande will, as a result of the transactions contemplated by
this Agreement, be obligated to make a payment after the
Closing Date to an individual that would be a "parachute
payment" as defined in Section 280G of the Code without regard
to whether such payment is reasonable compensation for
personal services performed or to be performed in the future.
(viii) Neither Grande nor the Partnership have participated in or
cooperated with an international boycott within the meaning of
Section 999 of the Code.
(ix) Neither Grande nor the Partnership has filed a consent under
Code Section 341(f) concerning collapsible corporations.
(x) Neither Grande nor the Partnership has been a United States
real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in
Code Section 897(c)(1)(A)(ii).
(xi) All monies required to be withheld by either Seller, Grande
and the Partnership and paid to Taxing Authorities for all
Taxes have been (i) collected or withheld and either paid to
the respective Taxing Authorities or set aside in accounts for
such purpose or (ii) properly reflected in the Balance Sheets.
(j) Balance Sheets.
--------------
(i) The Balance Sheets have been prepared in accordance with GAAP
applied on a basis consistent with prior periods, except as
described in the notes thereto, which will qualify that the
Partnership and Grande have been accounted for as part of a
consolidated financial group with their affiliates and not as
completely separate stand-alone entities.
19
<PAGE>
(ii) The Balance Sheets present fairly, in all material respects,
the financial condition of the combined Partnership and Grande
as of June 30, 1999. The books and records of Grande and the
Partnership from which the Balance Sheets were prepared were
complete and accurate in all material respects at the time of
such preparation.
(iii) Grande and the Partnership have no Liabilities, except for
Liabilities (1) reflected in the Balance Sheets, (2) incurred
by Grande or the Partnership in the ordinary course of
business and consistent with past practices since the date of
the Balance Sheets, or (3) which are Permitted Encumbrances,
or (4) for which the Buyer is being indemnified hereunder. As
used in this subparagraph, the term "Liabilities" excludes any
Liabilities not required to be reflected in the Balance Sheets
under GAAP.
(k) Absence of Certain Changes. Except as set forth in Schedule 4.1(k), or
--------------------------
as otherwise contemplated by this Agreement (including without limitation
Sections 2.5 and 2.6), or with Buyer's prior written consent, since the close of
business on June 30, 1999:
(i) Neither Grande nor the Partnership has sold, leased,
transferred, or assigned any assets other than surplus
equipment not necessary for operations of the Business and for
a reasonable consideration;
(ii) Grande and Partnership have not incurred, assumed or become
subject to any additional indebtedness for money borrowed or
purchase money indebtedness, including capitalized leases;
(iii) Grande and Partnership have not entered into any transaction
not in the ordinary course of business, except as contemplated
by this Agreement;
(iv) there have been no additional Encumbrances placed on the
assets of Grande or the Partnership other than Permitted
Encumbrances;
(v) no event has occurred which constitutes a Material Adverse
Effect;
(vi) Neither Grande nor the Partnership has made any loan to, or
entered into any contract with (other than severance
agreements for which Seller shall remain responsible), any of
its directors or officers;
(vii) Grande has not issued, sold, or otherwise disposed of any of
its interests in the Partnership, except in connection with
the transactions outlined in Section 9.4(b) of the Stock
Purchase Agreement;
(viii) there has been no change made or authorized to the Charter,
Bylaws, management agreement, limited liability company
agreement, operating agreement or partnership agreement of
Grande or the Partnership, except in connection with the
transactions outlined in Section 9.4(b) of the Stock Purchase
Agreement;
(ix) Neither Grande nor the Partnership has canceled, compromised,
waived, or released any debt or Action (or series of related
debts or Actions);
20
<PAGE>
(x) Neither Grande nor the Partnership has delayed or postponed
the payment of accounts payable or other Liabilities owed,
other than amounts which Seller reasonably and in good faith
disputes;
(xi) Neither Grande nor the Partnership has made any capital
investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of
related capital investments, loans, and acquisitions), except
in connection with operations conducted pursuant to Section
9.2(f) or in connection with the transactions outlined in
Section 9.4(b) of the Stock Purchase Agreement;
(xii) Neither Grande nor the Partnership has made any capital
expenditure (or series of related capital expenditures),
except in connection with operations conducted pursuant to
Section 9.2(f); or in connection with the transactions
outlined in Section 9.4(b) of the Stock Purchase Agreement
(xiii) Neither Grande nor the Partnership has entered into any
Contract (or series of related Contracts) other than (i) to
effectuate operations set forth on Schedule 9.2(f) or (ii)
constituting joint operating agreements or oil and gas leases
entered into in the ordinary course of business or (iii)
contracts with officers and directors for which the Seller
shall remain responsible or (iv) contracts in connection with
the transactions outlined in Section 9.4(b) of the Stock
Purchase Agreement;
(xiv) to Seller's Knowledge, neither Grande nor the Partnership has
materially breached any Contract by which it is bound or to
which any of its assets is subject; and
(xv) Neither Grande nor the Partnership has declared, set aside, or
paid any dividend or made any distribution with respect to its
interests in the Partnership (whether in cash or in kind) or
redeemed, purchased, or otherwise acquired any of its
interests in the Partnership, other than in the ordinary
course of business or as contemplated by this Agreement or in
connection with the transactions outlined in Section 9.4(b) of
the Stock Purchase Agreement.
(l) Compliance With Law. Since June 30, 1999, neither Grande nor the
-------------------
Partnership has violated any law, statute or regulation which have subjected
them to fines or penalties (nor to Seller's Knowledge have any third parties
violated any Applicable Law for which Grande or the Partnership may have any
responsibility). As of the date of this Agreement, to Seller's Knowledge,
Grande and the Partnership are in compliance in all material respects with all
laws, statutes or regulations applicable to Grande and the Partnership, except
where the noncompliance with which would not, in the aggregate, result in the
imposition on Grande and the Partnership of fines or penalties.
(m) Operating Assets.
----------------
(i) Seller represents that as of Closing, Seller's and the
Partnership's interests in the Operating Assets shall be free
and clear of any liens other than Permitted Encumbrances.
21
<PAGE>
(ii) To Seller's Knowledge, the Operating Assets are being operated
in compliance in all material respects with all applicable
federal, state or local laws, and the rules and regulations of
any agency or authority having jurisdiction.
(iii) Except as set forth in Schedule 4.1(m)(iii), Grande and the
Partnership possess all permits, licenses, orders, approvals
and authorizations required by any applicable law, statute,
regulation or Governmental Order, or by the property and
contract rights of third Persons, reasonably necessary to
permit the operation of the Business in the manner currently
conducted by Grande and the Partnership. Neither Grande nor
the Partnership has received written notice from any
Governmental Authority that any such permit, license, order,
approval or authorization has been, or will be, revoked or
terminated.
(iv) Except as set forth in Schedule 4.1(m)(iv), immediately before
the Closing Date, Grande and the Partnership will hold or have
the right to use in the Business all of the assets and
properties (including all licenses and agreements) currently
being used (except those disposed of or expiring in the
ordinary course of business or otherwise as contemplated or
permitted by this Agreement) or which are reasonably necessary
to permit the operation of the Business in the manner
currently conducted by Grande and the Partnership. Since June
30, 1999, Grande have conducted no business other than the
Business.
(n) No Brokers' Fees. Except for Credit Suisse First Boston, the fees and
----------------
expenses of which will be paid by Seller, neither Seller nor any of its
directors, officers or employees has employed any broker, finder or investment
banker or incurred any Liability for any brokerage fees, commissions, finders'
fees or similar fees in connection with the transactions contemplated by this
Agreement. Buyer shall have no responsibility whatsoever, contingent or
otherwise, for any brokers' or finders' fees incurred by Seller, Grande or the
Partnership relating to the Transaction.
(o) Suspense Funds. Schedule 4.1(o) is a true and correct list as of
--------------
August 31, 1999 of all amounts held by the Partnership and/or Grande in suspense
accounts, or otherwise, related to the Properties for the benefit or account of
any other Person.
(p) Insurance. As listed on Schedule 4.1(p) Seller, Grande and the
---------
Partnership maintain insurance on and bonds with respect to the Operating
Assets, as set forth on Schedule 4.1(p), covering such risks and with such
deductible amounts as are consistent with general oil and gas industry practice.
(q) Contracts on Production. Except as set forth on Schedule 4.1(q),
-----------------------
there are no Contracts involving the purchase, marketing, brokering or sale of
Production that require a dedication of Production for a term in excess of three
(3) months that will not be terminable without penalty or other liability at the
sole discretion of Grande or the Partnership upon not more than one (1) month's
notice, except for commitments under operating agreements.
(r) Equipment. Since June 30, 1999, neither Seller, Grande nor the
---------
Partnership, nor to Seller's Knowledge the operator of any of the Operating
Assets, has removed any of the
22
<PAGE>
equipment, facilities or other property from the Operating Assets except in the
ordinary course of business.
(s) Tax Partnerships. Except as disclosed in Schedule 4.1(s), no Property
----------------
is subject to, or considered to be held by, any partnership for federal income
tax purposes, other than tax partnerships under joint operating agreements.
(t) Disclaimer. Except as otherwise expressly set forth in this Article
----------
and elsewhere in this Agreement, Seller and the Affiliates of Seller expressly
disclaim any representations or warranties of any kind or nature, express or
implied, as to the condition, value or quality of the assets or properties
currently or formerly used, operated, owned, leased, controlled, possessed,
occupied or maintained by Grande or the Partnership, and SELLERS AND ALL OTHER
TESORO AFFILIATES SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY OF
MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH
RESPECT TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO THE
WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING ACQUIRED
"AS IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, WITH ALL
FAULTS, AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND INVESTIGATION
THEREOF.
(u) Environmental Matters. Except as set forth on Schedule 4.1(u), to
---------------------
Seller's Knowledge:
(i) There are no underground storage tanks, as defined in
Applicable Environmental Law, on the Properties or any of the
Operating Assets which constitute a violation of Environmental
Law.
(ii) The Operating Assets contain no friable asbestos, mercury or
polychlorinated biphenyls above 50 ppm or other Hazardous
Substances which constitute a violation of Applicable
Environmental Law.
(iii) The Operating Assets have been used solely for oil and gas
operations and related operations. Except for the production,
storage and transportation of oil, gas and other hydrocarbons
and the storage and disposal of brine in the ordinary course of
business consistent with prevailing oil and gas industry
practices, the Properties have not been used to dispose of
Hazardous Substances. No Hazardous Substances have been
disposed of that would cause an adverse material impact to any
of the Operating Assets.
(iv) There have been no spills or releases of any Hazardous
Substance related to the ownership or operation of the
Operating Assets which constitutes a violation of Applicable
Environmental Law, except for matters that have been addressed
and have no continuing adverse consequence to Seller, Grande,
the Partnership or the Operating Assets.
(v) There are no Actions pending or threatened against the
Partnership, Grande, or either Seller with respect to any of
the Operating Assets relating to the violation of, liability
under, or noncompliance with, any
23
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Applicable Environmental Law; the discharge, disposal or
release of a Hazardous Substance; or the exposure of a Person
or property to a Hazardous Substance. Seller, Grande and the
Partnership have no current contingent liability in connection
with the release of Hazardous Substances.
(vi) The Operating Assets have been, and are operating, in material
compliance under all Applicable Environmental Laws.
(vii) Seller, Grande and the Partnership have provided Buyer all
environmental audits, tests, results of investigations and
analyses that have been performed with respect to the Operating
Assets.
(v) Contracts. Except as set forth on Schedule 4.1(v) or Section 4.1(q)
---------
and in joint operating agreements entered into in the normal course of business,
the Operating Assets are not subject to any instrument, agreement or other
Contract evidencing or related to indebtedness for borrowed money. All of the
existing Contracts between any of Grande, the Partnership and/or either Seller
and any of their respective Affiliates with respect to sales, services or
support to any of the Operating Assets or operations on the Operating Assets
shall terminate except for such Contracts otherwise indicated on Schedule 4.1(v)
to survive Closing. Except as set forth on Schedule 4.1(v) and other than
Consents to Assignment or Preferential Rights to Purchase, to Seller's
Knowledge, no Contracts to which Seller, Grande or the Partnership is a party or
a successor-in-interest and to which Buyer will be subject after the Effective
Time contain any provision that prevents Buyer from owning, managing and
operating the Operating Assets in accordance with the Partnership's past
practices.
(w) Seismic Information. At Closing, subject to the terms of the License
-------------------
Agreement, neither Seller nor any affiliate of Seller other than Grande and the
Partnership shall have any further right to any of the seismic data of Grande or
the Partnership which has been assigned or leased to Grande, the Partnership
and/or the Buyer.
(x) Wells. Except to the extent set forth on Schedule 4.1(x), to Seller's
-----
Knowledge, no well included in the Properties is subject to material penalties
on allowables because of any overproduction or any other violation of Applicable
Law. Except for the wells included in the Properties and listed in Schedule
4.1(x), there are no wells included in the Properties that Seller, Grande or the
Partnership, or to Seller's Knowledge the operator of such wells, are currently
obligated by Applicable Law, Applicable Environmental Law or order of any
Governmental Authority to plug and abandon within a time certain or that have
been shut-in or temporarily abandoned.
(y) Expenditure Obligations. Except as set forth on Schedule 9.2(f),
-----------------------
Grande and the Partnership have not executed or are not otherwise contractually
bound by any authority for expenditure with respect to any of the Operating
Assets under any operating agreement, unit operating agreement, or other similar
agreements. Except as set forth on Schedule 9.2(f), with respect to
authorizations for expenditure relating to any of the Operating Assets, (i)
there are no outstanding calls under such authorizations for expenditures for
payments which are due or which Grande or the Partnership have committed to make
which have not been made; (ii) there are no material operations with respect to
which any of Grande and/or the Partnership has become a non-consenting party
where the effect of such non-consent is not disclosed on Exhibit
24
<PAGE>
B, and (iii) there are no commitments for the expenditures of funds for drilling
or other capital projects other than projects with respect to which the operator
is not required under the applicable operating agreement to seek consent.
(z) Payout. To Seller's Knowledge, the payout balances with respect to
------
any of the Properties operated by the Partnership that are subject to future
change on account of reversionary interests, non-consent penalties or similar
agreements or arrangements are set forth on Schedule 4.1(z) and are correct as
of the dates shown on such statements.
(aa) Absence of Certain Changes Regarding Properties. Since June 30, 1999,
-----------------------------------------------
except as listed on Schedule 4.1(k), Grande and the Partnership:
(i) have maintained and operated each of the Properties operated by
any of them as a reasonably prudent operator consistent with
prevailing oil and gas industry practice;
(ii) have used reasonable efforts consistent with their past
practices to cause each of the Properties not operated by them
to be maintained and operated in a good and workmanlike manner
and in substantially the same manner as theretofore operated;
(iii) have paid timely their share of all costs and expenses
attributable to the Operating Assets, except for such costs and
expenses that they were contesting in good faith by appropriate
action;
(iv) have performed all accounting, royalty disbursement and
reporting requirements, as applicable, related thereto for the
Production; and
(v) have not agreed, whether in writing or otherwise, to take any
action described in this Section 4.1(aa).
(bb) Schedule 1B states all liens and mortgages that previously encumbered
the Membership Interests or the Operating Assets, securing obligations of
Seller, Grande or the Partnership (other than those items listed in clause (ii)
through (ix) of the definition of "Permitted Encumbrances"), and all of the
liens and mortgages listed on Schedule 1B have been released, insofar as they
encumber the Membership Interests or the Operating Assets.
4.2 Buyer's Representations. Buyer represents that:
-----------------------
(a) Disclosure. To Buyer's Knowledge, the representations and warranties
----------
set forth in this Agreement represent full and fair disclosure as of the date of
this Agreement and the date of Closing and do not contain any untrue statement
of any material fact or omit any material fact necessary in order to make the
facts stated not misleading.
(b) Authorization and Enforceability
--------------------------------
(i) This Agreement and the Transaction have been duly authorized by
Buyer.
(ii) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby or
thereby, will violate or conflict with (1) any provision of
Buyer's Charter or Bylaws, or
25
<PAGE>
(2) any applicable statute, law, regulation or Governmental
Order to which Buyer or the assets or properties of Buyer are
bound.
(iii) This Agreement has been duly executed and delivered by Buyer
and constitutes the valid and binding obligation of Buyer,
enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency or
other laws relating to or affecting the enforcement of
creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(iv) Except as set forth on Schedule 4.2(b)(iv) or as otherwise
specifically provided herein, the execution, delivery, and
performance of this Agreement (assuming that all applicable
consents are received) will not (A) be in material violation of
any provisions of any regulation, or order or (B) result in the
breach of, or constitute a default under, any material
indenture or other agreement or instrument to which Buyer is
bound.
(v) Except as set forth on Schedule 4.2(b)(v) or as otherwise
specifically provided herein, no consent, waiver, approval,
order or authorization of, notice to, or registration,
declaration, designation, qualification or filing with, any
Governmental Authority or third Person, domestic or foreign, is
or has been or will be required on the part of Buyer in
connection with the execution and delivery of this Agreement or
the consummation by Buyer of the transactions contemplated
hereby or thereby, other than where the failure to obtain such
consents, waivers, approvals, orders or authorizations or to
make or effect such registrations, declarations, designations,
qualifications or filings is not reasonably likely to prevent
or materially delay consummation of the transactions
contemplated by this Agreement or prevent Buyer from performing
its obligations under this Agreement.
(c) Organizational Status. Buyer: (i) is a limited liability company duly
---------------------
organized, validly existing and in good standing under the laws of Delaware,
(ii) is duly qualified to transact business in each jurisdiction where the
nature and extent of its business and properties require the same in order for
it to perform its obligations under this Agreement; and (iii) possesses all
requisite authority and power to conduct its business and execute, deliver and
comply with the terms and provisions of this Agreement, to purchase, receive,
and accept conveyance of the Membership Interests from Seller and to perform all
of its obligations hereunder.
(d) Ability to Perform. On the Closing Date, Buyer will have sufficient
------------------
cash, available lines of credit or other sources of immediately available funds
to enable it to make its payment of the Closing Settlement Price at the Closing.
(e) Investment Intent. The Membership Interests are being purchased for
-----------------
Buyer's own account and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the Securities
Act. Buyer understands that the Membership Interests have not been registered
under the Securities Act by reason of their
26
<PAGE>
issuance in transactions exempt from the registration and prospectus delivery
requirements of the Securities Act pursuant to Section 4(2) thereof. Buyer is
knowledgeable, competent, and experienced in the oil and gas industry and has
independently evaluated and interpreted the technical data and other information
regarding the Operating Assets prior to entering into this Agreement,
understands and is financially able to bear the risk associated with ownership
of Grande and the Partnership, and will independently conduct all the due
diligence investigations and reviews of all matters concerning Grande, the
Partnership and the Operating Assets as it deems necessary prior to Closing.
Buyer acknowledges that Buyer is not relying upon any statement or
representations made by Seller concerning the present or future value of, or
anticipated income, costs, or profits, if any, to be derived from, Grande, the
Partnership or the Operating Assets, and Buyer has relied solely upon its
independent inspections, estimates, computations, evaluations, reports, studies,
knowledge and other information regarding Grande, the Partnership and the
Operating Assets.
(f) Litigation. There are no pending or, to Buyer's Knowledge, threatened
----------
suits, actions, proceedings, claims, or investigations that would interfere with
Buyers ability or right to execute and deliver this Agreement or consummate the
transactions contemplated by this Agreement.
(g) No Brokers' Fees. Buyer has incurred no liability, contingent or
----------------
otherwise, for brokers' or finders' fees relating to the Transaction for which
Seller shall have any responsibility whatsoever.
(h) Buyer's Knowledge. To Buyer's Knowledge, on the date hereof, Buyer's
-----------------
representations and warranties made in this Section 4.2 are true and correct in
all material respects.
ARTICLE V.
ACCESS TO INFORMATION AND INSPECTION
------------------------------------
5.1 Access to Information. Prior to the Closing Date, upon reasonable
---------------------
notice, Seller, Grande and the Partnership have (i) afforded the officers,
employees and authorized agents and representatives of Buyer reasonable access
during normal business hours to the offices, Operating Assets and Books and
Records, title and contract files, permit files, legal, evidentiary, litigation
support, records and data financial and accounting records and operating and
maintenance files, and related documents, records and materials concerning the
Operating Assets data in possession of Seller and (ii) furnished to the
officers, employees and authorized agents and representatives of Buyer such
additional financial and operating data and other information regarding the
assets, Operating Assets and Liabilities of Grande, the Partnership, and the
Business (or legible copies thereof) as Buyer may have from time to time
reasonably requested.
5.2 Warranties As to Documents. Seller has advised Buyer of the nature
--------------------------
and existence of any confidential documents that have been withheld from
disclosure. Seller does not warrant or represent the accuracy of any materials
that may have been made available for Buyer's review, except that Seller does
represent and warrant that it has not concealed or intentionally or willfully
misrepresented or withheld any information, data or materials in its
27
<PAGE>
possession except for confidential information, data or materials, the existence
of which has been disclosed as otherwise provided herein.
ARTICLE VI.
TITLE
-----
6.1 Governmental Consents. After the execution of this Agreement, and
---------------------
upon Closing and thereafter, Buyer and Seller shall cooperate to obtain all
routine or standard governmental consents or waivers necessary to transfer
Seller's rights and interests in Grande and the Partnership owning the Operating
Assets to Buyer.
ARTICLE VII.
ENVIRONMENTAL
-------------
7.1 Disclosures and Availability of Data to Buyer. The Operating Assets
---------------------------------------------
have been utilized by the Partnership for the purposes of exploration,
development and production of oil and gas, for related oilfield operations and
possibly for the storage and disposal of waste materials or hazardous substances
generated or otherwise used in association with oil and gas exploration and
production activities on the Properties. The Operating Assets also may contain
buried pipelines, the locations of which may not now be known by Seller or
readily apparent by a physical inspection of the Operating Assets. In addition
to providing any environmental audits and studies as per Section 4.1(u), Seller
has made and shall make available to Buyer Seller's historical files regarding
the foregoing operations, to the extent available and to the extent Seller,
Grande and the Partnership are authorized to disclose same (excepting documents
which Seller, Grande or the Partnership are contractually prohibited from
disclosing or are subject to legal privilege or are in the possession of another
operator, and with respect to which Seller has been unable to secure consent to
disclose despite its commercially reasonable efforts to do so).
7.2 NORM. Without affecting Seller's representations and warranties or
----
the provisions of Section 7.3, Buyer acknowledges that some or all of the
Operating Assets may contain naturally occurring radioactive materials ("NORM"),
and that NORM is an anticipated hazard in oil and gas production operations.
Certain of the Operating Assets, including without limitation, pipe and
equipment may have deposits that contain NORM. Buyer agrees that it shall cause
the Partnership to properly handle and dispose of all materials containing NORM
in a safe manner in accordance with all applicable laws and regulations, at
their sole risk, liability and expense.
7.3 Buyer's Environmental Assessment. Buyer has pursued such
--------------------------------
environmental assessments of the Operating Assets as Buyer has desired.
7.4 Responsibilities for Remediation of Contamination. As between the
-------------------------------------------------
parties hereto, but subject to the provisions of applicable laws, joint
operating agreements, other third party agreements and the indemnities and other
provisions set forth herein, from and after the Closing, the Partnership shall
remain responsible for costs of remediation of all Environmental Conditions
occurring on or arising from any Operating Asset at any time, whether before, on
or after the Effective Time; provided however, that Seller shall fund payment of
any fines or
28
<PAGE>
regulatory penalties that might be assessed against the Partnership by reason of
any violation of regulatory or permit requirements before the Closing Date.
ARTICLE VIII.
CASUALTY LOSS AND CONDEMNATION
------------------------------
8.1 No Termination. Except as specifically provided to the contrary
--------------
herein, Grande and the Partnership shall retain all risk of loss with respect to
any loss of, reduction in value of or damage to the Operating Assets from the
Effective Time until Closing, and Buyer assumes the risk of loss of value of
Grande and the Partnership associated with such matters. If after the Effective
Time and prior to the Closing, any part of the Operating Assets should be
destroyed by fire or other casualty or if any part of the Operating Assets
should be taken in condemnation or under the right of eminent domain or if
proceedings for such purposes should be pending or threatened, this Agreement
shall remain in full force and effect notwithstanding any such destruction,
taking or proceeding or the threat thereof, except as expressly provided in
Article XX.
8.2 Proceeds and Awards. In the event of any loss described in Section
-------------------
8.1, Seller (with Buyer's consent, which shall not be unreasonably withheld)
shall either (a) at the Closing assign to the Partnership all of Seller's rights
in any insurance proceeds, third party damage payments, condemnation awards or
other amounts paid or to be paid by reason of such destruction, less any costs
and expenses incurred by Seller in collecting same, or (b) prior to Closing, use
or have the Partnership apply such sums (less any costs and expenses incurred by
Seller in collecting same) to repair, restore or replace such damaged or taken
Operating Assets. In addition, Seller shall at Closing assign to the
Partnership all of the right, title and interest of Seller in and to any claims
for loss of or damages to the Operating Asset, that might be asserted against
third parties with respect to the event or circumstance causing such loss to and
any unpaid insurance proceeds, condemnation awards or other payments arising out
of such destruction or taking, less any costs and expenses previously incurred
by Seller in collecting same. The Settlement Price shall be reduced by the
Casualty Price Adjustment, if any, attributable to casualty losses that are not
fully covered by insurance. Notwithstanding anything to the contrary in this
Section 8.2, neither Seller, Grande nor the Partnership shall be obligated to
carry or maintain, nor shall they have any obligation or liability to Buyer for
their failure to carry or maintain any insurance coverage with respect to any of
the Operating Assets, except as required by Section 9.2.
8.3 Risks Of Other Losses. Except as otherwise set forth in this
---------------------
Agreement, Buyer shall assume all risks of loss with respect to the
Partnership's ownership or operation of the Operating Assets after the Effective
Time, including without limitation, the following risks:
(a) Operations. With respect to each Operating Asset, Buyer shall assume
----------
all risk of loss with respect to any loss of value or change in the condition of
the Operating Asset, and all wells thereon, after the Effective Time, relating
to the production of oil, gas or other hydrocarbons, including without
limitation normal depletion, water encroachment, coning, pressure depletion,
formation changes and sand infiltration. The Partnership shall continue to bear
its proportionate share of the risks allocated under applicable joint operating
agreements and
29
<PAGE>
assume their proportionate share of the risks that such operations may be
unsuccessful, and Closing shall not be conditioned upon the success of any
operations.
(b) Market Conditions. With respect to each Operating Asset, Buyer shall
-----------------
assume all risk of loss with respect to any change in market conditions
affecting any Operating Asset or production therefrom after the Effective Time,
and this Agreement shall not be terminated or suspended, nor shall Closing be
delayed, due to any such change in market conditions.
ARTICLE IX.
COVENANTS
---------
9.1 Pre-Closing Covenants of Seller Regarding the Business. Sellers shall
------------------------------------------------------
cause Grande and the Partnership to operate the Business only in its usual,
regular and ordinary manner and substantially in the same manner as heretofore
conducted, and as set forth in Section 9.2. Sellers shall cause Grande and the
Partnership to use commercially reasonable efforts and as set forth in Section
9.2, to (i) preserve the Business; (ii) keep available to Buyer the services of
the present officers, employees, agents and independent contractors of Grande;
and (iii) maintain the assets of the Business in their current state of repair,
order and condition, usual and ordinary wear and tear excepted and subject to
requirements in the ordinary course of business.
9.2 Pre-Closing Covenants of Seller Regarding the Operating Assets.
--------------------------------------------------------------
Subject to the terms of applicable operating and other existing agreements,
Seller covenants and agrees that between the date of this Agreement and the
Closing Date, except as set forth on Schedule 9.2 or as may be consented to in
writing by Buyer, which consent shall not be unreasonably withheld, Seller shall
manage the Partnership's ownership of the Operating Assets as follows:
(a) Disposal of Operating Assets. The Partnership shall not sell or
----------------------------
otherwise dispose of any of the Operating Assets, except for the sale in the
ordinary course of the Partnership's business of oil, gas, condensate and
products thereof and surplus equipment.
(b) New Third Party Rights. Except for Contracts entered into in
----------------------
furtherance of operations listed on Schedule 9.2 and Schedule 9.2(f), without
Buyer's consent, the Partnership shall not enter into any new or amended
contracts, agreements or relationships (i) granting any Preferential Right to
Purchase or Consent to Assignment affecting any of the Operating Assets
hereunder, or (ii) which if in existence as of the date hereof would be a
material Contract.
(c) Preservation of Operating Assets. The Partnership shall use
--------------------------------
reasonable efforts to preserve in full force and effect all leases, operating
agreements, easements, rights-of-way, permits, licenses, contracts and other
agreements which relate to the Operating Assets and shall perform the
obligations of the Partnership in or under any such agreement relating to such
Operating Assets as a reasonable and prudent operator, provided however, that
the Partnership shall not be required to conduct any drilling, recompletion or
reworking activities to maintain any lease, farmout agreement or other
defeasible interest in force or to settle any adverse claims, demands or
litigation in a manner that Seller deems inappropriate.
30
<PAGE>
(d) Maintenance of Equipment. The Partnership shall maintain all material
------------------------
and equipment within the Operating Assets in accordance with customary industry
operating practices and procedures.
(e) Insurance. The Partnership shall maintain in full force and effect
---------
all policies of insurance now maintained by Seller and the Partnership covering
the Operating Assets. Seller and Buyer will cooperate in making claims under
Seller's insurance policies prior to the Closing. Seller additionally agrees to
cooperate with Buyer to allow Buyer, Grande or the Partnership to obtain, at
Buyer's expense, at a reasonable market price an additional reporting period
policy for any of Seller's insurance policies which are on a claims-made basis.
(f) Operations.
----------
(i) Except for operations covered by committed expenditures listed on
Schedule 9.2(f), the Partnership shall not propose or conduct for
its own account any operation. The Partnership shall have the
right to conduct, at its sole election and discretion, any
operations that either (1) are covered by committed expenditures
listed on Schedule 9.2(f), (2) are required by law or
regulations, or (3) are required under a binding existing
agreement with a third party.
(ii) Except for operations covered by committed expenditures listed on
Schedule 9.2(f), the Partnership shall not agree to participate
in any reworking, deepening, drilling, completion, recompletion,
equipping or other operation that is proposed by a co-owner in
any well or other asset, without Seller having first provided
Buyer written or oral notice thereof as soon as reasonably
practicable after the Partnership receives notice thereof from
the Partnership's co-owner in such Operating Asset. If Seller
provides Buyer with such notice, Buyer and Seller shall promptly
consult about the advisability of participating in such
operations. If Buyer and Seller cannot agree, the following
provisions shall apply:
(1) If Seller should wish to participate in an operation
proposed by a third party and Buyer should object to the
operation, then the Partnership may agree to participate, but
Buyer may assert a Title Defect with respect to the Property
affected by such operation, and in such event such Property shall
be excluded from the sale hereunder and instead shall be assigned
to another subsidiary of Seller prior to Closing and the Purchase
Price shall be reduced by the Allocated Value of the affected
Property. In such event, Seller shall indemnify and defend Buyer
against any and all Damages relating to such operation and such
Property.
(2) If Buyer should wish to participate in such operation and
Seller objects to the operation, the Partnership shall not be
obligated to make any such payment or to elect to participate in
such operation unless within a reasonable time prior to the date
when such payment or election is required to be made by the
Partnership, the Partnership receives from
31
<PAGE>
Buyer, (A) the written election and agreement of Buyer to require
the Partnership to take such action and to indemnify Seller
therefrom and (B) all funds necessary for such action.
(3) If (A) Buyer advances any funds pursuant to subparagraph
(2), and (B) the Membership Interests are not assigned to Buyer
at Closing, and (C) Seller does not reimburse Buyer for all
advances made by Buyer with respect to such Operating Assets
pursuant to subparagraph (2) within thirty (30) days after this
Agreement terminates, then Buyer shall own and be entitled to any
right of the Partnership that would have lapsed but for such
payment, and in the case of operations, Seller shall be entitled
to receive the penalty which the Partnership, as non-consenting
party, would have suffered under the applicable operating
agreement with respect to such operations as if Buyer were a
consenting party thereunder.
(g) Data Restrictions. Seller shall advise Buyer in writing of the
-----------------
identity, nature and existence of any technical or interpretive information or
data that cannot be assigned to Buyer hereunder because of confidentiality
agreements with third parties, identify such third parties, and provide
reasonable cooperation (for before and up to one year after Closing) in
obtaining the agreement of such third parties to the release or assignment of
such information and data to Buyer; provided however, that Seller shall not be
required to expend any material funds or release any rights to allow such
release or assignment.
(h) Operating Assets Operated by Others. To the extent the Partnership is
-----------------------------------
not the operator of any Operating Asset, the obligations of Seller in this
Section 9.2, which have reference to operations or activities which normally are
or pursuant to existing contracts are to be carried out or performed by
operator, shall be construed to require only that the Partnership use reasonable
efforts to request that the operator of such Operating Asset either take such
actions, render such performance or refrain from performance, within the
constraints of the applicable operating agreements, applicable agreements and
applicable law.
9.3 Seller's Covenants Regarding Encumbrances. Seller covenants that on
-----------------------------------------
or before the Closing Date, Seller shall cause the Encumbrances in Schedule 1B
to be released, in a form reasonably acceptable to Buyer.
9.4 Covenants Regarding Corporate and Financial Matters. Through the
---------------------------------------------------
Closing Date, except as set forth in Schedule 9.4 or as contemplated by this
Agreement (including without limitation Sections 2.5 and 2.6) or otherwise
consented to or approved by Buyer in writing, which consent or approval shall
not be unreasonably withheld, Seller shall cause Grande and the Partnership not
to:
(a) Amend the Charter, Bylaws, management agreement, limited liability
company agreement or operating agreement of any Grande or amend the partnership
agreement of the Partnership;
32
<PAGE>
(b) Incur, assume or become subject to any additional indebtedness for
money borrowed or purchase money indebtedness, except in the ordinary course of
business and consistent with past practices;
(c) Except as necessary to effect the transactions contemplated herein,
declare or pay any dividend or make any other distribution to any shareholder of
any of Grande or any partner of the Partnership;
(d) Redeem or otherwise acquire any shares of capital stock of any of
Grande or issue any capital stock of any Grande or any option, warrant or right
relating thereto or any securities exchangeable for or convertible into any such
shares;
(e) Permit or allow any of Grande' assets or properties to be subject to
any additional Encumbrance (other than Permitted Encumbrances) or sell,
transfer, lease or otherwise dispose of any such assets or properties, other
than surplus equipment not necessary for operations of the Business and sold for
a reasonable consideration of less than $25,000;
(f) Make any change in any method of accounting or accounting practice or
policy, other than those required by GAAP;
(g) Engage in any transactions with an Affiliate of Seller, other than
transactions in the ordinary course and consistent with past practices;
(h) Make any changes in the method of selling natural gas, condensate, oil
or products thereof which is not consistent with past practices;
(i) Enter into any new derivative or Hedging Contracts with respect to
natural gas, condensate, oil, products thereof, interest or any other
commodities or other financial instruments; or
(j) Agree, whether in writing or otherwise, to do any of the foregoing.
9.5 No Solicitation of Transactions. Except as otherwise permitted herein
-------------------------------
from the date of this Agreement through the Closing Date, neither Seller nor any
of their representatives, Affiliates, directors, officers, employees,
subsidiaries or agents will (a) solicit, consider, encourage or accept any other
offers to acquire any of the Membership Interests or Seller's interests in the
Partnership or (b) solicit, consider, encourage or accept any other offers to
acquire any of the assets or properties of the Partnership (other than as
permitted by this Agreement) or (c) assist any third Person in preparing or
soliciting such an offer. Seller shall not have, and shall cause such
representatives, Affiliates, directors, officers, employees, subsidiaries and
agents not to have any discussions, conversations, negotiations or other
communication with any Person(s) expressing an interest in any such offer.
9.6 Emergencies and Oversights. Notwithstanding the other provisions of
--------------------------
this Article IX, (a) Seller, Grande and/or the Partnership may take any action
with respect to the Operating Assets without penalty, if reasonably necessary
under emergency circumstances or if required to protect life, public safety or
the environment, and provided Buyer is notified as soon thereafter as reasonably
practical, and (b) Seller shall have no liability to Buyer for the loss or
33
<PAGE>
reduction of any rights or interests by reason of the nonpayment or incorrect
payment of delay rentals, royalties, shut-in royalties or similar payments or
for any failure to pay any such payments through mistake or oversight; provided,
however, Buyer shall be permitted to assert the items in this clause (b) as
Title Defects under Article VI.
9.7 Buyer's Covenants Regarding Performance and Continued Existence.
---------------------------------------------------------------
Buyer covenants that between the date of this Agreement and the Closing Date:
(a) Buyer shall take all steps and perform all operations reasonably
necessary to allow Buyer to perform its obligations at Closing;
(b) Buyer shall maintain its existence as a limited liability company in
good standing in Delaware; and
(c) Buyer shall cause the representations and warranties of Buyer to be
true and correct as of the Closing Date.
9.8 Buyer's Covenants Regarding Trade Name. Buyer acknowledges and agrees
--------------------------------------
with Seller that Seller shall have the absolute and exclusive proprietary right
to all names, marks, trade names, trademarks and corporate symbols and logos
incorporating "Tesoro," together with all other names, marks, trade names,
trademarks and corporate symbols and logos owned by any Affiliates of Seller
(collectively, the "Tesoro Marks"), all rights to which and the goodwill
represented thereby and pertaining thereto are being retained by Seller and the
Affiliates of Seller. Within ninety (90) days after the Closing Date, Buyer
shall change the name of Grande and the Partnership, to not include the name
"Tesoro", cease using any Tesoro Mark and shall promptly remove from all the
assets and properties of Grande any and all Tesoro Marks, and change the name on
all permits and licenses, to not include the name "Tesoro". Thereafter, Buyer
shall not use any Tesoro Mark in connection with the conduct of its business. In
the event that Buyer breaches this Section 9.8, Seller shall be entitled to
specific performance of this Section 9.8 and to injunctive relief against
further violations, as well as any other remedies available at law or in equity.
9.9 Buyer's Covenants Regarding Employment.
--------------------------------------
(a) Schedule 9.9(a) sets forth the employees of Seller or its Affiliates
to whom Buyer (or an Affiliate of Buyer) expects to offer employment after the
Closing. Buyer in its sole discretion will determine the capacity in which the
employees listed on Schedule 9.9(a) who accept employment with Buyer or its
Affiliate (the "Retained Employees") will be employed and with which entity each
of the Retained Employees will be employed after the Closing. After the Closing,
Buyer (or its Affiliates which will employ Retained Employees) will initially
provide to the Retained Employees the same base salary or wages (but not any
retention-related salary increases described in Schedule 9.9(c)) provided to
such employees prior to the Closing, subject to such changes in base salary or
wages as are consistent with the Buyer's compensation structure. Buyer will take
all actions necessary or appropriate to permit the Retained Employees to
participate from and after the Closing in the employee benefit plans or
arrangements of Buyer and/or Affiliates of Buyer customarily provided to new
employees of Buyer and its Affiliates (including, without limitation, the
Employee Stability Plan); provided that Buyer shall, with
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respect to Buyer's or its Affiliate's group health and dental plans ("Buyer's
Group Health Plans"), to the extent necessary after the Closing, (i) reimburse
such Retained Employees, for the year during which participation in Buyer's
Group Health Plan begins, for any duplicate deductibles and copayments already
incurred during such year under the group health and dental plans of Seller or
its Affiliates ("Seller's Group Health Plans"), and (ii) waive any preexisting
condition limitations applicable to the Retained Employees (and their eligible
dependents) under Buyer's Group Health Plans to the extent that a Retained
Employee's (or dependent's) condition would not have operated as a preexisting
condition under Seller's Group Health Plans.
(b) Buyer (and its Affiliates) will not be required to assume any
obligation to Retained Employees (or any other employees of Seller or its
Affiliates) under Seller's existing severance, retention or management stability
agreements, or similar agreements. As described in Section 9.9(a), from and
after the Closing, the Retained Employees will be permitted to participate in
the employee benefit plans or arrangements of Buyer and/or its Affiliates
customarily provided to new employees of Buyer and its Affiliates (including,
without limitation, the Employee Stability Plan), or other benefits as may be
individually negotiated between Buyer and a Retained Employee.
(c) Buyer (or its Affiliate) will assume half, and Seller and its
Affiliates will remain responsible for half, of the liability to all Retained
Employees for the annual incentive compensation bonuses described on Schedule
9.9(c). Buyer (or its Affiliate) will not assume the liability to certain
Retained Employees for the retention-related salary payment.
(d) Any obligations to employees of Seller and its Affiliates not
specifically assumed by Buyer (or its Affiliates) in this Section 9.9, including
without limitation all such obligations accrued prior to the Closing, will be
the responsibility of the Seller, and Seller will indemnify Buyer with respect
to those obligations.
(e) Buyer agrees to open an office in San Antonio, Texas and to maintain
such office for so long as prudent business practices justify its operation.
(f) If after the Closing Date, Seller or any of its Affiliates continues
to employ any individual listed on Schedule 9.9(a), Seller agrees to cooperate
with Buyer to make such individual available to provide services required by
Buyer for up to six months after the Closing Date for transition purposes, with
Buyer reimbursing Seller for the actual cost of such employee's services
(including without limitation, salary and benefits).
9.10 Authorizations.
--------------
(a) Each of Buyer and Seller, as promptly as practicable after the
Agreement Date, shall (i) deliver, or cause to be delivered, all notices and
make, or cause to be made, all such declarations, designations, registrations,
filings and submissions under all statutes, laws, regulations and Governmental
Orders applicable to it as may be required for it to consummate the sale of the
Membership Interests and the other transactions contemplated hereby in
accordance with the terms of this Agreement; (ii) use commercially reasonable
efforts to obtain, or cause to be obtained, all authorizations, approvals,
orders, consents and waivers from all Persons necessary to consummate the
foregoing; and (iii) use commercially reasonable efforts to
35
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take, or cause to be taken, all other actions necessary, proper or advisable in
order for it to fulfill its respective obligations hereunder and to carry out
the intentions of the parties expressed herein. The preceding sentence
notwithstanding, neither party shall have any obligation to waive any condition
herein for its benefit or any performance hereunder by any other party.
(b) Each Party shall use its commercially reasonable efforts to satisfy
the conditions to Closing applicable to it in Article XI as soon as commercially
practicable.
9.11 Software and Computer Programs. From the date of this Agreement
------------------------------
through the date which is ninety (90) days after the Closing Date, each Seller,
Grande and the Partnership, as applicable, agree to engage in discussions with
the licensors of applicable software and computer programs and seismic data and
processing identified in a written notice provided to Seller by Buyer on or
prior to the Closing Date, the purpose of which discussions shall be to assist
Buyer in its efforts to obtain a license with respect to such software and/or
computer programs and seismic data and processing with terms acceptable to
Buyer. Buyer will pay all fees (including fees agreed to as part of a
settlement) required to transfer or retain such records, programs and data that
Buyer chooses to retain after Closing.
9.12 General.
-------
(a) Each of the Parties will use their reasonable best efforts to take
all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Article
XI).
(b) Buyer agrees to cooperate at no cost or liability to Buyer with
Seller so that Seller's transfer of the Operating Assets to Buyer shall, at
Seller's election, be accomplished in a manner enabling the transfer to qualify
as a part of a like-kind exchange of property by Seller within the meaning of
Section 1031 of the Code. If Seller so elects, Buyer shall reasonably cooperate
with Seller to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller reasonably requests in order
to pay the Purchase Price in a manner which enables such transfer to qualify as
part of a like-kind exchange of property within the meaning of Section 1031 of
the Code, and Buyer agrees that Seller may assign its rights (but not its
obligations) under this Agreement to an escrow agent acting as a qualified
intermediary under United States Treasury Regulations, to qualify the transfer
of the Purchase Price as a part of a like-kind exchange of property within the
meaning of Section 1031 of the Code.
(c) Seller shall reimburse Buyer for Buyer's reasonable costs and
expenses incurred in connection with evaluating and implementing the like kind
exchange transaction, including without limitation, legal and accounting fees
incurred in connection with evaluating and implementing the like kind exchange
transaction and revising this Agreement. Seller shall reimburse Buyer in cash
for such costs and expenses within ten (10) days after receiving a notice from
Buyer describing such costs and expenses in reasonable detail, and requesting
payment.
(d) If prior to Closing Buyer elects to obtain financing for a portion of
the Purchase Price from a bank or other lender (the "Lender") (whether through
conventional loans or through
36
<PAGE>
a production payment or similar off-balance sheet financing mechanism), Seller
shall (and shall cause Grande and the Partnership to) cooperate reasonably with
Buyer in Buyer's negotiation and finalization of any loan or other documents
with the Lender, provided that such cooperation does not result in Seller,
Grande and the Partnership incurring material additional expenses. Seller shall
(and shall cause Grande and the Partnership to) use its commercially reasonable
efforts to give representatives of the Lender the access to information and
right to inspection provided to Buyer under Article V, subject to the Lender
agreeing to be bound by the terms of the Confidentiality Agreement. This Section
9.12(c) does not change or modify Buyer's obligation to close the Transactions
in accordance with the other provisions of this Agreement.
9.13 Covenant and Indemnity with Respect to Cash Flow. Seller covenants to
------------------------------------------------
use its best efforts to insure that after the Closing all cash, checks, wire
transfers and other cash flow attributable to the Operating Assets received by
Seller or any Affiliate of Seller will be transferred on or before the next
Business Day after such cash flow is received by Seller or such Affiliate of
Seller to an account designated by Buyer prior to the Closing (such that the
transfer is recorded by the transferring bank on or before the next Business Day
after such cash flow is received by Seller or an Affiliate of Seller). To the
extent Seller does not make the transfer required by this Section 9.13 on or
before the next Business Day after receipt of such cash flow, Seller agrees to
pay to Buyer (a) interest at the prime rate of Buyer's primary lender (accruing
from the second Business Day after receipt by Seller of such cash flow) on any
such cash flow remaining outstanding for the second and third Business Day after
receiving such funds and (b) the maximum interest allowable by Applicable Law on
any such cash flow remaining outstanding thereafter. Seller agrees to indemnify
and hold the Buyer Group harmless for any Damages asserted against, resulting
to, imposed upon or incurred by the Buyer Group arising from any failure by
Seller to transfer any amounts that, together with any other amounts not
transferred pursuant to this Section 9.13, aggregate greater than $1 million
and that Seller has not transferred within one Business Day after written notice
by Buyer is received by Seller. Buyer and Seller agree to cooperate in
identifying amounts that may need to be transferred by Seller to Buyer under
this Section 9.13.
ARTICLE X.
PRE-CLOSING PROCEDURES
----------------------
10.1 Initial Settlement Statement. Before Closing, Seller shall furnish
----------------------------
Buyer with a preliminary draft of the Settlement Statement, in accordance with
Section 13.1. Buyer shall have the right to audit and request appropriate
adjustments to the amounts reflected therein. Buyer shall furnish Seller with
any comments, and adjustments or revisions Buyer believes are appropriate to
conform the Settlement Statement to accurately reflect the best information
available at Closing, and the Parties shall endeavor in good faith to reconcile
the accounting issues and to produce as accurate a Settlement Statement as
possible based upon the information available at Closing. Seller shall then
furnish Buyer with the Settlement Statement, including any appropriate updates,
adjustments or revisions, showing the Closing Settlement Price.
10.2 Closing Documents. Before Closing, the Parties shall provide each
-----------------
other with preliminary drafts of all attorneys opinions, certificates, corporate
guarantees, assignments and
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other instruments to be delivered at Closing. The Parties shall thereafter
cooperate to make such revisions as are needed to prepare mutually acceptable
forms of all such instruments.
10.3 Escrow Agent. If the Parties should agree to place any funds into an
------------
escrow account at Closing, then they shall negotiate in good faith to select a
mutually acceptable escrow agent, who is willing and able to perform such role.
In such an before the Closing Date, the Parties shall agree upon an escrow
agent, and they shall use their best efforts to negotiate a mutually acceptable
Escrow Agreement before the Closing Date.
10.4 Qualified Intermediary. Seller will assign to the Qualified
----------------------
Intermediary all of Seller's rights in the proceeds of this Agreement. All
proceeds owed Seller for the sale under the Stock Purchase Agreement and,
subject to Section 21.4, this Agreement shall then be paid to the Qualified
Intermediary.
10.5 Wire Transfer Instructions. At least two (2) Business Days prior to
--------------------------
the Closing Date, Seller shall provide to Buyer wire transfer instructions
designating a bank account and Federal Reserve ABA designation ID number, at a
bank within the United States of America where the Closing Settlement Price
shall be paid to the Qualified Intermediary.
ARTICLE XI.
CLOSING CONDITIONS
------------------
11.1 Seller's Closing Conditions. Seller's obligation to consummate the
---------------------------
Transaction is subject to the satisfaction by Buyer or the waiver by Seller, at
or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Buyer
---------------
contained in Section 4.2 shall be true and correct in all material respects on
the Closing Date as though made on and as of that date.
(b) Performance. Buyer shall have performed in all material respects the
-----------
obligations, covenants and agreements hereunder to be performed by it at or
prior to Closing.
(c) Corporate Certificates and Opinion. Buyer shall have delivered to
----------------------------------
Seller (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of Buyer that the representations set forth in Section 4.2
are true and correct as of the Closing Date; (ii) a certificate of incumbency;
(iii) a certificate of good standing of Buyer as a limited liability company;
(iv) certified resolutions of the members of Buyer, authorizing Buyer to enter
into this Agreement and the Transaction and to perform its obligations at
Closing; and (v) an opinion of counsel for Buyer, acceptable to Seller, dated
the Closing Date, as to such matters as may reasonably be requested by Seller
and its counsel and are typical for transactions such as the Transaction.
(d) Pending Matters. No suit, action or other legal proceeding by a
---------------
third party or a governmental authority shall be pending which seeks material
damages from Seller in connection with, or seeks to restrain, enjoin or
otherwise prohibit, the consummation of the Transaction.
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(e) No Orders. This Closing hereunder shall not violate any order or
---------
decree of any governmental authority having competent jurisdiction over the
Transaction.
(f) HSR. Any applicable waiting period under the HSR Act shall have
---
expired or been terminated.
11.2 Buyer's Closing Conditions. Buyer's obligations to consummate the
--------------------------
Transaction is subject to the satisfaction by Seller or the waiver by Buyer, at
or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Seller
---------------
contained in Section 4.1 (other than with respect to paragraphs (u), (w), (x),
(y), (z) and (aa) of Section 4.1) shall be true and correct in all material
respects on the Closing Date as though made on and as of that date; provided,
however, that the accuracy of the representations and warranties in
subparagraphs (k)(i), (ix), (x), (xi), (xii) and (xiii) of Section 4.1 shall,
for purposes of satisfying this condition, not be affected to the extent of
inaccuracies resulting solely from Buyer unreasonably withholding its prior
written consent (after written request by Seller duly provided to Buyer) to the
action taken by (or omission of) Seller, Grande or the Partnership which caused
such representations and warranties to be inaccurate.
(b) Performance. Seller shall have performed, or caused to be performed,
-----------
in all material respects the obligations, covenants and agreements hereunder to
be performed by it, Grande and the Partnership at or prior to Closing.
(c) LLC Certificates and Opinion. Each Seller shall have delivered to
----------------------------
Buyer, and Seller shall cause Grande and the Partnership to deliver to Buyer:
(i) a certificate of an executive officer, dated the Closing Date, certifying on
behalf of such Seller that the representations made in Section 4.1, are true and
correct as of the Closing Date; (ii) a certificate of incumbency for each
Seller, (iii) a certificate of corporate good standing for the Partnership as a
Delaware limited partnership, for each Seller as Delaware corporations and for
Grande as a Delaware limited liability company; (iv) with respect to each Seller
only, certified resolutions of the Boards of Directors of each Seller,
authorizing each Seller to enter into this Agreement and the Transaction and to
perform its obligations at Closing; and (v) an opinion of counsel for the Seller
and each of Grande and the Partnership, acceptable to Buyer, dated the Closing
Date, as to such matters as may reasonably be requested by Buyer and its counsel
and are typical for transactions such as the Transaction.
(d) Other Certificates and Documents. Buyer shall have also received the
--------------------------------
certificates and documents described in Section 12.2.
(e) Pending Matters. No suit, action or other legal proceeding by a
---------------
third party or a governmental authority shall be pending which seeks material
damages from Buyer in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
(f) No Orders. The Closing hereunder shall not violate any order or
---------
decree of any governmental authority having competent jurisdiction over the
Transaction.
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(g) Adjustments. The reduction (if any) to be made at Closing to the
-----------
Purchase Price which results from the application of Articles VIII and XIII does
not exceed fifteen percent (15%) of the Purchase Price.
(h) Liens and Mortgages. Seller shall have secured release of all liens
-------------------
and mortgages listed on Schedule 1B and released all obligations of Grande and
the Partnerships under the Seller's credit facility and provided Buyer evidence
of the same.
(i) There shall not have occurred a Material Adverse Effect.
(j) HSR. Any applicable waiting period under the HSR Act shall have
---
expired or been terminated.
(k) Seller shall have delivered proof, acceptable to Buyer in its
reasonable discretion, of the effectiveness of a post-effective amendment to
Seller's Registration Statement on Form S-3 (Reg. No. 333-51789), as amended,
removing any entities being transferred hereunder as co-registrants under such
registration statement.
ARTICLE XII.
CLOSING
-------
12.1 Closing. The closing of the Transaction (the "Closing") shall be
-------
held on December 17, 1999 (the "Closing Date"), at 9:00 a.m. Houston time, at
the office of Seller's counsel, 1301 McKinney, Suite 5100, Houston, Texas 77010,
or at such other date or place as the parties may direct; provided, however,
that if all conditions to Closing set forth in Article XI have not been waived
or satisfied prior to December 17, 1999, the Closing Date shall be on the second
Business Day following the waiver or satisfaction of such conditions.
12.2 Seller's Closing Obligations. At Closing, Seller shall deliver to
----------------------------
Buyer the following:
(a) The certificates representing Membership Interests in Grande, duly
endorsed in blank or with separate duly executed powers duly endorsed in blank;
(b) All organizational documents and books and records of each of Grande,
Reserves LLC and Exploration LLC;
(c) All books and records of the Partnership;
(d) The resignations of the officers and directors of Grande;
(e) Such other documents or authorizations as Buyer may reasonably
request, or as might be reasonably necessary to assign all of Seller's interest
in Grande, the Partnership and the Operating Assets to Buyer in accordance with
the provisions hereof;
(f) Instruments assigning Seller's rights under this Agreement to the
Qualified Intermediary;
40
<PAGE>
(g) A certificate of each Seller signed under penalties of perjury (i)
stating that it is not a foreign corporation, foreign partnership, foreign trust
or foreign estate, (ii) providing its U.S. Employer Identification Number (if
applicable) and (iii) providing its address, all pursuant to Section 1445 of the
Code.
(h) The certificates of Seller referred to in Section 11.2(c) hereof;
(i) The opinion of counsel referred to in Section 11.2(c) hereof; and
(j) Releases, in a form acceptable to Buyer, of all liens and mortgages
listed on Schedule 1B.
12.3 Buyer's Closing Obligations. At Closing, Buyer shall deliver the
---------------------------
following:
(a) The Closing Settlement Price, paid to the Qualified Intermediary in
immediately available funds, by wire transfer into the U.S. bank account
designated by the Qualified Intermediary;
(b) The certificates of Buyer referred to in Section 11.1(c) hereof; and
(c) The opinions of counsel referred to in Section 11.1(c) hereof.
12.4 Governmental Filings. At Closing, the Parties shall execute such
--------------------
guarantees, bonds, forms and other instruments as are needed allow Buyer to
assume all of Seller's existing obligations under governmental permits and
licenses and leases affecting the Operating Assets. Buyer shall diligently file
such instruments and obtain governmental approval of the transfer of all such
rights, obligations and interests.
ARTICLE XIII.
ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS
--------------------------------------------------
13.1 Settlement Statements.
---------------------
(a) Pre-Closing. The Settlement Statement is attached hereto as
-----------
Exhibit D.
(b) Final Statement. As soon as practicable after the Closing Date, but
---------------
in no event later than one hundred twenty (120) days thereafter, Buyer shall
prepare and submit to Seller a draft Final Statement, which shall show the
calculation of the adjusted Final Settlement Price, based upon the best
information then available. Seller shall have the right to audit such Final
Statement and all supporting data and accountings. As soon as practicable after
receipt of the Final Statement, but in any event within thirty (30) days after
receipt thereof, Seller shall deliver to Buyer a written report containing the
changes, if any, which Seller proposes be made to the Final Statement. If no
response is made by Seller within such thirty (30) day period, it shall be
presumed that Seller concurs with the Final Statement, and such Final Statement
shall be the basis for the Final Settlement Price. If Seller submits a response,
the Parties shall cooperate in good faith to produce not later than one hundred
eighty (180) days after the Closing Date as accurate a Settlement Statement as
possible based upon the information then available. After agreement upon a Final
Statement setting forth the Final Settlement Price, the difference between
41
<PAGE>
such Final Settlement Price and the Closing Settlement Price paid at Closing
shall be paid within five (5) Business Days thereafter by the Party owing the
same.
13.2 Operating Taxes.
---------------
(a) Apportionment of Ad Valorem and Property Taxes. All ad valorem, real
----------------------------------------------
property taxes and personal property taxes, including interest and penalties
attributable thereto (hereinafter "Property Taxes"), attributable to Grande's
limited partnership interest in the Partnership's ownership and operation of the
Properties with respect to the assessment period ("Property Tax Period") during
which the Effective Time occurs shall be apportioned between Seller and Buyer by
multiplying the total amount of such Property Taxes by a fraction, the numerator
of which is the number of days in the partial period through and including the
Effective Time and the denominator of which is the total number of days in the
Property Tax Period. The Partnership shall file or cause to be filed all
required reports and returns incident to the Property Taxes and shall pay or
cause to be paid to the taxing authorities all Property Taxes relating to the
Property Tax Period during which the Effective Time occurs. If Seller is the
owner of Grande on the Property Tax assessment date, then the Settlement Price
shall be increased by the amount of Buyer's portion of Property Taxes owed as
set forth above. If the Property Tax assessment date occurs after Closing, then
the Settlement Price shall be reduced by the estimated amount of Seller's
portion of Property Taxes owed as set forth above. The allocation and payment
of ad valorem taxes shall be handled through adjustments to the Settlement
Price.
(b) Other Operating Taxes. With the exception of Income Taxes, all other
---------------------
federal, state, foreign and local Taxes (including interest and penalties
attributable thereto) on the ownership or operation of the Operating Assets
which are imposed upon Grande or the Partnership for periods or portions of
periods prior to the Effective Time shall be borne by Seller, and all such Taxes
imposed upon the Partnership for periods or portions of periods beginning on or
after the Effective Time shall be borne by Buyer. Such Taxes shall be
apportioned between Seller and Buyer for the period or portion thereof up to and
including the Effective Time, (i) in the case of a flat minimum dollar amount of
tax, by multiplying the total amount of such Taxes by a fraction, the numerator
of which is the number of days in the partial period through and including the
Effective Time and the denominator of which is the total number of days in such
tax period, and (ii) in the case of all other operating Taxes, on the basis of
actual activities creating such Tax liability of Grande and the Partnership for
the partial period through and including the Effective Time as are determined
from their respective Books and Records. To the extent any such amounts are
borne prior to the delivery of the Final Statement by a Party who is not
required to bear them hereunder, they shall be included in the adjustments to
the Settlement Price. The allocation and payment of these Taxes shall be
handled through adjustments to the Settlement Price.
13.3 Shared Obligations. If an invoice or other evidence of an obligation
------------------
is received which under the terms of this Article XIII is partially the
obligation of Seller and partially the obligation of Buyer, then the parties
shall consult with each other, the Partnership shall promptly pay such
obligation to the obligee, and Seller shall promptly reimburse Buyer for
Seller's portion so paid.
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13.4 Uncollectible Accounts Receivable. Buyer (and, prior to the
---------------------------------
Closing, Seller) shall cause Grande and the Partnership to use commercially
reasonable efforts to collect in full, consistent with the past practices of the
Business, all accounts receivable of the Business (the "Accounts Receivable").
If the Accounts Receivable outstanding at the Closing shall not have been fully
collected within 120 days following the Closing Date in an amount equal to the
outstanding unpaid amounts thereof at the Closing, Buyer may require the Seller
to purchase any Accounts Receivable that have not been so fully collected at a
purchase price equal to the original outstanding amount of such Accounts
Receivable at the Closing less net collections thereon from the Closing Date to
the repurchase date; provided, however, that the Seller shall be required to
repurchase such unpaid Accounts Receivable only to the extent that the aggregate
amount of such unpaid Accounts Receivable exceeds the allowance for doubtful
accounts deducted from accounts receivable set forth on the Balance Sheets, and
if such an excess exists, the Seller shall only be required to pay an amount for
such unpaid Accounts Receivable equal to such excess; provided, further, during
such 120-day period, that Buyer may not settle or compromise any Accounts
Receivable without the prior written consent of Seller. As a condition to any
such repurchase, Buyer shall reconvey to the Seller the unpaid Accounts
Receivable to be repurchased and shall provide Seller with sufficient detail
regarding such Accounts Receivable. Buyer shall not transfer or convey such
Accounts Receivable to any other Person. Payment for the repurchase of any
Accounts Receivable shall be made within ten (10) days following the transfer
thereof to Seller. Buyer shall provide to the Seller any documents or
information reasonably requested by the Seller in connection with the Seller's
collection of any Accounts Receivable repurchased from Buyer.
ARTICLE XIV.
POST-CLOSING PROCEDURES
-----------------------
14.1 Delivery of Files. Within ten (10) days after Closing, Buyer shall,
-----------------
at Buyer's expense, take delivery at Seller's present offices in San Antonio,
Texas of all of the Partnership's and Grande's original land, lease, revenue and
cost accounting, geologic, geophysical, engineering and well files, data and
materials which relate to the Operating Assets. Applicable legal and litigation
files shall be delivered by Seller to Buyer at Seller's present office location
in San Antonio, Texas, subject to the Parties and their attorneys making
mutually acceptable arrangements for preserving the privileged and confidential
nature of protected information. Seller may retain copies of its accounting and
legal files, data and information, as might be needed by Seller, and Seller
shall retain all originals of insurance policies covering periods prior to the
Effective Time. Subject to the License Agreement, Seller shall not retain
originals or copies of any seismic, geological, geophysical or engineering
files, materials, data or interpretations thereof concerning the Operating
Assets sold hereunder, without Buyer's prior written consent; provided however,
that Seller shall not be required to deliver to Buyer, nor shall Buyer be
required to accept delivery of any such data or materials which either Party
reasonably believes to be subject to confidentiality agreements with third
parties that would prevent Buyer from obtaining such data or expose either Party
to a claim for material damages if Buyer were to receive such data or materials.
Notwithstanding the above, Seller shall be permitted to retain original tax and
financial accounting records for the period prior to the Closing, copies of
which will be delivered to Buyer.
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14.2 Third Party Data. To the extent not obtained or satisfied as of
----------------
Closing, Seller agrees to continue to use reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to obtain for Buyer, the Partnership and Grande
(i) access to files, records and data relating to the Operating Assets in the
possession of third parties; (ii) access to wells constituting a part of the
Operating Assets operated by third parties for purposes of inspecting same; and
(iii) the waiver of confidentiality or other restrictions on the review by
and/or transfer of seismic, geophysical, engineering or other data pertaining to
the Operating Assets that might be triggered by Seller's assignment to Buyer of
the Partnership and Grande.
14.3 Cooperation. After the Closing, each Party shall provide the other
-----------
Party with reasonable access to all relevant documents, data and other
information (other than that which is subject to any attorney-client privilege)
which may be required by the other Party for the purpose of financial reporting,
preparing tax returns, filing refund claims, responding to any audit by any
taxing jurisdiction or replying to any third party or governmental claim or
demand concerning the Partnership, Grande or the Operating Assets. Each Party
shall cooperate with all reasonable requests of the other Party made in
connection with contesting the imposition of Taxes. Notwithstanding anything to
the contrary in this Agreement, neither Party shall be required at any time to
disclose to the other Party any Tax Return or other confidential information,
except for Tax Returns concerning Taxes of the Partnership and Grande. Except
where disclosure is required by applicable law or judicial order, any
information obtained by a Party pursuant to this Section 14.3 shall be kept
confidential by such Party, except to the extent disclosure is required in
connection with the filing of any Tax Returns or claims for refunds or in
connection with the conduct of an audit, or other proceedings in response to an
audit, by a taxing jurisdiction, or otherwise required by law or binding
judicial order.
14.4 Preferential Rights to Purchase and Consents to Assignment. Before
----------------------------------------------------------
Closing and for up to one year after Closing, the Parties shall continue to
provide reasonable cooperation in obtaining all required Consents to Assignment
and in complying with all enforceable Preferential Rights to Purchase that
remain in force after Closing. Buyer shall be primarily responsible for
handling such matters, shall assume all risks and liabilities in connection with
the rights of the holders thereof, and shall release, indemnify and defend
Seller against any claims, damages, suits, demands or other liabilities
associated with any Consents to Assignment or Preferential Rights to Purchase.
14.5 Filing and Recording of Documents. Buyer shall promptly file all
---------------------------------
appropriate forms, declarations or bonds with governmental agencies relative to
its assumption of ownership of Grande, and Seller shall cooperate with Buyer in
connection with such filings. Seller shall not be responsible for any loss to
Buyer because of Buyer's failure to file or record documents correctly or
promptly.
14.6 Further Assurances. After Closing, each of the Parties will execute,
------------------
acknowledge and deliver to the other such further instruments, and take such
other action, as may be reasonably requested in order to more effectively assure
to each Party all of the respective properties, rights, titles, interests,
estates, and privileges intended to be assigned, delivered or to inure to the
benefit of such Party in consummation of the Transaction.
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14.7 Incidental Costs. Each party shall bear its own respective expenses
----------------
incurred in connection with the Closing of the Transaction, including its own
consultants' fees, attorney's fees, accountants' fees, and other similar costs
and expenses.
ARTICLE XV.
SURVIVAL; INDEMNITIES
---------------------
15.1 Survival. All representations, warranties or covenants made herein,
--------
except for those in Sections 4.1(a), 4.1(e), 4.1(f), 4.1(g), 4.1(i), 4.1(k),
4.1(l), 4.1(m), 4.1(n), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w), 4.1(x),
4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets only),
4.2(e), 4.2(i), Sections 7.1, 7.2, 7.4, 8.3, 9.1, 9.2(e), 9.9(d), 9.12(b),
9.12(c) and 9.13 and Articles XV, XVI, XVII and XXI, shall survive for two years
from the Closing Date. The representations and warranties or covenants made in
Sections 4.1(a), 4.1(g), 4.1(k), 4.1(l), 4.1(m), 4.1(o), 4.1(q), 4.1(u),
4.1(v), 4.1(w), 4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to
Operating Assets only) and Section 9.1 shall not survive Closing and shall
automatically expire upon Closing. The representations, releases, covenants,
indemnities, defenses and hold harmless obligations and other obligations
referenced in Sections 4.1(e), 4.1(f), 4.1(i), 4.1(n), 4.2(e), 4.2(i), 7.1, 7.2,
7.4, 8.3, 9.2(e), 9.9(d), 9.12(b), 9.12(c) and 9.13 and this Article XV, and all
provisions of Article XVI, Article XVII and Article XXI shall each survive
Closing, and each shall continue to remain fully enforceable in accordance with
its terms.
15.2 Buyer's Indemnity. EXCEPT AS EXPRESSLY AND SPECIFICALLY INDICATED
-----------------
OTHERWISE IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION SECTIONS 9.9(D) AND
15.3), AFTER THE CLOSING DATE, BUYER SHALL AND HEREBY DOES RELEASE, DEFEND,
INDEMNIFY, SAVE, AND HOLD HARMLESS SELLER AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS, AGAINST ANY
AND ALL DAMAGES WHICH ARISE OUT OF OR IN CONNECTION WITH THE OWNERSHIP OF,
OPERATION OF, PRODUCTION FROM OR ACCOUNTING BY, INCOME OF OR PAYMENTS BY THE
PARTNERSHIP, GRANDE OR THE OPERATING ASSETS, AT ANY TIME EITHER BEFORE OR AFTER
THE EFFECTIVE TIME, OR WHICH ARISE OUT OF ANY ENVIRONMENTAL CONDITION OR OTHER
HAZARDOUS CONDITION RELATING TO OR AFFECTING ANY OPERATING ASSET AT ANY TIME
EITHER BEFORE OR AFTER THE EFFECTIVE TIME, INCLUDING WITHOUT LIMITATION, ALL
SUCH COSTS, CLAIMS OR LIABILITIES ARISING OUT OF SELLER'S NEGLIGENCE OR STRICT
LIABILITY.
15.3 Seller's Indemnity. SUBJECT TO THE TERMS AND CONDITIONS OF THIS
------------------
ARTICLE XV, SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS
PARENT OR SUBSIDIARY COMPANIES, PARTNERS AND OTHER AFFILIATES (INCLUDING AFTER
CLOSING, GRANDE AND THE PARTNERSHIP), AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS (HEREINAFTER
COLLECTIVELY REFERRED TO AS THE "BUYER GROUP"), FROM AND AGAINST ANY AND ALL
DAMAGES ASSERTED AGAINST, RESULTING TO,
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IMPOSED UPON, OR INCURRED BY THE BUYER GROUP, DIRECTLY OR INDIRECTLY, BY REASON
OF OR RESULTING FROM OR RELATING TO (I) ANY BREACH BY SELLER (FOR WHICH SELLER
SHALL BE RESPONSIBLE) OF ITS SURVIVING REPRESENTATIONS, WARRANTIES, COVENANTS OR
AGREEMENTS CONTAINED IN THIS AGREEMENT, (II) ANY LIABILITIES OF GRANDE AND THE
PARTNERSHIP WHICH ARE UNRELATED TO THE OPERATING ASSETS, (III) ANY LIABILITIES
OF GRANDE AND GRANDE'S INTEREST IN THE PARTNERSHIP FOR INCOME TAXES PRIOR TO
CLOSING, AND (IV) ANY EXISTING LIABILITIES OF GRANDE AND GRANDE'S INTEREST IN
THE PARTNERSHIP OWED UNDER FEDERAL LEASES FOR PRIOR ROYALTIES RELATED TO THE
PERIOD OF TIME PRIOR TO CLOSING.
15.4 Procedure for Indemnification.
-----------------------------
(a) Any Indemnified Party making a claim for indemnification hereunder
shall notify the indemnifying party or parties of the claim in writing. Subject
to Sections 17.1, 17.2, 17.3 and 17.4, an indemnified party may take any and all
actions against an indemnifying party or parties to enforce its rights to
indemnification under this Agreement.
(b) With respect to third Person claims which are indemnifiable
hereunder, promptly after receipt by an Indemnified Party under Sections 15.2 or
15.3 of notice of the commencement of any action, such Indemnified Party shall,
if a claim in respect thereof is to be made against an Indemnifying Party under
such Section, give written notice to the Indemnifying Party of the commencement
thereof. The failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party of any liability that it may have to an Indemnified Party
with respect to such action, only to the extent the Indemnifying Party is
prejudiced by the failure to be so notified. In case any such action shall be
brought against an Indemnified Party and the Indemnified Party shall give
written notice to the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Party. If the Indemnifying Party elects to
assume the defense of such action, the Indemnified Party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the Indemnifying Party elects not to assume (or fails to assume) the
defense of such action, the Indemnified Party shall be entitled to assume the
defense of such action with counsel of its own choice, at the expense of the
Indemnifying Party. If the action is asserted against both the Indemnifying
Party and the Indemnified Party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the Indemnifying
Party and the Indemnified Party, the Indemnifying Party shall be responsible for
paying for separate counsel for the Indemnified Party; provided, however, that
if there is more than one Indemnified Party, the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the Indemnified Parties, regardless of the number of Indemnified Parties. If the
Indemnifying Party elects to assume the defense of such action, (a) no
compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party's written consent (which shall not be unreasonably
withheld) unless the sole relief provided is monetary damages that are paid in
full by the Indemnifying Party and (b) the Indemnifying Party
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shall have no liability with respect to any compromise or settlement thereof
effected without its written consent (which shall not be unreasonably withheld).
15.5 Exclusivity. The parties hereto agree that, in relation to any
-----------
breach, default, or nonperformance of any representation, warranty, covenant, or
agreement made or entered into by a party hereto pursuant to this Agreement or
any certificate, instrument, or document delivered pursuant hereto or arising
out of the transactions contemplated herein or the ownership or operation of the
Operating Assets, the only relief and remedy available to the other party hereto
in respect of said breach, default, or nonperformance shall be:
(a) termination, but only if said termination is expressly permitted
under the provisions of Article XX; or
(b) actual damages, but only to the extent properly claimable hereunder
and as limited pursuant to this Article XV or otherwise hereunder; or
(c) specific performance if a court of competent jurisdiction in its
discretion grants the same; or
(d) injunctive or declaratory relief if a court of competent jurisdiction
in its discretion grants the same.
15.6 Assignment of Third Person Indemnities. To the extent the same are
--------------------------------------
assignable by an Indemnified Party, such Indemnified Party does hereby assign to
the Indemnifying Party all rights to defense, contribution and indemnity that
the Indemnified Party may hold with respect to the obligations for which the
Indemnifying Party is indemnifying and defending the Indemnified Party
hereunder, and the Indemnifying Party shall be subrogated to assert the
Indemnified Party's rights to such third-party defense, contribution and
indemnity obligations with respect to the indemnified claims or Actions.
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ARTICLE XVI.
TAX MATTERS
-----------
16.1 Indemnification for Taxes.
-------------------------
(a) Seller shall be responsible for, and shall indemnify Buyer against,
all (i) Income Taxes imposed on Grande or Grande's interest in Partnership, and
all Liabilities, losses, costs, fines, penalties, damages (actual, punitive or
other), reasonable attorneys' fees, and expenses arising therefrom, relating to
(A) taxable periods or portions thereof ending on or before the Closing Date,
(B) Income Taxes resulting from the application of Treas. Reg. (S) 1.1502-6 or
any comparable state, local or foreign tax law attributable to Tesoro Parent, or
any corporation or entity which is or has been affiliated with or been part of a
combined, unitary or affiliated group with Tesoro Parent, and (C) the portion of
the Income Taxes for any Straddle Period (as defined in subsection 16.1(e))
allocable to Sellers with respect to either Grande or Grande's interest in the
Partnership under subsection 16.2(e) and (ii) all Other Taxes imposed on Grande
or Grande's interest in the Partnership relating to the taxable periods or
portions thereof ending on or before the Effective Time (allocated as described
in Section 13.3); provided, Sellers shall not be responsible for, and shall not
be required to indemnify Buyer against, any Taxes to the extent that such Taxes
do not exceed the accrued liability for Taxes on the Balance Sheets which are
taken into account in determining the Working Capital.
(b) Buyer shall be responsible for and shall indemnify Sellers against
all (i) Income Taxes imposed upon Grande or Grande's interest in the Partnership
and all Liabilities, losses, costs, fines, penalties, damages (actual, punitive,
or other), reasonable attorneys' fees and expenses arising therefrom, relating
to (A) taxable periods beginning after the Closing Date or (B) the portion of
the Income Taxes for any Straddle Period which are allocable to Buyer under
subsection 16.2(e), and (ii) except as provided in Section 13.3 and in this
Article XVI, all Other Taxes imposed upon Grande or Grande's interest in the
Partnership and all Liabilities, losses, costs, fines, penalties, damages
(actual, punitive or other), reasonable attorneys fees and expenses arising
therefrom arising in or relating to taxable periods or portions thereof
beginning after the Effective Time (allocated as described in Section 13.3).
(c) Each Party shall promptly notify the other Party of the commencement
of any demand, claim, audit, examination, Action or other proposed change or
adjustment by any Taxing Authority concerning any Tax which could give rise to a
claim for indemnity pursuant to subsection 16.1(a) or subsection 16.1(b), as the
case may be (each a "Tax Claim"). Such notice shall contain factual information
describing the asserted Tax Claim in reasonable detail and shall include copies
of any notice or other document received from any Taxing Authority in respect of
any such asserted Tax Claim.
(d) Seller, at its own expense, shall have the sole right to represent
Grande and the Partnership's interests in any Tax Claim for Taxes for which it
is indemnifying Buyer against and to employ counsel of its choice. Buyer shall
have the right to participate in such Action at its own expense. Seller shall
not consent to any settlement that reasonably would be expected to have an
adverse effect on the Income Taxes of Grande or Grande's interest in the
Partnership in any period after the Closing Date without Buyer's consent, which
consent shall not be unreasonably withheld. Buyer's consent shall in no way
reduce any indemnification due to
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Buyer under subsection 16.1(a). If Seller elects to control the defense,
compromise or settlement of any Tax Claim, Seller shall keep Buyer informed of
the progress and disposition of such Tax Claim. Buyer shall handle any other Tax
Claims of Grande or Grande's interest in the Partnership, and Buyer shall be
entitled to defend, compromise or settle such Tax Claims in its sole discretion
without in any way reducing its rights to indemnification under subsection
16.1(a), unless any such settlement would give rise to a tax claim against
Seller, and in such event such settlement shall be subject to Seller's consent,
which shall not be unreasonably withheld.
(e) With respect to any taxable period of Grande or the Partnership
beginning before and ending after the Closing Date (a "Straddle Period"), Buyer
shall control, and Seller, at its own expense, shall have the right to
participate in, the defense and settlement of any Tax Claim and each Party shall
cooperate with the other Party and there shall be no settlement or closing or
other agreement with respect thereto without the consent of the other Party,
which consent shall not be unreasonably withheld; provided, that if either Party
shall refuse (the "Refusing Party") to consent to any settlement, closing or
other agreement agreed to by the relevant Taxing Authority with respect to any
such Tax Claim that the other party (the "Accepting Party") proposed to accept
(a "Proposed Settlement"), then (i) the Accepting Party's Liability with respect
to the subject matter of the Proposed Settlement shall be limited to the amount
that such Liability would have been if the Proposed Settlement had been
accepted, and (ii) the Refusing Party shall be responsible for all Liabilities
and expenses incurred or imposed thereafter in connection with the contest of
such Tax Claim to the extent that the final settlement is more than the Proposed
Settlement.
16.2 Other Tax Matters.
-----------------
(a) All Tax sharing agreements between Grande and any other Person,
including without limitation, the Affiliates of Seller, are hereby terminated as
of the Closing Date and all rights and obligations of Grande with respect to
Taxes shall be as provided herein.
(b) Any Tax allocation agreement or arrangement in effect shall be
extinguished in full as of the Closing Date.
(c) Tax Returns (each a "Pre-Closing Return") which are required to be
filed with respect to Grande or Grande's interest in the Partnership on a
consolidated, unitary or other combined basis with the Tesoro Group, or the
appropriate parent for a taxable period which ends on or before the Closing Date
(a "Pre-Closing Period") shall be prepared and filed by (or shall be the
responsibility of) Seller, which shall include the preparation and filing of the
consolidated federal and state income Tax Returns of the Tesoro Group which
includes Grande's interest in the Partnership for the period up to and including
the Closing Date. In the case of those jurisdictions which require a short-
period Tax Return ending on or before the Closing Date, Seller shall prepare and
file all appropriate returns required to be filed with respect to Income Taxes
attributable to the operations and the Operating Assets for the pre-Closing
periods. All such Pre-Closing Returns shall be filed on a basis consistent with
prior Tax Returns filed with respect to Grande's interest in the Partnership.
Seller or the appropriate parent of Grande or the Partnership shall timely pay
or cause to be paid all Taxes shown on such Pre-Closing Returns. All Tax
Returns which (i) are required to be filed with respect to Grande's interest in
the
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Partnership on a separate basis (including the preparation of supporting
schedules, Tax Returns and other Tax information with respect to Grande's
interest in the Partnership necessary for completion of the Pre-Closing Returns)
after the Closing Date for a Pre-Closing Period (a "Post-Closing Return"), and
(ii) are required to be filed or with respect to Grande's interest in the
Partnership for a taxable period that ends after the Closing Date, including any
Tax Return (a "Straddle Return") for a Straddle Period, shall be prepared and
filed by Buyer; subject to the rights to indemnification and other rights under
16.1(a) and subsection 16.2(e), Buyer shall timely pay or cause to be paid all
Taxes shown on such Tax Returns.
(d) Seller agrees to provide Buyer and Buyer agrees to provide Seller
with such cooperation and information as the other shall reasonably request in
connection with the preparation or filing of any Tax Return required under this
Agreement.
(e) With respect to any Straddle Period, to the extent permitted by
applicable law, Seller shall elect to treat the Closing Date as the last day of
the taxable period. If applicable law, regulation or Governmental Order will
not permit the Closing Date to be the last day of a period, the Income Tax
attributable to the operations of Grande and Grande's interest in the
Partnership for the portion of the period up to and including the Closing Date
shall be (i) in the case of a flat minimum dollar amount Tax, the total amount
of such Taxes multiplied by a fraction, the numerator of which is the number of
days in the partial period through and including the Effective Time and the
denominator of which is the total number of days in such Straddle Period, and
(ii) in the case of all Income Taxes, the Tax computed on the basis of the
taxable income or loss attributable to Grande's interest in the Partnership for
the partial period through and including the Closing Date as determined from
their Books and Records. All Other Taxes arising with or related to a Straddle
Period will be allocated as provided in Section 13.3.
(f) With respect to any Post-Closing Return or Straddle Return, Buyer
shall deliver, at least 30 days prior to the due date for filing such Tax Return
(including any extension) to Seller a statement setting forth the amount of
Income Tax which Seller owes pursuant to subsection 16.1(a), including the
allocation of Taxes under subsection 16.2(e), and copies of such Tax Return.
Seller shall have the right to review such Tax Returns and the allocation of
Taxes and to suggest to Buyer any reasonable changes to such Tax Returns no
later than 15 days prior to the date for the filing of such Tax Returns. Seller
and Buyer agree to consult and to attempt to resolve in good faith any issue
arising as a result of the review of such Tax Returns and allocation of Taxes
and mutually to consent to the filing as promptly as possible of such Tax
Returns. Not later than 15 days before the due date for the payment of Income
Taxes with respect to such Tax Returns, Seller shall pay to Buyer an amount
equal to the Income Taxes as agreed to by Buyer and Seller as being owed by
Seller, pursuant to subsection 16.1(a). In the event that Buyer and Seller
cannot agree on the amount of Income Taxes owed by Seller, with respect to a
Straddle Return or a Post-Closing Return, Seller shall pay to Buyer the amount
of Income Taxes reasonably determined by Buyer to be owed by them pursuant to
subsection 16.1(a). Within ten (10) days following such payment, Seller and
Buyer shall refer the matter to an independent "Big-Five" accounting firm agreed
to by Buyer and Seller to arbitrate the dispute. Seller and Buyer shall equally
share the fees and expenses of such accounting firm, and its determination as to
the amount owing by Seller, pursuant to Section 16.1(a) with respect to a
Straddle Return or Post-Closing Return shall be binding on both parties. Within
five (5) days of
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the determination by such accounting firm, if necessary, the appropriate Party
shall pay the other Party any amount which is determined by such accounting firm
to be owed. Seller shall be entitled to reduce its obligation to pay Taxes with
respect to a Straddle Return or a Post-Closing Return by the amount of any
estimated Taxes paid with respect to such Taxes by or on behalf of Grande on or
before the Closing Date.
(g) Seller shall have the right to all refunds of Taxes (including
interest thereon), which relate to Taxes of Grande or Grande's interest in the
Partnership for Pre-Closing Periods and Straddle Periods, to the extent provided
in the following sentences. Buyer shall pay over to Seller any such refunds
within ten (10) days of receipt thereof, net of any Taxes imposed on Buyer or
Grande by reason of the receipt of such refund. To the extent any refund of
Taxes is made with respect to a Pre-Closing Period or a Straddle Period, such
refund shall be apportioned between Buyer and Seller, based on the appropriate
allocation method set forth in Section 16.2(e).
(h) Buyer and Seller agree to consult and resolve in good faith any
issues arising in connection with the preparation or review of any Tax Return or
the calculation of any Tax described in this Section 16.2.
(i) At the Closing, Seller, Grande and the Partnership each shall deliver
to Buyer certificates signed under penalties of perjury (i) stating that it is
not a foreign corporation, foreign partnership, foreign trust or foreign estate,
(ii) providing its U.S. Employer Identification Number and (iii) providing its
address, all pursuant to Section 1445 of the Code.
16.3 Exclusive Remedy for Taxes. This Article XVI provides the sole and
--------------------------
exclusive remedy for any claim against Seller for indemnification, damages or
breach of any representation or warranty with respect to or relating to Taxes.
ARTICLE XVII.
DEFAULT AND REMEDIES
--------------------
17.1 Liabilities Upon Termination. If Closing does not occur due to
----------------------------
Seller's violation of the terms of this Agreement, then Buyer may seek such
legal or equitable remedies as Buyer may desire including, without limitation,
damages for the breach or failure of any representation, warranty, covenant or
agreement contained herein and the right to enforce specific performance of this
Agreement. If Closing does not occur due to Buyer's violation of the terms of
this Agreement, then Seller may seek such legal or equitable remedies as Seller
may desire, including, without limitation, damages for the breach or failure of
any representation, warranty, covenant or agreement contained herein and the
right to enforce specific performance of this Agreement.
17.2 Recovery of Costs. The prevailing Party in any litigation or
-----------------
alternative dispute resolution proceeding between the Parties in a dispute
arising under this Agreement shall be entitled to recover, from the other Party,
reimbursement for reasonable attorneys fees, expert fees, court costs and costs
of discovery and investigation.
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17.3 Waiver of Extraordinary Damages. TO THE FULL EXTENT ALLOWED BY LAW,
-------------------------------
AND EXCEPT AS MAY BE INCLUDED IN THIRD PARTY DAMAGES SUBJECT TO ANY INDEMNITY
OBLIGATION HEREUNDER, THE PARTIES HEREBY WAIVE AND RELEASE ANY RIGHTS OR CLAIMS
TO PUNITIVE OR EXEMPLARY DAMAGES RESULTING FROM A BREACH OF THIS AGREEMENT. THE
PARTIES HEREBY WAIVE THE APPLICATION OF THE TEXAS DECEPTIVE TRADE PRACTICES-
CONSUMER PROTECTION ACT TO THE TRANSACTION.
17.4 Waiver of Jury Trial. SELLER AND BUYER DO HEREBY IRREVOCABLY WAIVE,
--------------------
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION.
17.5 Independent Obligations. The express release, indemnity, defense and
-----------------------
hold harmless obligations contained herein shall exist separate and independent
from the representations and warranties in this Agreement, and the limitations
of representations and warranties shall not be construed to limit the scope of
the express releases, indemnities, and defense and hold harmless obligations.
17.6 Changes of Law. Sellers do not make any representations and
--------------
warranties and do not assume any responsibilities or liabilities for any Damages
to Buyer arising out of or related to changes in the law or new interpretations
of existing law that may occur after Closing.
17.7 Merger. No representations, warranties, indemnities, covenants or
------
other provisions of this Agreement shall merge with provisions of any other
instrument.
ARTICLE XVIII.
NOTICES
-------
18.1 Notices. All notices authorized or required by any of the provisions
-------
of this Agreement, unless otherwise specifically provided, shall be in writing
and delivered in person or by United States mail, courier service, telegram, or
telephone facsimile, postage or charges prepaid, and addressed to the Parties at
the respective addresses set forth below:
If to Seller: Tesoro Petroleum Corporation.
300 Concord Plaza Drive
San Antonio, Texas 78216-6999
Attention: James C. Reed, Jr.
Fax Number: (210) 283-2400
Phone Number: (210) 828-8484
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With a copy to: Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Michael W. Conlon
Fax Number: (713) 651-5246
Phone Number: (713) 651-5151
If to Buyer: EEX Operating LLC
2500 City West Boulevard, Suite 1400
Houston, Texas 77042
Attention: Janice K. Hartrick
Fax Number: (713) 243-3359
Phone Number: (713) 243-3371
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Attention: Michael E. Dillard
Fax Number: (214) 969-4343
Phone Number: (214) 969-2876
Any Party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
ARTICLE XIX.
CONFIDENTIALITY AND DISCLOSURES
-------------------------------
19.1 Non Disclosure of Data. To the extent Buyer does not acquire all of
----------------------
the Membership Interests for any reason, Buyer shall not directly or indirectly
disclose or use any materials, data or other information provided by or obtained
from Seller, Grande or the Partnership, and Buyer and its representatives shall
continue to be bound by the terms of the existing Confidentiality Agreement
dated June 17, 1999, between the Parties.
19.2 Public Announcements. The Parties hereto agree that prior to making
--------------------
any public announcement or statement with respect to the Transaction, the Party
desiring to make such
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public announcement or statement shall consult with the other Party and exercise
reasonable efforts to obtain the consent of the other Party to the text of such
public announcement or statement. If the Parties cannot agree upon the text of
any such public disclosure, a Party may nevertheless disclose information with
respect to the to the extent required by applicable law or by any applicable
rules, regulations or orders of any governmental or judicial authority or agency
having jurisdiction or to the extent such disclosure is necessary to comply with
requirements of the New York Stock Exchange.
ARTICLE XX.
TERMINATION
-----------
20.1 Termination. Notwithstanding anything herein to the contrary, this
-----------
Agreement and the Transaction may be terminated in the following instances:
(a) At any time by the mutual written agreement of Buyer and Seller;
(b) By Seller, if the Settlement Price Adjustment exceeds fifteen percent
(15%) of the Purchase Price; or by Buyer, if the sum of the Settlement Price
Adjustment and any reductions to the purchase price as a result of the exercise
by third parties of Preferential Rights to Purchase exceeds fifteen percent
(15%) of the Purchase Price;
(c) By Seller or Buyer, if any of the Casualty Price individually exceeds
ten percent (10%) of the Purchase Price; or
(d) By Buyer or Seller, if Closing has not taken place before December
31, 1999; provided, however, that the Party seeking to terminate this Agreement
pursuant to Section 20.1(d) shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have proximately
contributed to the failure to consummate the Transaction prior to December 31,
1999.
ARTICLE XXI.
MISCELLANEOUS
-------------
21.1 Entire Agreement. This Agreement, together with the Stock Purchase
----------------
Agreement, embody the entire agreement between the Parties (superseding all
prior agreements, negotiations, representations, discussions, arrangements and
understandings related to the subject matter hereof), and may be supplemented,
altered, amended, modified or revoked only by a written instrument signed by
each of the Parties; provided, however, the Confidentiality Agreement dated June
17, 1999, between the Parties shall remain effective until Closing. If the sale
of the Operating Assets to Buyer is not consummated, then the Confidentiality
Agreement shall remain effective as stated therein.
21.2 No Verbal Modifications or Waivers. Any of the terms, provisions,
----------------------------------
covenants, representations, warranties or conditions hereof may be supplemented,
amended, modified, released or waived only by a written instrument executed by
the Parties. Except as otherwise expressly provided in this Agreement, the
failure of any Party at any time or times to require
54
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performance of any provision hereof shall in no manner affect such Party's right
to enforce the same. No waiver by any Party of any condition, or of the breach
of any term, provision, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or of the breach of any
other term, provision, covenant, representation or warranty.
21.3 Severability. If any term or provision of this Agreement is held to
------------
be illegal, invalid or unenforceable, the legality, validity and enforceability
of the remaining terms and provisions of this Agreement shall not be affected
thereby, and in lieu of each such illegal, invalid or unenforceable term or
provision, there shall be added automatically to this Agreement a legal, valid
and enforceable term or provision as similar as possible to the term or
provision declared illegal, invalid or unenforceable.
21.4 Interpretation. Words of any gender used in this Agreement shall be
--------------
held and construed to include any other gender, and words in the singular shall
be held to include the plural, unless the context otherwise requires. None of
the terms or conditions of this Agreement, including any Exhibits or Schedules
hereto, shall be construed for or against any Party hereto on the basis that
such Party did or did not author the same. All terms of this Agreement and the
Exhibits shall be harmonized, but in the event of any conflict between the
definition of a term in Article I and a more complete description or limitation
of such term in a subsequent Article, the subsequent Article shall prevail.
This Agreement is being executed in connection with the Stock Purchase
Agreement, as amended by the Amendment, and the two instruments shall be
harmonized, to the extent possible, provided however, that no Party shall be
entitled to receive duplicate payments (including, without limitation, duplicate
payment of any purchase price) or other relief regarding the same matters under
both this Agreement and the Stock Purchase Agreement, as amended, and the rights
of the Parties hereunder are subject to the terms of the Stock Purchase
Agreement, as amended by the Amendment. In the event of any conflict,
redundancy or inconsistency between the terms of the Stock Purchase Agreement,
as amended, and this Agreement (including without limitation any conflict,
redundancy or inconsistency with respect to the provisions relating to
indemnification, payment of purchase price, adjustments to the purchase price,
transfer of the Membership Interests, representations, warranties and covenants
or any provisions of the exhibits or schedules), the provisions of the Stock
Purchase Agreement, as amended, shall control and prevail in all respects. The
Article and Section headings are for convenience only and shall have no
significance in the interpretation hereof.
21.5 Counsel. Each Party expressly acknowledges that it was represented
-------
by counsel of its own selection in negotiation and preparation of the terms of
the Agreement and the attached Exhibits and that it is sophisticated and
experienced in transactions of this type and is aware of all terms and
conditions contained herein. Each Party shall be responsible for the costs and
expenses of its own counsel.
21.6 Governing Law. This Agreement and other documents delivered pursuant
-------------
to this Agreement and the legal relations between the Parties shall be governed
and construed and enforced in accordance with the laws of the State of Texas,
without giving effect to principles of conflict of laws.
55
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21.7 Consents. Except as expressly provided otherwise herein, any
--------
consent required of a Party with respect to any matters covered by this
Agreement shall not be unreasonably withheld or action with respect thereto
unduly delayed.
21.8 Time of Essence. Time is of the essence in all matters provided for
---------------
in this Agreement.
21.9 Binding Effect, Assignment. All the terms, provisions, covenants,
--------------------------
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the Parties and, except
as otherwise prohibited, their respective successors; however, this Agreement
and the rights and obligations hereunder shall not be assignable or delegable by
any Party without the express written consent of the non-assigning or non-
delegating Parties, which consent may be withheld for any or no reason; provided
that Buyer may assign some or all of its rights, duties and obligations under
this Agreement to an Affiliate of EEX Corporation. Any assignment or delegation
without such consent will be void.
21.10 No Relationship. Nothing contained in this Agreement shall be
---------------
deemed to create a joint venture, partnership, agency or other fiduciary
relationship between the Parties, nor is this Agreement intended to create, nor
shall it be construed to create, any rights in any third party, to create any
third party beneficiaries or to ratify, adopt or confirm any other lease,
agreement or other instrument, whether or not affecting Grande, the Partnership
or the Operating Assets. Notwithstanding the above, the Parties acknowledge
that the Transaction shall be subject to the rights of all third parties holding
Preferential Rights to Purchase and Consents to Assignment concerning the
Operating Assets, to the extent that they are valid, in effect and enforceable
by reason of the Transaction, and that such third party rights shall be handled
as set forth herein.
21.11 No Recordation. Without limiting any Party's right to file suit to
--------------
enforce its rights under this Agreement, Buyer and Seller expressly covenant and
agree not to record or place of record this Agreement or any copy or memorandum
hereof, unless required under the Securities Exchange Act of 1934.
21.12 Exhibits and Schedules. All Exhibits and Schedules which are
----------------------
referred to herein are hereby made a part hereof and incorporated herein by
reference.
21.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each and every counterpart shall be deemed for all purposes
one agreement.
21.14 No Third Party Beneficiaries. Any agreement contained, expressed or
----------------------------
implied in this Agreement shall be only for the benefit of the Parties hereto
and the Indemnified Parties specified in Article XV and their respective legal
representatives, successors and assigns. Such agreements shall not inure to the
benefit of any employees of Seller, Grande or the Partnership (except in their
capacity as Indemnified Parties) or the obligees of any indebtedness of any
Party hereto, it being the intention of the Parties hereto that no Person shall
be deemed a third party beneficiary of this Agreement, except to the extent a
third Person is expressly given rights herein.
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<PAGE>
21.15 Joint and Several Liability. Tesoro Petroleum Corporation and
---------------------------
Tesoro Gas Resources Company, Inc. agree to be jointly and severally liable for
all of the Seller's duties and obligations hereunder.
57
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
SELLER BUYER
- ------ -----
TESORO PETROLEUM CORPORATION EEX OPERATING LLC
By:______________________________ By: EEX CORPORATION
Name:____________________________ By:__________________________________
Title:___________________________ Name:________________________________
Title:_______________________________
TESORO GAS RESOURCES COMPANY, INC.
By:______________________________
Name:____________________________
Title:___________________________
58
<PAGE>
PURCHASE AGREEMENT
Dated as of December 17, 1999,
by and between
TESORO PETROLEUM CORPORATION
and
TESORO GAS RESOURCES COMPANY, INC.
as "Seller"
and
EEX OPERATING LLC
as "Buyer"
<PAGE>
SCHEDULES
- ---------
1A HEDGING CONTRACTS
1B PERMITTED ENCUMBRANCES
2.6(a) RETAINED LIABILITIES
4.1(b)(iv) NO CONFLICT - SELLER
4.1(b)(v) CONSENTS AND WAIVERS - SELLER
4.1(g) LITIGATION
4.1(h) LABOR MATTERS
4.1(i) TAXES
4.1(k) ABSENCE OF CERTAIN CHANGES
4.1(m)(iii) PERMITS AND LICENSES
4.1(m)(iv) EXCEPTIONS TO RIGHT TO USE ASSETS
4.1(o) SUSPENSE FUNDS
4.1(p) INSURANCE
4.1(q) CONTRACTS ON PRODUCTION
4.1(s) TAX PARTNERSHIPS
4.1(u) ENVIRONMENTAL CONDITIONS
4.1(v) CONTRACTS
4.1(x) WELLS
4.1(z) PAYOUT BALANCES
9.2 EXCEPTIONS TO PRE-CLOSING OPERATING COVENANTS
9.2(f) COMMITTED EXPENDITURES
9.4 EXCEPTIONS TO PRE-CLOSING FINANCIAL COVENANTS
EXHIBITS
- --------
A ALLOCATED VALUES
B LEASES AND RELATED PIPELINES
C SUBSIDIARIES AND PARTNERSHIP BALANCE SHEET
D SETTLEMENT STATEMENT
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is dated December 17, 1999, but effective as of the
Effective Time, between Tesoro Petroleum Corporation, a Delaware corporation,
and Tesoro Gas Resources Company, Inc., a Delaware corporation, collectively as
"Seller", and EEX Operating LLC, a Delaware limited liability company, as
"Buyer".
WITNESSETH:
-----------
WHEREAS, Tesoro Gas Resources Company, Inc. owns all of the Membership
Interests in Tesoro Reserves Company, LLC, a Delaware limited liability company
("Reserves LLC"); and
WHEREAS, Tesoro Petroleum Corporation, a Delaware corporation, and Tesoro
Gas Resources Company, Inc., a Delaware corporation, collectively as "Seller",
and EEX Operating LLC, a Delaware limited liability company, as "Buyer", and EEX
Corporation, entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement") dated October 8, 1999 providing for the sale by Seller to Buyer of
all shares of capital stock of Tesoro Exploration and Production Company, a
Delaware corporation ("Exploration") and Tesoro Reserves Company, a Delaware
corporation ("Reserves"), together with the partnership interests in Tesoro E&P
Company, L.P., a Delaware limited partnership (the "Partnership"); and
WHEREAS, the Partnership owns certain assets used in the business of the
exploration, production, gathering, transportation and marketing of oil, natural
gas, condensate and associated hydrocarbons; and
WHEREAS, on the date of the Stock Purchase Agreement, Exploration and
Reserves were the two partners in the Partnership, in which Exploration was the
general partner owning a 1% interest and Reserves was the limited partner owning
a 99% interest; and
WHEREAS, the Partnership was converted into a series limited partnership.
with the entire Series A limited partnership interest remaining in Reserves,
insofar as such interest covers the revenues, expenses, profits and losses from
the Properties described in Exhibit B; and
WHEREAS, Section 9.12 of the Stock Purchase Agreement provides for the
Parties to cooperate at no cost or liability to Buyer, to enable Seller at
Seller's election, to transfer the Operating Assets to Buyer in a manner
enabling the transfer to qualify as a part of a like-kind exchange of property
by Seller within the meaning of Section 1031 of the Code; and
WHEREAS, the Stock Purchase Agreement has been amended to provide for such
a like-kind exchange of property, among other purposes, by a First Amendment to
Stock Purchase Agreement dated December 16, 1999 (the "Amendment"); and
WHEREAS, Reserves LLC is not currently participating in a like-kind
exchange as are the other two limited partners in the Partnership; and
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WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from
Seller all issued and outstanding Membership Interests of Reserves LLC,
including all of Reserves LLC's rights and interests in the Partnership and the
Reserves Properties, under the terms and conditions set forth in this Agreement
and the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
-----------
"Accepting Party" shall have the meaning set forth in Section 16.1(e).
"Accounts Receivable" shall have the meaning set forth in Section 13.5.
"Action" means any action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.
"Affiliate" shall have the same meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Agreement" shall mean this Purchase Agreement.
"Allocated Value" shall mean the monetary value allocated to each Property
or group of Properties on Exhibit A.
"Amendment" shall mean the First Amendment to Stock Purchase Agreement
dated December 16, 1999, by and among Tesoro Petroleum Corporation, a Delaware
corporation, Tesoro Gas Resources Company, Inc., a Delaware corporation, and EEX
Operating LLC, a Delaware limited liability company, and EEX Corporation, a
Texas corporation, for the limited purposes set forth therein
"APO" shall mean "after payout", as such payout may be established under
the respective farmout agreements, joint operating agreements, participation
interests and similar agreements affecting each Property, including payouts
providing reversionary rights of parties who have elected not to participate in
an operation under a joint operating agreement. If there are multiple
outstanding payouts affecting any particular well or Property, then the APO
interest shall mean the interests after all applicable payouts have occurred.
If at the Effective Time there are no outstanding payout balances affecting any
particular well or Property, then the listed APO interest in such well or
Property shall reflect the Partnership's WI and NRI at the Effective Time.
"Applicable Environmental Laws" means all Applicable Laws in effect
pertaining to (i) pollution, or the protection of the environment, including
those relating to waste materials and/or hazardous substances, (ii) the
protection of Persons or property from actual or potential exposure (or the
effects of exposure) to an actual or potential spill or release of Hazardous
Substances or petroleum or produced brine or (iii) the manufacture, processing,
production, gathering,
2
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transportation, use, treatment, storage or disposal of a Hazardous Substance or
petroleum or produced brine.
"Applicable Law" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Authority to
which a specified Person, Operating Asset or property is subject.
"Balance Sheets" shall mean the unaudited combined financial balance sheet
of Reserves LLC and the Partnership as of June 30, 1999, attached hereto as
Exhibit C.
"Books and Records" shall mean all of the following which pertain to the
conduct of the Business: books, records, manuals and other materials, accounting
books and records, continuing property records for property, plant and
equipment, land and lease files, title opinions, suspense records, production
records, any inventories of equipment and property, well files, engineering
files, maps, surveys, electric logs, seismic records, geological and geophysical
files, and all other technical data, division order files, contract files, other
files, computer tapes, disks, other storage media and records, advertising
matter, correspondence, lists of customers and suppliers, maps, photographs,
production data, sales and promotional materials and records, purchasing
materials and records, work and recent salary history for personnel, credit
records, manufacturing and quality control records and procedures, patent and
trademark files and disclosures, litigation files, leases, oil and gas leases,
deeds, easements and other instruments relating to the Business, any copies of
Tax Returns filed by or with respect to Reserves LLC or the Partnership,
including copies of all work papers and calculations relating to Reserves LLC
and the Partnership in support of such Tax Returns, and any comparable
information with respect to predecessors of Reserves LLC or the Partnership to
the extent available, and copies of any other applicable accounting and tax
records of the Seller and the Partnership pertaining to the Business.
"BPO" shall mean "before payout", as such payout may be established under
the respective farmout agreements, joint operating agreements, participation
interests and similar agreements affecting each Property, including payouts
providing reversionary rights of parties who have elected not to participate in
an operation under a joint operating agreement. If at the Effective Time there
is an outstanding payout balance affecting any particular well or Property, the
listed BPO interest in such well or Property shall reflect the Partnership's WI
and NRI at the Effective Time.
"Business" shall mean the Partnership's business of exploring for,
developing, producing, gathering, transporting and marketing natural gas,
condensate and oil.
"Business Day" shall mean any day exclusive of Saturdays, Sundays and
national holidays.
"Buyer Group" shall have the meaning set forth in Section 15.3.
"Buyer's Knowledge" shall mean knowledge of Buyer and management employees
of Buyer's ultimate parent, EEX Corporation, with knowledge of Buyer's
activities, including the negotiation of this Agreement.
3
<PAGE>
"Bylaws" shall mean a corporation's bylaws, code of regulations or
equivalent document.
"Charter" shall mean a company's management agreement, articles of
association, articles of incorporation, certificate of incorporation or
equivalent organizational documents.
"Closing" shall have the meaning set forth in Section 12.1.
"Closing Date" shall have the meaning set forth in Section 12.1.
"Closing Settlement Price" shall mean the Settlement Price calculated in
accordance with the best information available to the Seller prior to Closing,
as reflected on the Settlement Statement delivered prior to Closing pursuant to
Article X and Section 13.1(a).
"Code" shall mean the United States Internal Revenue Code of 1986 and any
successor statute thereto, as amended.
"Consent to Assignment" shall mean an existing contractual or legal right
of any third party to consent to the Partnership's assignment of a Property to
Buyer under such terms as are set forth in this Agreement.
"Contracts" shall mean all of the contracts that govern or relate to the
ownership or operation of the Operating Assets (including without limitation,
the wells, facilities and equipment associated therewith and the production
therefrom, acreage contribution agreements, assignments, bidding agreements,
bottom-hole agreements, contribution agreements, drilling contracts, dry-hole
agreements, exploration agreements, development agreements, farm-in and farmout
agreements, gas balancing agreements, joint venture agreements, production,
sales, marketing and/or brokerage contracts, gas processing agreements,
operating agreements, participation agreements, service contracts, storage
contracts, gathering agreements, transportation agreements, treating contracts,
water rights agreements and the unitization, unit operating, communitization and
pooling declarations, agreements and orders that create or govern units). To
the extent that Seller, Reserves LLC or the Partnership have rights of
indemnification or warranty rights with respect to any Operating Asset or any
part of an Operating Asset, the same shall be included in the meaning of
"Contracts."
"Damages" shall mean any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses, expert fees and expenses and court costs), of any nature whatsoever.
"Effective Time" shall mean July 1, 1999, at 12:00 a.m. local time for each
Operating Asset.
"Encumbrance" shall mean any interest (including any security interest),
pledge, mortgage, lien, charge, adverse claim or other right of third Persons.
"Environmental Conditions" shall have the meaning set forth in Section 7.3
of the Stock Purchase Agreement.
4
<PAGE>
"Exploration" shall mean Tesoro Exploration and Production LLC, a Delaware
limited liability company.
"Final Settlement Price" shall mean the Settlement Price calculated in
accordance with the best information available to the Parties during the one
hundred twenty (120) day period after Closing, as reflected on the Final
Statement agreed upon pursuant to Article XIII.
"Final Statement" shall mean the final accounting statement to be agreed
upon by the Parties no later than one hundred twenty (120) days after Closing
pursuant to Section 13.1(c).
"Financial Assets and Liabilities" shall mean the assets, liabilities and
other financial items on the Balance Sheets, effective as of 11:59 p.m. on June
30, 1999, (i) as adjusted for revenues, income, expenses and other assets and
liabilities incurred between the Effective Time and the Closing Date and
included within the Adjustment Assets and Liabilities, and (ii) as adjusted for
the Pre-Closing Financial Adjustments and (iii) as otherwise adjusted as
provided herein. The term "Financial Assets" shall not include any assets,
liabilities or other financial items included within the Operating Assets.
"GAAP" shall mean U.S. generally accepted accounting principles, unless
expressly described otherwise.
"Governmental Authority" shall mean any international, national, Federal,
state, municipal or local government, governmental authority, regulatory or
administrative agency, governmental commission, department, board, bureau,
agency or instrumentality, court, tribunal, arbitrator or arbitral body.
"Governmental Order" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Grande" shall mean Tesoro Grande LLC, a Delaware limited liability company
"Hazardous Substance" means a substance, chemical, pollutant, waste or
other material (i) that consists, wholly or in part, of a substance that is
regulated as toxic or hazardous to human health or the environment under any
Environmental Law or (ii) that exists in a condition or under circumstances that
constitute a violation of any Environmental Law. "Hazardous Substance" includes
without limitation any "hazardous substance" under the Comprehensive
Environmental Response, Compensation and Liability Act, any "hazardous chemical"
under the Occupational Safety and Health Act, any "hazardous material" under the
Hazardous Materials Transportation Act, any "hazardous chemical substance" under
the Federal Water Pollution Control Act and any "hazardous waste" under the
Resource Conservation and Recovery Act.
"Hedging Contracts" shall mean those natural gas derivative pricing
contracts listed on Schedule A.
"Income Taxes" shall mean any Taxes, including franchise taxes, which are
based upon or in respect of income.
5
<PAGE>
"Indemnified Party" shall mean any Party or other Person entitled to an
indemnity under Article XV of this Agreement, with respect to the indemnity so
owed.
"Indemnifying Party" shall mean a Party owing an indemnity to any other
Party or Person under Article XV of this Agreement, with respect to the
indemnity so owed.
"Lender" shall have the meaning set forth in Section 9.12(d).
"Liabilities" shall mean any and all debts, claims, liabilities and
obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, mature or unmatured or determined or indeterminable.
"Material Adverse Effect" shall mean any event with respect to, change in,
or effect on, Reserves LLC, the Partnership or the Business which, individually
or in the aggregate, is reasonably likely to have a material adverse effect on
the Business, or the financial results of operations, assets or properties or
financial condition of Reserves LLC and the Partnership, taken as a whole, but
the term "Material Adverse Effect" shall not include any change in market
conditions or other conditions affecting the oil and gas exploration and
production industry generally.
"Membership Interests" shall mean shall mean all issued and outstanding
membership interests in Reserves LLC.
"NORM" shall have the meaning set forth in Section 7.2.
"NRI" shall mean the decimal net revenue interest in oil and gas production
from a Property.
"Operating Assets" shall mean all property rights and interests of the
Partnership being sold hereunder in the lands and leases described in Exhibit
"B", as set forth in Section 2.4.
"Other Taxes" shall mean all Taxes other than Income Taxes.
"Parties" shall mean Buyer and Seller, collectively.
"Partnership" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"Partnership Agreement" means the Agreement of Limited Partnership of the
Partnership, as amended.
"Party" shall mean either Buyer or Seller.
"Permitted Encumbrances" shall include any Encumbrance which is: (i) listed
on Schedule 1B, for which a duly executed release in recordable form will be
delivered to Buyer at or before Closing; (ii) a lien securing amounts claimed
for services provided by operators or other oil field contractors which are not
yet due and owing or which are being contested in good faith, through adequate
procedures; (iii) a statutory lien arising for Taxes not yet delinquent or which
are being contested in good faith, through adequate procedures; (iv) a
reservation,
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<PAGE>
exception, limitation, encumbrance or burden expressly included within a
recorded oil and gas lease constituting part of a Property with respect to which
Seller or the Partnership is not in default at Closing which does not reduce the
Partnership's NRI in such Property below the respective decimal interests set
forth in Exhibit A; (v) any royalty, overriding royalty or other production
burden affecting any Property which does not and will not reduce the
Partnership's NRI in such Property below the respective decimal interests set
forth in Exhibit A; (vi) any joint operating agreement containing terms and
conditions reasonable and customary in the industry (other than a Preferential
Right to Purchase that is exercised prior to Closing or a required Consent to
Assignment, or a reversionary right that is not reflected in the BPO and APO
interests on Exhibit A); (vii) the right of a third party under any equipment
rental or lease contract, oilfield service contract, production sales contract
or transportation contract affecting any Property, which either may be
terminated by the parties thereto without penalty or does not extend for a term
of more than sixty days after the Closing Date; (viii) any other easement,
operating right, concurrent use right or similar encumbrance that does not
affect the Partnership's rights to a Property or reduce the production revenues
attributable thereto or increase the costs associated with ownership or
operation of that Property; and (ix) a severance tax, production tax, occupation
tax, ad valorem tax or similar tax of general application.
"Person" shall include any individual, trustee, firm, corporation,
partnership, limited liability company, Governmental Authority or other entity,
whether acting in an individual, fiduciary or any other capacity.
"Post-Closing Return" shall have the meaning set forth in Section 16.2(c).
"Pre-Closing Financial Adjustments" shall mean those certain financial
accounting adjustments and payments set forth in Section 2.6.
"Pre-Closing Period" shall have the meaning set forth in Section 16.2(c).
"Pre-Closing Return" shall have the meaning set forth in Section 16.2(c).
"Preferential Right to Purchase" shall mean the right of any third party
under an existing contract or agreement allowing that third party to purchase
the Partnership's interest in a Property whenever Seller proposes to transfer
its interests in the Partnership under terms such as are set forth in this
Agreement and the Stock Purchase Agreement.
"Production" shall mean all oil, natural gas, condensate, natural gas
liquids, and other hydrocarbons or products produced from or attributable to the
Properties.
"Properties" shall mean, collectively, (i) all valid and existing oil and
gas leaseholds and mineral fee rights, and all rights and interests appurtenant
thereto, which are owned by the Partnership in the lands and leases described on
Exhibit B attached hereto, including without limitation all oil and gas WIs,
NRIs, mineral fee interests, oil, gas and mineral deeds, leases and/or
subleases, royalties, overriding royalties, leasehold interests, mineral
servitudes, production payments and net profits interests, fee mineral
interests, surface estates, fee estates, royalty interests, overriding royalty
interests, or other non-working or carried interests, reversionary rights,
farmout and farmin rights, operating rights, pooled or unitized acreage, and
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<PAGE>
all other rights, privileges and interests in such oil, gas and other minerals
(and the production thereof), and other mineral rights of every nature now owned
by the Partnership in such lands and leases listed on Exhibit B hereto, (ii) all
of the contractual rights to interests described in (i) above and in all units
in which such interests are pooled, communitized or unitized, and in any other
oil, gas and/or mineral leases or assets arising pursuant to the terms of the
oil and gas leases listed on Exhibit B hereto, and any other rights and
agreements or contracts affecting or relating to interests described in (i)
above, or to Production, whether or not listed on Exhibit B, including any
tenements, appurtenances, surface leases, easements, permits, licenses,
servitudes, franchises or rights of way.
"Property" shall mean any individual one of the Properties.
"Property Tax Period" shall have the meaning set forth in Section 13.2(a).
"Property Taxes" shall have the meaning set forth in Section 13.2(a).
"Proposed Settlement" shall have the meaning set forth in Section 16.1(e).
"Purchase Price" shall have the meaning set forth in Section 3.1.
"Refusing Party" shall have the meaning set forth in Section 16.1(e).
"Reserves LLC" shall mean Tesoro Reserves Company, LLC, a Delaware limited
liability company.
"Seller" shall mean, collectively, Tesoro Petroleum Corporation, a Delaware
corporation, and Tesoro Gas Resources Company, Inc., a Delaware corporation.
"Seller's Knowledge" shall mean actual knowledge of any fact, circumstance
or condition by the officers or management employees (including those with
titles of "Manager", "Vice President" and "President" or those in the internal
legal department of Seller, Reserves LLC and the Partnership who provide
specific advice related to the operations of the Business) of Seller, Reserves
LLC and the Partnership involved and knowledge of any fact, circumstance or
condition which such officer or management employee would have been aware of
with the exercise of reasonable diligence and inquiry in the course of his or
her duties.
"Settlement Price" shall have the meaning set forth in Section 3.2.
"Settlement Statement" shall mean the accounting statement calculating the
Settlement Price, to be furnished by Seller to Buyer prior to Closing, pursuant
to Article X and Section 13.1(a).
"Southeast" shall mean Tesoro Southeast LLC, a Delaware limited liability
company.
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement dated
October 8, 1999, as amended by the Amendment, by and among Tesoro Petroleum
Corporation, a Delaware corporation, Tesoro Gas Resources Company, Inc., a
Delaware corporation, and EEX
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Operating LLC, a Delaware limited liability company, and EEX Corporation, a
Texas corporation, for the limited purposes set forth therein.
"Straddle Period" shall have the meaning set forth in Section 16.1(e).
"Straddle Return" shall have the meaning set forth in Section 16.2(c).
"Subsidiaries" shall mean Exploration, Reserves LLC, Southeast and Grande,
collectively.
"Tax" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, parking, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 50A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, ad valorem,
value added, alternative or add-on minimum, estimated tax, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, including such item for which Liability arises as a transferee
or successor-in-interest.
"Tax Claim" shall have the meaning set forth in Section 16.1(c).
"Tax Return" shall mean any return, declaration, report, claim for refund,
information return or statement relating to Taxes, including any schedules or
attachments thereto, and including any amendment thereof.
"Taxing Authority" shall mean any Governmental Authority responsible for
the imposition or collection of any Tax.
"Tesoro Group" shall have the meaning set forth in Section 4.1(i).
"Tesoro Parent" shall have the meaning set forth in Section 4.1(i).
"Transaction" shall mean the purchase and sale of the Membership Interests
pursuant to this Agreement and the related transactions contemplated herein.
"WI" shall mean a working interest under an oil and gas lease or other
Contract affecting a Property which shall reflect the decimal interest for
participation in the decisions, costs and risks concerning operations.
"Working Capital" shall mean, at any time, the difference between (a) the
sum of the amounts on the line items "cash", "accounts receivable",
"inventories" and "prepayment and other" on the Balance Sheet, less (b) the sum
of the amounts on the line items "accounts payable" and "accrued liabilities" on
the Balance Sheet; all as computed in accordance with GAAP and past practice for
Reserves LLC and the Partnership except as expressly provided herein, and in a
manner as reflected on the Balance Sheets; provided, however, that the amounts
on the line items "prepayment and other", "accounts payable" and "accrued
liabilities" on the Balance Sheet shall not include the impact of any amounts
referred to in the first proviso in Section 3.2(a)(i); and
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provided further, that the stated amount of Working Capital shall be reduced by
the amount of inventories that existed as of the Effective Time.
"Working Capital Accounts" shall mean the line items "cash", "accounts
receivable", "inventories", "prepayment and other", "accounts payable" and
"accrued liabilities" on the Balance Sheet, all as computed in accordance with
GAAP and past practice for Reserves LLC and the Partnership, and in a manner as
reflected on the Balance Sheets; provided, however, that the line items
"prepayment and other", "accounts payable" and "accrued liabilities" shall not
include the impact of any items referred to in the first proviso in Section
3.2(a)(i).
ARTICLE II.
PURCHASE AND SALE
-----------------
2.1 Sale of Membership Interests. Subject to the terms and conditions of
----------------------------
this Agreement, Seller agrees to sell and assign to Buyer, and Buyer agrees to
purchase and pay for, at Closing, all of the Membership Interests.
2.2 Effect of Sale. The sale of the Membership Interests at Closing
--------------
shall transfer to Buyer all of Seller's rights in Reserves LLC. On the Closing
Date, Reserves LLC shall hold certain interests, assets and liabilities, as set
forth in this Article II. Except as otherwise specifically set forth in this
Agreement, the transfer of Seller's rights in Reserves LLC shall assign to Buyer
all of Seller's beneficial right, title, interest and obligations in and to such
interests, assets and liabilities held by Reserves LLC.
2.3 Partnership. On the Closing Date, Exploration and Reserves LLC shall
-----------
own the rights and interests in the Partnership, insofar as they pertain to the
Properties. Exploration shall be the general partner, of the Partnership and
Reserves LLC shall own the entire Series A limited partnership interest in the
Partnership insofar as it pertains to allocable revenues and expenses
attributable to the Properties. The partnership rights and interests of
Reserves LLC described in this Section 2.3 shall pass to Buyer as an attribute
of the sale of the Membership Interests pursuant to this Agreement.
2.4 Operating Assets. On the Closing Date, the Partnership shall own the
----------------
Operating Assets, subject to the Permitted Encumbrances, as follows:
(a) Exploration and Production Assets.
---------------------------------
(i) the Properties;
(ii) All the interests in oil and gas wells described on Exhibit A,
together with an interest in the production, compression,
treating, dehydration or processing facilities and other real or
tangible personal property appurtenances and fixtures, which are
located on the lands covered by or within the Properties or are
being used by the Partnership in connection with the operations
on the Properties or Production;
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(iii) Subject to the license granted under the License Agreement
(with respect to the rights covered thereby), rights and
interests in geological data and records, seismic data, whether
in digital or paper format, well logs, well files, geological
data, records and maps, land and contract files and records,
accounting files, data and records, computer hardware and
software and other materials (whether electronically stored or
otherwise) used or held for use by Seller, Reserves LLC or the
Partnership, or any of their direct or indirect parents,
subsidiaries or other Affiliates, regarding ownership of the
Properties or operations and Production which relate to the
Properties, and other files, documents and records which relate
to the Properties;
(iv) Rights, obligations, title and interests in and to permits,
orders, contracts, abstracts of title, leases, deeds,
unitization agreements, pooling agreements, operating
agreements, farmout agreements, participation agreements,
division of interest statements, division orders, participation
agreements, and other agreements and instruments applicable to
the Properties;
(v) All the rights, obligations, title and interests of Seller in
and to all easements, rights of way, certificates, licenses and
permits and all other rights, privileges, benefits and powers
conferred upon the owner and holder of interests in the
Properties, or concerning software used in conjunction with
ownership or operation of the Properties;
(vi) Rights, title, obligations and interests in or concerning any
gas imbalances affecting the Properties; and
(vii) All office equipment, computer equipment, light tables,
drafting tables, drafting equipment, office supplies, facsimile
machines, pool cars and any other equipment or furniture not
herein named which is utilized by the Partnership in its day to
day operations.
(b) Leased Assets. To the extent any of the items of office equipment
-------------
listed in Section 2.4(a) above are leased and not owned, Seller, Reserves LLC
and the Partnership shall use their best efforts to cause such leases to be
assigned to Buyer at Closing.
2.5 Financial Assets and Liabilities . On the Closing Date, the
--------------------------------
Partnership shall own the Financial Assets and Liabilities. Reserves LLC shall
be allocated its share of the Partnership's respective Financial Assets and
Liabilities attributable to ownership and operation of the Properties in
proportion to its ownership of the Partnership's interests in the Properties.
The Financial Assets and Liabilities at Closing of the Partnership and each
partner in the Partnership shall be computed by Seller in accordance with GAAP,
and shall be allocated to the Properties and the partners in the Partnership in
accordance with the Partnership Agreement. The Financial Assets and Liabilities
shall be adjusted from those set forth on the Balance Sheet to reflect certain
Pre-Closing Financial Adjustments and the Adjustment Assets and Liabilities, as
set forth in Sections 2.6 and 2.7.
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2.6 Pre-Closing Financial Adjustments. Prior to the Closing Date, Seller
---------------------------------
shall make certain accounting adjustments and payments regarding the assets,
liabilities and equity of the Partnership and Reserves LLC, to the effect that
Sellers shall remove all intercompany accounts involving the Partnership,
Reserves LLC and their Affiliates, and all intercompany liabilities shall have
been removed. At Closing the only assets and liabilities of the Partnership and
Reserves LLC shall be the Operating Assets and the Adjustment Assets and
Liabilities.
(a) Certain Accounts. Immediately prior to the Closing, Seller shall take,
----------------
and shall cause Reserves LLC and the Partnership to take, all necessary action
deemed appropriate to adjust the Balance Sheets to account for those items that
are to be retained by Seller, as set forth in Schedule 2.6(a). In doing so,
Seller shall take, and shall cause Reserves LLC and the Partnership to take, all
necessary actions deemed appropriate so that the Balance Sheets as of the
Closing Date, as adjusted to reflect such actions, will show zero for those line
items listed in Schedule 2.6(a) as financial items that are to be retained by
Seller.
(b) Pre-Closing Cash Distribution. Immediately prior to the Closing,
-----------------------------
Tesoro Gas Resources Company, Inc. shall cause Reserves LLC to pay to it an
amount equal to the arithmetic mean of Seller's and Buyer's good faith estimates
of the consolidated cash and cash equivalents (other than amounts in suspense
accounts) of Reserves LLC as of the Closing Date.
(c) Changes in Balance Sheets Due to Continuing Operations. Buyer and
------------------------------------------------------
Seller expressly recognize that the assets and liabilities of Reserves LLC and
the Partnership shall be affected by the effects of ongoing ownership and
operation of the Operating Assets between the Effective Time and the Closing
Date. These changes shall be handled exclusively by adjustments to the
Settlement Price as set forth in Section 3.2 and Article XIII.
2.7 Adjustment Assets and Liabilities. At Closing, the Partnership shall
---------------------------------
retain, to the extent permitted by applicable law and regulations, the following
interests:
(a) All rights, obligations, liabilities, title and interests of Seller
and the Partnership in and to all Hedging Contracts in effect at the Effective
Time or thereafter;
(b) All Working Capital Accounts; and
(c) All rights to future proceeds, defenses and indemnities owed under any
bonds or insurance policies covering the Operating Assets, the Partnership,
Reserves LLC or the Business for policy periods prior to the Closing Date, for
losses, claims or occurrences, as applicable, arising prior to the Closing Date.
ARTICLE III.
PURCHASE PRICE AND SETTLEMENT PRICE
-----------------------------------
3.1 Purchase Price. The monetary consideration ("Purchase Price") for
--------------
the sale and conveyance of all the Membership Interests to Buyer, effective as
of the date of Closing, is Buyer's payment of $85,523,212 in cash.
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<PAGE>
3.2 Settlement Price. Pursuant to the provisions as described below, the
----------------
Purchase Price to be paid by Seller will be subject to certain adjustments made
at Closing and within one hundred twenty (120) days thereafter, as set forth in
Article XIII, to determine the Settlement Price amount that will actually be
paid by Buyer. The Settlement Price will be calculated as follows:
(a) Increases. The Purchase Price shall be increased by the following
---------
amounts:
(i) An amount equal to the expenses properly accrued in accordance
with GAAP and past practice, and allocated to Reserves LLC
under the Partnership Agreement, and as provided for in Section
13.3, attributable to the period from the Effective Time to the
end of business on the Closing Date; provided, however, that
such expenses shall exclude all (1) depreciation, depletion and
amortization, (2) income and franchise taxes, (3) one-half of
the amount accrued by and the Partnership and allocated to
Reserves LLC under the Partnership Agreement, incentive
compensation arrangements for the Retained Employees, as
provided in Section 9.9(c), and (4) severance obligations and
other amounts accrued under any employment retention and
management stability agreements, as provided in Section 9.9(b);
provided, further, however that Seller and the Partnership
shall be permitted to accrue no more than $40,000 per month
from the close of business on June 30, 1999 to the Closing Date
for corporate general and administrative expenses;
(ii) An amount equal to the capital expenditures relating to the
Business properly accrued in accordance with GAAP and past
practice and allocated to Reserves LLC under the Partnership
Agreement, attributable to the period from the Effective Time
to the end of business on the Closing Date; and
(iii) The amount of change in Working Capital and allocated to
Reserves LLC under the Partnership Agreement between the
Effective Time and the end of business on the Closing Date, if
the amount of change is a positive number.
(b) Decreases. The Settlement Price shall be decreased by the following
---------
amounts:
(i) An amount equal to the revenues properly accrued in accordance
with GAAP and past practice and allocated to Reserves LLC under
the Partnership Agreement attributable to the period from the
Effective Time to the end of business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment allocated to
Reserves LLC under the Partnership Agreement, subject to the
application of Section 13.1;
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(iii) The amount, stated as a positive number, of any change in
Working Capital and allocated to Reserves LLC under the
Partnership Agreement between the Effective Time and the end of
business on the Closing Date, if and only if, the amount of
change is a negative number.
The Purchase Price as adjusted pursuant to this Section 3.2 is herein called the
"Settlement Price".
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Seller's Representations and Warranties. Effective as of the Closing
---------------------------------------
Date, Seller shall represent and warrant that:
(a) Disclosure. To Seller's Knowledge, the representations and
----------
warranties set forth in this Section 4.1 of this Agreement, the exhibits to this
Agreement, and the information, documents and Balance Sheets provided under the
terms of this Agreement represent full and fair disclosure as of the Closing
Date and do not contain any untrue statement of any material fact or omit any
material fact necessary in order to make the facts stated not misleading.
(b) Authorization and Enforceability.
--------------------------------
(i) This Agreement and the Transaction have been duly authorized
by each Seller.
(ii) Neither the execution and delivery of this Agreement by
Seller, nor the consummation by Seller of the transactions
contemplated hereby, will violate or conflict with, or result
in the acceleration of rights, benefits or obligations under,
(1) any provision of any of Seller's, Reserves LLC's or the
Partnerships' respective Charters, Bylaws, management
agreements, limited liability company agreements, operating
agreements or partnership agreements, or (2) any applicable
statute, law, regulation or Governmental Order to which Seller
or Reserves LLC or the Partnerships or the assets and
properties of such entities, including without limitation the
Operating Assets, are bound or subject.
(iii) This Agreement has been duly executed and delivered by each
Seller and constitutes the valid and binding obligation of
each Seller, enforceable against it in accordance with its
terms, except as such enforceability may be limited by
bankruptcy, insolvency or other laws relating to or affecting
the enforcement of creditors' rights generally and general
principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
(iv) Except as set forth on Schedule 4.1(b)(iv), or as otherwise
specifically provided herein, the execution, delivery, and
performance of this Agreement (assuming that all applicable
consents are received and all applicable Preferential Rights
to Purchase individual Operating Assets are waived) will not
(A) be in violation of any provisions of any regulation or
14
<PAGE>
order that could reasonably be expected to adversely affect the
ownership or operations of the Operating Asset affected thereby
or give rise to damages, penalties or claims of third parties,
or (B) result in the breach of, or constitute a default under,
any indenture or other material agreement or instrument to which
Seller, Reserves LLC or the Partnerships are bound, or (C) cause
the recognition of ain for which the Buyer (or, after the
Closing, the Subsidiaries) will be responsible for the tax
thereon or subject any Subsidiary or its assets to any Tax other
than Tax for which Seller is responsible under Article XVI;
(v) Except as set forth on Schedule 4.1(b)(v) or as otherwise
specifically provided herein, no consent, waiver, approval,
order or authorization of, notice to, or registration,
declaration, designation, qualification or filing with, any
Governmental Authority or third Person, domestic or foreign, is
or has been or will be required on the part of Seller in
connection with the execution and delivery of this Agreement or
the consummation by Seller of the transactions contemplated
hereby or thereby, other than (A) consents and Preferential
Rights to Purchase affecting individual Operating Assets; (B)
filings required (1) to form Reserves LLC under Delaware law;
(C) tax filings or (D) where the failure to obtain such
consents, waivers, approvals, orders or authorizations or to
make or effect such registrations, declarations, designations,
qualifications or filings (1) is not reasonably likely to
prevent or materially delay consummation of the transactions
contemplated by this Agreement (2) could reasonably be expected
to adversely affect the Business or (3) could give rise to
damages, penalties or claims of third parties.
(c) Organizational Status.
---------------------
(i) Each Seller: (1) is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, (2) is
duly qualified to transact business in each jurisdiction where
the nature and extent of its business and properties require
such qualification, and (3) possesses all requisite authority
and power to conduct its business and execute, deliver and
comply with the terms and provisions of this Agreement and to
perform all of its obligations hereunder. There are no pending
or threatened Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of any Seller.
(ii) Reserves LLC(1) is a limited liability company duly organized,
validly existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business and
properties require such qualification, and (3) possesses all
requisite authority and power to conduct its business. There are
no pending or threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or rehabilitation of
Reserves LLC.
(iii) The Partnership (1) is a limited partnership duly organized,
validly existing and in good standing under the laws of
Delaware, (2) is duly
15
<PAGE>
qualified to transact business in each jurisdiction where the
nature and extent of its business and properties require such
qualification, and (3) possesses all requisite authority and
power to conduct its business. There are no pending or threatened
Actions (or basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of the Partnership.
(d) Subsidiary and Other Equity Interests.
-------------------------------------
(i) Reserves LLC has no subsidiaries and does not own any stock or
other interest in any other corporation, partnership, joint
venture, or other business entity, with the exception of the
Partnership.
(ii) The Partnership has no subsidiaries and does not own any stock or
other interest in any other corporation, partnership, joint
venture, or other business entity.
(e) Membership Interests and Partnership Interests.
----------------------------------------------
(i) Reserves LLC has authorized membership interests, of which all
are issued and outstanding and owned by Tesoro Gas Resources
Company, Inc. The membership interests have been duly authorized
by Reserves LLC, and the membership interests owned by Tesoro Gas
Resources Company, Inc. are validly issued and outstanding, fully
paid and nonassessable. There are no preemptive rights,
subscriptions, options, consents to assignment or rights of first
refusal, convertible securities, warrants, calls, stock
appreciation rights, phantom stock, profit participation, or
other similar rights, or other agreements or commitments
obligating Seller or Reserves LLC to issue or to transfer (or
preventing the transfer of) any membership interests, capital
stock or other equity interest in Reserves LLC.
(ii) In the Partnership, the entire Series A limited partnership
interest (representing a 99% interest in all of the capital and
assets of Series A) is held by Reserves LLC. Exploration LLC is
the general partner of the Partnership (representing a 1%
interest in all of the capital and assets of Series A). Such
interests are duly authorized under the agreement governing the
Partnership, as currently amended, and are valid. There are no
preemptive rights, or authorized or outstanding subscriptions,
options, consents to assignment or rights of first refusal,
convertible securities, warrants, calls, appreciation rights,
phantom interests, profit participation, or other similar rights,
or other agreements or commitments obligating Seller, the
Partnership, Grande, Reserves LLC, Southeast or Exploration LLC
to issue or to transfer (or preventing the transfer of) any
equity interest in the Partnership.
(iii) Seller has delivered to correct and complete copies of Reserves
LLC's and the Partnership's respective Charter, Bylaws,
management agreement, limited liability company agreement,
operating agreement or partnership agreement, as amended to date,
and the minute books of Reserves LLC and the Partnership. Neither
Reserves LLC nor the Partnership is in
16
<PAGE>
breach of any provision of its Charter, Bylaws, management
agreement, limited liability company agreement, operating
agreement or partnership agreement.
(f) Title to Membership Interests, Partnership Interests and Assets.
---------------------------------------------------------------
(i) The Membership Interests constitute all of the issued and
outstanding membership interests and other equity interests in
Reserves LLC. All of the issued and outstanding membership
interests of Reserves LLC are owned of record and beneficially
with good and valid title by Tesoro Gas Resources Company, Inc.,
free and clear of any Encumbrance. Upon delivery to Buyer of the
certificates representing the Membership Interests in the manner
and with the powers described in Section 12.2(a), assuming that
Buyer pays the consideration contemplated by this Agreement and
has no notice of any adverse claim, good and valid title to the
Membership Interests will have been transferred to Buyer, free
and clear of any Encumbrances. Neither Tesoro Petroleum
Corporation nor Tesoro Gas Resources Company, Inc. has received
any notice of any adverse claim to their title to the Membership
Interests.
(ii) All of the issued and outstanding partnership interests in the
Partnership are owned of record and beneficially with good and
valid title by Grande, Reserves LLC, Southeast, and Exploration,
free and clear of any Encumbrance. Neither Grande, Reserves LLC,
Southeast, nor Exploration has received any notice of any
adverse claim to their respective interests in the Partnership.
(iii) Reserves LLC and the Partnership have good title to all of the
assets and properties (except the Operating Assets) which they
own or purport to own, including the Financial Assets and
Liabilities reflected on the Balance Sheets and allocable to the
Properties under the Partnership Agreement, except for
properties sold, consumed or otherwise disposed of in the
ordinary course of business since the date of the Balance
Sheets, free and clear of any Encumbrances other than Permitted
Encumbrances.
(g) Litigation. Except as set forth in Schedule 4.1(g), none of Seller,
----------
Reserves LLC or the Partnership have been served with and, to Seller's
Knowledge, there are no pending or threatened Actions before any Governmental
Authority against or affecting Seller, Reserves LLC, the Partnership or the
Operating Assets, which, if adversely determined, either would be reasonably
expected to expose Reserves LLC or the Partnership to a risk of loss after the
Effective Time or would interfere with Seller's ability or right to execute and
deliver this Agreement or consummate the transactions contemplated by this
Agreement.
(h) Labor Matters. Except as set forth on Schedule 4.1(h), there are no
-------------
contracts, agreements, or other arrangements whereby Reserves LLC or the
Partnership are obligated to compensate or provide health and welfare benefit
plans or retirement benefits to any employees or other persons, except for
employment agreements that are terminable at will, without breach or penalty.
To Sellers' Knowledge, Seller, Reserves LLC and the Partnership are in
compliance with all federal, state, and local laws respecting employment and
employment practices, terms
17
<PAGE>
and conditions of employment, and wages and hours and are not engaged in any
unfair labor practice with regard to those persons employed in connection with
Reserves LLC's or the Partnership's operations. No employee of Reserves LLC is
covered under any collective bargaining agreement. There is no unfair labor
practice complaint against Reserves LLC pending or, to Seller's Knowledge,
threatened before the National Labor Relations Board or any comparable state or
local Governmental Authority. There is no labor strike, slowdown or work
stoppage pending or, to Seller's Knowledge, threatened against or directly
affecting Reserves LLC, and no grievance or any Action arising out of or under
collective bargaining agreements is pending or, to Seller's Knowledge,
threatened against Reserves LLC.
(i) Taxes.
-----
(i) Except as set forth in Schedule 4.1(i), Seller, and the
Partnership have timely filed or caused to be timely filed (or
will timely file or cause to be timely filed) with the
appropriate Taxing Authorities, all Tax Returns required to be
filed on or prior to the Closing Date by or with respect to
Sellers and the Partnership (or their respective Operating
Assets) and have timely paid or adequately provided for (or will
timely pay or adequately provide for) all Taxes shown thereon as
owing, except where the failure to file such Tax Returns or pay
any such Taxes would not, or could not reasonably be expected
to, in the aggregate, result in losses or costs or expenses to
Reserves LLC's interests or the Partnership after the Closing
Date.
(ii) Sellers are members of an affiliated group of corporations which
file consolidated federal income tax returns ("Tesoro Group")
with Tesoro Petroleum Corporation as the common parent ("Tesoro
Parent"). Reserves LLC is not required to and does not file
federal income tax returns as a taxpaying entity, and, for
purposes of federal income taxation, Reserves LLC is accounted
for and included as a part of Tesoro Gas Resources Company, Inc.
The Tesoro Group has been subject to normal and routine audits,
examinations and adjustments of Taxes from time to time, but
there are no current audits or audits for which written
notification has been received, other than those set forth in
Schedule 4.1(i). There are no written agreements with any Taxing
Authority with respect to or including Reserves LLC's interests
which will in any way affect liability for Taxes attributable to
Reserves LLC's interests after the Closing Date.
(iii) Except as set forth in Schedule 4.1(i), no assessment,
deficiency or adjustment for any Taxes has been asserted in
writing or, to the knowledge of Sellers, is proposed with
respect to any Tax Return of, or which includes, Reserves LLC's
interests.
(iv) Except as set forth in Schedule 4.1(i), there is not in force
any extension of time with respect to the due date for the
filing of any Tax Return of or with respect to or which includes
Reserves LLC's interests or any waiver or agreement for any
extension of time for the assessment or payment of any Tax of or
with respect to or which includes Reserves LLC's interests.
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<PAGE>
(v) Except for Taxes due with respect to Tax Returns that will be
paid by Tesoro Parent (and not subject to reimbursement by
Reserves LLC), the accounting records of Reserves LLC will
include immediately prior to the Closing Date adequate
provisions for the payment of all Taxes allocable to Reserves
LLC's interests for all taxable periods or portions thereof
through the Closing Date.
(vi) All Tax allocation or sharing agreements or arrangements have
been or will be canceled on or prior to the Closing Date. No
payments are or will become due by Reserves LLC after the
Closing Date pursuant to any such agreement or arrangement.
(vii) Except as set forth on Schedule 4.1(i), none of the Sellers or
Reserves LLC will, as a result of the transactions contemplated
by this Agreement, be obligated to make a payment after the
Closing Date to an individual that would be a "parachute
payment" as defined in Section 280G of the Code without regard
to whether such payment is reasonable compensation for personal
services performed or to be performed in the future.
(viii) Neither Reserves LLC nor the Partnership have participated in
or cooperated with an international boycott within the meaning
of Section 999 of the Code.
(ix) Neither Reserves LLC nor the Partnership has filed a consent
under Code Section 341(f) concerning collapsible corporations.
(x) Neither Reserves LLC nor the Partnership has been a United
States real property holding corporation within the meaning of
Code Section 897(c)(2) during the applicable period specified
in Code Section 897(c)(1)(A)(ii).
(xi) All monies required to be withheld by either Seller, Reserves
LLC and the Partnership and paid to Taxing Authorities for all
Taxes have been (i) collected or withheld and either paid to
the respective Taxing Authorities or set aside in accounts for
such purpose or (ii) properly reflected in the Balance Sheets.
(j) Balance Sheets.
--------------
(i) The Balance Sheets have been prepared in accordance with GAAP
applied on a basis consistent with prior periods, except as
described in the notes thereto, which will qualify that the
Partnership and Reserves LLC have been accounted for as part of
a consolidated financial group with their affiliates and not as
completely separate stand-alone entities.
(ii) The Balance Sheets present fairly, in all material respects,
the financial condition of the combined Partnership and
Reserves LLC as of June 30, 1999. The books and records of
Reserves LLC and the Partnership from which the Balance Sheets
were prepared were complete and accurate in all material
respects at the time of such preparation.
19
<PAGE>
(iii) Reserves LLC and the Partnership have no Liabilities, except
for Liabilities (1) reflected in the Balance Sheets, (2)
incurred by Reserves LLC or the Partnership in the ordinary
course of business and consistent with past practices since the
date of the Balance Sheets, or (3) which are Permitted
Encumbrances, or (4) for which the Buyer is being indemnified
hereunder. As used in this subparagraph, the term "Liabilities"
excludes any Liabilities not required to be reflected in the
Balance Sheets under GAAP.
(k) Absence of Certain Changes. Except as set forth in Schedule 4.1(k), or
--------------------------
as otherwise contemplated by this Agreement (including without limitation
Sections 2.5 and 2.6), or with Buyer's prior written consent, since the close of
business on June 30, 1999:
(i) Neither Reserves LLC nor the Partnership has sold, leased,
transferred, or assigned any assets other than surplus
equipment not necessary for operations of the Business and for
a reasonable consideration;
(ii) Reserves LLC and Partnership have not incurred, assumed or
become subject to any additional indebtedness for money
borrowed or purchase money indebtedness, including capitalized
leases;
(iii) Reserves LLC and Partnership have not entered into any
transaction not in the ordinary course of business, except as
contemplated by this Agreement;
(iv) there have been no additional Encumbrances placed on the assets
of Reserves LLC or the Partnership other than Permitted
Encumbrances;
(v) no event has occurred which constitutes a Material Adverse
Effect;
(vi) Neither Reserves LLC nor the Partnership has made any loan to,
or entered into any contract with (other than severance
agreements for which Seller shall remain responsible), any of
its directors or officers;
(vii) Reserves LLC has not issued, sold, or otherwise disposed of any
of its interests in the Partnership, except in connection with
the transactions outlined in Section 9.4(b) of the Stock
Purchase Agreement;
(viii) there has been no change made or authorized to the Charter,
Bylaws management agreement, limited liability company
agreement, operating agreement or partnership agreement of
Reserves LLC or the Partnership, except in connection with the
transactions outlined in Section 9.4(b) of the Stock Purchase
Agreement;
(ix) Neither Reserves LLC nor the Partnership has canceled,
compromised, waived, or released any debt or Action (or series
of related debts or Actions);
(x) Neither Reserves LLC nor the Partnership has delayed or
postponed the payment of accounts payable or other Liabilities
owed, other than amounts which Seller reasonably and in good
faith disputes;
20
<PAGE>
(xi) Neither Reserves LLC nor the Partnership has made any capital
investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of related
capital investments, loans, and acquisitions), except in
connection with operations conducted pursuant to Section 9.2(f)
or in connection with the transactions outlined in Section
9.4(b) of the Stock Purchase Agreement;
(xii) Neither Reserves LLC nor the Partnership has made any capital
expenditure (or series of related capital expenditures), except
in connection with operations conducted pursuant to Section
9.2(f); or in connection with the transactions outlined in
Section 9.4(b) of the Stock Purchase Agreement
21
<PAGE>
(xiii) Neither Reserves LLC nor the Partnership has entered into any
Contract (or series of related Contracts) other than (i) to
effectuate operations set forth on Schedule 9.2(f) or (ii)
constituting joint operating agreements or oil and gas leases
entered into in the ordinary course of business or (iii)
contracts with officers and directors for which the Seller
shall remain responsible or (iv) contracts in connection with
the transactions outlined in Section 9.4(b) of the Stock
Purchase Agreement;
(xiv) to Seller's Knowledge, neither Reserves LLC nor the Partnership
has materially breached any Contract by which it is bound or to
which any of its assets is subject; and
(xv) Neither Reserves LLC nor the Partnership has declared, set
aside, or paid any dividend or made any distribution with
respect to its interests in the Partnership (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of
its interests in the Partnership, other than in the ordinary
course of business or as contemplated by this Agreement or in
connection with the transactions outlined in Section 9.4(b) of
the Stock Purchase Agreement.
(l) Compliance With Law. Since June 30, 1999, neither Reserves LLC nor the
-------------------
Partnership has violated any law, statute or regulation which have subjected
them to fines or penalties (nor to Seller's Knowledge have any third parties
violated any Applicable Law for which Reserves LLC or the Partnership may have
any responsibility). As of the date of this Agreement, to Seller's Knowledge,
Reserves LLC and the Partnership are in compliance in all material respects with
all laws, statutes or regulations applicable to Reserves LLC and the
Partnership, except where the noncompliance with which would not, in the
aggregate, result in the imposition on Reserves LLC and the Partnership of fines
or penalties.
(m) Operating Assets.
----------------
(i) Seller represents that as of Closing, Seller's and the
Partnership's interests in the Operating Assets shall be free
and clear of any liens other than Permitted Encumbrances.
(ii) To Seller's Knowledge, the Operating Assets are being operated
in compliance in all material respects with all applicable
federal, state or local laws, and the rules and regulations of
any agency or authority having jurisdiction.
(iii) Except as set forth in Schedule 4.1(m)(iii), Reserves LLC and
the Partnership possess all permits, licenses, orders,
approvals and authorizations required by any applicable law,
statute, regulation or Governmental Order, or by the property
and contract rights of third Persons, reasonably necessary to
permit the operation of the Business in the manner currently
conducted by Reserves LLC and the Partnership. Neither Reserves
LLC nor the Partnership has received written notice from any
Governmental Authority that any such permit, license, order,
approval or authorization has been, or will be, revoked or
terminated.
22
<PAGE>
(iv) Except as set forth in Schedule 4.1(m)(iv), immediately before
the Closing Date, Reserves LLC and the Partnership will hold or
have the right to use in the Business all of the assets and
properties (including all licenses and agreements) currently
being used (except those disposed of or expiring in the
ordinary course of business or otherwise as contemplated or
permitted by this Agreement) or which are reasonably necessary
to permit the operation of the Business in the manner currently
conducted by Reserves LLC and the Partnership. Since June 30,
1999, Reserves LLC have conducted no business other than the
Business.
(n) No Brokers' Fees. Except for Credit Suisse First Boston, the fees and
----------------
expenses of which will be paid by Seller, neither Seller nor any of its
directors, officers or employees has employed any broker, finder or investment
banker or incurred any Liability for any brokerage fees, commissions, finders'
fees or similar fees in connection with the transactions contemplated by this
Agreement. Buyer shall have no responsibility whatsoever, contingent or
otherwise, for any brokers' or finders' fees incurred by Seller, Reserves LLC or
the Partnership relating to the Transaction.
(o) Suspense Funds. Schedule 4.1(o) is a true and correct list as of
--------------
August 31, 1999 of all amounts held by the Partnership and/or Reserves LLC in
suspense accounts, or otherwise, related to the Properties for the benefit or
account of any other Person.
(p) Insurance. As listed on Schedule 4.1(p) Seller, Reserves LLC and the
---------
Partnership maintain insurance on and bonds with respect to the Operating
Assets, as set forth on Schedule 4.1(p), covering such risks and with such
deductible amounts as are consistent with general oil and gas industry practice.
(q) Contracts on Production. Except as set forth on Schedule 4.1(q), there
-----------------------
are no Contracts involving the purchase, marketing, brokering or sale of
Production that require a dedication of Production for a term in excess of three
(3) months that will not be terminable without penalty or other liability at the
sole discretion of Reserves LLC or the Partnership upon not more than one (1)
month's notice, except for commitments under operating agreements.
(r) Equipment. Since June 30, 1999, neither Seller, Reserves LLC nor the
---------
Partnership, nor to Seller's Knowledge the operator of any of the Operating
Assets, has removed any of the equipment, facilities or other property from the
Operating Assets except in the ordinary course of business.
(s) Tax Partnerships. Except as disclosed in Schedule 4.1(s), no Property
----------------
is subject to, or considered to be held by, any partnership for federal income
tax purposes, other than tax partnerships under joint operating agreements.
(t) Disclaimer. Except as otherwise expressly set forth in this Article
----------
and elsewhere in this Agreement, Seller and the Affiliates of Seller expressly
disclaim any representations or warranties of any kind or nature, express or
implied, as to the condition, value or quality of the assets or properties
currently or formerly used, operated, owned, leased, controlled, possessed,
occupied or maintained by Reserves LLC or the Partnership, and SELLERS AND ALL
OTHER TESORO AFFILIATES SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY OF
MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH
RESPECT
23
<PAGE>
TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP
THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, IT
BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING ACQUIRED "AS IS,
WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, WITH ALL FAULTS,
AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND INVESTIGATION THEREOF.
(u) Environmental Matters. Except as set forth on Schedule 4.1(u), to
---------------------
Seller's Knowledge:
(i) There are no underground storage tanks, as defined in
Applicable Environmental Law, on the Properties or any of the
Operating Assets which constitute a violation of Environmental
Law.
(ii) The Operating Assets contain no friable asbestos, mercury or
polychlorinated biphenyls above 50 ppm or other Hazardous
Substances which constitute a violation of Applicable
Environmental Law.
(iii) The Operating Assets have been used solely for oil and gas
operations and related operations. Except for the production,
storage and transportation of oil, gas and other hydrocarbons
and the storage and disposal of brine in the ordinary course of
business consistent with prevailing oil and gas industry
practices, the Properties have not been used to dispose of
Hazardous Substances. No Hazardous Substances have been
disposed of that would cause an adverse material impact to any
of the Operating Assets.
(iv) There have been no spills or releases of any Hazardous
Substance related to the ownership or operation of the
Operating Assets which constitutes a violation of Applicable
Environmental Law, except for matters that have been addressed
and have no continuing adverse consequence to Seller, Reserves
LLC, the Partnership or the Operating Assets.
(v) There are no Actions pending or threatened against the
Partnership, Reserves LLC, or either Seller with respect to any
of the Operating Assets relating to the violation of, liability
under, or noncompliance with, any Applicable Environmental Law;
the discharge, disposal or release of a Hazardous Substance; or
the exposure of a Person or property to a Hazardous Substance.
Seller, Reserves LLC and the Partnership have no current
contingent liability in connection with the release of
Hazardous Substances.
(vi) The Operating Assets have been, and are operating, in material
compliance under all Applicable Environmental Laws.
(vii) Seller, Reserves LLC and the Partnership have provided Buyer
all environmental audits, tests, results of investigations and
analyses that have been performed with respect to the Operating
Assets.
24
<PAGE>
(v) Contracts. Except as set forth on Schedule 4.1(v) or Section 4.1(q)
---------
and in joint operating agreements entered into in the normal course of business,
the Operating Assets are not subject to any instrument, agreement or other
Contract evidencing or related to indebtedness for borrowed money. All of the
existing Contracts between any of Reserves LLC, the Partnership and/or either
Seller and any of their respective Affiliates with respect to sales, services or
support to any of the Operating Assets or operations on the Operating Assets
shall terminate except for such Contracts otherwise indicated on Schedule 4.1(v)
to survive Closing. Except as set forth on Schedule 4.1(v) and other than
Consents to Assignment or Preferential Rights to Purchase, to Seller's
Knowledge, no Contracts to which Seller, Reserves LLC or the Partnership is a
party or a successor-in-interest and to which Buyer will be subject after the
Effective Time contain any provision that prevents Buyer from owning, managing
and operating the Operating Assets in accordance with the Partnership's past
practices.
(w) Seismic Information. At Closing, subject to the terms of the License
-------------------
Agreement, neither Seller nor any affiliate of Seller other than Reserves LLC
and the Partnership shall have any further right to any of the seismic data of
Reserves LLC or the Partnership which has been assigned or leased to Reserves
LLC, the Partnership and/or the Buyer.
(x) Wells. Except to the extent set forth on Schedule 4.1(x), to Seller's
-----
Knowledge, no well included in the Properties is subject to material penalties
on allowables because of any overproduction or any other violation of Applicable
Law. Except for the wells included in the Properties and listed in Schedule
4.1(x), there are no wells included in the Properties that Seller, Reserves LLC
or the Partnership, or to Seller's Knowledge the operator of such wells, are
currently obligated by Applicable Law, Applicable Environmental Law or order of
any Governmental Authority to plug and abandon within a time certain or that
have been shut-in or temporarily abandoned.
(y) Expenditure Obligations. Except as set forth on Schedule 9.2(f),
-----------------------
Reserves LLC and the Partnership have not executed or are not otherwise
contractually bound by any authority for expenditure with respect to any of the
Operating Assets under any operating agreement, unit operating agreement, or
other similar agreements. Except as set forth on Schedule 9.2(f), with respect
to authorizations for expenditure relating to any of the Operating Assets, (i)
there are no outstanding calls under such authorizations for expenditures for
payments which are due or which Reserves LLC or the Partnership have committed
to make which have not been made; (ii) there are no material operations with
respect to which any of Reserves LLC and/or the Partnership has become a non-
consenting party where the effect of such non-consent is not disclosed on
Exhibit B, and (iii) there are no commitments for the expenditures of funds for
drilling or other capital projects other than projects with respect to which the
operator is not required under the applicable operating agreement to seek
consent.
(z) Payout. To Seller's Knowledge, the payout balances with respect to any
------
of the Properties operated by the Partnership that are subject to future change
on account of reversionary interests, non-consent penalties or similar
agreements or arrangements are set forth on Schedule 4.1(z) and are correct as
of the dates shown on such statements.
(aa) Absence of Certain Changes Regarding Properties. Since June 30, 1999,
-----------------------------------------------
except as listed on Schedule 4.1(k), Reserves LLC and the Partnership:
25
<PAGE>
(i) have maintained and operated each of the Properties operated by
any of them as a reasonably prudent operator consistent with
prevailing oil and gas industry practice;
(ii) have used reasonable efforts consistent with their past
practices to cause each of the Properties not operated by them
to be maintained and operated in a good and workmanlike manner
and in substantially the same manner as theretofore operated;
(iii) have paid timely their share of all costs and expenses
attributable to the Operating Assets, except for such costs and
expenses that they were contesting in good faith by appropriate
action;
(iv) have performed all accounting, royalty disbursement and
reporting requirements, as applicable, related thereto for the
Production; and
(v) have not agreed, whether in writing or otherwise, to take any
action described in this Section 4.1(aa).
(bb) Schedule 1B states all liens and mortgages that previously encumbered
the Membership Interests or the Operating Assets, securing obligations of
Seller, Reserves LLC or the Partnership (other than those items listed in clause
(ii) through (ix) of the definition of "Permitted Encumbrances"), and all of the
liens and mortgages listed on Schedule 1B have been released, insofar as they
encumber the Membership Interests or the Operating Assets.
4.2 Buyer's Representations. Buyer represents that:
-----------------------
(a) Disclosure. To Buyer's Knowledge, the representations and warranties
----------
set forth in this Agreement represent full and fair disclosure as of the date of
this Agreement and the date of Closing and do not contain any untrue statement
of any material fact or omit any material fact necessary in order to make the
facts stated not misleading.
(b) Authorization and Enforceability
--------------------------------
(i) This Agreement and the Transaction have been duly authorized by
Buyer.
(ii) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby or
thereby, will violate or conflict with (1) any provision of
Buyer's Charter or Bylaws, or (2) any applicable statute, law,
regulation or Governmental Order to which Buyer or the assets
or properties of Buyer are bound.
(iii) This Agreement has been duly executed and delivered by Buyer
and constitutes the valid and binding obligation of Buyer,
enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency or
other laws relating to or affecting the enforcement of
creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
26
<PAGE>
(iv) Except as set forth on Schedule 4.2(b)(iv) or as otherwise
specifically provided herein, the execution, delivery, and
performance of this Agreement (assuming that all applicable
consents are received) will not (A) be in material violation of
any provisions of any regulation, or order or (B) result in the
breach of, or constitute a default under, any material indenture
or other agreement or instrument to which Buyer is bound.
(v) Except as set forth on Schedule 4.2(b)(v) or as otherwise
specifically provided herein, no consent, waiver, approval, order
or authorization of, notice to, or registration, declaration,
designation, qualification or filing with, any Governmental
Authority or third Person, domestic or foreign, is or has been or
will be required on the part of Buyer in connection with the
execution and delivery of this Agreement or the consummation by
Buyer of the transactions contemplated hereby or thereby, other
than where the failure to obtain such consents, waivers,
approvals, orders or authorizations or to make or effect such
registrations, declarations, designations, qualifications or
filings is not reasonably likely to prevent or materially delay
consummation of the transactions contemplated by this Agreement
or prevent Buyer from performing its obligations under this
Agreement.
(c) Organizational Status. Buyer: (i) is a limited liability company duly
---------------------
organized, validly existing and in good standing under the laws of Delaware,
(ii) is duly qualified to transact business in each jurisdiction where the
nature and extent of its business and properties require the same in order for
it to perform its obligations under this Agreement; and (iii) possesses all
requisite authority and power to conduct its business and execute, deliver and
comply with the terms and provisions of this Agreement, to purchase, receive,
and accept conveyance of the Membership Interests from Seller and to perform all
of its obligations hereunder.
(d) Ability to Perform. On the Closing Date, Buyer will have sufficient
------------------
cash, available lines of credit or other sources of immediately available funds
to enable it to make its payment of the Closing Settlement Price at the Closing.
(e) Investment Intent. The Membership Interests are being purchased for
-----------------
Buyer's own account and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the Securities
Act. Buyer understands that the Membership Interests have not been registered
under the Securities Act by reason of their issuance in transactions exempt from
the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) thereof. Buyer is knowledgeable, competent, and
experienced in the oil and gas industry and has independently evaluated and
interpreted the technical data and other information regarding the Operating
Assets prior to entering into this Agreement, understands and is financially
able to bear the risk associated with ownership of Reserves LLC and the
Partnership, and will independently conduct all the due diligence investigations
and reviews of all matters concerning Reserves LLC, the Partnership and the
Operating Assets as it deems necessary prior to Closing. Buyer acknowledges
that Buyer is not relying upon any statement or representations made by Seller
concerning the present or future value of, or anticipated income, costs, or
profits, if any, to be derived from, Reserves LLC, the
27
<PAGE>
Partnership or the Operating Assets, and Buyer has relied solely upon its
independent inspections, estimates, computations, evaluations, reports, studies,
knowledge and other information regarding Reserves LLC, the Partnership and the
Operating Assets.
(f) Litigation. There are no pending or, to Buyer's Knowledge, threatened
----------
suits, actions, proceedings, claims, or investigations that would interfere with
Buyers ability or right to execute and deliver this Agreement or consummate the
transactions contemplated by this Agreement.
(g) No Brokers' Fees. Buyer has incurred no liability, contingent or
----------------
otherwise, for brokers' or finders' fees relating to the Transaction for which
Seller shall have any responsibility whatsoever.
(h) Buyer's Knowledge. To Buyer's Knowledge, on the date hereof, Buyer's
-----------------
representations and warranties made in this Section 4.2 are true and correct in
all material respects.
ARTICLE V.
ACCESS TO INFORMATION AND INSPECTION
------------------------------------
5.1 Access to Information. Prior to the Closing Date, upon reasonable
---------------------
notice, Seller, Reserves LLC and the Partnership have (i) afforded the officers,
employees and authorized agents and representatives of Buyer reasonable access
during normal business hours to the offices, Operating Assets and Books and
Records, title and contract files, permit files, legal, evidentiary, litigation
support, records and data financial and accounting records and operating and
maintenance files, and related documents, records and materials concerning the
Operating Assets data in possession of Seller and (ii) furnished to the
officers, employees and authorized agents and representatives of Buyer such
additional financial and operating data and other information regarding the
assets, Operating Assets and Liabilities of Reserves LLC, the Partnership, and
the Business (or legible copies thereof) as Buyer may have from time to time
reasonably requested.
5.2 Warranties As to Documents. Seller has advised Buyer of the nature
--------------------------
and existence of any confidential documents that have been withheld from
disclosure. Seller does not warrant or represent the accuracy of any materials
that may have been made available for Buyer's review, except that Seller does
represent and warrant that it has not concealed or intentionally or willfully
misrepresented or withheld any information, data or materials in its possession
except for confidential information, data or materials, the existence of which
has been disclosed as otherwise provided herein.
ARTICLE VI.
TITLE
-----
6.1 Governmental Consents. After the execution of this Agreement, and
---------------------
upon Closing and thereafter, Buyer and Seller shall cooperate to obtain all
routine or standard governmental consents or waivers necessary to transfer
Seller's rights and interests in Reserves LLC and the Partnership owning the
Operating Assets to Buyer.
28
<PAGE>
ARTICLE VII.
ENVIRONMENTAL
-------------
7.1 Disclosures and Availability of Data to Buyer. The Operating Assets
---------------------------------------------
have been utilized by the Partnership for the purposes of exploration,
development and production of oil and gas, for related oilfield operations and
possibly for the storage and disposal of waste materials or hazardous substances
generated or otherwise used in association with oil and gas exploration and
production activities on the Properties. The Operating Assets also may contain
buried pipelines, the locations of which may not now be known by Seller or
readily apparent by a physical inspection of the Operating Assets. In addition
to providing any environmental audits and studies as per Section 4.1(u), Seller
has made and shall make available to Buyer Seller's historical files regarding
the foregoing operations, to the extent available and to the extent Seller,
Reserves LLC and the Partnership are authorized to disclose same (excepting
documents which Seller, Reserves LLC or the Partnership are contractually
prohibited from disclosing or are subject to legal privilege or are in the
possession of another operator, and with respect to which Seller has been unable
to secure consent to disclose despite its commercially reasonable efforts to do
so).
7.2 NORM. Without affecting Seller's representations and warranties or
----
the provisions of Section 7.3, Buyer acknowledges that some or all of the
Operating Assets may contain naturally occurring radioactive materials ("NORM"),
and that NORM is an anticipated hazard in oil and gas production operations.
Certain of the Operating Assets, including without limitation, pipe and
equipment may have deposits that contain NORM. Buyer agrees that it shall cause
the Partnership to properly handle and dispose of all materials containing NORM
in a safe manner in accordance with all applicable laws and regulations, at
their sole risk, liability and expense.
7.3 Buyer's Environmental Assessment. Buyer has pursued such
--------------------------------
environmental assessments of the Operating Assets as Buyer has desired.
7.4 Responsibilities for Remediation of Contamination. As between the
-------------------------------------------------
parties hereto, but subject to the provisions of applicable laws, joint
operating agreements, other third party agreements and the indemnities and other
provisions set forth herein, from and after the Closing, the Partnership shall
remain responsible for costs of remediation of all Environmental Conditions
occurring on or arising from any Operating Asset at any time, whether before, on
or after the Effective Time; provided however, that Seller shall fund payment of
any fines or regulatory penalties that might be assessed against the Partnership
by reason of any violation of regulatory or permit requirements before the
Closing Date.
ARTICLE VIII.
CASUALTY LOSS AND CONDEMNATION
------------------------------
29
<PAGE>
8.1 No Termination. Except as specifically provided to the contrary
--------------
herein, Reserves LLC and the Partnership shall retain all risk of loss with
respect to any loss of, reduction in value of or damage to the Operating Assets
from the Effective Time until Closing, and Buyer assumes the risk of loss of
value of Reserves LLC and the Partnership associated with such matters. If
after the Effective Time and prior to the Closing, any part of the Operating
Assets should be destroyed by fire or other casualty or if any part of the
Operating Assets should be taken in condemnation or under the right of eminent
domain or if proceedings for such purposes should be pending or threatened, this
Agreement shall remain in full force and effect notwithstanding any such
destruction, taking or proceeding or the threat thereof, except as expressly
provided in Article XX.
8.2 Proceeds and Awards. In the event of any loss described in Section
-------------------
8.1, Seller (with Buyer's consent, which shall not be unreasonably withheld)
shall either (a) at the Closing assign to the Partnership all of Seller's rights
in any insurance proceeds, third party damage payments, condemnation awards or
other amounts paid or to be paid by reason of such destruction, less any costs
and expenses incurred by Seller in collecting same, or (b) prior to Closing, use
or have the Partnership apply such sums (less any costs and expenses incurred by
Seller in collecting same) to repair, restore or replace such damaged or taken
Operating Assets. In addition, Seller shall at Closing assign to the
Partnership all of the right, title and interest of Seller in and to any claims
for loss of or damages to the Operating Asset, that might be asserted against
third parties with respect to the event or circumstance causing such loss to and
any unpaid insurance proceeds, condemnation awards or other payments arising out
of such destruction or taking, less any costs and expenses previously incurred
by Seller in collecting same. The Settlement Price shall be reduced by the
Casualty Price Adjustment, if any, attributable to casualty losses that are not
fully covered by insurance. Notwithstanding anything to the contrary in this
Section 8.2, neither Seller, Reserves LLC nor the Partnership shall be obligated
to carry or maintain, nor shall they have any obligation or liability to Buyer
for their failure to carry or maintain any insurance coverage with respect to
any of the Operating Assets, except as required by Section 9.2.
8.3 Risks Of Other Losses. Except as otherwise set forth in this
---------------------
Agreement, Buyer shall assume all risks of loss with respect to the
Partnership's ownership or operation of the Operating Assets after the Effective
Time, including without limitation, the following risks:
(a) Operations. With respect to each Operating Asset, Buyer shall assume
----------
all risk of loss with respect to any loss of value or change in the condition of
the Operating Asset, and all wells thereon, after the Effective Time, relating
to the production of oil, gas or other hydrocarbons, including without
limitation normal depletion, water encroachment, coning, pressure depletion,
formation changes and sand infiltration. The Partnership shall continue to bear
its proportionate share of the risks allocated under applicable joint operating
agreements and assume their proportionate share of the risks that such
operations may be unsuccessful, and Closing shall not be conditioned upon the
success of any operations.
30
<PAGE>
(b) Market Conditions. With respect to each Operating Asset, Buyer shall
-----------------
assume all risk of loss with respect to any change in market conditions
affecting any Operating Asset or production therefrom after the Effective Time,
and this Agreement shall not be terminated or suspended, nor shall Closing be
delayed, due to any such change in market conditions.
ARTICLE IX.
COVENANTS
---------
9.1 Pre-Closing Covenants of Seller Regarding the Business. Sellers shall
------------------------------------------------------
cause Reserves LLC and the Partnership to operate the Business only in its
usual, regular and ordinary manner and substantially in the same manner as
heretofore conducted, and as set forth in Section 9.2. Sellers shall cause
Reserves LLC and the Partnership to use commercially reasonable efforts and as
set forth in Section 9.2, to (i) preserve the Business; (ii) keep available to
Buyer the services of the present officers, employees, agents and independent
contractors of Reserves LLC; and (iii) maintain the assets of the Business in
their current state of repair, order and condition, usual and ordinary wear and
tear excepted and subject to requirements in the ordinary course of business.
9.2 Pre-Closing Covenants of Seller Regarding the Operating Assets.
--------------------------------------------------------------
Subject to the terms of applicable operating and other existing agreements,
Seller covenants and agrees that between the date of this Agreement and the
Closing Date, except as set forth on Schedule 9.2 or as may be consented to in
writing by Buyer, which consent shall not be unreasonably withheld, Seller shall
manage the Partnership's ownership of the Operating Assets as follows:
(a) Disposal of Operating Assets. The Partnership shall not sell or
----------------------------
otherwise dispose of any of the Operating Assets, except for the sale in the
ordinary course of the Partnership's business of oil, gas, condensate and
products thereof and surplus equipment.
(b) New Third Party Rights. Except for Contracts entered into in
----------------------
furtherance of operations listed on Schedule 9.2 and Schedule 9.2(f), without
Buyer's consent, the Partnership shall not enter into any new or amended
contracts, agreements or relationships (i) granting any Preferential Right to
Purchase or Consent to Assignment affecting any of the Operating Assets
hereunder, or (ii) which if in existence as of the date hereof would be a
material Contract.
(c) Preservation of Operating Assets. The Partnership shall use reasonable
--------------------------------
efforts to preserve in full force and effect all leases, operating agreements,
easements, rights-of-way, permits, licenses, contracts and other agreements
which relate to the Operating Assets and shall perform the obligations of the
Partnership in or under any such agreement relating to such Operating Assets as
a reasonable and prudent operator, provided however, that the Partnership shall
not be required to conduct any drilling, recompletion or reworking activities to
maintain any lease, farmout agreement or other defeasible interest in force or
to settle any adverse claims, demands or litigation in a manner that Seller
deems inappropriate.
(d) Maintenance of Equipment. The Partnership shall maintain all material
------------------------
and equipment within the Operating Assets in accordance with customary industry
operating practices and procedures.
31
<PAGE>
(e) Insurance. The Partnership shall maintain in full force and effect all
---------
policies of insurance now maintained by Seller and the Partnership covering the
Operating Assets. Seller and Buyer will cooperate in making claims under
Seller's insurance policies prior to the Closing. Seller additionally agrees to
cooperate with Buyer to allow Buyer, Reserves LLC or the Partnership to obtain,
at Buyer's expense, at a reasonable market price an additional reporting period
policy for any of Seller's insurance policies which are on a claims-made basis.
(f) Operations.
----------
(i) Except for operations covered by committed expenditures listed on
Schedule 9.2(f), the Partnership shall not propose or conduct for
its own account any operation. The Partnership shall have the
right to conduct, at its sole election and discretion, any
operations that either (1) are covered by committed expenditures
listed on Schedule 9.2(f), (2) are required by law or
regulations, or (3) are required under a binding existing
agreement with a third party.
(ii) Except for operations covered by committed expenditures listed on
Schedule 9.2(f), the Partnership shall not agree to participate
in any reworking, deepening, drilling, completion, recompletion,
equipping or other operation that is proposed by a co-owner in
any well or other asset without Seller having first provided
Buyer written or oral notice thereof as soon as reasonably
practicable after the Partnership receives notice thereof from
the Partnership's co-owner in such Operating Asset. If Seller
provides Buyer with such notice, Buyer and Seller shall promptly
consult about the advisability of participating in such
operations. If Buyer and Seller cannot agree, the following
provisions shall apply:
(1) If Seller should wish to participate in an operation proposed
by a third party and Buyer should object to the operation, then
the Partnership may agree to participate, but Buyer may assert a
Title Defect with respect to the Property affected by such
operation, and in such event such Property shall be excluded from
the sale hereunder and instead shall be assigned to another
subsidiary of Seller prior to Closing and the Purchase Price
shall be reduced by the Allocated Value of the affected Property.
In such event, Seller shall indemnify and defend Buyer against
any and all Damages relating to such operation and such Property.
(2) If Buyer should wish to participate in such operation and
Seller objects to the operation, the Partnership shall not be
obligated to make any such payment or to elect to participate in
such operation unless within a reasonable time prior to the date
when such payment or election is required to be made by the
Partnership, the Partnership receives from Buyer, (A) the written
election and agreement of Buyer to require the Partnership to
take such action and to indemnify Seller therefrom and (B) all
funds necessary for such action.
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(3) If (A) Buyer advances any funds pursuant to subparagraph (2),
and (B) the Membership Interests are not assigned to Buyer at
Closing, and (C) Seller does not reimburse Buyer for all advances
made by Buyer with respect to such Operating Assets pursuant to
subparagraph (2) within thirty (30) days after this Agreement
terminates, then Buyer shall own and be entitled to any right of
the Partnership that would have lapsed but for such payment, and
in the case of operations, Seller shall be entitled to receive
the penalty which the Partnership, as non-consenting party, would
have suffered under the applicable operating agreement with
respect to such operations as if Buyer were a consenting party
thereunder.
(g) Data Restrictions. Seller shall advise Buyer in writing of the
-----------------
identity, nature and existence of any technical or interpretive information or
data that cannot be assigned to Buyer hereunder because of confidentiality
agreements with third parties, identify such third parties, and provide
reasonable cooperation (for before and up to one year after Closing) in
obtaining the agreement of such third parties to the release or assignment of
such information and data to Buyer; provided however, that Seller shall not be
required to expend any material funds or release any rights to allow such
release or assignment.
(h) Operating Assets Operated by Others. To the extent the Partnership is
-----------------------------------
not the operator of any Operating Asset, the obligations of Seller in this
Section 9.2, which have reference to operations or activities which normally are
or pursuant to existing contracts are to be carried out or performed by
operator, shall be construed to require only that the Partnership use reasonable
efforts to request that the operator of such Operating Asset either take such
actions, render such performance or refrain from performance, within the
constraints of the applicable operating agreements, applicable agreements and
applicable law.
9.3 Seller's Covenants Regarding Encumbrances. Seller covenants that on
-----------------------------------------
or before the Closing Date, Seller shall cause the Encumbrances in Schedule 1B
to be released, in a form reasonably acceptable to Buyer.
9.4 Covenants Regarding Corporate and Financial Matters. Through the
---------------------------------------------------
Closing Date, except as set forth in Schedule 9.4 or as contemplated by this
Agreement (including without limitation Sections 2.5 and 2.6) or otherwise
consented to or approved by Buyer in writing, which consent or approval shall
not be unreasonably withheld, Seller shall cause Reserves LLC and the
Partnership not to:
(a) Amend the Charter, Bylaws, management agreement, limited liability
company agreement or operating agreement of any Reserves LLC or amend the
partnership agreement of the Partnership;
(b) Incur, assume or become subject to any additional indebtedness for
money borrowed or purchase money indebtedness, except in the ordinary course of
business and consistent with past practices;
33
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(c) Except as necessary to effect the transactions contemplated herein,
declare or pay any dividend or make any other distribution to any shareholder of
any of Reserves LLC or any partner of the Partnership;
(d) Redeem or otherwise acquire any shares of capital stock of any of
Reserves LLC or issue any capital stock of any Reserves LLC or any option,
warrant or right relating thereto or any securities exchangeable for or
convertible into any such shares;
(e) Permit or allow any of Reserves LLC' assets or properties to be
subject to any additional Encumbrance (other than Permitted Encumbrances) or
sell, transfer, lease or otherwise dispose of any such assets or properties,
other than surplus equipment not necessary for operations of the Business and
sold for a reasonable consideration of less than $25,000;
(f) Make any change in any method of accounting or accounting practice or
policy, other than those required by GAAP;
(g) Engage in any transactions with an Affiliate of Seller, other than
transactions in the ordinary course and consistent with past practices;
(h) Make any changes in the method of selling natural gas, condensate, oil
or products thereof which is not consistent with past practices;
(i) Enter into any new derivative or Hedging Contracts with respect to
natural gas, condensate, oil, products thereof, interest or any other
commodities or other financial instruments; or
(j) Agree, whether in writing or otherwise, to do any of the foregoing.
9.5 No Solicitation of Transactions. Except as otherwise permitted herein
-------------------------------
from the date of this Agreement through the Closing Date, neither Seller nor any
of their representatives, Affiliates, directors, officers, employees,
subsidiaries or agents will (a) solicit, consider, encourage or accept any other
offers to acquire any of the Membership Interests or Seller's interests in the
Partnership or (b) solicit, consider, encourage or accept any other offers to
acquire any of the assets or properties of the Partnership (other than as
permitted by this Agreement) or (c) assist any third Person in preparing or
soliciting such an offer. Seller shall not have, and shall cause such
representatives, Affiliates, directors, officers, employees, subsidiaries and
agents not to have any discussions, conversations, negotiations or other
communication with any Person(s) expressing an interest in any such offer.
9.6 Emergencies and Oversights. Notwithstanding the other provisions of
--------------------------
this Article IX, (a) Seller, Reserves LLC and/or the Partnership may take any
action with respect to the Operating Assets without penalty, if reasonably
necessary under emergency circumstances or if required to protect life, public
safety or the environment, and provided Buyer is notified as soon thereafter as
reasonably practical, and (b) Seller shall have no liability to Buyer for the
loss or reduction of any rights or interests by reason of the nonpayment or
incorrect payment of delay rentals, royalties, shut-in royalties or similar
payments or for any failure to pay any such
34
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payments through mistake or oversight; provided, however, Buyer shall be
permitted to assert the items in this clause (b) as Title Defects under Article
VI.
9.7 Buyer's Covenants Regarding Performance and Continued Existence.
---------------------------------------------------------------
Buyer covenants that between the date of this Agreement and the Closing Date:
(a) Buyer shall take all steps and perform all operations reasonably
necessary to allow Buyer to perform its obligations at Closing;
(b) Buyer shall maintain its existence as a limited liability company in
good standing in Delaware; and
(c) Buyer shall cause the representations and warranties of Buyer to be
true and correct as of the Closing Date.
9.8 Buyer's Covenants Regarding Trade Name. Buyer acknowledges and agrees
--------------------------------------
with Seller that Seller shall have the absolute and exclusive proprietary right
to all names, marks, trade names, trademarks and corporate symbols and logos
incorporating "Tesoro," together with all other names, marks, trade names,
trademarks and corporate symbols and logos owned by any Affiliates of Seller
(collectively, the "Tesoro Marks"), all rights to which and the goodwill
represented thereby and pertaining thereto are being retained by Seller and the
Affiliates of Seller. Within ninety (90) days after the Closing Date, Buyer
shall change the name of Reserves LLC and the Partnership, to not include the
name "Tesoro", cease using any Tesoro Mark and shall promptly remove from all
the assets and properties of Reserves LLC any and all Tesoro Marks, and change
the name on all permits and licenses, to not include the name "Tesoro".
Thereafter, Buyer shall not use any Tesoro Mark in connection with the conduct
of its business. In the event that Buyer breaches this Section 9.8, Seller shall
be entitled to specific performance of this Section 9.8 and to injunctive relief
against further violations, as well as any other remedies available at law or in
equity.
9.9 Buyer's Covenants Regarding Employment.
--------------------------------------
(a) Schedule 9.9(a) sets forth the employees of Seller or its Affiliates
to whom Buyer (or an Affiliate of Buyer) expects to offer employment after the
Closing. Buyer in its sole discretion will determine the capacity in which the
employees listed on Schedule 9.9(a) who accept employment with Buyer or its
Affiliate (the "Retained Employees") will be employed and with which entity each
of the Retained Employees will be employed after the Closing. After the Closing,
Buyer (or its Affiliates which will employ Retained Employees) will initially
provide to the Retained Employees the same base salary or wages (but not any
retention-related salary increases described in Schedule 9.9(c)) provided to
such employees prior to the Closing, subject to such changes in base salary or
wages as are consistent with the Buyer's compensation structure. Buyer will take
all actions necessary or appropriate to permit the Retained Employees to
participate from and after the Closing in the employee benefit plans or
arrangements of Buyer and/or Affiliates of Buyer customarily provided to new
employees of Buyer and its Affiliates (including, without limitation, the
Employee Stability Plan); provided that Buyer shall, with respect to Buyer's or
its Affiliate's group health and dental plans ("Buyer's Group Health Plans"), to
the extent necessary after the Closing, (i) reimburse such Retained Employees,
for the
35
<PAGE>
year during which participation in Buyer's Group Health Plan begins, for any
duplicate deductibles and copayments already incurred during such year under the
group health and dental plans of Seller or its Affiliates ("Seller's Group
Health Plans"), and (ii) waive any preexisting condition limitations applicable
to the Retained Employees (and their eligible dependents) under Buyer's Group
Health Plans to the extent that a Retained Employee's (or dependent's) condition
would not have operated as a preexisting condition under Seller's Group Health
Plans.
(b) Buyer (and its Affiliates) will not be required to assume any
obligation to Retained Employees (or any other employees of Seller or its
Affiliates) under Seller's existing severance, retention or management stability
agreements, or similar agreements. As described in Section 9.9(a), from and
after the Closing, the Retained Employees will be permitted to participate in
the employee benefit plans or arrangements of Buyer and/or its Affiliates
customarily provided to new employees of Buyer and its Affiliates (including,
without limitation, the Employee Stability Plan), or other benefits as may be
individually negotiated between Buyer and a Retained Employee.
(c) Buyer (or its Affiliate) will assume half, and Seller and its
Affiliates will remain responsible for half, of the liability to all Retained
Employees for the annual incentive compensation bonuses described on Schedule
9.9(c). Buyer (or its Affiliate) will not assume the liability to certain
Retained Employees for the retention-related salary payment.
(d) Any obligations to employees of Seller and its Affiliates not
specifically assumed by Buyer (or its Affiliates) in this Section 9.9, including
without limitation all such obligations accrued prior to the Closing, will be
the responsibility of the Seller, and Seller will indemnify Buyer with respect
to those obligations.
(e) Buyer agrees to open an office in San Antonio, Texas and to maintain
such office for so long as prudent business practices justify its operation.
(f) If after the Closing Date, Seller or any of its Affiliates continues
to employ any individual listed on Schedule 9.9(a), Seller agrees to cooperate
with Buyer to make such individual available to provide services required by
Buyer for up to six months after the Closing Date for transition purposes, with
Buyer reimbursing Seller for the actual cost of such employee's services
(including without limitation, salary and benefits).
9.10 Authorizations.
--------------
(a) Each of Buyer and Seller, as promptly as practicable after the
Agreement Date, shall (i) deliver, or cause to be delivered, all notices and
make, or cause to be made, all such declarations, designations, registrations,
filings and submissions under all statutes, laws, regulations and Governmental
Orders applicable to it as may be required for it to consummate the sale of the
Membership Interests and the other transactions contemplated hereby in
accordance with the terms of this Agreement; (ii) use commercially reasonable
efforts to obtain, or cause to be obtained, all authorizations, approvals,
orders, consents and waivers from all Persons necessary to consummate the
foregoing; and (iii) use commercially reasonable efforts to take, or cause to be
taken, all other actions necessary, proper or advisable in order for it to
fulfill its respective obligations hereunder and to carry out the intentions of
the parties expressed
36
<PAGE>
herein. The preceding sentence notwithstanding, neither party shall have any
obligation to waive any condition herein for its benefit or any performance
hereunder by any other party.
(b) Each Party shall use its commercially reasonable efforts to satisfy
the conditions to Closing applicable to it in Article XI as soon as commercially
practicable.
9.11 Software and Computer Programs. From the date of this Agreement
------------------------------
through the date which is ninety (90) days after the Closing Date, each Seller,
Reserves LLC and the Partnership, as applicable, agree to engage in discussions
with the licensors of applicable software and computer programs and seismic data
and processing identified in a written notice provided to Seller by Buyer on or
prior to the Closing Date, the purpose of which discussions shall be to assist
Buyer in its efforts to obtain a license with respect to such software and/or
computer programs and seismic data and processing with terms acceptable to
Buyer. Buyer will pay all fees (including fees agreed to as part of a
settlement) required to transfer or retain such records, programs and data that
Buyer chooses to retain after Closing.
9.12 General.
-------
(a) Each of the Parties will use their reasonable best efforts to take all
action and to do all things necessary in order to consummate and make effective
the transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Article XI).
(b) Buyer agrees to cooperate at no cost or liability to Buyer with Seller
so that Seller's transfer of the Operating Assets to Buyer shall, at Seller's
election, be accomplished in a manner enabling the transfer to qualify as a part
of a like-kind exchange of property by Seller within the meaning of Section 1031
of the Code. If Seller so elects, Buyer shall reasonably cooperate with Seller
to effect such like-kind exchange, which cooperation shall include, without
limitation, taking such actions as Seller reasonably requests in order to pay
the Purchase Price in a manner which enables such transfer to qualify as part of
a like-kind exchange of property within the meaning of Section 1031 of the Code,
and Buyer agrees that Seller may assign its rights (but not its obligations)
under this Agreement to an escrow agent acting as a qualified intermediary under
United States Treasury Regulations, to qualify the transfer of the Purchase
Price as a part of a like-kind exchange of property within the meaning of
Section 1031 of the Code.
(c) Seller shall reimburse Buyer for Buyer's reasonable costs and expenses
incurred in connection with evaluating and implementing the like kind exchange
transaction, including without limitation, legal and accounting fees incurred in
connection with evaluating and implementing the like kind exchange transaction
and revising this Agreement. Seller shall reimburse Buyer in cash for such
costs and expenses within ten (10) days after receiving a notice from Buyer
describing such costs and expenses in reasonable detail, and requesting payment.
(d) If prior to Closing Buyer elects to obtain financing for a portion
of the Purchase Price from a bank or other lender (the "Lender") (whether
through conventional loans or through a production payment or similar off-
balance sheet financing mechanism), Seller shall (and shall cause Reserves LLC
and the Partnership to) cooperate reasonably with Buyer in Buyer's
37
<PAGE>
negotiation and finalization of any loan or other documents with the Lender,
provided that such cooperation does not result in Seller, Reserves LLC and the
Partnership incurring material additional expenses. Seller shall (and shall
cause Reserves LLC and the Partnership to) use its commercially reasonable
efforts to give representatives of the Lender the access to information and
right to inspection provided to Buyer under Article V, subject to the Lender
agreeing to be bound by the terms of the Confidentiality Agreement. This Section
9.12(d) does not change or modify Buyer's obligation to close the Transactions
in accordance with the other provisions of this Agreement.
9.13 Covenant and Indemnity with Respect to Cash Flow. Seller covenants to
------------------------------------------------
use its best efforts to insure that after the Closing all cash, checks, wire
transfers and other cash flow attributable to the Operating Assets received by
Seller or any Affiliate of Seller will be transferred on or before the next
Business Day after such cash flow is received by Seller or such Affiliate of
Seller to an account designated by Buyer prior to the Closing (such that the
transfer is recorded by the transferring bank on or before the next Business Day
after such cash flow is received by Seller or an Affiliate of Seller). To the
extent Seller does not make the transfer required by this Section 9.13 on or
before the next Business Day after receipt of such cash flow, Seller agrees to
pay to Buyer (a) interest at the prime rate of Buyer's primary lender (accruing
from the second Business Day after receipt by Seller of such cash flow) on any
such cash flow remaining outstanding for the second and third Business Day after
receiving such funds and (b) the maximum interest allowable by Applicable Law on
any such cash flow remaining outstanding thereafter. Seller agrees to indemnify
and hold the Buyer Group harmless for any Damages asserted against, resulting
to, imposed upon or incurred by the Buyer Group arising from any failure by
Seller to transfer any amounts that, together with any other amounts not
transferred pursuant to this Section 9.13, aggregate greater than $1 million and
that Seller has not transferred within one Business Day after written notice by
Buyer is received by Seller. Buyer and Seller agree to cooperate in identifying
amounts that may need to be transferred by Seller to Buyer under this Section
9.13.
ARTICLE X.
PRE-CLOSING PROCEDURES
----------------------
10.1 Initial Settlement Statement. Before Closing, Seller shall furnish
----------------------------
Buyer with a preliminary draft of the Settlement Statement, in accordance with
Section 13.1. Buyer shall have the right to audit and request appropriate
adjustments to the amounts reflected therein. Buyer shall furnish Seller with
any comments, and adjustments or revisions Buyer believes are appropriate to
conform the Settlement Statement to accurately reflect the best information
available at Closing, and the Parties shall endeavor in good faith to reconcile
the accounting issues and to produce as accurate a Settlement Statement as
possible based upon the information available at Closing. Seller shall then
furnish Buyer with the Settlement Statement, including any appropriate updates,
adjustments or revisions, showing the Closing Settlement Price.
10.2 Closing Documents. Before Closing, the Parties shall provide each
-----------------
other with preliminary drafts of all attorneys opinions, certificates, corporate
guarantees, assignments and other instruments to be delivered at Closing. The
Parties shall thereafter cooperate to make such revisions as are needed to
prepare mutually acceptable forms of all such instruments.
38
<PAGE>
10.3 Escrow Agent. If the Parties should agree to place any funds into an
------------
escrow account at Closing, then they shall negotiate in good faith to select a
mutually acceptable escrow agent, who is willing and able to perform such role.
In such an before the Closing Date, the Parties shall agree upon an escrow
agent, and they shall use their best efforts to negotiate a mutually acceptable
Escrow Agreement before the Closing Date.
10.4 Wire Transfer Instructions. At least two (2) Business Days prior to
--------------------------
the Closing Date, Seller shall provide to Buyer wire transfer instructions
designating a bank account and Federal Reserve ABA designation ID number, at a
bank within the United States of America where the Closing Settlement Price
shall be paid.
ARTICLE XI.
CLOSING CONDITIONS
------------------
11.1 Seller's Closing Conditions. Seller's obligation to consummate the
---------------------------
Transaction is subject to the satisfaction by Buyer or the waiver by Seller, at
or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Buyer contained
---------------
in Section 4.2 shall be true and correct in all material respects on the Closing
Date as though made on and as of that date.
(b) Performance. Buyer shall have performed in all material respects the
-----------
obligations, covenants and agreements hereunder to be performed by it at or
prior to Closing.
(c) Corporate Certificates and Opinion. Buyer shall have delivered to
----------------------------------
Seller (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of Buyer that the representations set forth in Section 4.2
are true and correct as of the Closing Date; (ii) a certificate of incumbency;
(iii) a certificate of good standing of Buyer as a limited liability company;
(iv) certified resolutions of the members of Buyer, authorizing Buyer to enter
into this Agreement and the Transaction and to perform its obligations at
Closing; and (v) an opinion of counsel for Buyer, acceptable to Seller, dated
the Closing Date, as to such matters as may reasonably be requested by Seller
and its counsel and are typical for transactions such as the Transaction.
(d) Pending Matters. No suit, action or other legal proceeding by a third
---------------
party or a governmental authority shall be pending which seeks material damages
from Seller in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
(e) No Orders. This Closing hereunder shall not violate any order or
---------
decree of any governmental authority having competent jurisdiction over the
Transaction.
(f) HSR. Any applicable waiting period under the HSR Act shall have
---
expired or been terminated.
39
<PAGE>
11.2 Buyer's Closing Conditions. Buyer's obligations to consummate the
--------------------------
Transaction is subject to the satisfaction by Seller or the waiver by Buyer, at
or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Seller
---------------
contained in Section 4.1 (other than with respect to paragraphs (u), (w), (x),
(y), (z) and (aa) of Section 4.1) shall be true and correct in all material
respects on the Closing Date as though made on and as of that date; provided,
however, that the accuracy of the representations and warranties in
subparagraphs (k)(i), (ix), (x), (xi), (xii) and (xiii) of Section 4.1 shall,
for purposes of satisfying this condition, not be affected to the extent of
inaccuracies resulting solely from Buyer unreasonably withholding its prior
written consent (after written request by Seller duly provided to Buyer) to the
action taken by (or omission of) Seller, Reserves LLC or the Partnership which
caused such representations and warranties to be inaccurate.
(b) Performance. Seller shall have performed, or caused to be performed,
-----------
in all material respects the obligations, covenants and agreements hereunder to
be performed by it, Reserves LLC and the Partnership at or prior to Closing.
(c) LLC Certificates and Opinion. Each Seller shall have delivered to
----------------------------
Buyer, and Seller shall cause Reserves LLC and the Partnership to deliver to
Buyer: (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of such Seller that the representations made in Section
4.1, are true and correct as of the Closing Date; (ii) a certificate of
incumbency for each Seller, (iii) a certificate of corporate good standing for
the Partnership as a Delaware limited partnership, for each Seller as Delaware
corporations and for Reserves LLC as a Delaware limited liability company; (iv)
with respect to each Seller only, certified resolutions of the Boards of
Directors of each Seller, authorizing each Seller to enter into this Agreement
and the Transaction and to perform its obligations at Closing; and (v) an
opinion of counsel for the Seller and each of Reserves LLC and the Partnership,
acceptable to Buyer, dated the Closing Date, as to such matters as may
reasonably be requested by Buyer and its counsel and are typical for
transactions such as the Transaction.
(d) Other Certificates and Documents. Buyer shall have also received the
--------------------------------
certificates and documents described in Section 12.2.
(e) Pending Matters. No suit, action or other legal proceeding by a third
---------------
party or a governmental authority shall be pending which seeks material damages
from Buyer in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
(f) No Orders. The Closing hereunder shall not violate any order or decree
---------
of any governmental authority having competent jurisdiction over the
Transaction.
(g) Adjustments. The reduction (if any) to be made at Closing to the
-----------
Purchase Price which results from the application of Articles VIII and XIII does
not exceed fifteen percent (15%) of the Purchase Price.
40
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(h) Liens and Mortgages. Seller shall have secured release of all liens
-------------------
and mortgages listed on Schedule 1B and released all obligations of Reserves LLC
and the Partnerships under the Seller's credit facility and provided Buyer
evidence of the same.
(i) There shall not have occurred a Material Adverse Effect.
(j) HSR. Any applicable waiting period under the HSR Act shall have
---
expired or been terminated.
(k) Seller shall have delivered proof, acceptable to Buyer in its
reasonable discretion, of the effectiveness of a post-effective amendment to
Seller's Registration Statement on Form S-3 (Reg. No. 333-51789), as amended,
removing any entities being transferred hereunder as co-registrants under such
registration statement.
ARTICLE XII.
CLOSING
-------
12.1 Closing. The closing of the Transaction (the "Closing") shall be held
-------
on December 17, 1999 (the "Closing Date"), at 9:00 a.m. Houston time, at the
office of Seller's counsel, 1301 McKinney, Suite 5100, Houston, Texas 77010, or
at such other date or place as the parties may direct; provided, however, that
if all conditions to Closing set forth in Article XI have not been waived or
satisfied prior to December 17, 1999, the Closing Date shall be on the second
Business Day following the waiver or satisfaction of such conditions.
12.2 Seller's Closing Obligations. At Closing, Seller shall deliver to
----------------------------
Buyer the following:
(a) The certificates representing Membership Interests in Reserves LLC,
duly endorsed in blank or with separate duly executed powers duly endorsed in
blank;
(b) All organizational documents and books and records of each of Reserves
LLC and Exploration;
(c) All books and records of the Partnership;
(d) The resignations of the officers and directors of Reserves LLC;
(e) Such other documents or authorizations as Buyer may reasonably
request, or as might be reasonably necessary to assign all of Seller's interest
in Reserves LLC, the Partnership and the Operating Assets to Buyer in accordance
with the provisions hereof;
(f) A certificate of each Seller signed under penalties of perjury (i)
stating that it is not a foreign corporation, foreign partnership, foreign trust
or foreign estate, (ii) providing its U.S. Employer Identification Number (if
applicable) and (iii) providing its address, all pursuant to Section 1445 of the
Code.
(g) The certificates of Seller referred to in Section 11.2(c) hereof;
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(h) The opinion of counsel referred to in Section 11.2(c) hereof; and
(i) Releases, in a form acceptable to Buyer, of all liens and mortgages
listed on Schedule 1B.
12.3 Buyer's Closing Obligations. At Closing, Buyer shall deliver the
---------------------------
following:
(a) The Closing Settlement Price, paid to the Seller in immediately
available funds, by wire transfer into the U.S. bank account designated by the
Seller;
(b) The certificates of Buyer referred to in Section 11.1(c) hereof; and
(c) The opinions of counsel referred to in Section 11.1(c) hereof.
12.4 Governmental Filings. At Closing, the Parties shall execute such
--------------------
guarantees, bonds, forms and other instruments as are needed allow Buyer to
assume all of Seller's existing obligations under governmental permits and
licenses and leases affecting the Operating Assets. Buyer shall diligently file
such instruments and obtain governmental approval of the transfer of all such
rights, obligations and interests.
ARTICLE XIII.
ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS
--------------------------------------------------
13.1 Settlement Statements.
---------------------
(a) Pre-Closing. The Settlement Statement is attached hereto as Exhibit D.
-----------
(b) Final Statement. As soon as practicable after the Closing Date, but in
---------------
no event later than one hundred twenty (120) days thereafter, Buyer shall
prepare and submit to Seller a draft Final Statement, which shall show the
calculation of the adjusted Final Settlement Price, based upon the best
information then available. Seller shall have the right to audit such Final
Statement and all supporting data and accountings. As soon as practicable after
receipt of the Final Statement, but in any event within thirty (30) days after
receipt thereof, Seller shall deliver to Buyer a written report containing the
changes, if any, which Seller proposes be made to the Final Statement. If no
response is made by Seller within such thirty (30) day period, it shall be
presumed that Seller concurs with the Final Statement, and such Final Statement
shall be the basis for the Final Settlement Price. If Seller submits a response,
the Parties shall cooperate in good faith to produce not later than one hundred
eighty (180) days after the Closing Date as accurate a Settlement Statement as
possible based upon the information then available. After agreement upon a Final
Statement setting forth the Final Settlement Price, the difference between such
Final Settlement Price and the Closing Settlement Price paid at Closing shall be
paid within five (5) Business Days thereafter by the Party owing the same.
13.2 Operating Taxes.
---------------
(a) Apportionment of Ad Valorem and Property Taxes. All ad valorem, real
----------------------------------------------
property taxes and personal property taxes, including interest and penalties
attributable thereto (hereinafter "Property Taxes"), attributable to Reserves
LLC's limited partnership interest in the Partnership's
42
<PAGE>
ownership and operation of the Properties with respect to the assessment period
("Property Tax Period") during which the Effective Time occurs shall be
apportioned between Seller and Buyer by multiplying the total amount of such
Property Taxes by a fraction, the numerator of which is the number of days in
the partial period through and including the Effective Time and the denominator
of which is the total number of days in the Property Tax Period. The Partnership
shall file or cause to be filed all required reports and returns incident to the
Property Taxes and shall pay or cause to be paid to the taxing authorities all
Property Taxes relating to the Property Tax Period during which the Effective
Time occurs. If Seller is the owner of Reserves LLC on the Property Tax
assessment date, then the Settlement Price shall be increased by the amount of
Buyer's portion of Property Taxes owed as set forth above. If the Property Tax
assessment date occurs after Closing, then the Settlement Price shall be reduced
by the estimated amount of Seller's portion of Property Taxes owed as set forth
above. The allocation and payment of ad valorem taxes shall be handled through
adjustments to the Settlement Price.
(b) Other Operating Taxes. With the exception of Income Taxes, all other
---------------------
federal, state, foreign and local Taxes (including interest and penalties
attributable thereto) on the ownership or operation of the Operating Assets
which are imposed upon Reserves LLC or the Partnership for periods or portions
of periods prior to the Effective Time shall be borne by Seller, and all such
Taxes imposed upon the Partnership for periods or portions of periods beginning
on or after the Effective Time shall be borne by Buyer. Such Taxes shall be
apportioned between Seller and Buyer for the period or portion thereof up to and
including the Effective Time, (i) in the case of a flat minimum dollar amount of
tax, by multiplying the total amount of such Taxes by a fraction, the numerator
of which is the number of days in the partial period through and including the
Effective Time and the denominator of which is the total number of days in such
tax period, and (ii) in the case of all other operating Taxes, on the basis of
actual activities creating such Tax liability of Reserves LLC and the
Partnership for the partial period through and including the Effective Time as
are determined from their respective Books and Records. To the extent any such
amounts are borne prior to the delivery of the Final Statement by a Party who is
not required to bear them hereunder, they shall be included in the adjustments
to the Settlement Price. The allocation and payment of these Taxes shall be
handled through adjustments to the Settlement Price.
13.3 Shared Obligations. If an invoice or other evidence of an obligation
------------------
is received which under the terms of this Article XIII is partially the
obligation of Seller and partially the obligation of Buyer, then the parties
shall consult with each other, the Partnership shall promptly pay such
obligation to the obligee, and Seller shall promptly reimburse Buyer for
Seller's portion so paid.
13.4 Uncollectible Accounts Receivable. Buyer (and, prior to the Closing,
----------------------------------
Seller) shall cause Reserves LLC and the Partnership to use commercially
reasonable efforts to collect in full, consistent with the past practices of the
Business, all accounts receivable of the Business (the "Accounts Receivable").
If the Accounts Receivable outstanding at the Closing shall not have been fully
collected within 120 days following the Closing Date in an amount equal to the
outstanding unpaid amounts thereof at the Closing, Buyer may require the Seller
to purchase any Accounts Receivable that have not been so fully collected at a
purchase price equal to the original outstanding amount of such Accounts
Receivable at the Closing less net collections
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thereon from the Closing Date to the repurchase date; provided, however, that
the Seller shall be required to repurchase such unpaid Accounts Receivable only
to the extent that the aggregate amount of such unpaid Accounts Receivable
exceeds the allowance for doubtful accounts deducted from accounts receivable
set forth on the Balance Sheets, and if such an excess exists, the Seller shall
only be required to pay an amount for such unpaid Accounts Receivable equal to
such excess; provided, further, during such 120-day period, that Buyer may not
settle or compromise any Accounts Receivable without the prior written consent
of Seller. As a condition to any such repurchase, Buyer shall reconvey to the
Seller the unpaid Accounts Receivable to be repurchased and shall provide Seller
with sufficient detail regarding such Accounts Receivable. Buyer shall not
transfer or convey such Accounts Receivable to any other Person. Payment for the
repurchase of any Accounts Receivable shall be made within ten (10) days
following the transfer thereof to Seller. Buyer shall provide to the Seller any
documents or information reasonably requested by the Seller in connection with
the Seller's collection of any Accounts Receivable repurchased from Buyer.
ARTICLE XIV.
POST-CLOSING PROCEDURES
-----------------------
14.1 Delivery of Files. Within ten (10) days after Closing, Buyer shall,
-----------------
at Buyer's expense, take delivery at Seller's present offices in San Antonio,
Texas of all of the Partnership's and Reserves LLC's original land, lease,
revenue and cost accounting, geologic, geophysical, engineering and well files,
data and materials which relate to the Operating Assets. Applicable legal and
litigation files shall be delivered by Seller to Buyer at Seller's present
office location in San Antonio, Texas, subject to the Parties and their
attorneys making mutually acceptable arrangements for preserving the privileged
and confidential nature of protected information. Seller may retain copies of
its accounting and legal files, data and information, as might be needed by
Seller, and Seller shall retain all originals of insurance policies covering
periods prior to the Effective Time. Subject to the License Agreement, Seller
shall not retain originals or copies of any seismic, geological, geophysical or
engineering files, materials, data or interpretations thereof concerning the
Operating Assets sold hereunder, without Buyer's prior written consent; provided
however, that Seller shall not be required to deliver to Buyer, nor shall Buyer
be required to accept delivery of any such data or materials which either Party
reasonably believes to be subject to confidentiality agreements with third
parties that would prevent Buyer from obtaining such data or expose either Party
to a claim for material damages if Buyer were to receive such data or materials.
Notwithstanding the above, Seller shall be permitted to retain original tax and
financial accounting records for the period prior to the Closing, copies of
which will be delivered to Buyer.
14.2 Third Party Data. To the extent not obtained or satisfied as of
----------------
Closing, Seller agrees to continue to use reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to obtain for Buyer, the Partnership and Reserves
LLC (i) access to files, records and data relating to the Operating Assets in
the possession of third parties; (ii) access to wells constituting a part of the
Operating Assets operated by third parties for purposes of inspecting same; and
(iii) the waiver of confidentiality or other restrictions on the review by
and/or transfer of seismic, geophysical,
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engineering or other data pertaining to the Operating Assets that might be
triggered by Seller's assignment to Buyer of the Partnership and Reserves LLC.
14.3 Cooperation. After the Closing, each Party shall provide the other
-----------
Party with reasonable access to all relevant documents, data and other
information (other than that which is subject to any attorney-client privilege)
which may be required by the other Party for the purpose of financial reporting,
preparing tax returns, filing refund claims, responding to any audit by any
taxing jurisdiction or replying to any third party or governmental claim or
demand concerning the Partnership, Reserves LLC or the Operating Assets. Each
Party shall cooperate with all reasonable requests of the other Party made in
connection with contesting the imposition of Taxes. Notwithstanding anything to
the contrary in this Agreement, neither Party shall be required at any time to
disclose to the other Party any Tax Return or other confidential information,
except for Tax Returns concerning Taxes of the Partnership and Reserves LLC.
Except where disclosure is required by applicable law or judicial order, any
information obtained by a Party pursuant to this Section 14.3 shall be kept
confidential by such Party, except to the extent disclosure is required in
connection with the filing of any Tax Returns or claims for refunds or in
connection with the conduct of an audit, or other proceedings in response to an
audit, by a taxing jurisdiction, or otherwise required by law or binding
judicial order.
14.4 Preferential Rights to Purchase and Consents to Assignment. Before
----------------------------------------------------------
Closing and for up to one year after Closing, the Parties shall continue to
provide reasonable cooperation in obtaining all required Consents to Assignment
and in complying with all enforceable Preferential Rights to Purchase that
remain in force after Closing. Buyer shall be primarily responsible for
handling such matters, shall assume all risks and liabilities in connection with
the rights of the holders thereof, and shall release, indemnify and defend
Seller against any claims, damages, suits, demands or other liabilities
associated with any Consents to Assignment or Preferential Rights to Purchase.
14.5 Filing and Recording of Documents. Buyer shall promptly file all
---------------------------------
appropriate forms, declarations or bonds with governmental agencies relative to
its assumption of ownership of Reserves LLC, and Seller shall cooperate with
Buyer in connection with such filings. Seller shall not be responsible for any
loss to Buyer because of Buyer's failure to file or record documents correctly
or promptly.
14.6 Further Assurances. After Closing, each of the Parties will execute,
------------------
acknowledge and deliver to the other such further instruments, and take such
other action, as may be reasonably requested in order to more effectively assure
to each Party all of the respective properties, rights, titles, interests,
estates, and privileges intended to be assigned, delivered or to inure to the
benefit of such Party in consummation of the Transaction.
14.7 Incidental Costs. Each party shall bear its own respective expenses
----------------
incurred in connection with the Closing of the Transaction, including its own
consultants' fees, attorney's fees, accountants' fees, and other similar costs
and expenses.
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ARTICLE XV.
SURVIVAL; INDEMNITIES
---------------------
15.1 Survival. All representations, warranties or covenants made herein,
--------
except for those in Sections 4.1(a), 4.1(e), 4.1(f), 4.1(g), 4.1(i), 4.1(k),
4.1(l), 4.1(m), 4.1(n), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w), 4.1(x), 4.1(y),
4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets only), 4.2(e),
4.2(i), Sections 5.6, 7.1, 7.2, 7.3, 7.4, 8.3, 9.1, 9.2(e), 9.9(d), 9.12(b),
9.12(c) and 9.13, and Articles XV, XVI, XVII and XXI, shall survive for two
years from the Closing Date. The representations and warranties or covenants
made in Sections 4.1(a), 4.1(g), 4.1(k), 4.1(l), 4.1(m), 4.1(o), 4.1(q), 4.1(u),
4.1(v), 4.1(w), 4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to
Operating Assets only) and Section 9.1 shall not survive Closing and shall
automatically expire upon Closing. The representations, releases, covenants,
indemnities, defenses and hold harmless obligations and other obligations
referenced in Sections 4.1(e), 4.1(f), 4.1(i), 4.1(n), 4.2(e), 4.2(i), 7.1, 7.2,
7.4, 8.3, 9.2(e), 9.9(d), 9.12(b), 9.12(c) and 9.13 and this Article XV, and all
provisions of Article XVI, Article XVII and Article XXI shall each survive
Closing, and each shall continue to remain fully enforceable in accordance with
its terms.
15.2 Buyer's Indemnity. EXCEPT AS EXPRESSLY AND SPECIFICALLY INDICATED
-----------------
OTHERWISE IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION SECTIONS 9.9(D) AND
15.3), AFTER THE CLOSING DATE, BUYER SHALL AND HEREBY DOES RELEASE, DEFEND,
INDEMNIFY, SAVE, AND HOLD HARMLESS SELLER AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS, AGAINST ANY
AND ALL DAMAGES WHICH ARISE OUT OF OR IN CONNECTION WITH THE OWNERSHIP OF,
OPERATION OF, PRODUCTION FROM OR ACCOUNTING BY, INCOME OF OR PAYMENTS BY THE
PARTNERSHIP, RESERVES LLC OR THE OPERATING ASSETS, AT ANY TIME EITHER BEFORE OR
AFTER THE EFFECTIVE TIME, OR WHICH ARISE OUT OF ANY ENVIRONMENTAL CONDITION OR
OTHER HAZARDOUS CONDITION RELATING TO OR AFFECTING ANY OPERATING ASSET AT ANY
TIME EITHER BEFORE OR AFTER THE EFFECTIVE TIME, INCLUDING WITHOUT LIMITATION,
ALL SUCH COSTS, CLAIMS OR LIABILITIES ARISING OUT OF SELLER'S NEGLIGENCE OR
STRICT LIABILITY.
15.3 Seller's Indemnity. SUBJECT TO THE TERMS AND CONDITIONS OF THIS
------------------
ARTICLE XV, SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS
PARENT OR SUBSIDIARY COMPANIES, PARTNERS AND OTHER AFFILIATES (INCLUDING AFTER
CLOSING, RESERVES LLC AND THE PARTNERSHIP), AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS (HEREINAFTER
COLLECTIVELY REFERRED TO AS THE "BUYER GROUP"), FROM AND AGAINST ANY AND ALL
DAMAGES ASSERTED AGAINST, RESULTING TO, IMPOSED UPON, OR INCURRED BY THE BUYER
GROUP, DIRECTLY OR INDIRECTLY, BY REASON OF OR RESULTING FROM OR RELATING TO (I)
ANY BREACH BY SELLER (FOR WHICH SELLER SHALL BE RESPONSIBLE) OF ITS SURVIVING
REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS CONTAINED IN THIS
AGREEMENT, (II) ANY LIABILITIES OF RESERVES LLC AND THE PARTNERSHIP WHICH ARE
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UNRELATED TO THE OPERATING ASSETS, (III) ANY LIABILITIES OF RESERVES LLC AND
RESERVES LLC'S INTEREST IN THE PARTNERSHIP FOR INCOME TAXES PRIOR TO CLOSING,
AND (IV) ANY EXISTING LIABILITIES OF RESERVES LLC AND RESERVES LLC'S INTEREST IN
THE PARTNERSHIP OWED UNDER FEDERAL LEASES FOR PRIOR ROYALTIES RELATED TO THE
PERIOD OF TIME PRIOR TO CLOSING.
15.4 Procedure for Indemnification.
-----------------------------
(a) Any Indemnified party making a claim for indemnification hereunder
shall notify the indemnifying party or parties of the claim in writing. Subject
to Sections 17.1, 17.2, 17.3 and 17.4, an indemnified party may take any and all
actions against an indemnifying party or parties to enforce its rights to
indemnification under this Agreement.
(b) With respect to third Person claims which are indemnifiable hereunder,
promptly after receipt by an Indemnified Party under Sections 15.2 or 15.3 of
notice of the commencement of any action, such Indemnified Party shall, if a
claim in respect thereof is to be made against an Indemnifying Party under such
Section, give written notice to the Indemnifying Party of the commencement
thereof. The failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party of any liability that it may have to an Indemnified Party
with respect to such action, only to the extent the Indemnifying Party is
prejudiced by the failure to be so notified. In case any such action shall be
brought against an Indemnified Party and the Indemnified Party shall give
written notice to the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Party. If the Indemnifying Party elects to
assume the defense of such action, the Indemnified Party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the Indemnifying Party elects not to assume (or fails to assume)
the defense of such action, the Indemnified Party shall be entitled to assume
the defense of such action with counsel of its own choice, at the expense of the
Indemnifying Party. If the action is asserted against both the Indemnifying
Party and the Indemnified Party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the Indemnifying
Party and the Indemnified Party, the Indemnifying Party shall be responsible for
paying for separate counsel for the Indemnified Party; provided, however, that
if there is more than one Indemnified Party, the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the Indemnified Parties, regardless of the number of Indemnified Parties. If
the Indemnifying Party elects to assume the defense of such action, (a) no
compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party's written consent (which shall not be unreasonably
withheld) unless the sole relief provided is monetary damages that are paid in
full by the Indemnifying Party and (b) the Indemnifying Party shall have no
liability with respect to any compromise or settlement thereof effected without
its written consent (which shall not be unreasonably withheld).
15.5 Exclusivity. The parties hereto agree that, in relation to any breach,
-----------
default, or nonperformance of any representation, warranty, covenant, or
agreement made or entered into by a party hereto pursuant to this Agreement or
any certificate, instrument, or document delivered
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pursuant hereto or arising out of the transactions contemplated herein or the
ownership or operation of the Operating Assets, the only relief and remedy
available to the other party hereto in respect of said breach, default, or
nonperformance shall be:
(a) termination, but only if said termination is expressly permitted under
the provisions of Article XX; or
(b) actual damages, but only to the extent properly claimable hereunder
and as limited pursuant to this Article XV or otherwise hereunder; or
(c) specific performance if a court of competent jurisdiction in its
discretion grants the same; or
(d) injunctive or declaratory relief if a court of competent jurisdiction
in its discretion grants the same.
15.6 Assignment of Third Person Indemnities. To the extent the same are
--------------------------------------
assignable by an Indemnified Party, such Indemnified Party does hereby assign to
the Indemnifying Party all rights to defense, contribution and indemnity that
the Indemnified Party may hold with respect to the obligations for which the
Indemnifying Party is indemnifying and defending the Indemnified Party
hereunder, and the Indemnifying Party shall be subrogated to assert the
Indemnified Party's rights to such third-party defense, contribution and
indemnity obligations with respect to the indemnified claims or Actions.
ARTICLE XVI.
TAX MATTERS
-----------
16.1 Indemnification for Taxes.
-------------------------
(a) Seller shall be responsible for, and shall indemnify Buyer against,
all (i) Income Taxes imposed on Reserves LLC or Reserves LLC's interest in
Partnership, and all Liabilities, losses, costs, fines, penalties, damages
(actual, punitive or other), reasonable attorneys' fees, and expenses arising
therefrom, relating to (A) taxable periods or portions thereof ending on or
before the Closing Date, (B) Income Taxes resulting from the application of
Treas. Reg. (S) 1.1502-6 or any comparable state, local or foreign tax law
attributable to Tesoro Parent, or any corporation or entity which is or has been
affiliated with or been part of a combined, unitary or affiliated group with
Tesoro Parent, and (C) the portion of the Income Taxes for any Straddle Period
(as defined in subsection 16.1(e)) allocable to Sellers with respect to either
Reserves LLC or Reserves LLC's interest in the Partnership under subsection
16.2(e) and (ii) all Other Taxes imposed on Reserves LLC or Reserves LLC's
interest in the Partnership relating to the taxable periods or portions thereof
ending on or before the Effective Time (allocated as described in Section 13.3);
provided, Sellers shall not be responsible for, and shall not be required to
indemnify Buyer against, any Taxes to the extent that such Taxes do not exceed
the accrued liability for Taxes on the Balance Sheets which are taken into
account in determining the Working Capital.
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(b) Buyer shall be responsible for and shall indemnify Sellers against all
(i) Income Taxes imposed upon Reserves LLC or Reserves LLC's interest in the
Partnership and all Liabilities, losses, costs, fines, penalties, damages
(actual, punitive, or other), reasonable attorneys' fees and expenses arising
therefrom, relating to (A) taxable periods beginning after the Closing Date or
(B) the portion of the Income Taxes for any Straddle Period which are allocable
to Buyer under subsection 16.2(e), and (ii) except as provided in Section 13.3
and in this Article XVI, all Other Taxes imposed upon Reserves LLC or Reserves
LLC's interest in the Partnership and all Liabilities, losses, costs, fines,
penalties, damages (actual, punitive or other), reasonable attorneys fees and
expenses arising therefrom arising in or relating to taxable periods or portions
thereof beginning after the Effective Time (allocated as described in Section
13.3).
(c) Each Party shall promptly notify the other Party of the commencement
of any demand, claim, audit, examination, Action or other proposed change or
adjustment by any Taxing Authority concerning any Tax which could give rise to a
claim for indemnity pursuant to subsection 16.1(a) or subsection 16.1(b), as the
case may be (each a "Tax Claim"). Such notice shall contain factual information
describing the asserted Tax Claim in reasonable detail and shall include copies
of any notice or other document received from any Taxing Authority in respect of
any such asserted Tax Claim.
(d) Seller, at its own expense, shall have the sole right to represent
Reserves LLC and the Partnership's interests in any Tax Claim for Taxes for
which it is indemnifying Buyer against and to employ counsel of its choice.
Buyer shall have the right to participate in such Action at its own expense.
Seller shall not consent to any settlement that reasonably would be expected to
have an adverse effect on the Income Taxes of Reserves LLC or Reserves LLC's
interest in the Partnership in any period after the Closing Date without Buyer's
consent, which consent shall not be unreasonably withheld. Buyer's consent
shall in no way reduce any indemnification due to Buyer under subsection
16.1(a). If Seller elects to control the defense, compromise or settlement of
any Tax Claim, Seller shall keep Buyer informed of the progress and disposition
of such Tax Claim. Buyer shall handle any other Tax Claims of Reserves LLC or
Reserves LLC's interest in the Partnership, and Buyer shall be entitled to
defend, compromise or settle such Tax Claims in its sole discretion without in
any way reducing its rights to indemnification under subsection 16.1(a), unless
any such settlement would give rise to a tax claim against Seller, and in such
event such settlement shall be subject to Seller's consent, which shall not be
unreasonably withheld.
(e) With respect to any taxable period of Reserves LLC or the Partnership
beginning before and ending after the Closing Date (a "Straddle Period"), Buyer
shall control, and Seller, at its own expense, shall have the right to
participate in, the defense and settlement of any Tax Claim and each Party shall
cooperate with the other Party and there shall be no settlement or closing or
other agreement with respect thereto without the consent of the other Party,
which consent shall not be unreasonably withheld; provided, that if either Party
shall refuse (the "Refusing Party") to consent to any settlement, closing or
other agreement agreed to by the relevant Taxing Authority with respect to any
such Tax Claim that the other party (the "Accepting Party") proposed to accept
(a "Proposed Settlement"), then (i) the Accepting Party's Liability with respect
to the subject matter of the Proposed Settlement shall be limited to the amount
that such Liability would have been if the Proposed Settlement had been
accepted, and
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(ii) the Refusing Party shall be responsible for all Liabilities and expenses
incurred or imposed thereafter in connection with the contest of such Tax Claim
to the extent that the final settlement is more than the Proposed Settlement.
16.2 Other Tax Matters.
-----------------
(a) All Tax sharing agreements between Reserves LLC and any other Person,
including without limitation, the Affiliates of Seller, are hereby terminated as
of the Closing Date and all rights and obligations of Reserves LLC with respect
to Taxes shall be as provided herein.
(b) Any Tax allocation agreement or arrangement in effect shall be
extinguished in full as of the Closing Date.
(c) Tax Returns (each a "Pre-Closing Return") which are required to be
filed with respect to Reserves LLC or Reserves LLC's interest in the Partnership
on a consolidated, unitary or other combined basis with the Tesoro Group, or the
appropriate parent for a taxable period which ends on or before the Closing Date
(a "Pre-Closing Period") shall be prepared and filed by (or shall be the
responsibility of) Seller, which shall include the preparation and filing of the
consolidated federal and state income Tax Returns of the Tesoro Group which
includes Reserves LLC's interest in the Partnership for the period up to and
including the Closing Date. In the case of those jurisdictions which require a
short-period Tax Return ending on or before the Closing Date, Seller shall
prepare and file all appropriate returns required to be filed with respect to
Income Taxes attributable to the operations and the Operating Assets for the
pre-Closing periods. All such Pre-Closing Returns shall be filed on a basis
consistent with prior Tax Returns filed with respect to Reserves LLC's interest
in the Partnership. Seller or the appropriate parent of Reserves LLC or the
Partnership shall timely pay or cause to be paid all Taxes shown on such Pre-
Closing Returns. All Tax Returns which (i) are required to be filed with
respect to Reserves LLC's interest in the Partnership on a separate basis
(including the preparation of supporting schedules, Tax Returns and other Tax
information with respect to Reserves LLC's interest in the Partnership necessary
for completion of the Pre-Closing Returns) after the Closing Date for a Pre-
Closing Period (a "Post-Closing Return"), and (ii) are required to be filed or
with respect to Reserves LLC's interest in the Partnership for a taxable period
that ends after the Closing Date, including any Tax Return (a "Straddle Return")
for a Straddle Period, shall be prepared and filed by Buyer; subject to the
rights to indemnification and other rights under 16.1(a) and subsection 16.2(f),
Buyer shall timely pay or cause to be paid all Taxes shown on such Tax Returns.
(d) Seller agrees to provide Buyer and Buyer agrees to provide Seller with
such cooperation and information as the other shall reasonably request in
connection with the preparation or filing of any Tax Return required under this
Agreement.
(e) With respect to any Straddle Period, to the extent permitted by
applicable law, Seller shall elect to treat the Closing Date as the last day of
the taxable period. If applicable law, regulation or Governmental Order will
not permit the Closing Date to be the last day of a period, the Income Tax
attributable to the operations of Reserves LLC and Reserves LLC's interest in
the Partnership for the portion of the period up to and including the Closing
Date shall be (i) in the case of a flat minimum dollar amount Tax, the total
amount of such Taxes multiplied by a fraction, the numerator of which is the
number of days in the partial period through and including
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the Effective Time and the denominator of which is the total number of days in
such Straddle Period, and (ii) in the case of all Income Taxes, the Tax computed
on the basis of the taxable income or loss attributable to Reserves LLC's
interest in the Partnership for the partial period through and including the
Closing Date as determined from their Books and Records. All Other Taxes arising
with or related to a Straddle Period will be allocated as provided in Section
13.3.
(f) With respect to any Post-Closing Return or Straddle Return, Buyer shall
deliver, at least 30 days prior to the due date for filing such Tax Return
(including any extension) to Seller a statement setting forth the amount of
Income Tax which Seller owes pursuant to subsection 16.1(a), including the
allocation of Taxes under subsection 16.2(e), and copies of such Tax Return.
Seller shall have the right to review such Tax Returns and the allocation of
Taxes and to suggest to Buyer any reasonable changes to such Tax Returns no
later than 15 days prior to the date for the filing of such Tax Returns. Seller
and Buyer agree to consult and to attempt to resolve in good faith any issue
arising as a result of the review of such Tax Returns and allocation of Taxes
and mutually to consent to the filing as promptly as possible of such Tax
Returns. Not later than 15 days before the due date for the payment of Income
Taxes with respect to such Tax Returns, Seller shall pay to Buyer an amount
equal to the Income Taxes as agreed to by Buyer and Seller as being owed by
Seller, pursuant to subsection 16.1(a). In the event that Buyer and Seller
cannot agree on the amount of Income Taxes owed by Seller, with respect to a
Straddle Return or a Post-Closing Return, Seller shall pay to Buyer the amount
of Income Taxes reasonably determined by Buyer to be owed by them pursuant to
subsection 16.1(a). Within ten (10) days following such payment, Seller and
Buyer shall refer the matter to an independent "Big-Five" accounting firm agreed
to by Buyer and Seller to arbitrate the dispute. Seller and Buyer shall equally
share the fees and expenses of such accounting firm, and its determination as to
the amount owing by Seller, pursuant to Section 16.1(a) with respect to a
Straddle Return or Post-Closing Return shall be binding on both parties. Within
five (5) days of the determination by such accounting firm, if necessary, the
appropriate Party shall pay the other Party any amount which is determined by
such accounting firm to be owed. Seller shall be entitled to reduce its
obligation to pay Taxes with respect to a Straddle Return or a Post-Closing
Return by the amount of any estimated Taxes paid with respect to such Taxes by
or on behalf of Reserves LLC on or before the Closing Date.
(g) Seller shall have the right to all refunds of Taxes (including interest
thereon), which relate to Taxes of Reserves LLC or Reserves LLC's interest in
the Partnership for Pre-Closing Periods and Straddle Periods, to the extent
provided in the following sentences. Buyer shall pay over to Seller any such
refunds within ten (10) days of receipt thereof, net of any Taxes imposed on
Buyer or Reserves LLC by reason of the receipt of such refund. To the extent
any refund of Taxes is made with respect to a Pre-Closing Period or a Straddle
Period, such refund shall be apportioned between Buyer and Seller, based on the
appropriate allocation method set forth in Section 16.2(e).
(h) Buyer and Seller agree to consult and resolve in good faith any issues
arising in connection with the preparation or review of any Tax Return or the
calculation of any Tax described in this Section 16.2.
(i) At the Closing, Seller, Reserves LLC and the Partnership each shall
deliver to Buyer certificates signed under penalties of perjury (i) stating that
it is not a foreign corporation,
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foreign partnership, foreign trust or foreign estate, (ii) providing its U.S.
Employer Identification Number and (iii) providing its address, all pursuant to
Section 1445 of the Code.
16.3 Exclusive Remedy for Taxes. This Article XVI provides the sole and
--------------------------
exclusive remedy for any claim against Seller for indemnification, damages or
breach of any representation or warranty with respect to or relating to Taxes.
ARTICLE XVII.
DEFAULT AND REMEDIES
--------------------
17.1 Liabilities Upon Termination. If Closing does not occur due to
----------------------------
Seller's violation of the terms of this Agreement, then Buyer may seek such
legal or equitable remedies as Buyer may desire including, without limitation,
damages for the breach or failure of any representation, warranty, covenant or
agreement contained herein and the right to enforce specific performance of this
Agreement. If Closing does not occur due to Buyer's violation of the terms of
this Agreement, then Seller may seek such legal or equitable remedies as Seller
may desire, including, without limitation, damages for the breach or failure of
any representation, warranty, covenant or agreement contained herein and the
right to enforce specific performance of this Agreement.
17.2 Recovery of Costs. The prevailing Party in any litigation or
-----------------
alternative dispute resolution proceeding between the Parties in a dispute
arising under this Agreement shall be entitled to recover, from the other Party,
reimbursement for reasonable attorneys fees, expert fees, court costs and costs
of discovery and investigation.
17.3 Waiver of Extraordinary Damages. TO THE FULL EXTENT ALLOWED BY LAW,
-------------------------------
AND EXCEPT AS MAY BE INCLUDED IN THIRD PARTY DAMAGES SUBJECT TO ANY INDEMNITY
OBLIGATION HEREUNDER, THE PARTIES HEREBY WAIVE AND RELEASE ANY RIGHTS OR CLAIMS
TO PUNITIVE OR EXEMPLARY DAMAGES RESULTING FROM A BREACH OF THIS AGREEMENT. THE
PARTIES HEREBY WAIVE THE APPLICATION OF THE TEXAS DECEPTIVE TRADE PRACTICES-
CONSUMER PROTECTION ACT TO THE TRANSACTION.
17.4 Waiver of Jury Trial. SELLER AND BUYER DO HEREBY IRREVOCABLY WAIVE,
--------------------
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION.
17.5 Independent Obligations. The express release, indemnity, defense and
-----------------------
hold harmless obligations contained herein shall exist separate and independent
from the representations and warranties in this Agreement, and the limitations
of representations and warranties shall not be construed to limit the scope of
the express releases, indemnities, and defense and hold harmless obligations.
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17.6 Changes of Law. Sellers do not make any representations and
--------------
warranties and do not assume any responsibilities or liabilities for any Damages
to Buyer arising out of or related to changes in the law or new interpretations
of existing law that may occur after Closing.
17.7 Merger. No representations, warranties, indemnities, covenants or
------
other provisions of this Agreement shall merge with provisions of any other
instrument.
ARTICLE XVIII.
NOTICES
-------
18.1 Notices. All notices authorized or required by any of the provisions
-------
of this Agreement, unless otherwise specifically provided, shall be in writing
and delivered in person or by United States mail, courier service, telegram, or
telephone facsimile, postage or charges prepaid, and addressed to the Parties at
the respective addresses set forth below:
If to Seller: Tesoro Petroleum Corporation.
300 Concord Plaza Drive
San Antonio, Texas 78216-6999
Attention: James C. Reed, Jr.
Fax Number: (210) 283-2400
Phone Number: (210) 828-8484
With a copy to: Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Michael W. Conlon
Fax Number: (713) 651-5246
Phone Number: (713) 651-5151
If to Buyer: EEX Operating LLC
2500 City West Boulevard, Suite 1400
Houston, Texas 77042
Attention: Janice K. Hartrick
Fax Number: (713) 243-3359
Phone Number: (713) 243-3371
53
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With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Attention: Michael E. Dillard
Fax Number: (214) 969-4343
Phone Number: (214) 969-2876
Any Party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
ARTICLE XIX.
CONFIDENTIALITY AND DISCLOSURES
-------------------------------
19.1 Non Disclosure of Data. To the extent Buyer does not acquire all of
----------------------
the Membership Interests for any reason, Buyer shall not directly or indirectly
disclose or use any materials, data or other information provided by or obtained
from Seller, Reserves LLC or the Partnership, and Buyer and its representatives
shall continue to be bound by the terms of the existing Confidentiality
Agreement dated June 17, 1999, between the Parties.
19.2 Public Announcements. The Parties hereto agree that prior to making
--------------------
any public announcement or statement with respect to the Transaction, the Party
desiring to make such public announcement or statement shall consult with the
other Party and exercise reasonable efforts to obtain the consent of the other
Party to the text of such public announcement or statement. If the Parties
cannot agree upon the text of any such public disclosure, a Party may
nevertheless disclose information with respect to the to the extent required by
applicable law or by any applicable rules, regulations or orders of any
governmental or judicial authority or agency having jurisdiction or to the
extent such disclosure is necessary to comply with requirements of the New York
Stock Exchange.
ARTICLE XX.
TERMINATION
-----------
20.1 Termination. Notwithstanding anything herein to the contrary, this
-----------
Agreement and the Transaction may be terminated in the following instances:
(a) At any time by the mutual written agreement of Buyer and Seller;
(b) By Seller, if the Settlement Price Adjustment exceeds fifteen percent
(15%) of the Purchase Price; or by Buyer, if the sum of the Settlement Price
Adjustment and any reductions to the purchase price as a result of the exercise
by third parties of Preferential Rights to Purchase exceeds fifteen percent
(15%) of the Purchase Price;
(c) By Seller or Buyer, if any of the Casualty Price individually exceeds
ten percent (10%) of the Purchase Price; or
54
<PAGE>
(d) By Buyer or Seller, if Closing has not taken place before December 31,
1999; provided, however, that the Party seeking to terminate this Agreement
pursuant to Section 20.1(d) shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have proximately
contributed to the failure to consummate the Transaction prior to December 31,
1999.
ARTICLE XXI.
MISCELLANEOUS
-------------
21.1 Entire Agreement. This Agreement, together with the Stock Purchase
----------------
Agreement, embody the entire agreement between the Parties (superseding all
prior agreements, negotiations, representations, discussions, arrangements and
understandings related to the subject matter hereof), and may be supplemented,
altered, amended, modified or revoked only by a written instrument signed by
each of the Parties; provided, however, the Confidentiality Agreement dated June
17, 1999, between the Parties shall remain effective until Closing. If the sale
of the Operating Assets to Buyer is not consummated, then the Confidentiality
Agreement shall remain effective as stated therein.
21.2 No Verbal Modifications or Waivers. Any of the terms, provisions,
----------------------------------
covenants, representations, warranties or conditions hereof may be supplemented,
amended, modified, released or waived only by a written instrument executed by
the Parties. Except as otherwise expressly provided in this Agreement, the
failure of any Party at any time or times to require performance of any
provision hereof shall in no manner affect such Party's right to enforce the
same. No waiver by any Party of any condition, or of the breach of any term,
provision, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such condition or
breach or a waiver of any other condition or of the breach of any other term,
provision, covenant, representation or warranty.
21.3 Severability. If any term or provision of this Agreement is held to
------------
be illegal, invalid or unenforceable, the legality, validity and enforceability
of the remaining terms and provisions of this Agreement shall not be affected
thereby, and in lieu of each such illegal, invalid or unenforceable term or
provision, there shall be added automatically to this Agreement a legal, valid
and enforceable term or provision as similar as possible to the term or
provision declared illegal, invalid or unenforceable.
21.4 Interpretation. Words of any gender used in this Agreement shall be
--------------
held and construed to include any other gender, and words in the singular shall
be held to include the plural, unless the context otherwise requires. None of
the terms or conditions of this Agreement, including any Exhibits or Schedules
hereto, shall be construed for or against any Party hereto on the basis that
such Party did or did not author the same. All terms of this Agreement and the
Exhibits shall be harmonized, but in the event of any conflict between the
definition of a term in Article I and a more complete description or limitation
of such term in a subsequent Article, the subsequent Article shall prevail.
This Agreement is being executed in connection with the Stock Purchase
Agreement, as amended by the Amendment, and the two instruments shall be
harmonized, to the extent possible, provided however, that no Party shall be
entitled to receive
55
<PAGE>
duplicate payments (including, without limitation, duplicate payment of any
purchase price) or other relief regarding the same matters under both this
Agreement and the Stock Purchase Agreement, as amended, and the rights of the
Parties hereunder are subject to the terms of the Stock Purchase Agreement, as
amended by the Amendment. In the event of any conflict, redundancy or
inconsistency between the terms of the Stock Purchase Agreement, as amended, and
this Agreement (including without limitation any conflict, redundancy or
inconsistency with respect to the provisions relating to indemnification,
payment of purchase price, adjustments to the purchase price, transfer of the
Membership Interests, representations, warranties and covenants or any
provisions of the exhibits or schedules), the provisions of the Stock Purchase
Agreement, as amended, shall control and prevail in all respects. The Article
and Section headings are for convenience only and shall have no significance in
the interpretation hereof.
21.5 Counsel. Each Party expressly acknowledges that it was represented by
-------
counsel of its own selection in negotiation and preparation of the terms of the
Agreement and the attached Exhibits and that it is sophisticated and experienced
in transactions of this type and is aware of all terms and conditions contained
herein. Each Party shall be responsible for the costs and expenses of its own
counsel.
21.6 Governing Law. This Agreement and other documents delivered pursuant
-------------
to this Agreement and the legal relations between the Parties shall be governed
and construed and enforced in accordance with the laws of the State of Texas,
without giving effect to principles of conflict of laws.
21.7 Consents. Except as expressly provided otherwise herein, any consent
--------
required of a Party with respect to any matters covered by this Agreement shall
not be unreasonably withheld or action with respect thereto unduly delayed.
21.8 Time of Essence. Time is of the essence in all matters provided for
---------------
in this Agreement.
21.9 Binding Effect, Assignment. All the terms, provisions, covenants,
--------------------------
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the Parties and, except
as otherwise prohibited, their respective successors; however, this Agreement
and the rights and obligations hereunder shall not be assignable or delegable by
any Party without the express written consent of the non-assigning or non-
delegating Parties, which consent may be withheld for any or no reason; provided
that Buyer may assign some or all of its rights, duties and obligations under
this Agreement to an Affiliate of EEX Corporation. Any assignment or delegation
without such consent will be void.
21.10 No Relationship. Nothing contained in this Agreement shall be
---------------
deemed to create a joint venture, partnership, agency or other fiduciary
relationship between the Parties, nor is this Agreement intended to create, nor
shall it be construed to create, any rights in any third party, to create any
third party beneficiaries or to ratify, adopt or confirm any other lease,
agreement or other instrument, whether or not affecting Reserves LLC, the
Partnership or the Operating Assets. Notwithstanding the above, the Parties
acknowledge that the Transaction shall be subject to the rights of all third
parties holding Preferential Rights to Purchase and Consents to
56
<PAGE>
Assignment concerning the Operating Assets, to the extent that they are valid,
in effect and enforceable by reason of the Transaction, and that such third
party rights shall be handled as set forth herein.
21.11 No Recordation. Without limiting any Party's right to file suit to
--------------
enforce its rights under this Agreement, Buyer and Seller expressly covenant and
agree not to record or place of record this Agreement or any copy or memorandum
hereof, unless required under the Securities Exchange Act of 1934.
21.12 Exhibits and Schedules. All Exhibits and Schedules which are
----------------------
referred to herein are hereby made a part hereof and incorporated herein by
reference.
21.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each and every counterpart shall be deemed for all purposes
one agreement.
21.14 No Third Party Beneficiaries. Any agreement contained, expressed or
----------------------------
implied in this Agreement shall be only for the benefit of the Parties hereto
and the Indemnified Parties specified in Article XV and their respective legal
representatives, successors and assigns. Such agreements shall not inure to the
benefit of any employees of Seller, Reserves LLC or the Partnership (except in
their capacity as Indemnified Parties) or the obligees of any indebtedness of
any Party hereto, it being the intention of the Parties hereto that no Person
shall be deemed a third party beneficiary of this Agreement, except to the
extent a third Person is expressly given rights herein.
21.15 Joint and Several Liability. Tesoro Petroleum Corporation and
---------------------------
Tesoro Gas Resources Company, Inc. agree to be jointly and severally liable for
all of the Seller's duties and obligations hereunder.
57
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
SELLER BUYER
- ------ -----
TESORO PETROLEUM CORPORATION EEX OPERATING LLC
By:______________________________ By: EEX CORPORATION
Name:____________________________ By:______________________________
Title:___________________________ Name:____________________________
Title:___________________________
TESORO GAS RESOURCES COMPANY, INC.
By:_____________________________
Name:___________________________
Title:__________________________
58
<PAGE>
PURCHASE AGREEMENT
Dated as of December 17, 1999,
by and between
TESORO PETROLEUM CORPORATION
and
TESORO GAS RESOURCES COMPANY, INC.
as "Seller"
and
EEX OPERATING LLC
as "Buyer"
<PAGE>
SCHEDULES
- ---------
1A HEDGING CONTRACTS
1B PERMITTED ENCUMBRANCES
2.6(a) RETAINED LIABILITIES
4.1(b)(iv) NO CONFLICT - SELLER
4.1(b)(v) CONSENTS AND WAIVERS - SELLER
4.1(g) LITIGATION
4.1(h) LABOR MATTERS
4.1(i) TAXES
4.1(k) ABSENCE OF CERTAIN CHANGES
4.1(m)(iii) PERMITS AND LICENSES
4.1(m)(iv) EXCEPTIONS TO RIGHT TO USE ASSETS
4.1(o) SUSPENSE FUNDS
4.1(p) INSURANCE
4.1(q) CONTRACTS ON PRODUCTION
4.1(s) TAX PARTNERSHIPS
4.1(u) ENVIRONMENTAL CONDITIONS
4.1(v) CONTRACTS
4.1(x) WELLS
4.1(z) PAYOUT BALANCES
9.2 EXCEPTIONS TO PRE-CLOSING OPERATING COVENANTS
9.2(f) COMMITTED EXPENDITURES
9.4 EXCEPTIONS TO PRE-CLOSING FINANCIAL COVENANTS
EXHIBITS
- --------
A ALLOCATED VALUES
B LEASES AND RELATED PIPELINES
C SUBSIDIARIES AND PARTNERSHIP BALANCE SHEET
D SETTLEMENT STATEMENT
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is dated December 17, 1999, but effective as of the
Effective Time, between Tesoro Petroleum Corporation, a Delaware corporation,
and Tesoro Gas Resources Company, Inc., a Delaware corporation, collectively as
"Seller", and EEX Operating LLC, a Delaware limited liability company, as
"Buyer".
WITNESSETH:
-----------
WHEREAS, Tesoro Gas Resources Company, Inc. owns all of the Membership
Interests in Tesoro Southeast LLC, a Delaware limited liability company
("Southeast"); and
WHEREAS, Tesoro Petroleum Corporation, a Delaware corporation, and Tesoro
Gas Resources Company, Inc., a Delaware corporation, collectively as "Seller",
and EEX Operating LLC, a Delaware limited liability company, as "Buyer", and EEX
Corporation, entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement") dated October 8, 1999 providing for the sale by Seller to Buyer of
all shares of capital stock of Tesoro Exploration and Production Company, a
Delaware corporation ("Exploration") and Tesoro Reserves Company, a Delaware
corporation ("Reserves"), together with the partnership interests in Tesoro E&P
Company, L.P., a Delaware limited partnership (the "Partnership"); and
WHEREAS, the Partnership owns certain assets used in the business of the
exploration, production, gathering, transportation and marketing of oil, natural
gas, condensate and associated hydrocarbons; and
WHEREAS, on the date of the Stock Purchase Agreement, Exploration and
Reserves were the two partners in the Partnership, in which Exploration was the
general partner owning a 1% interest and Reserves was the limited partner owning
a 99% interest; and
WHEREAS, the Partnership was converted into a series limited partnership,
with the entire Series C limited partnership interest being transferred to
Southeast, insofar as such interest covers the revenues, expenses, profits and
losses from the Properties described in Exhibit B; and
WHEREAS, Section 9.12 of the Stock Purchase Agreement provides for the
Parties to cooperate at no cost or liability to Buyer, to enable Seller at
Seller's election, to transfer the Operating Assets to Buyer in a manner
enabling the transfer to qualify as a part of a like-kind exchange of property
by Seller within the meaning of Section 1031 of the Code; and
WHEREAS, the Stock Purchase Agreement has been amended to provide for such
a like-kind exchange of property, among other purposes, by a First Amendment to
Stock Purchase Agreement dated December 16, 1999 (the "Amendment"); and
WHEREAS, to facilitate such a like-kind exchange transaction, Seller has
arranged to assign its interests in the proceeds of the sale of Southeast and
its interest in the Properties to 44 Exchange Services L.L.C., as a Qualified
Intermediary;
1
<PAGE>
WHEREAS, the Parties have agreed to restructure the Transaction set forth
in the Stock Purchase Agreement, to allow the separate sale of Southeast and its
interest in the Southeast Properties through the Qualified Intermediary; and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from
Seller all issued and outstanding Membership Interests of Southeast, including
all of Southeast's rights and interests in the Partnership and the Properties,
under the terms and conditions set forth in this Agreement and the Stock
Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
-----------
"Accepting Party" shall have the meaning set forth in Section 16.1(e).
"Accounts Receivable" shall have the meaning set forth in Section 13.4.
"Action" means any action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.
"Adjustment Assets and Liabilities" shall mean the items set forth in
Section 2.7.
"Affiliate" shall have the same meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Agreement" shall mean this Purchase Agreement.
"Allocated Value" shall mean the monetary value allocated to each Property
or group of Properties and the Hedging Contracts on Exhibit A.
"Amendment" shall mean the First Amendment to Stock Purchase Agreement
dated December 16, 1999, by and among Tesoro Petroleum Corporation, a Delaware
corporation, Tesoro Gas Resources Company, Inc., a Delaware corporation, and EEX
Operating LLC, a Delaware limited liability company, and EEX Corporation, a
Texas corporation, for the limited purposes set forth therein.
"APO" shall mean "after payout", as such payout may be established under
the respective farmout agreements, joint operating agreements, participation
interests and similar agreements affecting each Property, including payouts
providing reversionary rights of parties who have elected not to participate in
an operation under a joint operating agreement. If there are multiple
outstanding payouts affecting any particular well or Property, then the APO
interest shall mean the interests after all applicable payouts have occurred. If
at the Effective Time there are no outstanding payout balances affecting any
particular well or Property, then the listed APO interest in such well or
Property shall reflect the Partnership's WI and NRI at the Effective Time.
2
<PAGE>
"Applicable Environmental Laws" means all Applicable Laws in effect
pertaining to (i) pollution, or the protection of the environment, including
those relating to waste materials and/or hazardous substances, (ii) the
protection of Persons or property from actual or potential exposure (or the
effects of exposure) to an actual or potential spill or release of Hazardous
Substances or petroleum or produced brine or (iii) the manufacture, processing,
production, gathering, transportation, use, treatment, storage or disposal of a
Hazardous Substance or petroleum or produced brine.
"Applicable Law" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Authority to
which a specified Person, Operating Asset or property is subject.
"Balance Sheets" shall mean the unaudited combined financial balance sheet
of Southeast and the Partnership as of June 30, 1999, attached hereto as Exhibit
C.
"Books and Records" shall mean all of the following which pertain to the
conduct of the Business: books, records, manuals and other materials, accounting
books and records, continuing property records for property, plant and
equipment, land and lease files, title opinions, suspense records, production
records, any inventories of equipment and property, well files, engineering
files, maps, surveys, electric logs, seismic records, geological and geophysical
files, and all other technical data, division order files, contract files, other
files, computer tapes, disks, other storage media and records, advertising
matter, correspondence, lists of customers and suppliers, maps, photographs,
production data, sales and promotional materials and records, purchasing
materials and records, work and recent salary history for personnel, credit
records, manufacturing and quality control records and procedures, patent and
trademark files and disclosures, litigation files, leases, oil and gas leases,
deeds, easements and other instruments relating to the Business, any copies of
Tax Returns filed by or with respect to Southeast or the Partnership, including
copies of all work papers and calculations relating to Southeast and the
Partnership in support of such Tax Returns, and any comparable information with
respect to predecessors of Southeast or the Partnership to the extent available,
and copies of any other applicable accounting and tax records of the Seller and
the Partnership pertaining to the Business.
"BPO" shall mean "before payout", as such payout may be established under
the respective farmout agreements, joint operating agreements, participation
interests and similar agreements affecting each Property, including payouts
providing reversionary rights of parties who have elected not to participate in
an operation under a joint operating agreement. If at the Effective Time there
is an outstanding payout balance affecting any particular well or Property, the
listed BPO interest in such well or Property shall reflect the Partnership's WI
and NRI at the Effective Time.
"Business" shall mean the Partnership's business of exploring for,
developing, producing, gathering, transporting and marketing natural gas,
condensate and oil.
"Business Day" shall mean any day exclusive of Saturdays, Sundays and
national holidays.
"Buyer Group" shall have the meaning set forth in Section 15.3.
3
<PAGE>
"Buyer's Knowledge" shall mean knowledge of Buyer and management employees
of Buyer's ultimate parent, EEX Corporation, with knowledge of Buyer's
activities, including the negotiation of this Agreement.
"Bylaws" shall mean a corporation's bylaws, code of regulations or
equivalent document.
"Charter" shall mean a company's management agreement, articles of
association, articles of incorporation, certificate of incorporation or
equivalent organizational documents.
"Closing" shall have the meaning set forth in Section 12.1.
"Closing Date" shall have the meaning set forth in Section 12.1.
"Closing Settlement Price" shall mean the Settlement Price calculated in
accordance with the best information available to the Seller prior to Closing,
as reflected on the Settlement Statement delivered prior to Closing pursuant to
Article X and Section 13.1(a).
"Code" shall mean the United States Internal Revenue Code of 1986 and any
successor statute thereto, as amended.
"Consent to Assignment" shall mean an existing contractual or legal right
of any third party to consent to the Partnership's assignment of a Property to
Buyer under such terms as are set forth in this Agreement.
"Contracts" shall mean all of the contracts that govern or relate to the
ownership or operation of the Operating Assets (including without limitation,
the wells, facilities and equipment associated therewith and the production
therefrom, acreage contribution agreements, assignments, bidding agreements,
bottom-hole agreements, contribution agreements, drilling contracts, dry-hole
agreements, exploration agreements, development agreements, farm-in and farmout
agreements, gas balancing agreements, joint venture agreements, production,
sales, marketing and/or brokerage contracts, gas processing agreements,
operating agreements, participation agreements, service contracts, storage
contracts, gathering agreements, transportation agreements, treating contracts,
water rights agreements and the unitization, unit operating, communitization and
pooling declarations, agreements and orders that create or govern units). To the
extent that Seller, Southeast or the Partnership have rights of indemnification
or warranty rights with respect to any Operating Asset or any part of an
Operating Asset, the same shall be included in the meaning of "Contracts."
"Damages" shall mean any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses, expert fees and expenses and court costs), of any nature whatsoever.
"Effective Time" shall mean July 1, 1999, at 12:00 a.m. local time for each
Operating Asset.
4
<PAGE>
"Encumbrance" shall mean any interest (including any security interest),
pledge, mortgage, lien, charge, adverse claim or other right of third Persons.
"Environmental Conditions" shall have the meaning set forth in Section 7.3
of the Stock Purchase Agreement.
"Exploration LLC" shall mean Tesoro Exploration and Production LLC, a
Delaware limited liability company.
"Final Settlement Price" shall mean the Settlement Price calculated in
accordance with the best information available to the Parties during the one
hundred twenty (120) day period after Closing, as reflected on the Final
Statement agreed upon pursuant to Article XIII.
"Final Statement" shall mean the final accounting statement to be agreed
upon by the Parties no later than one hundred twenty (120) days after Closing
pursuant to Section 13.1(b).
"Financial Assets and Liabilities" shall mean the assets, liabilities and
other financial items on the Balance Sheets, effective as of 11:59 p.m. on June
30, 1999, (i) as adjusted for revenues, income, expenses and other assets and
liabilities incurred between the Effective Time and the Closing Date and
included within the Adjustment Assets and Liabilities, and (ii) as adjusted for
the Pre-Closing Financial Adjustments and (iii) as otherwise adjusted as
provided herein. The term "Financial Assets" shall not include any assets,
liabilities or other financial items included within the Operating Assets.
"GAAP" shall mean U.S. generally accepted accounting principles, unless
expressly described otherwise.
"Governmental Authority" shall mean any international, national, Federal,
state, municipal or local government, governmental authority, regulatory or
administrative agency, governmental commission, department, board, bureau,
agency or instrumentality, court, tribunal, arbitrator or arbitral body.
"Governmental Order" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Grande" shall mean Tesoro Grande LLC, a Delaware limited liability
company.
"Hazardous Substance" means a substance, chemical, pollutant, waste or
other material (i) that consists, wholly or in part, of a substance that is
regulated as toxic or hazardous to human health or the environment under any
Environmental Law or (ii) that exists in a condition or under circumstances that
constitute a violation of any Environmental Law. "Hazardous Substance" includes
without limitation any "hazardous substance" under the Comprehensive
Environmental Response, Compensation and Liability Act, any "hazardous chemical"
under the Occupational Safety and Health Act, any "hazardous material" under the
Hazardous Materials Transportation Act, any "hazardous chemical substance" under
the Federal Water Pollution Control Act and any "hazardous waste" under the
Resource Conservation and Recovery Act.
5
<PAGE>
"Hedging Contracts" shall mean those natural gas derivative pricing
contracts listed on Schedule 1A.
"Income Taxes" shall mean any Taxes, including franchise taxes, which are
based upon or in respect of income.
"Indemnified Party" shall mean any Party or other Person entitled to an
indemnity under Article XV of this Agreement, with respect to the indemnity so
owed.
"Indemnifying Party" shall mean a Party owing an indemnity to any other
Party or Person under Article XV of this Agreement, with respect to the
indemnity so owed.
"Lender" shall have the meaning set forth in Section 9.12(d).
"Liabilities" shall mean any and all debts, claims, liabilities and
obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, mature or unmatured or determined or indeterminable.
"Material Adverse Effect" shall mean any event with respect to, change in,
or effect on, Southeast, the Partnership or the Business which, individually or
in the aggregate, is reasonably likely to have a material adverse effect on the
Business, or the financial results of operations, assets or properties or
financial condition of Southeast and the Partnership, taken as a whole, but the
term "Material Adverse Effect" shall not include any change in market conditions
or other conditions affecting the oil and gas exploration and production
industry generally.
"Membership Interests" shall mean shall mean all issued and outstanding
membership interests in Southeast.
"NORM" shall have the meaning set forth in Section 7.2.
"NRI" shall mean the decimal net revenue interest in oil and gas production
from a Property.
"Operating Assets" shall mean all property rights and interests of the
Partnership being sold hereunder in the lands and leases described in Exhibit
"B", as set forth in Section 2.4.
"Other Taxes" shall mean all Taxes other than Income Taxes.
"Parties" shall mean Buyer and Seller, collectively.
"Partnership" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"Partnership Agreement" means the Agreement of Limited Partnership of the
Partnership, as amended.
"Party" shall mean either Buyer or Seller.
"Permitted Encumbrances" shall include any Encumbrance which is: (i) listed
on Schedule 1B, for which a duly executed release in recordable form will be
delivered to Buyer at
6
<PAGE>
or before Closing; (ii) a lien securing amounts claimed for services provided by
operators or other oil field contractors which are not yet due and owing or
which are being contested in good faith, through adequate procedures; (iii) a
statutory lien arising for Taxes not yet delinquent or which are being contested
in good faith, through adequate procedures; (iv) a reservation, exception,
limitation, encumbrance or burden expressly included within a recorded oil and
gas lease constituting part of a Property with respect to which Seller or the
Partnership is not in default at Closing which does not reduce the Partnership's
NRI in such Property below the respective decimal interests set forth in Exhibit
A; (v) any royalty, overriding royalty or other production burden affecting any
Property which does not and will not reduce the Partnership's NRI in such
Property below the respective decimal interests set forth in Exhibit A; (vi) any
joint operating agreement containing terms and conditions reasonable and
customary in the industry (other than a Preferential Right to Purchase that is
exercised prior to Closing or a required Consent to Assignment, or a
reversionary right that is not reflected in the BPO and APO interests on Exhibit
A); (vii) the right of a third party under any equipment rental or lease
contract, oilfield service contract, production sales contract or transportation
contract affecting any Property, which either may be terminated by the parties
thereto without penalty or does not extend for a term of more than sixty days
after the Closing Date; (viii) any other easement, operating right, concurrent
use right or similar encumbrance that does not affect the Partnership's rights
to a Property or reduce the production revenues attributable thereto or increase
the costs associated with ownership or operation of that Property; and (ix) a
severance tax, production tax, occupation tax, ad valorem tax or similar tax of
general application.
"Person" shall include any individual, trustee, firm, corporation,
partnership, limited liability company, Governmental Authority or other entity,
whether acting in an individual, fiduciary or any other capacity.
"Post-Closing Return" shall have the meaning set forth in Section 16.2(c).
"Pre-Closing Financial Adjustments" shall mean those certain financial
accounting adjustments and payments set forth in Section 2.6.
"Pre-Closing Period" shall have the meaning set forth in Section 16.2(c).
"Pre-Closing Return" shall have the meaning set forth in Section 16.2(c).
"Preferential Right to Purchase" shall mean the right of any third party
under an existing contract or agreement allowing that third party to purchase
the Partnership's interest in a Property whenever Seller proposes to transfer
its interests in the Partnership under terms such as are set forth in this
Agreement and the Stock Purchase Agreement.
"Production" shall mean all oil, natural gas, condensate, natural gas
liquids, and other hydrocarbons or products produced from or attributable to the
Properties.
"Properties" shall mean, collectively, (i) all valid and existing oil and
gas leaseholds and mineral fee rights, and all rights and interests appurtenant
thereto, which are owned by the Partnership in the lands and leases described on
Exhibit B attached hereto, including without limitation all oil and gas WIs,
NRIs, mineral fee interests, oil, gas and mineral deeds, leases
7
<PAGE>
and/or subleases, royalties, overriding royalties, leasehold interests, mineral
servitudes, production payments and net profits interests, fee mineral
interests, surface estates, fee estates, royalty interests, overriding royalty
interests, or other non-working or carried interests, reversionary rights,
farmout and farmin rights, operating rights, pooled or unitized acreage, and all
other rights, privileges and interests in such oil, gas and other minerals (and
the production thereof), and other mineral rights of every nature now owned by
the Partnership in such lands and leases listed on Exhibit B hereto, (ii) all of
the contractual rights to interests described in (i) above and in all units in
which such interests are pooled, communitized or unitized, and in any other oil,
gas and/or mineral leases or assets arising pursuant to the terms of the oil and
gas leases listed on Exhibit B hereto, and any other rights and agreements or
contracts affecting or relating to interests described in (i) above, or to
Production, whether or not listed on Exhibit B, including any tenements,
appurtenances, surface leases, easements, permits, licenses, servitudes,
franchises or rights of way.
"Property" shall mean any individual one of the Properties.
"Property Tax Period" shall have the meaning set forth in Section 13.3(a).
"Property Taxes" shall have the meaning set forth in Section 13.3(a).
"Proposed Settlement" shall have the meaning set forth in Section 16.1(e).
"Purchase Price" shall have the meaning set forth in Section 3.1.
"Qualified Intermediary" shall mean 44 Exchange Services L.L.C., in its
capacity as a qualified intermediary to implement a like-kind exchange of the
Properties under Section 1031 of the Code.
"Refusing Party" shall have the meaning set forth in Section 16.1(e).
"Reserves LLC" shall mean Tesoro Reserves Company, LLC, a Delaware limited
liability company.
"Seller" shall mean, collectively, Tesoro Petroleum Corporation, a Delaware
corporation, and Tesoro Gas Resources Company, Inc., a Delaware corporation.
"Seller's Knowledge" shall mean actual knowledge of any fact, circumstance
or condition by the officers or management employees (including those with
titles of "Manager", "Vice President" and "President" or those in the internal
legal department of Seller, Southeast and the Partnership who provide specific
advice related to the operations of the Business) of Seller, Southeast and the
Partnership involved and knowledge of any fact, circumstance or condition which
such officer or management employee would have been aware of with the exercise
of reasonable diligence and inquiry in the course of his or her duties.
"Settlement Price" shall have the meaning set forth in Section 3.2.
8
<PAGE>
"Settlement Statement" shall mean the accounting statement calculating the
Settlement Price, to be furnished by Seller to Buyer prior to Closing, pursuant
to Article X and Section 13.1(a).
"Southeast" shall mean Tesoro Southeast LLC, a Delaware limited liability
company
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement dated
October 8, 1999, as amended by the Amendment, by and among Tesoro Petroleum
Corporation, a Delaware corporation, Tesoro Gas Resources Company, Inc., a
Delaware corporation, and EEX Operating LLC, a Delaware limited liability
company, and EEX Corporation, a Texas corporation, for the limited purposes set
forth therein.
"Straddle Period" shall have the meaning set forth in Section 16.1(e).
"Straddle Return" shall have the meaning set forth in Section 16.2(c).
"Subsidiaries" shall mean Exploration LLC, Southeast, Grande and Reserves
LLC, collectively.
"Tax" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, parking, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 50A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, ad valorem,
value added, alternative or add-on minimum, estimated tax, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, including such item for which Liability arises as a transferee
or successor-in-interest.
"Tax Claim" shall have the meaning set forth in Section 16.1(c).
"Tax Return" shall mean any return, declaration, report, claim for refund,
information return or statement relating to Taxes, including any schedules or
attachments thereto, and including any amendment thereof.
"Taxing Authority" shall mean any Governmental Authority responsible for
the imposition or collection of any Tax.
"Tesoro Group" shall have the meaning set forth in Section 4.1(i).
"Tesoro Parent" shall have the meaning set forth in Section 4.1(i).
"Transaction" shall mean the purchase and sale of the Membership Interests
pursuant to this Agreement and the related transactions contemplated herein.
"WI" shall mean a working interest under an oil and gas lease or other
Contract affecting a Property which shall reflect the decimal interest for
participation in the decisions, costs and risks concerning operations.
9
<PAGE>
"Working Capital" shall mean, at any time, the difference between (a)
the sum of the amounts on the line items "cash", "accounts receivable",
"inventories" and "prepayment and other" on the Balance Sheet, less (b) the sum
of the amounts on the line items "accounts payable" and "accrued liabilities" on
the Balance Sheet; all as computed in accordance with GAAP and past practice for
Southeast and the Partnership except as expressly provided herein, and in a
manner as reflected on the Balance Sheets; provided, however, that the amounts
on the line items "prepayment and other", "accounts payable" and "accrued
liabilities" on the Balance Sheet shall not include the impact of any amounts
referred to in the first proviso in Section 3.2(a)(i); and provided further,
that the stated amount of Working Capital shall be reduced by the amount of
inventories that existed as of the Effective Time.
"Working Capital Accounts" shall mean the line items "cash", "accounts
receivable", "inventories", "prepayment and other", "accounts payable" and
"accrued liabilities" on the Balance Sheet, all as computed in accordance with
GAAP and past practice for Southeast and the Partnership, and in a manner as
reflected on the Balance Sheets; provided, however, that the line items
"prepayment and other", "accounts payable" and "accrued liabilities" shall not
include the impact of any items referred to in the first proviso in Section
3.2(a)(i).
ARTICLE II.
PURCHASE AND SALE
-----------------
2.1 Sale of Membership Interests. Subject to the terms and conditions of
----------------------------
this Agreement, Seller agrees to sell and assign to Buyer, and Buyer agrees to
purchase and pay for, at Closing, all of the Membership Interests.
2.2 Effect of Sale. The sale of the Membership Interests at Closing shall
--------------
transfer to Buyer all of Seller's rights in Southeast. On the Closing Date,
Southeast shall hold certain interests, assets and liabilities, as set forth in
this Article II. Except as otherwise specifically set forth in this Agreement,
the transfer of Seller's rights in Southeast shall assign to Buyer all of
Seller's beneficial right, title, interest and obligations in and to such
interests, assets and liabilities held by Southeast.
2.3 Partnership. On the Closing Date, Exploration LLC and Southeast shall
-----------
own the rights and interests in the Partnership, insofar as they pertain to the
Properties. Exploration LLC shall be the one percent (1%) general partner, and
Southeast shall own the entire Series C limited partnership interest in the
Partnership insofar as it pertains to allocable revenues and expenses
attributable to the Properties. The partnership rights and interests of
Southeast described in this Section 2.3 shall pass to Buyer as an attribute of
the sale of the Membership Interests pursuant to this Agreement.
2.4 Operating Assets. On the Closing Date, the Partnership shall own the
----------------
Operating Assets, subject to the Permitted Encumbrances, as follows:
(a) Exploration and Production Assets.
---------------------------------
(i) the Properties;
10
<PAGE>
(ii) All the interests in oil and gas wells described on Exhibit A,
together with an interest in the production, compression,
treating, dehydration or processing facilities and other real or
tangible personal property appurtenances and fixtures, which are
located on the lands covered by or within the Properties or are
being used by the Partnership in connection with the operations
on the Properties or Production;
(iii) Subject to the license granted under the License Agreement (with
respect to the rights covered thereby), rights and interests in
geological data and records, seismic data, whether in digital or
paper format, well logs, well files, geological data, records
and maps, land and contract files and records, accounting files,
data and records, computer hardware and software and other
materials (whether electronically stored or otherwise) used or
held for use by Seller, Southeast or the Partnership, or any of
their direct or indirect parents, subsidiaries or other
Affiliates, regarding ownership of the Properties or operations
and Production which relate to the Properties, and other files,
documents and records which relate to the Properties;
(iv) Rights, obligations, title and interests in and to permits,
orders, contracts, abstracts of title, leases, deeds,
unitization agreements, pooling agreements, operating
agreements, farmout agreements, participation agreements,
division of interest statements, division orders, participation
agreements, and other agreements and instruments applicable to
the Properties;
(v) All the rights, obligations, title and interests of Seller in
and to all easements, rights of way, certificates, licenses and
permits and all other rights, privileges, benefits and powers
conferred upon the owner and holder of interests in the
Properties, or concerning software used in conjunction with
ownership or operation of the Properties;
(vi) Rights, title, obligations and interests in or concerning any
gas imbalances affecting the Properties; and
(vii) All office equipment, computer equipment, light tables, drafting
tables, drafting equipment, office supplies, facsimile machines,
pool cars and any other equipment or furniture not herein named
which is utilized by the Partnership in its day to day
operations.
(b) Leased Assets. To the extent any of the items of office equipment
-------------
listed in Section 2.4(a) above are leased and not owned, Seller, Southeast and
the Partnership shall use their best efforts to cause such leases to be assigned
to Buyer at Closing.
2.5 Financial Assets and Liabilities. On the Closing Date, the Partnership
--------------------------------
shall own the Financial Assets and Liabilities. Southeast shall be allocated its
share of the Partnership's respective Financial Assets and Liabilities
attributable to ownership and operation
11
<PAGE>
of the Properties in proportion to its ownership of the Partnership's interests
in the Properties. The Financial Assets and Liabilities at Closing of the
Partnership and each partner in the Partnership shall be computed by Seller in
accordance with GAAP, and shall be allocated to the Properties and the partners
in the Partnership in accordance with the Partnership Agreement. The Financial
Assets and Liabilities shall be adjusted from those set forth on the Balance
Sheet to reflect certain Pre-Closing Financial Adjustments and the Adjustment
Assets and Liabilities, as set forth in Sections 2.6 and 2.7.
2.6 Pre-Closing Financial Adjustments. Prior to the Closing Date, Seller
---------------------------------
shall make certain accounting adjustments and payments regarding the assets,
liabilities and equity of the Partnership and Southeast, to the effect that
Sellers shall remove all intercompany accounts involving the Partnership,
Southeast and their Affiliates, and all intercompany liabilities shall have been
removed. At Closing the only assets and liabilities of the Partnership and
Southeast shall be the Operating Assets and the Adjustment Assets and
Liabilities.
(a) Certain Accounts. Immediately prior to the Closing, Seller shall take,
----------------
and shall cause Southeast and the Partnership to take, all necessary action
deemed appropriate to adjust the Balance Sheets to account for those items that
are to be retained by Seller, as set forth in Schedule 2.6(a). In doing so,
Seller shall take, and shall cause Southeast and the Partnership to take, all
necessary actions deemed appropriate so that the Balance Sheets as of the
Closing Date, as adjusted to reflect such actions, will show zero for those line
items listed in Schedule 2.6(a) as financial items that are to be retained by
Seller.
(b) Pre-Closing Cash Distribution. Immediately prior to the Closing,
-----------------------------
Tesoro Gas Resources Company, Inc. shall cause Southeast to pay to it an amount
equal to the arithmetic mean of Seller's and Buyer's good faith estimates of the
consolidated cash and cash equivalents (other than amounts in suspense accounts)
of Southeast as of the Closing Date.
(c) Changes in Balance Sheets Due to Continuing Operations. Buyer and
------------------------------------------------------
Seller expressly recognize that the assets and liabilities of Southeast and the
Partnership shall be affected by the effects of ongoing ownership and operation
of the Operating Assets between the Effective Time and the Closing Date. These
changes shall be handled exclusively by adjustments to the Settlement Price as
set forth in Section 3.2 and Article XIII.
2.7 Adjustment Assets and Liabilities. At Closing, the Partnership shall
---------------------------------
retain, to the extent permitted by applicable law and regulations, the following
interests:
(a) All rights, obligations, liabilities, title and interests of Seller
and the Partnership in and to all Hedging Contracts in effect at the Effective
Time or thereafter;
(b) All Working Capital Accounts; and
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<PAGE>
(c) All rights to future proceeds, defenses and indemnities owed under any
bonds or insurance policies covering the Operating Assets, the Partnership,
Southeast or the Business for policy periods prior to the Closing Date, for
losses, claims or occurrences, as applicable, arising prior to the Closing Date.
ARTICLE III.
PURCHASE PRICE AND SETTLEMENT PRICE
-----------------------------------
3.1 Purchase Price. The monetary consideration ("Purchase Price")
--------------
for the sale and conveyance of all the Membership Interests to Buyer, effective
as of the date of Closing, is Buyer's payment of $14,426,631 in cash.
3.2 Settlement Price. Pursuant to the provisions as described below, the
----------------
Purchase Price to be paid by Seller will be subject to certain adjustments made
at Closing and within one hundred twenty (120) days thereafter, as set forth in
Article XIII, to determine the Settlement Price amount that will actually be
paid by Buyer. The Settlement Price will be calculated as follows:
(a) Increases. The Purchase Price shall be increased by the following
---------
amounts:
(i) An amount equal to the expenses properly accrued in accordance
with GAAP and past practice, and allocated to Southeast under
the Partnership Agreement, and as provided for in Section 13.3,
attributable to the period from the Effective Time to the end
of business on the Closing Date; provided, however, that such
expenses shall exclude all (1) depreciation, depletion and
amortization, (2) income and franchise taxes, (3) one-half of
the amount accrued by and the Partnership and allocated to
Southeast under the Partnership Agreement, incentive
compensation arrangements for the Retained Employees, as
provided in Section 9.9(c), and (4) severance obligations and
other amounts accrued under any employment retention and
management stability agreements, as provided in Section 9.9(b);
provided, further, however that Seller and the Partnership
shall be permitted to accrue no more than $40,000 per month
from the close of business on June 30, 1999 to the Closing Date
for corporate general and administrative expenses;
(ii) An amount equal to the capital expenditures relating to the
Business properly accrued in accordance with GAAP and past
practice and allocated to Southeast under the Partnership
Agreement, attributable to the period from the Effective Time
to the end of business on the Closing Date; and
(iii) The amount of change in Working Capital and allocated to
Southeast under the Partnership Agreement between the Effective
Time and the end of business on the Closing Date, if the amount
of change is a positive number.
(b) Decreases. The Settlement Price shall be decreased by the following
---------
amounts:
13
<PAGE>
(i) An amount equal to the revenues properly accrued in accordance
with GAAP and past practice and allocated to Southeast under
the Partnership Agreement attributable to the period from the
Effective Time to the end of business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment allocated to
Southeast under the Partnership Agreement, subject to the
application of Section 13.1;
(iii) The amount, stated as a positive number, of any change in
Working Capital and allocated to Southeast under the
Partnership Agreement between the Effective Time and the end of
business on the Closing Date, if and only if, the amount of
change is a negative number.
The Purchase Price as adjusted pursuant to this Section 3.2 is herein called the
"Settlement Price".
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Seller's Representations and Warranties. Effective as of the Closing
---------------------------------------
Date, Seller shall represent and warrant that:
(a) Disclosure. To Seller's Knowledge, the representations and
----------
warranties set forth in this Section 4.1 of this Agreement, the exhibits to this
Agreement, and the information, documents and Balance Sheets provided under the
terms of this Agreement represent full and fair disclosure as of the Closing
Date and do not contain any untrue statement of any material fact or omit any
material fact necessary in order to make the facts stated not misleading.
(b) Authorization and Enforceability.
--------------------------------
(i) This Agreement and the Transaction have been duly authorized by
each Seller.
(ii) Neither the execution and delivery of this Agreement by Seller,
nor the consummation by Seller of the transactions contemplated
hereby, will violate or conflict with, or result in the
acceleration of rights, benefits or obligations under, (1) any
provision of any of Seller's, Southeast's or the Partnerships'
respective Charters, Bylaws, management agreements, limited
liability company agreements, operating agreements or
partnership agreements, or (2) any applicable statute, law,
regulation or Governmental Order to which Seller or Southeast or
the Partnerships or the assets and properties of such entities,
including without limitation the Operating Assets, are bound or
subject.
(iii) This Agreement has been duly executed and delivered by each
Seller and constitutes the valid and binding obligation of each
Seller, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting
14
<PAGE>
the enforcement of creditors' rights generally and general
principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(iv) Except as set forth on Schedule 4.1(b)(iv), or as otherwise
specifically provided herein, the execution, delivery, and
performance of this Agreement (assuming that all applicable
consents are received and all applicable Preferential Rights to
Purchase individual Operating Assets are waived) will not (A)
be in violation of any provisions of any regulation or order
that could reasonably be expected to adversely affect the
ownership or operations of the Operating Asset affected thereby
or give rise to damages, penalties or claims of third parties,
or (B) result in the breach of, or constitute a default under,
any indenture or other material agreement or instrument to
which Seller, Southeast or the Partnerships are bound, or (C)
cause the recognition of gain for which the Buyer (or, after
the Closing, the Subsidiaries) will be responsible for the tax
thereon or subject any Subsidiary or its assets to any Tax
other than Tax for which Seller is responsible under Article
XVI;
(v) Except as set forth on Schedule 4.1(b)(v) or as otherwise
specifically provided herein, no consent, waiver, approval,
order or authorization of, notice to, or registration,
declaration, designation, qualification or filing with, any
Governmental Authority or third Person, domestic or foreign, is
or has been or will be required on the part of Seller in
connection with the execution and delivery of this Agreement or
the consummation by Seller of the transactions contemplated
hereby or thereby, other than (A) consents and Preferential
Rights to Purchase affecting individual Operating Assets; (B)
filings required (1) to form Southeast under Delaware law; (C)
tax filings or (D) where the failure to obtain such consents,
waivers, approvals, orders or authorizations or to make or
effect such registrations, declarations, designations,
qualifications or filings (1) is not reasonably likely to
prevent or materially delay consummation of the transactions
contemplated by this Agreement (2) could reasonably be expected
to adversely affect the Business or (3) could give rise to
damages, penalties or claims of third parties.
(c) Organizational Status.
---------------------
(i) Each Seller: (1) is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, (2)
is duly qualified to transact business in each jurisdiction
where the nature and extent of its business and properties
require such qualification, and (3) possesses all requisite
authority and power to conduct its business and execute,
deliver and comply with the terms and provisions of this
Agreement and to perform all of its obligations hereunder.
There are no pending or threatened Actions (or basis therefor)
for the dissolution, liquidation, insolvency, or rehabilitation
of any Seller.
15
<PAGE>
(ii) Southeast(1) is a limited liability company duly organized,
validly existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business and
properties require such qualification, and (3) possesses all
requisite authority and power to conduct its business. There
are no pending or threatened Actions (or basis therefor) for
the dissolution, liquidation, insolvency, or rehabilitation of
Southeast.
(iii) The Partnership (1) is a limited partnership duly organized,
validly existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business and
properties require such qualification, and (3) possesses all
requisite authority and power to conduct its business. There
are no pending or threatened Actions (or basis therefor) for
the dissolution, liquidation, insolvency, or rehabilitation of
the Partnership.
(d) Subsidiary and Other Equity Interests.
-------------------------------------
(i) Southeast has no subsidiaries and does not own any stock or
other interest in any other corporation, partnership, joint
venture, or other business entity, with the exception of the
Partnership.
(ii) The Partnership has no subsidiaries and does not own any stock
or other interest in any other corporation, partnership, joint
venture, or other business entity.
(e) Membership Interests and Partnership Interests.
----------------------------------------------
(i) Southeast has authorized membership interests, of which all are
issued and outstanding and owned by Tesoro Gas Resources
Company, Inc. The membership interests have been duly
authorized by Southeast, and the membership interests owned by
Tesoro Gas Resources Company, Inc. are validly issued and
outstanding, fully paid and nonassessable. There are no
preemptive rights, subscriptions, options, consents to
assignment or rights of first refusal, convertible securities,
warrants, calls, stock appreciation rights, phantom stock,
profit participation, or other similar rights, or other
agreements or commitments obligating Seller or Southeast to
issue or to transfer (or preventing the transfer of) any
membership interests, capital stock or other equity interest in
Southeast.
(ii) In the Partnership, the entire Series C limited partnership
interest (representing a 100% interest in all of the capital
and assets of Series C) is held by Southeast. Exploration LLC
is the general partner of the Partnership (representing a 1%
interest in all of the capital and assets of Series A). Such
interests are duly authorized under the agreement governing the
Partnership, as currently amended, and are valid. There are no
preemptive rights, or authorized or outstanding subscriptions,
options, consents to assignment or rights of first refusal,
convertible securities, warrants, calls, appreciation rights,
phantom interests, profit participation, or other similar
rights, or other agreements or commitments obligating
16
<PAGE>
Seller, the Partnership, Reserves LLC, Southeast, Grande or
Exploration LLC to issue or to transfer (or preventing the
transfer of) any equity interest in the Partnership.
(iii) Seller has delivered to correct and complete copies of
Southeast's and the Partnership's respective Charter, Bylaws,
management agreement, limited liability company agreement,
operating agreement or partnership agreement, as amended to
date, and the minute books of Southeast and the Partnership.
Neither Southeast nor the Partnership is in breach of any
provision of its Charter, Bylaws, management agreement, limited
liability company agreement, operating agreement or partnership
agreement.
(f) Title to Membership Interests, Partnership Interests and Assets.
---------------------------------------------------------------
(i) The Membership Interests constitute all of the issued and
outstanding membership interests and other equity interests in
Southeast. All of the issued and outstanding membership
interests of Southeast are owned of record and beneficially
with good and valid title by Tesoro Gas Resources Company,
Inc., free and clear of any Encumbrance. Upon delivery to Buyer
of the certificates representing the Membership Interests in
the manner and with the powers described in Section 12.2(a),
assuming that Buyer pays the consideration contemplated by this
Agreement and has no notice of any adverse claim, good and
valid title to the Membership Interests will have been
transferred to Buyer, free and clear of any Encumbrances.
Neither Tesoro Petroleum Corporation nor Tesoro Gas Resources
Company, Inc. has received any notice of any adverse claim to
their title to the Membership Interests.
(ii) All of the issued and outstanding partnership interests in the
Partnership are owned of record and beneficially with good and
valid title by Reserves LLC, Southeast, Grande, and Exploration
LLC, free and clear of any Encumbrance. Neither Reserves LLC,
Southeast, Grande, nor Exploration LLC has received any notice
of any adverse claim to their respective interests in the
Partnership.
(iii) Southeast and the Partnership have good title to all of the
assets and properties (except the Operating Assets) which they
own or purport to own, including the Financial Assets and
Liabilities reflected on the Balance Sheets and allocable to
the Properties under the Partnership Agreement, except for
properties sold, consumed or otherwise disposed of in the
ordinary course of business since the date of the Balance
Sheets, free and clear of any Encumbrances other than Permitted
Encumbrances.
(g) Litigation. Except as set forth in Schedule 4.1(g), none of Seller,
----------
Southeast or the Partnership have been served with and, to Seller's Knowledge,
there are no pending or threatened Actions before any Governmental Authority
against or affecting Seller, Southeast, the Partnership or the Operating Assets,
which, if adversely determined, either would be reasonably expected to expose
Southeast or the Partnership to a risk of loss after the Effective Time or
17
<PAGE>
would interfere with Seller's ability or right to execute and deliver this
Agreement or consummate the transactions contemplated by this Agreement.
(h) Labor Matters. Except as set forth on Schedule 4.1(h), there are no
-------------
contracts, agreements, or other arrangements whereby Southeast or the
Partnership are obligated to compensate or provide health and welfare benefit
plans or retirement benefits to any employees or other persons, except for
employment agreements that are terminable at will, without breach or penalty.
To Sellers' Knowledge, Seller, Southeast and the Partnership are in compliance
with all federal, state, and local laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours and are not
engaged in any unfair labor practice with regard to those persons employed in
connection with Southeast's or the Partnership's operations. No employee of
Southeast is covered under any collective bargaining agreement. There is no
unfair labor practice complaint against Southeast pending or, to Seller's
Knowledge, threatened before the National Labor Relations Board or any
comparable state or local Governmental Authority. There is no labor strike,
slowdown or work stoppage pending or, to Seller's Knowledge, threatened against
or directly affecting Southeast, and no grievance or any Action arising out of
or under collective bargaining agreements is pending or, to Seller's Knowledge,
threatened against Southeast.
(i) Taxes.
-----
(i) Except as set forth in Schedule 4.1(i), Seller, and the
Partnership have timely filed or caused to be timely filed (or
will timely file or cause to be timely filed) with the
appropriate Taxing Authorities, all Tax Returns required to be
filed on or prior to the Closing Date by or with respect to
Sellers and the Partnership (or their respective Operating
Assets) and have timely paid or adequately provided for (or
will timely pay or adequately provide for) all Taxes shown
thereon as owing, except where the failure to file such Tax
Returns or pay any such Taxes would not, or could not
reasonably be expected to, in the aggregate, result in losses
or costs or expenses to Southeast's interests or the
Partnership after the Closing Date.
(ii) Sellers are members of an affiliated group of corporations
which file consolidated federal income tax returns ("Tesoro
Group") with Tesoro Petroleum Corporation as the common parent
("Tesoro Parent"). Southeast is not required to and does not
file federal income tax returns as a taxpaying entity, and, for
purposes of federal income taxation, Southeast is accounted for
and included as a part of Tesoro Gas Resources Company, Inc.
The Tesoro Group has been subject to normal and routine audits,
examinations and adjustments of Taxes from time to time, but
there are no current audits or audits for which written
notification has been received, other than those set forth in
Schedule 4.1(i). There are no written agreements with any
Taxing Authority with respect to or including Southeast's
interests which will in any way affect liability for Taxes
attributable to Southeast's interests after the Closing Date.
(iii) Except as set forth in Schedule 4.1(i), no assessment,
deficiency or adjustment for any Taxes has been asserted in
writing or, to the knowledge
18
<PAGE>
of Sellers, is proposed with respect to any Tax Return of, or
which includes, Southeast's interests.
(iv) Except as set forth in Schedule 4.1(i), there is not in force
any extension of time with respect to the due date for the
filing of any Tax Return of or with respect to or which
includes Southeast's interests or any waiver or agreement for
any extension of time for the assessment or payment of any Tax
of or with respect to or which includes Southeast's interests.
(v) Except for Taxes due with respect to Tax Returns that will be
paid by Tesoro Parent (and not subject to reimbursement by
Southeast), the accounting records of Southeast will include
immediately prior to the Closing Date adequate provisions for
the payment of all Taxes allocable to Southeast's interests for
all taxable periods or portions thereof through the Closing
Date.
(vi) All Tax allocation or sharing agreements or arrangements have
been or will be canceled on or prior to the Closing Date. No
payments are or will become due by Southeast after the Closing
Date pursuant to any such agreement or arrangement.
(vii) Except as set forth on Schedule 4.1(i), none of the Sellers or
Southeast will, as a result of the transactions contemplated by
this Agreement, be obligated to make a payment after the
Closing Date to an individual that would be a "parachute
payment" as defined in Section 280G of the Code without regard
to whether such payment is reasonable compensation for personal
services performed or to be performed in the future.
(viii) Neither Southeast nor the Partnership have participated in or
cooperated with an international boycott within the meaning of
Section 999 of the Code.
(ix) Neither Southeast nor the Partnership has filed a consent under
Code Section 341(f) concerning collapsible corporations.
(x) Neither Southeast nor the Partnership has been a United States
real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in
Code Section 897(c)(1)(A)(ii).
(xi) All monies required to be withheld by either Seller, Southeast
and the Partnership and paid to Taxing Authorities for all
Taxes have been (i) collected or withheld and either paid to
the respective Taxing Authorities or set aside in accounts for
such purpose or (ii) properly reflected in the Balance Sheets.
(j) Balance Sheets.
--------------
(i) The Balance Sheets have been prepared in accordance with GAAP
applied on a basis consistent with prior periods, except as
described in the notes thereto, which will qualify that the
Partnership and Southeast have been
19
<PAGE>
accounted for as part of a consolidated financial group with
their affiliates and not as completely separate stand-alone
entities.
(ii) The Balance Sheets present fairly, in all material respects,
the financial condition of the combined Partnership and
Southeast as of June 30, 1999. The books and records of
Southeast and the Partnership from which the Balance Sheets
were prepared were complete and accurate in all material
respects at the time of such preparation.
(iii) Southeast and the Partnership have no Liabilities, except for
Liabilities (1) reflected in the Balance Sheets, (2) incurred
by Southeast or the Partnership in the ordinary course of
business and consistent with past practices since the date of
the Balance Sheets, or (3) which are Permitted Encumbrances,
(4) for which the Buyer is being indemnified hereunder. As used
in this subparagraph, the term "Liabilities" excludes any
Liabilities not required to be reflected in the Balance Sheets
under GAAP.
(k) Absence of Certain Changes. Except as set forth in Schedule 4.1(k), or
--------------------------
as otherwise contemplated by this Agreement (including without limitation
Sections 2.5 and 2.6), or with Buyer's prior written consent, since the close of
business on June 30, 1999:
(i) Neither Southeast nor the Partnership has sold, leased,
transferred, or assigned any assets other than surplus
equipment not necessary for operations of the Business and for
a reasonable consideration;
(ii) Southeast and Partnership have not incurred, assumed or become
subject to any additional indebtedness for money borrowed or
purchase money indebtedness, including capitalized leases;
(iii) Southeast and Partnership have not entered into any transaction
not in the ordinary course of business, except as contemplated
by this Agreement;
(iv) there have been no additional Encumbrances placed on the assets
of Southeast or the Partnership other than Permitted
Encumbrances;
(v) no event has occurred which constitutes a Material Adverse
Effect;
(vi) Neither Southeast nor the Partnership has made any loan to, or
entered into any contract with (other than severance agreements
for which Seller shall remain responsible), any of its
directors or officers;
(vii) Southeast has not issued, sold, or otherwise disposed of any of
its interests in the Partnership, except in connection with the
transactions outlined in Section 9.4(b) of the Stock Purchase
Agreement;
(viii) there has been no change made or authorized to the Charter,
Bylaws, management agreement, limited liability company
agreement, operating agreement or partnership agreement of
Southeast or the Partnership, except in connection with the
transactions outlined in Section 9.4(b) of the Stock Purchase
Agreement;
(ix) Neither Southeast nor the Partnership has canceled,
compromised, waived, or released any debt or Action (or series
of related debts or Actions);
20
<PAGE>
(x) Neither Southeast nor the Partnership has delayed or postponed
the payment of accounts payable or other Liabilities owed,
other than amounts which Seller reasonably and in good faith
disputes;
(xi) Neither Southeast nor the Partnership has made any capital
investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of related
capital investments, loans, and acquisitions), except in
connection with operations conducted pursuant to Section 9.2(f)
or in connection with the transactions outlined in Section
9.4(b) of the Stock Purchase Agreement;
(xii) Neither Southeast nor the Partnership has made any capital
expenditure (or series of related capital expenditures), except
in connection with operations conducted pursuant to Section
9.2(f); or in connection with the transactions outlined in
Section 9.4(b) of the Stock Purchase Agreement
(xiii) Neither Southeast nor the Partnership has entered into any
Contract (or series of related Contracts) other than (i) to
effectuate operations set forth on Schedule 9.2(f) or (ii)
constituting joint operating agreements or oil and gas leases
entered into in the ordinary course of business or (iii)
contracts with officers and directors for which the Seller
shall remain responsible or (iv) contracts in connection with
the transactions outlined in Section 9.4(b) of the Stock
Purchase Agreement;
(xiv) to Seller's Knowledge, neither Southeast nor the Partnership
has materially breached any Contract by which it is bound or to
which any of its assets is subject; and
(xv) Neither Southeast nor the Partnership has declared, set aside,
or paid any dividend or made any distribution with respect to
its interests in the Partnership (whether in cash or in kind)
or redeemed, purchased, or otherwise acquired any of its
interests in the Partnership, other than in the ordinary course
of business or as contemplated by this Agreement or in
connection with the transactions outlined in Section 9.4(b) of
the Stock Purchase Agreement.
(l) Compliance With Law. Since June 30, 1999, neither Southeast nor the
-------------------
Partnership has violated any law, statute or regulation which have subjected
them to fines or penalties (nor to Seller's Knowledge have any third parties
violated any Applicable Law for which Southeast or the Partnership may have any
responsibility). As of the date of this Agreement, to Seller's Knowledge,
Southeast and the Partnership are in compliance in all material respects with
all laws, statutes or regulations applicable to Southeast and the Partnership,
except where the noncompliance with which would not, in the aggregate, result in
the imposition on Southeast and the Partnership of fines or penalties.
(m) Operating Assets.
----------------
(i) Seller represents that as of Closing, Seller's and the
Partnership's interests in the Operating Assets shall be free
and clear of any liens other than Permitted Encumbrances.
21
<PAGE>
(ii) To Seller's Knowledge, the Operating Assets are being operated
in compliance in all material respects with all applicable
federal, state or local laws, and the rules and regulations of
any agency or authority having jurisdiction.
(iii) Except as set forth in Schedule 4.1(m)(iii), Southeast and the
Partnership possess all permits, licenses, orders, approvals
and authorizations required by any applicable law, statute,
regulation or Governmental Order, or by the property and
contract rights of third Persons, reasonably necessary to
permit the operation of the Business in the manner currently
conducted by Southeast and the Partnership. Neither Southeast
nor the Partnership has received written notice from any
Governmental Authority that any such permit, license, order,
approval or authorization has been, or will be, revoked or
terminated.
(iv) Except as set forth in Schedule 4.1(m)(iv), immediately before
the Closing Date, Southeast and the Partnership will hold or
have the right to use in the Business all of the assets and
properties (including all licenses and agreements) currently
being used (except those disposed of or expiring in the
ordinary course of business or otherwise as contemplated or
permitted by this Agreement) or which are reasonably necessary
to permit the operation of the Business in the manner currently
conducted by Southeast and the Partnership. Since June 30,
1999, Southeast have conducted no business other than the
Business.
(n) No Brokers' Fees. Except for Credit Suisse First Boston, the fees and
----------------
expenses of which will be paid by Seller, neither Seller nor any of its
directors, officers or employees has employed any broker, finder or investment
banker or incurred any Liability for any brokerage fees, commissions, finders'
fees or similar fees in connection with the transactions contemplated by this
Agreement. Buyer shall have no responsibility whatsoever, contingent or
otherwise, for any brokers' or finders' fees incurred by Seller, Southeast or
the Partnership relating to the Transaction.
(o) Suspense Funds. Schedule 4.1(o) is a true and correct list as of
--------------
August 31, 1999 of all amounts held by the Partnership and/or Southeast in
suspense accounts, or otherwise, related to the Properties for the benefit or
account of any other Person.
(p) Insurance. As listed on Schedule 4.1(p) Seller, Southeast and the
---------
Partnership maintain insurance on and bonds with respect to the Operating
Assets, as set forth on Schedule 4.1(p), covering such risks and with such
deductible amounts as are consistent with general oil and gas industry practice.
(q) Contracts on Production. Except as set forth on Schedule 4.1(q), there
-----------------------
are no Contracts involving the purchase, marketing, brokering or sale of
Production that require a dedication of Production for a term in excess of three
(3) months that will not be terminable without penalty or other liability at the
sole discretion of Southeast or the Partnership upon not more than one (1)
month's notice, except for commitments under operating agreements.
(r) Equipment. Since June 30, 1999, neither Seller, Southeast nor the
---------
Partnership, nor to Seller's Knowledge the operator of any of the Operating
Assets, has removed any of the
22
<PAGE>
equipment, facilities or other property from the Operating Assets except in the
ordinary course of business.
(s) Tax Partnerships. Except as disclosed in Schedule 4.1(s), no Property
----------------
is subject to, or considered to be held by, any partnership for federal income
tax purposes, other than tax partnerships under joint operating agreements.
(t) Disclaimer. Except as otherwise expressly set forth in this Article
----------
and elsewhere in this Agreement, Seller and the Affiliates of Seller expressly
disclaim any representations or warranties of any kind or nature, express or
implied, as to the condition, value or quality of the assets or properties
currently or formerly used, operated, owned, leased, controlled, possessed,
occupied or maintained by Southeast or the Partnership, and SELLERS AND ALL
OTHER TESORO AFFILIATES SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY OF
MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH
RESPECT TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO THE
WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING ACQUIRED
"AS IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, WITH ALL
FAULTS, AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND INVESTIGATION
THEREOF.
(u) Environmental Matters. Except as set forth on Schedule 4.1(u), to
---------------------
Seller's Knowledge:
(i) There are no underground storage tanks, as defined in Applicable
Environmental Law, on the Properties or any of the Operating
Assets which constitute a violation of Environmental Law.
(ii) The Operating Assets contain no friable asbestos, mercury or
polychlorinated biphenyls above 50 ppm or other Hazardous
Substances which constitute a violation of Applicable
Environmental Law.
(iii) The Operating Assets have been used solely for oil and gas
operations and related operations. Except for the production,
storage and transportation of oil, gas and other hydrocarbons
and the storage and disposal of brine in the ordinary course of
business consistent with prevailing oil and gas industry
practices, the Properties have not been used to dispose of
Hazardous Substances. No Hazardous Substances have been disposed
of that would cause an adverse material impact to any of the
Operating Assets.
(iv) There have been no spills or releases of any Hazardous Substance
related to the ownership or operation of the Operating Assets
which constitutes a violation of Applicable Environmental Law,
except for matters that have been addressed and have no
continuing adverse consequence to Seller, Southeast, the
Partnership or the Operating Assets.
(v) There are no Actions pending or threatened against the
Partnership, Southeast, or either Seller with respect to any of
the Operating Assets relating to the violation of, liability
under, or noncompliance with, any
23
<PAGE>
Applicable Environmental Law; the discharge, disposal or release
of a Hazardous Substance; or the exposure of a Person or
property to a Hazardous Substance. Seller, Southeast and the
Partnership have no current contingent liability in connection
with the release of Hazardous Substances.
(vi) The Operating Assets have been, and are operating, in material
compliance under all Applicable Environmental Laws.
(vii) Seller, Southeast and the Partnership have provided Buyer all
environmental audits, tests, results of investigations and
analyses that have been performed with respect to the Operating
Assets.
(v) Contracts. Except as set forth on Schedule 4.1(v) Schedule 4.1(q) and
---------
in joint operating agreements entered into in the normal course of business, the
Operating Assets are not subject to any instrument, agreement or other Contract
evidencing or related to indebtedness for borrowed money. All of the existing
Contracts between any of Southeast, the Partnership and/or either Seller and any
of their respective Affiliates with respect to sales, services or support to any
of the Operating Assets or operations on the Operating Assets shall terminate
except for such Contracts otherwise indicated on Schedule 4.1(v) to survive
Closing. Except as set forth on Schedule 4.1(v) and other than Consents to
Assignment or Preferential Rights to Purchase, to Seller's Knowledge, no
Contracts to which Seller, Southeast or the Partnership is a party or a
successor-in-interest and to which Buyer will be subject after the Effective
Time contain any provision that prevents Buyer from owning, managing and
operating the Operating Assets in accordance with the Partnership's past
practices.
(w) Seismic Information. At Closing, subject to the terms of the License
-------------------
Agreement, neither Seller nor any affiliate of Seller other than Southeast and
the Partnership shall have any further right to any of the seismic data of
Southeast or the Partnership which has been assigned or leased to Southeast, the
Partnership and/or the Buyer.
(x) Wells. Except to the extent set forth on Schedule 4.1(x), to Seller's
-----
Knowledge, no well included in the Properties is subject to material penalties
on allowables because of any overproduction or any other violation of Applicable
Law. Except for the wells included in the Properties and listed in Schedule
4.1(x), there are no wells included in the Properties that Seller, Southeast or
the Partnership, or to Seller's Knowledge the operator of such wells, are
currently obligated by Applicable Law, Applicable Environmental Law or order of
any Governmental Authority to plug and abandon within a time certain or that
have been shut-in or temporarily abandoned.
(y) Expenditure Obligations. Except as set forth on Schedule 9.2(f),
-----------------------
Southeast and the Partnership have not executed or are not otherwise
contractually bound by any authority for expenditure with respect to any of the
Operating Assets under any operating agreement, unit operating agreement, or
other similar agreements. Except as set forth on Schedule 9.2(f), with respect
to authorizations for expenditure relating to any of the Operating Assets, (i)
there are no outstanding calls under such authorizations for expenditures for
payments which are due or which Southeast or the Partnership have committed to
make which have not been made; (ii) there are no material operations with
respect to which any of Southeast and/or the Partnership has become a non-
consenting party where the effect of such non-consent is not disclosed on
Exhibit
24
<PAGE>
B, and (iii) there are no commitments for the expenditures of funds for drilling
or other capital projects other than projects with respect to which the operator
is not required under the applicable operating agreement to seek consent.
(z) Payout. To Seller's Knowledge, the payout balances with respect to any
------
of the Properties operated by the Partnership that are subject to future change
on account of reversionary interests, non-consent penalties or similar
agreements or arrangements are set forth on Schedule 4.1(z) and are correct as
of the dates shown on such statements.
(aa) Absence of Certain Changes Regarding Properties. Since June 30, 1999,
-----------------------------------------------
except as listed on Schedule 4.1(k), Southeast and the Partnership:
(i) have maintained and operated each of the Properties operated by
any of them as a reasonably prudent operator consistent with
prevailing oil and gas industry practice;
(ii) have used reasonable efforts consistent with their past
practices to cause each of the Properties not operated by them
to be maintained and operated in a good and workmanlike manner
and in substantially the same manner as theretofore operated;
(iii) have paid timely their share of all costs and expenses
attributable to the Operating Assets, except for such costs and
expenses that they were contesting in good faith by appropriate
action;
(iv) have performed all accounting, royalty disbursement and
reporting requirements, as applicable, related thereto for the
Production; and
(v) have not agreed, whether in writing or otherwise, to take any
action described in this Section 4.1(aa).
(bb) Schedule 1B states all liens and mortgages that previously encumbered
the Membership Interests or the Operating Assets, securing obligations of
Seller, Southeast or the Partnership (other than those items listed in clause
(ii) through (ix) of the definition of "Permitted Encumbrances"), and all of the
liens and mortgages listed on Schedule 1B have been released, insofar as they
encumber the Membership Interests or the Operating Assets.
4.2 Buyer's Representations. Buyer represents that:
-----------------------
(a) Disclosure. To Buyer's Knowledge, the representations and warranties
----------
set forth in this Agreement represent full and fair disclosure as of the date of
this Agreement and the date of Closing and do not contain any untrue statement
of any material fact or omit any material fact necessary in order to make the
facts stated not misleading.
(b) Authorization and Enforceability
--------------------------------
(i) This Agreement and the Transaction have been duly authorized by
Buyer.
(ii) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby or
thereby, will violate or conflict with (1) any provision of
Buyer's Charter or Bylaws, or
25
<PAGE>
(2) any applicable statute, law, regulation or Governmental
Order to which Buyer or the assets or properties of Buyer are
bound.
(iii) This Agreement has been duly executed and delivered by Buyer
and constitutes the valid and binding obligation of Buyer,
enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency or
other laws relating to or affecting the enforcement of
creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(iv) Except as set forth on Schedule 4.2(b)(iv) or as otherwise
specifically provided herein, the execution, delivery, and
performance of this Agreement (assuming that all applicable
consents are received) will not (A) be in material violation of
any provisions of any regulation, or order or (B) result in the
breach of, or constitute a default under, any material
indenture or other agreement or instrument to which Buyer is
bound.
(v) Except as set forth on Schedule 4.2(b)(v) or as otherwise
specifically provided herein, no consent, waiver, approval,
order or authorization of, notice to, or registration,
declaration, designation, qualification or filing with, any
Governmental Authority or third Person, domestic or foreign, is
or has been or will be required on the part of Buyer in
connection with the execution and delivery of this Agreement or
the consummation by Buyer of the transactions contemplated
hereby or thereby, other than where the failure to obtain such
consents, waivers, approvals, orders or authorizations or to
make or effect such registrations, declarations, designations,
qualifications or filings is not reasonably likely to prevent
or materially delay consummation of the transactions
contemplated by this Agreement or prevent Buyer from performing
its obligations under this Agreement.
(c) Organizational Status. Buyer: (i) is a limited liability company duly
---------------------
organized, validly existing and in good standing under the laws of Delaware,
(ii) is duly qualified to transact business in each jurisdiction where the
nature and extent of its business and properties require the same in order for
it to perform its obligations under this Agreement; and (iii) possesses all
requisite authority and power to conduct its business and execute, deliver and
comply with the terms and provisions of this Agreement, to purchase, receive,
and accept conveyance of the Membership Interests from Seller and to perform all
of its obligations hereunder.
(d) Ability to Perform. On the Closing Date, Buyer will have sufficient
------------------
cash, available lines of credit or other sources of immediately available funds
to enable it to make its payment of the Closing Settlement Price at the Closing.
(e) Investment Intent. The Membership Interests are being purchased for
-----------------
Buyer's own account and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the Securities
Act. Buyer understands that the Membership Interests have not been registered
under the Securities Act by reason of their
26
<PAGE>
issuance in transactions exempt from the registration and prospectus delivery
requirements of the Securities Act pursuant to Section 4(2) thereof. Buyer is
knowledgeable, competent, and experienced in the oil and gas industry and has
independently evaluated and interpreted the technical data and other information
regarding the Operating Assets prior to entering into this Agreement,
understands and is financially able to bear the risk associated with ownership
of Southeast and the Partnership, and will independently conduct all the due
diligence investigations and reviews of all matters concerning Southeast, the
Partnership and the Operating Assets as it deems necessary prior to Closing.
Buyer acknowledges that Buyer is not relying upon any statement or
representations made by Seller concerning the present or future value of, or
anticipated income, costs, or profits, if any, to be derived from, Southeast,
the Partnership or the Operating Assets, and Buyer has relied solely upon its
independent inspections, estimates, computations, evaluations, reports, studies,
knowledge and other information regarding Southeast, the Partnership and the
Operating Assets.
(f) Litigation. There are no pending or, to Buyer's Knowledge, threatened
----------
suits, actions, proceedings, claims, or investigations that would interfere with
Buyers ability or right to execute and deliver this Agreement or consummate the
transactions contemplated by this Agreement.
(g) No Brokers' Fees. Buyer has incurred no liability, contingent or
----------------
otherwise, for brokers' or finders' fees relating to the Transaction for which
Seller shall have any responsibility whatsoever.
(h) Buyer's Knowledge. To Buyer's Knowledge, on the date hereof, Buyer's
-----------------
representations and warranties made in this Section 4.2 are true and correct in
all material respects.
ARTICLE V.
ACCESS TO INFORMATION AND INSPECTION
------------------------------------
5.1 Access to Information. Prior to the Closing Date, upon reasonable
---------------------
notice, Seller, Southeast and the Partnership have (i) afforded the officers,
employees and authorized agents and representatives of Buyer reasonable access
during normal business hours to the offices, Operating Assets and Books and
Records , title and contract files, permit files, legal, evidentiary, litigation
support, records and data financial and accounting records and operating and
maintenance files, and related documents, records and materials concerning the
Operating Assets data in possession of Seller and (ii) furnished to the
officers, employees and authorized agents and representatives of Buyer such
additional financial and operating data and other information regarding the
assets, Operating Assets and Liabilities of Southeast, the Partnership, and the
Business (or legible copies thereof) as Buyer may have from time to time
reasonably requested.
5.2 Warranties As to Documents. Seller has advised Buyer of the nature
--------------------------
and existence of any confidential documents that have been withheld from
disclosure. Seller does not warrant or represent the accuracy of any materials
that may have been made available for Buyer's review, except that Seller does
represent and warrant that it has not concealed or intentionally or willfully
misrepresented or withheld any information, data or materials in its
27
<PAGE>
possession except for confidential information, data or materials, the existence
of which has been disclosed as otherwise provided herein.
ARTICLE VI.
TITLE
-----
6.1 Governmental Consents. After the execution of this Agreement, and
---------------------
upon Closing and thereafter, Buyer and Seller shall cooperate to obtain all
routine or standard governmental consents or waivers necessary to transfer
Seller's rights and interests in Southeast and the Partnership owning the
Operating Assets to Buyer.
ARTICLE VII.
ENVIRONMENTAL
-------------
7.1 Disclosures and Availability of Data to Buyer. The Operating Assets
---------------------------------------------
have been utilized by the Partnership for the purposes of exploration,
development and production of oil and gas, for related oilfield operations and
possibly for the storage and disposal of waste materials or hazardous substances
generated or otherwise used in association with oil and gas exploration and
production activities on the Properties. The Operating Assets also may contain
buried pipelines, the locations of which may not now be known by Seller or
readily apparent by a physical inspection of the Operating Assets. In addition
to providing any environmental audits and studies as per Section 4.1(u), Seller
has made and shall make available to Buyer Seller's historical files regarding
the foregoing operations, to the extent available and to the extent Seller,
Southeast and the Partnership are authorized to disclose same (excepting
documents which Seller, Southeast or the Partnership are contractually
prohibited from disclosing or are subject to legal privilege or are in the
possession of another operator, and with respect to which Seller has been unable
to secure consent to disclose despite its commercially reasonable efforts to do
so).
7.2 NORM. Without affecting Seller's representations and warranties or
----
the provisions of Section 7.3, Buyer acknowledges that some or all of the
Operating Assets may contain naturally occurring radioactive materials ("NORM"),
and that NORM is an anticipated hazard in oil and gas production operations.
Certain of the Operating Assets, including without limitation, pipe and
equipment may have deposits that contain NORM. Buyer agrees that it shall cause
the Partnership to properly handle and dispose of all materials containing NORM
in a safe manner in accordance with all applicable laws and regulations, at
their sole risk, liability and expense.
7.3 Buyer's Environmental Assessment. Buyer has pursued such environmental
--------------------------------
assessments of the Operating Assets as Buyer has desired.
7.4 Responsibilities for Remediation of Contamination. As between the
-------------------------------------------------
parties hereto, but subject to the provisions of applicable laws, joint
operating agreements, other third party agreements and the indemnities and other
provisions set forth herein, from and after the Closing, the Partnership shall
remain responsible for costs of remediation of all Environmental Conditions
occurring on or arising from any Operating Asset at any time, whether before, on
or after the Effective Time; provided however, that Seller shall fund payment of
any fines or
28
<PAGE>
regulatory penalties that might be assessed against the Partnership by reason of
any violation of regulatory or permit requirements before the Closing Date.
ARTICLE VIII.
CASUALTY LOSS AND CONDEMNATION
------------------------------
8.1 No Termination. Except as specifically provided to the contrary
--------------
herein, Southeast and the Partnership shall retain all risk of loss with respect
to any loss of, reduction in value of or damage to the Operating Assets from the
Effective Time until Closing, and Buyer assumes the risk of loss of value of
Southeast and the Partnership associated with such matters. If after the
Effective Time and prior to the Closing, any part of the Operating Assets should
be destroyed by fire or other casualty or if any part of the Operating Assets
should be taken in condemnation or under the right of eminent domain or if
proceedings for such purposes should be pending or threatened, this Agreement
shall remain in full force and effect notwithstanding any such destruction,
taking or proceeding or the threat thereof, except as expressly provided in
Article XX.
8.2 Proceeds and Awards. In the event of any loss described in Section
-------------------
8.1, Seller (with Buyer's consent, which shall not be unreasonably withheld)
shall either (a) at the Closing assign to the Partnership all of Seller's rights
in any insurance proceeds, third party damage payments, condemnation awards or
other amounts paid or to be paid by reason of such destruction, less any costs
and expenses incurred by Seller in collecting same, or (b) prior to Closing, use
or have the Partnership apply such sums (less any costs and expenses incurred by
Seller in collecting same) to repair, restore or replace such damaged or taken
Operating Assets. In addition, Seller shall at Closing assign to the Partnership
all of the right, title and interest of Seller in and to any claims for loss of
or damages to the Operating Asset, that might be asserted against third parties
with respect to the event or circumstance causing such loss to and any unpaid
insurance proceeds, condemnation awards or other payments arising out of such
destruction or taking, less any costs and expenses previously incurred by Seller
in collecting same. The Settlement Price shall be reduced by the Casualty Price
Adjustment, if any, attributable to casualty losses that are not fully covered
by insurance. Notwithstanding anything to the contrary in this Section 8.2,
neither Seller, Southeast nor the Partnership shall be obligated to carry or
maintain, nor shall they have any obligation or liability to Buyer for their
failure to carry or maintain any insurance coverage with respect to any of the
Operating Assets, except as required by Section 9.2.
8.3 Risks Of Other Losses. Except as otherwise set forth in this
---------------------
Agreement, Buyer shall assume all risks of loss with respect to the
Partnership's ownership or operation of the Operating Assets after the Effective
Time, including without limitation, the following risks:
(a) Operations. With respect to each Operating Asset, Buyer shall assume
----------
all risk of loss with respect to any loss of value or change in the condition of
the Operating Asset, and all wells thereon, after the Effective Time, relating
to the production of oil, gas or other hydrocarbons, including without
limitation normal depletion, water encroachment, coning, pressure depletion,
formation changes and sand infiltration. The Partnership shall continue to bear
its proportionate share of the risks allocated under applicable joint operating
agreements and
29
<PAGE>
assume their proportionate share of the risks that such operations may be
unsuccessful, and Closing shall not be conditioned upon the success of any
operations.
(b) Market Conditions. With respect to each Operating Asset, Buyer shall
-----------------
assume all risk of loss with respect to any change in market conditions
affecting any Operating Asset or production therefrom after the Effective Time,
and this Agreement shall not be terminated or suspended, nor shall Closing be
delayed, due to any such change in market conditions.
ARTICLE IX.
COVENANTS
---------
9.1 Pre-Closing Covenants of Seller Regarding the Business. Sellers shall
------------------------------------------------------
cause Southeast and the Partnership to operate the Business only in its usual,
regular and ordinary manner and substantially in the same manner as heretofore
conducted, and as set forth in Section 9.2. Sellers shall cause Southeast and
the Partnership to use commercially reasonable efforts and as set forth in
Section 9.2, to (i) preserve the Business; (ii) keep available to Buyer the
services of the present officers, employees, agents and independent contractors
of Southeast; and (iii) maintain the assets of the Business in their current
state of repair, order and condition, usual and ordinary wear and tear excepted
and subject to requirements in the ordinary course of business.
9.2 Pre-Closing Covenants of Seller Regarding the Operating Assets.
--------------------------------------------------------------
Subject to the terms of applicable operating and other existing agreements,
Seller covenants and agrees that between the date of this Agreement and the
Closing Date, except as set forth on Schedule 9.2 or as may be consented to in
writing by Buyer, which consent shall not be unreasonably withheld, Seller shall
manage the Partnership's ownership of the Operating Assets as follows:
(a) Disposal of Operating Assets. The Partnership shall not sell or
----------------------------
otherwise dispose of any of the Operating Assets, except for the sale in the
ordinary course of the Partnership's business of oil, gas, condensate and
products thereof and surplus equipment.
(b) New Third Party Rights. Except for Contracts entered into in
----------------------
furtherance of operations listed on Schedule 9.2 and Schedule 9.2(f), without
Buyer's consent, the Partnership shall not enter into any new or amended
contracts, agreements or relationships (i) granting any Preferential Right to
Purchase or Consent to Assignment affecting any of the Operating Assets
hereunder, or (ii) which if in existence as of the date hereof would be a
material Contract.
(c) Preservation of Operating Assets. The Partnership shall use reasonable
--------------------------------
efforts to preserve in full force and effect all leases, operating agreements,
easements, rights-of-way, permits, licenses, contracts and other agreements
which relate to the Operating Assets and shall perform the obligations of the
Partnership in or under any such agreement relating to such Operating Assets as
a reasonable and prudent operator, provided however, that the Partnership shall
not be required to conduct any drilling, recompletion or reworking activities to
maintain any lease, farmout agreement or other defeasible interest in force or
to settle any adverse claims, demands or litigation in a manner that Seller
deems inappropriate.
30
<PAGE>
(d) Maintenance of Equipment. The Partnership shall maintain all material
------------------------
and equipment within the Operating Assets in accordance with customary industry
operating practices and procedures.
(e) Insurance. The Partnership shall maintain in full force and effect all
---------
policies of insurance now maintained by Seller and the Partnership covering the
Operating Assets. Seller and Buyer will cooperate in making claims under
Seller's insurance policies prior to the Closing. Seller additionally agrees to
cooperate with Buyer to allow Buyer, Southeast or the Partnership to obtain, at
Buyer's expense, at a reasonable market price an additional reporting period
policy for any of Seller's insurance policies which are on a claims-made basis.
(f) Operations.
----------
(i) Except for operations covered by committed expenditures listed on
Schedule 9.2(f), the Partnership shall not propose or conduct for
its own account any operation. The Partnership shall have the
right to conduct, at its sole election and discretion, any
operations that either (1) are covered by committed expenditures
listed on Schedule 9.2(f), (2) are required by law or
regulations, or (3) are required under a binding existing
agreement with a third party.
(ii) Except for operations covered by committed expenditures listed on
Schedule 9.2(f), the Partnership shall not agree to participate
in any reworking, deepening, drilling, completion, recompletion,
equipping or other operation that is proposed by a co-owner in
any well or other asset, without Seller having first provided
Buyer written or oral notice thereof as soon as reasonably
practicable after the Partnership receives notice thereof from
the Partnership's co-owner in such Operating Asset. If Seller
provides Buyer with such notice, Buyer and Seller shall promptly
consult about the advisability of participating in such
operations. If Buyer and Seller cannot agree, the following
provisions shall apply:
(1) If Seller should wish to participate in an operation proposed
by a third party and Buyer should object to the operation, then
the Partnership may agree to participate, but Buyer may assert a
Title Defect with respect to the Property affected by such
operation, and in such event such Property shall be excluded from
the sale hereunder and instead shall be assigned to another
subsidiary of Seller prior to Closing and the Purchase Price
shall be reduced by the Allocated Value of the affected Property.
In such event, Seller shall indemnify and defend Buyer against
any and all Damages relating to such operation and such Property.
(2) If Buyer should wish to participate in such operation and
Seller objects to the operation, the Partnership shall not be
obligated to make any such payment or to elect to participate in
such operation unless within a reasonable time prior to the date
when such payment or election is required to be made by the
Partnership, the Partnership receives from
31
<PAGE>
Buyer, (A) the written election and agreement of Buyer to require
the Partnership to take such action and to indemnify Seller
therefrom and (B) all funds necessary for such action.
(3) If (A) Buyer advances any funds pursuant to subparagraph (2),
and (B) the Membership Interests are not assigned to Buyer at
Closing, and (C) Seller does not reimburse Buyer for all advances
made by Buyer with respect to such Operating Assets pursuant to
subparagraph (2) within thirty (30) days after this Agreement
terminates, then Buyer shall own and be entitled to any right of
the Partnership that would have lapsed but for such payment, and
in the case of operations, Seller shall be entitled to receive
the penalty which the Partnership, as non-consenting party, would
have suffered under the applicable operating agreement with
respect to such operations as if Buyer were a consenting party
thereunder.
(g) Data Restrictions. Seller shall advise Buyer in writing of the
-----------------
identity, nature and existence of any technical or interpretive information or
data that cannot be assigned to Buyer hereunder because of confidentiality
agreements with third parties, identify such third parties, and provide
reasonable cooperation (for before and up to one year after Closing) in
obtaining the agreement of such third parties to the release or assignment of
such information and data to Buyer; provided however, that Seller shall not be
required to expend any material funds or release any rights to allow such
release or assignment.
(h) Operating Assets Operated by Others. To the extent the Partnership is
-----------------------------------
not the operator of any Operating Asset, the obligations of Seller in this
Section 9.2, which have reference to operations or activities which normally are
or pursuant to existing contracts are to be carried out or performed by
operator, shall be construed to require only that the Partnership use reasonable
efforts to request that the operator of such Operating Asset either take such
actions, render such performance or refrain from performance, within the
constraints of the applicable operating agreements, applicable agreements and
applicable law.
9.3 Seller's Covenants Regarding Encumbrances. Seller covenants that on
-----------------------------------------
or before the Closing Date, Seller shall cause the Encumbrances in Schedule 1B
to be released, in a form reasonably acceptable to Buyer.
9.4 Covenants Regarding Corporate and Financial Matters. Through the
---------------------------------------------------
Closing Date, except as set forth in Schedule 9.4 or as contemplated by this
Agreement (including without limitation Sections 2.5 and 2.6) or otherwise
consented to or approved by Buyer in writing, which consent or approval shall
not be unreasonably withheld, Seller shall cause Southeast and the Partnership
not to:
(a) Amend the Charter, Bylaws, management agreement, limited liability
company agreement or operating agreement of any Southeast or amend the
partnership agreement of the Partnership;
32
<PAGE>
(b) Incur, assume or become subject to any additional indebtedness for
money borrowed or purchase money indebtedness, except in the ordinary course of
business and consistent with past practices;
(c) Except as necessary to effect the transactions contemplated herein,
declare or pay any dividend or make any other distribution to any shareholder of
any of Southeast or any partner of the Partnership;
(d) Redeem or otherwise acquire any shares of capital stock of any of
Southeast or issue any capital stock of any Southeast or any option, warrant or
right relating thereto or any securities exchangeable for or convertible into
any such shares;
(e) Permit or allow any of Southeast' assets or properties to be subject
to any additional Encumbrance (other than Permitted Encumbrances) or sell,
transfer, lease or otherwise dispose of any such assets or properties, other
than surplus equipment not necessary for operations of the Business and sold for
a reasonable consideration of less than $25,000;
(f) Make any change in any method of accounting or accounting practice or
policy, other than those required by GAAP;
(g) Engage in any transactions with an Affiliate of Seller, other than
transactions in the ordinary course and consistent with past practices;
(h) Make any changes in the method of selling natural gas, condensate, oil
or products thereof which is not consistent with past practices;
(i) Enter into any new derivative or Hedging Contracts with respect to
natural gas, condensate, oil, products thereof, interest or any other
commodities or other financial instruments; or
(j) Agree, whether in writing or otherwise, to do any of the foregoing.
9.5 No Solicitation of Transactions. Except as otherwise permitted herein
-------------------------------
from the date of this Agreement through the Closing Date, neither Seller nor any
of their representatives, Affiliates, directors, officers, employees,
subsidiaries or agents will (a) solicit, consider, encourage or accept any other
offers to acquire any of the Membership Interests or Seller's interests in the
Partnership or (b) solicit, consider, encourage or accept any other offers to
acquire any of the assets or properties of the Partnership (other than as
permitted by this Agreement) or (c) assist any third Person in preparing or
soliciting such an offer. Seller shall not have, and shall cause such
representatives, Affiliates, directors, officers, employees, subsidiaries and
agents not to have any discussions, conversations, negotiations or other
communication with any Person(s) expressing an interest in any such offer.
9.6 Emergencies and Oversights. Notwithstanding the other provisions of
--------------------------
this Article IX, (a) Seller, Southeast and/or the Partnership may take any
action with respect to the Operating Assets without penalty, if reasonably
necessary under emergency circumstances or if required to protect life, public
safety or the environment, and provided Buyer is notified as soon thereafter as
reasonably practical, and (b) Seller shall have no liability to Buyer for the
loss or
33
<PAGE>
reduction of any rights or interests by reason of the nonpayment or incorrect
payment of delay rentals, royalties, shut-in royalties or similar payments or
for any failure to pay any such payments through mistake or oversight; provided,
however, Buyer shall be permitted to assert the items in this clause (b) as
Title Defects under Article VI.
9.7 Buyer's Covenants Regarding Performance and Continued Existence.
---------------------------------------------------------------
Buyer covenants that between the date of this Agreement and the Closing Date:
(a) Buyer shall take all steps and perform all operations reasonably
necessary to allow Buyer to perform its obligations at Closing;
(b) Buyer shall maintain its existence as a limited liability company in
good standing in Delaware; and
(c) Buyer shall cause the representations and warranties of Buyer to be
true and correct as of the Closing Date.
9.8 Buyer's Covenants Regarding Trade Name. Buyer acknowledges and agrees
--------------------------------------
with Seller that Seller shall have the absolute and exclusive proprietary right
to all names, marks, trade names, trademarks and corporate symbols and logos
incorporating "Tesoro," together with all other names, marks, trade names,
trademarks and corporate symbols and logos owned by any Affiliates of Seller
(collectively, the "Tesoro Marks"), all rights to which and the goodwill
represented thereby and pertaining thereto are being retained by Seller and the
Affiliates of Seller. Within ninety (90) days after the Closing Date, Buyer
shall change the name of Southeast and the Partnership, to not include the name
"Tesoro", cease using any Tesoro Mark and shall promptly remove from all the
assets and properties of Southeast any and all Tesoro Marks, and change the name
on all permits and licenses, to not include the name "Tesoro". Thereafter, Buyer
shall not use any Tesoro Mark in connection with the conduct of its business. In
the event that Buyer breaches this Section 9.8, Seller shall be entitled to
specific performance of this Section 9.8 and to injunctive relief against
further violations, as well as any other remedies available at law or in equity.
9.9 Buyer's Covenants Regarding Employment.
--------------------------------------
(a) Schedule 9.9(a) sets forth the employees of Seller or its Affiliates
to whom Buyer (or an Affiliate of Buyer) expects to offer employment after the
Closing. Buyer in its sole discretion will determine the capacity in which the
employees listed on Schedule 9.9(a) who accept employment with Buyer or its
Affiliate (the "Retained Employees") will be employed and with which entity each
of the Retained Employees will be employed after the Closing. After the Closing,
Buyer (or its Affiliates which will employ Retained Employees) will initially
provide to the Retained Employees the same base salary or wages (but not any
retention-related salary increases described in Schedule 9.9(c)) provided to
such employees prior to the Closing, subject to such changes in base salary or
wages as are consistent with the Buyer's compensation structure. Buyer will take
all actions necessary or appropriate to permit the Retained Employees to
participate from and after the Closing in the employee benefit plans or
arrangements of Buyer and/or Affiliates of Buyer customarily provided to new
employees of Buyer and its Affiliates (including, without limitation, the
Employee Stability Plan); provided that Buyer shall, with
34
<PAGE>
respect to Buyer's or its Affiliate's group health and dental plans ("Buyer's
Group Health Plans"), to the extent necessary after the Closing, (i) reimburse
such Retained Employees, for the year during which participation in Buyer's
Group Health Plan begins, for any duplicate deductibles and copayments already
incurred during such year under the group health and dental plans of Seller or
its Affiliates ("Seller's Group Health Plans"), and (ii) waive any preexisting
condition limitations applicable to the Retained Employees (and their eligible
dependents) under Buyer's Group Health Plans to the extent that a Retained
Employee's (or dependent's) condition would not have operated as a preexisting
condition under Seller's Group Health Plans.
(b) Buyer (and its Affiliates) will not be required to assume any
obligation to Retained Employees (or any other employees of Seller or its
Affiliates) under Seller's existing severance, retention or management stability
agreements, or similar agreements. As described in Section 9.9(a), from and
after the Closing, the Retained Employees will be permitted to participate in
the employee benefit plans or arrangements of Buyer and/or its Affiliates
customarily provided to new employees of Buyer and its Affiliates (including,
without limitation, the Employee Stability Plan), or other benefits as may be
individually negotiated between Buyer and a Retained Employee.
(c) Buyer (or its Affiliate) will assume half, and Seller and its
Affiliates will remain responsible for half, of the liability to all Retained
Employees for the annual incentive compensation bonuses described on Schedule
9.9(c). Buyer (or its Affiliate) will not assume the liability to certain
Retained Employees for the retention-related salary payment.
(d) Any obligations to employees of Seller and its Affiliates not
specifically assumed by Buyer (or its Affiliates) in this Section 9.9, including
without limitation all such obligations accrued prior to the Closing, will be
the responsibility of the Seller, and Seller will indemnify Buyer with respect
to those obligations.
(e) Buyer agrees to open an office in San Antonio, Texas and to maintain
such office for so long as prudent business practices justify its operation.
(f) If after the Closing Date, Seller or any of its Affiliates continues
to employ any individual listed on Schedule 9.9(a), Seller agrees to cooperate
with Buyer to make such individual available to provide services required by
Buyer for up to six months after the Closing Date for transition purposes, with
Buyer reimbursing Seller for the actual cost of such employee's services
(including without limitation, salary and benefits).
9.10 Authorizations.
--------------
(a) Each of Buyer and Seller, as promptly as practicable after the
Agreement Date, shall (i) deliver, or cause to be delivered, all notices and
make, or cause to be made, all such declarations, designations, registrations,
filings and submissions under all statutes, laws, regulations and Governmental
Orders applicable to it as may be required for it to consummate the sale of the
Membership Interests and the other transactions contemplated hereby in
accordance with the terms of this Agreement; (ii) use commercially reasonable
efforts to obtain, or cause to be obtained, all authorizations, approvals,
orders, consents and waivers from all Persons necessary to consummate the
foregoing; and (iii) use commercially reasonable efforts to
35
<PAGE>
take, or cause to be taken, all other actions necessary, proper or advisable in
order for it to fulfill its respective obligations hereunder and to carry out
the intentions of the parties expressed herein. The preceding sentence
notwithstanding, neither party shall have any obligation to waive any condition
herein for its benefit or any performance hereunder by any other party.
(b) Each Party shall use its commercially reasonable efforts to satisfy
the conditions to Closing applicable to it in Article XI as soon as commercially
practicable.
9.11 Software and Computer Programs. From the date of this Agreement
------------------------------
through the date which is ninety (90) days after the Closing Date, each Seller,
Southeast and the Partnership, as applicable, agree to engage in discussions
with the licensors of applicable software and computer programs and seismic data
and processing identified in a written notice provided to Seller by Buyer on or
prior to the Closing Date, the purpose of which discussions shall be to assist
Buyer in its efforts to obtain a license with respect to such software and/or
computer programs and seismic data and processing with terms acceptable to
Buyer. Buyer will pay all fees (including fees agreed to as part of a
settlement) required to transfer or retain such records, programs and data that
Buyer chooses to retain after Closing.
9.12 General.
-------
(a) Each of the Parties will use their reasonable best efforts to take all
action and to do all things necessary in order to consummate and make effective
the transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Article XI).
(b) Buyer agrees to cooperate at no cost or liability to Buyer with Seller
so that Seller's transfer of the Operating Assets to Buyer shall, at Seller's
election, be accomplished in a manner enabling the transfer to qualify as a part
of a like-kind exchange of property by Seller within the meaning of Section 1031
of the Code. If Seller so elects, Buyer shall reasonably cooperate with Seller
to effect such like-kind exchange, which cooperation shall include, without
limitation, taking such actions as Seller reasonably requests in order to pay
the Purchase Price in a manner which enables such transfer to qualify as part of
a like-kind exchange of property within the meaning of Section 1031 of the Code,
and Buyer agrees that Seller may assign its rights (but not its obligations)
under this Agreement to an escrow agent acting as a qualified intermediary under
United States Treasury Regulations, to qualify the transfer of the Purchase
Price as a part of a like-kind exchange of property within the meaning of
Section 1031 of the Code.
(c) Seller shall reimburse Buyer for Buyer's reasonable costs and expenses
incurred in connection with evaluating and implementing the like kind exchange
transaction, including without limitation, legal and accounting fees incurred in
connection with evaluating and implementing the like kind exchange transaction
and revising this Agreement. Seller shall reimburse Buyer in cash for such costs
and expenses within ten (10) days after receiving a notice from Buyer describing
such costs and expenses in reasonable detail, and requesting payment.
(d) If prior to Closing Buyer elects to obtain financing for a portion of
the Purchase Price from a bank or other lender (the "Lender") (whether through
conventional loans or through
36
<PAGE>
a production payment or similar off-balance sheet financing mechanism), Seller
shall (and shall cause Southeast and the Partnership to) cooperate reasonably
with Buyer in Buyer's negotiation and finalization of any loan or other
documents with the Lender, provided that such cooperation does not result in
Seller, Southeast and the Partnership incurring material additional expenses.
Seller shall (and shall cause Southeast and the Partnership to) use its
commercially reasonable efforts to give representatives of the Lender the access
to information and right to inspection provided to Buyer under Article V,
subject to the Lender agreeing to be bound by the terms of the Confidentiality
Agreement. This Section 9.12(c) does not change or modify Buyer's obligation to
close the Transactions in accordance with the other provisions of this
Agreement.
9.13 Covenant and Indemnity with Respect to Cash Flow. Seller covenants to
------------------------------------------------
use its best efforts to insure that after the Closing all cash, checks, wire
transfers and other cash flow attributable to the Operating Assets received by
Seller or any Affiliate of Seller will be transferred on or before the next
Business Day after such cash flow is received by Seller or such Affiliate of
Seller to an account designated by Buyer prior to the Closing (such that the
transfer is recorded by the transferring bank on or before the next Business Day
after such cash flow is received by Seller or an Affiliate of Seller). To the
extent Seller does not make the transfer required by this Section 9.13 on or
before the next Business Day after receipt of such cash flow, Seller agrees to
pay to Buyer (a) interest at the prime rate of Buyer's primary lender (accruing
from the second Business Day after receipt by Seller of such cash flow) on any
such cash flow remaining outstanding for the second and third Business Day after
receiving such funds and (b) the maximum interest allowable by Applicable Law on
any such cash flow remaining outstanding thereafter. Seller agrees to indemnify
and hold the Buyer Group harmless for any Damages asserted against, resulting
to, imposed upon or incurred by the Buyer Group arising from any failure by
Seller to transfer any amounts that, together with any other amounts not
transferred pursuant to this Section 9.13, aggregate greater than $1 million and
that Seller has not transferred within one Business Day after written notice by
Buyer is received by Seller. Buyer and Seller agree to cooperate in identifying
amounts that may need to be transferred by Seller to Buyer under this Section
9.13.
ARTICLE X.
PRE-CLOSING PROCEDURES
----------------------
10.1 Initial Settlement Statement. Before Closing, Seller shall furnish
----------------------------
Buyer with a preliminary draft of the Settlement Statement, in accordance with
Section 13.1. Buyer shall have the right to audit and request appropriate
adjustments to the amounts reflected therein. Buyer shall furnish Seller with
any comments, and adjustments or revisions Buyer believes are appropriate to
conform the Settlement Statement to accurately reflect the best information
available at Closing, and the Parties shall endeavor in good faith to reconcile
the accounting issues and to produce as accurate a Settlement Statement as
possible based upon the information available at Closing. Seller shall then
furnish Buyer with the Settlement Statement, including any appropriate updates,
adjustments or revisions, showing the Closing Settlement Price.
10.2 Closing Documents. Before Closing, the Parties shall provide each
-----------------
other with preliminary drafts of all attorneys opinions, certificates, corporate
guarantees, assignments and
37
<PAGE>
other instruments to be delivered at Closing. The Parties shall thereafter
cooperate to make such revisions as are needed to prepare mutually acceptable
forms of all such instruments.
10.3 Escrow Agent. If the Parties should agree to place any funds into an
------------
escrow account at Closing, then they shall negotiate in good faith to select a
mutually acceptable escrow agent, who is willing and able to perform such role.
In such an before the Closing Date, the Parties shall agree upon an escrow
agent, and they shall use their best efforts to negotiate a mutually acceptable
Escrow Agreement before the Closing Date.
10.4 Qualified Intermediary. Seller will assign to the Qualified
----------------------
Intermediary all of Seller's rights in the proceeds of this Agreement. All
proceeds owed Seller for the sale under the Stock Purchase Agreement and,
subject to Section 21.4, this Agreement shall then be paid to the Qualified
Intermediary.
10.5 Wire Transfer Instructions. At least two (2) Business Days prior to
--------------------------
the Closing Date, Seller shall provide to Buyer wire transfer instructions
designating a bank account and Federal Reserve ABA designation ID number, at a
bank within the United States of America where the Closing Settlement Price
shall be paid to the Qualified Intermediary.
ARTICLE XI.
CLOSING CONDITIONS
------------------
11.1 Seller's Closing Conditions. Seller's obligation to consummate the
---------------------------
Transaction is subject to the satisfaction by Buyer or the waiver by Seller, at
or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Buyer contained
---------------
in Section 4.2 shall be true and correct in all material respects on the Closing
Date as though made on and as of that date.
(b) Performance. Buyer shall have performed in all material respects the
-----------
obligations, covenants and agreements hereunder to be performed by it at or
prior to Closing.
(c) Corporate Certificates and Opinion. Buyer shall have delivered to
----------------------------------
Seller (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of Buyer that the representations set forth in Section 4.2
are true and correct as of the Closing Date; (ii) a certificate of incumbency;
(iii) a certificate of good standing of Buyer as a limited liability company;
(iv) certified resolutions of the members of Buyer, authorizing Buyer to enter
into this Agreement and the Transaction and to perform its obligations at
Closing; and (v) an opinion of counsel for Buyer, acceptable to Seller, dated
the Closing Date, as to such matters as may reasonably be requested by Seller
and its counsel and are typical for transactions such as the Transaction.
(d) Pending Matters. No suit, action or other legal proceeding by a third
---------------
party or a governmental authority shall be pending which seeks material damages
from Seller in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
38
<PAGE>
(e) No Orders. This Closing hereunder shall not violate any order or
---------
decree of any governmental authority having competent jurisdiction over the
Transaction.
(f) HSR. Any applicable waiting period under the HSR Act shall have
---
expired or been terminated.
11.2 Buyer's Closing Conditions. Buyer's obligations to consummate the
--------------------------
Transaction is subject to the satisfaction by Seller or the waiver by Buyer, at
or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Seller
---------------
contained in Section 4.1 (other than with respect to paragraphs (u), (w), (x),
(y), (z) and (aa) of Section 4.1) shall be true and correct in all material
respects on the Closing Date as though made on and as of that date; provided,
however, that the accuracy of the representations and warranties in
subparagraphs (k)(i), (ix), (x), (xi), (xii) and (xiii) of Section 4.1 shall,
for purposes of satisfying this condition, not be affected to the extent of
inaccuracies resulting solely from Buyer unreasonably withholding its prior
written consent (after written request by Seller duly provided to Buyer) to the
action taken by (or omission of) Seller, Southeast or the Partnership which
caused such representations and warranties to be inaccurate.
(b) Performance. Seller shall have performed, or caused to be performed,
-----------
in all material respects the obligations, covenants and agreements hereunder to
be performed by it, Southeast and the Partnership at or prior to Closing.
(c) LLC Certificates and Opinion. Each Seller shall have delivered to
----------------------------
Buyer, and Seller shall cause Southeast and the Partnership to deliver to Buyer:
(i) a certificate of an executive officer, dated the Closing Date, certifying on
behalf of such Seller that the representations made in Section 4.1, are true and
correct as of the Closing Date; (ii) a certificate of incumbency for each
Seller, (iii) a certificate of corporate good standing for the Partnership as a
Delaware limited partnership, for each Seller as Delaware corporations and for
Southeast as a Delaware limited liability company; (iv) with respect to each
Seller only, certified resolutions of the Boards of Directors of each Seller,
authorizing each Seller to enter into this Agreement and the Transaction and to
perform its obligations at Closing; and (v) an opinion of counsel for the Seller
and each of Southeast and the Partnership, acceptable to Buyer, dated the
Closing Date, as to such matters as may reasonably be requested by Buyer and its
counsel and are typical for transactions such as the Transaction.
(d) Other Certificates and Documents. Buyer shall have also received the
--------------------------------
certificates and documents described in Section 12.2.
(e) Pending Matters. No suit, action or other legal proceeding by a third
---------------
party or a governmental authority shall be pending which seeks material damages
from Buyer in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
(f) No Orders. The Closing hereunder shall not violate any order or decree
---------
of any governmental authority having competent jurisdiction over the
Transaction.
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(g) Adjustments. The reduction (if any) to be made at Closing to the
-----------
Purchase Price which results from the application of Articles VIII and XIII does
not exceed fifteen percent (15%) of the Purchase Price.
(h) Liens and Mortgages. Seller shall have secured release of all liens
-------------------
and mortgages listed on Schedule 1B and released all obligations of Southeast
and the Partnerships under the Seller's credit facility and provided Buyer
evidence of the same.
(i) There shall not have occurred a Material Adverse Effect.
(j) HSR. Any applicable waiting period under the HSR Act shall have
---
expired or been terminated.
(k) Seller shall have delivered proof, acceptable to Buyer in its
reasonable discretion, of the effectiveness of a post-effective amendment to
Seller's Registration Statement on Form S-3 (Reg. No. 333-51789), as amended,
removing any entities being transferred hereunder as co-registrants under such
registration statement.
ARTICLE XII.
CLOSING
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12.1 Closing. The closing of the Transaction (the "Closing") shall be held
-------
on December 17, 1999 (the "Closing Date"), at 9:00 a.m. Houston time, at the
office of Seller's counsel, 1301 McKinney, Suite 5100, Houston, Texas 77010, or
at such other date or place as the parties may direct; provided, however, that
if all conditions to Closing set forth in Article XI have not been waived or
satisfied prior to December 17, 1999, the Closing Date shall be on the second
Business Day following the waiver or satisfaction of such conditions.
12.2 Seller's Closing Obligations. At Closing, Seller shall deliver to
----------------------------
Buyer the following:
(a) The certificates representing Membership Interests in Southeast, duly
endorsed in blank or with separate duly executed powers duly endorsed in blank;
(b) All organizational documents and books and records of each of
Southeast, Reserves LLC and Exploration LLC;
(c) All books and records of the Partnership;
(d) The resignations of the officers and directors of Southeast;
(e) Such other documents or authorizations as Buyer may reasonably
request, or as might be reasonably necessary to assign all of Seller's interest
in Southeast, the Partnership and the Operating Assets to Buyer in accordance
with the provisions hereof;
(f) Instruments assigning Seller's rights under this Agreement to the
Qualified Intermediary;
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(g) A certificate of each Seller, signed under penalties of perjury (i)
stating that it is not a foreign corporation, foreign partnership, foreign trust
or foreign estate, (ii) providing its U.S. Employer Identification Number (if
applicable) and (iii) providing its address, all pursuant to Section 1445 of the
Code.
(h) The certificates of Seller referred to in Section 11.2(c) hereof;
(i) The opinion of counsel referred to in Section 11.2(c) hereof; and
(j) Releases, in a form acceptable to Buyer, of all liens and mortgages
listed on Schedule 1B.
12.3 Buyer's Closing Obligations. At Closing, Buyer shall deliver the
---------------------------
following:
(a) The Closing Settlement Price, paid to the Qualified Intermediary in
immediately available funds, by wire transfer into the U.S. bank account
designated by the Qualified Intermediary;
(b) The certificates of Buyer referred to in Section 11.1(c) hereof; and
(c) The opinions of counsel referred to in Section 11.1(c) hereof.
12.4 Governmental Filings. At Closing, the Parties shall execute such
--------------------
guarantees, bonds, forms and other instruments as are needed allow Buyer to
assume all of Seller's existing obligations under governmental permits and
licenses and leases affecting the Operating Assets. Buyer shall diligently file
such instruments and obtain governmental approval of the transfer of all such
rights, obligations and interests.
ARTICLE XIII.
ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS
--------------------------------------------------
13.1 Settlement Statements.
---------------------
(a) Pre-Closing. The Settlement Statement is attached hereto as Exhibit D.
-----------
(b) Final Statement. As soon as practicable after the Closing Date, but in
---------------
no event later than one hundred twenty (120) days thereafter, Buyer shall
prepare and submit to Seller a draft Final Statement, which shall show the
calculation of the adjusted Final Settlement Price, based upon the best
information then available. Seller shall have the right to audit such Final
Statement and all supporting data and accountings. As soon as practicable after
receipt of the Final Statement, but in any event within thirty (30) days after
receipt thereof, Seller shall deliver to Buyer a written report containing the
changes, if any, which Seller proposes be made to the Final Statement. If no
response is made by Seller within such thirty (30) day period, it shall be
presumed that Seller concurs with the Final Statement, and such Final Statement
shall be the basis for the Final Settlement Price. If Seller submits a response,
the Parties shall cooperate in good faith to produce not later than one hundred
eighty (180) days after the Closing Date as accurate a Settlement Statement as
possible based upon the information then available. After agreement upon a Final
Statement setting forth the Final Settlement Price, the difference between
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such Final Settlement Price and the Closing Settlement Price paid at Closing
shall be paid within five (5) Business Days thereafter by the Party owing the
same.
13.2 Operating Taxes.
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(a) Apportionment of Ad Valorem and Property Taxes. All ad valorem, real
----------------------------------------------
property taxes and personal property taxes, including interest and penalties
attributable thereto (hereinafter "Property Taxes"), attributable to Southeast's
limited partnership interest in the Partnership's ownership and operation of the
Properties with respect to the assessment period ("Property Tax Period") during
which the Effective Time occurs shall be apportioned between Seller and Buyer by
multiplying the total amount of such Property Taxes by a fraction, the numerator
of which is the number of days in the partial period through and including the
Effective Time and the denominator of which is the total number of days in the
Property Tax Period. The Partnership shall file or cause to be filed all
required reports and returns incident to the Property Taxes and shall pay or
cause to be paid to the taxing authorities all Property Taxes relating to the
Property Tax Period during which the Effective Time occurs. If Seller is the
owner of Southeast on the Property Tax assessment date, then the Settlement
Price shall be increased by the amount of Buyer's portion of Property Taxes owed
as set forth above. If the Property Tax assessment date occurs after Closing,
then the Settlement Price shall be reduced by the estimated amount of Seller's
portion of Property Taxes owed as set forth above. The allocation and payment of
ad valorem taxes shall be handled through adjustments to the Settlement Price.
(b) Other Operating Taxes. With the exception of Income Taxes, all other
---------------------
federal, state, foreign and local Taxes (including interest and penalties
attributable thereto) on the ownership or operation of the Operating Assets
which are imposed upon Southeast or the Partnership for periods or portions of
periods prior to the Effective Time shall be borne by Seller, and all such Taxes
imposed upon the Partnership for periods or portions of periods beginning on or
after the Effective Time shall be borne by Buyer. Such Taxes shall be
apportioned between Seller and Buyer for the period or portion thereof up to and
including the Effective Time, (i) in the case of a flat minimum dollar amount of
tax, by multiplying the total amount of such Taxes by a fraction, the numerator
of which is the number of days in the partial period through and including the
Effective Time and the denominator of which is the total number of days in such
tax period, and (ii) in the case of all other operating Taxes, on the basis of
actual activities creating such Tax liability of Southeast and the Partnership
for the partial period through and including the Effective Time as are
determined from their respective Books and Records. To the extent any such
amounts are borne prior to the delivery of the Final Statement by a Party who is
not required to bear them hereunder, they shall be included in the adjustments
to the Settlement Price. The allocation and payment of these Taxes shall be
handled through adjustments to the Settlement Price.
13.3 Shared Obligations. If an invoice or other evidence of an obligation
------------------
is received which under the terms of this Article XIII is partially the
obligation of Seller and partially the obligation of Buyer, then the parties
shall consult with each other, the Partnership shall promptly pay such
obligation to the obligee, and Seller shall promptly reimburse Buyer for
Seller's portion so paid.
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13.4 Uncollectible Accounts Receivable. Buyer (and, prior to the Closing,
----------------------------------
Seller) shall cause Southeast and the Partnership to use commercially reasonable
efforts to collect in full, consistent with the past practices of the Business,
all accounts receivable of the Business (the "Accounts Receivable"). If the
Accounts Receivable outstanding at the Closing shall not have been fully
collected within 120 days following the Closing Date in an amount equal to the
outstanding unpaid amounts thereof at the Closing, Buyer may require the Seller
to purchase any Accounts Receivable that have not been so fully collected at a
purchase price equal to the original outstanding amount of such Accounts
Receivable at the Closing less net collections thereon from the Closing Date to
the repurchase date; provided, however, that the Seller shall be required to
repurchase such unpaid Accounts Receivable only to the extent that the aggregate
amount of such unpaid Accounts Receivable exceeds the allowance for doubtful
accounts deducted from accounts receivable set forth on the Balance Sheets, and
if such an excess exists, the Seller shall only be required to pay an amount for
such unpaid Accounts Receivable equal to such excess; provided, further, during
such 120-day period, that Buyer may not settle or compromise any Accounts
Receivable without the prior written consent of Seller. As a condition to any
such repurchase, Buyer shall reconvey to the Seller the unpaid Accounts
Receivable to be repurchased and shall provide Seller with sufficient detail
regarding such Accounts Receivable. Buyer shall not transfer or convey such
Accounts Receivable to any other Person. Payment for the repurchase of any
Accounts Receivable shall be made within ten (10) days following the transfer
thereof to Seller. Buyer shall provide to the Seller any documents or
information reasonably requested by the Seller in connection with the Seller's
collection of any Accounts Receivable repurchased from Buyer.
ARTICLE XIV.
POST-CLOSING PROCEDURES
-----------------------
14.1 Delivery of Files. Within ten (10) days after Closing, Buyer shall,
-----------------
at Buyer's expense, take delivery at Seller's present offices in San Antonio,
Texas of all of the Partnership's and Southeast's original land, lease, revenue
and cost accounting, geologic, geophysical, engineering and well files, data and
materials which relate to the Operating Assets. Applicable legal and litigation
files shall be delivered by Seller to Buyer at Seller's present office location
in San Antonio, Texas, subject to the Parties and their attorneys making
mutually acceptable arrangements for preserving the privileged and confidential
nature of protected information. Seller may retain copies of its accounting and
legal files, data and information, as might be needed by Seller, and Seller
shall retain all originals of insurance policies covering periods prior to the
Effective Time. Subject to the License Agreement, Seller shall not retain
originals or copies of any seismic, geological, geophysical or engineering
files, materials, data or interpretations thereof concerning the Operating
Assets sold hereunder, without Buyer's prior written consent; provided however,
that Seller shall not be required to deliver to Buyer, nor shall Buyer be
required to accept delivery of any such data or materials which either Party
reasonably believes to be subject to confidentiality agreements with third
parties that would prevent Buyer from obtaining such data or expose either Party
to a claim for material damages if Buyer were to receive such data or materials.
Notwithstanding the above, Seller shall be permitted to retain original tax and
financial accounting records for the period prior to the Closing, copies of
which will be delivered to Buyer.
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14.2 Third Party Data. To the extent not obtained or satisfied as of
----------------
Closing, Seller agrees to continue to use reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to obtain for Buyer, the Partnership and
Southeast (i) access to files, records and data relating to the Operating Assets
in the possession of third parties; (ii) access to wells constituting a part of
the Operating Assets operated by third parties for purposes of inspecting same;
and (iii) the waiver of confidentiality or other restrictions on the review by
and/or transfer of seismic, geophysical, engineering or other data pertaining to
the Operating Assets that might be triggered by Seller's assignment to Buyer of
the Partnership and Southeast.
14.3 Cooperation. After the Closing, each Party shall provide the other
-----------
Party with reasonable access to all relevant documents, data and other
information (other than that which is subject to any attorney-client privilege)
which may be required by the other Party for the purpose of financial reporting,
preparing tax returns, filing refund claims, responding to any audit by any
taxing jurisdiction or replying to any third party or governmental claim or
demand concerning the Partnership, Southeast or the Operating Assets. Each Party
shall cooperate with all reasonable requests of the other Party made in
connection with contesting the imposition of Taxes. Notwithstanding anything to
the contrary in this Agreement, neither Party shall be required at any time to
disclose to the other Party any Tax Return or other confidential information,
except for Tax Returns concerning Taxes of the Partnership and Southeast. Except
where disclosure is required by applicable law or judicial order, any
information obtained by a Party pursuant to this Section 14.3 shall be kept
confidential by such Party, except to the extent disclosure is required in
connection with the filing of any Tax Returns or claims for refunds or in
connection with the conduct of an audit, or other proceedings in response to an
audit, by a taxing jurisdiction, or otherwise required by law or binding
judicial order.
14.4 Preferential Rights to Purchase and Consents to Assignment. Before
----------------------------------------------------------
Closing and for up to one year after Closing, the Parties shall continue to
provide reasonable cooperation in obtaining all required Consents to Assignment
and in complying with all enforceable Preferential Rights to Purchase that
remain in force after Closing. Buyer shall be primarily responsible for handling
such matters, shall assume all risks and liabilities in connection with the
rights of the holders thereof, and shall release, indemnify and defend Seller
against any claims, damages, suits, demands or other liabilities associated with
any Consents to Assignment or Preferential Rights to Purchase.
14.5 Filing and Recording of Documents. Buyer shall promptly file all
---------------------------------
appropriate forms, declarations or bonds with governmental agencies relative to
its assumption of ownership of Southeast, and Seller shall cooperate with Buyer
in connection with such filings. Seller shall not be responsible for any loss to
Buyer because of Buyer's failure to file or record documents correctly or
promptly.
14.6 Further Assurances. After Closing, each of the Parties will execute,
------------------
acknowledge and deliver to the other such further instruments, and take such
other action, as may be reasonably requested in order to more effectively assure
to each Party all of the respective properties, rights, titles, interests,
estates, and privileges intended to be assigned, delivered or to inure to the
benefit of such Party in consummation of the Transaction.
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14.7 Incidental Costs. Each party shall bear its own respective expenses
----------------
incurred in connection with the Closing of the Transaction, including its own
consultants' fees, attorney's fees, accountants' fees, and other similar costs
and expenses.
ARTICLE XV.
SURVIVAL; INDEMNITIES
---------------------
15.1 Survival. All representations, warranties or covenants made herein,
--------
except for those in Sections 4.1(a), 4.1(e), 4.1(f), 4.1(g), 4.1(i), 4.1(k),
4.1(l), 4.1(m), 4.1(n), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w), 4.1(x), 4.1(y),
4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets only), 4.2(e),
4.2(i), Sections 7.1, 7.2, 7.4, 8.3, 9.1, 9.2(e), 9.9(d), 9.12(b), 9.12(c) and
9.13, and Articles XV, XVI, XVII and XXI, shall survive for two years from the
Closing Date. The representations and warranties or covenants made in Sections
4.1(a), 4.1(g), 4.1(k), 4.1(l), 4.1(m), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w),
4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets only)
and Section 9.1 shall not survive Closing and shall automatically expire upon
Closing. The representations, releases, covenants, indemnities, defenses and
hold harmless obligations and other obligations referenced in Sections 4.1(e),
4.1(f), 4.1(i), 4.1(n), 4.2(e), 4.2(i), 7.1, 7.2, 7.4, 8.3, 9.2(e), 9.9(d),
9.12(b), 9.12(c) and 9.13 and this Article XV, and all provisions of Article
XVI, Article XVII, and Article XXI shall each survive Closing, and each shall
continue to remain fully enforceable in accordance with its terms.
15.2 Buyer's Indemnity. EXCEPT AS EXPRESSLY AND SPECIFICALLY INDICATED
-----------------
OTHERWISE IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION SECTIONS 9.9(D) AND
15.3), AFTER THE CLOSING DATE, BUYER SHALL AND HEREBY DOES RELEASE, DEFEND,
INDEMNIFY, SAVE, AND HOLD HARMLESS SELLER AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS, AGAINST ANY
AND ALL DAMAGES WHICH ARISE OUT OF OR IN CONNECTION WITH THE OWNERSHIP OF,
OPERATION OF, PRODUCTION FROM OR ACCOUNTING BY, INCOME OF OR PAYMENTS BY THE
PARTNERSHIP, SOUTHEAST OR THE OPERATING ASSETS, AT ANY TIME EITHER BEFORE OR
AFTER THE EFFECTIVE TIME, OR WHICH ARISE OUT OF ANY ENVIRONMENTAL CONDITION OR
OTHER HAZARDOUS CONDITION RELATING TO OR AFFECTING ANY OPERATING ASSET AT ANY
TIME EITHER BEFORE OR AFTER THE EFFECTIVE TIME, INCLUDING WITHOUT LIMITATION,
ALL SUCH COSTS, CLAIMS OR LIABILITIES ARISING OUT OF SELLER'S NEGLIGENCE OR
STRICT LIABILITY.
15.3 Seller's Indemnity. SUBJECT TO THE TERMS AND CONDITIONS OF THIS
------------------
ARTICLE XV, SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS
PARENT OR SUBSIDIARY COMPANIES, PARTNERS AND OTHER AFFILIATES (INCLUDING AFTER
CLOSING, SOUTHEAST AND THE PARTNERSHIP), AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS (HEREINAFTER
COLLECTIVELY REFERRED TO AS THE "BUYER GROUP"), FROM AND AGAINST ANY AND ALL
DAMAGES ASSERTED AGAINST, RESULTING TO,
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IMPOSED UPON, OR INCURRED BY THE BUYER GROUP, DIRECTLY OR INDIRECTLY, BY REASON
OF OR RESULTING FROM OR RELATING TO (I) ANY BREACH BY SELLER (FOR WHICH SELLER
SHALL BE RESPONSIBLE) OF ITS SURVIVING REPRESENTATIONS, WARRANTIES, COVENANTS OR
AGREEMENTS CONTAINED IN THIS AGREEMENT, (II) ANY LIABILITIES OF SOUTHEAST AND
THE PARTNERSHIP WHICH ARE UNRELATED TO THE OPERATING ASSETS, (III) ANY
LIABILITIES OF SOUTHEAST AND SOUTHEAST'S INTEREST IN THE PARTNERSHIP FOR INCOME
TAXES PRIOR TO CLOSING, AND (IV) ANY EXISTING LIABILITIES OF SOUTHEAST AND
SOUTHEAST'S INTEREST IN THE PARTNERSHIP OWED UNDER FEDERAL LEASES FOR PRIOR
ROYALTIES RELATED TO THE PERIOD OF TIME PRIOR TO CLOSING.
15.4 Procedure for Indemnification.
-----------------------------
(a) Any Indemnified Party making a claim for indemnification hereunder
shall notify the indemnifying party or parties of the claim in writing. Subject
to Sections 17.1, 17.2, 17.3 and 17.4, an indemnified party may take any and all
actions against an indemnifying party or parties to enforce its rights to
indemnification under this Agreement.
(b) With respect to third Person claims which are indemnifiable hereunder,
promptly after receipt by an Indemnified Party under Sections 15.2 or 15.3 of
notice of the commencement of any action, such Indemnified Party shall, if a
claim in respect thereof is to be made against an Indemnifying Party under such
Section, give written notice to the Indemnifying Party of the commencement
thereof. The failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party of any liability that it may have to an Indemnified Party
with respect to such action, only to the extent the Indemnifying Party is
prejudiced by the failure to be so notified. In case any such action shall be
brought against an Indemnified Party and the Indemnified Party shall give
written notice to the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Party. If the Indemnifying Party elects to
assume the defense of such action, the Indemnified Party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the Indemnifying Party elects not to assume (or fails to assume) the
defense of such action, the Indemnified Party shall be entitled to assume the
defense of such action with counsel of its own choice, at the expense of the
Indemnifying Party. If the action is asserted against both the Indemnifying
Party and the Indemnified Party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the Indemnifying
Party and the Indemnified Party, the Indemnifying Party shall be responsible for
paying for separate counsel for the Indemnified Party; provided, however, that
if there is more than one Indemnified Party, the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the Indemnified Parties, regardless of the number of Indemnified Parties. If the
Indemnifying Party elects to assume the defense of such action, (a) no
compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party's written consent (which shall not be unreasonably
withheld) unless the sole relief provided is monetary damages that are paid in
full by the Indemnifying Party and (b) the Indemnifying Party
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shall have no liability with respect to any compromise or settlement thereof
effected without its written consent (which shall not be unreasonably withheld).
15.5 Exclusivity. The parties hereto agree that, in relation to any breach,
-----------
default, or nonperformance of any representation, warranty, covenant, or
agreement made or entered into by a party hereto pursuant to this Agreement or
any certificate, instrument, or document delivered pursuant hereto or arising
out of the transactions contemplated herein or the ownership or operation of the
Operating Assets, the only relief and remedy available to the other party hereto
in respect of said breach, default, or nonperformance shall be:
(a) termination, but only if said termination is expressly permitted under
the provisions of Article XX; or
(b) actual damages, but only to the extent properly claimable hereunder
and as limited pursuant to this Article XV or otherwise hereunder; or
(c) specific performance if a court of competent jurisdiction in its
discretion grants the same; or
(d) injunctive or declaratory relief if a court of competent jurisdiction
in its discretion grants the same.
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15.6 Assignment of Third Person Indemnities. To the extent the same are
--------------------------------------
assignable by an Indemnified Party, such Indemnified Party does hereby assign to
the Indemnifying Party all rights to defense, contribution and indemnity that
the Indemnified Party may hold with respect to the obligations for which the
Indemnifying Party is indemnifying and defending the Indemnified Party
hereunder, and the Indemnifying Party shall be subrogated to assert the
Indemnified Party's rights to such third-party defense, contribution and
indemnity obligations with respect to the indemnified claims or Actions.
ARTICLE XVI.
TAX MATTERS
-----------
16.1 Indemnification for Taxes.
-------------------------
(a) Seller shall be responsible for, and shall indemnify Buyer against,
all (i) Income Taxes imposed on Southeast or Southeast's interest in
Partnership, and all Liabilities, losses, costs, fines, penalties, damages
(actual, punitive or other), reasonable attorneys' fees, and expenses arising
therefrom, relating to (A) taxable periods or portions thereof ending on or
before the Closing Date, (B) Income Taxes resulting from the application of
Treas. Reg. (S) 1.1502-6 or any comparable state, local or foreign tax law
attributable to Tesoro Parent, or any corporation or entity which is or has been
affiliated with or been part of a combined, unitary or affiliated group with
Tesoro Parent, and (C) the portion of the Income Taxes for any Straddle Period
(as defined in subsection 16.1(e)) allocable to Sellers with respect to either
Southeast or Southeast's interest in the Partnership under subsection 16.2(e)
and (ii) all Other Taxes imposed on Southeast or Southeast's interest in the
Partnership relating to the taxable periods or portions thereof ending on or
before the Effective Time (allocated as described in Section 13.3); provided,
Sellers shall not be responsible for, and shall not be required to indemnify
Buyer against, any Taxes to the extent that such Taxes do not exceed the accrued
liability for Taxes on the Balance Sheets which are taken into account in
determining the Working Capital.
(b) Buyer shall be responsible for and shall indemnify Sellers against all
(i) Income Taxes imposed upon Southeast or Southeast's interest in the
Partnership and all Liabilities, losses, costs, fines, penalties, damages
(actual, punitive, or other), reasonable attorneys' fees and expenses arising
therefrom, relating to (A) taxable periods beginning after the Closing Date or
(B) the portion of the Income Taxes for any Straddle Period which are allocable
to Buyer under subsection 16.2(e), and (ii) except as provided in Section 13.3
and in this Article XVI, all Other Taxes imposed upon Southeast or Southeast's
interest in the Partnership and all Liabilities, losses, costs, fines,
penalties, damages (actual, punitive or other), reasonable attorneys fees and
expenses arising therefrom arising in or relating to taxable periods or portions
thereof beginning after the Effective Time (allocated as described in Section
13.3).
(c) Each Party shall promptly notify the other Party of the commencement
of any demand, claim, audit, examination, Action or other proposed change or
adjustment by any Taxing Authority concerning any Tax which could give rise to a
claim for indemnity pursuant to subsection 16.1(a) or subsection 16.1(b), as the
case may be (each a "Tax Claim"). Such notice shall contain factual information
describing the asserted Tax Claim in reasonable detail and shall
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include copies of any notice or other document received from any Taxing
Authority in respect of any such asserted Tax Claim.
(d) Seller, at its own expense, shall have the sole right to represent
Southeast and the Partnership's interests in any Tax Claim for Taxes for which
it is indemnifying Buyer against and to employ counsel of its choice. Buyer
shall have the right to participate in such Action at its own expense. Seller
shall not consent to any settlement that reasonably would be expected to have an
adverse effect on the Income Taxes of Southeast or Southeast's interest in the
Partnership in any period after the Closing Date without Buyer's consent, which
consent shall not be unreasonably withheld. Buyer's consent shall in no way
reduce any indemnification due to Buyer under subsection 16.1(a). If Seller
elects to control the defense, compromise or settlement of any Tax Claim, Seller
shall keep Buyer informed of the progress and disposition of such Tax Claim.
Buyer shall handle any other Tax Claims of Southeast or Southeast's interest in
the Partnership, and Buyer shall be entitled to defend, compromise or settle
such Tax Claims in its sole discretion without in any way reducing its rights to
indemnification under subsection 16.1(a), unless any such settlement would give
rise to a tax claim against Seller, and in such event such settlement shall be
subject to Seller's consent, which shall not be unreasonably withheld.
(e) With respect to any taxable period of Southeast or the Partnership
beginning before and ending after the Closing Date (a "Straddle Period"), Buyer
shall control, and Seller, at its own expense, shall have the right to
participate in, the defense and settlement of any Tax Claim and each Party shall
cooperate with the other Party and there shall be no settlement or closing or
other agreement with respect thereto without the consent of the other Party,
which consent shall not be unreasonably withheld; provided, that if either Party
shall refuse (the "Refusing Party") to consent to any settlement, closing or
other agreement agreed to by the relevant Taxing Authority with respect to any
such Tax Claim that the other party (the "Accepting Party") proposed to accept
(a "Proposed Settlement"), then (i) the Accepting Party's Liability with respect
to the subject matter of the Proposed Settlement shall be limited to the amount
that such Liability would have been if the Proposed Settlement had been
accepted, and (ii) the Refusing Party shall be responsible for all Liabilities
and expenses incurred or imposed thereafter in connection with the contest of
such Tax Claim to the extent that the final settlement is more than the Proposed
Settlement.
16.2 Other Tax Matters.
-----------------
(a) All Tax sharing agreements between Southeast and any other Person,
including without limitation, the Affiliates of Seller, are hereby terminated as
of the Closing Date and all rights and obligations of Southeast with respect to
Taxes shall be as provided herein.
(b) Any Tax allocation agreement or arrangement in effect shall be
extinguished in full as of the Closing Date.
(c) Tax Returns (each a "Pre-Closing Return") which are required to be
filed with respect to Southeast or Southeast's interest in the Partnership on a
consolidated, unitary or other combined basis with the Tesoro Group, or the
appropriate parent for a taxable period which ends on or before the Closing Date
(a "Pre-Closing Period") shall be prepared and filed by (or shall be
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the responsibility of) Seller, which shall include the preparation and filing of
the consolidated federal and state income Tax Returns of the Tesoro Group which
includes Southeast's interest in the Partnership for the period up to and
including the Closing Date. In the case of those jurisdictions which require a
short-period Tax Return ending on or before the Closing Date, Seller shall
prepare and file all appropriate returns required to be filed with respect to
Income Taxes attributable to the operations and the Operating Assets for the
pre-Closing periods. All such Pre-Closing Returns shall be filed on a basis
consistent with prior Tax Returns filed with respect to Southeast's interest in
the Partnership. Seller or the appropriate parent of Southeast or the
Partnership shall timely pay or cause to be paid all Taxes shown on such Pre-
Closing Returns. All Tax Returns which (i) are required to be filed with respect
to Southeast's interest in the Partnership on a separate basis (including the
preparation of supporting schedules, Tax Returns and other Tax information with
respect to Southeast's interest in the Partnership necessary for completion of
the Pre-Closing Returns) after the Closing Date for a Pre-Closing Period (a
"Post-Closing Return"), and (ii) are required to be filed or with respect to
Southeast's interest in the Partnership for a taxable period that ends after the
Closing Date, including any Tax Return (a "Straddle Return") for a Straddle
Period, shall be prepared and filed by Buyer; subject to the rights to
indemnification and other rights under 16.1(a) and subsection 16.2(e), Buyer
shall timely pay or cause to be paid all Taxes shown on such Tax Returns.
(d) Seller agrees to provide Buyer and Buyer agrees to provide Seller with
such cooperation and information as the other shall reasonably request in
connection with the preparation or filing of any Tax Return required under this
Agreement.
(e) With respect to any Straddle Period, to the extent permitted by
applicable law, Seller shall elect to treat the Closing Date as the last day of
the taxable period. If applicable law, regulation or Governmental Order will not
permit the Closing Date to be the last day of a period, the Income Tax
attributable to the operations of Southeast and Southeast's interest in the
Partnership for the portion of the period up to and including the Closing Date
shall be (i) in the case of a flat minimum dollar amount Tax, the total amount
of such Taxes multiplied by a fraction, the numerator of which is the number of
days in the partial period through and including the Effective Time and the
denominator of which is the total number of days in such Straddle Period, and
(ii) in the case of all Income Taxes, the Tax computed on the basis of the
taxable income or loss attributable to Southeast's interest in the Partnership
for the partial period through and including the Closing Date as determined from
their Books and Records. All Other Taxes arising with or related to a Straddle
Period will be allocated as provided in Section 13.3.
(f) With respect to any Post-Closing Return or Straddle Return, Buyer
shall deliver, at least 30 days prior to the due date for filing such Tax Return
(including any extension) to Seller a statement setting forth the amount of
Income Tax which Seller owes pursuant to subsection 16.1(a), including the
allocation of Taxes under subsection 16.2(e), and copies of such Tax Return.
Seller shall have the right to review such Tax Returns and the allocation of
Taxes and to suggest to Buyer any reasonable changes to such Tax Returns no
later than 15 days prior to the date for the filing of such Tax Returns. Seller
and Buyer agree to consult and to attempt to resolve in good faith any issue
arising as a result of the review of such Tax Returns and allocation of Taxes
and mutually to consent to the filing as promptly as possible of such Tax
Returns. Not later than 15 days before the due date for the payment of Income
Taxes with
50
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respect to such Tax Returns, Seller shall pay to Buyer an amount equal to the
Income Taxes as agreed to by Buyer and Seller as being owed by Seller, pursuant
to subsection 16.1(a). In the event that Buyer and Seller cannot agree on the
amount of Income Taxes owed by Seller, with respect to a Straddle Return or a
Post-Closing Return, Seller shall pay to Buyer the amount of Income Taxes
reasonably determined by Buyer to be owed by them pursuant to subsection
16.1(a). Within ten (10) days following such payment, Seller and Buyer shall
refer the matter to an independent "Big-Five" accounting firm agreed to by Buyer
and Seller to arbitrate the dispute. Seller and Buyer shall equally share the
fees and expenses of such accounting firm, and its determination as to the
amount owing by Seller, pursuant to Section 16.1(a) with respect to a Straddle
Return or Post-Closing Return shall be binding on both parties. Within five (5)
days of the determination by such accounting firm, if necessary, the appropriate
Party shall pay the other Party any amount which is determined by such
accounting firm to be owed. Seller shall be entitled to reduce its obligation to
pay Taxes with respect to a Straddle Return or a Post-Closing Return by the
amount of any estimated Taxes paid with respect to such Taxes by or on behalf of
Southeast on or before the Closing Date.
(g) Seller shall have the right to all refunds of Taxes (including
interest thereon), which relate to Taxes of Southeast or Southeast's interest in
the Partnership for Pre-Closing Periods and Straddle Periods, to the extent
provided in the following sentences. Buyer shall pay over to Seller any such
refunds within ten (10) days of receipt thereof, net of any Taxes imposed on
Buyer or Southeast by reason of the receipt of such refund. To the extent any
refund of Taxes is made with respect to a Pre-Closing Period or a Straddle
Period, such refund shall be apportioned between Buyer and Seller, based on the
appropriate allocation method set forth in Section 16.2(e).
(h) Buyer and Seller agree to consult and resolve in good faith any issues
arising in connection with the preparation or review of any Tax Return or the
calculation of any Tax described in this Section 16.2.
(i) At the Closing, Seller, Southeast and the Partnership each shall
deliver to Buyer certificates signed under penalties of perjury (i) stating that
it is not a foreign corporation, foreign partnership, foreign trust or foreign
estate, (ii) providing its U.S. Employer Identification Number and (iii)
providing its address, all pursuant to Section 1445 of the Code.
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16.3 Exclusive Remedy for Taxes. This Article XVI provides the sole and
--------------------------
exclusive remedy for any claim against Seller for indemnification, damages or
breach of any representation or warranty with respect to or relating to Taxes.
ARTICLE XVII.
DEFAULT AND REMEDIES
--------------------
17.1 Liabilities Upon Termination. If Closing does not occur due to
----------------------------
Seller's violation of the terms of this Agreement, then Buyer may seek such
legal or equitable remedies as Buyer may desire including, without limitation,
damages for the breach or failure of any representation, warranty, covenant or
agreement contained herein and the right to enforce specific performance of this
Agreement. If Closing does not occur due to Buyer's violation of the terms of
this Agreement, then Seller may seek such legal or equitable remedies as Seller
may desire, including, without limitation, damages for the breach or failure of
any representation, warranty, covenant or agreement contained herein and the
right to enforce specific performance of this Agreement.
17.2 Recovery of Costs. The prevailing Party in any litigation or
-----------------
alternative dispute resolution proceeding between the Parties in a dispute
arising under this Agreement shall be entitled to recover, from the other Party,
reimbursement for reasonable attorneys fees, expert fees, court costs and costs
of discovery and investigation.
17.3 Waiver of Extraordinary Damages. TO THE FULL EXTENT ALLOWED BY LAW,
-------------------------------
AND EXCEPT AS MAY BE INCLUDED IN THIRD PARTY DAMAGES SUBJECT TO ANY INDEMNITY
OBLIGATION HEREUNDER, THE PARTIES HEREBY WAIVE AND RELEASE ANY RIGHTS OR CLAIMS
TO PUNITIVE OR EXEMPLARY DAMAGES RESULTING FROM A BREACH OF THIS AGREEMENT. THE
PARTIES HEREBY WAIVE THE APPLICATION OF THE TEXAS DECEPTIVE TRADE PRACTICES-
CONSUMER PROTECTION ACT TO THE TRANSACTION.
17.4 Waiver of Jury Trial. SELLER AND BUYER DO HEREBY IRREVOCABLY WAIVE,
--------------------
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION.
17.5 Independent Obligations. The express release, indemnity, defense and
-----------------------
hold harmless obligations contained herein shall exist separate and independent
from the representations and warranties in this Agreement, and the limitations
of representations and warranties shall not be construed to limit the scope of
the express releases, indemnities, and defense and hold harmless obligations.
17.6 Changes of Law. Sellers do not make any representations and
--------------
warranties and do not assume any responsibilities or liabilities for any Damages
to Buyer arising out of or related to changes in the law or new interpretations
of existing law that may occur after Closing.
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17.7 Merger. No representations, warranties, indemnities, covenants or
------
other provisions of this Agreement shall merge with provisions of any other
instrument.
ARTICLE XVIII.
NOTICES
-------
18.1 Notices. All notices authorized or required by any of the provisions
-------
of this Agreement, unless otherwise specifically provided, shall be in writing
and delivered in person or by United States mail, courier service, telegram, or
telephone facsimile, postage or charges prepaid, and addressed to the Parties at
the respective addresses set forth below:
If to Seller: Tesoro Petroleum Corporation.
300 Concord Plaza Drive
San Antonio, Texas 78216-6999
Attention: James C. Reed, Jr.
Fax Number: (210) 283-2400
Phone Number: (210) 828-8484
With a copy to: Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Michael W. Conlon
Fax Number: (713) 651-5246
Phone Number: (713) 651-5151
If to Buyer: EEX Operating LLC
2500 City West Boulevard, Suite 1400
Houston, Texas 77042
Attention: Janice K. Hartrick
Fax Number: (713) 243-3359
Phone Number: (713) 243-3371
53
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With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Attention: Michael E. Dillard
Fax Number: (214) 969-4343
Phone Number: (214) 969-2876
Any Party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
ARTICLE XIX.
CONFIDENTIALITY AND DISCLOSURES
-------------------------------
19.1 Non Disclosure of Data. To the extent Buyer does not acquire all of
----------------------
the Membership Interests for any reason, Buyer shall not directly or indirectly
disclose or use any materials, data or other information provided by or obtained
from Seller, Southeast or the Partnership, and Buyer and its representatives
shall continue to be bound by the terms of the existing Confidentiality
Agreement dated June 17, 1999, between the Parties.
19.2 Public Announcements. The Parties hereto agree that prior to making
--------------------
any public announcement or statement with respect to the Transaction, the Party
desiring to make such public announcement or statement shall consult with the
other Party and exercise reasonable efforts to obtain the consent of the other
Party to the text of such public announcement or statement. If the Parties
cannot agree upon the text of any such public disclosure, a Party may
nevertheless disclose information with respect to the to the extent required by
applicable law or by any applicable rules, regulations or orders of any
governmental or judicial authority or agency having jurisdiction or to the
extent such disclosure is necessary to comply with requirements of the New York
Stock Exchange.
ARTICLE XX.
TERMINATION
-----------
20.1 Termination. Notwithstanding anything herein to the contrary, this
-----------
Agreement and the Transaction may be terminated in the following instances:
(a) At any time by the mutual written agreement of Buyer and Seller;
(b) By Seller, if the Settlement Price Adjustment exceeds fifteen percent
(15%) of the Purchase Price; or by Buyer, if the sum of the Settlement Price
Adjustment and any reductions to the purchase price as a result of the exercise
by third parties of Preferential Rights to Purchase exceeds fifteen percent
(15%) of the Purchase Price;
(c) By Seller or Buyer, if any of the Casualty Price individually exceeds
ten percent (10%) of the Purchase Price; or
54
<PAGE>
(d) By Buyer or Seller, if Closing has not taken place before December 31,
1999; provided, however, that the Party seeking to terminate this Agreement
pursuant to Section 20.1(d) shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have proximately
contributed to the failure to consummate the Transaction prior to December 31,
1999.
ARTICLE XXI.
MISCELLANEOUS
-------------
21.1 Entire Agreement. This Agreement, together with the Stock Purchase
----------------
Agreement, embody the entire agreement between the Parties (superseding all
prior agreements, negotiations, representations, discussions, arrangements and
understandings related to the subject matter hereof), and may be supplemented,
altered, amended, modified or revoked only by a written instrument signed by
each of the Parties; provided, however, the Confidentiality Agreement dated June
17, 1999, between the Parties shall remain effective until Closing. If the sale
of the Operating Assets to Buyer is not consummated, then the Confidentiality
Agreement shall remain effective as stated therein.
21.2 No Verbal Modifications or Waivers. Any of the terms, provisions,
----------------------------------
covenants, representations, warranties or conditions hereof may be supplemented,
amended, modified, released or waived only by a written instrument executed by
the Parties. Except as otherwise expressly provided in this Agreement, the
failure of any Party at any time or times to require performance of any
provision hereof shall in no manner affect such Party's right to enforce the
same. No waiver by any Party of any condition, or of the breach of any term,
provision, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such condition or
breach or a waiver of any other condition or of the breach of any other term,
provision, covenant, representation or warranty.
21.3 Severability. If any term or provision of this Agreement is held to
------------
be illegal, invalid or unenforceable, the legality, validity and enforceability
of the remaining terms and provisions of this Agreement shall not be affected
thereby, and in lieu of each such illegal, invalid or unenforceable term or
provision, there shall be added automatically to this Agreement a legal, valid
and enforceable term or provision as similar as possible to the term or
provision declared illegal, invalid or unenforceable.
21.4 Interpretation. Words of any gender used in this Agreement shall be
--------------
held and construed to include any other gender, and words in the singular shall
be held to include the plural, unless the context otherwise requires. None of
the terms or conditions of this Agreement, including any Exhibits or Schedules
hereto, shall be construed for or against any Party hereto on the basis that
such Party did or did not author the same. All terms of this Agreement and the
Exhibits shall be harmonized, but in the event of any conflict between the
definition of a term in Article I and a more complete description or limitation
of such term in a subsequent Article, the subsequent Article shall prevail. This
Agreement is being executed in connection with the Stock Purchase Agreement, as
amended by the Amendment, and the two instruments shall be harmonized, to the
extent possible, provided however, that no Party shall be entitled to receive
55
<PAGE>
duplicate payments (including, without limitation, duplicate payment of any
purchase price) or other relief regarding the same matters under both this
Agreement and the Stock Purchase Agreement, as amended, and the rights of the
Parties hereunder are subject to the terms of the Stock Purchase Agreement, as
amended by the Amendment. In the event of any conflict, redundancy or
inconsistency between the terms of the Stock Purchase Agreement, as amended, and
this Agreement (including without limitation any conflict, redundancy or
inconsistency with respect to the provisions relating to indemnification,
payment of purchase price, adjustments to the purchase price, transfer of the
Membership Interests, representations, warranties and covenants or any
provisions of the exhibits or schedules), the provisions of the Stock Purchase
Agreement, as amended, shall control and prevail in all respects. The Article
and Section headings are for convenience only and shall have no significance in
the interpretation hereof.
21.5 Counsel. Each Party expressly acknowledges that it was represented by
-------
counsel of its own selection in negotiation and preparation of the terms of the
Agreement and the attached Exhibits and that it is sophisticated and experienced
in transactions of this type and is aware of all terms and conditions contained
herein. Each Party shall be responsible for the costs and expenses of its own
counsel.
21.6 Governing Law. This Agreement and other documents delivered pursuant
-------------
to this Agreement and the legal relations between the Parties shall be governed
and construed and enforced in accordance with the laws of the State of Texas,
without giving effect to principles of conflict of laws.
21.7 Consents. Except as expressly provided otherwise herein, any consent
--------
required of a Party with respect to any matters covered by this Agreement shall
not be unreasonably withheld or action with respect thereto unduly delayed.
21.8 Time of Essence. Time is of the essence in all matters provided for
---------------
in this Agreement.
21.9 Binding Effect, Assignment. All the terms, provisions, covenants,
--------------------------
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the Parties and, except
as otherwise prohibited, their respective successors; however, this Agreement
and the rights and obligations hereunder shall not be assignable or delegable by
any Party without the express written consent of the non-assigning or non-
delegating Parties, which consent may be withheld for any or no reason; provided
that Buyer may assign some or all of its rights, duties and obligations under
this Agreement to an Affiliate of EEX Corporation. Any assignment or delegation
without such consent will be void.
21.10 No Relationship. Nothing contained in this Agreement shall be deemed
---------------
to create a joint venture, partnership, agency or other fiduciary relationship
between the Parties, nor is this Agreement intended to create, nor shall it be
construed to create, any rights in any third party, to create any third party
beneficiaries or to ratify, adopt or confirm any other lease, agreement or other
instrument, whether or not affecting Southeast, the Partnership or the Operating
Assets. Notwithstanding the above, the Parties acknowledge that the Transaction
shall be subject to the rights of all third parties holding Preferential Rights
to Purchase and Consents to Assignment
56
<PAGE>
concerning the Operating Assets, to the extent that they are valid, in effect
and enforceable by reason of the Transaction, and that such third party rights
shall be handled as set forth herein.
21.11 No Recordation. Without limiting any Party's right to file suit to
--------------
enforce its rights under this Agreement, Buyer and Seller expressly covenant and
agree not to record or place of record this Agreement or any copy or memorandum
hereof, unless required under the Securities Exchange Act of 1934.
21.12 Exhibits and Schedules. All Exhibits and Schedules which are
----------------------
referred to herein are hereby made a part hereof and incorporated herein by
reference.
21.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each and every counterpart shall be deemed for all purposes
one agreement.
21.14 No Third Party Beneficiaries. Any agreement contained, expressed or
----------------------------
implied in this Agreement shall be only for the benefit of the Parties hereto
and the Indemnified Parties specified in Article XV and their respective legal
representatives, successors and assigns. Such agreements shall not inure to the
benefit of any employees of Seller, Southeast or the Partnership (except in
their capacity as Indemnified Parties) or the obligees of any indebtedness of
any Party hereto, it being the intention of the Parties hereto that no Person
shall be deemed a third party beneficiary of this Agreement, except to the
extent a third Person is expressly given rights herein.
21.15 Joint and Several Liability. Tesoro Petroleum Corporation and
---------------------------
Tesoro Gas Resources Company, Inc. agree to be jointly and severally liable for
all of the Seller's duties and obligations hereunder.
57
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
SELLER BUYER
- ------ -----
TESORO PETROLEUM CORPORATION EEX OPERATING LLC
By:________________________________ By: EEX CORPORATION
Name:______________________________ By:___________________________
Title:_____________________________ Name:_________________________
Title:________________________
TESORO GAS RESOURCES COMPANY, INC.
By:________________________________
Name:______________________________
Title:_____________________________
58
<PAGE>
================================================================================
NATURAL GAS INVENTORY FORWARD SALE CONTRACT
DATED
DECEMBER 17, 1999
BETWEEN
EEX E&P COMPANY, L.P.,
as Seller
AND
BOB WEST TREASURE L.L.C.,
as Purchaser
================================================================================
<PAGE>
TABLE OF CONTENTS
Page No.
ARTICLE I - INTERPRETATION ........................................ 1
1.01. Definitions................................................ 1
1.02. Headings................................................... 7
1.03. Number..................................................... 7
1.04. Non-Business Days.......................................... 7
ARTICLE II - SALE AND PURCHASE OF NATURAL GAS ..................... 8
2.01. Sale and Purchase of Natural Gas........................... 8
2.02. Measurement and Quality.................................... 8
2.03. Delivery and Receipt of Natural Gas........................ 8
2.04. Payment of Costs and Fees.................................. 9
2.05. Default Delivery Points; OFO's............................. 9
2.06. Failure to Deliver/Liquidated Damages...................... 9
2.07. Possession, Title and Risk................................. 10
2.08. Royalties.................................................. 10
2.09. Taxes...................................................... 10
ARTICLE III - MARKETING............................................ 10
3.01. Designation of Agent....................................... 10
3.02. Available Gas.............................................. 10
3.03. Third Party Contracts...................................... 10
3.04. Purchase Price............................................. 11
3.05. Marketing Fee.............................................. 11
3.06. SWAP/Hedge Counterparty.................................... 11
3.07. Accounting................................................. 12
ARTICLE IV - REPRESENTATIONS AND WARRANTIES ....................... 12
4.01. Representations and Warranties of the Seller............... 12
4.02. Representations and Warranties of the Purchaser............ 15
4.03. Mutual Representations and Warranties...................... 16
ARTICLE V - AFFIRMATIVE AND NEGATIVE COVENANTS .................... 16
5.01. Affirmative Covenants of the Seller........................ 16
5.02. Negative Covenants of the Seller........................... 19
ARTICLE VI -EVENTS OF DEFAULT, TERMINATION AND LIQUIDATED DAMAGES.. 20
6.01. Events of Default.......................................... 21
6.02. Termination by the Purchaser............................... 21
6.03. Other Remedies............................................. 21
ARTICLE VII - MISCELLANEOUS ....................................... 22
7.01. Notice..................................................... 22
7.02. Interest................................................... 23
7.03. Governing Law.............................................. 24
7.04. Severability............................................... 24
7.05. Currency................................................... 24
7.06. Purchaser Not an Agent..................................... 24
7.07. Benefit of the Agreement................................... 24
i
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7.08. Assignment and Transfer.................................... 24
7.09 Entire Agreement........................................... 24
7.10 Amendments................................................. 24
7.11 No Waivers, Remedies....................................... 24
7.12. Time of the Essence........................................ 25
7.13. Counterparts............................................... 25
7.14 Third-Party Expenses....................................... 25
7.15. Disclosure of Information.................................. 25
7.16. Indemnity.................................................. 25
7.17. Arbitration................................................ 26
Annex I Conditions Precedent to Purchaser's Obligations
Annex II Conditions Precedent to Seller's Obligations
Schedule 4.01(n) Litigation
Schedule 4.01(o)(i) Obligations to Third Parties
Schedule 4.01(o)(ii) HPL Pipelines Connections
Schedule 4.01(p) Environmental Matters
Schedule 4.01(q) Pipeline and Production Balances and Penalties
Exhibit A Form of Opinion of General Counsel of EEX E&P Company,
L.P. and EEX
Exhibit B Form of Opinion of Akin Gump, Strauss, Hauer & Feld,
L.L.P., Special Counsel to EEX E&P Company, L.P. and EEX
Exhibit C Form of Opinion of Andrews & Kurth L.L.P., Special Counsel
to Purchaser
Exhibit 3.07 Form of Excess Gas Sales Agreements
ii
<PAGE>
NATURAL GAS PREPAID FORWARD SALE CONTRACT
This NATURAL GAS PREPAID FORWARD SALE CONTRACT (this "Agreement") is
entered into as of December 17, 1999, by and between EEX E&P Company, L.P., a
Delaware limited partnership, formerly known as Tesoro E&P Company, L.P., having
its principal place of business in Houston, Texas (hereinafter referred to as
the "Seller"), and Bob West Treasure L.L.C., a Delaware limited liability
company and having its principal place of business in Houston, Texas
(hereinafter referred to as the "Purchaser").
WHEREAS, Seller desires to sell and Purchaser desires to purchase certain
quantities of Natural Gas on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the respective covenants and agreements
of the parties hereinafter set forth and for good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged by each of the
parties), the parties hereby agree as follows:
ARTICLE I
INTERPRETATION
1.01 DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings indicated:
"A-1 Volumes" shall mean the volume of Natural Gas designated as such
in the Confirmation Letter.
"Agreement" shall have the meaning ascribed thereto in the
introductory paragraph hereto, as it may be amended, restated, extended or
otherwise modified from time to time.
"Applicable Instruments" of any Person shall mean its Regulations or
Articles of Organization, Certificate or Articles of Incorporation or the
Certificate of Limited Partnership, by-laws, partnership agreement and other
organizational documents of such Person and all contracts, indentures,
agreements, instruments and documents to which such Person is a party or by
which such Person or any assets of such Person may be bound or affected.
"Bankruptcy Code" means the Federal Bankruptcy Code of 1978, as
amended from time to time.
"Basis Differential" shall mean for each year during the term hereof
the amount designated as such for each Delivery Point for such year in the
Confirmation Letter.
"Btu" shall mean the amount of energy required to raise the
temperature of one pound of pure water one degree Fahrenheit from 59 degrees
Fahrenheit to 60 degrees Fahrenheit at one atmospheric pressure.
<PAGE>
"Business Day" shall mean a day, other than a Saturday or a Sunday, on
which commercial banks are not authorized or required to be closed in New
York, New York and Houston, Texas.
"Confirmation Letter" shall mean a letter to be executed by Purchaser
and Seller pursuant to Section 2.01 which contains certain terms and
conditions pertaining to the Sales Transaction.
"Dedicated Gas" shall mean natural gas that is currently dedicated and
sold to third parties under contracts existing as of the date hereof.
"Deficiency Quantity" shall mean in respect of a particular Delivery
Month the amount by which the Required Delivery Quantity of Natural Gas for
that Delivery Month exceeds the quantity of Natural Gas actually delivered
and received hereunder in respect of such Delivery Month.
"Default" shall mean the occurrence of any event which with the giving
of notice or the passage of time, or both, would become an Event of Default.
"Definitive Agreements" shall mean this Agreement, each Excess Gas
Sales Purchase Agreement, the EEX Undertaking, the Mortgage, the Letter
Agreement, the Fee Letter and any other documents executed in connection
herewith or therewith.
"Delivery Month" shall mean each calendar month commencing with the
month of January, 2000, through and including December, 2004.
"Delivery Point" shall mean a delivery point as set forth in the
Confirmation Letter.
"Designated Properties" shall mean each kind and character of right,
title, interest or estate, whether now owned or hereafter acquired, which
Seller has in and to all fee interests, oil and gas leaseholds and mineral
fee rights including, without limitation, all Properties (as such term is
defined in the Stock Purchase Agreement) and the Mortgaged Property (as such
term is defined in the Mortgage) and including all overriding royalty
interests, mineral interests, royalty interests, net profits interests, oil
payments, production payments, carried interests, operating rights, and all
other properties or interests of every kind or character which relate to any
fee, leasehold or mineral fee rights, whether such right, title, interest or
estate be under and by virtue of a lease, a unitization or pooling
agreement, a unitization or pooling order, an operating agreement, a revenue
sharing agreement, a division order, a transfer order, a farmout agreement,
a fee simple conveyance or any other type of contract, conveyance or
instrument or under any other type of claim or title, legal or equitable,
recorded or unrecorded, all as the same shall be enlarged by the discharge
of any payments out of production or by the removal of any charges or
encumbrances to which any of same are subject.
"Dispute" shall have the meaning specified in Section 7.17.
2
<PAGE>
"$" shall mean the lawful currency of the United States of America in
immediately available funds.
"EEX" shall mean EEX Corporation, a Texas corporation.
"EEX Reserves Funding" shall mean EEX Reserves Funding LLC, a Delaware
limited liability company.
"EEX Undertaking Agreement" shall mean that certain EEX Undertaking
Agreement dated the date of this Agreement executed by EEX for the benefit
of Purchaser.
"ENA" shall mean Enron North America Corp., a Delaware corporation.
"Environmental Laws" shall mean all final laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or
binding agreements issued, promulgated or entered into by any governmental
authority, relating in any way to the environment, preservation or
reclamation of natural resources, the management, release or threatened
release of any Hazardous Material or to health and safety matters to the
extent binding on Seller or affecting Purchaser or the Designated
Properties.
"Environmental Liability" shall mean any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnitees), of Seller directly or
indirectly resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage, treatment
or disposal of any Hazardous Materials in a manner that results in damage to
the environment, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e)
any contract, agreement or other consensual arrangement pursuant to which
liability is assumed or imposed with respect to any of the foregoing.
"Event of Default" shall have the meaning ascribed thereto in Section
6.01.
"Excess Gas Sales Purchase Agreements" shall mean that certain Enfolio
Master Firm Purchase/Sale Agreement and that certain Enfolio Master "Spot"
Purchase/Sale Agreement, each between Purchaser and Seller and dated the
date of this Agreement.
"Federal Funds Rate" shall mean, for any day, a fluctuating interest
rate per annum equal for such day to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if
such day is not a Business Day, for the immediately preceding Business Day)
by the Federal Reserve Bank of New York, or if such rate is not so published
for any day that is a Business Day, the average of the quotations for such
day on such transactions received by Purchaser from three Federal funds
brokers of recognized standing selected by Purchaser.
"Fee Letter" shall mean that certain letter agreement dated the date
of this Agreement among Seller, EEX and ECT Securities Limited Partnership.
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"Force Majeure" shall mean a failure by either party to perform
obligations hereunder, except for the obligation to make payment due
hereunder, to the extent that such failure is caused by war, riots,
insurrections, fires, explosions, sabotage, strikes and other labor or
industrial disturbances, acts of God or the elements, including, but not
limited to, freezing of wells, government laws, regulations or requests,
disruption or breakdown of production or transportation facilities, failures
of transporters in receiving and delivering Natural Gas tendered, compliance
with OFO's or other similar notices from a transporter, or by any other
cause reasonably beyond the control of such party, but does not include the
failure to perform obligations solely as a result of the fact that to do so
will result in economic loss or hardship to such party.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time in the United States of America.
"Governmental Requirement" shall mean all judgments, orders, writs,
injunctions, decrees, awards, laws, ordinances, statutes, regulations,
rules, franchises, permits, certificates, licenses, authorizations and the
like of any government or any commission, board, court, agency,
instrumentality or political subdivision thereof.
"Hazardous Material" shall mean all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical
wastes and all other substances or wastes of any nature regulated pursuant
to any Environmental Law.
"Index Price" shall mean, for any Delivery Month, the arithmetic
average of the closing settlement price for the last three scheduled trading
days for natural gas for the 1st Nearby Month Futures Contract deliverable
at Henry Hub corresponding to the relevant Delivery Month as listed on the
NYMEX, provided that if such price cannot be determined or is not otherwise
available, such price shall be determined by averaging the equivalent
quotations from four leading dealers (excluding ENA or any of its
affiliates), as selected by Purchaser in its sole discretion, in the natural
gas market.
"Lease" shall have the meaning specified in the Mortgage.
"Letter Agreement" shall mean that certain letter agreement dated the
date hereof, between Seller, EEX, ENA and Purchaser relating to the matters
contained therein.
"Lien" shall mean any mortgage, lien, charge, pledge, security
interest, hypothecation or encumbrance of any kind (whether voluntary or
involuntary and whether imposed or created by operation of law or otherwise)
or the interest of any vendor or lessor under any conditional sale
agreement, capital lease or title retention agreement relating to any asset,
or having the effect of protecting a creditor against loss or securing the
payment or performance of an obligation.
"MMBtu" shall mean one million Btus.
"Marketing Fee" has the meaning specified in Section 3.06.
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"Mortgage" shall mean that certain Mortgage, Deed of Trust, Assignment
of Production, Security Agreement and Financing Statement dated the date of
this Agreement (or the equivalent thereof) executed and delivered by Seller,
as mortgagor, for the benefit of Purchaser, as mortgagee, covering all of
Seller's interest in certain Designated Properties located in, or offshore
from, the States of Louisiana, Texas, North Dakota and New Mexico, together
with all related accounts, equipment, oil and gas inventory, fixtures,
contract rights, general intangibles and all proceeds of any of the
foregoing.
"Natural Gas" shall mean a mixture of gaseous hydrocarbons consisting
primarily of methane and meeting the quality standards and specifications
required pursuant to Section 2.02.
"NRI" shall mean, with respect to each well or unit located on or
attributable to the Designated Properties, the decimal net revenue interest
of Seller in the natural gas and other hydrocarbons produced from such well
or unit (after deducting Seller=s share of all royalties, overriding
royalties, and other similar burdens payable out of, or measured by,
production).
"NYMEX" shall mean the New York Mercantile Exchange, Inc. and any
successor thereto by merger, consolidation, or sale of assets.
"OFO's" shall have the meaning specified in Section 2.05 (b).
"Payment Date" shall mean for any Delivery Month, the last Business
Day of the month immediately following such Delivery Month.
"Permitted Encumbrances" shall have the meaning specified in the
Mortgage.
"Person" shall mean any individual, corporation, company, partnership,
joint venture, trust, unincorporated association, government or any
commission, board, court, agency, instrumentality or political subdivision
thereof, any other entity or any trustee, receiver, custodian or similar
official.
"Prepaid Price" shall be the dollar amount set forth as such in the
Confirmation Letter.
"Purchaser" shall have the meaning ascribed thereto in the
introductory paragraph hereto.
"Purchaser Gas" shall have the meaning specified in Section 2.07.
"Required Delivery Quantity" shall mean the number of MMBtu's of
Natural Gas to be delivered and received during a given Delivery Month
pursuant to this Agreement as agreed upon in the Confirmation Letter.
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"Sales Transaction" shall mean the sale, delivery, payment and
marketing of Natural Gas produced from the Designated Properties by Seller
and all related activities, in accordance with the terms of this Agreement
and the Definitive Agreements.
"Seller" shall have the meaning ascribed thereto in the introductory
paragraph hereto.
"Stock Purchase Agreement" shall mean that certain Stock Purchase
Agreement dated October 8, 1999, but effective as of July 1, 1999 entered
into among EEX, EEX Operating LLC, Tesoro Petroleum Corporation, a Delaware
corporation, and Tesoro Gas Resources Company, Inc., a Delaware corporation,
as amended by that certain First Amendment to Stock Purchase Agreement dated
December 16, 1999, but effective as of October 8, 1999 between such parties,
as such may be further amended or otherwise modified from time to time.
"Taxes" shall mean all ad valorem, property, occupation, severance,
production, energy, Btu, gathering, pipeline, utility, gross production,
sales, use, excise and transaction taxes and any other governmental charges
and assessments, other than taxes based on net income or net worth.
"Termination Date" shall have the meaning specified in Section 6.02.
"Termination Payment" shall mean the amount for the applicable month
set forth as such in the Confirmation Letter.
"Third Party Contract" shall have the meaning specified in Section
3.03.
"Third Party Purchaser" shall have the meaning set forth in Section
3.03(a).
"Unpaid Amounts" shall mean, with respect to the Termination Date, the
aggregate of the amounts that became payable to Purchaser hereunder prior to
the occurrence of the Termination Date and that remain payable as of the
Termination Date and any costs or expenses incurred by Purchaser in
exercising its remedies hereunder, any loss or costs incurred because of the
breakage or early termination of any ISDA or similar commodity or interest
rate hedge agreement entered into or assumed or accepted by Purchaser in
connection with any of this Agreement, the Definitive Agreements, the Sales
Transaction or the syndicated financing of this Agreement with any
unaffiliated third party of any of the above, provided, however, that if
there is a gain on such ISDA or similar commodity or interest rate hedge
agreements, the gain will offset the amounts described above and any excess
of such gain shall be paid to Seller.
"U.S. Base Rate" shall mean, at any time, a fluctuating interest rate
per annum as shall be in effect from time to time, which rate per annum
shall at all times be equal to the highest of:
(i) the rate of interest announced publicly by Chase Bank of
Texas, N.A., Houston, Texas from time to time, as its prime commercial
lending rate; or
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(ii) one-half of one percent per annum above the latest three-
week moving average of secondary market morning offering rates in the
United States for three-month certificates of deposit of major United
States money center banks, such three-week moving average being
determined weekly on each Monday (or, if any such day is not a
Business Day, on the next succeeding Business Day) for the three-week
period ending on the previous Friday by Purchaser on the basis of such
rates reported by certificate of deposit dealers to and published by
the Federal Reserve Bank of New York or, if such publication shall be
suspended or terminated, on the basis of quotations for such rates
received by Purchaser from three New York certificate of deposit
dealers of recognized standing selected by Purchaser, in either case
adjusted to the nearest one-quarter of one percent or, if there is no
nearest one-quarter of one percent, to the next higher one-quarter of
one percent; or
(iii) one-half of one percent per annum above the Federal Funds
Rate in effect from time to time.
"Wellhead Price" shall mean per MMBtu of Natural Gas, the Index Price
minus the Basis Differential.
1.02 HEADINGS. The division of this Agreement into Articles and Sections
and the insertion of an index and headings are for convenience of reference only
and shall not affect the construction or interpretation of this Agreement. The
terms "this Agreement," "hereof," "hereunder" and similar expressions refer to
this Agreement and not to any particular Article, Section, paragraph, Annex,
Schedule or other portion hereof and include any agreement supplemental hereto.
Unless something in the subject matter or context is inconsistent therewith,
references herein to Articles, Sections and paragraphs are to Articles, Sections
and paragraphs of this Agreement.
1.03 NUMBER. Words importing the singular number shall include the
plural and vice versa, and words importing the masculine gender shall include
the feminine and neuter genders and vice versa.
1.04 NON-BUSINESS DAYS. Whenever any action to be taken hereunder shall
be stated to be required to be taken or any payment to be made hereunder shall
be stated to be due on a day other than a Business Day, unless otherwise
specifically provided for herein, such payment shall be made or such action
shall be taken on the next succeeding Business Day if the due date was a Sunday
or a New York bank holiday which occurs on a Monday or on the last preceding
Business Day if the due date was a Saturday or a New York bank holiday other
than a Monday, and in the case of the payment of any monetary amount, the
extension or curtailment of time shall be taken into account for the purposes of
computation of interest or fees thereon.
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ARTICLE II
SALE AND PURCHASE OF NATURAL GAS
2.01 SALE AND PURCHASE OF NATURAL GAS. Seller hereby agrees to sell to
Purchaser and Purchaser hereby agrees to purchase from Seller the Required
Delivery Quantity of Natural Gas for each Delivery Month during the term of this
Agreement at the price designated herein. On or before December 17, 1999,
Purchaser and Seller shall agree upon and execute a Confirmation Letter. The
Confirmation Letter shall specify a mutually acceptable Prepaid Price (which
shall be approximately U.S. $105,000,000 in the aggregate for A-1 Volumes), the
date on which the Prepaid Price shall be paid (which date shall not be later
than December 17, 1999), and for each Delivery Month, the Delivery Points, the
Required Delivery Quantity, and the amount thereof to be delivered and received
at the Delivery Points, each as mutually agreed by Purchaser and Seller. On the
date specified for such purpose in the Confirmation Letter, Purchaser shall pay
to Seller the Prepaid Price by wire transfer of immediately available funds to
an account designated by Seller, provided that the conditions precedent set out
in Annex I have been satisfied by Seller and no Event of Default shall have
occurred. In consideration of the payment to Seller of the Prepaid Price,
Seller hereby agrees to sell and deliver, or cause to be delivered to the
Purchaser or to the account of Purchaser, in each Delivery Month, at the
Delivery Points, the Required Delivery Quantity of Natural Gas (in the amounts
set forth in the Confirmation Letter) on and subject to the terms and conditions
set forth in this Agreement, and the Purchaser hereby agrees to accept delivery
of such Natural Gas and to fulfill the conditions precedent set forth on Annex
II. Payment of the Prepaid Price shall constitute payment in full of the
purchase price of the Natural Gas to be delivered hereunder.
2.02 MEASUREMENT AND QUALITY. Natural Gas delivered pursuant to this
Agreement to a specific Delivery Point hereunder shall be measured by the
operator of such Delivery Point in accordance with its standard practices. All
such Natural Gas shall meet or exceed the requirements of any Third Party
Purchaser from the Delivery Point including, without limitation, requirements of
quality, composition, temperature and pressure.
2.03 DELIVERY AND RECEIPT OF NATURAL GAS. (a) Seller agrees to deliver
to Purchaser, and, except as otherwise provided in this Agreement, Purchaser
agrees to accept delivery from Seller in each Delivery Month at the Delivery
Points determined pursuant to this Agreement, the Required Delivery Quantity of
Natural Gas required to be delivered hereunder in such Delivery Month.
(b) Seller shall take such action as shall be necessary to schedule
properly the delivery and receipt of such Natural Gas at the Delivery Points in
each Delivery Month in compliance with all rules, regulations and procedures
applicable at such Delivery Points.
(c) Each Delivery Month, Seller shall arrange for delivery, and, except as
otherwise provided in Article III hereof, Purchaser shall arrange for receipt,
of Natural Gas to begin at the Delivery Points no later than the first calendar
day of the Delivery Month and to be completed no later than the last calendar
day of the Delivery Month. All deliveries and receipts shall be at hourly and
daily rates that are as uniform as possible over the course of the Delivery
Month in accordance with generally accepted pipeline scheduling practices.
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2.04 PAYMENT OF COSTS AND FEES. Seller shall pay all costs in connection
with transportation of the Natural Gas to the Delivery Points. Seller shall be
responsible for the payment of all hub fees (whether charged to Seller or
Purchaser) payable in connection with delivery of Natural Gas hereunder at any
Delivery Point. Seller shall be responsible hereunder for all insurance,
storage, processing, separation, compression, handling, treating, gathering,
transportation or other costs, fees or expenses in respect of the Natural Gas
delivered hereunder until such delivery.
2.05 DEFAULT DELIVERY POINTS; OFO'S. (a) Seller is obligated to deliver
to Purchaser and Purchaser is obligated to receive from the Seller, at the
Delivery Points, the Required Delivery Quantity of Natural Gas in accordance
with the terms and conditions of this Agreement and the Confirmation Letter. If
Seller is unable, after using all reasonable business efforts, to deliver the
Required Delivery Quantity of Natural Gas to the Purchaser at the Delivery
Points in the amounts agreed upon pursuant to this Agreement or Purchaser is
unable, after using all reasonable business efforts, to receive the Required
Delivery Quantity of Natural Gas from Seller at the Delivery Points in the
amounts agreed upon pursuant to this Agreement and the Confirmation Letter,
Seller shall be obligated to deliver and Purchaser shall be obligated to
receive, the relevant Required Delivery Quantity of Natural Gas at a comparable
delivery point reasonably acceptable to Purchaser, provided Seller hereby agrees
to pay and shall pay to Purchaser, as liquidated damages, any additional
transportation costs (including additional basis differential) based on said
acceptable comparable delivery point for all volumes delivered thereto.
(b) Should either party receive an operational flow order ("OFO") or other
order or notice from a transporter requiring action to be taken in connection
with this Agreement or Natural Gas flowing under this Agreement, such party
shall immediately notify the other party of the OFO and provide the other party
a copy of same by facsimile. The parties shall take all actions required by the
OFO within the time prescribed therein. Each party shall indemnify, defend and
hold harmless the other party from any damages or liability, including, without
limitation, all non-compliance penalties and attorneys' fees, associated with an
OFO (i) of which the indemnifying party failed to give the indemnified party the
notice required hereunder or (ii) under which the indemnifying party failed to
take the action required by the OFO within the time prescribed therein.
2.06 FAILURE TO DELIVER/LIQUIDATED DAMAGES. (a) If for any reason,
including as a result of Force Majeure, Seller does not or is unable to meet its
delivery obligation in respect of a Delivery Month at the Delivery Points or at
a comparable delivery point or points, then Seller shall pay and hereby agrees
to pay to Purchaser, as liquidated damages, the Wellhead Price per MMBtu times
the Deficiency Quantity of Natural Gas in respect of that Delivery Month.
Seller shall pay any and all amounts due under this Section 2.06 by wire
transfer of immediately available funds to such account as Purchaser may
designate not later than 5:00 p.m., Houston, Texas, time on the applicable
Payment Date.
(b) If a party is unable to perform any of its obligations to deliver or
receive gas hereunder for any reason, such party shall give notice and full
particulars of such event to the other party as soon as reasonably possible and,
if such failure is a result of Force Majeure, shall take all reasonable actions
necessary to remedy the event of Force Majeure.
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2.07 POSSESSION, TITLE AND RISK. Possession of and title to Natural Gas
delivered pursuant hereto, excluding any Dedicated Gas, shall pass from Seller
to Purchaser at the Delivery Points when the Natural Gas is accepted by the
pipeline for transport for Purchaser's account and is recorded by the proper
metering device (upon acceptance, such Natural Gas, excluding any Dedicated Gas,
being "Purchaser Gas"). Until such time, Seller shall be deemed to be in control
and possession of, have title to, and be responsible for such Natural Gas and,
after such time, Purchaser shall be deemed to have title to such Natural Gas
until such time as same is sold to any Third Party Purchaser.
2.08 ROYALTIES. Seller shall at all times have the obligation to make
settlements for all royalties and payments to mineral and royalty owners and all
other Persons having an ownership interest in the Natural Gas delivered by
Seller to Purchaser hereunder. SELLER HEREBY AGREES TO INDEMNIFY AND HEREBY
DOES INDEMNIFY PURCHASER AND SAVE IT HARMLESS FROM ALL SUITS, ACTIONS, DEBTS,
ACCOUNTS, DAMAGES, COSTS, LOSSES AND EXPENSES ARISING FROM OR OUT OF ADVERSE
CLAIMS OF ANY AND ALL PERSONS IN RESPECT OF ROYALTIES, TAXES, LICENSE FEES OR
CHARGES THEREON THAT ARE APPLICABLE BEFORE THE TITLE PASSES TO THE PURCHASER OR
THAT MAY BE LEVIED AND ASSESSED UPON SELLER IN RESPECT OF A SALE OF THE NATURAL
GAS TO PURCHASER.
2.09 TAXES. Seller is liable for and shall pay, cause to be paid or
reimburse Purchaser if Purchaser shall have paid, all Taxes applicable to the
Natural Gas sold hereunder prior to the time title to the Natural Gas has passed
to Purchaser.
ARTICLE III
MARKETING
3.01 DESIGNATION OF AGENT. Purchaser hereby designates Seller to be the
agent for Purchaser and authorizes Seller to take such actions on Purchaser's
behalf and to exercise such power to effect the sale of Purchaser Gas to third-
party purchasers and Seller hereby accepts such appointment.
3.02 AVAILABLE GAS. Seller, as Purchaser's agent, hereby agrees to and
will market, pursuant to this Article III for each Delivery Month during the
term of this Agreement, all Purchaser Gas accepted at the respective Delivery
Points or any acceptable comparable delivery point agreed to by Purchaser.
3.03 THIRD PARTY CONTRACTS. Seller will arrange for and effect on behalf
of Purchaser the sale of Purchaser Gas, pursuant to a firm contract (a "Third
Party Contract"), satisfying the following requirements:
(a) any Third Party Contract counterparty ("Third Party Purchaser")
must be a Person with a long-term unsecured debt rating of at least BBB-
from Standard & Poor's Ratings Group or Baa3 from Moody's Investors Service
or otherwise approved by Purchaser in writing, provided that Seller, on
behalf of Purchaser, may enter into any Third Party Contract with any
counterparty if such Third Party Contract (i) provides for a simultaneous
delivery of Natural Gas and payment in cash or (ii) provides
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for an unconditional, irrevocable letter of credit to secure the payment of
the Natural Gas to be delivered thereunder issued by a banking institution
with a BBB- rating or better.
(b) each Third Party Contract must be entered into prior to the time
Purchaser Gas is accepted at any Delivery Point, and all title to, and all
risk of loss, damage, or contamination to or of in respect of the Purchaser
Gas must be transferred to such Third Party Purchaser at the respective
Delivery Points immediately upon the delivery of the Natural Gas thereto.
(c) each Third Party Purchaser must be obligated for all
compression, transportation, storage, handling and other costs, fees or
expenses, and all Taxes applicable to Purchaser Gas at or after the time
title passes to such Third Party Purchaser at the respective Delivery
Points.
(d) (i) each Third Party Contract, the term of which is not in
excess of one (1) year, shall be in the form of a GISB contract with a bona
fide third party on an arms-length basis, and (ii) each Third Party
Contract, the term of which is one (1) year or greater, shall be in form
and substance mutually agreeable to Purchaser and Seller.
3.04 GUARANTEED PRICE. Seller agrees to pay and will pay to Purchaser
during the term of this Agreement the Wellhead Price per MMBtu of all Required
Delivery Quantity (it being recognized that some Natural Gas so delivered is
subject to previously existing sales contract with third parties) accepted by
Purchaser and available at the Delivery Points for each Delivery Month
irrespective of the resale price paid by any Third Party Purchaser pursuant to
any Third Party Contract or whether Seller collects said resale price from any
such Third Party Purchaser. Seller shall pay any and all amounts due under this
Section 3.04 by wire transfer of immediately available funds to such account as
Purchaser may designate not later than 5:00 p.m., Houston, Texas, time on the
applicable Payment Date.
3.05 MARKETING FEE. With respect to all volumes of Purchaser Gas
delivered and marketed by Seller hereunder during any Delivery Month, Seller
will be entitled to retain, as a marketing fee hereunder, all amounts received
from any Third Party Contract that are in excess of the Wellhead Price (the
"Marketing Fee"), if any. To the extent said amounts from Third Party Contracts
are less than the Wellhead Price, Seller shall be solely liable for said
shortfall.
3.06 SWAP/HEDGE COUNTERPARTY. Seller will use reasonable efforts to
notify and to give ENA, within a reasonable period of time to effect the
transaction, the opportunity to bid to become the counterparty on any Natural
Gas swap or hedge agreement that Seller enters into with respect to the Natural
Gas to be delivered hereunder, provided the failure to do so shall not be
considered a Default or Event of Default hereunder.
3.07 OPTION. Within a reasonable period of time to effect the transaction,
Seller shall offer to ENA, for purchase on a competitive basis pursuant to
customary industry practices, all volumes of Natural Gas produced from the
Designated Properties in excess of the Required Delivery Quantity, any such sale
to be documented by an Excess Gas Sales Purchase Agreement substantially in the
form of Exhibit 3.07 hereto, provided that Seller shall not be required to
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dedicate any such volumes to ENA and shall have no obligation to sell any such
volumes to ENA.
3.08 ACCOUNTING. Seller shall provide by facsimile to Purchaser on each
Payment Date an accounting of the payment made on such Payment Date, including
(a) the volume of Purchaser Gas, (b) the volume of Dedicated Gas and (c) the
volume of Deficiency Quantity, if any, (the sum of (a), (b) and (c) must equal
the Required Delivery Quantity), (d) the Wellhead Price for such Delivery Month
and (e) any basis differential in respect of any volumes delivered to any
acceptable comparable delivery point pursuant to Section 2.05.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 REPRESENTATIONS AND WARRANTIES OF THE SELLER. Seller represents and
warrants to Purchaser as follows:
(a) CORPORATE STATUS AND AUTHORITY. Seller is a limited partnership,
duly formed, validly existing and in good standing under the laws of the
State of Delaware and has all requisite power and authority to own its
properties, to conduct its business as conducted at present and to execute,
deliver and perform this Agreement .
(b) POWER AND AUTHORITY. The execution, delivery and performance by
Seller of this Agreement and the consummation of the transactions
contemplated by this Agreement are within Seller's power and authority and
have been duly authorized by all necessary partnership action.
(c) CONSENTS AND APPROVALS. No authorization, consent or approval
of, or other action by, or notice to or filing with, any governmental
authority, regulatory body or any other Person is required for the due
authorization, execution, delivery or performance by Seller of this
Agreement, any other Definitive Document to which it is a party or the
consummation of the transactions contemplated by this Agreement, except
those approvals that have been obtained, and those notices and filings that
have been made, copies of all of which have been delivered to Purchaser.
(d) EXECUTION AND DELIVERY. This Agreement has been duly executed
and delivered to Purchaser by Seller and is the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its
terms, except as the enforceability thereof may be limited by the effect of
any applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general principles of equity.
(e) COMPLIANCE WITH LAWS. Neither the execution, delivery and
performance by Seller of this Agreement nor the consummation of the
transactions contemplated by this Agreement (i) does or will violate any
provision of any Applicable Instrument of Seller or any Governmental
Requirement or (ii) does or will result in or require the creation or
imposition of any Lien on any properties, assets or revenues of Seller
except
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for Permitted Liens. Seller is in compliance in all material respects with
the Applicable Instruments of Seller and all Governmental Requirements
applicable to Seller.
(f) INVESTMENT COMPANY. Seller is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(g) PUBLIC UTILITY HOLDING COMPANY. Seller is not subject to
regulation as, or is exempt from regulation as. a "holding company" or a
"subsidiary company" of a "holding company," in each case as such term is
defined in the Public Utility Holding Company Act of 1935, as amended.
(h) COMMERCIAL PURPOSE. Seller has entered into this transaction for
commercial purposes related to its business as a producer, processor, or
merchandiser of Natural Gas or natural gas liquids. Seller has the
capacity, and intends, to make delivery of the Natural Gas to be delivered
hereunder. Seller is selling the Natural Gas in the ordinary course of
business.
(i) OWNERSHIP OF NATURAL GAS. The Natural Gas to be delivered by
Seller to Purchaser hereunder shall be delivered to Purchaser free and
clear of all Liens including Taxes and royalties for which Seller is
responsible, except for those in favor of Purchaser.
(j) OWNERSHIP AND TITLE STATUS OF DESIGNATED PROPERTIES. Seller has
good and indefeasible title to the Designated Properties, free and clear of
all Liens which individually or in the aggregate (i) operate to reduce
Seller's NRI in any Lease in respect of any Designated Property to less
than the NRI warranted to Purchaser in the Mortgage, (ii) increase Seller's
share of the cost of operations of any such Lease to more than the working
interest portion warranted to Purchaser in the Mortgage, or (iii) impair,
impede or prohibit (X) the granting of a Lien therein to Purchaser, (Y) the
foreclosure of such Lien, or (Z) the sale of the Natural Gas produced
thereon to Purchaser.
(k) SUFFICIENCY OF RESERVES. To the best of Seller's knowledge and
belief, the Designated Properties contain readily recoverable Natural Gas
reserves in excess of those required to meet all of Seller's obligation to
deliver Natural Gas to Purchaser hereunder in the Required Delivery
Quantities at the designated Delivery Points during each Delivery Month.
(l) SOLVENCY. Seller (i) has assets that exceed its liabilities,
(ii) has or has access to sufficient capital to carry on its business as
presently conducted and (iii) is able to pay its debts as they become due.
(m) ACCURACY OF INFORMATION. All information, engineering and other
reports and data delivered by Seller in connection with this Agreement and
the transactions are accurate in all material respects, do not contain any
material misstatement of fact or omit any fact necessary to make said
information or reports not misleading. Each delivery of any such material,
report or information shall automatically constitute a reaffirmation of
this warranty.
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(n) LITIGATION AND SIMILAR PROCEEDINGS. There are no suits,
investigations or proceedings pending, or to Seller's knowledge, threatened
against Seller or the Designated Properties except those disclosed on
Schedule 4.01(n). None of said lawsuits can reasonably be expected to have
a material adverse effect on Seller's ability to perform its obligation
hereunder.
(o) THIRD-PARTY ENCUMBRANCES OR REGULATORY REQUIREMENTS.
(i) The Designated Properties are unencumbered by any gas
contracts or other obligations to third parties that require delivery
of any Natural Gas produced therefrom to any third parties, except
for the royalty interests described in the Leases and as disclosed on
Schedule 4.01(o)(i) hereto, which contracts or obligations do not, as
of the date hereof, exceed 15% of the monthly production from the
Designated Properties; and
(ii) The Designated Properties described on Schedule 4.01(o)(ii)
hereto are the only Designated Properties connected to Houston Pipe
Line Company and none of such properties are dedicated or committed
to interstate commerce, within the meaning of the Natural Gas Act.
(p) ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 4.01(p),
Seller (i) has not failed to comply with any Environmental Law or to
obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, (ii) has not become subject to any
Environmental Liability, and (iii) has not received notice of any claim
with respect to any Environmental Liability.
(q) PRODUCTION AND PIPELINE BALANCES AND PENALTIES. Schedule 4.01(q)
accurately sets forth all material pipeline and production imbalances and
penalties arising with respect to the Designated Properties. Except as
disclosed in Schedule 4.01(q) and except for short-term operational
imbalances, (i) no purchaser is entitled to "make-up" or otherwise take or
receive deliveries of Natural Gas attributable to Seller's interest in the
Designated Properties without paying at the time of such deliveries the
full contract price therefor; (ii) no Person is entitled to receive any
portion of Seller's Natural Gas or to receive cash or other payments to
"balance" any disproportionate allocation of Natural Gas produced from the
Designated Properties under any operating agreement, gas balancing or
storage agreement, gas processing or dehydration agreement, gas
transportation agreement, gas purchase agreement, or other agreements,
whether similar or dissimilar; (iii) Seller is not obligated to deliver any
quantities of gas, or to pay any penalties or other amounts, in connection
with the violation of any of the terms of any gas transportation contract
or other agreement with shippers; (iv) no claim, notice, or order in
respect of any Governmental Regulation has been received by Seller due to
Natural Gas production from the Designated Properties being in excess of
allowables or similar violations which could result in curtailment of
Natural Gas production from the Designated Properties after the date
hereof; and (v) Seller is not obligated to pay any penalties or other
payments under any gas transportation or other agreement as a result of the
delivery of quantities of gas from the Designated Properties in excess of
the contract requirements.
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(r) YEAR 2000. All services and products used or useful in the
ownership, operation, use and maintenance of the Designated Properties
owned or leased by Seller will perform in all material respects date
sensitive functions before, during and after the year 2000.
4.02 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Seller as follows:
(a) CORPORATE STATUS AND AUTHORITY. Purchaser is a limited liability
company formed under the laws of the state of Delaware and has all
necessary corporate power and authority to carry on its business as now
being conducted by it. Purchaser has full power and authority to enter
into this Agreement and to do all acts and things and execute and deliver
all other documents as are required hereunder to be done, observed or
performed by it in accordance with the terms hereof.
(b) VALID AUTHORITY. Purchaser has taken all necessary corporate
action to authorize the creation, execution, delivery and performance by it
of this Agreement and for it to observe and perform the provisions of this
Agreement in accordance with its terms.
(c) VALIDITY OF DOCUMENTS AND ENFORCEABILITY. This Agreement
constitutes a valid and legally binding obligation of Purchaser enforceable
against it in accordance with its terms, except as the enforceability
thereof may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and by general principles of equity. Neither the execution
and delivery of this Agreement nor compliance with the terms and conditions
hereof by Purchaser (i) does or will result in a violation of the terms of
any Applicable Instrument of the Purchaser or any Governmental Requirement,
or (ii) requires any approval or consent of any governmental authority or
agency having jurisdiction except such as has already been obtained.
(d) COMMERCIAL PURPOSE. Purchaser has entered into this transaction
for commercial purposes related to its business as a producer, processor,
fabricator, or merchandiser of Natural Gas or natural gas liquids.
Purchaser has the capacity to take delivery of the Natural Gas to be
delivered hereunder. Purchaser is acquiring the Natural Gas in the ordinary
course of business.
(e) SOLVENCY. Purchaser (i) has assets that exceed its liabilities,
(ii) has or has access to sufficient capital to carry on its business as
presently conducted and (iii) is able to pay its debts as they become due.
4.03 MUTUAL REPRESENTATIONS AND WARRANTIES. Seller and Purchaser
mutually represent to each other that this Agreement and all transactions under
this Agreement constitute a "Forward Contract" under and in all proceedings
related to the United States Bankruptcy Code, as the same may be amended,
restated, replaced or re-enacted from time-to-time, and will be treated
similarly under and in all proceedings related to any bankruptcy, insolvency or
similar law (regardless of the jurisdiction of application or competence of such
law) or any ruling, order,
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directive or pronouncement made pursuant thereto and constitute a "Forward
Contract" under the Final Forward Contract Rules (also known as the Energy
Products Exemption) of the Commodity Futures Trading Commission as described in
58 Federal Register 21, 286 (1993).
ARTICLE V
AFFIRMATIVE AND NEGATIVE COVENANTS
5.01 AFFIRMATIVE COVENANTS OF THE SELLER. The Seller covenants and
agrees with the Purchaser that so long as any obligation of the Seller to
deliver Natural Gas or to make any payment is outstanding hereunder:
(a) COMPLIANCE WITH LAWS. Seller will comply in all material
respects with all Governmental Requirements hereunder (including all
applicable Environmental Laws) and all material agreements (including
operating agreements and field agreements) applicable to its concessions
and other exploration, exploitation and development rights with respect to
the Designated Properties, and to the lifting, treating, storing, handling,
and transporting of the Natural Gas. The Seller will comply in all material
respects with the Applicable Instruments of the Seller.
(b) MAINTENANCE OF CORPORATE EXISTENCE. Seller shall (i) maintain in
effect its partnership existence and all registrations necessary therefor,
(ii) maintain in good standing and full force and effect its concessions
and other exploration, exploitation and production rights with respect to
the Designated Properties and (iii) take all reasonable actions to maintain
all rights, privileges, titles, franchises and the like necessary to lift,
treat, store, handle, and transport the Natural Gas and shall not cause the
revocation, cancellation, lapsing, expiration or termination of its rights
in the Designated Properties.
(c) NOTICE OF EVENT OF DEFAULT. Seller will notify the Purchaser of
the occurrence of any event which with the passage of time or the giving of
notice, or both, would be an Event of Default promptly after becoming aware
of the same.
(d) QUALIFICATION. Seller will maintain its status as a foreign
entity duly qualified under the laws of all jurisdictions in which the
failure to be so qualified could have a material adverse effect on the
Seller by or before the first Delivery Month.
(e) PERFORMANCE. Seller shall unconditionally, fully, and faithfully
perform and carry out all of its obligations in respect of the Sales
Transaction under this Agreement and the Definitive Agreements and shall
deliver and market the Natural Gas in accordance with the terms of this
Agreement and the Definitive Agreements.
(f) REPORTING REQUIREMENTS. Seller shall deliver to Purchaser the
following:
(i) within one hundred and twenty (120) days after the close of
each fiscal year of Seller, the balance sheet of Seller as of the
end of such year which has been reviewed by EEX's independent public
accountants and the related statement of income and statement of
cash flows for such year of Seller, all prepared in accordance with
GAAP, which financial statements shall be certified
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by the chief financial officer of Seller as fairly presenting in all
material respects the financial condition of Seller as of the end of
such fiscal year and the results of its operations for such fiscal
year in accordance with GAAP.
(ii) Within sixty (60) days after the close of each of the
first three fiscal quarters of each fiscal year of Seller, the
balance sheet of Seller as of the end of such quarter and the
related statement of income and statement of cash flows for such
quarter of Seller, all prepared in accordance with GAAP, which
financial statements shall be certified by the chief financial
officer of Seller as fairly presenting in all material respects the
financial condition of Seller as of the end of such quarter and the
results of its operations for such quarter (subject to normal year-
end audit adjustments) in accordance with GAAP.
(iii) on each January 1 and July 1 during the term of this
Agreement commencing January 1, 2000, an engineering report prepared
as of such date covering the Designated Properties, prepared by EEX
and reviewed and approved by Netherland and Sewell or a nationally
recognized engineering firm acceptable to Purchaser, setting forth
information regarding the reserves and production of the Designated
Properties, all in form and substance similar to that presented in
the initial report of Netherlands and Sewell dated December 13,
1999, and reasonably satisfactory to Purchaser; provided that during
the continuance of any Default or Event of Default hereunder, such
engineering reports shall be prepared by Netherland and Sewell or a
nationally recognized engineering firm acceptable to Purchaser.
(iv) immediately upon the occurrence of any material violation
of any Environmental Laws, written notification by any regulatory or
governmental authority of any investigation of any incident relating
thereto or any similar event, a written notice to Purchaser of the
occurrence of such event and the actions Seller is taking in respect
thereof. Upon receipt of any such notice, Purchaser accompanied by
Seller's representative shall be entitled to conduct an
environmental review or audit of the affected properties.
(g) TAXES. Seller shall duly pay and discharge, or cause to be paid
or discharged, before the same shall become delinquent, all taxes,
assessments and other governmental charges imposed upon the Designated
Properties or the Natural Gas produced therefrom, except (i) such taxes,
assessments, or charges as are being contested in good faith by appropriate
proceedings and for which adequate reserves have been established in
accordance with GAAP and (ii) income taxes imposed on Purchaser as a result
of the transactions hereunder.
(h) MAINTENANCE OF PROPERTIES. Seller shall maintain the Designated
Properties in a good and workmanlike manner as would a prudent operator,
without regard to the fact that the Natural Gas has been sold to Purchaser
hereunder, and in accordance with customary industry practices and all
applicable laws, rules and regulations.
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(i) PAYMENT OF COSTS AND FEES. Seller will pay or cause to be paid
in accordance with their terms:
(i) all royalties (including overriding royalties, production
payments, net profit interests and other similar burdens on
production affecting any of the Designated Properties;
(ii) all costs of production and lease operating expenses incurred
in connection with the Designated Properties or the production of any
hydrocarbons therefrom;
(iii) all brokerage, finders or similar third-party fees incurred
or charged in connection with any of the Sales Transactions;
(iv) all Taxes incurred in connection with any Sales Transaction
regardless of where or when incurred; and
(v) all costs for treatment, compression, separation, processing,
storing and other handling of the Natural Gas required for delivery
into the pipeline and all gathering and transportation costs to
transport same to the relevant Delivery Point.
(j) CAPITAL EXPENDITURES. Seller will make capital expenditures into
the Designated Properties sufficient to provide a level of production
therefrom at least equal to the volumes projected in the engineering report
delivered to Purchaser prior to the execution of this Agreement.
Notwithstanding the foregoing, capital expenditures for exploration
activities shall not exceed in any calendar year the total of (i) net
revenue produced from the sale of Hydrocarbons from the Designated
Properties plus (ii) any infusion of subordinated debt into Seller, minus
the sum of: (X) other capital expenditures made pursuant to the preceding
sentence, (Y) expenses of operating the Designated Properties and (Z) the
actual general and administrative expenses of Seller incurred in the
operation of the Designated Properties.
(k) PURCHASER GAS. Prior to the time any Purchaser Gas for any
Delivery Month is accepted at any Delivery Point, Seller shall have entered
into valid and enforceable Third Party Contracts for all such volumes of
Purchaser Gas.
(l) G&A EXPENSES. Seller will spend a maximum of $1,900,000.00 per
calendar year during the term hereof for general and administrative
expenses (exclusive of exploration and production expenses).
(m) OPERATOR OF DESIGNATED PROPERTIES. Seller will either: (i)
remain as the operator of the Designated Properties during the term of this
Agreement, (ii) cause EEX or an affiliate of EEX approved by Purchaser to
be such operator or (iii) engage a substitute operator with such financial
strength, operating history and technical and engineering expertise as is
reasonably satisfactory to Purchaser.
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(n) MODIFICATION OF PRODUCTION RATES. Seller will maintain the
current production rates of the Designated Properties, provided Seller may
(i) accelerate or reduce said rate if Seller demonstrates to Purchaser's
reasonable satisfaction that Seller will remain capable of delivering all
Required Delivery Quantities hereunder in a timely manner and with reserve
coverage satisfactory to Purchaser, and (ii) make minor modifications to
production rates in accordance with customary industry practice or as
dictated by prudent operating requirements to preserve or enhance the value
of the Designated Properties. In the event Seller adjusts production rates
in a manner that results in the Designated Properties not being able to
deliver all of the Required Delivery Quantities in a timely manner and with
reserve coverage reasonably satisfactory to Purchaser, as determined by
Purchaser to its reasonable satisfaction, Purchaser may unilaterally modify
the Required Delivery Quantity for any or all Delivery Months (either
upward or downward) in any amount, such change to be effective immediately
upon notice thereof to Seller.
(o) SUPPLEMENTAL MORTGAGES. If Seller spends any funds on additional
seismic work, exploration or production of hydrocarbons on, or enters into
any assignment or farmout agreement in respect of, any of the Designated
Properties not covered by the Mortgage, Seller will execute a Mortgage on
said properties to the extent of its retained interest therein in favor of
Seller, within thirty (30) days of commencing such activity.
5.02 NEGATIVE COVENANTS OF THE SELLER. Seller covenants and agrees with
the Purchaser that so long as any obligation of Seller to deliver Natural Gas or
to make any payment is outstanding hereunder:
(a) ASSIGNMENTS OF DESIGNATED PROPERTIES. Seller will not assign or
otherwise transfer any interest in any of the Designated Properties, other
than sales to third parties for fair market value, in cash in an arms
length transaction. In the event of any such sale, unless the sold
Designated Properties are immediately replaced with properties containing
similar reserves of Natural Gas, similar production profiles and comparable
risks of production, all as determined by Purchaser in its sole and
absolute discretion, Purchaser may unilaterally modify the Required
Delivery Quantity for any or all Delivery Months (either upward or
downward) in any amount, such change to be effective immediately upon
notice thereof to Seller.
(b) ENCUMBRANCES. Seller will not grant or permit any Liens on the
Designated Properties other than the Permitted Encumbrances.
(c) DISTRIBUTION. Seller will not make any dividends or
distributions of cash or any other assets during the term of this
Agreement, except for one (1) initial distribution of approximately
$105,000,000 made on the date hereof, for the purpose for repaying the
financing provided by EEX for a part of the purchase price of the equity
interests of certain of Seller's partners.
(d) DEBT. Seller will not incur any debt for borrowed money other
than subordinated debt on terms generally comparable to those contained in
that certain
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Subordinated Note dated as of the date hereof executed by EEX Reserves
Funding in the face amount of $176,277,533 with a discounted principal
amount of $100,000,000, which terms, among other items, (i) will not
require or permit any principal payment or any cash interest payment
thereon of any kind, but (ii) which may require or permit payment of
interest in kind and (iii) may provide for conversion of such debt to
equity in EEX Reserves Funding, after all of Seller's obligations under
this Agreement and the Definitive Agreements have been satisfied in full.
ARTICLE VI
EVENTS OF DEFAULT, TERMINATION AND LIQUIDATED DAMAGES
6.01 EVENTS OF DEFAULT. Each of the following events shall constitute
an "Event of Default" by the Seller under this Agreement:
(a) Seller shall fail to pay when due any amounts owed to Purchaser
pursuant to this Agreement and such failure shall continue for five (5)
days; or
(b) Seller shall fail to perform or observe any term, covenant or
agreement contained in Section 5.02 of this Agreement; or
(c) Seller shall fail to perform or observe any material term,
covenant or agreement herein contained or contained in any Definitive
Agreement to which Seller is a party (other than any term, covenant or
agreement whose breach or default in performance is specifically dealt with
elsewhere in this Section 6.01) and such failure shall remain unremedied
for thirty (30) days; or
(d) any representation or warranty made by the Seller in this
Agreement or by Seller or EEX in any other Definitive Agreement shall prove
to have been incorrect in any material respect when made or deemed made, it
being agreed that the representations in the last sentence of Section
4.01(h) and in Section 4.01(i) are deemed made upon each delivery of
Natural Gas hereunder; or
(e) EEX shall fail to perform or observe any material term, covenant
or agreement contained in the EEX Undertaking Agreement or any other
Definitive Agreement to which it is a party and such event failure shall
remedied for ten (10) days; or
(f) Either Seller or EEX shall generally not pay its debts as such
debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors,
or any proceeding shall be instituted by or against Seller or EEX seeking
to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding
up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property, and in
the case of any such proceeding instituted against it (but not yet
instituted by it), shall remain undismissed or unstayed for a period of
thirty (30) days or
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the Seller or EEX, as appropriate, shall take any partnership or corporate
action to authorize any of the actions set forth above in this subsection
(f); or
(g) any interpretation, enactment or change or amendment to any
Governmental Requirement occurring after the date of this Agreement that
results or would result in the performance of any obligation of Seller to
deliver Natural Gas under this Agreement being prohibited or unlawful.
6.02 REMEDIES AND TERMINATION BY THE PURCHASER. If at any time an Event
of Default has occurred and is continuing, Purchaser may, by notice to Seller
specifying the relevant Event of Default, designate a day not earlier than the
day such notice is effective as a termination date ("Termination Date");
provided, however, that if an Event of Default pursuant to Section 6.01(f) shall
have occurred, the Termination Date shall occur immediately on the occurrence of
such Event of Default. Upon the designation or occurrence of a Termination Date,
the obligation of Seller to make any further deliveries of Natural Gas to
Purchaser under this Agreement will terminate, and Seller's appointment as
Purchaser's agent under Article III hereunder, together with all rights of
Seller as Purchaser's agent, shall immediately terminate, without prejudice to
the other provisions of this Agreement. If notice of the Termination Date is
given, or if the Termination Date is deemed to occur, Seller shall pay to the
Purchaser an amount equal to the Termination Payment together with any Unpaid
Amounts. All amounts payable under this Section 6.02 shall become due and shall
be payable on the day after the Termination Date. Such amount will be paid
together with (to the maximum extent permitted by applicable law) interest
thereon (before as well as after judgment) from (and including) the Termination
Date to (but excluding) the date such amount is paid, at the rate specified in
Section 7.02. The parties agree that the sum of the Termination Payment plus any
Unpaid Amounts is a reasonable pre-estimate of the damages that would be
incurred by Purchaser as a result of an Event of Default and not a penalty.
6.03 OTHER REMEDIES. If all amounts payable on the Termination Date
shall not have been received on such date by Purchaser, Purchaser may proceed to
protect and enforce its rights, either by suit in equity or by action at law or
both, whether for the specific performance of any covenant or agreement
contained in this Agreement or in any other Definitive Agreement or in aid of
the exercise of any power, right or remedy granted in this Agreement or any
other Definitive Agreement (including, without limitation, the Mortgage) or may
proceed to enforce the payment of all amounts owing to Purchaser under this
Agreement or any other Definitive Agreement (including, without limitation, any
sums specified as liquidated damages, any sums owing based on unpaid Wellhead
Price payments or any Unpaid Amounts, together with interest thereon to the
extent provided herein); it being intended that no remedy conferred herein or in
any of the other Definitive Agreements is to be exclusive of any other remedy,
and each and every remedy contained herein or in any other Definitive Agreement
shall be cumulative and shall be in addition to every other remedy given
hereunder and under the other Definitive Agreements or now or hereafter existing
at law or in equity.
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ARTICLE VII
MISCELLANEOUS
7.01 NOTICE. All notices and other communications provided for hereunder
shall be in writing and mailed, delivered or telecopied:
To Seller:
EEX E&P Company, L.P.,
2500 CityWest Boulevard, Suite 1400
Houston, Texas 77042
Attention: Vice President, Finance
Telecopier No.: 713-243-3321
Telephone No.: 713-243-3100
With a copy to:
EEX Corporation
2500 CityWest Boulevard, Suite 1400
Houston, Texas 77042
Attention: General Counsel
Telecopier No.: (713) 243-3359
Telephone No.: (713) 243-3100
To Purchaser:
Bob West Treasure L.L.C.
1400 Smith Street
Houston, Texas 77002
Attention: Donna Lowry
Telecopier No.: (713) 646-4039
Telephone No.: (713) 853-1939
With a copy to:
Enron North America Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Gerald Carman
Telecopier No.: (713) 646-2654
Telephone No.: (713) 853-1471
All such notices and communications shall, if mailed, be effective three
days after being deposited in the mails, if sent by telecopier, upon receipt of
legible and complete copies by the receiving telecopier equipment; if sent by
courier other than overnight courier, upon receipt; if sent by overnight
courier, one Business Day after delivery to the courier company; provided, that
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telecopied communications received by any party after its normal business hours
(or on other than a Business Day) shall be effective on the next Business Day.
Either party may change its address or telecopy number for receipt of
communications hereunder by giving notice of such change to the other party in
accordance with this Section 7.01.
7.02 INTEREST. (a) If any monetary amounts payable under this Agreement
are not paid when due, then such overdue amounts shall bear interest for each
day until paid in full, payable on demand, both before and after default,
judgment and the Termination Date, at the lesser of the U.S. Base Rate plus four
percent (4%) per annum, as it changes from time to time or the highest non-
usurious rate allowed by applicable law.
(b) Any and all amount payable by Seller under this Agreement which may be
deemed to be interest are expressly limited so that in no event whatsoever shall
any amount paid, or agreed to be paid to Purchaser, or charged, contracted for,
reserved, taken or received by Purchaser for the use, forbearance or detention
of money paid under this Agreement exceed that amount of money which would cause
the effective rate of interest to exceed the highest nonusurious rate of
interest allowed by applicable law. Any amounts owed under this Agreement shall
be held to be subject to reduction to the effect that such amounts so paid or
agreed to be paid, charged, contracted for, reserved, taken or received for the
use, forbearance or detention of money under this Agreement shall in no event
exceed that amount of money which would cause the effective rate of interest to
exceed the highest nonusurious rate of interest allowed by applicable law.
Seller shall not be required to pay any unearned interest or to pay interest in
excess of the highest nonusurious rate of interest allowed by applicable law. If
the effective rate of interest which would be payable under this Agreement
exceeds the highest nonusurious rate allowed by applicable law, or if Purchaser
receives any unearned interest, or receives any monies deemed to be constitute
interest which would increase the effective rate of interest to a rate in excess
of the highest nonusurious rate allowed by applicable law, then (a) the amount
of interest which would otherwise be payable by Seller shall be reduced to the
amount allowed under applicable law and (b) any unearned interest or interest in
excess of the highest nonusurious rate shall be credited on any amounts owing to
Purchaser (or if such shall have been paid in full, refunded to Seller). All
calculations of the rate of interest hereunder are made for the purpose of
determining whether such rate exceeds the highest nonusurious rate allowed by
applicable law and shall be made by amortizing, prorating and spreading in equal
parts during the full term of the Agreement.
7.03 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD RESULT IN THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION.
7.04 SEVERABILITY. In the event that one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect under any applicable law the validity, legality or enforceability of the
remaining provisions hereof shall not be affected or impaired thereby. Each of
the provisions of this Agreement is hereby declared to be separate and distinct.
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7.05 CURRENCY. Unless otherwise stated, all amounts expressed herein in
terms of money refer to the United States Dollar and all payments to be made
hereunder shall be made in such currency.
7.06 PURCHASER NOT AN AGENT. Purchaser acknowledges and confirms that
all purchases of Natural Gas hereunder are being made by it as a principal and
that it is not acting as agent for any other Person in connection with purchases
of Natural Gas hereunder.
7.07 BENEFIT OF THE AGREEMENT. This Agreement shall inure to the benefit
of and be binding upon the Seller, the Purchaser and their respective successors
and assigns.
7.08 ASSIGNMENT AND TRANSFER. Seller may not assign any rights or
delegate any obligations hereunder, except to an affiliate of Seller, without
the prior written consent of Purchaser in its sole discretion. Prior to any
Default hereunder, Purchaser may not assign its rights hereunder to any third
party without the prior written consent of Seller, which consent shall not be
unreasonably withheld, except to affiliates of Purchaser or to financial
institutions, to whom it may assign without consent.
7.09 ENTIRE AGREEMENT. THIS AGREEMENT AND THE DEFINITIVE AGREEMENTS
CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE
SUBJECT HEREOF AND SUPERSEDE ANY PRIOR AGREEMENT, UNDERTAKING, DECLARATIONS,
COMMITMENTS OR REPRESENTATIONS, WRITTEN OR ORAL, IN RESPECT THEREOF.
7.10 AMENDMENTS. This Agreement may not be modified or amended except
by an instrument in writing signed by the Purchaser and the Seller or by their
respective successors or permitted assigns.
7.11 NO WAIVERS, REMEDIES. No failure to exercise and no delay in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law except
as otherwise expressly provided herein.
7.12 TIME OF THE ESSENCE. Time shall be of the essence of this
Agreement.
7.13 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which may be delivered in original or facsimile form but each of which so
executed shall be deemed to be an original and such counterparts together shall
constitute one and the same instrument.
7.14 THIRD-PARTY EXPENSES. Seller agrees to pay all of Purchaser's
third party expenses and reasonable professional fees (incurred with the prior
approval of Seller or EEX), all reasonable legal fees and other transaction
costs incurred in the evaluation and negotiation of the proposed Sales
Transaction, this Agreement and the other Definitive Agreements within thirty
(30) days of the date of invoice and all fees and expenses of Purchase in
connection with the enforcement of Purchaser's rights hereunder or thereunder.
7.15 DISCLOSURE OF INFORMATION. Seller agrees that it will not disclose,
without the prior consent of Purchaser (other than to its employees, auditors or
counsel or its holding or parent
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company), any information with respect to Purchaser or any affiliate thereof or
in respect of the Sales Transaction, this Agreement or any Definitive Agreement,
provided that Seller may disclose any such information (a) as has become
generally available to the public, (b) as may be required or appropriate in
response to any summons or subpoena or in connection with any litigation, or (c)
in order to comply with any law, order, regulation or ruling applicable to such
party.
7.16 INDEMNITY. Seller will, and hereby does, indemnify Purchaser, its
affiliates and their respective directors, officers, agents, representatives,
and employees (the "Indemnitees") against all claims, losses, actions,
liabilities, judgments, costs, reasonable attorneys' fees and other charges of
whatsoever kind or nature, including, without limitation, consequential and
punitive damages (collectively, "Claims") made against or incurred by them or
any of them which arise out of or in connection with this Agreement (including
the marketing provisions contained herein), the Sales Transaction or any of the
Definitive Agreements. IT IS THE EXPRESS INTENTION OF SELLER THAT SELLER'S
INDEMNIFICATION OBLIGATIONS WITH RESPECT TO THE FOREGOING MATTERS SHALL INCLUDE
ANY CLAIMS RESULTING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE OF ANY
INDEMNITEE OR ANY CLAIM ARISING UNDER ANY THEORY OF STRICT LIABILITY; PROVIDED,
THAT NO INDEMNITEE SHALL BE ENTITLED TO INDEMNIFICATION FOR ANY CLAIM RESULTING
FROM ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED BY A COURT OF
COMPETENT JURISDICTION IN A FINAL, NONAPPEALABLE JUDGMENT. If any Claim is
asserted against any Indemnitee and such Indemnitee intends to claim
indemnification from Seller under this Section 7.16, such Indemnitee shall
promptly notify Seller, but the failure to so promptly notify Seller shall not
affect Seller's obligations under this Section 7.16. Each Indemnitee may, and
if requested by Seller in writing shall, in good faith contest the validity,
applicability, and amount of such claim, demand, action, or cause of action with
counsel selected by such Indemnitee and reasonably acceptable to Seller, the
cost of which defense shall be borne by Seller, and shall permit Seller to
participate in such contest. Any Indemnitee that proposes to settle or
compromise any claim or proceeding for which Seller may be liable for payment of
indemnity hereunder shall give Seller written notice of the terms of such
proposed settlement or compromise reasonably in advance of settling or
compromising such claim or proceeding and shall obtain Seller's prior written
consent, which consent shall not be unreasonably withheld, provided, any
Indemnified Party may settle such claim without Seller's consent if such
Indemnitee simultaneously releases Seller for any liability therefor. In
connection with any claim, demand, action, or cause of action covered by this
Section 7.16 against more than one Indemnitee, each Indemnitee shall be
represented by legal counsel selected by it. The terms and provisions of this
Section 7.16 shall specifically survive the termination or expiration of this
Agreement.
7.17 ARBITRATION. (a) DISPUTES TO BE ARBITRATED. If a dispute
("Dispute") between the parties to this Agreement arises out of or in connection
with this Agreement and the parties hereto have not been successful in resolving
such Dispute through negotiation, such Dispute shall be resolved by binding
arbitration pursuant to the Federal Arbitration Act. The arbitration may be
initiated by either party by providing to the other a written notice of
arbitration specifying the Disputes to be arbitrated. If a party refuses to
honor its obligations to arbitrate, the other party may seek to compel
arbitration in either federal or state court. The arbitration proceeding shall
be conducted in Houston, Texas, or other location mutually agreed upon by the
parties. Within thirty (30) days of the notice initiating the arbitration
procedure, each party shall designate one arbitrator, who need not be impartial.
If either party fails to designate an
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arbitrator, the other party may have an arbitrator appointed by applying to the
senior active United States District Judge for the Southern District of Texas.
The two arbitrators shall select a third arbitrator. If the two arbitrators
chosen by the parties fail to agree upon the third arbitrator, both or either of
the parties may apply to the senior active United States District Judge for the
Southern District of Texas for the appointment of a third arbitrator. The third
arbitrator shall take an oath of neutrality.
(b) ARBITRATION PROCEDURES. The three arbitrators shall make all of their
decisions by majority vote. The enforcement of this Agreement to arbitrate, the
validity, construction and interpretation of this Agreement to arbitrate, and
all procedural aspects of the proceeding pursuant to this Agreement to
arbitrate, including, without limitation, the issues subject to arbitration, the
scope of the arbitrable issues, allegations of "fraud in the inducement" to
enter into this entire Agreement or to enter into this Agreement to arbitrate,
allegations of waiver, delay or defenses to arbitrability, and the rules
governing the conduct of the arbitration, shall be governed by and construed
pursuant to the Federal Arbitration Act. In deciding the substance of the
parties' Disputes, the arbitrators shall apply the substantive laws of the State
of Texas (excluding Texas choice of law principles that might call for the
application of some other state's law). The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, except as modified in this Agreement. It is contemplated that
although the arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, the arbitration
proceeding will be self-administered by the parties, provided, if a party
believes the process will be enhanced if it is administered by the American
Arbitration Association, such party shall have the right to cause the process to
become administered by the American Arbitration Association by applying to the
American Arbitration Association and, thereafter, the arbitration shall be
conducted pursuant to the administration of the American Arbitration
Association. In determining the extent of discovery, the number and length of
depositions, and all other pre-hearing matter, the arbitrators shall endeavor to
the extent possible to streamline the proceedings and minimize the time and cost
of the proceedings. There shall be no transcript of the hearing. The final
hearing shall be conducted with 120 days of the selection of the third
arbitrator. The final hearing shall not exceed ten (10) Business Days, with each
party to be granted one-half of the allocated time to present its case to the
arbitrators. All proceedings conducted hereunder and the decision of the
arbitrators shall be kept confidential by the parties.
(c) ARBITRATION AWARD. Only damages allowed pursuant to the Agreement may
be awarded. It is expressly agreed that the arbitrators shall have no authority
to award treble, exemplary or punitive damages of any type under any
circumstances regardless of whether such damages may be available under Texas
law, each of the parties hereby waving their right, if any, to recover treble,
exemplary or punitive damages in connection with any Dispute, either in
arbitration or in litigation. The arbitrators shall render their final decision
within twenty (20) days of the completion of the final hearing fully resolving
all of the Disputes that are the subject of the arbitration proceeding. The
arbitrators' ultimate decision after final hearing shall be in writing. The
arbitrators shall certify in their decision that no part of their award includes
any amount for treble, exemplary or punitive damages not allowed hereunder. The
arbitrators' decision shall be final and non-appealable to the maximum extent
permitted by law. Any and all of the arbitrators' orders and decisions may be
enforceable in, and judgment upon any award
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<PAGE>
rendered in the arbitration proceeding may be confirmed and entered by, any
federal or state court having jurisdiction.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date first written above.
SELLER
EEX E&P COMPANY, L.P. (formerly known as
Tesoro E&P Company, L.P.)
By: EEX Exploration & Production Company,
LLC (formerly known as Tesoro
Exploration & Production Company,
LLC), its General Partner
By:_____________________
J. T. Leary
Title:__________________
PURCHASER
BOB WEST TREASURE L.L.C.
By:_____________________
James R. McBride
Vice President
<PAGE>
Annex I
TO NATURAL GAS INVENTORY FORWARD SALE CONTRACT
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Execution by Seller and delivery to Purchaser of each of the following in each
case in form and substance satisfactory to Purchaser in its sole discretion:
1) (a) the Agreement,
(b) the Excess Gas Sales Purchase Agreements,
(c) the Mortgage,
(d) Fee Letter,
(e) Letter Agreement,
(f) UCC-1 Financing Statements as required by Purchaser, and
(g) the Confirmation Letter.
2) Execution by EEX and deliver to Purchaser of each of the following
documents:
(a) the EEX Undertaking Agreement in favor of Purchaser,
(b) Fee Letter and
(c) Letter Agreement.
3) Delivery to Purchaser of a certificate of the secretary and other
appropriate officer of each of Seller, EEX Reserves Funding and EEX
certifying a copy of the resolutions of the Board of Directors of each of
Seller, EEX Reserves Funding and EEX, as the case may be (a) approving the
execution of this Agreement and the documents listed above to which such
Person is a party, together with any other documents requested by Seller in
contemplation of the transactions evidenced by such documents and (b)
authorizing the execution of such documents by the parties thereto, as
applicable.
4) Delivery to Purchaser of a legal opinion of Akin, Gump, Strauss, Hauer &
Feld, L.L.P., Special Counsel to EEX, EEX Reserves Funding and Seller
substantially in the form of Exhibit B hereto.
5) Delivery to Purchaser of a legal opinion of Janice K. Hartrick, General
Counsel to Seller substantially in the form of Exhibit A hereto.
6) Delivery to Purchaser of an executed copy of Stock Purchase Agreement,
including all schedules and exhibits attached thereto and a certificate of
an appropriate officer of each of EEX and EEX Operating LLC that such
agreement is in full force and effect and no default exists thereunder.
<PAGE>
7) Purchase by EEX of the Subordinated Note of EEX Reserves Funding in the face
amount of $176,277,533 with a discounted principal amount of $100,000,000
and advance of the proceeds thereof to EEX Reserves Funding.
8) Evidence satisfactory to Purchaser that EEX has made an equity infusion into
EEX Reserves Funding of not less than $3,000,000.00.
9) Delivery of all title opinions covering at least 70% of the net present
value of future production of Natural Gas (discounted at 10% per annum) from
the Designated Properties in the possession of Seller and satisfactory title
information on the balance of the Designated Properties.
10) Delivery of engineering reports prepared by Netherland and Sewell dated on
or about the date of this Agreement, together with any subsequent updates of
such reports, covering the Designated Properties.
11) Delivery to Purchaser of an executed copy of the Operating Services
Agreement between Seller and EEX or an affiliate of EEX covering the
Designated Properties.
12) Delivery to Purchaser of copies of all gas gathering, transportation,
processing and treating, operating and other arrangements with all
transporting pipelines and/or other third parties and all existing
dedications by Seller or any predecessor in title.
13) Delivery to Purchaser of an environmental report prepared by CRA Services
covering the Designated Properties.
14) All matters disclosed on any Schedule and Exhibit hereto to this Agreement
being acceptable to Purchaser.
15) Purchaser shall have received such consents and waivers as required by
Purchaser.
16) Purchaser shall have completed to its reasonable satisfaction a due
diligence review of Seller, its partners and the Designated Properties
including without limitation title, engineering, environmental, financial,
tax and operating matters and all related contracts.
17) Delivery to Purchaser of the Applicable Instruments for each of Seller; EEX;
EEX Reserves Funding; EEX Operating LLC; Tesoro Grande Company, LLC; Tesoro
Southeast Company, LLC; Tesoro Exploration and Production Company, LLC and
Tesoro Reserves Company, LLC.
18) Seller and EEX shall have performed all of their respective obligations
under the Fee Letter.
19) Seller and EEX shall each have performed all of its obligations under the
Letter Agreement.
<PAGE>
20) Seller shall have provided evidence to Purchase that all Liens incurred in
connection with any financing arrangements burdening the Designated
Properties will be released upon Seller's acquisition of the Designated
Properties.
21) Local counsel opinions with respect to the Mortgage from counsel in each of
Texas, New Mexico, North Dakota and Louisiana.
22) Delivery to Purchaser of any other information, documentation and/or
material as reasonably requested by Purchaser.
<PAGE>
Annex II
TO NATURAL GAS INVENTORY FORWARD SALE CONTRACT
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
1) Execution by Purchaser and delivery to Seller of each of the following, each
in form and substance satisfactory to Seller:
(a) this Agreement,
(b) the Excess Gas Sales Purchase Agreements,
(c) the Fee Letter, and
(d) the Confirmation Letter
2) Evidence satisfactory to Seller that Purchaser or its affiliate or designee
has made an equity infusion into EEX Reserves Funding of $3,000,000.00
3) Delivery to Seller of a legal opinion of Andrews & Kurth L.L.P.,
substantially in the form of Exhibit C attached hereto.
<PAGE>
CALL AGREEMENT
THIS CALL AGREEMENT (this "Agreement"), is made and entered into as of
December 17, 1999, among EEX CAPITAL, INC., a Delaware limited liability
company ("Buyer") and BOB WEST TREASURE L.L.C. ("Seller").
WHEREAS, contemporaneous with the formation of EEX Reserves Funding LLC, a
Delaware limited liability company (the "Company"), (i) Seller acquired 300
membership units ("Units") in the Company (the "Interest"), (ii) Buyer acquired
6 Units, and (iii) and an affiliate of Buyer acquired 294 Units; and
WHEREAS, Buyer and Seller have agreed that Buyer shall have the option as
set forth in Section 1 below, and upon execution by EEX E&P Company, a Delaware
limited partnership ("EEX E&P"), EEX E&P shall have the option set forth in
Section 2 below.
NOW, THEREFORE, in consideration of the agreements and mutual covenants and
agreements contained herein, Buyer and Seller agree as follows:
1. Call Option.
a. Ability to Call. At any time after the termination of that
certain Natural Gas Inventory Forward Sale Contract dated the date hereof,
between Seller and EEX E&P (formerly Tesoro E&P Company, L.P.) (the
"Forward Sale Agreement"), Buyer shall have the option to purchase, and
thereupon Seller shall have the obligation to sell, the Interest at a price
equal to the Call Price as defined in paragraph 1b (such option to sell and
reciprocal obligation to purchase are hereinafter referred to as the
"Call"). If Buyer wishes to exercise the Call, Buyer shall deliver a
written notice (the "Call Notice") to Seller notifying Seller of its desire
to exercise the Call. The closing for the purchase by Buyer of the
Interest upon exercise of the Call shall occur at Buyer's principal office,
or at such other place as shall be mutually agreeable to Seller and Buyer,
within three business days after the receipt by Seller of the Call Notice
(such date of closing is hereinafter referred to as the "Call Closing
Date").
b. Call Price. For purposes of this Letter Agreement, "Call Price"
shall mean a price equal to the lesser of $5,000,000 and the fair market
value of the Interest, provided that the fair market value shall not exceed
the equity percentage represented by the Interest in the oil and gas
reserves of Tesoro E&P Company, L.P. (to be renamed EEX E&P Company, L.P.)
(measured by the PV-10 value of such reserves, meaning the value of future
net cash flows from proved reserves before taxes discounted at a rate of
10%). At Buyer's option, the Call Price may be paid in cash or common stock
of EEX Corporation ("EEX Stock"), or a combination of cash and EEX Stock,
the value of shares of which will be determined based on the average
closing price of EEX Stock for the five business days preceding the Call
Closing Date.
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c. Termination of Call. The Call shall terminate five years after the
date of termination of the Forward Sale Contract.
2. Option to Terminate Forward Sale Agreement. EEX E&P, at its option and
independently from the Call, upon sixty (60) days prior written notice to Buyer
and Seller, may terminate the Forward Sale Agreement and repurchase all Natural
Gas previously sold under the Forward Sale Agreement, by paying to Seller the
Termination Payment plus all Unpaid Amounts. Following such payment, the
Forward Sale Agreement shall be automatically terminated without the need for
further action by any party. Capitalized terms in this Paragraph 2 have the
meaning ascribed to such terms in the Forward Sale Agreement.
3. Notices. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be delivered in accordance with, and pursuant to the terms
and conditions regarding notices set forth in the Limited Liability Company
Agreement of the Company.
4. Binding Effect; Assignment; No Third Party Benefit. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Except as otherwise expressly
provided in this Agreement, neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties. Nothing in this
Agreement, express or implied, is intended to or shall confer upon any Person
other than the parties hereto, and their respective successors and permitted
assigns, any rights, benefits, or remedies of any nature whatsoever under or by
reason of this Agreement.
5. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by Applicable Law.
6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
7. Counterparts. This Agreement may be executed by the parties hereto in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same agreement. Each counterpart may consist
of a number of copies hereof each signed by less than all, but together signed
by all, the parties hereto.
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed by their duly authorized representatives, all as
of the day and year first above written.
BUYER:
EEX CAPITAL, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
SELLER:
BOB WEST TREASURE L.L.C.
By:_______________________________
Name:_____________________________
Title:____________________________
Upon execution of this Agreement by EEX E&P or by its duly authorized
representative, where indicated below, EEX E&P will have the option to terminate
the Forward Sale Agreement as provided in Section 2 above.
EEX E&P COMPANY, L.P.
By: EEX Exploration and Production Company,
LLC, its General Partner
By:______________________________
Name:____________________________
Title:___________________________
3
<PAGE>
SUBORDINATED CONVERTIBLE NOTE
US $176,277,533 EEX Reserves Funding LLC
THIS CONVERTIBLE NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE, (3) TO A LIMITED NUMBER OF INSTITUTIONAL "ACCREDITED INVESTORS"
(AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT)
THAT, PRIOR TO THEIR PURCHASE OF ANY SECURITIES OFFERED HEREBY, DELIVER TO
THE INITIAL PURCHASERS A LETTER CONCERNING CERTAIN REPRESENTATIONS AND
AGREEMENTS AND (3) IN ACCORDANCE WITH ALL APPLICABLE LAWS OF THE STATES OF
THE UNITED STATES.
EEX Reserves Funding LLC, a Delaware limited liability company, for
value received, hereby by promises to pay to EEX Corporation, or its registered
assigns, the principal sum at Stated Maturity of $176,277,533, on December 31,
2009.
1. Principal and Interest.
EEX Reserves Funding LLC, a Delaware limited liability company (such
company and its successors and assigns hereinafter referred to, being herein
called the "COMPANY"), promises to pay the principal amount of this Convertible
Note to the Holder hereof on December 31, 2009.
This Convertible Note is issued at a discounted principal value of
$100,000,000. This Convertible Note will accrete in value in the manner
specified below in this paragraph at a rate of 11 1/2% per annum, compounded
quarterannually, on each March 31, June 30, September 30 and December 31,
commencing on March 31, 2000, to an aggregate principal amount of $176,277,533
by December 31, 2004. Thereafter, interest will accrue on this Convertible Note
at a rate of 14 1/2% per annum from December 31, 2004 and will be payable in
cash quarterannually on March 31, June 30, September 30 and December 31 of each
year (an "INTEREST PAYMENT DATE"), commencing on March 31, 2005, to the Holder
hereof until the principal amount is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, subject to certain exceptions provided for in this
Convertible Note be paid to the Person in whose name this Convertible Note (or
the Convertible Note in exchange or substitution for which this Convertible Note
was issued) is registered at the close of business on the Record Date for the
interest payable on such Interest Payment Date. The Record Date for any
interest payment is the close of business on March 15, June 15, September 15, or
December 15, as the case may be, whether or not a Business Day,
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<PAGE>
immediately preceding the Interest Payment Date on which such interest is
payable. Any such interest not so punctually paid or duly provided for
("DEFAULTED INTEREST") shall forthwith cease to be payable to the Holder on such
Record Date and shall be paid as provided below in this Section 1. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
To the extent lawful, the Company shall pay interest on (i) if prior
to March 31, 2004, any overdue Accreted Value of (and premium, if any, on) this
Convertible Note or, if on or after March 31, 2004, any overdue principal amount
at Stated Maturity of (and premium, if any, on) this Convertible Note, at the
interest rate borne on this Convertible Note plus 1% per annum, and (ii)
Defaulted Interest (without regard to any applicable grace period), at the same
rate. The Company's obligation pursuant to the previous sentence shall apply
whether such overdue amount is due at its maturity, by acceleration or
otherwise.
"ACCRETED VALUE" is defined to mean for any date of determination (a
"SPECIFIED DATE"), the amount provided below for each $1,000 principal amount at
Stated Maturity of the Convertible Notes:
(a) if the Specified Date occurs on one of the following dates (each
a "QUARTER-ANNUAL ACCRUAL DATE"), the Accreted Value will equal the amount set
forth below for such Quarter-Annual Accrual Date:
Quarter-Annual Accrual Date Accreted Value
- --------------------------- --------------
March 31, 2000........................................... $ 583.60
June 30, 2000............................................ 600.38
September 30, 2000....................................... 617.64
December 31, 2000........................................ 635.39
March 31, 2001........................................... 653.66
June 30, 2001............................................ 672.45
September 30, 2001....................................... 691.79
December 31, 2001........................................ 711.68
March 31, 2002........................................... 732.14
June 30, 2002............................................ 753.18
September 30, 2002....................................... 774.84
December 31, 2002........................................ 797.12
March 31, 2003........................................... 820.03
June 30, 2003............................................ 843.61
September 30, 2003....................................... 867.86
December 31, 2003........................................ 892.81
March 31, 2004........................................... 918.48
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<PAGE>
Quarter-Annual Accrual Date Accreted Value
- --------------------------- --------------
June 30, 2004............................................ 944.89
September 30, 2004....................................... 972.05
December 31, 2004........................................ $1000.00
(b) if Specified Date occurs before the first Quarter-Annual Accrual
Date, the Accreted Value will equal the sum of (i) $567.29 and (ii) an amount
equal to the product of (A) the Accreted Value for the first Quarter-Annual
Accrual Date less the original issue price multiplied by (B) a fraction, the
numerator of which is the number of days from the Issue Date to the Specified
Date, using a 360-day year of twelve 30-day months, and the denominator of which
is the number of days elapsed from the Issue Date to the first Quarter-Annual
Accrual Date, using a 360-day year of twelve 30-day months;
(c) if Specified Date occurs between two Quarter-Annual Accrual
Dates, the Accreted Value will equal the sum of (i) the Accreted Value for the
Quarter-Annual Accrual Date immediately preceding such Specified Date and (ii)
an amount equal to the product of (A) the Accreted Value for the immediately
following Quarter-Annual Accrual Date less the Accreted Value for the
immediately preceding Quarter-Annual Accrual Date multiplied by (B) a fraction,
the numerator of which is the number of days from the immediately preceding
Semi-Annual Accrual Date to the Specified Date, using a 360-day year of twelve
30-day months, and the denominator of which is 90; or
(d) if the Specified Date occurs after the last Quarter-Annual
Accrual Date, the Accreted Value will equal $1,000.
2. Method of Payment. The Company shall pay interest on this Convertible
Note to the registered Holder of this Convertible Note as provided above. The
Company will pay principal and interest in money of the United States of America
that at the time of payment is legal tender for payment of all debts public and
private. Principal and interest will be payable by wire transfer of Federal
Funds.
3. Optional Redemption. The Convertible Notes will be redeemable at the
option of the Company at any time after (but not before) the payment in full of
all of the Company's obligations, if any, under the Definitive Agreements (the
"SENIOR OBLIGATIONS") at a Redemption Price equal to the Accreted Value on the
Redemption Date, if redeemed prior to December 31, 2004, or the Principal Amount
at Stated Maturity, if redeemed after December 31, 2004, plus in any such case
accrued and unpaid interest (if any) to the Redemption Date. At least 3 Business
Days but no more than 30 days before a Redemption Date, the Company shall give a
written notice of redemption to the Registered Holder whose Convertible Notes
are to be redeemed. Such notice shall state the Repayment Date (which shall be a
Business Day) and the Redemption Price.
If less than all of the Convertible Notes are to be redeemed at any
time, the Convertible Notes to be redeemed will be on a pro rata basis. If any
Convertible Note is redeemed subsequent to a Record Date with respect to any
Interest Payment Date specified above
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<PAGE>
and on or prior to such Interest Payment Date, then any accrued interest will be
paid on such Interest Payment Date to the Holder of the Convertible Note on such
Record Date.
The Convertible Notes are not subject to any sinking fund.
4. Transfer and Exchange. By its acceptance of any Convertible Note
represented by a certificate bearing the Private Placement Legend, each Holder
of, and beneficial owner of an interest in, such a Convertible Note acknowledges
the restrictions on transfer of such a Convertible Note set forth in the Private
Placement Legend set forth on each Convertible Note issued on the Issue Date and
agrees that it will transfer such a Convertible Note only in accordance with the
Private Placement Legend.
In connection with any transfer of a Convertible Note bearing the
Private Placement Legend, each Holder agrees to deliver to the Company such
satisfactory evidence, which may include an opinion of independent counsel
licensed to practice law in the State of Texas, as reasonably may be requested
by the Company, to confirm that such transfer is being made in accordance with
the limitations set forth in the Private Placement Legend. In the event the
Company determines that any such transfer is not in accordance with the Private
Placement Legend, the Company shall not be required to register such transfer.
Upon the registration of transfer, exchange or replacement of a
Convertible Note not bearing the Private Placement Legend, the Company shall
deliver a Convertible Note that does not bear the Private Placement Legend.
Upon the transfer, exchange or replacement of a Convertible Note bearing the
Private Placement Legend, the Company shall deliver a Convertible Note bearing
the Private Placement Legend, unless such legend may be removed from such
Convertible Note as provided in the next sentence. The Private Placement Legend
may be removed from a Convertible Note if there is delivered to the Company such
satisfactory evidence, which may include an opinion of independent counsel
licensed to practice law in the State of Texas, as reasonably may be requested
by the Company to confirm that neither such legend nor the restrictions on
transfer set forth therein are required to ensure that transfers of such
Convertible Note will not violate the registration and prospectus delivery
requirements of the Securities Act. Upon provision of such evidence, the
Company shall execute and deliver in exchange for such Convertible Note, a
Convertible Note or Convertible Notes (representing the same aggregate principal
amount at Stated Maturity of the Convertible Note being exchanged) without such
legend. If the Private Placement Legend has been removed from a Convertible
Note, as provided above, no other Convertible Note issued in exchange for all or
any part of such Convertible Note shall bear such legend, unless the Company has
reasonable cause to believe that such other Convertible Note represents a
"restricted security" within the meaning of Rule 144.
5. Subordination of Convertible Notes. The Indebtedness evidenced by this
Convertible Note is, to the extent provided below, subordinate and subject in
right of payment to the prior payment in full of all Senior Obligations. Each
Holder of this Convertible Note agrees to and shall be bound by these
provisions.
(a) Prior Payment to Senior Obligations. Until such time as all
Senior Obligations are paid in full by the Company, the holders of the Senior
Obligations shall be entitled to receive payment in full of all amounts due or
to become due on or in respect of all
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<PAGE>
Definitive Agreements before the Holders of the Convertible Notes are entitled
to receive any payment or distribution of any kind or character, whether in
cash, property or securities, on account of principal of or premium, if any, or
interest on the Convertible Notes and on account of any amounts due in respect
of any Convertible Notes, provided that nothing shall prohibit any accretion in
value of the Convertible Notes as contemplated by the terms of Section 1 of this
Convertible Note; and to that end until the Senior Obligations are paid in full,
the holders of the Senior Obligations shall be entitled to receive, for
application to the payment thereof, any payment or distribution of any kind or
character, whether in cash, property or securities, including any such payment
or distribution which may be payable or deliverable by reason of the payment of
any other indebtedness of the Company being subordinated to the payment of the
Convertible Notes, which may be payable or deliverable in respect of the
Convertible Notes, including without limitation, all such payments or
distributions made in any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
relative to the Company or its creditors or to a substantial part of its assets,
or any proceeding for the liquidation, dissolution or other winding up of the
Company or any other assignment for the benefit of creditors or other
marshalling of assets and liabilities of the Company.
In the event that, notwithstanding the foregoing provisions of this
Section, the Holder of this Convertible Note shall have received any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, including any such payment
or distribution which may be payable or deliverable by reason of the payment of
any other indebtedness of the Company being subordinated to the payment of the
Convertible Notes, before all Senior Obligations are paid in full or payment
thereof provided for, then and in such event such payment or distribution shall
be paid over or delivered forthwith to the Company or, if applicable, the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent
or other person making payment or distribution of assets of the Company for
application to the payment of all Senior Obligations remaining unpaid, to the
extent necessary to pay all Senior Obligations in full, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Obligations.
Notwithstanding any provisions of this Section, the Holder of this
Convertible Note may receive (i) securities of the Company or other Person as
reorganized or readjusted, or securities of the Company or any other Person
which are Equity Interests or subordinated in right of payment to all Senior
Obligations which may at the time be outstanding to substantially the same
extent as, or to a greater extent than, the Convertible Notes are so
subordinated as provided in this Section or (ii) any accretion in value as
contemplated by the terms of Section 1 of this Convertible Note. The
consolidation of the Company with, or the merger of the Company into, another
Person shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or marshalling of assets
and liabilities of the Company for the purposes of this Section.
(b) No Waiver of Subordination Provisions. No right of any present or
future holder of any Senior Obligations to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any non-compliance by the
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Company with the terms, provisions and covenants of this Convertible Note,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
Without in any way limiting the generality of the foregoing, the
holders of Senior Obligations may, at any time and from time to time, without
the consent of or notice to the Holder of this Convertible Note, without
impairing or releasing the subordination provided herein or the obligations
hereunder of the Holder of this Convertible Note to the holders of Senior
Obligations, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of performance or payment of, or renew or
alter, Senior Obligations, or otherwise amend or supplement in any manner Senior
Obligations or any instrument evidencing the same or any agreement under which
Senior Obligations is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Obligations; (iii) release any Person liable in any manner for the collection of
Senior Obligations; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
(c) Reinstatement. To the extent any payment of or distribution in
respect of the Senior Obligations (whether by or on behalf of the Company, as
proceeds of security or enforcement of any right of set off or otherwise) is
declared to be fraudulent or preferential, set aside or required to be paid to
any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
person under any bankruptcy, insolvency, receivership, fraudulent conveyance or
similar law, then if such payment or distribution is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Senior Obligations or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
has not occurred.
(d) Subrogation to Rights of Holders of Senior Obligations. Subject
to the prior payment in full of all amounts due on or in respect of the Senior
Obligations, the Holders of the Convertible Notes shall be subrogated to the
extent of the payments or distributions made to the holders of such Senior
Obligations pursuant to the provisions of this Convertible Note to the rights of
the holders of such Senior Obligations to receive payments and distributions of
cash, property and securities applicable to the obligations of the Company under
the Senior Obligations until the principal of, premium, if any, on, interest on,
and any other amounts due in respect of, the Convertible Notes shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Obligations of any cash, property or securities to which
the Holders of the Convertible Notes would be entitled except for the provisions
of this Convertible Note, and no payments over pursuant to the provisions of
this Convertible Note to the holders of the Senior Obligations by Holders of the
Convertible Notes or the Trustee, shall, as among the Company, its creditors
other than holders of obligations of the Company under the Senior Obligations
and the Holders of Convertible Notes, be deemed to be a payment or distribution
by the Company, to or on account of the Senior Obligations.
(e) Provisions Solely to Define Relative Rights. The provisions of
this Convertible Note are and are intended solely for the purpose of defining
the relative rights of the Holders of the Convertible Notes on the one hand and
the holders of Senior Obligations on the other hand. Nothing contained in this
Convertible Note is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Obligations and the Holders of the
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Convertible Notes, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Convertible Notes, the principal of,
premium, if any, on, interest on, and any other amounts due in respect of the
Convertible Notes as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the
Company, if any, of the Holders of the Convertible Notes and creditors of the
Company other than the holders of Senior Obligations; or (c) prevent the Holder
of this Convertible Note from exercising all remedies otherwise permitted by
applicable law upon default hereunder, subject to the rights, if any, under this
Section of the holders of Senior Obligations to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such Holders.
(f) Certain Conversions Deemed Payment. For the purposes of the
subordination provisions, (a) neither the issuance and delivery of junior
securities upon conversion of Convertible Notes in accordance with Section 6 nor
the accretion in value of this Convertible Note in accordance with the
provisions of Section 1 shall be deemed to constitute a payment or distribution
on account of the principal of, premium, if any, on, interest on, or other
amounts due in respect of, Convertible Notes or on account of the purchase or
other acquisition of Convertible Notes and (b) the payment, issuance or delivery
of cash, property or securities (other than junior securities) upon conversion
of a Convertible Note shall be deemed to constitute payment on account of the
principal of such Convertible Note. For the purposes of this Section, the term
"JUNIOR SECURITIES" means (i) shares of any class of Equity Interests of the
Company and (ii) securities of the Company which are subordinated in right of
payment to all Senior Obligations which may be outstanding at the time of
issuance or delivery of such securities to substantially the same extent as, or
to a greater extent that, the Convertible Notes are so subordinated as provided
in this Convertible Note. Nothing contained in the Convertible Notes is intended
to or shall impair, as among the Company, its respective creditors other than
holders of Senior Obligations and the Holders of the Convertible Notes, the
right, which is absolute and unconditional, of the Holder of this Convertible
Note to convert this Convertible Note in accordance with and subject to the
provisions of this Convertible Note.
6. Conversion Rights of Convertible Notes. Subject to and upon compliance
with the provisions of this Convertible Note, the Holder of this Convertible
Note is entitled, at his, her or its option, at any time after (but not before)
the payment in full of the Senior Obligations, to convert this Convertible Note
(or any portion of the principal amount at Stated Maturity hereof which equals
$10,000 or any integral multiple hereof) at the principal amount at Stated
Maturity hereof, or such portion thereof, into fully paid and nonassessable Unit
(calculated as to the nearest 1/100 of a Unit of the Company at a conversion
price (the "CONVERSION PRICE") of $3,333 of Accreted Value if converted on or
prior to December 31, 2004, or of principal amount at Stated Maturity if
converted after December 31, 2004, per Unit (or in each case at the current
adjusted Conversion Price if an adjustment has been made as provided herein) by
surrender of this Convertible Note, duly endorsed or assigned to the Company or
in blank, at any office or agency of the Company maintained for that purpose
accompanied by written notice to the Company in the form provided for in this
Convertible Note (or such other notice as is acceptable to the Company) that the
Holder hereof elects to convert this Convertible Note or, if less than the
entire principal amount thereof is to be converted, the portion thereof to be
converted. The right to convert Convertible Notes which have been called for
redemption will terminate at the close of business on the Redemption Date. In
the case of any Convertible Note which is surrendered for conversion during the
period from the close of business on any Record Date through and
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including the next succeeding Interest Payment Date (other than any Convertible
Note whose maturity is prior to such Interest Payment Date), interest whose
Stated Maturity is on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Convertible Note is registered at the close of
business on such Record Date; provided that Convertible Notes surrendered for
conversion subsequent to any such Record Date shall (except in the case of
Convertible Notes or portions thereof which have been called for redemption on a
Redemption Date within such period) be accompanied by payment in Federal Funds
or other funds acceptable to the Company of an amount equal to the interest
payable on such Interest Payment Date on the principal amount being surrendered
for conversion. Except as provided in the immediately preceding sentence, in the
case of any Convertible Note which is converted (a) interest whose Stated
Maturity is after the date of conversion of such Convertible Note shall not be
payable, and (b) no payment or adjustment shall be made upon conversion on
account of any dividends or distributions on the Units of the Company issued
upon conversion. No fractional Unit of the Company shall be issued upon
conversion of Convertible Notes, but instead of any fractional Unit, the Company
shall pay a cash adjustment in an amount equal to such fraction multiplied by
the Conversion Price.
Convertible Notes shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of such Convertible Notes
for conversion in accordance with the foregoing provisions, and at such time the
rights of the Holders of such Convertible Notes as Holders shall cease, and the
Person or Persons entitled to receive the Units of the Company issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such Units as and after such time. As promptly as practicable on or after the
conversion date, the Company shall issue and shall deliver to the Holders a
certificate or certificates for the number of full Units of the Company issuable
upon conversion, together with payment in lieu of any fraction of an Unit, as
provided above.
In the case of any Convertible Note which is converted in part only,
upon such conversion the Company shall execute and deliver to the Holder
thereof, at the expense of the Company, a new Convertible Note or Convertible
Notes of authorized denominations in aggregate principal amount equal to the
unconverted portion of the principal amount of such Convertible Note.
7. Adjustment of Conversion Price.
(a) In case the Company shall make a dividend or other distribution
on any class or series of Equity Interests of the Company exclusively in Units
of the Company (other than a distribution referred to in paragraph (c) of this
Section), the Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of holders of Units entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
Units of the Company outstanding at the close of business on the date fixed for
such determination and the denominator shall be the sum of such number of Units
and the total number of Units constituting such dividend or other distribution,
such reduction to become effective immediately after the opening of business on
the day following the date fixed for such determination. In case the Company
shall make a dividend or other distribution on its Units in shares of its Equity
Interests
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other than Units, and such dividend or distribution would not otherwise require
reduction of the Conversion Price pursuant to paragraph (d), then the Conversion
Price and the number and kind of shares of Equity Interests of the Company
issuable upon the conversion of a Convertible Note (as in effect immediately
prior to such dividend or distribution) shall be proportionately adjusted, so
that the Holder of any Convertible Note thereafter converted may receive the
aggregate number and kind of Equity Interests of the Company that such Holder
would have owned immediately following such dividend or distribution if such
Convertible Note had been converted immediately prior thereto. For the purpose
of this paragraph (a), the amount of Units of the Company at any time
outstanding shall not include Units held in the treasury of the Company but
shall include Units issuable in respect of scrip certificates issued in lieu of
fractions of Units. The Company shall not pay any dividend or make any
distribution on Units held in the treasury of the Company.
(b) Subject to the last sentence in paragraph (e) of this Section, in
case the Company shall make a dividend or other distribution on its Units
consisting exclusively of, or shall otherwise issue to all holders of its Units,
rights, options or warrants entitling the holders thereof to subscribe for or
purchase Units or securities convertible into or exchangeable for Units at a
price per share (determined on an as-converted or as-exercised basis if the
rights, options or warrants pertain to securities convertible into or
exchangeable Units) which is less than the Current Market Price on the date
fixed for the determination of holders of Units entitled to receive such rights,
options or warrants, the Conversion Price in effect at the opening of business
on the day following the date fixed for such determination shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator shall be
the number of Units outstanding at the close of business on the date fixed for
such determination plus the number of Units which the aggregate of the offering
price (including the minimum consideration payable upon conversion or exchange
of securities convertible into or exchangeable for Units) of the total number of
Units offered for subscription or purchase would purchase at such Current Market
Price and the denominator shall be the number of Units outstanding at the close
of business on the date fixed for such determination plus the number of Units so
offered for subscription or purchase, such reduction to become effective
immediately after the opening of business on the day following the date fixed
for such determination. For the purposes of this paragraph (b), the number of
Units at any time outstanding shall not include Units held in the treasury of
the Company but shall include Units issuable in respect of scrip certificates
issued in lieu of fractions of such Units. The Company shall not issue any
rights, options or warrants in respect of Units held in the treasury of the
Company.
(c) In case outstanding Units of the Company shall be subdivided into
a greater number of Units, the Conversion Price in effect at the opening of
business on the day following the day upon which such subdivision becomes
effective shall be proportionately reduced, and, conversely, in case outstanding
Units shall be combined into a smaller number of Units, the Conversion Price in
effect at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
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(d) (i) Subject to the last sentence of paragraph (e) of this
Section, in case the Company shall, by dividend or otherwise, distribute to all
holders of its Units evidences of its Indebtedness, shares of any class of
Equity Interests, cash or other assets (including securities, but excluding any
rights, options or warrants referred to in paragraph (b) of this Section,
excluding any dividend or distribution paid exclusively in cash out of
consolidated current or retained earnings as shown on the books of the Company
prepared in accordance with generally accepted accounting principals and
excluding any dividend or distribution referred to in paragraph (a) or (c) of
this Section), the Conversion Price shall be reduced by multiplying the
Conversion Price in effect immediately prior to the close of business on the
date fixed for the determination of Unitholders entitled to such distribution by
a fraction of which the numerator shall be the Conversion Price (determined as
provided in paragraph (h) of this Section) on such date less the fair market
value (as determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors) on such date
of the portion of the evidences of Indebtedness, Equity Interests, cash and
other assets to be distributed applicable to Units and the denominator shall be
such Conversion Price, such reduction to become effective immediately prior to
the opening of business on the date following such date. If the Board of
Directors determines the fair market value of any distribution for purposes of
this paragraph (d)(i) by reference to the actual or when-issued trading market
for any securities comprising part or all of such distribution, it must in doing
so consider those prices in such market over the same period used in computing
the Current Market Price pursuant to paragraph (h) of this Section, to the
extent possible.
(ii) In case the Company shall issue its Units for a
consideration per Unit less than the Current Market Price (determined as
provided in paragraph (h) of this Section), the Conversion Price shall be
reduced by multiplying the Conversion Price in effect immediately prior to the
close of business on the date on which the Company fixes the offering price of
such additional Units by a fraction of which the numerator shall be the number
of Units outstanding at the close of business on the date fixed for such
determination plus a fraction equal to the aggregate consideration received by
the Company from the issuance of such additional Units over the Current Market
Price on the date on which the Company fixes the offering price of such
additional Units (determined as provided in paragraph (h) of this Section), and
the denominator of which shall be the number of Units outstanding immediately
after giving effect to such issuance.
(iii) In case the Company shall issue any securities convertible
into or exchangeable for its Units for a consideration per Unit (including the
minimum consideration per Unit payable upon conversion or exchange of any
securities convertible into or exchangeable for Units) initially deliverable
upon conversion or exchange of such securities less than the Current Market
Price (determined as provided in paragraph (h) of this Section), the Conversion
Price shall be reduced by multiplying the Conversion Price in effect immediately
prior to the close of business on the date on which the Company fixes the
offering price of such additional Units by a fraction of which the numerator
shall be the number of Units outstanding immediately prior to the issuance of
such securities plus a fraction equal to the aggregate consideration received
for the issuance of such securities upon (including the minimum consideration
per Unit payable upon conversion or exchange of any securities convertible into
or exchangeable for such Units)
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over the Current Market Price on the date on which the Company fixes the
offering price of such additional Units (determined as provided in paragraph (h)
of this Section), and the denominator of which shall be the number of Units
outstanding immediately prior to the issuance of such securities plus the
maximum number of Units deliverable upon conversion of or in exchange for such
securities at the initial conversion or exchange rate.
(e) The reclassification of Units of the Company into securities
which include securities other than such Units (other than any reclassification
upon a consolidation or merger to which Section 13 applies) shall be deemed to
involve (i) a distribution of such securities other than such Units to all
holders of such Units (and the effective date of such reclassification shall be
deemed to be "the date fixed for the determination of Unitholders entitled to
such distribution" within the meaning of paragraph (d)(i) of this Section), and
(ii) a subdivision or combination, as the case may be, of the number of Units of
the Company outstanding immediately prior to such reclassification into the
number of Units outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination becomes effective,"
as the case may be, and "the day upon which such subdivision or combination
becomes effective" within the meaning of paragraph (c) of this Section). Rights,
options or warrants issued by the Company to all holders of the Units entitling
the holders thereof to subscribe for or purchase Units (either initially or
under certain circumstances), which rights, options or warrants (i) are deemed
to be transferred with such Units, (ii) are not exercisable and (iii) are also
issued in respect of future issuances of such Units, in each case in clauses (i)
through (iii) until or upon the occurrence of a specified event or events
("TRIGGER EVENT"), shall for purposes of this Section 7 not be deemed issued
until the occurrence of the earliest Trigger Event .
(f) In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of the Units of the Company cash (excluding any cash
that is distributed as part of a distribution referred to in paragraph (d)(i) of
this Section in an aggregate amount that, together with (i) the aggregate amount
of any other distributions to all holders of such Units made exclusively in cash
within the 12 months preceding the date fixed for the determination of
Unitholders entitled to such distribution and in respect of which no Conversion
Price adjustment pursuant to paragraph (d)(i) or this paragraph (f) has been
made previously and (ii) the aggregate of any cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors) as of such
date of determination of consideration payable in respect of any tender offer by
the Company or a Restricted Subsidiary for all or any portion of its Units, and
any purchase by the Company of its Units in the open market, consummated within
the 12 months preceding such date of determination and in respect of which no
Conversion Price adjustment pursuant to paragraph (f) of this Section has been
made previously, exceeds 10% of the product of the Current Market Price
(determined as provided in paragraph (h) of this Section) on such date of
determination times the number of Units of the Company outstanding on such date,
the Conversion Price shall be reduced by multiplying the Conversion Price in
effect immediately prior to the close of business on such date of determination
by a fraction of which the numerator shall be the Current Market Price
(determined as provided in paragraph (h) of this Section) on such date less the
amount of cash to be distributed at such time applicable to one Unit and the
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denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day after such
date.
(g) In case a tender or exchange offer made by the Company or any
Subsidiary for all or any portion of the Units of the Company shall be
consummated, or in case the Company shall purchase Units in the open market, the
Conversion Price shall be reduced by multiplying the Conversion Price in effect
immediately prior to the Expiration Time by a fraction of which (x) the
numerator shall be the product of the Current Market Price (determined as
provided in paragraph (h) of this Section) times the number of Units outstanding
(including any tendered or exchanged Units) at the Expiration Time and (y) the
denominator shall be the sum of (A) the fair market value (determined as
aforesaid) of the aggregate consideration payable to Unitholders upon
consummation of such tender or exchange offer, or upon such purchase, and (B)
the product of such Current Market Price times such number of outstanding Units
at the Expiration Time minus the number of Units accepted for payment in such
tender or exchange offer, or so purchased (the "PURCHASED UNITS"). For the
purpose of this paragraph, "EXPIRATION TIME" means either the last time that
tenders may be made pursuant to a tender offer or exchanges may be made pursuant
to an exchange offer, or the time of an agreement to purchase shares in the open
market, as the case may be. Any reduction in the Conversion Price pursuant to
this paragraph shall be made immediately following the close of business on the
last Trading Day used to compute Current Market Price; provided that such
reduction shall be deemed to have become effective immediately prior to the
opening of business on the day following the Expiration Time. To the extent that
a Holder converts Convertible Notes prior to the conclusion of the period for
which Current Market Price is to be calculated, any adjustment in the amount of
Units of the Company issuance upon exercise of such Convertible Note shall inure
to the benefit of the Holder of such Convertible Note at the close of business
on the first Trading Day following the Expiration Time. In no event shall the
Exercise Price be increased as a result of the consummation of any of the
transactions contemplated by this paragraph (g).
(h) For the purpose of any computation under this paragraph and
paragraphs (b) and (d), of this Section, the current market price per Unit (the
"CURRENT MARKET PRICE") on any date shall be deemed to be the average of the
daily Closing Prices for the 30 consecutive Trading Days commencing 45 Trading
Days before the date in question. Notwithstanding anything to the contrary
contained in this paragraph, (i) if the "ex" date for any event (other than the
issuance or distribution requiring such computation) that requires an adjustment
to the Conversion Price pursuant to paragraph (a), (b), (c) or (d) above occurs
on or after the 15th Trading Day prior to the date in question and prior to the
"ex" date for the issuance or distribution requiring such computation., the
Closing Price for each Trading Day prior to the "ex" date for such other event
shall be adjusted by multiplying such Closing Price by the same fraction by
which the Conversion Price is so required to be adjusted as a result of such
other event, (ii) if the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
Conversion Price pursuant to paragraph (a), (b), (c) or (d) above occurs on or
after the "ex" date for the issuance or distribution requiring such computation
and on or prior to the date in question, the Closing Price for each Trading Day
on and after the "ex" date for such other event shall be adjusted by multiplying
such Closing Price by the reciprocal of the fraction by which the Conversion
Price is so required to be adjusted as a result of such other event, and (iii)
if the "ex" date for the issuance or distribution requiring such computation is
on or prior to the date in question, after taking into account any adjustment
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required pursuant to clause (ii) of this proviso, the Closing Price for each
Trading Day on or after such "ex" date shall be adjusted by adding thereto the
amount of any cash and the fair market value on the date in question (as
determined by the Board of Directors in a manner consistent with any
determination of such value for purposes of paragraph (d) of this Section, whose
determination shall be conclusive and described in a resolution of the Board of
Directors) of the evidences of Indebtedness, shares of Equity Interests or
assets being distributed applicable to one Unit of the Company as of the close
of business on the day before such "ex" date. If on any date there has not been
a Public Equity Offering or if there is no Closing Price available for the Units
of the Company on any date, the Current Market Price shall be determined (a) in
good faith by the Board of Directors of the Company and certified in a board
resolution, based on the most recently completed arms-length transaction between
the Company and a Person other than an affiliate (as defined in Rule 405 of the
Securities Act) of the Company and the closing of which occurs on such date or
within such a six-month period of (b) if no transaction shall have occurred with
the six-month period preceding such date or if such transaction is in excess of
$1 million, by an Independent Financial Expert appointed in the manner provided
for in paragraph (i)(i) of this Section 7.
(i) (i) If any event shall occur as to which the other provisions of
this Section 7 are not strictly applicable but the failure to make any
adjustment would have the effect of depriving Holders of the benefit of all
or a portion of the conversion rights in respect of any Convertible Note in
accordance with the essential intent and principles of this Section 7,
then, in each such case, the Company shall appoint an Independent Financial
Expert, which shall give its opinion upon the adjustment, if any, on a
basis consistent with the essential intent and principles established in
this Section 7 necessary to preserve, without dilution, such conversion
rights. Upon receipt of such opinion, the Company will promptly mail a copy
thereof to the Holders and shall make the adjustments described therein. As
used herein, an "INDEPENDENT FINANCIAL EXPERT" is a firm (A) which does
not, and whose directors, officers and employees or Affiliates do not, have
a direct or indirect financial interest in the Company and (B) which, in
the judgment of the Board of Directors, is otherwise independent and
qualified to perform the task for which it is to be engaged.
(ii) The Company will not, by amendment of its Limited Liability
Company Agreement or through any consolidation, merger, reorganization,
transfer of assets, dissolution, issue or sale of securities or any other
voluntary actin, avoid or seek to avoid the observance or performance of
any of the terms of the Convertible Notes, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the
rights of the Holders thereof against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (i) will take
all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Units on
the conversion of the Convertible Notes from time to time outstanding and
(ii) will not take any action which results in any adjustment of the
Conversion Price if the total number of Units issuable after the action
upon the conversion of all of the Convertible Notes would exceed the total
number of shares of such Units then authorized by the Company's Limited
Liability Company Agreement and available for the purposes of issue upon
such exercise.
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(j) The Company may, but shall not be obligated to, make such
reductions in the Conversion Price, in addition to those required by paragraphs
(a), (b), (c), (d) and (e) of this Section, as it considers to be advisable in
order that any event treated for United States federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the recipients or, if
that is not possible, to diminish any income taxes that are otherwise payable
because of such event.
(k) No adjustment in the Conversion Price shall be required unless
such adjustment (plus any other adjustments not previously made by reason of
this paragraph (k) would require an increase or decrease of at least 1 percent
in the Conversion Price; provided that any adjustments which by reason of this
paragraph (k) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
(l) In any case in which this Section 7 shall require that an
adjustment in the Conversion Price be made effective as of or immediately after
a Record Date for a specified event, the Company may elect to defer until the
occurrence of such event (i) issuing to the Holder of any Convertible Note
exercised after such Record Date the Units and other Equity Interests of the
Company, if any, issuable upon such exercise over and above the Units and other
Equity Interests of the Company, if any, issuable upon such exercise on the
basis of the Conversion Price prior to such adjustment and (ii) paying to such
Holder any amount in cash in lieu of a fractional Unit pursuant to Section 6
hereof; provided that the Company shall deliver to such Holder a due bill or
other appropriate instrument evidencing such Holder's right to receive such
additional Units, other Equity Interests and cash upon the occurrence of the
event requiring such adjustment.
(m) When No Adjustment Required. No adjustment need be made for a
transaction referred to in subsections (a), (b), (c) or (d) of this Section 7 if
Holders are to participate in the transaction on a basis and with notice that
the Board of Directors determines to be fair and appropriate in light of the
basis and notice on which holders of Units of the Company participate in the
transaction.
8. Notice of Adjustments of Conversion Price. Whenever the Conversion
Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion Price in
accordance with Section 7 and shall prepare a certificate signed by the
Treasurer or Chief Financial Officer of the Company setting forth the adjusted
Conversion Price and showing in reasonable detail the facts upon which such
adjustment is based; and
(b) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall be forthwith be prepared, and
as soon as practicable after it is prepared, such notice shall be mailed by the
Company at its expense to all Holders of the Convertible Notes.
9. Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other distribution)
on its Units payable otherwise than exclusively in cash; or
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(b) the Company shall authorize the granting to the holders of Units
of rights, options or warrants to subscribe for or purchase any Equity Interests
of any class or of any other rights; or
(c) of any reclassification of the Units of the Company (other than a
subdivision or combination of the outstanding Units), or of any consolidation,
merger or share exchange to which the Company is a party and for which approval
of any holders of Equity Interests of the Company is required, or of sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender or exchange
offer (other than an exchange offer contemplated by clause (c) above) for all or
a portion of the outstanding Units (or shall amend any such tender or exchange
offer to change the maximum number of Units being sought or the amount or type
of consideration being offered (including by exchange) therefor);
then the Company shall cause to be mailed to all Holders at their last addresses
as they shall appear in the records of the Company, at least 21 days (or 11 days
in any case specified in clause (a), (b) or (e) above) prior to the applicable
record, effective or expiration date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights, options or warrants, or, if a record is not
to be taken, the date as of which the holders of its Units of record who will be
entitled to such dividend, distribution, rights, options or warrants are to be
determined, (y) the date on which such reclassification, consolidation, merger,
share exchange, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of its Units of record shall be entitled to exchange their Units for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding up, or (z) the date on which such tender or exchange offer (other
than an exchange offer contemplated by clause (y) above) commenced, the date on
which such tender or exchange offer is scheduled to expire unless extended, the
consideration offered and the other material terms thereof (or the material
terms of any amendment thereto). Neither the failure to give any such notice
not any defect therein shall affect the legality or validity of any action
described in clauses (a) through (e) of this Section 9.
10. Company to Reserve Units. The Company shall at all times reserve and
keep available, free from preemptive rights, out of its authorized but issued
Units or out of its Units held in treasury, for the purpose of effecting the
conversion of Convertible Notes, the full number of shares of its Units then
issuable upon the conversion of all outstanding Convertible Notes.
11. Taxes on Conversions. The Company will pay any and all original
issuance, transfer, stamp and other similar taxes that may be payable in respect
of the issue or delivery of Units on conversion of Convertible Notes. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of
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Units in a name other than that of the Holder of the Convertible Note or
Convertible Notes to be converted, and no such issue or delivery shall be made
unless and until the Person requesting such issue has paid to the Company the
amount of any such tax, or has established to the satisfaction of the Company
that such tax has been paid.
12. Covenant as to Units.
(a) The Company covenants that all shares of its Units which may be
issued upon conversion of Convertible Notes will upon issue be validly issued,
fully paid and nonassessable.
(b) The Company shall from time to time take all action necessary so
that the Units which may be issued upon conversion of Convertible Notes,
immediately upon their issue, will be listed on the principal securities
exchanges, interdealer quotation systems and markets, if any, on which other
Units of the Company are then listed or quoted.
13. Provisions as to Consolidation or Merger. In case of any consolidation
of the Company with, or merger of the Company into, any other Person or any
merger of another Person into the Company (other than a merger which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding Units of the Company), the Person formed by such consolidation or
resulting from such merger, as the case may be, shall execute and delivery to
the Holder an agreement providing that the Holder of each Convertible Note then
outstanding shall have the right thereafter, during the period such Convertible
Note shall be convertible as specified in Section 6, to convert such Convertible
Note only into the kind and amount of securities, cash and other Property, if
any, receivable upon such consolidation or merger by a holder of the amount of
Units of the Company into which such Convertible Note might have been converted
immediately prior to such consolidation or merger, assuming such holder of Units
(i) is not a Person with which the Company consolidated or into which the
Company merger or which merged into the Company, as the case may be (a
"CONSTITUENT PERSON"), or an Affiliate of a Constituent Person and (ii) failed
to exercise his rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such consolidation, merger
sale or transfer (provided that if the kind or amount of securities, cash and
other Property receivable upon such consolidation or merger is not the same for
each Unit held immediately prior to such consolidation or merger by other than a
Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("NONELECTING UNIT"), then for the
purpose of this Section the kind and amount of securities, cash and other
property receivable upon such consolidation or merger by each nonelecting Unit
shall be deemed to be the kind and amount so receivable per Unit by a plurality
of the nonelecting Units). Such agreement shall provide for adjustment which,
for events subsequent to the effective date of such agreement, shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Convertible Note. The above provisions of this Section shall similarly apply to
successive consolidations and mergers.
14. Denominations. The Convertible Notes are issuable only in registered
form without coupons in denominations of $1,000 and integral multiples thereof
of principal amount at Stated Maturity.
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15. Events of Default and Remedies.
(a) Events of Default. "EVENT OF DEFAULT," wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be caused voluntarily or involuntarily or effected,
without limitation, by operation of law or pursuant to any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
(i) default in the payment of any interest upon any Convertible Note
as and when the same becomes due and payable, and the continuance of such
default for a period of 30 days;
(ii) default in the payment of all or any part of the principal of the
Convertible Notes when and as the same becomes due and payable at maturity,
by acceleration or otherwise;
(iii) default in the observance or performance of, or breach of, any
covenant, agreement or warranty of the Company contained in the Convertible
Notes (other than a default in the performance of any covenant, agreement
or warranty which is specifically dealt with elsewhere in this Section 15
and continuance of such default or breach for the period of 30 days after
written notice is given to the Company by the Majority Holders;
(iv) a decree, judgment, or order by a court of competent jurisdiction
shall have been entered adjudging the Company or any of its Subsidiaries as
bankrupt or insolvent, or ordering relief against the Company or any of its
Subsidiaries in response to the commencement of an involuntary bankruptcy
case, or approving as properly filed a petition seeking reorganization or
liquidation of the Company or any of its Subsidiaries under any bankruptcy
or similar law, and such decree or order shall have continued undischarged
and unstayed for a period of 60 days; or a decree or order of a court of
competent jurisdiction over the appointment of a receiver, liquidator,
trustee, or assignee in bankruptcy or insolvency of the Company or any of
its Subsidiaries, or of the Property of any such Person, or for the winding
up or liquidation of the affairs of any such Person, shall have been
entered, and such decree, judgment, or order shall have remained in force
undischarged and unstayed for a period of 60 days; and
(v) the Company or any of its Subsidiaries shall institute voluntary
bankruptcy proceedings, or shall consent to the filing of a bankruptcy
proceeding against it, or shall file a petition or answer or consent
seeking reorganization or liquidation under any bankruptcy or similar law
or similar statute, or shall consent to the filing of any such petition, or
shall consent to the appointment of a custodian, receiver, liquidator,
trustee, or assignee in bankruptcy or insolvency of it or any of its assets
or Property, or shall make a general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall, within the meaning of any
Bankruptcy Law, become insolvent, fail generally to pay its debts as they
become due, or take any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing.
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(b) Acceleration of Maturity Date; Rescission and Annulment. Subject
to paragraph (i) below, if an Event of Default (other than an Event of Default
arising under Section 15(a)(iv) or (v)) occurs and is continuing, then, and in
every such case, unless the principal of all of the Convertible Notes shall have
already become due and payable, the Majority Holders, by a notice in writing to
the Company (an "ACCELERATION NOTICE"), may declare all Default Amount of, and
premium, if any, and any accrued and unpaid interest on, all Convertible Notes
to be immediately due and payable. If an Event of Default arising under Section
15(a)(iv) or (v) occurs, all Default Amount of, and premium, if any, and any
accrued and unpaid interest on, the Convertible Notes shall be immediately due
and payable without any declaration or other act on the part of the Holders
thereof. Until December 31, 2004, the "DEFAULT AMOUNT" shall equal the Accreted
Value of the Convertible Notes, as of the date of determination. Thereafter, the
Default Amount of each Convertible Note shall equal 100 percent of the principal
amount at Stated Maturity thereof.
At any time after such a declaration of acceleration being made and
before a judgment or decree for payment of the money due has been obtained, the
Majority Holders, by written notice to the Company, may waive, on behalf of all
Holders of Convertible Notes, any such declaration of acceleration if:
(i) the Company has paid to the registered holders of the Convertible
Notes a sum sufficient to pay:
(a) all accrued but unpaid interest on all
Convertible Notes,
(b) the principal of any Convertible Notes
which would be due otherwise than by such
declaration of acceleration, and accrued
but unpaid interest thereon at the rate
borne by the Convertible Notes, and
(c) to the extent that payment of such
interest is lawful, interest upon overdue
interest at the rate borne by the
Convertible Notes.
(ii) all Events of Default, other than the non-payment of amounts due
on the Convertible Notes which have become due solely by such declaration
or acceleration, have been cured or waived as provided herein.
(c) Collection of Indebtedness and Suits for Enforcement by Holders.
The Company covenants that if an Event of Default in payment of principal of, or
interest on, the Convertible Notes occurs and is continuing, the Company shall,
upon demand of the Majority Holders, pay to the registered Holders of the
Convertible Notes, the whole amount then due and payable on such Convertible
Notes for the Default Amount of and interest on, and, to the extent that payment
of such interest shall be legally enforceable, interest on any Default Amount
and on any overdue interest, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including
compensation to, and expenses, disbursements and advances of such Holders, their
agents and counsel.
If the Company fails to pay such amounts within ten days of such
demand, the Majority Holders may institute a judicial proceeding for the
collection of the sums so due and unpaid, may prosecute such proceeding to
judgment or final decree and may enforce the same
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against the Company or any other obligor upon the Convertible Notes and collect
the moneys adjusted or decreed to be payable in the manner provided by law out
of the Property of the Company or any other obligor upon the Convertible Notes,
wherever situated. If an Event of Default occurs and is continuing, the Majority
Holders may in their discretion proceed to protect and enforce the rights of the
Holders of Convertible Notes by such appropriate judicial proceedings as the
Majority Holders shall deem most effective to protect and enforce any such
rights, whether for the specific enforcement of any covenant or agreement in the
Convertible Notes or in aid of the exercise of any power granted herein, or
therein, to enforce any other proper remedy.
The Majority Holders shall also be authorized to take whatever
additional action at law or in equity may appear to be necessary or desirable to
collection the monies necessary to pay the principal and interest on the
Convertible Notes.
(d) Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Holders of Convertible Notes is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
(e) Delay or Omission Not Waiver. No delay or omission by any Holder
of any Convertible Note to exercise any right or remedy arising upon any Event
of Default shall impair the exercise of any such right or remedy or constitute a
waiver of any such Event of Default. Every right and remedy given by the
Convertible Notes or by law to the Holders of Convertible Notes may be exercised
from time to time, and as often as may be deemed expedient by such holders.
(f) Control by Holders. The Majority Holders shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Holders, provided that:
(i) such direction shall not be in conflict with any rule of law or,
the terms of the Convertible Notes and
(ii) the action so directed would not be unjustly prejudicial to the
holders of Convertible Notes not taking part in such direction.
(g) Waiver of Past Default. The Majority Holders may, on behalf of
all Holders of Convertible Notes, prior to the acceleration of the maturity of
the Convertible Notes, waive any past default hereunder and thereunder and its
consequences, except a default in the payment of the principal or, if
applicable, Redemption Price of, or interest on, any Convertible Note as
specified in clauses (i) and (ii) of Section 15(a).
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Convertible
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Note; but no such waiver shall extend to any subsequent or other default or
impair the exercise of any right arising therefrom.
(h) Restoration of Rights and Remedies. If any Holder of Convertible
Notes has instituted any proceeding to enforce any right or remedy under the
Convertible Notes and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to such Holder, then and in every case,
subject to any determination in such proceeding, the Company and the Holders of
Convertible Notes shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Holders of
Convertible Notes shall continue as though no such proceeding had been
instituted.
(i) Notice to Holders of Senior Obligations. Notwithstanding anything
elsewhere contained in this Section 15, if this Convertible Note is declared due
and payable before its Stated Maturity, the Company shall immediately notify all
holders of the Senior Obligations thereof. Notwithstanding such acceleration,
the provisions of Section 5 hereof shall remain operative and no payment shall
be made on this Convertible Note following such acceleration until the full and
final payment of all of the Senior Obligations.
16. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Holders of
the Convertible Notes and their respective officers, authorized representatives
and directors and each person, if any, who controls any of the Holders of the
Convertible Notes, within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act, or is under common control with, or is
controlled by, any of the Holders of the Convertible Notes, from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any reasonable legal or other expenses actually incurred by the Holders of the
Convertible Notes, or any such controlling or affiliated Person in connection
with defending or investigating any such action or claim) caused by, arising out
of or based upon (i) a breach by the Company of any covenant or agreement in
this Convertible Note or (ii) any action taken or inaction on the part of the
Company in connection with the issuance and sale of the Convertible Notes or the
transactions contemplated hereby (or any other document or instrument executed
herewith or pursuant hereto or pursuant to the transactions contemplated hereby
(or any instrument or document executed therewith or pursuant thereto)),
regardless of whether the indemnified party is a formal party to any proceeding.
(b) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be instituted or asserted
against any Person in respect of which indemnity may be sought pursuant to
paragraph (a) above, such Person (hereinafter called the "INDEMNIFIED PARTY")
shall promptly notify the Person against whom such indemnity may be sought
(hereinafter called the "INDEMNIFYING PARTY") in writing; provided, however,
that the failure to so notify the indemnifying party shall not relieve it of any
obligation or liability that it may have hereunder or otherwise (unless and only
to the extent that such failure directly results in the loss or compromise of
any material rights or defenses by the indemnifying party and the indemnifying
party was not otherwise aware of such action or claim). The indemnifying party,
upon request of the indemnified party, shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the indemnified
party to represent the
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indemnified party and any others that the indemnifying party may designate in
such proceeding and shall pay the reasonable fees and disbursements of such
counsel related to such proceeding. In any such action or proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have mutually
agreed in writing to the contrary, (ii) the indemnifying party shall have failed
within a reasonable period of time to retain counsel reasonably satisfactory to
the indemnified party, or (iii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party or any affiliate of either and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that, unless there exists a conflict
among the indemnified parties, the indemnifying party shall not, in connection
with any one such proceeding or separate but substantially similar related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any appropriate local counsel) for
all indemnified parties, and that all such fees and expenses shall be reimbursed
promptly after the receipt of the invoice therefor as they are incurred. Any
such separate firm shall be designated in writing by Majority Holders, with
respect to the Lenders, their respective affiliates and their respective
successors and assigns. The indemnified party shall not be liable for any
settlement of any proceeding effected without its prior written consent, but if
settled with such consent or if there be a final judgment for the plaintiff for
which the indemnified party is entitled to indemnification pursuant to this
Convertible Note, the indemnifying party agrees to indemnify and hold harmless
each indemnified party from and against any loss or liability by reason of such
settlement or judgment. No indemnifying party shall, without the prior written
consent of the indemnified party (which consent shall not be unreasonable
withheld), effect any settlement or compromise of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party.
(c) To the extent the indemnification provided in paragraph (a) of
this Section 16 is for any reason unavailable to (other than by reason of
exceptions provided therein), or insufficient to hold harmless, an indemnified
party in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to therein, then each indemnifying party
under such paragraphs, in lieu of indemnifying such indemnified party thereunder
and in order to provide for just and equitable contribution, shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Company on the one hand and the
Holders on the other hand from the offering of the Convertible Notes or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
not only such relative benefits but also the relative fault of the Company on
the one hand and the Holders on the other hand in connection with the statements
or omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Holders on the other hand in connection with the
offering of the Convertible Notes shall be deemed to be in the same proportion
as the total proceeds from the offering of the Convertible Notes received by the
Company bears to the fees received by the Holders who have received any such
fees in respect thereof. The relative fault of the Company on the one hand and
the Holders on the other hand shall be determined in reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or
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alleged omission to state a material fact relates to information supplied by the
Company on the one hand or by the Holders on the other hand, the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances.
(d) The Company on the one hand and the Holder of this Convertible
Note on the other hand agree that it would not be just and equitable if
contribution pursuant to Section 16(c) were determined by pro rata allocations
or by any other method of allocation that does not take account of the equitable
considerations referred to in Section 16(c). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to in Section 16(c) shall be deemed to
include, subject to the limitations set forth above, any reasonable legal or
other expenses actually incurred by such indemnified party in connection with
defending or investigating any such action or claim. Notwithstanding the
provisions of Section 16(c), no Holder shall be required to contribute any
amount in excess of the amount by which the fees received by such Holder
hereunder exceeds the amount of any damages that the Holder has otherwise been
required to pay or has paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution provisions contained in this
Section 16 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Holders or any person
controlling the Holders or under common control with or controlled by the
Holders or by or on behalf of the Company and their respective officers,
authorized representatives or directors or any person controlling the
Company and acceptance of and payment for any of the Convertible Notes.
The indemnity and contribution agreements contained in this
Section 16 will be in addition to any liability that the indemnifying party
or parties may otherwise have to the indemnified party or parties referred
to above.
17. Amendments and Waivers.
(a) With Consent of Holders. With the consent of the Majority Holders,
by written act of said Holders delivered to the Company, the Company and the
Majority Holders may amend or supplement the Convertible Notes for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the Convertible Notes or of modifying in any manner the rights of
the Holders of the Convertible Notes. The Majority Holders may waive compliance
by the Company with any provision of the Convertible Notes. Notwithstanding any
of the above, however, no such amendment or waiver shall, without the consent of
the Holder of each outstanding Convertible Notes affected thereby:
(i) reduce the percentage of outstanding principal amount at Stated
Maturity of Convertible Notes whose Holders must consent to an amendment,
supplement or waiver of any provision of the Convertible Notes;
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(ii) reduce the rate of interest on, or of accretion in value of, any
Convertible Note;
(iii) reduce the Accreted Value or the principal amount at Stated
Maturity or reduce the Default Amount that would be payable at Stated
Maturity of any Convertible Note;
(iv) alter the repayment provisions hereunder;
(v) make any changes in this third sentence of this Section 17;
(vi) make any amendment, modification or supplement to any Convertible
Note that is not made equally to all Convertible Notes; or
(vii) adversely affect the rights of Holders of the Convertible Notes to
convert such Convertible Notes.
No change in the terms or provisions of Sections 1, 3 or 5 hereof
may be made without the prior written consent of the holders of the Senior
Obligations until the payment in full of the Senior Obligations.
It shall not be necessary for the consent of the Holders of
Convertible Notes to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves
the substance thereof.
After an amendment, supplement or waiver under this Section 17
becomes effective, the Company shall mail to the Holders of Convertible
Notes affected thereby a notice briefly describing the amendment,
supplement or waiver. Any failure of the Company to mail such notice, or
any defect therein, shall not, however, in any way impair or affect the
validity of any such amendment, supplement or waiver.
After an amendment, supplement or waiver under this Section 18
becomes effective, it shall bind each Holder of the Convertible Notes.
(b) Revocation and Effect of Consents. Until an amendment, waiver or
supplement becomes effective, a consent to it by a Holder of Convertible Notes
is a continuing consent by such Holder and every subsequent Holder of a
Convertible Note or portion of a Convertible Note that evidences the same debt
as the consenting such Holder's Convertible Note, even if notation of the
consent is not made on any Convertible Note. However, any such Holder or
subsequent Holder may revoke the consent as to his or her Convertible Note or
portion of his or her Convertible Note by written notice to the Company or the
Person designated by the Company as the Person to whom consents should be sent
if such revocation is received by the Company or such Person before the date on
which the Holders of the requisite principal amount at Stated Maturity of
Convertible Notes have consented (and not theretofore revoked such consent) to
the amendment, supplement or waiver.
(c) Notation on or Exchange of Notes. If an amendment, supplement or
waiver changes the terms of a Convertible Note, the Company may require the
Holder of the
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Convertible Note to deliver it to the Company or require the Holder to put an
appropriate notation on the Convertible Note. The Company may place an
appropriate notation on the Convertible Note about the changed terms and return
it to the Holder. Alternatively, if the Company so determines, the Company in
exchange for the Convertible Note shall issue a new Convertible Note that
reflects the changed terms. Any failure to make the appropriate notation or to
issue a new Convertible Note shall not affect the validity of such amendment,
supplement or waiver.
18. Definitions. As used in this Convertible Note, and unless the
context otherwise requires a different meaning, the following terms have the
meanings indicated:
"AFFILIATE" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by such
Person. For purposes of this definition, the terms "controlling," "under common
control with" and "controlled by", and as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting Equity Interests or otherwise.
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal, state or
foreign law for the relief of debtors.
"BOARD OF DIRECTORS" means, with respect to any Person, the Board of
Directors (or similar governing body) of such Person or any committee of the
Board of Directors (or similar governing body) duly authorized to act on behalf
of such Board of Directors (or similar governing body).
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which institutions in the City of Houston or The City of
New York are authorized or obligated by law, executive order or regulation to
close.
"CAPITAL INTERESTS" means
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or member interests (whether general or limited);
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distribution of assets of, the issuing Person; and
(5) any warrants, options or other rights to acquire any of the interests
described in clauses (1) through (4) above (but excluding any debt
security that is convertible
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into, or exchangeable for, any of the interests described in clauses
(1) through (4) above).
"CLOSING PRICE" on any Trading Day with respect to the per Unit price of
any Units means the last reported sale price regular way or, in case no such
reported sale takes place on such date, the average of the reported closing bid
and asked prices regular way, in either case on the New York Stock Exchange or,
if such Units are not listed or admitted to trading on such exchange, on the
principal national securities exchange on which such Units are listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on The Nasdaq National Market or, if such Units are not
listed or admitted to trading on any national securities exchange or quoted on
such automated quotation system but the issuer is a Foreign Issuer (as defined
in Rule 3b-4(b) under the Exchange Act) and the principal securities exchange
for such Units are listed or admitted to trading is a Designated Offshore
Securities Market (as defined in Rule 902(a) under the Securities Act), the
average of the reported closing bid and asked prices regular way on such
principal exchange, or, if such Units are not listed or admitted to trading on
any national securities exchange or quoted on such automated quotation system
and the issuer and principal securities exchange do not meet such requirements,
the average of the closing bid and asked prices in the over-the-counter market
as furnished by any New York Stock Exchange member firm that is selected from
time to time by the Company for that purpose.
"DEFINITIVE AGREEMENTS" means the Natural Gas Inventory Forward Sales
Contract (the "Forward Sales Agreement") between EEX E&P and Bob West Treasure
L.L.C. dated December 17, 1999, the Mortgage (as defined in the Forward Sales
Agreement) and the Letter Agreement (as defined in the Forward Sales Agreement).
"EEX E&P" means EEX E&P Company, L.P., a Subsidiary of the Company.
"EQUITY INTERESTS" means Capital Interests and all warrants, options or
other rights to acquire Capital Interests (but excluding any debt security that
is convertible into, or exchangeable for, Capital Interests).
"`EX' DATE," (i) when used with respect to any issuance or distribution,
means the first date on which the Units trade regular way on the relevant
exchange or in the relevant market from which the Closing Prices were obtained
without the right to receive such issuance or distribution, (ii) when used with
respect to any subdivision or combination of shares of Units means the first
date on which the Units trade regular way on such exchange or in such market
after the time at which such subdivision or construction becomes effective, and
(iii) when used with respect to any tender or exchange offer, means the first
date on which the Units trade regular way on such exchange or in such market
with the last time that tenders or exchanges as may be made pursuant to such
tender or exchange offer (as it shall have been amended).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"HOLDER" means, in the case of any Convertible Note, the Person in whose
name such Convertible Note is registered.
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<PAGE>
"INDEBTEDNESS" means at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for money
borrowed, (ii) any obligation of such Person evidenced by bonds, debentures,
notes, guarantees or similar instruments, including, without limitation, any
such obligations incurred in connection with the acquisition of Property, assets
or businesses, excluding trade accounts payable made in the ordinary course of
business which are not more than 90 days overdue or which are being contested in
good faith and by appropriate proceedings, (iii) any reimbursement obligation of
such Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) any obligation of such
Person issued or assumed as the deferred purchase price of Property, assets or
services (but excluding trade accounts payable or accrued liabilities arising in
the ordinary course of business, which in either case are not more than 90 days
overdue or which are being contested in good faith and by appropriate
proceedings, and for which adequate reserves are being maintained on the books
of the Company in accordance with generally accepted accounting principles), (v)
any capital lease obligation of such Person, (vi) the notional amount of any
interest hedging obligations of such Person at the time of determination and
(vii) any obligation of the type referred to in clauses (i) through (vi) of this
definition of another Person and all dividends and distributions of another
Person the payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise.
"ISSUE DATE" means the date on which the Convertible Notes are first
executed and delivered.
"MAJORITY HOLDINGS" means the Holders of Convertible Notes holding not less
than a majority in aggregate principal amount at Stated Maturity of all
Convertible Notes outstanding at the time.
"PERSON" means any individual, corporation, partnership, joint venture,
limited liability company, trust, unincorporated organization or government or
any agency or political subdivision thereof or any other entity or similar
person.
"PUBLIC EQUITY OFFER" means an underwritten public offering of Units
pursuant to an effective registration statement filed under the Securities Act.
"PROPERTY" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, tangible or
intangible.
"REDEMPTION DATE" means, when used with respect to any Convertible Note or
part thereof to be redeemed hereunder, the date fixed for redemption of such
Convertible Notes pursuant to the terms of the Convertible Notes.
"REDEMPTION PRICE" means, when used with respect to any Convertible Note or
part thereof to be redeemed hereunder, the price fixed for redemption of such
Convertible Note pursuant to the terms of the Convertible Notes, plus accrued
and unpaid interest thereon, if any, to the Redemption Date.
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<PAGE>
"RULE 144" means Rule 144 under the Securities Act (including any successor
regulation thereto), as it may be amended from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SENIOR OBLIGATIONS" means all obligations of the Company, if any, under
the Definitive Agreements or any of them, whether for the physical delivery of
gas, the payment of money (whether for principal, interest, fees, costs, charges
or any other reason) and any and all obligations thereunder of any kind.
"STATED MATURITY" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred), and, when used with respect
to any installment of interest on such security, the fixed date on which such
installment of interest is due and payable.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation more
than 50 percent of the outstanding shares of voting stock of which is owned,
directly or indirectly, by such Person, or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries of such
Person, (ii) any general partnership, joint venture or similar entity, more than
50 percent of the outstanding partnership or similar interests of which are
owned, directly or indirectly, by such Person, or by one or more other
Subsidiaries of such Person, or by such Person and one or more other
Subsidiaries of such Person and (iii) any limited partnership of which such
Person or any Subsidiary of such Person is a general partner.
"TRADING DATE" means, with respect to a securities exchange or automated
quotation system, a day on which such exchange or system is open for a full day
of trading.
19. Invalidity. In the event that one or more of the provisions contained
in this Convertible Note shall, for any reason, be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Convertible Note.
20. Interest. It is the intention of the Company and the Holders of the
Convertible Notes that each Holder of a Convertible Note shall conform strictly
to usury laws applicable to it. According, if the transaction contemplated
hereby would be usurious as to any Holder under laws applicable to it (including
the laws of the United States of America and the State of Texas or any other
jurisdiction whose laws may be mandatorily applicable to such Holder
notwithstanding the other provisions of this Convertible Note), then, in that
event, notwithstanding anything to the contrary in any of the Convertible Notes
or any agreement entered into in connection with or as security for the
Convertible Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Holder that
is contracted for, taken, reserved, charged or received by such Holder under any
Convertible Note or agreements or otherwise in connection with the Convertible
Notes shall
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<PAGE>
under no circumstances exceed the maximum amount allowed by such applicable law,
and any excess shall be cancelled automatically and if theretofore paid shall be
credited by such Holder on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by such Holder to the Company); and (ii) in
the event that the maturity of the Convertible Notes is accelerated by reason of
an election of the Holder thereof resulting from any Event of Default or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to any Holder may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Convertible Note or otherwise
shall be cancelled automatically by such Holder as of the date of such
acceleration or prepayment and, if theretofore paid, shall be credited by such
Holder on the principal amount of the Indebtedness (or, to the extent that the
principal amount of the Indebtedness shall have been or would thereby by paid in
full, refunded by such Holder to the Company). All sums paid or agreed to be
paid to any Holder for the use, forbearance or detention of sums due hereunder
shall, to the extent permitted by law applicable to such Holder, be amortized,
prorated, allocated and spread throughout the full term of the Loans evidence by
the Convertible Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (i) the
amount of interest payable to any Holder on any date shall be computed at the
highest lawful rate applicable to such Holder pursuant to this Section 20 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Holder in respect of such subsequent interest
computation period shall continue to be computed at the highest lawful rate
applicable to such Holder until the total amount of interest payable to such
Holder if the total amount of interest had been computed without giving effect
to this Section 20.
21. Governing Law.
THIS CONVERTIBLE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS, EXCEPT WITH REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS, APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
The Company has caused this Convertible Note to be duly executed.
Dated: December 17, 1999 EEX RESERVES FUNDING LLC
By:______________________
Name:
Title:
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<PAGE>
EEX CORPORATION UNDERTAKING
UNDERTAKING dated as of December 17, 1999 made by EEX Corporation, a Texas
corporation ("EEX") in favor of Bob West Treasure L.L.C., a Delaware limited
liability company (the "Purchaser").
WHEREAS, EEX E&P Company, L.P., a Delaware limited partnership ("the
Seller"), has entered into a Natural Gas Inventory Forward Sale Agreement of
even date herewith (the "Forward Sale Agreement") with the Purchaser; and
WHEREAS, each of the partners of Seller is wholly-owned by EEX Reserves
Funding LLC, a Delaware limited liability company ("EEX Reserves Funding"); and
WHEREAS, the membership interests of EEX Reserves Funding are owned as
follows: fifty percent (50%) by Purchaser, forty-nine percent (49%) by EEX
Operating LLC, a Delaware limited liability company ("EEX Operating"), and one
percent (1%) by EEX Capital, Inc., a Delaware corporation ("EEX Capital"); and
WHEREAS, EEX Operating and EEX Capital are wholly-owned by EEX and EEX
Capital is the initial Managing Member of EEX Reserves Funding; and
WHEREAS, a precondition to Purchaser's purchasing Natural Gas pursuant to
the Forward Sale Agreement is that EEX deliver a corporate undertaking whereby
EEX would agree to cause EEX Reserves Funding to cause the performance by Seller
of certain provisions of the Forward Sale Agreement to the extent only that
Seller has the means to perform by delivery of volumes of Natural Gas and/or
making payments but would not be required to put funds in Seller (or EEX
Reserves Funding) to cause such performance;
NOW THEREFORE, in consideration of the premises, and in order to induce
Purchaser to purchase Natural Gas pursuant to the Forward Sale Agreement, EEX
hereby covenants and agrees as follows:
Section 1. Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meaning given to such terms in the Forward Sale
Agreement. In addition to any other defined terms used herein, the following
terms shall constitute defined terms for the purposes of this Undertaking:
"Subsidiary" shall mean any corporation of which at least a majority
of the outstanding shares of stock having by the terms thereof ordinary
voting power to elect a majority of the board of directors of such
corporation (irrespective of whether or not at the time stock of any other
class or classes of such corporation shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by EEX or one or more of its Subsidiaries or
by EEX and one or more of its Subsidiaries.'
<PAGE>
Section 2. Representations and Warranties of EEX. EEX represents and
warrants to Purchaser as follows:
(a) Corporate Status and Authority. EEX is a corporation, duly
formed, validly existing and in good standing under the laws of the State
of Texas and has all requisite power and authority to execute, deliver and
perform this Undertaking.
(b) Power and Authority. The execution, delivery and performance by
EEX of this Undertaking and the consummation of the transactions
contemplated by this Undertaking are within EEX's power and authority and
have been duly authorized by all necessary corporate action.
(c) Consents and Approvals. No authorization, consent or approval
of, or other action by, or notice to or filing with, any governmental
authority, regulatory body or any other Person is required for the due
authorization, execution, delivery or EEX of this Undertaking, any other
Definitive Document to which it is a party or the consummation of the
transactions contemplated by this Undertaking, except those approvals that
have been obtained, and those notices and filings that have been made,
copies of all of which have been delivered to Purchaser.
(d) Execution and Delivery. This Undertaking has been duly executed
and delivered to Purchaser by EEX and is the legal, valid and binding
obligation of EEX enforceable against EEX in accordance with its terms,
except as the enforceability thereof may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general principles of equity.
(e) Sufficiency of Reserves. To the best of EEX's knowledge and
belief, the Designated Properties contain readily recoverable Natural Gas
reserves in excess of those required to meet all of Seller's obligation to
deliver Natural Gas to Purchaser under the Forward Sale Agreement in the
Required Delivery Quantities at the designated Delivery Points during each
Delivery Month.
(f) Solvency. EEX (i) has assets that exceed its liabilities, (ii)
has or has access to sufficient capital to carry on its business as
presently conducted and (iii) is able to pay its debts as they become due.
(g) Accuracy of Information. All information, engineering and other
reports and data delivered by EEX or Seller in connection with this
Undertaking and the transactions contemplated hereby are accurate in all
material respects, do not contain any material misstatement of fact or omit
any fact necessary to make said information or reports not misleading. Each
delivery of any such material, report or information shall automatically
constitute a reaffirmation of this warranty.
(h) Litigation and Similar Proceedings. There are no suits,
investigations or proceedings pending, or to EEX's knowledge, threatened
against EEX or the Designated Properties except those disclosed on Schedule
2(h) hereto. None of said lawsuits can reasonably be expected to have a
material adverse effect on EEX's ability to perform its obligation
hereunder.
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<PAGE>
Section 3. Undertaking. EEX agrees and hereby covenants to Purchaser that
EEX and its Subsidiaries will cause the performance by Seller of the provisions
of Article II and Clauses (i), (ii), (iii), (iv) and (v) of Section 5.01(i) and
5.01(j) of the Forward Sale Agreement, and will cause EEX Reserves Funding and
its Subsidiaries, including Seller, to maintain aggregate general and
administrative expenses below $1,900,000 each year, to the extent only that
Seller has the means to perform by delivery of volumes of Natural Gas and/or
making payments; provided, however, that none of EEX or any of its Subsidiaries
shall be required to put funds in Seller to cause such performance.
Section 4. Indemnity. EEX will, and hereby does, indemnify Purchaser, its
affiliates and their respective directors, officers, agents, representatives,
and employees (the "Indemnitees") against all claims, losses, actions,
liabilities, judgments, costs, reasonable attorneys' fees and other charges of
whatsoever kind or nature, including, without limitation, consequential and
punitive damages (collectively, "Claims") made against or incurred by them or
any of them by third parties unaffiliated with the Indemnities which arise out
of or in connection with any action by EEX in connection with the Forward Sale
Agreement. IT IS THE EXPRESS INTENTION OF EEX THAT EEX'S INDEMNIFICATION
OBLIGATIONS WITH RESPECT TO THE FOREGOING MATTERS SHALL INCLUDE ANY CLAIMS
RESULTING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE OF ANY INDEMNITEE OR ANY
CLAIM ARISING UNDER ANY THEORY OF STRICT LIABILITY; PROVIDED, THAT NO INDEMNITEE
SHALL BE ENTITLED TO INDEMNIFICATION FOR ANY CLAIM RESULTING FROM ITS OWN GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED BY A COURT OF COMPETENT
JURISDICTION IN A FINAL, NONAPPEABLE JUDGMENT. If any Claim is asserted against
any Indemnitee and such Indemnitee intends to claim indemnification from EEX
under this Section 4, such Indemnitee shall promptly notify EEX, but the failure
to so promptly notify EEX shall not affect EEX's obligations under this Section
4. Each Indemnitee may, and if requested by Seller in writing shall, in good
faith contest the validity, applicability, and amount of such claim, demand,
action, or cause of action with counsel selected by such Indemnitee and
reasonably acceptable to Seller, the cost of which defense shall be borne by
EEX, and shall permit EEX to participate in such contest. Any Indemnitee that
proposes to settle to compromise any claim or proceeding for which EEX may be
liable for payment of indemnity hereunder shall give EEX written notice of the
terms of such proposed settlement or compromise reasonably in advance of
settling or compromising such claim or proceeding and shall obtain EEX's prior
written consent, which consent shall not be unreasonably withheld, provided, any
Indemnified Party may settle such claim without EEX's consent if such Indemnitee
simultaneously releases EEX for any liability therefor. In connection with any
claim, demand, action, or cause of action covered by this Section 4 against more
than one Indemnitee, each Indemnitee shall be represented by legal counsel
selected by it.
Section 5. Specific Performance; Reliance.
(a) EEX agrees that a breach of any of the covenants contained in
Section 3 will cause irreparable injury to Purchaser, and no adequate
remedy at law in respect of such breach and, as a consequence, that the
covenants contained in this Section 3 shall be specifically enforceable
against EEX and its Subsidiaries. EEX hereby waives and agrees not to
assert any defenses against an action for specific performance of such
covenant except for a defense that no breach has occurred and is
continuing.
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(b) EEX acknowledges that Purchaser in relying on this Undertaking
in entering into the Forward Sale Agreement and that, but for this
Undertaking, would not enter into the Forward Sale Agreement.
Section 6. Governing Law. This Undertaking shall be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to principles of conflicts of laws that would result in the application
of the laws of another jurisdiction.
Section 7. Severability. In the event that one or more of the provisions
contained in this Undertaking shall be invalid, illegal or unenforceable in any
respect under any applicable law the validity, legality or enforceability of the
remaining provisions hereof shall not be affected or impaired thereby. Each of
the provisions of this Undertaking is hereby declared to be separate and
distinct.
Section 8. Benefit of the Agreement. This Agreement shall inure to the
benefit of and be binding upon EEX, the Purchaser and their respective
successors and assigns.
Section 9. Assignment and Transfer. EEX may not assign any rights or
delegate any obligations hereunder, except to an Affiliate of EEX, without the
prior written consent of Purchaser in its sole discretion. Prior to any Default
hereunder or under the Forward Sale Agreement, Purchaser may not assign its
rights hereunder to any third party without the prior written consent of EEX,
which consent shall not be unreasonably withheld, except to affiliates of
Purchaser or to financial institutions, to whom it may assign without consent.
Section 10. Amendments. This Agreement may not be modified or amended
except by an instrument in writing signed by the Purchaser and EEX or by their
respective successors or permitted assigns.
Section 11. No Waivers, Remedies. No failure to exercise and no delay in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law except
as otherwise expressly provided herein.
Section 12. Time of the Essence. Time shall be of the essence of this
Agreement.
IN WITNESS WHEREOF, EEX has caused this Undertaking to be duly executed and
delivered as of the day and year first above written.
EEX CORPORATION
By:________________________________
Name: J. T. Leary
Title: Vice President, Finance and Treasurer
4
