<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1997
REGISTRATION STATEMENT NO. 333-25719
================================================================================
SECURITIES AND EXCHANGE COMMISSION
---------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CONTINENTAL NATURAL GAS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OKLAHOMA 4923 73-1198957
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1412 SOUTH BOSTON, SUITE 500
TULSA, OKLAHOMA 74119
(918) 582-4700
(address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------
GARRY D. SMITH
VICE PRESIDENT, CONTROLLER
CONTINENTAL NATURAL GAS, INC.
1412 SOUTH BOSTON, SUITE 500
TULSA, OKLAHOMA 74119
(918) 582-4700
(name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
<TABLE>
<C> <C> <C>
WILLIAM W. PRITCHARD, ESQ. KENNETH F. ALBRIGHT, ESQ. BYRON F. EGAN, ESQ.
DEL L. GUSTAFSON, ESQ. ALBRIGHT & RUSHER, JACKSON & WALKER, L.L.P.
HALL, ESTILL, HARDWICK, GABLE, A PROFESSIONAL CORPORATION 901 MAIN STREET, SUITE 6000
GOLDEN & NELSON, P.C. FIFTEEN WEST SIXTH STREET, SUITE 2600 DALLAS, TEXAS 75202-3797
320 SOUTH BOSTON AVENUE, SUITE 400 TULSA, OKLAHOMA 74119-5434 (214) 953-5727
TULSA, OKLAHOMA 74103-3708 (918) 583-5800
(918) 594-0400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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=============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value.......... 2,415,000 $14.00 $33,810,000 $10,245
=============================================================================================================================
</TABLE>
(1) Includes 315,000 shares which the Underwriters may purchase to cover
over-allotments, if any.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
CONTINENTAL NATURAL GAS, INC.
FORM S-1 REGISTRATION STATEMENT
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEMS AND HEADING LOCATION IN PROSPECTUS
---------------------- ----------------------
<S> <C> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds.................................... Use of Proceeds
5. Determination of Offering Price.................... Risk Factors
6. Dilution........................................... Risk Factors; Dilution
7. Selling Security Holders........................... Principal and Selling Shareholders
8. Plan of Distribution............................... Outside Front Cover Page; Underwriting
9. Description of Securities to Be Registered......... Description of Capital Stock
10. Interests of Named Experts and Counsel............. Not Applicable
11. Information with Respect to the Registrant
a. Description of Business....................... Prospectus Summary; Risk Factors; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business; Certain
Transactions
b. Description of Property....................... Business -- Facilities
c. Legal Proceedings............................. Business -- Legal Proceedings
d. Market Price and Dividends on Equity
Securities.................................... Outside Front Cover Page; Dividend Policy;
Description of Capital Stock; Certain
Transactions; Shares Eligible for Future Sale
e. Financial Statements.......................... Financial Statements
f. Selected Financial Data....................... Prospectus Summary; Selected Consolidated
Financial and Other Information
g. Supplementary Financial Data.................. Not Applicable
h. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... Management's Discussion and Analysis of
Financial Condition and Results of Operations
i. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........ Not Applicable
j. Qualitative and Quantitative Disclosure about
Market Risk................................... Not Applicable
k. Directors and Executive Officers.............. Management; Principal and Selling Shareholders
l. Executive Compensation........................ Management
m. Security Ownership of Certain Beneficial
Owners and Management......................... Principal and Selling Shareholders
n. Certain Relationships and Related
Transactions.................................. Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY STATE.
SUBJECT TO COMPLETION, DATED JULY , 1997
2,100,000 SHARES
[LOGO] CONTINENTAL NATURAL GAS, INC.
COMMON STOCK
Of the 2,100,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock") offered hereby (the "Offering"), 1,800,000 shares are being sold
by Continental Natural Gas, Inc. ("CNG" or the "Company") and 300,000 shares are
being sold by a shareholder of the Company (the "Selling Shareholder"). See
"Principal and Selling Shareholders." The Company will not receive any proceeds
from the sale of Common Stock by the Selling Shareholder. Prior to the Offering
there has been no public market for the Common Stock. It is currently estimated
that the initial public offering price will be between $12.00 and $14.00 per
share. See "Risk Factors -- No Prior Public Market" for the factors considered
in determining the initial public offering price. After the Offering, the
Company will remain under the control of affiliates of Gary C. Adams, Chairman
of the Board, President and Chief Executive Officer of the Company. Such
affiliates will be able to elect all of the Company's directors, control the
management and policies of the Company and determine the outcome of any matter
submitted to a vote of the Company's shareholders. See "Risk
Factors -- Continued Control by Majority Shareholders."
The Company has applied for listing on the Nasdaq National Market under the
symbol "CNGL".
FOR A DISCUSSION OF MATERIAL RISKS IN CONNECTION WITH THE PURCHASE OF
COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 9-13 OF THIS
PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT COMPANY(2) SHAREHOLDER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
Total(3).......................... $ $ $ $
==================================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses payable by the Company estimated to be $700,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
315,000 additional shares of Common Stock at the Price to Public, less the
Underwriting Discount, for the purpose of covering over-allotments, if any.
If such option is exercised in full, the total Price to Public, Underwriting
Discount, Proceeds to Company and Proceeds to Selling Shareholder, will be
$ , $ , $ and $ , respectively. See
"Underwriting."
---------------------
The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of certificates representing the shares
of Common Stock will be made against payment on or about , 1997 at
the offices of Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial
Center, New York, New York 10281.
---------------------
OPPENHEIMER & CO., INC. SOUTHWEST SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 4
Inside cover will be a two-page fold out with pictures of the Company's
natural gas systems and plants and a map of Texas and Oklahoma showing the
location of the Company's natural gas systems and plants.
---------------------
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 with respect to the shares of
Common Stock offered hereby, of which this Prospectus forms a part. In
accordance with the rules of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the securities offered hereby, reference is made
to the Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus concerning the provisions of such
documents are necessarily summaries of such documents and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission as an exhibit to the Registration Statement. Copies of
the Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the offices of the Commission, or obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.
The Company will provide without charge to each person who receives a copy
of this Prospectus, upon written or oral request of such person, a copy of any
of the information that is incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
the exhibits are themselves specifically incorporated by reference). Such
request should be directed to: Continental Natural Gas, Inc., Attention: Garry
D. Smith, 1412 South Boston, Suite 500, Tulsa, Oklahoma 74119, (918) 582-4700.
The Company intends to distribute to its shareholders annual reports
containing audited financial statements certified by its independent auditors
and to make available to its shareholders quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere in this Prospectus. Certain terms, including several technical terms
commonly used in the oil and gas industry, are defined in the "Glossary." As
used in this Prospectus, the terms "Company" and "CNG" refer, unless the context
requires otherwise, to Continental Natural Gas, Inc., its subsidiaries
(including limited liability companies), joint venture entities managed by the
Company or its subsidiaries and their interests therein. Unless otherwise noted,
all references in this Prospectus to the number of shares of Common Stock
outstanding and to be offered in the Offering assume no exercise of the
over-allotment option granted to the Underwriters in connection with the
Offering and the conversion of all outstanding shares of Convertible Preferred
Stock of the Company ("Convertible Preferred Stock") into Common Stock prior to
the effectiveness of the Registration Statement of which this Prospectus is a
part. All information in this Prospectus has been adjusted to reflect an
approximate 136-for-1 stock split in June 1997.
THE COMPANY
The Company is an independent mid-stream energy company engaged in the
purchasing, gathering, treating, processing and marketing of natural gas and
natural gas liquids ("NGLs"). The Company owns and operates approximately 1,100
miles of natural gas gathering pipelines located in the Texas and Oklahoma
panhandle region (the "Panhandle Area") with a total throughput capacity of 383
MMcf/d and two interconnected natural gas processing plants with a total NGL
production capacity of 490 Mgal/d. CNG provides essential services to natural
gas producers in the Panhandle Area by (i) connecting the producers' wells to
the Company's gathering systems, (ii) treating the producers' natural gas to
ensure that it meets pipeline specifications, (iii) transporting the natural gas
from the wellhead to CNG's processing plants where NGLs are extracted from the
natural gas stream and (iv) providing access for the natural gas and NGLs to
various markets in the Midwestern, Mid-Continent, Rocky Mountain and southern
Texas regions (the "CNG Market Area") of the United States. The April 1996 and
January 1997, editions of "Hart's Report on Gas Customer Satisfaction" published
by Hart Publications, Inc. reported that CNG was rated the most preferred
natural gas purchaser in surveys of natural gas sellers. The Company markets the
natural gas it gathers or processes ("on-system gas"), as well as natural gas it
neither gathers nor processes ("off-system gas"), to utilities, end-users, other
marketers and pipeline affiliates.
From 1985 through 1990, CNG's activities were primarily limited to
marketing off-system gas. Concurrent with the evolving deregulation of the
natural gas industry, the Company began to acquire natural gas gathering systems
and processing plants to complement its marketing business. Since 1990, the
Company has completed approximately $64 million of acquisitions and system
expansion projects. During March 1997, CNG's average gathering system throughput
was 108 MMcf/d and average processing plant throughput was 135 MMcf/d. The
Company's NGL production for March 1997, averaged 281 Mgal/d. Over the three
years ended December 31, 1996, the Company's daily natural gas throughput has
increased 77%. Primarily as a result of this growth, the Company's EBITDA (as
defined in the Glossary) has increased to $9.5 million in 1996 from $1.7 million
in 1994. For the three months ended March 31, 1997, the Company's EBITDA was
$3.7 million.
The Company's principal assets are located in the Panhandle Area, which is
a major natural gas producing area with significant long-lived natural gas
reserves. CNG's Beaver Plant and Beaver Gathering System were acquired in 1990
from El Paso Natural Gas Company and currently consist of approximately 300
miles of natural gas gathering pipelines, a 65 MMcf/d cryogenic processing plant
and a 40 MMcf/d propane refrigeration plant. The Beaver Plant is interconnected
with the Company's Mocane Plant, which was acquired from affiliates of Conoco,
Inc. and Chevron USA, Inc. in 1995. The Mocane Plant consists of two
refrigerated lean oil absorption plants with a combined demonstrated capacity of
200 MMcf/d of natural gas and 280 Mgal/d of NGLs, approximately 140,000 barrels
of underground NGL storage and a 6,700 barrels per day NGL fractionator. During
the first half of 1996, the Company acquired approximately 800 miles of gas
gathering assets located throughout the Texas panhandle in three separate
transactions. These gathering assets (the "Texas Gathering Assets") were
acquired for approximately $20.2 million from subsidiaries of Enron Corporation.
3
<PAGE> 6
BUSINESS STRATEGY
The Company's business strategy is to achieve sustainable growth in cash
flow and earnings by (i) acquiring and constructing natural gas gathering
systems and processing plants with excess capacity which complement CNG's
marketing operations, (ii) improving the profitability of the Company's existing
systems and plants by increasing their utilization and efficiency and (iii)
expanding its energy marketing services and sales volumes by offering natural
gas producers and purchasers flexible contract terms, value-added services and
other favorable arrangements.
Expansion of Facilities. The Company seeks to acquire or make investments
in projects that complement its existing systems or allow it to expand into new
strategic areas and provide enhanced marketing opportunities. These investments
typically include natural gas gathering, processing, treating or fractionation
assets. By acquiring assets with unused capacity, the Company has established
significant operating leverage in the Panhandle Area. As a result, the Company
can gather and process additional natural gas through its existing systems at
incrementally higher rates of return. In addition to acquiring or constructing
new facilities in the Panhandle Area, CNG will continue to evaluate
opportunities in new operating areas where the Company believes it can establish
a competitive marketing advantage, allowing the Company to increase the wellhead
prices of natural gas paid to producers and provide value-added services.
In implementing this strategy, CNG has completed approximately $64 million
of acquisitions and system expansion projects since 1990. The Company believes
that its acquisition track record and demonstrated ability to complete
transactions with large pipeline companies and other sellers strengthen its
ability to compete for future acquisitions. In addition, the Company believes
that its seasoned management team allows it to assess and evaluate acquisition
opportunities and integrate acquired assets into CNG's existing operations.
Improving the Profitability of Existing Facilities. The Company seeks to
maximize the profitability of its operations by (i) maintaining and increasing
natural gas throughput and processing levels, (ii) directing natural gas
throughput to a particular Company-owned gas processing plant that maximizes
product yields and/or margins, (iii) investing in assets that enhance product
value and (iv) controlling operating and overhead expenses. In order to maintain
or increase natural gas throughput and processing volumes. The Company obtains
additional natural gas supplies for its facilities by connecting new wells to
the Company's gathering systems, purchasing and integrating gathering systems
into the Company's existing operations and entering into contractual natural gas
supply arrangements with producers or other gatherers.
The opportunity to connect new wells to the Company's gathering systems is
primarily affected by the level of drilling activity near such gathering
systems. The Panhandle Area is within one of the most prolific natural gas
producing regions in the continental United States and continues to attract
significant exploration activity. Although the Company owns no oil and gas
reserves, the independent engineering firm of Lee Keeling & Associates estimates
that the leases and wells currently under contract with the Company have
approximately 700 Bcf of proved, producing natural gas reserves. The Company
believes it has sufficient gathering and processing capacity to capitalize on
the Panhandle Area's development.
By maintaining geographically-focused operations, the Company believes it
is able to control operating and overhead expenses. Furthermore, the location
and strategic nature of CNG's natural gas gathering systems and processing
plants allow the Company to maximize NGL yields and product returns by directing
natural gas between its Beaver and Mocane Plants. For example, under current
market conditions, CNG seeks to maximize the flow of natural gas through the
Beaver cryogenic processing plant, thereby allowing the Company to realize
greater volumes of NGLs from the natural gas stream and enhance the total value
of its on-system gas throughput.
Expanding Energy Marketing Services and Sales Volumes. CNG is a marketer of
natural gas and NGLs. The Company plans to expand its energy marketing
activities by continuing to offer creative, flexible contract terms that satisfy
the objectives of producers at the wellhead and purchasers in the marketing of
natural gas. By offering flexible contract terms and using a portfolio approach
to marketing natural gas, CNG has been able to substantially increase its
on-system gas and NGL volumes. The Company also seeks to increase its off-
4
<PAGE> 7
system marketing. In addition, the Company intends to expand into the sale of
electric power to wholesale customers and industrial and commercial end-users.
The Company markets and sells natural gas primarily in the CNG Market Area.
The Company's gathering systems and processing plants are located in an area
where many interstate pipelines converge, allowing it to take advantage of
locational differences in natural gas prices. CNG provides a full range of
services including risk management, storage, transportation, scheduling and
peaking requirements to purchasers of the Company's marketed natural gas. The
Company's natural gas marketing operations are substantially enhanced by its
ability to market natural gas gathered and processed by the Company.
Furthermore, CNG's portfolio approach to marketing allows it to offer producers
and purchasers optimum flexibility with respect to pricing, contract terms and
volumes. By aggregating large volumes of natural gas and maintaining the
flexibility to sell into different markets, CNG has been able to maximize sales
prices by selling to purchasers who are willing to pay a premium for large,
reliable quantities of natural gas.
The Company also markets NGLs produced at its plants to wholesalers and
end-users. The Company's NGL marketing strategy is to increase sales to
end-users and to expand its NGL marketing operations into the purchase and sale
of third-party NGLs.
The Company is currently creating the staffing and operating infrastructure
necessary to market electric power in the CNG Market Area to wholesale customers
and industrial and commercial end-users in accordance with anticipated
nationwide state-by-state deregulation. The Company believes that it may have a
market for electric power with its existing natural gas industrial and
commercial end-user customers. During 1996, the Company applied for and received
a power marketing certificate from the FERC, permitting it to sell wholesale
electric power at market-based rates pursuant to the Federal Power Act. The
Company believes its expertise in marketing natural gas in a deregulated
environment, its expanding customer base and its firm supplies of natural gas
and NGL products will allow it to compete effectively in this emerging market.
RECENT DEVELOPMENT
The Company, Conoco, Inc. ("Conoco") and an affiliate of Conoco have
reached an informal agreement under which the Company will purchase from Conoco
and its affiliate a 36% interest in the Laverne gas processing plant (the
"Laverne Plant") located in Harper County, Oklahoma, for a purchase price of
$3.8 million (the "Laverne Plant Acquisition"). Although Conoco is the operator
of the Laverne Plant, it is owned by various entities. During 1997, the Company
has acquired approximately 17% of the plant for $1.4 million. Subject to the
execution of a definitive purchase and sale agreement and the satisfaction of
other conditions, the closing of the Laverne Plant Acquisition is expected to
take place in the third quarter of 1997 effective in April 1997. Concurrent with
the Laverne Plant Acquisition, certain litigation between the Company and the
Conoco affiliate will be settled. See "Business -- Legal Proceedings." Upon the
completion of the Laverne Plant Acquisition, the Company will own approximately
53% of the Laverne Plant. The Company's interest in the Laverne Plant will be
held by Continental Laverne Gas Processing, L.L.C., an Oklahoma limited
liability company which was formed on May 8, 1997, for the purpose of acquiring
interests in the Laverne Plant.
The Laverne Plant consists of a 200 MMcf/d cryogenic gas processing
facility, complete with NGL fractionation capability and above-ground storage.
The Laverne Plant straddles GPM Gas Corporation's Laverne natural gas gathering
system. Natural gas production feeding the Laverne Plant originates from the
Mocane-Laverne field. The plant is located approximately eight miles east of the
Beaver Plant. Current natural gas throughput at the Laverne Plant is 70 MMcf/d,
yielding 180 Mgal/d of NGLs. Due to the Laverne Plant's proximity to CNG's other
assets and its substantial underutilized capacity, the Company believes that the
Laverne Plant will enhance the Company's existing operations in the Panhandle
Area.
5
<PAGE> 8
THE OFFERING
Common Stock Offered by the Company....... 1,800,000 shares
Common Stock Offered by Selling
Shareholder............................... 300,000 shares
-------
Total................................... 2,100,000 shares
=========
Common Stock to be Outstanding after the
Offering(1)............................... 6,000,000 shares
Use of Proceeds........................... The net proceeds to the Company
from the Offering will be used to
repay outstanding bank borrowings,
pay accrued dividends on the
Convertible Preferred Stock and
for other general corporate
purposes. See "Use of Proceeds."
The Company will not receive any
of the proceeds from the sale of
shares by the Selling Shareholder.
Proposed Nasdaq National Market Symbol.... CNGL
----
- ---------------
(1) Excludes (i) 204,000 shares subject to outstanding options under the
Company's 1996 Incentive Stock Option Plan (the "1996 Stock Plan") and (ii)
600,000 shares reserved for future issuance and issuable upon grant of
options, stock appreciation rights and stock grants under the Company's 1997
Stock Plan (the "1997 Stock Plan").
6
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
The following table presents summary financial and operating information
for the Company as of the end of and for each of the five years in the period
ended December 31, 1996 and for the three month periods ended March 31, 1996 and
1997. The financial data for the years ended December 31, 1994, 1995 and 1996
have been derived from the Company's Consolidated Financial Statements included
herein which have been audited by Coopers & Lybrand L.L.P., independent
accountants. The data for and at the end of the three month periods ended March
31, 1996 and 1997, have been derived from the unaudited Consolidated Financial
Statements of the Company included elsewhere in this Prospectus and reflect, in
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary for fair presentation of the results for such periods.
Results of operations for the three months ended March 31, 1997, are not
necessarily indicative of the results to be achieved for the year ending
December 31, 1997. The summary financial data should be read in conjunction with
the Company's Financial Statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Natural gas sales............................ $124,981 $126,583 $100,477 $ 95,631 $208,779 $ 32,670 $ 78,788
Natural gas liquids sales.................... 10,102 23,177 19,572 24,804 34,757 6,195 8,881
Gathering fees............................... -- -- -- -- 1,995 -- 843
Other........................................ 1,239 1,308 260 763 1,130 455 15
-------- -------- -------- -------- -------- -------- --------
Total operating revenue...................... 136,322 151,068 120,309 121,198 246,661 39,320 88,527
Operating costs and expenses
Cost of purchased natural gas................ 125,872 137,560 111,038 107,642 225,535 34,493 81,417
Operating expenses........................... 3,617 5,530 3,930 4,366 5,978 1,382 1,559
General and administrative................... 4,050 3,847 3,601 3,840 5,623 1,310 1,842
Depreciation, depletion and amortization..... 1,067 1,741 1,505 1,367 2,854 473 899
-------- -------- -------- -------- -------- -------- --------
Total operating costs and expenses........... 134,606 148,678 120,074 117,215 239,990 37,658 85,717
Operating income............................... 1,716 2,390 235 3,983 6,671 1,662 2,810
Other income (expense), net.................... (448) (1,028) 4,648 (1,047) (2,686) (264) (1,171)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes, extraordinary item
and cumulative effect of accounting change..... 1,268 1,362 4,883 2,936 3,985 1,398 1,639
Income tax (expense) benefit..................... (47) (127) 2,174 3,635 (30) (652)
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item and cumulative
effect of accounting change.................... 1,268 1,315 4,756 5,110 7,620 1,368 987
-------- -------- -------- -------- -------- -------- --------
Net income....................................... $ 1,268 $ 1,695 $ 4,756 $ 5,110 $ 7,193 $ 1,368 $ 987
======== ======== ======== ======== ======== ======== ========
Pro forma operating revenue...................... $246,058(1) $ 88,527(1)
Pro forma income before extraordinary item....... $ 786(2) 8,277(1) 1,235(1)
-------- -------- --------
EARNINGS PER SHARE:
Primary:
Income before extraordinary item and cumulative
effect of accounting change.................. $ .41 $ .40 $ 1.46 $ 1.59 $ 1.99 $ .37 $ .24
Net income..................................... .41 .52 1.46 1.59 1.87 .37 .24
Fully Diluted:
Income before extraordinary item and cumulative
effect of accounting change.................. .40 .40 1.45 1.59 1.71 .33 .22
Net income..................................... .40 .52 1.45 1.59 1.61 .33 .22
Pro forma income before extraordinary item:
Primary........................................ .25(2) 1.47(1) .21(1)
Fully diluted.................................. .25(2) 1.34(1) .20(1)
Weighted average common shares outstanding:
Primary........................................ 3,131 3,217 3,215 3,185 3,536 3,305 3,613
Fully diluted.................................. 3,135 3,232 3,242 3,186 4,466 4,155 4,393
OTHER DATA:
Capital expenditures........................... $ 13,986 $ 2,267 $ 3,097 $ 12,311 $ 30,761 $ 10,418 $ 3,498
EBITDA(3)...................................... 2,782 4,132 1,739 5,350 9,525 2,135 3,709
Natural gas throughput gathered and/or
processed (MMcf/d)........................... 60 93 108 140 191 121 213
NGLs production (Mgal/d)....................... 105 251 257 288 264 245 269
Average NGL price (per gal).................... $ .27 $ .26 $ .22 $ .26 $ .36 $ .28 $ .37
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ (2,773) $ (2,260)
Property, plant and equipment (net)....................... 62,751 62,751
Total assets.............................................. 117,064 118,082
Long-term debt, excluding current portion................. 38,071 18,071
Shareholders' equity...................................... 23,140 43,541
</TABLE>
- ---------------
(1) Excludes the results of operations related to the Company's interests in oil
and gas properties which were sold to an affiliated company in 1996, and
includes the effect of debt to be extinguished with proceeds from the sale
of Common Stock pursuant to the Offering.
(2) Includes a pro forma income tax provision for 1992 when the Company was an
S-corporation and thus not subject to income taxes.
(3) See definition in the "Glossary" section of this Prospectus.
(4) Adjusted to give effect to the sale by the Company of 1,800,000 shares of
Common Stock in the Offering and the application of the net proceeds
therefrom.
8
<PAGE> 11
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating the Company and
its business before purchasing the Common Stock offered hereby.
COMMODITY PRICE FLUCTUATIONS
The Company's products, including NGLs, natural gas and related
by-products, are commodities. Because the Company's contracts generally do not
fix a long-term price for the products it purchases or sells, market changes in
the price of such products have a direct and immediate effect (whether favorable
or adverse) upon the revenues and profitability of the Company. In particular,
because the Company is a purchaser of natural gas at the wellhead and a seller
of NGLs extracted from natural gas, a contraction in the margin between the cost
of natural gas and the sales price of NGLs could adversely affect the Company.
Prices for the Company's products are subject to material change in
response to relatively minor changes in supply and demand, general economic
conditions and other market conditions over which the Company has no control.
Other conditions affecting the Company's business include the level of domestic
oil and gas production, the availability and prices of competing commodities and
of alternative energy sources, the availability of local, intrastate and
interstate transportation systems with adequate capacity, government regulation,
the seasons, the weather and the impact of energy conservation efforts.
AVAILABILITY OF NATURAL GAS SUPPLY
The Company must connect new wells to its gathering systems, contract for
new natural gas supplies with third party pipelines or acquire additional
gathering systems in order to maintain or increase throughput levels to offset
depletion of wells currently under contract. Historically, while certain
individual facilities have experienced decreases in dedicated reserves, the
Company has connected new wells and contracted for new supplies with third-party
pipelines which more than offset production depletion of existing wells. The
ability to connect new wells to existing facilities is dependent upon levels of
oil and gas development activity near existing facilities. Significant
competition for connections to newly drilled wells exists in every geographic
area served by the Company. Significant competition also exists for the
acquisition of existing gathering systems. There can be no assurance that the
Company will renew its existing supply contracts or that it will be able to
acquire new supplies of natural gas at a rate necessary to offset depletion of
wells currently under contract.
CONTINUED CONTROL BY MAJORITY SHAREHOLDERS
After giving effect to the Offering, Adams Affiliates, Inc. ("Adams
Affiliates") and Cottonwood Partnership (collectively, the "Majority
Shareholders"), will directly control approximately 57.3% of the outstanding
Common Stock (54.4% if the Underwriters' over-allotment option is exercised in
full). Gary C. Adams, the Chairman of the Board, President and Chief Executive
Officer of the Company, is chief executive officer of Cottonwood Partnership
which, in turn, owns a majority interest in Adams Affiliates. See "Certain
Transactions." After the Offering, the Majority Shareholders will be able to
elect all of the Company's directors, control the management and policies of the
Company and determine the outcome of any matter submitted to a vote of the
Company's shareholders. This presents the potential for a conflict of interest
between the Company and its controlling officers, shareholders and directors.
Provisions of the Company's Certificate of Incorporation also strengthen the
control of the Majority Shareholders over the Company and may act to reduce the
likelihood of a successful attempt to take over the Company or any acquisition
of a substantial amount of Common Stock without the Majority Shareholders'
consent. See "Principal and Selling Shareholders" and "Description of Capital
Stock."
DEPENDENCE ON THIRD-PARTY PIPELINES
In 1996, approximately 60% of the Company's natural gas volume was
delivered to its processing plants through the interstate pipeline systems of
Northern Natural Gas Company ("NNG") and Transwestern Pipeline Company ("TW"),
and substantially all sales of natural gas by the Company were effected through
9
<PAGE> 12
deliveries on interstate pipelines. In addition, the Company has partially
relied on third-party gathering systems for access to and transportation of
contracted natural gas supplies. As a result, a curtailment of the Company's
supply of natural gas by pipelines or by third-party gathering systems, an
impairment of the Company's ability to transport natural gas on interstate
pipelines or a material increase in the rates charged to the Company for the
transportation of natural gas by reason of a change in federal regulations or
for any other reason, could have a material adverse effect upon the Company. In
such event, other transportation arrangements would have to be obtained or
alternative pipelines would need to be constructed by the Company. There can be
no assurance that economically alternative transportation would be available to
the Company or that alternative pipelines could be constructed economically.
Interstate pipelines are authorized under the FERC regulations to impose
penalties in the event the Company's deliveries and receipts from the pipeline
are not balanced on a daily or monthly basis. The Company attempts to balance
purchases and sales of natural gas on a daily and monthly basis so that the
Company's total purchases and sales on any given day (or in any given month) are
equal, thereby not incurring any significant pipeline imbalance penalties.
Nonetheless, in the event the Company is unable to balance its purchases and
sales within prescribed tolerances, the Company may incur severe pipeline
balancing penalties or may be compelled to purchase natural gas at unattractive
prices in order to alleviate these imbalances. In either instance, the Company
could incur substantial losses. See "Business -- Sales and
Marketing -- Transportation."
NET OPERATING LOSS CARRYFORWARDS
The Company has been able to utilize net operating loss carryforwards
("NOLs") to offset approximately $37 million of income in prior years and
thereby reduce or eliminate its tax liability. At December 31, 1996, the Company
had an available NOL of approximately $17.5 million, which it intends to utilize
to offset its taxable income for the current and future years. Due to the lack
of legal precedent with respect to the tax rules governing the Company's NOLs,
both the availability of the Company's NOLs and its prior utilization of NOLs
may be challenged. Management believes that the Company has been, and will
continue to be, legally entitled to use its NOLs. Should the Internal Revenue
Service audit and disallow prior or future use of the Company's NOLs and such
disallowance be upheld upon appeal, the Company would incur additional tax
liability, penalties and interest. Any such additional tax liability could have
a material adverse effect on the financial condition of the Company. The ability
of the Company to utilize its NOLs in the future will also depend upon the
generation of sufficient taxable income prior to the expiration of its NOLs.
Thus, there is no assurance that the Company will be able to utilize its NOLs
prior to expiration. See Note 8 of the Notes to the Consolidated Financial
Statements of the Company included herein.
Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended,
in the event that a substantial change in the ownership of the Company were to
occur in the future (whether through the sale of stock by the Majority
Shareholders, new issuances of stock by the Company, conversions, a redemption,
recapitalization, reorganization, any combination of the foregoing or any other
method) so that ownership of more than 50% of the value of the Company's capital
stock changed during any three-year period, the Company's ability to utilize its
NOLs could be substantially limited. For each taxable year ending after such a
change in ownership, the Company would not be able to fully use its NOLs; it
would only be able to use an amount equal to the "sec. 382 limitation." The sec.
382 limitation is an amount equal to a designated percentage of the equity value
of the Company at the time of the change of ownership. The percentage used is
the federal long-term tax-exempt rate.
At present, neither the Company nor the Majority Shareholders intend to
sell stock, issue additional stock, make any acquisitions in exchange for stock
or take any other action which would constitute such a change in ownership and
cause the sec. 382 limitation to apply.
OPERATIONAL RISKS
The Company is subject to all of the risks generally associated with the
gathering, processing, marketing and storage of natural gas and NGLs, including
damage or loss to its own personnel and property, as well as
10
<PAGE> 13
the personnel and property of third-parties. Such loss or damage could result,
among other things, from acts of God, negligent acts of personnel, or systems
failures, resulting in fires and explosions, leakage of natural gas or spills of
NGLs. Any of these occurrences could result in the loss of natural gas and/or
NGLs, environmental pollution, personal injury claims or other damage to the
property of the Company and others. Losses resulting from the occurrence of such
events (notwithstanding insurance coverage for all or part of such losses) could
have a material adverse effect on the financial condition and results of
operation of the Company.
The Company's inability to negotiate natural gas purchase or sale
agreements or NGL sale agreements on favorable terms, or the failure of
contracting third-parties to perform agreements with the Company could have a
material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The success of the Company will depend in large part on the personal
efforts of its Chairman of the Board, President and Chief Executive Officer,
Gary C. Adams, its Vice President of Marketing, Scott C. Longmore, its Vice
President of Operations, Terry K. Spencer, and its Vice President and
Controller, Garry D. Smith. The loss of the services of any of these persons
could have a material adverse effect on the Company.
RISKS PERTAINING TO ACQUISITIONS
Part of the Company's business strategy is to expand through acquisitions.
The Company's future growth is partially dependent upon its ability to complete
suitable acquisitions and effectively integrate acquired assets into the
Company's operations. Suitable acquisitions, on terms acceptable to the Company,
may not be available in the future or may require the Company to assume certain
liabilities, including, without limitation, environmental liabilities, known or
unknown.
POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS
Demand for the Company's primary NGL product, propane, and the Company's
principal commodity, natural gas, will generally increase during the winter
because both products are used as heating fuels. The amount of such increased
demand will depend to some extent upon the severity of the winter. Accordingly,
Company revenues are likely to increase during winter months although the amount
of increase and its effect on profitability cannot be predicted because of
variations in weather and because the Company is also a purchaser of natural gas
and typically experiences an increase in product costs during the winter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality." Because of the seasonality of the Company's business
and fluctuations in the prices of its products, the Company's operating results
for any past quarterly period may not necessarily be indicative of results for
future periods and there can be no assurance that the Company will be able to
achieve or maintain profitability on a quarterly or annual basis in the future.
DEPENDENCE ON ONE CUSTOMER
Sales of NGLs to a single customer, a subsidiary of Mapco, Inc., accounted
for 12% and 23% of the total revenue of the Company for fiscal years 1996 and
1995, respectively; however, the Company does not believe that the loss of such
customer would have a material adverse effect on the Company because of the
availability of other customers for the Company's products.
NO PRIOR PUBLIC MARKET
There has been no prior public market for the Company's Common Stock. Even
if the Common Stock is approved for listing on the Nasdaq National Market, there
can be no assurance that an active trading market for the Common Stock will
develop or be sustained after the Offering or that purchasers of the Common
Stock will be able to resell their Common Stock at prices equal to or greater
than the initial public offering price. The initial public offering price for
the Common Stock will be determined by negotiation between the Company and the
representatives of the Underwriters based on several factors and may bear no
relationship to the market price of the Common Stock subsequent to the Offering.
Numerous factors, including the general
11
<PAGE> 14
economy, announcements by the Company, its suppliers or competitors and
fluctuations in the Company's quarterly and annual operating results, changes in
earnings estimates by analysts, governmental regulatory action and general
trends in the industry could significantly affect the future market price of the
Common Stock. In addition, the stock market historically has experienced
volatility which has affected the market price of securities of many companies
and which has sometimes been unrelated to the operating performance of such
companies.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to various local, state and federal laws and
regulations including environmental laws and regulations. The Company believes
that it is in substantial compliance with such laws and regulations; however,
there is no assurance that such laws and regulations will not be changed in the
future in a manner which will increase the burden and cost of compliance. In
addition, significant liability could be imposed on the Company for damages,
cleanup costs and penalties in the event of certain discharges into the
environment. See "Business -- Government Regulation" and
"Business -- Environmental Matters."
In March 1992, an environmental site assessment of the Laverne Plant
indicated the presence of hydrocarbon-contaminated groundwater underlying a
portion of the plant site. Under the direction of the Oklahoma Corporation
Commission and based on the results of a pilot remediation project, a plan has
been developed to remediate the site utilizing a biofiltration process to be
installed during the last half of 1997 at an estimated cost of $1 million. The
Company's share of this total cost will be equal to its percentage ownership of
the Laverne Plant which is expected to reach approximately 53% upon completion
of the proposed acquisition from Conoco, Inc. and its affiliate. See
"Business -- Recent Development."
The Company is currently involved in pending proceedings at the FERC in
which certain parties allege that the primary function of the Company's
processing plants is interstate transportation and thus that they are subject to
FERC rate and certificate regulation. While the Company believes that its
business is not subject to regulation by the FERC, it cannot predict the outcome
of these proceedings, nor can it predict the effect a ruling would have on the
Company's business. See "Business -- Government Regulation."
LITIGATION
The Company is involved in certain legal proceedings. Although the Company
believes that the final outcome of any legal proceedings will not have a
material adverse effect on the Company, the inherent uncertainty of litigation
makes it impossible to give assurance regarding the effect of such litigation on
the Company. See "Business -- Legal Proceedings."
ANTI-TAKEOVER PROVISIONS
The Certificate of Incorporation and Bylaws of the Company and Oklahoma law
include certain provisions that may be deemed to have anti-takeover effects and
may delay, defer or prevent a takeover attempt that a shareholder of the Company
might consider to be in the best interests of the Company or its shareholders.
See "Description of Capital Stock."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the amount of $5.74 in the net tangible book value per
share of Common Stock from the initial public offering price. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
The availability for sale of certain shares of Common Stock held by
existing shareholders of the Company after the Offering could adversely affect
the market price of the Common Stock. The Company currently has outstanding
4,200,000 shares of its Common Stock. In addition, the Company has 600,000
shares reserved for future issuance upon the exercise of options or other rights
granted under the 1997 Stock Plan and 204,000
12
<PAGE> 15
shares subject to outstanding options under the 1996 Stock Plan. Of the
6,000,000 shares of Common Stock to be outstanding following the Offering, the
2,100,000 shares being offered hereby will be freely tradeable without
restrictions or additional registration under the Securities Act. The remaining
3,900,000 shares were issued and sold by the Company in private transactions in
reliance upon exemptions from registration under the Securities Act. All of
these shares, except as limited by lock-up agreements, will be eligible for
resale pursuant to Rule 144 under the Securities Act ("Rule 144"). In connection
with the Offering, all executive officers, directors and certain other
shareholders of the Company have agreed not to offer, sell or otherwise dispose
of a total of 3,900,000 shares held by them for a period of 180 days after the
effective date of the Offering, without the prior written consent of the
representatives of the Underwriters. Substantially all of the shares subject to
this lock-up agreement would otherwise be available for resale upon the
effective date of the Offering under Rule 144. Sales of a substantial amount of
the currently outstanding shares of Common Stock in the public market may
adversely affect the market price of the Common Stock and the ability of the
Company to raise additional capital should such sales occur at a time when it
would be beneficial for the Company to sell securities. See "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriting."
COMPETITION
The Company faces strong competition in every aspect of its business,
including the purchase and transportation of natural gas and the sale of natural
gas and NGLs. The Company's competitors include major integrated oil and gas
companies, affiliates of major interstate and intrastate pipeline companies,
natural gas gatherers, and natural gas marketers of varying size, financial
resources and experience. Many of these competitors, particularly those
affiliated with major oil and gas and interstate and intrastate pipeline
companies, have capital resources and control supplies of natural gas
substantially greater than those of the Company. See "Business -- Competition."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this Prospectus, such as those concerning
the Company's business strategy, acquisition and expansion plans, future system
throughput and processing volumes, values and revenues, capital requirements,
governmental regulation and other statements regarding matters that are not
historical facts, are forward-looking statements (as such term is defined in the
Securities Act of 1933, as amended (the "Securities Act")). Because such
forward-looking statements include risks and uncertainties, actual results may
differ materially from those expressed in or implied by such forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, those discussed herein under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." The Company undertakes no obligation to publicly
release the results of any revisions of those forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
13
<PAGE> 16
THE COMPANY
The Company is an independent mid-stream energy company engaged in the
purchasing, gathering, treating, processing and marketing of natural gas and
NGLs. From 1985 through 1990, CNG's activities were primarily limited to
marketing off-system gas. Concurrent with the evolving deregulation of the
natural gas industry, the Company began to acquire natural gas gathering systems
and processing plants to complement its marketing business. As a result of these
acquisitions, the Company now derives the majority of its revenues from
gathering, processing and marketing activities associated with these assets. CNG
does not own any natural gas reserves.
During 1996, CNG transferred substantially all of its operating assets to
three limited liability companies in order to limit the potential liability of
any single operating company to the assets and business of that company. The
Company owns 99% of each such limited liability company and the remaining 1% is
owned by Continental Holdings Company, a wholly-owned subsidiary of CNG.
Currently, approximately 90% of the outstanding Common Stock of the Company
is owned by the Majority Shareholders, which are affiliated entities. Gary C.
Adams, the Chairman of the Board, President and Chief Executive Officer of the
Company, is Chief Executive Officer of Cottonwood Partnership which, in turn,
owns a majority interest in Adams Affiliates. See "Principal and Selling
Shareholders." Following the Offering, those entities will own approximately
57.3% of the outstanding Common Stock of the Company.
The Company's principal offices are located at 1412 South Boston, Suite
500, Tulsa, Oklahoma 74119. Its telephone number is (918) 582-4700.
14
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,800,000 shares of
Common Stock offered by the Company hereby, at an assumed initial public
offering price of $13.00 per share, after deduction of the underwriting discount
and offering expenses payable by the Company, are estimated to be approximately
$21.1 million ($24.8 million if the Underwriters' over-allotment option is
exercised in full). The Company will receive none of the proceeds from the sale
of Common Stock by the Selling Shareholder.
Of such proceeds, the Company plans to use approximately $20 million to pay
a portion of the Company's existing indebtedness to ING Capital Corporation
under its term loan, approximately $587,000 to pay accrued dividends on the
Convertible Preferred Stock and the balance for other general corporate
purposes. The interest rate under the Company's term loan varies at the
Company's election and may be either (i) up to 3/4% (depending upon the
Company's financial performance) above the greater of (x) the arithmetic average
of the prime rates announced by Chase Manhattan Bank, Citibank, N.A. and Morgan
Guaranty Trust Company of New York or (y) the federal funds rate as published by
the Federal Reserve Bank of New York plus 1/2%; or (ii) 1.375% to 2.50%
(depending upon the Company's financial performance) above the London Interbank
Offered Rate (LIBOR). The Company's term loan matures on July 31, 2001. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Pending such uses, the net proceeds of the Offering will be invested in
short-term, interest-bearing investment grade securities, including government
obligations and other money market instruments.
15
<PAGE> 18
DIVIDEND POLICY
Although the Company paid a dividend of $24,217 in 1995, the Company does
not intend to pay any cash dividends on its Common Stock and anticipates that,
for the foreseeable future, it will retain any earnings for use in the operation
and expansion of its business. Payment of cash dividends in the future will
depend upon the Company's earnings, financial condition, any contractual
restrictions (including restrictions contained in agreements relating to the
Company's credit facility), restrictions imposed by applicable law, capital
requirements and other factors deemed relevant by the Company's Board of
Directors. The Company's current credit facility prohibits the payment of
dividends on its Common Stock until December 30, 1997, and thereafter prohibits
the payment of dividends in excess of 10% of the Company's annual consolidated
net income.
16
<PAGE> 19
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997
was approximately $22.4 million or $5.34 per share of Common Stock. Net tangible
book value per share represents the amount of total tangible assets of the
Company less total liabilities, divided by the number of shares of Common Stock
issued and outstanding, adjusted for the conversion of the Convertible Preferred
Stock into 586,847 shares of Common Stock and the payment of cumulative unpaid
dividends of $699,000 as of March 31, 1997. After giving effect to the sale of
the 1,800,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $13.00 per share and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds," the pro
forma net tangible book value of the Company as of March 31, 1997 would have
been $43.5 million, or $7.26 per share. This represents an immediate increase in
net tangible book value of $1.92 per share to existing shareholders and an
immediate dilution of $5.74 per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $13.00
Pro forma net tangible book value before the Offering..... 5.34
Increase in pro forma net tangible book value attributable
to new investors....................................... 1.92
Pro forma net tangible book value after the Offering........ 7.26
Dilution to new investors................................... $ 5.74
======
</TABLE>
The computations in the table above exclude 204,000 shares of Common Stock
issuable upon the exercise of stock options granted under the 1996 Stock Plan
and 600,000 shares of Common Stock issuable pursuant to awards to be granted
under the 1997 Stock Plan. To the extent such awards under the 1997 Stock Plan
are made and vest or are exercised, there may be further dilution to new
investors. See "Management -- Executive Compensation."
The following table summarizes, on a pro forma basis as of March 31, 1997,
the differences in the total consideration paid and the average price per share
paid by the Company's existing shareholders during the past five years and by
purchasers of the shares offered hereby:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION AVERAGE
NUMBER PURCHASED ---------------------- PRICE
OF SHARES PERCENT AMOUNT PERCENT PER SHARE
--------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 665,992 24% $ 153,040 1% $ .23
--------- --- ----------- --- ------
New investors................ 2,100,000 76 $27,300,000 99 13.00
--------- --- ----------- --- ------
Total.............. 2,765,992 100% $27,453,040 100%
========= === =========== === ======
</TABLE>
The computation in the table above includes Common Stock acquired by
officers and directors during the past five years and shares issuable upon
exercise of outstanding options, which options are exercisable only if certain
performance criteria of the Company are met during the years of 1997 through
1999.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1997 (i) on an actual basis and (ii) as adjusted to give
effect to the issuance and sale by the Company of 1,800,000 shares of Common
Stock in the Offering at an assumed public offering price of $13.00 per share,
the application of the estimated net proceeds therefrom and the conversion of
the Convertible Preferred Stock into 586,847 shares of Common Stock. See "Use of
Proceeds" and the Company's Consolidated Financial Statements included herein.
This table should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------
AS
ACTUAL ADJUSTED(1)
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease
obligations............................................... $ 3,217 $ 3,217
======= =======
Long-term debt and capital lease obligations(2):
Bank borrowings........................................... $38,071 $18,071
Capital lease obligations................................. 6,276 6,276
------- -------
Total long-term debt and capital lease
obligations..................................... 44,347 24,347
Shareholders' equity(3):
Convertible preferred stock: $1 par value; $40,000
liquidation value; 200 shares authorized; 149 shares
issued and outstanding................................. 149 0
Common stock, $.01 par value, 60,000,000 shares
authorized; 3,919,156 shares issued, 6,000,000 as
adjusted............................................... 39 60
Additional paid-in capital................................ 12,376 33,455
Retained earnings......................................... 11,029 10,330
Treasury stock, at cost (306,003 shares).................. (204) (204)
Receivable from stock sale................................ (100) (100)
------- -------
Total shareholders' equity........................ $23,140 $43,541
------- -------
Total capitalization.............................. $67,487 $67,888
======= =======
</TABLE>
- ---------------
(1) Adjusted to give effect to (i) the sale by the Company of 1,800,000 shares
of Common Stock in the Offering and the application of the net proceeds
therefrom and (ii) the conversion of the Convertible Preferred Stock into
586,847 shares of Common Stock and the payment of unpaid dividends of
$699,000 attributable to the Convertible Preferred Stock. See "Use of
Proceeds."
(2) See Notes 5 and 6 of the Notes to the Company's Consolidated Financial
Statements included herein.
(3) See Note 11 of the Notes to the Company's Consolidated Financial Statements
included herein.
18
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
The following table presents selected financial and operating information
for the Company as of the end of and for each of the five years in the period
ended December 31, 1996 and for the three month periods ended March 31, 1996 and
1997. The financial data for the years ended December 31, 1994, 1995 and 1996
have been derived from the Company's Consolidated Financial Statements included
herein which have been audited by Coopers & Lybrand L.L.P., independent
accountants. The data for and at the end of the three month periods ended March
31, 1996 and 1997, have been derived from the unaudited Consolidated Financial
Statements of the Company included elsewhere in this Prospectus and reflect, in
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary for fair presentation of the results for such periods.
Results of operations for the three months ended March 31, 1997, are not
necessarily indicative of the results to be achieved for the year ending
December 31, 1997. The selected financial data should be read in conjunction
with the Company's Financial Statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Natural gas sales.............................. $124,981 $126,583 $100,477 $ 95,631 $208,779 $ 32,670 $ 78,788
Natural gas liquids sales...................... 10,102 23,177 19,572 24,804 34,757 6,195 8,881
Gathering fees................................. -- -- -- -- 1,995 -- 843
Other.......................................... 1,239 1,308 260 763 1,130 455 15
-------- -------- -------- -------- -------- -------- --------
Total operating revenue.................... 136,322 151,068 120,309 121,198 246,661 39,320 88,527
Operating costs and expenses
Cost of purchased natural gas.................. 125,872 137,560 111,038 107,642 225,535 34,493 81,417
Operating expenses............................. 3,617 5,530 3,930 4,366 5,978 1,382 1,559
General and administrative..................... 4,050 3,847 3,601 3,840 5,623 1,310 1,842
Depreciation, depletion and amortization....... 1,067 1,741 1,505 1,367 2,854 473 899
-------- -------- -------- -------- -------- -------- --------
Total operating costs and expenses......... 134,606 148,678 120,074 117,215 239,990 37,658 85,717
Operating income................................. 1,716 2,390 235 3,983 6,671 1,662 2,810
Other income (expense), net...................... (448) (1,028) 4,648 (1,047) (2,686) (264) (1,171)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes, extraordinary item and
cumulative effect of accounting change........... 1,268 1,362 4,883 2,936 3,985 1,398 1,639
Income tax (expense) benefit....................... (47) (127) 2,174 3,635 (30) 652
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item and cumulative
effect of accounting change...................... 1,268 1,315 4,756 5,110 7,620 1,368 987
======== ======== ======== ======== ======== ======== ========
Net income......................................... $ 1,268 $ 1,695 $ 4,756 $ 5,110 $ 7,193 $ 1,368 $ 987
======== ======== ======== ======== ======== ======== ========
Pro forma operating revenue........................ 246,058(1) $ 88,527(1)
--------
Pro forma income before extraordinary item......... $ 786(2) 8,277(1) $ 1,235(1)
-------- -------- --------
EARNINGS PER SHARE:
Primary:
Income before extraordinary item and cumulative
effect of accounting change.................... $ .41 $ .40 $ 1.46 $ 1.59 $ 1.99 $ .37 $ .24
Net income....................................... .41 .52 1.46 1.59 1.87 .37 .24
Fully Diluted:
Income before extraordinary item and cumulative
effect of accounting change.................... .40 .40 1.45 1.59 1.71 .33 .22
Net income....................................... .40 .52 1.45 1.59 1.61 .33 .22
Pro forma income before extraordinary item:
Primary.......................................... .25(2) 1.47(1) .21(1)
Fully diluted.................................... .25(2) 1.34(1) .20(1)
Weighted average common shares outstanding:
Primary.......................................... 3,131 3,217 3,215 3,185 3,536 3,305 3,613
Fully diluted.................................... 3,135 3,232 3,242 3,186 4,466 4,155 4,393
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS DATA:
Cash flows provided by (used in) operating
activities..................................... $ 174 $ 12,787 $ 1,785 $ 8,825 $ 23,535 $ (998) $ (8,804)
Cash flows provided by (used in) investing
activities..................................... (13,919) (1,444) 10,188 (12,286) (30,459) (10,418) (3,464)
Cash flows provided by (used in) financing
activities..................................... 14,036 (10,325) (7,800) 2,325 23,345 8,100 5,974
OTHER DATA:
Capital expenditures............................. $ 13,986 $ 2,267 $ 3,097 $ 12,311 $ 30,761 10,418 3,498
EBITDA(3)........................................ 2,782 4,132 1,739 5,350 9,525 2,135 3,709
Natural gas throughput gathered and/or processed
(MMcf/d)....................................... 60 93 108 140 191 121 213
NGLs production (Mgal/d)......................... 105 251 257 288 264 245 269
Average NGL price (per gal)........................ $ .27 $ .26 $ .22 $ .26 $ .36 $ .28 $ .37
BALANCE SHEET DATA:
Property, plant and equipment (net).............. $ 19,899 $ 22,231 $ 13,554 $ 28,346 $ 61,045 $ 37,332 $ 62,751
Total assets..................................... 55,824 46,298 35,264 58,099 145,929 64,661 117,064
Long-term debt, excluding current portion........ 5,641 5,626 3,750 6,534 32,946 11,494 38,071
Capital lease obligations, excluding current
portion........................................ 1,565 2,554 954 2,745 6,583 2,601 6,276
Shareholders' equity............................. 5,379 7,397 12,153 16,754 22,153 18,368 23,140
</TABLE>
- ---------------
(1) Excludes the results of operations related to the Company's interests in oil
and gas properties which were sold to an affiliated company in 1996, and
includes the effect of debt to be extinguished with proceeds from the sale
of Common Stock pursuant to the Offering.
(2) Includes a pro forma income tax provision for 1992 when the Company was an
S-corporation, and thus not subject to income taxes.
(3) See definition in the "Glossary" section of this Prospectus.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Since its formation, the Company has grown primarily as a result of
acquisitions, facilities expansions and connections of additional natural gas
reserves to its natural gas gathering systems. Additionally, the Company has
increased its natural gas and NGL marketing operations. All historical financial
information has been restated to reflect the Company's 136-for-1 stock split
effected in June 1997. This discussion and analysis should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The Company's results of operations are determined primarily by the volume
of natural gas purchased, processed and resold in its natural gas gathering
systems and processing plants. The Company's off-system gas marketing activities
also contribute to its profitability. Acquisitions of the Texas Gathering Assets
in the second quarter of 1996 and the Mocane Plant in the first quarter of 1995
have had a significant impact on the Company's results of operations.
Fluctuations in the price levels of natural gas and NGLs also affect
results of operations since the Company generally receives a portion of the
natural gas and NGLs revenue from natural gas throughput. Most of the Company's
operating expenses do not vary materially with changes in natural gas throughput
volume on existing systems; thus, increases or decreases in volumes on existing
systems generally have a direct effect on the Company's profitability.
Conversely, operating expenses such as compression rental and compression
maintenance expenses vary with volume changes as compressor units are added or
removed accordingly.
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996
Revenues. Total operating revenue increased 125% to $88.5 million for the
three months ended March 31, 1997, compared to $39.3 million for the same period
in 1996. Total natural gas sales increased 141% to $78.8 million for the three
months ended March 31, 1997 from $32.7 million for the same period in 1996 as a
result of a $22.1 million price-related increase due to average sales prices of
$3.25 per Mcf in 1997 compared to $2.34 per Mcf in 1996 and a $24.0 million
volume-related increase due to sales of 66.3 MMcf/d in 1997 compared to 38.2
MMcf/d in 1996. This increase in volume resulted primarily from increases in
off-system gas marketing sales.
NGL sales increased 43% to $8.9 million for the three months ended March
31, 1997, compared to $6.2 million for the same period in 1996 primarily as a
result of a $2.1 million price-related increase due to average NGL sales prices
of $0.37 per gallon in 1997 compared to $0.28 per gallon in 1996.
The Company earned gathering fees of $0.8 million for the three months
ended March 31, 1997, as a result of the acquisition of the Texas Gathering
Assets. These assets are also utilized in the Company's processing activities by
purchasing natural gas from producers served by the Company's systems and
transporting it to the Beaver Plant for processing.
Costs and Expenses. Total operating costs and expenses increased 128% to
$85.7 million for the three months ended March 31, 1997, compared to $37.7
million for the same period in 1996. Total natural gas costs increased 136% to
$81.4 million in 1997 from $34.5 million in 1996 as a result of increases in
price and volume. The $24.4 million price-related increase (resulting from a
change in average purchase prices of $3.07 per Mcf in 1997 from $2.15 per Mcf in
1996) was mitigated by approximately $0.5 million of avoided gathering fees
caused by the integration of the Texas Gathering Assets into the Company's
processing business. A $22.6 million volume-related increase resulted from
purchases of 294.8 MMcf/d in 1997 compared to 178.2 MMcf/d in 1996. This
increase in volume resulted primarily from increases in off-system gas marketing
purchases.
Operating expenses increased 13% to $1.6 million for the three months ended
March 31, 1997 from $1.4 million for the same period in 1996. This was primarily
due to operating activities from the acquisition of the Texas Gathering Assets.
21
<PAGE> 24
General and administrative expenses increased 41% to $1.8 million for the
three months ended March 31, 1997 from $1.3 million in the same period in 1996.
This increase was due primarily to the addition of marketing personnel and
administrative support activities related to the Texas Gathering Assets.
Depreciation, depletion and amortization increased 90% to $0.9 million for
the three months ended March 31, 1997 from $.5 million for the same period in
1996 primarily due to the acquisition of the Texas Gathering Assets and
expansions at the Beaver Plant.
Other Income (Expense). Interest income increased to $0.3 million for the
three months ended March 31, 1997 from $50,000 for the same period in 1996 due
to increased cash investments associated with contract advances received in the
fourth quarter of 1996. During these same time periods, interest expense
increased 350% to $1.5 million from $0.3 million primarily due to additional
debt incurred to finance the acquisition of the Texas Gathering Assets.
Income Taxes. Income tax expense increased to $0.7 million for the three
months ended March 31, 1997 from $30,000 for the same period in 1996. For the
three months ended March 31, 1997, the Company's effective income tax rate
approximates the sum of the federal and state statutory rates, while in 1996 the
Company's effective tax rate was significantly impacted by its net operating
loss carryforwards.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Total operating revenue increased 104% to $246.7 million for the
year ended December 31, 1996, compared to $121.2 million for the same period in
1995. Total natural gas sales increased 118% to $208.8 million in 1996 from
$95.6 million in 1995 as a result of a $79.1 million price-related increase due
to average sales prices of $2.56 per Mcf in 1996, compared to $1.59 per Mcf in
1995 and a $34.1 million volume-related increase due to sales of 224.1 MMcf/d in
1996, compared to 165.1 MMcf/d in 1995. This increase in volume resulted
primarily from increases in off-system gas marketing sales.
NGL sales increased 40% to $34.8 million for the year ended December 31,
1996, compared to $24.8 million in 1995, primarily as a result of a $10.0
million price-related increase due to average NGL sales prices of $0.36 per
gallon in 1996, compared to $0.26 per gallon in 1995.
The Company earned gathering fees of $2.0 million for the year ended
December 31, 1996, as a result of the acquisition of the Texas Gathering Assets
in the second quarter of 1996.
Other revenues including sales from oil and gas properties increased to
$1.1 million in 1996 from $0.8 million in 1995. All the Company's oil and gas
properties were sold to an affiliated entity in the third quarter of 1996 for
$0.3 million which approximated book value. Oil and gas producing activities
contributed revenues of $0.6 million, $0.5 million and $0.2 million in 1996,
1995 and 1994, respectively.
Costs and Expenses. Total operating costs and expenses increased 105% to
$240.0 million for the year ended December 31, 1996, compared to $117.2 million
for the same period in 1995. Total natural gas costs increased 110% to $225.5
million in 1996 from $107.6 million in 1995 as a result of increases in price
and volume. The $85.2 million price-related increase (resulting from a change in
average purchase prices of $2.46 per Mcf in 1996 from $1.53 per Mcf in 1995) was
mitigated by approximately $0.5 million of avoided gathering fees caused by the
integration of the Texas Gathering Assets into the Company's processing
business. A $32.7 million volume-related increase resulted from purchases of
251.1 MMcf/d in 1996, compared to 192.6 MMcf/d in 1995. This increase in volume
resulted primarily from increases in off-system marketing purchases.
Operating expenses increased 37% to $6.0 million in 1996 from $4.4 million
in 1995. This was due mainly to the increased operating activities from
acquisition of the Texas Gathering Assets, expansions at the Beaver Plant and
inclusion of Mocane Plant operating expenses for the full year.
General and administrative expenses increased 46% to $5.6 million in 1996
from $3.8 million in 1995. This increase was due primarily to the addition of
marketing personnel, administrative support activities related to the Texas
Gathering Assets and ad valorem tax increases in connection with the acquisition
of the Texas Gathering Assets and Beaver Plant expansion projects.
22
<PAGE> 25
Depreciation, depletion and amortization increased 109% to $2.9 million in
1996 from $1.4 million in 1995 primarily due to the acquisition of the Texas
Gathering Assets, expansions at Beaver Plant and inclusion of the Mocane Plant
for the full year.
Other Income (Expense). Interest expense increased 196% to $2.7 million in
1996 from $0.9 million in 1995 due primarily to additional debt incurred to
finance the acquisition of the Texas Gathering Assets.
Income Taxes. The Company's effective income tax rate in 1996 and 1995 was
significantly impacted by its net operating loss carryforwards. For financial
statement purposes, recognition of the net operating loss carryforwards resulted
in a tax benefit of $3.6 million in 1996 and $2.2 million in 1995. The Company
anticipates that its effective tax rate in 1997 will approximate the sum of the
federal and state statutory rates. See Note 8 to the Company's financial
statements included elsewhere herein.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Total operating revenue increased to $121.2 million for the year
ended December 31, 1995, from $120.3 million for the same period in 1994. Total
natural gas sales decreased 5% to $95.6 million in 1995 from $100.5 million in
1994 as a result of a $20.8 million price-related decrease due to average sales
prices of $1.59 per Mcf in 1995 compared to $1.93 per Mcf in 1994 and a $15.9
million volume-related increase due to sales of 165.1 MMcf/d in 1995, compared
to 142.4 MMcf/d in 1994. This increase in volume resulted primarily from
increases in on-system gas marketing sales.
NGL sales increased 27% to $24.8 million for the year ended December 31,
1995, compared to $19.6 million in 1994, primarily as a result of a $4.1 million
price-related increase due to average NGL sales prices of $0.26 per gallon in
1995, compared to $0.22 per gallon in 1994 and a $1.1 million volume-related
increase due to sales of 265 Mgal/d in 1995, compared to 249 Mgal/d in 1994.
This volume-related increase included NGL sales volume from the Mocane Plant
acquisition of 104.0 Mgal/d, which was partially offset by decreased sales
volume of 83.4 Mgal/d due to the divestiture of a gathering and processing
system in Carlsbad, New Mexico (the "Carlsbad System") in 1994.
Costs and Expenses. Total operating costs and expenses decreased to $117.2
million for the year ended December 31, 1995 from $120.1 million for the same
period in 1994. Total natural gas costs decreased to $107.6 million in 1995 from
$111.0 million in 1994 as a result of a $20.3 million price-related decrease due
to average purchase prices of $1.53 per Mcf in 1995 compared to $1.82 per Mcf in
1994 offset by a $16.9 million volume-related increase due to purchases of 192.6
MMcf/d in 1995, compared to 167.2 MMcf/d in 1994. This increase in volume
resulted primarily from increases in on-system gas marketing purchases.
Operating expenses increased 11% to $4.4 million in 1995 from $3.9 million
in 1994, due primarily to increased operating activities from the acquisition of
the Mocane Plant.
General and administrative expenses increased 7% to $3.8 million in 1995
from $3.6 million in 1994.
Depreciation, depletion and amortization decreased 9% to $1.4 million in
1995 from $1.5 million in 1994, due primarily to the sale of the Carlsbad System
in 1994 offset partially by the acquisition of the Mocane Plant in 1995.
Other Income (Expense). Interest expense decreased 27% to $0.9 million in
1995 from $1.3 million in 1994. A gain of approximately $3.9 million (net of
$1.3 million attributable to minority ownership interests) on the sale of
certain gathering and processing assets was recognized by the Company during the
fourth quarter of 1994. Additionally, in 1994, the Company recognized other
income of $2.0 million from key-man life insurance policy proceeds due to the
death of an officer.
Income Taxes. The Company's effective income tax rate in 1995 and 1994 was
significantly impacted by its net operating loss carryforwards. For financial
statement recognition purposes, the net operating loss carryforwards resulted in
a tax benefit of $2.2 million in 1995 while tax expense was $0.1 million in
1994.
23
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's primary sources of liquidity and capital resources
historically have been net cash provided by operating activities and bank
borrowings. In addition, in 1994, the Company received $12.8 million from the
sale of the Carlsbad System. The Company's principal uses of cash have been to
fund operations and acquisitions.
The following summary table reflects comparative cash flows for the Company
for the years ended December 31, 1994, 1995 and 1996 and the three months ended
March 31, 1996 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities................ $ 1,785 $ 8,825 $ 23,535 $ (998) $(8,804)
Net cash provided by (used in)
investing activities................ 10,188 (12,286) (30,459) (10,418) (3,464)
Net cash provided by (used in)
financing activities................ (7,800) 2,325 23,345 8,100 5,974
</TABLE>
For the three months ended March 31, 1997, net cash used in operating
activities increased by approximately $7.8 million from the same period in 1996.
This was mainly attributable to changes in working capital including the
repayment of contract advances totaling $14.5 million. Excluding net changes in
working capital components, the Company's operating activities generated $2.5
million for this period in 1997 and $1.9 million in 1996. Net cash provided by
operating activities for the year ended 1996, increased by approximately $14.7
million from the same period in 1995. The increase resulted primarily from
changes in working capital, including contract advances of approximately $22.8
million received by the Company related to commitments to sell natural gas and
NGLs. It is anticipated that all such contract advances will be repaid in 1997,
which will result in a decrease in cash flows from operating activities.
Excluding net changes in working capital components, the Company's operating
activities generated $6.6 million during 1996 as compared to $4.7 million in
1995, an increase of $1.9 million. Net cash provided by operating activities for
1995 increased by $7.0 million from 1994. This increase was due to a $2.0
million increase in net earnings adjusted for depreciation and amortization and
other noncash items and a $5.0 million increase from working capital components.
Cash used in investing activities for the three months ended March 31, 1997
was primarily for expansion projects on the Texas Gathering Assets. Cash used in
investing activities for the same period in 1996 was mainly for the acquisition
of a portion of the Texas Gathering Assets on March 31, 1996. For the year ended
1996, cash used in investing activities was principally related to the
acquisition of the Texas Gathering Assets and various expansion projects on the
Texas Gathering Assets and the Beaver Gathering System. In 1995, cash used in
investing activities was related primarily to the acquisition of the Mocane
Plant and related expenditures for the expansion of the Mocane fractionation
facility and dual interconnecting pipelines from the Mocane Plant to the Beaver
Plant. Cash provided by investing activities in 1994 was related to the receipt
of $12.8 million from the sale of certain assets, which was offset by
approximately $3.1 million of various upgrade and expansion projects.
Cash provided by financing activities for the three months ended March 31,
1997 resulted from borrowing under the Company's revolving facility used for
working capital requirements and funding various capital projects. Cash provided
by financing activities for the same period in 1996 resulted mainly from
long-term borrowing for the acquisition of a portion of the Texas Gathering
Assets. For the year ended 1996, cash provided by financing activities resulted
principally from long-term borrowing for the acquisition of the Texas Gathering
Assets. In 1995, cash provided by financing activities resulted primarily from
increased borrowing levels for various capital expenditures. In 1994, cash used
in financing activities resulted primarily from the repayment of long-term debt.
In 1996, the Company issued preferred stock and canceled certain indebtedness to
acquire the minority interest ownership of a partnership holding one of the
Company's processing plants.
24
<PAGE> 27
Also in 1996, the Company redeemed 51 shares of Convertible Preferred Stock in
exchange for the cancellation of indebtedness due from an affiliated entity.
At December 31, 1996, the Company had NOLs totaling approximately $17.5
million for regular tax purposes and $18.0 million for alternative minimum tax
purposes. If not utilized, these NOLs will expire from 1999 to 2003. Due to the
lack of existing legal precedent with respect to the tax rules governing the
Company's NOLs, both the availability of the Company's NOLs and its prior
utilization of NOLs (totaling approximately $37 million) may be challenged.
Disallowance of the use of the NOLs would result in taxes associated with prior
utilization of the NOLs being currently payable.
The Company believes that the net proceeds from the Offering, together with
its current credit facilities and cash flows generated by its operations, will
be sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next twelve months. Thereafter, if cash generated
from operations is insufficient to satisfy the Company's liquidity requirements,
the Company may seek to obtain additional credit facilities, sell additional
equity or debt securities or adjust the level of its operating and capital
expenditures. The sale of additional equity securities could result in
additional dilution to the Company's shareholders.
Financing Facilities. The Company entered into a Credit Agreement with ING
Capital Corporation as of December 30, 1996. The Credit Agreement contains a
revolving facility and a term loan facility. The revolving facility has a
maximum borrowing base of $25.0 million which had outstanding borrowings of $6.5
million as of March 31, 1997. Under the term loan facility approximately $33.6
million was outstanding as of March 31, 1997, while an additional $4.8 million
was available for certain future acquisitions, including the acquisition of
interests in the Laverne Plant. Interest rates under both the revolving facility
and term facility are variable, at the Company's election, at: (i) up to 3/4%
(depending upon the Company's financial performance) above the greater of (x)
the arithmetic average of the prime rates announced by Chase Manhattan Bank,
Citibank, N.A. and Morgan Guaranty Trust Company of New York or (y) the federal
funds rate as published by the Federal Reserve Bank of New York plus 1/2%; or
(ii) 1.375% to 2.50% (depending upon the Company's financial performance) above
the London Interbank Offered Rate (LIBOR). Current interest payments on the
revolving facility and repayments under the term facility began on January 31,
1997. The revolving facility contains a sub-limit permitting the Company to
issue Letters of Credit amounting, in the aggregate, to $18.0 million. As of
March 31, 1997, the aggregate amount outstanding under these Letters of Credit
was $6.0 million.
The Company has also entered into a Letter of Credit and Reimbursement
Agreement with Christiania Bank, New York Branch. Under the Reimbursement
Agreement, Christiania Bank initially issued letters of credit in the aggregate
amount of approximately $21.0 million to secure the Company's obligation under
various contract advances. As of March 31, 1997, the aggregate amount
outstanding under these Letters of Credit was $11.1 million. The Company pays
Christiania Bank a fee of 1 1/2% per annum for each Letter of Credit which is
issued.
SEASONALITY
The Company's results of operations fluctuate from quarter to quarter, due
to variations in the prices and sales volumes of NGLs and natural gas. The
Company's primary NGL product is propane, which is used for agricultural and
home heating in the Company's market areas. Demand and prices of propane usually
increase during the winter season and decrease during the summer season. The
Company's principal commodity, natural gas, is used primarily for heating fuel
for homes and industry, and for electric power generation. Demand and prices for
natural gas usually increase during the winter season. While the Company's gross
revenues typically increase or decrease seasonally, profitability from natural
gas processing operations is affected by the margins between the cost of natural
gas purchased and the sales prices of the NGLs extracted, which may not follow
seasonal patterns.
25
<PAGE> 28
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("FAS 128"). FAS
128 will change the computation, presentation and disclosure requirements for
earnings per share. FAS 128 requires the presentation of "basic" and "diluted"
earnings per share, as defined, for all entities with complex capital
structures. FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, and requires restatement of all prior period
earnings per share amounts. The Company has not yet determined the impact that
FAS 128 will have on its earnings per share when adopted.
Statement of Position 96-1, "Environmental Remediation Liabilities," issued
by the American Institute of Certified Public Accountants, will become effective
for the Company in 1997. This statement establishes the timing and measurement
of accruals for environmental liabilities. The Company does not anticipate that
this standard will have a material effect on its financial condition or results
of operations.
UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial
information for each of the Company's last five quarters. The data has been
prepared on a basis consistent with the Company's audited consolidated financial
statements included elsewhere in the Prospectus and includes all necessary
adjustments, consisting only of normal recurring accruals that management
considers necessary for a fair presentation. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1996 1996 1996 1996 1997
--------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenues.................... $39,320 $42,098 $61,158 $104,085 $88,527
Operating income(1)................... 1,662 377 694 3,938 2,810
Income before extraordinary item...... 1,368 (157) (34) 6,443 987
Net income............................ 1,368 (157) (34) 6,016 987
EARNINGS PER SHARE:
Primary:
Income before extraordinary item...... .37 (.08) (.05) 1.75 .24
Net income............................ .37 (.08) (.05) 1.63 .24
Fully diluted:
Income before extraordinary item...... .33 (.08) (.05) 1.42 .22
Net income............................ .33 (.08) (.05) 1.33 .22
OTHER DATA:
General and administrative............ 1,310 1,101 1,247 1,965 1,842
Depreciation, depletion and
amortization....................... 473 732 890 759 899
EBITDA(2)............................. 2,135 1,108 1,585 4,697 3,709
Cash flows provided by (used in)
operating activities............... (998) 6,016 1,678 16,840 (8,804)
</TABLE>
- ---------------
(1) Operating revenues less operating costs and expenses.
(2) See definition in the "Glossary" section of this Prospectus.
(3) Earnings per share are calculated independently for each quarter, and
accordingly the sum of the four quarters may not equal the annual earnings
per share amounts.
26
<PAGE> 29
BUSINESS
GENERAL
The Company is an independent mid-stream energy company engaged in the
purchasing, gathering, treating, processing and marketing of natural gas and
NGLs. The Company owns and operates approximately 1,100 miles of natural gas
gathering pipelines located in the Panhandle Area with a total throughput
capacity of 383 MMcf/d and two interconnected natural gas processing plants with
a total NGL production capacity of 490 Mgal/d. CNG provides essential services
to natural gas producers in the Panhandle Area by (i) connecting the producers'
wells to the Company's gathering systems, (ii) treating the producers' natural
gas to ensure that it meets pipeline specifications, (iii) transporting the
natural gas from the wellhead to CNG's processing plants where NGLs are
extracted from the natural gas stream and (iv) providing access for the natural
gas and NGLs to various markets in the CNG Market Area of the United States. The
April 1996 and January 1997, editions of "Hart's Report on Gas Customer
Satisfaction" published by Hart Publications, Inc. reported that CNG was rated
the most preferred natural gas purchaser in surveys of natural gas sellers. The
Company markets on-system gas, as well as off-system gas, to utilities,
end-users, other marketers and pipeline affiliates.
From 1985 through 1990, CNG's activities were primarily limited to
marketing off-system gas. Concurrent with the evolving deregulation of the
natural gas industry, the Company began to acquire natural gas gathering systems
and processing plants to complement its marketing business. Since 1990, the
Company has completed approximately $64 million of acquisitions and system
expansion projects. During March 1997, CNG's average gathering system throughput
was 108 MMcf/d and average processing plant throughput was 135 MMcf/d. The
Company's NGL production for March 1997, averaged 281 Mgal/d. Over the three
years ended December 31, 1996, the Company's daily natural gas throughput has
increased 77%. Primarily as a result of this growth, the Company's EBITDA (as
defined in the Glossary) has increased to $9.5 million in 1996 from $1.7 million
in 1994. For the three months ended March 31, 1997, the Company's EBITDA was
$3.7 million.
The Company's principal assets are located in the Panhandle Area, which is
a major natural gas producing area with significant long-lived natural gas
reserves. CNG's Beaver Plant and Beaver Gathering System were acquired in 1990
from El Paso Natural Gas Company and currently consist of approximately 300
miles of natural gas gathering pipelines, a 65 MMcf/d cryogenic processing plant
and a 40 MMcf/d propane refrigeration plant. The Beaver Plant is interconnected
with the Company's Mocane Plant, which was acquired from affiliates of Conoco,
Inc. and Chevron USA, Inc. in 1995. The Mocane Plant consists of two
refrigerated lean oil absorption plants with a combined demonstrated capacity of
200 MMcf/d of natural gas and 280 Mgal/d of NGLs, approximately 140,000 barrels
of underground NGL storage and a 6,700 barrels per day NGL fractionator. During
the first half of 1996, the Company acquired approximately 800 miles of gas
gathering assets located throughout the Texas panhandle in three separate
transactions. These gathering assets were acquired for approximately $20.2
million from subsidiaries of Enron Corporation.
Although the Company's principal growth in recent years has been derived
from its gathering and processing operations, the Company's sale of off-system
gas, which does not enter its gathering or processing facilities, remains a
significant portion of its business. In 1996, revenue from the sale of
off-system gas accounted for approximately 53% of the Company's total operating
revenue. The Company marketed the off-system gas of over 70 producers via 15
interstate and intrastate pipelines during 1996. The Company's entry into and
continued participation in the off-system gas business has relied upon federal
regulations mandating the delivery of third-party natural gas by interstate
pipelines. A material change in such regulations could adversely affect the
Company's off-system gas operations. See "Risk Factors -- Dependence on
Third-Party Pipelines" and "Business -- Government Regulations."
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BUSINESS STRATEGY
The Company's business strategy is to achieve sustainable growth in cash
flow and earnings by (i) acquiring and constructing natural gas gathering
systems and processing plants with excess capacity which complement CNG's
marketing operations, (ii) improving the profitability of the Company's existing
systems and plants by increasing their utilization and efficiency and (iii)
expanding its energy marketing services and sales volumes by offering natural
gas producers and purchasers flexible contract terms, value-added services and
other favorable arrangements.
Expansion of Facilities. The Company seeks to acquire or make investments
in projects that complement its existing systems or allow it to expand into new
strategic areas and provide enhanced marketing opportunities. These investments
typically include natural gas gathering, processing, treating or fractionation
assets. By acquiring assets with unused capacity, the Company has established
significant operating leverage in the Panhandle Area. As a result, the Company
can gather and process additional natural gas through its existing systems at
incrementally higher rates of return. In addition to acquiring or constructing
new facilities in the Panhandle Area, CNG will continue to evaluate
opportunities in new operating areas where the Company believes it can establish
a competitive marketing advantage, allowing the Company to increase the wellhead
prices of natural gas paid to producers and provide value-added services.
In implementing this strategy, CNG has completed approximately $64 million
of acquisitions and system expansion projects since 1990. The Company believes
that its acquisition track record and demonstrated ability to complete
transactions with large pipeline companies and other sellers strengthen its
ability to compete for future acquisitions. In addition, the Company believes
that its seasoned management team allows it to assess and evaluate acquisition
opportunities and integrate acquired assets into CNG's existing operations.
Set forth below is a summary of the Company's significant acquisitions and
construction projects:
<TABLE>
<CAPTION>
YEAR
ACQUIRED OR
PLACED INTO
NAME TYPE SERVICE COST
---- ---- ------------ -------------
(IN MILLIONS)
<S> <C> <C> <C>
Occidental Petroleum Well Connection......... Construction 1996 $ 1.8
Texas Gathering Assets....................... Acquisition(1) 1996 20.2
Beaver-to-Mocane Gas Pipeline Construction
Interconnection............................ 1995 3.9
Mocane Fractionator.......................... Construction 1995 1.7
Mocane Processing Plant...................... Acquisition 1995 3.5
Beaver/ANR Pipeline Interconnection.......... Construction 1994 1.8
Carlsbad Cryogenic Plant(2).................. Construction 1992 5.8
Addition to Beaver System.................... Acquisition 1992 1.0
Beaver Cryogenic Plant....................... Construction 1992 4.9
Beaver Gathering System and Processing Acquisition
Plant...................................... 1990 1.2
</TABLE>
- ---------------
(1) The Company sold the Carlsbad System, which includes the Carlsbad Cryogenic
Plant, in 1994.
(2) This acquisition was accomplished in three separate transactions.
Improving the Profitability of Existing Facilities. The Company seeks to
maximize the profitability of its operations by (i) maintaining and increasing
natural gas throughput and processing levels, (ii) directing natural gas
throughput to a particular Company-owned gas processing plant that maximizes
product yields and/or margins, (iii) investing in assets that enhance product
value and (iv) controlling operating and overhead expenses. In order to maintain
or increase natural gas throughput and processing volumes. The Company obtains
additional natural gas supplies for its facilities by connecting new wells to
the Company's gathering systems purchasing and integrating gathering systems
into the Company's existing operations and entering into contractual natural gas
supply arrangements with producers or other gatherers.
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The opportunity to connect new wells to the Company's gathering systems is
primarily affected by the level of drilling activity near such gathering
systems. The Panhandle Area is within one of the most prolific natural gas
producing regions in the continental United States and continues to attract
significant exploration activity. Although the Company owns no oil and gas
reserves, the independent engineering firm of Lee Keeling & Associates estimates
that the leases and wells currently under contract with the Company have
approximately 700 Bcf of proved, producing natural gas reserves. The Company
believes it has sufficient gathering and processing capacity to capitalize on
the Panhandle Area's development.
By maintaining geographically-focused operations, the Company believes it
is able to control operating and overhead expenses. Furthermore, the location
and strategic nature of CNG's natural gas gathering systems and processing
plants allow the Company to maximize NGL yields and product returns by directing
natural gas between its Beaver and Mocane Plants. For example, under current
market conditions, CNG seeks to maximize the flow of natural gas through the
Beaver cryogenic processing plant, thereby allowing the Company to realize
greater volumes of NGLs from the natural gas stream and enhance the total value
of its on-system gas throughput.
Expanding Energy Marketing Services and Sales Volumes. CNG is a marketer of
natural gas and NGLs. The Company plans to expand its energy marketing
activities by continuing to offer creative, flexible contract terms that satisfy
the objectives of producers at the wellhead and purchasers in the marketing of
natural gas. By offering flexible contract terms and using a portfolio approach
to marketing natural gas, CNG has been able to substantially increase its
on-system gas and NGL volumes. The Company also seeks to increase its off-system
marketing. In addition, the Company intends to expand into the sale of electric
power to wholesale customers and industrial and commercial end-users.
The Company markets and sells natural gas primarily in the CNG Market Area.
The Company's gathering systems and processing plants are located in an area
where many interstate pipelines converge, allowing it to take advantage of
locational differences in natural gas prices. CNG provides a full range of
services including risk management, storage, transportation, scheduling and
peaking requirements to purchasers of the Company's marketed natural gas. The
Company's natural gas marketing operations are substantially enhanced by its
ability to market natural gas gathered and processed by the Company.
Furthermore, CNG's portfolio approach to marketing allows it to offer producers
and purchasers optimum flexibility with respect to pricing, contract terms and
volumes. By aggregating large volumes of natural gas and maintaining the
flexibility to sell into different markets, CNG has been able to maximize sales
prices by selling to purchasers who are willing to pay a premium for large,
reliable quantities of natural gas.
The Company also markets NGLs produced at its plants to wholesalers and
end-users. The Company's NGL marketing strategy is to increase sales to
end-users and to expand its NGL marketing operations into the purchase and sale
of third-party NGLs.
The Company is currently creating the staffing and operating infrastructure
necessary to market electric power in the CNG Market Area to wholesale customers
and industrial and commercial end-users in accordance with anticipated
nationwide state-by-state deregulation. The Company believes that it may have a
market for electric power with its existing natural gas industrial and
commercial end-user customers. During 1996, the Company applied for and received
a power marketing certificate from the FERC, permitting it to sell wholesale
electric power at market-based rates pursuant to the Federal Power Act. The
Company believes its expertise in marketing natural gas in a deregulated
environment, its expanding customer base and its firm supplies of natural gas
and NGL products will allow it to compete effectively in this emerging market.
RECENT DEVELOPMENT
The Company, Conoco and an affiliate of Conoco have reached an informal
agreement under which the Company will purchase from Conoco and its affiliate a
36% interest in the Laverne Plant for a purchase price of $3.8 million. Although
Conoco is the operator of the Laverne Plant, it is owned by various entities.
During 1997, the Company has acquired approximately 17% of the plant for $1.4
million. Subject to the execution of a definitive purchase and sale agreement
and the satisfaction of other conditions, the closing of the Laverne Plant
Acquisition is expected to take place in the third quarter of 1997 effective in
April 1997. Concurrent with the Laverne Plant Acquisition, certain litigation
between the Company and the Conoco affiliate will be
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<PAGE> 32
settled. See "Business -- Legal Proceedings." Upon completion of the Laverne
Plant Acquisition, the Company will own approximately 53% of the Laverne Plant.
The Company's interest in the Laverne Plant will be held by Continental Laverne
Gas Processing, L.L.C., an Oklahoma limited liability company which was formed
on May 8, 1997, for the purpose of acquiring interests in the Laverne Plant.
The Laverne Plant consists of a 200 MMcf/d cryogenic gas processing
facility, complete with liquid fractionation capability and above-ground
storage. The Laverne Plant straddles GPM Gas Corporation's Laverne natural gas
gathering system. Natural gas production feeding the Laverne Plant originates
from the Mocane-Laverne field. The plant is located approximately eight miles
east of the Beaver Plant. Current throughput at the Laverne Plant is 70 MMcf/d,
yielding 180 Mgal/d of NGLs. Due to the proximity of the Laverne Plant to CNG's
other assets and its substantial underutilized capacity, the Company believes
that the Laverne Plant will enhance the Company's existing operations in the
Panhandle Area.
GATHERING AND PROCESSING
The Company's natural gas gathering and processing activities include
contracting to purchase natural gas supplies, operating and maintaining a system
of gathering pipelines that connect these natural gas supplies to transport
lines or natural gas processing plants and operating and maintaining processing
plants linked to its gathering systems.
Purchasing. In 1996, the Company purchased natural gas from over 75
suppliers, ranging from major producers to small independent companies primarily
in the Panhandle Area. The Company's natural gas throughput in its gathering
systems and processing plants is generally supplied by producers pursuant to
long-term contracts (i.e., contracts in excess of one year). In arranging new
purchase contracts, the Company submits to the producer an offer to purchase the
natural gas from the prospective acreage. The producer typically evaluates
various offers based upon the purchase price and other contract provisions, line
pressure, the time period required for well connection and the gathering
company's reputation for service and reliable marketing. The Company believes
that its flexibility in negotiating contract terms, prompt connection of wells,
reliable performance under its contracts and strong overall relationships with
producers provide it with an important competitive advantage in the acquisition
of new natural gas supplies.
The terms of the Company's natural gas purchase contracts are determined
based upon negotiations with producers, competition and the desire to maximize
the value to be realized from its gathering and processing systems. The Company
purchases a majority of its on-system gas supplies pursuant to long-term
contracts that require producers to dedicate all natural gas produced from
designated properties. The pricing of these producer contracts is generally not
fixed, however, and follows the market price.
The Company's on-system gas contracts with producers may be classified as
(i) processing contracts, (ii) purchase contracts or (iii) gathering contracts.
In March, 1997, the Company contracted 14% of its natural gas volumes pursuant
to processing contracts, 47% pursuant to purchase contracts (sometimes with
processing included) and 39% under gathering contracts (sometimes with
processing included). Under processing contracts, the Company agrees to process
the raw natural gas from the wells on behalf of the producers and to allocate
the NGLs recovered and the residue natural gas to each well connected to its
gathering system. The Company retains a percentage of the value of the NGLs
extracted net of plant fuel and NGL shrinkage. The producer bears a share of the
cost of NGL extraction in return for a share of NGL revenue. These processing
contracts are typically on a "keep-whole" basis, where the Company must
reimburse the producer for the fuel and shrinkage.
Under a purchase contract, the Company generally pays for natural gas
received at the wellhead or at some other delivery point. The Company then
usually resells the natural gas after processing the natural gas for its own
account at its processing facilities. The Company derives a gross margin equal
to the difference between sale proceeds of both the NGLs and the residue natural
gas and the cost of the natural gas purchased at the wellhead.
In (i) gas purchase, (ii) gathering contracts with processing and (iii)
keep-whole processing contracts, operating margins are enhanced by maximizing
the value of the NGLs extracted from the natural gas stream and minimizing the
operating costs which the Company incurs during processing and gathering.
Margins
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<PAGE> 33
under these contracts can be affected by decreases or increases in NGL prices or
increases or decreases in natural gas prices.
Gathering. Under gathering contracts, the Company typically gathers natural
gas on behalf of a producer from various wellheads for redelivery to specific
pipeline interconnection or redelivery points. The producer is charged a
gathering fee plus a fuel charge for such gathering services. Generally, the
producer will pay the Company a discounted gathering fee in exchange for the
Company retaining some or all of the extracted NGLs.
In the first half of 1996, the Company acquired certain assets in three
separate transactions from subsidiaries of Enron Corporation. As modified by the
Company and then integrated into the Company's business, these assets
collectively comprise the Texas Gathering Assets, which include 800 miles of
gathering pipeline and connect the Beaver and Mocane Plants to new gas supplies
via third-party interstate pipelines.
Natural gas from the Company's Texas Gathering Assets is transported to the
Company's processing plants through interstate pipelines, primarily NNG and TW.
Approximately 60% of the natural gas transported by NNG and TW for the Company
is subject to firm transportation agreements which obligate the pipelines to
give priority to the transportation of the Company's natural gas. The Beaver
Gathering System delivers on-system gas to the Company's processing plants. In
addition, natural gas may be transported to the Company's processing plants
through interruptible transportation agreements with pipelines and third-party
natural gas gatherers. Interruptible transportation agreements require the
pipelines to deliver natural gas on a "first-come, first-serve" basis after
satisfaction of commitments under firm transportation agreements.
Processing. The Company owns and operates two interconnected natural gas
processing plants, one of which is connected to the Beaver Gathering System.
These processing plants complement the Company's gathering operations by
enabling the Company to offer to its producers the option of wellhead purchase
or processing contracts. The sale of NGLs contributes materially to the overall
earnings of the Company because of the added value from NGL extraction. In
addition, natural gas processing complements and diversifies the earnings
derived from natural gas sales. The Company's processing plants at present have
excess capacity which, if increased natural gas supplies can be obtained, can be
utilized to increase Company revenues with a minimal increase in operating
costs. Management of the Company will attempt to obtain the natural gas supplies
necessary to utilize such excess capacity and benefit by the resultant
efficiency.
The Company's Beaver and Mocane Plants extract NGLs and remove water vapor,
solids and other contaminants contained in the natural gas stream. Each of these
plants is capable of recovering substantially all isobutane, normal butane and
natural gasoline components from the natural gas stream. Propane and ethane are
the Company's two primary NGL products. The Beaver Plant, due to its cryogenic
process, is able to extract a higher percentage of NGLs than the Mocane Plant.
The location of the Company's processing plants provide access to nearby
markets for the sale of NGLs, thus reducing transportation costs. The Company
believes its processing plants provide it with a competitive advantage in the
acquisition of natural gas supplies. Much of the Company's natural gas
processing capacity has ethane rejection capability, which allows the Company to
optimize margins if ethane prices decline significantly relative to natural gas
prices. The Company's two processing plants are interconnected.
Beaver Plant. The Beaver Plant was built in 1961. When acquired by CNG in
1990, the Beaver Plant consisted of a 40 MMcf/d design capacity refrigeration
plant, capable of extracting approximately 40% of the propane, nearly all of the
butane and gasoline, and virtually none of the ethane from the inlet natural gas
stream. Average throughput was less than 10 MMcf/d prior to the Company's
acquisition of the facility. In 1992, the Company purchased and relocated a 65
MMcf/d cryogenic processing plant to the Beaver Plant. The added facility chills
natural gas to -155 degrees Fahrenheit and separates the natural gas from the
NGLs condensed at the low temperatures. The Beaver cryogenic processing plant
currently recovers 95% of the propane, 70% of the ethane and nearly 100% of the
heavier butane and natural gasoline from the natural gas stream.
The design of the Beaver Plant allows for relatively fuel-efficient,
low-pollution extraction of a high volume of NGLs from natural gas. The combined
cryogenic and refrigeration facilities have a processing capacity of 105 MMcf/d
of inlet natural gas and 215 Mgal/d of extracted NGLs. The Beaver Plant's
average throughput for March 1997 was 70 MMcf/d yielding 180 Mgal/d of NGLs. The
Beaver Plant and gathering
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<PAGE> 34
system has over 28,000 horsepower of gathering and processing compression
capability. The cryogenic facilities typically run at full capacity while the
refrigeration unit is typically idle.
The NGLs produced consist of a mixture (commonly known as "Y-Grade") of
ethane, propane, isobutane, normal butane and natural gasoline. The Y-Grade
mixture is delivered into an NGL pipeline operated by an affiliate of Koch
Industries, Inc. which is connected to the Beaver Plant.
Mocane Plant. The Mocane Plant was built in 1959, was partially updated in
1985 and was acquired by CNG in early 1995. The Mocane Plant is located about 13
miles northwest of the Beaver Plant. The Mocane Plant has a demonstrated inlet
natural gas capacity of 200 MMcf/d and is designed to extract up to 280 Mgal/d
of NGLs. The Mocane Plant's average throughput for March 1997 was 65 MMcf/d,
yielding 101 Mgal/d of NGLs. Prior to the Company's acquisition of the Mocane
Plant in early 1995, recent historical throughput averaged less than 40 MMcf/d.
The Mocane Plant uses refrigeration and lean oil absorption processes to
extract NGLs. Propane recovery is approximately 85% and ethane recovery is
approximately 25% with nearly 100% of the heavier butane and natural gasoline
being recovered. The Mocane Plant has over 7,500 horsepower of compression used
in the NGL extraction process.
Y-Grade produced at the Mocane Plant may be sold and delivered to NGL
pipelines operated by affiliates of Koch Industries, Inc. and Mapco, Inc.
Alternatively, the Company may fractionate the NGLs into the various components
at its on-site fractionation facility and deliver these NGLs to purchasers via
truck racks. The Mocane Plant has fractionation capacity of 281 Mgal/d. The
Mocane facility can produce propane, isobutane, normal butane, natural gasoline
and a mixture of ethane and propane.
SALES AND MARKETING
Natural Gas Marketing. The Company markets natural gas to local
distribution companies ("LDCs"), marketing affiliates of pipeline companies,
electric utilities, various business and industrial end-users and other natural
gas marketers throughout the CNG Market Area. A portion of the natural gas which
the Company markets is produced in the Panhandle Area and is transported from
the Company's plants through pipeline interconnections with ANR Pipeline Company
("ANR"), Williams Natural Gas Company ("WNG"), NNG and Colorado Interstate Gas
Company ("CIG"). In addition, the Company purchases and resells off-system gas
on numerous pipeline systems located throughout the CNG Market Area.
The Company has multiple pipeline delivery connections, which it believes
allow it to negotiate favorable spot sales contracts and transportation rates
and to avoid curtailment of natural gas deliveries. Due to the flexibility
derived from multiple delivery points, the Company believes that the loss of any
of its markets on a particular pipeline would not have a material adverse effect
on the Company. The Company's facilities are located in an area where many
interstate pipelines converge, allowing it to take advantage of locational
differences in natural gas prices.
During the year ended December 31, 1996, the Company delivered natural gas
to approximately 125 customers located in 12 states. In 1996, the Company
delivered an average of approximately 224 MMcf/d (81.7 Bcf of natural gas for
the year) and had natural gas sales revenues of approximately $209 million. No
one customer accounted for more than 10% of total natural gas sales revenues
during 1996.
During 1994 and 1995, the Company experienced average daily natural gas
sales of 142 MMcf/d and 165 MMcf/d, respectively. In 1996, the Company's natural
gas sales averaged 224 MMcf/d and during the first quarter of 1997, this average
increased to 280 MMcf/d. Sales growth in 1996 and 1997 has resulted largely from
CNG's hiring of six additional marketing representatives during the period from
May 1, 1996 to the present. The Company plans to hire additional
representatives.
By aggregating large volumes of natural gas and maintaining the flexibility
to sell into different markets, CNG has been able to maximize sale prices by
selling to customers who are willing to pay a premium for large, reliable
quantities of natural gas. Accordingly, the Company expects to continue to
receive greater value than the commodity spot price for its delivered natural
gas.
The Company sells natural gas under sales agreements which may be
classified by (i) the duration of the contract, (ii) pricing terms and (iii) the
nature of the delivery obligations. "Term" contracts have a duration
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<PAGE> 35
in excess of one month, "spot" contracts have a duration of one month or less
and "peaking" contracts apply during short periods of high demand. The Company
sells natural gas at "fixed" prices or at "index" prices which vary on a
month-to-month basis with market conditions. Under "baseload" contracts the
Company is required (subject to extremely limited exceptions) to deliver a
specific volume of natural gas, while under "best efforts" contracts delivery
obligations may be suspended at the option of the Company or the purchaser. Due
to varying market conditions, the "mix" of the Company's sales agreements vary
substantially from time to time.
Transportation. The Company arranges for transportation of the natural gas
it markets from the supplier's point of receipt to the sales customer's delivery
point. To facilitate the transportation of its natural gas the Company must
schedule, nominate and monitor transportation availability on a continual basis.
The Company believes that its knowledge of the pipeline network within the CNG
Market Area is an important element in its success as a natural gas marketer.
This allows the Company to provide its suppliers with multiple outlets for their
natural gas and, in times of changes in demand or supply due to weather or other
factors, to route natural gas to areas where higher sales prices may be
achieved. In an effort to improve profit margins, the Company attempts to reduce
transportation charges by taking advantage of its broad array of transportation
arrangements and by negotiating Capacity Release, storage and competitive
transportation discounts.
The Company transports natural gas on interstate pipelines under
interruptible and firm transportation agreements. Under interruptible
transportation agreements, a pipeline is usually obligated to transport on a
non-discriminatory basis up to a specified maximum quantity of natural gas,
subject to available capacity. In return, the Company pays a transportation fee
based on the quantity of natural gas actually transported. An interruptible
transportation agreement may provide the customer with priority over other
interruptible shippers based on the rate paid and subject to the availability of
capacity not utilized by parties shipping under firm transportation agreements.
As of December 31, 1996, the Company had over 150 interruptible transportation
contracts. The majority of off-system gas purchased and sold by the Company is
transported under interruptible transportation arrangements.
Under firm transportation agreements, a pipeline is obligated to transport
up to a specified maximum quantity of natural gas without interruption, except
upon the occurrence of a force majeure event. Certain of the Company's
customers, including LDCs and electric utilities, and some of the Company's
long-term supply contracts require dependable transportation services provided
under firm transportation agreements. Some customers who purchase natural gas
from the Company transport such natural gas under their own transportation
arrangements, while other customers require or allow the Company to arrange for
such transportation services on their behalf.
Under contractual arrangements with pipelines, the Company is required to
balance its deliveries and receipts from each pipeline on a monthly or daily
basis. The pipelines are authorized to impose "imbalance penalties" in the event
that the Company's deliveries or receipts from any pipeline are not balanced on
a monthly or daily basis. These penalties are typically quite severe. In
addition, the Company may be required to purchase or sell natural gas at
unacceptable prices in the event it has not accurately balanced its deliveries
or receipts from the pipeline (i.e. it must purchase natural gas to make up
deficient volumes or sell natural gas to reduce excess volumes). Historically,
the Company has not incurred any significant "imbalance penalties" or sustained
other significant losses as a result of pipeline imbalances.
Due to regulatory changes resulting from Order 636 of the FERC, the
availability of firm transportation has increased, while the availability of
interruptible transportation on certain pipelines has decreased. In particular,
Order 636 permits current holders of pipeline firm transportation rights,
generally LDCs and large end-users, either to enter into Capacity Releases of
dedicated capacity with replacement shippers or to turn that capacity back to
the pipeline to be posted on an electronic bulletin board for sale. Typically,
LDCs sell Capacity Release during periods of low demand and compete with
released capacity by other LDCs or the pipeline's unsubscribed capacity. As a
result, the Company is often able to purchase Capacity Release at a discount
from posted rates.
NGL Marketing. The Company presently sells NGLs primarily to wholesale
markets with some sales in the local retail market. The Company has recently
hired an NGL marketer with the intent of realizing higher
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margins on NGLs through increased sales to the retail market and increasing the
marketing of third-party NGLs. Generally, prices for NGLs tend not to vary
directly with natural gas prices, but more closely follow the prices of crude
oil derivatives. Processing margins increase when natural gas prices are lower
in relation to NGL prices. The Company had NGL sales of approximately $34.8
million in 1996, on NGL average volumes of 276 Mgal/d.
NGLs are typically used as petrochemical feedstocks, petroleum refinery
blendstocks or fuel. Petrochemical plants use ethane, propane, butane and
natural gasoline in the production of ethylene, which is used in the manufacture
of plastics, building materials, automobile antifreeze and other products.
Refineries use normal butane and isobutane as motor fuel additives. Propane has
agricultural applications and is used as fuel for household consumption,
vehicles and industrial heaters and boilers.
As feedstock, demand for NGLs is influenced by the demand for the end
products in which they are used. Also, the demand for normal butane and
isobutane, which are important feedstocks for the production of the oxygenate,
methyl tertiary butyl ether ("MTBE"), is expected to increase as demand for MTBE
increases in gasoline production. The required use of oxygenates in motor
gasoline under the Clean Air Act Amendments of 1990 in many parts of the United
States is expected to increase demand for MTBE. Seasonal requirements of
purchasers using NGLs as a fuel source also affect demand. NGL production is
dependent upon the supply and NGL content of domestic natural gas. The market
price of NGLs relative to natural gas affects the volume of natural gas
processed and the NGLs extracted from the natural gas. Certain NGLs are produced
outside North America and imported by ship, which may from time to time affect
NGL prices.
Risk Management Activities. The Company uses risk management tools to
reduce commodity price risk for (i) purchases of natural gas to replace fuel and
shrinkage in connection with processing operations and (ii) its NGL and natural
gas sales. With respect to fuel and shrinkage for processing operations the
Company examines the prevailing price environment on an ongoing basis to
determine if opportunities exist to lock-in prices for replacement natural gas
at levels acceptable to the Company. The Company's management is responsible for
monitoring the price environment for replacement natural gas and makes any
decisions necessary to implement the Company's hedging strategies.
The Company employs several procedures to manage its risk with respect to
the purchases and sales of natural gas. The Company's principal strategy is to
balance purchases and sales of natural gas on a daily and monthly basis. This
means on any given day or in any given month the Company has commitments to
purchase and sell approximately the same volume of natural gas. This strategy is
accomplished through active management and monitoring of natural gas supply and
sales through the Company's natural gas marketing department.
A second strategy employed by the Company to manage risk is to enter into
contracts for the "back-to-back" purchase and sale of natural gas. Under this
strategy, the Company enters into natural gas purchase contracts and natural gas
sales contracts for a corresponding volume of natural gas. The Company thereby
locks in its profit and also locks in a supply of natural gas in order to assure
performance under the applicable sales contract.
Finally, the Company enters into other hedging transactions with respect to
its fixed price purchases and sales of natural gas, which constitute less than
10% of its total purchases and sales. These transactions include futures
contracts, swaps and basis agreements and other arrangements common in the
financial markets. The Company consistently has hedging positions to cover
substantially all of its purchases and sales under fixed price agreements.
The Company does not use hedging transactions for speculative purposes. The
Company has, however, on certain occasions taken open positions on carefully
selected arbitrage opportunities. While these occasions have been relatively few
and are carefully reviewed by the Company's management, the Company believes
that the competitive information it obtains from its energy marketing activities
allows it to take advantage of certain opportunities in the market.
The Company's management oversees all hedging activity of the Company. A
daily book on all positions is maintained and daily and monthly reports are
given to management. See Note 12 to the Notes to Consolidated Financial
Statements of the Company included herein.
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<PAGE> 37
In addition to the risk associated with price movements, credit risk is
also inherent in the Company's risk management activities. Credit risk relates
to the risk of loss resulting from the nonperformance of a counterparty of its
contractual obligations. The Company maintains credit policies with regard to
counterparties that the Company believes significantly minimize overall credit
risk. These policies include the thorough review of potential counterparties'
financial condition, collateral requirements under certain circumstances,
monitoring of net exposure to each counterparty and the use of standardized
agreements which allow for the netting of positive and negative exposures
associated with each counterparty.
Electric Power Marketing. The Company formed Continental Energy Services,
L.L.C. ("CES") in 1996 to pursue electric power marketing opportunities that are
being created as the domestic electric power industry becomes increasingly
deregulated pursuant to the Energy Policy Act of 1992 (the "Energy Policy Act")
and certain actions taken by the FERC (including implementation of wholesale
open access under Order 888) and public utility commissions in various states.
Just as the Company provides aggregation and marketing services for natural gas
producers and consumers, CES intends to provide similar services in a
deregulating domestic electric industry.
CES received authorization from the FERC in December 1996 to purchase, sell
and market wholesale electric power and engage in other energy-related
transactions and to charge market-based rates for such services and
transactions. CES initially intends to market electric power to electric
utilities, municipalities and electric cooperatives on a wholesale basis.
In the future, if the power industry continues to deregulate and subject to
state and federal regulations, CES also intends to pursue the direct marketing
of power to existing industrial and commercial natural gas customers of the
Company in states which permit such activities. There is no guarantee that the
states or the federal government will adopt programs permitting such activities
or that such programs will be adopted on terms beneficial to CES. If adopted,
however, these programs are anticipated to allow CES to market electric power
directly to industrial and commercial end-users while using the utilities,
municipalities and electric cooperatives solely to generate and transmit power
to these end-users, much like the Company markets natural gas to LDCs and
end-users using the pipelines for transportation services only. CES also expects
to offer a variety of risk management products and services to generators and
consumers including futures, options, swaps and basis agreements and other
financial instruments.
CES has not, as yet, entered into any contracts or conducted any
substantive activities. The timing, manner and extent to which the power
industry will deregulate, with respect to both wholesale power marketing and
retail direct access, is extremely uncertain. Even if the power industry
continues to deregulate in a manner beneficial to CES, there can be no assurance
that the operations of CES, when and if commenced, will be profitable.
CAPITAL INVESTMENT PROGRAM
Capital spending by the Company is expected to reach $8.6 million in 1997.
Approximately $4.3 million is expected to be spent in connection with the
proposed acquisition of the Laverne Plant. See "Business -- Recent Development."
The remainder will be spent on various expansions of the Company's gas gathering
systems to accommodate new gas supply development.
FACILITIES
Gathering Systems and Processing Plants. As of June 1, 1997, the Company
had approximately 1,100 miles of natural gas gathering pipelines, two natural
gas processing plants, each of which has extraction equipment and one of which
has fractionation equipment and 49 compressor units located at 18 field stations
and the two plant sites.
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<PAGE> 38
The following table provides information concerning the Company's natural
gas processing plants and gathering systems:
<TABLE>
<CAPTION>
AVERAGE NATURAL AVERAGE NGL
YEAR CAPACITY GAS THROUGHPUT PRODUCTION
ACQUIRED OR AS OF ------------------- -------------------
PLACED INTO MARCH 31, MARCH MARCH
SERVICE 1997 1996 1997 1996 1997
----------- --------- -------- -------- -------- --------
(MMCF/D) (MMCF/D) (MMCF/D) (MGAL/D) (MGAL/D)
<S> <C> <C> <C> <C> <C> <C>
PROCESSING PLANTS
Beaver Plant.......................... 1990 105 65 70 158 180
Mocane Plant.......................... 1995 200 64 65 106 101
GATHERING SYSTEMS
Beaver-Mocane Gathering............... 1990 195 25 25 N/A N/A
Texas Gathering Assets................ 1996 188 62 83 N/A N/A
</TABLE>
The Company owns approximately 43 acres of land at its Beaver Plant site
and an additional 40 acres at its Mocane Plant site. While this real property is
necessary in order to operate its Beaver and Mocane Plants, it does not
contribute significantly to the value of the Company.
The Company's gas processing plants are fed directly by a network of low
and intermediate pressure steel and polypipe gas gathering pipelines. The Beaver
Gathering System consists of approximately 300 miles of pipelines connecting
over 100 wells for ultimate delivery to the Company's Beaver and Mocane Plants.
Approximately 22% of the Beaver and Mocane Plants' throughput originates from
the Beaver Gathering System. The Company's Texas Gathering Assets extend for
approximately 800 miles across the northern Texas Panhandle providing
substantial gathering exposure along the western edge of the Anadarko Basin,
south of its existing processing plants. Approximately 500 wells are connected
to the Texas Gathering Assets for redelivery to the interstate pipelines of
either NNG or TW. The Texas Gathering Assets, which are steel pipelines, operate
at low pressures.
The Company installed two pipelines connecting the Mocane Plant to the
Beaver Plant in 1995. These pipelines allow the Company to optimize processing
capacity utilization by shifting raw and processed natural gas between the
Beaver and Mocane Plants. In addition, the Company has constructed approximately
27 miles of residue interconnect line, connecting the Beaver Plant to the ANR,
WNG and CIG interstate pipelines, thus expanding the markets for the Company's
on-system gas.
The Company's operations in the Panhandle Area consist of the Beaver and
Mocane Plants, natural gas gathering systems, compression equipment, NGL
storage, fractionation and truck terminal facilities. The Company believes the
Panhandle Area has favorable production, supply and market access
characteristics. The Panhandle Area is one of the most prolific natural gas
producing regions in the continental United States. Production is obtained from
several geologic formations. Natural gas fields in the area have produced for
many years and currently produce at stabilized low rates of decline that
indicate substantial reserves. Estimates by an independent engineering firm, Lee
Keeling & Associates, attribute approximately 700 Bcf of natural gas to the
Company's contracted leases and/or wells as of January 1, 1997.
Compression and Storage Facilities. In connection with the operation of its
gathering systems, the Company operates 49 compressor units located at 18 field
stations and two plant sites with approximately 44,000 horsepower of natural gas
compression. Compressors are used to boost natural gas produced and gathered at
low field pressure to higher pipeline pressures. Approximately 30% of the
Company's compression capacity is leased under various capital lease agreements.
Under such capital lease agreements, the Company makes approximately $1.8
million per year in payments. The terms under such capital leases range from
1998 to 2003 at which time the Company has an option to purchase (generally at a
nominal price) the leased equipment. The Company continues to enter into capital
lease agreements for compression and other natural gas processing equipment.
Under its credit facility, the Company is permitted to incur capital lease
obligations which require incremental annual payments of up to $1 million per
year.
The Company has approximately 140,000 barrels of underground NGL storage
capacity at the Mocane Plant. Two of the five underground storage caverns
(amounting to approximately 20% of the total storage
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<PAGE> 39
capacity located at the Mocane Plant) are currently operational. The Company is
currently evaluating the economic feasibility of placing the remaining storage
caverns in operation.
Corporate Offices. The Company leases its Tulsa, Oklahoma headquarters
under a commercial office lease covering approximately 17,000 square feet,
expiring in June 1997. The annual rental payments are approximately $161,000.
OPERATIONAL RISKS AND INSURANCE
The Company's operations are subject to potential hazards incident to the
gathering, processing, separation and storage of natural gas and NGLs, such as
explosions, product spills, leaks, emissions and fires. These hazards can cause
personal injury and loss of life, severe damage to and destruction of property
and equipment, and pollution or other environmental damage, and may result in
curtailment or suspension of operations at the affected facility.
The Company maintains general public liability, property and business
interruption insurance in amounts that it considers to be adequate for such
risks. Such insurance is subject to deductibles that the Company considers
reasonable and not excessive. Consistent with the Company's proactive approach
to risk management, the Company's pollution liability policies not only provide
protection for sudden and accidental occurrences, but also, subject to the
policy terms and conditions, provide protection for gradual pollution incidents
occurring over time.
The occurrence of a significant event for which the Company is not fully
insured or indemnified, and/or the failure of a party to meet its
indemnification obligations, could materially and adversely affect the Company's
operations and financial condition. Moreover, no assurance can be given that the
Company will be able to maintain adequate insurance in the future at rates it
considers reasonable. To date, however, the Company has maintained adequate
coverage at reasonable rates and has experienced no material uninsured losses.
COMPETITION
The Company faces intense competition in obtaining natural gas supplies for
its gathering and processing operations and in marketing its products and
services. Principal competitors include marketing affiliates of interstate
pipeline companies, national and local natural gas gatherers and marketers of
varying sizes, financial resources and experience. Many of the Company's
competitors have capital resources and control supplies of natural gas
substantially greater than those of the Company.
The Company competes against other companies in the natural gas processing
business both for supplies of natural gas and for customers to which it sells
its products. Competition for natural gas supplies is based primarily on price,
location of natural gas gathering facilities and gas processing plants, line
pressures, operating efficiency, reliability and quality producer relationships.
Competition for sales customers is based primarily on price, delivery
capabilities, reliability, price flexibility and maintenance of quality customer
relationships.
CNG's fractionation business competes against other fractionation
facilities that serve local markets. Competitive factors affecting its
fractionation business include proximity to customers, quality of NGL products,
price, efficiency and reliability of service.
In marketing its products and services, the Company has numerous
competitors, including marketing affiliates of major interstate pipelines, major
natural gas producers, and local and national gatherers and marketers of widely
varying sizes, financial resources and experience. Marketing competition is
primarily based upon reliability, transportation, flexibility and price.
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<PAGE> 40
GOVERNMENT REGULATION
Currently, federal, state and local regulations do not materially affect
the purchase and sale of natural gas and the fees received for gathering and
processing by the Company. Therefore, except as constrained by competitive
factors and contracts, the Company has considerable pricing flexibility.
However, federal, state and local laws and regulations, directly or indirectly,
govern some aspects of the operations of the Company. These laws and regulations
may in the future have a significant impact upon the Company's overall
operations.
In 1992, the FERC issued Order 636 which generally opens access to
interstate pipelines by requiring the operators of such pipelines to unbundle
their transportation services from sales services and allow customers to choose
and pay for only the services they require, regardless of whether the customer
purchases natural gas from such pipeline or from other suppliers. Order 636 also
requires upstream pipelines to permit downstream pipelines to assign upstream
capacity to their suppliers, and places analogous, unbundled requirements on the
downstream pipelines. This mandated access to interstate pipelines was and is of
vital importance to the Company's off-system gas business and to the delivery of
natural gas from CNG's Texas Gathering Assets to its processing plants in
Oklahoma. A change in such regulation could adversely affect these portions of
the Company's business.
The FERC retains jurisdiction over the interstate transportation of natural
gas and of liquid hydrocarbons, such as NGLs and product streams derived
therefrom. The gathering and processing of natural gas for the removal of
liquids currently is not viewed by the FERC as an activity subject to its
jurisdiction. If a processing plant's primary function is extraction of NGLs and
not natural gas transportation, the FERC has traditionally maintained that the
plant is not a facility for transportation or sale for resale of natural gas in
interstate commerce and, therefore, is not subject to jurisdiction under the
Natural Gas Act of 1938 (the "NGA").
The NGA exempts natural gas gathering facilities from the jurisdiction of
the FERC. Interstate transmission facilities, on the other hand, remain subject
to the FERC jurisdiction. The FERC has historically distinguished between these
two types of facilities on a fact-specific basis. The Company believes that its
gathering facilities and operations meet the current tests that the FERC uses to
determine a nonjurisdictional gathering facility status. While certain recent
cases have applied these tests in a manner supporting the Company's view that
the FERC lacks jurisdiction over its gathering facilities, these cases are,
however, still subject to rehearing and appeal. In addition, the FERC's
articulation and application of the tests used to distinguish between
jurisdictional pipelines and nonjurisdictional gathering facilities have varied
over time. While the Company believes the current definitions create
nonjurisdictional status for the Company's gathering facilities, no assurance
can be given that such facilities will remain classified as natural gas
gathering facilities and the possibility exists that the rates, terms, and
conditions of the services rendered by those facilities, and the construction
and operation of the facilities, will be subject to regulation by the FERC.
There are two pending proceedings at the FERC in which parties allege that
the FERC should regulate the rates and operations of certain aspects of the
Company's business. (GPM Gas Corporation v. Continental Natural Gas, Inc.,
Docket No. CP96-495-000; Plant Owners v. Continental Natural Gas, Inc., Docket
No. CP96-577-000.) The entities initiating these proceedings allege that the use
of the Company's facilities to receive natural gas from, and deliver natural gas
to, interstate pipelines renders those facilities subject to FERC's
jurisdiction. The Company is contesting these allegations. While the Company
believes that its business is not subject to regulation by the FERC, it cannot
predict the outcome of these proceedings, nor can it predict the effect a ruling
would have on the Company's business. If the FERC issues a decision in either of
these cases that subject some or all of the Company's facilities to the FERC's
jurisdiction, the decision may limit the rates that the Company charges for its
services, may have the effect of precluding the Company from engaging in certain
transactions, or may impose other obligations on the Company which may have a
material adverse effect on the Company. Knowing violations of the NGA may result
in the imposition of fines, forfeitures or other criminal penalties; however,
the imposition of such has been extremely rare.
Traditionally, the FERC has regulated the rates for gathering service
performed by interstate pipelines and their affiliates. In 1995, the FERC held
that interstate pipeline affiliates that performed gathering services could have
their rates and services deregulated. In addition, the FERC established a
two-year default
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<PAGE> 41
(i.e., transition) period during which the new owners of gathering facilities
formerly owned by interstate pipelines would have to provide service at the same
rates and on the same terms and conditions as was provided by the pipelines. As
a result, many interstate pipelines have transferred their facilities to
gathering affiliates or sold them to third-parties. On August 2, 1996, the
United States Court of Appeals for the District of Columbia Circuit upheld the
FERC's decision to deregulate gathering but voided the two year default period.
As a result, there could be numerous additional unregulated gathering companies.
Certain of those gathering companies may compete with the Company.
Notwithstanding the decision of the D.C. Circuit, many owners of facilities
acquired from interstate pipelines have committed to continue providing service
at the same rates and on the same terms and conditions during the default
period. At the expiration of these default periods, it is possible that the cost
of gathering service paid by the Company could increase substantially. In
addition, the Company (as a shipper on these systems) could be placed at a
competitive disadvantage vis-a-vis the owner of the gathering facilities in
acquiring natural gas and NGLs. It should be noted that the Company's Texas
Gathering Assets would also be free of the FERC-mandated rate controls when
their associated default period expires at the end of 1997. Except with respect
to the owners of gathering systems, the Company does not believe that it will be
affected by any action taken with respect to the FERC's gathering policy
materially differently than any other producers, gatherers, processors or
marketers with which it competes.
The Company purchased the Texas Gathering Assets from subsidiaries of Enron
Corporation that were regulated by the FERC prior to the purchase. In accordance
with federal regulations, the Company agreed that it would not charge rates that
exceed the rates that Enron was charging at the time of the sale until December
31, 1997, after which time the Company will be free to set rates in accordance
with market conditions at that time, subject, however, to future state or
federal laws or regulations.
Certain activities of the Company could be subject to regulation by the
Texas Railroad Commission ("RRC") pursuant to its jurisdiction over common
purchasers and natural gas utilities or its jurisdiction over the transportation
and gathering of natural gas. CNG is a "common purchaser" under Texas law. It is
not presently registered as a "gas utility" though no assurance can be given
that it will not at some future time be required to register as such.
Although the RRC does not regulate the activities of the Company at this
time, the RRC has authority to regulate the volumes of natural gas purchased by
common purchasers and the rates charged for the intrastate transportation,
gathering and sale of natural gas by gas utilities in Texas. Under the Gas
Utility Regulatory Act and other Texas statutes, the RRC has the duty to ensure
that rates for the transportation, gathering and sale of natural gas are just
and reasonable and gas utilities are prohibited from charging rates that are
unreasonably preferential, prejudicial or discriminatory. The Company believes
that its activities are in compliance with applicable laws and regulations.
All of the Company's pipeline operations are subject to federal safety
standards promulgated by the Department of Transportation under applicable
federal pipeline safety legislation, as supplemented by various state safety
statutes and regulations.
The Company's Oklahoma operations are subject to regulation by the State of
Oklahoma. The majority of these regulations are administered by the Oklahoma
Corporation Commission ("OCC"). Any entity engaged in the business of carrying
or transporting natural gas by pipeline is declared to be a common carrier under
Oklahoma law and is prohibited from any unjust or unlawful discrimination in the
carriage, transportation or delivery of natural gas. Although Oklahoma law may
be sufficiently broad to permit the OCC to set rates and terms of service for
the transportation and delivery of natural gas involving the Company's Oklahoma
assets, the OCC has not done so to date. There can be no assurance that the OCC
will not do so in the future. Recent Oklahoma legislation prohibits entities
which gather natural gas for hire from charging any fee which is unjustly or
unlawfully discriminatory. The Company does not expect this legislation to have
any significant impact on the Company's operations.
An entity carrying or transporting natural gas by pipeline which is engaged
in the business of purchasing natural gas is declared to be a common purchaser
under Oklahoma law and is required to purchase without discrimination in favor
of persons or price all natural gas in the vicinity of its lines. Ratable
purchase is
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<PAGE> 42
required if a purchaser is unable to purchase all natural gas offered. To date,
such legislation has not had any significant effect on the Company's Oklahoma
operations.
The OCC and the RCC regulate the amount of natural gas which producers can
sell or deliver to the Company. Currently, substantially all natural gas
received by the Company in its Oklahoma and Texas operations is produced from
wells for which the OCC or RCC establish allowable rates. To date, the Company
has not experienced any material reductions in available supplies due to these
regulations. Nevertheless, future regulations could materially affect the
Company's ability to purchase natural gas supplies.
ENVIRONMENTAL MATTERS
The Company is subject to environmental risks normally incident to the
operation and construction of gathering lines, pipelines, plants and other
facilities for gathering, processing, treatment, storing and transporting
natural gas and other products. These environmental risks include uncontrollable
flows of natural gas, fluids and other substances into the environment,
explosions, fires, pollution and other environmental and safety risks. The
following is a discussion of certain environmental and safety concerns related
to the Company. It is not intended to constitute a complete discussion of the
various federal, state and local statutes, rules, regulations, or orders to
which the Company's operations may be subject. For example, the Company, without
regard to fault, could incur liability under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended (also known as the
"Superfund" law), or state counterparts, in connection with the disposal or
other releases of hazardous substances and for damage to natural resources.
Further, the recent trend in environmental legislation and regulations is toward
stricter standards, and this will likely continue in the future.
The Company's activities in connection with the operation and construction
of gathering lines, pipelines, plants, storage caverns, and other facilities for
gathering, processing, treatment, storing and transporting natural gas and other
products are subject to environmental and safety regulation by federal and state
authorities, including, without limitation, the state environmental agencies and
the EPA, which can increase the costs of designing, installing and operating
such facilities. In most instances, the regulatory requirements relate to the
discharge of substances into the environment and include measures to control
water and air pollution.
Environmental laws and regulations may require the acquisition of a permit
or other authorization before certain activities may be conducted by the
Company. These laws also include fines and penalties for non-compliance.
Further, these laws and regulations may limit or prohibit activities on certain
lands lying within wilderness areas, wetlands, areas providing habitat for
certain species or other protected areas. The Company is also subject to other
federal, state, and local laws covering the handling, storage or discharge of
materials used by the Company, or otherwise relating to protection of the
environment, safety and health. The Company believes that it is in material
compliance with all applicable environmental laws and regulations. The Company
periodically conducts environmental assessments of its assets and is not aware
of any material environmental problems requiring remediation. Because the
requirements imposed by environmental laws and regulations frequently change,
the Company is unable to predict the ultimate costs of compliance with such
requirements or whether the incurrence of such costs would have a material
adverse effect on the operations of the Company.
In March 1992, an environmental site assessment of the Laverne Plant
indicated the presence of hydrocarbon contaminated groundwater underlying a
portion of the plant site. Under the direction of the Oklahoma Corporation
Commission and based on the results of a pilot remediation project, a plan has
been developed to remediate the site utilizing a biofiltration process to be
installed during the last half of 1997 at an estimated cost of $1 million. The
Company's share of this total cost will be approximately $170,000 upon
completion of the proposed acquisition from Conoco and its affiliate. See
"Business -- Recent Development."
EMPLOYEES
As of June 1, 1997, the Company had 95 employees. Of these, 53 employees
are located in the field and provide general operational and maintenance
activities on the Company's facilities located in the Panhandle
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<PAGE> 43
Area while the balance are located at CNG's executive offices in Tulsa,
Oklahoma, and are engaged in gas marketing activities, plant supervision or
accounting and administration. The Company considers its relations with
employees to be excellent.
LEGAL PROCEEDINGS
The Company is currently a defendant in the case of Colorado Interstate Gas
Company v. Continental Hydrocarbons, Inc., et al., Case No. 93CV1894 (the
"Colorado Lawsuit"). The case as it pertains to the Company primarily involves
claims made by CIG that the Company and Continental Hydrocarbons, Inc. ("CHI"),
a former subsidiary of the Company, have improperly withheld from it proceeds
from the sale of NGLs processed by the Mocane Plant, have defamed CIG and
committed other wrongful acts, and are as a result liable to CIG for unspecified
actual and punitive damages. The Mocane Plant Sellers have also been sued by CIG
and have sought indemnity from CHI and the Company for some of the liability
they may have to CIG as well as other amounts allegedly owed them. The Company
and CHI have generally denied the allegations against them in the case and have
contended that they are owed certain amounts for the processing of natural gas.
Though impossible to estimate with any certainty, the Company believes that CIG
is seeking actual damages in excess of $3 million. The Company has reached a
settlement with one of the Mocane Plant Sellers which involves the Company's
payment of approximately $1.2 million plus accrued interest (on a portion of the
settlement) to such Mocane Plant Seller. The Company had previously recorded an
accrued liability for a portion of the proceeds received from the processing of
gas through the Mocane system and accordingly no additional accrual is required.
It is expected that this settlement will be concluded in the third quarter of
1997 at the same time as the Company purchases the interest of Conoco and its
affiliate in the Laverne Plant. See "Business -- Recent Development."
The Company has also filed a lawsuit, Continental Natural Gas, Inc. v.
Colorado Interstate Gas Company, Case No. 96-CV-0041-BU (the "Oklahoma
Lawsuit"), in the United States District Court for the Northern District of
Oklahoma against CIG. The Company's complaint alleges constructive fraud in
connection with negotiations between the Company and CIG in the first part of
1995 for natural gas processing and gathering in the area surrounding the Mocane
Plant. In general, the Company alleges that CIG misled it and thereby precluded
the Company from offering a bid on certain compression services ultimately sold
by CIG to its subsidiary, CIG Resources Company.
The Company is at various times a party to additional claims and involved
in various other litigation and administrative proceedings arising in the normal
course of business. The Company believes it is unlikely that the final outcome
of any of the claims, litigation or proceedings discussed above to which the
Company is a party would have a material adverse effect on the Company's
financial position or results of operations; however, due to the inherent
uncertainty of litigation, the Company cannot give assurance regarding the
effect on the Company of an adverse resolution of any particular claim or
proceeding.
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<PAGE> 44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information concerning the directors and
executive officers of the Company as well as the two persons who have agreed to
become directors after completion of the Offering.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Gary C. Adams............................. 46 Chairman, President, Chief Executive
Officer and Director(1)
Terry K. Spencer.......................... 37 Vice President of Operations and
Director
Scott C. Longmore......................... 37 Vice President of Marketing and
Director
Garry D. Smith............................ 40 Vice President, Controller and
Director(2)
William W. Pritchard...................... 46 (3)
William H. Bauch.......................... 35 (3)
</TABLE>
- ---------------
(1) The named person will be appointed to the Compensation Committee of the
Board of Directors upon completion of the Offering.
(2) The named person will be appointed to the Audit Committee of the Board of
Directors upon completion of the Offering.
(3) The named person has agreed to become a member of the Board of Directors and
the Compensation and Audit Committees of the Board after completion of the
Offering.
Gary C. Adams has been the Company's Chairman of the Board since his
founding of the Company in 1983. In 1994 he assumed the role of Chief Executive
Officer, and in March 1997, was elected President. Mr. Adams is also Chairman of
Adams Affiliates, which is engaged in different segments of the oil and gas
industry. Most of Mr. Adams' 25-year career has been spent in the oil and gas
industry. Prior to his association with Adams Affiliates, Mr. Adams served as
Executive Vice President of OKC Corporation, then a New York Stock Exchange
listed company, where he was responsible for its oil and gas operations. Mr.
Adams graduated from the University of Kansas in 1973 with a Bachelor of Science
degree in Business Administration. Mr. Adams is the son of the late K.S. "Boots"
Adams, former Chairman of Phillips Petroleum Company.
Terry K. Spencer has been Vice President of Operations of the Company since
1991 and was elected to the Board of Directors of the Company in March 1997. He
is responsible for the management of pipeline and plant operations, engineering
design and construction, new project development, reservoir engineering and
economic evaluation. Prior to joining CNG in 1989, Mr. Spencer served as Manager
of Project Development for Stellar Gas Company and held various
engineering-related positions in Delhi Gas Pipeline Corporation. Mr. Spencer
earned his Bachelor of Science degree in Petroleum Engineering from the
University of Alabama in 1981.
Scott C. Longmore has been Vice President of Marketing of the Company since
1988 and was elected to the Board of Directors of the Company in March 1997. His
primary responsibilities are to supervise the acquisition of markets, supplies
and storage, the transportation of natural gas and risk management activities.
Prior to joining CNG in 1987, Mr. Longmore was employed with Cabot Energy
Marketing Corporation, where he served as a gas marketing and supply
representative. Mr. Longmore has 12 years of experience in the natural gas
marketing business. Prior to Cabot, he was an independent petroleum landman in
Oklahoma. Mr. Longmore graduated from the University of Oklahoma in 1982 with a
Bachelor of Business Administration degree in Petroleum Land Management.
Garry D. Smith has been Vice President and Controller of the Company since
1990 and was elected to the Board of Directors of the Company in March 1997. He
is responsible for managing the financial and accounting functions of the
Company. Prior to joining CNG in 1988, Mr. Smith served in various capacities at
Mustang Fuel Corporation, including managing the financial and oil and gas
revenue accounting functions. He
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<PAGE> 45
received his Bachelor of Science degree in Accounting from Central Oklahoma
State University in 1979, and his Masters of Business Administration from the
University of Oklahoma in 1987. Mr. Smith is a Certified Public Accountant and a
Certified Management Accountant.
William W. Pritchard has agreed to become a member of the Board of
Directors of the Company and the Compensation and Audit Committees of the Board
after completion of the Offering. Mr. Pritchard has more than 21 years of
experience in the domestic and international oil and gas industry. Beginning in
1976, Mr. Pritchard assumed various managerial positions with Parker Drilling
Company, a New York Stock Exchange company, serving its domestic and
international operations, and in 1984 he became Vice President and General
Counsel with Parker Drilling, positions he held until he concluded his tenure at
Parker in 1996. Mr. Pritchard became Of Counsel to the law firm of Hall, Estill,
Hardwick, Gable, Golden & Nelson, P.C. ("Hall, Estill") in 1996 and his
corporate practice focuses on acquisitions, contracts, securities laws and other
legal matters related to the oil and gas industry. Mr. Pritchard received a
Bachelor of Arts from the University of Kansas and a Juris Doctorate from the
University of Tulsa.
William H. Bauch has agreed to become a member of the Board of Directors of
the Company and the Compensation and Audit Committees of the Board after
completion of the Offering. Mr. Bauch has been a Senior Vice President in the
corporate finance department of Oppenheimer & Co., Inc. since 1996. Prior to
that, he was a Vice President in the investment banking department of Prudential
Securities Incorporated from 1994 to 1996, a Vice President with Jefferies &
Company, Inc. from 1993 to 1994 and a Vice President with Howard, Weil,
Labouisse & Friedrichs from 1991 to 1993. He holds Bachelors of Accountancy and
Juris Doctorate degrees from the University of Mississippi and a Masters of Laws
degree from the New York University School of Law.
BOARD OF DIRECTORS AND COMMITTEES
The Company's Certificate of Incorporation and Bylaws provide for a
classified board of directors. The two class I directors, Scott C. Longmore and
Terry K. Spencer, have been elected for an initial term expiring at the 1998
annual meeting. The two class II directors, Garry D. Smith and William H. Bauch
(effective upon his appointment as a director), have been elected for an initial
term expiring at the 1999 annual meeting. The two class III directors, Gary C.
Adams and William W. Pritchard (effective upon his appointment as a director),
have been elected for an initial term expiring at the 2000 annual meeting. All
subsequent elections will be for successive three-year terms. No director is
selected or serves pursuant to any special arrangement or contract.
Officers serve at the discretion of the Board and are elected annually.
There are no family relationships between the directors or executive officers of
the Company. Mr. William W. Pritchard, who has agreed to serve as a director of
the Company upon completion of the Offering, is Of Counsel to Hall, Estill. The
Hall, Estill firm is rendering legal services to the Company in connection with
the Offering and may render other legal services to the Company in the future.
Mr. William H. Bauch, who has agreed to serve as a director of the Company upon
completion of the Offering, is an officer in the firm of Oppenheimer & Co.,
Inc., one of the Representatives of the Underwriters in the Offering.
Upon completion of the Offering, the Board of Directors intends to
establish a Compensation Committee and an Audit Committee. The Compensation
Committee will make recommendations to the Board concerning salaries and
incentive compensation for the Company's officers and employees. The Audit
Committee will aid management in the establishment and supervision of the
Company's financial controls, evaluate the scope of the annual audit, review
audit results, consult with management and the Company's independent auditors
prior to the presentation of financial statements to shareholders and, as
appropriate, initiate inquiries into aspects of the Company's financial affairs.
43
<PAGE> 46
EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation for the fiscal
year ended December 31, 1996, for the chief executive officer and the three
other executive officers of the Company as of December 31, 1996, for services
rendered in all capacities.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
---------------------------------- -------------
# OF SHARES
UNDERLYING
NAME AND OTHER ANNUAL STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION GRANTED COMPENSATION
------------------ -------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Gary C. Adams
Chief Executive Officer........ -- -- --(1) -- $150,000(2)
Scott C. Longmore Vice
President of Marketing......... $ 97,500 $152,842 $16,800(3) 68,000 --
Garry D. Smith
Vice President and
Controller.................. $104,195 $ 80,293 $12,600(3) 68,000 --
Terry K. Spencer
Vice President of Operations... $ 97,500 $ 80,293 $12,600(3) 68,000 --
</TABLE>
- ---------------
(1) The Company was charged a fee of $210,000 for management services in 1996 by
Adams Affiliates, an affiliate of the named person.
(2) The amounts shown represent the premiums paid by the Company under a split
dollar life insurance policy. Under this policy, the Company pays the
premiums for life insurance issued to the named person. Repayment of the
premiums is secured by the death benefit or the cash surrender value of the
policy, if any, if the named person cancels and surrenders the policy.
(3) Represents the difference between the fair market value of Common Stock
purchased by the named person in 1996 and the amount paid for such Common
Stock.
Employment and Consulting Agreements. The Company is a party to employment
agreements with Terry K. Spencer, Scott C. Longmore and Garry D. Smith which
will be amended effective upon the completion of the Offering. As then amended,
the employment agreements will continue in effect until December 31, 1999,
subject to customary termination provisions. The employment agreements will
provide for annual salary payments to each of such executive officers in the
amount of $150,000, subject to annual CPI adjustment, and for annual bonuses
based upon the Company exceeding designated annual income levels. In addition,
Mr. Longmore's employment agreement provides for the payment of annual
commissions based upon gross margins of natural gas sales.
The Company and Adams Affiliates are parties to a Consulting Agreement
dated as of April 1, 1997, under which Adams Affiliates has agreed to provide
consulting services to the Company in return for payments of $20,000 per month
($240,000 per year). It is anticipated that such consulting services will be
provided primarily by Gary C. Adams as an agent of Adams Affiliates. The
Consulting Agreement has a term extending until March 31, 1998, subject to
automatic one month renewals thereafter until terminated by one of the parties.
Mr. Adams is an affiliate of Adams Affiliates. See "Certain
Transactions -- General."
44
<PAGE> 47
The following table provides information regarding options granted to each
of the named executives during 1996:
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
# OF TOTAL STOCK PRICE
# OF SHARES OPTIONS APPRECIATION FOR
DATE OF UNDERLYING GRANTED EXERCISE EXPIRATION OPTION TERM
GRANT OPTIONS TO PRICE DATE ------------------------
NAME (MO/DAY) GRANTED EMPLOYEES ($ SHARE) (MO/YR) 0%(2) 5%(3) 10%(4)
---- ----------- ----------- ---------- --------- -------------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scott C. Longmore............. February 28 68,000 33.3% $0.26 December, 1999(1) $4,080 $4,959 $5,974
Garry D. Smith................ February 28 68,000 33.3% $0.26 December, 1999(1) $4,080 $4,959 $5,974
Terry K. Spencer.............. February 28 68,000 33.3% $0.26 December, 1999(1) $4,080 $4,959 $5,974
<CAPTION>
POTENTIAL REALIZED
VALUE ASSUMING
MARKET PRICE
EQUAL TO
NAME $13.00/SHARE
---- ------------------
<S> <C>
Scott C. Longmore............. $866,320
Garry D. Smith................ $866,320
Terry K. Spencer.............. $866,320
</TABLE>
- ---------------
(1) Term expires upon termination of the named person's employment agreement.
(2) Estimated fair value based on an independent valuation.
(3) Assumes 5% annual increase in stock price over term of option which is
assumed to expire on March 31, 2000. Exercise of option is subject to the
Company achieving certain specified annual financial performance goals.
(4) Assumes 10% annual increase in stock price over term of option which is
assumed to expire on March 31, 2000. Exercise of option is subject to the
Company achieving certain specified annual financial performance goals.
1996 Incentive Stock Option Plan. Effective as of February 28, 1996, the
Company adopted the 1996 Incentive Stock Option Plan (the "1996 Stock Plan"),
and granted options under the plan to acquire a total of 204,000 shares of
Common Stock to Terry K. Spencer, Garry D. Smith and Scott C. Longmore. The 1996
Stock Plan is intended to comply with Section 422 of the Internal Revenue Code
of 1986, as amended. Each incentive stock option ("ISO") granted entitles the
optionee to purchase up to 68,000 shares of Common Stock at an exercise price of
$0.26 per share, which the Board of Directors determined to represent the fair
market value of the Common Stock on the grant date. The exercise of each ISO is
conditioned upon the Company achieving certain specified financial performance
goals for each of calendar years 1997, 1998 and 1999, and the optionee may not
in any event exercise ISOs to acquire Common Stock having a fair market value in
excess of $150,000 for any one calendar year. The ISOs shall remain in effect
for the term of the Optionee's employment agreement with the Company. No more
ISOs may be issued under the 1996 Stock Plan.
1997 Stock Plan. The purpose of the Continental Natural Gas, Inc. 1997
Stock Plan (the "1997 Stock Plan") is to promote the overall financial
objectives of the Company and its shareholders by motivating those persons
selected to participate in the 1997 Stock Plan to achieve long-term growth in
shareholder equity in the Company and by retaining the association of those
individuals who are instrumental in achieving this growth. Executive officers,
key employees and non-employee directors, as well as such other employees or
consultants as the Board of Directors selects, are eligible recipients of awards
under the 1997 Stock Plan. The maximum number of shares authorized to be issued
under the 1997 Stock Plan is 600,000 shares of Common Stock. No grants or awards
have been made under the 1997 Stock Plan.
The 1997 Stock Plan is administered by the Board of Directors of the
Company. The Board of Directors is authorized to determine plan participants,
the types and amounts of awards to be granted and the terms, conditions and
provisions of awards, prescribe forms of award agreements, interpret the 1997
Stock Plan, establish, amend and rescind rules and regulations relating to the
1997 Stock Plan and make all other determinations which may be necessary or
advisable for the administration of the 1997 Stock Plan. The Board of Directors
has not made a determination as to the number of employees currently eligible
for consideration as participants in the 1997 Stock Plan.
The 1997 Stock Plan permits the granting of any or all of the following
types of awards: (a) stock options, (b) stock appreciation rights ("SARs"), and
(c) restricted stock. Generally, awards under the 1997 Stock Plan are granted
for no consideration other than prior and future services. Awards granted under
the 1997
45
<PAGE> 48
Stock Plan may, in the discretion of the Board, be granted alone or in addition
to, in tandem with or in substitution for any other award under the 1997 Stock
Plan or other plan of the Company. Such grants could include grants of options
after a decline in the market price of the Common Stock in substitution for
previously granted options having a higher exercise price.
Stock options granted pursuant to the 1997 Stock Plan may, at the
discretion of the Board, be either ISOs within the meaning of Section 422 of the
Code, or non-qualified stock options. The exercise price of an ISO may not be
less than the fair market value of the Common Stock on the date of grant (or
110% of such fair market value in the case of ISOs granted to employees who
possess more than 10% of the combined voting power of all classes of stock of
the Company). In the case of non-qualified stock options, the exercise price
shall be as determined by the Board in its sole discretion, but in no event
shall be less than 50% of the fair market value of the Common Stock on the date
of grant. Options granted pursuant to the 1997 Stock Plan are exercisable in
whole or in part at such time or times as may be determined by the Board, except
that ISOs may not be exercised after the expiration of 10 years from the date
granted (or 5 years in the case of ISOs granted to employees who possess more
than 10% of the combined voting power of all classes of stock of the Company).
Generally, options may be exercised by the payment of cash, promissory notes,
stock or a combination thereof.
Any SARs granted under the 1997 Stock Plan will give the holder the right
to receive cash or stock in an amount equal to the difference between the fair
market value of a share of Common Stock on the date of exercise and the exercise
price of the options issued in conjunction with the SARs or such other amount as
the Board has established with respect to SARs issued on a stand-alone basis.
Methods of exercise and settlement and other terms of SARs are determined by the
Board.
The Board may award restricted stock, generally consisting of shares which
may not be disposed of by participants until certain restrictions established by
the Board lapse. Such restrictions may lapse in whole or in installments as the
Board determines. A participant receiving restricted stock will have all of the
rights of a shareholder of the Company, including the right to vote the shares
and the right to receive any dividends, unless the Board otherwise determines,
but shall not be permitted to sell, assign, or otherwise transfer the stock
during the restriction period established by the Board. Upon termination of
employment during the restriction period for any reason other than death or
disability, restricted stock will be forfeited, subject to such exceptions, if
any, as are authorized by the Board.
In the event of any change affecting the shares of Common Stock by reason
of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, combination or exchange of shares, or other corporate change or any
distributions to shareholders, the Board may make such substitution or
adjustment in the aggregate number or kind of shares which may be distributed
under the 1997 Stock Plan and in the number, kind and exercise, grant or
purchase price of shares subject to the outstanding awards granted under the
1997 Stock Plan, or make provisions for a cash payment relating to any award, as
it deems to be appropriate in order to maintain the purpose of the original
grant.
The Board of Directors may amend, alter, suspend, discontinue or terminate
the 1997 Stock Plan without the consent of shareholders or participants, except
that shareholder approval of such action will be sought if such approval is
required by any federal or state law or regulation or by any agreement, or if
the Board of Directors in its discretion determines that obtaining such
shareholder approval is advisable. Unless earlier terminated by the Board of
Directors, the 1997 Stock Plan will terminate when no shares remain reserved and
available for issuance, and the Company has no further obligation with respect
to any award granted under the 1997 Stock Plan.
In the event of a change of control of the Company, as defined in the 1997
Stock Plan, all outstanding awards under the 1997 Stock Plan, regardless of any
limitations or restrictions, become fully exercisable and freed of all
restrictions.
Director Compensation. Directors receive no compensation from the Company
for serving on the Board of Directors but are eligible to receive grants under
the 1997 Stock Plan and will be reimbursed for out-of-pocket expenses incurred
while attending board and committee meetings.
46
<PAGE> 49
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the provisions of the Oklahoma General Corporation Act (the
"Oklahoma Corporate Act"), the Certificate of Incorporation of the Company
eliminates in certain circumstances the monetary liability of directors of the
Company for a breach of their fiduciary duty as directors. These provisions do
not eliminate the liability of a director for (i) a breach of the director's
duty of loyalty to the Company or its shareholders, (ii) acts or omissions by a
director not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) liability arising under Section 1053 of the Oklahoma
Corporate Act (relating to the declaration of dividends and purchase or
redemption of shares in violation of the Oklahoma Corporate Act) or (iv) any
transaction from which the director derived an improper personal benefit. In
addition, these provisions do not eliminate the liability of a director for
violations of Federal securities laws, nor do they limit the rights of the
Company or its shareholders, in appropriate circumstances, to seek equitable
remedies such as injunctive or other forms of non-monetary relief. Such remedies
may not be effective in all cases.
The Certificate of Incorporation and the Bylaws of the Company provide that
CNG shall indemnify all directors and officers of CNG to the full extent
permitted by the Oklahoma Corporate Act. Under such provisions, any director or
officer who in his capacity as such is made or threatened to be made, a party to
any suit or proceeding, may be indemnified by the Company if the Board of
Directors determines such director or officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
CNG. The Certificate of Incorporation, Bylaws and the Oklahoma Corporate Act
further provide that such indemnification is not exclusive of any other rights
to which such individuals may be entitled under the Certificate of
Incorporation, the Bylaws, any agreement, vote of shareholders or disinterested
directors or otherwise.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification would
be required or permitted. The Company is not aware of any overtly threatened
litigation or proceeding that might result in a claim for indemnification.
47
<PAGE> 50
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 1, 1997, and adjusted to
reflect the sale of shares in the Offering, (i) by each person (or group of
affiliated persons) who is known by the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) by each executive officer of the Company,
(iii) by each of the Company's directors, and the two persons who have agreed to
become members of the Board of Directors after completion of the Offering, (the
"Future Directors"), (iv) by all directors, including the two Future Directors,
and executive officers as a group and (v) by the Selling Shareholder. Unless
indicated otherwise, each person has sole voting and dispositive power with
respect to such shares.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
NUMBER SHARES --------------------------
OF SHARES BEING BEFORE AFTER
BENEFICIAL OWNER (1) OFFERED(1) OFFERING(1) OFFERING(1)
---------------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Gary C. Adams(2)................................... 3,738,004 300,000 89.0% 57.3%
1412 South Boston, Suite 500 Tulsa, Oklahoma
74119
Garry D. Smith..................................... 126,005 -- 3.0% 2.1%
Scott C. Longmore.................................. 167,962 -- 4.0% 2.8%
Terry K. Spencer................................... 126,005 -- 3.0% 2.1%
William W. Pritchard............................... -- -- -- --
William H. Bauch................................... -- -- -- --
All directors and executive officers as a group of
(6 people)....................................... 4,157,976 300,000 99% 64.3%
SELLING SHAREHOLDER:
Adams Affiliates, Inc.............................. 597,864 300,000 14.2% 5.0%
</TABLE>
- ---------------
(1) Assumes the conversion of shares of Convertible Preferred Stock into Common
Stock prior to completion of the Offering.
(2) Gary C. Adams does not own of record any shares of Common Stock. Disclosed
here are shares held of record by Cottonwood Partnership (3,140,140 shares)
and Adams Affiliates (597,864 shares). See "Certain Transactions -- General"
for a description of Mr. Adams' relationship to such companies.
48
<PAGE> 51
CERTAIN TRANSACTIONS
GENERAL
Gary C. Adams, the Chairman of the Board, President and Chief Executive
Officer of the Company, is the chief executive officer of Cottonwood
Partnership. Cottonwood Partnership is owned by certain trusts, the
beneficiaries of which are members of the immediate family of Mr. Adams (the
"Family Trusts"). Cottonwood Partnership owns approximately 98% of the
outstanding common stock of Adams Affiliates and all of the outstanding common
stock of Bird Creek Resources, Inc. ("Bird Creek"). Mr. Adams is a director and
the chairman of Adams Affiliates and a director of Bird Creek. The Family Trusts
are also partners in Mountain Meadows Partnership, a general partnership.
Adams Affiliates owns, directly or indirectly, all of the outstanding
equity interests of Continental Natural Gas Marketing, L.L.C. ("CNGM"), Gary
Adams Ranch, Inc. ("G.A. Ranch"), CPA Ventures, Inc. ("CPA Ventures") and CPA
Aviation, Inc. ("CPA Aviation"). Mr. Adams is a director of G.A. Ranch, CPA
Ventures and CPA Aviation. Continental Gas Marketing, Inc. ("CGM") was a
subsidiary of Cottonwood Partnership until it was merged into Adams Affiliates
in 1997.
The Company believes that the transactions described below were made on
terms at least as fair to the Company as could have been obtained from
unaffiliated third parties except that sales of natural gas by the Company to
CNGM in 1996 were at cost and below market. The Company believes that its sales
to CNGM in 1997 and thereafter will be fair to the Company.
1996 TRANSACTIONS AMONG RELATED ENTITIES
The Beaver Plant was initially acquired by the Company and certain of its
affiliates. On January 1, 1996, the Company acquired the remaining 20% interest
in the Beaver Plant from Cottonwood Partnership, G.A. Ranch and CGM in exchange
for a total of 200 shares of Convertible Preferred Stock, and cancellation of an
account receivable from such affiliates in the amount of approximately $1.5
million. The terms of such exchange were not negotiated in an arms length
transaction. On December 1, 1996, the Company redeemed 51 shares of the
Convertible Preferred Stock for the liquidation value of $40,000 per share.
Prior to completion of the Offering, the remaining 149 shares of Convertible
Preferred Stock will be converted into 586,847 shares of Common Stock.
The Company sold approximately $12 million of natural gas to CNGM in 1996.
The natural gas was sold at cost to CNGM, which resold such volumes under
long-term sales contracts. At December 31, 1996, CNGM owed the Company
approximately $5 million for such purchases. For 1997 and thereafter, the
Company will sell sufficient natural gas to CNGM to satisfy the requirements of
its existing sales agreements at a price equal to the Company's cost plus $0.02
per Mcf.
In 1996, the Company purchased approximately $316,000 of natural gas
located in New Mexico and Oklahoma from Bird Creek under a month-to-month
contract. The Company's purchases from Bird Creek are made at a market index
price less gathering fees.
In 1996, the Company provided office space and general administrative
services to Bird Creek and billed it for rentals and fees in the aggregate
amount of $258,652. Additionally, the Company in 1996, was charged $14,766 by
Bird Creek for general and administrative expenses incurred on its behalf. In
1996, Adams Affiliates charged the Company $210,000 for management services.
Adams Affiliates and the Company are parties to a Consulting Agreement dated as
of April 1, 1997, under which Adams Affiliates provides consulting services to
the Company. See "Management --Executive Compensation."
Bird Creek and Adams Affiliates are parties to Administrative Services
Agreements with the Company dated as of April 1, 1997, under which the Company
provides office space, accounting, clerical and other administrative services to
Bird Creek and Adams Affiliates in return for reimbursement to the Company of
the allocable cost to the Company of providing such services. These
Administrative Services Agreements expire on March 31, 1998, subject to
automatic renewal on a month-to-month basis thereafter until terminated by any
of the contracting parties. Bird Creek provides certain accounting, clerical and
administrative services to
49
<PAGE> 52
the Company (primarily accounting services) under the terms of an Administrative
Services Agreement dated as of April 1, 1997. The Company reimburses Bird Creek
for the allocable cost to Bird Creek of providing such services. This
Administrative Services Agreement expires on March 31, 1998, subject to
automatic renewal on a month-to-month basis thereafter until terminated by one
of the parties.
In 1996, the Company sold its oil and gas producing properties to Adams
Affiliates for $308,000, which approximated book value.
In 1996, the Company paid CPA Aviation and CPA Ventures a total of $175,600
for aviation services. Approximately $56,000 of the amount paid in 1996 was
related to services rendered in 1995. The Company and CPA Aviation are parties
to a charter services agreement dated as of April 1, 1997, under which CPA
Aviation agrees to provide aviation services to the Company on an "as needed"
basis (the "Charter Services Agreement"). The Company is required to pay CPA
Aviation for such services at the rates of $100 per hour for usage of a Cessna
Model Turbo 210 aircraft and $1,000 per hour for usage of a Learjet Model 24A
aircraft plus reimbursement of any taxes, fees, customs duties or other charges
which CPA Aviation may be required to pay by reason of the Company's usage. The
Charter Services Agreement expires on March 31, 1998, subject to automatic
renewal on a month-to-month basis thereafter until terminated by one of the
parties.
As of December 31, 1996, Mountain Meadows Partnership was indebted to the
Company in the amount of approximately $800,000, and various other affiliates of
the Company were indebted to it in the aggregate amount of approximately
$180,000.
OTHER RELATIONSHIPS
Oppenheimer & Co., Inc. is an Underwriter and a representative of the
Underwriters in the Offering. See "Underwriting." Mr. William H. Bauch is an
officer of Oppenheimer & Co., Inc. and is expected to become a director of the
Company following the Offering. The law firm of Hall, Estill, has advised the
Company on certain legal matters related to the Offering. Mr. William W.
Pritchard is Of Counsel to Hall, Estill and is expected to become a director of
the Company following the Offering.
BOARD POLICY ON AFFILIATED TRANSACTIONS
The Board of Directors has adopted a policy requiring that any transactions
to be entered into between the Company and an affiliate of the Company after
completion of the Offering be reviewed by CNG's independent directors.
50
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 60,000,000 shares of Common Stock, $0.01 par value and
500,000 shares of Preferred Stock, $0.01 par value. The Convertible Preferred
Stock will be converted into 586,847 shares of Common Stock prior to completion
of the Offerings. Accordingly, the terms of the Convertible Preferred Stock are
not discussed herein.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share on all
matters on which shareholders generally are entitled to vote, including
elections of directors, and, except as otherwise required by law or by the terms
of any series of Preferred Stock of the Company, the holders of Common Stock
exclusively possess all voting power. The Certificate of Incorporation of the
Company (the "Certificate") does not provide for cumulative voting for the
election of directors; therefore, the holders of a majority of the voting power
of the total number of outstanding shares of Common Stock are able to elect the
entire Board of Directors of the Company.
Subject to any preferential rights of any outstanding series of Preferred
Stock of the Company designated from time to time by the Board of Directors, the
holders of Common Stock are entitled to such dividends as may be declared from
time to time by the Board of Directors from funds legally available therefor
and, upon liquidation, dissolution or winding up, will be entitled to receive
pro rata all assets of the Company available for distribution to such holders.
No holder of Common Stock has any preemptive right to subscribe to any kind or
class of securities of the Company.
PREFERRED STOCK
The Board of Directors is empowered without shareholder approval to issue
up to 500,000 shares of Preferred Stock of the Company, from time to time, in
series and with respect to each series to determine (i) the number of shares
constituting such series, (ii) the dividend rate on the shares of each series,
whether such dividends shall be cumulative and the relation of such dividends
payable on any other class or series of stock, (iii) whether the shares of each
series shall be redeemable and the terms thereof, (iv) whether the shares shall
be convertible into Common Stock and the terms thereof, (v) the amount per share
payable on each series, or other rights of holders of such shares on liquidation
or dissolution of the Company, (vi) the voting rights, if any, of shares of each
series and (vii) generally, any other rights and privileges consistent with the
Certificate for each series and any qualifications, limitations or restrictions.
No shares of Preferred Stock are presently outstanding, and the Company has no
present intention to issue Preferred Stock.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Certificate and the Company's Bylaws may have the
effect of preventing, discouraging or delaying a change in the control of the
Company and may maintain the incumbency of the Board of Directors and
management. The Company's Bylaws limit the ability of shareholders of the
Company to raise matters at a meeting of shareholders without giving advance
notice. In addition, the Certificate and the Bylaws prohibit shareholders from
removing the Company's directors without cause. The Certificate of Incorporation
and Bylaws provide for a classified Board of Directors, which means that only
one-third of the members of the Board of Directors will be up for election in
any given year. The ability of the Board of Directors to issue Preferred Stock
as described above may also make it more difficult for, and may discourage,
other persons or companies from making a tender offer for, or attempting to
acquire substantial amounts of, the Company's Common Stock.
The Company is subject to the provisions of the Oklahoma Takeover
Disclosure Act of 1985 (the "Disclosure Act") regulating corporate takeovers.
The Disclosure Act requires certain notices to be given prior to making a
takeover offer. Such notices include filing a registration statement with the
Securities Administrator of Oklahoma and delivering a copy of such notice to the
Company. The Disclosure Act applies to offers to takeover an issuer of publicly
traded securities of which at least 20% are held by Oklahoma
51
<PAGE> 54
residents. A "takeover" offer includes offers in which the offerer discloses its
intention that, as a result of the offer: (i) the offeror will own 10% or more
of any class of equity securities or (ii) ownership of any class of equity
securities will be increased by 5% or more.
The Company is subject to the provisions of Section 1090.3 of the Oklahoma
Corporate Act. That section provides, with certain exceptions, that an Oklahoma
corporation may not engage in any of a broad range of business combinations with
a person or an affiliate or associate of such person who is an "Interested
Shareholder" for a period of three years from the date that such person became
an Interested Shareholder unless: (a) the transaction, or business combination,
resulting in a person's becoming an Interested Shareholder is approved by the
board of directors of the corporation before the person becomes an Interested
Shareholder, (b) upon consummation of the transaction which resulted in the
person becoming an Interested Shareholder, the Interested Shareholder owned 85%
or more of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding shares owned by persons who are both officers
and directors of the corporation and shares held by certain employee stock
ownership plans) or (c) on or after the date the person became an Interested
Shareholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the Interested Shareholder. An "Interested Shareholder" is defined as any
person that is (a) the owner of 15% or more of the outstanding voting stock of
the corporation or (b) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an Interested Shareholder.
The Oklahoma Shares Control Act ("OSCA") (Section 1145 et seq. of the
Oklahoma Corporate Act) prohibits the voting of "control shares" without the
approval of a majority of shares held by non-interested shareholders. Under the
OSCA, "control shares" are shares acquired by a person which causes his
percentage ownership to exceed certain statutorily prescribed ranges of
ownership beginning at 20%. The OSCA was ruled unconstitutional shortly after
its adoption in 1987; however, it is believed that certain amendments to the
OSCA in 1990 and 1991 may have cured its constitutional infirmities.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Bank Boston, N.A.
LISTING
The Company has applied for listing of the Common Stock on the Nasdaq
National Market.
52
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has not been any public market for the Common
Stock. Sale of a substantial number of shares of Common Stock into the public
market following the Offering could adversely affect prevailing market prices
for the Common Stock.
Following the Offering, the Company will have outstanding an aggregate of
6,000,000 shares of Common Stock, assuming no exercise of the underwriters'
over-allotment option. In addition to the 2,100,000 shares of Common Stock
offered hereby, as of the effective date of the Offering, there will be
3,900,000 shares of Common Stock outstanding, all of which are restricted
securities (the "Restricted Shares") under the Securities Act of 1933 (the
"Securities Act"). All executive officers, directors and certain other
shareholders of the Company have agreed they will not sell 3,900,000 shares of
Common Stock held by them without the prior consent of the representatives of
the Underwriters for a period of 180 days from the date of this Prospectus (the
"180-day Lockup Period"). Following the 180-day Lockup Period, up to 3,900,000
Restricted Shares will become eligible for sale in the public market pursuant to
Rule 144 subject to the volume and other restrictions pursuant to such Rule. The
Underwriters may, in their sole discretion and at any time prior to the
expiration of the 180-day Lockup Period without notice, release all or any
portion of the securities subject to lock-up agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), who has beneficially owned shares for at least one
year (including the holding period of any prior owner except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock or (ii) generally, the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the sale. Sales under Rule 144 are also subject to the filing of a
Form 144 with respect to such sale and certain other limitations and
restrictions. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, would be entitled to sell such shares without having to comply with the
manner of sale, volume limitation or notice filing provisions described above.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend on the market price for the Common Stock of
the Company, the personal circumstances of the sellers and other factors. Prior
to the Offering, there has been no public market for the Common Stock, and there
can be no assurance that a significant public market for the Common Stock will
develop or be sustained after the Offering. Any future sale of substantial
amounts of the Common Stock in the open market may adversely affect the market
price of the Common Stock offered hereby.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register up to 600,000 shares of Common Stock reserved for
issuance under the 1997 Stock Plan, thus permitting the resale of such shares by
nonaffiliates in the public market without restriction under the Securities Act,
subject to vesting restrictions with the Company. The 204,000 shares subject to
purchase under the Company's 1996 Stock Option Plan are Restricted Shares.
53
<PAGE> 56
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
among the Company, the Selling Shareholder and the Underwriters named below, for
whom Oppenheimer & Co., Inc. and Southwest Securities, Inc. are acting as
representatives (the "Representatives"), the following Underwriters have
severally agreed to purchase from the Company and the Selling Shareholder, and
the Company and the Selling Shareholder have agreed to sell to the Underwriters,
the number of shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Oppenheimer & Co., Inc......................................
Southwest Securities, Inc...................................
---------
Total............................................. 2,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to approval of certain legal matters
(including, among other things, the legality of the issuance of shares of Common
Stock in the Offering) by counsel and to various other conditions. The nature of
the Underwriters' obligations is such that they are committed to purchase all of
the above shares of Common Stock if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the Offering price set forth on the cover page of this Prospectus
and at such price less a concession not in excess of $ per share of
Common Stock to certain securities dealers who are members of the National
Association of Securities Dealers, Inc. The Underwriters may allow and such
dealers may reallow concessions not in excess of $ per share to certain
other securities dealers. After the initial public offering, the offering price
and other selling terms may be changed by the Representatives.
The Underwriters have been granted a 30-day over-allotment option to
purchase from the Company up to an aggregate of 315,000 additional shares of
Common Stock at the public offering price less the underwriting discount and
commissions. If the Underwriters exercise such over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof as the number of shares of Common
Stock to be purchased by it as shown in the above table bears to the number of
shares of Common Stock offered hereby and the Company will be obligated,
pursuant to the over-allotment option, to sell such shares to the Underwriters.
The Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when the
Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions, penalty bids and
passive market making may cause the price of the Common Stock to be higher than
it would otherwise be in
54
<PAGE> 57
the absence of such transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
The Representatives have advised the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
The Company has agreed to pay the Representatives a financial advisory fee
equal to 3/4 of 1% of the total Offering Amount. In addition, the Company has
agreed to indemnify the Underwriters against certain liabilities, losses and
expenses, including liabilities under the Securities Act or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Company and its officers and directors beneficially holding 900,000
outstanding shares of Common Stock in the aggregate have agreed that for a
period of 180 days after the date of this Prospectus they will not sell,
contract to sell or otherwise dispose of, directly or indirectly, shares of
Common Stock without the prior written consent of the Representatives.
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Albright & Rusher, a Professional Corporation,
Tulsa, Oklahoma. Certain legal matters in connection with the Offering will be
passed upon for the Company by Hall, Estill, Hardwick, Gable, Golden & Nelson,
P.C., Tulsa, Oklahoma. Certain legal matters in connection with the Offering
will be passed upon for the Underwriters by Jackson & Walker, L.L.P., Dallas,
Texas.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets as of December 31, 1995 and 1996 and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996 included in this
prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing. With respect to the unaudited interim
financial information for the periods ended March 31, 1996 and 1997, included in
this Prospectus, the independent accountants have reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report included in the
Prospectus states that they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
of the review procedures applied. The accountants are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
report on the unaudited interim financial information because that report is not
a "report" or a "part" of the registration statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Act.
EXPERTS
The estimate of the proved, producing natural gas reserves which are
underlying leases and wells under contract to the Company was provided by Lee
Keeling and Associates, Inc., and are included herein in reliance in the
authority of said firm as experts in petroleum engineering.
55
<PAGE> 58
GLOSSARY
The definitions set forth below apply to the terms used in this Prospectus:
"Bcf" means billion cubic feet of natural gas.
"Beaver Gathering System" means the Company's natural gas gathering system
located in Beaver County, Oklahoma which gathers natural gas for delivery to the
Beaver Plant.
"Beaver Plant or Beaver" means the Company's natural gas processing plant
located in Beaver County, Oklahoma which is directly connected to the Beaver
Gathering System.
"Capacity Release" means firm transportation which the Company has acquired
by purchase or assignment from another party (typically a utility company) on a
particular pipeline.
"Convertible Preferred Stock" means the 149 shares of convertible preferred
stock of the Company, par value $1.00 per share, which will be converted into
shares of Common Stock prior to completion of the Offering.
"EBITDA" represents operating income plus, depreciation, depletion and
amortization. It should not be considered in isolation or as a substitute for
net income as a measure of the Company's operating results or to cash flows from
operating activities (determined in accordance with generally accepted
accounting principles) as a measure of liquidity. The Company believes that
EBITDA is a measure commonly reported and widely used by analysts, investors and
other interested parties in the natural gas industry. However, not all companies
calculate EBITDA using the same methods; therefore, the EBITDA figures set forth
herein may not be comparable to EBITDA reported by other companies.
"EPA" means the Environmental Protection Agency.
"Extraction" means removing liquid and liquefiable hydrocarbons (NGLs) from
natural gas.
"FERC" means the Federal Energy Regulatory Commission.
"Firm transportation" means the obligation of a pipeline to transport
natural gas without curtailment or reduction up to the quantity which the
pipeline has committed to transport under the contract with its customer. Under
firm transportation, the pipeline reserves sufficient capacity on its pipelines
to satisfy the transportation requirements of all firm transportation customers
without curtailment (except for curtailment which may result due to acts of God
or similar occurrences).
"Fractionation" is the process by which the NGL stream is subjected to
controlled temperatures, causing the NGLs to separate, or fractionate, into the
separate NGL products of ethane, propane, butane, isobutane and natural
gasoline.
"Fuel and shrinkage" is the heating value of the natural gas extracted in
the form of NGLs or consumed as fuel during processing.
"Interruptible transportation" means the obligation of a pipeline to
transport natural gas on a "first come -- first serve" basis after the pipeline
has satisfied all of its firm transportation obligations.
"Mcf" means thousand cubic feet of natural gas.
"Mgal/d" means thousand gallons per day.
"MMcf" means million cubic feet of natural gas.
"MMcf/d" or "MMcf per day" means million cubic feet per day.
"Mocane Plant or Mocane" means the Company's natural gas processing plant
located in Beaver County, Oklahoma which is not directly connected to the Beaver
Gathering System.
"NGLs" means the liquids which are extracted from natural gas which include
ethane, propane, butane, isobutane and natural gasoline.
56
<PAGE> 59
"Off-system gas" means the natural gas, which the Company purchases from
time to time for resale to its customers which is neither gathered nor processed
by the Company.
"On-system gas" means the natural gas which is gathered or processed by the
Company.
"Panhandle Area" means the panhandle region of Oklahoma and Texas, where
the Company's gathering and processing assets are located.
"Processing" includes treatment, extraction and fractionation.
"Reserves" mean proven/producing natural gas reserves from wells whose
production is processed and/or gathered at the Company's plants and/or pipeline
systems.
"Texas Gathering Assets" means the natural gas gathering assets located in
various counties in the panhandle of Texas and Oklahoma which were acquired by
the Company from subsidiaries of Enron Corporation.
"Treatment" refers to the removal of water vapor, solids and other
contaminants, such as hydrogen sulfide or carbon dioxide, contained in the
natural gas stream that would interfere with pipeline transportation or
marketing of the natural gas to consumers.
57
<PAGE> 60
CONTINENTAL NATURAL GAS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Accountants.......................... F-1
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Shareholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
Unaudited Quarterly Results of Operations................... F-15
Unaudited Pro Forma Financial Data.......................... F-16
</TABLE>
58
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Continental Natural Gas, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Continental
Natural Gas, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years ended December 31, 1994, 1995 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Continental
Natural Gas, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1994, 1995 and 1996 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
March 21, 1997
F-1
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
We have reviewed the accompanying consolidated balance sheet of Continental
Natural Gas, Inc. and Subsidiaries as of March 31, 1997, and the related
consolidated statements of operations and cash flows for the three-month periods
ended March 31, 1996 and 1997 and the consolidated statement of shareholders'
equity for the three-month period ended March 31, 1997. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquires of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
June 10, 1997
F-2
<PAGE> 63
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------- ------------
1995 1996 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,655,867 $ 21,077,438 $ 14,784,031
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$252,979, $257,619 and $287,619....................... 18,028,283 44,930,884 21,374,532
Affiliates.............................................. 272,926 5,969,458 4,624,111
Other................................................... 531,683 1,150,334 2,026,856
Notes receivable -- affiliates............................ 795,711 17,801 17,801
Gas inventory............................................. 885,247 3,148,657 3,693,112
Prepaid expenses.......................................... 61,106 164,085 61,143
----------- ------------ ------------
Total current assets...................................... 25,230,823 76,458,657 46,581,586
Investments (Note 3)........................................ 786,424 655,589 588,220
Property and equipment, net (Note 4)........................ 28,345,593 61,045,047 62,750,946
Notes receivable -- affiliates.............................. 542,442 -- --
Deferred tax asset.......................................... 2,600,000 7,075,000 6,458,000
Other assets................................................ 593,376 694,305 685,634
----------- ------------ ------------
Total assets................................................ $58,098,658 $145,928,598 $117,064,386
=========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $24,508,073 $ 56,707,979 $ 35,528,539
Affiliate payables........................................ 294,185 463,884 351,309
Contract advances......................................... -- 24,787,831 10,257,651
Current portion of long-term debt......................... 2,715,669 867,000 2,025,000
Current portion of capital lease obligations.............. 543,052 1,165,361 1,191,962
----------- ------------ ------------
Total current liabilities................................. 28,060,979 83,992,055 49,354,461
Long-term debt.............................................. 6,534,331 32,945,500 38,070,753
Capital lease obligations................................... 2,745,371 6,583,478 6,275,577
Deferred gain on sale-leaseback............................. 376,149 254,154 223,656
Contract advances........................................... 1,956,055 -- --
----------- ------------ ------------
Total liabilities........................................... 39,672,885 123,775,187 93,924,447
Minority interest........................................... 1,671,456 -- --
Commitments and contingencies (Notes 4, 6, 8 and 9)
Shareholders' equity (Note 11):
Convertible preferred stock, $1 par value, $40,000
liquidation value, 200 shares authorized and 149 shares
issued and outstanding in 1996.......................... -- 149 149
Common stock, $.01 par value, 60,000,000 shares
authorized and 3,457,159 shares issued in 1995 and
3,919,156 issued in 1996 and 1997..................... 34,571 39,191 39,191
Additional paid-in capital................................ 12,034,314 12,375,528 12,375,528
Retained earnings......................................... 4,889,652 10,042,763 11,029,291
Treasury stock, at cost................................... (204,220) (204,220) (204,220)
Receivable from stock sale................................ -- (100,000) (100,000)
----------- ------------ ------------
Total shareholders' equity................................ 16,754,317 22,153,411 23,139,939
----------- ------------ ------------
Total liabilities and shareholders' equity.................. $58,098,658 $145,928,598 $117,064,386
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 64
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Natural gas sales......................... $100,476,775 $ 95,630,817 $196,729,349 $32,669,849 $ 72,955,874
Natural gas sales -- related party........ -- -- 12,049,421 -- 5,832,255
Natural gas liquids sales................. 19,572,332 24,803,858 34,757,184 6,194,619 8,881,135
Gathering fees............................ -- -- 1,994,711 -- 843,020
Other..................................... 259,837 762,770 1,130,751 455,202 14,725
------------ ------------ ------------ ----------- ------------
Total operating revenue................... 120,308,944 121,197,445 246,661,416 39,319,670 88,527,009
------------ ------------ ------------ ----------- ------------
Operating costs and expenses:
Cost of purchased gas................... 111,038,275 107,641,631 225,535,172 34,492,516 81,416,588
Operating expenses...................... 3,930,447 4,366,125 5,977,953 1,381,758 1,559,243
General and administrative.............. 3,600,982 3,840,084 5,622,871 1,310,413 1,842,202
Depreciation, depletion and
amortization.......................... 1,504,608 1,366,544 2,854,624 473,031 899,089
------------ ------------ ------------ ----------- ------------
Total operating costs and expenses...... 120,074,312 117,214,384 239,990,620 37,657,718 85,717,122
------------ ------------ ------------ ----------- ------------
Operating income.......................... 234,632 3,983,061 6,670,796 1,661,952 2,809,887
------------ ------------ ------------ ----------- ------------
Other income (expense):
Interest income......................... 224,418 309,832 131,947 46,944 279,592
Equity in loss of investee.............. (51,486) (82,769) (136,196) (27,973) (33,000)
Interest expense........................ (1,251,747) (914,331) (2,702,304) (326,019) (1,465,682)
Minority interest....................... (1,501,550) (403,872) -- -- --
Gain on sale of gathering system and
processing plant...................... 5,178,925 -- -- -- --
Other, net.............................. 2,049,920 43,726 20,827 42,707 47,731
------------ ------------ ------------ ----------- ------------
Total other income (expense)............ 4,648,480 (1,047,414) (2,685,726) (264,341) (1,171,359)
------------ ------------ ------------ ----------- ------------
Income before income taxes and
extraordinary item...................... 4,883,112 2,935,647 3,985,070 1,397,611 1,638,528
Income tax (expense) benefit.............. (127,000) 2,174,304 3,635,210 (30,000) (652,000)
------------ ------------ ------------ ----------- ------------
Income before extraordinary item.......... 4,756,112 5,109,951 7,620,280 1,367,611 986,528
Extraordinary loss on retirement of debt
(net of income taxes of $261,842)....... -- -- (427,220) -- --
------------ ------------ ------------ ----------- ------------
Net income................................ $ 4,756,112 $ 5,109,951 $ 7,193,060 $ 1,367,611 $ 986,528
============ ============ ============ =========== ============
Primary earnings per share:
Income before extraordinary item........ $ 1.46 $ 1.59 $ 1.99 $ 0.37 $ 0.24
============ ============ ============ =========== ============
Net income.............................. $ 1.46 $ 1.59 $ 1.87 $ 0.37 $ 0.24
============ ============ ============ =========== ============
Fully diluted earnings per share:
Income before extraordinary item........ $ 1.45 $ 1.59 $ 1.71 $ 0.33 $ 0.22
============ ============ ============ =========== ============
Net income.............................. $ 1.45 $ 1.59 $ 1.61 $ 0.33 $ 0.22
============ ============ ============ =========== ============
Weighted average common shares
outstanding:
Primary................................. 3,215,349 3,185,428 3,536,176 3,305,110 3,613,153
Fully diluted........................... 3,242,277 3,186,244 4,466,291 4,155,391 4,392,986
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 65
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------------- ADDITIONAL RETAINED
PREFERRED COMMON TREASURY PREFERRED COMMON PAID-IN EARNINGS TREASURY
STOCK STOCK STOCK STOCK STOCK CAPITAL (DEFICIT) STOCK
--------- --------- -------- --------- ------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993.................... 1,000 3,457,159 263,435 $ 315,000 $34,571 $12,034,314 $(4,830,132) $(156,470)
Net income................ 4,756,112
------ --------- ------- --------- ------- ----------- ----------- ---------
Balance at December 31,
1994.................... 1,000 3,457,159 263,435 315,000 34,571 12,034,314 (74,020) (156,470)
Acquisition of preferred
stock................... (1,000) (315,000)
Purchase of treasury
stock................. 42,568 (47,750)
Common stock dividends
($.01 per share)........ (24,217)
Preferred stock dividends
($122.06 per share)..... (122,062)
Net income................ 5,109,951
------ --------- ------- --------- ------- ----------- ----------- ---------
Balance at December 31,
1995.................... 3,457,159 306,003 34,571 12,034,314 4,889,652 (204,220)
Issuance of preferred
stock................... 200 200 199,834
Sale of common stock to
management (Note 11).... 461,997 4,620 141,380
Redemption of preferred
stock................... (51) (51) (2,039,949)
Net income................ 7,193,060
------ --------- ------- --------- ------- ----------- ----------- ---------
Balance at December 31,
1996.................... 149 3,919,156 306,003 149 39,191 12,375,528 10,042,763 (204,220)
Net income (unaudited).... 986,528
------ --------- ------- --------- ------- ----------- ----------- ---------
Balance at March 31, 1997
(unaudited)............. 149 3,919,156 306,003 $ 149 $39,191 $12,375,528 $11,029,291 $(204,220)
====== ========= ======= ========= ======= =========== =========== =========
<CAPTION>
RECEIVABLE
FROM
STOCK
SALE TOTAL
---------- -----------
<S> <C> <C>
Balance at December 31,
1993.................... $ $ 7,397,283
Net income................ 4,756,112
--------- -----------
Balance at December 31,
1994.................... 12,153,395
Acquisition of preferred
stock................... (315,000)
Purchase of treasury
stock................. (47,750)
Common stock dividends
($.01 per share)........ (24,217)
Preferred stock dividends
($122.06 per share)..... (122,062)
Net income................ 5,109,951
--------- -----------
Balance at December 31,
1995.................... 16,754,317
Issuance of preferred
stock................... 200,034
Sale of common stock to
management (Note 11).... (100,000) 46,000
Redemption of preferred
stock................... (2,040,000)
Net income................ 7,193,060
--------- -----------
Balance at December 31,
1996.................... (100,000) 22,153,411
Net income (unaudited).... 986,528
--------- -----------
Balance at March 31, 1997
(unaudited)............. $(100,000) $23,139,939
========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 66
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 4,756,112 $ 5,109,951 $ 7,193,060 $ 1,367,611 $ 986,528
------------ ------------ ------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization........ 1,504,608 1,366,544 2,854,624 473,031 899,089
Amortization of debt issuance costs............. 91,881 128,473 269,697 50,947 36,190
Gain on disposition of assets................... (5,196,221) (123,793) (133,945) (30,498) (30,498)
Minority interest............................... 1,501,550 403,872 -- -- --
Equity in loss of investee...................... 51,486 82,769 136,196 27,973 33,000
Deferred income tax benefit (expense)........... -- (2,220,000) (4,213,158) -- 617,000
Noncash compensation on stock issuance.......... -- -- 46,000 46,000 --
Extraordinary loss on retirement of debt........ -- -- 427,220 -- --
Changes in operating assets and liabilities:
Accounts receivable........................... 6,580,031 (6,716,615) (35,408,754) (1,670,585) 24,025,177
Gas inventory................................. (533,857) 85,070 (2,263,410) (701,849) (544,455)
Prepaid expenses.............................. 280,310 (42,424) (102,979) 30,967 102,942
Accounts payable.............................. (9,963,457) 11,508,016 31,899,220 (591,303) (20,398,859)
Contract advance.............................. 2,712,589 (756,534) 22,831,776 -- (14,530,180)
------------ ------------ ------------ ------------ ------------
Total adjustments........................... (2,971,080) 3,715,378 16,342,487 (2,365,317) (9,790,594)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities...................................... 1,785,032 8,825,329 23,535,547 (997,706) (8,804,066)
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures.............................. (3,096,999) (12,310,634) (30,761,492) (10,418,248) (3,498,143)
Proceeds from sale of property and equipment...... 12,784,452 7,000 308,000 -- --
(Increase) decrease in investments................ 68,392 54,852 (5,361) -- 34,369
(Increase) decrease in notes receivable --
affiliate....................................... (260,000) 98 -- -- --
(Increase) decrease in other assets............... 692,642 (37,500) -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities...................................... 10,188,487 (12,286,184) (30,458,853) (10,418,248) (3,463,774)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Dividends paid.................................... -- (146,279) -- -- --
Purchase of preferred and Treasury Stock.......... -- (362,750) -- -- --
Principal payments on long-term debt.............. (47,950,348) (11,125,868) (45,903,667) (312,500) (216,747)
Proceeds of long-term debt........................ 41,700,000 14,750,000 70,466,167 8,643,000 6,500,000
Purchase of warrants.............................. -- (315,000) -- -- --
Debt issuance costs............................... (15,000) (141,716) (523,688) (100,376) (27,521)
Principal payments under capital lease
obligations..................................... (814,574) (333,074) (693,935) (129,703) (281,299)
Minority interest distributions................... (720,000) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities...................................... (7,799,922) 2,325,313 23,344,877 8,100,421 5,974,433
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... 4,173,597 (1,135,542) 16,421,571 (3,315,533) (6,293,407)
Cash and cash equivalents at beginning of year.... 1,617,812 5,791,409 4,655,867 4,655,867 21,077,438
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of year.......... $ 5,791,409 $ 4,655,867 $ 21,077,438 $ 1,340,334 $ 14,784,031
============ ============ ============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid................................... $ 1,159,866 $ 745,967 $ 2,472,515 $ 238,661 $ 841,750
============ ============ ============ ============ ============
Income taxes paid............................... $ 120,000 $ 100,000 $ 100,000 $ 100,000 $ 460,000
============ ============ ============ ============ ============
</TABLE>
Supplemental disclosure of noncash investing and financing activities -- In
1994, 1995, and 1996, the Company incurred $1,997,249, $2,416,887 and
$5,154,349, respectively, relating to capital lease obligations for the
acquisition of equipment. In 1994, the Company retired $3,124,027 related to
capital lease obligations in the disposition of equipment. In 1996, the Company
issued preferred stock and cancelled certain indebtedness to acquire the
minority interest ownership of a partnership holding one of the Company's
processing plants. Also in 1996, the Company redeemed 51 shares of preferred
stock in exchange for the cancellation of indebtedness due from an affiliated
entity.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 67
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS -- Continental Natural Gas, Inc. and Subsidiaries (the
"Company") is an Oklahoma corporation involved principally in natural gas
gathering, processing and marketing with operations principally in the central
United States. The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries and its investments in majority-owned
partnerships.
CASH EQUIVALENTS -- The Company considers all highly liquid investments
with maturities of three months or less at date of purchase to be cash
equivalents.
INVENTORY -- Gas inventory is stated at the lower of market or average
cost.
PROPERTY AND EQUIPMENT -- The Company's property and equipment is carried
at cost and depreciated on the straight-line basis over their estimated useful
lives ranging from 3 to 20 years. Gain or loss on disposal of such property and
equipment is reflected in operations. Maintenance and repairs are charged to
expense as incurred.
The carrying value of property and equipment is reviewed for possible
impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Assets determined to be impaired based on
estimated future net cash flows are reduced to estimated fair value. No such
reduction in the carrying value of assets has been reflected in the accompanying
financial statements.
OIL AND GAS PROPERTIES -- Costs incurred in the acquisition, exploration
and development of oil and gas properties owned in prior years were capitalized
utilizing the full cost method and depleted using the units-of-production method
based on proved reserves.
DEBT ISSUANCE COSTS -- Costs associated with obtaining financing are
capitalized and amortized using the straight-line method over the term of the
agreement.
REVENUE RECOGNITION -- Revenue is recognized when product is delivered or
when services are rendered.
INCOME TAXES -- The Company accounts for income taxes utilizing Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
EARNINGS PER SHARE -- Earnings per share is based on the weighted average
number of shares outstanding. Primary earnings per share assumes that
outstanding dilutive stock options and warrants are exercised and the proceeds
used to purchase common shares. Fully diluted earnings per share gives effect to
the conversion of convertible preferred stock and the exercise of dilutive stock
options.
ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS -- Certain 1994 and 1995 amounts have been reclassified
to conform to the current year presentation.
2. RELATED PARTY TRANSACTIONS
In 1994, 1995 and 1996, the Company provided office space to an affiliated
entity and billed it for rentals of $47,759, $40,399 and $40,399, respectively.
The Company provided general and administrative services to
F-7
<PAGE> 68
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
affiliates and billed them $231,055, $265,351 and $218,253 in 1994, 1995 and
1996, respectively. Additionally, the Company in 1994, 1995 and 1996, was
charged by affiliates $11,212, $36,786 and $190,366, respectively, for general
and administrative expenses incurred on its behalf and $138,000 in 1994 and 1995
and $210,000 in 1996 for management services.
The Company purchased gas from Bird Creek Resources ("BCR"), an affiliated
entity, totaling $895,803, $125,284 and $316,466 in 1994, 1995 and 1996,
respectively. At December 31, 1995 and 1996, the Company had accounts payable to
BCR totaling $139,185 and $463,884, respectively.
In 1996, the Company sold its oil and gas producing properties to an
affiliated entity for approximately $308,000, which approximated book value.
Revenues from these properties are included in other revenues and totaled
$202,278, $461,984 and $602,656 for the years ended December 31, 1994, 1995 and
1996, respectively.
The Company had natural gas sales totaling $12,049,000 in 1996 to an
affiliated entity, which gas was sold at the Company's cost. Receivables at
December 31, 1996 related to these gas sales were $4,988,035. During 1996, the
Company entered into futures contracts on behalf of another affiliate, with
gains or losses or such contracts paid or billed to the affiliate. The Company
also had advances receivable from other affiliates totaling $981,423 at December
31, 1996.
At December 31, 1995 and 1996, notes receivable from affiliates related to
a sale of a gathering system in prior years were $17,801. This note bears
interest at 8% and is collateralized by the gathering system. Also, at December
31, 1995, the Company had notes receivable from affiliates totaling $1,320,352,
related to these parties' participation with the Company in the ownership of
certain gathering systems and processing plants. Accrued interest on these notes
totaling $153,206 at December 31, 1995, is included in accounts receivable-
affiliate. This receivable was collected in 1996 as part of the Company's
acquisition of the affiliate's interest in the plant.
3. INVESTMENTS
The Company, through two limited partnerships of which it is the general
partner, owns a 6.88% interest in a partnership which owns and operates a
natural gas gathering system in Texas. The Company's ownership interest is
accounted for using the equity method. Accordingly, during 1994, 1995 and 1996,
the Company has recognized losses of $51,486, $82,769 and $136,196,
respectively, from the investment.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996, consisted of:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Gathering systems and processing plants................... $25,720,568 $55,722,149
Compressor equipment...................................... 4,779,303 10,162,571
Oil and gas properties, under the full-cost method........ 753,647 --
Furniture, fixtures and other............................. 919,255 1,342,984
Less accumulated depreciation, depletion and
amortization............................................ (3,827,180) (6,182,657)
----------- -----------
Net property and equipment................................ $28,345,593 $61,045,047
=========== ===========
</TABLE>
In March and May of 1996, the Company purchased gas gathering systems for
combined consideration of $20.2 million.
In December 1994, the Company sold a gathering system and processing plant
and recognized a $5.2 million gain on the sale, of which $1.3 million was
attributable to the minority ownership interests of related parties. The Company
utilized a portion of the proceeds from this sale to acquire a gas processing
plant and related assets in February 1995 for $3.5 million. The acquisition also
provides for contingent consideration
F-8
<PAGE> 69
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of up to $1.5 million ($500,000 per year for three years) plus associated
interest on any such amounts, based on the delivery of a certain supplier's gas
to the plant for processing. As the provisions of the agreement related to this
consideration were met in 1995, at December 31, 1995, the Company accrued
$500,000 plus interest related to this commitment. In 1996, the Company did not
receive gas for processing at this plant from the supplier, and accordingly,
does not believe that any additional consideration will be payable.
5. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Term loan payable in quarterly installments with a final
maturity in 2001, plus interest at either the bank's
base rate plus .50% or LIBOR plus 2.25% (7.94% at
December 31, 1996)...................................... $ -- $33,812,500
Term loan payable in quarterly installments, plus interest
at either the bank's base rate plus .5% or LIBOR plus
2.5% (8.25% at December 31, 1995)....................... 9,250,000 --
Less current portion...................................... (2,715,669) (867,000)
----------- -----------
Long-term debt............................................ $ 6,534,331 $32,945,500
=========== ===========
</TABLE>
In December 1996, the Company obtained a new credit facility including the
term loan above and a revolving credit facility of $25 million, of which up to
$18 million may be utilized to support letters of credit. Letters of credit
totalling $6,885,990 were outstanding related to this credit facility at
December 31, 1996. At December 31, 1996, no amount was outstanding on the
revolving credit facility which has a maturity of December 31, 1998 and also
accrues interest at either the bank's base rate plus .5% or LIBOR plus 2.25%.
The new agreement also provides borrowing availability of up to $4,800,000 for
approved capital projects. Associated with obtaining the new credit facility,
the Company retired its prior long-term debt and expensed the remaining
unamortized debt issuance costs of $689,062, which expense (net of income taxes
of $261,842) is classified as an extraordinary item in the statement of
operations.
The debt under the agreements is collateralized by inventory, accounts
receivable, property and equipment and other assets. The agreement includes
various restrictive covenants including the maintenance of specified levels of
working capital and net worth, limitations on the incurrence of additional
indebtedness and limitations on dividends to shareholders.
The Company's prior debt agreement included the issuance of stock purchase
warrants which entitled the holder of the warrants to purchase 127,840 shares of
common stock of the Company. During 1995, all such warrants were repurchased by
the Company for a total of $315,000.
At December 31, 1996, the aggregate amount of long-term debt is payable as
follows: $867,000 in 1997; $4,765,000 in 1998; $4,765,000 in 1999; $4,765,000 in
2000 and $18,650,500 in 2001. Beginning in 1998, certain additional principal
amounts may be due based on the Company's levels of operating cash flows as
defined by the agreement.
F-9
<PAGE> 70
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL LEASES
Property and equipment include the following property under capital leases
at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Compressor equipment........................................ $3,950,912 $9,105,261
Less accumulated amortization............................... (344,703) (616,643)
---------- ----------
$3,606,209 $8,488,618
========== ==========
</TABLE>
Future minimum lease payments as of December 31, 1996 under capital leases
are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 1,807,303
1998........................................................ 1,807,303
1999........................................................ 1,483,203
2000........................................................ 1,452,026
2001........................................................ 1,452,026
Thereafter.................................................. 2,056,827
-----------
Future minimum lease payments............................... 10,058,688
Less amount representing interest........................... (2,309,849)
-----------
Present value of future minimum lease payments.............. 7,748,839
Less current portion........................................ (1,165,361)
-----------
Long-term portion........................................... $ 6,583,478
===========
</TABLE>
7. CONTRACT ADVANCES
In December, 1996, the Company received contract advances totalling
approximately $22.8 million related to commitments to sell natural gas and
natural gas liquids. The advances do not bear interest and are payable in
product to be delivered over approximately nine months beginning in January
1997.
In June of 1994, the Company received a contract advance of approximately
$2.7 million related to a commitment to sell natural gas liquids. This advance
does not bear interest, is payable in cash or in product, and has a final
repayment date of June, 1997. The Company may terminate the contract and repay
this advance at its option with 30 days notice. During 1995, the Company elected
to reduce the contract advance by delivery of ethane volumes, reducing the
contract advance by approximately $756,000.
8. INCOME TAXES
Components of income tax expense (benefit) for the years ended December 31,
1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- ----------- -----------
<S> <C> <C> <C>
Current....................................... $127,000 $ 45,696 $ 577,948
Deferred...................................... -- (2,220,000) (4,213,158)
-------- ----------- -----------
$127,000 $(2,174,304) $(3,635,210)
======== =========== ===========
</TABLE>
F-10
<PAGE> 71
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the income tax expense computed by applying the federal
statutory rate to pre-tax income to the Company's effective income tax expense
(benefit) is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Income tax expense computed by applying
statutory rate............................. $1,660,258 $ 998,120 1,354,924
State income taxes........................... 195,324 117,425 159,403
Nontaxable life insurance proceeds........... (760,000) -- --
Other........................................ 24,530 18,825 29,506
Benefit of net operating loss carryforward... (993,112) (1,088,674) (965,885)
Change in valuation allowance associated with
deferred tax assets........................ -- (2,220,000) (4,213,158)
---------- ----------- -----------
Income tax expense (benefit)................. $ 127,000 $(2,174,304) $(3,635,210)
========== =========== ===========
</TABLE>
Deferred tax assets and liabilities at December 31, 1995 and 1996 are
comprised of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for losses and other.......................... $ 127,900 $ 158,503
Deferred gain on sale leaseback......................... 142,936 96,579
Contract advances....................................... -- 9,419,375
Net operating loss carryforwards........................ 14,554,295 4,448,500
Deferred gain on futures contracts...................... -- 411,573
Alternative minimum tax credit carryforwards............ 195,700 773,851
----------- -----------
Total deferred tax assets............................... 15,020,831 15,308,381
----------- -----------
Deferred tax liabilities:
Depreciation, depletion and amortization of property and
equipment............................................ (617,700) (2,225,498)
Change from cash basis to accrual basis of accounting
for income tax purposes.............................. (441,800) --
----------- -----------
Total deferred tax liabilities............................ (1,059,500) (2,225,498)
----------- -----------
Valuation allowance....................................... (11,361,331) (6,007,883)
----------- -----------
Net deferred tax asset.................................... $ 2,600,000 $ 7,075,000
=========== ===========
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards
(NOLs) totaling approximately $17.5 million for regular tax purposes and $18.0
million for alternative minimum tax purposes. If not utilized, these
carryforwards will expire from 1999 to 2003. Due to the lack of existing legal
precedent with respect to the tax rules governing the Company's NOLs, both the
availability of the Company's NOLs and its prior utilization of NOLs (totaling
approximately $37 million) may be challenged. Disallowance of the use of the
NOLs would result in taxes associated with prior utilization of the NOLs being
currently payable.
Realization of the Company's deferred tax assets is dependent upon the
generation of sufficient taxable income prior to the expiration of the NOLs and,
for financial reporting purposes, the resolution of the matters noted above.
Although realization is not assured, management believes it is more likely than
not that the recorded net deferred tax asset will be realized. The amount of the
deferred tax asset considered realizable could be increased or decreased by a
material amount in the near-term pending resolution of these matters.
9. COMMITMENTS AND CONTINGENCIES
The Company, in the ordinary course of business, enters into fixed price
sales contracts of natural gas. At December 31, 1995, the Company had fixed
price gas sales contracts for prices ranging between $1.43 and $2.30 for the
period January 1, 1996 and July 31, 1997. At December 31, 1996, the Company had
fixed price gas sales contracts for prices ranging between $1.83 and $2.46 for
the period January 1, 1997 to August 31, 1998.
F-11
<PAGE> 72
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1996, the Company has outstanding $27,519,090 of letters
of credit from commercial banks related to its purchases and sales of gas and
has pledged inventory, accounts receivable, property and equipment and other
assets as collateral.
The Company occupies office space and maintains certain compressor
equipment under operating leases and incurred rent expense of $1,461,300,
$1,839,000 and $1,931,708 in 1994, 1995 and 1996, respectively. Future minimum
rental payments under the terms of the leases are $191,473 in 1997.
The Company is currently a defendant in litigation which involves primarily
claims made by Colorado Interstate Gas ("CIG") that the Company and Continental
Hydrocarbons, Inc. ("CHI"), a former subsidiary of the Company, improperly
withheld proceeds from the sale of natural gas liquids processed at one of the
Company's plants, have (among other things) defamed CIG and are, as a result,
liable to CIG for unspecified actual and punitive damages. The companies from
which CHI purchased the plant have also been sued by CIG and have sought
indemnity from CHI and the Company for any liability they may have to CIG as
well as other amounts allegedly owed them. The Company and CHI have generally
denied the allegations against them in the case and have contended that they are
owed certain amounts for the processing of natural gas. Though impossible to
estimate with certainty, the Company believes that CIG is seeking actual damages
in excess of $3 million. Additionally, the Company is currently involved in
pending proceedings at the FERC in which certain parties allege that the primary
function of the Company's processing plants is interstate transportation and
thus that they are subject to FERC rate and certificate regulation. While the
Company believes that its business is not subject to regulation by the FERC, it
cannot predict the outcome of these proceedings. Various other lawsuits against
the Company have arisen in the ordinary course of the Company's business. In the
opinion of management, resolution of the CIG litigation, the FERC proceedings
and such other matters will not have a material adverse effect on results of
operations or financial position.
10. PROFIT SHARING AND THRIFT PLAN
The Company currently participates with certain affiliates in a defined
contribution plan (the "Plan") covering substantially all employees. Under the
Plan provisions, the Company contributes 2% of each participant's annual salary,
plus up to an additional 3% to match voluntary contributions by employees.
Employees may make voluntary contributions of up to 10% of their annual
compensation. The Company makes contributions to the Plan each pay period. Total
expense for 1994, 1995 and 1996 was approximately $120,000, $106,000 and
$141,500, respectively.
11. SHAREHOLDERS' EQUITY
Preferred stock of the Company is convertible at the option of the holders
into 586,847 shares of common stock of the Company. The preferred stock includes
a liquidation preference equal to $40,000 per share plus all unpaid dividends.
Dividends on the preferred stock are cumulative from the date of issuance at a
rate of 7 1/2% applied to the liquidation value. At December 31, 1996, unpaid
dividends totaling $587,250 had accumulated on the Preferred Stock.
On January 1, 1996, the Company issued 200 shares of preferred stock in
exchange for the minority interest ownership in the Beaver gas processing plant.
As the minority interest ownership was held by affiliates of the Company with
common ownership, the assets and liabilities associated with the acquired
interest have been reflected at their historical amounts. Subsequently, the
Company redeemed 51 shares of the preferred stock in exchange for cancellation
of indebtedness owed the Company.
As of December 31, 1994, stock options were outstanding on 68,000 shares of
common stock exercisable at $1.47 per share through December 31, 1997. During
1995, all such stock options were canceled. Also during 1995, the Company
granted certain employees phantom stock rights under which certain amounts would
be due upon the occurrence of specified events. On February 28, 1996, these
phantom stock rights were cancelled
F-12
<PAGE> 73
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and certain members of management were granted stock options for 204,000 shares
of common stock. These options become exercisable only if certain performance
criteria of the Company are met during the years of 1997 through 1999. The
options, if earned, are exercisable at $.26 per share and expire at April 30,
2000. The amount of the options exercisable may also be limited based on the
fair value of the Company's common stock at the date of exercise. The Company
applies APB 25 in accounting for such stock options. Under this standard,
compensation expense may be recognized associated with these options when
earned, based on the fair value of the Company's common stock at the dates they
are earned. Based on the provisions of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation," the grant date fair value of these
options is not material and, accordingly, disclosure of pro forma information as
required by this standard has not been presented.
Also on February 28, 1996, the Company sold 461,992 shares of common stock
of the Company to certain members of Company management for $100,000, payable in
the form of notes receivable due in April of 1997 with interest at 8%. Based on
the fair value of the Company's common stock at this date, compensation expense
and a contribution of capital of $46,000 has been recognized in 1996.
12. FINANCIAL INSTRUMENTS
DERIVATIVES -- The Company enters into futures contracts and options
related to its buying and selling of natural gas. Specifically, the Company
hedges its cost of future purchases of natural gas associated with its fixed
price sales commitments. At December 31, 1995, the Company had futures contracts
to purchase natural gas totaling approximately $1.8 million for the period from
January of 1996 to April of 1996. At December 31, 1996, the Company had futures
contracts to purchase natural gas totaling approximately $6.5 million for the
period from January of 1997 to April of 1998. Also, at December 31, 1995, the
Company had swap contracts on natural gas totaling approximately $1.3 million
for the period of January and February of 1996. At December 31, 1996, the
Company had swap contracts whereby the Company had fixed its price with respect
to future purchases of natural gas totaling approximately $7.2 million for the
period of January of 1997 to August of 1997. At December 31, 1995, the Company
had sold put options on approximately 500,000 mcf of natural gas at prices of
$2.00 to $2.25. At December 31, 1995 and 1996, the Company had deposits totaling
$458,873 and $962,553, respectively, related to these contracts which are
reflected as Accounts Receivable -- Other.
Gains or losses on futures contracts, swaps and options designated as
hedges are reflected in the Consolidated Statement of Operations in the same
period as the associated sale of gas occurs. Gains or losses on futures
contracts, swaps and options not designated as hedges are recognized as
fluctuations occur in the value of the contracts. At December 31, 1996, all
futures and swap contracts relating to the purchase of natural gas were
designated as hedges. Gains on futures contracts totalling approximately $1.1
million at December 31, 1996 have been deferred. At December 31, 1996, the fair
value of the swap contracts was approximately $2 million, which amount has also
been deferred.
At December 31, 1994 and 1995, no futures contracts or options were
designated as hedges. At December 31, 1994, losses of $1,027,519 on futures
contracts have been included in costs of purchased gas. At December 31, 1995,
gains of $278,020 related to open futures contracts have been recognized and
included in Marketing Fees and Other Revenues.
Additionally, the Company periodically enters into futures contracts on
behalf of its gas purchasers, with gains or losses on such contracts paid or
billed to these customers. At December 31, 1995 and 1996, such contracts were
not material.
FAIR VALUE -- Based on the interest rates currently available to the
Company for borrowings with similar terms and maturities, long-term debt and
capital leases at December 31, 1995 and 1996 approximate fair value.
F-13
<PAGE> 74
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair value of the contract advance liabilities at December
31, 1995 and 1996, assuming repayment under the scheduled terms of the
agreements, is approximately $1.7 and $24.3 million, respectively.
The fair value of the Company's futures and swaps at December 31, 1995 was
approximately $.3 million and $1.2 million, respectively. The fair value of the
Company's futures positions and swaps at December 31, 1996 was approximately
$1.1 million and $2 million, respectively.
13. CONCENTRATIONS
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables with a
variety of companies located in the central United States. Such credit risk is
considered by management to be limited due to the large number of customers
comprising the Company's customer base. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral related
to its receivables. The Company's derivative activities also subject it to
credit risk. Such credit risk is considered by management to be limited based on
its assessment of the financial strength of the individual counterparties to its
derivative positions. Additionally, the Company had $5,039,000 and $32,197,000
of cash balances with banks at December 31, 1995 and 1996, respectively.
In fiscal years 1995 and 1996, one customer accounted for approximately 23%
and 12% of consolidated revenues, respectively. At December 31, 1995 and 1996,
accounts receivable from this customer were $3,538,932 and $2,429,622,
respectively.
14. SUBSEQUENT EVENTS
In February 1997, the Company began negotiations with certain underwriters
for a proposed public offering (the "Offering") of approximately $23 million of
common stock. In connection with the Offering, the Company intends to reduce the
par value of each share of common stock from $1.00 to $.01, increase the
authorized common stock to 60,000,000 shares, and, effective on the day prior to
the effective date of the Offering, effect an approximate 136 to 1 stock split.
The accompanying financial statements reflect these changes as if they had
occurred at December 31, 1993. The Company expects to use the net proceeds of
the Offering to retire a substantial portion of its outstanding long-term debt.
15. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The interim consolidated financial statements presented herein are
unaudited, but reflect, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary for fair presentation of
the results for such periods.
The Company has reached a settlement with one of the Mocane Plant Sellers
which involves the Company's payment of approximately $1.2 million plus accrued
interest (on a portion of the settlement) to such Mocane Plant Seller (See Note
9). The Company had previously recorded an accrued liability for a portion of
the proceeds received from the processing of gas through the Mocane system and
accordingly no additional provision is required. It is expected that this
settlement will be concluded in the third quarter of 1997 at the same time as
the Company purchases the interest of Conoco and its affiliate in the Laverne
Plant.
As a result of the utilization of the net operating loss carryforward for
financial reporting purposes in the fourth quarter of 1996, the income tax
provision for the first quarter of 1997 approximates the statutory rate for
federal and state income taxes.
F-14
<PAGE> 75
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA FINANCIAL DATA
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The unaudited condensed pro forma statement of operations gives effect to
(i) the disposition of the Company's oil and gas properties, assuming such
transactions occurred at the beginning of the respective periods and (ii) the
sale of common stock pursuant to this offering and the application of the
estimated proceeds therefrom.
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
Operating revenues...................... $246,661 (603)(a) $246,058
Operating expenses:
Cost of purchased gas................. 225,535 225,535
Operating expenses.................... 5,978 (91)(a) 5,887
General and administrative............ 5,623 5,623
Depreciation, depletion and
amortization....................... 2,854 (96)(a) 2,758
-------- ----- --------
Total operating costs and
expenses.................... 239,990 (187) 239,803
-------- ----- --------
Operating income........................ 6,671 (416) 6,255
Other income (expense).................. (2,686) 1,475(b) (1,211)
-------- --------
Income before income taxes and
extraordinary item.................... 3,985 1,059 5,044
-------- --------
Income tax (expense) benefit............ 3,635 (402)(c) 3,233
-------- --------
Income before extraordinary item........ $ 7,620 $ 8,277
======== ========
Primary earnings per share:
Income before extraordinary item...... $ 1.99 $ 1.47
======== ========
Fully diluted earnings per share:
Income before extraordinary item...... $ 1.71 $ 1.34
======== ========
Weighted average shares:
Primary............................... 3,536 1,706(d) 5,242
======== ========
Fully diluted......................... 4,466 1,706(d) 6,172
======== ========
</TABLE>
- ---------------
(a) Adjustment to reflect the disposition of the Company's oil and gas
properties.
(b) Adjustment to reflect the decrease in interest expense related to debt to be
extinguished with proceeds from the sale of common stock.
(c) Adjustment to reflect income tax expenses on pro forma income before taxes
and extraordinary item.
(d) Adjustment to reflect the Company's sale of common stock to provide
sufficient proceeds to extinguish $20 million in debt.
F-15
<PAGE> 76
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA FINANCIAL DATA
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE THREE MONTHS ENDED MARCH 31,
1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The unaudited condensed pro forma statement of operations gives effect to
(i) the disposition of the Company's oil and gas properties, assuming such
transactions occurred at the beginning of the respective periods and (ii) the
sale of common stock pursuant to this offering and the application of the
estimated proceeds therefrom.
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
<S> <C> <C> <C>
Operating revenues...................... $88,527 $88,527
------- ----- -------
Operating Expenses:
Cost of purchased gas................. 81,417 81,417
Operating expenses.................... 1,559 1,559
General and administrative............ 1,842 1,842
Depreciation, depletion and
amortization....................... 899 899
------- -------
Total operating costs and
expenses.................... 85,717 85,717
------- -------
Operating income........................ 2,810 2,810
------- -------
Other income (expense).................. (1,171) 400(b) (771)
------- -------
Income before income taxes and
extraordinary item.................... 1,639 2,309
------- -------
Income tax (expense) benefit............ (652) (152)(c) (804)
------- -------
Income before extraordinary item........ $ 987 $ 1,235
======= =======
Primary earnings per share:
Income before extraordinary item...... $ .24 .21
======= =======
Fully diluted earnings per share:
Income before extraordinary item...... $ .22 .20
======= =======
Weighted average shares:
Primary............................... 3,613 1,706(d) 5,319
======= =======
Fully diluted......................... 4,393 1,706(d) 6,099
======= =======
</TABLE>
- ---------------
(a) Adjustment to reflect the disposition of the Company's oil and gas
properties.
(b) Adjustment to reflect the decrease in interest expense related to debt to be
extinguished with proceeds from the sale of common stock.
(c) Adjustment to reflect income tax expenses on pro forma income before taxes
and extraordinary item.
(d) Adjustment to reflect the Company's sale of common stock to provide
sufficient proceeds to extinguish $20 million in debt.
F-16
<PAGE> 77
[Description of top of inside back of cover page]
<PAGE> 78
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................ 2
Prospectus Summary.................... 3
Risk Factors.......................... 9
The Company........................... 14
Use of Proceeds....................... 15
Dividend Policy....................... 16
Dilution.............................. 17
Capitalization........................ 18
Selected Consolidated Financial Data
and Other Information............... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 27
Management............................ 42
Principal and Selling Shareholders.... 48
Certain Transactions.................. 49
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 53
Underwriting.......................... 54
Legal Matters......................... 55
Independent Public Accountants........ 55
Experts............................... 55
Glossary.............................. 56
Index to Consolidated Financial
Statements.......................... 58
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
2,100,000 SHARES
[LOGO]
CONTINENTAL NATURAL GAS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
OPPENHEIMER & CO., INC.
SOUTHWEST SECURITIES, INC.
, 1997
======================================================
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
the Common Stock being registered hereby. The Company is paying all of such
costs and expenses. All amounts shown are estimates except for the SEC
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
SEC registration fee........................................ $ 10,245
NASD filing fee............................................. 3,881
Nasdaq National Market Listing Fee.......................... 5,000
Financial Advisory Fee to Underwriters...................... 204,750
Blue Sky fees and expenses.................................. 20,000
Printing and engraving expenses............................. 110,000
Legal fees and expenses..................................... 200,000
Auditors' accounting fees and expenses...................... 100,000
Transfer Agent and Registrar fees........................... 2,500
Fee for Custodian for Selling Shareholder................... 5,000
Miscellaneous expenses...................................... 38,624
--------
Total............................................. $700,000
========
</TABLE>
- ---------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Oklahoma General Corporation Act (the "Oklahoma
Corporate Act"), the Company's Certificate of Incorporation eliminates the
personal liability of a director to the Company for monetary damages for breach
of fiduciary duty of care as a director. Liability is not eliminated for (i) any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payment of dividends or stock
purchases or redemptions pursuant to Section 1053 of the Oklahoma Corporate Act,
or (iv) any transaction from which the director derived an improper personal
benefit.
Section 1031 of the Oklahoma Corporate Act permits an Oklahoma corporation
to indemnify any persons who are, or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was unlawful. An Oklahoma corporation may indemnify
any persons who were or are parties, or are threatened to be made a party, to
any threatened, pending or completed action or suit by or in the right of the
corporation by reason of the fact that such person is or was a director,
officer, employees or agent of such corporation, or enterprise. The indemnity
may include expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement of such
action or suit, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interest
except that no indemnification is permitted without judicial approval if the
officer is adjudged to be liable to the corporation.
II-1
<PAGE> 80
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses which such officer or director has actually and reasonably
incurred.
The Company's certificate of incorporation and bylaws provide for
indemnification of directors and officers of the Company and persons who serve
at the request of the Company as a director or officer of another corporation in
which the Company owns stock for all liabilities, expenses, (including
attorneys' fees) and costs incurred in a legal proceeding in which he is a party
by reason of his having been an officer or director. The Bylaws, however,
exclude indemnification for matters in which the officer or director is adjudged
to have been guilty of gross negligence or willful misconduct.
These indemnification provisions may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
(including reimbursement of expenses incurred) arising under the Securities Act
of 1933 as amended (the "Securities Act"). In the opinion of the Securities and
Exchange Commission, indemnification for liabilities arising under the
Securities Act is against public policy and, therefore, unenforceable.
Accordingly, these indemnification provisions may not limit the liability of
directors and executive officers under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In February, 1995, the Company re-issued to Christiana Bank two stock
purchase warrants for the purchase of a total of 127,907 shares of Common Stock.
These warrants were redeemed by the Company and canceled in August, 1995.
In 1996, the Company issued Incentive Stock Options to three of its
executives as described in the Prospectus in the section
"Management -- Executive Compensation."
In 1996, the Company sold 461,992 shares of Common Stock to certain of its
executive officers and one other employee for a total consideration of $100,000,
payable in the form of notes receivable due in April, 1997.
The issuance of 200 shares of Convertible Preferred Stock on January 1,
1996, and the issuance immediately prior to the effectiveness of this
Registration Statement, of 586,847 shares of Common Stock upon the conversion of
149 shares of such Convertible Preferred Stock, are described in the Prospectus
in the "Certain Transactions" section.
All of the above-described transactions were exempt from registration under
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder as
transactions by an issuer not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a.) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
----------- ---------------
<C> <S>
1.1 -- Form of Underwriting Agreement.**
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.*
3.2 -- Amended and Restated Bylaws of the Registrant.*
4.1 -- Specimen Common Stock Certificate of the Registrant.**
5.1 -- Opinion of Albright and Rusher.**
10.1 -- Employment Agreement between the Registrant and Garry D.
Smith dated as of April , 1997.
</TABLE>
II-2
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
----------- ---------------
<C> <S>
10.2 -- Employment Agreement between the Registrant and Terry K.
Spencer dated as of April , 1997.
10.3 -- Employment Agreement between the Registrant and Scott C.
Longmore dated as of April , 1997.
10.4 -- 1997 Stock Plan.
10.5 -- Asset Purchase Agreement dated as of March 13, 1996, by
and among Transwestern Gathering Company ("TW Gathering")
as Seller and Registrant as Buyer.
10.6 -- Asset Purchase Agreement dated as of March 22, 1996, by
and among TW Gathering and Enron Gathering Company
("Enron Gathering") as Sellers and Registrant as Buyer.
10.7 -- Asset Purchase Agreement dated as of April 11, 1996, by
and among TW Gathering and Enron Gathering as Sellers and
Registrant as Buyer.
10.8 -- Contribution Agreement dated as of January 1, 1996, by
and among Registrant, Cottonwood Partnership, Continental
Gas Marketing, Inc. and Gary Adams Ranch, Inc.*
10.9 -- Office Lease Agreement.
10.10 -- Credit Agreement between the Registrant and ING Capital
Corporation dated December 30, 1996.
10.11 -- Letter of Credit and Reimbursement Agreement between the
Registrant and Christiana Bank dated as of December 27,
1996.
10.12 -- 1996 Incentive Stock Option Plan.
10.13 -- Agreement dated as of January 1, 1997, between the
Registrant and Continental Natural Gas Marketing, L.L.C.
for the sale of natural gas to L.L.C.
10.14 -- Consulting Agreement dated as of April 1, 1997, between
the Registrant and Adams Affiliates, Inc. for the
provision of management services by Adams Affiliates to
the Registrant.
10.15 -- Administrative Services Agreement dated as of April 1,
1997, between the Registrant and Adams Affiliates, Inc.
for the provision of administrative services by the
Registrant to Adams Affiliates.
10.16 -- Administrative Services Agreement dated as of April 1,
1997, between the Registrant and Bird Creek Resources,
Inc. under which the Registrant will provide office space
and certain administrative services to Bird Creek
Resources, Inc.
10.17 -- Administrative Services Agreement dated as of April 1,
1997, between Bird Creek and the Registrant under which
Bird Creek will provide certain administrative services
to the Registrant.
10.18 -- Charter Services Agreement dated as of April 1, 1997,
between the Registrant and CPA Aviation, Inc. under which
CPA Aviation will provide the Registrant with certain air
transportation services.
10.19 -- Agreement between the Registrant and Mapco Petroleum,
Inc. for the sale of NGLs dated as of July 14, 1994.
10.20 -- Amendment dated February 16, 1996, to Firm Throughput
Service Agreement (CR# 101124) dated as of January 26,
1996, between the Registrant and Northern Natural Gas
Company ("NNG") together with the original agreement.
10.21 -- Amendments dated November 13, 1996, March 15, 1996, and
March 14, 1996, to Transportation Service Agreement-Form
M (No: 24690) dated as of April 1, 1996, between
Registrant and Transwestern Pipeline Company ("TW"),
together with the original agreement.
10.22 -- Amendment dated January 3, 1994, to Transportation
Service Agreement No: 20606 dated November 26, 1991,
between Registrant and TW, together with the original
agreement.
10.23 -- Interconnect and Operating Agreement dated as of March 1,
1996, between Registrant and NNG.
</TABLE>
II-3
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
----------- ---------------
<C> <S>
10.24 -- Amendment dated February 16, 1996, to Firm Throughput
Service Agreement (CR# 101125) between the Registrant and
NNG dated January 26, 1996, together with the original
agreement.
10.25 -- Interruptible Transportation Service Agreement, Rate
Schedule IT-1 between Registrant and NNG dated August 1,
1992.
10.26 -- Interruptible Throughput Service Agreement, Rate Schedule
TI, Throughput Agreement No. 22224, between Registrant
and NNG undated.
11.1 -- Computation of per share earnings.
15.1 -- Letter regarding unaudited interim financial information.
23.1 -- Consent of Coopers & Lybrand.
23.2 -- Consent of Albright and Rusher (to be included as part of
Exhibit 5.1).**
23.3 -- Consent of Lee Keeling & Associates.*
23.4 -- Consent of William W. Pritchard.*
23.5 -- Consent of William H. Bauch.*
23.6 -- Consent of Hart Publications, Inc.
24. -- Power of Attorney (included in Signature Page).*
27.1 -- Financial Data Schedules (Year ended December 31, 1996
and Quarter ended March 31, 1997)
</TABLE>
b.) Financial statement schedules required by regulation S-X
<TABLE>
<CAPTION>
SCHEDULE NO. NAME OF SCHEDULE
------------ ----------------
<C> <S>
II -- Valuation and Qualifying Accounts and Reserves
</TABLE>
- ---------------
* Filed on April 24, 1997 with Registration Statement on Form S-1, SEC File No.
333-25719.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned hereby undertakes to provide to the Underwriters, at the
Closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer of controlling person of the Registrant in the successful
defense of an action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the Registrant will treat the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
under Rule 424(b)(1), or (4), or 497(h) under the Securities Act as part of
this Registration Statement as of the time the Commission declares it
effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Tulsa, State of Oklahoma, on the 27th day of June, 1997.
CONTINENTAL NATURAL GAS, INC.
By:
----------------------------------
Gary Clark Adams
Chairman, President, Chief
Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement was signed by the following persons in the
capacities indicated below and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman, President and Chief June 27, 1997
- ----------------------------------------------------- Executive Officer (Principal
Gary C. Adams Executive Officer) and Director
Vice President and Controller June 27, 1997
- ----------------------------------------------------- (Principal Financial and Accounting
Garry D. Smith Officer) and Director
Vice President of Operations and June 27, 1997
- ----------------------------------------------------- Director
Terry K. Spencer
Vice President of Marketing and June 27, 1997
- ----------------------------------------------------- Director
Scott C. Longmore
</TABLE>
II-5
<PAGE> 84
SCHEDULE II
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
CHARGED
BALANCE AT CHARGED TO TO OTHER DEDUCTIONS BALANCE
BEGINNING COSTS AND ACCOUNTS AND NET AT END OF
DESCRIPTION OF PERIOD EXPENSES RECOVERIES WRITE-OFFS PERIOD
- ----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994................ $323 $ -- $ -- $ -- $323
Year ended December 31, 1995................ $323 $ -- $ -- $(70) $253
Year ended December 31, 1996................ $253 $ -- $ 5 $ -- $258
</TABLE>
S-1
<PAGE> 85
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF EXHIBIT
----------- ---------------
<C> <S>
1.1 -- Form of Underwriting Agreement.**
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.*
3.2 -- Amended and Restated Bylaws of the Registrant.*
4.1 -- Specimen Common Stock Certificate of the Registrant.**
5.1 -- Opinion of Albright and Rusher.**
10.1 -- Employment Agreement between the Registrant and Garry D.
Smith dated as of April , 1997.**
10.2 -- Employment Agreement between the Registrant and Terry K.
Spencer dated as of April , 1997.**
10.3 -- Employment Agreement between the Registrant and Scott C.
Longmore dated as of April , 1997.**
10.4 -- 1997 Stock Plan.
10.5 -- Asset Purchase Agreement dated as of March 13, 1996, by
and among Transwestern Gathering Company ("TW Gathering")
as Seller and Registrant as Buyer.
10.6 -- Asset Purchase Agreement dated as of March 22, 1996, by
and among TW Gathering and Enron Gathering Company
("Enron Gathering") as Sellers and Registrant as Buyer.
10.7 -- Asset Purchase Agreement dated as of April 11, 1996, by
and among TW Gathering and Enron Gathering as Sellers and
Registrant as Buyer.
10.8 -- Contribution Agreement dated as of January 1, 1996, by
and among Registrant, Cottonwood Partnership, Continental
Gas Marketing, Inc. and Gary Adams Ranch, Inc.*
10.9 -- Office Lease Agreement.
10.10 -- Credit Agreement between the Registrant and ING Capital
Corporation dated December 30, 1996.
10.11 -- Letter of Credit and Reimbursement Agreement between the
Registrant and Christiana Bank dated as of December 27,
1996.
10.12 -- 1996 Incentive Stock Option Plan.
10.13 -- Agreement dated as of January 1, 1997, between the
Registrant and Continental Natural Gas Marketing, L.L.C.
for the sale of natural gas to L.L.C.
10.14 -- Consulting Agreement dated as of April 1, 1997, between
the Registrant and Adams Affiliates, Inc. for the
provision of management services by Adams Affiliates to
the Registrant.
10.15 -- Administrative Services Agreement dated as of April 1,
1997, between the Registrant and Adams Affiliates, Inc.
for the provision of administrative services by the
Registrant to Adams Affiliates.
10.16 -- Administrative Services Agreement dated as of April 1,
1997, between the Registrant and Bird Creek Resources,
Inc. under which the Registrant will provide office space
and certain administrative services to Bird Creek
Resources, Inc.
10.17 -- Administrative Services Agreement dated as of April 1,
1997, between Bird Creek and the Registrant under which
Bird Creek will provide certain administrative services
to the Registrant.
10.18 -- Charter Services Agreement dated as of April 1, 1997,
between the Registrant and CPA Aviation, Inc. under which
CPA Aviation will provide the Registrant with certain air
transportation services.
10.19 -- Agreement between the Registrant and Mapco Petroleum,
Inc. for the sale of NGLs dated as of July 14, 1994.
</TABLE>
<PAGE> 1
EXHIBIT 10.4
CONTINENTAL NATURAL GAS, INC.
1412 SOUTH BOSTON, SUITE 500
TULSA, OKLAHOMA 74119
1997 STOCK PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION ............................................... i
AVAILABLE INFORMATION ...................................... ii
TAX CONSEQUENCES ........................................... ii-iv
CONTINENTAL NATURAL GAS, INC. 1997 STOCK PLAN .............. A1
ANNEX B-1 (INCENTIVE STOCK OPTION AGREEMENT FOR STOCK
OPTIONS GRANTED UNDER THE CONTINENTAL NATURAL GAS, INC
1997 STOCK PLAN) ..................................... B1-1--B-7
ANNEX B-2 (STOCK GRANT AGREEMENT FOR STOCK GRANTED
UNDER THE CONTINENTAL NATURAL GAS, INC
1997 STOCK PLAN) ..................................... B2-1--B2-4
EXERCISE AGREEMENT (OR EXERCISING STOCK OPTIONS GRANTED
UNDER THE CONTINENTAL NATURAL GAS, INC
1997 STOCK PLAN) ..................................... C-i
INSTRUCTIONS ......................................... C-ii--C-iii
EXERCISE AGREEMENT ......................................... C1-C3
</TABLE>
<PAGE> 3
CONTINENTAL NATURAL GAS, INC.
1412 SOUTH BOSTON, SUITE 500
TULSA, OKLAHOMA 74119
CONTINENTAL NATURAL GAS, INC.
1997 STOCK PLAN
This Prospectus describes the Continental Natural Gas, Inc. 1997 Stock
Plan (the "Plan") and some of the major considerations that a person
participating in the Plan ("Participant") should consider before purchasing or
exercising stock options or making any payments with respect to any other
awards under the Plan.
A copy of the Plan is attached to this Prospectus as Annex A and
incorporated herein by reference. Each Participant in the Plan will also be a
party to a stock option or other stock agreement ("Stock Agreement") which sets
forth further terms of the Participant's specific grant or grants under the
Plan. Participants should carefully review the terms of their Stock Agreements
and of the Plan itself. A form of the Stock Agreement is attached to this
Prospectus as Annex B.
This Prospectus relates to the offering of up to 600,000 shares of
common stock (the "Shares") of Continental Natural Gas, Inc. (the "Company").
The Plan provides for the granting of Stock Options ("Stock Option"), Stock
Appreciation Rights ("Stock Appreciation Rights") and Stock Grants ("Stock
Grants"); any such award under the Plan is referred to as an "Award."
----------------------
This document constitutes part of a prospectus covering securities that have
been registered under the Securities Act of 1933. The date of this document is
April ____, 1997.
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<PAGE> 4
AVAILABLE INFORMATION
The Company will deliver without charge to each Participant who has
received a copy of this Prospectus, upon the Participant's written or oral
request, (i) a copy of the Company's Annual Report to Stockholders for its
latest fiscal year, and (ii) copies of any or all the documents which have been
or may be incorporated by reference into the Form S-8 registration statement
filed by the Company with the Securities and Exchange Commission for the Shares
issuable under the Plan, other than exhibits to such documents (unless such
exhibits are also incorporated therein by reference).
All such documents are also incorporated by reference into this Prospectus.
All such written or oral requests shall be made to the Board of Directors for
the Continental Natural Gas, Inc. 1997 Stock Plan ("Board of Directors"),
c/o _______________________________________, Continental Natural Gas, Inc.,
1412 South Boston, Suite 500, Tulsa, Oklahoma 74119.
TAX CONSEQUENCES
Each Participant is urged to consult his or her personal tax advisor
with respect to the tax consequences relating to the grant or the exercise of
any Award under the Plan. However, the following is a summary of general tax
law information relating to awards granted under the Plan.
1. OPTIONS
a. NONQUALIFIED STOCK OPTION ("NQSO")
This discussion applies to Stock Options which are nonqualified. Under
current law, a Participant receiving an Option does not recognize taxable
income upon the grant of the Option and the Company will not be entitled to a
deduction for federal income tax purposes upon such grant. Upon the exercise of
an Option, ordinary income generally will be recognized by the Participant in
an amount equal to the excess of the fair market value of the Shares acquired
over the exercise price. The Company generally will be entitled to a deduction
for federal income tax purposes in an amount equal to the amount of ordinary
income recognized by the Participant at the time of such recognition, provided
the Company complies with applicable withholding requirements. If the
Participant makes a Section 83(b) election within 30 days after the exercise of
an Option, such Participant will recognize ordinary income upon such exercise.
b. INCENTIVE STOCK OPTION ("ISO")
This discussion applies to Stock Options that are ISOS. Again, a
Participant receiving an ISO does not recognize taxable income upon the grant
of the Option, nor does the Company recognize a deduction for federal income
tax purposes. Upon the exercise of an Incentive Stock Option, the Participant
generally does not recognize taxable income if the exercise is during the term
of the Option either while the Participant is an employee of the Company (or of
a parent or
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<PAGE> 5
subsidiary corporation) or within three months thereafter (one year if the
Participant is disabled). If a Participant dies, his or her personal
representative may exercise the Option during its term. Only $100,000 of
aggregate Option Price can be exercised each calendar year by the Participant
in order to avoid recognition of income upon exercise. If the Participant does
not dispose of the shares acquired upon the exercise of an Incentive Option
within two years from the date that the Incentive Option was granted or within
one year after the Incentive Option is exercised, any gain or loss upon
disposition of the shares will be long-term capital gain or loss. If the
Participant disposes of the acquired shares without meeting the statutory
holding period requirements described in the immediately preceding sentence,
the Participant generally will recognize ordinary income in the year of the
disqualifying disposition equal to the difference, if any, between the lesser
of (i) the amount realized on the disposition and (ii) the fair market value of
the shares on the exercise date, and the exercise price. Any remaining gain is
treated as long-term or short-term capital gain depending on whether the shares
have been held for more than one year.
If the statutory holding period requirements are satisfied, the
Company will not be entitled to a deduction for federal income tax purposes
upon the exercise of an Incentive Option or upon the disposition of shares
acquired upon such exercise. However, if the Participant disposes of the shares
in a disqualifying disposition, the Company generally will be entitled to a
deduction for federal income tax purposes in an amount equal to the amount of
the ordinary income recognized by the Participant at that time, provided that
the Company complies with applicable tax withholding requirements.
2. STOCK APPRECIATION RIGHTS
Upon the grant of a Stock Appreciation Right, or during the period
that the unexercised Stock Appreciation Right remains outstanding, the
Participant will not recognize any federal taxable income and the Company will
not be entitled to a federal income tax deduction. On the exercise of a Stock
Appreciation Right, the consideration paid to the Participant, whether in cash,
Shares or both, generally will constitute compensation taxable to the
Participant as ordinary income (in the same manner and at the same time
described in paragraph 1 above) and the Company is entitled to a corresponding
federal income tax deduction, provided it complies with the applicable
withholding requirements. Upon the sale of the Shares acquired by exercise of
Stock Appreciation Rights, the Participant will realize long-term or short-term
capital gain or loss, taxable as described in paragraph 1b. above.
3. STOCK GRANT
Under the Code, a Participant normally will not recognize taxable
income and the Company generally will not be entitled to a deduction upon the
grant of Shares of Restricted Stock. When the Shares are no longer subject to a
substantial risk of forfeiture (as defined in the Code) or become transferable,
the Participant will realize taxable ordinary income in an amount equal to the
fair market value of such number of Shares at the time, and the Company will be
entitled to a deduction in the same amount, provided the Company complies with
applicable withholding requirements.
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<PAGE> 6
Under Section 83(b) of the Code, a Participant may elect to realize
ordinary income in the year the Shares are awarded in an amount equal to their
fair market value at the time, determined without regard to the restrictions.
In that event, the Company will be entitled to a deduction in such year in the
same amount, provided the Company complies with applicable withholding
requirements, and any gain or loss realized by the Participant upon the
subsequent disposition of the Shares will be capital gain or loss (taxable as
described in paragraph 1 above) and will not result in any further deduction to
the Company. Any dividends with respect to the Shares of Restricted Stock which
are paid or made available to a Participant (who has not elected under Code
Section 83(b) to be taxed on the date of the grant) while the Shares remain
forfeitable are treated as additional compensation taxable as ordinary income
to the Participant and deductible to the Company. If an election under Code
Section 83(b) has been made with respect to the Shares, the dividends represent
ordinary dividend income to the Participant which are not deductible to the
Company. If the Participant elects to be taxed on the Shares of the Stock Grant
on the date of grant and the Participant subsequently forfeits the Shares, the
Participant is not entitled to a deduction as a consequence of such forfeiture,
and the Company must include as ordinary income the amount it previously
deducted (which amount is included in the Company's basis) in the year of grant
with respect to such Shares.
4. PARACHUTE PAYMENTS
The termination of restrictions on Stock Grants upon a Change in
Control, or the exercise of any portion of a Stock Option or related Stock
Appreciation Right which is accelerated as a result of a Change in Control, or
a similar event, may cause payments with respect to such Restricted Stock,
Deferred Stock, accelerated Stock Options, or related Stock Appreciation Rights
to be treated as "parachute payments" within the meaning of Section 28OG of the
Code. Any such parachute payments which constitute "excess parachute payments"
are nondeductible to the Company and subject the Participant to a 20% federal
excise tax under Section 4999 of the Code on such excess parachute payments, in
addition to other taxes ordinarily payable. Each Participant should consult his
or her personal tax advisor as to the potential impact of the parachute tax.
iv
<PAGE> 7
CONTINENTAL NATURAL GAS, INC.
1997 STOCK PLAN
ARTICLE I
ESTABLISHMENT
1. Purpose.
The Continental Natural Gas, Inc. 1997 Stock Plan ("Plan") is hereby
established by Continental Natural Gas, Inc. ("Company"). The purpose of the
Plan is to promote the overall financial objectives of the Company and its
shareholders by motivating those persons selected to participate in the Plan to
achieve long-term growth in shareholder equity in the Company and by retaining
the association of those individuals who are instrumental in achieving this
growth. The Plan and the grant of awards thereunder is expressly conditioned
upon the Plan's approval by the security holders of the Company. The Plan is
adopted effective as of the Effective Date.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
association, jointstock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, the Company including, without limitation, any member of an affiliated
group of which the Company is a common parent corporation as provided in
Section 1504 of the Code.
2.2 "Agreement" or "Award Agreement" means, individually or
collectively, any agreement entered into pursuant to the Plan pursuant to which
an Award is granted to a Participant.
2.3 "Award" means a Stock Option, Stock Appreciation Right, Restricted
Stock or Deferred Stock.
2.4 "Board of Directors" or "Board" means the Board of Directors of
the Company.
2.5 "Cause" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for Cause as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause,"
then Cause shall mean an act or acts of dishonesty by the Participant
constituting a felony under applicable law and
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<PAGE> 8
resulting or intending to result directly or indirectly in gain to or personal
enrichment of the Participant at the Company's expense. Notwithstanding the
foregoing, the Participant shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to him or her a copy of
a resolution, duly adopted by the affirmative vote of not less than a majority
of the entire membership of the Board at a meeting of the Board called and held
for that purpose (after reasonable notice to him or her has been given or has
been made and an opportunity for him or her, together with his or her counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board the Participant was guilty of conduct set forth above in the previous
sentence of this Section and specifying the particulars thereof in detail.
2.6 "Change in Control" and "Change in Control Price" have the
meanings set forth in Sections 9.2 and 9.3, respectively.
2.7 "Code" or "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended, final Treasury Regulations thereunder and any subsequent
Internal Revenue Code.
2.8 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.9 "Board of Directors" means the person or persons appointed to the
Board of Directors to administer the Plan, as further described in the Plan.
2.10 "Common Stock" means the shares of the regular voting Common
Stock, $ ____ par value, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described hereinafter or
the common stock of any successor to the Company which is designated for the
purpose of the Plan.
2.11 "Company" means Continental Natural Gas, Inc., an Oklahoma
corporation, and includes any successor or assignee corporation or corporations
into which the Company may be merged, changed or consolidated; any corporation
for whose securities the securities of the Company shall be exchanged; and any
assignee of or successor to substantially all of the assets of the Company.
2.12 "Disability" means permanent and total disability as determined
under procedures established by the Board of Directors for purposes of the
Plan. Notwithstanding the foregoing, a Disability shall not qualify under this
Plan if it is the result of (i) a willfully self-inflicted injury or willfully
self-induced sickness; or (ii) an injury or disease contracted, suffered, or
incurred, while participating in a criminal offense. The determination of
Disability shall be made by the Board of Directors. The determination of
Disability for purposes of this Plan shall not be construed to be an admission
of disability for any other purpose.
2.13 "Non-Employee Director" means a person who is a Director of the
Company and who is not an employee of the Company and who would be a
"Non-Employee Director" within the
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<PAGE> 9
meaning of Rule 16b-3 under the Exchange Act and an "outside director" within
the meaning of Section 162(m) of the Code.
2.14 "Effective Date" means April ______, 1997.
2.15 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2.16 "Fair Market Value" means the mean, as of any given date, between
the highest and lowest reported sales prices of the Common Stock on the NASDAQ.
If there is no regular public trading market for such stock, the Fair Market
Value of the Common Stock shall be determined by the Board of Directors in good
faith.
2.17 "Grant Date" means the date as of which an Award is granted
pursuant to the Plan.
2.18 "Incentive Stock Option" means any Stock Option intended to be
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.
2.19 "Nonqualified Stock Option" means an Option to purchase Common
Stock in the Company granted under the Plan other than an Incentive Stock
Option within the meaning of Section 422 of the Code.
2.20 "Option Period" means the period during which the Option shall be
exercisable in accordance with the Agreement and Article VI.
2.21 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3.
2.22 "Participant" means a person who satisfies the eligibility
conditions of Article V and to whom an Award has been granted by the Board of
Directors under the Plan, and in the event a Representative is appointed for a
Participant or a former spouse becomes a Representative, then the term
"Participant" shall mean such appointed Representative, successor,
Representative, or former spouse as the case may be. The term shall also
include any person or entity to whom an Option has been transferred, including
a trust for the benefit of the Participant, the Participant's parents, spouse
or descendants, a partnership, the partners of which include any of the
foregoing, or a custodian under a uniform gifts to minors act or similar
statute for the benefit of the Participant's descendants, to the extent
permitted herein. Notwithstanding the foregoing, the term "Termination of
Employment" shall mean the Termination of Employment of the Participant.
2.23 "Plan" means the Continental Natural Gas, Inc. 1997 Stock Plan,
as herein set forth and as may be amended from time to time.
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<PAGE> 10
2.24 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of
the Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
beneficiary of the Participant upon or following the Participant's death; or
(d) any person to whom an Option has been permissibly transferred; provided
that only one of the foregoing shall be the Representative at any point in time
as determined under applicable law and recognized by the Board of Directors.
2.25 "Retirement" means the Participant's Termination of Employment
after attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Board of Directors)
tax-qualified plan of the Company or an Affiliate, if the Participant is
covered by such plan, and if the Participant is not covered by such a plan,
then age 65, or age 55 with the accrual of 10 years of service.
2.26 "Rule 16b-3" means Rule 16b-3, as promulgated under the Exchange
Act, as amended from time to time, or any successor thereto.
2.27 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2.28 "Stock Appreciation Right" means a right granted under
Article VII.
2.29 "Stock Grant" means an award under Article VIII.
2.30 "Stock Option" or "Option" means an option granted under
Article VI.
2.31 "Termination of Employment" means the occurrence of any act or
event whether pursuant to an employment agreement or otherwise that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, employee or consultant of the Company or of any Affiliate, or to
be an officer, employee or consultant of any entity that provides services to
the Company or an Affiliate, including, without limitation, death, Disability,
dismissal, severance at the election of the Participant, Retirement, or
severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its Affiliates of all businesses owned or operated by the
Company or its Affiliates. With respect to any person who is not an employee
with respect to the Company or an Affiliate, the Agreement shall establish what
act or event shall constitute a Termination of Employment for purposes of the
Plan. A Termination of Employment shall occur to an employee who is employed by
an Affiliate if the Affiliate shall cease to be an Affiliate and the
Participant shall not immediately thereafter become an employee of the Company
or an Affiliate.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
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<PAGE> 11
ARTICLE III
ADMINISTRATION
3.1 "Board of Directors Structure and Authority." The Plan shall be
administered by the Board of Directors. Subject to the provisions of the Plan,
the Board of Directors shall have the sole discretion and authority to
determine from time to time the participant or participants to whom Awards
shall be granted and the number of shares of Common Stock subject to each
Award, to interpret the Plan, to prescribe, amend, and rescind any rules and
regulations necessary or appropriate for the administration of the Plan, to
determine and interpret the details and provisions of each Agreement, to modify
or amend any Agreement or waive any conditions or restrictions applicable to
any Awards (or the exercise thereof), and to make all other determinations
necessary or advisable for the administration of the Plan. The determination of
an Award will be determined by the Board of Directors. Such Award will be
passed by the majority and in the event that one of the recipients is a member
of the Board of Directors, then that Director will abstain from that particular
vote.
Among other things, the Board of Directors shall have the authority,
subject to the terms of the Plan:
(a) to select those persons to whom Awards may be granted from
time to time;
(b) to determine whether and to what extent Stock Options,
Stock Appreciation Rights, Stock Grants or any combination thereof are
to be granted hereunder;
(c) to determine the number of shares of Common Stock to be
covered by each Award granted hereunder;
(d) to determine the terms and conditions of any Award
granted hereunder (including, but not limited to, the Option Price,
the Option Period, any exercise restriction or limitation and any
exercise acceleration or forfeiture waiver regarding any Award and the
shares of Common Stock relating thereto);
(e) to adjust the terms and conditions, at any time or from
time to time, of any Award, subject to the limitations of Section
10.1;
(f) to determine to what extent and under what circumstances
Common Stock and other amounts payable with respect to an Award shall
be deferred;
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<PAGE> 12
(g) to determine under what circumstances an Award may be
settled in cash or Common Stock;
(h) to provide for the forms of Agreement to be utilized in
connection with this Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are
applicable to the Plan, Awards, and the issuance of shares of Common
Stock and to require of a Participant that appropriate action be taken
with respect to such requirements;
(k) to cancel, with the consent of the Participant or as
otherwise provided in the Plan or an Agreement, outstanding Awards;
(1) to interpret and make a final determination with respect
to the remaining number of shares of Common Stock available under
Article IV;
(m) to require as a condition of the exercise of an Award or
the issuance or transfer of a certificate of Common Stock, the
withholding from a Participant of the amount of any federal, state or
local taxes as may be necessary in order for the Company or any other
employer to obtain a deduction or as may be otherwise required by law;
(n) to determine whether and with what effect an individual
has incurred a Termination of Employment;
(o) to determine whether the Company or any other person has
a right or obligation to purchase Common Stock from a Participant and,
if so, the terms and conditions on which such Common Stock is to be
purchased;
(p) to determine the restrictions or limitations on the
transfer of Common Stock;
(q) to determine whether an Award is to be adjusted, modified
or purchased, or is to become fully exercisable, under the Plan or
the terms of an Agreement;
(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as,
in its opinion, may be advisable in the administration of the Plan;
and
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<PAGE> 13
(t) to appoint and compensate agents, counsel, auditors or
other specialists to aid it in the discharge of its duties.
The Board of Directors shall have the authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan
as it shall, from time to time, deem advisable, to interpret the terms and
provisions of the Plan and any Award issued under the Plan (and any Agreement)
and to otherwise supervise the administration of the Plan. The Board of
Directors's policies and procedures may differ with respect to Awards granted
at different times or to different Participants.
Any determination made by the Board of Directors pursuant to the
provisions of the Plan shall be made in its sole discretion, and in the case of
any determination relating to an Award, may be made at the time of the grant of
the Award or, unless in contravention of any express term of the Plan or an
Agreement, at any time thereafter. All decisions made by the Board of Directors
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Participants. Any determination shall not be
subject to de novo review if challenged in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan shall be 600,000 shares of Common Stock
authorized for issuance on the Effective Date. Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares.
4.2 Release of Shares. Subject to Section 7.3(f), if any shares of
Common Stock that have been optioned cease to be subject to an Award, if any
shares of Common Stock that are subject to any Award are forfeited, if any
Award otherwise terminates without issuance of shares of Common Stock being
made to the Participant, or if any shares (whether or not restricted) of Common
Stock that were previously issued under the Plan are received in connection
with the exercise of an Award, such shares, in the discretion of the Board of
Directors, may again be available for distribution in connection with Awards
under the Plan.
4.3 Restrictions on Shares. Shares of Common Stock issued upon
exercise of an Award shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Board of
Directors in its discretion may determine or provide in the Award Agreement.
The Company shall not be required to issue or deliver any certificates for
shares of Common Stock, cash or other property prior to (i) the listing of such
shares on any stock exchange (or other public market) on which the Common Stock
may then be listed (or regularly traded), (ii) the completion of any
registration or qualification of such shares under federal or state law, or any
ruling or regulation of any government body which the Board of Directors
determines to be
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<PAGE> 14
necessary or advisable. The Company may cause any certificate for any share of
Common Stock to be delivered to be properly marked with a legend or other
notation reflecting the limitations on transfer of such Common Stock as
provided in this Plan or as the Board of Directors may otherwise require. The
Board of Directors may require any person exercising an Award to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of the shares of Common Stock in
compliance with applicable law or otherwise. Fractional shares shall not be
delivered, but shall be rounded to the next lower whole number of shares.
4.4 Shareholder Rights. No person shall have any rights of a
shareholder as to shares of Common Stock subject to an Award until, after
proper exercise of the Award or other action required, such shares shall have
been recorded on the Company's official shareholder records as having been
issued or transferred. Upon exercise of the Award or any portion thereof, the
Company will have thirty (30) days in which to issue the shares, and the
Participant will not be treated as a shareholder for any purpose whatsoever
prior to such issuance. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date such shares are recorded
as issued or transferred in the Company's official shareholder records, except
as provided herein or in an Agreement.
4.5 Best Efforts To Register. The Company will register under the
Securities Act the Common Stock delivered or deliverable pursuant to Awards on
Commission Form S-8 if available to the Company for this purpose (or any
successor or alternate form that is substantially similar to that form to the
extent available to effect such registration), in accordance with the rules and
regulations governing such forms, as soon as such forms are available for
registration to the Company for this purpose. The Company will use its best
efforts to cause the registration statement to become effective as soon as
possible and will file such supplements and amendments to the registration
statement as may be necessary to keep the registration statement in effect
until the earliest of (a) one year following the expiration of the Option
Period of the last Option outstanding, (b) the date the Company is no longer a
reporting company under the Exchange Act and (c) the date all Participants have
disposed of all shares delivered pursuant to any Award. The Company may delay
the foregoing obligation if the Board of Directors reasonably determines that
any such registration would materially and adversely affect the Company's
interests or if there is no material benefit to Participants.
4.6 Anti-Dilution. In the event of any Company stock dividend, stock
split, combination or exchange of shares, recapitalization or other change in
the capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company shareholders other than a normal cash dividend), sale
by the Company of all or a substantial portion of its assets (measured on
either a stand-alone or consolidated basis), reorganization, rights offering, a
partial or complete liquidation, or any other corporate transaction, Company
share offering or event involving the Company and having an effect similar to
any of the foregoing, then the Board of Directors shall adjust or substitute,
as the case may be, the number of shares of Common Stock available for Awards
under the Plan, the number of
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<PAGE> 15
shares of Common Stock covered by outstanding Awards, the exercise price per
share of outstanding Awards, and any other characteristics or terms of the
Awards as the Board of Directors shall deem necessary or appropriate to reflect
equitably the effects of such changes to the Participants; provided, however,
that any fractional shares resulting from such adjustment shall be eliminated
by rounding to the next lower whole number of shares with appropriate payment
for such fractional share as shall reasonably be determined by the Board of
Directors.
ARTICLE V
ELIGIBILITY
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those
persons who are officers, non-employee directors, employees or consultants of
the Company or any subsidiary who shall be in a position, in the opinion of the
Board of Directors, to make contributions to the growth, management, protection
and success of the Company and its subsidiaries. Of those persons described in
the preceding sentence, the Board of Directors may, from time to time, select
persons to be granted Awards and shall determine the terms and conditions with
respect thereto. In making any such selection and in determining the form of
the Award, the Board of Directors may give consideration to the functions and
responsibilities of the person's contributions to the Company and its
subsidiaries, the value of the individual's service to the Company and its
subsidiaries and such other factors deemed relevant by the Board of Directors.
The Board of Directors may designate any person who is eligible to participate
in the Plan provided that such person is not a member of the Board of
Directors. A Board of Directors comprised of Non-Employee Directors may
designate a person serving on the Board of Directors provided that he or she
would otherwise be eligible.
ARTICLE VI
STOCK OPTIONS
6.1 General. The Board of Directors shall have authority to grant
Options under the Plan at any time or from time to time. Stock Options may be
granted alone or in addition to other Awards and may be either Incentive Stock
Options or Non-Qualified Stock Options. An Option shall entitle the Participant
to receive shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement (the terms and
provisions of which may differ from other Agreements) including without
limitation, payment of the Option Price. During any calendar year, Options for
no more than 40,000 shares of Common Stock shall be granted to any Participant.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of
the date the Board of Directors determines. Each Option granted under this Plan
shall be evidenced by an Agreement, in a form approved by the Board of
Directors, which shall embody the terms and conditions of such Option and which
shall be subject to the express terms and conditions set forth in the Plan.
Such
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Agreement shall become effective upon execution by the Participant. Only a
person who is a common-law employee of the Company, any parent corporation of
the Company or a subsidiary (as such terms are defined in Section 424 of the
Code) on the date of grant shall be eligible to be granted an Option which is
intended to be and is an Incentive Stock Option. To the extent that any Stock
Option is not designated as an Incentive Stock Option or even if so designated
does not qualify as an Incentive Stock Option, it shall constitute a
Non-Qualified Stock Option. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify the Plan under Section
422 of the Code or, without the consent of the Participant affected, to
disqualify any Incentive Stock Option under such Section 422.
6.3 Terms and Conditions. Stock Options shall be subject to such terms
and conditions as shall be determined by the Board of Directors, including the
following:
(a) Option Period. The Option Period of each Stock Option
shall be fixed by the Board of Directors; provided that no
Non-Qualified Stock Option shall be exercisable more than fifteen (15)
years after the date the Stock Option is granted. In the case of an
Incentive Stock Option, the Option Period shall not exceed ten (10)
years from the date of grant or five (5) years in the case of an
individual who owns more than ten percent (10%) of the combined voting
power of all classes of stock of the Company, a corporation which is a
parent corporation of the Company or any subsidiary of the Company
(each as defined in Section 424 of the Code). No Option which is
intended to be an Incentive Stock Option shall be granted more than
ten (10) years from the date the Plan is adopted by the Company or the
date the Plan is approved by the shareholders of the Company,
whichever is earlier.
(b) Option Price. The Option Price per share of the Common
Stock purchasable under an Option shall be determined by the Board of
Directors, but in no event shall the Option Price be less than 50% of
the Fair Market Value on the Grant Date. If such Option is intended to
qualify as an Incentive Stock Option, the Option Price per share shall
be not less than the Fair Market Value per share on the date the
Option is granted, or where granted to an individual who owns or who
is deemed to own stock possessing more than ten percent (10%) of the
combined voting power of all classes of stock of the Company, a
corporation which is a parent corporation of the Company or any
subsidiary of the Company (each as defined in Section 424 of the
Code), not less than one hundred ten percent (110%) of such Fair
Market Value per share.
(c) Exercisability. Subject to Section 9.1, Stock Options
shall be exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Board of Directors. If
the Board of Directors provides that any Stock Option is exercisable
only in installments, the Board of Directors may at any
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time waive such installment exercise provisions, in whole or in part.
In addition, the Board of Directors may at any time accelerate the
exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this
Article VI, a Participant may exercise Stock Options, in whole or in
part, at any time during the Option Period by the Participant's giving
written notice of exercise on a form provided by the Board of
Directors (if available) to the Company specifying the number of
shares of Common Stock subject to the Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price by cash or check or such other form of payment as the Company
may accept. If approved by the Board of Directors, payment in full or
in part may also be made (i) by delivering Common Stock already owned
by the Participant having a total Fair Market Value on the date of
such delivery equal to the Option Price; (ii) by the execution and
delivery of a note or other evidence of indebtedness (and any security
agreement thereunder) satisfactory to the Board of Directors and
permitted in accordance with Section 6.3(e); (iii) by authorizing the
Company to retain shares of Common Stock which would otherwise be
issuable upon exercise of the Option having a total Fair Market Value
on the date of delivery equal to the Option Price; (iv) by the
delivery of cash or the extension of credit by a broker-dealer to whom
the Participant has submitted a notice of exercise or otherwise
indicated an intent to exercise an Option (in accordance with Part
220, Chapter 11, Title 12 of the Code of Federal Regulations,
so-called "cashless" exercise); or (v) by any combination of the
foregoing. If payment of the Option Price of a Non-Qualified Stock
Option is made in whole or in part in the form of Restricted Stock or
Deferred Stock, the number of shares of Common Stock to be received
upon such exercise equal to the number of shares of Restricted Stock
or Deferred Stock used for payment of the Option Price shall be
subject to the same forfeiture restrictions or deferral limitations to
which such Restricted Stock or Deferred Stock was subject, unless
otherwise determined by the Board of Directors. In the case of an
Incentive Stock Option, the right to make a payment in the form of
already owned shares of Common Stock of the same class as the Common
Stock subject to the Stock Option may be authorized only at the time
the Stock Option is granted. No shares of Common Stock shall be issued
until full payment therefor has been made. Subject to any forfeiture
restrictions or deferral limitations that may apply if a Stock Option
is exercised using Restricted Stock or Deferred Stock, a Participant
shall have all of the rights of a shareholder of the Company holding
the class of Common Stock that is subject to such Stock Option
(including, if applicable, the right to vote the shares and the right
to receive dividends), when the Participant has given written notice
of exercise, has paid in full for such shares and such shares have
been recorded on the Company's official shareholder records as having
been issued or transferred.
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(e) Company Loan or Guarantee. Upon the exercise of any
Option and subject to the pertinent Agreement and the discretion of
the Board of Directors, the Company may at the request of the
Participant:
(i) lend to the Participant, with recourse, an amount
equal to such portion of the Option Price as the Board of
Directors may determine; or
(ii) guarantee a loan obtained by the Participant from a
third-party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term, interest
rate, and any security interest thereunder, shall be determined by the Board of
Directors, except that no extension of credit or guarantee shall obligate the
Company for an amount to exceed the lesser of the aggregate Fair Market Value
per share of the Common Stock on the date of exercise, less the par value of
the shares of Common Stock to be purchased upon the exercise of the Award, or
the amount permitted under applicable laws or the regulations and rules of the
Federal Reserve Board and any other governmental agency having jurisdiction.
(f) Non-transferability of Options. No Incentive Stock Option
or interest therein shall be transferable by the Participant other
than by will or by the laws of descent or distribution, and all Stock
Options shall be exercisable during the Participant's lifetime only by
the Participant.
6.4 Termination by Reason of Death, Disability or Retirement. Unless
otherwise provided in an Agreement or determined by the Board of Directors, if
a Participant incurs a Termination of Employment due to death, Disability or
Retirement, any unexpired and unexercised Stock Option held by such Participant
shall thereafter be fully exercisable for a period of five (5) years (or such
other period or no period as the Board of Directors may specify) immediately
following the date of such death, Disability or Retirement (as applicable) or
until the expiration of the Option Period, whichever period is the shorter. In
the event of Termination of Employment by reason of Disability, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
6.5 Other Termination. Unless otherwise provided in an Agreement or
determined by the Board of Directors, if a Participant incurs a Termination of
Employment that is not due to death, Retirement, Disability or with Cause) any
Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of a period of two (2) years commencing with the date of such
Termination of Employment or until the expiration of the Option Period, or in
the case of a voluntary Termination of Employment (other than due to death,
Retirement, Disability or with Cause), for a period of six (6) months
commencing with the date of such Termination of Employment in the case of a
voluntary
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Termination of Employment or until the expiration of the Option Period,
whichever is less. If the Participant incurs a Termination of Employment which
is with Cause, the Option shall terminate immediately. The death, Disability or
Retirement of a Participant after a Termination of Employment otherwise
provided herein shall not extend the exercisability of the time permitted to
exercise an Option.
6.6 Cashing Out of Option. On receipt of written notice of exercise,
the Board of Directors may elect to cash out all or part of the portion of any
Stock Option to be exercised by paying the Participant an amount, in cash or
Common Stock, equal to the excess of the Fair Market Value of the Common Stock
that is subject to the Option over the Option Price times the number of shares
of Common Stock subject to the Option on the effective date of such cash out.
The Board of Directors may determine Fair Market Value under the pricing rule
set forth in Section 7.3(b).
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 General. The Board of Directors shall have authority to grant
Stock Appreciation Rights under the Plan at any time or from time to time.
Subject to the Participant's satisfaction in full of any conditions,
restrictions or limitations imposed in accordance with the Plan or an
Agreement, a Stock Appreciation Right shall entitle the Participant to
surrender to the Company the Stock Appreciation Right and to be paid therefor
in shares of the Common Stock, cash or a combination thereof as herein
provided, the amount described in Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction
with all or part of any Stock Option granted under the Plan in which case the
exercise of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option and the exercise of the Stock Option
will result in the cancellation of a corresponding portion of the Stock
Appreciation Right. In the case of a Non-Qualified Stock Option, such rights
may be granted either at or after the time of grant of such Stock Option. In
the case of an Incentive Stock Option, such rights may be granted only at the
time of grant of such Stock Option. A Stock Appreciation Right may also be
granted on a stand alone basis. The grant of a Stock Appreciation Right shall
occur as of the date the Board of Directors determines. Each Stock Appreciation
Right granted under this Plan shall be evidenced by an Agreement, which shall
embody the terms and conditions of such Stock Appreciation Right and which
shall be subject to the terms and conditions set forth in the Plan. During any
calendar year, no more than 40,000 Stock Appreciation Rights shall be granted
to any Participant.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject
to such terms and conditions as shall be determined by the Board of Directors,
including the following:
(a) Period and Exercise. The term of a Stock Appreciation
Right shall be established by the Board of Directors. If granted in
conjunction with a Stock
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Option, the Stock Appreciation Right shall have a term which is the
same as the Option Period and shall be exercisable only at such time
or times and to the extent the related Stock Options would be
exercisable in accordance with the provisions of Article VI. A Stock
Appreciation Right which is granted on a stand alone basis shall be
for such period and shall be exercisable at such times and to the
extent provided in an Agreement. Stock Appreciation Rights shall be
exercised by the Participant's giving written notice of exercise on a
form provided by the Board of Directors (if available) to the Company
specifying the portion of the Stock Appreciation Right to be
exercised.
(b) Amount. Upon the exercise of a Stock Appreciation Right,
a Participant shall be entitled to receive an amount in cash, shares
of Common Stock or both as determined by the Board of Directors or as
otherwise permitted in an Agreement equal in value to the excess of
the Fair Market Value per share of Common Stock over the Option Price
per share of Common Stock specified in the related Agreement
multiplied by the number of shares in respect of which the Stock
Appreciation Right is exercised. In the case of a Stock Appreciation
Right granted on a stand alone basis, the Agreement shall specify the
value to be used in lieu of the Option Price per share of Common
Stock. The aggregate Fair Market Value per share of the Common Stock
shall be determined as of the date of exercise of such Stock
Appreciation Right.
(c) Special Rules. In the case of Stock Appreciation Rights
relating to Stock Options held by Participants who are actually or
potentially subject to Section 16(b) of the Exchange Act; no Stock
Appreciation Right shall be exercisable during the first six months of
its term, except that this limitation shall not apply in the event of
death or Disability of the Participant prior to the expiration of the
six-month period.
(d) Non-transferability of Stock Appreciation Rights. Stock
Appreciation Rights shall be transferable only when and to the extent
that a Stock Option would be transferable under the Plan unless
otherwise provided in an Agreement.
(e) Termination. A Stock Appreciation Right shall terminate
at such time as a Stock Option would terminate under the Plan, unless
otherwise provided in an Agreement.
(f) Incentive Stock Option. A Stock Appreciation Right
granted in tandem with an Incentive Stock Option shall not be
exercisable unless the Fair Market Value of the Common Stock on the
date of exercise exceeds the Option Price. In no event shall any
amount paid pursuant to the Stock Appreciation Right exceed the
difference between the Fair Market Value on the date of exercise and
the Option Price.
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ARTICLE VIII
STOCK GRANTS
8.1 General. The Board of Directors shall have authority to make a
Stock Grant under the Plan at any time or from time to time. Shares of Stock
may be awarded either alone or in addition to other Awards granted under the
Plan. The Board of Directors shall determine the persons to whom and the time
or times at which a Stock Grant will be awarded, the number of shares of Shares
to be awarded to any Participant, the time or times within which such Awards
may be subject to forfeiture and any other terms and conditions of the Awards.
Each Award shall be confirmed by, and be subject to the terms of, an Agreement.
The Board of Directors may condition the grant of Stock upon the attainment of
specified performance goals by the Participant or by the Company or an
Affiliate (including a division or department of the Company or an Affiliate)
for or within which the Participant is primarily employed or upon such other
factors or criteria as the Board of Directors shall determine. The provisions
of Stock Grants need not be the same with respect to any Participant.
8.2 Awards and Certificates. Notwithstanding the limitations on
issuance of shares of Common Stock otherwise provided in the Plan, each
Participant receiving a Stock Grant Award shall be issued a certificate in
respect of such shares. Such certificate shall be registered in the name of
such Participant and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award as determined by the
Board of Directors. The Board of Directors may require that the certificates
evidencing such shares be held in custody by the Company until the restrictions
thereon shall have lapsed and that, as a condition of any Stock Grant Award,
the Participant shall have delivered a stock power, endorsed in blank, relating
to the Common Stock covered by such Award. During any calendar year, no more
than 40,000 shares shall be granted to any Participant.
8.3 Terms and Conditions. Stock Grant shares shall be subject to the
following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions
of the Plan and except as provided in an Agreement, during a period
set by the Board of Directors, commencing with the date of such Award
(the "Restriction Period"), the Participant shall not be permitted to
sell, assign, transfer, pledge or otherwise encumber any interest in
Stock Grant shares.
(b) Rights. Except as provided in Section 8.3(a), the
Participant shall have, with respect to the Stock Grant shares, all of
the rights of a shareholder of the Company holding the class of Common
Stock that is the subject of the Stock Grant, including, if
applicable, the right to vote the shares and the right to receive any
cash dividends. Unless otherwise determined by the Board of Directors
and subject to the Plan, cash dividends on the class of Common Stock
that is the subject of the Stock
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Grant shall be automatically deferred and reinvested in additional
restricted stock, and dividends on the class of Common Stock that is
the subject of the Stock Grant payable in Common Stock shall be paid
in the form of the same class as the Common Stock on which such
dividend was paid.
(c) Criteria. Based on service, performance by the
Participant or by the Company or the Affiliate, including any division
or department for which the Participant is employed or such other
factors or criteria as the Board of Directors may determine, the Board
of Directors may provide for the lapse of restrictions in installments
and may accelerate the vesting of all or any part of any Award and
waive the restrictions for all or any part of such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Board of Directors, if the Participant incurs a
Termination of Employment during the Restriction Period due to death
or Disability, the restrictions shall lapse and the Participant shall
be fully vested in the Stock Grant. Except to the extent otherwise
provided in the applicable Agreement and the Plan, upon a
Participant's Termination of Employment for any reason during the
Restriction Period other than death or Disability, all shares of the
Stock Grant still subject to restriction shall be forfeited by the
Participant, except the Board of Directors shall have the discretion
to waive in whole or in part any or all remaining restrictions with
respect to any or all of such Participant's shares under the Stock
Grant.
(e) Delivery. If and when the Restriction Period expires
without a prior forfeiture of the stock subject to such Restriction
Period, unlegended certificates for such shares shall be delivered to
the Participant.
(f) Election. A Participant may elect to further defer
receipt of the shares under the Stock Grant for a specified period or
until a specified event, subject in each case to the Board of
Directors's approval and to such terms as are determined by the Board
of Directors. Subject to any exceptions adopted by the Board of
Directors, such election must be made one (1) year prior to completion
of the Restriction Period.
ARTICLE IX
CHANGE IN CONTROL PROVISIONS
9.1 Impact of Event. Notwithstanding any other provision of the Plan
to the contrary, in the event of a Change in Control (as defined in Section
9.2):
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(a) Any Stock Appreciation Rights and Stock Options
outstanding as of the date such Change in Control and not then
exercisable shall become fully exercisable to the full extent of the
original grant.
(b) The restrictions and deferral limitations applicable to
any Stock Grant shall lapse, and such restricted stock shall become
free of all restrictions and become fully vested and transferable to
the full extent of the original grant.
(c) Notwithstanding any other provision of the Plan, unless
the Board of Directors shall provide otherwise in an Agreement, a
Participant shall have the right, whether or not the Award is fully
exercisable or may be otherwise realized by the Participant, by giving
notice during the 60-day period from and after a Change in Control to
the Company, to elect to surrender all or part of the Award to the
Company and to receive cash, within 30 days of such notice, in an
amount equal to the amount by which the "Change in Control Price" (as
defined in Section 9.3) per share of Common Stock on the date of such
election shall exceed the amount which the Participant must pay to
exercise the Award per share of Common Stock under the Award (the
"Spread") multiplied by the number of shares of Common Stock granted
under the Award as to which the right granted hereunder shall have
been exercised; provided, however, that if the end of such 60-day
period from and after a Change in Control is within six months of the
date of grant of the Award held by a Participant (except a Participant
who has died during such six month period) who is an officer or
director of the Company (within the meaning of Section 16b of the
Exchange Act), such Award shall be canceled in exchange for a payment
to the Participant at the time of the Participant's Termination of
Employment, equal to the Spread multiplied by the number of shares of
Common Stock granted under the Award, plus interest on such amount at
the prime rate compounded annually and determined from time to time.
9.2 Definition of Change in Control. For purposes of the Plan, a
"Change in Control" shall mean the happening of any of the following events:
(a) there shall be consummated (i) any consolidation or
merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's
common stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of
the Company's common stock immediately prior to the merger have
substantially the same proportionate ownership of common stock of the
surviving corporation immediately after the merger; or (ii) any sale,
lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the
Company; or
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(b) the shareholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company; or
(c) any person (as such term is used in Sections 13d and
14d(2) of the Exchange Act), other than the Company or any employee
benefit plan sponsored by the Company, shall become the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing an amount greater than two
times the aggregate percentage held or controlled by Cottonwood
Partnership and Adams Affiliates, Inc. (and apart from rights accruing
in special circumstances) having the right to vote in the election of
directors, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise; or
(d) any three persons (as such term is used in Sections 13d
and 14d(2) of the Exchange Act), other than the Company or any
employee benefit plan sponsored by the Company, shall become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act) of securities of the Company whose ownership represents an amount
greater than four times the aggregate percentage held or controlled by
Cottonwood Partnership and Adams Affiliates, Inc. combined (and apart
from rights accruing in special circumstances) having the right to
vote in election of directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or
otherwise; or
(e) at any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the Board
of Directors of the Company shall cease for any reason to constitute
at least a majority thereof, unless the election or the nomination for
election by the Company's shareholders of each new director during
such two-year period was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the beginning
of such two-year period. A Change of Control shall not be deemed to
have occurred if banks or other creditors receive the Company's stock
in conjunction with transactions involving forgiveness of outstanding
debt or debt restructuring agreements.
(f) at any time an individual is elected to the Board of
Directors who was not nominated by the Board of Directors of the
Company to stand for election.
9.3 Change in Control Price. For purposes of the Plan, "Change in
Control Price" means the higher of (a) the highest reported sales price of a
share of Common Stock in any transaction reported on NASDAQ or other principal
exchange on which such shares are listed during the 60-day period prior to and
including the date of a Change in Control or (b) if the Change in Control is
the result of a tender or exchange offer or a Corporate Transaction, the
highest price per share of Common Stock paid in such tender or exchange offer
or a Corporate Transaction, except that, in the case of Incentive Stock Options
and Stock Appreciation Rights relating to Incentive Stock Options,
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such price shall be based only on the Fair Market Value of the Common Stock on
the date such Incentive Stock Option or Stock Appreciation Right is exercised.
To the extent that the consideration paid in any such transaction described
above consists all or in part of securities or other non-cash consideration,
the value of such securities or other non-cash consideration shall be
determined in the sole discretion of the Board of Directors.
ARTICLE X
MISCELLANEOUS
10.1 Amendments and Termination. The Board may amend, alter,
discontinue or terminate the Plan at any time, but no amendment, alteration,
discontinuation or termination shall be made which would impair the rights of a
Participant under a Stock Option, Stock Appreciation Right or Stock Grant
theretofore granted without the Participant's consent. In addition, no such
amendment shall be made without the approval of the Company's shareholders to
the extent such approval is required by law or agreement.
The Board of Directors may amend the Plan at any time provided that
(a) no amendment shall impair the rights of any Participant under any Award
theretofore granted without the Participant's consent, and (b) any amendment
shall be subject to the approval or rejection of the Board.
The Board of Directors may amend the terms of any Award or other Award
theretofore granted, prospectively or retroactively, but no such amendment
shall impair the rights of any Participant without the Participant's consent.
The Board of Directors may also substitute new Stock Options or Stock
Appreciation Rights for previously granted Stock Options, including previously
granted Stock Options or Stock Appreciation Rights having higher Option Prices
but no such substitution shall be made which would impair the rights of
Participants under such Stock Option or Stock Appreciation Right theretofore
granted without the Participant's consent.
Subject to the above provisions, the Board shall have authority to
amend the Plan to take into account changes in law and tax and accounting
rules, as well as other developments and to grant Awards which qualify for
beneficial treatment under such rules without shareholder approval.
10.2 Unfunded Status of Plan. It is intended that the Plan be an
"unfunded" plan for incentive and deferred compensation. The Board of Directors
may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock or make payments;
provided, however, that, unless the Board of Directors otherwise determines,
the existence of such trusts or other arrangements is consistent with the
"unfunded" status of the Plan.
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10.3 General Provisions.
(a) Representation. The Board of Directors may require each
person purchasing or receiving shares pursuant to an Award to
represent to and agree with the Company in writing that such person is
acquiring the shares without a view to the distribution thereof. The
certificates for such shares may include any legend which the Board of
Directors deems appropriate to reflect any restrictions on transfer.
(b) No Additional Obligation. Nothing contained in the
Plan shall prevent the Company or an Affiliate from adopting other or
additional compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount
first becomes includible in the gross income of the Participant for
Continental Natural Gas, Inc. income tax purposes with respect to any
Award, the Participant shall pay to the Company (or other entity
identified by the Board of Directors), or make arrangements
satisfactory to the Company or other entity identified by the Board of
Directors regarding the payment of any federal, state, local or
foreign taxes of any kind required by law to be withheld with respect
to such amount required in order for the Company or an Affiliate to
obtain a current deduction. Unless otherwise determined by the Board
of Directors, withholding obligations may be settled with Common
Stock, including Common Stock that is part of the Award that gives
rise to the withholding requirement provided that any applicable
requirements under Section 16 of the Exchange Act are satisfied. The
obligations of the Company under the Plan shall be conditional on such
payment or arrangements, and the Company and its Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the Participant.
(d) Reinvestment. The reinvestment of dividends in additional
Deferred or Restricted Stock at the time of any dividend payment shall
only be permissible if sufficient shares of Common Stock are available
for such reinvestment (taking into account then outstanding Options
and other Awards).
(e) Representation. The Board of Directors shall establish
such procedures as it deems appropriate for a Participant to designate
a Representative to whom any amounts payable in the event of the
Participant's death are to be paid.
(f) Controlling Law. The Plan and all Awards made and actions
taken thereunder shall be governed by and construed in accordance with
the laws of the State of Oklahoma. The Plan shall be construed to
comply with all applicable law, and to avoid liability to the Company,
an Affiliate or a Participant, including, without limitation,
liability under Section 16b of the Exchange Act.
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(g) Offset. Any amounts owed to the Company or an Affiliate
by the Participant of whatever nature may be offset by the Company
from the value of any shares of Common Stock, cash or other thing of
value under this Plan or an Agreement to be transferred to the
Participant, and no shares of Common Stock, cash or other thing of
value under this Plan or an Agreement shall be transferred unless and
until all disputes between the Company and the Participant have been
fully and finally resolved and the Participant has waived all claims
to such against the Company or an Affiliate.
10.4 Mitigation of Excise Tax. If any payment or right accruing to a
Participant under this Plan (without the application of this Section 10.4),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments") would
constitute a "parachute payment" (as defined in Section 28OG of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable
or right accruing under the Plan being subject to an excise tax under Section
4999 of the Code or being disallowed as a deduction under Section 28OG of the
Code. The determination of whether any reduction in the rights or payments
under this Plan is to apply shall be made by the Board of Directors in good
faith after consultation with the Participant, and such determination shall be
conclusive and binding on the Participant. The Participant shall cooperate in
good faith with the Board of Directors in making such determination and
providing the necessary information for this purpose. The foregoing provisions
of this Section 10.4 shall apply with respect to any person only if after
reduction for any applicable federal excise tax imposed by Section 4999 of the
Code and federal income tax imposed by the Code, the Total Payments accruing to
such person would be less than the amount of the Total Payments as reduced, if
applicable, under the foregoing provisions of the Plan and after reduction for
only federal income taxes.
10.5 Rights with Respect to Continuance of Employment. Nothing
contained herein shall be deemed to alter the relationship between the Company
or an Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or
an Affiliate shall have no obligation to retain the Participant in its employ
or service as a result of this Plan. There shall be no inference as to the
length of employment or service hereby, and the Company or an Affiliate
reserves the same rights to terminate the Participant's employment or service
as existed prior to the individual becoming a Participant in this Plan.
10.6 Awards in Substitution for Awards Granted by Other Corporations.
Awards may be granted under the Plan from time to time in substitution for
awards held by employees, directors or service providers of other corporations
who are about to become officers, directors or employees of the Company or an
Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or an Affiliate, or the acquisition by the Company
or an Affiliate of
A21
<PAGE> 28
the assets of the employing corporation, or the acquisition by the Company or
Affiliate of the stock of the employing corporation, as the result of which it
becomes a designated employer under the Plan. The terms and conditions of the
Awards so granted may vary from the terms and conditions set forth in this Plan
at the time of such grant as the majority of the members of the Board of
Directors may deem appropriate to conform, in whole or in part, to the
provisions of the awards in substitution for which they are granted.
10.7 Procedure for Adoption. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the
Board of Directors and subject to such conditions as may be imposed by the
Board of Directors, adopt the Plan for the benefit of its employees as of the
date specified in the board resolution.
10.8 Procedure for Withdrawal. Any Affiliate which has adopted the
Plan may, by resolution of the board of directors of such direct or indirect
subsidiary, with the consent of the Board of Directors and subject to such
conditions as may be imposed by the Board of Directors, terminate its adoption
of the Plan. If the Participant disposes of shares of Common Stock acquired
pursuant to an Incentive Stock Option in any transaction considered to be a
disqualifying transaction under the Code, the Participant must give written
notice of such transfer and the Company shall have the right to deduct any
taxes required by law to be withheld from any amounts otherwise payable to the
Participant.
10.9 Delay. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to
the extent necessary to avoid the imposition of liability shall be suspended
and delayed during the period the Participant would be subject to such
liability, but not more than six (6) months and one (1) day and not to exceed
the Option Period, or the period for exercise of a Stock Appreciation Right as
provided in the Agreement, whichever is shorter. The Company shall have the
right to suspend or delay any time period described in the Plan or an Agreement
if the Board of Directors shall determine that the action may constitute a
violation of any law or result in liability under any law to the Company, an
Affiliate or a shareholder of the Company until such time as the action
required or permitted shall not constitute a violation of law or result in
liability to the Company, an Affiliate or a shareholder of the Company.
10.10 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
10.11 Severability. If any provision of this Plan shall for any reason
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereby, and this Plan shall be construed
as if such invalid or unenforceable provision were omitted.
10.12 Successors and Assigns. This Plan shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all
A22
<PAGE> 29
rights granted to the Company hereunder, shall be binding upon the
Participant's heirs, legal representatives and successors.
10.13 Entire Agreement. This Plan and the Agreement constitute the
entire agreement with respect to the subject matter hereof and thereof,
provided that in the event of any inconsistency between the Plan and the
Agreement, the terms and conditions of the Agreement shall Control.
EXECUTED on this day of April, 1997.
---------
CONTINENTAL NATURAL GAS, INC.
By:
-----------------------------------
Gary C. Adams
Chairman and Chief Executive Officer
A23
<PAGE> 30
ANNEX B-1
INCENTIVE STOCK OPTION AGREEMENT
FOR STOCK OPTIONS GRANTED
UNDER THE
CONTINENTAL NATURAL GAS, INC.
1997 STOCK PLAN
B1-1
<PAGE> 31
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT dated
as of ________, 199___ ("Grant Date"), is between
Continental Natural Gas, Inc., an Oklahoma corporation
(the "Company"), and __________, an employee of the
Company or one of its Subsidiaries (the "Participant").
WHEREAS, the Company desires, by affording the Participant an
opportunity to purchase shares of the Company's Common Stock as hereinafter
provided, to carry out the purposes of the Continental Natural Gas, Inc. 1997
Stock Incentive Plan (the "Plan"); and
WHEREAS, the Board of Directors has duly made all determinations
necessary or appropriate to the grants hereunder;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto have agreed, and do
hereby agree, as follows:
1. Grant of Option, Option Price and Term.
(a) The Company hereby grants to the Participant, as a matter
of separate agreement and not in lieu of salary or any other
compensation for services, the right and option (the "Option") to
purchase _______ shares of the Common Stock of the Company ("Option
Shares") on the terms and conditions herein set forth.
(b) For each of the Option Shares purchased, the Participant
shall pay to the Company $_______ per share (the "Option Price"),
which represents the Fair Market value on _________, 199___, the date
of grant. Accordingly, the aggregate Option Price to exercise all of
the Option is $__________ ("Aggregate Option Price").
(c) The term of this Option shall be a period of ten (10)
years from the Grant Date (the "Option Period").
(d) The Option granted hereunder is designated as an incentive
stock option.
(e) The Company shall not be required to issue any fractional
Option Shares.
B1-2
<PAGE> 32
2. Termination of Option. Subject to the schedule of
Section 1(c).
(a) If the Termination of Employment is on account of the
death of the Participant, this Option shall be canceled five (5) years
after the date of the occurrence of the death or after the remaining
Option Period if shorter.
(b) If a Participant incurs a Termination of Employment for
reasons of a Disability, this Option shall be canceled one (1) year
after such Termination of Employment or after the remaining Option
Period if shorter.
(c) If a Participant incurs a Termination of Employment
(other than due to Disability or death), this Option will
automatically be canceled three (3) months after such Termination of
Employment or after the remaining Option Period, if shorter.
(d) If a Participant incurs a Termination of Employment for
Cause, the Option will be automatically canceled with the date of the
Termination of Employment.
3. Exercise.
The Option shall be exercisable during the Participant's lifetime only
by the Participant or his or her Representative, and after the Participant's
death only by a Representative. The Option may only be exercised by the
delivery to the Company of a properly completed written notice, in form
satisfactory to the Board of Directors, which notice shall specify the number
of Option Shares to be purchased and the aggregate Option Price for such
shares, together with payment in full of such aggregate Option Price. Payment
shall be made in one or more of the following methods and in a manner so as not
to violate Rule 16b of the Securities and Exchange Act of 1 934, as amended:
(a) in cash or by check;
(b) by the delivery to the Company of a valid and enforceable
stock certificate (or certificates) representing shares of Common
Stock, which is endorsed in blank or accompanied by an executed stock
power (or powers) and guaranteed in a manner acceptable to the Board
of Directors;
(c) by reducing the number of shares of Common Stock to be
issued and delivered to the Participant upon such exercise;
(d) in cash by a broker-dealer to whom the Participant has
submitted a notice of exercise; or
(e) in any combination of (a), (b), (c) or (d).
B1-3
<PAGE> 33
If any part of the payment of the Option Price is made in shares of Common
Stock, such shares shall be valued by using their Fair Market Value as of their
date of delivery.
The Option shall not be exercised unless there has been compliance
with all the preceding provisions of this Section 3, and, for all purposes of
this Incentive Stock Option Agreement, the date of the exercise of the Option
shall be the date upon which there is compliance with all such requirements.
4. Payment of Withholding Taxes.
If the Company is obligated to withhold an amount on account of any
federal, state or local tax imposed as a result of the exercise of the Option,
including, without limitation, any federal, state or other income tax, or any
F.I.C.A., state disability insurance tax or other employment tax, then the
Participant shall (1) pay, concurrently with such exercise, such amount to the
Company in cash or by check payable to the Company; (2) irrevocably elect at
least six (6) months in advance of such exercise (or elect incident to a
Termination of Employment, Retirement, death or Disability) to have shares of
Common Stock, which would otherwise be issued, withheld by the Company; or (3)
as otherwise permitted by the Plan.
5. Requirements of Law; Registration and Transfer Requirements.
The Company shall not be required to sell or issue any shares under
the Option if the issuance of such shares shall constitute a violation of any
provision of any law or regulation of any governmental authority. This Option
and each and every obligation of the Company hereunder are subject to the
requirement that the Option may not be exercised or performed, in whole or in
part, unless and until the Option Shares are listed, registered or qualified,
properly marked with a legend or other notation, or otherwise restricted, as is
provided for in the Plan.
6. Adjustments/Change in Control.
In the event of a Change in Control or other corporate restructuring
provided for in the Plan, the Participant shall have such rights, and the Board
of Directors shall take such actions, as are provided for in the Plan.
7. Nontransferability.
The Option and any interest in the Option may not be sold, assigned,
conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner
other than by will or the laws of descent and distribution. Notwithstanding any
other provision of this Incentive Stock Option Agreement, any such attempted
sale, assignment, conveyance, gift, pledge, hypothecation or transfer shall be
null and void and shall nullify the Option immediately.
B1-4
<PAGE> 34
8. Plan.
Notwithstanding any other provision of this Incentive Stock Option
Agreement, the Option is granted pursuant to the Plan, as in effect on the date
hereof, and is subject to all the terms and conditions of the Plan, as the same
may be amended from time to time; provided, however, that no amendment to
either the Plan or this Incentive Stock Option Agreement shall deprive the
Participant, without the Participant's consent, of the Option or of any of
Participant's rights under this Incentive Stock Option Agreement. The
interpretation and construction by the Board of Directors of the Plan, this
Incentive Stock Option Agreement, the Option, and such rules and regulations as
may be adopted by the Board of Directors for the purpose of administering the
Plan, shall be final and binding upon the Participant. Until the Option shall
expire, terminate or be exercised in full, the Company shall, upon written
request therefor, send a copy of the Plan, in its then-current form, to the
Participant or any other person or entity then entitled to exercise the Option.
Participant hereby acknowledges receipt of a copy of the Plan.
9. Stockholder Rights.
Until the Option shall have been duly exercised to purchase such
Option Shares and such shares have been officially recorded as issued on the
Company's official stockholder records, no person or entity shall be entitled
to vote, receive dividends or be deemed for any purpose the holder of any
Option Shares, and adjustments for dividends or otherwise shall be made only if
the record date therefor is subsequent to the date such shares are recorded and
after the date of exercise and without duplication of any adjustment.
10. Employment Rights.
No provision of this Incentive Stock Option Agreement or of the Option
granted hereunder shall give the Participant any right to continue in the
employ of the Company or any of its Affiliates, create any inference as to the
length of employment of the Participant, affect the right of the Company or its
Affiliates to Terminate the Employment of the Participant, with or without
Cause, or give the Participant any right to participate in any employee welfare
or benefit plan or other program (other than the Plan) of the Company or any of
its Affiliates.
11. Disclosure Rights.
The Company shall have no duty or obligation to affirmatively disclose
to the Participant or a Representative, and the Participant or Representative
shall have no right to be advised of, any material information regarding the
Company or an Affiliate at any time prior to, upon or in connection with the
exercise of an Option or the Company's purchase of Common Stock in accordance
with the terms of this Incentive Stock Option Agreement.
B1-5
<PAGE> 35
12. Investment Representation and Agreement.
The Board of Directors may require the Participant to furnish to the
Company, prior to the issuance of any shares of Common Stock upon the exercise
of all or any part of this Option, an agreement (in such form as such Board of
Directors may specify) in which the Participant represents that the shares of
Common Stock acquired by him upon exercise are being acquired for investment
and not with a view to the sale or distribution thereof.
13. Governing Law.
This Incentive Stock Option Agreement and the Option granted hereunder
shall be governed by, and construed and enforced in accordance with, the laws
of the State of Oklahoma.
14. Entire Agreement.
This Incentive Stock Option Agreement, together with the Plan,
constitute the entire obligation of the parties hereto with respect to the
subject matter hereof and shall supersede any prior expressions of intent or
understanding with respect to this transaction.
15. Definitions.
Wherever initial capitalization of a term is used in this Incentive
Stock Option Agreement, it shall have the same meaning as that given to it by
the Plan, except to the extent such meaning should conflict with any meaning
afforded to such term in this Incentive Stock Option Agreement.
16. Amendment.
Any amendment to this Incentive Stock Option Agreement shall be in
writing and signed by the Company.
17. Waiver; Cumulative Rights.
The failure or delay of either party to require performance by the
other party of any provision hereof shall not affect its right to require
performance of such provision unless and until such performance has been waived
in writing. Each and every right hereunder is cumulative and may be exercised
in part or in whole from time to time.
18. Counterparts.
This Incentive Stock Option Agreement may be signed in two
counterparts, each of which shall be an original, but both of which shall
constitute but one and the same instrument.
B1-6
<PAGE> 36
19. Notices.
Any notice which either party hereto may be required or permitted to
give the other shall be in writing and may be delivered personally or by mail,
postage prepaid, addressed to the Secretary of the Company, 1412 South Boston,
Suite 500, Tulsa, Oklahoma, and the Participant at his or her address as shown
on the Company's payroll records, or to such other address as the Participant,
by notice to the Company, may designate in writing from time to time.
20. Headings.
The headings contained in this Incentive Stock Option Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Incentive Stock Option Agreement.
21. Severability.
If any provision of this Incentive Stock Option Agreement shall for
any reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not effect any other provision hereof, and this
Incentive Stock Option Agreement shall be construed as if such invalid or
unenforceable provision were omitted.
22. Successors and Assigns.
This Incentive Stock Option Agreement shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed upon the Participant or a Representative, and all rights granted to the
Company hereunder, shall be binding upon the Participant's or the
Representative's heirs, legal representatives and successors.
IN WITNESS WHEREOF, the Company has caused this Incentive Stock Option
Agreement to be duly executed by an officer thereunto duly authorized, and the
Participant has hereunto set his hand, all as of the day and year first above
written.
CONTINENTAL NATURAL GAS, INC.
By:
-----------------------------------
Title:
--------------------------------
PARTICIPANT
By:
-----------------------------------
B1-7
<PAGE> 37
ANNEX B-2
STOCK GRANT AGREEMENT
FOR STOCK GRANTED
UNDER THE
CONTINENTAL NATURAL GAS, INC.
1997 STOCK PLAN
B2-1
<PAGE> 38
STOCK GRANT AGREEMENT
STOCK GRANT AGREEMENT dated as of between CONTINENTAL NATURAL GAS,
INC., an Oklahoma corporation (the "Company"), and , an (officer, non-employee
director, employee or consultant) of the Company or one of its subsidiaries
(the "Holder").
WHEREAS, the Board of Directors of the Company has established
Continental Natural Gas, Inc. 1997 Stock Plan (the "Plan");
WHEREAS, the Plan's Board of Directors, in accordance with the
provisions of the Plan, has selected the Holder as a salaried key management
employee who, in the Board of Directors's judgment, has significant potential
for making substantial contributions to corporate growth and objectives;
WHEREAS, in order to reward the Holder for services to be rendered in
a manner that relates directly to the Company's earnings growth and further the
identity of interests of the Holder and the Company's shareholders through
opportunities for increased stock ownership by the Holder, each Board of
Directors has determined that the Holder receive a Stock Grant under the Plan;
NOW, THEREFORE, in consideration of the foregoing and the Holder's
acceptance of the terms and conditions hereof, the parties hereto have agreed,
and do hereby agree, as follows:
1. The Company hereby grants to the Holder, as a matter of separate
agreement and not in lieu of salary or any other compensation for services,
shares of Common Stock of the Company on the terms and conditions herein set
forth.
2. The certificates representing the shares of Common Stock granted to
the Holder shall be registered in the name of the Holder and retained in the
custody of the Company until such time as they are delivered to the Holder or
forfeited to the Company in accordance with the terms hereof (the "Restriction
Period"). During the Restriction Period, the Holder will be entitled to vote
such shares and to receive dividends paid on such shares (less any amounts
which the Company is required to withhold for taxes).
3. If the Holder shall not have incurred a Termination of Employment
prior to ______________ , the Company shall deliver to the Holder on or about
such date a certificate, registered in the name of the Holder and free of
restrictions hereunder, representing ____% of the total number of shares
granted to the Holder pursuant to this Agreement. If the Holder shall be so
continuously employed on , the Company on or about such date shall deliver
additional certificates representing ____% of the total number of such shares.
If the Holder shall be so continuously employed on _______________________, the
Company on or about such date shall deliver additional certificates
representing ____% of the total number of such shares. If the Holder shall be
so continuously employed on ______________________, the Company on or about such
date shall
B2-2
<PAGE> 39
deliver additional certificates representing ____% of the total number of such
shares. No payment (except for tax withholding) shall be required from the
Holder in connection with any delivery to the Holder of shares hereunder.
4. In the event the Holder has a Termination of Employment for reasons
of Retirement at or after age 65, or Disability, and if there then remain any
undelivered shares subject to restrictions hereunder, then such restrictions
shall be deemed to have lapsed and the certificates for the remaining shares
shall forthwith be delivered to such retired Holder.
5. Subject to the provisions of paragraph 4 above, if the Holder has a
Termination of Employment for any reason (including Retirement prior to age 65
or death) during the Restriction Period, then the Holder shall cease to be
entitled to delivery of any of the shares covered by this Agreement which have
not theretofore been delivered by the Company pursuant to paragraph 3 above,
and all rights of the Holder in and to such undelivered shares shall be
forfeited; provided, however, the appropriate Board of Directors may, within
120 days after such Termination of Employment, in its sole discretion,
determine whether such former Holder (or his beneficiary, estate or heirs)
shall receive all or any part of the undelivered shares granted pursuant to
this Stock Grant Agreement and whether to impose any conditions in connection
therewith. In addition, each Board of Directors shall from time to time
determine in its sole discretion whether any period of nonactive employment,
including authorized leaves of absence by reason of military or governmental
service, shall constitute Termination of Employment for the purposes of this
paragraph.
6. The granting of this Stock Grant shall not in any way prohibit or
restrict the right of the Company to terminate the Holder's employment at any
time, for any reason.
7. While shares of Common Stock are held in custody for the Holder
pursuant to this Agreement, they may not be sold, transferred, pledged,
exchanged, hypothecated or disposed of by the Holder and shall not be subject
to execution, attachment or similar process.
8. This Agreement and each and every obligation of the Company
hereunder are subject to the requirement that if at any time the Company shall
determine, upon advice of counsel, that the listing, registration or
qualification of the shares covered hereby upon any securities exchange or
under any state or Federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of or in connection
with the granting hereof or the delivery of shares hereunder, then the delivery
of shares hereunder to the Holder may be postponed until such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of Directors of the
Company.
9. In addition to amounts in respect of taxes which the Company shall
be required by law to deduct or withhold from any dividend payments on the
shares covered hereby, the Company may defer making any delivery of shares
under this Agreement until completion of arrangements satisfactory to the
Company for the payment of any other applicable taxes.
B2-3
<PAGE> 40
10. In the event of a "change in control," as that term is defined in
the Plan, then the Holder shall have all the rights specified in Article IX of
the Plan.
11. Defined words used in this Agreement shall have the same meaning
as set forth in the definitions section or elsewhere in the Plan, the terms and
conditions of which shall constitute an integral part hereof.
12. Any notice which either party hereto may be required or permitted
to give the other shall be in writing and may be delivered personally or by
mail, postage prepaid, addressed to the Secretary of the Company, 1412 South
Boston, Suite 500, Tulsa, Oklahoma 74119, and to the Holder at his address as
shown on the Company's payroll records, or to such other address as the Holder
by notice to the Company may designate in writing from time to time.
CONTINENTAL NATURAL GAS, INC.
BY:
-----------------------------------
ACCEPTED:
- -------------------------------
HOLDER
*I hereby elect to be taxed (check one):
( ) as the restrictions lapse, or such later date as may result
from the application of Section 16b of the Securities Exchange
Act of 1934, as amended.
( ) as of the date of grant for all of the shares of Common Stock.
- -------------------------------
HOLDER
- -------------------------------
DATE
*ANY ELECTION TO BE TAXED AS OF THE DATE OF GRANT MUST BE FILED WITH THE
INTERNAL REVENUE SERVICE NOT LATER THAN 30 DAYS AFTER THE DATE HEREOF AND A
COPY FILED WITH THE SECRETARY OF THE COMPANY.
B2-4
<PAGE> 41
EXERCISE AGREEMENT
FOR EXERCISING STOCK OPTIONS
GRANTED UNDER THE
CONTINENTAL NATURAL GAS, INC.
1997 STOCK PLAN
C-i
<PAGE> 42
INSTRUCTIONS
FOR EXERCISING STOCK OPTION GRANTED
UNDER THE
CONTINENTAL NATURAL GAS, INC.
1997 STOCK PLAN
===============================================================================
General:
In order to exercise your Option granted under the Continental Natural
Gas, Inc. 1997 Stock Plan ("Plan") pursuant to your stock Option Agreement,
please complete and sign the attached Continental Natural Gas, Inc. 1997 Stock
Plan Exercise Agreement ("Exercise Agreement"). On the Exercise Agreement, you
should indicate the manner in which you will pay (1) the exercise price of the
Option ("Option Price") and (2) any required withholding taxes.
Participants who are directors of the Company, who are officers of the
Company subject to the provisions of Section 16 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and/or who beneficially own (as
defined in rules issued under such Section 16) over ten percent of the
outstanding Shares of the Company (collectively the "Insiders"), are subject to
the reporting and short-swing profits recapture rules under such Section 16.
Therefore, before making any elections or transactions with respect to Stock
Options (and stock acquired upon exercise thereof) under the Plan, these
participants should consult with their legal advisors and ____________ of the
Company regarding the Section 16 implications.
If you have any questions regarding this Exercise Agreement, please
contact _____________.
Endorsement:
1 . Cash: If you are paying the Option Price or arranging for
payment of tax withholding by certified check or casher's check, checks should
be made payable to Continental Natural Gas, Inc..
2. Stock Certificate: If you are paying the Option Price or
arranging for payment of tax withholding by delivering a stock certificate the
stock certificate should be properly endorsed as follows.
a. The record holder of the stock certificate being
surrendered should sign and date the stock certificate on the reverse
side. The signature should correspond exactly (including misspellings)
with the name shown on the front side of the stock certificate.
C-ii
<PAGE> 43
. If the stock certificate being surrendered is held of record
in joint tenancy, both joint tenants must sign.
. If the endorsement is by a corporation or by a person
acting in a fiduciary or other representative capacity,
proper evidence of the authority of the person making the
endorsement should be included with the stock certificate
being surrendered.
b. If the stock certificate being surrendered represents a
larger number of shares of Common Stock than are being surrendered as
the Option Price (i.e., having a Fair Market Value on the date the
Option is exercised in excess of the Option Price), indicate on the
reverse side of the stock certificate the number of shares of Common
Stock being transferred to the Company pursuant to the exercise of the
Option. A new certificate representing any excess shares of Common
Stock will be issued in the name appearing on the surrendered stock
certificate and delivered to you by the transfer agent for the
Company.
c. The method of delivery of a stock certificate representing
Common Stock is at the option and risk of the holder of such
certificates. If a stock certificate is sent by mail, insured
registered mail is recommended.
Defined Terms:
Each term defined in the Plan or a Stock Option Agreement shall, when
capitalized herein, have the same meaning for the purpose of this Exercise
Agreement as given to it in the Plan or the Stock Option Agreement. The Plan
and the Stock Option Agreement shall control if there is any conflict between
the Plan (or the Stock Option Agreement) and this Exercise Agreement, and as to
all matters not provided in this Exercise Agreement.
C-iii
<PAGE> 44
CONTINENTAL NATURAL GAS, INC.
1997 STOCK PLAN
EXERCISE AGREEMENT
This Exercise Agreement is made by and between Continental Natural Gas,
Inc. ("Company") and _____________________ ("Participant"). The Participant
entered into a Stock Option Agreement, dated __________, in accordance with the
Continental Natural Gas, Inc. 1997 Stock Plan ("Plan").
The Participant desires to exercise the Option on the following terms
and conditions:
1. General. Each term defined in the Plan or a Stock Option Agreement
shall, when capitalized herein, have the same meaning for the purpose of this
Exercise Agreement as given to it in the Plan or the Stock Option Agreement.
The Plan and the Stock Option Agreement shall control if there is any conflict
between the Plan (or the Stock Option Agreement) and this Exercise Agreement,
and as to all matters not provided in this Exercise Agreement.
2. Exercise. Subject to the terms of this Exercise Agreement, the
Participant hereby irrevocably elects to exercise, as of the date accepted
hereunder by the Board of Directors, the Option with respect to __________
Option Shares at the Option Price of $ _________per Option Share (as set forth
in the Stock Option Agreement). The exercise pursuant hereto shall reduce the
number of shares subject to the Stock Option Agreement by the same amount.
3. Consideration. The Option Shares to be received pursuant to this
Exercise Agreement are being transferred in consideration for: [Please check
the applicable Option payment provision.]
a. cash in the amount of $_______(the Option Price). Enclosed
herewith is a certified check or cashier's check for this
amount.
b. delivery of valid and enforceable stock certificates
representing shares of Common Stock and endorsed for transfer to
the Company, in accordance with the Instructions accompanying
this Exercise Agreement.
c. the Company reducing the number of Option Shares to be issued
and delivered to the Participant upon such exercise.
d. cash by a broker-dealer to whom the holder of the Option has
submitted an irrevocable notice of exercise.
C1
<PAGE> 45
e. any combination of (a), (b), (c) or (d) having an aggregate Fair
Market Value equal to the aggregate Option Price.
Describe any combination:
--------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
4. Withholding. Because the Company is obligated to withhold an amount
presently or an estimated amount in the future on account of any tax (including
employment taxes) imposed as a result of the exercise of this Option, the
Participant does hereby: [Please check the applicable tax withholding
provision]
a. -- request that this exercise not be accepted by the Board of
Directors for six (6) months and the Company withhold and
not transfer or issue to the Participant by virtue of this
exercise, that number of Option Shares having an aggregate
Fair Market Value equal to the Company's federal, state or
local tax withholding obligations with respect to the
exercise of the Option.
b. -- (if the Participant is an employee of the Company as of the
date hereof) authorize the Company to withhold from my
future paychecks such amounts, in addition to any other
amounts to be withheld from such paychecks, equal to the
Company's federal, state or local tax withholding
obligations with respect to the exercise of the Option.
c -- deliver a certified check or cashier's check to the Company
equal to the Company's federal, state or local tax
withholding obligations with respect to the exercise of the
Option, as reported to the Participant by the Company.
5. Rule 144 Sales. If any Participant wishes to dispose of any Option
Shares in accordance with Rule 144 under the Act or otherwise, the Participant
shall promptly notify the Company of such intended disposition and shall
deliver to the Company at or prior to the time of such disposition such
documentation as the Company may reasonably request in connection with such
sale and, in the case of a disposition pursuant to Rule 144, shall deliver to
the Company an executed copy of any notice on Form 144 required to be filed
with the Securities and Exchange Commission.
6. Prospectus. The Participant represents and warrants that he or she
has received a Prospectus describing the Plan.
C2
<PAGE> 46
7. Successors and Assigns. This Exercise Agreement shall inure to the
benefit of and be binding upon each successor and assignee of the Participant
and the Company.
8. Choice of Laws. This Exercise Agreement shall be governed by and
construed in accordance with the laws of the State pursuant to which the Stock
Option Agreement shall be governed and construed.
9. Entire Exercise Agreement. This Exercise Agreement, together with
the Plan and the Stock Option Agreement, constitute the entire obligation of
the parties hereto with respect to the subject matter hereof and shall
supersede any prior expressions of intent or understanding with respect to this
exercise of your Option.
TENDERED BY THE PARTICIPANT ACCEPTED BY THE Board of Directors FOR
ON THE CONTINENTAL NATURAL GAS, INC.
-------------------------- 1997 STOCK PLAN
ON
------------------------------------
By:
- ----------------------------- -----------------------------------
Title:
--------------------------------
C3
<PAGE> 1
EXHIBIT 10.5
ASSET PURCHASE AGREEMENT
DATED AS OF MARCH 13, 1996
BY AND AMONG
TRANSWESTERN GATHERING COMPANY
AS SELLER
AND
CONTINENTAL NATURAL GAS, INC.
AS BUYER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2 Earnest Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Adjustments to the Purchase Price . . . . . . . . . . . . . . . . . . .
2.4 Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.5 Post-Closing Adjustments to the Purchase Price . . . . . . . . . . . .
2.6 Allocated Values . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 3
CLOSING; ADJUSTMENTS TO PURCHASE PRICE
3.1 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . .
3.2 Deliveries by Seller at Closing . . . . . . . . . . . . . . . . . . . .
3.3 Deliveries by Buyer at Closing . . . . . . . . . . . . . . . . . . . .
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
4.1 Organization and Good Standing of Seller . . . . . . . . . . . . . . .
4.2 Condition of the Assets; Preferential Rights to Purchase
4.3 Authorization of Agreement; No Violation; No Consents . . . . . . . . .
4.4 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . .
4.5 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.7 Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.8 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . .
4.9 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . .
4.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . .
5.2 Authorization of Agreement; No Violation; No Consents . . . . . . . . .
5.3 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . .
5.4 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.5 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.6 Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.7 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 6
COVENANTS
6.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.2 Operation of the Assets Prior to the Effective Time . . . . . . . . . .
6.3 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.4 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.5 Payment of Pre-Effective Time Operating Expenses . . . . . . . . . . .
6.6 Commission Filings . . . . . . . . . . . . . . . . . . . . . . . . . .
6.7 Risk of Loss of the Assets; Casualty Loss . . . . . . . . . . . . . . .
6.8 Allocation of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
6.9 Records: Access and Retention . . . . . . . . . . . . . . . . . . . . .
6.10 Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.11 Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . .
6.12 Supplements to Schedules . . . . . . . . . . . . . . . . . . . . . . .
6.13 Seller's Property Located on Easements After Closing . . . . . . . . .
6.14 Operational Due Diligence
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLER
7.1 Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.3 Pending Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.4 Casualty Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.5 Seller's Acquisition of Assets . . . . . . . . . . . . . . . . . . . .
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF BUYER
8.1 Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.3 Pending Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.4 Casualty Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 9
TITLE MATTERS
9.1 Title Examination Period . . . . . . . . . . . . . . . . . . . . . . .
9.2 Definition of Title Defects . . . . . . . . . . . . . . . . . . . . . .
9.3 Remedies for Title Defects . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Pre-Closing Environmental Audit . . . . . . . . . . . . . . . . . . . .
10.2 Post-Closing Environmental Investigation . . . . . . . . . . . . . . .
10.3 Corrective Action . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.4 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 11
TERMINATION
11.1 Termination At or Prior to Closing . . . . . . . . . . . . . . . . . .
11.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 12
INDEMNIFICATION
12.1 Assumption of Liabilities Relating to the Assets . . . . . . . . . . .
12.2 Indemnification By Buyer . . . . . . . . . . . . . . . . . . . . . . .
12.3 Indemnification By Seller . . . . . . . . . . . . . . . . . . . . . . .
12.4 Limitation on Damages; Survival of Representations . . . . . . . . . .
12.5 Notice of Asserted Liability; Opportunity to Defend . . . . . . . . . .
ARTICLE 13
MISCELLANEOUS
13.1 Applicable Law; Alternative Dispute Resolution . . . . . . . . . . . .
13.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.3 Independent Investigation . . . . . . . . . . . . . . . . . . . . . . .
13.4 Disclaimer Regarding Assets . . . . . . . . . . . . . . . . . . . . . .
13.5 Waiver of Trade Practices Acts . . . . . . . . . . . . . . . . . . . .
13.6 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . .
13.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.8 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . .
13.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.10 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.12 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.13 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . .
13.16 Payment of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.17 Certain Interpretive Matters . . . . . . . . . . . . . . . . . . . . .
</TABLE>
iii
<PAGE> 5
ASSET PURCHASE AGREEMENT
BETWEEN
TRANSWESTERN GATHERING COMPANY
AND
CONTINENTAL NATURAL GAS, INC.
SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE NO. TITLE
- ------------ -----
<S> <C>
1.1 Description of Assets
4.2 Rights to Purchase
4.4 Governmental Consents
4.7 Pending Legal, Administrative or Arbitration
Proceedings
4.9 Environmental
6.3(b) Capital Expenditures
9.2 Permitted Encumbrance
</TABLE>
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of March _____, 1996, is by and between
TRANSWESTERN GATHERING COMPANY, a Delaware corporation ("Seller"), as Seller,
and CONTINENTAL NATURAL GAS, INC., a Delaware corporation ("Buyer"), as Buyer.
WHEREAS, SELLER owns certain natural gas gathering pipelines and related
facilities located in the Anadarko producing area that it acquired from
Transwestern Pipeline Company ("TW") ("TW Assets") and Seller has obtained a
Declaratory Order from the Federal Energy Regulatory Commission ("Commission")
finding the TW Assets are gas gathering facilities not subject to the
jurisdiction of the Commission under the Natural Gas Act (the "Act");
WHEREAS, Buyer desires to acquire from Seller, and Seller desires to
sell to Buyer, certain of the natural gas gathering pipelines and related
assets that are located in the Anadarko producing area of Texas and Oklahoma,
generally consisting of the Catsby\Ivanhoe, Follett, Kiowa Creek, Gray Rock and
Wolf Creek gathering systems; and
WHEREAS, Seller desires to sell the aforementioned gathering assets to
Buyer, upon the terms and subject to the conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale. Subject to the terms and conditions hereof, at
the Closing (defined in Section 3.1 below), Seller will sell, assign, transfer
and deliver to Buyer, and Buyer will purchase and acquire from Seller, the
assets described on Schedule 1.1 attached hereto under the heading "Seller's
Assets" (Seller's Assets are sometimes herein referred to as the "Assets").
ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price. Buyer agrees to pay an aggregate purchase price
to Seller of SEVEN MILLION EIGHT HUNDRED FOUR THOUSAND AND NO/100 DOLLARS
($7,804,000.00) (the "Purchase Price"), as adjusted at Closing pursuant to
Section 2.3 of this Agreement (the "Adjusted Purchase Price") less the Earnest
Money (as defined
<PAGE> 7
in Section 2.2) by means of a completed Federal Funds wire transfer of
immediately available funds to an account designated by Seller.
2.2 Earnest Money. No earnest money will be deposited by Buyer.
2.3 Adjustments to the Purchase Price.
(a) The Purchase Price shall be increased by the following
amounts:
(i) all capital expenditures (other than expenditures for
Environmental Compliance Deficiencies set forth on the Environmental
Statement (each as hereinafter defined)) reasonably paid or incurred by
Seller or its affiliates that are attributable to the Assets and
attributable to the period of time from and after 12:00 a.m., Houston,
Texas time on the date of this Agreement to the Effective Time (as
hereinafter defined); provided that any individual non-emergency capital
expenditure in excess of $30,000 that is not listed on Schedule 6.1(b)
must have received the prior written approval of Buyer, which approval
shall not be unreasonably withheld, in order for such capital
expenditure to be included in such adjustment;
(ii) the market value of liquid hydrocarbons, if any, in tanks
or storage included in the Assets as of the Effective Time which can be
measured or reasonably estimated;
(iii) the amount, if any, expended by Seller as the cost to cure
any Title Defect (as hereinafter defined) up to the amount of the
deductible provided for in Section 9.3(b), for which Buyer is
responsible; and
(iv) any other amount provided for in this Agreement or agreed
upon in writing by Buyer and Seller.
(b) The Purchase Price shall be decreased by the following amounts:
(i) any amount agreed upon in writing by Buyer and Seller;
(ii) any amount agreed upon in writing by Buyer and Seller
pursuant to Section 10.1(b)(i) as the remaining cost of any incomplete
or remaining corrective projects; and
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<PAGE> 8
(iii) any other amount provided for in this Agreement or agreed
upon in writing by Buyer and Seller.
(c) The adjustments described in Sections 2.3(a) and (b) are
hereinafter referred to as the "Purchase Price Adjustments".
2.4 Statement. Not later than three (3) business days prior to the
Closing Date, Seller shall prepare and deliver to Buyer a statement (the
"Statement") of the estimated Purchase Price Adjustments and the estimated
Adjusted Purchase Price ("Estimated Adjusted Purchase Price"). At Closing,
Buyer shall pay the Estimated Adjusted Purchase Price (less the Earnest Money
Fund).
2.5 Post-Closing Adjustments to the Purchase Price.
(a) On or before one hundred twenty (120) days after the Closing
Date, Seller shall prepare and deliver to Buyer a revised Statement setting
forth the actual Purchase Price Adjustments. To the extent reasonably required
by Seller, Buyer shall assist in the preparation of the revised Statement.
Seller shall provide Buyer such data and information as Buyer may reasonably
request supporting the amounts reflected on the revised Statement in order to
permit Buyer to perform or cause to be performed an audit. The revised
Statement shall become final and binding upon the parties on the sixtieth
(60th) day following receipt thereof by Buyer (the "Final Settlement Date")
unless Buyer gives written notice of its disagreement ("Notice of
Disagreement") to Seller prior to such date. Any Notice of Disagreement shall
specify in detail the dollar amount, nature and basis of any disagreement so
asserted. If a Notice of Disagreement is received by Seller in a timely manner,
then the Statement (as revised in accordance with clause (i) or (ii) below)
shall become final and binding on the parties on, and the Final Settlement Date
shall be, the earlier of (i) the date Seller and Buyer agree in writing with
respect to all matters specified in the Notice of Disagreement or (ii) the date
on which the Final Statement (as hereinafter defined) is issued by the
Arbitrator (as hereinafter defined).
(b) During the sixty (60) days following the date of receipt by
Seller of the Notice of Disagreement, Seller and Buyer shall attempt to resolve
in writing any differences that they may have with respect to all matters
specified in the Notice of Disagreement. If, at the end of such sixty (60) day
period (or earlier by mutual agreement to arbitrate), Buyer and Seller have not
reached agreement on such matters, the matters that remain in dispute may be
submitted to an arbitrator (the "Arbitrator") by either party for review and
resolution. The Arbitrator shall be KPMG Peat Marwick (Houston office), or if
such firm is unable or
-3-
<PAGE> 9
unwilling to act, such other nationally recognized independent public
accounting firm as shall be agreed upon by Buyer and Seller in writing. Each
party shall, not later than seven (7) business days prior to the hearing date
set by the Arbitrator, submit a brief with dollar figures for settlement of the
disputes as to the amount of the Adjusted Purchase Price (together with a
proposed Statement that reflects such figures). The figures submitted need not
be the figures offered during prior negotiations. The hearing will be scheduled
seven (7) business days following submission of the settlement figures, or as
soon thereafter as is acceptable to the Arbitrator, and shall be conducted on a
confidential basis without continuance or adjournment. The Arbitrator shall
render a decision resolving the matters in dispute (which decision shall
include a written statement of findings and conclusions) within three (3)
business days after the conclusion of the hearing, unless the parties reach
agreement prior thereto and withdraw the dispute from arbitration. The
Arbitrator shall provide to the parties explanations in writing of the reasons
for its decisions regarding the Adjusted Purchase Price and shall issue the
Final Statement reflecting such decisions. The decision of the Arbitrator shall
be final and binding on the parties. The cost of any arbitration (including the
fees and expenses of the Arbitrator) pursuant to this Section 2.5 shall be
borne equally by Buyer, on the one hand, and Seller, on the other hand. The
fees and disbursements of Seller's independent auditors incurred in connection
with the procedures performed with respect to the Statement shall be borne by
the Seller and the fees and disbursements of Buyer's independent auditors
incurred in connection with their preparation of the Notice of Disagreement
shall be borne by Buyer. As used in this Agreement the term "Final Statement"
shall mean the revised Statement described in Section 2.5(a), as prepared by
Seller and as may be subsequently adjusted to reflect any subsequent written
agreement between the parties with respect thereto, or if submitted to the
Arbitrator, the Statement issued by the Arbitrator.
(c) If the amount of the Adjusted Purchase Price as set forth on the
Final Statement exceeds the amount of the Estimated Adjusted Purchase Price
paid at Closing, then Buyer shall pay to Seller, within five (5) business days
after the Final Settlement Date, the amount by which the Adjusted Purchase
Price as set forth on the Final Statement exceeds the amount of the Estimated
Adjusted Purchase Price paid at Closing. If the amount of the Adjusted Purchase
Price as set forth on the Final Statement is less than the amount of the
Estimated Adjusted Purchase Price paid at Closing, then Seller shall pay to
Buyer, within five (5) business days after the Final Settlement Date, the
amount by which the Adjusted Purchase Prices as set forth on the Final
Statement is less than the amount of the Estimated Adjusted Purchase Price paid
at
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<PAGE> 10
Closing. Any post-Closing payment made pursuant to this Section 2.5(c) shall be
made by means of a Federal Funds wire transfer of immediately available funds
to a bank account designated by the party receiving the funds.
2.6 Allocated Values. The parties agree to allocate the Purchase
Price among the Assets for all purposes (including financial accounting and tax
purposes) on or before the Closing Date (the "Allocated Values"). Seller and
Buyer each agree that they will not take any position inconsistent with such
allocation in preparing all tax returns and tax reports to governmental
authorities ("Tax Returns") or otherwise. The parties will timely furnish each
other their tax identification numbers, non-foreign affidavits and other
reasonably requested tax compliance information.
ARTICLE 3
CLOSING; ADJUSTMENTS TO PURCHASE PRICE
3.1 Time and Place of Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at 10:00 a.m.
in the offices of Seller at 1400 Smith Street, Houston, Texas 77002, on March
29, 1996 (the "Closing Date"), and shall be effective March 31, 1996 as of
11:59 p.m. (Houston time) (the "Effective Time").
3.2 Deliveries by Seller at Closing. At Closing, Seller shall execute
and deliver, or cause to be executed and delivered, to Buyer:
(a) special warranty deeds conveying to Buyer all fee lands included
in the Assets ("Deeds"), in substantially the form attached hereto as Exhibit
A;
(b) assignments and partial assignments, as appropriate, in
recordable form assigning to Buyer all interests in real property included in
the Assets (other than fee property), including any obligations contained in
easements to install and maintain farm taps and/or sell gas from the Assets
through such farm tap facilities ("Assignments" and "Partial Assignments", in
substantially the form attached hereto as Exhibit B-1 and B-2;
(c) a conveyance, assignment and bill of sale assigning to Buyer all
personal property (tangible and intangible) included in the Assets
("Conveyance"), in substantially the form attached hereto as Exhibit C;
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<PAGE> 11
(d) TW's standard form of Operational Balancing Agreement, which is
attached hereto as Exhibit D (the "TW OBA"), unless the currently effective TW
OBA between TW and Buyer is amended to accommodate new delivery points;
(e) certificates of title for vehicles included in the Assets where
necessary to transfer title, duly endorsed in blank;
(f) the assumption agreement regarding certain system operational
obligations and rate discounts, in substantially the form attached hereto as
Exhibit E (the "Assumption Agreement");
(g) the gathering agreement between TW and Buyer providing
transportation for certain gas that will be purchased or received by TW after
the Closing Date, in the form, provided for in TW's FERC Order in Docket No.
CP95-70 with the term amended to coincide with any TW gas purchase obligations,
attached hereto as Exhibit F (the "Default Gathering Agreement"). In the event
TW and Buyer agree to the assignment of the TW gas purchase obligations to
Buyer, the Default Gathering Agreement shall not be applicable to this
Agreement;
(h) the cathodic protection agreement between TW and Buyer, in
substantially the form attached hereto as Exhibit G (the "Cathodic Protection
Agreement");
(i) right of way and easement agreements granting to Buyer a right of
way for pipeline facilities that cross fee lands retained by Seller or its
affiliates, in substantially the forms attached hereto as Exhibit H (the "Right
of Way Agreement'); and
(j) any other agreements, documents, certificates or other
instruments reasonably necessary to consummate the transactions contemplated by
this Agreement.
3.3 Deliveries by Buyer at Closing. At Closing, Buyer shall deliver
to Seller the Estimated Adjusted Purchase Price as contemplated by Section 2.4,
and Buyer shall execute and deliver or cause to be executed and delivered the
following:
(a) easement agreements, in substantially the form attached hereto as
Exhibit I, granting to Seller (and its affiliates, as the case may be)
easements (at no cost to Seller or its affiliates) across any fee property or
lease included in the Assets in order that Seller and its affiliates can
operate and maintain their respective facilities located on such property that
are excluded form the Assets;
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<PAGE> 12
(b) the TW OBA;
(c) the Gathering Agreement;
(d) the Cathodic Protection Agreement;
(e) Deeds, Assignments, Partial Assignments and Conveyances; and
(f) any other agreements, documents, certificates or other
instruments reasonably necessary to consummate the transactions contemplated by
this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller represents and warrants severally as to itself and not
jointly to Buyer as of the date hereof and as of the Closing Date that:
4.1 Organization and Good Standing of Seller. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power, right and authority to own and
lease the properties and assets it currently owns and leases and to carry on
its business as such business is currently being conducted.
4.2 Condition of the Assets; Preferential Rights to Purchase.
(a) Taken as a whole, the tangible assets and properties that are
part of the Assets are generally in good operating condition and repair,
subject to normal wear and maintenance, and except for assets taken out of
service are generally usable in the regular and ordinary course of business.
(b) Except as listed on Schedule 4.2, there are no preferential
rights to purchase any portion of the Assets.
4.3 Authorization of Agreement; No Violation; No Consents. This
Agreement has been duly executed and delivered by Seller. Seller has the full
corporate power and authority to enter into this Agreement, to make the
representation, warranties, covenants and agreements made herein and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all
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<PAGE> 13
requisite corporate action on the part of Seller and its affiliates. Neither
the execution and delivery of this Agreement by Seller nor the consummation by
Seller of the transactions contemplated hereby (a) will conflict with, result
in a breach, default or violation of, or require consent of any third party
under (i) the terms, provisions or conditions of the Certificate of
Incorporation or Bylaws of Seller or such affiliates or (ii) to the knowledge
of Seller, any judgment, decree, order, governmental permit, certificate,
license, law, statute, rule or regulation to which either Seller or any such
affiliate is a party or is subject, or to which any of the Assets are subject,
except for (A) consents and approvals from governmental authorities that are
customarily obtained after closing in connection with the transactions
contemplated hereby the (the "Customary Post-Closing Consents") and (B) any
conflict, breach, default, violation, or consent that would not have,
individually or in the aggregate, a Material Adverse Effect, or (b) will result
in the creation of any lien, charge or other encumbrance on any of the Assets.
For purposes of this Agreement, occurrences or conditions shall have a
"Material Adverse Effect" if they individually or collectively have a material
adverse effect on the use, ownership or operation of the Assets, taking into
account the nature and valuation of the Assets, or materially hinder or impede
the consummation of the transactions contemplated by this Agreement. For
purposes of this Agreement, the terms "knowledge", "known" or any similar term,
as applied to Seller, shall mean the actual knowledge of the executive officers
and key operational and management personnel of Seller or other authorized
agents of Seller (to the extent employees or agents of an affiliate of Seller)
who prepared or provided information to Buyer in connection with Buyer's
assessment and analysis of this transaction.
4.4 Governmental Consents. To the knowledge of Seller and except as
set forth on Schedule 4.4, no consent, action, approval or authorization of, or
registration, declaration or filing with, any domestic or foreign court,
government, governmental agency, authority, entity or instrumentality
("Governmental Entity") is required to authorize, or is otherwise required in
connection with, the execution and delivery of this Agreement by Seller or
Seller's performance of the terms of this Agreement or the validity or
enforceability hereof against Seller, except for (a) Customary Post-Closing
Consents, (b) the matters discussed in Section 6.6 of this Agreement.
4.5 Enforceability. This Agreement constitutes the legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws
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affecting creditors' rights generally and general principles of equity.
4.6 Brokers. No broker or finder who acted on behalf of Seller or any
affiliate of Seller is entitled to any brokerage or finder's fee, or to any
commission, based in any way on agreements, arrangements or understandings made
by or on behalf of Seller or any affiliate of Seller for which the Buyer has or
will have any liabilities or obligations (contingent or otherwise).
4.7 Suits. Except as set forth on Schedule 4.7, there is no legal,
administrative or arbitration proceeding pending or, to the knowledge of
Seller, threatened relating to the Assets or to which either Seller or one of
its affiliates is or would be a party in connection with the ownership or
operation of the Assets, or that would prohibit or delay in any material
respect the consummation of the transactions contemplated hereby.
4.8 Compliance With Laws. To the knowledge of Seller, Seller is in
material compliance with each statute, law, ordinance, rule or regulation
("Law") of any Governmental Entity applicable to it and related to the Assets,
or by which the Assets are bound, except for any violation that would not have
a Material Adverse Effect. To the knowledge of Seller, Seller possess all
governmental licenses, permits, and certificates necessary for the current
operation of the Assets, except to the extent that the failure to possess such
governmental licenses, permits, and certificates would not have a Material
Adverse Effect. Nothing in this Section 4.8 shall be deemed or construed to
constitute a representation or warranty with respect to Environmental Laws
because such matters are covered solely by Article 10 and Section 4.9.
4.9 Environmental Matters. Except as set forth on Schedule 4.9, (a)
to the knowledge of Seller and with the possible exception of those matters
raised in the Environmental Statement (as hereinafter defined) from Buyer to
Seller provided for in Section 10.1 (which matters Seller does not admit
constitute violations of Environmental Laws), no violation of Environmental
laws (as defined below) exists with respect to any of the Assets, which
violation of Environmental Laws would have a Material Adverse Effect, and (b)
Seller has all applicable and required environmental permits and has filed all
notices required under applicable Environmental Laws. For purposes of this
Agreement, the term "Environmental Laws" shall mean, as to any given Asset, all
laws, statutes, ordinances, rules and regulations of any Governmental Authority
(as hereinafter defined) pertaining to protection of the environment or human
health in effect as of the date hereof. For purposes of this Agreement, the
term "Governmental Authority" shall mean, as to any
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given Asset, the United States and the state, county, city and political
subdivisions in which such Asset is located and the exercises jurisdiction over
such Asset, and any agency, department, board or other instrumentality thereof
that exercises jurisdiction over such Assets.
4.10 Tax Matters. No ad valorem taxes assessed against the Assets are
delinquent. Seller or the previous affiliate owners of the Assets have properly
completed and filed or caused to be filed in a timely manner material reports
or returns required to be filed with respect to such ad valorem taxes relating
to the Assets with any applicable taxing authority or, if not so timely filed,
all appropriate penalties with respect to same have been assessed and paid or
duly contested in good faith and reserved against.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof and as of
the Closing Date that:
5.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma with full corporate power, right and authority to own and lease the
properties and assets it currently owns and leases and to carry on its business
as such business is currently being conducted.
5.2 Authorization of Agreement; No Violation; No Consents. This
Agreement has been duly executed and delivered by Buyer. Buyer has the full
corporate power and authority to enter into this Agreement, to make the
representations, warranties, covenants and agreements made herein and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of Buyer. Neither the execution and delivery of
this Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated hereby will conflict with, result in a breach, default or
violation of, or require the consent of a third party under (a) the terms,
provisions or conditions of the Certificate of Incorporation or Bylaws of Buyer
or (b) to the knowledge of Buyer, any judgment, decree or order or any
governmental permit, certificate, material agreement, license, law, statute,
rule or regulation or any judgment, decree order to which Buyer is a party or
is subject, or to which the business, assets or operations of Buyer are
subject, except for (i) Customary Post-Closing Consents and (ii) any
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conflict, breach, default or violation that would not have, individually or in
the aggregate, a Material Adverse Effect. For purposes of this Agreement, the
terms "knowledge", "known" or any similar term, as applied to Buyer shall mean
the actual knowledge of the executive officers and key operational and
management personnel of Buyer or other authorized agents of Buyer (to the
extent employees or agents of an affiliate of Buyer) who reviewed information
or otherwise performed due diligence in connection with Buyer's assessment and
analysis of this transaction.
5.3 Governmental Consents. To the knowledge of Buyer, no consent,
action, approval or authorization of, or registration, declaration, or filing
with, any Governmental Entity is required to authorize, or is otherwise
required in connection with, the execution and delivery of this Agreement by
Buyer or Buyer's performance of the terms of this Agreement or the validity or
enforceability hereof against Buyer, except for Customary Post-Closing
Consents.
5.4 Enforceability. This Agreement constitutes the legal, valid and
binding obligation of Buyer enforceable against Buyer in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting creditor's rights generally and general
principles of equity.
5.5 Brokers. No broker or finder has acted for or on behalf of Buyer
or any affiliate of Buyer in connection with this Agreement or the transactions
contemplated by this Agreement. No broker or finder is entitled to any
brokerage or finder's fee, or to any commission, based in any way on
agreements, arrangements or understandings made by or on behalf of Buyer or any
affiliate of Buyer for which Seller has or will have any liabilities or
obligations (contingent or otherwise).
5.6 Suits. There is no injunction or restraining order or legal,
administrative or arbitration proceeding pending against Buyer which restrains
or prohibits the consummation of the transactions contemplated by this
Agreement.
5.7 Financing. Buyer has currently available (including funds that
can be drawn under existing lines of credit) all funds necessary to pay the
Purchase Price and any other amounts contemplated by this Agreement. Buyer's
ability to consummate the transactions contemplated hereby is not contingent on
its ability to complete any financing prior to or upon the Closing.
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ARTICLE 6
COVENANTS
6.1 General. Buyer and Seller each will use their reasonable efforts
in good faith to take all actions and to do all things necessary or advisable
in order to consummate and make effective the purchase and sale of the Assets
contemplated by this Agreement including satisfaction of the closing
conditions.
6.2 Operation of the Assets Prior to the Effective Time.
(a) Subject to the provisions of applicable agreements Seller shall
continue to maintain, operate and administer the Assets, or shall cause the
Assets to be maintained, operated and administered, in a good and workmanlike
manner consistent with past practices and in substantial compliance with all
applicable laws and regulations; provided, however, prior to the Closing Date
Seller may, at its election, cause liquid hydrocarbons in any tanks or storage
included in the Assets to be drained.
(b) Between the date of this Agreement and the Closing Date, Seller
shall, except for emergency action taken in the face of risk to life, property
or the environment (such determination to be made in Seller's reasonable
judgment) submit to Buyer for prior written approval (which approval shall not
be unreasonably withheld), all requests for capital expenditures relating to
the Assets that involve individual commitments of more than Thirty Thousand
Dollars ($30,000) and which, consistent with generally accepted accounting
principles and the Commission's regulations relating to natural gas pipeline
accounting, are classified as capital expenditures. The capital expenditures
for the Assets shown in Schedule 6.2(b) are hereby approved by Buyer. Buyer
will respond to Seller in writing within three (3) days after receiving from
Seller a request for approval of a capital expenditure. If Buyer fails to
deliver a written response to Seller within such three (3) days, Buyer will be
deemed to have approved such expenditure. Schedule 1.1 shall be deeded amended
to reflect any assets acquired or constructed by Seller in compliance with this
Section 6.2(b).
(c) Without the prior written approval of Buyer, (except with respect
to Default Gathering Contracts (as hereinafter defined)), as to which no prior
approval is necessary Seller will not enter into, amend, or terminate any
agreements to be assigned to Buyer as part of the Assets, other than (i)
execution of any natural gas gathering agreements, wellhead connect agreements
or other similar agreements with producers whose wells become connected to the
Assets or other shippers between the date of this Agreement and the Closing
Date provided such agreements do not contain terms and
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conditions less favorable than the Default Gathering Contracts (hereinafter
defined) and (ii) the termination of evergreen or month-to-month arrangements.
Seller will take all commercially reasonable steps to keep in force and perform
any agreements to be assigned to Buyer as part of the Assets.
6.3 Permits. Seller and Buyer agree to keep in force and effect and
to cooperate with each other (and Seller agrees to cause the current owners of
the Assets and their employees to cooperate and assist) to make application for
assignment of existing realty and environmental permits (effective with the
conveyance of the Assets to Buyer) or the issuance of new permits relating to
the Assets subsequent to the conveyance of the Assets to Buyer.
6.4 Access. Seller will permit Buyer's officers, employees, agents
and advisors to have reasonable access to the Assets and the employees
operating the Assets (so long as such access occurs during normal business
hours and does not unreasonably interfere with the operation of the Assets) for
the following: (a) to inspect the Assets (including any Environmental Audit (as
hereinafter defined) conducted pursuant to Article 10); (b) to observe the
operation of the Assets and the performance of duties by the employees
operating the Assets prior to the Closing; and (c) related purposes consistent
with this Agreement. Buyer agrees to maintain the confidentiality of all such
information pursuant to the terms of that certain Confidentiality Agreement
signed January 11,1996, between Enron Liquids Services Corp. ("ELSC"), as agent
for Seller, and Buyer (the "Confidentiality Agreement"). In connection with
Buyer's right to reasonable access to the Assets BUYER HEREBY AGREES TO DEFEND,
INDEMNIFY, RELEASE, PROTECT, SAVE AND HOLD HARMLESS THE SELLER INDEMNITEES (AS
HEREINAFTER DEFINED) FROM AND AGAINST ANY AND ALL LOSSES (AS HEREINAFTER
DEFINED) ARISING OUT OF OR RELATING TO ANY PLANT OR FIELD VISIT, OR OTHER DUE
DILIGENCE ACTIVITY, CONDUCTED BY BUYER OR ANY AFFILIATE, SUCCESSOR, ASSIGN,
OFFICER, REPRESENTATIVE, DIRECTOR, CONTROLLING PERSON AND AGENT (EACH A "BUYER
PARTY"), INCLUDING WITHOUT LIMITATION ANY LOSSES RESULTING, IN WHOLE OR IN
PART, FROM THE CONCURRENT OR JOINT NEGLIGENCE OR STRICT LIABILITY OF ANY SELLER
INDEMNITEE. NOTWITHSTANDING THE FOREGOING, BUYER SHALL NOT BE OBLIGATED TO
INDEMNIFY ANY SELLER INDEMNITEE FOR LOSSES (WITH THE EXPRESS EXCEPTION OF
LOSSES SUFFERED BY ANY BUYER PARTY) THAT WERE GROSS THE RESULT OF ANY SELLER
INDEMNITEE'S STRICT LIABILITY OR THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
ONE OR MORE SELLER INDEMNITEES. THE PARTIES AGREE THAT THIS PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.
6.5 Payment of Pre-Effective Time Operating Expenses. Seller agrees
that all operating expenses actually incurred by Seller or
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its affiliates in connection with the operation of the Assets prior to the
Effective Time shall be for the account of, and paid by, Seller or its
affiliates in the ordinary course of business and Buyer shall not be
responsible for the payment thereof other than sales and other transfer taxes
and fees described in Section 6.8(a), which taxes and fees shall be paid by
Buyer.
6.6 Commission Filings. (a) TW filed, with the Commission in Docket
Nos. CP95-70, for authorization to abandon by sale certain gas gathering
facilities, including the Assets, to Seller ("Abandonment Application"). An
Order authorizing the abandonment was issued to TW on July 27, 1995. Buyer
agrees to comply with the conditions set forth in such Order, including but not
limited to, the default gathering contracts applicable to the Assets. A copy of
the Order has been provided to Buyer. In addition, Seller has filed for and
received a Commission Order on its Petition for Declaratory Order, pursuant to
which the Commission determined, among other things, that the gathering
facilities acquired from TW, and which are part of the Assets, are not subject
to the jurisdiction of the Commission under the Act. A copy of such Order has
been provided to Buyer.
(b) Buyer agrees to comply with all Commission requirements regarding
the use and terms and conditions to be contained in the "Default" Gathering
Contract(s) with customers on the gathering facilities constituting a part of
the Assets.
6.7 Risk of Loss of the Assets; Casualty Loss. The risk of loss to
the Assets shall remain on the current owner of the Assets until the Effective
Time, and Buyer will receive the Assets, taken as a whole, in generally good
operating condition and repair, ordinary wear and tear excepted. In the event
any of the Assets shall be damaged by fire or other casualty prior to the
Closing Date, the parties will negotiate in good faith reasonable compensation
reflecting the reasonable costs of repair to the extent such repair,
replacement or reconstruction has not occurred at or prior to the Closing.
6.8 Allocation of Taxes.
(a) Buyer shall be liable for all sales, use, documentary, recording,
stamp, transfer or similar taxes, assessments or fees arising from the transfer
of the Assets to Buyer.
(b) All ad valorem, property and similar taxes for the then current
year relating to the Assets shall be prorated as of the Effective Time. If the
Closing shall occur before the actual taxes for the then current year are
known, the apportionment of taxes
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shall be upon the basis of taxes for the Assets for the immediately preceding
year, provided that, if the taxes for the current year are thereafter
determined to be more or less than the taxes for the preceding year (after any
appeal of the assessed valuation thereof is concluded), Seller and Buyer shall
promptly adjust the proration of such taxes in accordance with such
determination, and Seller or Buyer, as the case may be, shall pay to the other
any amount required as a result of such adjustment. All special taxes or
assessments prior to the end of the calendar year of Closing shall be prorated
as of the Closing Date.
(c) Except as set forth in Section 6.8(a) and subject to Section
6.8(b), Seller shall be responsible for all taxes (including fines, interest
and penalties related thereto and except for fines, interest or penalties
resulting from the fault or negligence of Seller in its operation of the Assets
for which Seller shall be liable for pursuant to the provisions of Section 12.3
in the twelve (12) months following the Closing Date) imposed on or with
respect to the Assets that are attributable to any whole or partial taxable
period ending on or before the Effective Time. Buyer shall be responsible for
all taxes (including fines, interest and penalties related thereto) imposed on
or with respect to the Assets that are attributable to any whole or partial
taxable period ending after the Effective Time.
(d) Seller will be entitled to any refunds or credits of taxes paid
with respect to the Assets to the extent attributable to a pre-Effective Time
tax period. Buyer will be entitled to any refunds or credits of taxes paid with
respect to the Assets to the extent attributable to a post-Effective Time tax
period.
6.9 Records; Access and Retention.
(a) As soon as reasonably possible after the completion of the
accounting cycle (but not later than sixty (60) days thereafter) for the period
up to but excluding the Closing Date, Seller will deliver to Buyer copies of
files or, where the files relate exclusively to the Assets, the original files
included in the books, records and files associated with the Assets (the
"Records"), including without limitation gas accounting files, contract
administration files, property record files, maps, engineering reports,
operating reports and data, and maintenance records dealing with the
construction, operation and maintenance of the Assets. After Closing, Buyer
shall give Seller and its authorized representatives such access, during normal
business hours, to the Records, as may be reasonably required by Seller,
provided that such access does not unreasonably interfere with the
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ongoing operations of Buyer. Seller shall be entitled to keep or obtain
extracts and copies of such Records.
(b) For a period of seven (7) years after the Closing Date, Buyer
shall preserve and retain all such Records (except for meter charts which shall
be preserved and retained for three (3) years after the Closing); provided,
however, that in the event that Buyer transfers all or a portion of the Assets
to any third party during such period, Buyer may transfer to such third party
all or a portion of the Records related thereto, provided such third party
transferee expressly assumes in writing the obligations of Buyer under this
Section 6.9 and Buyer first offers to Seller the opportunity, at Seller's
expense, to copy the Records to be transferred.
6.10 Names. As soon as reasonably possible after Closing, but in no
event later than ninety (90) days after Closing, Buyer shall remove the names
of Seller and its affiliates, including "ENRON" and all variations thereof,
from all of the Assets and make the requisite filings with, and provide the
requisite notices to, the appropriate federal, state or local agencies to place
the title or other indicia of ownership, including operation of the Assets, in
a name other than any name of Seller or any of its affiliates, or any
variations thereof.
6.11 Employment Matters. (a) All individuals employed by Seller or one
of its affiliates who are currently assigned to perform work on the Assets
affected by this Agreement are designated by Seller on the Employee Schedule
(as hereinafter defined) as "Field Employees". Buyer agrees to cause a member
of the controlled group under IRC Section 1563(c)(2)(A) of which Buyer is a
member (the "Buyer Controlled Group") to make offers of employment as of thirty
(30) days after the Effective Time to such number of Field Employees that will
result in either (a) such offers of employment will have been made by Closing
to all Field Employees, or (b) as of Closing at least two (2) Field Employees
will become employed by a member of the Buyer Controlled Group. Seller shall
deliver the Employee Schedule for "Field Employees" on a confidential basis to
the Manager, Human Resources of Buyer no more than seven (7) business days
after this Agreement is executed showing the name, job position, work location,
and years of past service credit for all Field Employees. In addition, Seller
will provide Buyer on a confidential basis relevant written information in
Seller's possession regarding each individual's work qualifications, training
history, and prior jobs held while employed by any affiliate of Seller. All
employment offers (i) shall be made sufficiently in advance of thirty (30) days
after the Closing Date, and (ii) shall be at a base salary and benefits
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compensation package comparable to that of Buyer's employees performing similar
jobs.
(b) Employees listed on the Employee Schedule who accept offers of
employment and who are employed by a member of the Buyer Controlled Group are
referred to as "Acquired Employees", or individually as an "Acquired Employee".
Upon commencement of employment by an Acquired Employee with a member of the
Buyer Controlled Group, Acquired Employee's participation in all employee
benefit plans (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (the "Plans") sponsored by
Seller or any of its affiliates, or in which they are participating employers,
shall cease, and all liability associated with such Plans, including but not
limited to funding, claims for benefits, fines, penalties and taxes, shall
remain the liability of the Seller and its affiliates. Buyer will, or will
cause its affiliates to, take all action necessary to cause all such Acquired
Employees to be covered under the employee benefit plans of Buyer or its
affiliates and fringe benefit arrangements, in each case effective as of the
Closing Date, on the same basis as those provided to Buyer's affiliates'
employees in comparable positions.
(c) If a member of the Buyer Controlled Group (an "Offering
Employer") makes any such offers of employment to Acquired Employees requiring
a change of work location such that the Acquired Employee must travel at least
50 miles (as determined under Internal Revenue Code Section 217 and the
regulations issued pursuant thereto) further to the new principal place of work
than the work location as shown on the Employee Schedule for Field Employees,
such Offering Employer will extend the same relocation assistance to such
Acquired Employee as are available to employees of the Offering Employer.
(d) Seller represents to Buyer that Seller shall pay the Field
Employees which are not Acquired Employees or are not relocated by Seller to
another of Seller's work locations a severance pay ("Severed Employees"). If
Buyer employs any of the Severed Employees within six (6) months of Closing,
Buyer shall reimburse Seller a prorated amount of the severance pay Seller paid
to the Severed Employees.
6.12 Supplements to Schedules. From time to time prior to the Closing
with the consent of Buyer (which consent shall not be unreasonably withheld),
Seller will promptly supplement or amend the Schedules attached hereto with
respect to any Assets or additional assets which, if existing or occurring at
the date of
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this Agreement, would have been required to be set forth or described in such
Schedule.
6.13 Seller's Property Located on Easements After Closing. Following
the Closing Seller (or its affiliates) will have facilities located on the real
property, easements and leases acquired by Buyer pursuant to this Agreement.
Except as provided in this Section 6.13, Buyer agrees that in no event shall
Buyer have the right to require Seller or its affiliates to remove, relocate,
lower or otherwise alter in any respect any of their respective facilities that
are located on any such fee property, easement or lease. During the Title
Examination Period, Buyer and Seller agree to negotiate in good faith to
attempt to mutually agree upon the extent to which block valves, quality
measurement and metering facilities and custody transfer points on the Assets
and on the interconnecting facilities of Seller or its affiliates not included
in the Assets as to handling of both gas and liquid hydrocarbons need to be
modified, moved, altered or installed and the location of any such facilities
and custody transfer points. The costs of any such modifications, alterations
and additions will be borne equally by the parties, and to the extent
reasonably feasible such modifications, alterations and additions will be
completed by Closing or promptly thereafter. During the Title Examination
Period, Buyer and Seller will also negotiate in good faith to attempt to
mutually agree upon arrangements for the sharing of certain facilities (and
costs related to the operation thereof) that will be owned by one party after
the Closing, but were used in connection with both the Assets and Seller and
its affiliates retained facilities prior to the Closing, such as cathodic
protection equipment, radio towers, and pigging equipment.
6.14 Operational Due Diligence. From and after March 13, 1996 until
5:00 P.M. local time in Houston, Texas on March 26, 1996 (the "Operational Due
Diligence Period"), Buyer shall have access to the Assets for the purpose of
inspecting the Assets for the presence of defects other than title and
environmental which are addressed in Articles 9 and 10. Buyer shall have the
right during the Operational Due Diligence Period to review among other things,
the following related to the Assets: accounting documents (including current
discount information), operational data (including current and historical gas
flow data), maintenance records, gas contract files, equipment rental or
capital lease agreements, maintenance contracts, gas processing affidavits or
contracts, and operating permits. In the event that Buyer determines that the
Assets are materially defective or that Seller has made misrepresentations
regarding the Assets, which in either case result in a Material Adverse Effect
on the Assets, then Buyer shall have the option to
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terminate this Agreement by written notice to Seller by 12 noon CST on March
27, 1996.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated by
this Agreement are subject, at the option of Seller, to the following
conditions:
7.1 Representations. The representations and warranties of Buyer
herein contained shall be made again at Closing and shall be true and correct
in all material respects on the Closing Date.
7.2 Performance. Buyer shall have performed all material obligations,
covenants and agreements contained in this Agreement to be performed or
complied with by it at or prior to the Closing.
7.3 Pending Matters. No suit, action or other proceeding shall be
pending that could reasonably be expected to restrain, enjoin or otherwise
prohibit the consummation of the transactions contemplated by this Agreement.
7.4 Casualty Loss. The Assets shall not have been materially damaged,
lost, or destroyed where the cost to repair or replace such Assets to the
condition prior to such damage, loss, or destruction exceeds an amount equal to
seven and one-half percent (7.5%) of the Purchase Price.
7.5 Seller's Acquisition of Assets. TW shall have received from the
Commission orders on rehearing regarding the Abandonment Applications which
preserve the accounting and tax treatment of the transaction as currently
contemplated by Seller and its affiliates and such orders shall not contain any
condition or provision that is unacceptable to TW, in its sole discretion,
regardless of whether TW subsequently accepts such order if the Commission is
unwilling to remove or satisfactorily modify such unacceptable provision or
condition on rehearing or otherwise.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement are subject, at the option of Buyer, to the following
conditions:
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8.1 Representations. The representations and warranties of Seller
herein contained shall be made again at Closing and shall be true and correct
in all material respects on the Closing Date.
8.2 Performance. Seller shall have performed all material
obligations, covenants and agreements contained in this Agreement to be
performed or complied with by it at or prior to the Closing.
8.3 Pending Matters. No suit, action or other proceeding shall be
pending that could reasonably be expected to restrain, enjoin or otherwise
prohibit the consummation of the transactions contemplated by this Agreement.
8.4 Casualty Loss. The Assets shall not have been materially damaged,
lost, or destroyed where the cost to repair or replace such Assets to the
condition prior to such damage, loss, or destruction exceeds an amount equal to
seven and one-half percent (7.5%) of the Purchase Price.
ARTICLE 9
TITLE MATTERS
9.1 Title Examination Period. From and after March 13, 1996 until
5:00 p.m., local time in Houston, Texas, on March 26, 1996 (the "Title
Examination Period"), Buyer may notify Seller in writing of any alleged Title
Defects affecting any of the Assets and discovered by Buyer or any affiliate or
agent of Buyer, setting forth in such notice a detailed description of each
Title Defect and the estimated cost to cure each Title Defect. Any matters that
may otherwise constitute Title Defects relating to the Assets but that are not
specifically raised in writing by Buyer prior to the expiration of the Title
Examination Period shall be deemed to have been waived. Upon receipt of such
notice from Buyer, Seller shall have the right, but not the obligation, to
attempt to cure such Title Defects prior to Closing and after the Closing, to
the extent that Seller elect pursuant to Section 9.3(a) to indemnify Buyer for
Losses (as hereinafter defined) arising out of any Title Defects.
Notwithstanding the preceding sentence, prior to the Closing Seller will seek
diligently consents and approvals for transfers of easements, rights of way,
and realty leases on privately owned lands where they are required. To the
extent that such consent require payments to the affected landowners, if any,
the resulting costs will be governed by the provisions of Section 9.3. Buyer
shall not have the right to attempt to cure such Title Defects to the extent
that Seller has elected to indemnify Buyer for Losses arising out of such
defects, unless in the reasonable opinion of Buyer's counsel Buyer would likely
be liable to a third party for punitive or similar damages as a result of such
Title Defect.
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9.2 Definition of Title Defects.
(a) Any unobtained consent to assignment, lien, charge, obligation,
encumbrance, defect or irregularity of title or any other circumstance or
condition that causes Seller's title to the Assets in any of the realty of
major facilities that are part of the Assets to be less than Defensible Title
(as hereinafter defined) and for which notice is given by Buyer to Seller
pursuant to Section 9.1, shall be a title defect (a "Title Defect").
(b) For purposes of this Agreement, the term "Defensible Title" to
the major facilities shall mean, subject to and except for the Permitted
Encumbrances (as hereinafter defined), Seller's title to the assets in the
major facilities is free and clear of all liens, encumbrances and defects of
any kind whatsoever.
(c) For purposes of this Agreement the term "Permitted Encumbrances"
shall mean any of the following:
(i) any liens for taxes and assessments not yet due or, if
due, that are being contested in good faith in the ordinary course of
business;
(ii) any obligations or duties reserved to or vested in any
municipality or other Governmental Authority to contract or regulate any
Asset in any manner, all applicable Laws and all applicable rules and
orders of any Governmental Authority;
(iii) the terms and conditions of all leases and servitudes, and
the agreements listed on Schedule 1.1;
(iv) Customary Post-Closing Consents;
(v) any required third party consents to assignment and
similar agreements and obligations arising in connection with the
transfer of the Assets to Seller or this sale of the Assets to Buyer
with respect to which prior to Closing (A) waivers or consents have been
obtained from the appropriate person, (B) the applicable period of time
for asserting such rights has expired without any exercise of such
rights or (C) lawful arrangements have been made by the parties to allow
Buyer to receive substantially the same economic benefits as if all such
waivers and consents had been obtained;
(vi) existing easements, rights of way, servitudes, permits,
licenses, surface leases and other rights with respect to surface
obligations, pipelines, grazing, canals, ditches, reservoirs, or the
like, conditions, covenants or
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other restrictions, and easements of streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other easements
and rights of way on, over or in respect of any of the Assets, so long
as individually or in the aggregate they do not have a Material Adverse
Effect;
(vii) materialmen's, mechanics', repairmen's, employees',
contractors', operators', tax and other similar liens or charges arising
in the ordinary course of business incidental to construction,
maintenance or operation of any of the Assets (A) if they have not been
filed pursuant to law, (B) if filed, they have not yet become due and
payable or payment is being withheld as provided by law or (C) if their
validity is being contested in good faith in the ordinary course of
business by appropriate action;
(viii) any Title Defect of which Seller has provided a remedy
pursuant to Section 9.3 (including, without limitations, an adjustment
to the Purchase Price or indemnification) and any Title Defect that has
been waived by Buyer or deemed to be waived by Buyer pursuant to this
Agreement; and
(ix) the matters described on Schedule 9.2 attached hereto.
9.3 Remedies for Title Defects. (a) Subject to Section 9.3(b), in the
event that any Title Defect is not waived by Buyer or cured on or before
Closing, Seller shall, in its sole election, elect to:
(i) reduce the Purchase Price by an amount agreed upon in
writing by Buyer and Seller as being the cost to cure such Title Defect,
taking into consideration the portion of the Assets subject to such
Title Defect and the legal effect of such Title Defect on the Assets
affected thereby; or
(ii) indemnify Buyer, subject to the maximum amount of Seller's
liability set forth in Section 12.4(b), against all liability, loss,
cost and expense resulting from such Title Defect pursuant to Section
12.3(d).
In the event that Seller elects to proceed under Section 9.3(a)(k) and Buyer
and Seller have failed to agree on or before the third business day prior to
the then scheduled Closing Date on the proportionate reduction of the Purchase
Price (which agreement Buyer and Seller shall use good faith efforts to reach),
Seller shall then elect to proceed with respect to such Title Defect under
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Section 9.3(a)(ii). Seller may elect to proceed under Section 9.3(a)(i) with
respect to certain Title Defects and under Section 9.3(a)(ii) with respect to
the Title Defects.
(b) Notwithstanding anything in Article 9 to the contrary, in no
event shall Seller be obligated pursuant to Section 9.3(a) to decrease the
Purchase Price or indemnify Buyer pursuant to Section 12.3(d) for Title Defects
unless the cost to cure all such Title Defects in the aggregate, exceeds a
deductible in an amount of Fifty Thousand Dollars ($50,000.00), after which
point Buyer shall be entitled to adjustments to the Purchase Price or
indemnification only with respect to curative costs in excess of such
deductible. Without the prior written consent of Buyer, Seller shall not incur
costs to cure any Title Defects that would be attributable to Buyer's
deductible amount.
ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Pre-Closing Environmental Audit. (a) From and after March 13,
1996, Buyer may, at its option, cause Buyer's personnel and a reputable
consulting or engineering firm reasonably acceptable to Seller ("Environmental
Auditor") to conduct (i) a Phase I and Phase II environmental audit of Seller
and its affiliates, records, (ii) interviews with employees operating the
Assets, and (iii) an inspection of the Assets and prepare a written report of
their findings (the "Environmental Audit") by 5:00 p.m., local time in Houston,
Texas, on March 26, 1996 (the "Environmental Examination Period"). In the event
Buyer elects to conduct a Phase II environmental audit (i.e. Buyer seeks to
conduct any sampling or intrusive investigation of the surface or the
subsurface of the Assets) Buyer and Seller shall agree upon the scope and
nature of such a Phase II audit not later than March 28, 1996. The agreed upon
Phase II investigation shall be set forth in writing which shall be sufficient
to define the scope, nature, location and duration of such an investigation.
During the Environmental Examination Period, Buyer may submit to Seller in
writing a statement (the "Environmental Statement") describing which, if any,
of the Environmental Compliance Deficiencies (defined below) and proposed
corrective actions (with corresponding cost estimates as provided in the
Environmental Audit) Buyer is requesting Seller to undertake. If Buyer delivers
an Environmental Statement, then Seller agrees (without admitting that any
compliance deficiencies contained in any report prepared by an Environmental
Auditor or Environmental Statement are in fact violations of Environmental
Laws) to pay for, undertake or indemnify Buyer for corrective projects or
deficiencies specified in the Environmental Statement provided hereunder, which
are Environmental Compliance
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Deficiencies, subject to the limitations on liability set forth in Section
12.4(b) below.
(b) If there are any corrective projects specified in the
Environmental Statement, which are Environmental Compliance Deficiencies, that
are not completed by or on behalf of Seller prior to the Closing, Seller shall,
at its sole election, either:
(i) reduce the Purchase Price by an amount agreed upon in
writing by Buyer and Seller as the remaining costs of any incomplete or
remaining corrective projects, subject to the maximum amount of Seller
liability set forth in Section 12.4(b);
(ii) perform or cause to be performed, in accordance with
Section 10.3 and subject to the maximum amount of Seller's liability set
forth in Section 12.4(b), such operations as may be necessary to cure
any Environmental Compliance Deficiencies; or
(iii) indemnify Buyer against Losses resulting from any such
Environmental Compliance Deficiencies pursuant to Article 12.3(e),
subject to the limitations on Seller's liability set forth in this
Section 12.4(b); provided, however, if in the reasonable opinion of
environmental counsel to Seller or Buyer there is an affirmative duty to
correct such Environmental Compliance Deficiencies, Seller shall not be
entitled to elect this Section 10.1(b)(iii). In the event that Seller
elects to proceed under this clause (iii) for any Environmental
Compliance Deficiency, Buyer shall be deemed to have furnished a Claim
Notice with respect to such Environmental Compliance Deficiency in
accordance with Article 12.
(c) As used in this Agreement, the term "Environmental Compliance
Deficiencies" shall mean those matters specifically set forth in the
Environmental Statement or in the Environmental Defect Notice described in
Section 10.2 below that indicate that on the date of the Environmental
Statement the Assets are in violation or in noncompliance with Environmental
Laws or, in the case of an Environmental Defect Notice, that on the Closing
Date the Assets were in violation or in noncompliance with Environmental Laws.
(d) Buyer shall be responsible for all of its environmental due
diligence costs and expenses whether incurred before or after the Closing,
including those costs associated with the evaluation of the Assets and the
preparation of Environmental Audits, Environmental Statements and Environmental
Defect Notices. Such due diligence costs shall not include any remedial or
corrective
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action costs incurred by Seller pursuant to this Article 10. Buyer shall not
have any right to claim that such costs are Losses (hereinafter defined) for
which Seller is obligated to indemnify Buyer pursuant to Section 12.3 below.
Any report prepared by an Environemental Auditor describing Environmental
Compliance Deficiencies as to which Buyer requests Seller to take corrective
action or reimburse Buyer for the cost of corrective action shall be addressed
to Buyer and Seller.
10.2 Post-Closing Environmental Investigation. (a) During the three
(3) years following the Closing Date, Buyer may notify Seller in writing of any
Environmental Compliance Deficiencies affecting the Assets that were discovered
by Buyer or an Environmental Auditor after the Closing, but that relate to
periods prior to the Closing. Such notice shall be in writing and shall set
forth a reasonably detailed description of each alleged Environmental
Compliance Deficiency and proposed corrective actions (with corresponding cost
estimated) (the "Environmental Defect Notice"). Seller will notify Buyer in
writing promptly after it determines that Buyer will be responsible, in whole
or in part, for corrective action undertaken pursuant to this Section 10.2.
(b) If the amounts previously paid by Seller to correct Environmental
Compliance Deficiencies pursuant to this Article 10 (including pre-Closing
corrective action and reduction of the Purchase Price) have not exceeded the
amounts of Seller's maximum liability set forth in Section 12.4(b) and Buyer
delivers an Environmental Defect Notice, Seller agrees, at its sole election,
to either (without admitting that any compliance deficiencies contained in any
report prepared by an Environmental Auditor or Environmental Defect Notice(s)
are in fact violations of Environmental Laws):
(i) perform or cause to be performed, in accordance with
Section 10.3 and subject to the maximum amount of Seller's liability set
forth in Section 12.4(b), such operations as may be necessary to cure
any Environmental Compliance Deficiencies; or
(ii) indemnify Buyer against Losses resulting from any
Environmental Complaince Deficiencies pursuant to Section 12.3(e),
subject to the limitations on Seller's liability set forth in Section
12.4(b); provided, however, if in the reasonable opinion of
environmental counsel to Seller or Buyer there is an affirmative duty to
correct such Environmental Compliance Deficiencies, Seller shall not be
entitled to elect this Section 10.2(b)(ii). In the event Seller elects
to proceed under this clause (ii) for any Environmental
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Compliance Deficiency, Buyer shall be deemed to have furnished a Claim
Notice with respect to such Environmental Compliance Deficiency in
accordance with Article 12.
10.3 Corrective Action. The parties agree that in the event Seller
elects to undertake corrective action of any Environmental Compliance
Deficiencies, the corrective action shall be conducted as follows:
(a) Seller shall notify Buyer of its election to conduct the
corrective action.
(b) Seller shall provide Buyer with a copy of all materials
that may be submitted to or received from agencies with jurisdictional
authority over the corrective action, including but not limited to notices,
plans, approvals and analytical results. In the event no plan or proposal is
submitted to the jurisdictional agency, then Seller shall provide Buyer with a
written plan to conduct the corrective action. The foregoing documentation
shall be sufficient to describe the scope, nature and anticipated duration of
the corrective action. Buyer agrees not to interfere with or oppose (before any
jurisdictional authority) in any manner any of Seller's corrective action
activities except and unless Seller fails to conduct such corrective actions in
accordance with the terms and condition of this Agreement or as may be required
by applicable laws, rules or regulations, or the requirements of governmental
authorities.
(c) Seller shall conduct the corrective action in a good and
workmanlike manner consistent with industry standards and in accordance with
any proposal or plans submitted to regulatory agencies and the Buyer. Seller's
plans and corrective actions shall be carried out in ways that avoid or
minimize to the greatest extent feasible any interference with Buyer's ongoing
gathering operations.
(d) Seller shall provide Buyer written notice of all major
operations to be conducted on the Assets associated with the corrective action
at least fifteen (15) days prior to such operations in order that Buyer may
witness and observe such operations. Such operations will include, but not be
limited to, any sampling conducted on the Assets. Buyer shall have the right to
split any samples taken by Seller as well as the right to take independent
samples and submit such samples to an independent laboratory. Seller shall have
the right to split any samples taken by Buyer and submit such samples for
analysis. Buyer agrees to bear its own costs in regard to witnessing,
inspecting or auditing the corrective action activities of the Seller. Such
costs
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include, but are not limited to, sampling costs, laboratory costs, personnel
costs, and any third party costs.
(e) Seller shall notify Buyer in writing of the completion of
the corrective action. Such notice shall include a statement of actual
expenditures and where appropriate, supporting analytical information and
report(s) sufficient to verify that the Environmental Compliance Deficiency no
longer exists.
(f) Seller shall invoice Buyer for Buyer's share, if any, of
any costs and expenses incurred as a result of the corrective action, and Buyer
shall pay such invoice within thirty (30) days of receipt. Seller agrees that
Buyer shall have the right to audit such records as may be reasonably necessary
to verify the expenditures associated with the corrective action.
(g) In the event Seller elects to proceed with a corrective
action, Buyer agrees to fully cooperate with the Seller to facilitate the
corrective action. Such cooperation shall include providing information to
Seller and access to the Assets during reasonable hours. Buyer also agrees to
provide access to the Assets to Seller's personnel and agents and
jurisdictional agency representatives.
(h) If the cost of the corrective action at any time causes
Seller's maximum liability to have been incurred, Seller shall immediately so
inform Buyer in writing, and Buyer may immediately or at any time thereafter
assume performance of the corrective action to completion. Seller shall not
have the right to continue corrective actions at Buyer's sole cost without
Buyer's written consent.
10.4 Release. Any matters that may otherwise constitute Environmental
Compliance Deficiencies that are not raised by Buyer prior to the third
anniversary of the Closing Date shall be deemed to have been waived. Upon
completion by or on behalf of Seller of any corrective project specified in the
Environmental Statement or the Environmental Defect Notice, or upon payment by
Seller to Buyer of Seller's share of the cost to complete any such corrective
project, Buyer shall be deemed to have released Seller from any further
liability for such Environmental Compliance Deficiency.
ARTICLE 11
TERMINATION
11.1 Termination At or Prior to Closing. The occurrence of any of the
following events prior to the Closing notwithstanding
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the reasonable efforts of the party asserting a termination to avoid the event
and to fulfill the conditions to Closing in its control shall be a Termination
Event:
(a) Seller and Buyer may elect to terminate this Agreement at
any time on or prior to the Closing Date by mutual written consent of the
parties;
(b) either Seller or Buyer may elect to terminate this
Agreement if the Closing shall not have occurred on or before May 2, 1996;
provided, however, that neither Seller nor Buyer can so terminate this
Agreement if such party is at such time in material breach of any provision of
this Agreement;
(c) either Seller or Buyer may elect to terminate this
Agreement if any Governmental Entity shall have issued a final non-appealable
order, judgment or decree or taken any other action challenging, delaying
beyond May 2, 1996, restraining, enjoining, prohibiting or invalidating the
consummation of any of the transactions contemplated herein;
(d) Seller may elect to terminate this Agreement by March 27,
1996 if the aggregate amount of (i) all Title Defects in excess of the 2.5% of
Purchase Price deductible asserted pursuant to Article 9 of this Agreement plus
(ii) all Environmental Compliance Deficiencies asserted pursuant to Article 10
of this Agreement, exceeds an amount equal to 7.5% of Purchase Price;
(e) Buyer may elect to terminate this Agreement by March 27,
1996 if (i) the aggregate amount of Title Defects asserted pursuant to Article
9 of this Agreement up to the amount of the Title Defect Deductible plus (ii)
all Environmental Compliance Deficiencies asserted pursuant to Article 10 of
this Agreement, exceeds an amount equal to 7.5% of Purchase Price; or
(f) if Buyer has requested permission to conduct a Phase II
environmental investigation pursuant to Section 10.1(a) and Seller has not
agreed with Buyer prior to March 18, 1996 on such investigation as required by
Section 10.1(a), then on or before the Closing Date either Seller or Buyer may
elect to terminate the transactions contemplated by this Agreement;
(g) Buyer may terminate this Agreement pursuant to Section
6.14 provided, however, if the terminating party's estimate of costs to cure
Title defects or Environmental Deficiencies, as the case may be, exceeds the
non-terminating party's estimate by more than 10% then neither Seller nor Buyer
shall be entitled to elect to terminate this Agreement pursuant to clauses (d)
or (e),
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respectively, unless and until an independent expert engaged by the parties
issues an opinion on the estimated costs of such curative projects ("Estimated
Curative Costs"), which Estimated Curative Costs shall be determinative of a
party's right to terminate this Agreement pursuant to clause (d) or (e) above.
11.2 Effect of Termination. In the event that Closing does not occur
as a result of either party exercising its right to terminate pursuant to
Section 11.1, then neither party shall have any further rights or obligations
under this Agreement, except that (a) nothing herein shall relieve either party
from any liability for any willful breach hereof and (b) Buyer's
indemnification and related obligations under Section 6.4 shall survive any
such termination.
ARTICLE 12
INDEMNIFICATION
12.1 Assumption of Liabilities Relating to the Assets. As of the
Effective Time and subject to Seller's indemnification obligation set forth in
Section 12.3, Buyer shall assume the Assumed Obligations. "Assumed Obligations"
shall mean all liabilities, duties, and obligations of every kind whatsoever
relative to (a) ownership, operation, occupancy, condition or use of the Assets
on and after the Effective Time, and (b) matters arising out of any matter or
circumstance relating to Environmental Laws, the release of materials into the
environment or protection of the environment, whether known or unknown, whether
attributable to period of time before or after the Effective Time.
12.2 Indemnification By Buyer. Subject to Section 12.4(a), Buyer shall
indemnify, release, defend, and hold harmless Seller, its officers, directors,
employees, agents, representatives, affiliates, subsidiaries, successors and
assigns (collectively, the "Seller Indemnitees") from and against any and all
claims, liabilities, losses, causes of actions, costs and expenses (including,
without limitation, court costs and attorneys' fees) ("Losses") asserted
against, resulting from, imposed upon or incurred by any of the Seller
Indemnitees as a result of, or arising out of: (a) the breach of any of the
representations, warranties, covenants or agreements of Buyer contained in this
Agreement, or (b) the Assumed Obligations, or (c) any liability for taxes
(including interest, penalties or fines related thereto) the responsibility for
payment of which was assumed by Buyer pursuant to Section 6.7 above; provided,
however, that Buyer shall not assume and shall have obligation to indemnify any
of the Seller Indemnitees with respect to any matter for which Seller are
indemnifying Buyer pursuant to Sections 12.3.
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12.3 Indemnification By Seller. Subject to Section 12.4(b), Seller
shall indemnify, defend and hold harmless Buyer, its officers, directors,
employees, agents, representatives, affiliates, subsidiaries, successors and
assigns (collectively, the "Buyer Indemnitees") from and against all Losses
asserted against, resulting from, imposed upon or incurred by any of the Buyer
Indemnitees as a result of, or arising out of, (a) the breach of any of the
representations, warranties, covenants or agreements of Seller contained in
this Agreement, (b) the ownership, operation, occupancy, use or condition of
the Assets prior to the Effective Time, other than matters relating to
Environmental Laws (which are covered by clause (e) below), (c) claims made by
employees or former employees of Seller or any affiliates of Seller with regard
to compensation and benefits under any benefit plan or any other employee
benefit program in which such employee participated while employed by Seller or
an affiliate of Seller prior to the Effective Time, (d) Title Defects related
to the Seller Assets as to which Seller elected pursuant to Section 9.3 above
to indemnify Buyer against all liability, loss, cost and expense, subject to
satisfaction of the deductible provided for in Section 9.3(b), (e)
Environmental Compliance Deficiencies related to the Seller Assets as to which
Seller elected pursuant to Section 10.1(b)(ii) above to indemnify Buyer against
Losses and Environmental Compliance Deficiencies related to the Seller Assets
raised by Buyer within three (3) years after the Closing pursuant to Section
10.2(b) above, subject, in each case, to the limitations on liability set forth
in Article 10, and (f) any liability for taxes related to the Seller's Assets
(including interest, penalties or fines related thereto) for the period prior
to the Effective Time other than those assumed by Buyer pursuant to Section 6.9
above.
12.4 Limitation on Damages; Survival of Representations. (a)
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL
BUYER BE LIABLE TO THE SELLER'S INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE, REMOTE
OR SPECULATIVE DAMAGES; PROVIDED, HOWEVER, THAT IF ANY SELLER INDEMNITEE IS
HELD LIABLE TO A THIRD PARTY FOR ANY SUCH DAMAGES AND BUYER IS OBLIGATED TO
INDEMNIFY SUCH SELLER INDEMNITEE FOR THE MATTER THAT GAVE RISE TO SUCH DAMAGES,
THE BUYER SHALL BE LIABLE FOR, AND OBLIGATED TO REIMBURSE SUCH SELLER
INDEMNITEE FOR SUCH DAMAGES. The representations and warranties of Buyer set
forth in ARTICLE 5 shall survive the Closing for a period of three (3) years
and such representations and warranties of Buyer shall terminate at 5:00 p.m.,
local time in Houston, Texas, on the third anniversary of the Closing Date;
provided, however, that any such representation or warranty that is the subject
of a written notice of claim specifying in reasonable detail the specific
nature of the Losses and the estimated amount of such Losses ("Claim Notice")
delivered in good faith shall
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survive with respect only to the specific matter described in such claim notice
until the earlier to occur of (i) the date on which a final non-appealable
resolution of the matter described in such claim notice until the earlier to
occur of (i) the date on which a final non-appealable resolution of the matter
described in such Claim Notice has been reached or (ii) the date on which the
matter described in such Claim Notice has otherwise reached final resolution.
(b) Notwithstanding anything to the contrary in this Agreement, the
liability of Seller under this Agreement and any documents delivered in
connection herewith or contemplated hereby shall be limited as follows:
(i) IN NO EVENT SHALL SELLER BE LIABLE TO THE BUYER
INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE, REMOTE OR SPECULATIVE DAMAGES;
PROVIDED, HOWEVER, THAT IF ANY BUYER INDEMNITEE IS HELD LIABLE TO A
THIRD PARTY FOR ANY SUCH DAMAGES AND EITHER SELLER IS OBLIGATED TO
INDEMNIFY SUCH BUYER INDEMNITEE FOR THE MATTER THAT GAVE RISE TO SUCH
DAMAGES, SUCH SELLER SHALL BE LIABLE FOR, AND OBLIGATED TO REIMBURSE
SUCH BUYER INDEMNITEE FOR, SUCH DAMAGES.
(ii) The representations and warranties of Seller set forth in
ARTICLE 4 (except for Section 4.9, which shall terminate at Closing)
shall survive the Closing for a period of three (3) years and such
representations and warranties shall terminate at 5:00 p.m., local time
in Houston, Texas, on the third anniversary of the Closing Date;
provided, however, that any such representation and warranty that is the
subject of a Claim Notice delivered in good faith shall survive with
respect only to the specific matter described in such Claim Notice until
the earlier to occur of (A) the date on which a final non-appealable
resolution of the matter described in such Claim Notice has been reached
or (B) the date on which the matter described in such Claim Notice has
otherwise reached final resolution.
(iii) Notwithstanding anything to the contrary in this
Agreement, in no event shall Seller indemnify the Buyer Indemnitees, or
be otherwise liable in any way whatsoever to the Buyer Indemnitees, (A)
for any aggregated individual Losses as to which a claim has been made
pursuant to Article 10) not in excess of $3,000 or (B) for any Losses
(other than Losses as to which a claim has been made pursuant to ARTICLE
10) until the Buyer Indemnitees have suffered Losses (other than Losses
excluded pursuant to clause (A))in the aggregate in excess of a
deductible in an amount equal to Ten Thousand
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Dollars ($10,000.00) for non-environmental matters and Fifty Thousand
Dollars ($50,000.00) for environmental matters after which point Seller
will be obligated only to indemnify the Buyer Indemnitees from and
against further Losses in excess of such deductible (and only to the
extent of any such excess).
(iv) Notwithstanding anything to the contrary herein, in no
event shall Seller indemnify the Buyer Indemnitees, or be otherwise
liable in any way whatsoever to the Buyer Indemnitees, for any Losses
under this Agreement in excess of an amount equal to One Million Five
Hundred Thousand Dollars ($1,500,000.00) provided, however, that for
purposes of this Section 12.4(b)(iv) the term Losses shall include (A)
any amount agreed upon by Buyer and Seller pursuant to Article 9 as the
value of any Title Defect and (B) any amounts paid by Seller for
environmental liabilities or corrective actions pursuant to Article 10.
(v) No amount shall be recovered from Seller for the breach or
inaccuracy of any of Seller's representations, warranties, covenants or
agreements, or for any other matter, to the extent that Buyer had actual
knowledge of such breach, inaccuracy or other matter at or prior to the
Closing, nor shall Buyer be entitled to post-Closing rescission with
respect to any such matter.
(vi) Seller shall have no liability for Losses pursuant to this
Article unless a Claim Notice has been delivered to Seller as required
by Section 12.5 within three (3) years after the Effective Time.
12.5 Notice of Asserted Liability, Opportunity to Defend. All claims
for indemnification under Sections 12.2 and 12.3 shall be asserted and resolved
pursuant to this Section 12.5. Any person claiming indemnification hereunder is
hereinafter referred to as the "Indemnified Party" and any person against whom
such claims are asserted hereunder referred to as the "Indemnifying Party." In
the event that any Losses are asserted against or sought to be collected from
an Indemnified Party by a third party, said Indemnified Party shall with
reasonable promptness provide to the Indemnifying Party a Claim Notice. The
Indemnifying Party shall not be obligated to indemnify the Indemnified Party
thereof in accordance with the provisions of this Agreement in reasonably
sufficient time so that the Indemnifying Party's ability to defend against the
Losses is not prejudiced. The Indemnifying Party shall have thirty (30) days
from the personal delivery or receipt of the Claim Notice (the "Notice Period")
to notify the Indemnified Party (i) whether or not it disputes the liability of
the Indemnifying
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Party to the Indemnified Party hereunder with respect to such Losses and/or
(ii) whether or not it desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Party against such Losses;
provided, however, that any Indemnified Party is hereby authorized prior to and
during the Notice Period to file any motion, answer or other pleading that it
shall deem necessary or appropriate to protect its interests or those of the
Indemnifying Party (and of which it shall have given notice and opportunity to
comment to the Indemnifying Party) and not prejudicial to the Indemnifying
Party. In the event that the Indemnifying Party notifies the Indemnified Party
within the Notice Period that it desire to defend the Indemnified Party against
such Losses, the Indemnifying Party shall have the right to defend all
appropriate proceedings, and with counsel of its own choosing, which
proceedings shall be promptly settled or prosecuted by them to a final
conclusion. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement it may do so at its sole cost and
expense. If requested by the Indemnifying Party, the Indemnified Party agrees
to cooperate with the Indemnifying Party and its counsel in contesting any
Losses that the Indemnifying Party elects to contest or, if appropriate and
related to the claim in question, in making any counterclaim against the person
asserting the third party Losses, or any cross-complaint against any person. No
claim may be settled or otherwise compromised without the prior written consent
of the Indemnifying Party.
12.6 Exclusive Remedy. As between the Buyer Indemnitees and the
Seller's Indemnitees the rights and obligations set forth in this Article 12
will be the exclusive rights and obligations with respect to this Agreement,
the events giving rise to this Agreement, and the transactions provided for
herein or contemplated hereby or thereby. It being understood and agreed
between Seller and Buyer that all other rights and obligations between Seller
and their affiliates on the one hand and the Buyer and its affiliates on the
other hand shall be governed by this Agreement.
12.7 NEGLIGENCE AND STRICT LIABILITY WAIVER. WITHOUT LIMITING OR
ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS
AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER
IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM
GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR VIOLATION OF ANY LAW
OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.
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ARTICLE 13
MISCELLANEOUS
13.1 Applicable Law, Alternative Dispute Resolution.
(a) This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of Texas without giving effect to any
choice or conflict of law provision or rule (whether of the State of Texas or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Texas.
(b) Except as expressly provided in Section 2.5, any dispute arising
under this Agreement shall be resolved pursuant to this Section 13.1:
(i) Any party has the right to request the other to meet to
discuss a dispute. The party requesting the meeting will give at least
ten (10) business days notice in writing of the subject it wishes to
discuss, provide a written statement of the dispute, and designate an
officer of the company with complete power to resolve the dispute to
attend the meeting. Within three (3) business days after receipt of such
request, the party receiving the request will provide a responsive
written statement and will designate an officer of the company who will
attend the meeting with complete power to resolve the dispute.
(ii) If the meeting fails to resolve the dispute by a signed
agreement among the officers, the dispute shall be submitted for non-
appealable, binding determination through arbitration. The parties agree
that an officer with authority to resolve the dispute for each entity
shall attend the arbitration. The Arbitrator chosen rom the arbitrators
available through Judicial Arbitration & Mediation Services, In.
("JAMS") shall be the Arbitrator unless the parties agree on a
substitute arbitrator. Unless otherwise agreed by the parties, the
Arbitrator shall be a person with at least eight (8) years of
professional experience in the natural gas industry or the judiciary and
who is not, and within the previous five (5) years has not been, an
employee or independent contractor of either Seller or Buyer (or any
affiliate thereof), and does not have a direct or indirect interest in
either Seller or Buyer (of any affiliate thereof) or the subject matter
of the arbitration.
(iii) the parties agree to make discovery and disclosure of all
matters relevant to the dispute to the
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extent and in the manner provided by the Federal Rules of Civil
Procedure. The Arbitrator will rule on all requests for discovery and
disclosure and discovery shall be completed within ninety (90) days of
the date of the first notice pursuant to Section 13.1(b)(i). The
Arbitrator shall follow the statutes and decisions of the substantive
law of Texas relevant to the subject. The Arbitrator's powers shall be
limited to enforcement of this Agreement as to the issues raised by the
parties, and shall not include tort claims or the power to award
punitive damages. The Arbitrator shall not have the authority or power
to alter, amend or modify any of the terms and conditions of the
agreement of the parties. The arbitrator shall issue a final ruling
within one hundred eighty (180) days of the date of the first notice
pursuant to Section 13.1(b)(i).
(iv) The ruling of the Arbitrator shall be in writing and
signed, shall contain a statement of findings and conclusions and shall
be final and binding upon the parties. The fees and expenses of counsel,
witnesses and employees of the parties and all other costs and expenses
incurred exclusively for the benefit of the party incurring the same
shall be borne by the party incurring such fees and expenses. All other
fees and expenses including, without limitation, compensation for the
Arbitrator shall be divided equally between the parties. All meetings
and arbitration hearings held pursuant to this Section 13.1 shall take
place in Houston, Texas. Judgment on the arbitration award or decision
may be entered in any court having jurisdiction.
13.2 Expenses and Attorney Fees. Each party shall be solely
responsible for all expenses, including due diligence expenses, incurred by it
in connection with this transaction, and neither party shall be entitled to any
reimbursement for such expenses from the other party hereto. Without limiting
the generality of the foregoing, Buyer will be solely responsible for all
recording fees and taxes relating to the conveyances to be delivered pursuant
hereto. Notwithstanding the foregoing, if any action is brought to enforce or
for breach of the provisions of this Agreement, the prevailing party shall be
entitled to recover its reasonable costs and expenses (including reasonable
attorney fees).
13.3 Independent Investigation. Buyer represents and acknowledges that
it is knowledgeable of the business of operating pipelines and that it has had
access to the Assets, the officers and employees of Seller and its affiliates,
and the Records of Seller and its affiliates relating to the Assets and in
making the decision to enter into this Agreement and consummate the
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transactions contemplated hereby, Buyer has relied solely on the basis of its
own independent due diligence investigation of the Assets (which will be
completed by March 26, 1996 at 5:00 P.M.) and upon the representations and
warranties of Seller made in Article 4 and on the covenants of Seller in this
Agreement.
13.4 Disclaimer Regarding Assets. Except as otherwise expressly
provided in this AGREEMENT, BUYER ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND
SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, RELATING TO THE CONDITION OF ANY PART OF THE ASSETS
(INCLUDING, WITHOUT LIMITATION, (a) ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, (b) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS
OR SAMPLES OF MATERIALS, AND (d) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM
FROM PATENT OR TRADEMARK INFRINGEMENT) IT BEING THE EXPRESS INTENTION OF BUYER
AND SELLER THAT (EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN THIS AGREEMENT) THE
ASSETS SHALL BE ACCEPTED BY BUYER AS IS AND IN THEIR PRESENT CONDITION AND
STATE OF REPAIR; AND BUYER REPRESENTS TO SELLER THAT BY MARCH 26, 1996 AT 5:00
P.M. BUYER WILL HAVE MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO
THE ASSETS AS BUYER DEEMS APPROPRIATE AND THEREAFTER BUYER WILL ACCEPT THE
ASSETS AS IS, IN THEIR PRESENT CONDITION AND STATE OF REPAIR. THE PARTIES AGREE
THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
13.5 Waiver of Trade Practices Acts.
(a) It is the intention of the parties that Buyer's rights and
remedies with respect to this transaction and with respect to all acts or
practices of Seller, past, present or future, in connection with this
transaction shall be governed by legal principles other than the Texas
Deceptive Trade Practices-Consumer Protection Act, Tex. Bus. & Com. Code Ann.
Section 17.41 et seq. (the "DTPA"). AS SUCH, BUYER HEREBY WAIVES THE
APPLICABILITY OF THE DTPA TO THIS TRANSACTION AND ANY AND ALL DUTIES, RIGHTS OR
REMEDIES THAT MIGHT BE IMPOSED BY THE DTPA, WHETHER SUCH DUTIES, RIGHTS AND
REMEDIES ARE APPLIED DIRECTLY BY THE DTPA ITSELF OR INDIRECTLY IN CONNECTION
WITH OTHER STATUTES; PROVIDED, HOWEVER, BUYER DOES NOT WAIVE Section 17.555 OF
THE DTPA. BUYER ACKNOWLEDGES, REPRESENTS AND WARRANTS THAT IT IS PURCHASING THE
GOODS AND/OR SERVICES COVERED BY THIS AGREEMENT FOR COMMERCIAL OR BUSINESS USE;
THAT IT HAS ASSETS OF $5 MILLION OR MORE ACCORDING TO ITS MOST RECENT FINANCIAL
STATEMENT PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES,
THAT IT HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT
ENABLE IT TO EVALUATE THE MERITS AND RISKS OF A TRANSACTION SUCH AS THIS; AND
THAT IT IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH SELLER.
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(b) TO THE MAXIMUM EXTENT PERMITTED BY LAW, BUYER HEREBY WAIVES ALL
PROVISIONS OF CONSUMER PROTECTION ACTS, DECEPTIVE TRADE PRACTICE ACTS AND OTHER
ACTS SIMILAR TO THE DTPA IN ALL JURISDICTIONS IN WHICH ANY OF THE ASSETS ARE
LOCATED (SUCH ACTS, TOGETHER WITH THE DTPA, ARE HEREINAFTER COLLECTIVELY
REFERRED TO AS THE "TRADE PRACTICES ACTS").
(c) BUYER EXPRESSLY RECOGNIZES THAT THE PRICE FOR WHICH SELLER HAS
AGREED TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT HAS BEEN PREDICATED UPON
THE INAPPLICABILITY OF THE TRADE PRACTICES ACTS AND THIS WAIVER OF THE TRADE
PRACTICES ACTS. BUYER FURTHER RECOGNIZES THAT SELLER, IN DETERMINING TO PROCEED
WITH THE ENTERING INTO OF THIS AGREEMENT, HAS EXPRESSLY RELIED ON THIS WAIVER
AND THE INAPPLICABILITY OF THE TRADE PRACTICES ACTS.
13.6 No Third Party Beneficiaries. Nothing in this Agreement shall
provide any benefit to any third party or entitle any third party to any claim,
cause of action, remedy or right of any kind, it being the intent of the
parties that this Agreement shall not be construed as a third party beneficiary
contract; provided, however, that the indemnification provisions in Article 12
shall inure to the benefit of the Buyer Indemnitees and the Seller Indemnitees
as provided therein.
13.7 Waiver. Except as expressly provided in this Agreement, neither
the failure nor any delay on the part of any party hereto in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, or of any
other right, power or remedy; nor shall any single or partial exercise of any
right, power or remedy preclude any further or other exercise thereof, or the
exercise of any other right, power or remedy. Except as expressly provided
herein, no waiver of any of the provisions of this Agreement shall be valid
unless it is in writing and signed by the party against whom it is sought to be
enforced.
13.8 Entire Agreement; Amendment. This Agreement, the Schedules and
Exhibits hereto, each of which is deemed to be a part hereof, and any
agreements, instruments or documents executed and delivered by the parties
pursuant to this Agreement, constitute the entire agreement and understanding
between the parties, and all previous undertakings, negotiations and agreements
between the parties regarding the subject matter hereof are merged herein;
provided however, that this Agreement does not supersede the confidentiality
Agreement, which shall not terminate (except in accordance with its terms)
unless and until the Closing occurs, and following the Closing, only to the
extent it relates to the Assets. This Agreement may not be modified orally, but
only by an agreement in writing signed by Buyer and Seller.
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13.9 Notices. Any and all notices or other communications required or
permitted under this Agreement shall be given in writing and delivered in
person or sent by United States certified or registered mail, postage prepaid,
return receipt requested, or by overnight express mail, or by telex, facsimile
or telecopy to the address of such part set forth below. Any such notice shall
be effective upon receipt or three (3) days after placed in the mail, whichever
is earlier.
If to Buyer: Continental Natural Gas, Inc.
1412 South Boston, Suite 500
Tulsa, OK 74121
By Mail or Hand Delivery: Continental Natural Gas, Inc.
1412 South Boston, Suite 500
P.O. Box 21470
Tulsa, OK 74121
Attention:
Telephone Number: 918-582-4700
Telecopy Number: 918-560-4900
with a copy to
Attention:
Telecopy Number:
Telephone Number:
If to Seller:
By Mail:
Transwestern Gathering Company
P.O. Box 1188
Houston, Texas 77251-1188
Attention: Vice President and Secretary
With a copy to: Vice President and General Counsel
By Hand Delivery:
Transwestern Gathering Company
1400 Smith Street
Houston, Texas 77002
Attention: Vice President and Secretary
Telephone Number: (713) 853-6424
Telecopy Number: (713) 853-3920
With a copy to: Vice President and General Counsel
Telephone Number: (713) 853-6009
Telecopy Number: (713) 646-2738
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Any party may, by notice so delivered, change its address for notice purposes
hereunder.
13.10 No Assignment. This Agreement shall not be assigned or
transferred in any way whatsoever by either party hereto except with prior
written consent of the other party hereto, which consent such party shall be
under no obligation to grant, and any assignment or attempted assignment
without such consent shall have no force or effect with respect to the non-
assigning party. Subject to the preceding sentence, this Agreement shall be
binding on and inure to the benefit of the parties hereto and their permitted
successors and assigns.
13.11 Severability. If any provision of this Agreement is invalid,
illegal or unenforceable, the balance of this Agreement shall remain in full
force and effect and this Agreement shall be construed in all respects as if
such invalid, illegal or unenforceable provision were omitted. If any provision
is inapplicable to any person or circumstance, it shall, nevertheless, remain
applicable to all other persons and circumstances.
13.12 Publicity. Seller and Buyer shall consult with each other with
regard to all publicity and other releases concerning this Agreement and the
transactions contemplated hereby and, except as required by applicable law or
the applicable rules or regulations of any Governmental Entity or stock
exchange, no party shall issue any such publicity or other release without the
prior written consent of the other party, which shall n to be unreasonably
withheld.
13.13 Construction. Any section headings in this Agreement are for
convenience of reference only, and shall be given no effect in the construction
or interpretation of this Agreement or any provisions thereof. No provision of
this Agreement will be interpreted in favor of, or against, any party by reason
of the extent to which any such party or its counsel participated in the
drafting thereof.
13.14 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and which together
shall constitute but one and the same instrument.
13.15 Further Assurances. After the Closing Date, each party hereto at
the reasonable request of the other and without additional consideration, shall
execute and deliver, or shall cause to be executed and delivered, from time to
time, such further certificates, agreements or instruments of conveyance and
transfer,
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assumption, release and acquittance and shall take such other action as the
other party hereto may reasonably request, to convey and deliver the Assets to
Buyer, to assure to Seller the assumption of the liabilities and obligations
intended to be assumed by Buyer hereunder and to otherwise consummate or
implement the transactions contemplated by this Agreement.
13.16 Payment of Funds. The amount of all revenues received by Seller
(or any affiliates thereof) relating to the ownership or operation of the
Assets on or after the Effective Time shall be remitted to Buyer in immediately
available funds on a timely basis. The amount of all revenues received by Buyer
(or any affiliates thereof) relating to the ownership or operation of the
Assets prior to the Effective Time shall be remitted to Seller in immediately
available funds on a timely basis. Without in any way limiting either party's
obligation to remit such amounts on a timely basis, if any such amounts
received by a party (or any affiliate thereof) are in excess of $25,000 in the
aggregate and have not been remitted to the other party within thirty (30) days
of receipt by the receiving party (or any affiliate thereof), such amounts
shall bear interest from the date of such receipt until the date upon which the
other party receives remittance of such amount in full and in immediately
available funds at an annual rate of 6%.
13.17 Certain Interpretive Matters. The inclusion of any matter on any
Schedules will not be deemed an admission by either party that such listed
matter has or would have a Material Adverse Effect.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
SELLER:
TRANSWESTERN GATHERING COMPANY
By:
------------------------------------------
Name:
Title:
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Buyer:
CONTINENTAL NATURAL GAS, INC.
By:
------------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.6
PACKAGE C
ASSET PURCHASE AGREEMENT
DATED AS OF MARCH 22, 1996
BY AND AMONG
TRANSWESTERN GATHERING COMPANY AND
ENRON GATHERING COMPANY
as Sellers
AND
CONTINENTAL NATURAL GAS, INC.
as Buyer
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Earnest Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Adjustments to the Purchase Price . . . . . . . . . . . . . . . . . . 2
2.4 Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Post-Closing Adjustments to the Purchase Price . . . . . . . . . . . 3
2.6 Allocated Values . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 3
CLOSING; ADJUSTMENTS TO PURCHASE PRICE
3.1 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Deliveries by Sellers at Closing . . . . . . . . . . . . . . . . . . 4
3.3 Deliveries by Buyer at Closing . . . . . . . . . . . . . . . . . . . 5
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
4.1 Organization and Good Standing of Sellers . . . . . . . . . . . . . . 6
4.2 Condition of the Assets; Preferential Rights to Purchase . . . . . . 6
4.3 Authorization of Agreement; No Violation; No Consents . . . . . . . . 6
4.4 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.7 Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.8 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . 7
4.9 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . 8
4.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . 8
5.2 Authorization of Agreement; No Violations; No Consents . . . . . . . 8
5.3 Government Consents . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.4 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.5 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.6 Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.7 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 6
COVENANTS
6.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Operation of the Assets Prior to the Effective Time . . . . . . . . . 10
6.3 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.4 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.5 Payment of Pre-Effective Time Operating Expenses . . . . . . . . . . 11
6.6 Commission Filings . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.7 Risk of Loss of the Assets; Casualty Loss . . . . . . . . . . . . . . 12
6.8 Allocation of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.9 Records: Access and Retention . . . . . . . . . . . . . . . . . . . . 13
6.10 Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.11 Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.12 Supplements to Schedules . . . . . . . . . . . . . . . . . . . . . . 14
6.13 Sellers' Property Located on Easements After Closing . . . . . . . . 14
6.14 Operational Due Diligence . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLERS
7.1 Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.3 Pending Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.4 Casualty Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.5 Sellers' Acquisition of Assets . . . . . . . . . . . . . . . . . . . 16
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF BUYER
8.1 Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.3 Pending Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.4 Casualty Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 9
TITLE MATTERS
9.1 Title Examination Period . . . . . . . . . . . . . . . . . . . . . . 16
9.2 Definition of Title Defects . . . . . . . . . . . . . . . . . . . . . 17
9.3 Remedies for Title Defects . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Pre-Closing Environmental Audit . . . . . . . . . . . . . . . . . . . 19
10.2 Post-Closing Environmental Investigation . . . . . . . . . . . . . . 20
10.3 Corrective Action . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 11
TERMINATION
11.1 Pre-Closing Environmental Audit . . . . . . . . . . . . . . . . . . . 22
11.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 12
INDEMNIFICATION
12.1 Assumption of Liabilities Relating to the Assets . . . . . . . . . . 23
12.2 Indemnification By Buyer . . . . . . . . . . . . . . . . . . . . . . 23
12.3 Indemnification By Sellers . . . . . . . . . . . . . . . . . . . . . 24
12.4 Limitation on Damages; Survival of Representations . . . . . . . . . 24
12.5 Notice of Asserted Liability; Opportunity to Defend . . . . . . . . . 26
12.6 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.7 NEGLIGENCE AND STRICT LIABILITY WAIVER . . . . . . . . . . . . . . . 27
ARTICLE 13
MISCELLANEOUS
13.1 Applicable Law; Alternative Dispute Resolution . . . . . . . . . . . 27
13.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
13.3 Independent Investigation . . . . . . . . . . . . . . . . . . . . . . 28
13.4 Disclaimer Regarding Assets . . . . . . . . . . . . . . . . . . . . . 29
13.5 Waiver of Trade Practices Acts . . . . . . . . . . . . . . . . . . . 29
13.6 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . 30
13.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.8 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . 30
13.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.10 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.12 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.13 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.16 Payment of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.17 Certain Interpretive Matters . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of March 22, 1996, is by and among
TRANSWESTERN GATHERING COMPANY, a Delaware corporation ("TGC"), and ENRON
GATHERING COMPANY ("EGC") (TGC and EGC are herein sometimes referred to as
"Seller" and jointly as "Sellers"), as Sellers, and CONTINENTAL NATURAL GAS,
INC., an Oklahoma corporation ("Buyer"), as Buyer.
WHEREAS, TGC owns certain natural gas gathering pipelines and related
facilities located in the Anadarko producing area that it acquired from
Transwestern Pipeline Company ("TW") ("TW Assets") and TGC has obtained a
Declaratory Order from the Federal Energy Regulatory Commission ("Commission")
finding the TW Assets are gas gathering facilities not subject to the
jurisdiction of the Commission under the Natural Gas Act (the "Act");
WHEREAS, EGC owns certain natural gas gathering pipelines and related
facilities located in the Anadarko producing area that it acquired from Enron
Anadarko Gathering Corp. ("EAGC") following EAGC's acquisition of said assets
from Northern Natural Gas Company ("NNG") ("NNG Assets") and EGC has obtained a
Declaratory Order from the Commission finding the NNG Assets are gas gathering
facilities not subject to the jurisdiction of the Commission under the Act;
WHEREAS, Buyer desire to acquire from Sellers, and Sellers desires to
sell to Buyer, certain of the natural gas gathering pipelines and related
assets that are located in the Anadarko producing area of Texas and Oklahoma,
generally consisting of the Perryton and Frass Como gathering systems; and
WHEREAS, Sellers desire to sell the aforementioned gathering assets to
Buyer, upon the terms and subject to the conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale. Subject to the terms and conditions hereof,
at the Closing (defined in Section 3.1 below), Sellers will sell, assign,
transfer and deliver to Buyer, and Buyer will purchase and acquire from
Sellers, the assets described on Schedule 1.1 attached hereto under the heading
"Sellers' Assets" (TW Assets and NNG Assets are jointly herein referred to as
the "Assets").
<PAGE> 6
ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price. Buyer agrees to pay an aggregate purchase price
to Sellers of SIX MILLION ONE HUNDRED FIFTY SIX THOUSAND AND NO/100 DOLLARS
($6,156,000.00) (the "Purchase Price"), as adjusted at Closing pursuant to
Section 2.3 of this Agreement (the "Adjusted Purchase Price") less the Earnest
Money (as defined in Section 2.2) by means of a completed Federal Funds wire
transfer of immediately available funds to an account designated by Sellers.
2.2 Earnest Money. No earnest money will be deposited by Buyer.
2.3 Adjustments to the Purchase Price.
(a) The Purchase Price shall be increased by the following amounts:
(i) all capital expenditures (other than expenditures for
Environmental Compliance Deficiencies set forth on the Environmental Statement
(each as hereinafter defined)) reasonably paid or incurred by Sellers or their
affiliates that are attributable to the Assets and attributable to the period
of time from and after 12:00 a.m., Houston, Texas time on the date of this
Agreement to the Effective Time (as hereinafter defined); provided that any
individual non-emergency capital expenditure in excess of $30,000 that is not
listed on Schedule 6.2(b) must have received the prior written approval of
Buyer, which approval shall not be unreasonably withheld, in order for such
capital expenditure to be included in such adjustment;
(ii) the market value of liquid hydrocarbons, if any, in tanks
or storage included in the Assets as of the Effective Time which can be
measured or reasonably estimated;
(iii) the amount, if any, expended by Sellers as the cost to
cure any Title Defect (as hereinafter defined) up to the amount of the
deductible provided for in Section 9.3(b), for which Buyer is responsible; and
(iv) any other amount provided for in this Agreement or agreed
upon in writing by Buyer and Sellers.
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(b) The Purchase Price shall be decreased by the following amounts:
(i) any amount agreed upon in writing by Buyer and Sellers;
(ii) any amount agreed upon in writing by Buyer and Sellers
pursuant to Section 10.1(b)(i) as the remaining cost of any incomplete or
remaining corrective projects; and
(iii) any other amount provided for in this Agreement or agreed
upon in writing by Buyer and Sellers.
(c) The adjustments described in Sections 2.3(a) and (b) are
hereinafter referred to as the "Purchase Price Adjustments".
2.4 Statement. Not later than three business days prior to the
Closing Date, Sellers shall prepare and deliver to Buyer a statement (the
"Statement") of the estimated Purchase Price Adjustments and the estimated
Adjusted Purchase Price ("Estimated Adjusted Purchase Price"). At Closing,
Buyer shall pay the Estimated Adjusted Purchase Price (less the Earnest Money
Fund).
2.5 Post-Closing Adjustments to the Purchase Price.
(a) On or before one hundred twenty (120) days after the Closing
Date, Sellers shall prepare and deliver to Buyer a revised Statement setting
forth the actual Purchase Price Adjustments. To the extent reasonably required
by Sellers, Buyer shall assist in the preparation of the revised Statement.
Sellers shall provide Buyer such data and information as Buyer may reasonably
request supporting the amounts reflected on the revised Statement in order to
permit Buyer to perform or cause to be performed an audit. The revised
Statement shall become final and binding upon the parties on the sixtieth
(60th) day following receipt thereof by Buyer (the "Final Settlement Date")
unless Buyer gives written notice of its disagreement ("Notice of
Disagreement") to Sellers prior to such date. Any Notice of Disagreement shall
specify in detail the dollar amount, nature and basis of any disagreement so
asserted. If a Notice of Disagreement is received by Sellers in a timely
manner, then the Statement (as revised in accordance with clause (i) or (ii)
below) shall become final and binding on the parties on, and the Final
Settlement Date shall be, the earlier of (i) the date Sellers and Buyer agree
in writing with respect to all matters specified in the Notice of Disagreement
or (ii) the date on which
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the Final Statement (as hereinafter defined) is issued by the Arbitrator (as
hereinafter defined).
(b) During the sixty (60) days following the date of receipt by
Sellers of the Notice of Disagreement, Sellers and Buyer shall attempt to
resolve in writing any differences that they may have with respect to all
matters specified in the Notice of Disagreement. If, at the end of such sixty
(60) day period (or earlier by mutual agreement to arbitrate), Buyer and
Sellers have not reached agreement on such matters, the matters that remain in
dispute may be submitted to an arbitrator (the "Arbitrator") by either party
for review and resolution. The Arbitrator shall be KPMG Peat Marwick (Houston
office), or if such firm is unable or unwilling to act, such other nationally
recognized independent public accounting firm as shall be agreed upon by Buyer
and Sellers in writing. Each party shall, not later than seven (7) business
days prior to the hearing date set by the Arbitrator, submit a brief with
dollar figures for settlement of the disputes as to the amount of the Adjusted
Purchase Price (together with a proposed Statement that reflects such figures).
The figures submitted need not be the figures offered during prior
negotiations. The hearing will be scheduled seven (7) business days following
submission of the settlement figures, or as soon thereafter as is acceptable to
the Arbitrator, and shall be conducted on a confidential basis without
continuance or adjournment. The Arbitrator shall render a decision resolving
the matters in dispute (which decision shall include a written statement of
findings and conclusions) within three business days after the conclusion of
the hearing, unless the parties reach agreement prior thereto and withdraw the
dispute from arbitration. The Arbitrator shall provide to the parties
explanations in writing of the reasons for its decisions regarding the Adjusted
Purchase Price and shall insure the Final Statement reflecting such decisions.
The decision of the Arbitrator shall be final and binding on the parties. The
cost of any arbitration (including the fees and expenses of the Arbitrator)
pursuant to this Section 2.5 shall be borne equally by Buyer, on the one hand,
and Sellers, on the other hand. The fees and disbursements of Sellers'
independent auditors incurred in connection with the procedures performed with
respect to the Statement shall be borne by the Sellers and the fees and
disbursements of Buyer's independent auditors incurred in connection with their
preparation of the Notice of Disagreement shall be borne by Buyer. As used in
this Agreement the term "Final Statement" shall mean the revised Statement
described in Section 2.5(a), as prepared by Sellers and as may be subsequently
adjusted to reflect any subsequent written agreement between the parties with
respect thereto, or if submitted to the Arbitrator, the Statement issued by the
Arbitrator.
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(c) If the amount of the Adjusted Purchase Price as set forth on the
Final Statement exceeds the amount of the Estimated Adjusted Purchase Price
paid at Closing, then Buyer shall pay to Sellers, within five business days
after the Final Settlement Date, the amount by which the Adjusted Purchase
Price as set forth on the Final Statement exceeds the amount of the Estimated
Adjusted Purchase Price paid at Closing. If the amount of the Adjusted
Purchase Price as set forth on the Final Statement is less than the amount of
the Estimated Adjusted Purchase Price paid at Closing, then Sellers shall pay
to Buyer, within five (5) business days after the Final Settlement Date, the
amount by which the Adjusted Purchase Prices as set forth on the Final
Statement is less than the amount of the Estimated Adjusted Purchase Price paid
at Closing. Any post-Closing payment made pursuant to this Section 2.5(c)
shall be made by means of a Federal Funds wire transfer of immediately
available funds to a bank account designated by the party receiving the funds.
2.6 Allocated Values. The parties agree to allocate the Purchase
Price among the Assets for all purposes (including financial accounting and tax
purposes) on or before the Closing Date (the "Allocated Values"). Sellers and
Buyer each agree that they will not take any position inconsistent with such
allocation in preparing all tax returns and tax reports to governmental
authorities ("Tax Returns") or otherwise. The parties will timely furnish each
other their tax identification numbers, non-foreign affidavits and other
reasonably requested tax compliance information.
ARTICLE 3
CLOSING; ADJUSTMENTS TO PURCHASE PRICE
3.1 Time and Place of Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at 10:00 a.m.
in the offices of Sellers at 1400 Smith Street, Houston, Texas 77002, on April
5, 1996 (the "Closing Date"), but shall nonetheless be effective March 31, 1996
as of 11:59 p.m. (Houston time) (the "Effective Time").
3.2 Deliveries by Sellers at Closing. At Closing, Sellers shall
execute and deliver, or cause to be executed and delivered, to Buyer:
(a) special warranty deeds conveying to Buyer all fee lands included
in the Assets ("Deeds"), in substantially the form attached hereto as Exhibit
A;
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(b) assignments and partial assignments, as appropriate, in
recordable form assigning to Buyer all interests in real property included in
the Assets (other than fee property), including any obligations contained in
easements to install and maintain farm taps and/or sell gas from the Assets
through such farm tap facilities ("Assignments" and "Partial Assignments", in
substantially the form attached hereto as Exhibit B-1 and B-2;
(c) a conveyance, assignment and bill of sale assigning to Buyer all
personal property (tangible and intangible) included in the Assets
("Conveyance"), in substantially the form attached hereto as Exhibit C;
(d) NNG's standard form of Operational Balancing Agreement, which is
attached hereto as Exhibit D (the "NNG OBA"), unless the currently effective
NNG OBA between NNG and Buyer is amended to accommodate new delivery points;
(e) certificates of title for vehicles included in the Assets where
necessary to transfer title, duly endorsed in blank;
(f) the assumption agreement regarding certain system operational
obligations and rate discounts, in substantially the form attached hereto as
Exhibit E (the "Assumption Agreement");
(g) the cathodic protection agreement between Sellers and Buyer, in
substantially the form attached hereto as Exhibit F (the "Cathodic Protection
Agreement");
(h) right of way and easement agreements granting to Buyer a right of
way for pipeline facilities that cross fee lands retained by Sellers or their
affiliates, in substantially the forms attached hereto as Exhibit G (the "Right
of Way Agreement'); and
(i) a processing agreement between Buyer and Enron Gas Processing
Company ("EGP") in substantially the form attached hereto as Exhibit H (the
"EGP Processing Agreement") and
(j) any other agreements, documents, certificates or other
instruments reasonably necessary to consummate the transactions contemplated by
this Agreement.
3.3 Deliveries by Buyer at Closing. At Closing, Buyer shall deliver
to Sellers the Estimated Adjusted Purchase Price as contemplated by Section
2.4, and Buyer shall execute and deliver or cause to be executed and delivered
the following:
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(a) easement agreements, in substantially the form attached hereto as
Exhibit I, granting to Sellers (and their affiliates, as the case may be)
easements (at no cost to Sellers or their affiliates) across any fee property
or lease included in the Assets in order that Sellers and their affiliates can
operate and maintain their respective facilities located on such property that
are excluded form the Assets;
(b) the NNG OBA;
(c) the Cathodic Protection Agreement;
(d) Deeds, Assignments, Partial Assignments and Conveyances;
(e) the EGP Processing Agreement; and
(f) any other agreements, documents, certificates or other
instruments reasonably necessary to consummate the transactions contemplated by
this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers each represent and warrant severally as to itself and not
jointly to Buyer as of the date hereof and as of the Closing Date that:
4.1 Organization and Good Standing of Sellers. Sellers are a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with full corporate power, right and authority
to own and lease the properties and assets it currently owns and leases and to
carry on its business as such business is currently being conducted.
4.2 Condition of the Assets; Preferential Rights to Purchase. (a)
Taken as a whole, the tangible assets and properties that are part of the
Assets are generally in good operating condition and repair, subject to normal
wear and maintenance, and except for assets taken out of service are generally
usable in the regular and ordinary course of business.
(b) Except as listed on Schedule 4.2, there are no preferential
rights to purchase any portion of the Assets.
4.3 Authorization of Agreement; No Violation; No Consents. This
Agreement has been duly executed and delivered by Sellers. Sellers have the
full corporate power and authority to enter into this Agreement, to make the
representations, warranties, covenants
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and agreements made herein and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of Sellers and their
affiliates. Neither the execution and delivery of this Agreement by Sellers
nor the consummation by Sellers of the transactions contemplated hereby (a)
will conflict with, result in a breach, default or violation of, or require
consent of any third party under (i) the terms, provisions or conditions of the
Certificate of Incorporation or Bylaws of Sellers or such affiliates or (ii) to
the knowledge of Sellers, any judgment, decree, order, governmental permit,
certificate, license, law, statute, rule or regulation to which either Sellers
or any such affiliate is a party or is subject, or to which any of the Assets
are subject, except for (A) consents and approvals from governmental
authorities that are customarily obtained after closing in connection with the
transactions contemplated hereby (the "Customary Post-Closing Consents") and
(B) any conflict, breach, default, violation, or consent that would not have,
individually or in the aggregate, a Material Adverse Effect, or (b) will result
in the creation of any lien, charge or other encumbrance on any of the Assets.
For purposes of this Agreement, occurrences or conditions shall have a
"Material Adverse Effect" if they individually or collectively have a material
adverse effect on the use, ownership or operation of the Assets, taking into
account the nature and valuation of the Assets, or materially hinder or impede
the consummation of the transactions contemplated by this Agreement. For
purposes of this Agreement, the terms "knowledge", "known" or any similar term,
as applied to Sellers, shall mean the actual knowledge of the executive
officers and key operational and management personnel of Sellers or other
authorized agents of Sellers (to the extent employees or agents of an affiliate
of Sellers) who prepared or provided information to Buyer in connection with
Buyer's assessment and analysis of this transaction.
4.4 Governmental Consents. To the knowledge of Sellers and except as
set forth on Schedule 4.4, no consent, action, approval or authorization of, or
registration, declaration or filing with, any domestic or foreign court,
government, governmental agency, authority, entity or instrumentality
("Governmental Entity") is required to authorize, or is otherwise required in
connection with, the execution and delivery of this Agreement by Sellers or
Sellers' performance of the terms of this Agreement or the validity or
enforceability hereof against Sellers, except for (a) Customary Post-Closing
Consents, (b) the matters discussed in Section 6.6 of this Agreement.
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4.5 Enforceability. This Agreement constitutes the legal, valid and
binding obligation of Sellers enforceable against Sellers in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting creditors' rights generally and
general principles of equity.
4.6 Brokers. No broker or finder who acted on behalf of Sellers or
any affiliate of Sellers is entitled to any brokerage or finder's fee, or to
any commission, based in any way on agreements, arrangements or understandings
made by or on behalf of Sellers or any affiliate of Sellers for which the Buyer
has or will have any liabilities or obligations (contingent or otherwise).
4.7 Suits. Except as set forth on Schedule 4.7, there is no legal,
administrative or arbitration proceeding pending or, to the knowledge of
Sellers, threatened relating to the Assets or to which either Sellers or one of
their affiliates is or would be a party in connection with the ownership or
operation of the Assets, or that would prohibit or delay in any material
respect the consummation of the transactions contemplated hereby.
4.8 Compliance With Laws. To the knowledge of Sellers, Sellers are
in material compliance with each statute, law, ordinance, rule or regulation
("Law") of any Governmental Entity applicable to it and related to the Assets,
or by which the Assets are bound, except for any violation that would not have
a Material Adverse Effect. To the knowledge of Sellers, Sellers possess all
governmental licenses, permits, and certificates necessary for the current
operation of the Assets, except to the extent that the failure to possess such
governmental licenses, permits, and certificates would not have a Material
Adverse Effect. Nothing in this Section 4.8 shall be deemed or construed to
constitute a representation or warranty with respect to Environmental Laws
because such matters are covered solely by Article 10 and Section 4.9.
4.9 Environmental Matters. Except as set forth on Schedule 4.9, (a)
to the knowledge of Sellers and with the possible exception of those matters
raised in the Environmental Statement (as hereinafter defined) from Buyer to
Sellers provided for in Section 10.1 (which matters Sellers do not admit
constitute violations of Environmental Laws), no violation of Environmental
laws (as defined below) exists with respect to any of the Assets, which
violation of Environmental Laws would have a Material Adverse Effect, and (b)
Sellers have all applicable and required environmental permits and has filed
all notices required under applicable Environmental Laws. For purposes of this
Agreement, the
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term "Environmental Laws" shall mean, as to any given Asset, all laws,
statutes, ordinances, rules and regulations of any Governmental Authority (as
hereinafter defined) pertaining to protection of the environment or human
health in effect as of the date hereof. For purposes of this Agreement, the
term "Governmental Authority" shall mean, as to any given Asset, the United
States and the state, county, city and political subdivisions in which such
Asset is located and the exercises jurisdiction over such Asset, and any
agency, department, board or other instrumentality thereof that exercises
jurisdiction over such Assets.
4.10 Tax Matters. No ad valorem taxes assessed against the Assets are
delinquent. Sellers or the previous affiliate owners of the Assets have
properly completed and filed or caused to be filed in a timely manner material
reports or returns required to be filed with respect to such ad valorem taxes
relating to the
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as of the date hereof and as of
the Closing Date that:
5.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma with full corporate power, right and authority to own and lease the
properties and assets it currently owns and leases and to carry on its business
as such business is currently being conducted.
5.2 Authorization of Agreement; No Violation; No Consents. This
Agreement has been duly executed and delivered by Buyer. Buyer has the full
corporate power and authority to enter into this Agreement, to make the
representations, warranties, covenants and agreements made herein and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of Buyer. Neither the execution and delivery of
this Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated hereby will conflict with, result in a breach, default or
violation of, or require the consent of a third party under (a) the terms,
provisions or conditions of the Certificate of Incorporation or Bylaws of Buyer
or (b) to the knowledge of Buyer, any judgment, decree or order or any
governmental permit, certificate, material agreement, license, law, statute,
rule or regulation or any
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judgment, decree or order to which Buyer is a party or is subject, or to which
the business, assets or operations of Buyer are subject, except for (i)
Customary Post-Closing Consents and (ii) any conflict, breach, default or
violation that would not have, individually or in the aggregate, a Material
Adverse Effect. For purposes of this Agreement, the terms "knowledge", "known"
or any similar term, as applied to Buyer shall mean the actual knowledge of the
executive officers and key operational and management personnel of Buyer or
other authorized agents of Buyer (to the extent employees or agents of an
affiliate of Buyer) who reviewed information or otherwise performed due
diligence in connection with Buyer's assessment and analysis of this
transaction.
5.3 Governmental Consents. To the knowledge of Buyer, no consent,
action, approval or authorization of, or registration, declaration, or filing
with, any Governmental Entity is required to authorize, or is otherwise
required in connection with, the execution and delivery of this Agreement by
Buyer or Buyer's performance of the terms of this Agreement or the validity or
enforceability hereof against Buyer, except for Customary Post-Closing
Consents.
5.4 Enforceability. This Agreement constitutes the legal, valid and
binding obligation of Buyer enforceable against Buyer in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting creditor's rights generally and general
principles of equity.
5.5 Brokers. No broker or finder has acted for or on behalf of Buyer
or any affiliate of Buyer in connection with this Agreement or the transactions
contemplated by this Agreement. No broker or finder is entitled to any
brokerage or finder's fee, or to any commission, based in any way on
agreements, arrangements or understandings made by or on behalf of Buyer or any
affiliate of Buyer for which Sellers have or will have any liabilities or
obligations (contingent or otherwise).
5.6 Suits. There is no injunction or restraining order or legal,
administrative or arbitration proceeding pending against Buyer which restrains
or prohibits the consummation of the transactions contemplated by this
Agreement.
5.7 Financing. Buyer has currently available (including funds that
can be drawn under existing lines of credit) all funds necessary to pay the
Purchase Price and any other amounts contemplated by this Agreement. Buyer's
ability to consummate
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the transactions contemplated hereby is not contingent on its ability to
complete any financing prior to or upon the Closing.
ARTICLE 6
COVENANTS
6.1 General. Buyer and Sellers each will use their reasonable
efforts in good faith to take all actions and to do all things necessary or
advisable in order to consummate and make effective the purchase and sale of
the Assets contemplated by this Agreement including satisfaction of the closing
conditions.
6.2 Operation of the Assets Prior to the Effective Time.
(a) Subject to the provisions of applicable agreements Sellers shall
continue to maintain, operate and administer the Assets, or shall cause the
Assets to be maintained, operated and administered, in a good and workmanlike
manner consistent with past practices and in substantial compliance with all
applicable laws and regulations; provided, however, prior to the Closing Date
Sellers may, at their election, cause liquid hydrocarbons in any tanks or
storage included in the Assets to be drained.
(b) Between the date of this Agreement and the Closing Date, Sellers
shall, except for emergency action taken in the face of risk to life, property
or the environment (such determination to be made in Sellers' reasonable
judgment) submit to Buyer for prior written approval (which approval shall not
be unreasonably withheld), all requests for capital expenditures relating to
the Assets that involve individual commitments of more than Thirty Thousand
Dollars ($30,000) and which, consistent with generally accepted accounting
principles and the Commission's regulations relating to natural gas pipeline
accounting, are classified as capital expenditures. The capital expenditures
for the Assets shown in Schedule 6.2(b) are hereby approved by Buyer. Buyer
will respond to Sellers in writing within three (3) days after receiving from
Sellers a request for approval of a capital expenditure. If Buyer fails to
deliver a written response to Sellers within such three (3) days, Buyer will be
deemed to have approved such expenditure. Schedule 1.1 shall be deeded amended
to reflect any assets acquired or constructed by Sellers in compliance with
this Section 6.2(b).
(c) Without the prior written approval of Buyer, (except with respect
to Default Gathering Contracts (as hereinafter defined)), as to which no prior
approval is necessary Sellers will not enter into, amend, or terminate any
agreements to be assigned to Buyer as part of the Assets, other than (i)
execution of any
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natural gas gathering agreements, wellhead connect agreements or other similar
agreements with producers whose wells become connected to the Assets or other
shippers between the date of this Agreement and the Closing Date provided such
agreements do not contain terms and conditions less favorable than the Default
Gathering Contracts (hereinafter defined) and (ii) the termination of evergreen
or month-to-month arrangements. Sellers will take all commercially reasonable
steps to keep in force and perform any agreements to be assigned to Buyer as
part of the Assets.
6.3 Permits. Sellers and Buyer agree to keep in force and effect and
to cooperate with each other (and Sellers agree to cause the current owners of
the Assets and their employees to cooperate and assist) to make application for
assignment of existing realty and environmental permits (effective with the
conveyance of the Assets to Buyer) or the issuance of new permits relating to
the Assets subsequent to the conveyance of the Assets to Buyer.
6.4 Access. Sellers will permit Buyer's officers, employees, agents
and advisors to have reasonable access to the Assets and the employees
operating the Assets (so long as such access occurs during normal business
hours and does not unreasonably interfere with the operation of the Assets) for
the following: (a) to inspect the Assets (including any Environmental Audit (as
hereinafter defined) conducted pursuant to Article 10); (b) to observe the
operation of the Assets and the performance of duties by the employees
operating the Assets prior to the Closing; and (c) related purposes consistent
with this Agreement. Buyer agrees to maintain the confidentiality of all such
information pursuant to the terms of that certain Confidentiality Agreement
signed January 11, 1996, between Enron Liquids Services Corp. ("ELSC"), as agent
for Sellers, and Buyer (the "Confidentiality Agreement"). In connection with
Buyer's right to reasonable access to the Assets BUYER HEREBY AGREES TO DEFEND,
INDEMNIFY, RELEASE, PROTECT, SAVE AND HOLD HARMLESS THE SELLERS' INDEMNITEES
(AS HEREINAFTER DEFINED) FROM AND AGAINST ANY AND ALL LOSSES (AS HEREINAFTER
DEFINED) ARISING OUT OF OR RELATING TO ANY PLANT OR FIELD VISIT, OR OTHER DUE
DILIGENCE ACTIVITY, CONDUCTED BY BUYER OR ANY AFFILIATE, SUCCESSOR, ASSIGN,
OFFICER, REPRESENTATIVE, DIRECTOR, CONTROLLING PERSON AND AGENT (EACH A "BUYER
PARTY"), INCLUDING WITHOUT LIMITATION ANY LOSSES RESULTING, IN WHOLE OR IN
PART, FROM THE CONCURRENT OR JOINT NEGLIGENCE OR STRICT LIABILITY OF ANY
SELLERS' INDEMNITEE. NOTWITHSTANDING THE FOREGOING, BUYER SHALL NOT BE
OBLIGATED TO INDEMNIFY ANY SELLERS' INDEMNITEE FOR LOSSES (WITH THE EXPRESS
EXCEPTION OF LOSSES SUFFERED BY ANY BUYER PARTY) THAT WERE GROSS THE RESULT OF
ANY SELLERS' INDEMNITEE'S STRICT LIABILITY OR THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF
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ONE OR MORE SELLER INDEMNITEES. THE PARTIES AGREE THAT THIS PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.
6.5 Payment of Pre-Effective Time Operating Expenses. Sellers agree
that all operating expenses actually incurred by Sellers or their affiliates in
connection with the operation of the Assets prior to the Effective Time shall
be for the account of, and paid by, Sellers or their affiliates in the ordinary
course of business and Buyer shall not be responsible for the payment thereof
other than sales and other transfer taxes and fees described in Section 6.8(a),
which taxes and fees shall be paid by Buyer.
6.6 Commission Filings. (a) TW and NNG filed, with the Commission in
Docket Nos. CP95-70 and CP94-608, respectively, for authorization to abandon by
sale certain gas gathering facilities, including the Assets, to TGC and EGC,
respectively, ("Abandonment Application"). Orders authorizing the abandonment
was issued to TW on July 27, 1995 and NNG on November 29, 1995. Buyer agrees
to comply with the conditions set forth in such Order, including but not
limited to, the default gathering contracts applicable to the Assets. In
addition, Sellers have filed for and received a Commission Order on their
Petition for Declaratory Order, pursuant to which the Commission determined,
among other things, that the gathering facilities acquired from TW and NNG, and
which are part of the Assets, are not subject to the jurisdiction of the
Commission under the Act. A copy of such Order has been provided to Buyer.
(b) Buyer agrees to comply with all Commission requirements regarding
the use and terms and conditions to be contained in the "Default" Gathering
Contract(s) with customers on the gathering facilities constituting a part of
the Assets.
6.7 Risk of Loss of the Assets; Casualty Loss. The risk of loss to
the Assets shall remain on the current owner of the Assets until the Effective
Time, and Buyer will receive the Assets, taken as a whole, in generally good
operating condition and repair, ordinary wear and tear excepted. In the event
any of the Assets shall be damaged by fire or other casualty prior to the
Closing Date, the parties will negotiate in good faith reasonable compensation
reflecting the reasonable costs of repair to the extent such repair,
replacement or reconstruction has not occurred at or prior to the Closing.
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6.8 Allocation of Taxes.
(a) Buyer shall be liable for all sales, use, documentary, recording,
stamp, transfer or similar taxes, assessments or fees arising from the transfer
of the Assets to Buyer.
(b) All ad valorem, property and similar taxes for the then current
year relating to the Assets shall be prorated as of the Effective Time. If the
Closing shall occur before the actual taxes for the then current year are
known, the apportionment of taxes shall be upon the basis of taxes for the
Assets for the immediately preceding year, provided that, if the taxes for the
current year are thereafter determined to be more or less than the taxes for
the preceding year (after any appeal of the assessed valuation thereof is
concluded), Sellers and Buyer shall promptly adjust the proration of such taxes
in accordance with such determination, and Sellers or Buyer, as the case may
be, shall pay to the other any amount required as a result of such adjustment.
All special taxes or assessments prior to the end of the calendar year of
Closing shall be prorated as of the Closing Date.
(c) Except as set forth in Section 6.8(a) and subject to Section
6.8(b), Sellers shall be responsible for all taxes (including fines, interest
and penalties related thereto and except for fines, interest or penalties
resulting from the fault or negligence of Sellers in their operation of the
Assets for which Sellers shall be liable for pursuant to the provisions of
Section 12.3 in the twelve (12) months following the Closing Date) imposed on
or with respect to the Assets that are attributable to any whole or partial
taxable period ending on or before the Effective Time. Buyer shall be
responsible for all taxes (including fines, interest and penalties related
thereto) imposed on or with respect to the Assets that are attributable to any
whole or partial taxable period ending after the Effective Time.
(d) Sellers will be entitled to any refunds or credits of taxes paid
with respect to the Assets to the extent attributable to a pre-Effective Time
tax period. Buyer will be entitled to any refunds or credits of taxes paid
with respect to the Assets to the extent attributable to a post-Effective Time
tax period.
6.9 Records; Access and Retention.
(a) As soon as reasonably possible after the completion of the
accounting cycle (but not later than sixty (60) days thereafter) for the period
up to but excluding the Closing Date, Sellers will deliver to Buyer copies of
files or, where the files relate exclusively to the Assets, the original files
included in
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the books, records and files associated with the Assets (the "Records"),
including without limitation gas accounting files, contract administration
files, property record files, maps, engineering reports, operating reports and
data, and maintenance records dealing with the construction, operation and
maintenance of the Assets. After Closing, Buyer shall give Sellers and their
authorized representatives such access, during normal business hours, to the
Records, as may be reasonably required by Sellers, provided that such access
does not unreasonably interfere with the ongoing operations of Buyer. Sellers
shall be entitled to keep or obtain extracts and copies of such Records.
(b) For a period of seven (7) years after the Closing Date, Buyer
shall preserve and retain all such Records (except for meter charts which shall
be preserved and retained for three years after the Closing); provided,
however, that in the event that Buyer transfers all or a portion of the Assets
to any third party during such period, Buyer may transfer to such third party
all or a portion of the Records related thereto, provided such third party
transferee expressly assumes in writing the obligations of Buyer under this
Section 6.9 and Buyer first offers to Sellers the opportunity, at Sellers'
expense, to copy the Records to be transferred.
6.10 Names. As soon as reasonably possible after Closing, but in no
event later than ninety (90) days after Closing, Buyer shall remove the names
of Sellers and their affiliates, including "ENRON" and all variations thereof,
from all of the Assets and make the requisite filings with, and provide the
requisite notices to, the appropriate federal, state or local agencies to place
the title or other indicia of ownership, including operation of the Assets, in
a name other than any name of Sellers or any of their affiliates, or any
variations thereof.
6.11 Employment Matters. (a) All individuals employed by Sellers or
one of their affiliates who are currently assigned to perform work on the
Assets affected by this Agreement are designated by Sellers on the Employee
Schedule (as hereinafter defined) as "Field Employees". Buyer agrees to cause
a member of the controlled group under IRC Section 1563(c)(2)(A) of which Buyer
is a member (the "Buyer Controlled Group") to make offers of employment as of
thirty (30) days after the Effective Time to such number of Field Employees
that will result in either (a) such offers of employment will have been made by
Closing to all Field Employees, or (b) as of Closing at least two (2) Field
Employees will become employed by a member of the Buyer Controlled Group.
Sellers shall deliver the Employee Schedule for "Field Employees" on a
confidential basis to the Manager, Human Resources of Buyer no
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more than seven (7) business days after this Agreement is executed showing the
name, job position, work location, and years of past service credit for all
Field Employees. In addition, Sellers will provide Buyer on a confidential
basis relevant written information in Sellers' possession regarding each
individual's work qualifications, training history, and prior jobs held while
employed by any affiliate of Sellers. All employment offers (i) shall be made
sufficiently in advance of thirty (30) days after the Closing Date, and (ii)
shall be at a base salary and benefits compensation package comparable to that
of Buyer's employees performing similar jobs.
(b) Employees listed on the Employee Schedule who accept offers of
employment and who are employed by a member of the Buyer Controlled Group are
referred to as "Acquired Employees", or individually as an "Acquired Employee".
Upon commencement of employment by an Acquired Employee with a member of the
Buyer Controlled Group, Acquired Employee's participation in all employee
benefit plans (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (the "Plans") sponsored by
Sellers or any of their affiliates, or in which they are participating
employers, shall cease, and all liability associated with such Plans, including
but not limited to funding, claims for benefits, fines, penalties and taxes,
shall remain the liability of the Sellers and their affiliates. Buyer will, or
will cause its affiliates to, take all action necessary to cause all such
Acquired Employees to be covered under the employee benefit plans of Buyer or
its affiliates and fringe benefit arrangements, in each case effective as of
the Closing Date, on the same basis as those provided to Buyer's affiliates'
employees in comparable positions.
(c) If a member of the Buyer Controlled Group (an "Offering
Employer") makes any such offers of employment to Acquired Employees requiring
a change of work location such that the Acquired Employee must travel at least
50 miles (as determined under Internal Revenue Code Section 217 and the
regulations issued pursuant thereto) further to the new principal place of work
than the work location as shown on the Employee Schedule for Field Employees,
such Offering Employer will extend the same relocation assistance to such
Acquired Employee as are available to employees of the Offering Employer.
(d) Sellers represent to Buyer that Sellers shall pay the Field
Employees which are not Acquired Employees or are not relocated by Sellers to
another of Sellers' work locations a severance pay ("Severed Employees"). If
Buyer employs any of the Severed Employees within six (6) months of Closing,
Buyer shall
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reimburse Sellers a prorated amount of the severance pay Sellers paid to the
Severed Employees.
6.12 Supplements to Schedules. From time to time prior to the Closing
with the consent of Buyer (which consent shall not be unreasonably withheld),
Sellers will promptly supplement or amend the Schedules attached hereto with
respect to any Assets or additional assets which, if existing or occurring at
the date of this Agreement, would have been required to be set forth or
described in such Schedule.
6.13 Sellers' Property Located on Easements After Closing. Following
the Closing Sellers (or their affiliates) will have facilities located on the
real property, easements and leases acquired by Buyer pursuant to this
Agreement. Except as provided in this Section 6.13, Buyer agrees that in no
event shall Buyer have the right to require Sellers or their affiliates to
remove, relocate, lower or otherwise alter in any respect any of their
respective facilities that are located on any such fee property, easement or
lease. During the Title Examination Period, Buyer and Sellers agree to
negotiate in good faith to attempt to mutually agree upon the extent to which
block valves, quality measurement and metering facilities and custody transfer
points on the Assets and on the interconnecting facilities of Sellers or their
affiliates not included in the Assets as to handling of both gas and liquid
hydrocarbons need to be modified, moved, altered or installed and the location
of any such facilities and custody transfer points. The costs of any such
modifications, alterations and additions will be borne equally by the parties,
and to the extent reasonably feasible such modifications, alterations and
additions will be completed by Closing or promptly thereafter. During the
Title Examination Period, Buyer and Sellers will also negotiate in good faith
to attempt to mutually agree upon arrangements for the sharing of certain
facilities (and costs related to the operation thereof) that will be owned by
one party after the Closing, but were used in connection with both the Assets
and Sellers and their affiliates retained facilities prior to the Closing, such
as cathodic protection equipment, radio towers, and pigging equipment.
6.14 Operational Due Diligence. From and after March 22, 1996 until
5:00 P.M. local time in Houston, Texas on April 3, 1996 (the "Operational Due
Diligence Period"), Buyer shall have access to the Assets for the purpose of
inspecting the Assets for the presence of defects other than title and
environmental which are addressed in Articles 9 and 10. Buyer shall have the
right during the Operational Due Diligence Period to review among other things,
the following related to the Assets: accounting documents
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(including current discount information), operational data (including current
and historical gas flow data), maintenance records, gas contract files,
equipment rental or capital lease agreements, maintenance contracts, gas
processing affidavits or contracts, and operating permits. In the event that
Buyer determines that the Assets are materially defective or that Sellers have
made misrepresentations regarding the Assets, which in either case result in a
Material Adverse Effect on the Assets, then Buyer shall have the option to
terminate this Agreement by written notice to Sellers by 12 noon CST on April
4, 1996.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of Sellers to consummate the transactions contemplated
by this Agreement are subject, at the option of Sellers, to the following
conditions:
7.1 Representations. The representations and warranties of Buyer
herein contained shall be made again at Closing and shall be true and correct
in all material respects on the Closing Date.
7.2 Performance. Buyer shall have performed all material
obligations, covenants and agreements contained in this Agreement to be
performed or complied with by it at or prior to the Closing.
7.3 Pending Matters. No suit, action or other proceeding shall be
pending that could reasonably be expected to restrain, enjoin or otherwise
prohibit the consummation of the transactions contemplated by this Agreement.
7.4 Casualty Loss. The Assets shall not have been materially
damaged, lost, or destroyed where the cost to repair or replace such Assets to
the condition prior to such damage, loss, or destruction exceeds an amount
equal to seven and one-half percent (7.5%) of the Purchase Price.
7.5 Sellers' Acquisition of Assets. TW and NNG shall have received
from the Commission orders on rehearing regarding the Abandonment Applications
which preserve the accounting and tax treatment of the transaction as currently
contemplated by Sellers and their affiliates and such orders shall not contain
any condition or provision that is unacceptable to TW and NNG, in their sole
discretion, regardless of whether TW or NNG subsequently accepts such order if
the Commission is unwilling to remove or satisfactorily modify such
unacceptable provision or condition on rehearing or otherwise.
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ARTICLE 8
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement are subject, at the option of Buyer, to the following
conditions:
8.1 Representations. The representations and warranties of Sellers
herein contained shall be made again at Closing and shall be true and correct
in all material respects on the Closing Date.
8.2 Performance. Sellers shall have performed all material
obligations, covenants and agreements contained in this Agreement to be
performed or complied with by it at or prior to the Closing.
8.3 Pending Matters. No suit, action or other proceeding shall be
pending that could reasonably be expected to restrain, enjoin or otherwise
prohibit the consummation of the transactions contemplated by this Agreement.
8.4 Casualty Loss. The Assets shall not have been materially
damaged, lost, or destroyed where the cost to repair or replace such Assets to
the condition prior to such damage, loss, or destruction exceeds an amount
equal to seven and one-half percent (7.5%) of the Purchase Price.
ARTICLE 9
TITLE MATTERS
9.1 Title Examination Period. From and after March 22, 1996 until
5:00 p.m., local time in Houston, Texas, on April 3, 1996 (the "Title
Examination Period"), Buyer may notify Sellers in writing of any alleged Title
Defects affecting any of the Assets and discovered by Buyer or any affiliate or
agent of Buyer, setting forth in such notice a detailed description of each
Title Defect and the estimated cost to cure each Title Defect. Any matters
that may otherwise constitute Title Defects relating to the Assets but that are
not specifically raised in writing by Buyer prior to the expiration of the
Title Examination Period shall be deemed to have been waived. Upon receipt of
such notice from Buyer, Sellers shall have the right, but not the obligation,
to attempt to cure such Title Defects prior to Closing and after the Closing,
to the extent that Sellers elect pursuant to Section 9.3(a) to indemnify Buyer
for Losses (as hereinafter defined) arising out of any Title Defects.
Notwithstanding the preceding sentence, prior to the Closing Sellers will seek
diligently consents and approvals for transfers of easements, rights of way,
and realty leases on privately owned lands where they are required. To the
extent that
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such consent require payments to the affected landowners, if any, the resulting
costs will be governed by the provisions of Section 9.3. Buyer shall not have
the right to attempt to cure such Title Defects to the extent that Sellers have
elected to indemnify Buyer for Losses arising out of such defects, unless in
the reasonable opinion of Buyer's counsel Buyer would likely be liable to a
third party for punitive or similar damages as a result of such Title Defect.
9.2 Definition of Title Defects.
(a) Any unobtained consent to assignment, lien, charge, obligation,
encumbrance, defect or irregularity of title or any other circumstance or
condition that causes Sellers' title to the Assets in any of the realty of
major facilities that are part of the Assets to be less than Defensible Title
(as hereinafter defined) and for which notice is given by Buyer to Sellers
pursuant to Section 9.1, shall be a title defect (a "Title Defect").
(b) For purposes of this Agreement, the term "Defensible Title" to
the major facilities shall mean, subject to and except for the Permitted
Encumbrances (as hereinafter defined), Sellers' title to the assets in the
major facilities is free and clear of all liens, encumbrances and defects of
any kind whatsoever.
(c) For purposes of this Agreement the term "Permitted Encumbrances"
shall mean any of the following:
(i) any liens for taxes and assessments not yet due or, if
due, that are being contested in good faith in the ordinary course of
business;
(ii) any obligations or duties reserved to or vested in any
municipality or other Governmental Authority to contract or regulate any
Asset in any manner, all applicable Laws and all applicable rules and
orders of any Governmental Authority;
(iii) the terms and conditions of all leases and servitudes, and
the agreements listed on Schedule 1.1;
(iv) Customary Post-Closing Consents;
(v) any required third party consents to assignment and
similar agreements and obligations arising in connection with the
transfer of the Assets to Sellers or this sale of the Assets to Buyer
with respect to which prior to Closing (A) waivers or consents have been
obtained from the appropriate person, (B) the applicable period of time
for asserting such
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rights has expired without any exercise of such rights or (C) lawful
arrangements have been made by the parties to allow Buyer to receive
substantially the same economic benefits as if all such waivers and
consents had been obtained;
(vi) existing easements, rights of way, servitudes, permits,
licenses, surface leases and other rights with respect to surface
obligations, pipelines, grazing, canals, ditches, reservoirs, or the
like, conditions, covenants or other restrictions, and easements of
streets, alleys, highways, pipelines, telephone lines, power lines,
railways and other easements and rights of way on, over or in respect of
any of the Assets, so long as individually or in the aggregate they do
not have a Material Adverse Effect;
(vii) materialmen's, mechanics', repairmen's, employees',
contractors', operators', tax and other similar liens or charges arising
in the ordinary course of business incidental to construction,
maintenance or operation of any of the Assets (A) if they have not been
filed pursuant to law, (B) if filed, they have not yet become due and
payable or payment is being withheld as provided by law or (C) if their
validity is being contested in good faith in the ordinary course of
business by appropriate action;
(viii) any Title Defect of which Sellers have provided a remedy
pursuant to Section 9.3 (including, without limitations, an adjustment
to the Purchase Price or indemnification) and any Title Defect that has
been waived by Buyer or deemed to be waived by Buyer pursuant to this
Agreement; and
(ix) the matters described on Schedule 9.2 attached hereto.
9.3 Remedies for Title Defects.
(a) Subject to Section 9.3(b), in the event that any Title Defect is not
waived by Buyer or cured on or before Closing, Sellers shall, in their sole
election, elect to:
(i) reduce the Purchase Price by an amount agreed upon in
writing by Buyer and Sellers as being the cost to cure such Title
Defect, taking into consideration the portion of the Assets subject to
such Title Defect and the legal effect of such Title Defect on the
Assets affected thereby; or
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(ii) indemnify Buyer, subject to the maximum amount of Sellers'
liability set forth in Section 12.4(b), against all liability, loss,
cost and expense resulting from such Title Defect pursuant to Section
12.3(d).
In the event that Sellers elect to proceed under Section 9.3(a)(k) and Buyer
and Sellers have failed to agree on or before the third business day prior to
the then scheduled Closing Date on the proportionate reduction of the Purchase
Price (which agreement Buyer and Sellers shall use good faith efforts to
reach), Sellers shall then elect to proceed with respect to such Title Defect
under Section 9.3(a)(ii). Sellers may elect to proceed under Section 9.3(a)(i)
with respect to certain Title Defects and under Section 9.3(a)(ii) with respect
to the Title Defects.
(b) Notwithstanding anything in Article 9 to the contrary, in no
event shall Sellers be obligated pursuant to Section 9.3(a) to decrease the
Purchase Price or indemnify Buyer pursuant to Section 12.3(d) for Title Defects
unless the cost to cure all such Title Defects in the aggregate, exceeds a
deductible in an amount of Forty Thousand Dollars ($40,000.00), after which
point Buyer shall be entitled to adjustments to the Purchase Price or
indemnification only with respect to curative costs in excess of such
deductible. Without the prior written consent of Buyer, Sellers shall not
incur costs to cure any Title Defects that would be attributable to Buyer's
deductible amount.
ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Pre-Closing Environmental Audit. (a) From and after March 22,
1996, Buyer may, at its option, cause Buyer's personnel and a reputable
consulting or engineering firm reasonably acceptable to Sellers ("Environmental
Auditor") to conduct (i) a Phase I and Phase II environmental audit of Sellers'
and their affiliates, records, (ii) interviews with employees operating the
Assets, and (iii) an inspection of the Assets and prepare a written report of
their findings (the "Environmental Audit") by 5:00 p.m., local time in Houston,
Texas, on April 3, 1996 (the "Environmental Examination Period"). In the event
Buyer elects to conduct a Phase II environmental audit (i.e. Buyer seeks to
conduct any sampling or intrusive investigation of the surface or the
subsurface of the Assets) Buyer and Sellers shall agree upon the scope and
nature of such a Phase II audit not later than March 28, 1996. The agreed upon
Phase II investigation shall be set forth in writing which shall be sufficient
to define the scope, nature, location and duration of such an investigation.
During the environmental Examination Period, Buyer may submit to Sellers in
writing a
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statement (the "Environmental Statement") describing which, if any, of the
Environmental Compliance Deficiencies (defined below) and proposed corrective
actions (with corresponding cost estimates as provided in the Environmental
Audit) Buyer is requesting Sellers to undertake. If Buyer delivers an
Environmental Statement, then Sellers agree (without admitting that any
compliance deficiencies contained in any report prepared by an Environmental
Auditor or Environmental Statement are in fact violations of Environmental
Laws) to pay for, undertake or indemnify Buyer for corrective projects or
deficiencies specified in the Environmental Statement provided hereunder, which
are Environmental Compliance Deficiencies, subject to the limitations on
liability set forth in Section 12.4(b) below.
(b) If there are any corrective projects specified in the
Environmental Statement, which are Environmental Compliance Deficiencies, that
are not completed by or on behalf of Sellers prior to the Closing, Sellers
shall, at their sole election, either:
(i) reduce the Purchase Price by an amount agreed upon in
writing by Buyer and Sellers as the remaining costs of any incomplete or
remaining corrective projects, subject to the maximum amount of Sellers'
liability set forth in Section 12.4(b);
(ii) perform or cause to be performed, in accordance with
Section 10.3 and subject to the maximum amount of Sellers' liability set
forth in Section 12.4(b), such operations as may be necessary to cure
any Environmental Compliance Deficiencies; or
(iii) indemnify Buyer against Losses resulting from any such
Environmental Compliance Deficiencies pursuant to Article 12.3(e),
subject to the limitations on Sellers' liability set forth in this
Section 12.4(b); provided, however, if in the reasonable opinion of
environmental counsel to Sellers or Buyer there is an affirmative duty
to correct such Environmental Compliance Deficiencies, Sellers shall not
be entitled to elect this Section 10.1(b)(iii). In the event that
Sellers elect to proceed under this clause (iii) for any Environmental
Compliance Deficiency, Buyer shall be deemed to have furnished a Claim
Notice with respect to such Environmental Compliance Deficiency in
accordance with Article 12.
(c) As used in this Agreement, the term "Environmental Compliance
Deficiencies" shall mean those matters specifically set
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forth in the Environmental Statement or in the Environmental Defect Notice
described in Section 10.2 below that indicate that on the date of the
Environmental Statement the Assets are in violation or in noncompliance with
Environmental Laws or, in the case of an Environmental Defect Notice, that on
the Closing Date the Assets were in violation or in noncompliance with
Environmental Laws.
(d) Buyer shall be responsible for all of its environmental due
diligence costs and expenses whether incurred before or after the Closing,
including those costs associated with the evaluation of the Assets and the
preparation of Environmental Audits, Environmental Statements and Environmental
Defect Notices. Such due diligence costs shall not include any remedial or
corrective action costs incurred by Sellers pursuant to this Article 10. Buyer
shall not have any right to claim that such costs are Losses (hereinafter
defined) for which Sellers are obligated to indemnify Buyer pursuant to Section
12.3 below. Any report prepared by an Environmental Auditor describing
Environmental Compliance Deficiencies as to which Buyer requests Sellers to
take corrective action or reimburse Buyer for the cost of corrective action
shall be addressed to Buyer and Sellers.
10.2 Post-Closing Environmental Investigation.
(a) During the three (3) years following the Closing Date, Buyer may
notify Sellers in writing of any Environmental Compliance Deficiencies
affecting the Assets that were discovered by Buyer or an Environmental Auditor
after the Closing, but that relate to periods prior to the Closing. Such
notice shall be in writing and shall set forth a reasonably detailed
description of each alleged Environmental Compliance Deficiency and proposed
corrective actions (with corresponding cost estimated) (the "Environmental
Defect Notice"). Sellers will notify Buyer in writing promptly after it
determines that Buyer will be responsible, in whole or in part, for corrective
action undertaken pursuant to this Section 10.2.
(b) If the amounts previously paid by Sellers to correct
Environmental Compliance Deficiencies pursuant to this Article 10 (including
pre-Closing corrective action and reduction of the Purchase Price) have not
exceeded the amounts of Sellers' maximum liability set forth in Section 12.4(b)
and Buyer delivers an Environmental Defect Notice, Sellers agree, at their sole
election, to either (without admitting that any compliance deficiencies
contained in any report prepared by an Environmental Auditor or Environmental
Defect Notice(s) are in fact violations of Environmental Laws):
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(i) perform or cause to be performed, in accordance with
Section 10.3 and subject to the maximum amount of Sellers' liability set
forth in Section 12.4(b), such operations as may be necessary to cure
any Environmental Compliance Deficiencies; or
(ii) indemnify Buyer against Losses resulting from any
Environmental Compliance Deficiencies pursuant to Section 12.3(e),
subject to the limitations on Sellers' liability set forth in Section
12.4(b); provided, however, if in the reasonable opinion of
environmental counsel to Sellers or Buyer there is an affirmative duty
to correct such Environmental Compliance Deficiencies, Sellers shall not
be entitled to elect this Section 10.2(b)(ii). In the event Sellers
elect to proceed under this clause (ii) for any Environmental Compliance
Deficiency, Buyer shall be deemed to have furnished a Claim Notice with
respect to such Environmental Compliance Deficiency in accordance with
Article 12.
10.3 Corrective Action. The parties agree that in the event Sellers
elect to undertake corrective action of any Environmental Compliance
Deficiencies, the corrective action shall be conducted as follows:
(a) Sellers shall notify Buyer of their election to conduct
the corrective action.
(b) Sellers shall provide Buyer with a copy of all materials
that may be submitted to or received from agencies with jurisdictional
authority over the corrective action, including but not limited to notices,
plans, approvals and analytical results. In the event no plan or proposal is
submitted to the jurisdictional agency, then Sellers shall provide Buyer with a
written plan to conduct the corrective action. The foregoing documentation
shall be sufficient to describe the scope, nature and anticipated duration of
the corrective action. Buyer agrees not to interfere with or oppose (before
any jurisdictional authority) in any manner any of Sellers' corrective action
activities except and unless Sellers fail to conduct such corrective actions in
accordance with the terms and condition of this Agreement or as may be required
by applicable laws, rules or regulations, or the requirements of governmental
authorities.
(c) Sellers shall conduct the corrective action in a good and
workmanlike manner consistent with industry standards and in accordance with
any proposal or plans submitted to regulatory agencies and the Buyer. Sellers'
plans and corrective actions
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shall be carried out in ways that avoid or minimize to the greatest extent
feasible any interference with Buyer's ongoing gathering operations.
(d) Sellers shall provide Buyer written notice of all major
operations to be conducted on the Assets associated with the corrective action
at least fifteen (15) days prior to such operations in order that Buyer may
witness and observe such operations. Such operations will include, but not be
limited to, any sampling conducted on the Assets. Buyer shall have the right
to split any samples taken by Sellers as well as the right to take independent
samples and submit such samples to an independent laboratory. Sellers shall
have the right to split any samples taken by Buyer and submit such samples for
analysis. Buyer agrees to bear its own costs in regard to witnessing,
inspecting or auditing the corrective action activities of the Sellers. Such
costs include, but are not limited to, sampling costs, laboratory costs,
personnel costs, and any third party costs.
(e) Sellers shall notify Buyer in writing of the completion of
the corrective action. Such notice shall include a statement of actual
expenditures and where appropriate, supporting analytical information and
report(s) sufficient to verify that the Environmental Compliance Deficiency no
longer exists.
(f) Sellers shall invoice Buyer for Buyer's share, if any, of
any costs and expenses incurred as a result of the corrective action, and Buyer
shall pay such invoice within thirty (30) days of receipt. Sellers agree that
Buyer shall have the right to audit such records as may be reasonably necessary
to verify the expenditures associated with the corrective action.
(g) In the event Sellers elect to proceed with a corrective
action, Buyer agrees to fully cooperate with the Sellers to facilitate the
corrective action. Such cooperation shall include providing information to
Sellers and access to the Assets during reasonable hours. Buyer also agrees to
provide access to the Assets to Sellers' personnel and agents and
jurisdictional agency representatives.
(h) If the cost of the corrective action at any time causes
Sellers' maximum liability to have been incurred, Sellers shall immediately so
inform Buyer in writing, and Buyer may immediately or at any time thereafter
assume performance of the corrective action to completion. Sellers shall not
have the right to continue corrective actions at Buyer's sole cost without
Buyer's written consent.
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10.4 Release. Any matters that may otherwise constitute Environmental
Compliance Deficiencies that are not raised by Buyer prior to the third
anniversary of the Closing Date shall be deemed to have been waived. Upon
completion by or on behalf of Sellers of any corrective project specified in
the Environmental Statement or the Environmental Defect Notice, or upon payment
by Sellers to Buyer of Sellers' share of the cost to complete any such
corrective project, Buyer shall be deemed to have released Sellers from any
further liability for such Environmental Compliance Deficiency.
ARTICLE 11
TERMINATION
11.1 Termination At or Prior to Closing. The occurrence of any of the
following events prior to the Closing notwithstanding the reasonable efforts of
the party asserting a termination to avoid the event and to fulfill the
conditions to Closing in its control shall be a Termination Event:
(a) Sellers and Buyer may elect to terminate this Agreement at
any time on or prior to the Closing Date by mutual written consent of the
parties;
(b) either Sellers or Buyer may elect to terminate this
Agreement if the Closing shall not have occurred on or before May 7, 1996;
provided, however, that neither Sellers nor Buyer can so terminate this
Agreement if such party is at such time in material breach of any provision of
this Agreement;
(c) either Sellers or Buyer may elect to terminate this
Agreement if any Governmental Entity shall have issued a final non-appealable
order, judgment or decree or taken any other action challenging, delaying
beyond May 7, 1996, restraining, enjoining, prohibiting or invalidating the
consummation of any of the transactions contemplated herein;
(d) Sellers may elect to terminate this Agreement by April 4,
1996 if the aggregate amount of (i) all Title Defects in excess of the 2.5% of
Purchase Price deductible asserted pursuant to Article 9 of this Agreement plus
(ii) all Environmental Compliance Deficiencies asserted pursuant to Article 10
of this Agreement, exceeds an amount equal to 7.5% of Purchase Price;
(e) Buyer may elect to terminate this Agreement by April 4,
1996 if (i) the aggregate amount of Title Defects asserted pursuant to Article
9 of this Agreement up to the amount of the Title Defect Deductible plus (ii)
all Environmental Compliance
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Deficiencies asserted pursuant to Article 10 of this Agreement, exceeds an
amount equal to 7.5% of Purchase Price; or
(f) if Buyer has requested permission to conduct a Phase II
environmental investigation pursuant to Section 10.1(a) and Sellers have not
agreed with Buyer prior to March 28, 1996 on such investigation as required by
Section 10.1(a), then on or before the Closing Date either Sellers or Buyer may
elect to terminate the transactions contemplated by this Agreement;
(g) Buyer may terminate this Agreement pursuant to Section
6.14 provided, however, if the terminating party's estimate of costs to cure
Title Defects or Environmental Deficiencies, as the case may be, exceeds the
non-terminating party's estimate by more than 10% then neither Sellers nor
Buyer shall be entitled to elect to terminate this Agreement pursuant to
clauses (d) or (e), respectively, unless and until an independent expert
engaged by the parties issues an opinion on the estimated costs of such
curative projects ("Estimated Curative Costs"), which Estimated Curative Costs
shall be determinative of a party's right to terminate this Agreement pursuant
to clause (d) or (e) above.
11.2 Effect of Termination. In the event that Closing does not occur
as a result of either party exercising its right to terminate pursuant to
Section 11.1, then neither party shall have any further rights or obligations
under this Agreement, except that (a) nothing herein shall relieve either party
from any liability for any willful breach hereof and (b) Buyer's
indemnification and related obligations under Section 6.4 shall survive any
such termination.
ARTICLE 12
INDEMNIFICATION
12.1 Assumption of Liabilities Relating to the Assets. As of the
Effective Time and subject to Sellers' indemnification obligation set forth in
Section 12.3, Buyer shall assume the Assumed Obligations. "Assumed
Obligations" shall mean all liabilities, duties, and obligations of every kind
whatsoever relative to (a) ownership, operation, occupancy, condition or use of
the Assets on and after the Effective Time, and (b) matters arising out of any
matter or circumstance relating to Environmental Laws, the release of materials
into the environment or protection of the environment, whether known or
unknown, whether attributable to period of time before or after the Effective
Time.
12.2 Indemnification By Buyer. Subject to Section 12.4(a), Buyer
shall indemnify, release, defend, and hold harmless Sellers,
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its officers, directors, employees, agents, representatives, affiliates,
subsidiaries, successors and assigns (collectively, the "Sellers Indemnitee")
from and against any and all claims, liabilities, losses, causes of actions,
costs and expenses (including, without limitation, court costs and attorneys'
fees) ("Losses") asserted against, resulting from, imposed upon or incurred by
any of the Sellers Indemnitee as a result of, or arising out of: (a) the breach
of any of the representations, warranties, covenants or agreements of Buyer
contained in this Agreement, or (b) the Assumed Obligations, or (c) any
liability for taxes (including interest, penalties or fines related thereto)
the responsibility for payment of which was assumed by Buyer pursuant to
Section 6.7 above; provided, however, that Buyer shall not assume and shall
have no obligation to indemnify any of the Sellers Indemnitees with respect to
any matter for which Sellers are indemnifying Buyer pursuant to Section 12.3.
12.3 Indemnification By Sellers. Subject to Section 12.4(b), Sellers
shall indemnify, defend and hold harmless Buyer, its officers, directors,
employees, agents, representatives, affiliates, subsidiaries, successors and
assigns (collectively, the "Buyer Indemnitees") from and against all Losses
asserted against, resulting from, imposed upon or incurred by any of the Buyer
Indemnitees as a result of, or arising out of, (a) the breach of any of the
representations, warranties, covenants or agreements of Sellers contained in
this Agreement, (b) the ownership, operation, occupancy, use or condition of
the Assets prior to the Effective Time, other than matters relating to
Environmental Laws (which are covered by clause (e) below), (c) claims made by
employees or former employees of Sellers or any affiliates of Sellers with
regard to compensation and benefits under any benefit plan or any other
employee benefit program in which such employee participated while employed by
Sellers or any affiliate of Sellers prior to the Effective Time, (d) Title
Defects related to the Sellers Assets as to which Sellers elected pursuant to
Section 9.3 above to indemnify Buyer against all liability, loss, cost and
expense, subject to satisfaction of the deductible provided for in Section
9.3(b), (e) Environmental Compliance Deficiencies related to the Sellers Assets
as to which Sellers elected pursuant to Section 10.1(b)(ii) above to indemnify
Buyer against Losses and Environmental Compliance Deficiencies related to the
Sellers Assets raised by Buyer within three (3) years after the Closing
pursuant to Section 10.2(b) above, subject, in each case, to the limitations on
liability set forth in Article 10, and (f) any liability for taxes related to
the Sellers Assets (including interest, penalties or fines related thereto)
for the period prior to the Effective Time other than those assumed by Buyer
pursuant to Section 6.9 above.
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12.4 Limitation on Damages; Survival of Representations. (a)
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL
BUYER BE LIABLE TO THE SELLERS' INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE, REMOTE
OR SPECULATIVE DAMAGES; PROVIDED, HOWEVER, THAT IF ANY SELLER INDEMNITEE IS
HELD LIABLE TO A THIRD PARTY FOR ANY SUCH DAMAGES AND BUYER IS OBLIGATED TO
INDEMNIFY SUCH SELLER INDEMNITEE FOR THE MATTER THAT GAVE RISE TO SUCH DAMAGES,
THE BUYER SHALL BE LIABLE FOR, AND OBLIGATED TO REIMBURSE SUCH SELLER
INDEMNITEE FOR SUCH DAMAGES. The representations and warranties of Buyer set
forth in ARTICLE 5 shall survive the Closing for a period of three (3) years
and such representations and warranties of Buyer shall terminate at 5:00 p.m.,
local time in Houston, Texas, on the third anniversary of the Closing Date;
provided, however, that any such representation or warranty that is the subject
of a written notice of claim specifying in reasonable detail the specific
nature of the Losses and the estimated amount of such Losses ("Claim Notice")
delivered in good faith shall survive with respect only to the specific matter
described in such claim notice until the earlier to occur of (i) the date on
which a final non-appealable resolution of the matter described in such Claim
Notice has been reached or (ii) the date on which the matter described in such
Claim Notice has otherwise reached final resolution.
(b) Notwithstanding anything to the contrary in this Agreement, the
liability of Sellers under this Agreement and any documents delivered in
connection herewith or contemplated hereby shall be limited as follows:
(i) IN NO EVENT SHALL SELLERS BE LIABLE TO THE BUYER
INDEMNITEE FOR ANY EXEMPLARY, PUNITIVE, REMOTE OR SPECULATIVE DAMAGES;
PROVIDED, HOWEVER, THAT IF ANY Buyer INDEMNITEE IS HELD LIABLE TO A
THIRD PARTY FOR ANY SUCH DAMAGES AND EITHER SELLER IS OBLIGATED TO
INDEMNIFY SUCH Buyer INDEMNITEE FOR THE MATTER THAT GAVE RISE TO SUCH
DAMAGES, SUCH SELLERS SHALL BE LIABLE FOR, AND OBLIGATED TO REIMBURSE
SUCH BUYER INDEMNITEE FOR, SUCH DAMAGES.
(ii) The representations and warranties of Sellers set forth in
ARTICLE 4 (except for Section 4.9, which shall terminate at Closing)
shall survive the Closing for a period of three years and such
representations and warranties shall terminate at 5:00 p.m., local time
in Houston, Texas, on the third anniversary of the Closing Date;
provided, however, that any such representation and warranty that is the
subject of a Claim Notice delivered in good faith shall survive with
respect only to the specific matter described in such Claim Notice until
the earlier to occur of (A) the date on which a
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final non-appealable resolution of the matter described in such Claim
Notice has been reached or (B) the date on which the matter described in
such Claim Notice has otherwise reached final resolution.
(iii) Notwithstanding anything to the contrary in this
Agreement, in no event shall Sellers indemnify the Buyer Indemnitee, or
be otherwise liable in any way whatsoever to the Buyer Indemnitee, (A)
for any aggregated individual Losses as to which a claim has been made
pursuant to Article 10) not in excess of $2,400 or (B) for any Losses
(other than Losses as to which a claim has been made pursuant to ARTICLE
10) until the Buyer Indemnitee have suffered Losses (other than Losses
excluded pursuant to clause (A))in the aggregate in excess of a
deductible in an amount equal to Eight Thousand Dollars ($8,000.00) for
non-environmental matters and Forty Thousand Dollars ($40,000.00) for
environmental matters after which point Sellers will be obligated only
to indemnify the Buyer Indemnitee from and against further Losses in
excess of such deductible (and only to the extent of any such excess).
(iv) Notwithstanding anything to the contrary herein, in no
event shall Sellers indemnify the Buyer Indemnitee, or be otherwise
liable in any way whatsoever to the Buyer Indemnitee, for any Losses
under this Agreement in excess of an amount equal to One Million Two
Hundred Thousand Dollars ($1,200,000.00) provided, however, that for
purposes of this Section 12.4(b)(iv) the term Losses shall include (A)
any amount agreed upon by Buyer and Sellers pursuant to Article 9 as the
value of any Title Defect and (B) any amounts paid by Sellers for
environmental liabilities or corrective actions pursuant to Article 10.
(v) No amount shall be recovered from Sellers for the breach
or inaccuracy of any of Sellers' representations, warranties, covenants
or agreements, or for any other matter, to the extent that Buyer had
actual knowledge of such breach, inaccuracy or other matter at or prior
to the Closing, nor shall Buyer be entitled to post-Closing rescission
with respect to any such matter.
(vi) Sellers shall have no liability for Losses pursuant to
this Article unless a Claim Notice has been delivered to Sellers as
required by Section 12.5 within three (3) years after the Effective
Time.
12.5 Notice of Asserted Liability, Opportunity to Defend. All claims
for indemnification under Sections 12.2 and 12.3 shall be
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asserted and resolved pursuant to this Section 12.5. Any person claiming
indemnification hereunder is hereinafter referred to as the "Indemnified Party"
and any person against whom such claims are asserted hereunder referred to as
the "Indemnifying Party." In the event that any Losses are asserted against or
sought to be collected from an Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness provide to the Indemnifying
Party a Claim Notice. The Indemnifying Party shall not be obligated to
indemnify the Indemnified Party thereof in accordance with the provisions of
this Agreement in reasonably sufficient time so that the Indemnifying Party's
ability to defend against the Losses is not prejudiced. The Indemnifying Party
shall have thirty (30) days from the personal delivery or receipt of the Claim
Notice (the "Notice Period") to notify the Indemnified Party (i) whether or not
it disputes the liability of the Indemnifying Party to the Indemnified Party
hereunder with respect to such Losses and/or (ii) whether or not it desires, at
the sole cost and expense of the Indemnifying Party, to defend the Indemnified
Party against such Losses; provided, however, that any Indemnified Party is
hereby authorized prior to and during the Notice Period to file any motion,
answer or other pleading that it shall deem necessary or appropriate to protect
its interests or those of the Indemnifying Party (and of which it shall have
given notice and opportunity to comment to the Indemnifying Party) and not
prejudicial to the Indemnifying Party. In the event that the Indemnifying
Party notifies the Indemnified Party within the Notice Period that it desire to
defend the Indemnified Party against such Losses, the Indemnifying Party shall
have the right to defend all appropriate proceedings, and with counsel of its
own choosing, which proceedings shall be promptly settled or prosecuted by them
to a final conclusion. If the Indemnified Party desires to participate in, but
not control, any such defense or settlement it may do so at its sole cost and
expense. If requested by the Indemnifying Party, the Indemnified Party agrees
to cooperate with the Indemnifying Party and its counsel in contesting any
Losses that the Indemnifying Party elects to contest or, if appropriate and
related to the claim in question, in making any counterclaim against the person
asserting the third party Losses, or any cross-complaint against any person.
No claim may be settled or otherwise compromised without the prior written
consent of the Indemnifying Party.
12.6 Exclusive Remedy. As between the Buyer Indemnitee and the
Seller Indemnitee the rights and obligations set forth in this Article 12 will
be the exclusive rights and obligations with respect to this Agreement, the
events giving rise to this Agreement, and the transactions provided for herein
or contemplated hereby or thereby. It being understood and agreed between
Sellers
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and Buyer that all other rights and obligations between Sellers and their
affiliates on the one hand and the Buyer and its affiliates on the other hand
shall be governed by this Agreement.
12.7 NEGLIGENCE AND STRICT LIABILITY WAIVER. WITHOUT LIMITING OR
ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS
AGREEMENT, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER
IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM
GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR VIOLATION OF ANY LAW
OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.
ARTICLE 13
MISCELLANEOUS
13.1 Applicable Law, Alternative Dispute Resolution.
(a) This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of Texas without giving effect to any
choice or conflict of law provision or rule (whether of the State of Texas or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Texas.
(b) Except as expressly provided in Section 2.5, any dispute arising
under this Agreement shall be resolved pursuant to this Section 13.1:
(i) Any party has the right to request the other to meet to
discuss a dispute. The party requesting the meeting will give at least
ten (10) business days notice in writing of the subject it wishes to
discuss, provide a written statement of the dispute, and designate an
officer of the company with complete power to resolve the dispute to
attend the meeting. Within three (3) business days after receipt of
such request, the party receiving the request will provide a responsive
written statement and will designate an officer of the company who will
attend the meeting with complete power to resolve the dispute.
(ii) If the meeting fails to resolve the dispute by a signed
agreement among the officers, the dispute shall be submitted for non-
appealable, binding determination through arbitration. The parties
agree that an officer with authority to resolve the dispute for each
entity shall attend the arbitration. The Arbitrator chose from the
arbitrators
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available through Judicial Arbitration & Mediation Services, In.
("JAMS") shall be the Arbitrator unless the parties agree on a
substitute arbitrator. Unless otherwise agreed by the parties, the
Arbitrator shall be a person with at least eight (8) years of
professional experience in the natural gas industry or the judiciary and
who is not, and within the previous five (5) years has not been, an
employee or independent contractor of either Sellers or Buyer (or any
affiliate thereof), and does not have a direct or indirect interest in
either Sellers or Buyer (of any affiliate thereof) or the subject matter
of the arbitration.
(iii) the parties agree to make discovery and disclosure of all
matters relevant to the dispute to the extent and in the manner provided
by the Federal Rules of Civil Procedure. The Arbitrator will rule on
all requests for discovery and disclosure and discovery shall be
completed within ninety (90) days of the date of the first notice
pursuant to Section 13.1(b)(i). The Arbitrator shall follow the
statutes and decisions of the substantive law of Texas relevant to the
subject. The Arbitrator's powers shall be limited to enforcement of
this Agreement as to the issues raised by the parties, and shall not
include tort claims or the power to award punitive damages. The
Arbitrator shall not have the authority or power to alter, amend or
modify any of the terms and conditions of the agreement of the parties.
The Arbitrator shall issue a final ruling within hundred eighty (180)
days of the date of the first notice pursuant to Section 13.1(b)(i).
(iv) The ruling of the Arbitrator shall be in writing and
signed, shall contain a statement of findings and conclusions and shall
be final and binding upon the parties. The fees and expenses of
counsel, witnesses and employees of the parties and all other costs and
expenses incurred exclusively for the benefit of the party incurring the
same shall be borne by the party incurring such fees and expenses. All
other fees and expenses including, without limitation, compensation for
the Arbitrator shall be divided equally between the parties. All
meetings and arbitration hearings held pursuant to this Section 13.1
shall take place in Houston, Texas. Judgment on the arbitration award
or decision may be entered in any court having jurisdiction.
13.2 Expenses and Attorney Fees. Each party shall be solely
responsible for all expenses, including due diligence expenses, incurred by it
in connection with this transaction, and neither party shall be entitled to any
reimbursement for such expenses from
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the other party hereto. Without limiting the generality of the foregoing,
Buyer will be solely responsible for all recording fees and taxes relating to
the conveyances to be delivered pursuant hereto. Notwithstanding the
foregoing, if any action is brought to enforce or for breach of the provisions
of this Agreement, the prevailing party shall be entitled to recover its
reasonable costs and expenses (including reasonable attorney fees).
13.3 Independent Investigation. Buyer represents and acknowledges
that it is knowledgeable of the business of operating pipelines and that it has
had access to the Assets, the officers and employees of Sellers and their
affiliates, and the Records of Sellers and their affiliates relating to the
Assets and in making the decision to enter into this Agreement and consummate
the transactions contemplated hereby, Buyer has relied solely on the basis of
its own independent due diligence investigation of the Assets (which will be
completed by April 3, 1996 at 5:00 P.M.) and upon the representations and
warranties of Sellers made in Article 4 and on the covenants of Sellers in this
Agreement.
13.4 Disclaimer Regarding Assets. Except as otherwise expressly
provided in this AGREEMENT, BUYER ACKNOWLEDGES THAT SELLERS HAVE NOT MADE, AND
SELLERS HEREBY EXPRESSLY DISCLAIM AND NEGATE, ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, RELATING TO THE CONDITION OF ANY PART OF THE ASSETS
(INCLUDING, WITHOUT LIMITATION, (a) ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, (b) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS
OR SAMPLES OF MATERIALS, AND (d) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM
FROM PATENT OR TRADEMARK INFRINGEMENT) IT BEING THE EXPRESS INTENTION OF BUYER
AND SELLERS THAT (EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN THIS AGREEMENT)
THE ASSETS SHALL BE ACCEPTED BY BUYER AS IS AND IN THEIR PRESENT CONDITION AND
STATE OF REPAIR; AND BUYER REPRESENTS TO SELLERS THAT BY APRIL 3, 1996 AT 5:00
P.M. BUYER WILL HAVE MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO
THE ASSETS AS BUYER DEEMS APPROPRIATE AND THEREAFTER BUYER WILL ACCEPT THE
ASSETS AS IS, IN THEIR PRESENT CONDITION AND STATE OF REPAIR. THE PARTIES
AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
13.5 Waiver of Trade Practices Acts.
(a) It is the intention of the parties that Buyer's rights and
remedies with respect to this transaction and with respect to all acts or
practices of Sellers, past, present or future, in connection with this
transaction shall be governed by legal principles other than the Texas
Deceptive Trade Practices-Consumer Protection Act, Tex. Bus. & Com. Code Ann.
Section 17.41 et seq. (the
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"DTPA"). AS SUCH, BUYER HEREBY WAIVES THE APPLICABILITY OF THE DTPA TO THIS
TRANSACTION AND ANY AND ALL DUTIES, RIGHTS OR REMEDIES THAT MIGHT BE IMPOSED BY
THE DTPA, WHETHER SUCH DUTIES, RIGHTS AND REMEDIES ARE APPLIED DIRECTLY BY THE
DTPA ITSELF OR INDIRECTLY IN CONNECTION WITH OTHER STATUTES; PROVIDED, HOWEVER,
BUYER DOES NOT WAIVE Section 17.555 OF THE DTPA. BUYER ACKNOWLEDGES,
REPRESENTS AND WARRANTS THAT IT IS PURCHASING THE GOODS AND/OR SERVICES COVERED
BY THIS AGREEMENT FOR COMMERCIAL OR BUSINESS USE; THAT IT HAS ASSETS OF $5
MILLION OR MORE ACCORDING TO ITS MOST RECENT FINANCIAL STATEMENT PREPARED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, THAT IT HAS KNOWLEDGE
AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE
MERITS AND RISKS OF A TRANSACTION SUCH AS THIS; AND THAT IT IS NOT IN A
SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH SELLERS.
(b) TO THE MAXIMUM EXTENT PERMITTED BY LAW, BUYER HEREBY WAIVES ALL
PROVISIONS OF CONSUMER PROTECTION ACTS, DECEPTIVE TRADE PRACTICE ACTS AND OTHER
ACTS SIMILAR TO THE DTPA IN ALL JURISDICTIONS IN WHICH ANY OF THE ASSETS ARE
LOCATED (SUCH ACTS, TOGETHER WITH THE DTPA, ARE HEREINAFTER COLLECTIVELY
REFERRED TO AS THE "TRADE PRACTICES ACTS").
(c) BUYER EXPRESSLY RECOGNIZES THAT THE PRICE FOR WHICH SELLERS HAVE
AGREED TO PERFORM THEIR OBLIGATIONS UNDER THIS AGREEMENT HAVE BEEN PREDICATED
UPON THE INAPPLICABILITY OF THE TRADE PRACTICES ACTS AND THIS WAIVER OF THE
TRADE PRACTICES ACTS. BUYER FURTHER RECOGNIZES THAT SELLERS, IN DETERMINING TO
PROCEED WITH THE ENTERING INTO OF THIS AGREEMENT, HAS EXPRESSLY RELIED ON THIS
WAIVER AND THE INAPPLICABILITY OF THE TRADE PRACTICES ACTS.
13.6 No Third Party Beneficiaries. Nothing in this Agreement shall
provide any benefit to any third party or entitle any third party to any claim,
cause of action, remedy or right of any kind, it being the intent of the
parties that this Agreement shall not be construed as a third party beneficiary
contract; provided, however, that the indemnification provisions in Article 12
shall inure to the benefit of the Buyer Indemnitee and the Seller Indemnitee as
provided therein.
13.7 Waiver. Except as expressly provided in this Agreement, neither
the failure nor any delay on the part of any party hereto in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, or of any
other right, power or remedy; nor shall any single or partial exercise of any
right, power or remedy preclude any further or other exercise thereof, or the
exercise of any other right, power or remedy. Except as expressly provided
herein, no waiver of any of the provisions of this Agreement shall
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be valid unless it is in writing and signed by the party against whom it is
sought to be enforced.
13.8 Entire Agreement; Amendment. This Agreement, the Schedules and
Exhibits hereto, each of which is deemed to be a part hereof, and any
agreements, instruments or documents executed and delivered by the parties
pursuant to this Agreement, constitute the entire agreement and understanding
between the parties, and all previous undertakings, negotiations and agreements
between the parties regarding the subject matter hereof are merged herein;
provided however, that this Agreement does not supersede the confidentiality
Agreement, which shall not terminate (except in accordance with its terms)
unless and until the Closing occurs, and following the Closing, only to the
extent it relates to the Assets. This Agreement may not be modified orally,
but only by an agreement in writing signed by Buyer and Sellers.
13.9 Notices. Any and all notices or other communications required or
permitted under this Agreement shall be given in writing and delivered in
person or sent by United States certified or registered mail, postage prepaid,
return receipt requested, or by overnight express mail, or by telex, facsimile
or telecopy to the address of such part set forth below. Any such notice shall
be effective upon receipt or three (3) days after placed in the mail, whichever
is earlier.
If to Buyer: Continental Natural Gas, Inc.
1412 South Boston, Suite 500
Tulsa, OK 74121
By Mail or Hand Delivery: Continental Natural Gas, Inc.
1412 South Boston, Suite 500
P.O. Box 21470
Tulsa, OK 74121
Attention:
Telephone Number: 918-582-4700
Telecopy Number: 918-560-4900
with a copy to
Attention:
Telecopy Number:
Telephone Number:
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If to Sellers:
By Mail:
Transwestern Gathering Company
P.O. Box 1188
Houston, Texas 77251-1188
Attention: Vice President and Secretary
With a copy to: Vice President and General Counsel
Enron Gathering Company
P.O. Box 1188
Houston, Texas 77251-1188
Attention: Vice President and Secretary
With a copy to: Vice President and General Counsel
By Hand Delivery:
Transwestern Gathering Company
Enron Gathering Company
1400 Smith Street
Houston, Texas 77002
Attention: Vice President and Secretary
Telephone Number: (713) 853-6424
Telecopy Number: (713) 853-3920
With a copy to: Vice President and General Counsel
Telephone Number: (713) 853-6009
Telecopy Number: (713) 646-2738
Any party may, by notice so delivered, change its address for notice purposes
hereunder.
13.10 No Assignment. This Agreement shall not be assigned or
transferred in any way whatsoever by either party hereto except with prior
written consent of the other party hereto, which consent such party shall be
under no obligation to grant, and any assignment or attempted assignment
without such consent shall have no force or effect with respect to the non-
assigning party. Subject to the preceding sentence, this Agreement shall be
binding on and inure to the benefit of the parties hereto and their permitted
successors and assigns.
13.11 Severability. If any provision of this Agreement is invalid,
illegal or unenforceable, the balance of this Agreement shall remain in full
force and effect and this Agreement shall be construed in all respects as if
such invalid, illegal or unenforceable provision were omitted. If any
provision is inapplicable to any person or circumstance, it shall,
nevertheless, remain applicable to all other persons and circumstances.
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13.12 Publicity. Sellers and Buyer shall consult with each other with
regard to all publicity and other releases concerning this Agreement and the
transactions contemplated hereby and, except as required by applicable law or
the applicable rules or regulations of any Governmental Entity or stock
exchange, no party shall issue any such publicity or other release without the
prior written consent of the other party, which shall n to be unreasonably
withheld.
13.13 Construction. Any section headings in this Agreement are for
convenience of reference only, and shall be given no effect in the construction
or interpretation of this Agreement or any provisions thereof. No provision of
this Agreement will be interpreted in favor of, or against, any party by reason
of the extent to which any such party or its counsel participated in the
drafting thereof.
13.14 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and which together
shall constitute but one and the same instrument.
13.15 Further Assurances. After the Closing Date, each party hereto at
the reasonable request of the other and without additional consideration, shall
execute and deliver, or shall cause to be executed and delivered, from time to
time, such further certificates, agreements or instruments of conveyance and
transfer, assumption, release and acquittance and shall take such other action
as the other party hereto may reasonably request, to convey and deliver the
Assets to Buyer, to assure to Sellers the assumption of the liabilities and
obligations intended to be assumed by Buyer hereunder and to otherwise
consummate or implement the transactions contemplated by this Agreement.
13.16 Payment of Funds. The amount of all revenues received by Sellers
(or any affiliates thereof) relating to the ownership or operation of the
Assets on or after the Effective Time shall be remitted to Buyer in immediately
available funds on a timely basis. The amount of all revenues received by
Buyer (or any affiliates thereof) relating to the ownership or operation of the
Assets prior to the Effective Time shall be remitted to Sellers in immediately
available funds on a timely basis. Without in any way limiting either party's
obligation to remit such amounts on a timely basis, if any such amounts
received by a party (or any affiliate thereof) are in excess of Twenty-five
Thousand Dollars ($25,000) in the aggregate and have not been remitted to the
other party within thirty (30) days of receipt by the receiving party (or any
affiliate thereof), such amounts shall bear interest from the
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date of such receipt until the date upon which the other party receives
remittance of such amount in full and in immediately available funds at an
annual rate of 6%.
13.17 Certain Interpretive Matters. The inclusion of any matter on any
Schedules will not be deemed an admission by either party that such listed
matter has or would have a Material Adverse Effect.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
SELLERS: SELLERS: Buyer:
TRANSWESTERN ENRON GATHERING CONTINENTAL NATURAL
GATHERING COMPANY COMPANY GAS, INC.
By: By: By:
------------------------ ------------------- -----------------------
Name: Name: Name:
Title: Title: Title:
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EXHIBIT 10.7
PACKAGE D
ASSET PURCHASE AGREEMENT
DATED AS OF April 11, 1996
BY AND AMONG
TRANSWESTERN GATHERING COMPANY AND
ENRON GATHERING COMPANY
as Sellers
AND
CONTINENTAL NATURAL GAS, INC.
as Buyer
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TABLE OF CONTENTS
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ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2 Earnest Money . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Adjustments to the Purchase Price . . . . . . . . . . . . . . . . . .
2.4 Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.5 Post-Closing Adjustments to the Purchase Price . . . . . . . . . . . .
2.6 Allocated Values . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 3
CLOSING; ADJUSTMENTS TO PURCHASE PRICE
3.1 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . .
3.2 Deliveries by Sellers at Closing . . . . . . . . . . . . . . . . . . .
3.3 Deliveries by Buyer at Closing . . . . . . . . . . . . . . . . . . . .
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
4.1 Organization and Good Standing of Sellers . . . . . . . . . . . . . .
4.2 Condition of the Assets; Preferential Rights to Purchase . . . . . . .
4.3 Authorization of Agreement; No Violation; No Consents . . . . . . . .
4.4 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . .
4.5 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.7 Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.8 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . .
4.9 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . .
4.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . .
5.2 Authorization of Agreement; No Violations; No Consents . . . . . . . .
5.3 Government Consents . . . . . . . . . . . . . . . . . . . . . . . . .
5.4 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.5 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.6 Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.7 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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ARTICLE 6
COVENANTS
6.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.2 Operation of the Assets Prior to the Effective Time . . . . . . . . .
6.3 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.4 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.5 Payment of Pre-Effective Time Operating Expenses . . . . . . . . . . .
6.6 Commission Filings . . . . . . . . . . . . . . . . . . . . . . . . . .
6.7 Risk of Loss of the Assets; Casualty Loss . . . . . . . . . . . . . .
6.8 Allocation of Taxes . . . . . . . . . . . . . . . . . . . . . . . . .
6.9 Records: Access and Retention . . . . . . . . . . . . . . . . . . . .
6.10 Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.11 Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . .
6.12 Supplements to Schedules . . . . . . . . . . . . . . . . . . . . . . .
6.13 Sellers' Property Located on Easements After Closing . . . . . . . . .
6.14 Operational Due Diligence . . . . . . . . . . . . . . . . . . . . . .
6.15 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLERS
7.1 Representations . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.3 Pending Matters . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.4 Casualty Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.5 Sellers' Acquisition of Assets . . . . . . . . . . . . . . . . . . . .
7.6 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF Buyer
8.1 Representations . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.3 Pending Matters . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.4 Casualty Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.5 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 9
TITLE MATTERS
9.1 Title Examination Period . . . . . . . . . . . . . . . . . . . . . . .
9.2 Definition of Title Defects . . . . . . . . . . . . . . . . . . . . .
9.3 Remedies for Title Defects . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Pre-Closing Environmental Audit . . . . . . . . . . . . . . . . . . .
10.2 Post-Closing Environmental Investigation . . . . . . . . . . . . . . .
10.3 Corrective Action . . . . . . . . . . . . . . . . . . . . . . . . . .
10.4 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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ARTICLE 11
TERMINATION
11.1 Termination At or Prior to Closing . . . . . . . . . . . . . . . . . .
11.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 12
INDEMNIFICATION
12.1 Assumption of Liabilities Relating to the Assets . . . . . . . . . . .
12.2 Indemnification By Buyer . . . . . . . . . . . . . . . . . . . . . . .
12.3 Indemnification By Seller . . . . . . . . . . . . . . . . . . . . . .
12.4 Limitation on Damages; Survival of Representations . . . . . . . . . .
12.5 Notice of Asserted Liability; Opportunity to Defend . . . . . . . . .
ARTICLE 13
MISCELLANEOUS
13.1 Applicable Law; Alternative Dispute Resolution . . . . . . . . . . . .
13.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.3 Independent Investigation . . . . . . . . . . . . . . . . . . . . . .
13.4 Disclaimer Regarding Assets . . . . . . . . . . . . . . . . . . . . .
13.5 Waiver of Trade Practices Acts . . . . . . . . . . . . . . . . . . . .
13.6 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . .
13.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.8 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . .
13.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.10 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.12 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.13 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . .
13.16 Payment of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.17 Certain Interpretive Matters . . . . . . . . . . . . . . . . . . . . .
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ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of April 11, 1996, is by and among TRANSWESTERN
GATHERING COMPANY, a Delaware corporation ("TGC"), and ENRON GATHERING COMPANY
("EGC") (TGC and EGC are herein sometimes referred to as "Seller" and jointly
as "Sellers"), as Sellers, and CONTINENTAL NATURAL GAS, INC., an Oklahoma
corporation ("Buyer"), as Buyer.
WHEREAS, TGC owns certain natural gas gathering pipelines and related
facilities located in the Anadarko producing area that it acquired from
Transwestern Pipeline Company ("TW") ("TW Assets") and TGC has obtained a
Declaratory Order from the Federal Energy Regulatory Commission ("Commission")
finding the TW Assets are gas gathering facilities not subject to the
jurisdiction of the Commission under the Natural Gas Act (the "Act");
WHEREAS, EGC owns certain natural gas gathering pipelines and related
facilities located in the Anadarko producing area that it acquired from Enron
Anadarko Gathering Corp. ("EAGC") following EAGC's acquisition of said assets
from Northern Natural Gas Company ("NNG") ("NNG Assets") and EGC has obtained a
Declaratory Order from the Commission finding the NNG Assets are gas gathering
facilities not subject to the jurisdiction of the Commission under the Act;
WHEREAS, Buyer desire to acquire from Sellers, and Sellers desires to sell
to Buyer, certain of the natural gas gathering pipelines and related assets
that are located in the Anadarko producing area of Texas and Oklahoma,
generally consisting of the Perryton and Frass Como gathering systems; and
WHEREAS, Sellers desire to sell the aforementioned gathering assets to
Buyer, upon the terms and subject to the conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale. Subject to the terms and conditions hereof, at the
Closing (defined in Section 3.1 below), Sellers will sell, assign, transfer and
deliver to Buyer, and Buyer will purchase and acquire from Sellers, the assets
described on Schedule 1.1 attached hereto under the heading "Sellers' Assets"
(TW Assets and NNG Assets are jointly herein referred to as the "Assets").
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ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price. Buyer agrees to pay an aggregate purchase price to
Sellers of SIX MILLION TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($6,200,000.00)
(the "Purchase Price"), as adjusted at Closing pursuant to Section 2.3 of this
Agreement (the "Adjusted Purchase Price") less the Earnest Money (as defined in
Section 2.2) by means of a completed Federal Funds wire transfer of immediately
available funds to an account designated by Sellers.
2.2 Earnest Money. No earnest money will be deposited by Buyer.
2.3 Adjustments to the Purchase Price.
(a) The Purchase Price shall be increased by the following amounts:
(i) all capital expenditures (other than expenditures for
Environmental Compliance Deficiencies set forth on the Environmental Statement
(each as hereinafter defined)) reasonably paid or incurred by Sellers or their
affiliates that are attributable to the Assets and attributable to the period
of time from and after 12:00 a.m., Houston, Texas time on the date of this
Agreement to the Effective Time (as hereinafter defined); provided that any
individual non-emergency capital expenditure in excess of $30,000 that is not
listed on Schedule 6.2(b) must have received the prior written approval of
Buyer, which approval shall not be unreasonably withheld, in order for such
capital expenditure to be included in such adjustment;
(ii) the market value of liquid hydrocarbons, if any, in tanks or
storage included in the Assets as of the Effective Time which can be measured
or reasonably estimated;
(iii) the amount, if any, expended by Sellers as the cost to cure any
Title Defect (as hereinafter defined) up to the amount of the deductible
provided for in Section 9.3(b), for which Buyer is responsible; and
(iv) any other amount provided for in this Agreement or agreed upon
in writing by Buyer and Sellers.
(b) The Purchase Price shall be decreased by the following amounts:
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(i) any amount agreed upon in writing by Buyer and Sellers;
(ii) any amount agreed upon in writing by Buyer and Sellers pursuant
to Section 10.1(b)(i) as the remaining cost of any incomplete or remaining
corrective projects; and
(iii) any other amount provided for in this Agreement or agreed upon
in writing by Buyer and Sellers.
(c) The adjustments described in Sections 2.3(a) and (b) are hereinafter
referred to as the "Purchase Price Adjustments".
2.4 Statement. Not later than three business days prior to the Closing
Date, Sellers shall prepare and deliver to Buyer a statement (the "Statement")
of the estimated Purchase Price Adjustments and the estimated Adjusted Purchase
Price ("Estimated Adjusted Purchase Price"). At Closing, Buyer shall pay the
Estimated Adjusted Purchase Price (less the Earnest Money Fund).
2.5 Post-Closing Adjustments to the Purchase Price.
(a) On or before one hundred twenty (120) days after the Closing Date,
Sellers shall prepare and deliver to Buyer a revised Statement setting forth
the actual Purchase Price Adjustments. To the extent reasonably required by
Sellers, Buyer shall assist in the preparation of the revised Statement.
Sellers shall provide Buyer such data and information as Buyer may reasonably
request supporting the amounts reflected on the revised Statement in order to
permit Buyer to perform or cause to be performed an audit. The revised
Statement shall become final and binding upon the parties on the sixtieth
(60th) day following receipt thereof by Buyer (the "Final Settlement Date")
unless Buyer gives written notice of its disagreement ("Notice of
Disagreement") to Sellers prior to such date. Any Notice of Disagreement shall
specify in detail the dollar amount, nature and basis of any disagreement so
asserted. If a Notice of Disagreement is received by Sellers in a timely
manner, then the Statement (as revised in accordance with clause (i) or (ii)
below) shall become final and binding on the parties on, and the Final
Settlement Date shall be, the earlier of (i) the date Sellers and Buyer agree
in writing with respect to all matters specified in the Notice of Disagreement
or (ii) the date on which the Final Statement (as hereinafter defined) is
issued by the Arbitrator (as hereinafter defined).
(b) During the sixty (60) days following the date of receipt by Sellers of
the Notice of Disagreement, Sellers and Buyer shall attempt to resolve in
writing any differences that they may have
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with respect to all matters specified in the Notice of Disagreement. If, at
the end of such sixty (60) day period (or earlier by mutual agreement to
arbitrate), Buyer and Sellers have not reached agreement on such matters, the
matters that remain in dispute may be submitted to an arbitrator (the
"Arbitrator") by either party for review and resolution. The Arbitrator shall
be KPMG Peat Marwick (Houston office), or if such firm is unable or unwilling
to act, such other nationally recognized independent public accounting firm as
shall be agreed upon by Buyer and Sellers in writing. Each party shall, not
later than seven (7) business days prior to the hearing date set by the
Arbitrator, submit a brief with dollar figures for settlement of the disputes
as to the amount of the Adjusted Purchase Price (together with a proposed
Statement that reflects such figures). The figures submitted need not be the
figures offered during prior negotiations. The hearing will be scheduled seven
(7) business days following submission of the settlement figures, or as soon
thereafter as is acceptable to the Arbitrator, and shall be conducted on a
confidential basis without continuance or adjournment. The Arbitrator shall
render a decision resolving the matters in dispute (which decision shall
include a written statement of findings and conclusions) within three business
days after the conclusion of the hearing, unless the parties reach agreement
prior thereto and withdraw the dispute from arbitration. The Arbitrator shall
provide to the parties explanations in writing of the reasons for its decisions
regarding the Adjusted Purchase Price and shall insure the Final Statement
reflecting such decisions. The decision of the Arbitrator shall be final and
binding on the parties. The cost of any arbitration (including the fees and
expenses of the Arbitrator) pursuant to this Section 2.5 shall be borne equally
by Buyer, on the one hand, and Sellers, on the other hand. The fees and
disbursements of Sellers' independent auditors incurred in connection with the
procedures performed with respect to the Statement shall be borne by the
Sellers and the fees and disbursements of Buyer's independent auditors incurred
in connection with their preparation of the Notice of Disagreement shall be
borne by Buyer. As used in this Agreement the term "Final Statement" shall
mean the revised Statement described in Section 2.5(a), as prepared by Sellers
and as may be subsequently adjusted to reflect any subsequent written
agreement between the parties with respect thereto, or if submitted to the
Arbitrator, the Statement issued by the Arbitrator.
(c) If the amount of the Adjusted Purchase Price as set forth on the Final
Statement exceeds the amount of the Estimated Adjusted Purchase Price paid at
Closing, then Buyer shall pay to Sellers, within five business days after the
Final Settlement Date, the amount by which the Adjusted Purchase Price as set
forth on the Final Statement exceeds the amount of the Estimated Adjusted
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Purchase Price paid at Closing. If the amount of the
Adjusted Purchase Price as set forth on the Final Statement is less than the
amount of the Estimated Adjusted Purchase Price paid at Closing, then Sellers
shall pay to Buyer, within five (5) business days after the Final Settlement
Date, the amount by which the Adjusted Purchase Prices as set forth on the
Final Statement is less than the amount of the Estimated Adjusted Purchase
Price paid at Closing. Any post-Closing payment made pursuant to this Section
2.5(c) shall be made by means of a Federal Funds wire transfer of immediately
available funds to a bank account designated by the party receiving the funds.
2.6 Allocated Values. The parties agree to allocate the Purchase Price
among the Assets for all purposes (including financial accounting and tax
purposes) on or before the Closing Date (the "Allocated Values"). Sellers and
Buyer each agree that they will not take any position inconsistent with such
allocation in preparing all tax returns and tax reports to governmental
authorities ("Tax Returns") or otherwise. The parties will timely furnish each
other their tax identification numbers, non-foreign affidavits and other
reasonably requested tax compliance information.
ARTICLE 3
CLOSING; ADJUSTMENTS TO PURCHASE PRICE
3.1 Time and Place of Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at 10:00 a.m.
in the offices of Sellers at 1400 Smith Street, Houston, Texas 77002, on April
5, 1996 (the "Closing Date"), to be effective May 31, 1996 as of 11:59 p.m.
(Houston time) (the "Effective Time"), unless the conditions set forth in
Articles 7 and 8 have not been satisfied in which case the Closing Date and
Effective Time shall be mutually agreed upon by the parties.
3.2 Deliveries by Sellers at Closing. At Closing, Sellers shall execute
and deliver, or cause to be executed and delivered, to Buyer:
(a) special warranty deeds conveying to Buyer all fee lands included in
the Assets ("Deeds"), in substantially the form attached hereto as Exhibit A;
(b) assignments and partial assignments, as appropriate, in recordable
form assigning to Buyer all interests in real property included in the Assets
(other than fee property), including any obligations contained in easements to
install and maintain farm
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taps and/or sell gas from the Assets through such farm tap facilities
("Assignments" and "Partial Assignments", in substantially the form attached
hereto as Exhibit B-1 and B-2;
(c) a conveyance, assignment and bill of sale assigning to Buyer all
personal property (tangible and intangible) included in the Assets
("Conveyance"), in substantially the form attached hereto as Exhibit C;
(d) NNG's standard form of Operational Balancing Agreement, which is
attached hereto as Exhibit D (the "NNG OBA"), unless the currently effective
NNG OBA between NNG and Buyer is amended to accommodate new delivery points;
(e) TW's standard form of Operational Balancing Agreement, which is
attached hereto as Exhibit D-2 (the "TW OBA"), unless the currently effective
TW OBA between TW and Buyer is amended to accommodate new delivery points;
(f) certificates of title for vehicles included in the Assets where
necessary to transfer title, duly endorsed in blank;
(g) the assumption agreement regarding certain system operational
obligations and rate discounts, in substantially the form attached hereto as
Exhibit E (the "Assumption Agreement");
(h) the cathodic protection agreement between Sellers and Buyer, in
substantially the form attached hereto as Exhibit F (the "Cathodic Protection
Agreement");
(i) right of way and easement agreements granting to Buyer a right of way
for pipeline facilities that cross fee lands retained by Sellers or their
affiliates, in substantially the forms attached hereto as Exhibit G (the "Right
of Way Agreement'); and
(j) a processing agreement between Buyer and Enron Gas Processing Company
("EGP") in substantially the form attached hereto as Exhibit H (the "EGP
Processing Agreement") and
(k) the gathering agreement between TW and Buyer providing transportation
for certain gas that will be purchased or received by TW after the Closing
Date, in the form, provided for in TW's FERC Order in Docket No. CP95-70 with
the term amended to coincide with any TW gas purchase obligations. In the event
TW and Buyer agree to the assignment of the TW gas purchase obligations to
Buyer, the gathering agreement shall not be applicable to this Agreement;
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(l) assignment of gas purchase contracts between Transwestern Pipeline
Company and Buyer in substantially the form attached hereto as Exhibit H (the
"Assignment of Gas Purchase Contracts");
(m) assignment of gas processing agreements between EGP and Buyer in
substantially the form attached hereto as Exhibit I (the "Assignment of Gas
Processing Agreements:); unless the Buyer, Sellers and EGP agree that some of
all of the Gas Processing Agreement shall not be assigned, in which case EGP
and Buyer shall enter in a "Default Gathering Agreement" as provided for in
NNG's FERC Order in Docket No. CP94-608 with the term to coincide with such Gas
Processing Agreements not assigned to Buyer and
(n) any other agreements, documents, certificates or other instruments
reasonably necessary to consummate the transactions contemplated by this
Agreement.
3.3 Deliveries by Buyer at Closing. At Closing, Buyer shall deliver to
Sellers the Estimated Adjusted Purchase Price as contemplated by Section 2.4,
and Buyer shall execute and deliver or cause to be executed and delivered the
following:
(a) easement agreements, in substantially the form attached hereto as
Exhibit I, granting to Sellers (and their affiliates, as the case may be)
easements (at no cost to Sellers or their affiliates) across any fee property
or lease included in the Assets in order that Sellers and their affiliates can
operate and maintain their respective facilities located on such property that
are excluded form the Assets;
(b) the NNG OBA and TW OBA;
(c) the Cathodic Protection Agreement;
(d) Deeds, Assignments, Partial Assignments and Conveyances;
(e) the EGP Processing Agreement, Assignment of Gas Purchase Contracts and
Assignment of Gas Processing Agreements; and
(f) any other agreements, documents, certificates or other instruments
reasonably necessary to consummate the transactions contemplated by this
Agreement.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers each represent and warrant severally as to itself and not jointly
to Buyer as of the date hereof and as of the Closing Date that:
4.1 Organization and Good Standing of Sellers. Sellers are a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power, right and authority to own and
lease the properties and assets it currently owns and leases and to carry on
its business as such business is currently being conducted.
4.2 Condition of the Assets; Preferential Rights to Purchase.
(a) Taken as a whole, the tangible assets and properties that are part of
the Assets are generally in good operating condition and repair, subject to
normal wear and maintenance, and except for assets taken out of service are
generally usable in the regular and ordinary course of business.
(b) Except as listed on Schedule 4.2, there are no preferential rights to
purchase any portion of the Assets.
4.3 Authorization of Agreement; No Violation; No Consents. This Agreement
has been duly executed and delivered by Sellers. Sellers have the full
corporate power and authority to enter into this Agreement, to make the
representations, warranties, covenants and agreements made herein and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of Sellers and their affiliates. Neither the
execution and delivery of this Agreement by Sellers nor the consummation by
Sellers of the transactions contemplated hereby (a) will conflict with, result
in a breach, default or violation of, or require consent of any third party
under (i) the terms, provisions or conditions of the Certificate of
Incorporation or Bylaws of Sellers or such affiliates or (ii) to the knowledge
of Sellers, any judgment, decree, order, governmental permit, certificate,
license, law, statute, rule or regulation to which either Sellers or any such
affiliate is a party or is subject, or to which any of the Assets are subject,
except for (A) consents and approvals from governmental authorities that are
customarily obtained after closing in connection with the transactions
contemplated hereby (the "Customary Post-Closing Consents") and (B) any
conflict, breach, default, violation, or
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consent that would not have, individually or in the aggregate, a Material
Adverse Effect, and (C) any applicable requirements under the Hart Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") or (b) will result in the
creation of any lien, charge or other encumbrance on any of the Assets. For
purposes of this Agreement, occurrences or conditions shall have a "Material
Adverse Effect" if they individually or collectively have a material adverse
effect on the use, ownership or operation of the Assets, taking into account
the nature and valuation of the Assets, or materially hinder or impede the
consummation of the transactions contemplated by this Agreement. For purposes
of this Agreement, the terms "knowledge", "known" or any similar term, as
applied to Sellers, shall mean the actual knowledge of the executive officers
and key operational and management personnel of Sellers or other authorized
agents of Sellers (to the extent employees or agents of an affiliate of
Sellers) who prepared or provided information to Buyer in connection with
Buyer's assessment and analysis of this transaction.
4.4 Governmental Consents. To the knowledge of Sellers and except as set
forth on Schedule 4.4, no consent, action, approval or authorization of, or
registration, declaration or filing with, any domestic or foreign court,
government, governmental agency, authority, entity or instrumentality
("Governmental Entity") is required to authorize, or is otherwise required in
connection with, the execution and delivery of this Agreement by Sellers or
Sellers' performance of the terms of this Agreement or the validity or
enforceability hereof against Sellers, except for (a) Customary Post-Closing
Consents, (b) the matters discussed in Section 6.6 of this Agreement.
4.5 Enforceability. This Agreement constitutes the legal, valid and
binding obligation of Sellers enforceable against Sellers in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting creditors' rights generally and
general principles of equity.
4.6 Brokers. No broker or finder who acted on behalf of Sellers or any
affiliate of Sellers is entitled to any brokerage or finder's fee, or to any
commission, based in any way on agreements, arrangements or understandings made
by or on behalf of Sellers or any affiliate of Sellers for which the Buyer has
or will have any liabilities or obligations (contingent or otherwise).
4.7 Suits. Except as set forth on Schedule 4.7, there is no legal,
administrative or arbitration proceeding pending or, to the knowledge of
Sellers, threatened relating to the Assets or to which
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either Sellers or one of their affiliates is or would be a party in connection
with the ownership or operation of the Assets, or that would prohibit or delay
in any material respect the consummation of the transactions contemplated
hereby.
4.8 Compliance With Laws. To the knowledge of Sellers, Sellers are in
material compliance with each statute, law, ordinance, rule or regulation
("Law") of any Governmental Entity applicable to it and related to the Assets,
or by which the Assets are bound, except for any violation that would not have
a Material Adverse Effect. To the knowledge of Sellers, Sellers possess all
governmental licenses, permits, and certificates necessary for the current
operation of the Assets, except to the extent that the failure to possess such
governmental licenses, permits, and certificates would not have a Material
Adverse Effect. Nothing in this Section 4.8 shall be deemed or construed to
constitute a representation or warranty with respect to Environmental Laws
because such matters are covered solely by Article 10 and Section 4.9.
4.9 Environmental Matters. Except as set forth on Schedule 4.9, (a) to the
knowledge of Sellers and with the possible exception of those matters raised in
the Environmental Statement (as hereinafter defined) from Buyer to Sellers
provided for in Section 10.1 (which matters Sellers do not admit constitute
violations of Environmental Laws), no violation of Environmental laws (as
defined below) exists with respect to any of the Assets, which violation of
Environmental Laws would have a Material Adverse Effect, and (b) Sellers have
all applicable and required environmental permits and has filed all notices
required under applicable Environmental Laws. For purposes of this Agreement,
the term "Environmental Laws" shall mean, as to any given Asset, all laws,
statutes, ordinances, rules and regulations of any Governmental Authority (as
hereinafter defined) pertaining to protection of the environment or human
health in effect as of the date hereof. For purposes of this Agreement, the
term "Governmental Authority" shall mean, as to any given Asset, the United
States and the state, county, city and political subdivisions in which such
Asset is located and the exercises jurisdiction over such Asset, and any
agency, department, board or other instrumentality thereof that exercises
jurisdiction over such Assets.
4.10 Tax Matters. No ad valorem taxes assessed against the Assets are
delinquent. Sellers or the previous affiliate owners of the Assets have
properly completed and filed or caused to be filed in a timely manner material
reports or returns required to be filed with respect to such ad valorem taxes
relating to the
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as of the date hereof and as of
the Closing Date that:
5.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Oklahoma
with full corporate power, right and authority to own and lease the properties
and assets it currently owns and leases and to carry on its business as such
business is currently being conducted.
5.2 Authorization of Agreement; No Violation; No Consents. This Agreement
has been duly executed and delivered by Buyer. Buyer has the full corporate
power and authority to enter into this Agreement, to make the representations,
warranties, covenants and agreements made herein and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all requisite corporate action on the
part of Buyer. Neither the execution and delivery of this Agreement by Buyer
nor the consummation by Buyer of the transactions contemplated hereby will
conflict with, result in a breach, default or violation of, or require the
consent of a third party under (a) the terms, provisions or conditions of the
Certificate of Incorporation or Bylaws of Buyer or (b) to the knowledge of
Buyer, any judgment, decree or order or any governmental permit, certificate,
material agreement, license, law, statute, rule or regulation or any judgment,
decree or order to which Buyer is a party or is subject, or to which the
business, assets or operations of Buyer are subject, except for (i) Customary
Post-Closing Consents and (ii) any conflict, breach, default or violation that
would not have, individually or in the aggregate, a Material Adverse Effect and
(iii) any applicable requirements under the HSR Act. For purposes of this
Agreement, the terms "knowledge", "known" or any similar term, as applied to
Buyer shall mean the actual knowledge of the executive officers and key
operational and management personnel of Buyer or other authorized agents of
Buyer (to the extent employees or agents of an affiliate of Buyer) who reviewed
information or otherwise performed due diligence in connection with Buyer's
assessment and analysis of this transaction.
5.3 Governmental Consents. To the knowledge of Buyer, no consent, action,
approval or authorization of, or registration, declaration, or filing with, any
Governmental Entity is required to
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authorize, or is otherwise required in connection with, the execution and
delivery of this Agreement by Buyer or Buyer's performance of the terms of this
Agreement or the validity or enforceability hereof against Buyer, except for
(a) Customary Post-Closing Consents and (b) any applicable requirements under
the HSR Act.
5.4 Enforceability. This Agreement constitutes the legal, valid and
binding obligation of Buyer enforceable against Buyer in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting creditor's rights generally and
general principles of equity.
5.5 Brokers. No broker or finder has acted for or on behalf of Buyer or
any affiliate of Buyer in connection with this Agreement or the transactions
contemplated by this Agreement. No broker or finder is entitled to any
brokerage or finder's fee, or to any commission, based in any way on
agreements, arrangements or understandings made by or on behalf of Buyer or any
affiliate of Buyer for which Sellers have or will have any liabilities or
obligations (contingent or otherwise).
5.6 Suits. There is no injunction or restraining order or legal,
administrative or arbitration proceeding pending against Buyer which restrains
or prohibits the consummation of the transactions contemplated by this
Agreement.
5.7 Financing. Buyer has currently available (including funds that can be
drawn under existing lines of credit) all funds necessary to pay the Purchase
Price and any other amounts contemplated by this Agreement. Buyer's ability to
consummate the transactions contemplated hereby is not contingent on its
ability to complete any financing prior to or upon the Closing.
ARTICLE 6
COVENANTS
6.1 General. Buyer and Sellers each will use their reasonable efforts in
good faith to take all actions and to do all things necessary or advisable in
order to consummate and make effective the purchase and sale of the Assets
contemplated by this Agreement including satisfaction of the closing
conditions.
6.2 Operation of the Assets Prior to the Effective Time.
(a) Subject to the provisions of applicable agreements Sellers shall
continue to maintain, operate and administer the
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Assets, or shall cause the Assets to be maintained, operated and administered,
in a good and workmanlike manner consistent with past practices and in
substantial compliance with all applicable laws and regulations; provided,
however, prior to the Closing Date Sellers may, at their election, cause liquid
hydrocarbons in any tanks or storage included in the Assets to be drained.
(b) Between the date of this Agreement and the Closing Date, Sellers
shall, except for emergency action taken in the face of risk to life, property
or the environment (such determination to be made in Sellers' reasonable
judgment) submit to Buyer for prior written approval (which approval shall not
be unreasonably withheld), all requests for capital expenditures relating to
the Assets that involve individual commitments of more than Thirty Thousand
Dollars ($30,000) and which, consistent with generally accepted accounting
principles and the Commission's regulations relating to natural gas pipeline
accounting, are classified as capital expenditures. The capital expenditures
for the Assets shown in Schedule 6.2(b) are hereby approved by Buyer. Buyer
will respond to Sellers in writing within three (3) days after receiving from
Sellers a request for approval of a capital expenditure. If Buyer fails to
deliver a written response to Sellers within such three (3) days, Buyer will be
deemed to have approved such expenditure. Schedule 1.1 shall be deeded amended
to reflect any assets acquired or constructed by Sellers in compliance with
this Section 6.2(b).
(c) Without the prior written approval of Buyer, (except with respect to
Default Gathering Contracts (as hereinafter defined)), as to which no prior
approval is necessary Sellers will not enter into, amend, or terminate any
agreements to be assigned to Buyer as part of the Assets, other than (i)
execution of any natural gas gathering agreements, wellhead connect agreements
or other similar agreements with producers whose wells become connected to the
Assets or other shippers between the date of this Agreement and the Closing
Date provided such agreements do not contain terms and conditions less
favorable than the Default Gathering Contracts (hereinafter defined) and (ii)
the termination of evergreen or month-to-month arrangements. Sellers will take
all commercially reasonable steps to keep in force and perform any agreements
to be assigned to Buyer as part of the Assets.
6.3 Permits. Sellers and Buyer agree to keep in force and effect and to
cooperate with each other (and Sellers agree to cause the current owners of the
Assets and their employees to cooperate and assist) to make application for
assignment of existing realty and environmental permits (effective with the
conveyance of the
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Assets to Buyer) or the issuance of new permits relating to the Assets
subsequent to the conveyance of the Assets to Buyer.
6.4 Access. Sellers will permit Buyer's officers, employees, agents and
advisors to have reasonable access to the Assets and the employees operating
the Assets (so long as such access occurs during normal business hours and does
not unreasonably interfere with the operation of the Assets) for the following:
(a) to inspect the Assets (including any Environmental Audit (as hereinafter
defined) conducted pursuant to Article 10); (b) to observe the operation of the
Assets and the performance of duties by the employees operating the Assets
prior to the Closing; and (c) related purposes consistent with this Agreement.
Buyer agrees to maintain the confidentiality of all such information pursuant
to the terms of that certain Confidentiality Agreement signed January 11,1996,
between Enron Liquids Services Corp. ("ELSC"), as agent for Sellers, and Buyer
(the "Confidentiality Agreement"). In connection with Buyer's right to
reasonable access to the Assets BUYER HEREBY AGREES TO DEFEND, INDEMNIFY,
RELEASE, PROTECT, SAVE AND HOLD HARMLESS THE SELLERS' INDEMNITEES (AS
HEREINAFTER DEFINED) FROM AND AGAINST ANY AND ALL LOSSES (AS HEREINAFTER
DEFINED) ARISING OUT OF OR RELATING TO ANY PLANT OR FIELD VISIT, OR OTHER DUE
DILIGENCE ACTIVITY, CONDUCTED BY BUYER OR ANY AFFILIATE, SUCCESSOR, ASSIGN,
OFFICER, REPRESENTATIVE, DIRECTOR, CONTROLLING PERSON AND AGENT (EACH A "BUYER
PARTY"), INCLUDING WITHOUT LIMITATION ANY LOSSES RESULTING, IN WHOLE OR IN
PART, FROM THE CONCURRENT OR JOINT NEGLIGENCE OR STRICT LIABILITY OF ANY
SELLERS' INDEMNITEE. NOTWITHSTANDING THE FOREGOING, BUYER SHALL NOT BE
OBLIGATED TO INDEMNIFY ANY SELLERS' INDEMNITEE FOR LOSSES (WITH THE EXPRESS
EXCEPTION OF LOSSES SUFFERED BY ANY BUYER PARTY) THAT WERE GROSS THE RESULT OF
ANY SELLERS' INDEMNITEE'S STRICT LIABILITY OR THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF ONE OR MORE SELLER INDEMNITEES. THE PARTIES AGREE THAT THIS
PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
6.5 Payment of Pre-Effective Time Operating Expenses. Sellers agree that
all operating expenses actually incurred by Sellers or their affiliates in
connection with the operation of the Assets prior to the Effective Time shall
be for the account of, and paid by, Sellers or their affiliates in the ordinary
course of business and Buyer shall not be responsible for the payment thereof
other than sales and other transfer taxes and fees described in Section 6.8(a),
which taxes and fees shall be paid by Buyer.
6.6 Commission Filings. (a) TW and NNG filed, with the Commission in
Docket Nos. CP95-70 and CP94-608, respectively, for authorization to abandon by
sale certain gas gathering facilities, including the Assets, to TGC and EGC,
respectively, ("Abandonment
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Application"). Orders authorizing the abandonment was issued to TW on July 27,
1995 and NNG on November 29, 1995. Buyer agrees to comply with the conditions
set forth in such Order, including but not limited to, the default gathering
contracts applicable to the Assets. In addition, Sellers have filed for and
received a Commission Order on their Petition for Declaratory Order, pursuant
to which the Commission determined, among other things, that the gathering
facilities acquired from TW and NNG, and which are part of the Assets, are not
subject to the jurisdiction of the Commission under the Act. A copy of such
Order has been provided to Buyer.
(b) Buyer agrees to comply with all Commission requirements regarding the
use and terms and conditions to be contained in the "Default" Gathering
Contract(s) with customers on the gathering facilities constituting a part of
the Assets.
6.7 Risk of Loss of the Assets; Casualty Loss. The risk of loss to the
Assets shall remain on the current owner of the Assets until the Effective
Time, and Buyer will receive the Assets, taken as a whole, in generally good
operating condition and repair, ordinary wear and tear excepted. In the event
any of the Assets shall be damaged by fire or other casualty prior to the
Closing Date, the parties will negotiate in good faith reasonable compensation
reflecting the reasonable costs of repair to the extent such repair,
replacement or reconstruction has not occurred at or prior to the Closing.
6.8 Allocation of Taxes.
(a) Buyer shall be liable for all sales, use, documentary, recording,
stamp, transfer or similar taxes, assessments or fees arising from the transfer
of the Assets to Buyer.
(b) All ad valorem, property and similar taxes for the then current year
relating to the Assets shall be prorated as of the Effective Time. If the
Closing shall occur before the actual taxes for the then current year are
known, the apportionment of taxes shall be upon the basis of taxes for the
Assets for the immediately preceding year, provided that, if the taxes for the
current year are thereafter determined to be more or less than the taxes for
the preceding year (after any appeal of the assessed valuation thereof is
concluded), Sellers and Buyer shall promptly adjust the proration of such taxes
in accordance with such determination, and Sellers or Buyer, as the case may
be, shall pay to the other any amount required as a result of such adjustment.
All special taxes or assessments prior to the end of the calendar year of
Closing shall be prorated as of the Closing Date.
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(c) Except as set forth in Section 6.8(a) and subject to Section 6.8(b),
Sellers shall be responsible for all taxes (including fines, interest and
penalties related thereto and except for fines, interest or penalties resulting
from the fault or negligence of Sellers in their operation of the Assets for
which Sellers shall be liable for pursuant to the provisions of Section 12.3 in
the twelve (12) months following the Closing Date) imposed on or with respect
to the Assets that are attributable to any whole or partial taxable period
ending on or before the Effective Time. Buyer shall be responsible for all
taxes (including fines, interest and penalties related thereto) imposed on or
with respect to the Assets that are attributable to any whole or partial
taxable period ending after the Effective Time.
(d) Sellers will be entitled to any refunds or credits of taxes paid with
respect to the Assets to the extent attributable to a pre-Effective Time tax
period. Buyer will be entitled to any refunds or credits of taxes paid with
respect to the Assets to the extent attributable to a post-Effective Time tax
period.
6.9 Records; Access and Retention.
(a) As soon as reasonably possible after the completion of the accounting
cycle (but not later than sixty (60) days thereafter) for the period up to but
excluding the Closing Date, Sellers will deliver to Buyer copies of files or,
where the files relate exclusively to the Assets, the original files included
in the books, records and files associated with the Assets (the "Records"),
including without limitation gas accounting files, contract administration
files, property record files, maps, engineering reports, operating reports and
data, and maintenance records dealing with the construction, operation and
maintenance of the Assets. After Closing, Buyer shall give Sellers and their
authorized representatives such access, during normal business hours, to the
Records, as may be reasonably required by Sellers, provided that such access
does not unreasonably interfere with the ongoing operations of Buyer. Sellers
shall be entitled to keep or obtain extracts and copies of such Records.
(b) For a period of seven (7) years after the Closing Date, Buyer shall
preserve and retain all such Records (except for meter charts which shall be
preserved and retained for three years after the Closing); provided, however,
that in the event that Buyer transfers all or a portion of the Assets to any
third party during such period, Buyer may transfer to such third party all or a
portion of the Records related thereto, provided such third party transferee
expressly assumes in writing the obligations of Buyer under this Section 6.9
and Buyer first offers to Sellers the opportunity, at Sellers' expense, to copy
the Records to be transferred.
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6.10 Names. As soon as reasonably possible after Closing, but in no event
later than ninety (90) days after Closing, Buyer shall remove the names of
Sellers and their affiliates, including "ENRON" and all variations thereof,
from all of the Assets and make the requisite filings with, and provide the
requisite notices to, the appropriate federal, state or local agencies to place
the title or other indicia of ownership, including operation of the Assets, in
a name other than any name of Sellers or any of their affiliates, or any
variations thereof.
6.11 Employment Matters. (a) All individuals employed by Sellers or one of
their affiliates who are currently assigned to perform work on the Assets
affected by this Agreement are designated by Sellers on the Employee Schedule
(as hereinafter defined) as "Field Employees". Buyer agrees to cause a member
of the controlled group under IRC Section 1563(c)(2)(A) of which Buyer is a
member (the "Buyer Controlled Group") to make offers of employment as of thirty
(30) days after the Effective Time to such number of Field Employees that will
result in either (a) such offers of employment will have been made by Closing
to all Field Employees, or (b) as of Closing at least two (2) Field Employees
will become employed by a member of the Buyer Controlled Group. Sellers shall
deliver the Employee Schedule for "Field Employees" on a confidential basis to
the Manager, Human Resources of Buyer no more than seven (7) business days
after this Agreement is executed showing the name, job position, work location,
and years of past service credit for all Field Employees. In addition, Sellers
will provide Buyer on a confidential basis relevant written information in
Sellers' possession regarding each individual's work qualifications, training
history, and prior jobs held while employed by any affiliate of Sellers. All
employment offers (i) shall be made sufficiently in advance of thirty (30) days
after the Closing Date, and (ii) shall be at a base salary and benefits
compensation package comparable to that of Buyer's employees performing similar
jobs.
(b) Employees listed on the Employee Schedule who accept offers of
employment and who are employed by a member of the Buyer Controlled Group are
referred to as "Acquired Employees", or individually as an "Acquired Employee".
Upon commencement of employment by an Acquired Employee with a member of the
Buyer Controlled Group, Acquired Employee's participation in all employee
benefit plans (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (the "Plans") sponsored by
Sellers or any of their affiliates, or in
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which they are participating employers, shall cease, and all liability
associated with such Plans, including but not limited to funding, claims for
benefits, fines, penalties and taxes, shall remain the liability of the Sellers
and their affiliates. Buyer will, or will cause its affiliates to, take all
action necessary to cause all such Acquired Employees to be covered under the
employee benefit plans of Buyer or its affiliates and fringe benefit
arrangements, in each case effective as of the Closing Date, on the same basis
as those provided to Buyer's affiliates' employees in comparable positions.
(c) If a member of the Buyer Controlled Group (an "Offering Employer")
makes any such offers of employment to Acquired Employees requiring a change of
work location such that the Acquired Employee must travel at least 50 miles (as
determined under Internal Revenue Code Section 217 and the regulations issued
pursuant thereto) further to the new principal place of work than the work
location as shown on the Employee Schedule for Field Employees, such Offering
Employer will extend the same relocation assistance to such Acquired Employee
as are available to employees of the Offering Employer.
(d) Sellers represent to Buyer that Sellers shall pay the Field Employees
which are not Acquired Employees or are not relocated by Sellers to another of
Sellers' work locations a severance pay ("Severed Employees"). If Buyer employs
any of the Severed Employees within six (6) months of Closing, Buyer shall
reimburse Sellers a prorated amount of the severance pay Sellers paid to the
Severed Employees.
6.12 Supplements to Schedules. From time to time prior to the Closing with
the consent of Buyer (which consent shall not be unreasonably withheld),
Sellers will promptly supplement or amend the Schedules attached hereto with
respect to any Assets or additional assets which, if existing or occurring at
the date of this Agreement, would have been required to be set forth or
described in such Schedule.
6.13 Sellers' Property Located on Easements After Closing. Following the
Closing Sellers (or their affiliates) will have facilities located on the real
property, easements and leases acquired by Buyer pursuant to this Agreement.
Except as provided in this Section 6.13, Buyer agrees that in no event shall
Buyer have the right to require Sellers or their affiliates to remove,
relocate, lower or otherwise alter in any respect any of their respective
facilities that are located on any such fee property, easement or lease. During
the Title Examination Period, Buyer and Sellers agree to negotiate in good
faith to attempt to mutually
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agree upon the extent to which block valves, quality measurement and metering
facilities and custody transfer points on the Assets and on the interconnecting
facilities of Sellers or their affiliates not included in the Assets as to
handling of both gas and liquid hydrocarbons need to be modified, moved,
altered or installed and the location of any such facilities and custody
transfer points. The costs of any such modifications, alterations and
additions will be borne equally by the parties, and to the extent reasonably
feasible such modifications, alterations and additions will be completed by
Closing or promptly thereafter. During the Title Examination Period, Buyer and
Sellers will also negotiate in good faith to attempt to mutually agree upon
arrangements for the sharing of certain facilities (and costs related to the
operation thereof) that will be owned by one party after the Closing, but were
used in connection with both the Assets and Sellers and their affiliates
retained facilities prior to the Closing, such as cathodic protection
equipment, radio towers, and pigging equipment.
6.14 Operational Due Diligence. From and after April 8, 1996 until 5:00
P.M. local time in Houston, Texas on April 19, 1996 (the "Operational Due
Diligence Period"), Buyer shall have access to the Assets for the purpose of
inspecting the Assets for the presence of defects other than title and
environmental which are addressed in Articles 9 and 10. Buyer shall have the
right during the Operational Due Diligence Period to review among other things,
the following related to the Assets: accounting documents (including current
discount information), operational data (including current and historical gas
flow data), maintenance records, gas contract files, equipment rental or
capital lease agreements, maintenance contracts, gas processing affidavits or
contracts, and operating permits. In the event that Buyer determines that the
Assets are materially defective or that Sellers have made misrepresentations
regarding the Assets, which in either case result in a Material Adverse Effect
on the Assets, then Buyer shall have the option to terminate this Agreement by
written notice to Sellers by 12 noon CST on April 22, 1996.
6.15 HSR Act. (a) Both Buyer and Sellers shall cause their parent entities
to file as soon as practicable but in any event no later than April 23, 1996
with the United States Federal Trade Commission ("FTC") and the United States
Department of Justice ("DOJ") the Notification and Report Form required for the
transactions contemplated hereunder by the HSR Act, without requesting early
termination of the initial waiting period, and shall (i) use all commercially
reasonable efforts to respond promptly and fully to any inquiries from the DOJ
or the FTC in connection with such filings as soon as reasonably practicable
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after consultation with the other party (and not later than two months
following issuance of the initial second request for information under the HSR
Act, if any,) (ii) comply in all material respects with the requirements of the
HSR Act and (iii) seek diligently to obtain termination of the HSR Act waiting
period and any other related consents or approvals that may be required. The
parties shall cooperate with each other and each party shall promptly furnish
all information to the other party that is necessary or appropriate in
connection with parties' compliance with the HSR Act. Buyer and Sellers shall
cause their parent entities to coordinate their initial filings of the
Notification and Report Form with the other so that such filings are made
simultaneously. Buyer and Sellers shall keep the other party fully advised
with respect to any request from and communications with the DOJ or FTC, and
shall consult with the other party with respect to all filings and responses
thereto.
(b) In the event the DOJ or FTC imposes conditions with respect to any
consent or approval that are not reasonably satisfactory to Sellers or Buyer,
respectively, then the affected party shall promptly notify the other party in
writing of such objections, and thereafter either party may terminate this
Agreement. Sellers shall not enter into any undertakings, understandings, or
agreements with DOJ, FTC or other antitrust officials in connection with the
transactions contemplated by this Agreement without Buyer's approval, which
will not unreasonably be withheld. Nor shall either party seek to terminate
this Agreement pursuant to Section 11.1(h) prior to July 1, 1996.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of Sellers to consummate the transactions contemplated by
this Agreement are subject, at the option of Sellers, to the following
conditions:
7.1 Representations. The representations and warranties of Buyer herein
contained shall be made again at Closing and shall be true and correct in all
material respects on the Closing Date.
7.2 Performance. Buyer shall have performed all material obligations,
covenants and agreements contained in this Agreement to be performed or
complied with by it at or prior to the Closing.
7.3 Pending Matters. No suit, action or other proceeding shall be pending
that could reasonably be expected to restrain, enjoin or otherwise prohibit the
consummation of the transactions contemplated by this Agreement.
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7.4 Casualty Loss. The Assets shall not have been materially damaged,
lost, or destroyed where the cost to repair or replace such Assets to the
condition prior to such damage, loss, or destruction exceeds an amount equal to
seven and one-half percent (7.5%) of the Purchase Price.
7.5 Sellers' Acquisition of Assets. TW and NNG shall have received from
the Commission orders on rehearing regarding the Abandonment Applications which
preserve the accounting and tax treatment of the transaction as currently
contemplated by Sellers and their affiliates and such orders shall not contain
any condition or provision that is unacceptable to TW and NNG, in their sole
discretion, regardless of whether TW or NNG subsequently accepts such order if
the Commission is unwilling to remove or satisfactorily modify such
unacceptable provision or condition on rehearing or otherwise.
7.6 HSR Act. The waiting periods under the HSR Act applicable to the
consummation of the transaction contemplated hereby shall have expired or been
terminated, and neither the FTC nor the DOJ shall have imposed any material
conditions upon Sellers' ability to dispose of Assets; provided, however, that
Sellers shall have complied in all material respects with the requirements
applicable to it set forth in Section 6.15 above.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement are subject, at the option of Buyer, to the following
conditions:
8.1 Representations. The representations and warranties of Sellers herein
contained shall be made again at Closing and shall be true and correct in all
material respects on the Closing Date.
8.2 Performance. Sellers shall have performed all material obligations,
covenants and agreements contained in this Agreement to be performed or
complied with by it at or prior to the Closing.
8.3 Pending Matters. No suit, action or other proceeding shall be pending
that could reasonably be expected to restrain, enjoin or otherwise prohibit the
consummation of the transactions contemplated by this Agreement.
8.4 Casualty Loss. The Assets shall not have been materially damaged,
lost, or destroyed where the cost to repair or replace such Assets to the
condition prior to such damage, loss, or destruction exceeds an amount equal to
seven and one-half percent (7.5%) of the Purchase Price.
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8.5 HSR Act. The waiting periods under the HSR Act applicable to the
consummation of the transaction contemplated hereby shall have expired or been
terminated, and neither the FTC nor the DOJ shall have imposed any material
conditions upon Buyer's ability to dispose of Assets; provided, however, that
Buyer shall have complied in all material respects with the requirements
applicable to it set forth in Section 6.15 above.
ARTICLE 9
TITLE MATTERS
9.1 Title Examination Period. From and after April 8, 1996 until 5:00
p.m., local time in Houston, Texas, on April 19, 1996 (the "Title Examination
Period"), Buyer may notify Sellers in writing of any alleged Title Defects
affecting any of the Assets and discovered by Buyer or any affiliate or agent
of Buyer, setting forth in such notice a detailed description of each Title
Defect and the estimated cost to cure each Title Defect. Any matters that may
otherwise constitute Title Defects relating to the Assets but that are not
specifically raised in writing by Buyer prior to the expiration of the Title
Examination Period shall be deemed to have been waived. Upon receipt of such
notice from Buyer, Sellers shall have the right, but not the obligation, to
attempt to cure such Title Defects prior to Closing and after the Closing, to
the extent that Sellers elect pursuant to Section 9.3(a) to indemnify Buyer for
Losses (as hereinafter defined) arising out of any Title Defects.
Notwithstanding the preceding sentence, prior to the Closing Sellers will seek
diligently consents and approvals for transfers of easements, rights of way,
and realty leases on privately owned lands where they are required. To the
extent that such consent require payments to the affected landowners, if any,
the resulting costs will be governed by the provisions of Section 9.3. Buyer
shall not have the right to attempt to cure such Title Defects to the extent
that Sellers have elected to indemnify Buyer for Losses arising out of such
defects, unless in the reasonable opinion of Buyer's counsel Buyer would likely
be liable to a third party for punitive or similar damages as a result of such
Title Defect.
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9.2 Definition of Title Defects.
(a) Any unobtained consent to assignment, lien, charge, obligation,
encumbrance, defect or irregularity of title or any other circumstance or
condition that causes Sellers' title to the Assets in any of the realty of
major facilities that are part of the Assets to be less than Defensible Title
(as hereinafter defined) and for which notice is given by Buyer to Sellers
pursuant to Section 9.1, shall be a title defect (a "Title Defect").
(b) For purposes of this Agreement, the term "Defensible Title" to the
major facilities shall mean, subject to and except for the Permitted
Encumbrances (as hereinafter defined), Sellers' title to the assets in the
major facilities is free and clear of all liens, encumbrances and defects of
any kind whatsoever.
(c) For purposes of this Agreement the term "Permitted Encumbrances" shall
mean any of the following:
(i) any liens for taxes and assessments not yet due or, if due,
that are being contested in good faith in the ordinary course of
business;
(ii) any obligations or duties reserved to or vested in any
municipality or other Governmental Authority to contract or regulate
any Asset in any manner, all applicable Laws and all applicable rules
and orders of any Governmental Authority;
(iii) the terms and conditions of all leases and servitudes, and
the agreements listed on Schedule 1.1;
(iv) Customary Post-Closing Consents;
(v) any required third party consents to assignment and similar
agreements and obligations arising in connection with the transfer of
the Assets to Sellers or this sale of the Assets to Buyer with
respect to which prior to Closing (A) waivers or consents have been
obtained from the appropriate person, (B) the applicable period of
time for asserting such rights has expired without any exercise of
such rights or (C) lawful arrangements have been made by the parties
to allow Buyer to receive substantially the same economic benefits as
if all such waivers and consents had been obtained;
(vi) existing easements, rights of way, servitudes, permits,
licenses, surface leases and other rights with respect to surface
obligations, pipelines, grazing, canals, ditches, reservoirs, or the
like, conditions, covenants or other restrictions, and easements of
streets, alleys, highways, pipelines, telephone lines, power lines,
railways
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and other easements and rights of way on, over or in respect of
any of the Assets, so long as individually or in the aggregate they
do not have a Material Adverse Effect;
(vii) materialmen's, mechanics', repairmen's, employees',
contractors', operators', tax and other similar liens or charges
arising in the ordinary course of business incidental to
construction, maintenance or operation of any of the Assets (A) if
they have not been filed pursuant to law, (B) if filed, they have not
yet become due and payable or payment is being withheld as provided
by law or (C) if their validity is being contested in good faith in
the ordinary course of business by appropriate action;
(viii) any Title Defect of which Sellers have provided a remedy
pursuant to Section 9.3 (including, without limitations, an
adjustment to the Purchase Price or indemnification) and any Title
Defect that has been waived by Buyer or deemed to be waived by Buyer
pursuant to this Agreement; and
(ix) the matters described on Schedule 9.2 attached hereto.
9.3 Remedies for Title Defects.
(a) Subject to Section 9.3(b), in the event that any Title Defect is not
waived by Buyer or cured on or before Closing, Sellers shall, in their sole
election, elect to:
(i) reduce the Purchase Price by an amount agreed upon in
writing by Buyer and Sellers as being the cost to cure such Title
Defect, taking into consideration the portion of the Assets subject
to such Title Defect and the legal effect of such Title Defect on the
Assets affected thereby; or
(ii) indemnify Buyer, subject to the maximum amount of Sellers'
liability set forth in Section 12.4(b), against all liability, loss,
cost and expense resulting from such Title Defect pursuant to Section
12.3(d).
In the event that Sellers elect to proceed under Section 9.3(a)(k) and Buyer
and Sellers have failed to agree on or before the third business day prior to
the then scheduled Closing Date on the proportionate reduction of the Purchase
Price (which agreement Buyer and Sellers shall use good faith efforts to
reach), Sellers shall then elect to proceed with respect to such Title Defect
under Section 9.3(a)(ii). Sellers may elect to proceed under Section
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9.3(a)(i) with respect to certain Title Defects and under Section 9.3(a)(ii)
with respect to the Title Defects.
(b) Notwithstanding anything in Article 9 to the contrary, in no event
shall Sellers be obligated pursuant to Section 9.3(a) to decrease the Purchase
Price or indemnify Buyer pursuant to Section 12.3(d) for Title Defects unless
the cost to cure all such Title Defects in the aggregate, exceeds a deductible
in an amount of Forty Thousand Dollars ($40,000.00), after which point Buyer
shall be entitled to adjustments to the Purchase Price or indemnification only
with respect to curative costs in excess of such deductible. Without the prior
written consent of Buyer, Sellers shall not incur costs to cure any Title
Defects that would be attributable to Buyer's deductible amount.
ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Pre-Closing Environmental Audit. (a) From and after April 8, 1996,
Buyer may, at its option, cause Buyer's personnel and a reputable consulting or
engineering firm reasonably acceptable to Sellers ("Environmental Auditor") to
conduct (i) a Phase I and Phase II environmental audit of Sellers' and their
affiliates, records, (ii) interviews with employees operating the Assets, and
(iii) an inspection of the Assets and prepare a written report of their
findings (the "Environmental Audit") by 5:00 p.m., local time in Houston,
Texas, on April 19, 1996 (the "Environmental Examination Period"). In the event
Buyer elects to conduct a Phase II environmental audit (i.e. Buyer seeks to
conduct any sampling or intrusive investigation of the surface or the
subsurface of the Assets) Buyer and Sellers shall agree upon the scope and
nature of such a Phase II audit not later than April 24, 1996. The agreed upon
Phase II investigation shall be set forth in writing which shall be sufficient
to define the scope, nature, location and duration of such an investigation.
During the environmental Examination Period, Buyer may submit to Sellers in
writing a statement (the "Environmental Statement") describing which, if any,
of the Environmental Compliance Deficiencies (defined below) and proposed
corrective actions (with corresponding cost estimates as provided in the
Environmental Audit) Buyer is requesting Sellers to undertake. If Buyer
delivers an Environmental Statement, then Sellers agree (without admitting that
any compliance deficiencies contained in any report prepared by an
Environmental Auditor or Environmental Statement are in fact violations of
Environmental Laws) to pay for, undertake or indemnify Buyer for corrective
projects or deficiencies specified in the Environmental Statement provided
hereunder, which are Environmental Compliance Deficiencies, subject to the
limitations on liability set forth in Section 12.4(b) below.
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(b) If there are any corrective projects specified in the Environmental
Statement, which are Environmental Compliance Deficiencies, that are not
completed by or on behalf of Sellers prior to the Closing, Sellers shall, at
their sole election, either:
(i) reduce the Purchase Price by an amount agreed upon in
writing by Buyer and Sellers as the remaining costs of any incomplete
or remaining corrective projects, subject to the maximum amount of
Sellers' liability set forth in Section 12.4(b);
(ii) perform or cause to be performed, in accordance with
Section 10.3 and subject to the maximum amount of Sellers' liability
set forth in Section 12.4(b), such operations as may be necessary to
cure any Environmental Compliance Deficiencies; or
(iii) indemnify Buyer against Losses resulting from any such
Environmental Compliance Deficiencies pursuant to Article 12.3(e),
subject to the limitations on Sellers' liability set forth in this
Section 12.4(b); provided, however, if in the reasonable opinion of
environmental counsel to Sellers or Buyer there is an affirmative
duty to correct such Environmental Compliance Deficiencies, Sellers
shall not be entitled to elect this Section 10.1(b)(iii). In the
event that Sellers elect to proceed under this clause (iii) for any
Environmental Compliance Deficiency, Buyer shall be deemed to have
furnished a Claim Notice with respect to such Environmental
Compliance Deficiency in accordance with Article 12.
(c) As used in this Agreement, the term "Environmental Compliance
Deficiencies" shall mean those matters specifically set forth in the
Environmental Statement or in the Environmental Defect Notice described in
Section 10.2 below that indicate that on the date of the Environmental
Statement the Assets are in violation or in noncompliance with Environmental
Laws or, in the case of an Environmental Defect Notice, that on the Closing
Date the Assets were in violation or in noncompliance with Environmental Laws.
(d) Buyer shall be responsible for all of its environmental due diligence
costs and expenses whether incurred before or after the Closing, including
those costs associated with the evaluation of the Assets and the preparation of
Environmental Audits,
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Environmental Statements and Environmental Defect Notices. Such due diligence
costs shall not include any remedial or corrective action costs incurred by
Sellers pursuant to this Article 10. Buyer shall not have any right to claim
that such costs are Losses (hereinafter defined) for which Sellers are
obligated to indemnify Buyer pursuant to Section 12.3 below. Any report
prepared by an Environmental Auditor describing Environmental Compliance
Deficiencies as to which Buyer requests Sellers to take corrective action or
reimburse Buyer for the cost of corrective action shall be addressed to Buyer
and Sellers.
10.2 Post-Closing Environmental Investigation.
(a) During the three (3) years following the Closing Date, Buyer may
notify Sellers in writing of any Environmental Compliance Deficiencies
affecting the Assets that were discovered by Buyer or an Environmental Auditor
after the Closing, but that relate to periods prior to the Closing. Such notice
shall be in writing and shall set forth a reasonably detailed description of
each alleged Environmental Compliance Deficiency and proposed corrective
actions (with corresponding cost estimated) (the "Environmental Defect
Notice"). Sellers will notify Buyer in writing promptly after it determines
that Buyer will be responsible, in whole or in part, for corrective action
undertaken pursuant to this Section 10.2.
(b) If the amounts previously paid by Sellers to correct Environmental
Compliance Deficiencies pursuant to this Article 10 (including pre-Closing
corrective action and reduction of the Purchase Price) have not exceeded the
amounts of Sellers' maximum liability set forth in Section 12.4(b) and Buyer
delivers an Environmental Defect Notice, Sellers agree, at their sole election,
to either (without admitting that any compliance deficiencies contained in any
report prepared by an Environmental Auditor or Environmental Defect Notice(s)
are in fact violations of Environmental Laws):
(i) perform or cause to be performed, in accordance with Section
10.3 and subject to the maximum amount of Sellers' liability set
forth in Section 12.4(b), such operations as may be necessary to cure
any Environmental Compliance Deficiencies; or
(ii) indemnify Buyer against Losses resulting from any
Environmental Compliance Deficiencies pursuant to Section 12.3(e),
subject to the limitations on Sellers' liability set forth in Section
12.4(b); provided, however, if in the reasonable opinion of
environmental counsel to Sellers or Buyer there is an affirmative
duty to correct such
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Environmental Compliance Deficiencies, Sellers shall not be
entitled to elect this Section 10.2(b)(ii). In the event Sellers
elect to proceed under this clause (ii) for any Environmental
Compliance Deficiency, Buyer shall be deemed to have furnished a
Claim Notice with respect to such Environmental Compliance Deficiency
in accordance with Article 12.
10.3 Corrective Action. The parties agree that in the event Sellers elect
to undertake corrective action of any Environmental Compliance Deficiencies,
the corrective action shall be conducted as follows:
(a) Sellers shall notify Buyer of their election to conduct the corrective
action.
(b) Sellers shall provide Buyer with a copy of all materials that may be
submitted to or received from agencies with jurisdictional authority over the
corrective action, including but not limited to notices, plans, approvals and
analytical results. In the event no plan or proposal is submitted to the
jurisdictional agency, then Sellers shall provide Buyer with a written plan to
conduct the corrective action. The foregoing documentation shall be sufficient
to describe the scope, nature and anticipated duration of the corrective
action. Buyer agrees not to interfere with or oppose (before any jurisdictional
authority) in any manner any of Sellers' corrective action activities except
and unless Sellers fail to conduct such corrective actions in accordance with
the terms and condition of this Agreement or as may be required by applicable
laws, rules or regulations, or the requirements of governmental authorities.
(c) Sellers shall conduct the corrective action in a good and workmanlike
manner consistent with industry standards and in accordance with any proposal
or plans submitted to regulatory agencies and the Buyer. Sellers' plans and
corrective actions shall be carried out in ways that avoid or minimize to the
greatest extent feasible any interference with Buyer's ongoing gathering
operations.
(d) Sellers shall provide Buyer written notice of all major operations to
be conducted on the Assets associated with the corrective action at least
fifteen (15) days prior to such operations in order that Buyer may witness and
observe such operations. Such operations will include, but not be limited to,
any sampling conducted on the Assets. Buyer shall have the right to split any
samples taken by Sellers as well as the right to take independent samples and
submit such samples to an independent
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laboratory. Sellers shall have the right to split any samples taken by Buyer
and submit such samples for analysis. Buyer agrees to bear its own costs in
regard to witnessing, inspecting or auditing the corrective action activities
of the Sellers. Such costs include, but are not limited to, sampling costs,
laboratory costs, personnel costs, and any third party costs.
(e) Sellers shall notify Buyer in writing of the completion of the
corrective action. Such notice shall include a statement of actual expenditures
and where appropriate, supporting analytical information and report(s)
sufficient to verify that the Environmental Compliance Deficiency no longer
exists.
(f) Sellers shall invoice Buyer for Buyer's share, if any, of any costs
and expenses incurred as a result of the corrective action, and Buyer shall pay
such invoice within thirty (30) days of receipt. Sellers agree that Buyer shall
have the right to audit such records as may be reasonably necessary to verify
the expenditures associated with the corrective action.
(g) In the event Sellers elect to proceed with a corrective action, Buyer
agrees to fully cooperate with the Sellers to facilitate the corrective action.
Such cooperation shall include providing information to Sellers and access to
the Assets during reasonable hours. Buyer also agrees to provide access to the
Assets to Sellers' personnel and agents and jurisdictional agency
representatives.
(h) If the cost of the corrective action at any time causes Sellers'
maximum liability to have been incurred, Sellers shall immediately so inform
Buyer in writing, and Buyer may immediately or at any time thereafter assume
performance of the corrective action to completion. Sellers shall not have the
right to continue corrective actions at Buyer's sole cost without Buyer's
written consent.
10.4 Release. Any matters that may otherwise constitute Environmental
Compliance Deficiencies that are not raised by Buyer prior to the third
anniversary of the Closing Date shall be deemed to have been waived. Upon
completion by or on behalf of Sellers of any corrective project specified in
the Environmental Statement or the Environmental Defect Notice, or upon payment
by Sellers to Buyer of Sellers' share of the cost to complete any such
corrective project, Buyer shall be deemed to have released Sellers from any
further liability for such Environmental Compliance Deficiency.
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ARTICLE 11
TERMINATION
11.1 Termination At or Prior to Closing. The occurrence of any of the
following events prior to the Closing notwithstanding the reasonable efforts of
the party asserting a termination to avoid the event and to fulfill the
conditions to Closing in its control shall be a Termination Event:
(a) Sellers and Buyer may elect to terminate this Agreement at any time on
or prior to the Closing Date by mutual written consent of the parties;
(b) either Sellers or Buyer may elect to terminate this Agreement if the
Closing shall not have occurred on or before July 1, 1996; provided, however,
that neither Sellers nor Buyer can so terminate this Agreement if such party is
at such time in material breach of any provision of this Agreement;
(c) either Sellers or Buyer may elect to terminate this Agreement if any
Governmental Entity shall have issued a final non-appealable order, judgment or
decree or taken any other action challenging, delaying beyond May 31, 1996,
restraining, enjoining, prohibiting or invalidating the consummation of any of
the transactions contemplated herein;
(d) Sellers may elect to terminate this Agreement by April 22, 1996 if the
aggregate amount of (i) all Title Defects in excess of the Forty Thousand
Dollars ($40,000) deductible asserted pursuant to Article 9 of this Agreement
plus (ii) all Environmental Compliance Deficiencies asserted pursuant to
Article 10 of this Agreement, exceeds an amount equal to 7.5% of Purchase
Price;
(e) Buyer may elect to terminate this Agreement by April 22, 1996 if (i)
the aggregate amount of Title Defects asserted pursuant to Article 9 of this
Agreement up to the amount of the Title Defect Deductible plus (ii) all
Environmental Compliance Deficiencies asserted pursuant to Article 10 of this
Agreement, exceeds an amount equal to 7.5% of Purchase Price; or
(f) if Buyer has requested permission to conduct a Phase II environmental
investigation pursuant to Section 10.1(a) and Sellers have not agreed with
Buyer prior to April 24, 1996 on such investigation as required by Section
10.1(a), then on or before the Closing Date either Sellers or Buyer may elect
to terminate the transactions contemplated by this Agreement;
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(g) Buyer may terminate this Agreement pursuant to Section 6.14;
(h) either Sellers or Buyer may elect to terminate this Agreement at any
time if the HSR Act waiting period is extended beyond July 1, 1996; provided,
however, if the terminating party's estimate of costs to cure Title Defects or
Environmental Deficiencies, as the case may be, exceeds the non-terminating
party's estimate by more than 10% then neither Sellers nor Buyer shall be
entitled to elect to terminate this Agreement pursuant to clauses (d) or (e),
respectively, unless and until an independent expert engaged by the parties
issues an option on the estimated costs of such curative projects ("Estimated
Curative Costs"), which Estimated Curative Costs shall be determinative of a
party's right to terminate this Agreement pursuant to clause (d) or (e) above.
11.2 Effect of Termination. In the event that Closing does not occur as a
result of either party exercising its right to terminate pursuant to Section
11.1, then neither party shall have any further rights or obligations under
this Agreement, except that (a) nothing herein shall relieve either party from
any liability for any willful breach hereof and (b) Buyer's indemnification and
related obligations under Section 6.4 shall survive any such termination.
ARTICLE 12
INDEMNIFICATION
12.1 Assumption of Liabilities Relating to the Assets. As of the Effective
Time and subject to Sellers' indemnification obligation set forth in Section
12.3, Buyer shall assume the Assumed Obligations. "Assumed Obligations" shall
mean all liabilities, duties, and obligations of every kind whatsoever relative
to (a) ownership, operation, occupancy, condition or use of the Assets on and
after the Effective Time, and (b) matters arising out of any matter or
circumstance relating to Environmental Laws, the release of materials into the
environment or protection of the environment, whether known or unknown, whether
attributable to period of time before or after the Effective Time.
12.2 Indemnification By Buyer. Subject to Section 12.4(a), Buyer shall
indemnify, release, defend, and hold harmless Sellers, its officers, directors,
employees, agents, representatives, affiliates, subsidiaries, successors and
assigns (collectively, the "Sellers Indemnitee") from and against any and all
claims, liabilities, losses, causes of actions, costs and expenses (including,
without limitation, court costs and attorneys' fees) ("Losses") asserted
against, resulting from, imposed upon or
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incurred by any of the Sellers Indemnitee as a result of, or arising out of:
(a) the breach of any of the representations, warranties, covenants or
agreements of Buyer contained in this Agreement, or (b) the Assumed
Obligations, or (c) any liability for taxes (including interest, penalties or
fines related thereto) the responsibility for payment of which was assumed by
Buyer pursuant to Section 6.7 above; provided, however, that Buyer shall not
assume and shall have no obligation to indemnify any of the Sellers Indemnitee
with respect to any matter for which Sellers are indemnifying Buyer pursuant to
Section 12.3.
12.3 Indemnification By Sellers. Subject to Section 12.4(b), Sellers shall
indemnify, defend and hold harmless Buyer, its officers, directors, employees,
agents, representatives, affiliates, subsidiaries, successors and assigns
(collectively, the "Buyer Indemnitees") from and against all Losses asserted
against, resulting from, imposed upon or incurred by any of the Buyer
Indemnitees as a result of, or arising out of, (a) the breach of any of the
representations, warranties, covenants or agreements of Sellers contained in
this Agreement, (b) the ownership, operation, occupancy, use or condition of
the Assets prior to the Effective Time, other than matters relating to
Environmental Laws (which are covered by clause (e) below), (c) claims made by
employees or former employees of Sellers or any affiliates of Sellers with
regard to compensation and benefits under any benefit plan or any other
employee benefit program in which such employee participated while employed by
Sellers or any affiliate of Sellers prior to the Effective Time, (d) Title
Defects related to the Sellers Assets as to which Sellers elected pursuant to
Section 9.3 above to indemnify Buyer against all liability, loss, cost and
expense, subject to satisfaction of the deductible provided for in Section
9.3(b), (e) Environmental Compliance Deficiencies related to the Sellers Assets
as to which Sellers elected pursuant to Section 10.1(b)(ii) above to indemnify
Buyer against Losses and Environmental Compliance Deficiencies related to the
Sellers Assets raised by Buyer within three (3) years after the Closing
pursuant to Section 10.2(b) above, subject, in each case, to the limitations on
liability set forth in Article 10, and (f) any liability for taxes related to
the Sellers Assets (including interest, penalties or fines related thereto) for
the period prior to the Effective Time other than those assumed by Buyer
pursuant to Section 6.9 above.
12.4 Limitation on Damages; Survival of Representations. (a)
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL
BUYER BE LIABLE TO THE SELLERS' INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE, REMOTE
OR SPECULATIVE DAMAGES; PROVIDED, HOWEVER, THAT IF ANY SELLER INDEMNITEE IS
HELD LIABLE TO A THIRD PARTY FOR ANY SUCH DAMAGES AND BUYER IS OBLIGATED TO
INDEMNIFY SUCH
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SELLER INDEMNITEE FOR THE MATTER THAT GAVE RISE TO SUCH DAMAGES, THE BUYER
SHALL BE LIABLE FOR, AND OBLIGATED TO REIMBURSE SUCH SELLER INDEMNITEE FOR SUCH
DAMAGES. The representations and warranties of Buyer set forth in ARTICLE 5
shall survive the Closing for a period of three (3) years and such
representations and warranties of Buyer shall terminate at 5:00 p.m., local
time in Houston, Texas, on the third anniversary of the Closing Date;
provided, however, that any such representation or warranty that is the subject
of a written notice of claim specifying in reasonable detail the specific
nature of the Losses and the estimated amount of such Losses ("Claim Notice")
delivered in good faith shall survive with respect only to the specific matter
described in such claim notice until the earlier to occur of (i) the date on
which a final non-appealable resolution of the matter described in such Claim
Notice has been reached or (ii) the date on which the matter described in such
Claim Notice has otherwise reached final resolution.
(b) Notwithstanding anything to the contrary in this Agreement, the
liability of Sellers under this Agreement and any documents delivered in
connection herewith or contemplated hereby shall be limited as follows:
(i) IN NO EVENT SHALL SELLERS BE LIABLE TO THE BUYER INDEMNITEE
FOR ANY EXEMPLARY, PUNITIVE, REMOTE OR SPECULATIVE DAMAGES; PROVIDED,
HOWEVER, THAT IF ANY Buyer INDEMNITEE IS HELD LIABLE TO A THIRD PARTY
FOR ANY SUCH DAMAGES AND EITHER SELLER IS OBLIGATED TO INDEMNIFY SUCH
Buyer INDEMNITEE FOR THE MATTER THAT GAVE RISE TO SUCH DAMAGES, SUCH
SELLERS SHALL BE LIABLE FOR, AND OBLIGATED TO REIMBURSE SUCH BUYER
INDEMNITEE FOR, SUCH DAMAGES.
(ii) The representations and warranties of Sellers set forth in
ARTICLE 4 (except for Section 4.9, which shall terminate at Closing)
shall survive the Closing for a period of three years and such
representations and warranties shall terminate at 5:00 p.m., local
time in Houston, Texas, on the third anniversary of the Closing Date;
provided, however, that any such representation and warranty that is
the subject of a Claim Notice delivered in good faith shall survive
with respect only to the specific matter described in such Claim
Notice until the earlier to occur of (A) the date on which a final
non-appealable resolution of the matter described in such Claim
Notice has been reached or (B) the date on which the matter described
in such Claim Notice has otherwise reached final resolution.
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(iii) Notwithstanding anything to the contrary in this
Agreement, in no event shall Sellers indemnify the Buyer Indemnitee,
or be otherwise liable in any way whatsoever to the Buyer Indemnitee,
(A) for any aggregated individual Losses as to which a claim has been
made pursuant to Article 10) not in excess of $2,400 or (B) for any
Losses (other than Losses as to which a claim has been made pursuant
to Article10) until the Buyer Indemnitee have suffered Losses (other
than Losses excluded pursuant to clause (A)) in the aggregate in
excess of a deductible in an amount equal to Eight Thousand Dollars
($8,000.00) for non-environmental matters and Forty Thousand Dollars
($40,000.00) for environmental matters after which point Sellers will
be obligated only to indemnify the Buyer Indemnitee from and against
further Losses in excess of such deductible (and only to the extent
of any such excess).
(iv) Notwithstanding anything to the contrary herein, in no
event shall Sellers indemnify the Buyer Indemnitee, or be otherwise
liable in any way whatsoever to the Buyer Indemnitee, for any Losses
under this Agreement in excess of an amount equal to One Million Two
Hundred Thousand Dollars ($1,200,000.00) provided, however, that for
purposes of this Section 12.4(b)(iv) the term Losses shall include
(A) any amount agreed upon by Buyer and Sellers pursuant to Article 9
as the value of any Title Defect and (B) any amounts paid by Sellers
for environmental liabilities or corrective actions pursuant to
Article 10.
(v) No amount shall be recovered from Sellers for the breach or
inaccuracy of any of Sellers' representations, warranties, covenants
or agreements, or for any other matter, to the extent that Buyer had
actual knowledge of such breach, inaccuracy or other matter at or
prior to the Closing, nor shall Buyer be entitled to post-Closing
rescission with respect to any such matter.
(vi) Sellers shall have no liability for Losses pursuant to this
Article unless a Claim Notice has been delivered to Sellers as
required by Section 12.5 within three (3) years after the Effective
Time.
12.5 Notice of Asserted Liability, Opportunity to Defend. All claims for
indemnification under Sections 12.2 and 12.3 shall be asserted and resolved
pursuant to this Section 12.5. Any person claiming indemnification hereunder is
hereinafter referred to as the "Indemnified Party" and any person against whom
such claims are asserted hereunder referred to as the "Indemnifying Party." In
the event that any Losses are asserted against or sought to be
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collected from an Indemnified Party by a third party, said Indemnified Party
shall with reasonable promptness provide to the Indemnifying Party a Claim
Notice. The Indemnifying Party shall not be obligated to indemnify the
Indemnified Party thereof in accordance with the provisions of this Agreement
in reasonably sufficient time so that the Indemnifying Party's ability to
defend against the Losses is not prejudiced. The Indemnifying Party shall have
thirty (30) days from the personal delivery or receipt of the Claim Notice (the
"Notice Period") to notify the Indemnified Party (i) whether or not it disputes
the liability of the Indemnifying Party to the Indemnified Party hereunder with
respect to such Losses and/or (ii) whether or not it desires, at the sole cost
and expense of the Indemnifying Party, to defend the Indemnified Party against
such Losses; provided, however, that any Indemnified Party is hereby authorized
prior to and during the Notice Period to file any motion, answer or other
pleading that it shall deem necessary or appropriate to protect its interests
or those of the Indemnifying Party (and of which it shall have given notice and
opportunity to comment to the Indemnifying Party) and not prejudicial to the
Indemnifying Party. In the event that the Indemnifying Party notifies the
Indemnified Party within the Notice Period that it desire to defend the
Indemnified Party against such Losses, the Indemnifying Party shall have the
right to defend all appropriate proceedings, and with counsel of its own
choosing, which proceedings shall be promptly settled or prosecuted by them to
a final conclusion. If the Indemnified Party desires to participate in, but
not control, any such defense or settlement it may do so at its sole cost and
expense. If requested by the Indemnifying Party, the Indemnified Party agrees
to cooperate with the Indemnifying Party and its counsel in contesting any
Losses that the Indemnifying Party elects to contest or, if appropriate and
related to the claim in question, in making any counterclaim against the person
asserting the third party Losses, or any cross-complaint against any person.
No claim may be settled or otherwise compromised without the prior written
consent of the Indemnifying Party.
12.6 Exclusive Remedy. As between the Buyer Indemnitee and the Seller
Indemnitee the rights and obligations set forth in this Article 12 will be the
exclusive rights and obligations with respect to this Agreement, the events
giving rise to this Agreement, and the transactions provided for herein or
contemplated hereby or thereby. It being understood and agreed between Sellers
and Buyer that all other rights and obligations between Sellers and their
affiliates on the one hand and the Buyer and its affiliates on the other hand
shall be governed by this Agreement.
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12.7 NEGLIGENCE AND STRICT LIABILITY WAIVER. WITHOUT LIMITING OR ENLARGING
THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN
INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE
WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO
SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR VIOLATION OF ANY LAW OF OR BY SUCH
INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES A
CONSPICUOUS LEGEND.
ARTICLE 13
MISCELLANEOUS
13.1 Applicable Law, Alternative Dispute Resolution.
(a) This Agreement shall be governed by and construed in accordance with
the domestic laws of the State of Texas without giving effect to any choice or
conflict of law provision or rule (whether of the State of Texas or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Texas.
(b) Except as expressly provided in Section 2.5, any dispute arising under
this Agreement shall be resolved pursuant to this Section 13.1:
(i) Any party has the right to request the other to meet to
discuss a dispute. The party requesting the meeting will give at
least ten (10) business days notice in writing of the subject it
wishes to discuss, provide a written statement of the dispute, and
designate an officer of the company with complete power to resolve
the dispute to attend the meeting. Within three (3) business days
after receipt of such request, the party receiving the request will
provide a responsive written statement and will designate an officer
of the company who will attend the meeting with complete power to
resolve the dispute.
(ii) If the meeting fails to resolve the dispute by a signed
agreement among the officers, the dispute shall be submitted for
non-appealable, binding determination through arbitration. The
parties agree that an officer with authority to resolve the dispute
for each entity shall attend the arbitration. The Arbitrator chose
from the arbitrators available through Judicial Arbitration &
Mediation Services, In. ("JAMS") shall be the Arbitrator unless the
parties agree on a substitute arbitrator. Unless otherwise agreed by
the parties, the Arbitrator shall be a person with at least eight (8)
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years of professional experience in the natural gas industry or
the judiciary and who is not, and within the previous five (5) years
has not been, an employee or independent contractor of either Sellers
or Buyer (or any affiliate thereof), and does not have a direct or
indirect interest in either Sellers or Buyer (of any affiliate
thereof) or the subject matter of the arbitration.
(iii) the parties agree to make discovery and disclosure of all
matters relevant to the dispute to the extent and in the manner
provided by the Federal Rules of Civil Procedure. The Arbitrator will
rule on all requests for discovery and disclosure and discovery shall
be completed within ninety (90) days of the date of the first notice
pursuant to Section 13.1(b)(i). The Arbitrator shall follow the
statutes and decisions of the substantive law of Texas relevant to
the subject. The Arbitrator's powers shall be limited to enforcement
of this Agreement as to the issues raised by the parties, and shall
not include tort claims or the power to award punitive damages. The
Arbitrator shall not have the authority or power to alter, amend or
modify any of the terms and conditions of the agreement of the
parties. The Arbitrator shall issue a final ruling within hundred
eighty (180) days of the date of the first notice pursuant to Section
13.1(b)(i).
(iv) The ruling of the Arbitrator shall be in writing and
signed, shall contain a statement of findings and conclusions and
shall be final and binding upon the parties. The fees and expenses of
counsel, witnesses and employees of the parties and all other costs
and expenses incurred exclusively for the benefit of the party
incurring the same shall be borne by the party incurring such fees
and expenses. All other fees and expenses including, without
limitation, compensation for the Arbitrator shall be divided equally
between the parties. All meetings and arbitration hearings held
pursuant to this Section 13.1 shall take place in Houston, Texas.
Judgment on the arbitration award or decision may be entered in any
court having jurisdiction.
13.2 Expenses and Attorney Fees. Each party shall be solely responsible
for all expenses, including due diligence expenses, incurred by it in
connection with this transaction, and neither party shall be entitled to any
reimbursement for such expenses from the other party hereto. Without limiting
the generality of the foregoing, Buyer will be solely responsible for all
recording fees and taxes relating to the conveyances to be delivered pursuant
hereto. Notwithstanding the foregoing, if any action is brought to
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enforce or for breach of the provisions of this Agreement, the prevailing party
shall be entitled to recover its reasonable costs and expenses (including
reasonable attorney fees).
13.3 Independent Investigation. Buyer represents and acknowledges that it
is knowledgeable of the business of operating pipelines and that it has had
access to the Assets, the officers and employees of Sellers and their
affiliates, and the Records of Sellers and their affiliates relating to the
Assets and in making the decision to enter into this Agreement and consummate
the transactions contemplated hereby, Buyer has relied solely on the basis of
its own independent due diligence investigation of the Assets (which will be
completed by April 19, 1996 at 5:00 P.M.) and upon the representations and
warranties of Sellers made in Article 4 and on the covenants of Sellers in this
Agreement.
13.4 Disclaimer Regarding Assets. Except as otherwise expressly provided
in this AGREEMENT, BUYER ACKNOWLEDGES THAT SELLERS HAVE NOT MADE, AND SELLERS
HEREBY EXPRESSLY DISCLAIM AND NEGATE, ANY REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, RELATING TO THE CONDITION OF ANY PART OF THE ASSETS (INCLUDING,
WITHOUT LIMITATION, (a) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (b)
ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (c) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,
AND (d) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK
INFRINGEMENT) IT BEING THE EXPRESS INTENTION OF BUYER AND SELLERS THAT (EXCEPT
TO THE EXTENT EXPRESSLY PROVIDED IN THIS AGREEMENT) THE ASSETS SHALL BE
ACCEPTED BY BUYER AS IS AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR; AND
BUYER REPRESENTS TO SELLERS THAT BY APRIL 19, 1996 AT 5:00 P.M. BUYER WILL HAVE
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO THE ASSETS AS BUYER
DEEMS APPROPRIATE AND THEREAFTER BUYER WILL ACCEPT THE ASSETS AS IS, IN THEIR
PRESENT CONDITION AND STATE OF REPAIR. THE PARTIES AGREE THAT THIS PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.
13.5 Waiver of Trade Practices Acts.
(a) It is the intention of the parties that Buyer's rights and remedies
with respect to this transaction and with respect to all acts or practices of
Sellers, past, present or future, in connection with this transaction shall be
governed by legal principles other than the Texas Deceptive Trade
Practices-Consumer Protection Act, Tex. Bus. & Com. Code Ann. Section 17.41 et
seq. (the "DTPA"). AS SUCH, BUYER HEREBY WAIVES THE APPLICABILITY OF THE DTPA
TO THIS TRANSACTION AND ANY AND ALL DUTIES, RIGHTS OR REMEDIES THAT MIGHT BE
IMPOSED BY THE DTPA, WHETHER SUCH DUTIES, RIGHTS AND REMEDIES ARE APPLIED
DIRECTLY BY THE DTPA ITSELF OR INDIRECTLY IN
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CONNECTION WITH OTHER STATUTES; PROVIDED, HOWEVER, BUYER DOES NOT WAIVE Section
17.555 OF THE DTPA. BUYER ACKNOWLEDGES, REPRESENTS AND WARRANTS THAT IT IS
PURCHASING THE GOODS AND/OR SERVICES COVERED BY THIS AGREEMENT FOR COMMERCIAL
OR BUSINESS USE; THAT IT HAS ASSETS OF $5 MILLION OR MORE ACCORDING TO ITS MOST
RECENT FINANCIAL STATEMENT PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, THAT IT HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND
BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS OF A
TRANSACTION SUCH AS THIS; AND THAT IT IS NOT IN A SIGNIFICANTLY DISPARATE
BARGAINING POSITION WITH SELLERS.
(b) TO THE MAXIMUM EXTENT PERMITTED BY LAW, BUYER HEREBY WAIVES ALL
PROVISIONS OF CONSUMER PROTECTION ACTS, DECEPTIVE TRADE PRACTICE ACTS AND OTHER
ACTS SIMILAR TO THE DTPA IN ALL JURISDICTIONS IN WHICH ANY OF THE ASSETS ARE
LOCATED (SUCH ACTS, TOGETHER WITH THE DTPA, ARE HEREINAFTER COLLECTIVELY
REFERRED TO AS THE "TRADE PRACTICES ACTS").
(c) BUYER EXPRESSLY RECOGNIZES THAT THE PRICE FOR WHICH SELLERS HAVE
AGREED TO PERFORM THEIR OBLIGATIONS UNDER THIS AGREEMENT HAVE BEEN PREDICATED
UPON THE INAPPLICABILITY OF THE TRADE PRACTICES ACTS AND THIS WAIVER OF THE
TRADE PRACTICES ACTS. BUYER FURTHER RECOGNIZES THAT SELLERS, IN DETERMINING TO
PROCEED WITH THE ENTERING INTO OF THIS AGREEMENT, HAS EXPRESSLY RELIED ON THIS
WAIVER AND THE INAPPLICABILITY OF THE TRADE PRACTICES ACTS.
13.6 No Third Party Beneficiaries. Nothing in this Agreement shall provide
any benefit to any third party or entitle any third party to any claim, cause
of action, remedy or right of any kind, it being the intent of the parties that
this Agreement shall not be construed as a third party beneficiary contract;
provided, however, that the indemnification provisions in Article 12 shall
inure to the benefit of the Buyer Indemnitee and the Seller Indemnitee as
provided therein.
13.7 Waiver. Except as expressly provided in this Agreement, neither the
failure nor any delay on the part of any party hereto in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, or of any other
right, power or remedy; nor shall any single or partial exercise of any right,
power or remedy preclude any further or other exercise thereof, or the exercise
of any other right, power or remedy. Except as expressly provided herein, no
waiver of any of the provisions of this Agreement shall be valid unless it is
in writing and signed by the party against whom it is sought to be enforced.
13.8 Entire Agreement; Amendment. This Agreement, the Schedules and
Exhibits hereto, each of which is deemed to be a part
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hereof, and any agreements, instruments or documents executed and delivered by
the parties pursuant to this Agreement, constitute the entire agreement and
understanding between the parties, and all previous undertakings, negotiations
and agreements between the parties regarding the subject matter hereof are
merged herein; provided however, that this Agreement does not supersede the
confidentiality Agreement, which shall not terminate (except in accordance with
its terms) unless and until the Closing occurs, and following the Closing, only
to the extent it relates to the Assets. This Agreement may not be modified
orally, but only by an agreement in writing signed by Buyer and Sellers.
13.9 Notices. Any and all notices or other communications required or
permitted under this Agreement shall be given in writing and delivered in
person or sent by United States certified or registered mail, postage prepaid,
return receipt requested, or by overnight express mail, or by telex, facsimile
or telecopy to the address of such part set forth below. Any such notice shall
be effective upon receipt or three (3) days after placed in the mail, whichever
is earlier.
If to Buyer: Continental Natural Gas, Inc.
1412 South Boston, Suite 500
Tulsa, OK 74121
By Mail or Hand Delivery: Continental Natural Gas, Inc.
1412 South Boston, Suite 500
P.O. Box 21470
Tulsa, OK 74121
Attention:
Telephone Number: 918-582-4700
Telecopy Number: 918-560-4900
with a copy to
Attention:
Telecopy Number:
Telephone Number:
If to Sellers:
By Mail: Transwestern Gathering Company
P.O. Box 1188
Houston, Texas 77251-1188
Attention: Vice President and Secretary
With a copy to: Vice President and General Counsel
Enron Gathering Company
P.O. Box 1188
Houston, Texas 77251-1188
Attention: Vice President and Secretary
With a copy to: Vice President and General Counsel
By Hand Delivery: Transwestern Gathering Company
Enron Gathering Company
1400 Smith Street
Houston, Texas 77002
Attention: Vice President and Secretary
Telephone Number: (713) 853-6424
Telecopy Number: (713) 853-3920
With a copy to: Vice President and General Counsel
Telephone Number: (713) 853-6009
Telecopy Number: (713) 646-2738
Any party may, by notice so delivered, change its address for notice purposes
hereunder.
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13.10 No Assignment. This Agreement shall not be assigned or transferred
in any way whatsoever by either party hereto except with prior written consent
of the other party hereto, which consent such party shall be under no
obligation to grant, and any assignment or attempted assignment without such
consent shall have no force or effect with respect to the non-assigning party.
Subject to the preceding sentence, this Agreement shall be binding on and inure
to the benefit of the parties hereto and their permitted successors and
assigns.
13.11 Severability. If any provision of this Agreement is invalid, illegal
or unenforceable, the balance of this Agreement shall remain in full force and
effect and this Agreement shall be construed in all respects as if such
invalid, illegal or unenforceable provision were omitted. If any provision is
inapplicable to any person or circumstance, it shall, nevertheless, remain
applicable to all other persons and circumstances.
13.12 Publicity. Sellers and Buyer shall consult with each other with
regard to all publicity and other releases concerning this Agreement and the
transactions contemplated hereby and, except as required by applicable law or
the applicable rules or regulations of any Governmental Entity or stock
exchange, no party shall issue any such publicity or other release without the
prior written consent of the other party, which shall not be unreasonably
withheld.
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13.13 Construction. Any section headings in this Agreement are for
convenience of reference only, and shall be given no effect in the construction
or interpretation of this Agreement or any provisions thereof. No provision of
this Agreement will be interpreted in favor of, or against, any party by reason
of the extent to which any such party or its counsel participated in the
drafting thereof.
13.14 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and which together
shall constitute but one and the same instrument.
13.15 Further Assurances. After the Closing Date, each party hereto at the
reasonable request of the other and without additional consideration, shall
execute and deliver, or shall cause to be executed and delivered, from time to
time, such further certificates, agreements or instruments of conveyance and
transfer, assumption, release and acquittance and shall take such other action
as the other party hereto may reasonably request, to convey and deliver the
Assets to Buyer, to assure to Sellers the assumption of the liabilities and
obligations intended to be assumed by Buyer hereunder and to otherwise
consummate or implement the transactions contemplated by this Agreement.
13.16 Payment of Funds. The amount of all revenues received by Sellers (or
any affiliates thereof) relating to the ownership or operation of the Assets on
or after the Effective Time shall be remitted to Buyer in immediately available
funds on a timely basis. The amount of all revenues received by Buyer (or any
affiliates thereof) relating to the ownership or operation of the Assets prior
to the Effective Time shall be remitted to Sellers in immediately available
funds on a timely basis. Without in any way limiting either party's obligation
to remit such amounts on a timely basis, if any such amounts received by a
party (or any affiliate thereof) are in excess of Twenty-five Thousand Dollars
($25,000) in the aggregate and have not been remitted to the other party within
thirty (30) days of receipt by the receiving party (or any affiliate thereof),
such amounts shall bear interest from the date of such receipt until the date
upon which the other party receives remittance of such amount in full and in
immediately available funds at an annual rate of 6%.
13.17 Certain Interpretive Matters. The inclusion of any matter on any
Schedules will not be deemed an admission by either party that such listed
matter has or would have a Material Adverse Effect.
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IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
<TABLE>
<S> <C> <C>
SELLERS: SELLERS: Buyer:
TRANSWESTERN ENRON GATHERING CONTINENTAL NATURAL
GATHERING COMPANY COMPANY GAS, INC.
By: By: By:
---------------------- ----------------------- -------------------------
Name: Name: Name:
Title: Title: Title:
</TABLE>
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<PAGE> 1
EXHIBIT 10.9
LEASE AGREEMENT
THIS LEASE is entered into this _____ day of ___________, 19__, by and
between GROUP HEALTH SERVICE OF OKLAHOMA INC. hereinafter called "LESSOR" and
CONTINENTAL NATURAL GAS, INC., hereinafter called "LESSEE".
IN CONSIDERATION of the mutual covenants and promises hereinafter
contained, the parties hereby mutually agree as follows:
1. LEASED PREMISES: LESSOR hereby leases to LESSEE that portion of the
1400 BOSTON Office building located at 1412 South Boston Avenue, Tulsa,
Oklahoma 74119 and consisting of approximately 17.010 NET RENTABLE SQUARE FEET
of space, being SUITE NUMBER 500______, (the leased premises) for use as
general office space.
2. TERM: The term of this Lease shall be THIRTY-SIX (36) MONTHS
COMMENCING JULY 1, 1994 and ending JUNE 30, 1997.
3. RENT: LESSEE agrees to pay as rent for said Leased Premises, the
total sum for the entire term of $484,785.00, payable at the rate of $13,466.25
per month for the period JULY 1, 1994 through JUNE 30, 1997, with the rent for
the first month payable in advance, and payments thereafter to be made on the
first day of each calendar month during the term. The rent for any fractional
calendar month shall be prorated. Rent will be payable without notice, offset,
demand or rights of abatement.
4. IMPROVEMENT OF LEASED PREMISES: Improvements, alterations and
decorations to the Leased Premises shall be made by LESSOR, at LESSOR'S sole
cost and expense, as shown on EXHIBITS "A, B" AND "C" to this Lease which are
attached hereto and made a part hereof. No alterations, additions or
improvements to the Leased Premises except those as specifically set forth
herein shall be made without first having the written consent of LESSOR. All
structural alterations are specifically prohibited. Any improvements,
additions, or alterations made to the Leased Premises shall become a part of
the realty and shall not thereafter be removed from the premises by the LESSEE,
with the sole exception that LESSEE shall have the right to install trade
fixtures which may be removed by LESSEE upon payment to LESSOR of the cost of
repairing any damage caused by the removal of said trade fixtures. In no event
shall LESSEE ever allow or cause to be filed upon the demised premises any
mechanic's or materialman's liens or liens of any kind and in the event of such
filing. LESSEE shall cause the same to be removed within ten (10) days of the
date thereof.
5. USE OF PROPERTY: LESSEE shall not use the Leased Premises for any
unlawful purpose or for any purpose deemed extra hazardous by the fire
insurance company that has coverage on the premises. LESSEE shall not commit
waste or suffer or permit waste to be committed on said premises. LESSEE shall
keep the leased premises in sound condition and good repair, ordinary wear and
tear excepted, and will neither do nor permit to be done anything to the said
premises that may impair the value thereof. Said LESSEE shall take good care
of the premises and fixtures therein and shall quit and surrender said premises
at the end or other termination of said lease term in as good condition as the
reasonable use thereof will permit. LESSOR or its agent shall, upon reasonable
notice to LESSEE, have the right to enter the Leased Premises at reasonable
hours of the day to examine the same, or to make such repairs and alterations
as may be necessary. To the extent reasonably possible all repairs and
alterations shall be made in a manner which will not interfere with the conduct
of LESSEE's business. Costs of repairs necessitated by LESSEE's negligent or
willful act shall be billed to LESSEE as additional rent. The premise will be
used for general office purposes and no other.
6. UTILITIES AND MAINTENANCE: LESSOR at LESSOR's sole cost and expense
shall furnish all utilities except telephone, and specifically including
heating, air conditioning, and janitor service. LESSOR shall be responsible
for the maintenance of the building and shall keep the same
LESSOR /s/ LESSEE /s/
--------- ---------
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<PAGE> 2
in good condition. If LESSEE's occupation of the leased premises should
involve the recurring use thereof after normal business hours (which are 7:00
a.m. to 7:00 p.m., Monday through Friday or as may be established by LESSOR
from time to time) such as employment of second or extra shifts, LESSEE hereby
agrees to reimburse LESSOR or its increased expenses in providing utilities or
services necessary to operate the leased premises in the building after hours,
including, but not limited to increased expenses for lighting, heating, air
conditioning, for security service, building engineer's overtime and any
unusual janitorial service. Additionally, if LESSEE's use of the leased
premises should involve the keeping or use of special equipment requiring
abnormal electrical current and/or water usage for its upkeep, maintenance or
operation, then in either or both events, LESSEE shall pay for LESSOR's
increased cost in providing electricity, water and any special heating or air
conditioning for such equipment. "Special equipment requiring abnormal
electrical current" shall be defined as any equipment such as reproduction
equipment, electrical data processing equipment and special lighting, having a
rated capacity of 3.5 KWH or requiring more than 120 volts of single phase
service. Not included in the category are typewriters, photocopiers,
calculators, dictation equipment and similar machines requiring low levels of
electricity. In the event LESSEE installs any special equipment requiring
abnormal electrical current, LESSEE shall also install electric and/or water
metering equipment sufficient to accurately measure the actual usage of
electricity and/or water by said equipment. LESSOR shall have access to such
metering equipment at all reasonable times and shall prepare a separate monthly
statement of electricity and/or water used by such equipment at those rates
established for the same by the public utility or agency furnishing such
service. LESSEE shall pay to LESSOR the amount shown on such statements within
ten (10 days of the date of their receipt. Should LESSEE fail to promptly pay
LESSOR's charges for electricity and/or water after timely notice has been
made, LESSOR may, at its option, discontinue furnishing such current and/or
water for the special equipment to the LESSEE, which shall not be deemed an
eviction or disturbance of the LESSEE'S use and quiet enjoyment to the
premises.
7. POSSESSION: If this Lease is executed before the premises herein
become ready for occupancy and LESSOR cannot acquire and/or deliver possession
of the herein Leased Premises by the time the term of this Lease is fixed
herein to begin, LESSEE waives any claim for damages due to such delay and
LESSOR waives the payment of any rental until LESSOR delivers possession to
LESSEE. In such event, notwithstanding any other provision herein to the
contrary, this Lease shall actually commence on the date LESSOR delivers
possession to LESSEE and the term hereof shall be extended by the same number
of days as delivery of possession to the LESSEE is delayed.
LESSEE agrees to occupy the premises not later than the commencement
date of the term.
8. UNIFORM RULES AND REGULATIONS: LESSOR shall have the right to
prescribe the uniform rules and regulations for the 1400 BOSTON Office Building
as LESSOR may reasonably deem necessary, advisable and appropriate. A schedule
of rules now in effect is attached hereto. During the term of this lease and
all renewals and extensions thereof, LESSOR shall not revise the rules and
regulations in any manner which would adversely affect the conduct of LESSEE's
business. LESSEE agrees to comply with all the rules and regulations
prescribed by LESSOR. LESSEE shall comply with all governmental laws,
ordinances and regulations applicable to the premises and with any order,
directive or certificate of occupancy issued pursuant to any law, ordinance or
regulations.
9. CASUALTY DAMAGE: If, during the term of this Lease, the building or
premises be destroyed by any cause or means whatsoever, or partially so
destroyed or damaged so as to render the demised premises or the building unfit
for occupancy, then this Lease shall cease and be terminated from the date of
such damage or destruction, and LESSEE shall be obligated to surrender said
premises and all interest therein to said LESSOR, and LESSEE shall pay rent
within this term
LESSOR /s/ LESSEE /s/
--------- ---------
PAGE 2
<PAGE> 3
only to the date of destruction, unless, within a period of thirty (30) days
from the occurrence of any such damage to or destruction of the demised
premises, LESSOR shall elect to restore the demised premises to substantially
the condition as existed prior to the occurrence of such casualty and shall
also elect to keep this Lease in force and effect; and in the event that LESSOR
shall give LESSEE written notice of LESSOR's election within such thirty (30)
day period, this Lease shall not terminate, and pending such repair and
restoration of the demised premises by LESSOR (but not thereafter) rent payable
by LESSEE shall abate. If the premises shall not be destroyed or rendered
wholly unfit for occupancy and if LESSOR makes a reasonable effort to effect
the repair of the premises, then for the periods of repairs (but not
thereafter) the rental shall be abated in part in the same proportion that the
premises are rendered unfit for occupancy. This lease and the obligations of
the parties hereunder shall not otherwise be affected, and the rent shall
recommence immediately after the completion of said repairs. If said premises
be so slightly injured as not to be unfit for occupancy and if LESSOR shall
make reasonable efforts to effect the repair of the premises, then the rent
accrued or accruing shall not be abated in whole or in part.
11. TERMINATION: LESSOR shall have the right to terminate this Lease in
the event of bankruptcy, insolvency or receivership of LESSEE or an assignment
by LESSEE for the benefit of the creditors of LESSEE.
12. DEFAULT: Each of the following shall be deemed a default by LESSEE
and a material breach of the Lease;
(a) LESSEE shall fail to make as when due, any monetary payment
required by the terms of this Lease; within ten (10) days following the due
date thereof;
(b) LESSEE shall fail to observe, keep or perform any of the other
terms, covenants and conditions of this Lease, including, without limitation,
the Rules and Regulations referred to in paragraph 8, for a period of ten (10)
days after written notice specifying the default;
(c) LESSEE shall vacate or abandon the premises. Upon the
occurrence of any default hereunder, LESSOR may without notice or demand and
without limiting LESSOR in the exercise of any other remedy available to it at
law or equity;
(d) Terminate this Lease and LESSEE's right of possession of the
premises, enter the premises with or without process of law and recover all
damages to which LESSOR is entitled by law, including without limitation, all
costs of reletting (including repairs, alterations, improvements,
LESSOR /s/ LESSEE /s/
--------- ---------
PAGE 3
<PAGE> 4
decorations to the extent such repairs alterations, improvements and
decorations are reasonably necessary to restore the leased premises to as good
condition as exists as of the date of execution of the lease, and legal and
brokerage fees); or
(e) Terminate LESSEE's right of possession of the premises without
terminating this Lease, enter the premises with or without process of law and,
at LESSOR's option, relet the premises on such terms as are acceptable to
LESSOR. LESSOR is entitled from LESSEE to the extent permitted by law to all
costs of reletting as set forth above. If LESSOR fails to relet the premises
or if the rental after reletting is insufficient after payment of all expenses
of reletting, as provided above, to satisfy the payments of rent, additional
rent and all other payments reserved in this Lease for any month, LESSEE shall
pay to LESSOR an amount equal to the rent, additional rent and all other
payments required hereunder or LESSEE shall pay any deficiency if the premises
have been relet. LESSEE shall pay upon demand, all reasonable costs, and
expenses, including attorney's fees incurred by LESSOR in enforcing performance
by LESSEE of all terms, covenants and conditions of this LEASE to be performed
by LESSEE. LESSEE hereby waives the benefit of the exemption laws of Oklahoma
for all debts contracted for rent herein.
13. RENTAL ADJUSTMENTS:
(a) LESSOR has determined as the base cost for operating the
building the amount of $4.31 per net rentable square foot in the building. If
the cost to operate the building during any calendar year in which LESSEE
occupies space in the building shall exceed $4.31 per net rentable square foot,
the LESSEE shall pay, as additional rental, the proportionate share of such
excess computed on the ratio that the rentable square in the demised premises
bears to the total rentable square feet in the building and taking into
consideration the number of months LESSEE occupied the premises, all of which
is expressed in the following formula:
"A" being the net rentable square feet leased by the LESSEE.
"B" being the total net rentable square feet in the building.
"C" being the expenses for the Comparative Year.
"D" being the expenses for the Base Year ($4.31/net rentable
square foot)
"E" being the number of months in the Comparative Year the LESSEE
occupies the Leased Premises.
"F" being the adjusted rental increase for the Comparative Year.
(A/B) x (C-D) x E/12 = F
Notwithstanding the foregoing, in no event shall the amount owed by
LESSEE for such excess operating expenses for any calendar year exceed
an amount equal to one hundred six percent (106%) of LESSEE's
proportionate share of the excess operating expenses for the previous
calendar year.
(b) The term "operating expenses" shall mean all costs of
management, operation and maintenance of the land, the building and other
improvements thereon and appurtenances thereto of which the Leased Premises are
a part, such costs to be consistent with those that have heretofore been
charged and collected by Lessor with respect to the Leased Premises, all
accrued and based on a calendar year period, as determined by generally
accepted accounting principals, including by way
LESSOR /s/ LESSEE /s/
--------- ---------
PAGE 4
<PAGE> 5
of illustration but not limitation, real estate and personal property taxes,
assessments and governmental charges, property management fees, utility
charges, sewerage charges, insurance premiums, janitorial and cleaning
services, licenses permits and inspections fees, heating and cooling,
maintenance and repairs, general operation and maintenance costs and expenses,
labor and supplies, excluding however, depreciation, capital expenditures,
costs of building alterations and commissions paid for leasing.
(c) Within sixty (60) days following the close of a calendar year,
LESSEE shall be notified by LESSOR of its calculations for the cost of
operating the building for the calendar year just ended. Such notice shall set
forth: (i) the total rentable square feet for the building and the total
rentable square feet under lease by the LESSEE in the building during the year;
(ii) the cost of operating the building during the year; (iii) the difference
between the cost of operating the building and the base cost of $4.31 per net
rentable square foot; and (iv) the total additional rental owed by LESSEE for
the calendar year just ended.
(d) LESSEE shall pay to LESSOR the full amount of such rental
adjustment within sixty (60) days after receipt of the notice specified above.
(e) Additionally, after receipt of said notice, LESSEE shall be
billed on a monthly basis, an estimated rental adjustment payment in the amount
to be determined by dividing the amount of rental adjustment specified in the
notice by the number of months LESSEE occupied the demised premises during the
year preceding the notice.
If the notice shall be delayed beyond January 1st, the monthly
estimated rental adjustment payments shall be retroactive to January 1st. The
monthly estimated rental adjustments paid shall be credited against the rental
adjustment, if any, shown on the next notice. In the event the next notice
shows that there was no increase in cost for the year, or shows an upward
adjustment which is less than the estimated amount paid by LESSEE, LESSEE will
be given credit on the next accruing monthly rental payment until the
overpayment has been reduced by zero. In the event the next notice shows a
rental adjustment greater than the estimated amount paid for the preceding
year. LESSEE shall pay the deficiency within sixty (60) days after receipt of
the notice.
(f) The procedure set forth herein shall continue for each year
during the term of this Lease. In the event the notice for the last calendar
year of the Lease in which LESSEE occupies the demised premises shows that
LESSEE's estimated rental adjustment payments exceeded the amount of the
adjustment due, LESSOR shall refund to LESSEE the amount overpaid along with
the computation of said amount. In the event the estimated payments did not
equal the amount of rental adjustment due, LESSEE shall pay to LESSOR the
deficiency within sixty (60) days after receipt of the notice. The parties
hereby agree that this provision for payment of adjusted rent shall survive the
termination of this Lease.
LESSOR /s/ LESSEE /s/
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PAGE 5
<PAGE> 6
15. HOLDING OVER: If LESSEE remains in possession of the Leased Premises
after the expiration of this Lease, such continued possession may at LESSOR's
option be construed as a tenancy from month-to-month at a monthly rental rate
equal to one and one-half (1 1/2) times the amount of rent to be paid under
paragraphs 3 and 13 of this Lease. In no event shall such tenancy be deemed a
waiver of any of LESSOR's rights hereunder, including all rights of re-entry
and all rights available at law or equity.
16. RIGHT TO SHOW PREMISES: LESSOR may at any time within sixty (60) days
before the expiration of this Lease, upon reasonable notice given to LESSEE,
enter the Leased Premises at all reasonable hours of the day for the purpose of
offering and showing the premises for lease.
17. ASSIGNMENT OR SUBLETTING: LESSEE may not assign this Lease or
sublease the Leased Premises or any part thereof without the written consent of
LESSOR which shall not be unreasonably withheld. In the event of any approved
assignment or sublease, LESSEE shall not be released from any past, present or
future liability arising out of the Lease.
19. CONSTRUCTION OF LEASE: The terms and provisions of this Lease shall
be construed in accordance with the internal laws of the State of Oklahoma.
20. MODIFICATIONS: No modifications of any of the terms and conditions of
this Lease shall be effective unless reduced to writing and executed by the
parties hereto. No such modification shall be made without the consent of
LESSOR's first mortgagee.
21. EMINENT DOMAIN: If all of the Leased Premises or such portion thereof
as shall prevent LESSEE from using the Leased Premises for the purposes
contemplated by this Lease, be taken by virtue of eminent domain, or
transferred by agreement in connection with such public or quasipublic
LESSOR /s/ LESSEE /s/
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PAGE 6
<PAGE> 7
use with or without condemnation action or proceeding being instituted, this
Lease shall terminate on the date wherein title vests pursuant to such taking
and a rent and any additional rents shall be apportioned as of said date and
any rent paid for any period beyond said date shall be repaid to LESSEE.
LESSEE shall not be entitled to any part of any award or any payment in lieu
thereof for a taking of any or all of the Leased Premises, but LESSEE may file
a claim for any taking of fixtures and improvements owned by LESSEE and for
LESSEE's moving expense.
In the event of the taking of a portion of the building by
virtue of eminent domain, LESSOR may, at LESSOR's option, terminate this Lease
in the manner set forth in the preceding paragraph.
22. FORCE MAJEURE: Neither LESSOR nor LESSEE shall be deemed to be in
default with respect to any of the terms, covenants and conditions of this
Lease to be performed by LESSOR or LESSEE, as the case may be, for failure to
perform or delay caused in whole or in part by any strike, lockout, labor
trouble (legal or illegal), civil disorder, inability to procure materials,
failure of power, restrictive governmental laws and regulations, riots,
insurrections, wars, casualties, Acts of God, or any other cause beyond
LESSOR's reasonable control.
23. NOTICES: Each provision of this Lease, or any applicable governmental
laws, ordinances, regulations, and other requirements with reference to the
delivery of any notice or to the making of any payment by LESSEE to LESSOR,
shall be deemed to be complied with when and if the following steps are taken:
(a) All rent and other payments required to be made by
LESSEE to LESSOR hereunder shall be payable to LESSOR at the address
hereinbelow set forth, or at such other address as LESSOR may specify from time
to time by written notice delivered in accordance herewith.
(b) Any notice or document required to be delivered
hereunder shall be deemed to be delivered, whether actually received or not,
when deposited in the United States mail, postage prepaid, certified or
registered mail, return receipt request, addressed to the parties hereto at the
respective addresses set out below, or at such other address as they have
theretofore specified by written notice:
LESSOR: LESSEE:
Group Health Service of Oklahoma, Inc. CONTINENTAL NATURAL GAS
c/o Tooman Collins Associates, Inc. 1412 SOUTH BOSTON
P. O. Box 521090 SUITE 500
Tulsa, Oklahoma 74152-1090 TULSA, OK 74119
24. ENTIRE AGREEMENT: This Lease sets forth the entire agreement between
the parties and no amendment or modifications of this Lease shall be binding or
valid unless expressed in writing and executed by both parties hereto.
25. ESTOPPEL CERTIFICATE: LESSEE will, upon not less than twenty (20)
days prior request by LESSOR, execute, acknowledge, and deliver to LESSOR a
statement executed by LESSEE certifying that this Lease is unmodified and in
full effect (or, if there have been modifications, that this Lease is in full
effect as modified, and setting forth such modifications) and the dates to
which the rent has been paid, and either stating that to the knowledge of the
signer of such certificate no default exists hereunder or specifying each such
default of which the signer may have knowledge; it being intended that any such
statement may be relied upon by any prospective purchaser or mortgagee of the
building.
LESSOR /s/ LESSEE /s/
--------- ---------
PAGE 7
<PAGE> 8
26. INSURANCE: LESSEE, at LESSEE's cost and expense, shall maintain
comprehensive general liability insurance insuring LESSOR and LESSEE against
any and all claims of liability for injury or damage to persons or property or
for the loss of life or of property occurring upon, in or about the Leased
Premises, and the public portions of the building caused by or resulting from
any act or omission (in whole or in part) of LESSEE, its employees, agents,
servants, invitees or guest; such insurance to afford minimum protection during
the term of this Lease, in which the limits of public liability shall not be
less than $500,000 per person and $1,000,000 per accident, and in which the
limits of property damage liability shall not be less than $100,000. All such
insurance shall be effected under valid and enforceable policies shall be
insured by insurers of recognized responsibility; and shall contain a provision
whereby the insurer agrees not to cancel the insurance without ten (10) days
prior written notice to LESSOR. LESSEE shall furnish LESSOR with certificates
evidencing the aforesaid insurance coverage and renewal policies or
certificates therefore shall be furnished to LESSOR at least thirty (30) days
prior to the expiration date of each policy for which a certificate was
theretofore furnished. If LESSEE fails to provide such policies, LESSOR may do
so at LESSEE's expense.
27. SUBORDINATION: This Lease and all rights of LESSEE hereunder are
subordinate (i) to the first mortgage or deed of trust, which does now or may
hereafter affect the building and (ii) to all increases, renewals,
modifications, consolidations, replacements and extensions of any such mortgage
or deed of trust. This provision is hereby declared by LESSOR and LESSEE to be
self-operative and no further instrument shall be required to effect such
subordination. LESSEE shall, however, upon demand at any time execute,
acknowledge and deliver to LESSOR and all instruments and certificates
necessary or proper to more effectively subordinate this Lease and all rights
of LESSEE hereunder to all such mortgage or deed of trust or to confirm or
evidence such subordination. If LESSEE shall fail to execute, acknowledge, and
deliver any such subordination agreement or certificate, LESSOR may, as the
agent and attorney in fact of LESSEE, execute, acknowledge, and deliver the
same LESSEE hereby irrevocably appoints LESSOR LESSEE's agent and attorney in
fact for such purposes. Such power of attorney shall not terminate on
disability of the principal. LESSEE covenants and agrees, in the event any
proceedings are brought for the foreclosure of any such mortgage or if the
building be sold pursuant to any such deed of trust, to attorn to the purchaser
upon any such foreclosure sale or trustee's sale if so requested by such
purchaser and to recognize such purchaser as the LESSOR under this Lease.
LESSEE shall execute, acknowledge and deliver at any time, upon the request of
LESSOR or any holder(s) of any of the mortgages or deeds of trust referred to
herein any instrument or certificate which, in the sole judgement of LESSOR or
of such holder(s), may be appropriate in any such foreclosure proceeding or
otherwise to evidence such attornment. LESSEE hereby irrevocably appoints
LESSOR and the holders of the aforesaid mortgages and/or deeds of trust jointly
and severally the agent and attorney in fact of LESSEE to execute and deliver
for LESSEE any such instrument or certificate. Such power of attorney shall
not terminate on disability of the principal. This Lease and all rights of
LESSEE hereunder are further subordinate to (i) all around or underlying leases
covering the land and/or building or any part thereof in existence at the date
hereof and to any and all supplement, modifications, and extensions thereof
heretofore and hereafter made, (ii) all applicable governmental ordinances
relating to easements, franchises, and other interests or rights appurtenant to
the building or any of the land, and (iii) all utility easements and
agreements. Notwithstanding the foregoing, however, the holder of any such
mortgage of deed of trust shall have the right to subordinate such mortgage or
deed of trust to this Lease on such terms and subject to such conditions as
such holder
LESSOR /s/ LESSEE /s/
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PAGE 8
<PAGE> 9
shall deem appropriate in its discretion, and LESSEE shall execute any
instruments necessary to evidence such subordination.
28. SUBROGATION PROVISION: Provided that this waiver of liability is
permitted by LESSOR's and LESSEE's respective policies of insurance and does
not limit or impair their respective ability to collect the proceeds of their
respective policies, LESSOR and LESSEE hereby each waive as against the other
any and all claims and demands of whatsoever nature for damages, loss or injury
to the other's property in, upon or about the premises or the building.
29. BROKERAGE: LESSEE warrants that it has dealt with no broker, agent or
other person in connection with the negotiation or execution of this Lease and
that no broker, agent or other person performed any services in connection with
this Lease other than Tooman Collins Associates, Inc. whose commission shall be
paid by LESSOR under a separate agreement. LESSEE shall indemnify and hold
LESSOR harmless from and against any claims by any other broker, agent or other
person for compensation by virtue of having dealt with LESSEE with regard to
this leasing transaction. The provisions of this paragraph shall survive the
expiration or earlier termination of this Lease.
30. SPECIAL PROVISIONS: LESSEE shall have one (1) two (2) year option to
renew this Lease at then current market rates. Tenant will notify Landlord of
intention to renew, in writing, at least 120 days prior to end of term. Lessee
shall have the right of first refusal on the remainder of the fifth floor.
Tenant shall have three (3) days after receipt of notice to respond to notice.
Lessee shall have twenty-five (25) spaces in the parking garage. Tenant can
keep covered space, which are currently assigned to them.
NO failure by LESSOR to insist on strict performance of any terms of
this Lease or exercising any right, power, or remedy in connection therewith,
and no acceptance of full or partial rent or other payment during the
continuance of any such breach shall constitute a waiver of any such breach or
such Lease Term.
This Lease shall be binding on the heirs, executors, administrators,
successors, and assigns of the parties hereto.
LESSOR: LESSEE:
GROUP HEALTH SERVICE CONTINENTAL NATURAL GAS INC.
OF OKLAHOMA, INC.
By: /s/ By: /s/
----------------------------------- ------------------------------
Title: President/CEO Title: Vice President
LESSOR /s/ LESSEE /s/
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PAGE 9
<PAGE> 1
EXHIBIT 10.10
================================================================================
CREDIT AGREEMENT
_______________________________________________________
CONTINENTAL NATURAL GAS, INC.
and
ING (U.S.) CAPITAL CORPORATION,
as Agent,
and
CERTAIN FINANCIAL INSTITUTIONS
as Revolving Credit Lenders,
and
CERTAIN FINANCIAL INSTITUTIONS
as Term Lenders,
_______________________________________________________
$64,000,000
December 30, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
CREDIT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I - Definitions and References . . . . . . . . . . . . . . . . . . 1
Section 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Exhibits and Schedules; Additional
Definitions . . . . . . . . . . . . . . . . . . . . . 15
Section 1.3. Amendment of Defined Instruments . . . . . . . . . . 15
Section 1.4. References and Titles . . . . . . . . . . . . . . . . 15
Section 1.5. Calculations and Determinations . . . . . . . . . . . 15
ARTICLE II - The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.1. Revolving Credit Loans and Term Loans . . . . . . . . 16
Section 2.2. Requests for Loans . . . . . . . . . . . . . . . . . 17
Section 2.3. Continuations and Conversions of Existing
Loans . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.4. Use of Proceeds . . . . . . . . . . . . . . . . . . . 19
Section 2.5. Fees . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.6. Optional Prepayments . . . . . . . . . . . . . . . . 20
Section 2.7. Mandatory Prepayment of Revolving Credit
Loans and Term Loans . . . . . . . . . . . . . . . . 20
Section 2.8. Initial Borrowing Base . . . . . . . . . . . . . . . 21
Section 2.9. Subsequent Determinations of Borrowing Base . . . . . 21
Section 2.10. Letters of Credit . . . . . . . . . . . . . . . . . . 21
Section 2.11. Requesting Letters of Credit . . . . . . . . . . . . 22
Section 2.12. Reimbursement and Participations . . . . . . . . . . 22
Section 2.13. Letter of Credit Fees . . . . . . . . . . . . . . . . 24
Section 2.14. No Duty to Inquire . . . . . . . . . . . . . . . . . 24
Section 2.15. LC Collateral . . . . . . . . . . . . . . . . . . . . 25
Section 2.16. Hedging Agreement Indemnity . . . . . . . . . . . . . 26
ARTICLE III - Payments to Lenders . . . . . . . . . . . . . . . . . . . . . 26
Section 3.1. General Procedures . . . . . . . . . . . . . . . . . 26
Section 3.2. Capital Reimbursement . . . . . . . . . . . . . . . . 27
Section 3.3. Increased Cost of Eurodollar Loans or
Letters of Credit . . . . . . . . . . . . . . . . . . 27
Section 3.4. Availability . . . . . . . . . . . . . . . . . . . . 28
Section 3.5. Funding Losses . . . . . . . . . . . . . . . . . . . 28
Section 3.6. Reimbursable Taxes . . . . . . . . . . . . . . . . . 29
Section 3.7. Change of Applicable Lending Office . . . . . . . . . 30
Section 3.8. Replacement of Lenders . . . . . . . . . . . . . . . 30
ARTICLE IV - Conditions Precedent to Lending . . . . . . . . . . . . . . . 30
Section 4.1. Documents to be Delivered . . . . . . . . . . . . . . 30
Section 4.2. Second Advance of Term Loans; Closing of
Laverne Plant Acquisition . . . . . . . . . . . . . . 32
Section 4.3. Additional Conditions Precedent . . . . . . . . . . . 33
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE V - Representations and Warranties . . . . . . . . . . . . . . . . 34
Section 5.1. No Default . . . . . . . . . . . . . . . . . . . . . 34
Section 5.2. Organization and Good Standing . . . . . . . . . . . 34
Section 5.3. Authorization . . . . . . . . . . . . . . . . . . . . 34
Section 5.4. No Conflicts or Consents . . . . . . . . . . . . . . 34
Section 5.5. Enforceable Obligations . . . . . . . . . . . . . . . 34
Section 5.6. Initial Financial Statements . . . . . . . . . . . . 35
Section 5.7. Other Obligations and Restrictions. . . . . . . . . 35
Section 5.8. Full Disclosure . . . . . . . . . . . . . . . . . . . 35
Section 5.9. Litigation . . . . . . . . . . . . . . . . . . . . . 35
Section 5.10. Labor Disputes and Acts of God . . . . . . . . . . . 35
Section 5.11. ERISA Plans and Liabilities . . . . . . . . . . . . . 36
Section 5.12. Environmental and Other Laws . . . . . . . . . . . . 36
Section 5.13. Names and Places of Business . . . . . . . . . . . . 38
Section 5.14. Borrower's Subsidiaries . . . . . . . . . . . . . . . 38
Section 5.15. Title to Properties; Licenses . . . . . . . . . . . . 38
Section 5.16. Government Regulation . . . . . . . . . . . . . . . . 38
ARTICLE VI - Affirmative Covenants of Borrower . . . . . . . . . . . . . . 39
Section 6.1. Payment and Performance . . . . . . . . . . . . . . . 39
Section 6.2. Books, Financial Statements and Reports . . . . . . . 39
Section 6.3. Other Information and Inspections . . . . . . . . . . 41
Section 6.4. Notice of Material Events and Change of
Address . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.5. Maintenance of Properties . . . . . . . . . . . . . . 42
Section 6.6. Maintenance of Existence and Qualifications . . . . . 42
Section 6.7. Payment of Trade Liabilities, Taxes, etc. . . . . . . 42
Section 6.8. Insurance . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.9. Performance on Borrower's Behalf . . . . . . . . . . 43
Section 6.10. Interest . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.11. Compliance with Agreements and Law; Required
Hedges . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.12. Environmental Matters; Environmental Reviews . . . . 43
Section 6.13. Evidence of Compliance . . . . . . . . . . . . . . . 44
Section 6.14. Solvency . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.15. Agreement to Deliver Security Documents . . . . . . . 44
Section 6.16. Perfection and Protection of Security
Interests and Liens . . . . . . . . . . . . . . . . . 44
Section 6.17. Bank Accounts; Offset. . . . . . . . . . . . . . . . 44
Section 6.18. Guaranties of Borrower's Subsidiaries . . . . . . . . 45
Section 6.19. Assignment of Proceeds . . . . . . . . . . . . . . . 45
</TABLE>
ii
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<TABLE>
<S> <C>
ARTICLE VII - Negative Covenants of Borrower . . . . . . . . . . . . . . . 45
Section 7.1. Indebtedness . . . . . . . . . . . . . . . . . . . . 45
Section 7.2. Limitation on Liens . . . . . . . . . . . . . . . . . 46
Section 7.3. Hedging Contracts . . . . . . . . . . . . . . . . . . 47
Section 7.4. Limitation on Mergers, Issuances of
Securities . . . . . . . . . . . . . . . . . . . . . 48
Section 7.5. Limitation on Sales of Property . . . . . . . . . . . 48
Section 7.6. Limitation on Dividends and Redemptions . . . . . . . 48
Section 7.7. Limitation on Investments and New
Businesses; Limitation on Capital
Expenditures . . . . . . . . . . . . . . . . . . . . 49
Section 7.8. Limitation on Credit Extensions . . . . . . . . . . . 49
Section 7.9. Transactions with Affiliates . . . . . . . . . . . . 49
Section 7.10. Certain Contracts; Amendments; Multiemployer
ERISA Plans . . . . . . . . . . . . . . . . . . . . . 49
Section 7.11. Current Ratio . . . . . . . . . . . . . . . . . . . . 49
Section 7.12. Net Worth . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.13. EBITDA . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.14. Debt to Capital Ratio . . . . . . . . . . . . . . . . 50
ARTICLE VIII - Events of Default and Remedies . . . . . . . . . . . . . . . 50
Section 8.1. Events of Default . . . . . . . . . . . . . . . . . . 50
Section 8.2. Remedies . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE IX - Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.1. Appointment and Authority . . . . . . . . . . . . . . 53
Section 9.2. Exculpation, Agent's Reliance, Etc. . . . . . . . . . 53
Section 9.3. Credit Decisions; Limited Scope of Agent's
Duties . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.4. Indemnification . . . . . . . . . . . . . . . . . . . 54
Section 9.5. Rights as Lender . . . . . . . . . . . . . . . . . . 54
Section 9.6. Sharing of Set-Offs and Other Payments . . . . . . . 55
Section 9.7. Investments . . . . . . . . . . . . . . . . . . . . . 55
Section 9.8. Benefit of Article IX . . . . . . . . . . . . . . . . 55
Section 9.9. Resignation . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE X - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.1. Waivers and Amendments; Acknowledgements . . . . . . 56
Section 10.2. Survival of Agreements; Cumulative Nature . . . . . . 57
Section 10.3. Notices . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.4. Payment of Expenses; Indemnity . . . . . . . . . . . 58
Section 10.5. Joint and Several Liability; Parties in
Interest; Assignments . . . . . . . . . . . . . . . . 59
Section 10.6. Confidentiality . . . . . . . . . . . . . . . . . . . 61
Section 10.7. Governing Law; Submission to Process . . . . . . . . 61
Section 10.8. Limitation on Interest . . . . . . . . . . . . . . . 62
Section 10.9. Termination; Limited Survival . . . . . . . . . . . . 62
Section 10.10. Severability . . . . . . . . . . . . . . . . . . . . 62
Section 10.11. Counterparts . . . . . . . . . . . . . . . . . . . . 62
Section 10.12. Waiver of Jury Trial, Punitive Damages, etc. . . . . 63
Section 10.13. Intercompany Transfers of Assets;
Restatement of Existing Credit Documents . . . . . . 64
</TABLE>
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Schedules and Exhibits:
Lender Schedule
Schedule 1 - Disclosure Schedule
Schedule 2 - Security Schedule
Schedule 3 - Insurance Schedule
Exhibit A - Revolving Credit Note
Exhibit B - Term Note
Exhibit C-1 - Borrowing Notice
Exhibit C-2 - Request for Term Loans
Exhibit D - Continuation/Conversion Notice
Exhibit E - Certificate Accompanying Financial Statements
Exhibit F - Borrowing Base Report
Exhibit G - Environmental Compliance Certificate
Exhibit H - Letter of Credit Application and Agreement
Exhibit I - Opinion of Albright & Rusher, A Professional Corporation,
Counsel for Restricted Persons
Exhibit J - Assignment and Assumption Agreement
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of December 30, 1996, by and among
Continental Natural Gas, Inc., an Oklahoma corporation (herein called
"Borrower"), ING (U.S.) Capital Corporation ("ING Capital"), individually as a
Revolving Credit Lender and a Term Lender, and as Agent, and the other Lenders
from time to time a party hereto. In consideration of the mutual covenants and
agreements contained herein the parties hereto agree as follows:
WHEREAS, Borrower and its Subsidiaries have previously acquired the
Beaver Plant, the Mocane Plant, the Gathering Systems and certain interests in
the Laverne Plant; and
WHEREAS, Borrower and its Subsidiaries financed the purchase of such
assets pursuant to the Existing Credit Documents; and
WHEREAS, Borrower or a Subsidiary of Borrower proposes to acquire
certain additional interests in the Laverne Plant pursuant to the Acquisition
Documents; and
WHEREAS, to refinance the outstanding indebtedness under the Existing
Credit Documents and to finance the acquisition of such additional interests in
the Laverne Plant, subject to the terms and conditions set forth herein: (i)
ING Capital and the other Revolving Credit Lenders propose to lend to Borrower
up to $25,000,000, and (ii) ING Capital and the other Term Lenders propose to
lend to Borrower up to $39,000,000;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein the parties hereto agree as follows:
ARTICLE I - Definitions and References
Section 1.1. Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Section 1.1 or in the sections
and subsections referred to below:
"Acquisition Closing Date" shall mean the date on which the acquisition
of the Laverne Plant pursuant to the Acquisition Documents, which shall be on
or before March 31, 1997.
"Acquisition Documents" means (a) the Purchase and Sale Agreement among
Conoco Inc. et al, and Borrower or a Subsidiary of Borrower regarding the
acquisition of the Laverne Plant, (b) the Assignment and Bill of Sale delivered
thereunder by Conoco, Inc., et al. in favor of such Restricted Person, (c) all
other agreements or instruments delivered in connection therewith to consummate
the acquisition contemplated thereby.
"Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person. A Person shall be
deemed to be "controlled by" any other Person if such other Person possesses,
directly or indirectly, power
(a) to vote 20% or more of the securities (on a fully diluted
basis) having ordinary voting power for the election of directors or
managing general partners; or
(b) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
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"Agent" means ING Capital, as Agent hereunder, and its successors in
such capacity; provided, however, that until such time as a Lender other than
ING Capital becomes a party hereto, "Agent" shall mean ING Capital,
individually.
"Agreement" means this Credit Agreement.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of Base Rate Loans and such
Lender's Eurodollar Lending Office in the case of Eurodollar Loans.
"Approved Counterparty" means any of ONEOK, Williams, Natural Gas
Clearinghouse, ConAgra Energy Services, Inc., Koch Hydrocarbon Company, Mapco,
Aquila Risk Management Corporation or Enron Capital & Trade Resources Corp.
"Bank Parties" means Agent, LC Issuer, and all Lenders.
"Base Rate" means the Base Rate Margin plus the higher of (a) the
Reference Rate and (b) the Federal Funds Rate plus one-half percent (0.5%) per
annum. For purposes of this definition, "Reference Rate" means the arithmetic
average of the rates of interest publicly announced by The Chase Manhattan Bank
(National Association), Citibank, N.A. and Morgan Guaranty Trust Company of New
York (or their respective successors) as their respective prime commercial
lending rates (or, as to any such bank that does not announce such a rate, such
bank's "base" or other rate reasonably determined by Agent to be the equivalent
rate announced by such bank), except that, if any such bank shall, for any
period, cease to announce publicly its prime commercial lending (or equivalent)
rate, Agent shall, during such period, determine the "Base Rate" based upon the
prime commercial lending (or equivalent) rates announced publicly by the other
such banks. The Base Rate shall in no event, however, exceed the Highest
Lawful Rate.
"Base Rate Loan" means a Loan which does not bear interest at the
Eurodollar Rate.
"Base Rate Margin" means, on each day:
(a) zero percent (0%) per annum when the Debt to EBITDA Ratio on such
day is less than or equal to 3.50 to 1,
(b) one-half percent (0.5%) per annum when the Debt to EBITDA Ratio on
such day is greater than 3.50 to 1, but less than or equal to 4.50 to 1, and
(c) three-quarters percent (0.75%) per annum when the Debt to EBITDA
Ratio on such day is greater than 4.50 to 1.
"Beaver Plant" means that certain gas processing plant and related gas
gathering system owned by Continental Processing, as assignee of Borrower,
located in Beaver County, Oklahoma as described in detail in the Mortgage.
"Borrower" means Continental Natural Gas, Inc., an Oklahoma corporation.
"Borrowing" means a borrowing of new Loans of a single Type pursuant to
Section 2.2 or a continuation or conversion of existing Loans into a single
Type (and, in the case of Eurodollar Loans, with the same Interest Period)
pursuant to Section 2.3.
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<PAGE> 8
"Borrowing Base" means, at the particular time in question, either the
amount provided for in Section 2.8 or the amount determined by Agent in
accordance with the provisions of Section 2.9; provided, however, that in no
event shall the Borrowing Base ever exceed the Revolving Credit Maximum Loan
Amount.
"Borrowing Base Deficiency" has the meaning given it in Section 2.7(a).
"Borrowing Base Report" means a report in the form attached hereto as
Exhibit E, appropriately completed, together with the following attachments:
(a) a summary aged schedule of all Eligible Receivables as of the date
specified in such report, listing face amounts and dates of invoices of each
such Eligible Receivable and the name of each account debtor obligated on such
Eligible Receivable (and, upon request of Agent, copies of invoices, credit
reports, and any other matters and information relating to the Eligible
Receivables), and (b) a schedule of all unbilled trade accounts for Natural Gas
sold which will constitute Eligible Receivables upon invoicing the account
debtor therefor.
"Borrowing Notice" means a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in New York, New York.
Any Business Day in any way relating to Eurodollar Loans (such as the day on
which an Interest Period begins or ends) must also be a day on which, in the
judgment of Agent, significant transactions in dollars are carried out in the
interbank eurocurrency market.
"Cash Equivalents" means investments in:
(a) marketable obligations, maturing within 12 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of America
or an instrumentality or agency thereof and entitled to the full faith and
credit of the United States of America.
(b) demand deposits, and time deposits (including certificates of
deposit) maturing within 12 months from the date of deposit thereof, with any
office of any Lender or with a domestic office of any national or state bank or
trust company which is organized under the Laws of the United States of America
or any state therein, which has capital, surplus and undivided profits of at
least $500,000,000, and whose certificates of deposit have a rating of at least
AA or Aa3 given by either Rating Agency.
(c) open market commercial paper, maturing within 270 days after
acquisition thereof, which has a rating of A1 or P1 given by either Rating
Agency.
(d) investments in money market or other mutual funds substantially all
of whose assets comprise securities of the types described in clauses (a)
through (c) above.
"Change of Control" means the occurrence of either of the following
events: (i) any Person or two or more Persons acting as a group shall acquire
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Act of 1934, as amended, and including
holding proxies to vote for the election of directors other than proxies held
by Borrower's management or their designees to be voted in favor of Persons
nominated by Borrower's Board of Directors) of 49% or more of the outstanding
voting securities of Borrower, measured by voting power (including both common
stock and any preferred stock or other equity securities entitling the holders
thereof to vote with the holders of common stock in elections for directors of
Borrower) or (ii) a
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<PAGE> 9
majority of the directors of Borrower shall consist of Persons not nominated by
Borrower's Board of Directors (not including as Board nominees any directors
which the Board is obligated to nominate pursuant to shareholders agreements,
voting trust arrangements or similar arrangements).
"CHI" means Continental Hydrocarbons, Inc., an Oklahoma corporation and
a wholly-owned Subsidiary of Borrower, predecessor of Continental Hydrocarbons.
"Closing Date" means December 30, 1996, or any other date on or before
December 31, 1996 upon which Borrower, Agent and Lenders may agree.
"Collateral" means all property of any kind which is subject to a Lien
in favor of Lenders (or in favor of Agent for the benefit of Lenders) or which,
under the terms of any Security Document, is purported to be subject to such a
Lien.
"Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.
"Consolidated Gross Operating Cash Flow" has the meaning given it in
Section 2.7(b).
"Consolidated Net Income" means, as to any Person or Consolidated group
of Persons for any period, the gross revenues of such Person or Persons for
such period, plus any cash dividends or distributions actually received by such
Person or Persons from any other Persons not part of such Consolidated group,
minus all expenses and other proper charges (including taxes on income, to the
extent imposed upon such Person or Persons), determined on a Consolidated basis
after eliminating earnings or losses attributable to outstanding minority
interests, but excluding the undistributed net earnings of any other Persons
not part of such Consolidated group in which such Person or Persons has an
ownership interest.
"Consolidated Net Worth" means, as to any Person or Consolidated group
of Persons, the Consolidated owners' equity of such Person or group of Persons,
not including treasury stock, subscribed but unissued stock, or minority
interests.
"Continental Hydrocarbons" means Continental Hydrocarbons, L.L.C., an
Oklahoma limited liability company and a wholly-owned Subsidiary of Borrower,
successor to CHI.
"Continental Gathering" means Continental Natural Gas Gathering, L.L.C..
an Oklahoma limited liability company and a wholly-owned Subsidiary of
Borrower.
"Continental Processing" means Continental Gas Processing, L.L.C.. an
Oklahoma limited liability company and a wholly-owned Subsidiary of Borrower.
"Continuation/Conversion Notice" means a written or telephonic request,
or a written confirmation, made by Borrower which meets the requirements of
Section 2.3.
"Debt Service" means, on a Consolidated basis, the sum of (i) all
rentals (other than rentals on capitalized leases) payable during such period
by Borrower and its Subsidiaries and (ii) all interest
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<PAGE> 10
charges on all Indebtedness (including the interest component of rentals on
capitalized leases) of Borrower and its Subsidiaries.
"Debt to Capital Ratio" means the ratio of (i) the aggregate amount of
Borrower's Consolidated Indebtedness (excluding Liabilities with respect to
Letters of Credit issued hereunder) to (ii) the sum of (a) Borrower's
Consolidated Net Worth plus (b) Borrower's Consolidated Indebtedness as of the
end of the preceding Fiscal Quarter.
"Debt to EBITDA Ratio" means at the end of any Fiscal Quarter, the ratio
of (i) the aggregate amount of Borrower's Consolidated Indebtedness (excluding
Liabilities with respect to Letters of Credit issued hereunder) at such time to
(ii) EBITDA for the four-Fiscal Quarter period ending with such Fiscal Quarter,
to be determined on the date on which Agent and Lenders receive the financial
statements of Borrower for each Fiscal Quarter as set forth in Section 6.2(b),
based on the financial information contained therein as of the end of such
Fiscal Quarter, and effective from such date until the next date on which the
next such financial statements are received.
"Default" means any Event of Default and any default, event or condition
which would, with the giving of any requisite notices and the passage of any
requisite periods of time, constitute an Event of Default.
"Default Rate" means, at the time in question, two percent (2.0%) per
annum plus the Base Rate then in effect; provided that, with respect to any
Eurodollar Loan with an Interest Period extending beyond the date such
Eurodollar Loan becomes due and payable, "Default Rate" shall mean two percent
(2.0%) per annum plus the related Eurodollar Rate. The Default Rate shall
never exceed the Highest Lawful Rate.
"Disclosure Report" means either a notice given by Borrower under
Section 6.4 or a certificate given by Borrower's chief financial officer under
Section 6.2(b).
"Disclosure Schedule" means Schedule 1 hereto.
"Domestic Lending Office" means, with respect to any Lender, the office
of such Lender specified as its "Domestic Lending Office" below its name on the
Lender Schedule attached hereto, or such other office as such Lender may from
time to time specify to Borrower and Agent.
"EBITDA" means, for any period, the Consolidated Net Income of Borrower
for such period plus (i) income taxes, depreciation and amortization and other
non-cash charges that were deducted in determining the Consolidated Net Income
of Borrower (less all non-cash items of income that were included in
determining the Consolidated Net Income of Borrower), and (ii) Debt Service
during such period.
"Eligible Receivables" means at any time an amount equal to the
aggregate net invoice or ledger amount owing on all trade accounts receivable
of Restricted Persons, arising pursuant to the sale, gathering, processing or
transportation of Natural Gas, in which Agent has a perfected, first priority
security interest (subject only to Permitted Liens) after deducting (a) the
amount of all such accounts unpaid for more than ninety (90) days after the
date of original invoice (and, if more than 50% of the aggregate amount of all
accounts of any account debtor is more than ninety (90) days past due, all
accounts of such account debtor), (b) the amount of all discounts, allowances,
rebates, credits and adjustments to such accounts, (c) all contra accounts,
setoffs, defenses or counterclaims asserted by or available to the Persons
obligated on such accounts, (d) the amount billed for or representing
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<PAGE> 11
retainage, if any, until all prerequisites to the immediate payment of
retainage have been satisfied, (e) all such accounts owed by account debtors
which are insolvent or otherwise not reasonably satisfactory to Agent, and (f)
all such accounts owing by Affiliates of Restricted Persons or by officers or
employees of Restricted Persons or any such Affiliate.
"Eligible Transferee" means a Person which either (a) is a Lender, or
(b) is consented to as an Eligible Transferee by Agent and, so long as no Event
of Default is continuing, by Borrower, which consents in each case will not be
unreasonably withheld (provided that no Person organized outside the United
States may be an Eligible Transferee if Borrower would be required to pay
withholding taxes on interest or principal owed to such Person).
"Engineering Report" means the Initial Engineering Report and each
engineering report delivered pursuant to Section 6.2(c).
"Environmental Laws" means any and all Laws relating to the environment
or to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or
wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Affiliate" means Borrower and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated)
under common control that, together with Borrower, are treated as a single
employer under Section 414 of the Internal Revenue Code of 1986, as amended.
"ERISA Plan" means any employee pension benefit plan subject to Title IV
of ERISA maintained by any ERISA Affiliate with respect to which any Restricted
Person has a fixed or contingent liability.
"Eurodollar Loan" means a Loan which is properly designated as a
Eurodollar Loan pursuant to Section 2.2 or 2.3.
"Eurodollar Margin" means, on each day:
(a) one and three-eighths percent (1.375%) per annum when the Debt to
EBITDA Ratio on such day is less than or equal to 2.50 to 1,
(b) one and three-quarters percent (1.75%) per annum when the Debt to
EBITDA Ratio on such day is greater than 2.50 to 1, but less than or equal to
3.50 to 1,
(c) two and one-quarter percent (2.25%) per annum when the Debt to
EBITDA Ratio on such day is greater than 3.50 to 1, but less than or equal to
4.50 to 1, and
(d) two and one-half percent (2.5%) per annum when the Debt to EBITDA
Ratio on such day is greater than 4.50 to 1.
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"Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" below its
name on the Lender Schedule attached hereto (or, if no such office is
specified, its Domestic Lending Office), or such other office of such Lender as
such Lender may from time to time specify to Borrower and Agent.
"Eurodollar Rate" means, with respect to each particular Eurodollar Loan
and the associated LIBOR Rate and Reserve Percentage, the rate per annum
calculated by Agent (rounded upwards, if necessary, to the next higher 0.01%)
determined on a daily basis pursuant to the following formula:
Eurodollar Rate =
LIBOR Rate + Eurodollar Margin
---------------------------
100.0% - Reserve Percentage
The Eurodollar Rate for any Eurodollar Loan shall change whenever the
Eurodollar Margin or the Reserve Percentage changes. No Eurodollar Rate shall
ever exceed the Highest Lawful Rate.
"Event of Default" has the meaning given it in Section 8.1.
"Existing Credit Documents" has the meaning given it in Section 10.13.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (ii) if such rate is not
so published for any day, the Federal Funds Rate for such day shall be the
average rate quoted to Agent on such day on such transactions as determined by
Agent.
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of
Borrower and its Consolidated subsidiaries, are applied for all periods after
the date hereof in a manner consistent with the manner in which such principles
and practices were applied to the audited Initial Financial Statements. If any
change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or any such successor) in order for such principle
or practice to continue as a generally accepted accounting principle or
practice, all reports and financial statements required hereunder with respect
to Borrower or with respect to Borrower and its Consolidated subsidiaries may
be prepared in accordance with such change, but all calculations and
determinations to be made hereunder may be made in accordance with such change
only after notice of such change is given to each Lender and Majority Lenders
agree to such change insofar as it affects the accounting of Borrower or of
Borrower and its Consolidated subsidiaries.
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"Gathering Systems" means those various gas transportation systems, gas
gathering systems, gas pipelines, and other related properties located in
Oklahoma and Texas owned by Continental Gathering and described in detail in
the Mortgage.
"Guarantor" means any Person who has guaranteed some or all of the
Obligations pursuant to a guaranty listed on the Security Schedule or any other
Person who has guaranteed some or all of the Obligations and who has been
accepted by Agent as a Guarantor or any Subsidiary of Borrower which now or
hereafter executes and delivers a guaranty to Agent pursuant to Section 6.18.
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Hedging Contract" means (a) any agreement providing for options, swaps,
floors, caps, collars, forward sales or forward purchases involving interest
rates, commodities or commodity prices, equities, currencies, bonds, or indexes
based on any of the foregoing, (b) any option, futures or forward contract
traded on an exchange, and (c) any other derivative agreement or other similar
agreement or arrangement.
"Highest Lawful Rate" means, with respect to each Lender, the maximum
nonusurious rate of interest that such Lender is permitted under applicable Law
to contract for, take, charge, or receive with respect to its Loan. All
determinations herein of the Highest Lawful Rate, or of any interest rate
determined by reference to the Highest Lawful Rate, shall be made separately
for each Lender as appropriate to assure that the Loan Documents are not
construed to obligate any Person to pay interest to any Lender at a rate in
excess of the Highest Lawful Rate applicable to such Lender.
"Indebtedness" of any Person means, without duplication, Liabilities in
any of the following categories:
(a) Liabilities for borrowed money,
(b) Liabilities constituting an obligation to pay the deferred purchase
price of property or services,
(c) Liabilities evidenced by a bond, debenture, note or similar
instrument,
(d) Liabilities which (i) would under GAAP be shown on such Person's
balance sheet as a liability, and (ii) are payable more than one year from the
date of creation thereof (other than reserves for taxes and reserves for
contingent obligations),
(e) Liabilities arising under Hedging Contracts,
(f) Liabilities constituting principal under leases capitalized in
accordance with GAAP,
(g) Liabilities arising under conditional sales or other title
retention agreements,
(h) Liabilities owing under direct or indirect guaranties of
Liabilities of any other Person or constituting obligations to purchase or
acquire or to otherwise protect or insure a creditor against loss in respect of
Liabilities of any other Person (such as obligations under working capital
maintenance agreements, agreements to keep-well, or agreements to purchase
Liabilities, assets, goods, securities or
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<PAGE> 14
services), but excluding endorsements in the ordinary course of business of
negotiable instruments in the course of collection,
(i) Liabilities (for example, repurchase agreements) consisting of an
obligation to purchase securities or other property, if such Liabilities arises
out of or in connection with the sale of the same or similar securities or
property,
(j) Liabilities with respect to letters of credit or applications or
reimbursement agreements therefor,
(k) Liabilities with respect to payments received in consideration of
oil, gas, or other minerals yet to be acquired or produced at the time of
payment (including obligations under "take-or-pay" contracts to deliver gas in
return for payments already received and the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment), or
(l) Liabilities with respect to other obligations to deliver goods or
services in consideration of advance payments therefor;
provided, however, that the "Indebtedness" of any Person shall not include
Liabilities that were incurred by such Person on ordinary trade terms to
vendors, suppliers, or other Persons providing goods and services for use by
such Person in the ordinary course of its business, unless and until such
Liabilities are outstanding more than 90 days after the incurrence thereof.
"ING Capital" means ING (U.S.) Capital Corporation, a Delaware
corporation, as a Lender hereunder, and its successors in such capacity.
"Initial Engineering Report" means the engineering report concerning gas
reserves of Restricted Persons dated April 30, 1996, prepared by Lee Keeling &
Associates as of January 1, 1996, together with corresponding information
relating the information contained in such reports to each gas processing plant
or pipeline system of Restricted Persons.
"Initial Financial Statements" means (i) the audited annual Consolidated
financial statements of Borrower dated as of December 31, 1995 and (ii) the
unaudited quarterly Consolidated financial statements of Borrower dated as of
September 30, 1996.
"Insurance Schedule" means Schedule 3 attached hereto.
"Interest Period" means, with respect to each particular Eurodollar Loan
in a Borrowing a period of 1, 2, 3 or 6 months (provided, that prior to the
Syndication Date, Interest Periods with respect to Eurodollar Loans shall be 1
month), as specified in the Borrowing Notice applicable thereto beginning on
and including the date specified in such Borrowing Notice (which must be a
Business Day), and ending on but not including the same day of the month as the
day on which it began (e.g., a period beginning on the third day of one month
shall end on but not include the third day of another month), provided that
each Interest Period which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day (unless such next succeeding
Business Day is the first Business Day of a calendar month, in which case such
Interest Period shall end on the immediately preceding Business Day), and that
each such period beginning on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the calendar month
at the
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<PAGE> 15
end of such period) shall end on the last Business Day of a calendar month. No
Interest Period may be elected which would extend past the date on which the
associated Note is due and payable in full.
"Prepaid Sales Documents" means those certain agreements between
Borrower and certain of its customers regarding Borrower's obligation to
deliver Natural Gas and/or Natural Gas liquids in 1997 in consideration of
advance payments therefor on or prior to December 31, 1996, such obligations to
be secured by the Stand-Alone Letter of Credit Facility, together with all
other agreements or instruments delivered in connection therewith to consummate
the transaction contemplated thereby.
"Laverne Plant" means those interests in that certain gas processing
plant and related gas gathering system owned by or acquired pursuant to the
Acquisition Documents by Borrower or a Subsidiary of Borrower located in
Laverne County, Oklahoma as described in detail in the Laverne Plant Mortgage.
"Laverne Plant Mortgage" has the meaning given it in Section 4.2(a).
"Law" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"LC Application" means any application for a Letter of Credit hereunder
made by Borrower to LC Issuer.
"LC Collateral" has the meaning given it in Section 2.15(a).
"LC Issuer" means ING Capital in its capacity as the issuer of Letters
of Credit hereunder, and its successors in such capacity. Agent may, with the
consent of Borrower and the Lender in question, appoint any Lender hereunder as
the LC Issuer in place of or in addition to ING Capital.
"LC Obligations" means, at the time in question, the sum of all Matured
LC Obligations plus the Maximum Drawing Amount.
"Lender" means a Revolving Credit Lender or a Term Lender, as
appropriate. "Lenders" means, collectively, all Lenders.
"Lending Office" means, with respect to any Lender, the office, branch,
or agency through which it funds its Eurodollar Loans; with respect to LC
Issuer, the office, branch, or agency through which it issues Letters of
Credit; and, with respect to Agent or Collateral Agent, the office, branch, or
agency through which it administers this Agreement.
"Letter of Credit" means any letter of credit issued by LC Issuer
hereunder at the application of Borrower.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
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"LIBOR Rate" means, with respect to each particular Eurodollar Loan and
the related Interest Period, the rate per annum (rounded upwards, if necessary,
to the nearest 1/32 of 1%) reported, on the date two Business Days prior to the
first day of such Interest Period, on Telerate Access Service Page 3750
(British Bankers Association Settlement Rate) as the London Interbank Offered
Rate for dollar deposits having a term comparable to such Interest Period and
in an amount of $500,000 or more (or, if such Page shall cease to be publicly
available or if the information contained on such Page, in Agent's sole
reasonable judgment, shall cease to accurately reflect such London Interbank
Offered Rate, as reported by any publicly available source of similar market
data selected by Agent that, in Agent's sole reasonable judgment, accurately
reflects such London Interbank Offered Rate).
"Lien" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Liabilities owed to him or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security
interest, pledge, deposit, production payment, rights of a vendor under any
title retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by Law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" also means any filed financing
statement, any registration of a pledge (such as with an issuer of
uncertificated securities), or any other arrangement or action which would
serve to perfect a Lien described in the preceding sentence, regardless of
whether such financing statement is filed, such registration is made, or such
arrangement or action is undertaken before or after such Lien exists.
"Loan" means a Revolving Credit Loan or a Term Loan, as appropriate.
"Loans" means, collectively, all Loans.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Letters of Credit, the LC Applications, and all other
agreements, certificates, documents, instruments and writings at any time
delivered in connection herewith or therewith (exclusive of term sheets,
commitment letters, correspondence and similar documents used in the
negotiation hereof, except to the extent the same contain information about
Borrower or its Affiliates, properties, business or prospects).
"Majority Lenders" means Lenders whose aggregate Percentage Shares equal
or exceed sixty-six and two-thirds percent (66 2/3%).
"Material Adverse Change" means a material and adverse change, from the
state of affairs presented in the Initial Financial Statements, to (a)
Borrower's Consolidated financial condition, (b) the operations or properties
of Borrower and its Subsidiaries, considered as a whole, (c) Borrower's ability
to timely pay the Obligations, or (d) the enforceability of the material terms
of any Loan Documents.
"Matured LC Obligations" means all amounts paid by LC Issuer on drafts
or demands for payment drawn or made under or purported to be under any Letter
of Credit and all other amounts due and owing to LC Issuer under any LC
Application for any Letter of Credit, to the extent the same have not been
repaid to LC Issuer (with the proceeds of Loans or otherwise).
"Maximum Drawing Amount" means at the time in question the sum of the
maximum amounts which LC Issuer might then or thereafter be called upon to
advance under all Letters of Credit then outstanding.
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"Mocane Plant" means that certain gas processing plant owned by
Continental Hydrocarbons located in Beaver County, Oklahoma as described in
detail in the Mortgage.
"Natural Gas" means all gaseous hydrocarbons, including, but not limited
to, oil well gas, gas well gas, casinghead gas and all products refined
therefrom or produced in association therewith, including condensate,
distillate and other liquid hydrocarbons produced from gaseous hydrocarbons.
"Note" means a Revolving Credit Note or a Term Note, as appropriate.
"Notes" means, collectively, all Lenders' Notes.
"Obligations" means all Liabilities from time to time owing by any
Restricted Person to any Bank Party under or pursuant to any of the Loan
Documents, including all LC Obligations. "Obligation" means any part of the
Obligations.
"Percentage Share" means, with respect to any Lender (a) when no Loans
are outstanding hereunder, the "Total Percentage" set forth opposite such
Lender's name on the Lender Schedule attached hereto, and (b) when used
otherwise, the percentage obtained by dividing (i) the sum of the unpaid
principal balance of such Lender's Loans at the time in question (plus, with
respect to Revolving Credit Lenders, the Matured LC Obligations which such
Lender has funded pursuant to Section 2.14(c) plus the portion of the Maximum
Drawing Amount which such Lender might be obligated to fund under Section
2.14(c)), by (ii) the sum of the aggregate unpaid principal balance of all
Loans at such time plus the aggregate amount of LC Obligations outstanding at
such time.
"Permitted Lien" has the meaning given to such term in Section 7.2.
"Person" means an individual, corporation, partnership, limited
liability company, association, joint stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint venture,
Tribunal, or any other legally recognizable entity.
"Rating Agency" means either Standard & Poor's Ratings Group (a division
of McGraw Hill, Inc.) or Moody's Investors Service, Inc., or their respective
successors.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect.
"Required Hedges" means forward, future, swap or hedging contracts
entered into by Borrower pursuant to Section 7.3(b) in the aggregate covering
at all times not less than fifty percent (50%) of the then-outstanding Term
Loans for a period of not less than two and a half years.
"Restricted Person" means any of Borrower, each Subsidiary of Borrower
and each Guarantor, other than Unrestricted Subsidiaries.
"Reserve Percentage" means, on any day with respect to each particular
Eurodollar Loan, the maximum reserve requirement, as determined by Agent
(including without limitation any basic, supplemental, marginal, emergency or
similar reserves), expressed as a percentage and rounded to the next higher
0.01%, which would then apply under Regulation D with respect to "Eurocurrency
liabilities", as such term is defined in Regulation D, of $500,000 or more. If
such reserve requirement shall change after the date hereof, the Reserve
Percentage shall be automatically increased or decreased, as the case may be,
from time to time as of the effective time of each such change in such reserve
requirement.
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"Revolving Credit Commitment Period" means the period from and including
the date hereof until and including the Revolving Credit Commitment Termination
Date (or, if earlier, the day on which the Revolving Credit Notes first become
due and payable in full).
"Revolving Credit Commitment Termination Date" means December 31, 1998;
provided, Borrower may, by written request to Agent and each Revolving Credit
Lender at any time not less than 120 days prior to the Revolving Credit
Commitment Termination Date (whether the initial Revolving Credit Commitment
Termination Date or such date as previously extended by Revolving Credit
Lenders in their sole discretion pursuant to this proviso), request Revolving
Credit Lenders to extend the Revolving Credit Commitment Termination Date upon
the same terms and conditions as set forth herein, and Revolving Credit Lenders
may, in their individual sole discretion and upon their unanimous agreement,
extend the Revolving Credit Commitment Termination Date for successive periods
of up to one year.
"Revolving Credit Facility Usage" means, at the time in question, the
aggregate amount of outstanding Revolving Credit Loans and existing LC
Obligations at such time.
"Revolving Credit Lender" means each Lender signatory hereto as a
"Revolving Credit Lender" (including ING Capital in its capacity hereunder as a
Revolving Credit Lender rather than as Agent, a Term Lender, or LC Issuer), and
the successors of each, as permitted pursuant to Section 10.5, as a holder of a
Revolving Credit Note.
"Revolving Credit Loan" has the meaning given it in Section 2.1(a).
"Revolving Credit Loans" means, collectively, all Revolving Credit Lenders'
Revolving Credit Loans.
"Revolving Credit Maximum Loan Amount" means the amount of $25,000,000.
"Revolving Credit Note" has the meaning given it in Section 2.1(a).
"Revolving Credit Notes" means, collectively, all Revolving Credit Lenders'
Revolving Credit Notes.
"Revolving Credit Percentage Share" means, with respect to any Revolving
Credit Lender, the "Revolving Credit Percentage" set forth opposite such
Revolving Credit Lender's name on the Lender Schedule attached hereto.
"Security Documents" means the instruments listed in the Security
Schedule and all other security agreements, deeds of trust, mortgages, chattel
mortgages, pledges, guaranties, financing statements, continuation statements,
extension agreements and other agreements or instruments now, heretofore, or
hereafter delivered by any Restricted Person to Agent in connection with this
Agreement or any transaction contemplated hereby to secure or guarantee the
payment of any part of the Obligations or the performance of any Restricted
Person's other duties and obligations under the Loan Documents.
"Security Schedule" means Schedule 2 hereto.
"Stand-Alone Letter of Credit Facility" means a cash collateralized
letter of credit facility in the maximum amount of $20,000,000, to be provided
by Christiania Bank, New York Branch to Borrower.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, limited liability company, joint venture, or other
business or corporate entity, enterprise or organization
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which is directly or indirectly (through one or more intermediaries) controlled
by or owned fifty percent or more by such Person.
"Syndication Date" means the date on which ING Capital has successfully
syndicated the Loans as provided in that certain letter agreement of even date
herewith between ING Capital and Borrower.
"Termination Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA
or (ii) any other reportable event described in Section 4043(b) of ERISA other
than a reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation
under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate
from an ERISA Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of
intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment
as a termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty
Corporation under Section 4042 of ERISA, or (e) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any ERISA Plan.
"Term Loan Percentage Share" means, with respect to any Term Lender, the
"Term Loan Percentage" set forth opposite such Term Lender's name on the Lender
Schedule attached hereto.
"Term Loan" has the meaning given it in Section 2.1(b). "Term Loans"
means, collectively, all Term Lenders' Term Loans.
"Term Lender" means each Lender signatory hereto as a "Term Lender"
(including ING Capital in its capacity hereunder as a Term Lender rather than
as Agent, a Revolving Credit Lender or LC Issuer), and the successors of each,
as permitted pursuant to Section 10.5, as a holder of a Term Note.
"Term Note" has the meaning given it in Section 2.1(b). "Term Notes"
means, collectively, all Term Lenders' Term Notes.
"Transaction Documents" means the Loan Documents, the Acquisition
Documents, the Prepaid Sales Documents and all other agreements, certificates,
documents, instruments and writings at any time delivered in connection
herewith or therewith.
"Tribunal" means any government, any arbitration panel, any court or any
governmental department, commission, board, bureau, agency or instrumentality
of the United States of America or any state, province, commonwealth, nation,
territory, possession, county, parish, town, township, village or municipality,
whether now or hereafter constituted and/or existing.
"Type" means, with respect to any Loans, the characterization of such
Loans as either Base Rate Loans or Eurodollar Loans.
"Unrestricted Subsidiary" means Continental Energy Services, L.L.C., an
Oklahoma limited liability company and a wholly-owned Subsidiary of Borrower.
Section 1.2. Exhibits and Schedules; Additional Definitions. All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Reference is hereby made to the Security
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Schedule for the meaning of certain terms defined therein and used but not
defined herein, which definitions are incorporated herein by reference.
Section 1.3. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in
this Agreement which refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions, modifications, amendments
and restatements of such agreement, instrument or document, provided that
nothing contained in this section shall be construed to authorize any such
renewal, extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this Agreement
to Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" is not
exclusive, and the word "including" (in its various forms) means "including
without limitation". Pronouns in masculine, feminine and neuter genders shall
be construed to include any other gender, and words in the singular form shall
be construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5. Calculations and Determinations. All calculations under
the Loan Documents of interest chargeable with respect to Eurodollar Loans and
of fees shall be made on the basis of actual days elapsed (including the first
day but excluding the last) and a year of 360 days. All other calculations of
interest made under the Loan Documents shall be made on the basis of actual
days elapsed (including the first day but excluding the last) and a year of 365
or 366 days, as appropriate. Each determination by a Bank Party of amounts to
be paid under Sections 3.2 through 3.6 or any other matters which are to be
determined hereunder by a Bank Party (such as any Eurodollar Rate, LIBOR Rate,
Business Day, Interest Period, or Reserve Percentage) shall, in the absence of
demonstrable error, be conclusive and binding. Unless otherwise expressly
provided herein or unless Majority Lenders otherwise consent all financial
statements and reports furnished to any Bank Party hereunder shall be prepared
and all financial computations and determinations pursuant hereto shall be made
in accordance with GAAP.
ARTICLE II - The Loans and Letters of Credit
Section 2.1. Revolving Credit Loans and Term Loans.
(a) Revolving Credit Commitments to Lend. Subject to the terms and
conditions hereof, each Revolving Credit Lender agrees to make revolving credit
loans to Borrower (herein called such Revolving Credit Lender's "Revolving
Credit Loans") upon Borrower's request from time to time during the Revolving
Credit Commitment Period, provided that (i) subject to Sections 3.3, 3.4 and
3.6, all Revolving Credit Lenders are requested to make Revolving Credit Loans
of the same Type in accordance with their respective Revolving Credit
Percentage Shares and as part of the same Borrowing, and (ii) after giving
effect to such Revolving Credit Loans, the Revolving Credit Facility Usage does
not exceed the Borrowing Base determined as of the date on which the requested
Revolving Credit Loans are to be made. The aggregate amount of all Revolving
Credit Loans in any Borrowing
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must be greater than or equal to $500,000 or must equal the remaining
availability under the Borrowing Base. Borrower may have no more than eight
Borrowings of Eurodollar Loans that are Revolving Credit Loans outstanding at
any time. The obligation of Borrower to repay to each Revolving Credit Lender
the aggregate amount of all Revolving Credit Loans made by such Revolving
Credit Lender, together with interest accruing in connection therewith, shall
be evidenced by a single promissory note (herein called such Revolving Credit
Lender's "Revolving Credit Note") made by Borrower payable to the order of such
Revolving Credit Lender in the form of Exhibit A with appropriate insertions.
The amount of principal owing on any Revolving Credit Lender's Revolving Credit
Note at any given time shall be the aggregate amount of all Revolving Credit
Loans theretofore made by such Revolving Credit Lender minus all payments of
principal theretofore received by such Revolving Credit Lender on such
Revolving Credit Note. Interest on each Revolving Credit Note shall accrue and
be due and payable as provided herein and therein, with Eurodollar Loans
bearing interest at the Eurodollar Rate and Base Rate Loans bearing interest at
the Base Rate (subject to the applicability of the Default Rate and limited by
the provisions of Section 10.8). Subject to the terms and conditions hereof,
Borrower may borrow, repay, and reborrow Revolving Credit Loans.
(b) Term Loans. Subject to the terms and conditions hereof, each Term
Lender agrees to make two advances to Borrower, the first on the Closing Date
in an amount which does not exceed such Term Lender's Term Loan Percentage
Share of $34,200,000 and the second on the Acquisition Closing Date in an
amount which does not exceed such Term Lender's Term Loan Percentage Share of
$4,800,000 (or, in each case if less, such Term Lender's Term Loan Percentage
Share of the aggregate amount then requested of all such Term Lenders) (such
advances collectively herein called such Term Lender's "Term Loan"), provided
that subject to Sections 3.3, 3.4 and 3.6, all Term Lenders are requested to
make such Term Loans of the same Type in accordance with their respective Term
Loan Percentage Shares and as part of the same Borrowing. Following such
advances, Borrower may have no more than five Borrowings of Eurodollar Loans
that are Term Loans outstanding at any time. The obligation of Borrower to
repay to each Term Lender the amount of such Term Loan made by such Term
Lender, together with interest accruing in connection therewith, shall be
evidenced by a single promissory note (herein called such Term Lender's "Term
Note") made by Borrower payable to the order of such Term Lender in the form of
Exhibit B with appropriate insertions. Interest on each Term Note shall accrue
and be due and payable as provided herein and therein, with Eurodollar Loans
bearing interest at the Eurodollar Rate and Base Rate Loans bearing interest at
the Base Rate (subject to the applicability of the Default Rate and limited by
the provisions of Section 10.8). Borrower may not borrow, repay, and reborrow
Term Loans.
Section 2.2. Requests for Loans.
(a) Requests for New Revolving Credit Loans. Borrower must give to
Agent written notice (or telephonic notice promptly confirmed in writing) of
any requested Borrowing of new Revolving Credit Loans to be advanced by
Revolving Credit Lenders. Each such notice constitutes a "Borrowing Notice"
hereunder and must:
(i) specify (A) the aggregate amount of any such Borrowing of
new Base Rate Loans and the date on which such Base Rate Loans are to be
advanced, or (B) the aggregate amount of any such Borrowing of new
Eurodollar Loans, the date on which such Eurodollar Loans are to be
advanced (which shall be the first day of the Interest Period which is
to apply thereto), and the length of the applicable Interest Period; and
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(ii) be received by Agent not later than 10:00 a.m., New York,
New York time, on (A) the day on which any such Base Rate Loans are to
be made, or (B) the third Business Day preceding the day on which any
such Eurodollar Loans are to be made.
Each such written request or confirmation must be made in the form and
substance of the "Borrowing Notice" attached hereto as Exhibit C-1, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Borrowing Notice, Agent shall give each Revolving Credit Lender prompt notice
of the terms thereof. If all conditions precedent to such new Revolving Credit
Loans have been met, each Revolving Credit Lender will on the date requested
promptly remit to Agent at Agent's office in New York, New York the amount of
such Revolving Credit Lender's new Revolving Credit Loan in immediately
available funds, and upon receipt of such funds, unless to its actual knowledge
any conditions precedent to such Revolving Credit Loans have been neither met
nor waived as provided herein, Agent shall promptly make such Revolving Credit
Loans available to Borrower. Unless Agent shall have received prompt notice
from a Revolving Credit Lender that such Revolving Credit Lender will not make
available to Agent such Revolving Credit Lender's new Revolving Credit Loan,
Agent may in its discretion assume that such Revolving Credit Lender has made
such Revolving Credit Loan available to Agent in accordance with this section
and Agent may if it chooses, in reliance upon such assumption, make such
Revolving Credit Loan available to Borrower. If and to the extent such
Revolving Credit Lender shall not so make its new Revolving Credit Loan
available to Agent, such Revolving Credit Lender and Borrower severally agree
to pay or repay to Agent within three days after demand the amount of such
Revolving Credit Loan together with interest thereon, for each day from the
date such amount was made available to Borrower until the date such amount is
paid or repaid to Agent, with interest at (i) the Federal Funds Rate, if such
Revolving Credit Lender is making such payment and (ii) the interest rate
applicable at the time to the other new Revolving Credit Loans made on such
date, if Borrower is making such repayment. If neither such Revolving Credit
Lender nor Borrower pay or repay to Agent such amount within such three-day
period, Agent shall in addition to such amount be entitled to recover from such
Revolving Credit Lender and from Borrower, on demand, interest thereon at the
Default Rate, calculated from the date such amount was made available to
Borrower. The failure of any Revolving Credit Lender to make any new Revolving
Credit Loan to be made by it hereunder shall not relieve any other Revolving
Credit Lender of its obligation hereunder, if any, to make its new Revolving
Credit Loan, but no Revolving Credit Lender shall be responsible for the
failure of any other Revolving Credit Lender to make any new Revolving Credit
Loan to be made by such other Revolving Credit Lender.
(b) Requesting the Term Loans. Before the Term Loans are made,
Borrower must give Agent a written request therefor in the form and substance
of the "Request for Term Loans" attached hereto as Exhibit C-2, duly completed.
If all conditions precedent to such Term Loans have been met, each Term Lender
will on the date requested promptly remit to Agent at Agent's office in New
York, New York the amount of such Term Lender's Term Loan in immediately
available funds, and upon receipt of such funds, unless to its actual knowledge
any conditions precedent to such Term Loans have been neither met nor waived as
provided herein, Agent shall promptly make such Term Loans available to
Borrower. The Request for Term Loans shall be irrevocable and binding on
Borrower. Unless Agent shall have received prompt notice from a Term Lender
that such Term Lender will not make available to Agent such Term Lender's new
Term Loan, Agent may in its discretion assume that such Term Lender has made
such Term Loan available to Agent in accordance with this section and Agent may
if it chooses, in reliance upon such assumption, make such Term Loan available
to Borrower. If and to the extent such Term Lender shall not so make its new
Term Loan available to Agent, such Term Lender and Borrower severally agree to
pay or repay to Agent within three days after demand the
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amount of such Term Loan together with interest thereon, for each day from the
date such amount was made available to Borrower until the date such amount is
paid or repaid to Agent, with interest at (i) the Federal Funds Rate, if such
Term Lender is making such payment and (ii) the interest rate applicable at the
time to the other new Term Loans made on such date, if Borrower is making such
repayment. If neither such Term Lender nor Borrower pay or repay to Agent such
amount within such three-day period, Agent shall in addition to such amount be
entitled to recover from such Term Lender and from Borrower, on demand,
interest thereon at the Default Rate, calculated from the date such amount was
made available to Borrower. The failure of any Term Lender to make any new
Term Loan to be made by it hereunder shall not relieve any other Term Lender of
its obligation hereunder, if any, to make its new Term Loan, but no Term Lender
shall be responsible for the failure of any other Term Lender to make any new
Term Loan to be made by such other Term Lender.
Section 2.3. Continuations and Conversions of Existing Loans. Borrower
may make the following elections with respect to Loans already outstanding: to
convert Base Rate Loans to Eurodollar Loans, to convert Eurodollar Loans to
Base Rate Loans on the last day of the Interest Period applicable thereto, or
to continue Eurodollar Loans beyond the expiration of such Interest Period by
designating a new Interest Period to take effect at the time of such
expiration. In making such elections, Borrower may combine existing Loans made
pursuant to separate Borrowings into one new Borrowing or divide existing Loans
made pursuant to one Borrowing into separate new Borrowings. To make any such
election, Borrower must give to Agent written notice (or telephonic notice
promptly confirmed in writing) of any such conversion or continuation of
existing Loans, with a separate notice given for each new Borrowing. Each such
notice constitutes a "Continuation/Conversion Notice" hereunder and must:
(a) specify the existing Loans which are to be continued or
converted;
(b) specify (i) the aggregate amount of any Borrowing of Base
Rate Loans into which such existing Loans are to be continued or
converted and the date on which such continuation or conversion is to
occur, or (ii) the aggregate amount of any Borrowing of Eurodollar Loans
into which such existing Loans are to be continued or converted, the
date on which such continuation or conversion is to occur (which shall
be the first day of the Interest Period which is to apply to such
Eurodollar Loans), and the length of the applicable Interest Period; and
(c) be received by Agent not later than 10:00 a.m., New York,
New York time, on (i) the day on which any such continuation or
conversion to Base Rate Loans is to occur, or (ii) the third Business
Day preceding the day on which any such continuation or conversion to
Eurodollar Loans is to occur.
Each such written request or confirmation must be made in the form and
substance of the "Continuation/Conversion Notice" attached hereto as Exhibit C,
duly completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Borrowing Notice, Agent shall give each Lender prompt notice of the terms
thereof. Each Borrowing Notice shall be irrevocable and binding on Borrower.
During the continuance of any Default, Borrower may not make any election to
convert existing Loans into Eurodollar Loans or continue existing Loans as
Eurodollar Loans. If (due to the existence of a Default or for any other
reason) Borrower fails to timely and properly give any notice of continuation
or conversion with respect to a Borrowing of existing Eurodollar Loans at least
three days prior to the end of the Interest Period applicable thereto, such
Eurodollar Loans shall automatically be converted into Base Rate Loans at the
end of such Interest Period. No new funds shall be repaid by Borrower or
advanced by any Lender in connection with any continuation or conversion of
existing Loans pursuant to this section, and no such
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continuation or conversion shall be deemed to be a new advance of funds for any
purpose; such continuations and conversions merely constitute a change in the
interest rate applicable to already outstanding Loans.
Section 2.4. Use of Proceeds. Borrower shall use all Term Loans to
refinance the existing indebtedness under the Existing Credit Documents and to
finance the acquisition of the Laverne Plant pursuant to the Acquisition
Documents. Borrower shall use all Revolving Credit Loans to finance capital
expenditures, to refinance Matured LC Obligations, and to provide working
capital for its operations and for other general business purposes. Borrower
shall use all Letters of Credit for its general business purposes. In no event
shall the funds from any Loan or any Letter of Credit be used directly or
indirectly by any Person for personal, family, household or agricultural
purposes or for the purpose, whether immediate, incidental or ultimate, of
purchasing, acquiring or carrying any "margin stock" or any "margin securities"
(as such terms are defined respectively in Regulation U and Regulation G
promulgated by the Board of Governors of the Federal Reserve System) or to
extend credit to others directly or indirectly for the purpose of purchasing or
carrying any such margin stock or margin securities. Borrower represents and
warrants that Borrower is not engaged principally, or as one of Borrower's
important activities, in the business of extending credit to others for the
purpose of purchasing or carrying such margin stock or margin securities.
Section 2.5. Fees.
(a) Revolving Credit Commitment Fee. In consideration of each
Revolving Credit Lender's commitment to make Revolving Credit Loans, Borrower
will pay to Agent for the account of each Revolving Credit Lender a commitment
fee determined on a daily basis by applying a rate of one-half percent (0.5%)
per annum to such Revolving Credit Lender's Revolving Credit Percentage Share
of the unused portion of the Revolving Credit Maximum Loan Amount on each day
during the Revolving Credit Commitment Period, determined for each such day by
deducting from the amount of the Revolving Credit Maximum Loan Amount at the
end of such day the Revolving Credit Facility Usage. This commitment fee shall
be due and payable in arrears on the last day of each January, April, July and
October and at the end of the Revolving Credit Commitment Period.
(b) Agent's Fees. In addition to all other amounts due to Agent under
the Loan Documents, Borrower will pay fees to Agent as described in a letter
agreement of even date herewith between Agent and Borrower.
Section 2.6. Optional Prepayments. Borrower may, upon five Business
Days' notice to Agent (who shall upon receipt of such notice promptly notify
each Lender), from time to time and without premium or penalty prepay the Notes
(and, so long as no Default has occurred and is continuing, Borrower may
designate such prepayment to be applied to the Revolving Credit Notes or the
Term Notes), in whole or in part, so long as the aggregate amounts of all
partial prepayments of principal on the Notes equals $100,000 or any higher
integral multiple of $100,000, so long as Borrower does not prepay any
Eurodollar Loan, and so long as Borrower does not make any prepayments which
would reduce the unpaid principal balance of the Loans to less than $100,000
without first either (a) terminating this Agreement or (b) providing assurance
satisfactory to Agent in its discretion that Lenders' legal rights under the
Loan Documents are in no way affected by such reduction. Each partial
prepayment of the principal of the Term Notes shall be applied to the regular
installments of principal due thereunder in the inverse order of their
maturities. Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid. Any principal or interest prepaid pursuant to this section shall be
in addition to, and not in lieu of, all payments otherwise required to be paid
under the Loan Documents at the time of such prepayment.
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Section 2.7. Mandatory Prepayment of Revolving Credit Loans and Term
Loans; Payment of Term Loans.
(a) Mandatory Prepayment of Revolving Credit Loans. If at any time the
Revolving Credit Facility Usage is in excess of the Borrowing Base (such excess
being herein called a "Borrowing Base Deficiency"), Borrower shall, within
fifteen days after Agent gives notice of such fact to Borrower prepay the
principal of the Revolving Credit Loans in an aggregate amount at least equal
to such Borrowing Base Deficiency (or, if the Revolving Credit Loans have been
paid in full, deliver LC Collateral to LC Issuer as required under Section
2.15(a)). Each prepayment of principal under this subsection shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid. Any principal or interest prepaid pursuant to this subsection shall
be in addition to, and not in lieu of, all payments otherwise required to be
paid under the Loan Documents at the time of such prepayment.
(b) Mandatory Prepayment of Term Loans. Following the one-year
anniversary hereof, Borrower shall prepay the principal of the Term Loans on
the forty-fifth day of each Fiscal Quarter, commencing May 15, 1998 in an
amount equal to thirty-five percent (35%) of Borrower's Consolidated Gross
Operating Cash Flow for the preceding Fiscal Quarter, to be applied to the
regular installments of principal due thereunder in the inverse order of their
maturities. As used herein, "Consolidated Gross Operating Cash Flow" means,
for any Fiscal Quarter, Borrower's Consolidated net cash provided by operating
activities (excluding changes in operating assets and liabilities) as reported
on Borrower's quarterly statement of cash flows for such Fiscal Quarter
delivered pursuant to Section 6.2(b), minus (i) capital expenditures pursuant
to and as set forth in the most recent budget delivered pursuant to Section
6.2(d), and (ii) scheduled Term Loan principal payments during such Fiscal
Quarter. In no event shall net cash provided or used by investing activities
or financing activities be included in the determination of Consolidated Gross
Operating Cash Flow.
(c) Repayment of Term Loans. Borrower shall repay the principal of the
Term Loans in installments on the last day of each January, April, July and
October, commencing January 31, 1997, with the final installment being due and
payable on or before July 31, 2001. Each such installment shall be the lesser
of (i) the remaining outstanding principal of the Term Loans on such date or
(ii) the following amounts:
<TABLE>
<S> <C>
January 31, 1997 $250,000
April 30, 1997 $250,000
July 31, 1997 $250,000
October 31, 1997 $250,000
January 31, 1998 $1,375,000
April 30, 1998 $1,375,000
July 31, 1998 $1,375,000
October 31, 1998 $1,375,000
January 31, 1999 $1,375,000
April 30, 1999 $1,375,000
July 31, 1999 $1,375,000
October 31, 1999 $1,375,000
January 31, 2000 $1,375,000
April 30, 2000 $1,375,000
July 31, 2000 $1,375,000
October 31, 2000 $1,375,000
January 31, 2001 $1,375,000
April 30, 2001 $1,375,000
July 31, 2001 $18,750,000
</TABLE>
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provided, that in the event the principal amount advanced on the Term Loans is
less than $39,000,000, then each amount set forth above shall be reduced by
multiplying such amount by the original principal amount of the Term Loans
divided by $39,000,000. In any event all unpaid principal and interest on the
Term Notes shall be due and payable in full on the final maturity of July 31,
2001.
Section 2.8. Initial Borrowing Base. During the period from the date
hereof to the first redetermination date the Borrowing Base shall be
$25,000,000.
Section 2.9. Subsequent Determinations of Borrowing Base. Promptly
after receiving any Borrowing Notice, Revolving Credit Lenders shall, based
upon the most recent Borrowing Base Report delivered to Agent and each
Revolving Credit Lender pursuant to Section 6.2(e) hereof or in connection with
such Borrowing Notice, and such other information, reports and data available
to Revolving Credit Lenders at the time in question, redetermine the Borrowing
Base to remain in effect until the next such redetermination. The amount so
redetermined shall be equal to eighty percent (80%) of Eligible Receivables.
In the event Agent and each Revolving Credit Lender have not received an
appropriately completed Borrowing Base Report (with all attachments) within the
time period specified therein, Revolving Credit Lenders shall have no
obligation to redetermine the Borrowing Base or to make any additional
Revolving Credit Loans until such time as Revolving Credit Lenders shall have
received such information.
Section 2.10. Letters of Credit. Subject to the terms and conditions
hereof, Borrower may during the Revolving Credit Commitment Period request LC
Issuer to issue one or more Letters of Credit, provided that, after taking such
Letter of Credit into account:
(a) the Revolving Credit Facility Usage does not exceed the
Borrowing Base at such time; and
(b) the aggregate amount of LC Obligations at such time does not
exceed $18,000,000; and
(c) the expiration date of such Letter of Credit is prior to the
end of the Revolving Credit Commitment Period; and
(d) such Letter of Credit is to be used for general business
purposes of Borrower;
(e) such Letter of Credit is not directly or indirectly used to
assure payment of or otherwise support any Indebtedness of any Person
other than Indebtedness of any Restricted Person;
(f) the issuance of such Letter of Credit will be in compliance
with all applicable governmental restrictions, policies, and guidelines
and will not subject LC Issuer to any cost which is note reimbursable
under Article III;
(g) the form and terms of such Letter of Credit are acceptable to
LC Issuer in its sole and absolute discretion; and
(h) all other conditions in this Agreement to the issuance of
such Letter of Credit have been satisfied.
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LC Issuer will honor any such request if the foregoing conditions (a) through
(h) (in the following Section 2.11 called the "LC Conditions") have been met as
of the date of issuance of such Letter of Credit. LC Issuer may choose to
honor any such request for any other Letter of Credit but has no obligation to
do so and may refuse to issue any other requested Letter of Credit for any
reason which LC Issuer in its sole discretion deems relevant.
Section 2.11. Requesting Letters of Credit. Borrower must make written
application for any Letter of Credit at least one Business Day before the date
on which Borrower desires for LC Issuer to issue such Letter of Credit. By
making any such written application Borrower shall be deemed to have
represented and warranted that the LC Conditions described in Section 2.10 will
be met as of the date of issuance of such Letter of Credit. Each such written
application for a Letter of Credit must be made in writing in the form and
substance of Exhibit G, the terms and provisions of which are hereby
incorporated herein by reference (or in such other form as may mutually be
agreed upon by LC Issuer and Borrower). Two Business Days after the LC
Conditions for a Letter of Credit have been met as described in Section 2.10
(or if LC Issuer otherwise desires to issue such Letter of Credit), LC Issuer
will issue such Letter of Credit at LC Issuer's office in New York, New York.
If any provisions of any LC Application conflict with any provisions of this
Agreement, the provisions of this Agreement shall govern and control.
Section 2.12. Reimbursement and Participations.
(a) Reimbursement by Borrower. Each Matured LC Obligation shall
constitute a loan by LC Issuer to Borrower. Borrower promises to pay to LC
Issuer, or to LC Issuer's order, on demand, the full amount of each Matured LC
Obligation, unless funded under Section 2.12(b) hereof, together with interest
thereon at the Default Rate.
(b) Revolving Credit Loans Upon Letter of Credit Drawings. If the
beneficiary of any Letter of Credit makes a draft or other demand for payment
thereunder, then Borrower shall be deemed to have requested Revolving Credit
Lenders to make Revolving Credit Loans to Borrower on the date such draft or
demand is to be paid in the amount of such draft or demand. If all conditions
precedent to such Revolving Credit Loans shall be satisfied as of the date on
which such Revolving Credit Loans are to be made, Revolving Credit Lenders
shall make such Revolving Credit Loans pursuant to Section 2.1(a) concurrently
with LC Issuer's payment of such draft or demand, and such Revolving Credit
Loans shall be immediately used by LC Issuer to repay the amount of the
resulting Matured LC Obligation. For the purposes of the first sentence of
Section 2.1 the amount of such Revolving Credit Loans shall be considered but
the amount of the Matured LC Obligation to be concurrently paid by such
Revolving Credit Loans shall not be considered.
(c) Participation by Revolving Credit Lenders. LC Issuer irrevocably
agrees to grant and hereby grants to each Revolving Credit Lender, and -- to
induce LC Issuer to issue Letters of Credit hereunder -- each Revolving Credit
Lender irrevocably agrees to accept and purchase and hereby accepts and
purchases from LC Issuer, on the terms and conditions hereinafter stated and
for such Revolving Credit Lender's own account and risk an undivided interest
equal to such Revolving Credit Lender's Revolving Credit Lender's Revolving
Credit Percentage Share of LC Issuer's obligations and rights under each Letter
of Credit issued hereunder and the amount of each Matured LC Obligation paid by
LC Issuer thereunder. Each Revolving Credit Lender unconditionally and
irrevocably agrees with LC Issuer that, if a Matured LC Obligation is paid
under any Letter of Credit for which LC Issuer is not reimbursed in full by
Borrower in accordance with the terms of this Agreement and the related LC
Application (including any reimbursement by means of concurrent Revolving
Credit Loans or by the application of LC Collateral), such Revolving Credit
Lender shall (in all circumstances and without
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set-off or counterclaim) pay to LC Issuer on demand, in immediately available
funds at LC Issuer's address for notices hereunder, such Revolving Credit
Lender's Revolving Credit Percentage Share of such Matured LC Obligation (or
any portion thereof which has not been reimbursed by Borrower). Each Revolving
Credit Lender's obligation to pay LC Issuer pursuant to the terms of this
subsection is irrevocable and unconditional. If any amount required to be paid
by any Revolving Credit Lender to LC Issuer pursuant to this subsection is paid
by such Revolving Credit Lender to LC Issuer within three Business Days after
the date such payment is due, LC Issuer shall in addition to such amount be
entitled to recover from such Revolving Credit Lender, on demand, interest
thereon calculated from such due date at the Federal Funds Rate. If any amount
required to be paid by any Revolving Credit Lender to LC Issuer pursuant to
this subsection is not paid by such Revolving Credit Lender to LC Issuer within
three Business Days after the date such payment is due, LC Issuer shall in
addition to such amount be entitled to recover from such Revolving Credit
Lender, on demand, interest thereon calculated from such due date at the
Default Rate.
(d) Distributions to Participants. Whenever LC Issuer has in
accordance with this section received from any Revolving Credit Lender payment
of such Revolving Credit Lender's Revolving Credit Percentage Share of any
Matured LC Obligation, if LC Issuer thereafter receives any payment of such
Matured LC Obligation or any payment of interest thereon (whether directly from
Borrower or by application of LC Collateral or otherwise, and excluding only
interest for any period prior to LC Issuer's demand that such Revolving Credit
Lender make such payment of its Revolving Credit Percentage Share), LC Issuer
will distribute to such Revolving Credit Lender its Revolving Credit Percentage
Share of the amounts so received by LC Issuer; provided, however, that if any
such payment received by LC Issuer must thereafter be returned by LC Issuer,
such Revolving Credit Lender shall return to LC Issuer the portion thereof
which LC Issuer has previously distributed to it.
(e) Calculations. A written advice setting forth in reasonable detail
the amounts owing under this section, submitted by LC Issuer to Borrower or any
Revolving Credit Lender from time to time, shall be conclusive, absent
demonstrable error, as to the amounts thereof.
Section 2.13. Letter of Credit Fees. In consideration of LC Issuer's
issuance of any Letter of Credit, Borrower agrees to pay to Agent, for the
account of all Revolving Credit Lenders in accordance with their respective
Revolving Credit Percentage Shares, a letter of credit issuance fee at a rate
equal to the lesser of (a) one and one-half percent (1.5%) per annum and (b)
the Eurodollar Rate Margin per annum; provided that such fee shall not be less
than $500. Each such fee will be calculated based on the term and face amount
of such Letter of Credit and the above applicable rate and will be payable
quarterly in arrears. In addition, Borrower will pay to LC Issuer a minimum
administrative issuance fee of $100 for each Letter of Credit and an
administrative drawing fee of $300 upon any drawing under a Letter of Credit.
Section 2.14. No Duty to Inquire.
(a) Drafts and Demands. LC Issuer is authorized and instructed to
accept and pay drafts and demands for payment under any Letter of Credit
without requiring, and without responsibility for, any determination as to the
existence of any event giving rise to said draft, either at the time of
acceptance of payment or thereafter. LC Issuer is under no duty to determine
the proper identity of anyone presenting such a draft or making such a demand
(whether by tested telex or otherwise) as the officer, representative or agent
of any beneficiary under any Letter of Credit, and payment by LC Issuer to any
such beneficiary when requested by any such purported officer, representative
or agent is hereby authorized and approved. Borrower agrees to hold LC Issuer
and each other Bank Party harmless and indemnified against any liability or
claim in connection with or arising out of the subject matter of this
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<PAGE> 29
section, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM
IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT
ACT OR OMISSION OF ANY KIND BY ANY BANK PARTY, provided only that no Bank Party
shall be entitled to indemnification for that portion, if any, of any liability
or claim which is proximately caused by its own individual gross negligence or
willful misconduct.
(b) Extension of Maturity. If the maturity of any Letter of Credit is
extended by its terms or by Law or governmental action, if any extension of the
maturity or time for presentation of drafts or any other modification of the
terms of any Letter of Credit is made at the request of any Restricted Person,
or if the amount of any Letter of Credit is increased at the request of any
Restricted Person, this Agreement shall be binding upon all Restricted Persons
with respect to such Letter of Credit as so extended, increased or otherwise
modified, with respect to drafts and property covered thereby, and with respect
to any action taken by LC Issuer, LC Issuer's correspondents, or any Bank Party
in accordance with such extension, increase or other modification.
(c) Transferees of Letters of Credit. If any Letter of Credit provides
that it is transferable, LC Issuer shall have no duty to determine the proper
identity of anyone appearing as transferee of such Letter of Credit, nor shall
LC Issuer be charged with responsibility of any nature or character for the
validity or correctness of any transfer or successive transfers, and payment by
LC Issuer to any purported transferee or transferees as determined by LC Issuer
is hereby authorized and approved, and Borrower further agrees to hold LC
Issuer and each other Bank Party harmless and indemnified against any liability
or claim in connection with or arising out of the foregoing, WHICH INDEMNITY
SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY
EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY
KIND BY ANY BANK PARTY, provided only that no Bank Party shall be entitled to
indemnification for that portion, if any, of any liability or claim which is
proximately caused by its own individual gross negligence or willful
misconduct.
Section 2.15. LC Collateral.
(a) LC Obligations in Excess of Borrowing Base. If, after the making
of all mandatory prepayments required under Section 2.7(a), the outstanding LC
Obligations will exceed the Borrowing Base, then in addition to prepayment of
the entire principal balance of the Revolving Credit Loans Borrower will
immediately pay to LC Issuer an amount equal to such excess. LC Issuer will
hold such amount as security for the remaining LC Obligations (all such amounts
held as security for LC Obligations being herein collectively called "LC
Collateral") until such LC Obligations become Matured LC Obligations, at which
time such LC Collateral may be applied to such Matured LC Obligations. So long
as no Default has occurred and is continuing, if such LC Obligations shall
expire or otherwise terminate without a drawing or other demand for payment, or
if the Borrowing Base shall increase such that the Borrowing Base exceeds the
Revolving Credit Facility Usage, LC Collateral in an amount equal to such
expired or terminated and undrawn LC Obligation shall be returned to Borrower.
Neither this subsection nor the following subsection shall, however, limit or
impair any rights which LC Issuer may have under any other document or
agreement relating to any Letter of Credit or LC Obligation, including any LC
Application, or any rights which any Bank Party may have to otherwise apply any
payments by Borrower and any LC Collateral under Section 3.1.
(b) Acceleration of LC Obligations. If the Obligations or any part
thereof become immediately due and payable pursuant to Section 8.1 then, all LC
Obligations shall become immediately due and
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payable without regard to whether or not actual drawings or payments on the
Letters of Credit have occurred, and Borrower shall be obligated to pay to LC
Issuer immediately an amount equal to the aggregate LC Obligations which are
then outstanding. All amounts so paid shall first be applied to Matured LC
Obligations and then held by LC Issuer as LC Collateral until such LC
Obligations become Matured LC Obligations, at which time such LC Collateral
shall be applied to such Matured LC Obligations.
(c) Investment of LC Collateral. Pending application thereof, all LC
Collateral shall be invested by LC Issuer in such investments as LC Issuer may
choose in its sole discretion. All interest on such investments shall be
reinvested or applied to Matured LC Obligations. When all Obligations have
been satisfied in full, including all LC Obligations, all Letters of Credit
have expired or been terminated, and all of Borrower's reimbursement
obligations in connection therewith have been satisfied in full, LC Issuer
shall release any remaining LC Collateral. Borrower hereby assigns and grants
to LC Issuer a continuing security interest in all LC Collateral paid by it to
LC Issuer, all investments purchased with such LC Collateral, and all proceeds
thereof to secure its Matured LC Obligations and its Obligations under this
Agreement, the Note, and the other Loan Documents, and Borrower agrees that
such LC Collateral and investments shall be subject to all of the terms and
conditions of the Security Documents. Borrower further agrees that LC Issuer
shall have all of the rights and remedies of a secured party under the Uniform
Commercial Code as adopted in the State of New York with respect to such
security interest and that an Event of Default under this Agreement shall
constitute a default for purposes of such security interest.
(d) Payment of LC Collateral. When Borrower is required to provide LC
Collateral for any reason and fails to do so on the day when required, LC
Issuer may without notice to Borrower or any other Restricted Person provide
such LC Collateral (whether by application of proceeds of other Collateral, by
transfers from other accounts maintained with LC Issuer, or otherwise) using
any available funds of Borrower or any other Person also liable to make such
payments. Any such amounts which are required to be provided as LC Collateral
and which are not provided on the date required shall, for purposes of each
Security Document, be considered past due Obligations owing hereunder, and LC
Issuer is hereby authorized to exercise its respective rights under each
Security Document to obtain such amounts.
Section 2.16. Hedging Agreement Indemnity. From time to time ING
Capital may provide an indemnity or other credit support on behalf of
Restricted Persons to AIG Trading Corporation, whereby ING Capital agrees to
pay the obligations of such Restricted Person arising from time to time under a
Hedging Agreement (a "Hedging Agreement Indemnity"). In consideration thereof,
Borrower hereby promises and agrees to pay to ING Capital each amount which ING
Capital is called upon to pay on behalf of or for the benefit of such
Restricted Person under a Hedging Agreement Indemnity. Borrower shall pay each
such amount, immediately upon demand, in legal tender of the United States in
same day funds. Such promise and agreement of Borrower is irrevocable and
unconditional. ING Capital is authorized and instructed to pay all demands for
payment under any such Hedging Agreement Indemnity after exercising reasonable
care to determine whether such demand or the amount thereof is correct.
Borrower hereby promises to pay to ING Capital, on demand, interest at the
Default Rate on any amount payable by Borrower under this section from the date
such amounts become due until they are paid. Borrower may enter into a
separate Reimbursement Agreement governing such promise and agreement of
Borrower to pay to ING Capital each amount which ING Capital is called upon to
pay on behalf of or for the benefit of such Restricted Person under a Hedging
Agreement Indemnity. Notwithstanding the existence of any such separate
Reimbursement Agreement, the obligation of Borrower described in this section
shall be an "Obligation" arising under this Agreement and shall be secured by
and entitled to the benefit of all Security Documents, whether or
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<PAGE> 31
not the Security Documents specifically describe such separate Reimbursement
Agreement or the obligations of Borrower under this section. Each payment
under a Hedging Agreement Indemnity (whether in response to a demand for
payment or otherwise) shall constitute a loan by ING Capital and shall be
secured by and entitled to all benefits under the Security Documents.
ARTICLE III - Payments to Lenders
Section 3.1. General Procedures. Borrower will make each payment which
it owes under the Loan Documents to Agent for the account of the Bank Party to
whom such payment is owed. Each such payment must be received by Agent not
later than 11:00 a.m., New York, New York time, on the date such payment
becomes due and payable, in lawful money of the United States of America,
without set-off, deduction or counterclaim, and in immediately available funds.
Any payment received by Agent after such time will be deemed to have been made
on the next following Business Day. Should any such payment become due and
payable on a day other than a Business Day, the maturity of such payment shall
be extended to the next succeeding Business Day, and, in the case of a payment
of principal or past due interest, interest shall accrue and be payable thereon
for the period of such extension as provided in the Loan Document under which
such payment is due. Each payment under a Loan Document shall be due and
payable at the place provided therein and, if no specific place of payment is
provided, shall be due and payable at the place of payment of Agent's Note.
When Agent collects or receives money on account of the Obligations, Agent
shall distribute all money so collected or received, and each Bank Party shall
apply all such money so distributed, as follows:
(a) first, for the payment of all Obligations which are then due
(and if such money is insufficient to pay all such Obligations, first to
any reimbursements due Agent under Section 6.9 or 10.4 and then to the
partial payment of all other Obligations then due in proportion to the
amounts thereof, or as Bank Parties shall otherwise agree);
(b) then for the prepayment of amounts owing under the Loan
Documents (other than principal on the Notes) if so specified by
Borrower;
(c) then for the prepayment of principal on the Notes, together
with accrued and unpaid interest on the principal so prepaid; and
(d) last, for the payment or prepayment of any other
Obligations.
All payments applied to principal or interest on any Note shall be applied
first to any interest then due and payable, then to principal then due and
payable, and last to any prepayment of principal and interest in compliance
with Sections 2.6 and 2.7. All distributions of amounts described in any of
subsections (b), (c) or (d) above shall be made by Agent pro rata to each Bank
Party then owed Obligations described in such subsection in proportion to all
amounts owed to all Bank Parties which are described in such subsection;
provided that if any Lender then owes payments to LC Issuer for the purchase of
a participation under Section 2.12(c) hereof, any amounts otherwise
distributable under this section to such Lender shall be deemed to belong to LC
Issuer, to the extent of such unpaid payments, and Agent shall apply such
amounts to make such unpaid payments rather than distribute such amounts to
such Lender.
Section 3.2. Capital Reimbursement. If either (a) the introduction or
implementation of or the compliance with or any change in or in the
interpretation of any Law, or (b) the introduction or implementation of or the
compliance with any request, directive or guideline from any central bank or
other governmental authority (whether or not having the force of Law) affects
or would affect the
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<PAGE> 32
amount of capital required or expected to be maintained by any Bank Party or
any corporation controlling any Bank Party, then, upon demand by such Bank
Party, Borrower will pay to Agent for the benefit of such Bank Party, from time
to time as specified by such Bank Party, such additional amount or amounts
which such Bank Party shall determine to be appropriate to compensate such Bank
Party or any corporation controlling such Bank Party in light of such
circumstances, to the extent that such Bank Party reasonably determines that
the amount of any such capital would be increased or the rate of return on any
such capital would be reduced by or in whole or in part based on the existence
of the face amount of such Bank Party's Loans, Letters of Credit,
participations in Letters of Credit or commitments under this Agreement.
Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credit.
If after the date hereof any applicable Law (whether now in effect or
hereinafter enacted or promulgated, including Regulation D) or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of Law):
(a) shall change the basis of taxation of payments to any Bank
Party of any principal, interest, or other amounts attributable to any
Eurodollar Loan or Letter of Credit or otherwise due under this
Agreement in respect of any Eurodollar Loan or Letter of Credit (other
than taxes imposed on the overall net income of such Bank Party or any
lending office of such Bank Party by any jurisdiction in which such Bank
Party or any such lending office is located); or
(b) shall change, impose, modify, apply or deem applicable any
reserve, special deposit or similar requirements in respect of any
Eurodollar Loan or any Letter of Credit (excluding those for which such
Bank Party is fully compensated pursuant to adjustments made in the
definition of Eurodollar Rate) or against assets of, deposits with or
for the account of, or credit extended by, such Bank Party; or
(c) shall impose on any Bank Party or the interbank eurocurrency
deposit market any other condition affecting any Eurodollar Loan or
Letter of Credit, the result of which is to increase the cost to any
Bank Party of funding or maintaining any Eurodollar Loan or of issuing
any Letter of Credit or to reduce the amount of any sum receivable by
any Bank Party in respect of any Eurodollar Loan or Letter of Credit by
an amount deemed by such Bank Party to be material,
then such Bank Party shall promptly notify Agent and Borrower in writing of the
happening of such event and of the amount required to compensate such Bank
Party for such event (on an after-tax basis, taking into account any taxes on
such compensation), whereupon (i) Borrower shall pay such amount to Agent for
the account of such Bank Party and (ii) Borrower may elect, by giving to Agent
and such Bank Party not less than three Business Days' notice, to convert all
(but not less than all) of any such Eurodollar Loans into Base Rate Loans.
Notwithstanding anything herein to the contrary, Borrower shall not be required
to reimburse any such Bank Party for any such increased costs incurred more
than 90 days prior to such Bank Party's notice thereof.
Section 3.4. Availability. If (a) any change in applicable Laws, or in
the interpretation or administration thereof of or in any jurisdiction
whatsoever, domestic or foreign, shall make it unlawful or impracticable for
any Bank Party to fund or maintain Eurodollar Loans or to issue or participate
in Letters of Credit, or shall materially restrict the authority of any Bank
Party to purchase or take offshore deposits of dollars (i.e., "eurodollars"),
or (b) any Bank Party determines that matching deposits appropriate to fund or
maintain any Eurodollar Loan are not available to it, or (c) any Bank Party
determines that the formula for calculating the Eurodollar Rate does not fairly
reflect the cost to
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<PAGE> 33
such Bank Party of making or maintaining loans based on such rate, then, upon
notice by such Bank Party to Borrower and Agent, Borrower's right to elect
Eurodollar Loans from such Bank Party (or, if applicable, to obtain Letters of
Credit) shall be suspended to the extent and for the duration of such
illegality, impracticability or restriction and all Eurodollar Loans of such
Bank Party which are then outstanding or are then the subject of any Borrowing
Notice and which cannot lawfully or practicably be maintained or funded shall
immediately become or remain, or shall be funded as, Base Rate Loans of such
Bank Party. Borrower agrees to indemnify each Bank Party and hold it harmless
against all costs, expenses, claims, penalties, liabilities and damages which
may result from any such change in Law, interpretation or administration. Such
indemnification shall be on an after-tax basis, taking into account any taxes
imposed on the amounts paid as indemnity.
Section 3.5. Funding Losses. In addition to its other obligations
hereunder, Borrower will indemnify each Bank Party against, and reimburse each
Bank Party on demand for, any loss or expense incurred or sustained by such
Bank Party (including any loss or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by a Bank Party to fund or
maintain Eurodollar Loans), as a result of (a) any payment or prepayment
(whether authorized or required hereunder or otherwise) of all or a portion of
a Eurodollar Loan on a day other than the day on which the applicable Interest
Period ends, (b) any payment or prepayment, whether required hereunder or
otherwise, of a Loan made after the delivery, but before the effective date, of
a Continuation/Conversion Notice, if such payment or prepayment prevents such
Continuation/Conversion Notice from becoming fully effective, (c) the failure
of any Loan to be made or of any Continuation/Conversion Notice to become
effective due to any condition precedent not being satisfied or due to any
other action or inaction of any Restricted Person, or (d) any conversion
(whether authorized or required hereunder or otherwise) of all or any portion
of any Eurodollar Loan into a Base Rate Loan or into a different Eurodollar
Loan on a day other than the day on which the applicable Interest Period ends.
Such indemnification shall be on an after-tax basis, taking into account any
taxes imposed on the amounts paid as indemnity.
Section 3.6. Reimbursable Taxes. Borrower covenants and agrees that:
(a) Borrower will indemnify each Bank Party against and
reimburse each Bank Party for all present and future income, stamp and
other taxes, levies, costs and charges whatsoever imposed, assessed,
levied or collected on or in respect of this Agreement or any Eurodollar
Loans or Letters of Credit (whether or not legally or correctly imposed,
assessed, levied or collected), excluding, however, any taxes imposed on
or measured by the overall net income of Agent or such Bank Party or any
lending office of such Bank Party by any jurisdiction in which such Bank
Party or any such lending office is located (all such non-excluded
taxes, levies, costs and charges being collectively called "Reimbursable
Taxes" in this section). Such indemnification shall be on an after-tax
basis, taking into account any taxes imposed on the amounts paid as
indemnity.
(b) All payments on account of the principal of, and interest
on, each Bank Party's Loans and Note, and all other amounts payable by
Borrower to any Bank Party hereunder, shall be made in full without set-
off or counterclaim and shall be made free and clear of and without
deductions or withholdings of any nature by reason of any Reimbursable
Taxes, all of which will be for the account of Borrower. In the event
of Borrower being compelled by Law to make any such deduction or
withholding from any payment to any Bank Party, Borrower shall pay on
the due date of such payment, by way of additional interest, such
additional amounts as are needed to cause the amount receivable by such
Bank Party after such deduction or withholding to equal the amount which
would have been receivable in the absence of such
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deduction or withholding. If Borrower should make any deduction or
withholding as aforesaid, Borrower shall within 60 days thereafter
forward to such Bank Party an official receipt or other official
document evidencing payment of such deduction or withholding.
(c) If Borrower is ever required to pay any Reimbursable Tax
with respect to any Eurodollar Loan, Borrower may elect, by giving to
Agent and such Bank Party not less than three Business Days' notice, to
convert all (but not less than all) of any such Eurodollar Loan into a
Base Rate Loan, but such election shall not diminish Borrower's
obligation to pay all Reimbursable Taxes.
(d) Notwithstanding the foregoing provisions of this section,
Borrower shall be entitled, to the extent it is required to do so by
Law, to deduct or withhold (and not to make any indemnification or
reimbursement for) income or other similar taxes imposed by the United
States of America (other than any portion thereof attributable to a
change in federal income tax Laws effected after the date hereof) from
interest, fees or other amounts payable hereunder for the account of any
Bank Party, other than a Bank Party (i) who is a U.S. person for Federal
income tax purposes or (ii) who has the Prescribed Forms on file with
Agent (with copies provided to Borrower) for the applicable year to the
extent deduction or withholding of such taxes is not required as a
result of the filing of such Prescribed Forms, provided that if Borrower
shall so deduct or withhold any such taxes, it shall provide a statement
to Agent and such Bank Party, setting forth the amount of such taxes so
deducted or withheld, the applicable rate and any other information or
documentation which such Bank Party may reasonably request for assisting
such Bank Party to obtain any allowable credits or deductions for the
taxes so deducted or withheld in the jurisdiction or jurisdictions in
which such Bank Party is subject to tax. As used in this section,
"Prescribed Forms" means such duly executed forms or statements, and in
such number of copies, which may, from time to time, be prescribed by
Law and which, pursuant to applicable provisions of (x) an income tax
treaty between the United States and the country of residence of the
Bank Party providing the forms or statements, (y) the Internal Revenue
Code of 1986, as amended from time to time, or (z) any applicable rules
or regulations thereunder, permit Borrower to make payments hereunder
for the account of such Bank Party free of such deduction or withholding
of income or similar taxes.
Section 3.7. Change of Applicable Lending Office. Each Bank Party
agrees that, upon the occurrence of any event giving rise to the operation of
Sections 3.2 through 3.6 with respect to such Bank Party, it will, if requested
by Borrower, use reasonable efforts (subject to overall policy considerations
of such Bank Party) to designate another Lending Office, provided that such
designation is made on such terms that such Bank Party and its Lending Office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of any such
section. Nothing in this section shall affect or postpone any of the
obligations of Borrower or the rights of any Bank Party provided in Sections
3.2 through 3.6.
Section 3.8. Replacement of Lenders. If any Bank Party seeks
reimbursement for increased costs under Sections 3.2 through 3.6, then within
ninety days thereafter -- provided no Event of Default then exists -- Borrower
shall have the right (unless such Bank Party withdraws its request for
additional compensation) to replace such Bank Party by requiring such Bank
Party to assign its Loans and Notes and its commitments hereunder to an
Eligible Transferee reasonably acceptable to Agent and to Borrower, provided
that: (i) all Obligations of Borrower owing to such Bank Party being replaced
(including such increased costs, but excluding principal and accrued interest
on the Notes being assigned) shall be paid in full to such Bank Party
concurrently with such assignment, and (ii) the replacement Eligible Transferee
shall purchase the Note being assigned by paying to such Bank Party a
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price equal to the principal amount thereof plus accrued and unpaid interest
thereon. In connection with any such assignment Borrower, Agent, such Bank
Party and the replacement Eligible Transferee shall otherwise comply with
Section 10.5. Notwithstanding the foregoing rights of Borrower under this
section, however, Borrower may not replace any Bank Party which seeks
reimbursement for increased costs under Section 3.2 through 3.6 unless Borrower
is at the same time replacing all Bank Parties which are then seeking such
compensation.
ARTICLE IV - Conditions Precedent to Lending
Section 4.1. Documents to be Delivered. No Lender has any obligation
to make its first Loan, and LC Issuer has no obligation to issue the first
Letter of Credit unless Agent shall have received all of the following, at
Agent's office in New York, New York, duly executed and delivered and in form,
substance and date satisfactory to Agent:
(a) This Agreement and any other documents that Lenders are to
execute in connection herewith.
(b) Each Note.
(c) Each Security Document listed in the Security Schedule.
(d) Certain certificates of Borrower including:
(i) An "Omnibus Certificate" of the Vice President -
Operations and the Secretary of Borrower, which shall contain the
names and signatures of the officers of Borrower authorized to
execute Loan Documents and which shall certify to the truth,
correctness and completeness of the following exhibits attached
thereto: (1) a copy of resolutions duly adopted by the Board of
Directors of Borrower and in full force and effect at the time
this Agreement is entered into, authorizing the execution of this
Agreement and the other Loan Documents delivered or to be
delivered in connection herewith and the consummation of the
transactions contemplated herein and therein, (2) a copy of the
charter documents of Borrower and all amendments thereto,
certified by the appropriate official of Borrower's state of
organization, and (3) a copy of any bylaws of Borrower; and
(ii) A "Compliance Certificate" of the Vice President -
Operations and the Vice President - Controller of Borrower, of
even date with such Loan or such Letter of Credit, in which such
officers certify to the satisfaction of the conditions set out in
subsections (a), (b), (c) and (d) of Section 4.3.
(iii) A "Solvency Certificate" of the Vice President -
Controller of Borrower, of even date with such Loan or Letter of
Credit, in which such officer certifies Borrower's solvency.
(e) A certificate (or certificates) of the due formation, valid
existence and good standing of Borrower in its state of organization,
issued by the appropriate authorities of such jurisdiction, and
certificates of Borrower's good standing and due qualification to do
business, issued by appropriate officials in any states in which
Borrower owns property subject to Security Documents.
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(f) Documents similar to those specified in subsections (d)(i)
and (iii) and (e) of this section with respect to each Guarantor and the
execution by it of its guaranty of Borrower's Obligations.
(g) A favorable opinion of Albright & Rusher, A Professional
Corporation, counsel for Restricted Persons, substantially in the form
set forth in Exhibit I.
(h) The Initial Engineering Report and the Initial Financial
Statements.
(i) Certificates or binders evidencing Borrower's and its
Subsidiaries' insurance in effect on the date hereof.
(j) A favorable Phase One environmental report of Pilko &
Associates, Inc. regarding their environmental assessment of the
material properties of Restricted Persons and any other properties
constituting Collateral, in scope and results acceptable to Agent.
(k) Title insurance policies covering the Beaver Plant and the
Mocane Plant.
(l) Copies of all rights-of-way and permits regarding the
Gathering Systems.
(m) A favorable report of Agent's professional insurance
consultants regarding their assessment of the insurance maintained by
Borrower and its Subsidiaries, in scope and results acceptable to Agent.
(n) Payment of all commitment, facility, agency and other fees
required to be paid to any Bank Party pursuant to any Loan Documents or
any commitment agreement heretofore entered into.
(o) Documents (i) assigning and transferring all assets of CHI
to Continental Hydrocarbons, and (ii) dissolving CHI.
(p) Documents assigning and transferring the Beaver Plant from
Borrower to Continental Processing.
(q) A copy of each Prepaid Sales Document executed on or prior
to the date hereof, duly executed and delivered by each party thereto.
(r) Documents confirming the purchase by ING Capital of the
Indebtedness under the Existing Credit Documents, including (i) an
Assignment of Notes and Liens and other assignments assigning all Liens
on Borrower's or any of its Subsidiaries' property securing such
Indebtedness under the Existing Credit Documents to ING Capital,
individually and as Agent for the benefit of Lenders, (ii) the original
promissory notes issued pursuant to the Existing Credit Documents,
endorsed payable to the order of ING Capital, and (iii) documents
terminating the credit facility under the Existing Credit Documents.
Prior to or contemporaneously herewith, CHI shall have assigned and transferred
all of its assets to Continental Hydrocarbons pursuant to the documents
described in clause (o) above, and Borrower shall have assigned and transferred
the Beaver Plant to Continental Processing pursuant to the documents described
in clause (p) above, all in form and substance satisfactory to Agent.
Borrower, for itself and on behalf of each Restricted Person, hereby
acknowledges and agrees that the assignment and transfer
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by CHI of all of its assets to Continental Hydrocarbons and the assignment and
transfer of the Beaver Plant by Borrower to Continental Processing shall be
deemed to have occurred immediately prior to the execution and delivery of each
Loan Document as set forth in Section 3.1 above, including without limitation
each Security Document.
Section 4.2. Second Advance of Term Loans; Closing of Laverne Plant
Acquisition. No Term Lender has any obligation to fund its second advance of
Term Loans unless contemporaneously with such second advance of Term Loans, the
transactions contemplated under the Acquisition Documents, in form and
substance satisfactory to Agent, shall have been consummated and Agent shall
have received all of the following, at Agent's office in New York, New York,
duly executed and delivered and in form, substance and date satisfactory to
Agent:
(a) A Mortgage, Security Agreement, Fixture Filing and Financing
Statement, by the Restricted Person acquiring the Laverne Plant and related
facilities pursuant to the Acquisition Documents, in favor of ING Capital,
individually or as Agent, covering the Laverne Plant and related facilities
(the "Laverne Plant Mortgage"), and financing statements related thereto.
(b) A Security Agreement by such Restricted Person in favor of ING
Capital, individually and/or as Agent, covering all personal property, and
financing statements related thereto.
(c) Documents similar to those specified in Sections 4.1(f), (g), (i),
(j) and (k) with respect to such acquisition, and, if such Restricted Person is
not Borrower, an amendment to the Pledge Agreement amending the description of
Collateral described therein to include all capital stock or ownership
interests of such Restricted Person, and financing statement amendments related
thereto.
(d) A copy of each Acquisition Document, duly executed and delivered by
each party thereto.
Section 4.3. Additional Conditions Precedent. No Lender has any
obligation to make any Loan (including its first), and LC Issuer has no
obligation to issue any Letter of Credit (including its first), unless the
following conditions precedent have been satisfied:
(a) All representations and warranties made by any Restricted
Person in any Loan Document shall be true on and as of the date of such
Loan or the date of issuance of such Letter of Credit (except to the
extent that the facts upon which such representations are based have
been changed by the extension of credit hereunder) as if such
representations and warranties had been made as of the date of such Loan
or the date of issuance of such Letter of Credit.
(b) No Default shall exist at the date of such Loan or the date
of issuance of such Letter of Credit; provided, that no Revolving Credit
Lender has any obligation to make any Revolving Credit Loan if a Default
shall have occurred and shall have been waived by Majority Lenders
unless Revolving Credit Lenders whose aggregate Revolving Credit
Percentage Shares equal or exceed sixty-six and two-thirds percent
(66 2/3%) shall have waived such Default.
(c) No Material Adverse Change shall have occurred to, and no
event or circumstance shall have occurred that could cause a Material
Adverse Change to, Borrower's Consolidated financial condition or
businesses since the date of this Agreement.
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(d) Each Restricted Person shall have performed and complied
with all agreements and conditions required in the Loan Documents to be
performed or complied with by it on or prior to the date of such Loan or
the date of issuance of such Letter of Credit.
(e) The making of such Loan or the issuance of such Letter of
Credit shall not be prohibited by any Law and shall not subject any
Lender or any LC Issuer to any penalty or other onerous condition under
or pursuant to any such Law.
(f) Agent shall have received all documents and instruments
which Agent has then reasonably requested, in addition to those
described in Section 4.1 (including opinions of legal counsel for
Restricted Persons and Agent; corporate documents and records; documents
evidencing governmental authorizations, consents, approvals, licenses
and exemptions; and certificates of public officials and of officers and
representatives of Borrower and other Persons), as to (i) the accuracy
and validity of or compliance with all representations, warranties and
covenants made by any Restricted Person in this Agreement and the other
Loan Documents, (ii) the satisfaction of all conditions contained herein
or therein, and (iii) all other matters pertaining hereto and thereto.
All such additional documents and instruments shall be satisfactory to
Agent in form, substance and date.
(g) Borrower shall, prior to the making of the first Loan (or
using the proceeds thereof), have deposited $6,000 with Thompson &
Knight, P.C., counsel for Agent, to be held by such counsel and applied
toward payment of costs and expenses for recordation of the Security
Documents, as provided pursuant to Section 10.4(a). If such deposit
exceeds the amount of such costs and expenses, the excess shall be
returned to Borrower (or applied toward such counsel's legal fees). If
such deposit is less than such costs and expenses, the deficit shall be
paid by Borrower pursuant to Section 10.4(a).
ARTICLE V - Representations and Warranties
To confirm each Bank Party's understanding concerning Borrower's and its
Subsidiaries' businesses, properties and obligations and to induce each Bank
Party to enter into this Agreement and to extend credit hereunder, Borrower
represents and warrants to each Bank Party that:
Section 5.1. No Default. No Restricted Person is in default in the
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.
Section 5.2. Organization and Good Standing. Borrower and each of its
Subsidiaries is duly organized, validly existing and in good standing under the
Laws of its jurisdiction of organization, having all powers required to carry
on its business and enter into and carry out the transactions contemplated
hereby. Each Restricted Person is duly qualified, in good standing, and
authorized to do business in all other jurisdictions within the United States
wherein the character of the properties owned or held by it or the nature of
the business transacted by it makes such qualification necessary. Each
Restricted Person has taken all actions and procedures customarily taken in
order to enter, for the purpose of conducting business or owning property, each
jurisdiction outside the United States wherein the character of the properties
owned or held by it or the nature of the business transacted by it makes such
actions and procedures desirable.
Section 5.3. Authorization. Each Restricted Person has duly taken all
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize
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the consummation of the transactions contemplated thereby and the performance
of its obligations thereunder. Borrower is duly authorized to borrow funds
hereunder.
Section 5.4. No Conflicts or Consents. The execution and delivery by
the various Restricted Persons of the Loan Documents to which each is a party,
the performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not (i) conflict with any provision of (1) any Law, (2) the
organizational documents of any Restricted Person, or (3) any agreement,
judgment, license, order or permit applicable to or binding upon any Restricted
Person, (ii) result in the acceleration of any Indebtedness owed by any
Restricted Person, or (iii) result in or require the creation of any Lien upon
any assets or properties of any Restricted Person except as expressly
contemplated in the Loan Documents. Except as expressly contemplated in the
Loan Documents no consent, approval, authorization or order of, and no notice
to or filing with, any Tribunal or third party is required in connection with
the execution, delivery or performance by any Restricted Person of any Loan
Document or to consummate any transactions contemplated by the Loan Documents.
Section 5.5. Enforceable Obligations. This Agreement is, and the other
Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Restricted Person which is a party hereto or
thereto, enforceable in accordance with their terms except as such enforcement
may be limited by bankruptcy, insolvency or similar Laws of general application
relating to the enforcement of creditors' rights.
Section 5.6. Initial Financial Statements. Borrower has heretofore
delivered to each Bank Party true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present
Borrower's Consolidated financial position at the respective dates thereof and
the Consolidated results of Borrower's operations and Borrower's Consolidated
cash flows for the respective periods thereof. Since the date of the annual
Initial Financial Statements no Material Adverse Change has occurred, except as
reflected in the quarterly Initial Financial Statements or in the Disclosure
Schedule. All Initial Financial Statements were prepared in accordance with
GAAP.
Section 5.7. Other Obligations and Restrictions. Neither Borrower nor
any of its Subsidiaries has any outstanding Liabilities of any kind (including
contingent obligations, tax assessments, and unusual forward or long-term
commitments) which is, in the aggregate, material to Borrower or material with
respect to Borrower's Consolidated financial condition and not shown in the
Initial Financial Statements or disclosed in the Disclosure Schedule or a
Disclosure Report. Except as shown in the Initial Financial Statements or
disclosed in the Disclosure Schedule or a Disclosure Report, neither Borrower
nor any of its Subsidiaries is subject to or restricted by any franchise,
contract, deed, charter restriction, or other instrument or restriction which
could cause a Material Adverse Change.
Section 5.8. Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by Borrower or any of its
Subsidiaries to any Bank Party in connection with the negotiation of this
Agreement or in connection with any transaction contemplated hereby contains
any untrue statement of a material fact or omits to state any material fact
known to Borrower or any of its Subsidiaries (other than industry-wide risks
normally associated with the types of businesses conducted by Borrower and its
Subsidiaries) necessary to make the statements contained herein or therein not
misleading as of the date made or deemed made. There is no fact known to
Borrower or any of its Subsidiaries (other than industry-wide risks normally
associated with the types of businesses conducted by Borrower and its
Subsidiaries) that has not been disclosed to each Bank Party in writing which
could cause a Material Adverse Change. There are no statements or conclusions
in any Engineering Report which are based upon or include misleading
information or fail to take into account material
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information regarding the matters reported therein, it being understood that
each Engineering Report is necessarily based upon professional opinions,
estimates and projections and that Borrower does not warrant that such
opinions, estimates and projections will ultimately prove to have been
accurate. Borrower has heretofore delivered to each Bank Party true, correct
and complete copies of the Initial Engineering Report.
Section 5.9. Litigation. Except as disclosed in the Initial Financial
Statements or in the Disclosure Schedule: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of Borrower or any of its Subsidiaries threatened, against Borrower
or any of its Subsidiaries before any Tribunal which could cause a Material
Adverse Change, and (ii) there are no outstanding judgments, injunctions,
writs, rulings or orders by any such Tribunal against Borrower or any of its
Subsidiaries, or any of their stockholders, partners, directors or officers,
which could cause a Material Adverse Change.
Section 5.10. Labor Disputes and Acts of God. Except as disclosed in
the Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of Borrower or any of its Subsidiaries has been affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance), which could cause a Material
Adverse Change.
Section 5.11. ERISA Plans and Liabilities. All currently existing
ERISA Plans are listed in the Disclosure Schedule or a Disclosure Report.
Except as disclosed in the Initial Financial Statements or in the Disclosure
Schedule or a Disclosure Report, no Termination Event has occurred with respect
to any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all
material respects. No ERISA Affiliate is required to contribute to, or has any
other absolute or contingent liability in respect of, any "multiemployer plan"
as defined in Section 4001 of ERISA. Except as set forth in the Disclosure
Schedule or a Disclosure Report: (i) no "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as amended)
exists with respect to any ERISA Plan, whether or not waived by the Secretary
of the Treasury or his delegate, and (ii) the current value of each ERISA
Plan's benefits does not exceed the current value of such ERISA Plan's assets
available for the payment of such benefits by more than $500,000.
Section 5.12. Environmental and Other Laws. As used in this section:
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, "CERCLIS" means the Comprehensive
Environmental Response, Compensation and Liability Information System List of
the Environmental Protection Agency, and "Release" has the meaning given such
term in 42 U.S.C. Section 9601(22). Except as set forth in the Disclosure
Schedule or a Disclosure Report:
(a) Borrower and each of its Subsidiaries are conducting their
businesses in material compliance with all applicable Laws, including
Environmental Laws, and have all permits, licenses and authorizations required
in connection with the conduct of their businesses. Borrower and each of its
Subsidiaries are in compliance with the terms and conditions of all such
permits, licenses and authorizations, and are also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any applicable Environmental
Law or in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder,
except to the extent failure to comply in either such case could not cause a
Material Adverse Change.
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(b) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed, and no investigation or review is pending (or, to the best
knowledge of Borrower and its Subsidiaries, threatened) by any Tribunal or any
other Person with respect to (i) any alleged generation, treatment, storage,
recycling, transportation, disposal, or Release of any Hazardous Materials,
either by Borrower or any of its Subsidiaries or on any property owned by
Borrower or any of its Subsidiaries, (ii) any material remedial action which
might be needed to respond to any such alleged generation, treatment, storage,
recycling, transportation, disposal, or Release, or (iii) any alleged failure
by Borrower or any of its Subsidiaries to have any permit, license or
authorization required in connection with the conduct of its business or with
respect to any such generation, treatment, storage, recycling, transportation,
disposal, or Release.
(c) Neither Borrower nor any of its Subsidiaries otherwise has any
known material contingent liability in connection with any alleged generation,
treatment, storage, recycling, transportation, disposal, or Release of any
Hazardous Materials.
(d) Neither Borrower nor any of its Subsidiaries has handled any
Hazardous Materials, other than as a generator, on any properties now or
previously owned or leased by Borrower or any of its Subsidiaries to an extent
that such handling has caused, or could cause, a Material Adverse Change; and
(i) to the best knowledge of Borrower after due inquiry, no PCBs are
or have been present at any properties now or previously owned or
leased by Borrower or any of its Subsidiaries to an extent that
such PCBs have caused, or could cause, a material liability to
Borrower or any of its Subsidiaries;
(ii) to the best knowledge of Borrower after due inquiry, no asbestos
is or has been present at any properties now or previously owned
or leased by Borrower or any of its Subsidiaries to an extent
that such asbestos has caused, or could cause, a material
liability to Borrower or any of its Subsidiaries;
(iii) to the best knowledge of Borrower after due inquiry, there are no
underground storage tanks for Hazardous Materials, active or
abandoned, at any properties now or previously owned or leased by
Borrower or any of its Subsidiaries that have caused, or could
cause, a material liability to Borrower or any of its
Subsidiaries;
(iv) to the best knowledge of Borrower after due inquiry, no Hazardous
Materials have been Released, in a reportable quantity, where
such a quantity has been established by statute, ordinance, rule,
regulation or order, at, on or under any properties now or
previously owned or leased by Borrower or any of its Subsidiaries
to an extent that such Release has caused, or could cause, a
material liability to Borrower or any of its Subsidiaries;
(v) to the best knowledge of Borrower after due inquiry, no Hazardous
Materials have been otherwise Released at, on or under any
properties now or previously owned or leased by Borrower or any
of its Subsidiaries to an extent that such release has caused, or
could cause, a Material Adverse Change.
In determining whether a representation or warranty contained in the
foregoing clauses (i) through (v) is "false or incorrect in any material
respect" on any date on or as of which made
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(including the date as of which such representation or warranty is
initially made or may thereafter be restated) for purposes of Section
8.1(f) hereof, such representation and warranty shall be read solely for
such purpose and no other, as if the qualification "to the best
knowledge of Borrower after due inquiry" was deleted.
(e) Neither Borrower nor any of its Subsidiaries has transported or
arranged for the transportation of any Hazardous Material to any location which
is listed on the National Priorities List under CERCLA, listed for possible
inclusion on the National Priorities List by the Environmental Protection
Agency in CERCLIS, or listed on any similar state list or which is the subject
of federal, state or local enforcement actions or other investigations which
may lead to claims against Borrower or any of its Subsidiaries for clean-up
costs, remedial work, damages to natural resources or for personal injury
claims, including, but not limited to, claims under CERCLA.
(f) No Hazardous Material generated by Borrower or any of its
Subsidiaries has been recycled, treated, stored, disposed of or released by
Borrower or any of its Subsidiaries at any location other than those listed in
Disclosure Schedule.
(g) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of Borrower or any of its Subsidiaries
(and to the best knowledge of Borrower, no such notification has been filed
with respect to Borrower or any of its Subsidiaries by any other Person), and
no property now or previously owned or leased by Borrower or any of its
Subsidiaries is listed or proposed for listing on the National Priority list
promulgated pursuant to CERCLA, in CERCLIS, or on any similar state list of
sites requiring investigation or clean-up.
(h) There are no Liens arising under or pursuant to any Environmental
Laws on any of the real properties or properties owned or leased by Borrower or
any of its Subsidiaries, and no government actions have been taken (or, to the
best knowledge of Borrower and its Subsidiaries are in process) which could
subject any of such properties to such Liens; nor would Borrower or any of its
Subsidiaries be required to place any notice or restriction relating to the
presence of Hazardous Materials at any properties owned by it in any deed to
such properties.
(i) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
Borrower or any of its Subsidiaries in relation to any properties or facility
now or previously owned or leased by Borrower or any of its Subsidiaries which
have not been made available to Agent.
Section 5.13. Names and Places of Business. No Restricted Person has,
during the preceding five years, had, been known by, or used any other trade or
fictitious name, except as disclosed in the Disclosure Schedule. Except as
otherwise indicated in the Disclosure Schedule or a Disclosure Report, the
chief executive office and principal place of business of each Restricted
Person are (and for the preceding five years have been) located at the address
of Borrower set out in Section 10.3. Except as indicated in the Disclosure
Schedule or a Disclosure Report, no Restricted Person has any other office or
place of business.
Section 5.14. Borrower's Subsidiaries. Borrower does not presently
have any Subsidiary or own any stock in any other corporation or association
except those listed in the Disclosure Schedule or a Disclosure Report. Neither
Borrower nor any Restricted Person is a member of any general or limited
partnership, joint venture or association of any type whatsoever except those
listed in the Disclosure Schedule or a Disclosure Report. Except as otherwise
revealed in a Disclosure Report,
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Borrower owns, directly or indirectly, the equity interest in each of its
Subsidiaries which is indicated in the Disclosure Schedule.
Section 5.15. Title to Properties; Licenses. Borrower and each of its
Subsidiaries has good and defensible title to all of its material properties
and assets, free and clear of all Liens other than Permitted Liens and of all
impediments to the use of such properties and assets in its business. Borrower
and each of its Subsidiaries possesses all licenses, permits, franchises,
patents, copyrights, trademarks and trade names, and other intellectual
property (or otherwise possesses the right to use such intellectual property
without violation of the rights of any other Person) which are reasonably
necessary to carry out its business as presently conducted and as presently
proposed to be conducted hereafter, and neither Borrower nor any of its
Subsidiaries is in violation in any material respect of the terms under which
it possesses such intellectual property or the right to use such intellectual
property.
Section 5.16. Government Regulation. Neither Borrower nor any other
Restricted Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or any
other Law which regulates the incurring by such Person of Indebtedness,
including Laws relating to common contract carriers or the sale of electricity,
gas, steam, water or other public utility services.
ARTICLE VI - Affirmative Covenants of Borrower
To conform with the terms and conditions under which each Bank Party is
willing to have credit outstanding to Borrower, and to induce each Bank Party
to enter into this Agreement and extend credit hereunder, Borrower warrants,
covenants and agrees that until the full and final payment of the Obligations
and the termination of this Agreement, unless Majority Lenders have previously
agreed otherwise:
Section 6.1. Payment and Performance. Borrower will pay all amounts
due under the Loan Documents in accordance with the terms thereof and will
observe, perform and comply with every covenant, term and condition expressed
or implied in the Loan Documents. Borrower will cause each of its Subsidiaries
to observe, perform and comply with every such term, covenant and condition.
Section 6.2. Books, Financial Statements and Reports. Borrower and
each of its Subsidiaries will at all times maintain full and accurate books of
account and records. Borrower will maintain and will cause its Subsidiaries to
maintain a standard system of accounting, will maintain its Fiscal Year, and
will furnish the following statements and reports to each Bank Party at
Borrower's expense:
(a) As soon as available, and in any event within ninety (90)
days after the end of each Fiscal Year, complete Consolidated and
consolidating financial statements of Borrower together with all notes
thereto, prepared in reasonable detail in accordance with GAAP, together
with an unqualified opinion, based on an audit using generally accepted
auditing standards, by Coopers & Lybrand, L.L.P., or other independent
certified public accountants selected by Borrower and acceptable to
Majority Lenders, stating that such Consolidated financial statements
have been so prepared; such unqualified opinion and audit shall not
include the consolidating financial statements of Borrower. These
financial statements shall contain a Consolidated and consolidating
balance sheet as of the end of such Fiscal Year and Consolidated and
consolidating statements of earnings, of cash flows, and of changes in
owners' equity for such Fiscal Year, each setting forth in comparative
form the corresponding figures for the preceding Fiscal Year. In
addition, within ninety (90) days after the end of each Fiscal Year
Borrower
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will furnish a report signed by such accountants (i) stating that they
have read this Agreement, (ii) containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Year with the
requirements of Sections 7.11 through 7.14, and (iii) further stating
that in making their examination and reporting on the Consolidated
financial statements described above they did not conclude that any
Default existed at the end of such Fiscal Year or at the time of their
report, or, if they did conclude that a Default existed, specifying its
nature and period of existence.
(b) As soon as available, and in any event within forty-five
(45) days after the end of each Fiscal Quarter, Borrower's Consolidated
and consolidating balance sheet as of the end of such Fiscal Quarter and
Consolidated and consolidating statements of Borrower's earnings and
cash flows for the period from the beginning of the then current Fiscal
Year to the end of such Fiscal Quarter, all in reasonable detail and
prepared in accordance with GAAP, subject to changes resulting from
normal year-end adjustments. In addition Borrower will, together with
each such set of financial statements and each set of financial
statements furnished under subsection (a) of this section, furnish a
certificate in the form of Exhibit D signed by the chief financial
officer of Borrower stating that such financial statements are accurate
and complete (subject to normal year-end adjustments), stating that he
has reviewed the Loan Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with
the requirements of Sections 7.11 through 7.14 and stating that no
Default exists at the end of such Fiscal Quarter or at the time of such
certificate or specifying the nature and period of existence of any such
Default.
(c) By March 31 of each year, an engineering report prepared as
of the immediately preceding January 1 by Lee Keeling & Associates, or
other independent petroleum engineers chosen by Borrower and acceptable
to Majority Lenders, concerning the Collateral and other oil and gas
properties and interests which have attributable to them proved oil or
gas reserves serviced by or subject to Restricted Persons' gas
processing plants or pipeline gathering systems, in form and substance
satisfactory to Agent, and shall contain information and analysis
comparable in scope to that contained in the Initial Engineering Report.
Borrower shall in addition furnish information relating the information
contained in such report to each gas processing plant or pipeline
gathering system.
(d) As soon as available, and in any event within ninety (90)
days after the end of each Fiscal Year, a business and financial plan
for Borrower (in form reasonably satisfactory to Agent), prepared by a
senior financial officer thereof, setting forth for the first year
thereof, quarterly financial projections and budgets for Borrower, and
thereafter yearly financial projections and budgets during the Revolving
Credit Commitment Period.
(e) As soon as available, and in any event within twenty-five
(25) days after the end of each calendar month, a Borrowing Base Report
duly completed by an authorized officer of Borrower.
(f) As soon as available, and in any event within forty-five
(45) days after the end of each Fiscal Quarter, a report setting forth
in detail the following:
(i) throughput pipeline volumes of Natural Gas delivered
by Restricted Persons for such Fiscal Quarter in connection with,
and transportation fees charged by the Restricted Persons for
such Fiscal Quarter delivered through all pipeline facilities of
Restricted Persons,
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(ii) average daily throughput volumes and total
throughput volumes of Natural Gas processed by Restricted Persons
during such Fiscal Quarter, and processing fees charged by the
Restricted Persons for such Fiscal Quarter, for each of the
Beaver Plant, Mocane Plant and Laverne Plant,
(iii) total volumes of all Natural Gas liquids produced
by Restricted Persons during such Fiscal Quarter, and prices and
margins for all sales of Natural Gas liquid production for such
Fiscal Quarter,
(iv) a list of all gathering, transportation and
processing contracts of Restricted Persons effective as of the
last day of such Fiscal Quarter, for each of the Beaver Plant,
Mocane Plant, Laverne Plant and each Gathering System, listing
counterparty, term, volumes and fees,
(v) a detailed listing of all general and administrative
expenses of Restricted Persons during such Fiscal Quarter, and
(vi) volumes, prices and margins for all marketing
activities of Restricted Persons.
(g) As soon as available, and in any event within thirty (30)
days after the end of each Fiscal Year, Borrower shall deliver to Agent
an environmental compliance certificate signed by the president or chief
executive officer of Borrower in the form attached hereto as Exhibit F.
Further, if requested by Agent, Borrower shall permit and cooperate with
an environmental and safety review made in connection with the
operations of Borrower's oil and gas properties one time during each
Fiscal Year beginning with the Fiscal Year 1997, by Pilko & Associates,
Inc. or other consultants selected by Agent which review shall, if
requested by Agent, be arranged and supervised by environmental legal
counsel for Agent, all at Borrower's cost and expense. The consultant
shall render a verbal or written report, as specified by Agent, based
upon such review at Borrower's cost and expense.
(h) Concurrently with the annual renewal of the Borrower's
insurance policies, Borrower shall, if requested by Agent in writing,
cause a certificate or report to be issued by Agent's professional
insurance consultants or other insurance consultants satisfactory to
Agent certifying that Borrower's insurance for the next succeeding year
after such renewal (or for such longer period for which such insurance
is in effect) complies with the provisions of this Agreement and the
Security Documents.
(i) As soon as available, any Prepaid Sales Documents executed
and delivered after the date hereof.
Section 6.3. Other Information and Inspections. Borrower and each of
its Subsidiaries will furnish to each Bank Party any information which Agent
may from time to time reasonably request in writing concerning any covenant,
provision or condition of the Transaction Documents or any matter in connection
with Borrower' and its Subsidiaries' businesses and operations. Borrower and
each of its Subsidiaries will permit representatives appointed by Agent
(including independent accountants, auditors, agents, attorneys, appraisers and
any other Persons) to visit and inspect during normal business hours any of
such Person's property, including its books of account, other books and
records, and any facilities or other business assets, and to make extra copies
therefrom and photocopies and photographs thereof, and to write down and record
any information such representatives obtain, and
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Borrower and each of its Subsidiaries shall permit Agent or its representatives
to investigate and verify the accuracy of the information furnished to Agent or
any Lender in connection with the Transaction Documents and to discuss all such
matters with its officers, employees and representatives.
Section 6.4. Notice of Material Events and Change of Address. Borrower
will promptly notify each Bank Party in writing, stating that such notice is
being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any Indebtedness owed by
Borrower or any of its Subsidiaries or of any default by Borrower or any
of its Subsidiaries under any indenture, mortgage, agreement, contract
or other instrument to which any of them is a party or by which any of
them or any of their properties is bound, if such acceleration or
default could cause a Material Adverse Change,
(d) the occurrence of any Termination Event,
(e) any claim of $500,000 or more, any notice of potential
liability under any Environmental Laws which might exceed such amount,
or any other material adverse claim asserted against Borrower or any of
its Subsidiaries or with respect to Borrower's or any Subsidiaries'
properties, and
(f) the filing of any suit or proceeding against Borrower or any
of its Subsidiaries in which an adverse decision could cause a Material
Adverse Change.
Upon the occurrence of any of the foregoing Borrower and its Subsidiaries will
take all necessary or appropriate steps to remedy promptly any such Material
Adverse Change, Default, acceleration, default or Termination Event, to protect
against any such adverse claim, to defend any such suit or proceeding, and to
resolve all controversies on account of any of the foregoing. Borrower will
also notify Agent and Agent's counsel in writing at least twenty Business Days
prior to the date that any Restricted Person changes its name or the location
of its chief executive office or principal place of business or the place where
it keeps its books and records concerning the Collateral, furnishing with such
notice any necessary financing statement amendments or requesting Agent and its
counsel to prepare the same.
Section 6.5. Maintenance of Properties. Borrower and each of its
Subsidiaries will maintain, preserve, protect, and keep all Collateral and all
other property used or useful in the conduct of its business in good condition
and in compliance with all applicable Laws, and will from time to time make all
repairs, renewals and replacements needed to enable the business and operations
carried on in connection therewith to be promptly and advantageously conducted
at all times.
Section 6.6. Maintenance of Existence and Qualifications. Borrower and
each of its Subsidiaries will maintain and preserve its existence and its
rights and franchises in full force and effect and will qualify to do business
in all states or jurisdictions where required by applicable Law, except where
the failure so to qualify will not cause a Material Adverse Change.
Section 6.7. Payment of Trade Liabilities, Taxes, etc. Borrower and
each of its Subsidiaries will (a) timely file all required tax returns; (b)
timely pay all taxes, assessments, and other governmental charges or levies
imposed upon it or upon its income, profits or property; (c) within
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ninety (90) days after the same becomes due pay all Liabilities owed by it on
ordinary trade terms to vendors, suppliers and other Persons providing goods
and services used by it in the ordinary course of its business; (d) pay and
discharge when due all other Liabilities now or hereafter owed by it; and (e)
maintain appropriate accruals and reserves for all of the foregoing in
accordance with GAAP. Borrower or any Subsidiary may, however, delay paying or
discharging any of the foregoing so long as it is in good faith contesting the
validity thereof by appropriate proceedings and has set aside on its books
adequate reserves therefor.
Section 6.8. Insurance. Borrower and each of its Subsidiaries will
keep or cause to be kept insured by financially sound and reputable insurers
its property in accordance with the Insurance Schedule. Borrower will maintain
the additional insurance coverage as described in the respective Security
Documents. Upon demand by Agent any insurance policies covering Collateral
shall be endorsed (a) to provide for payment of losses to Agent as its
interests may appear, (b) to provide that such policies may not be cancelled or
reduced or affected in any material manner for any reason without fifteen days
prior notice to Agent, (c) to provide for any other matters specified in any
applicable Security Document or which Agent may reasonably require; and (d) to
provide for insurance against fire, casualty and any other hazards normally
insured against, in the amount of the full value (less a reasonable deductible
not to exceed amounts customary in the industry for similarly situated
businesses and properties) of the property insured. Borrower and each of its
Subsidiaries shall at all times maintain insurance against its liability for
injury to persons or property in accordance with the Insurance Schedule, which
insurance shall be by financially sound and reputable insurers. Without
limiting the foregoing, Borrower and each of its Subsidiaries shall at all time
maintain liability insurance in the amounts set out on the Insurance Schedule.
Section 6.9. Performance on Borrower's Behalf. If any Restricted
Person fails to pay any taxes, insurance premiums, expenses, attorneys' fees or
other amounts it is required to pay under any Loan Document, Agent may pay the
same. Borrower shall immediately reimburse Agent for any such payments and
each amount paid by Agent shall constitute an Obligation owed hereunder which
is due and payable on the date such amount is paid by Agent.
Section 6.10. Interest. Borrower hereby promises to each Bank Party to
pay interest at the Default Rate on all Obligations (including Obligations to
pay fees or to reimburse or indemnify any Bank Party) which Borrower has in
this Agreement promised to pay to such Bank Party and which are not paid when
due. Such interest shall accrue from the date such Obligations become due
until they are paid.
Section 6.11. Compliance with Agreements and Law; Required Hedges.
Borrower and each of its Subsidiaries will perform all material obligations it
is required to perform under the terms of each indenture, mortgage, deed of
trust, security agreement, lease, franchise, agreement, contract or other
instrument or obligation to which it is a party or by which it or any of its
properties is bound. Borrower and each of its Subsidiaries will conduct its
business and affairs in compliance with all Laws applicable thereto. Borrower
shall at all time maintain the Required Hedges, which shall comply with Section
7.3.
Section 6.12. Environmental Matters; Environmental Reviews.
(a) Borrower and each of its Subsidiaries will comply in all material
respects with all Environmental Laws now or hereafter applicable to such Person
and shall obtain, at or prior to the time required by applicable Environmental
Laws, all environmental, health and safety permits, licenses and other
authorizations necessary for its operations and will maintain such
authorizations in full force and
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effect. Borrower will (i) not later than December 31, 1997, adopt a formal
environmental management program reasonably necessary to assure compliance in
all material respects with applicable Environmental Laws and otherwise to avoid
environmental liabilities, (ii) continue the existing remediation program
regarding the groundwater contamination at the Laverne Plant, as described in
the environmental report delivered pursuant to Section 4.1(j) and 4.2(c).
(b) Borrower will promptly furnish to Agent all written notices of
violation, orders, claims, citations, complaints, penalty assessments, suits or
other proceedings received by Borrower, or of which it has notice, pending or
threatened against Borrower, by any governmental authority with respect to any
alleged violation of or non-compliance with any Environmental Laws or any
permits, licenses or authorizations in connection with its ownership or use of
its properties or the operation of its business.
(c) Borrower will promptly furnish to Agent all requests for
information, notices of claim, demand letters, and other notifications,
received by Borrower in connection with its ownership or use of its properties
or the conduct of its business, relating to potential responsibility with
respect to any investigation or clean-up of Hazardous Material at any location.
Section 6.13. Evidence of Compliance. Borrower and each of its
Subsidiaries will furnish to each Bank Party at such Borrower's or such
Subsidiary's expense all evidence which Agent from time to time reasonably
requests in writing as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by any Restricted Person in the
Loan Documents, the satisfaction of all conditions contained therein, and all
other matters pertaining thereto.
Section 6.14. Solvency. Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by Restricted Persons and the
consummation of the transactions contemplated hereby, each Restricted Person
will be solvent (as such term is used in applicable bankruptcy, liquidation,
receivership, insolvency or similar laws).
Section 6.15. Agreement to Deliver Security Documents. Borrower agrees
to deliver and to cause each other Restricted Person to deliver, to further
secure the Obligations whenever requested by Agent in its sole and absolute
discretion, deeds of trust, mortgages, chattel mortgages, security agreements,
financing statements and other Security Documents in form and substance
satisfactory to Agent for the purpose of granting, confirming, and perfecting
first and prior liens or security interests in any real or personal property
now owned or hereafter acquired by any Restricted Person. Borrower also agrees
to deliver, whenever requested by Agent in its sole and absolute discretion,
favorable title opinions from legal counsel or title insurance policies from
insurers, in each case acceptable to Agent, with respect to any Restricted
Person's properties and interests designated by Agent (other than rights-of-
way), based upon abstract or record examinations to dates acceptable to Agent
and (a) stating that such Restricted Person has good and defensible title to
such properties and interests, free and clear of all Liens other than Permitted
Liens, (b) confirming that such properties and interests are subject to
Security Documents securing the Obligations that constitute and create legal,
valid and duly perfected first deed of trust or mortgage liens in such
properties and interests and first priority assignments of and security
interests in the oil and gas attributable to such properties and interests and
the proceeds thereof, and (c) covering such other matters as Agent may
reasonably request.
Section 6.16. Perfection and Protection of Security Interests and
Liens. Borrower will from time to time deliver, and will cause each other
Restricted Person from time to time to deliver, to Agent any financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by Restricted
Persons in form and
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substance satisfactory to Agent, which Agent requests for the purpose of
perfecting, confirming, or protecting any Liens or other rights in Collateral
securing any Obligations.
Section 6.17. Bank Accounts; Offset. To secure the repayment of the
Obligations Borrower hereby grants to each Bank Party a security interest, a
lien, and a right of offset, each of which shall be in addition to all other
interests, liens, and rights of any Bank Party at common law, under the Loan
Documents, or otherwise, and each of which shall be upon and against (a) any
and all moneys, securities or other property (and the proceeds therefrom) of
Borrower now or hereafter held or received by or in transit to any Bank Party
from or for the account of Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, (b) any and all deposits (general or
special, time or demand, provisional or final) of Borrower with any Bank Party,
and (c) any other credits and claims of Borrower at any time existing against
any Bank Party, including claims under certificates of deposit. At any time
and from time to time after the occurrence of any Default, each Bank Party is
hereby authorized to foreclose upon, or to offset against the Obligations then
due and payable (in either case without notice to Borrower), any and all items
hereinabove referred to. The remedies of foreclosure and offset are separate
and cumulative, and either may be exercised independently of the other without
regard to procedures or restrictions applicable to the other.
Section 6.18. Guaranties of Borrower's Subsidiaries. Each Subsidiary
of Borrower now existing or created, acquired or coming into existence after
the date hereof shall, promptly upon request by Agent, execute and deliver to
Agent an absolute and unconditional guaranty of the timely repayment of the
Obligations and the due and punctual performance of the obligations of Borrower
hereunder, which guaranty shall be satisfactory to Agent in form and substance.
Each Subsidiary of Borrower existing on the date hereof shall duly execute and
deliver such a guaranty prior to the making of any Loan hereunder. Borrower
will cause each of its Subsidiaries to deliver to Agent, simultaneously with
its delivery of such a guaranty, written evidence satisfactory to Agent and its
counsel that such Subsidiary has taken all corporate or partnership action
necessary to duly approve and authorize its execution, delivery and performance
of such guaranty and any other documents which it is required to execute.
Section 6.19. Assignment of Proceeds. Notwithstanding that, by the
terms of the various Security Documents, Restricted Persons are and will be
assigning to Agent and Lenders all of the "Production Proceeds" and
"Transportation, Separation and Processing Proceeds" (as defined therein and
collectively referred to in this section as "Proceeds") accruing to the
Collateral covered thereby, so long as no Default has occurred Restricted
Persons may continue to receive all such Proceeds, subject, however, to the
Liens created under the Security Documents, which Liens are hereby affirmed and
ratified. Upon the occurrence of a Default, Agent and Lenders may exercise all
rights and remedies granted under the Security Documents, including the right
to obtain possession of all Proceeds then held by Restricted Persons or to
receive directly from the purchasers, shippers or other payors, as the case may
be, all other Proceeds. In no case shall any failure, whether purposed or
inadvertent, by Agent or Lenders to collect directly any such Proceeds
constitute in any way a waiver, remission or release of any of their rights
under the Security Documents, nor shall any release of any Proceeds by Agent or
Lenders to Restricted Persons constitute a waiver, remission, or release of any
other Proceeds or of any rights of Agent or Lenders to collect other Proceeds
thereafter.
ARTICLE VII - Negative Covenants of Borrower
To conform with the terms and conditions under which each Bank Party is
willing to have credit outstanding to Borrower, and to induce each Bank Party
to enter into this Agreement and make the Loans, Borrower warrants, covenants
and agrees that until the full and final payment of the
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Obligations and the termination of this Agreement, unless Majority Lenders have
previously agreed otherwise:
Section 7.1. Indebtedness. No Restricted Person will in any manner owe
or be liable for Indebtedness except:
(a) the Obligations.
(b) Indebtedness under leases of such Restricted Person as lessee which
are capitalized in accordance with GAAP, including leases covering gas
compressors, provided such Indebtedness required to be paid in any Fiscal Year
under any such capitalized leases do not in the aggregate exceed $1,000,000.
(c) unsecured Indebtedness among Borrower and Guarantors arising in the
ordinary course of business.
(d) Indebtedness arising under Hedging Contracts permitted under
Section 7.3.
(e) Indebtedness arising under the Stand-Alone Letter of Credit
Facility, provided that such Indebtedness does not exceed $20,000,000 at any
one time outstanding.
(f) Indebtedness arising under the Prepaid Sales Documents, provided
that such Indebtedness does not exceed $20,000,000 at any one time outstanding.
Section 7.2. Limitation on Liens. No Restricted Person will create,
assume or permit to exist any Lien upon any of the properties or assets which
it now owns or hereafter acquires, except, to the extent not otherwise
forbidden by the Security Documents the following (each a "Permitted Lien"):
(a) Liens which secure Obligations only.
(b) The lessors' interests under capital leases described in Section
7.1(b).
(c) statutory Liens for taxes, assessments or other Tribunal charges,
or statutory mechanics', materialmen's and landlords' Liens incurred in the
ordinary course of business, and other similar statutory Liens incurred in the
ordinary course of business, provided such Liens do not secure Indebtedness and
secure only Liabilities which are not delinquent or which are being contested
as provided in Section 6.7.
(d) as to property which is Collateral, any Liens expressly permitted
to encumber such Collateral under any Security Document covering such
Collateral.
(e) Liens on cash or Cash Equivalents in an amount not in excess of
$20,000,000 (plus any interest thereon) to secure Indebtedness described in
Section 7.1(e).
(f) royalties, overriding royalties, reversionary interests, production
payments and similar burdens.
(g) easements, rights of way, servitudes, permits, surface leases and
other rights in respect to surface operations, pipelines, grazing, logging,
canals, ditches, reservoirs or the like, conditions, covenants and other
restrictions, and easements of streets, alleys, highways, pipelines, telephone
lines,
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power lines, railways and other easements and rights of way on, over or in
respect of Borrower's assets or properties which do not materially detract from
the value or usefulness of such assets or property for the business conducted
or materially interfere with the ordinary conduct of Borrower's business.
(h) inchoate Liens arising in connection with workmen's compensation,
unemployment insurance or other social security, old age pension or public
liability obligations, provided such Liens do not secure Indebtedness and
secure only Liabilities which are not delinquent or which are being contested
as provided in Section 6.7.
(i) rights reserved to or vested in any municipality, governmental,
statutory or other public authority to control or regulate Borrower's assets
and properties in any manner, and all applicable Laws from any Tribunal.
Section 7.3. Hedging Contracts. No Restricted Person will be a party
to or in any manner be liable on any Hedging Contract, except:
(a) contracts entered into with the purpose and effect of fixing prices
on Natural Gas or Natural Gas liquids expected to be bought or sold by
Restricted Persons, provided that at all times: (1) no such contract fixes a
price for a term of more than twenty-four (24) months; (2) the aggregate
monthly production of Natural Gas liquids covered by all such Hedging Contracts
(determined, in the case of contracts that are not settled on a monthly basis,
by a monthly proration acceptable to Agent) for any single month does not in
the aggregate exceed eighty percent (80%) of the aggregate Projected Natural
Gas Liquid Production of Restricted Persons anticipated to be sold in the
ordinary course of their businesses for such month, (3) the aggregate monthly
volumes of Natural Gas covered by all such Hedging Contracts (determined, in
the case of contracts that are not settled on a monthly basis, by a monthly
proration acceptable to Agent) for any single month does not in the aggregate
exceed eighty percent (80%) of the aggregate Projected Natural Gas Purchases of
Restricted Persons anticipated to be purchased in the ordinary course of their
businesses for such month, (4) no such contract entered into after the date
hereof requires any Restricted Person to put up money, assets, or other
security, other than letters of credit (and such contracts, in the aggregate,
do not require Restricted Persons to put up letters of credit in an aggregate
amount in excess of $1,000,000), against the event of its nonperformance prior
to actual default by such Restricted Person in performing its obligations
thereunder; (5) each such contract is with a counterparty or has a guarantor of
the obligation of the counterparty who (unless such counterparty is a Bank
Party, AIG Trading Corporation or one of their respective Affiliates) at the
time the contract is made has long-term obligations rated AA or Aa2 or better,
respectively, by either Rating Agency, or is an Approved Counterparty, and (6)
Restricted Persons shall not enter into any such contracts for the purpose of
speculative investment. As used in this subsection, the term "Projected
Natural Gas Liquid Production" means the projected production of Natural Gas
liquids (measured by volume unit or BTU equivalent, not sales price) for the
term of the contracts or a particular month, as applicable, from the interests
in the Beaver Plant, Mocane Plant and Laverne Plant owned by Restricted
Persons, as such production is projected in the most recent Engineering Reports
delivered pursuant to Section 6.2(c), after deducting projected production from
any interests sold or under contract for sale that had been included in such
reports and after adding projected production from any interests that had not
been reflected in such reports but that are reflected in a separate or
supplemental reports meeting the requirements of such Section 6.2(c) hereof and
otherwise are satisfactory to Agent, and the term "Projected Natural Gas
Purchases" means the projected purchases of Natural Gas (measured by volume
unit or BTU equivalent, not sales price) for the term of the contracts or a
particular month, as applicable, as such purchases are projected in the most
recent Engineering Reports delivered pursuant to Section 6.2(c), after
deducting projected purchases from any interests sold or under contract for
sale that had been included in such reports and
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after adding projected purchases from any interests that had not been reflected
in such reports but that are reflected in a separate or supplemental reports
meeting the requirements of such Section 6.2(c) hereof and otherwise are
satisfactory to Agent.
(b) contracts entered into by a Restricted Person with the purpose and
effect of fixing interest rates on a principal amount of indebtedness of such
Restricted Person that is accruing interest at a variable rate, provided that
(1) the aggregate notional amount of such contracts never exceeds seventy-five
percent (75%) of the anticipated outstanding principal balance of the
indebtedness to be hedged by such contracts or an average of such principal
balances calculated using a generally accepted method of matching interest swap
contracts to declining principal balances, (2) the floating rate index of each
such contract generally matches the index used to determine the floating rates
of interest on the corresponding indebtedness to be hedged by such contract,
and (3) each such contract is with a counterparty or has a guarantor of the
obligation of the counterparty who (unless such counterparty is a Bank Party or
one of its Affiliates) at the time the contract is made has long-term
obligations rated AA or Aa2 or better, respectively, by either Rating Agency.
Section 7.4. Limitation on Mergers, Issuances of Securities. Except as
expressly provided in this subsection no Restricted Person will merge or
consolidate with or into any other business entity. Any Subsidiary of Borrower
that is a Guarantor may, however, be merged into or consolidated with
(i) another Guarantor, or (ii) Borrower, so long as Borrower is the surviving
business entity. Borrower will not issue any securities other than shares of
its common stock and any options or warrants giving the holders thereof only
the right to acquire such shares. No Subsidiary of Borrower will issue any
additional shares of its capital stock or other securities or any options,
warrants or other rights to acquire such additional shares or other securities
except to Borrower and only to the extent not otherwise forbidden under the
terms hereof. No Subsidiary of Borrower which is a partnership will allow any
diminution of Borrower's interest (direct or indirect) therein.
Section 7.5. Limitation on Sales of Property. No Restricted Person
will sell, transfer, lease, exchange, alienate or dispose of any of its
material assets or properties or any material interest therein except, to the
extent not otherwise forbidden under the Security Documents:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value.
(b) inventory which is sold in the ordinary course of business on
ordinary trade terms.
(c) inventory which is sold pursuant to the terms of the Prepaid Sales
Documents.
Neither Borrower nor any of Borrower's Subsidiaries will sell, transfer or
otherwise dispose of capital stock of any of Borrower's Subsidiaries except
that any Subsidiary of Borrower may sell or issue its own capital stock to the
extent not otherwise prohibited hereunder. No Restricted Person will discount,
sell, pledge or assign any notes payable to it, accounts receivable or future
income except to the extent expressly permitted under the Loan Documents.
Section 7.6. Limitation on Dividends and Redemptions. No Restricted
Person will declare or pay any dividends on, or make any other distribution in
respect of, any class of its capital stock or any partnership or other interest
in it, nor will any Restricted Person directly or indirectly make any capital
contribution to or purchase, redeem, acquire or retire any shares of the
capital stock of or partnership interests in any Person (whether such interests
are now or hereafter issued, outstanding or created), or cause or permit any
reduction or retirement of the capital stock of any Restricted Person, except
as
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expressly provided in this section. Such dividends, distributions,
contributions, purchases, redemptions, acquisitions, retirements or reductions
may be made by Borrower and the Guarantors (i) without limitation to Borrower;
(ii) to Guarantors which are Subsidiaries of Borrower, to the extent permitted
under the investment restrictions of Section 7.7; (iii) during Fiscal Year 1997
only, to owners of Borrower's preferred stock a 7% dividend, provided, the
aggregate amount of such preferred stock dividend shall not exceed $140,000 in
any Fiscal Quarter; (iv) after the one-year anniversary hereof and so long as
no Default has occurred and is continuing, to other Persons, to the extent that
the aggregate value of all such dividends, distributions, contributions,
purchases, redemptions, acquisitions, retirements and reductions made in any
Fiscal Year does not exceed ten percent (10%) of Borrower's Consolidated Net
Income for the period commencing with such one-year anniversary (including any
dividends under any preferred stock issued by Borrower).
Section 7.7. Limitation on Investments and New Businesses; Limitation
on Capital Expenditures. No Restricted Person will (i) make any expenditure or
commitment or incur any obligation or enter into or engage in any transaction
other than the transaction contemplated under the Prepaid Sales Documents
except in the ordinary course of business, (ii) engage directly or indirectly
in any business or conduct any operations except in connection with or
incidental to its present businesses and operations, (iii) make any
acquisitions of or capital contributions to or other investments in any Person,
other than investments in Cash Equivalents and Subsidiaries that are
Guarantors, or (iv) make any significant acquisitions or investments in any
properties other than gas gathering and transportation pipelines and gas
processing facilities. Restricted Persons shall not incur capital expenditures
in excess of $2,500,000 as to any single project without (i) furnishing to
Agent and Lenders detailed projections and budgets regarding such project and
(ii) receiving the prior written consent of Majority Lenders, such consent not
to be unreasonably withheld.
Section 7.8. Limitation on Credit Extensions. Except for Cash
Equivalents, no Restricted Person will extend credit, make advances or make
loans other than (i) normal and prudent extensions of credit to customers
buying goods and services in the ordinary course of business, which extensions
shall not be for longer periods than those extended by similar businesses
operated in a normal and prudent manner, (ii) loans to Borrower or to any
Guarantor, and (iii) loans to employees of any Restricted Person, so long as
the aggregate amount of such loans does not exceed $20,000.
Section 7.9. Transactions with Affiliates. Neither Borrower nor any of
its Subsidiaries will engage in any material transaction with any of its
Affiliates on terms which are less favorable to it than those which would have
been obtainable at the time in arm's-length dealing with Persons other than
such Affiliates, provided that such restriction shall not apply to transactions
among Restricted Persons.
Section 7.10. Certain Contracts; Amendments; Multiemployer ERISA Plans.
Except as expressly provided for in the Loan Documents, neither Borrower nor
any of its Subsidiaries will, directly or indirectly, enter into, create, or
otherwise allow to exist any contract or other consensual restriction on the
ability of any Subsidiary of Borrower to: (i) pay dividends or make other
distributions to Borrower, (ii) to redeem equity interests held in it by
Borrower, (iii) to repay loans and other indebtedness owing by it to Borrower,
or (iv) to transfer any of its assets to Borrower. No Restricted Person will
enter into any "take-or-pay" contract or other contract or arrangement for the
purchase of goods or services which obligates it to pay for such goods or
service regardless of whether they are delivered or furnished to it. No
Restricted Person will amend or permit any amendment to any contract or lease
which releases, qualifies, limits, makes contingent or otherwise detrimentally
affects the rights and benefits of Agent or any Lender under or acquired
pursuant to any Security Documents. No ERISA Affiliate will incur any
obligation to contribute to any "multiemployer plan" as defined in Section 4001
of ERISA.
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Section 7.11. Current Ratio. The ratio of Borrower's Consolidated
current assets to Borrower's Consolidated current liabilities will never be
less than (a) 0.90 to 1 for the period from the date hereof through and
including September 30, 1997 and (b) 1.00 to 1 on any day thereafter. For
purposes of this section (i) all LC Obligations (other than Letters of Credit
issued hereunder to secure payables) shall be included as current liabilities,
regardless of whether or not contingent (but without duplication), and (ii)
Borrower's Consolidated current liabilities will be calculated without
including any payments of principal on the Term Notes which are required to be
repaid within one year from the time of calculation.
Section 7.12. Net Worth. Borrower's Consolidated Net Worth will never
be less than the sum of (i) $17,000,000 plus (ii) fifty percent (50%) of
Borrower's Consolidated Net Income (if positive) for each Fiscal Quarter from
and after September 30, 1996 to and including the date of determination
thereof, computed on a cumulative basis for such period.
Section 7.13. EBITDA. At the end of any Fiscal Quarter:
(a) The ratio of (i) EBITDA to (ii) Debt Service for the four-Fiscal
Quarter period ending with such Fiscal Quarter will not be less than (A) 2.00
to 1 for any Fiscal Quarter ending on or before December 31, 1997, (B) 2.50 to
1 for any Fiscal Quarter ending after December 31, 1997 and on or before
December 31, 1998, and (C) 3.00 to 1 for any Fiscal Quarter thereafter.
(b) The ratio of (i) EBITDA to (ii) the sum of (A) Debt Service plus
(B) scheduled payments of principal (including the principal component of
rentals or capitalized leases but excluding principal payments on the Revolving
Credit Notes) on Indebtedness for the four-Fiscal Quarter period ending with
such Fiscal Quarter will not be less than 1.2 to 1.
Section 7.14. Debt to Capital Ratio. The Debt to Capital Ratio will
never exceed (a) seventy percent (70%) at any time from the date hereof through
and including September 30, 1997, or (b) sixty-five percent (65%) from and
including October 1, 1997 through and including December 31, 1998, or (c) sixty
percent (60%) at any time thereafter.
ARTICLE VIII - Events of Default and Remedies
Section 8.1. Events of Default. Each of the following events
constitutes an Event of Default under this Agreement:
(a) Any Restricted Person fails to pay the principal component of any
Obligation when due and payable, whether at a date for the payment of a fixed
installment or as a contingent or other payment becomes due and payable or as a
result of acceleration or otherwise;
(b) Any Restricted Person fails to pay any Obligation (other than the
Obligations in clause (a) above) when due and payable, whether at a date for
the payment of a fixed installment or as a contingent or other payment becomes
due and payable or as a result of acceleration or otherwise, within three
Business Days after the same becomes due;
(c) Any "default" or "event of default" occurs under any Loan Document
which defines either such term (other than by reference to the Credit
Agreement), and the same is not remedied within the applicable period of grace
(if any) provided in such Loan Document;
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(d) Any Restricted Person fails to duly observe, perform or comply with
any covenant, agreement or provision of Section 6.4 or Article VII;
(e) Any Restricted Person fails (other than as referred to in
subsections (a), (b), (c) or (d) above) to duly observe, perform or comply with
any covenant, agreement, condition or provision of any Loan Document, and such
failure remains unremedied for a period of thirty (30) days after notice of
such failure is given by Agent to Borrower;
(f) Any representation or warranty previously, presently or hereafter
made in writing by or on behalf of Borrower or any of its Subsidiaries in
connection with any Transaction Document shall prove to have been false or
incorrect in any material respect on any date on or as of which made, or any
Loan Document at any time ceases to be valid, binding and enforceable as
warranted in Section 5.5 for any reason other than its release or subordination
by Agent;
(g) Borrower or any of its Subsidiaries fails to duly observe, perform
or comply with any agreement with any Person or any term or condition of any
instrument, if such agreement or instrument is materially significant to
Borrower or to Borrower and its subsidiaries on a Consolidated basis or
materially significant to any Guarantor, and such failure is not remedied
within the applicable period of grace (if any) provided in such agreement or
instrument;
(h) Borrower or any of its Subsidiaries (i) fails to pay any portion,
when such portion is due, of any of its Indebtedness in excess of $500,000, or
(ii) breaches or defaults in the performance of any agreement or instrument by
which any such Indebtedness is issued, evidenced, governed, or secured, and any
such failure, breach or default continues beyond any applicable period of grace
provided therefor;
(i) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of
$500,000 exists with respect to any ERISA Plan, whether or not waived by the
Secretary of the Treasury or his delegate, or (ii) any Termination Event occurs
with respect to any ERISA Plan and the then current value of such ERISA Plan's
benefit liabilities exceeds the then current value of such ERISA Plan's assets
available for the payment of such benefit liabilities by more than $500,000 (or
in the case of a Termination Event involving the withdrawal of a substantial
employer, the withdrawing employer's proportionate share of such excess exceeds
such amount);
(j) Borrower or any of its Subsidiaries:
(i) suffers the entry against it of a judgment, decree or order
for relief by a Tribunal of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or
other similar Law of any jurisdiction now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended, or
has any such proceeding commenced against it which remains undismissed
for a period of thirty days; or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Law now or hereafter in effect, including the
federal Bankruptcy Code, as from time to time amended; or applies for or
consents to the entry of an order for relief in an involuntary case
under any such Law; or makes a general assignment for the benefit of
creditors; or fails generally to pay (or admits in writing its inability
to pay) its debts as such debts become due; or takes corporate or other
action to authorize any of the foregoing; or
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(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of any
part of the Collateral in a proceeding brought against or initiated by
it, and such appointment or taking possession is neither made
ineffective nor discharged within thirty days after the making thereof,
or such appointment or taking possession is at any time consented to,
requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $500,000 (not covered by insurance
satisfactory to Agent in its discretion), unless the same is discharged
within thirty days after the date of entry thereof or an appeal or
appropriate proceeding for review thereof is taken within such period
and a stay of execution pending such appeal is obtained; or
(v) suffers a writ or warrant of attachment or any similar
process to be issued by any Tribunal against all or any substantial part
of its assets or any part of the Collateral, and such writ or warrant of
attachment or any similar process is not stayed or released within
thirty days after the entry or levy thereof or after any stay is vacated
or set aside;
(k) Any Change in Control occurs;
(l) Any Material Adverse Change occurs;
(m) Any Restricted Person shall put up any money, assets or other
security (other than letters of credit in an aggregate amount for all
Restricted Persons not to exceed $1,000,000) against the event of its
nonperformance prior to actual default in performing its obligations under any
Hedging Contract; or
(n) Any default or event of default occurs under the Stand-Alone Letter
of Credit Facility.
Upon the occurrence of an Event of Default described in subsection (j)(i),
(j)(ii) or (j)(iii) of this section with respect to Borrower, all of the
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Restricted Person who at any time
ratifies or approves this Agreement. Upon any such acceleration, any
obligation of any Lender to make any further Loans shall be permanently
terminated. During the continuance of any other Event of Default, Agent at any
time and from time to time may (and upon written instructions from Majority
Lenders, Agent shall), without notice to Borrower or any other Restricted
Person, do either or both of the following: (1) terminate any obligation of
Lenders to make Loans hereunder, and (2) declare any or all of the Obligations
immediately due and payable, and all such Obligations shall thereupon be
immediately due and payable, without demand, presentment, notice of demand or
of dishonor and nonpayment, protest, notice of protest, notice of intention to
accelerate, declaration or notice of acceleration, or any other notice or
declaration of any kind, all of which are hereby expressly waived by Borrower
and each Restricted Person who at any time ratifies or approves this Agreement.
Section 8.2. Remedies. If any Default shall occur and be continuing,
each Bank Party may protect and enforce its rights under the Loan Documents by
any appropriate proceedings, including proceedings for specific performance of
any covenant or agreement contained in any Loan Document, and each Bank Party
may enforce the payment of any Obligations due it or enforce any other legal or
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equitable right which it may have. All rights, remedies and powers conferred
upon Bank Parties under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at Law or in equity.
ARTICLE IX - Agent
Section 9.1. Appointment and Authority. Each Bank Party hereby
irrevocably authorizes Agent, and Agent hereby undertakes, to receive payments
of principal, interest and other amounts due hereunder as specified herein and
to take all other actions and to exercise such powers under the Loan Documents
as are specifically delegated to Agent by the terms hereof or thereof, together
with all other powers reasonably incidental thereto. The relationship of Agent
to the other Bank Parties is only that of one commercial lender acting as
administrative agent for others, and nothing in the Loan Documents shall be
construed to constitute Agent a trustee or other fiduciary for any holder of
any of the Notes or of any participation therein nor to impose on Agent duties
and obligations other than those expressly provided for in the Loan Documents.
With respect to any matters not expressly provided for in the Loan Documents
and any matters which the Loan Documents place within the discretion of Agent,
Agent shall not be required to exercise any discretion or take any action, and
it may request instructions from Lenders with respect to any such matter, in
which case it shall be required to act or to refrain from acting (and shall be
fully protected and free from liability to all Lenders in so acting or
refraining from acting) upon the instructions of Majority Lenders (including
itself), provided, however, that Agent shall not be required to take any action
which exposes it to a risk of personal liability that it considers unreasonable
or which is contrary to the Loan Documents or to applicable Law.
Section 9.2. Exculpation, Agent's Reliance, Etc. Neither Agent nor any
of its directors, officers, agents, attorneys, or employees shall be liable for
any action taken or omitted to be taken by any of them under or in connection
with the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that
each shall be liable for its own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, Agent (a) may treat the payee
of any Note as the holder thereof until Agent receives written notice of the
assignment or transfer thereof in accordance with this Agreement, signed by
such payee and in form satisfactory to Agent; (b) may consult with legal
counsel (including counsel for Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any other
Bank Party and shall not be responsible to any other Bank Party for any
statements, warranties or representations made in or in connection with the
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of
the Loan Documents on the part of any Restricted Person or to inspect the
property (including the books and records) of Borrower or any of its
Subsidiaries; (e) shall not be responsible to any other Bank Party for the due
execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document or any instrument or document furnished in
connection therewith; (f) may rely upon the representations and warranties of
each Restricted Person and the Lenders in exercising its powers hereunder; (g)
shall incur no liability under or in respect of the Loan Documents by acting
upon any notice, consent, certificate or other instrument or writing (including
any telecopy, telegram, cable or telex) believed by it to be genuine and signed
or sent by the proper Person or Persons; and (h) shall not be obligated to
initiate or conduct any litigation or collection proceedings.
Section 9.3. Credit Decisions; Limited Scope of Agent's Duties. Each
Bank Party acknowledges that it has, independently and without reliance upon
any other Bank Party, made its own analysis of Borrower and the transactions
contemplated hereby and its own independent decision to
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enter into this Agreement and the other Loan Documents. Each Bank Party also
acknowledges that it will, independently and without reliance upon any other
Bank Party and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents. Except for notices, reports and
other documents and information expressly required to be furnished to another
Bank Party by Agent hereunder, Agent shall have no duty or responsibility to
provide any other Bank Party with any credit or other information concerning
the affairs, financial condition or businesses of the Company or any of its
Subsidiaries (or any of their Affiliates) which may come into the possession of
Agent or any of its Affiliates. Agent shall not be required to keep itself
informed as to the performance or observance by Restricted Persons of this
Agreement or any other Loan Document or other document referred to or provided
for herein or to inspect the properties or books of Borrower or any of its
Subsidiaries, and shall not be deemed to have knowledge or notice of the
occurrence of a Default (other than the non-payment of any obligation to the
extent the same is required to be paid to Agent for the account of LC Issuer or
Lenders) unless it has received notice from another Bank Party or Borrower
specifying such Default and stating that such notice is a "Notice of Default".
In the event Agent receives such a notice of the occurrence of a Default (or
upon the occurrence of any such non-payment), Agent shall give prompt notice
thereof to each Bank Party and shall take such action with respect to such
Default as shall be directed by Majority Lenders, provided that Agent may, but
shall not be obligated to, take such action, or refrain from taking such
action, with respect to such Default as Agent may deem advisable in the best
interest of Bank Parties.
Section 9.4. Indemnification. Each Lender agrees to indemnify Agent
(to the extent not reimbursed by Borrower within ten (10) days after demand)
from and against such Lender's Percentage Share of any and all liabilities,
obligations, claims, losses, damages, penalties, fines, actions, judgments,
suits, settlements, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, experts and advisors) of any kind or nature
whatsoever (in this section collectively called "liabilities and costs") which
to any extent (in whole or in part) may be imposed on, incurred by, or asserted
against Agent growing out of, resulting from or in any other way associated
with any of the Collateral, the Loan Documents and the transactions and events
at any time associated therewith or contemplated therein (including any
enforcement of the Loan Documents, any violation or noncompliance with any
Environmental Laws by any Person, or any liabilities or duties of any Person
with respect to Hazardous Materials found in or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT,
provided only that no Lender shall be obligated under this section to indemnify
Agent for that portion, if any, of any liabilities and costs which is
proximately caused by Agent's own individual gross negligence or willful
misconduct. Cumulative of the foregoing, each Lender agrees to reimburse Agent
promptly upon demand for such Lender's Percentage Share of any costs and
expenses to be paid to Agent by Borrower under Section 10.4(a) to the extent
that Agent is not timely reimbursed for such expenses by Borrower as provided
in such section. As used in this section the term "Agent" shall refer not only
to the Person designated as such in Section 1.1 but also to each director,
officer, agent, attorney, employee, representative and Affiliate of such
Person.
Section 9.5. Rights as Lender. In its capacity as a Lender, Agent
shall have the same rights and obligations as any Lender and may exercise such
rights as though it were not Agent. Agent may
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accept deposits from, lend money to, act as Trustee under indentures of, and
generally engage in any kind of business with Borrower, any of its
Subsidiaries, or any of their respective Affiliates, all as if it were not
Agent hereunder and without any duty to account therefor to any other Lender.
Section 9.6. Sharing of Set-Offs and Other Payments. Each Bank Party
agrees that if it shall, whether through the exercise of rights under Security
Documents or rights of banker's lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Agent under Section
3.1, causes such Bank Party to have received more than it would have received
had such payment been received by Agent and distributed pursuant to Section
3.1, then (a) it shall be deemed to have simultaneously purchased and shall be
obligated to purchase interests in the Obligations as necessary to cause all
Bank Parties to share all payments as provided for in Section 3.1, and (b) such
other adjustments shall be made from time to time as shall be equitable to
ensure that Agent and all Lenders share all payments of Obligations as provided
in Section 3.1; provided, however, that nothing herein contained shall in any
way affect the right of any Bank Party to obtain payment (whether by exercise
of rights of banker's lien, set-off or counterclaim or otherwise) of
indebtedness other than the Obligations. Borrower expressly consents to the
foregoing arrangements and agrees that any holder of any such interest or other
participation in the Obligations, whether or not acquired pursuant to the
foregoing arrangements, may to the fullest extent permitted by Law exercise any
and all rights of banker's lien, set-off, or counterclaim as fully as if such
holder were a holder of the Obligations in the amount of such interest or other
participation. If all or any part of any funds transferred pursuant to this
section is thereafter recovered from the seller under this section which
received the same, the purchase provided for in this section shall be deemed to
have been rescinded to the extent of such recovery, together with interest, if
any, if interest is required pursuant to Tribunal order to be paid on account
of the possession of such funds prior to such recovery.
Section 9.7. Investments. Whenever Agent in good faith determines that
it is uncertain about how to distribute to Lenders any funds which it has
received, or whenever Agent in good faith determines that there is any dispute
among Lenders about how such funds should be distributed, Agent may choose to
defer distribution of the funds which are the subject of such uncertainty or
dispute. If Agent in good faith believes that the uncertainty or dispute will
not be promptly resolved, or if Agent is otherwise required to invest funds
pending distribution to Lenders, Agent shall invest such funds pending
distribution; all interest on any such investment shall be distributed upon the
distribution of such investment and in the same proportion and to the same
Persons as such investment.
Section 9.8. Benefit of Article IX. The provisions of this Article
(other than the following Section 9.9) are intended solely for the benefit of
Bank Parties, and no Restricted Person shall be entitled to rely on any such
provision or assert any such provision in a claim or defense against any Bank
Party. Bank Parties may waive or amend such provisions as they desire without
any notice to or consent of Borrower or any Restricted Person.
Section 9.9. Resignation. Agent may resign at any time by giving
written notice thereof to Lenders and Borrower. Each such notice shall set
forth the date of such resignation. Upon any such resignation Majority Lenders
shall have the right to appoint a successor Agent. A successor must be
appointed for any retiring Agent, and such Agent's resignation shall become
effective when such successor accepts such appointment. If, within thirty days
after the date of the retiring Agent's resignation, no successor Agent has been
appointed and has accepted such appointment, then the retiring Agent may
appoint a successor Agent, which shall be a commercial bank organized or
licensed to conduct a banking or trust business under the Laws of the United
States of America or of any state thereof. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, the
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retiring Agent shall be discharged from its duties and obligations under this
Agreement and the other Loan Documents. After any retiring Agent's resignation
hereunder the provisions of this Article IX shall continue to inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under the Loan Documents.
ARTICLE X - Miscellaneous
Section 10.1. Waivers and Amendments; Acknowledgements.
(a) Waivers and Amendments. No failure or delay (whether by course of
conduct or otherwise) by any Bank Party in exercising any right, power or
remedy which such Bank Party may have under any of the Loan Documents shall
operate as a waiver thereof or of any other right, power or remedy, nor shall
any single or partial exercise by any Bank Party of any such right, power or
remedy preclude any other or further exercise thereof or of any other right,
power or remedy. No waiver of any provision of any Loan Document and no
consent to any departure therefrom shall ever be effective unless it is in
writing and signed as provided below in this section, and then such waiver or
consent shall be effective only in the specific instances and for the purposes
for which given and to the extent specified in such writing. No notice to or
demand on any Restricted Person shall in any case of itself entitle any
Restricted Person to any other or further notice or demand in similar or other
circumstances. This Agreement and the other Loan Documents set forth the
entire understanding between the parties hereto with respect to the
transactions contemplated herein and therein and supersede all prior
discussions and understandings with respect to the subject matter hereof and
thereof, and no waiver, consent, release, modification or amendment of or
supplement to this Agreement or the other Loan Documents shall be valid or
effective against any party hereto unless the same is in writing and signed by
(i) if such party is Borrower, by Borrower, (ii) if such party is Agent or LC
Issuer, by such party, and (iii) if such party is a Lender, by such Lender or
by Agent on behalf of Lenders with the written consent of Majority Lenders
(which consent has already been given as to the termination of the Loan
Documents as provided in Section 10.9). Notwithstanding the foregoing or
anything to the contrary herein, Agent shall not, without the prior consent of
each individual Lender, execute and deliver on behalf of such Lender any waiver
or amendment which would: (1) waive any of the conditions specified in Article
IV (provided that Agent may in its discretion withdraw any request it has made
under Section 4.3(e)), (2) increase the Revolving Credit Maximum Loan Amount of
any Revolving Credit Lender or subject any Lender to any additional
obligations, (3) reduce any fees payable to such Lender hereunder, or the
principal of, or interest on, such Lender's Note, (4) postpone any date fixed
for any payment of any such fees, principal or interest, (5) amend the
definition herein of "Majority Lenders" or otherwise change the aggregate
amount of Percentage Shares which is required for Agent, Lenders or any of them
to take any particular action under the Loan Documents, or (6) release Borrower
from its obligation to pay such Lender's Note or any Guarantor from its
guaranty of such payment.
(b) Acknowledgements and Admissions. Borrower hereby represents,
warrants, acknowledges and admits that (i) it has been advised by counsel in
the negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement
and the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Agent or any Lender,
whether written, oral or implicit, other than as expressly set out in this
Agreement or in another Loan Document delivered on or after the date hereof,
(iii) there are no representations, warranties, covenants, undertakings or
agreements by any Bank Party as to the Loan Documents except as expressly set
out in this Agreement or in another Loan Document delivered on or after the
date hereof, (iv) no Bank Party has any fiduciary obligation toward Borrower
with respect to any Loan Document or the transactions contemplated thereby, (v)
the relationship
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pursuant to the Loan Documents between Borrower and the other Restricted
Persons, on one hand, and each Bank Party, on the other hand, is and shall be
solely that of debtor and creditor, respectively, (vi) no partnership or joint
venture exists with respect to the Loan Documents between any Restricted Person
and any Bank Party, (vii) Agent is not Borrower's Agent, but Agent for Lenders,
(viii) should an Event of Default or Default occur or exist, each Bank Party
will determine in its sole discretion and for its own reasons what remedies and
actions it will or will not exercise or take at that time, (ix) without
limiting any of the foregoing, Borrower is not relying upon any representation
or covenant by any Bank Party, or any representative thereof, and no such
representation or covenant has been made, that any Bank Party will, at the time
of an Event of Default or Default, or at any other time, waive, negotiate,
discuss, or take or refrain from taking any action permitted under the Loan
Documents with respect to any such Event of Default or Default or any other
provision of the Loan Documents, and (x) all Bank Parties have relied upon the
truthfulness of the acknowledgements in this section in deciding to execute and
deliver this Agreement and to become obligated hereunder.
(c) Representation by Lenders. Each Lender hereby represents that it
will acquire its Note for its own account in the ordinary course of its
commercial lending business; however, the disposition of such Lender's property
shall at all times be and remain within its control and, subject to Section
10.5, such Lender may sell or otherwise transfer its Note, any participation
interest or other interest in its Note, or any of its other rights and
obligations under the Loan Documents.
(d) Joint Acknowledgment. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 10.2. Survival of Agreements; Cumulative Nature. All of
Restricted Persons' various representations, warranties, covenants and
agreements in the Transaction Documents shall survive the execution and
delivery of this Agreement and the other Loan Documents and the performance
hereof and thereof, including the making or granting of the Loans and the
delivery of the Notes and the other Loan Documents, and shall further survive
until all of the Obligations are paid in full to each Bank Party and all of
Bank Parties' obligations to Restricted Persons are terminated. All statements
and agreements contained in any certificate or other instrument delivered by
Borrower or any of its Subsidiaries to any Bank Party under any Loan Document
shall be deemed representations and warranties by Borrower or agreements and
covenants of Borrower under this Agreement. The representations, warranties,
indemnities, and covenants made by Restricted Persons in the Loan Documents,
and the rights, powers, and privileges granted to Bank Parties in the Loan
Documents, are cumulative, and, except for expressly specified waivers and
consents, no Loan Document shall be construed in the context of another to
diminish, nullify, or otherwise reduce the benefit to any Bank Party of any
such representation, warranty, indemnity, covenant, right, power or privilege.
In particular and without limitation, no exception set out in this Agreement to
any representation, warranty, indemnity, or covenant herein contained shall
apply to any similar representation, warranty, indemnity, or covenant contained
in any other Loan Document, and each such similar representation, warranty,
indemnity, or covenant shall be subject only to those exceptions which are
expressly made applicable to it by the terms of the various Loan Documents.
Section 10.3. Notices. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically
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provided in such Loan Document (provided that Agent may give telephonic notices
to the other Bank Parties), and shall be deemed sufficiently given or furnished
if delivered by personal delivery, by telecopy, by delivery service with proof
of delivery, or by registered or certified United States mail, postage prepaid,
to Borrower and Restricted Persons at the address of Borrower specified on the
signature pages hereto and to each Bank Party at its address specified on the
signature pages hereto (unless changed by similar notice in writing given by
the particular Person whose address is to be changed). Any such notice or
communication shall be deemed to have been given (a) in the case of personal
delivery or delivery service, as of the date of first attempted delivery during
normal business hours at the address provided herein, (b) in the case of
telecopy, upon receipt, or (c) in the case of registered or certified United
States mail, three days after deposit in the mail; provided, however, that no
Borrowing Notice or Continuation/Conversion Notice shall become effective until
actually received by Agent.
Section 10.4. Payment of Expenses; Indemnity.
(a) Payment of Expenses. Whether or not the transactions contemplated
by this Agreement are consummated, Borrower will promptly (and in any event,
within 30 days after any invoice or other statement or notice) pay: (i) all
transfer, stamp, mortgage (except as may be prohibited by Law), documentary or
other similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement or any of the other Loan
Documents or any other document referred to herein or therein, (ii) all
reasonable costs and expenses incurred by or on behalf of Agent (including fees
of attorneys, accountants, engineers and other experts and advisors, travel
costs and miscellaneous expenses) in connection with (1) the negotiation,
preparation, execution and delivery of the Loan Documents, and any and all
consents, waivers or other documents or instruments relating thereto, (2) the
filing, recording, refiling and re-recording of any Loan Documents and any
other documents or instruments or further assurances required to be filed or
recorded or refiled or re-recorded by the terms of any Loan Document, (3) the
borrowings hereunder and other action reasonably required in the course of
administration hereof, or (4) monitoring or confirming (or preparation or
negotiation of any document related to) Borrower's compliance with any
covenants or conditions contained in this Agreement or in any Loan Document,
and (iii) all reasonable costs and expenses incurred by or on behalf of any
Bank Party (including fees of attorneys, accountants, engineers and other
experts and advisors) in connection with the defense or, upon the occurrence of
a Default, enforcement of any of the Loan Documents or the defense of any Bank
Party's exercise of its rights thereunder. In addition to the foregoing, until
and all Obligations have been paid in full, Borrower will also pay or reimburse
Agent for all reasonable out-of-pocket costs and expenses of Agent or its
agents or employees in connection with the continuing administration of the
Loans and the related due diligence of Agent, including travel and
miscellaneous expenses and fees and expenses of Agent's outside counsel,
reserve engineers and consultants engaged in connection with the Loan
Documents.
(b) Indemnity. Borrower agrees to indemnify each Bank Party, upon
demand, from and against any and all liabilities, obligations, claims, losses,
damages, penalties, fines, actions, judgments, suits, settlements, costs,
expenses or disbursements (including reasonable fees of attorneys, accountants,
engineers and other experts and advisors) of any kind or nature whatsoever (in
this section collectively called "liabilities and costs") which to any extent
(in whole or in part) may be imposed on, incurred by, or asserted against such
Bank Party growing out of, resulting from or in any other way associated with
any of the Collateral, the Loan Documents and the transactions and events at
any time associated therewith or contemplated therein (including any
enforcement or defense of the Loan Documents, any violation or noncompliance
with any Environmental Laws by any Person, or any
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liabilities or duties of any Person with respect to Hazardous Materials found
in or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY BANK PARTY,
provided only that no Bank Party shall be entitled under this section to
receive indemnification for that portion, if any, of any liabilities and costs
which is proximately caused by its own individual gross negligence or willful
misconduct. As used in this section the term "Bank Parties" shall refer not
only to the Persons designated as such in Section 1.1 but also to each
director, officer, agent, attorney, employee, representative and Affiliate of
such Persons.
Section 10.5. Joint and Several Liability; Parties in Interest;
Assignments. All Obligations which are incurred by two or more Restricted
Persons shall be their joint and several obligations and liabilities. All
grants, covenants and agreements contained in the Loan Documents shall bind and
inure to the benefit of the parties thereto and their respective successors and
assigns; provided, however, that no Restricted Person may assign or transfer
any of its rights or delegate any of its duties or obligations under any Loan
Document without the prior consent of Majority Lenders. Neither Borrower nor
any Affiliates of Borrower shall directly or indirectly purchase or otherwise
retire any Obligations owed to any Lender nor will any Lender accept any offer
to do so, unless each Lender shall have received substantially the same offer
with respect to the same Percentage Share of the Obligations owed to it. If
Borrower or any Affiliate of Borrower at any time purchases some but less than
all of the Obligations owed to all Bank Parties, such purchaser shall not be
entitled to any rights of any Bank Party under the Loan Documents unless and
until Borrower or its Affiliates have purchased all of the Obligations.
(b) No Lender shall sell any participation interest in its commitment
hereunder or any of its rights under its Loans or under the Loan Documents to
any Person other than an Eligible Transferee, and then only if the agreement
between such Lender and such participant at all times provides: (i) that such
participation exists only as a result of the agreement between such participant
and such Lender and that such transfer does not give such participant any right
to vote as a Lender or any other direct claims or rights against any Person
other than such Lender, (ii) that such participant is not entitled to payment
from any Restricted Person under Sections 3.2 through 3.6 of amounts in excess
of those payable to such Lender under such sections (determined without regard
to the sale of such participation), and (iii) unless such participant is an
Affiliate of such Lender, that such participant shall not be entitled to
require such Lender to take any action under any Loan Document or to obtain the
consent of such participant prior to taking any action under any Loan Document,
except for actions which would require the consent of all Lenders under the
last sentence of subsection (a) of Section 10.1. No Lender selling such a
participation shall, as between the other parties hereto and such Lender, be
relieved of any of its obligations hereunder as a result of the sale of such
participation. Each Lender which sells any such participation to any Person
(other than an Affiliate of such Lender) shall give prompt notice thereof to
Agent and Borrower.
(c) Except for sales of participations under the immediately preceding
subsection (b), no Lender shall make any assignment or transfer of any kind of
its commitments or any of its rights under its Loans or under the Loan
Documents, except for assignments to an Eligible Transferee, and then only if
such assignment is made in accordance with the following requirements:
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(i) Each such assignment shall apply to all Obligations
owing to the assignor Lender hereunder and to the unused portion
of the assignor Lender's commitments, so that after such
assignment is made the assignor Lender shall have a fixed (and
not a varying) Percentage Share in its Loans and Note and be
committed to make that Percentage Share of all future Loans, the
assignee shall have a fixed Percentage Share in such Loans and
Note and be committed to make that Percentage Share of all future
Loans, and the individual Percentage Share of the Revolving
Credit Maximum Loan Amount of each of the assignor and assignee
shall equal or exceed $5,000,000.
(ii) The parties to each such assignment shall execute and
deliver to Agent, for its acceptance and recording in the "Register" (as
defined below in this section), an Assignment and Assumption Agreement
substantially in the form of Exhibit J, appropriately completed,
together with the Note subject to such assignment and, as to any such
assignment after the Syndication Date, and shall pay a processing fee to
Agent of $2,500. Upon such execution, delivery, and payment and upon
the satisfaction of the conditions set out in such Assignment and
Assumption Agreement, then (i) Borrower shall issue new Notes to such
assignor and assignee upon return of the old Notes to Borrower, and (ii)
as of the "Settlement Date" specified in such Assignment and Assumption
Agreement the assignee thereunder shall be a party hereto and a Lender
hereunder and Agent shall thereupon deliver to Borrower and each Lender
a schedule showing the revised Percentage Shares of such assignor Lender
and such assignee Lender and the Percentage Shares of all other Lenders.
(iii) Each assignee Lender which is not a United States person
(as such term is defined in Section 7701(a)(30) of the Internal Revenue
Code of 1986, as amended) for Federal income tax purposes, shall (to the
extent it has not already done so) provide Agent and Borrower with the
"Prescribed Forms" referred to in Section 3.6(d).
(d) Nothing contained in this section shall prevent or prohibit any
Lender from assigning or pledging all or any portion of its Loans and Note to
any Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank; provided that no such assignment or pledge
shall relieve such Lender from its obligations hereunder.
(e) By executing and delivering an Assignment and Assumption Agreement,
each assignee Lender thereunder will be confirming to and agreeing with
Borrower, Agents and each other Lender hereunder that such assignee understands
and agrees to the terms of the Loan Documents, including Article IX hereof.
(f) Agent shall maintain a copy of each Assignment and Assumption
Agreement and a register for the recordation of the names and addresses of
Lenders and the Percentage Shares of, and principal amount of the Loans owing
to, each Lender from time to time (in this section called the "Register"). The
entries in the Register shall be conclusive, in the absence of manifest error,
and Borrower and each Bank Party may treat each Person whose name is recorded
in the Register as a Lender hereunder for all purposes. The Register shall be
available for inspection by Borrower or any Bank Party at any reasonable time
and from time to time upon reasonable prior notice.
Section 10.6. Confidentiality. Each Bank Party agrees that it will
take all reasonable steps to keep confidential any proprietary information
given to it by Borrower or any of its Subsidiaries, provided, however, that
this restriction shall not apply to information which (i) has at the time in
question entered the public domain, (ii) is required to be disclosed by Law
(whether valid or invalid) of
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any Tribunal, (iii) is disclosed to any Bank Party's Affiliates, auditors,
attorneys, or agents, (iv) is furnished to any other Bank Party or to any
purchaser or prospective purchaser of participations or other interests in any
Loan or Loan Document, provided each such purchaser or prospective purchaser
first agrees to hold such information in confidence on the terms provided in
this section), or (v) is disclosed in the course of enforcing its rights and
remedies during the existence of an Event of Default.
Section 10.7. Governing Law; Submission to Process. EXCEPT TO THE
EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN
DOCUMENT, THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE
UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE LAWS
OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW. BORROWER HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST
BORROWER WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OF THE LOAN DOCUMENTS
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES
OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS BANK PARTIES MAY ELECT,
AND, BY EXECUTION AND DELIVERY HEREOF, BORROWER ACCEPTS AND CONSENTS FOR ITSELF
AND IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS, AND FURTHER AGREES TO A TRANSFER OF ANY SUCH
PROCEEDING TO A FEDERAL COURT SITTING IN THE STATE OF NEW YORK TO THE EXTENT
THAT IT HAS SUBJECT MATTER JURISDICTION, AND OTHERWISE TO A STATE COURT IN NEW
YORK, NEW YORK, AND AGREES THAT SUCH JURISDICTION SHALL BE EXCLUSIVE, UNLESS
WAIVED BY BANK PARTIES IN WRITING, WITH RESPECT TO ANY ACTION OR PROCEEDING
BROUGHT BY IT AGAINST BANK PARTIES AND ANY QUESTIONS RELATING TO USURY.
BORROWER AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK SHALL APPLY TO THE LOAN DOCUMENTS AND WAIVES ANY RIGHT
TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON
THE BASIS OF FORUM NON CONVENIENS. IN FURTHERANCE OF THE FOREGOING, BORROWER
HEREBY IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 1633
BROADWAY, NEW YORK, NEW YORK, AS AGENT OF BORROWER TO RECEIVE SERVICE OF ALL
PROCESS BROUGHT AGAINST BORROWER WITH RESPECT TO ANY SUCH PROCEEDING IN ANY
SUCH COURT IN NEW YORK, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO
BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. COPIES OF ANY SUCH PROCESS
SO SERVED SHALL ALSO, IF PERMITTED BY LAW, BE SENT BY REGISTERED MAIL TO
BORROWER AT ITS ADDRESS SET FORTH BELOW, BUT THE FAILURE OF BORROWER TO RECEIVE
SUCH COPIES SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS
AFORESAID. BORROWER SHALL FURNISH TO BANK PARTIES A CONSENT OF CT CORPORATION
SYSTEM AGREEING TO ACT HEREUNDER PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF BANK PARTIES TO SERVE PROCESS
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IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF BANK PARTIES
TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
IF FOR ANY REASON CT CORPORATION SYSTEM SHALL RESIGN OR OTHERWISE CEASE TO ACT
AS BORROWER'S AGENT, BORROWER HEREBY IRREVOCABLY AGREES TO (A) IMMEDIATELY
DESIGNATE AND APPOINT A NEW AGENT ACCEPTABLE TO AGENT TO SERVE IN SUCH CAPACITY
AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE DEEMED TO BE SUBSTITUTED FOR CT
CORPORATION SYSTEM FOR ALL PURPOSES HEREOF AND (B) PROMPTLY DELIVER TO BANK
PARTIES THE WRITTEN CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO AGENT) OF
SUCH NEW AGENT AGREEING TO SERVE IN SUCH CAPACITY.
Section 10.8. Limitation on Interest. Bank Parties, Restricted Persons
and the other parties to the Loan Documents intend to contract in strict
compliance with applicable usury Law from time to time in effect. In
furtherance thereof such persons stipulate and agree that none of the terms and
provisions contained in the Loan Documents shall ever be construed to provide
for interest in excess of the maximum amount of interest permitted to be
charged by applicable Law from time to time in effect. Neither any Restricted
Person nor any present or future guarantors, endorsers, or other Persons
hereafter becoming liable for payment of any Obligation shall ever be liable
for unearned interest thereon or shall ever be required to pay interest thereon
in excess of the maximum amount that may be lawfully charged under applicable
Law from time to time in effect, and the provisions of this section shall
control over all other provisions of the Loan Documents which may be in
conflict or apparent conflict herewith.
Section 10.9. Termination; Limited Survival. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Agent to terminate this Agreement. Upon receipt by
Agent of such a notice, if no Obligations are then owing this Agreement and all
other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any Restricted Person in any Loan Document, any Obligations under Sections 3.2
through 3.6, and any obligations which any Person may have to indemnify or
compensate any Bank Party shall survive any termination of this Agreement or
any other Loan Document. At the request and expense of Borrower, Agent shall
prepare and execute all necessary instruments to reflect and effect such
termination of the Loan Documents. Agent is hereby authorized to execute all
such instruments on behalf of all Lenders, without the joinder of or further
action by any Lender.
Section 10.10. Severability. If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.
Section 10.11. Counterparts. This Agreement may be separately executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
Section 10.12. Waiver of Jury Trial, Punitive Damages, etc. TO THE
EXTENT PERMITTED BY LAW, BANK PARTIES AND BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
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TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR
INDIRECTLY ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF SUCH PERSONS OR BORROWER. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR BANK PARTIES' ENTERING INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS. BORROWER AND EACH BANK PARTY HEREBY
FURTHER (A) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL
DAMAGES", AS DEFINED BELOW, (B) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (C) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION,
"SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE
DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS
WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER
PARTY HERETO.
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Section 10.13. Intercompany Transfers of Assets; Restatement of
Existing Credit Documents. Borrower previously acquired the Beaver Plant and
assigned and transferred, or is contemporaneously herewith assigning and
transferring, the Beaver Plant to Continental Processing. CHI previously
acquired the Mocane Plant and has assigned and transferred, or is
contemporaneously herewith assigning and transferring, all of its assets to
Continental Hydrocarbons, and subsequent to such assignment and transfer, CHI
was, or is contemporaneously herewith being, dissolved. Borrower, CHI and
Continental Gathering financed the purchase of the Beaver Plant, the Mocane
Plant and the Gathering Systems pursuant to that certain Amended and Restated
Loan Agreement dated as of February 17, 1995 among Borrower, CHI and
Christiania Bank New York Branch (together with the promissory notes jointly
and severally made by Borrower and CHI thereunder, the "Existing Credit
Documents"). ING Capital is contemporaneously herewith purchasing all rights,
titles and interests of Christiania Bank New York Branch under the Existing
Credit Documents, and this Agreement, the Notes and the other Loan Documents
amend, restate, renew and extend (but do not novate or extinguish) the Existing
Credit Documents and the obligations and indebtedness thereunder.
To confirm Bank Parties' understanding concerning the Existing Credit
Documents and Borrower's and its Subsidiaries' obligations and indebtedness
thereunder, and to induce each Bank Party to enter into this Agreement and to
extend credit hereunder, Borrower represents and warrants to each Bank Party
that each Existing Credit Document has been duly authorized, executed and
delivered and is a legal, valid and binding obligation of each Restricted
Person which is a party hereto or thereto, enforceable in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency or
similar Laws of general application relating to the enforcement of creditors'
rights.
In furtherance of the foregoing, Borrower hereby RATIFIES AND CONFIRMS
IN ALL RESPECTS THE OBLIGATIONS AND INDEBTEDNESS UNDER THE EXISTING CREDIT
DOCUMENTS AND ANY AND ALL PROMISSORY NOTES EXECUTED IN CONNECTION THEREWITH,
including without limitation the promissory notes renewed, extended and
increased by (but not novated or extinguished by), or otherwise described in,
the Notes, and HEREBY WAIVES IN ALL RESPECTS ANY AND ALL DEFENSES, SETOFFS,
DEDUCTIONS AND COUNTERCLAIMS WHICH MAY EXIST AS OF THE DATE HEREOF WHICH ANY
RESTRICTED PERSON MAY HAVE TO THE PERFORMANCE OF THE OBLIGATIONS AND PAYMENT OF
THE INDEBTEDNESS DESCRIBED THEREIN, including any defense based upon the
invalidity, deficiency, illegality, or unenforceability of any of the Existing
Credit Documents, in whole or in part, including any defense based upon any
claim of usury, any bar by any Law or any statute of limitations or other law
of recovery on any of the obligations or indebtedness described therein, or any
defense or excuse for failure to perform on account of force majeure, act of
God, casualty, impossibility, impracticability, or other defense or excuse
whatsoever.
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IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
CONTINENTAL NATURAL GAS, INC.
Borrower
By:
----------------------------------------
Garry D. Smith, Vice President -
Controller
Address:
1400 Boston Building
1412 So. Boston, Suite 500
Tulsa, Oklahoma 74119
Attention: Garry D. Smith
Telephone: (918) 582-4700
Telecopy: (918) 560-4900
64
<PAGE> 70
ING (U.S.) CAPITAL CORPORATION, as Agent
By:
----------------------------------------
Trond O. Rokholt, Senior Vice President
Address:
135 East 57th Street
New York, New York 10022
Attention: Trond O. Rokholt
Telephone: 212-409-1943
Telecopy: 212-832-3616
REVOLVING CREDIT LENDERS:
ING (U.S.) CAPITAL CORPORATION,
as a Revolving Credit Lender and LC Issuer
By:
----------------------------------------
Trond O. Rokholt, Senior Vice President
TERM LENDERS:
ING (U.S.) CAPITAL CORPORATION
By:
----------------------------------------
Trond O. Rokholt, Senior Vice President
65
<PAGE> 71
LENDER SCHEDULE
LENDER SCHEDULE
<TABLE>
<CAPTION>
Revolving Credit Term Loan Percentage
Name of Lender Percentage Amount Percentage Amount Share
- -------------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ING (U.S.) Capital Corporation 100% $25,000,000 100% $39,000,000 100%
</TABLE>
<PAGE> 72
SCHEDULE 1
DISCLOSURE SCHEDULE
To supplement the following sections of the Agreement of which this
Schedule is a part, Borrower hereby makes the following disclosures:
1. Section 5.6 Initial Financial Statements:
2. Section 5.7 Other Obligations:
3. Section 5.9 Litigation:
Colorado Interstate Gas Company, Plaintiff v. C&L Processors and Warren
Petroleum Co., a Division of Chevron USA, Inc., Defendants, and Third
Party Plaintiffs v. Continental Hydrocarbons, Inc., Third Party
Defendant, Case No. 93CV1894, Dist. Ct., El Paso County, Colorado. CIG
has asserted claims against CHI (and, pursuant to a pending motion, CNG)
relating to processing of CIG gas at the Mocane Plant. CIG seeks
recovery of approximately $750,000 relating to processing prior to April
30, 1996 and $1,500,000-$2,000,000 relating to processing since April
30, 1996. CNG disputes the amounts due CIG and has established some
reserves.
Continental Natural Gas, Inc., Plaintiff v. Colorado Interstate Gas,
Inc., Defendant, Case No. 96-CV-0041-BU, U.S. Dist. Ct., Northern Dist.
Oklahoma. CNG has alleged a constructive fraud claim against CIG
relating to a proposed alliance regarding gas processing. CIG has filed
a counterclaim seeking recovery of $14,400.
Settlement discussions regarding the above litigation are ongoing.
4. Section 5.11 ERISA Liabilities:
5. Section 5.12 Environmental and Other Laws:
Asbestos is present at the Mocane Plant as set forth on page 4 of the
report dated October 31, 1996 by Pilko & Associates, Inc. to ING Capital
(the "Pilko Report"). Borrower has created and maintains an Asbestos
Operations and Maintenance Plan.
Groundwater contamination is present at the Laverne Plant as set forth
on pages 6 and 7 of the Pilko Report. Remediation has been ongoing
since approximately 1993.
Underground tanks used for the storage of Natural Gas liquids are
located at the Mocane Plant.
1
<PAGE> 73
6. Sections 5.13 and 10.3 Names and Places of Business:
Other Names: Continental Hydrocarbons, Inc.
(predecessor to Continental Hydrocarbons, L.L.C.)
7. Section 5.14 Borrower's Subsidiaries and Stockholdings:
Continental Holdings, Inc., an Oklahoma corporation ("CHC")
(100% of common stock owned by Borrower)
Continental Hydrocarbons, L.L.C., an Oklahoma limited liability
company (99% of interests owned by Borrower, 1% by CHC)
Continental Natural Gas Gathering, L.L.C., an Oklahoma limited
liability company (99% of interests owned by Borrower, 1% by
CHC)
Continental Gas Processing, L.L.C., an Oklahoma limited liability
company (99% of interests owned by Borrower, 1% by CHC)
Continental Energy Services, L.L.C., an Oklahoma limited
liability company (99% of interests owned by Borrower, 1% by
CHC)
2
<PAGE> 74
SCHEDULE 2
SECURITY SCHEDULE
1. Guaranty dated December 30, 1996 by Continental Hydrocarbons,
Continental Gathering, Continental Processing and Continental Holdings
Company ("CHC") in favor of ING Capital, individually and as Agent.
2. Security Agreement (the "Security Agreement") dated December 30, 1996 by
each of Borrower, Continental Hydrocarbons, Continental Gathering,
Continental Processing and CHC, in favor of ING Capital, individually
and as Agent, covering all personal property.
3. UCC-1 Financing Statements naming each of Borrower, Continental
Hydrocarbons, Continental Gathering, Continental Processing and CHC, as
debtor and ING Capital, individually and as Agent, as secured party,
covering the collateral described in the Security Agreement.
4. Pledge Agreement (the "Pledge Agreement") dated December 30, 1996 in
favor of ING Capital, individually and as Agent, by:
Borrower pledging 100% of stock of CHC, 99% of ownership interests in
Continental Hydrocarbons, 99% of ownership interests in Continental
Gathering and 99% of ownership interests in Continental Processing; and
CHC pledging 1% of ownership interests in Continental Hydrocarbons, 1%
of ownership interests in Continental Gathering and 1% of ownership
interests in Continental Processing.
5. UCC-1 Financing Statements naming each of Borrower and CHC as debtors
and ING Capital, individually and as Agent, as secured party, covering
the collateral described in the Pledge Agreement.
6. Deed of Trust, Mortgage, Security Agreement, Fixture Filing and
Financing Statement dated December 30, 1996 by Borrower, Continental
Hydrocarbons, Continental Gathering and Continental Processing in favor
of ING Capital, covering (i) the Beaver Plant and related gathering
system and facilities, (ii) the Mocane Plant and related facilities and
(iii) the Gathering Systems (the "Mortgage").
7. UCC-1 Financing Statements covering the collateral described in the
Mortgage, naming Borrower, Continental Hydrocarbons, Continental
Gathering and Continental Processing as debtor and ING Capital,
individually and as Agent, as secured party.
8. Assignment of Notes and Liens by Christiania Bank New York Branch
("Christiania"), as assignor, in favor of ING Capital, individually and
as Agent, as assignee.
9. UCC-3 Financing Statement Assignments by Christiania, as assignor, in
favor of ING Capital, individually and as Agent, as assignee.
1
<PAGE> 75
SCHEDULE 3
INSURANCE SCHEDULE
1
<PAGE> 76
EXHIBIT A
REVOLVING CREDIT NOTE
$25,000,000 New York, New York December 30, 1996
FOR VALUE RECEIVED, the undersigned, Continental Natural Gas, Inc., an
Oklahoma corporation (herein called "Borrower"), hereby promises to pay to the
order of ING (U.S.) CAPITAL CORPORATION (herein called "Revolving Credit
Lender"), the principal sum of Twenty-Five Million Dollars ($25,000,000), or,
if greater or less, the aggregate unpaid principal amount of the Revolving
Credit Loans made under this Revolving Credit Note by Revolving Credit Lender
to Borrower pursuant to the terms of the Credit Agreement (as hereinafter
defined), together with interest on the unpaid principal balance thereof as
hereinafter set forth, both principal and interest payable as herein provided
in lawful money of the United States of America at the offices of the Agent
under the Credit Agreement, 135 East 57th Street, New York, New York or at such
other place within New York County, New York, as from time to time may be
designated by the holder of this Revolving Credit Note.
This Revolving Credit Note (a) is issued and delivered under that
certain Credit Agreement of even date herewith among Borrower, ING (U.S.)
Capital Corporation, as Agent, and the lenders (including Revolving Credit
Lender) referred to therein (herein, as from time to time supplemented, amended
or restated, called the "Credit Agreement"), and is a "Revolving Credit Note"
as defined therein, (b) is subject to the terms and provisions of the Credit
Agreement, which contains provisions for payments and prepayments hereunder and
acceleration of the maturity hereof upon the happening of certain stated
events, and (c) is secured by and entitled to the benefits of certain Security
Documents (as identified and defined in the Credit Agreement). Payments on
this Revolving Credit Note shall be made and applied as provided herein and in
the Credit Agreement. Reference is hereby made to the Credit Agreement for a
description of certain rights, limitations of rights, obligations and duties of
the parties hereto and for the meanings assigned to terms used and not defined
herein and to the Security Documents for a description of the nature and extent
of the security thereby provided and the rights of the parties thereto.
For the purposes of this Revolving Credit Note, the following terms have
the meanings assigned to them below:
"Base Rate Payment Date" means (i) the last day of each January,
April, July and October, beginning January 31, 1997, and (ii) any day on
which past due interest or principal is owed hereunder and is unpaid.
If the terms hereof or of the Credit Agreement provide that payments of
interest or principal hereon shall be deferred from one Base Rate
Payment Date to another day, such other day shall also be a Base Rate
Payment Date.
"Eurodollar Rate Payment Date" means, with respect to any
Eurodollar Loan: (i) the day on which the related Interest Period ends
(and, if such Interest Period is three months or longer, the three-month
anniversary of the first day of such Interest Period), and (ii) any day
on which past due interest or past due principal is owed hereunder with
respect to such Eurodollar Loan and is unpaid. If the terms hereof or
of the Credit Agreement provide that payments of interest or principal
with respect to such Eurodollar Loan shall be deferred from one
Eurodollar Rate Payment Date to another day, such other day shall also
be a Eurodollar Rate Payment Date.
1
<PAGE> 77
The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on the Revolving Credit Commitment
Termination Date.
So long as no Default has occurred and is continuing, the Base Rate
Loans from time to time outstanding shall bear interest on each day outstanding
at the Base Rate in effect on such day. On each Base Rate Payment Date
Borrower shall pay to the holder hereof all unpaid interest which has accrued
on the Base Rate Loans to but not including such Base Rate Payment Date. So
long as no Default has occurred and is continuing, each Eurodollar Loan shall
bear interest on each day during the related Interest Period at the related
Eurodollar Rate in effect on such day. On each Eurodollar Rate Payment Date
relating to such Eurodollar Loan, Borrower shall pay to the holder hereof all
unpaid interest which has accrued on such Eurodollar Loan to but not including
such Eurodollar Rate Payment Date. Upon the occurrence and during the
continuance of a Default, the Base Rate Loans and the Eurodollar Loans shall
bear interest on each day outstanding at the Default Rate in effect on such
day, and such interest shall be due and payable daily as it accrues.
Notwithstanding the foregoing provisions of this paragraph: (a) this Revolving
Credit Note shall never bear interest in excess of the Highest Lawful Rate, and
(b) if at any time the rate at which interest is payable on this Revolving
Credit Note is limited by the Highest Lawful Rate (by the foregoing clause (a)
or by reference to the Highest Lawful Rate in the definitions of Base Rate,
Eurodollar Rate, and Default Rate), this Revolving Credit Note shall bear
interest at the Highest Lawful Rate and shall continue to bear interest at the
Highest Lawful Rate until such time as the total amount of interest accrued
hereon equals (but does not exceed) the total amount of interest which would
have accrued hereon had there been no Highest Lawful Rate applicable hereto.
Notwithstanding the foregoing paragraph and all other provisions of this
Revolving Credit Note, in no event shall the interest payable hereon, whether
before or after maturity, exceed the maximum interest which, under applicable
Law, may be charged on this Revolving Credit Note, and this Revolving Credit
Note is expressly made subject to the provisions of the Credit Agreement which
more fully set out the limitations on how interest accrues hereon.
If this Revolving Credit Note is placed in the hands of an attorney for
collection after default, or if all or any part of the indebtedness represented
hereby is proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Revolving Credit Note jointly
and severally agree to pay reasonable attorneys' fees and collection costs to
the holder hereof in addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Revolving
Credit Note hereby severally waive demand, presentment, notice of demand and of
dishonor and nonpayment of this Revolving Credit Note, protest, notice of
protest, notice of intention to accelerate the maturity of this Revolving
Credit Note, declaration or notice of acceleration of the maturity of this
Revolving Credit Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Revolving
Credit Note or in any of its terms, provisions and covenants, or any releases
or substitutions of any security, or any delay, indulgence or other act of any
trustee or any holder hereof, whether before or after maturity.
THIS REVOLVING CREDIT NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES
HERETO SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED
BY APPLICABLE FEDERAL LAW.
2
<PAGE> 78
This Revolving Credit Note renews, extends and increases (but does not
extinguish or novate): (i) that certain Amended and Restated Revolving Credit
Note dated November 7, 1996 made jointly and severally by Borrower and
Continental Hydrocarbons, Inc. ("CHI"), predecessor of Continental
Hydrocarbons, L.L.C., in the original principal amount of $12,000,000 and
payable to the order of ING (U.S.) Capital Corporation, as assignee of
Christiania Bank New York Branch ("Christiania"), which renewed, extended and
increased (but did not extinguish or novate), (ii) that certain Revolving
Credit Note dated February 17, 1995 made jointly and severally by Borrower and
CHI in the original principal amount of $8,000,000 and payable to the order of
Christiania, which renewed and extended (but did not extinguish or novate),
(iii) that certain Revolving Credit Note dated December 22, 1993 made by
Borrower in the original principal amount of $8,000,000 and payable to the
order of Christiania, which renewed and extended (but did not extinguish or
novate), (iv) that certain Revolving Credit Note dated December 24, 1991 made
by Borrower in the original principal amount of $8,000,000 and payable to the
order of Christiania.
CONTINENTAL NATURAL GAS, INC.
By:
---------------------------------------
Garry D. Smith, Vice President -
Controller
3
<PAGE> 79
EXHIBIT B
TERM NOTE
$39,000,000 New York, New York December 30, 1996
FOR VALUE RECEIVED, the undersigned, Continental Natural Gas, Inc., an
Oklahoma corporation (herein called "Borrower"), hereby promises to pay to the
order of ING (U.S.) CAPITAL CORPORATION (herein called "Term Lender"), the
principal sum of Thirty-Nine Million Dollars ($39,000,000), or, if greater or
less, the aggregate unpaid principal amount of the Term Loans made under this
Term Note by Term Lender to Borrower pursuant to the terms of the Credit
Agreement (as hereinafter defined), together with interest on the unpaid
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America at
the offices of the Agent under the Credit Agreement, 135 East 57th Street, New
York, New York or at such other place within New York County, New York, as from
time to time may be designated by the holder of this Term Note.
This Term Note (a) is issued and delivered under that certain Credit
Agreement of even date herewith among Borrower, ING (U.S.) Capital Corporation,
as Agent, and the lenders (including Term Lender) referred to therein (herein,
as from time to time supplemented, amended or restated, called the "Credit
Agreement"), and is a "Term Note" as defined therein, (b) is subject to the
terms and provisions of the Credit Agreement, which contains provisions for
payments and prepayments hereunder and acceleration of the maturity hereof upon
the happening of certain stated events, and (c) is secured by and entitled to
the benefits of certain Security Documents (as identified and defined in the
Credit Agreement). Payments on this Term Note shall be made and applied as
provided herein and in the Credit Agreement. Reference is hereby made to the
Credit Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned to
terms used and not defined herein and to the Security Documents for a
description of the nature and extent of the security thereby provided and the
rights of the parties thereto.
For the purposes of this Term Note, the following terms have the
meanings assigned to them below:
"Base Rate Payment Date" means (i) the last day of each January,
April, July and October, beginning January 31, 1997, and (ii) any day on
which past due interest or principal is owed hereunder and is unpaid.
If the terms hereof or of the Credit Agreement provide that payments of
interest or principal hereon shall be deferred from one Base Rate
Payment Date to another day, such other day shall also be a Base Rate
Payment Date.
"Eurodollar Rate Payment Date" means, with respect to any
Eurodollar Loan: (i) the day on which the related Interest Period ends
(and, if such Interest Period is three months or longer, the three-month
anniversary of the first day of such Interest Period), and (ii) any day
on which past due interest or past due principal is owed hereunder with
respect to such Eurodollar Loan and is unpaid. If the terms hereof or
of the Credit Agreement provide that payments of interest or principal
with respect to such Eurodollar Loan shall be deferred from one
Eurodollar Rate Payment Date to another day, such other day shall also
be a Eurodollar Rate Payment Date.
1
<PAGE> 80
The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on July 31, 2001.
So long as no Default has occurred and is continuing, the Base Rate
Loans from time to time outstanding shall bear interest on each day outstanding
at the Base Rate in effect on such day. On each Base Rate Payment Date
Borrower shall pay to the holder hereof all unpaid interest which has accrued
on the Base Rate Loans to but not including such Base Rate Payment Date. So
long as no Default has occurred and is continuing, each Eurodollar Loan
(exclusive of any past due principal or interest) shall bear interest on each
day during the related Interest Period at the related Eurodollar Rate in effect
on such day. On each Eurodollar Rate Payment Date relating to such Eurodollar
Loan, Borrower shall pay to the holder hereof all unpaid interest which has
accrued on such Eurodollar Loan to but not including such Eurodollar Rate
Payment Date. Upon the occurrence and during the continuance of a Default, the
Base Rate Loans and the Eurodollar Loans shall bear interest on each day
outstanding at the Default Rate in effect on such day, and such interest shall
be due and payable daily as it accrues. Notwithstanding the foregoing
provisions of this paragraph: (a) this Term Note shall never bear interest in
excess of the Highest Lawful Rate, and (b) if at any time the rate at which
interest is payable on this Term Note is limited by the Highest Lawful Rate (by
the foregoing clause (a) or by reference to the Highest Lawful Rate in the
definitions of Base Rate, Eurodollar Rate, and Default Rate), this Term Note
shall bear interest at the Highest Lawful Rate and shall continue to bear
interest at the Highest Lawful Rate until such time as the total amount of
interest accrued hereon equals (but does not exceed) the total amount of
interest which would have accrued hereon had there been no Highest Lawful Rate
applicable hereto.
Notwithstanding the foregoing paragraph and all other provisions of this
Term Note, in no event shall the interest payable hereon, whether before or
after maturity, exceed the maximum interest which, under applicable Law, may be
charged on this Term Note, and this Term Note is expressly made subject to the
provisions of the Credit Agreement which more fully set out the limitations on
how interest accrues hereon.
If this Term Note is placed in the hands of an attorney for collection
after default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Term Note jointly and severally
agree to pay reasonable attorneys' fees and collection costs to the holder
hereof in addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Term Note
hereby severally waive demand, presentment, notice of demand and of dishonor
and nonpayment of this Term Note, protest, notice of protest, notice of
intention to accelerate the maturity of this Term Note, declaration or notice
of acceleration of the maturity of this Term Note, diligence in collecting, the
bringing of any suit against any party and any notice of or defense on account
of any extensions, renewals, partial payments or changes in any manner of or in
this Term Note or in any of its terms, provisions and covenants, or any
releases or substitutions of any security, or any delay, indulgence or other
act of any trustee or any holder hereof, whether before or after maturity.
THIS TERM NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY APPLICABLE
FEDERAL LAW.
2
<PAGE> 81
This Term Note renews, extends and increases (but does not extinguish or
novate): (i) that certain Tranche A Term Note dated February 17, 1995 and that
certain Amended and Restated Tranche B Term Loan Note dated March 29, 1996,
each made jointly and severally by Borrower and Continental Hydrocarbons, Inc.
("CHI"), predecessor of Continental Hydrocarbons, L.L.C., in the respective
original principal amounts of $5,000,000 and $25,000,000 and each payable to
the order of ING (U.S.) Capital Corporation, as assignee of Christiania Bank
New York Branch ("Christiania"), which Amended and Restated Tranche B Term Loan
Note renewed, extended and increased (but did not extinguish or novate) that
certain Tranche B Term Loan Note dated May 18, 1995, made jointly and severally
by Borrower and CHI in the original principal amount of $8,000,000 and payable
to the order of Christiania, which Tranche A Term Loan Note and Tranche B Term
Loan Note jointly renewed, extended and increased (but did not extinguish or
novate), (iii) that certain Third Term Loan Note dated June 30, 1993 made by
Borrower in the original principal amount of $10,000,000 and payable to the
order of Christiania, which renewed, extended and increased (but did not
extinguish or novate), (iv) that certain Term Loan Note dated April __, 1992
made by Borrower in the original principal amount of $8,000,000 and payable to
the order of Christiania, which renewed, extended and increased (but did not
extinguish or novate), (v) that certain Term Loan Note dated December 24, 1991
made by Borrower in the original principal amount of $6,000,000 and payable to
the order of Christiania.
CONTINENTAL NATURAL GAS, INC.
By:
----------------------------------------
Garry D. Smith, Vice President -
Controller
3
<PAGE> 82
EXHIBIT C-1
BORROWING NOTICE
Reference is made to that certain Credit Agreement dated as of December
30, 1996 (as from time to time amended, the "Agreement"), by and among
Continental Natural Gas, Inc., ("Borrower"), ING (U.S.) Capital Corporation, as
Agent, and certain financial institutions ("Lenders"). Terms which are defined
in the Agreement are used herein with the meanings given them in the Agreement.
Borrower hereby requests a Borrowing of new Revolving Credit Loans to be
advanced pursuant to Section 2.2(a) of the Agreement as follows:
Aggregate amount of Revolving Credit Loan Borrowing: $_______________
Type of Revolving Credit Loans in Borrowing: _______________
Date on which Revolving Credit Loans are to be advanced: _______________
Length of Interest Period for Eurodollar Loans
(1, 2, 3 or 6 months): ________ months
To induce Revolving Credit Lenders to make such Revolving Credit Loans,
Borrower hereby represents, warrants, acknowledges, and agrees to and with
Agent and each Lender that:
(a) The officer of Borrower signing this instrument is the duly
elected, qualified and acting officer of Borrower as indicated below
such officer's signature hereto having all necessary authority to act
for Borrower in making the request herein contained.
(b) The representations and warranties of Restricted Persons set
forth in the Agreement and the other Loan Documents are true and correct
on and as of the date hereof (except to the extent that the facts on
which such representations and warranties are based have been changed by
the extension of credit under the Agreement), with the same effect as
though such representations and warranties had been made on and as of
the date hereof.
(c) There does not exist on the date hereof any condition or
event which constitutes a Default which has not been waived in writing
as provided in Section 10.1(a) of the Agreement; nor will any such
Default exist upon Borrower's receipt and application of the Advances
requested hereby. Borrower will use the Revolving Credit Loans hereby
requested in compliance with Section 2.4 of the Agreement.
(d) Except to the extent waived in writing as provided in
Section 10.1(a) of the Agreement, Borrower and each of its Subsidiaries
have performed and complied with all agreements and conditions in the
Agreement required to be performed or complied with by Borrower on or
prior to the date hereof, and each of the conditions precedent to
Revolving Credit Loans contained in the Agreement remains satisfied.
(e) The Revolving Credit Facility Usage, after the making of the
Revolving Credit Loans requested hereby, will not be in excess of the
Borrowing Base on the date requested for the making of such Revolving
Credit Loans.
1
<PAGE> 83
(f) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any course
of dealing, or by any other means not provided for in Section 10.1(a) of
the Agreement. The Agreement and the other Loan Documents are hereby
ratified, approved, and confirmed in all respects.
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgements, and agreements of Borrower are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________,
19__.
CONTINENTAL NATURAL GAS, INC.
By:
----------------------------------
Name:
Title:
2
<PAGE> 84
EXHIBIT C-2
REQUEST FOR TERM LOANS
Reference is made to that certain Credit Agreement dated as of December
30, 1996 (as from time to time amended, the "Agreement"), by and among
Continental Natural Gas, Inc., ("Borrower"), ING (U.S.) Capital Corporation, as
Agent, and certain financial institutions ("Lenders"). Terms which are defined
in the Agreement are used herein with the meanings given them in the Agreement.
Borrower hereby requests a Borrowing of new Term Loans to be advanced
pursuant to Section 2.2(b) of the Agreement as follows:
Aggregate amount of Term Loan Borrowing: $__________________
Type of Term Loans in Borrowing: __________________
Date on which Term Loans are to be advanced: __________________
Length of Interest Period for Eurodollar Loans
(1, 2, 3 or 6 months): ___________ months
To induce Term Lenders to make such Term Loans, Borrower hereby
represents, warrants, acknowledges, and agrees to and with Agent and each
Lender that:
(a) The officer of Borrower signing this instrument is the duly
elected, qualified and acting officer of Borrower as indicated below
such officer's signature hereto having all necessary authority to act
for Borrower in making the request herein contained.
(b) The representations and warranties of Borrower set forth in
the Agreement and the other Loan Documents are true and correct on and
as of the date hereof (except to the extent that the facts on which such
representations and warranties are based have been changed by the
extension of credit under the Agreement), with the same effect as though
such representations and warranties had been made on and as of the date
hereof.
(c) There does not exist on the date hereof any condition or
event which constitutes a Default which has not been waived in writing
as provided in Section 10.1(a) of the Agreement; nor will any such
Default exist upon Borrower's receipt and application of the Advances
requested hereby. Borrower will use the Term Loans hereby requested in
compliance with Section 2.4 of the Agreement.
(d) Except to the extent waived in writing as provided in
Section 10.1(a) of the Agreement, Borrower has performed and complied
with all agreements and conditions in the Agreement required to be
performed or complied with by Borrower on or prior to the date hereof,
and each of the conditions precedent to Term Loans contained in the
Agreement remains satisfied.
(e) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any course
of dealing, or by any other means not provided for in Section 10.1(a) of
the Agreement. The Agreement and the other Loan Documents are hereby
ratified, approved, and confirmed in all respects.
1
<PAGE> 85
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgements, and agreements of Borrower are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________,
19__.
CONTINENTAL NATURAL GAS, INC.
By:
----------------------------------
Name:
Title:
2
<PAGE> 86
EXHIBIT D
CONTINUATION/CONVERSION NOTICE
Reference is made to that certain Credit Agreement dated as of December
30, 1996 (as from time to time amended, the "Agreement"), by and among
Continental Natural Gas, Inc., ("Borrower"), ING (U.S.) Capital Corporation, as
Agent, and certain financial institutions ("Lenders"). Terms which are defined
in the Agreement are used herein with the meanings given them in the Agreement.
Borrower hereby requests a conversion or continuation of existing
[Revolving Credit/Term] Loans into a new Borrowing pursuant to Section 2.3 of
the Agreement as follows:
Existing Borrowing(s) to be continued or converted:
$________ of Eurodollar Loans with Interest Period ending __________
$________ of Base Rate Loans
Aggregate amount of new Borrowing: $______________
Type of Loans in new Borrowing: ______________
Date of continuation or conversion: ______________
Length of Interest Period for Eurodollar Loans
(1, 2, 3 or 6 months): _______ months
To meet the conditions set out in the Agreement for such
conversion/continuation, Borrower hereby represents, warrants, acknowledges,
and agrees to and with Agent and each Lender that:
(a) The officer of Borrower signing this instrument is the duly
elected, qualified and acting officer of Borrower as indicated below
such officer's signature hereto having all necessary authority to act
for Borrower in making the request herein contained.
(b) There does not exist on the date hereof any condition or
event which constitutes a Default which has not been waived in writing
as provided in Section 10.1(a) of the Agreement.
(c) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any course
of dealing, or by any other means not provided for in Section 10.1(a) of
the Agreement. The Agreement and the other Loan Documents are hereby
ratified, approved, and confirmed in all respects.
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgements, and agreements of Borrower are true, correct and
complete.
1
<PAGE> 87
IN WITNESS WHEREOF this instrument is executed as of ______________.
CONTINENTAL NATURAL GAS, INC.
By:
----------------------------------
Name:
Title:
2
<PAGE> 88
EXHIBIT E
CERTIFICATE ACCOMPANYING FINANCIAL STATEMENTS
Reference is made to that certain Credit Agreement dated as of December
30, 1996 (as from time to time amended, the "Agreement"), by and among
Continental Natural Gas, Inc., ("Borrower"), ING (U.S.) Capital Corporation, as
Agent, and certain financial institutions ("Lenders"), which Agreement is in
full force and effect on the date hereof. Terms which are defined in the
Agreement are used herein with the meanings given them in the Agreement.
This Certificate is furnished pursuant to Section 6.2(b) of the
Agreement. Together herewith Borrower is furnishing to Agent and each Lender
Borrower's *[audited/unaudited] financial statements (the "Financial
Statements") as at ________ (the "Reporting Date"). Borrower hereby
represents, warrants, and acknowledges to Agent and each Lender that:
(a) the officer of Borrower signing this instrument is the duly
elected, qualified and acting ________ of Borrower and as such is
Borrower's chief financial officer;
(b) the Financial Statements are accurate and complete and
satisfy the requirements of the Agreement;
(c) attached hereto is a schedule of calculations showing
Borrower's compliance as of the Reporting Date with the requirements of
Sections 7.11 through 7.14 of the Agreement *[and Borrower's
non-compliance as of such date with the requirements of Section(s)
________ of the Agreement];
(d) on the Reporting Date Borrower was, and on the date hereof
Borrower is, in full compliance with the disclosure requirements of
Section 5.4 of the Agreement, and no Default otherwise existed on the
Reporting Date or otherwise exists on the date of this instrument
*[except for Default(s) under Section(s) ________ of the Agreement,
which *[is/are] more fully described on a schedule attached hereto].
(e) *[Unless otherwise disclosed on a schedule attached hereto,]
The representations and warranties of Borrower set forth in the
Agreement and the other Loan Documents are true and correct on and as of
the date hereof (except to the extent that the facts on which such
representations and warranties are based have been changed by the
extension of credit under the Agreement), with the same effect as though
such representations and warranties had been made on and as of the date
hereof.
The officer of Borrower signing this instrument hereby certifies that he
has reviewed the Loan Documents and the Financial Statements and has otherwise
undertaken such inquiry as is in his opinion necessary to enable him to express
an informed opinion with respect to the above representations, warranties and
acknowledgments of Borrower and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct and
complete.
1
<PAGE> 89
IN WITNESS WHEREOF, this instrument is executed as of ________, 19__.
CONTINENTAL NATURAL GAS, INC.
By:
----------------------------------
Name:
Title:
2
<PAGE> 90
EXHIBIT F
CONTINENTAL NATURAL GAS, INC.
BORROWING BASE REPORT
AS OF ________, 199__
A. Total Accounts Receivable Billed $___________
B. Less: Accounts over 90 days past due -___________
C. Discounts, allowances, rebates, credits
and adjustments -___________
D. Contra accounts, setoffs, defenses,
counterclaims -___________
E. Amounts billed for retainage -___________
F. Accounts owed by insolvent account debtors -___________
G. Accounts owed by Affiliates, officers or
employees of Borrower or any Affiliate -___________
H. Otherwise excluded by Agent -___________
I. Net Eligible Receivables ___________
J. Times Advance Rate x 80%
K. Borrowing Base $___________
L. Revolving Credit Commitment $25,000,000
M. Gross Availability (Lesser of Line K or Line L) $___________
N. Less Revolving Credit Facility Usage [$__________]
(Revolving Credit Loans and LC Obligations Outstanding)
O. Remaining Availability (Line M minus Line N) $___________
*If Line O is a negative amount, Borrower will, within fifteen (15) days after
Agent gives notice of such fact to Borrower, repay principal on the Revolving
Credit Notes by such amount.
1
<PAGE> 91
The undersigned certifies that the information presented here, and any
financial statements presented in conjunction with this Borrowing Base Report,
are true and correct. The undersigned further certifies that he/she is an
officer of the corporation duly authorized to present such information for
purposes of obtaining credit.
CONTINENTAL NATURAL GAS, INC.
By:
----------------------------------------
Name:
Title:
2
<PAGE> 92
EXHIBIT G
ENVIRONMENTAL COMPLIANCE CERTIFICATE
Reference is made to that certain Credit Agreement dated as of December
30, 1996 (as from time to time amended, the "Agreement"), by and among
Continental Natural Gas, Inc., ("Borrower"), ING (U.S.) Capital Corporation, as
Agent, and certain financial institutions ("Lenders"), which Agreement is in
full force and effect on the date hereof. Terms which are defined in the
Agreement are used herein with the meanings given them in the Agreement. The
undersigned, being the *[President/Chief Executive Officer] of Borrower, hereby
certifies to Agent and Lenders as follows:
1. For the Fiscal Year ending immediately prior to the date
hereof, Borrower has complied and is complying with Section 5.12 of the
Credit Agreement *[except as set forth in Schedule I attached hereto];
2. To the best knowledge of the undersigned after due inquiry,
Borrower and each of its Subsidiaries are on the date hereof in
compliance with all applicable Environmental Laws, noncompliance with
which could cause a Material Adverse Change;
3. Borrower has taken (and continues to take) steps to minimize
the generation of potentially harmful effluents;
4. Borrower is in the process of establishing an ongoing program
of conducting an internal audit of each operating facility of Borrower
to identify actual or potential environmental liabilities which could
cause a Material Adverse Change; and
5. Borrower is in the process of establishing an ongoing program
of training its employees in issues of environmental, health and safety
compliance, and Borrower presently has one or more individuals in charge
of implementing such training program.
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry and consultation with the
operating officers of Borrower, the above representations, warranties,
acknowledgements, and agreements of Borrower are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of ________, 19__.
CONTINENTAL NATURAL GAS, INC.
By:
----------------------------------------
Name:
Title:
1
<PAGE> 93
EXHIBIT H
LETTER OF CREDIT APPLICATION AND AGREEMENT
[Attach ING Letter of Credit Application and Agreement
1
<PAGE> 94
EXHIBIT I
OPINION OF ALBRIGHT & RUSHER, A PROFESSIONAL CORPORATION
COUNSEL FOR RESTRICTED PERSONS
[Attach form of Opinion]
1
<PAGE> 95
EXHIBIT J
ASSIGNMENT AND ASSUMPTION AGREEMENT
Date ___________, 199__
Reference is made to that certain Credit Agreement dated as of December
30, 1996 (as from time to time amended, the "Agreement"), by and among
Continental Natural Gas, Inc., ("Borrower"), ING (U.S.) Capital Corporation, as
Agent, and certain financial institutions ("Lenders"), which Agreement is in
full force and effect on the date hereof. Terms which are defined in the
Agreement are used herein with the meanings given them in the Agreement.
________________ ("Assignor") and ________________ ("Assignee") hereby
agree as follows:
1. Assignor hereby sells and assigns to Assignee without recourse and
without representation or warranty (other than as expressly provided herein),
and Assignee hereby purchases and assumes from Assignor, that interest in and
to all of Assignor's rights and duties under the Agreement as of the date
hereof which represents the percentage interest specified in Item 3 of Annex I
hereto (the "Assigned Share") of all of the outstanding rights and obligations
of all [Revolving Credit/Term] Lenders under the Agreement, including, without
limitation, all rights and obligations with respect to the Assigned Share in
Assignor's [Revolving Credit/Term] Loans and [Revolving Credit/Term] Note.
After giving effect to such sale and assignment, Assignee's [Revolving
Credit/Term Loan] Percentage Share (and Assignor's remaining [Revolving
Credit/Term Loan] Percentage Share) will be as set forth in Item 3 of Annex I
hereto.
2. Assignor: (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Agreement, the
other Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Agreement, the other Loan Documents or
any other instrument or document furnished pursuant thereto; and (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of Borrower, any of its Subsidiaries, any other Restricted
Person or the performance or observance by any of them of any of their
respective obligations under the Agreement, the other Loan Documents, or any
other instrument or document furnished pursuant thereto.
3. Assignee: (i) confirms that it has received a copy of the
Agreement, together with copies of the financial statements most recently
delivered thereunder and such other Loan Documents and other documents and
information as it has deemed appropriate to make its own analysis of Borrower
and the transactions contemplated by the Agreement and its own independent
decision to enter into this Assignment and Assumption Agreement; (ii) agrees
that it will, independently and without reliance upon Assignor or any other
Bank Party and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Agreement; (iii) confirms that it is a an Eligible
Transferee under the Agreement; (iv) appoints and authorizes Agent to take such
action as agent on its behalf and to exercise such powers under the Agreement
and the other Loan Documents as are specifically delegated to them, together
with all other powers reasonably incidental thereto; and (v) agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of the Agreement are required to be performed by it as a
1
<PAGE> 96
[Revolving Credit/Term] Lender (including the obligation to make future
[Revolving Credit/Term] Loans). [; and (vi) attaches the "Prescribed Forms"
described in Section 3.6(d) of the Agreement.]
4. Following the execution of this Assignment and Assumption Agreement
by Assignor and Assignee, an executed original hereof (together with all
attachments) will be delivered to Agent. The effective date of this Assignment
and Assumption Agreement (the "Settlement Date") shall be the date specified in
Item 4 of Annex I hereto; provided that this Assignment and Assumption
Agreement shall not be deemed to have taken effect unless (i) the consent
hereto of Agent and Borrower has been obtained (to the extent required in the
Agreement), (ii) Agent has received a fully executed original hereof, and
(iii) Agent has received the processing fee (if required) which is referred to
in Section 10.5(c)(ii) of the Agreement.
5. Upon the satisfaction of the foregoing conditions, then as of the
Settlement Date: (i) Assignee shall be a party to the Agreement and, to the
extent provided in this Assignment and Assumption Agreement, have the rights
and obligations of a [Revolving Credit/Term] Lender thereunder and under the
other Loan Documents and (ii) Assignor shall, to the extent provided in this
Assignment and Assumption Agreement, relinquish its rights and be released from
its duties under the Agreement and the other Loan Documents.
6. All interest, fees and other amounts that would otherwise accrue
pursuant to the Agreement and Assignor's [Revolving Credit/Term] Note for the
account of Assignor from and after the Settlement Date shall, instead accrue
for the account of, and be payable to, Assignor and Assignee, as the case may
be, in accordance with their respective interests as reflected in Item 3 to
Annex I hereto. All payments of principal that would otherwise be payable from
and after the Settlement Date to or for the account of Assignor pursuant to the
Agreement and Assignor's [Revolving Credit/Term] Note shall, instead, be
payable to or for the account of Assignor and Assignee, as the case may be, in
accordance with their respective interests as reflected in Item 3 to Annex I
hereto. On the Settlement Date, Assignee shall pay to Assignor an amount
specified by Assignor in writing which represents the portion of Assignor's
[Revolving Credit/Term] Loans which is being assigned and which is outstanding
on the Settlement Date, net of any closing costs. Assignor and Assignee shall
make any appropriate adjustments in payments under the Agreement for periods
prior to the Settlement Date directly between themselves on the Settlement
Date.
7. Each of the parties to this Assignment and Assumption Agreement
agrees that at any time and from time to time upon the written request of any
other party, it will execute and deliver such further documents and do such
further acts and things as such other party may reasonably request in order to
effect the purposes of this Assignment and Assumption Agreement.
8. This Assignment and Assumption Agreement shall be governed by, and
construed in accordance with, the Laws of the State of New York.
2
<PAGE> 97
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Assignment and Assumption Agreement, as of
the date first above written, such execution also being made on Annex I hereto.
[NAME OF ASSIGNOR], as Assignor
By:
-------------------------------------
Title:
[NAME OF ASSIGNEE], as Assignee
By:
-------------------------------------
Title:
CONSENTED TO AND ACKNOWLEDGED:
ING (U.S.) CAPITAL CORPORATION, as Agent
By:
---------------------------------
Title:
3
<PAGE> 98
ANNEX FOR ASSIGNMENT AND ASSUMPTION AGREEMENT
ANNEX I
1. Borrower: Continental Natural Gas, Inc.
2. Date of Assignment Agreement:
3. Amounts (as of date of item #2 above):
<TABLE>
<CAPTION>
Assignor Assignee
(as Revised) (New)
------------ --------
<S> <C> <C>
a. Percentage Share ________% ________%
b. Percentage Share of
Maximum Loan Amount: $__________ $__________
</TABLE>
4. Settlement Date:
5. Notices:
ASSIGNEE:
____________________
____________________
____________________
Attention:
Telephone:
Telecopy:
6. Wiring Instructions:
____________________
____________________
____________________
<PAGE> 1
EXHIBIT 10.11
Execution Copy
LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
This LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT, dated as of December 27,
1996 (this AGREEMENT), between CONTINENTAL NATURAL GAS, INC., an Oklahoma
corporation (the COMPANY), and CHRISTIANIA BANK, a bank organized under the
laws of Norway, acting through its New York Branch (the BANK).
WITNESSETH:
WHEREA, the Company intends from time to time to request the Bank to
issue irrevocable letters of credit in substantially the form of Exhibit A
hereto or in such other form as is acceptable to the Bank (such letters of
credit and any letters of credit issued in exchange or substitution therefor or
in renewal thereof being herein called the LETTERS OF CREDIT) for the benefit
of beneficiaries designated by the Company (each a BENEFICIARY and collectively
the BENEFICIARIES);
NOW, THEREFORE, in consideration of the premises, and in order to
induce the Bank to issue the Letters of Credit, the parties hereto agree as
follows:
1. DEFINITIONS.
As used in this Agreement and unless otherwise expressly indicated, or
unless the context clearly requires otherwise, the following terms shall have
the following meanings:
BASE RATE means 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 rate of interest
established by the Bank, in New York, New York, from time to
time, as the Bank's prime rate.
BUSINESS DAY means any day of the year other than a
Saturday, Sunday or other day on which banks in the City of
New York, New York are authorized or required by law or
executive order to close.
CERTIFICATE OF ISSUANCE has the meaning assigned to
that term in Section 2.2.
COLLATERAL has the meaning assigned to that term in
Section 3.2.
COLLATERAL ACCOUNT has the meaning assigned to that
term in Section 3.1.
<PAGE> 2
CREDIT LIMIT has the meaning assigned to that term in
Section 2.1.
DATE OF ISSUANCE means, with respect to any Letter of
Credit, the date on which such Letter of Credit is issued by
the Bank.
DEBT means, with respect to any Person, without
duplication, (i) indebtedness of such Person for money
borrowed (including, without limitation, indebtedness
evidenced by notes, bonds, debentures or other similar
instruments and reimbursement obligations which are not
contingent of such Person and including revenue as well as
general obligations), (ii) obligations of such Person to pay
the deferred purchase price of property or services which
purchase price is due twelve months or more from the date of
incurrence of the obligation in respect thereof, (iii) rentals
payable by such Person under any lease of real or personal
property which shall have been, under generally accepted
accounting principles classified as a capital lease, and (iv)
all Debt of others Guaranteed by such Person, (v) all payment
obligations of such Person arising under any interest rate
swap agreement, interest rate cap agreement, interest rate
collar agreement, interest rate futures contract, interest
rate option contract or other similar arrangement and under
any foreign exchange contract, currency swap agreement,
foreign exchange futures contract, foreign exchange option
contract, synthetic cap or other similar agreement; provided
that it is understood that Debt does not include contingent
obligations of such Person to reimburse any other Person in
respect of surety bonds or letters of credit to the extent
that such surety bonds or letters of credit support Debt of
such Person.
DEFAULT means the occurrence of any of the events set
forth in Section 7.1 which after the giving of notice, the
passage of time, or both, would become an Event of Default.
EVENT OF DEFAULT has the meaning assigned to that
term in Section 7.1.
EXPIRATION DATE means, with respect to a Letter of
Credit as of any time, the date on which the Letter of Credit
is stated to expire, taking into account any extensions
thereof.
GUARANTEE means any obligation, contingent or
otherwise, of a Person directly or indirectly guaranteeing any
Debt or other obligation of any other Person, and without
limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, (i) to purchase
or pay (or advance or supply funds for the purchase or payment
of) such Debt or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to
-2-
<PAGE> 3
take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for the purpose of assuring in
any other manner the obligee of such Debt or other obligation
of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part), provided that the
term Guarantee shall not include endorsements for collection
or deposit in the ordinary course of business. The term
"GUARANTEE" used as a verb has a corresponding meaning.
OBLIGATIONS has the meaning assigned to that term in
Section 3.2.
PERSON means an individual or a corporation,
partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government
(or any agency or political subdivision thereof) or other
entity of any kind.
STATED AMOUNT means, with respect to a Letter of
Credit as of any time, the amount available to be drawn
thereunder at such time.
2. TERMS OF THE LETTERS OF CREDIT.
2.1. THE LETTERS OF CREDIT. Subject to the terms and conditions of
this Agreement, the Bank agrees to issue one or more Letters of Credit from
time to time, at any time during the period from the date hereof to and
including December 31, 1996, upon the request and authorization of the Company,
in an aggregate Stated Amount outstanding at any time not to exceed $20,633,100
(the CREDIT LIMIT). Within such limit, the Company may request the issuance of
Letters of Credit, cause outstanding Letters of Credit to be terminated and
request the issuance of additional Letters of Credit under this Section 2.
2.2. PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT.
(a) The Company shall give the Bank written notice of its
request for the issuance of a Letter of Credit, in substantially the
form of Exhibit B hereto (a CERTIFICATE OF ISSUANCE), as soon as
practicable in advance, specifying the Business Day on which the
issuance of such Letter of Credit is requested to be made. If the
conditions precedent to the issuance of such Letter of Credit have
been met on the requested Date of Issuance of such Letter of Credit,
the Bank will issue the Letter of Credit on such date.
(b) Each such Letter of Credit shall name such person as
Beneficiary, shall have such conditions of drawing, and shall have an
Expiration Date and a Stated Amount as shall be designated by the
Company in the related Certificate of Issuance.
(c) Each Letter of Credit shall have an Expiration Date
no later than December 30, 1997.
-3-
<PAGE> 4
(d) Each Letter of Credit may specify that it is subject
to reinstatement as provided in Section 2.9.
(e) Prior to the issuance of the Letter of Credit, the
Company shall have delivered to the Bank an amount in immediately
available funds equal to the Stated Amount of the Letter of Credit for
deposit into the Collateral Account as provided in Section 3.1.
2.3. LETTER OF CREDIT FEES. The Company agrees to pay to the Bank,
as consideration for the issuance of a Letter of Credit, a letter of credit
fee, payable quarterly in arrears on the last day of each calendar quarter,
commencing on the first such date after the Date of Issuance thereof, equal to
one and one-half percent (1-1/2%) per annum of the Stated Amount thereof. In
addition, the Company agrees to pay an issuance fee of $50 for each Letter of
Credit due on the Date of Issuance of such Letter of Credit.
2.4. REIMBURSEMENT. (a) The Company hereby agrees to pay, or to
cause to be paid, to the Bank (i) on each date on which the Bank notifies the
Company by telecopier that it has honored any demand for payment under any
Letter of Credit a sum equal to the amount so paid under the Letter of Credit,
plus (ii) interest on the amount referred to in clause (i) above from and
including the date such amount is paid by the Bank until payment in full at a
fluctuating rate per annum equal to the Base Rate in effect from time to time
plus one and one-half percent (1-1/2%), but in no event at a rate per annum
greater than the maximum rate permitted by applicable law. If a drawing is
repaid at or prior to 3:00 P.M., New York time, on the same day on which it is
made, no interest shall be payable on such drawing.
(b) To the extent that amounts are available in the Collateral
Account, the Bank shall, without prior notice to the Company, automatically
apply such available amounts to the payment of the Company's reimbursement
obligations under Section 2.4(a) on the same date as any drawing giving rise to
such reimbursement obligation, and no interest shall accrue on such drawing
amount to the extent such amounts are available. Promptly after any drawing on
a Letter of Credit, the Bank shall notify the Company of the amount of such
drawing and the amount applied to its reimbursement from the Collateral
Account.
2.5. INTEREST ON OVERDUE AMOUNTS. Any amount due hereunder other
than under Section 2.4 (whether fees, commissions or expenses) which is not
paid when due shall bear interest, payable on demand, from the date the same
becomes due until such amount is paid in full at a fluctuating rate per annum
equal to the Base Rate in effect from time to time plus one and one-half
percent (1-1/2%), but in no event at a rate per annum greater than the maximum
rate permitted by applicable law.
2.6. PAYMENTS AND COMPUTATIONS. The Company shall make or cause to
be made each payment hereunder not later than 3:00 P.M., New York time, on the
day when due, in
-4-
<PAGE> 5
lawful money of the United States of America, in immediately available funds,
to the Bank at its address referred to in Section 8.1. All computations of
interest hereunder shall be made on the basis of a year of 360 days for the
actual number of days elapsed (including the first day but excluding the last
day). Except as otherwise provided in this Agreement, the Bank shall send the
Company statements of all amounts due hereunder for interest, principal, and
fees, which statements shall be considered correct and conclusively binding on
the Company unless the Company notifies the Bank to the contrary within thirty
(30) days of its receipt of any statement which it deems to be incorrect.
2.7. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day (and if so made,
shall be deemed to have been made when due), and such extension of time shall
in such case be included in the computation of payment of interest due
hereunder.
2.8. BOOK ENTRIES. The Bank shall maintain in accordance with its
usual practice an account or accounts evidencing the indebtedness of the
Company resulting from drawings on the Letters of Credit made from time to time
and the amounts of principal and interest payable and paid from time to time
under this Agreement in respect of such drawings. In any legal action or
proceeding in respect of this Agreement, the entries made in such account or
accounts shall, in the absence of manifest error, be conclusive evidence of the
existence and amounts of the obligations of the Company therein recorded.
2.9. REDUCTIONS AND REINSTATEMENTS OF LETTERS OF CREDIT. Each
drawing honored by the Bank under any Letter of Credit shall automatically
reduce pro tanto the amount available to be drawn under such Letter of Credit;
provided, however, that if the Certificate of Issuance relating to any Letter
of Credit so specifies, then the amount available to be drawn under a specified
drawing under the Letter of Credit shall be automatically reinstated from time
to time upon, and to the extent of, any amounts drawn by the Beneficiary and
paid by the Bank under such specified drawing under the Letter of Credit. Upon
the delivery of a reduction notice to the Bank by the Beneficiary of a Letter
of Credit, in form and substance satisfactory to the Bank together with
evidence satisfactory to the Bank as to the due authorization, execution and
delivery of such notice, the Bank shall reduce the Stated Amount of the Letter
of Credit by the amount specified in such notice by an appropriate amendment to
the Letter of Credit delivered to the Beneficiary and shall, upon confirmation
of acceptance of such amendment by the Beneficiary, pay to the Company or upon
its order out of the Collateral Account an amount equal to such reduction in
the Stated Amount.
2.10. OBLIGATIONS ABSOLUTE. The Obligations of the Company under
this Agreement shall be unconditional and irrevocable, and shall be paid or
performed strictly in accordance with the terms of this Agreement under all
circumstances, including, without limitation, the following circumstances:
-5-
<PAGE> 6
(a) any lack of validity or enforceability of any Letter
of Credit or this Agreement against the Bank;
(b) any amendment or waiver of, or any consent to
departure from, all or any of this Agreement;
(c) the existence of any claim, set-off, defense or other
right which the Company may have at any time against any Beneficiary
of the Letters of Credit (or any persons for whom any Beneficiary may
be acting), the Bank or any other person, whether in connection with
this Agreement, the transactions contemplated herein or therein or any
unrelated transaction;
(d) any certificate, statement or any other document
presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect, provided that payment by the Bank
under any Letter of Credit against presentation of any such
certificate, statement or document shall not have constituted gross
negligence or willful misconduct of the Bank;
(e) any non-application or misapplication by any
Beneficiary of the proceeds of any drawing under any Letter of Credit;
(f) payment by the Bank under any Letter of Credit
against presentation of a draft or a certificate which does not comply
with the terms of the Letter of Credit, provided that such payment by
the Bank shall not have constituted negligence or willful misconduct
of the Bank; and
(g) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing, provided that such
other circumstance or happening shall not have been caused by gross
negligence or willful misconduct of the Bank.
3. The Collateral Account.
3.1. MAINTAINING THE COLLATERAL ACCOUNT. So long as any Obligation
shall remain unpaid:
(a) The Company will maintain an interest-bearing blocked
deposit account (the COLLATERAL ACCOUNT) with the Bank. On or prior to
the Date of Issuance of any Letter of Credit, the Borrower shall make
a deposit in the Collateral Account in an amount equal to the Stated
Amount of the Letter of Credit.
(b) Except as otherwise provided in the next paragraph
and in Section 3.3(a), no amount (including interest on the Collateral
Account) shall be paid or released to or for the account of, or
withdrawn by or for the account of, the Company
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<PAGE> 7
or any other person or entity from the Collateral Account; provided,
however, that the Bank shall, and is hereby authorized to, apply funds
in the Collateral Account to the payment of due and unpaid
Obligations, and shall promptly notify the Company in writing of any
such application.
(c) Upon any reduction in the Stated Amount of any Letter
of Credit other than a reduction due to an unreimbursed drawing on the
Letter of Credit, the Bank, upon the written request of the Company,
shall pay to or upon the order of the Company out of the Collateral
Account an amount equal to such reduction.
(d) The Collateral Account shall be subject to such
applicable laws, and such applicable regulations of the Board of
Governors of the Federal Reserve System and of any other appropriate
banking or governmental authority as may now or hereafter be in
effect.
3.2. PLEDGE AND ASSIGNMENT. The Company hereby pledges and assigns
to the Bank, and grants to the Bank a security interest in, the following
collateral (the COLLATERAL):
(a) the Collateral Account and all funds held therein;
(b) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered to
or otherwise possessed by the Bank for or on behalf of the Company in
substitution for or in addition to any or all of the then existing
Collateral;
(c) all interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the then
existing Collateral; and
(d) all proceeds of any and all of the foregoing
Collateral.
This Agreement secures the payment of all reimbursement obligations of the
Company now or hereafter existing under this Agreement in respect of drawings
under the Letters of Credit and any replacements thereof (including the
principal amount of unpaid drawings and accrued interest thereon) (all such
obligations of the Company being the OBLIGATIONS).
3.3. INTEREST ON THE COLLATERAL ACCOUNT. (a) All moneys on deposit
from time to time in the Collateral Account shall bear interest during each
Interest Period from and including the first day thereof to but excluding the
last day thereof at a rate per annum equal to the London Interbank Bid Rate for
such Interest Period. For purposes of this Section 3.3, the term LONDON
INTERBANK BID RATE shall mean, for each Interest Period, the average bid rate,
as determined by the Bank, by major banks in London, England for deposits in
U.S. dollars for a period equal to such Interest Period as of 11:00 a.m. New
York time on the first day of such Interest Period. INTEREST PERIOD means each
successive period of one month (or
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<PAGE> 8
such other period as may be agreed to by the Company and the Bank), with the
first Interest Period commencing on the date of initial deposit in the
Collateral Account, and each Interest Period thereafter commencing on the last
day of the then-expiring Interest Period; provided that (a) any Interest Period
which would otherwise end on a day which is not a Business Day shall be
extended to the next succeeding Business Day unless such Business Day falls in
another calendar month, in which case such Interest Period shall end on the
immediately preceding Business Day; (b) any Interest Period which begins on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month. All interest
on the moneys in the Collateral Account shall be payable on the last day of
each Interest Period, shall be paid by the Bank to or upon the order of the
Company.
(b) If any amount on deposit in the Collateral Account is
withdrawn therefrom on any day other than the last day of an Interest Period,
the Bank shall reduce the interest payable by it for such Interest Period by an
amount equal to the cost to it of obtaining funds equal to the amount of such
withdrawal for the period from the date of such withdrawal to the last day of
such Interest Period, provided that the Bank shall have delivered to the
Company a certificate setting forth in reasonable detail the amount of such
cost, which certificate shall be conclusive in the absence of manifest error.
3.4. TRANSFERS AND OTHER LIENS. Neither the Bank nor the Company
will (i) sell, assign (by operation of law or otherwise), or otherwise dispose
of, or grant any option with respect to, any of the Collateral, or (ii) create
or permit to exist any lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Collateral, except for the
security interest under this Agreement.
3.5. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER CREDIT
AGREEMENT. This Agreement shall create a continuing security interest in the
Collateral and shall remain in full force and effect until the payment in full
of the Obligations and all other amounts payable under this Agreement. Upon the
termination of the Letters of Credit and all replacements thereof, the Bank
shall, at the written direction of the Company, promptly pay over to the
Company all amounts remaining in the Collateral Account and deliver all other
Collateral to the Company; provided, however, that the Bank shall retain an
amount of Collateral equal in value to any remaining unpaid Obligations. Upon
the later of the payment in full of the Obligations and all other amounts
payable under this Agreement and the expiration or termination of the Letters
of Credit and all replacements thereof, the security interest granted hereby
shall terminate and all rights to the Collateral shall revert to the Company.
Upon any such termination, the Bank will, at the Company's expense, return to
the Company such of the Collateral as shall not have been sold or otherwise
applied pursuant to the terms hereof and execute and deliver to the Company
such documents as the Company shall reasonably request to evidence such
termination.
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<PAGE> 9
4. CONDITIONS PRECEDENT.
4.1. CONDITIONS PRECEDENT TO ISSUANCE OF THE LETTERS OF CREDIT. The
obligation of the Bank to issue the Letters of Credit is subject to the
condition precedent that the Bank shall have received, on or before the Date of
Issuance of the initial Letter of Credit, the following, each in form and
substance satisfactory to the Bank:
(a) A copy of the articles of incorporation of the
Company, certified as of a recent date by the Secretary of State of
Oklahoma.
(b) A good standing certificate for the Company, issued
as of a current date by the Secretary of State of Oklahoma.
(c) A certificate of the associate general counsel and
assistant secretary of the Company certifying (i) that attached
thereto is a true and complete copy of the bylaws of the Company as in
effect on the date of such certification, (ii) that attached thereto
is a true and complete copy of resolutions adopted by the board of
directors of the Company authorizing the execution, delivery and
performance of this Agreement, Certificates of Issuance and the other
documents to be delivered by the Company in connection herewith and
therewith, and (iii) as to the incumbency and genuineness of the
signature of each officer of the Company executing this Agreement.
(d) A Certificate of Issuance for the initial Letter of
Credit containing the information specified in Section 2.2 and duly
executed by an authorized officer of the Company.
5. REPRESENTATIONS AND WARRANTIES.
5.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants as follows:
(a) Due Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of
Oklahoma and is duly qualified and in good standing as a foreign
corporation in each other jurisdiction where the nature of the
business conducted by the Company makes such qualification necessary
and where the failure to so qualify would have a material adverse
effect on its business or properties, has all necessary power and
authority (corporate and other) to own its properties, to conduct its
business as presently conducted or proposed to be conducted and to
execute, deliver and perform this Agreement.
(b) Due Authorization; No Violation. The execution,
delivery and performance by the Company of this Agreement have been
duly authorized by all necessary corporate action, and do not and will
not violate any law or any regulation,
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<PAGE> 10
order, writ, injunction or decree of any court or governmental body,
agency or other instrumentality applicable to the Company, or result
in a breach of any of the terms, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of
any mortgage, lien, charge or encumbrance of any nature whatsoever
upon any of the assets of the Company pursuant to the terms of, the
Company's articles of incorporation or by-laws, or any mortgage,
indenture, agreement or instrument to which the Company is a party or
by which it or any of its properties is bound.
(c) Consents. All authorizations, consents and approvals
of, notices to, registrations or filings with, or other actions in
respect of or by, any court or any governmental body, agency or other
instrumentality required in connection with the execution, delivery
and performance by the Company of this Agreement have been duly
obtained, given or taken and are in full force and effect.
(d) Enforceability. This Agreement has been duly executed
and delivered by the Company and (assuming due authorization,
execution and delivery of this Agreement by the Bank) constitutes the
legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(e) Legal Proceedings. There is no action, suit,
proceeding, inquiry or investigation, at law or in equity, before or
by any governmental authority pending or, to the best of the Company's
knowledge, threatened against or affecting the Company (and to the
best of the Company's knowledge, there is no basis therefor) wherein
an unfavorable decision, ruling or finding is probable and would (a)
materially adversely affect the transactions contemplated by this
Agreement or (b) affect the validity or enforceability of this
Agreement or any agreement or instrument to which the Company is a
party used or contemplated for use in connection with the transactions
contemplated by this Agreement.
(f) Financial Information. The balance sheet of the
Company, as of October 31, 1996, a copy of which has been delivered to
the Bank, fairly presents, in conformity with generally accepted
accounting principles, the financial position of the Company as of
such date and its results of operations, cash flows, changes in
financial position and changes in stockholders' equity for such fiscal
year.
(g) No Adverse Change. Since October 31, 1996, there has
been no material adverse change in the business, financial position,
results of operations or prospects of the Company.
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<PAGE> 11
(h) Violations of Law. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of
any governmental authority, including any filing requirement in
respect thereof, except for violations which, individually or in the
aggregate, do not and will not have material adverse effect on the
assets, operations, prospects or condition, financial or otherwise, of
the Company.
(i) Governmental Authorizations to Conduct Business. The
Company possesses all permits and other governmental authorizations
that are material to the conduct of its business. Such licenses,
permits and other governmental authorizations are valid and sufficient
for the business presently carried on by the Company, and neither the
execution, delivery or performance of this Agreement nor the
consummation of the transactions contemplated hereby will affect the
validity thereof or require consent with respect thereto, and, to the
best of the knowledge of the Company, there is no threat of suspension
or cancellation of any such license, permit or governmental
authorization.
(j) No Defaults. The Company is not in default under its
articles of incorporation or bylaws or any law or any regulation,
order, writ, injunction or decree of any court or any governmental
body, agency or other instrumentality applicable to the Company. No
event has occurred and is continuing, or would result from the
issuance of the Letters of Credit, which constitutes a Default or an
Event of Default.
(k) Pledge of Collateral The Company is the legal and
beneficial owner of the Collateral, free and clear of any lien,
security interest, option or other charge or encumbrance except for
the security interest created by this Agreement, and the pledge and
assignment of the Collateral pursuant to this Agreement creates a
valid and perfected first priority security interest in the
Collateral, securing the payment of the Obligations.
6. COVENANTS.
6.1. AFFIRMATIVE COVENANTS. So long as a drawing is available under
any Letter of Credit or the Company shall have any obligation to pay any amount
to the Bank hereunder, the Company will, unless the Bank shall otherwise
consent in writing, comply with the following affirmative covenants:
(a) Maintenance of Corporate Existence. The Company will
preserve, renew and keep in full force and effect its corporate
existence and its rights, privileges and franchises necessary or
desirable in the normal conduct of business and which are material to
the Company.
(b) Compliance with Laws. The Company will comply with
all applicable
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<PAGE> 12
laws and all applicable rules, regulations and orders of any court or
any governmental body, agency or other instrumentality, non-compliance
with which would have a material adverse effect on its business,
financial condition or results of operations or would materially
adversely affect the Company's ability to perform its obligations
under this Agreement.
(c) Payment of Taxes. The Company will promptly pay and
discharge all taxes, assessments and governmental charges and levies
upon it or upon any of its income, profits or property; provided,
however, that the Company shall not be required to pay any tax,
assessment, charge or levy (i) the payment of which is being contested
in good faith by appropriate proceedings and (ii) as to which the
Company shall have set aside on its books reserves for such tax,
assessment, charge or levy as are determined to be adequate by the
application of generally accepted accounting principles consistently
applied.
(d) Property, Books and Records. The Company will keep,
and will cause each of its Subsidiaries to keep, proper books of
record and accounts in which proper entries shall be made of all
dealings and transactions in relation to its business and activities.
(e) Reporting Requirements. The Company will furnish to
the Bank:
(i) Quarterly Financial Statements. As soon as
available and in any event within 60 days after the end of
each of the first three fiscal quarters of the Company, the
balance sheet of the Company as at the end of such fiscal
quarter and the related statements of income and cash flows
for such fiscal quarter, which shall set forth in each case in
comparative form the figures for the corresponding quarter for
the previous year, certified by the chief financial officer of
the Company to have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent
with that applied to the preparation of the Company's annual
financial statements;
(ii) Annual Financial Statements. As soon as
available and in any event within 120 days after the end of
each fiscal year of the Company, the balance sheet of the
Company as at the end of such fiscal year and the related
statements of income and cash flows for such fiscal year,
which shall set forth in each case in comparative form the
figures for the previous fiscal year, reported on by
independent public accountants of nationally recognized
standing satisfactory to the Bank (which report shall not be
qualified as to the scope of the audit or as a result of
non-conformity with generally accepted accounting principles
or auditing standards);
(iii) Events of Default. As soon as possible and
in any event within
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<PAGE> 13
ten (10) days after the occurrence and continuance of any
Default or Event of Default, a statement setting forth details
of such default and the action which the Company proposes to
take with respect thereto; the financial statements delivered
by the Company immediately following the end of each calendar
quarter and of each fiscal year shall be accompanied by the
certification of the Company's Vice President of Finance and
Treasurer that, to the best of his knowledge after diligent
investigation, no Default or Event of Default exists under any
provision of this Agreement or setting forth the details of
any such Default or Event of Default and the action which the
Company is taking or proposes to take with respect thereto;
and
(iv) Bankruptcy Proceedings. Immediately, notice
of the commencement of any proceedings by or against the
Company under any applicable bankruptcy, reorganization,
liquidation, insolvency or other similar law now or hereafter
in effect or of any proceeding in which a receiver,
liquidator, trustee or other similar official is sought to be
appointed for the Company.
(f) Further Assurances. The Company shall execute,
acknowledge where appropriate, and deliver, and cause to be executed,
acknowledged where appropriate, and delivered, from time to time
promptly at the request of the Bank all such instruments and documents
as in the opinion of the Bank are reasonably necessary to carry out
the intent and purpose of this Agreement.
6.2. NEGATIVE COVENANTS. So long as a drawing is available under
any Letter of Credit or the Company shall have any obligation to pay any amount
to the Bank hereunder, the Company will, unless the Bank shall otherwise
consent in writing, comply with the following negative covenants:
(a) Consolidations and Mergers. The Company will not
consolidate or merge with or into any other person unless (i) the
Company is the corporation surviving such consolidation or merger, or
the corporation surviving such consolidation or merger, if not the
Company, assumes the obligations of the Company hereunder in a writing
acceptable to the Bank and (ii) in each case, after giving effect
thereto, no Default shall have occurred and be continuing.
(b) Untrue Statements or Omissions. The Company will not
willfully furnish or cause to be furnished to the Bank any certificate
or other document that will contain any untrue statement of material
fact or that will omit to state a material fact necessary to make it
not misleading in light of the circumstances under which it was
furnished.
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<PAGE> 14
7. EVENTS OF DEFAULT; REMEDIES.
7.1. EVENTS OF DEFAULT. It shall be deemed an EVENT OF DEFAULT if
any of the following events shall occur and be continuing:
(a) The amount of any reimbursement obligation payable
under Section 2.4 shall not be paid within one day after the same
shall be due or any other amount payable under this Agreement shall
not be paid within five days after the same shall be due; or
(b) Any material representation or warranty made or
deemed to have been made by the Company under or in connection with
this Agreement or any document, instrument or certificate delivered in
connection herewith or therewith shall prove to have been incorrect in
any material respect when made or deemed to have been made; or
(c) The Company shall fail to perform or observe any
term, covenant or agreement applicable to it contained in this
Agreement (other than as elsewhere specifically addressed in this
Section 7.1), and any such failure shall remain unremedied for 30 days
after written notice shall have been given to the Company by the Bank;
or
(d) The Company shall fail to pay any Debt of the
Company, or any interest or premium thereon, when due (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to
such Debt; or any other default under any agreement or instrument
relating to any such Debt, or any other event, shall occur and shall
continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such
Debt; or any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; or
(e) The Company shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment
for the benefit of creditors, or shall admit in writing its inability
to pay its debts generally, as and when due, or shall fail generally
to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing; or
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<PAGE> 15
(f) An involuntary case or other proceeding shall be
commenced against the Company seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 90 days; or an order for relief shall be
entered against the Company under the Federal bankruptcy laws as now
or hereafter in effect; or
7.2. REMEDIES. If an Event of Default shall have occurred then, and
in any such event at any time thereafter if such Event of Default is
continuing, the Bank may, in its discretion, do any one or more of the
following:
(a) The Bank may, without notice to the Company except as
required by law and at any time or from time to time, charge, set-off
and otherwise apply all or any part of the Collateral Account against
the Obligations or any part thereof then due.
(b) The Bank may also exercise in respect of the
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under the Uniform Commercial Code in effect
in the State of New York at that time (the "Code") (whether or not the
Code applies to the affected Collateral), and may also, without notice
except as specified below, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of the Bank's
offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Bank may deem commercially reasonable.
The Company agrees that, to the extent notice of sale shall be
required by law, at least ten days' notice to the Company of the time
and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Bank shall
not be obligated to make any sale of Collateral regardless of notice
of sale having been given. The Bank may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.
(c) Any cash held by the Bank as Collateral and all cash
proceeds received by the Bank in respect of any sale of, collection
from, or other realization upon all or any part of the Collateral may,
in the discretion of the Bank, be held by the Bank as collateral for,
and/or then or at any time thereafter be applied (after payment of any
amounts payable to the Bank pursuant to Section 8.3 or 8.5) in whole
or in part by the Bank against, all or any part of the Obligations in
such order as the Bank shall elect. Any surplus of such cash or cash
proceeds held by the Bank and remaining after payment in full of all
the Obligations shall be paid over to the Company or to whomsoever may
be lawfully entitled to receive such surplus.
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<PAGE> 16
(d) The Bank may exercise any or all other rights and
remedies existing at law or in equity or by statute (including,
without limitation, the right to proceed by appropriate court action,
either at law or in equity, to enforce performance by the Company of
the applicable representations and warranties and covenants of this
Agreement or to recover damages for the breach thereof).
7.3. RIGHTS AND REMEDIES CUMULATIVE; WAIVERS. The Bank's rights and
remedies under this Agreement shall be cumulative and not exclusive of any
other right or remedy which the Bank may have. No delay or omission to exercise
any remedy, right or power accruing upon an Event of Default shall impair any
such remedy, right or power or shall be construed as a waiver thereof, but any
such remedy, right or power may be exercised from time to time and as often as
may be deemed expedient. A waiver of one Default or Event of Default shall not
be construed to be a waiver of any subsequent Default or Event of Default or
impair any remedy, right or power consequent thereon.
7.4. BANK APPOINTED ATTORNEY-IN-FACT. The Company hereby appoints
the Bank the Company's attorney-in-fact, with full authority in the place and
stead of the Company and in the name of the Company or otherwise, from time to
time in the Bank's discretion, but only following and during the continuance of
an Event of Default, to take any action and to execute any instrument which the
Bank may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, to receive, endorse and collect all
instruments made payable to the Company representing any interest payment,
dividend or other distribution in respect of the Collateral or any part thereof
and to give full discharge for the same. The power of attorney hereby granted
is coupled with an interest and shall be irrevocable until all Obligations have
been satisfied.
8. Miscellaneous.
8.1. NOTICES. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person or if sent by registered mail, postage prepaid, return receipt
requested, or facsimile transmitter, as follows, unless such address is changed
by written notice hereunder:
(A) If to the Borrower:
Continental Natural Gas, Inc.
1412 South Boston Avenue, Suite 500
Tulsa, Oklahoma 74119
Attention: Garry D. Smith
Telecopy: (918) 560-4900
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<PAGE> 17
with copies to:
Albright & Rusher
2600 Boatmen's Center
15 West Sixth Street
Tulsa, Oklahoma 74119
Attention: Kenneth F. Albright, Esq.
(B) If to the Bank:
Christiania Bank
New York Branch
11 West 42nd Street, 7th Floor
New York, New York 10036
Attention: Energy and Natural Resources
Telecopy: (212) 827-4888
with copies to:
Graham & James LLP
885 Third Avenue
New York, New York 10022
Attention: Elwood F. Collins, Jr., Esq.
8.2. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by the Company therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Bank, and, in the case of an amendment, the Company, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
8.3. INDEMNIFICATION. The Company hereby indemnifies and holds the
Bank harmless from and against any and all claims, damages, losses,
liabilities, or reasonable costs or expenses which the Bank may incur or which
may be claimed against the Bank by any person:
(a) by reason of or in connection with the execution,
delivery or performance or default thereof of this Agreement or any
transaction contemplated hereby (except to the extent indemnification
pursuant to this paragraph would be inconsistent with any exclusion
from indemnification pursuant to the following paragraph of this
Section 8.3); or
(b) by reason of or in connection with the execution and
delivery of, or payment or failure to make payment under, any Letter
of Credit; provided, however, that the Company shall not be required
to indemnify the Bank pursuant to this Section 8.3(b) for any claims,
damages, losses, liabilities, costs or expenses to the extent, but
only to the extent, caused by (i) the willful misconduct or negligence
of
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<PAGE> 18
the Bank in determining whether a certificate presented under the
Letter of Credit complied with the terms of the Letter of Credit, or
(ii) the Bank's wrongful failure to make lawful payment under the
Letter of Credit after the presentation to it by the Beneficiary of a
certificate strictly complying with the terms and conditions of the
Letter of Credit.
Nothing in this Section 8.3 is intended to limit the obligations of
the Company contained in Section 2. The obligations of the Company under this
Section 8.3 shall survive any termination of this Agreement.
8.4. LIABILITY OF THE BANK. The Company assumes all risks of the
acts or omissions of the Beneficiary and any transferee of any Letter of Credit
with respect to its use of the Letter of Credit. Neither the Bank nor any of
its officers or directors shall be liable or responsible for: (a) the use which
may be made of any Letter of Credit or any acts or omissions of the Beneficiary
or any transferee in connection therewith; (b) the validity, sufficiency or
genuineness of documents, or of any endorsement thereon, even if such documents
should prove to be in any or all respects invalid, insufficient, fraudulent or
forged; (c) payment by the Bank against presentation of documents which do not
comply with the terms of any Letter of Credit, including failure of any
documents to bear any reference or adequate reference to the Letter of Credit;
or (d) any other circumstances whatsoever in making or failing to make payment
under any Letter of Credit; provided that the Company shall have a claim
against the Bank, and the Bank shall be liable to the Company, to the extent of
any direct, as opposed to consequential, damages suffered by the Company which
the Company proves were caused by (i) the Bank's willful misconduct or gross
negligence in determining whether documents presented under the Letter of
Credit comply with the terms of the Letter of Credit, or (ii) the Bank's
negligence in failing to make or willful failure to make lawful payment under
the Letter of Credit after the presentation to it by the Beneficiary of a
certificate strictly complying with the terms and conditions of the Letter of
Credit. In furtherance and not in limitation of the foregoing, the Bank may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
8.5. COSTS AND EXPENSES. The Company agrees to pay on demand all
reasonable costs and out-of-pocket expenses (including reasonable counsel fees
and expenses) in connection with (i) the negotiation of this Agreement and the
issuance of the Letters of Credit, (ii) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Collateral,
(iii) the enforcement of this Agreement or any other documents which may be
delivered in connection with this Agreement, and (iv) any action or proceeding
relating to any order, injunction, or other process or decree restraining or
seeking to restrain the Bank from paying any amount under the Letters of
Credit.
8.6. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Company and the Bank and their respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any
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<PAGE> 19
interest herein without the prior written consent of the Bank. The Bank may
assign, negotiate, pledge or otherwise hypothecate all or any portion of this
Agreement, or grant participations herein, in the Letters of Credit or in any
of its rights or security hereunder to any Federal Reserve Bank or, with the
written consent of the Company, which consent shall not be unreasonably
withheld, to any other financial institution.
8.7. SUPERSEDING AGREEMENT. This Agreement supersedes any
commitment letters or other agreements between the Bank and the Company prior
to the date hereof relating to the subject matter hereof.
8.8. SEVERABILITY. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
8.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. Unless
otherwise defined herein or in this Agreement, terms defined in Article 9 of
the Code are used herein as therein defined.
8.10. Consent to Jurisdiction; Waiver of Trial by Jury. THE BORROWER
IRREVOCABLY AND UNCONDITIONALLY (I) AGREES THAT ANY SUIT, ACTION OR OTHER LEGAL
PROCEEDING ARISING OUT OF THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF RECORD
OF THE STATE OF NEW YORK OR THE COURTS OF THE UNITED STATES LOCATED IN THE
STATE OF NEW YORK; (II) CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF EACH SUCH
COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING; AND (III) WAIVES ANY OBJECTION
WHICH IT MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
IN ANY OF SUCH COURTS; AND IN ANY ACTION HEREUNDER THE BORROWER AND THE BANK
WAIVE THE RIGHT TO DEMAND A TRIAL BY JURY.
8.11. HEADINGS. The headings of the Sections of this Agreement are
for convenience only, and shall not control or affect the meaning or
construction of any of the terms or provisions of this Agreement. References in
this Agreement to Sections are references to Sections of this Agreement, unless
expressly stated to the contrary.
-19-
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first set forth above.
CONTINENTAL NATURAL GAS, INC.
By
----------------------------------
Name:
Title:
CHRISTIANIA BANK,
NEW YORK BRANCH
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
-20-
<PAGE> 21
EXHIBIT A
[Letterhead of Christiania Bank]
[DATE]
Irrevocable Letter of Credit No. [LOC#]
[BENEFICIARY]
_____________________
_____________________
Gentlemen:
The undersigned, Christiania Bank, a bank organized under the laws of
Norway (the "Bank"), acting through its New York Branch, hereby establishes, at
the request and for the account of [ACCOUNT PARTY] (the "Account Party"), in
your favor, its Irrevocable Letter of Credit No. [LOC#] in the amount of
___________________ U.S. Dollars ($_______________) (the "Stated Amount"),
pursuant to that certain Letter of Credit and Reimbursement Agreement, dated as
of December 27, 1996, as amended from time to time (the "Reimbursement
Agreement"), between the Account Party and the Bank.
We hereby irrevocably authorize you to draw on us, in accordance with
the terms and conditions hereof, in one or more drawings from time to time, an
aggregate amount, in United States Dollars, not exceeding the Stated Amount,
with respect to the payment when due of money due and owing to you under that
certain _____________, dated as of _____, 19__, between the Account Party and
you. Each drawing honored by the Bank hereunder shall automatically reduce pro
tanto the amount available to be drawn hereunder by subsequent drawings. A
drawing under this Letter of Credit is available to you against your properly
endorsed sight draft drawn on and presented to the Bank, stating on its face
"Drawn under Christiania Bank, New York Branch, Irrevocable Letter of Credit
No. [LOC#]" and accompanied by your written and completed certificate, signed
by one who purports to be your duly authorized officer, containing one of the
following statements:
1. "[ACCOUNT PARTY] (the "Account Party") is in default
in the payment of money due and owing [BENEFICIARY] (the
"Beneficiary") under that certain ____________, dated as of ________,
199__, between the Account Party and the Beneficiary, in the amount of
at least the face amount of the accompanying draft."
OR
2. "You have advised us in writing that the Letter of
Credit referred to in the accompanying draft is being terminated by
reason of the occurrence and continuance of an 'Event of Default'
under the Reimbursement Agreement (as defined in the Letter of
Credit)."
A-1
<PAGE> 22
OR
3. "(A) [ACCOUNT PARTY] (the "Account Party") has not
completed its obligations under that certain ____________, dated as of
________, 199__, between the Account Party and the Beneficiary, and
(B) you have not advised us in writing at least 30 days prior to the
expiration date of the Letter of Credit referred to in the
accompanying draft that such Letter of Credit has not been extended
for at least one year from the date of expiration thereof."
A sight draft which exhausts funds drawable hereunder must be
accompanied by this Letter of Credit.
Demand for payment may be made by you under this Letter of Credit, at
any time during the business hours of the Bank on a Business Day, at its New
York Branch located at 11 West 42nd Street, 7th Floor, New York, New York 10036
(or at any other office in the City of New York, New York that may be
designated by the Bank by written notice delivered to you). As used in this
Letter of Credit, the term "Business Day" shall mean a day other than a
Saturday, Sunday or other day on which banks in the City of New York, New York
are authorized or required by law or executive order to close.
This Letter of Credit shall expire at the close of business of the
Bank at its New York Branch on the earliest to occur of the following dates
(the "Termination Date"): (i) ________, 199__; and (ii) the date on which no
further amount is available to be drawn under this Letter of Credit.
This Letter of Credit is not transferable in whole or in part. Only
you may make a drawing under this Letter of Credit. Upon the payment to you, in
accordance with your payment instructions, of the amount specified in any draft
drawn under this Letter of Credit, we shall be fully discharged of our
obligation under this Letter of Credit with respect to such draft, and we shall
not thereafter be obligated to make any further payments under this Letter of
Credit in respect of such draft, to you or to any other person.
This Letter of Credit shall be governed by the laws of the State of
New York including, without limitation, Article 5 of the Uniform Commercial
Code as in effect in the State of New York, and shall also, to the extent not
inconsistent with such Code, be governed by the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500.
This Letter of Credit sets forth in full our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein
(including, without limitation, the Reimbursement
A-2
<PAGE> 23
Agreement), except for the drafts and the certificates referred to herein; and
any such reference shall not be deemed to incorporate herein by reference any
document, instrument or agreement except for such drafts and certificates.
Very truly yours,
CHRISTIANIA BANK,
NEW YORK BRANCH
By:
-----------------------------
Title:
A-3
<PAGE> 1
EXHIBIT 10.12
1996 INCENTIVE STOCK OPTION PLAN
OF CONTINENTAL NATURAL GAS, INC.
PLAN SUMMARY
This Incentive Stock Option Plan provides that an aggregate of 2,500
shares of the common stock of a par value of $1.00 per share of Continental
Natural Gas, Inc. (the "Company") may be optioned to any employee of the
Company. The Plan provides authority for the Board of Directors of the Company
to select the employees of the Company to whom incentive stock options will be
granted. No person may be granted an incentive stock option unless he agrees
to remain an employee of the Company for at least two (2) years.
Following the statutory requirements of Sec. 422 of the Internal
Revenue Code of 1986 (the "Code"), as amended, the Plan provides that the Board
may establish the purchase price of the stock at the time the option is
granted. However, the purchase price may not be less than 100% of the fair
market value of the common stock of the Company at the time the option is
granted. The aggregate fair market value of common stock of the Company for
which any employee may be granted options which are exercisable for the first
time in any one calendar year shall not exceed $100,000, as determined at the
time of grant; provided, however, to the extent any options granted to any
employee exceed such limitation such options shall be deemed nonstatutory stock
options which are subject to Sec. 83 of the Code.
This Plan terminates ten (10) years after its effective date. All
options to be granted are nontransferable. The Company is to receive no cash
consideration for granting options under this Plan. However, when an option is
exercised, the holder is required to pay the option price either: (i) in cash
or by certified or cashier's check, (ii) by exchanging outstanding shares of
the Company's common stock or (iii) a combination of the foregoing.
<PAGE> 2
1996 INCENTIVE STOCK OPTION PLAN
OF CONTINENTAL NATURAL GAS, INC.
1. Purpose of Plan. This 1996 Incentive Stock Option Plan (the
"Plan") of Continental Natural Gas, Inc. (the "Company") is intended to
advance the interests of the Company by providing employees of the Company with
additional incentive for them to promote the success of the Company's business,
to increase their proprietary interest in the success of the Company and to
encourage them to remain employed with the Company. These goals will be
accomplished through the granting of options for the purchase of common stock
("Stock") having a par value of $1.00 per share of the Company. It is intended
that the options granted pursuant to this Plan will qualify as incentive stock
options pursuant to Sec. 422 of the Internal Revenue Code of 1986, as amended,
and the terms of this Plan shall be interpreted in accordance with this
intention.
2. Administration of the Plan. The Board of Directors (the
"Board") of the Company shall, subject to the provisions of this Plan, have
exclusive authority to:
(a) determine the employees of the Company to whom
options shall be granted;
(b) determine the time or times at which options shall be
granted;
(c) determine the option price of the shares of Stock
subject to each option, which price shall not be less than the fair
market value of such shares of Stock at the time such option is
granted;
(d) determine the form of consideration to be received
upon the exercise of any options granted hereunder, which
consideration may be: (i) cash, (ii) issued and outstanding shares of
the Company or (iii) a combination of the foregoing;
(e) determine the time or times when each option shall be
exercisable and duration of the exercise period; and
(f) interpret the Plan and prescribe, amend and/or
rescind rules and regulations relating to it.
3. Eligibility and Limitations on Options Granted Under the Plan.
(a) Options will be granted only to persons who are
employees of the Company who agree, in writing, to remain in the
employ of, and render service to, the Company for a period of at least
two (2) years from the date of the grant of the option to such
employee.
<PAGE> 3
(b) No option shall be granted to an employee, who at the
time of such grant, owns Stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the
Company or of any parent or subsidiary corporation of the Company,
unless at the time of such grant, the option price is fixed at an
amount not less than one hundred ten percent (110%) of the fair market
value of the shares of Stock subject to such option and exercise of
such option, by its terms, is prohibited after the expiration of five
(5) years from the date such option is granted.
(c) In order to comply with and receive tax treatment
afforded by Sec. 422 of the Code, the Company intends that the
aggregate fair market value (determined at the time the option is
granted) with respect to which options granted hereunder are
exercisable for the first time by any employee during any calendar
year (under all incentive stock option plans of the Company and any
parent or subsidiary corporation of the Company) shall not exceed
$100,000. Notwithstanding the immediately preceding sentence, in the
event any options granted under this Plan exceed the limitations set
forth in Sec. 422 of the Code (as now in effect or hereafter amended),
such options shall be deemed nonstatutory stock options which are
subject to Sec. 83 of the Code.
4. Shares of Stock Subject to Plan. There will be reserved for
use upon the exercise of options to be granted from time to time under this
Plan an aggregate of 2,500 shares of Stock of the Company, which shares of
Stock may be, in whole or in part as determined by the Board from time to time,
authorized but unissued shares of Stock or issued shares of Stock which have
been reacquired by the Company. Any shares of Stock subject to an option under
this Plan, which option for any reason expires or is terminated unexercised as
to such shares of Stock, may again be subject to an option under this Plan.
5. Option Price. The purchase price under each option issued
shall be determined by the Board at the time the option is granted, but in no
event shall such purchase price be less than the fair market value of the
shares of Stock subject to the option at the time the option is granted, as
determined by the Board.
6. Manner of Payment. Upon exercise of any option granted under
this Plan, the optionee shall pay to the Company, in full, the option price for
such shares with cash and/or with previously issued common stock of the
Company, as determined by the Board.
7. Dilution or other Agreement. In the event that additional
shares of Stock are issued pursuant to a stock split, stock dividend or
otherwise, the number of shares of Stock then covered by each outstanding
option granted hereunder shall increase proportionately with no increase in the
total purchase price of the
2
<PAGE> 4
shares of Stock then so covered and the number of shares of Stock reserved for
the purpose of this Plan shall be increased by the same proportion. Likewise,
in the event that the shares of Stock of the Company from time to time issued
and outstanding are reduced by a combination of shares, the number of shares of
Stock then covered by each outstanding option granted hereunder shall be
reduced proportionately with no reduction in the total price of the shares of
Stock then so covered, and the number of shares of Stock reserved for the
purpose of this Plan shall be reduced by the same proportion. All such
adjustments shall be made by the Board, whose determination shall be final and
binding upon all persons, including the optionees. No fractional shares shall
be issued and any fractional shares resulting from the computations hereunder
shall be eliminated from the respective option. No adjustment shall be made
for cash dividends or the issuance to stockholders of rights to subscribe for
additional shares of Stock or other securities.
8. Period of Option and Certain Limitations on Right to Exercise.
(a) All options granted under this Plan shall be for such
period as the Board shall determine, but not for more than ten (10)
years from the date of the grant of any such option.
(b) The period of the option, once it is granted, may be
reduced only as provided in paragraph 10 in connection with the
termination of employment or death of the optionee.
(c) Each option granted under this Plan shall become
exercisable at such times as the Board shall determine.
(d) In order to facilitate the accumulation of funds to
enable employees to exercise their option, employees will have the
right, if they so elect, to direct the Company to withhold from their
compensation regular amounts to be applied toward the exercise of the
options. Funds credited to the Stock option accounts will be under
the control of the Company until applied to the payment of the option
price at the direction of the employee or returned to the employee in
the event the amount is not used for the purchase of shares of Stock
under option. All funds received or held by the Company pursuant to
this Plan may be used for any corporate purpose and no interest shall
be payable to a participant on account of any amounts so held. Such
amounts may be withdrawn by the employee at any time, in whole or in
part, for any reason.
(e) In no event may an option be exercised after the
expiration of its term.
9. Assignability. Subject to the terms of paragraph 10 below,
each option granted under this Plan shall be exercisable,
3
<PAGE> 5
during his lifetime, only by the employee to whom the option is granted. No
option granted pursuant to this Plan shall be transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) and no such
option shall be subject to execution, attachment or similar process. Upon any
attempt to so transfer, assign, pledge, hypothecate or otherwise dispose of the
option, or of any right or privilege conferred thereby, contrary to the
provisions hereof, or upon the levy of any privilege, the option and such
rights and privileges shall immediately become null and void.
10. Effect of Termination of Employment or Death.
(a) Upon the termination of an employee's employment by
reason of permanent disability (as determined by the Board of
Directors), such employee may, within twelve (12) months from the date
of such termination of employment, exercise any options to the extent
such options were exercisable at the date of such termination.
(b) Upon the termination of the employee's employment for
any reason other than permanent disability, such employee may, within
three (3) months from the date of such termination of employment,
exercise any options to the extent such options were exercisable at
the date of such termination. All options shall terminate 3 months
following termination of employment.
(c) Upon the death of any employee any option granted
hereunder exercisable on the date of death may be exercised by such
employee's estate or by a person who acquires the right to exercise
such option by bequest or inheritance or by reason of the death of the
employee, provided that such exercise occurs in accordance with the
terms of the grant of such option.
11. Listing and Registration of Shares. Each option shall be
subject to the requirement that if at any time the Board shall determine, in
its sole discretion, that the listing, registration or qualification of the
shares of Stock covered by the option upon any securities exchange or under
state or federal law or the consent or approval of any governmental agency, is
necessary or desirable as a condition of, or in connection with, the granting
or exercise of such option or the issue or purchase of shares of Stock
thereunder, such option may not be exercised in whole or in part unless and
until such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Board.
12. Expiration and Termination of Plan. Options may be granted
under this Plan at any time or from time to time as long as the total number of
shares of Stock optioned or purchased under this Plan does not exceed 2,500
shares of Stock of the Company.
4
<PAGE> 6
This Plan may be abandoned or terminated at any time by the Board, except with
respect to any options then outstanding pursuant to this Plan. No options
shall be granted pursuant to this Plan after the date which is ten (10) years
from the effective date of this Plan.
13. Amendment of Plan. The Board may at any time and from time to
time modify and amend this plan in any respect; provided, however, that no such
amendment shall:
(a) increase (except in accordance with paragraph 7
hereof) the maximum number of shares of Stock for which options may be
granted under this Plan either in the aggregate or to any individual
employee;
(b) reduce (except in accordance with paragraph 7 hereof)
the minimum option prices which may be established under this Plan;
(c) extend the period or periods during which options may
be granted or exercised;
(d) change the provisions relating to the determination
of employees to whom options shall be granted and the number of shares
to be covered by such options; or
(e) change the provisions relating to adjustments to be
made upon changes in capitalization.
The termination, modification or amendment of this Plan shall not, without the
consent of any optionee, affect such optionee's rights under any option
previously granted to him pursuant to this Plan.
14. Effective Date of Plan. This Plan shall become effective at
such time that it has been adopted by the Board and approved by the vote of the
holders of a majority of the outstanding shares of Stock of the Company,
whichever is earlier. This Plan shall not become effective unless such
shareholder approval shall be obtained within twelve (12) months after the
adoption of this Plan by the Board.
5
<PAGE> 1
EXHIBIT 10.13
[CONTINENTAL NATURAL GAS, INC. LETTERHEAD]
January 1, 1997
Mr. Ric Hedges
CONTINENTAL NATURAL GAS MARKETING, LLC
1412 S. Boston, Suite 500
Tulsa, OK 74119
Contract No.: CNG-1149L(S)
Dear Mr. Hedges:
CONTINENTAL NATURAL GAS, INC. (CNG) hereby proposes to sell natural gas to
CONTINENTAL NATURAL GAS MARKETING, L.L.C. (BUYER) in accordance with the
following terms and conditions of this letter agreement (the "Letter
Agreement"):
1. TERM: This Letter Agreement shall be effective as of January 1, 1997 and
shall extend through December 31, 1997, and month-to-month thereafter
until terminated by either party upon giving ten (10) days written notice.
2. DELIVERY POINT: Gas purchased hereunder shall be delivered by CNG and
received by BUYER at mutually accessible point(s) on the Transporter(s)
pipeline system (metering facilities), as agreed between the parties, from
time to time. Title to all gas shall pass to BUYER at said nominated
receipt point(s).
3. QUANTITY: CNG shall sell and deliver to BUYER, on a best reasonable
efforts basis, and BUYER shall purchase and receive a mutually agreeable
volume of Gas as agreed between the parties. In no event shall this
Agreement be interpreted to require BUYER to purchase a minimum quantity
of gas or to pay for natural gas not actually delivered to BUYER.
4. PRICE: The price to be paid for Gas delivered to BUYER hereunder at the
Delivery Point shall be stated in MMBtu, (saturated or dry), inclusive of
taxes and all other additives. CNG and BUYER further agree that the price
shall equal CNG'S actual cost of the gas sold hereunder per MMBtu, plus
two cents per Mmbtu ($0.02/MMBtu).
1
<PAGE> 2
Contract No.: CNG-1449L(S)
Page 2
5. NOTICES: Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and shall be deemed to have
been given if personally delivered or if deposited in the United States
mail, by certified mail, with proper postage prepaid thereon, by
Facsimile, Panafax, or other electronic means, and addressed as follows:
If to CNG: CONTINENTAL NATURAL GAS, INC.
1400 Boston Building
1412 South Boston, Suite 500
Tulsa, Oklahoma 74119
Fax #: (918) 560-4900
Attn: Scott Longmore
If to BUYER: CONTINENTAL NATURAL GAS MARKETING, LLC
1400 Boston Building
1412 South Boston, Suite 500
Tulsa, Oklahoma 74119
Fax #: (918) 560-4900
Attn: Ric Hedges
or to such other address as either party may hereinafter advise the other
by notice given in accordance with the provisions hereof.
6. OTHER TERMS AND CONDITIONS: The provisions contained in Appendix I
hereto, entitled "STATEMENT OF GENERAL TERMS AND CONDITIONS", are hereby
incorporated by reference. In case of any conflict or inconsistency
between this Letter Agreement and Appendix I, the provisions of this
Letter Agreement shall control. For purposes of the provisions of
Appendix I, the term "Buyer", as used therein, shall refer to CONTINENTAL
NATURAL GAS MARKETING, LLC and the term "Seller" shall refer to
CONTINENTAL NATURAL GAS, INC.
2
<PAGE> 3
Contract No.: CNG-1449L(S)
Page 3
If this Letter Agreement correctly reflects the agreement and understanding
between CNG and BUYER, please so signify by executing both copies in the space
provided below, and returning one copy to our office.
Sincerely,
/s/ SCOTT C. LONGMORE
Scott C. Longmore
Vice President, Marketing
AGREED TO AND ACCEPTED THIS AGREED TO AND ACCEPTED THIS
1st day of January, 1997 1st day of January, 1997
CONTINENTAL NATURAL GAS, INC. CONTINENTAL NATURAL GAS
MARKETING, LLC
By: /s/ SCOTT C. LONGMORE By: /s/ RIC HEDGES
----------------------------- ------------------------------
Scott C. Longmore Ric Hedges
Vice President, Marketing President
3
<PAGE> 4
SALES APPENDIX I
STATEMENT OF GENERAL TERMS AND CONDITIONS
I. DEFINITIONS
Except as otherwise provided herein, the following terms and expressions are
defined as follows:
A. "Btu" shall mean British thermal unit, which is the quantity of heat
required to raise the temperature of one (1) pound avoirdupois of pure
water from fifty-eight and five-tenths degrees Fahrenheit (58.5 degrees F)
to fifty-nine and five-tenths degrees Fahrenheit (59.5 degrees F).
B. "Day" shall mean a twenty-four (24) consecutive hour period commencing at
8:00 a.m., local time.
C. "Force Majeure" shall mean acts of God; strikes, lockouts or other
industrial disturbances (including those affecting the parties
transporting Gas for Buyer or Seller); acts of the public enemy, wars,
blockages, insurrections, riots, epidemics, landslides, earthquakes,
fires, explosions, storms, floods, washouts, or other casualty; arrests
and restraints of government (federal, state, civil or military) and of
people; civil disturbances; the breakage, freezing, rupture, blockage, or
unavailability of machinery, equipment, or lines of pipe; freezing of
wells, equipment or lines of pipe; outages or shutdowns of power plant
machinery or other facilities for repairs, maintenance, or alterations;
failure of wells, equipment, lines of pipe, or sources of supply of Gas;
interruption of necessary third-party transportation arrangements; and any
other cause or causes, whether of the kind herein enumerated or otherwise,
not reasonably within the control of the party claiming suspension and
which, by the exercise of due diligence, such party is unable, wholly or
in part, to prevent or overcome; in addition, such term shall likewise
include (i) in those instances where either party hereto is required to
obtain servitudes, right-of-way grants, permits or licenses to enable such
party to fulfill its obligations hereunder, the inability of such party to
acquire or the delay on the part of such party in acquiring, at reasonable
costs and after the exercise of reasonable diligence, such servitudes,
rights-of-way grants, permits or licenses, and (ii) in those instances
where either party hereto is required to furnish materials and supplies
for the purpose of construction or maintaining facilities or is required
to secure permits or permission from any governmental agency to enable
such party to fulfill its obligations hereunder, the inability of such
party to acquire or the delay on the part of such party in acquiring, at
reasonable cost and after the exercise of reasonable diligence, such
materials, supplies, permits or permission; provided, however, in no event
shall the term "Force Majeure" mean or include any cause which by the
exercise of reasonable diligence the party claiming suspension could
overcome or should have prevented.
D. "Gas" shall mean and include all vapor phase hydrocarbons and gaseous
substances.
E. "Letter Agreement" shall mean that certain agreement made between Buyer
and Seller as reflected by the letter from Seller to Buyer, to which this
Appendix I applies.
F. "Mcf" shall mean one thousand (1,000) cubic feet.
G. "MMBtu" shall mean one million British thermal units (1,000,000 Btu's).
H. "Month" shall mean the period commencing on the first day of each
calendar month at 8:00 a.m., local time and ending on the first day of the
next succeeding calendar month at 8:00 a.m., local time.
I. "Psia" shall mean pounds per square inch, absolute.
<PAGE> 5
J. "Tax" shall mean any tax (other than ad valorem, income, payroll,
franchise, gross receipts, or other similar taxes) now lawfully levied or
assessed.
K. "Transporter(s)" shall mean that pipeline (or pipelines) heretofore or
hereafter engaged by Seller for the purpose of enabling Seller to deliver
the Gas to be sold hereunder at the Point of Delivery.
II. DELIVERY OF GAS
A. Facilities: Seller shall be responsible for all arrangements necessary
to deliver all Gas sold hereunder to the Delivery Point. Notwithstanding
any provision to the contrary, Seller shall not be liable to Buyer, in any
way, for Seller's inability to provide service to Buyer hereunder if such
inability results either from the failure of any Transporter to render
service to Seller or the inability of Seller to enter into any necessary
arrangements with any party which Seller seeks to engage as a Transporter
hereunder.
B. Title: Title and Ownership of the Gas sold hereunder shall pass from
Seller to Buyer at the Delivery Point. Seller shall be deemed to be in
exclusive control and possession of the Gas delivered hereunder and
responsible for any injury or damage caused thereby until said Gas has
been delivered to Buyer at the Delivery Point, after which delivery Buyer
shall be deemed to be in exclusive control and possession of the Gas and
responsible for any injury or damages caused thereby. Buyer shall
indemnify, defend, and hold Seller harmless from and against all loss,
cost and expense, including court costs and attorney fees, for any claims,
suits judgments, demands, actions, or liabilities growing out of the
operations conducted hereunder by Buyer or arising while the Gas is in
Buyer's exclusive control and possession. Likewise, Seller shall
indemnify, defend and hold Buyer harmless from and against any loss, cost,
and expense, including court costs and attorney fees, for any claims,
suits, judgments, demands, actions, or liabilities arising while the Gas
is in Seller's exclusive control and possession. Each party's liability
to the other, whether based upon the provisions hereof, negligence, strict
liability, breach of contract, breach of warranty, or otherwise, shall be
limited to actual direct damages, and shall in no event include any
liability for punitive, consequential, special, incidental or indirect
damages.
C. Delivery Rate: Buyer, from time to time or upon Seller's request, shall
advise Seller of the required delivery rates within the limits as herein
provided. Buyer shall give Seller as much advance notice as reasonably
possible of any change in delivery rates and in the absence of such
notice, Seller may rely upon the last rate in effect. Seller, from time
to time and upon Buyer's request, shall advise Buyer of the rates at which
Gas will be available for delivery. Seller shall have no liability for,
and Buyer shall indemnify and hold Seller harmless from, any and all costs
and/or penalties of any kind arising by reason of any imbalances occurring
for Gas delivered pursuant to Buyer's request. Buyer shall have no
liability for, and Seller shall indemnify and hold Buyer harmless from,
any and all costs, and/or penalties of any kind arising by reason of any
imbalances occurring for Gas delivered pursuant to Seller's request.
III. QUALITY
A. Quality Specifications: Buyer may, but shall not be obligated to,
receive or purchase gas Delivered at the Delivery Point hereunder if said
Gas fails to conform to the specifications required by the Transporter.
B. Failure to Meet Requirements: If at any time during the terms of this
Agreement either party ascertains that such Gas will fail to meet above
specifications, it shall immediately notify the other of the extent of the
deviations from the specifications. Seller shall determine the expected
duration thereof and give notification to Buyer of the efforts Seller is
undertaking to remedy the problem.
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<PAGE> 6
IV. MEASUREMENT
Seller and Buyer agree that measurement of the Gas delivered hereunder shall be
performed by the Transporter in accordance with the Transporter's
specifications. Further, Buyer hereby appoints Seller as Buyer's
representative for purposes of witnessing tests and verifying the accuracy of
all measurement activities conducted by the Transporter.
V. BILLING AND PAYMENT
A. Invoice: Seller shall submit monthly to Buyer an invoice setting forth
Seller's deliveries of Gas to Buyer during the preceding Month and the
total price due to be paid therefor. Upon receipt of the invoice, Buyer
shall remit the total payment as due as stated therein so that such
payment shall be received by Seller within ten (10) days after Seller's
invoice date or by the twenty-fifth (25th) day of the month which is not a
Saturday, Sunday, or holiday, whichever is later.
B. Late Charges: Any payments due which are not received by Seller within
the times specified in this Article V shall bear interest until paid or
until the date which is thirty (30) days after the due date for such
payment, whichever is earlier, at the prime rate quoted by the Bank of
Oklahoma, N.A. from time to time, plus two percent (2%). Any payments due
which are not received by Seller on or before the date which is thirty
days after the due date for such payment shall thereafter bear interest at
the maximum rate allowed by law.
C. Accuracy Verification: Each party shall have the right during reasonable
business hours to examine the books and records of the other party to the
extent necessary to verify the accuracy of any statement, charge, credit,
computation, account, or payment made pursuant to any provision hereof.
If any such examination shall reveal or if either party shall discover any
error or inaccuracy in its own or the other party's statement, charge,
credit, computation account, or payments, then proper adjustment and
correction thereof shall be made as promptly as practicable thereafter.
D. Adjustment Claims: No adjustment or correction shall be required of any
error or inaccuracy occurring in any statement, payment, account,
calculation or determination following two (2) years from the making or
the rendering of same. Failure of the Parties to make a claim for
adjustment within such period shall establish the correctness and preclude
the filing of exceptions or making claims for adjustment.
E. Failure to Pay: Should Buyer fail to timely pay part or all of the
amount due for Gas purchased and if such failure to pay continues for ten
(10) days after payment is due, Seller in addition to any other remedy it
may have, may suspend further delivery of Gas until such amount is paid;
provided however, that if Buyer, in good faith, shall dispute the amount
of any such demand or part thereof, and shall pay or have paid to Seller
such amounts as it concedes to be correct and at any time thereafter
within ten (10) days of a demand made by Seller for the balance shall
furnish a good and sufficient surety bond in amount and with sureties
satisfactory to Seller conditioned upon the payment of any amounts
ultimately found due upon such demand after a final determination, which
may be reached either by agreement or judicial proceeding, as the case may
be, then Seller shall not be entitled to suspend further delivery of Gas
unless and until default be made in the conditions of such bond.
F. Attorney's Fees: In the event any action is brought to enforce, or for
the breach of, any provision of this Agreement, the prevailing party shall
be entitled to recover its costs and expenses, including attorney's fees,
associated with such action.
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<PAGE> 7
VI. TAXES
In addition to the other provisions hereof, Buyer shall pay to Seller the
amount of any Tax levied upon Seller after the effective date hereof incident
to gathering, transportation, receipt, sale or delivery of Gas to Buyer
hereunder, but only to the extent such Tax has been imposed or increased after
the effective date hereof and is not included in the price otherwise payable
hereunder. Seller shall, upon request of Buyer, furnish Buyer evidence of
Seller's obligation to pay any such Tax.
VII. WARRANTY OF TITLE
Seller warrants title to all Gas delivered hereunder, that it has the right to
sell and transfer title to the same, and that said Gas is free and clear of
liens, claims, encumbrances and specific limitations as to use. Seller agrees
to indemnify, defend, and hold Buyer harmless from and against any and all
loss, cost, expense, and liability, including court costs and attorney fees,
arising out of any such adverse claims.
VIII. FORCE MAJEURE
If either party is rendered unable, wholly or in part, by Force Majeure to
perform or comply with any obligation or conditions of this Contract, upon
giving written notice and reasonably full particulars to the other party, such
obligation or condition shall be suspended during the continuance of the
inability so caused, and such party shall be relieved of liability and shall
suffer no prejudice for failure to perform the same during such period;
provided, however, obligations to make payments then due for the purchase of
gas delivered shall not be suspended and the cause of suspension (other than
strikes or lockouts) shall be remedied so far as possible with reasonable
dispatch. It is understood and agreed that the settlement of strikes or
lockouts shall be entirely within the discretion of the party having the
difficulty and that the above requirement of the use of diligence in restoring
normal operating conditions shall not require the settlement of strikes or
lockouts by acceding to the terms of the opposing party when such course is
inadvisable in the discretion of the party having the difficulty.
IX. REGULATORY AUTHORITY
A. Contract Subject to Laws: This Contract and each provision hereof shall
be subject to all valid, applicable federal and state laws and to the
orders rules, and regulations of any duly constituted federal or state
regulatory body or authority having jurisdiction. Either party shall have
the right to contest the validity of any such law, order, rule, or
regulation, and neither acquiescence therein or compliance therewith for
any period of time, nor any other provision contained herein, shall be
construed as a waiver of such right.
B. Right to Terminate: Notwithstanding anything herein to the contrary, if,
because of any federal or state law, or any order, rule or regulation of
any governmental body or authority, Seller is or will be in any way
prohibited or prevented from receiving in full all amounts and monies
which Buyer has agreed to pay Seller hereunder, Seller may terminate this
Contract upon fifteen (15) days written notice to Buyer.
X. SUCCESSORS AND ASSIGNS
This contract shall be binding upon and inure to the benefit of the respective
heirs, representatives, successors, and assigns of the Parties hereto;
provided, however, that this Contract may not be transferred or assigned by
operation of law or otherwise, in whole or in part, by either party except to
successors-in-interest of all or part of the business of either party without
the prior written consent of the other party.
4
<PAGE> 8
XI. CREDIT REQUIREMENTS
Buyer and Seller agree that Buyer's compliance with Seller's credit policies
and requirements shall be a condition precedent to Seller's obligation to
deliver natural gas under this Agreement. Furthermore, if the financial
responsibility of Buyer becomes unsatisfactory for any reason to Seller,
satisfactory security shall be given by Buyer upon demand of Seller. Buyer's
failure to abide by the provisions of this Section shall be considered a breach
hereof and in such event payment for all natural gas delivered hereunder shall
be immediately due and owing and shall be paid immediately, and Seller, may,
without waiving any rights or remedies it may have, withhold further deliveries
until such payment of security is received.
XII. MISCELLANEOUS
A. Governing Law: This Agreement shall be construed in accordance with, and
the rights and duties of the parties hereto shall be governed by, the
internal laws of the State of Oklahoma. The parties hereto irrevocably
and unconditionally consent to and submit themselves to the exclusive
jurisdiction of the courts of the State of Oklahoma located in Tulsa
County, Oklahoma and the courts of the United States of America located in
the Northern District of Oklahoma (collectively, the "Agreed Courts") with
respect to any actions, suits or proceedings arising out of or in
connection with this Agreement and the transactions contemplated hereby
and the parties hereto agree not to commence any action, suit or
proceeding relating thereto except in such Agreed Courts. The parties
hereto further agree that service of any process, summons, notice or
document in accordance with the Notice provision of the Letter Agreement
between Buyer and Seller to which this Appendix I applies shall be
effective service of process for any action, suit or proceeding arising
out of this Agreement or the transactions contemplated hereby in the
Agreed Courts and hereby further irrevocably and unconditionally waive and
agree not to plead or claim that any such action, suit of proceeding
brought in any of the Agreed Courts has been brought in an inconvenient
forum.
B. Counterparts: This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitutes one and the same Agreement.
C. Entire Agreement: This instrument contains the entire Agreement of the
parties, superseding all other agreements, whether oral or written,
express or implied. It may not be changed orally but only by an agreement
in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
D. Severability: The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any one or more of
the provisions hereof shall not affect the validity and enforceability of
other provisions hereof.
E. Construction: Every covenant, term and provision of this Agreement shall
be construed simply according to its fair meaning and not strictly for or
against any party.
5
<PAGE> 1
EXHIBIT 10.14
CONSULTING AGREEMENT
This Agreement is entered into as of the 1st day of April, 1997, by and
between Continental Natural Gas, Inc., an Oklahoma corporation ("Continental")
and Adams Affiliates, Inc. ("Consultant").
RECITALS
A. Consultant has retained personnel with specialized tax,
accounting and business expertise. From time to time, Continental desires to
seek advice from Consultant with respect to such matters.
B. Continental desires to retain the services of Consultant and
Consultant desires to serve and perform such duties at such times and places
and upon such terms and conditions as hereinafter provided.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration this day paid by
each party to the other, the receipt and sufficiency of which are hereby
acknowledged, Continental and Consultant agree as follows:
1. Engagement. Continental hereby engages Consultant to render
business consulting services to Continental on an "as needed" basis and
Consultant agrees to provide such services to Continental. Such consulting
services shall be rendered by such employees or agents of Consultant as
Consultant may designate from time to time.
2. Term. The term of this Agreement shall begin as of the date
hereof and shall terminate on March 31, 1998; provided, however, that the term
of this Agreement shall be automatically renewed for month to month thereafter
unless either party has given written notice to the other party not less than
thirty (30) days prior to expiration of the initial term of this Agreement or
any extension thereof.
3. Compensation. As compensation to Consultant, Continental shall
pay Consultant the sum of $20,000 per calendar month, payable on the first day
of each month commencing on April 1, 1997.
4. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and shall be deemed to have been
given if personally delivered or if deposited in the United States mail, by
certified mail, with proper postage prepaid thereon, addressed as follows:
1
<PAGE> 2
If to Continental: Continental Natural Gas, Inc.
1412 South Boston, Suite 500
Tulsa, Oklahoma 74119
Attn: Garry D. Smith, Vice President
If to Consultant: Adams Affiliates, Inc.
1412 S. Boston, Suite 550
Tulsa, Oklahoma 74119
Attn: H. Ric Hedges, President
or to such other address as either party may hereafter advise the other by
notice given in accordance with the provisions hereof.
5. Waiver of Breach. The waiver by Continental of a breach of any
provision of this Agreement by Consultant shall not operate or be construed as
a waiver of any subsequent breach by Consultant.
6. Assignment. Continental may assign this Agreement to any
successor in interest of Continental's business. The rights and obligations of
the parties under this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of Continental and Consultant;
provided, however, that Consultant may not assign this Agreement without the
prior written consent of Continental.
7. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
8. Governing Law. This Agreement shall be construed in accordance
with, and the rights and duties of the parties hereto shall be governed by, the
internal laws of the State of Oklahoma. The parties hereto irrevocably and
unconditionally consent to and submit themselves to the exclusive jurisdiction
of the courts of the State of Oklahoma located in Tulsa County, Oklahoma and
the courts of the United States of America located in the Northern District of
Oklahoma (collectively, the "Agreed Courts") with respect to any actions, suits
or proceedings arising out of or in connection with this Agreement and the
transactions contemplated hereby and the parties hereto agree not to commence
any action, suit or proceeding relating thereto except in such Agreed Courts.
The parties hereto further agree that service of any process, summons, notice,
or documents in accordance with paragraph 4 hereof shall be effective service
of process for any action, suit or proceeding brought. The parties hereto
irrevocably and unconditionally waive any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in the Agreed Courts and hereby further
irrevocably and unconditionally waive and agree not to plead or claim that any
such action, suit or proceeding brought in any of the Agreed Courts has been
brought in an inconvenient forum.
2
<PAGE> 3
9. Entire Agreement. This instrument contains the entire Agreement
of the parties pertaining to Consultant's employment by Continental,
superseding all other agreements, whether oral or written, express or implied.
It may not be changed orally but only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension
or discharge is sought.
10. Severability. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any one or more of the
provisions hereof shall not affect the validity and enforceability of the other
provisions hereof.
11. Construction. Every covenant, term and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any party.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above set forth.
CONTINENTAL NATURAL GAS, INC.
By /s/ GARRY D. SMITH
-------------------------------------
Garry D. Smith, Vice President
"Continental"
ADAMS AFFILIATES, INC.
By /s/ H. RIC HEDGES
-------------------------------------
H. Ric Hedges, President
"Consultant"
3
<PAGE> 1
EXHIBIT 10.15
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of April, 1997, by and
between Continental Natural Gas, Inc., an Oklahoma corporation ("CNG"), and
Adams Affiliates, Inc., an Oklahoma corporation ("AAI").
RECITALS
A. CNG leases office space (the "Office Facilities") in the 1400
South Boston Building, Fifth Floor, 1412 South Boston, Tulsa, Oklahoma 74119.
CNG also employs various administrative, clerical and accounting personnel in
the operation of its business at the Office Facilities.
B. AAI occupies a portion of the Office Facilities and, from time to
time, CNG advances various expenses and/or provides accounting and/or
administrative services to AAI.
C. CNG and AAI desire to memorialize their agreement with respect to
the use of the Office Facilities and provision of services by CNG to AAI.
STATEMENT OF AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration this date paid by
each party to the other, the receipt and sufficiency of which are acknowledged
by execution of this Agreement, the parties hereto hereby agree as follows:
1. Office Facilities and Services Provided by CNG.
(a) Office Facilities Occupied by AAI. CNG agrees to provide
AAI with space in the Office Facilities as CNG and AAI may mutually
agree from time to time.
(b) Reception Services. CNG shall provide receptionist
services as it deems necessary, in its sole discretion, to the efficient
operation of the Office Facilities.
(c) Maintenance and Remodeling of the Office Facilities. CNG
shall provide all janitorial, heating, electric, telephone and general
maintenance services for the Office Facilities. In no event, however,
shall CNG be required to install equipment or remodel the Office
Facilities to accommodate AAI. No remodeling of the Office Facilities
may be undertaken by AAI without the prior written consent of CNG.
(d) Accounting, Clerical and Administrative Services. CNG
shall provide AAI with accounting, clerical and administrative services
as CNG and AAI shall mutually agree
1
<PAGE> 2
from time to time. In addition, CNG may provide liability and casualty
insurance, as well as office and other supplies for AAI's account.
(e) Payment for Office Facilities and Services Provided by
CNG. In return for the use of the Office Facilities and provision of
services to AAI, AAI shall pay CNG the following:
(i) Direct Expenses. An amount equal to all direct
expenses incurred by CNG on AAI's behalf, including but not
limited to, insurance expenses, photocopying charges, telephone
charges, and any and all other charges which CNG can directly
attribute to AAI's account;
(ii) Accounting, Clerical and Administrative Services
Expenses. An allocable portion of all salaries, employee
benefits, employment taxes (including FICA, FUTA and all other
employment related taxes), unemployment and disability insurance
and/or compensation with respect to CNG employees who perform
services for AAI; and
(iii) Overhead Expenses. An allocable portion of all
overhead expenses incurred by CNG for operation of the Office
Facilities, including but not limited to, rent paid by CNG for
the Office Facilities, office supplies, janitorial expense,
repair and maintenance expense, telephone expense, utility
expense, equipment rental, copier lease expense, premises
liability insurance, and any and all other expenses reasonably
necessary to the operation of the Office Facilities by CNG which
cannot be directly attributed to AAI or any other party.
For purposes of this paragraph 1(e), an "allocable portion" shall
mean that portion of such expenses which are attributable to AAI's usage
of the Office Facilities or the services of CNG's employees, as the case
may be.
2. Billing and Payment for Services Rendered by CNG.
(a) Invoices. Invoices for services rendered pursuant to
paragraph 1 above, shall be submitted by CNG to AAI on a monthly basis.
(b) Payment of Invoices. Each such invoice shall become due
and payable no later than the 15th day (the "Due Date") after the day on
which the invoice is submitted by CNG.
(c) Late Charges. In the event that payment is not received
by CNG on or before the Due Date, all unpaid balances shall accrue
interest at the rate of twelve percent (12%) per annum.
2
<PAGE> 3
(d) Attorney Fees. In the event any action is brought to
enforce, or for the breach of, the payment provisions of this Agreement,
the prevailing party shall be entitled to recover its costs and
expenses, including a reasonable attorney's fee.
(e) Termination of Agreement. In the event payment is not
timely made pursuant to the terms of this paragraph 2, CNG may suspend
services and terminate this Agreement upon ten (10) days prior written
notice to AAI.
3. Term. This Agreement shall commence as of the date hereof and
shall continue until March 31, 1998; provided, however, the term of this
Agreement shall be automatically renewed month to month thereafter unless
either party shall give written notice to the other not less than thirty (30)
days prior to the expiration of the initial term of this Agreement or any
extension thereof.
4. Destruction by Fire or Other Casualty. Should the Office
Facilities be partially or totally destroyed by fire or other casualty, or
sustain damage to any part thereof such that it is unfit for the purposes
intended in this Agreement, this Agreement shall terminate and neither CNG or
AAI shall be under any further obligation or liability hereunder.
5. Condemnation. Should the Office Facilities be taken, in whole or
in part, by condemnation or other administrative proceeding then, in that
event, this Agreement shall terminate and neither CNG or AAI shall be under any
further obligation or liability hereunder.
6. Miscellaneous.
(a) Benefit. This Agreement shall be binding upon and insure
to the benefit of the parties hereto and their respective successors and
assigns. Nothing in this Agreement, expressed or implied, is intended
to confer upon any other person any rights or remedies under or by
reason of this Agreement.
(b) Construction. Every covenant, term and provisions of this
Agreement shall be construed simply according to its fair meaning and
not strictly for or against any party.
(c) Notice. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if
delivered in person, or, whether or not actually received, if deposited
in the United States mail, registered or certified mail, with sufficient
postage prepaid thereon, and addressed as follows:
3
<PAGE> 4
If to CNG: Continental Natural Gas, Inc.
1412 S. Boston, Suite 500
Tulsa, Oklahoma 74119
Attn: Garry D. Smith
If to AAI: Adams Affiliates, Inc.
1412 S. Boston, Suite 550
Tulsa, Oklahoma 74119
Attn: H. Ric Hedges
or to such other address as CNG or AAI may have notified the other in
writing.
(d) Entire Agreement. This Agreement embodies the entire
understanding between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties have duly executed this agreement as of
the day and year first above written.
CONTINENTAL NATURAL GAS, INC.
By /s/ GARRY D. SMITH
----------------------------------
Garry D. Smith, Vice President
ADAMS AFFILIATES, INC.
By /s/ H. RIC HEDGES
----------------------------------
H. Ric Hedges, President
4
<PAGE> 1
EXHIBIT 10.16
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of April, 1997, by and
between Continental Natural Gas, Inc., an Oklahoma corporation ("CNG"), and
Bird Creek Resources, Inc., an Oklahoma corporation ("BCR").
RECITALS
A. CNG leases office space (the "Office Facilities") in the 1400
South Boston Building, Fifth Floor, 1412 South Boston, Tulsa, Oklahoma 74119.
CNG also employs various administrative, clerical and accounting personnel in
the operation of its business at the Office Facilities.
B. BCR occupies a portion of the Office Facilities and, from time to
time, CNG advances various expenses and/or provides accounting and/or
administrative services to BCR.
C. CNG and BCR desire to memorialize their agreement with respect to
the use of the Office Facilities and provision of services by CNG to BCR.
STATEMENT OF AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration this date paid by
each party to the other, the receipt and sufficiency of which are acknowledged
by execution of this Agreement, the parties hereto hereby agree as follows:
1. Office Facilities and Services Provided by CNG.
(a) Office Facilities Occupied by BCR. CNG agrees to provide
BCR with space in the Office Facilities as CNG and BCR may mutually
agree from time to time.
(b) Reception Services. CNG shall provide receptionist
services as it deems necessary, in its sole discretion, to the efficient
operation of the Office Facilities.
(c) Maintenance and Remodeling of the Office Facilities. CNG
shall provide all janitorial, heating, electric, telephone and general
maintenance services for the Office Facilities. In no event, however,
shall CNG be required to install equipment or remodel the Office
Facilities to accommodate BCR. No remodeling of the Office Facilities
may be undertaken by BCR without the prior written consent of CNG.
(d) Accounting, Clerical and Administrative Services. CNG
shall provide BCR with accounting, clerical and administrative services
as CNG and BCR shall mutually agree
1
<PAGE> 2
from time to time. In addition, CNG may provide liability and casualty
insurance, as well as office and other supplies for BCR's account.
(e) Payment for Office Facilities and Services Provided by
CNG. In return for the use of the Office Facilities and provision of
services to BCR, BCR shall pay CNG the following:
(i) Direct Expenses. An amount equal to all direct
expenses incurred by CNG on BCR's behalf, including but not
limited to, insurance expenses, photocopying charges, telephone
charges, and any and all other charges which CNG can directly
attribute to BCR's account;
(ii) Accounting, Clerical and Administrative Services
Expenses. An allocable portion of all salaries, employee
benefits, employment taxes (including FICA, FUTA and all other
employment related taxes), unemployment and disability insurance
and/or compensation with respect to CNG employees who perform
services for BCR; and
(iii) Overhead Expenses. An allocable portion of all
overhead expenses incurred by CNG for operation of the Office
Facilities, including but not limited to, office supplies, rent
paid by CNG for the Office Facilities, janitorial expense, repair
and maintenance expense, telephone expense, utility expense,
equipment rental, copier lease expense, premises liability
insurance, and any and all other expenses reasonably necessary to
the operation of the Office Facilities by CNG which cannot be
directly attributed to BCR or any other party.
For purposes of this paragraph 1(e), an "allocable portion" shall
mean that portion of such expenses which are attributable to BCR's usage
of the Office Facilities or the services of CNG's employees, as the case
may be.
2. Billing and Payment for Services Rendered by CNG.
(a) Invoices. Invoices for services rendered pursuant to
paragraph 1 above, shall be submitted by CNG to BCR on a monthly basis.
(b) Payment of Invoices. Each such invoice shall become due
and payable no later than the 15th day (the "Due Date") after the day on
which the invoice is submitted by CNG.
(c) Late Charges. In the event that payment is not received
by CNG on or before the Due Date, all unpaid balances shall accrue
interest at the rate of twelve percent (12%) per annum.
2
<PAGE> 3
(d) Attorney Fees. In the event any action is brought to
enforce, or for the breach of, the payment provisions of this Agreement,
the prevailing party shall be entitled to recover its costs and
expenses, including a reasonable attorney's fee.
(e) Termination of Agreement. In the event payment is not
timely made pursuant to the terms of this paragraph 2, CNG may suspend
services and terminate this Agreement upon ten (10) days prior written
notice to BCR.
3. Term. This Agreement shall commence as of the date hereof and
shall continue until March 31, 1998; provided, however, the term of this
Agreement shall be automatically renewed month to month thereafter unless
either party shall give written notice to the other not less than thirty (30)
days prior to the expiration of the initial term of this Agreement or any
extension thereof.
4. Destruction by Fire or Other Casualty. Should the Office
Facilities be partially or totally destroyed by fire or other casualty, or
sustain damage to any part thereof such that it is unfit for the purposes
intended in this Agreement, this Agreement shall terminate and neither CNG or
BCR shall be under any further obligation or liability hereunder.
5. Condemnation. Should the Office Facilities be taken, in whole or
in part, by condemnation or other administrative proceeding then, in that
event, this Agreement shall terminate and neither CNG or BCR shall be under any
further obligation or liability hereunder.
6. Miscellaneous.
(a) Benefit. This Agreement shall be binding upon and insure
to the benefit of the parties hereto and their respective successors and
assigns. Nothing in this Agreement, expressed or implied, is intended
to confer upon any other person any rights or remedies under or by
reason of this Agreement.
(b) Construction. Every covenant, term and provisions of this
Agreement shall be construed simply according to its fair meaning and
not strictly for or against any party.
(c) Notice. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if
delivered in person, or, whether or not actually received, if deposited
in the United States mail, registered or certified mail, with sufficient
postage prepaid thereon, and addressed as follows:
3
<PAGE> 4
If to CNG: Continental Natural Gas, Inc.
1412 S. Boston, Suite 500
Tulsa, Oklahoma 74119
Attn: Garry D. Smith
If to BCR: Bird Creek Resources, Inc.
1412 S. Boston, Suite 500
Tulsa, Oklahoma 74119
Attn: H. Ric Hedges
or to such other address as CNG or BCR may have notified the other in
writing.
(d) Entire Agreement. This Agreement embodies the entire
understanding between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties have duly executed this agreement as of
the day and year first above written.
CONTINENTAL NATURAL GAS, INC.
By /s/ GARRY D. SMITH
----------------------------------
Garry D. Smith, Vice President
BIRD CREEK RESOURCES, INC.
By /s/ H. RIC HEDGES
----------------------------------
H. Ric Hedges, President
4
<PAGE> 1
EXHIBIT 10.17
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of April, 1997, by and
between Bird Creek Resources, Inc., ("BCR"), an Oklahoma corporation and
Continental Natural Gas, Inc., ("CNG") an Oklahoma corporation.
RECITALS
A. From time to time, BCR advances various expenses and/or provides
accounting and/or administrative services to CNG.
B. BCR and CNG desire to memorialize their agreement with respect to
the provision of services by BCR to CNG.
STATEMENT OF AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration this date paid by
each party to the other, the receipt and sufficiency of which are acknowledged
by execution of this Agreement, the parties hereto hereby agree as follows:
1. Services Provided by BCR.
(a) Nature of Services. BCR shall provide CNG with
accounting, clerical and administrative services as BCR and CNG shall
mutually agree from time to time.
(b) Payment for Services Provided by BCR. In return for the
services provided CNG shall pay BCR the following:
(i) Direct Expenses. An amount equal to all direct
expenses incurred by BCR on CNG's behalf, including but not
limited to photocopying charges and any and all other charges
which BCR can directly attribute to CNG's account;
(ii) Accounting, Clerical and Administrative Services
Expenses. An allocable portion of all salaries, employee
benefits, employment taxes (including FICA, FUTA and all other
employment related taxes), unemployment and disability insurance
and/or compensation with respect to BCR employees who perform
services for CNG.
For purposes of this paragraph 1(b), an "allocable portion" shall
mean that portion of such expenses which are attributable to CNG's usage
of the services of BCR's employees.
1
<PAGE> 2
2. Billing and Payment for Services Rendered by BCR.
(a) Invoices. Invoices for services rendered pursuant to
paragraph 1 above, shall be submitted by BCR to CNG on a monthly basis.
(b) Payment of Invoices. Each such invoice shall become due
and payable no later than the 15th day (the "Due Date") after the day on
which the invoice is submitted by BCR.
(c) Late Charges. In the event that payment is not received
by BCR on or before the Due Date, all unpaid balances shall accrue
interest at the rate of twelve percent (12%) per annum.
(d) Attorney Fees. In the event any action is brought to
enforce, or for the breach of, the payment provisions of this Agreement,
the prevailing party shall be entitled to recover its costs and
expenses, including a reasonable attorney's fee.
(e) Termination of Agreement. In the event payment is not
timely made pursuant to the terms of this paragraph 2, BCR may suspend
services and terminate this Agreement upon ten (10) days prior written
notice to CNG.
3. Term. This Agreement shall commence as of the date hereof and
shall continue until March 31, 1998; provided, however, the term of this
Agreement shall be automatically renewed month to month thereafter unless
either party shall give written notice to the other not less than thirty (30)
days prior to the expiration of the initial term of this Agreement or any
extension thereof.
4. Miscellaneous.
(a) Benefit. This Agreement shall be binding upon and insure
to the benefit of the parties hereto and their respective successors and
assigns. Nothing in this Agreement, expressed or implied, is intended
to confer upon any other person any rights or remedies under or by
reason of this Agreement.
(b) Construction. Every covenant, term and provisions of this
Agreement shall be construed simply according to its fair meaning and
not strictly for or against any party.
(c) Notice. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if
delivered in person, or, whether or not actually received, if deposited
in the United States mail, registered or certified mail, with sufficient
postage prepaid thereon, and addressed as follows:
2
<PAGE> 3
If to CNG: Continental Natural Gas, Inc.
1412 S. Boston, Suite 500
Tulsa, Oklahoma 74119
Attn: Garry D. Smith
If to BCR: Bird Creek Resources, Inc.
1412 S. Boston, Suite 550
Tulsa, Oklahoma 74119
Attn: H. Ric Hedges
or to such other address as CNG or BCR may have notified the other in
writing.
(d) Entire Agreement. This Agreement embodies the entire
understanding between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties have duly executed this agreement as of
the day and year first above written.
BIRD CREEK RESOURCES, INC.
By /s/ H. RIC HEDGES
----------------------------------
H. Ric Hedges, President
CONTINENTAL NATURAL GAS, INC.
By /s/ GARRY D. SMITH
----------------------------------
Garry D. Smith, Vice President
3
<PAGE> 1
EXHIBIT 10.18
CHARTER SERVICES AGREEMENT
This Charter Services Agreement is made and entered into this 1st day of
April, 1997, by and between Continental Natural Gas, Inc. (hereafter
"Continental") and CPA Aviation, Inc., an Oklahoma corporation (hereafter
"Aviation").
RECITALS
A. Aviation owns and maintains various aircraft and employs
personnel qualified to operate such aircraft for hire.
B. In connection with its business activities, Continental wishes to
charter various aircraft to transport its employees.
C. Continental seeks such charter services from Aviation and
Aviation agrees to provide such services on the terms hereinafter set forth.
STATEMENT OF AGREEMENT
In consideration of the mutual covenants and agreements herein
contained, Continental and Aviation agree as follows:
1. Charter Services. Continental may seek "if, as and when needed"
from Aviation and Aviation may furnish to Continental "if, as and when
available," air transportation in the aircraft and at the rates described on
Exhibit "A" hereto (as Exhibit "A" may be amended from time to time by mutual
agreement of Continental and Aviation). All transportation hereunder shall be
subject to operating rules and regulations of Aviation. Continental shall
observe all such rules and regulations and obey all reasonable instructions of
Aviation's agents and employees. Aviation shall perform all services described
herein in good faith and, to the extent possible, in accordance with the
reasonable instructions of Continental not inconsistent with this Agreement.
2. Payment. Continental shall pay Aviation for such charter
services at the hourly rates set forth on Schedule A, plus any other taxes,
fees or customs duties which Aviation may be required to pay to operate such
charter flight(s). The hourly charges to Continental shall include aircraft
usage, fuel and provision of duly qualified personnel to operate such aircraft.
Continental shall pay any additional fees (such as aircraft tie-down or
limousine services) incurred by Aviation for Continental's account.
3. Resale.
(a) Continental agrees not to resell or offer to resell and
warrants that it has not already and will not offer for sale to the
general public, by advertisement, course of
1
<PAGE> 2
conduct or other means all or any part of the charter services provided
by Aviation hereunder. Continental will not permit the chartered
aircraft to be used by any person(s) other than a member of the group
for whom the aircraft is chartered.
(b) The Charterer agrees that the charter flight(s) are for
Continental's own employees and Continental's and such employees'
property.
4. Other Services. If requested by Continental, Aviation shall
assist Continental in securing ground transportation, hotel reservations and
other services. In such event, Aviation shall act only as Continental's agent,
and Continental shall bear the cost of all such services and all risks of
injury, damage or loss arising out of such services.
5. Liability.
(a) The following rules shall apply to the transportation of
passengers, baggage and other personal property:
(i) Aviation shall not be liable to any passenger, his
legal representative or any other person for any injury to
persons or damage to property unless occasioned by Aviation's
negligence, the passenger assuming all risks of air
transportation.
(ii) Aviation shall not be liable to any passenger or
other person by reason of loss of or damage to, or delay in the
delivery of, checked baggage in excess of the declared values
thereof.
(b) Aviation shall not be liable for loss of any money,
bullion, bonds, coupons, jewelry, precious stones, valuable papers or
other articles of extraordinary value.
(c) The furnishing of any transportation pursuant to this
Agreement is subject to, and Aviation shall not be liable for loss,
injury, damage, delay or any other result caused by, mechanical
difficulties, riots, wars, civil commotions, strikes, labor disputes,
weather conditions, acts of God, public enemies, quarantine, the absence
of any necessary governmental approvals or any other cause, whether of
the same or different nature, beyond its control.
6. Term. The term of this Agreement shall begin as of the date
hereof and shall terminate on March 31, 1998; provided, however, that the term
of this Agreement shall be automatically renewed month to month thereafter
unless either party has given written notice to the other party not less than
thirty (30) days
2
<PAGE> 3
prior to expiration of the initial term of this Agreement or any extension
thereof.
7. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and shall be deemed to have been
given if personally delivered or if deposited in the United States mail, by
certified mail, with proper postage prepaid thereon, addressed as follows:
If to Continental: Continental Natural Gas, Inc.
1412 South Boston, Suite 500
Tulsa, Oklahoma 74119
Attn: Garry D. Smith, Vice President
If to Aviation: CPA Aviation, Inc.
1412 S. Boston, Suite 550
Tulsa, Oklahoma 74119
Attn: H. Ric Hedges, President
or to such other address as either party may hereafter advise the other by
notice given in accordance with the provisions hereof.
8. Waiver of Breach. The waiver by Continental of a breach of any
provision of this Agreement by Consultant shall not operate or be construed as
a waiver of any subsequent breach by Consultant.
9. Assignment. Continental may assign this Agreement to any
successor in interest of Continental's business. The rights and obligations of
the parties under this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of Continental and Consultant;
provided, however, that Consultant may not assign this Agreement without the
prior written consent of Continental.
10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
11. Governing Law. This Agreement shall be construed in accordance
with, and the rights and duties of the parties hereto shall be governed by, the
internal laws of the State of Oklahoma. The parties hereto irrevocably and
unconditionally consent to and submit themselves to the exclusive jurisdiction
of the courts of the State of Oklahoma located in Tulsa County, Oklahoma and
the courts of the United States of America located in the Northern District of
Oklahoma (collectively, the "Agreed Courts") with respect to any actions, suits
or proceedings arising out of or in connection with this Agreement and the
transactions contemplated hereby and the parties hereto agree not to commence
any action, suit or proceeding relating thereto except in such Agreed Courts.
The parties hereto further agree that service of any process, summons, notice,
or documents in accordance with paragraph 7 hereof
3
<PAGE> 4
shall be effective service of process for any action, suit or proceeding
brought. The parties hereto irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in the Agreed Courts
and hereby further irrevocably and unconditionally waive and agree not to plead
or claim that any such action, suit or proceeding brought in any of the Agreed
Courts has been brought in an inconvenient forum.
12. Entire Agreement. This instrument contains the entire Agreement
of the parties pertaining to Consultant's employment by Continental,
superseding all other agreements, whether oral or written, express or implied.
It may not be changed orally but only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension
or discharge is sought.
13. Severability. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any one or more of the
provisions hereof shall not affect the validity and enforceability of the other
provisions hereof.
14. Construction. Every covenant, term and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CONTINENTAL NATURAL GAS, INC.
By /s/ GARRY D. SMITH
----------------------------------
Garry D. Smith, Vice President
CPA AVIATION, INC.
By /s/ H. RIC HEDGES
----------------------------------
H. Ric Hedges, President
4
<PAGE> 5
SCHEDULE A
The following or other suitable aircraft may be furnished to Continental
for charter air transportation as described below:
<TABLE>
<CAPTION>
Aircraft Hourly Rate
-------- -----------
<S> <C>
Cessna Model Turbo 210 $ 100/hr
Learjet Model 24A $1,000/hr
</TABLE>
<PAGE> 1
EXHIBIT 10.19
ORIGINAL
TERM PURCHASE AGREEMENT
Continental Natural Gas, Inc. Date: July 18, 1994
Attn: Terry Spencer
1412 South Boston MPI Contract: 8847 (REVISED)
Suite 500
Tulsa, OK 74119 Customer Contract:___________________
Confirming agreement made between Russell R. King and Terry Spencer
- --------------------------------------------------------------------------------
1. MAPCO PETROLEUM Inc. receives monthly from July, 1994, through June,
1997, and continues month to month thereafter until canceled by either party
with 30 days written notice:
Product Barrels F.O.B.
- -------------------- ----------------- -----------------------------
Ethane or E/P Mix Continental's Diamond Shamrock Storage,
Beaver County Mt. Belvieu, TX
Propane, Iso Butane, Plant Production
Normal Butane and Mid-America Pipeline, Koch
Natural Gasoline Jct. (Plant 306)
2. PAYMENT TERMS: Funds to be received by wire transfer within 5 days
from date of invoice or receipt of documentation, whichever is later.
3. PRICING: Ethane or E/P mix: the Non-TET OPIS average price of ethane
or E/P mix and propane (whichever is applicable) for the month of delivery less
.25 cents per gallon if MAPCO prepays one month in advance or less .5 cents per
gallon if MAPCO prepays two months in advance. Propane, Iso and Normal Butane,
Natural Gasoline: The Conway OPIS average price of each product for the month
of delivery less .25 cents per gallon if MAPCO prepays one month in advance or
less .5 cents per gallon if MAPCO prepays two months in advance.
4. SPECIAL PROVISIONS: This contract cancels and supercedes MAPCO
contract No. 8808. Continental can repay MAPCO's prepayment by returning the
funds or by delivering product by giving 30 days written notice. Upon the
repayment, this contract will become a one year contract from that date and
continue month to month thereafter until canceled by either party with 30 days
written notice. The price will then revert to the applicable monthly OPIS
average price.
Upon failure of Seller to deliver or arrange for delivery of all product
during delivery period, MAPCO shall have the option to cancel this
agreement as to further shipments.
- --------------------------------------------------------------------------------
The terms and conditions listed on the reverse side are part of this agreement.
Accepted: July 25, 1994
CONTINENTAL NATURAL GAS, INC. MAPCO PETROLEUM INC.
By: /s/ Terry Spencer By: /s/ Russell R. King
--------------------------- ---------------------------------
Russell R. King
Title: Vice President - Operations Title: Vice President,
Supply/Distribution/Wholesale
<PAGE> 2
GENERAL CONDITIONS
1. SPECIFICATIONS: Product shall confirm to carrier's specifications in
effect at time of delivery. Seller shall be responsible for any
charges incurred by Buyer for product not meeting specification.
2. VOLUME: Quantities of product shall be determined on the basis of
temperature at 60 degrees Fahrenheit in accordance with ASTM-IP
Petroleum Measurement Tables (ASTM Designation: D-1250), or N.G.P.A.
Publication 2140- 62 or any revisions thereof for all LPG products.
3. TAXES: It is agreed that, where the law or ordinance permits, each
party shall assume and be responsible to the proper Governmental Unit
for any and all Federal, State and Municipal taxes and inspection fees
that may be applicable to the products delivered to it by the other
party.
4. FORCE MAJEURE: It is understood that neither party shall be
responsible for any damage caused by delay or failure to perform when
such delay or failure is attributable to acts of God, strikes,
differences with workmen, lockouts, fires, floods, acts or regulations
by governmental authority, war conditions, accidents, delays in
transportation, or any cause beyond the reasonable control of the
defaulting party.
5. REGULATORY LAW: This agreement is subject to all valid and applicable
Federal, State, and Municipal laws, rules, orders, regulations, and
directives relating to the products delivered hereunder.
6. ASSIGNMENT: Neither party shall assign or attempt to assign its rights
hereunder; however, the rights and duties of both parties shall pass
by operation of law to the successor of either of them.
7. DELIVERY (EXCHANGES ONLY): Unless otherwise provided by the express
terms hereof, this agreement constitutes an even and current exchange
of products and both parties will endeavor to keep the exchange in
reasonable balance at all times. If at any time, or from time to time,
this exchange shall be out of balance in an amount which either party
considers to be unreasonable, such party shall have the right to
either (a) suspend further deliveries or receipts or (b) limit the
amount of further deliveries or receipts to be made until such time as
the deliveries to both parties have been brought into approximate
balance. Upon termination, if the exchange is not in balance, the
underdelivered party may continue to receive from the other party
until the exchange is brought into balance. If the exchange cannot
thus be brought into balance, settlement will be effected by delivery
of products at some other destination or destinations or cash
settlement will be made, in either instance on terms to be mutually
agreed upon.
<PAGE> 1
EXHIBIT 10.20
ENRON
NORTHERN NATURAL GAS COMPANY
P. O. Box 1188 Houston, Texas 77251-1188 (713) 853-6161
February 16, 1996
Mr. Scott Longmore
Continental Natural Gas, Inc.
1400 Boston Building, Suite 500
1412 S. Boston
Tulsa, Oklahoma 74119
Re: Amendment to CR#101124
Northern Natural Gas Company (Northern) and Continental Natural Gas, Inc.
(Continental) are Parties to a Firm Throughput Service Agreement (CR#101124)
executed simultaneously herewith. Northern and Continental hereby agree to
amend CR#101124 as stated herein:
1. Rate. The commodity and demand rates stated in CR#101124 shall be
superseded by the following combined discounted commodity and demand
rate, which rate shall be applicable to transportation from the
Primary Receipt Points to the Primary Delivery Points designated in
CR#101124: $0.04 per MMBtu ("combined discount rate"). This combined
discount rate is based on 100% load factor and includes all applicable
surcharges, if any. Northern reserves the right to allocate the
combined discount rate between commodity and demand components
exclusive of surcharges, such that the combined discount rate shall
always equal $0.04 per MMBTU based on 100% load factor utilization.
Continental agrees to pay Northern the rate stated herein on the
contractual MDQ, irrespective of the amount of gas actually flowed by
Continental on a daily basis.
2. Term. The term of the above stated combined discount rate shall be
three hundred sixty-four (364) days from the date initial deliveries
are made under CR#101124. At the expiration of such period the rates
applicable to service provided under CR#101124 shall become Northern's
applicable tariff rates, as amended from time to time.
3. Fuel. In addition to the above stated combined discount rate,
Continental shall pay Northern the applicable fuel rate set forth in
Northern's FERC Gas Tariff, as amended from time to time.
4. FERC. If it is determined, as a result of any decision or regulation
issued by the FERC or other administrative agency or court of
competent jurisdiction: (i) that any discount provided to Continental
by Northern would, in effect, require Northern to provide similar
discounts to other shippers or that the providing of such discounted
rates to Continental provides
Part of the Enron Group of Energy Companies
<PAGE> 2
Continental Natural Gas, Inc. Page 2
Mr. Scott Longmore February 16, 1996
Continental an undue preference or would subject other shippers to
undue discrimination; or (ii) that Northern is required to allocate
costs to the service provided hereunder or recognize revenue as if it
were charging rates in excess of the combined discount rate provided
for herein; Northern and Continental agree to renegotiate the rate
stated herein such that both parties achieve the same economic value
as contemplated in this transaction.
5. Maximum and Minimum. In no event shall the rate agreed to herein
exceed the maximum rate or be less than the minimum rate authorized
under Northern's FERC Gas Tariff, as amended from time to time. In the
event the rate agreed to herein is or becomes greater than the maximum
or less than the minimum permitted under Northern's FERC Gas Tariff,
as revised from time to time, then Continental agrees to immediately
decrease the rate herein down to the maximum or increase the rate(s)
herein up to the minimum.
6. Confidential. Each Party agrees that it will maintain this Agreement,
all of its contents and subsequent discount documentation and
communications in strict confidence and that it will not cause or
permit disclosure thereof to any third party without the express
written consent of the other Party except to the extent necessary to
comply with valid laws, regulations or orders of any court or agency
having jurisdiction.
7. Economic Value. In the event that Northern implements a rate design
different from that existing as of the date hereof, or Northern's
maximum tariff rate is reduced from that existing as of the date
hereof, the rate stated herein shall be adjusted, consistent with the
rate change, to achieve the same economic value to both Parties based
on 100% load factor utilization.
8. Alternate Points. If Continental utilizes alternate receipt or
alternate delivery points, or seeks to amend the primary receipt
and/or primary delivery points set forth in CR#101124, unless
otherwise agreed the combined discount rate set forth herein will not
apply and the maximum rates set forth in Northern's FERC Gas Tariff,
as amended from time to time, will apply.
9. Capacity Release. The Parties agree that the combined discount rate
set forth herein is not applicable to capacity released under
CR#101124. If Continental releases capacity under CR#101124, the
maximum rate stated in Northern's FERC Gas Tariff shall apply to such
released capacity.
If this represents your understanding of our Agreement, please acknowledge
acceptance of these terms in the space provided below.
<PAGE> 3
Continental Natural Gas, Inc. Page 3
Mr. Scott Longmore February 16, 1996
AGREED TO AND ACCEPTED AGREED TO AND ACCEPTED
This 16th day of Feb., 1996. This 1st day of March, 1996.
CONTINENTAL NATURAL GAS INCORPORATED NORTHERN NATURAL GAS COMPANY
By: /s/ By: /s/
--------------------------- ----------------------------
Title: /s/ Title: /s/
------------------------ -------------------------
<PAGE> 4
EXHIBIT 2
Firm Throughput Service Agreement
Rate Schedule TFX
Shipper's Name and Address for Notices and Invoices: Date: January 26, 1996
Continental Natural Gas Incorporated
Boston Bldg.
1412 S. Boston
Tulsa, OK 74119
Attn: Gas Control
Address for Invoice
Continental Natural Gas Incorporated
Boston Bldg.
1412 S. Boston
Tulsa, OK 74119
Attn: Accounts Payable
Contract No: 101124
Term: This Agreement shall become effective on March 1, 1996, or upon
completion of construction of facilities at CNG A-line (S18, T13S,
R26E, Beaver County, OK), whichever is later, for a term of 364 days.
Rates shall be Northern's maximum rates and charges plus all applicable
surcharges in effect from time to time under the applicable Rate Schedule on
file with the Commission unless otherwise agreed to by the parties in writing.
This transportation shall be provided pursuant to Subpart G of Part 284 of the
Federal Energy Regulatory Commission's ("Commission") regulations.
The contract maximum daily quantities and primary receipt and delivery points
are set forth on Appendix A, and if necessary, Appendix B.
If made available by Shipper, Northern agrees to receive and deliver thermally
equivalent volumes of natural gas as set forth in this Agreement.
Other:
--------------------------------------------
Any notice, statement, or bill provided for in this Agreement shall be in
writing and shall be considered as having been given if delivered personally,
or if mailed by United States mail, postage prepaid, or if sent by express
mail, overnight delivery, telex, telecopy or other mutually agreeable means of
electronic transmission, to Shipper when sent to the address set forth on this
Agreement and to Northern when sent to the following:
<PAGE> 5
All Notices/Accounting Matters: Payments: Northern Natural Gas Company
Northern Natural Gas Company Citibank N.A.
P.O. Box 1188 399 Park Avenue
Houston, Texas 77251-1188 Account No. 4049-8026
Attn: Market Services New York, New York 10043
This Agreement shall incorporate and in all respects shall be subject to the
"General Terms and Conditions" and the applicable Rate Schedule(s) set forth in
Northern's FERC Gas Tariff, and may be revised from time to time. Northern may
file and seek Commission approval under Section 4 of the Natural Gas Act (NGA)
at any time and from time to time change any rates, charges or other provisions
set forth in the applicable Rate Schedule(s) and the "GENERAL TERMS AND
CONDITIONS" in Northern's FERC Gas Tariff, and Northern shall have the right to
place such changes in effect in accordance with the NGA, and this Throughput
Service Agreement shall be deemed to include such changes and any changes which
become effective by operation of law and Commission Order, without prejudice to
Shipper's right to protest the same.
Northern Natural Gas Company Continental Natural Gas Incorporated
By: /s/ By: /s/
--------------------------- --------------------------------
Title: /s/ Title: /s/
------------------------ -----------------------------
Date: /s/ Date: /s/
------------------------- ------------------------------
2
<PAGE> 1
EXHIBIT 10.21
ENRON TRANSPORTATION & STORAGE
. . .Services Provided by Northern Natural Gas Company and Transwestern
Pipeline Company
November 13, 1996
Continental Natural Gas Incorporated
FTS-1 Agreement No. 24690
Attn: Bob Malackowski
Continental Natural Gas Incorporated ("Shipper") and Transwestern Pipeline
Company ("Transwestern") (collectively referred herein as "Parties" or
individually as "Party") are Parties to the above-referenced contract. The
Parties desire to amend Contract #24690 as provided herein and do hereby agree
to the following:
1. Shipper may utilize overrun volumes on the path of primary receipt
point Panhandle Pool (POI# 58647) to the primary delivery point of TW-CNG
Beaver (POI# 60213) at an overrun rate of $0.0700/MMBtu for a term of November
11, 1996 through November 30, 1996.
2. Each party agrees that it will maintain this amendment, all of its
contents and subsequent discount documentation and communications in strict
confidence and that it will not cause or permit disclosure thereof to any third
party without the express written consent of the other party except to the
extent necessary to comply with valid laws, regulations or orders of any court
or agency having jurisdiction. However, in the event a party becomes aware of a
judicial or administrative proceeding or request that has resulted or that may
result in such disclosure, it shall so notify the other party immediately and
will also take all actions necessary to maintain confidentiality of all
discount communications and documents.
This amendment shall be effective November 11, 1996. No other terms or
conditions of the Agreement are effected hereby. Except as amended herein, the
Agreement shall remain in full force and effect.
This Amendment shall be binding and inure to the benefits of the
Parties hereto and their respective successors and assignments.
ACCEPTED AND AGREED TO ACCEPTED AND AGREED TO
This 12th day of December, 1996. This ____ day of ____________, 1996.
CONTINENTAL NATURAL GAS INCORPORATED TRANSWESTERN PIPELINE COMPANY
By: /s/ By:
------------------------------- -------------------------------
Scott C. Longmore
Title: Vice President of Marketing Title:
----------------------------
<PAGE> 2
ENRON TRANSPORTATION & STORAGE
. . .Services Provided by Northern Natural Gas Company and Transwestern
Pipeline Company
March 15, 1996
Continental Natural Gas, Inc.
Attn: Scott C. Longmore
Pursuant to negotiations, Transwestern Pipeline Company ("Transwestern") and
Continental Natural Gas, Inc. ("Shipper") agree as follows regarding the
provisions of firm transportation services:
1. Shipper and Transwestern have entered into a Firm Transportation
Service Agreement ("FTS-1") (Contract # 24690). The firm maximum daily
transportation quantity (MAXDTQ) is:
15,000 MMBtu per day
The term of the discounted rate provided hereunder shall be from the later of
April 1, 1996 or the in-service date of Transwestern owned custody transfer
measurement at the Primary Receipt Points through March 31, 2001.
2. The discounted rate for the FTS-1 agreement is as follows:
$ .0607 - Reservation Rate /MMBtu/day
$ .0093 - Commodity Rate/MMBtu
$ .0700 - Total Rate/MMBtu/day
In addition to the above stated rates, Shipper shall also pay discounted fuel,
at a rate of 1%, pursuant to Transwestern's FERC Gas Tariff. The transportation
rates, set forth above, shall in no event be greater than the maximum or lower
that the minimum rates provided in Transwestern's FERC Gas Tariff, as amended
from time to time.
3. Shipper agrees that if it utilizes alternate receipt or delivery
points, other than alternate receipt points located on the northeast side of
Transwestern's Compressor Station P-3, the discounted rate set forth herein
will not be applicable and Transwestern's maximum rates will apply.
4. Shipper agrees that if it utilizes Transwestern's capacity release
program to release, on either a temporary or permanent basis, any capacity
subject to this discount, the discount associated with said capacity shall be
terminated and the applicable maximum rates shall apply.
5. Each party agrees that it will maintain this amendment, all of its
contents and subsequent discount documentation and communications in strict
confidence and that it will not cause or permit disclosure thereof to any third
party without the express written consent of the other party except to the
extent necessary to comply with valid laws, regulations or orders of any court
or agency having jurisdiction. However, in the event a party becomes aware of a
judicial or administrative proceeding or request that has resulted or that may
result in such disclosure, it shall so notify the other party
<PAGE> 3
immediately and will also take all actions necessary to maintain
confidentiality of all discount communications and documents.
If this represents your understanding of our Agreement, please acknowledge
acceptance of these terms in the space provided below.
TRANSWESTERN PIPELINE COMPANY
/s/
- --------------------------------
Bob Burleson
Enron Transport & Storage
Agreed to and accepted this 15th day of March, 1996.
By: /s/
-----------------------------
CONTINENTAL NATURAL GAS, INC.
<PAGE> 4
ENRON TRANSPORTATION & STORAGE
. . .Services Provided by Northern Natural Gas Company and Transwestern
Pipeline Company
March 14, 1996
Continental Natural Gas, Inc.
Attn: Scott C. Longmore
Pursuant to negotiations, Transwestern Pipeline Company ("Transwestern") and
Continental Natural Gas, Inc. ("Shipper") agree as follows regarding the
provisions of firm transportation services:
1. Shipper and Transwestern have entered into a Firm Transportation Service
Agreement ("FTS-1") (Contract # 24690). The firm maximum daily transportation
quantity (MAXDTQ) is:
15,000 MMBtu per day
The term of the discounted rate provided hereunder shall be from the later of
April 1, 1996 or the in-service date of Transwestern owned custody transfer
measurement at the Primary Receipt Points through March 31, 2001.
2. The discounted rate for the FTS-1 agreement is as follows:
$ .0607 - Reservation Rate /MMBtu/day
$ .0093 - Commodity Rate/MMBtu
$ .0700 - Total Rate/MMBtu/day
In addition to the above stated rates, Shipper shall also pay discounted fuel,
at a rate of 1%, pursuant to Transwestern's FERC Gas Tariff. The transportation
rates, set forth above, shall in no event be greater than the maximum or lower
that the minimum rates provided in Transwestern's FERC Gas Tariff, as amended
from time to time.
3. Shipper agrees that if it utilizes alternate receipt or delivery
points, other than alternate receipt points in the Panhandle Zone, the
discounted rate set forth herein will not be applicable and Transwestern's
maximum rates will apply.
4. Shipper agrees that if it utilizes Transwestern's capacity release
program to release, on either a temporary or permanent basis, any capacity
subject to this discount, the discount associated with said capacity shall be
terminated and the applicable maximum rates shall apply.
5. Each party agrees that it will maintain this amendment, all of its
contents and subsequent discount documentation and communications in strict
confidence and that it will not cause or permit disclosure thereof to any third
party without the express written consent of the other party except to
<PAGE> 5
the extent necessary to comply with valid laws, regulations or orders of any
court or agency having jurisdiction. However, in the event a party becomes
aware of a judicial or administrative proceeding or request that has resulted
or that may result in such disclosure, it shall so notify the other party
immediately and will also take all actions necessary to maintain
confidentiality of all discount communications and documents.
If this represents your understanding of our Agreement, please acknowledge
acceptance of these terms in the space provided below.
TRANSWESTERN PIPELINE COMPANY
/s/
- --------------------------------
Bob Burleson
Enron Transport & Storage
Agreed to and accepted this 14th day of March, 1996.
By: /s/
-----------------------------
CONTINENTAL NATURAL GAS, INC.
<PAGE> 6
TRANSPORTATION SERVICE AGREEMENT - FORM M
Terms and Conditions
Section 1 - Transportation Quantity
1.1 Subject to the terms, conditions and limitations hereof and of
Transporter's Rate Schedule FTS-1, Transporter agrees to
receive and transport, on a firm basis, to or for the account
of Shipper, quantities of gas up to the MAXDTQ set forth on
the face of this Agreement and to deliver thermally equivalent
volumes less the percentage of gas used by Transporter in
providing the transportation service as specified in
Transporter's Rate Schedule FTS-1.
1.2 Transporter agrees to transport natural gas for Shipper in
excess of the MAXDTQ on an interruptible basis provided that
Transporter has determined that it has sufficient capacity to
transport such excess volumes.
Section 2 - Receipt and Delivery
2.1 Shipper agrees to tender, or cause to be tendered, gas for
transportation at the Point(s) of Receipt identified in
Appendix "A" at pressures sufficient to effect delivery into
Transporter's facilities not to exceed the maximum allowable
operating pressure; provided, however, Transporter shall have
no obligation to provide compression and/or alter its system
operation to enable Shipper to effectuate said deliveries.
2.2 Transporter agrees to transport and deliver gas to Shipper, or
for Shipper's account, at the Point(s) of Delivery identified
in Appendix "B"; provided, however, Transporter shall have no
obligation to provide compression and/or alter its system
operation to effectuate said deliveries.
2.3 Both Transporter and Shipper recognize that due to variations
in operating conditions, daily and monthly deliveries
hereunder by Transporter may be greater or less than the
corresponding receipts less gas used by Transporter for
transportation hereunder. Shipper and Transporter agree that
any excess or deficiency in such receipts, less gas used, and
deliveries shall be adjusted or corrected in gas as soon as
operating conditions reasonably permit.
Section 3 - Termination
3.1 Notwithstanding the "Term" set forth in Paragraph 3 on the
face of this Agreement, this Agreement shall terminate upon
written notice by Transporter to Shipper within forty-five
(45) days from the effective date of this Agreement if
Transporter determines that incomplete or inaccurate
information has been submitted to effectuate this
transportation service which causes such service to not comply
with Transporter's FERC Gas Tariff or the Commission's
Regulations.
<PAGE> 7
3.2 Termination of this Agreement shall not relieve Transporter
and Shipper of the obligation to correct any volume imbalances
hereunder, or Shipper to pay money due hereunder to
Transporter. Accordingly, Section 2.3 of this Agreement shall
survive termination until all imbalances have been eliminated
and all amounts due hereunder have been paid.
Section 4 - General
4.1 This Agreement in all respects shall be subject to the
provisions of Rate Schedule FTS-1 as well as the General Terms
and Conditions, if applicable, contained in Transporter's FERC
Gas Tariff Second Revised Volume No. 1, as may be revised from
time to time.
4.2 Transporter shall have the unilateral right to file and seek
Commission approval under Section 4 of the Natural Gas Act
(NGA) to change any rates, charges or other provisions set
forth in Rate Schedule FTS-1 or the general terms and
conditions of its FERC Gas Tariff from time to time and to
place such changes in effect in accordance with Section 4(c)
of the NGA and this Transportation Service Agreement shall be
deemed to include such changes and any changes which become
effective by operation of law and F.E.R.C. Order, without
prejudice to Shipper's right to protest the same.
4.3 Transporter's Rate Schedule FTS-1 is hereby incorporated by
reference and made a part hereof.
Section 5 - Notices
5.1 Any notice, statement, or bill provided for in this Agreement
shall be in writing and shall be considered as having been
given if delivered personally or if mailed by United States
mail, postage prepaid, to Shipper when sent to the address set
forth on the face of this Agreement and to Transporter when
sent to the following:
All Notices: Transwestern Pipeline Company
Attn: Transportation Administration
Department P.O. Box 1188 Houston, Texas
77251-1188
Payments: Transwestern Pipeline Company
Attn: Gas Accounting
P.O. Box 1188
Houston, Texas 77251-1188
2
<PAGE> 1
EXHIBIT 10.22
ENRON
TRANSWESTERN PIPELINE COMPANY
P. O. Box 1188 Houston, Texas 77251-1188 (713) 853-6161
January 3, 1994
Mr. Jeff Eatherton
Continental Natural Gas, Inc.
1000 Louisiana, Suite 4975
Houston, Texas 77002
Re: Interruptible Transportation Service
Agreement No. 20606
Dear Jeff:
Transwestern Pipeline Company ("Transwestern") hereby offers
interruptible transportation rates ("IT Rates") to Continental Natural Gas,
Inc. ("Continental") for the interruptible transportation of natural gas
pursuant to the Interruptible Transportation Service Agreement between
Transwestern and Continental, Contract No. 20606 (the "Service Agreement").
Effective January 1, 1994 through and including June 30, 1994, the IT
Rates applicable for deliveries from Transwestern's Panhandle Zone to delivery
points within Transwestern's Panhandle Zone shall be the maximum rates
authorized by Transwestern's FERC Gas Tariff, as may be revised from time to
time, and shall include applicable ACA, GRI, and TCR surcharges. Provided
however, if Continental ships a minimum of 900,000 Dth during the six (6) month
term hereof, Transwestern shall credit Continental's account for up to a
maximum of 1,260,000 Dth on its invoice for the sixth month with the difference
between: (i) Transwestern's maximum rate for deliveries from the Panhandle Zone
to delivery points in the Panhandle Zone plus applicable surcharges and posted
fuel, and (ii) a rate equal to $.0772 plus applicable surcharges and posted
fuel. Any volumes shipped in excess of 1,260,000 Dth during the term hereof
shall be at Transwestern's maximum rates (or posted rates, if lower).
In the event Transwestern's production and gathering or field service
facilities are utilized Transwestern's then effective production and gathering
or field area service charge will be assessed.
For interruptible transportation services under transportation service
agreements other than the one referenced above, the IT Rates shall be the
maximum rates authorized by Transwestern's
Part of the Enron Group of Energy Companies
<PAGE> 2
Continental Natural Gas, Inc.
Interruptible Transportation Service Agreement No. 20606
Page 2
FERC Gas Tariff, as amended from time to time, plus all applicable surcharges
and fuel, or any other rates as otherwise mutually agreed.
Continental shall have the right to accept the lower posted rate in
the event that, at any time, Transwestern's posted interruptible rate for the
path(s) specified herein is less than $0.0772 plus applicable surcharges, for
such time as the posted rate remains lower than the rate hereunder.
If it is determined by Transwestern, as a result of any decision or
regulation issued by the FERC or other administrative agency or court of
competent jurisdiction that: (i) any discount provided to Continental by
Transwestern would, in effect, require Transwestern to provide similar
discounts to other shippers or that the providing of such discounted rates to
Continental provides Continental an undue preference or would subject other
shippers to undue discrimination, or (ii) Transwestern is required to allocate
costs to the service provided hereunder or recognize revenue as if it were
charging rates in excess of the discounted rates provided for herewith, then
Transwestern shall immediately notify Continental of any such determination,
and if Continental is not already paying the then effective maximum
transportation rate, then Continental shall, on a prospective basis, pay the
maximum rate provided for in Transwestern's then effective FERC Gas Tariff, as
revised from time to time, effective upon the date of said notice, without any
credit. In such event, Continental shall receive a credit as described in the
second paragraph of this letter agreement for up to 1,260,000 Dth, provided
that it has shipped a minimum of gas equal to 5,000 Dth/d multiplied by the
number of days during the term hereof which predate such notice date.
All interruptible transportation will be in accordance with
Transwestern's FERC Gas Tariff, Rate Schedule ITS- 1, as amended from time to
time, and the underlying Service Agreement between Transwestern and
Continental. Notwithstanding anything herein that may be interpreted to the
contrary, in no event shall the rates to be paid by Continental hereunder
exceed the maximum or be less than the minimum rates authorized by
Transwestern's FERC Gas Tariff, as amended from time to time. Transwestern
hereby reserves its right to seek FERC approval to change the rates on its
system.
This Agreement and the terms and conditions hereof shall be
confidential and shall not be voluntarily disclosed to third parties, other
than auditors and outside counsel, without prior written consent of both
parties; provided, however, that the parties expressly agree that disclosure
may be made if requested or required by or through any administrative,
regulatory, legislative, legal or judicial action (including, by way of
example, compliance with FERC reporting requirements), or in the event issues
arise which relate to the interpretation, applicability, or enforcement of this
Agreement.
Neither party may assign this Agreement or any rights and obligations
hereunder to any other entity in whole or in part without the prior written
consent of the other party.
<PAGE> 3
Continental Natural Gas, Inc.
Interruptible Transportation Service Agreement No. 20606
Page 3
This Agreement is subject to (1) all applicable laws, rules,
regulations, orders and decisions of regulatory bodies of competent
jurisdiction, and (2) SHALL BE INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
If the foregoing is acceptable to Continental, please indicate your
agreement by signing two originals of this Agreement in the space provided
below and returning one fully executed original to the undersigned.
Very truly yours,
/s/
Ann C. Dodge
Account Manager
Marketing - Transportation
AGREED AND ACCEPTED AGREED AND ACCEPTED
This 10th day of March, 1994 This 17th day of March, 1994
CONTINENTAL NATURAL GAS INC. TRANSWESTERN PIPELINE COMPANY
By: /s/ By: /s/
-------------------------- -------------------------------
Scott C. Longmore Robert E. Hayes
Title: Vice President of Marketing Title: Vice President - Marketing
<PAGE> 4
TRANSWESTERN
PIPELINE
COMPANY
An ENRON Company
TRANSPORTATION SERVICE AGREEMENT - FORM K
RATE SCHEDULE ITS-1
(For internal use only)
Transportation Request Number: 1083
Effective Date: 11-26-91
Transportation Service Agreement No: 20606
THIS TRANSPORTATION SERVICE AGREEMENT ("Agreement") by and between
Transwestern Pipeline Company, hereinafter referred to as "Seller", and
Continental Natural Gas, Inc., a marketer, herein referred to as "Buyer",
covering the transportation of natural gas on an interruptible basis by Seller
for Buyer (on behalf of and in furtherance of a transportation service
performed by n/a, a n/a*) as more particularly described herein is entered into
in accordance with the following terms and conditions:
1. This transportation shall be provided pursuant to Subpart G of Part 284 of
the Federal Energy Regulatory Commission's ("Commission") regulations.
2. Maximum Daily Transportation Quantity (MAXDTQ): 15,000 Dth
3. Term: This Agreement shall become effective on the date of execution
hereof of Buyer and shall continue for a primary term of one (1) year and
month to month thereafter unless terminated at any time subsequent to the
primary term by either party upon thirty (30) days prior written notice to
the other party.
4. Rate: Unless Seller agrees to charge Buyer a lower rate, Buyer shall pay
Seller each month for transportation service rendered hereunder at the
maximum rates or charges in effect from time to time under Rate Schedule
ITS-1, or an effective superseding rate schedule on file with the
Commission.
<PAGE> 5
5. Address to Buyer:
for notices for invoices:
Continental Natural Gas, Inc. Continental Natural Gas, Inc.
P.O. Box 21470 P.O. Box 21470
Tulsa, OK 74121 Tulsa, OK 74121
6. This Agreement supersedes and cancels the following Transportation Service
Agreement(s) between the parties hereto:
None
7. Other Provisions:
None
8. Additional Terms and Conditions: The additional Terms and Conditions
listed on the reverse side hereof and the Appendices incorporated herein
are made a part of this Agreement.
This Transportation Service Agreement when executed by Buyer constitutes a
contract with Transwestern Pipeline Company for the transportation of
natural gas, subject to the terms and conditions appearing on the face and
reverse side hereof and the attached Appendices.
CONTINENTAL NATURAL GAS, INC., Buyer TRANSWESTERN PIPELINE COMPANY
By /s/
----------------------------------
Title /s/
-------------------------------
Executed this 10th day of December, 1991 By /s/
---------------------------------
Title /s/
Attest or Witness: ------------------------------
/s/
- ------------------------------------
*Clause added only if applicable.
<PAGE> 6
TRANSPORTATION SERVICE AGREEMENT - FORM K
TERMS AND CONDITIONS
SECTION 1 - TRANSPORTATION QUANTITY
1.1 Subject to the terms, conditions and limitations hereof and of Seller's
Rate Schedule ITS-1, Seller agrees to receive and transport, on an
interruptible basis, to or for the account of Buyer, quantities of gas up
to the MAXDTQ set forth on the face of this Agreement and to deliver
thermally equivalent volumes less the percentage of gas used by Seller in
providing the transportation service as specified in Seller's Rate
Schedule IST-1.
1.2 Seller agrees to transport natural gas for Shipper in excess of the MAXDTQ
on an interruptible basis provided that Seller has determined that it has
sufficient capacity to transport such excess volumes.
SECTION 2 - RECEIPT AND DELIVERY
2.1 Buyer agrees to tender, or cause to be tendered, gas for transportation at
the Point(s) of Receipt identified in Appendix "A" at pressures sufficient
to effect delivery into Seller's facilities not to exceed the maximum
allowable operating pressure; provided, however, Seller shall have no
obligation to provide compression and/or alter its system operation to
enable Buyer to effectuate said deliveries.
2.2 Seller agrees to transport and deliver gas to Buyer, or for Buyer's
account, at the Point(s) of Delivery identified in Appendix "B"; provided,
however, Seller shall have no obligation to provide compression and/or
alter its system operation to effectuate said deliveries.
2.3 Both Seller and Buyer recognize that due to variations in operating
conditions, daily and monthly deliveries hereunder by Seller may be
greater or less than the corresponding receipts less gas used by Seller
for transportation hereunder. Buyer and Seller agree that any excess or
deficiency in such receipts, less gas used, and deliveries shall be
adjusted or corrected in gas as soon as operating conditions reasonably
permit.
2.4 Buyer agrees to identify the corporate entity or entities ultimately
receiving the gas and include the names in Appendix "C" of the Service
Agreement if other than a local distribution company, interstate pipeline
company, or intrastate pipeline company purchasing the gas for system
supply. Buyer agrees to notify Seller in writing of any change in the
identity of the entities ultimately receiving the gas.
SECTION 3 - TERMINATION
3.1 Notwithstanding the "Term" set forth in paragraph 3 on the face of this
Agreement, this Agreement shall terminate upon written notice by Seller to
Buyer within forty-five (45) days
<PAGE> 7
from the effective date of this Agreement if Seller determines that
incomplete or inaccurate information has been submitted to effectuate this
transportation service which causes such service to not comply with
Seller's FERC Gas Tariff or the Commission's Regulations.
3.2 Notwithstanding any other provision in this Agreement to the contrary,
should Seller at any time in its sole discretion elect to terminate on a
non-discriminatory basis all transportation services commenced pursuant to
Part 284 of the Commission's Regulations on or after October 9, 1985, then
Seller may terminate Buyer's ITS-1 Transportation Service Agreement upon
five (5) days written notice to Buyer.
3.3 Termination of this Agreement shall not relieve Seller and Buyer of the
obligation to correct any volume imbalances hereunder, or Buyer to pay
money due hereunder to Transwestern. Accordingly, Section 2.3 of the
Agreement shall survive termination until all imbalances have been
eliminated.
SECTION 4 - GENERAL
4.1 This Agreement in all respects shall be subject to the provisions of Rate
Schedule ITS-1 as well as the General Terms and Conditions, if applicable,
contained in Seller's F.E.R.C. Gas Tariff Second Revised Volume No. 1, as
may be revised from time to time.
4.2 Seller shall have the unilateral right to file and seek Commission
approval under Section 4 of the Natural Gas Act (NGA) to change any rates,
charges or other provisions set forth in Rate Schedule ITS-1 or the
general terms and conditions of its FERC Gas Tariff from time to time and
to place such changes in effect in accordance with Section 4(c) of the NGA
and this Transportation Service Agreement shall be deemed to include such
changes and any changes which become effective by operation of law and
F.E.R.C. Order, without prejudice to Buyer's right to protest the same.
4.3 Seller's Rate Schedule ITS-1 is hereby incorporated by reference and made
a part hereof.
SECTION 5 - NOTICES
5.1 Any notice, statement, or bill provided for in this Agreement shall be in
writing and shall be considered as having been given if delivered
personally or if mailed by United States mail, postage prepaid, to Buyer
when sent to the address set forth on the face of this Agreement and to
Seller when sent to the following:
All Notices: Transwestern Pipeline Company
Attn: Transportation Administration
Department P.O. Box 1188
Houston, Texas 77251-1188
Payments: Transwestern Pipeline Company
Attn: Gas Accounting
P.O. Box 1188
Houston, Texas 77251-1188
<PAGE> 8
"APPENDIX A"
TRANSPORTATION SERVICE AGREEMENT UNDER ITS-1 RATE SCHEDULE
BUYER: Continental Natural Gas, Inc.
DATE: 11-26-91
1) Appendix A Receipt Points:
Receipt Points under this Agreement shall include all Receipt Points
listed by Seller in its Transportation Point Catalog, as amended from time
to time (the "Catalog"), on file and available for inspection at the
offices of Seller in Houston, Texas, which Catalog is hereby made a part
hereof and incorporated herein by reference.
2) At or prior to the time Buyer nominates gas at a Receipt Point not
previously utilized under this Agreement, Buyer shall provide the
following information to Seller for gas to be transported at said Receipt
Point:
a) The name of each produce and working interest owner from which
the gas was produced, and whether said party is affiliated
with Seller.
b) Provide the producer, region, state, and county from which the
gas is produced.
c) State whether a marketing affiliate of Seller is involved in
the transaction in any way, and if yes, the role of the
affiliate.
d) State whether any of the gas to be transported is subject to
take-or-pay relief, and if yes, the percentage of said gas
that is released gas from Seller's system.
e) Marketing affiliates of Seller must indicate if the gas is
being sold at a loss, and if yes, the amount of the loss.
3) In the event that Seller determines that it will no longer provide
interruptible transportation service under its "All Receipt Points"
program, Seller shall give to Buyer thirty days prior written notice that
effective on the first day of a designated calendar month, gas will be
transported for Buyer only from receipt points mutually agreeable to
Seller and Buyer and listed on an amended Appendix A to be part of this
Agreement. In the event Buyer fails to provide a list of mutually
agreeable receipt points at least five (5) days prior to the first day of
the designated calendar month, Buyer and Seller agree that this Agreement
shall terminate on the first day of the designated calendar month
newea Contract No. 20606
<PAGE> 1
EXHIBIT 10.23
INTERCONNECT AND OPERATING AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of March, 1996, by
and between NORTHERN NATURAL GAS COMPANY, a Delaware corporation, hereinafter
referred to as "Northern" and Continental Natural Gas, Inc., an Oklahoma
corporation, hereinafter referred to as "Continental", and collectively
referred to herein as "Parties".
In consideration of the mutual covenants and conditions herein
contained, the Parties hereby agree as follows:
1. Northern will install, own, operate, and maintain certain
pipeline interconnect facilities, including side taps, valves, measurement
apparatus, telemetry equipment, tanks and related appurtenances ("Interconnect
Facilities") which are capable of delivering up to 25,000 MMBtu per day of
natural gas at Section 18, T3N, R26E Beaver County, Oklahoma. The Interconnect
Facilities shall be located on Northern's "A" Line.
2. Continental hereby grants Northern: (i) the right to install,
operate, maintain, and remove any of the Interconnect Facilities that may be
located on facilities owned by Continental; and (ii) at no cost to Northern,
all rights of ingress and egress reasonably necessary for Northern to install,
operate, maintain, and remove the Interconnect Facilities.
3. This Agreement is an Interconnect and Operating Agreement only
and does not obligate either Party to transport gas. The transportation of gas
shall be provided pursuant to the terms and conditions set forth in the Related
Agreements ("Related Agreements"), copies of which are attached hereto as
Exhibits 1-3, and incorporated herein for all purposes.
The Related Agreements shall be entered into and executed
simultaneously with the execution of this Agreement:
<PAGE> 2
a) Exhibit 1 (CR# 101123)
CR# 101123 includes the following agreements between Northern
and Continental:
1) A Firm Throughput Service Request;
2) A Firm Throughput Service Agreement; and
3) A Letter Agreement
b) Exhibit 2 (CR# 101124)
CR# 101124 includes the following agreements between Northern
and Continental:
1) A Firm Throughput Service Request;
2) A Firm Throughput Service Agreement; and
3) A Letter Agreement
c) Exhibit 3 (CR# 101125)
CR# 101125 includes the following agreements between Northern
and Continental:
1) A Firm Throughput Service Request;
2) A Firm Throughput Service Agreement; and
3) A Letter Agreement
4. This Agreement and the Related Agreements shall be effective
upon execution. Provided, however, that Northern's obligation to provide
transportation service from the designated receipt points to the designated
delivery points under each of the Related Agreements shall not commence until
the date so specified in the applicable Related Agreement.
5. This Agreement shall terminate in the event and at such time
as Northern's "A" Line is permanently taken out of service. The decision to
take such line out of service shall be within Northern's sole discretion and
the Parties hereto agree that Northern shall not have any liabilities or
2
<PAGE> 3
responsibilities to Continental for any costs or damages associated with taking
the "A" Line out of service.
6. In the event the "A" Line is permanently taken out of service,
Northern shall notify Continental and Continental shall have the option to
terminate the Related Agreements, effective upon the date such "A" Line is
permanently taken out of service as such date is determined by Northern. If
Continental elects to terminate the Related Agreements, Continental must notify
Northern of its election within ten (10) days of Northern's notification to
Continental. If Northern does not receive such notice from Continental on or
before such ten (10) day period, the Related Agreements shall continue in full
force and effect for the remainder of the terms set forth therein.
7. Northern shall operate the Interconnect Facilities consistent
with the terms and conditions set forth in Northern's FERC Gas Tariff, as
amended from time to time.
8. The Parties agree that the pipeline pressure existing at the
subject interconnect site may vary from time to time in accordance with the
operational needs and efficiencies of Northern's pipeline system, as such needs
and efficiencies are determined by Northern, in its sole discretion. The
Parties further agree that Northern has no obligation to provide compression
and/or alter its system to enable Continental to receive or deliver natural gas
from or to Northern's system under this Agreement or the Related Agreements.
9. (a) NORTHERN WILL PROTECT, INDEMNIFY AND SAVE HARMLESS
CONTINENTAL, ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND REPRESENTATIVES
FROM AND AGAINST THAT PORTION OF THE LIABILITIES, LOSSES, CLAIMS, DAMAGES,
PENALTIES, CAUSES OF ACTION, SUITS (INCLUDING SUITS FOR PERSONAL INJURIES OR
DEATH AND INCLUDING REASONABLE
3
<PAGE> 4
ATTORNEY'S FEES AND EXPENSES) CAUSED OR CONTRIBUTED TO BY THE NEGLIGENCE OF
NORTHERN OR ITS AGENTS ARISING OUT OF OR IN CONNECTION WITH ITS OBLIGATION TO
OPERATE THE INTERCONNECT FACILITIES HEREUNDER, AND WILL PAY ANY JUDGMENT OF ANY
NATURE RENDERED AGAINST SUCH PERSONS FOR SUCH INJURIES OR DAMAGES DUE TO OR
ARISING OUT OF OR IN CONNECTION WITH SUCH NEGLIGENCE OF NORTHERN OR ITS AGENTS.
CONTINENTAL WILL PROTECT, INDEMNIFY AND SAVE HARMLESS NORTHERN, ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS AND REPRESENTATIVES FROM AND AGAINST THAT PORTION
OF THE LIABILITIES, LOSSES, CLAIMS, DAMAGES, PENALTIES, CAUSES OF ACTION, SUITS
(INCLUDING SUITS FOR PERSONAL INJURIES OR DEATH AND INCLUDING REASONABLE
ATTORNEY'S FEES AND EXPENSES) CAUSED OR CONTRIBUTED TO OR BY THE NEGLIGENCE OF
CONTINENTAL OR ITS AGENTS ARISING OUT OF OR IN CONNECTION WITH ITS OBLIGATIONS
HEREUNDER, AND WILL PAY ANY JUDGMENT OF ANY NATURE RENDERED AGAINST SUCH
PERSONS FOR SUCH INJURIES OR DAMAGES DUE TO OR ARISING OUT OF OR IN CONNECTION
WITH SUCH NEGLIGENCE OF CONTINENTAL OR ITS AGENTS.
(b) If any liability, loss, claim, damage, penalty, cause
of action or suit arises from the joint negligence of Northern and Continental,
each Party's responsibility for its portion of the liability, loss, claim,
damage, penalty, cause of action or suit will be as determined in accordance
with applicable Texas law.
4
<PAGE> 5
(c) NOTWITHSTANDING ANYTHING STATED TO THE CONTRARY
HEREIN WITH RESPECT TO THE OPERATION OF THE INTERCONNECT FACILITIES BY
NORTHERN, NORTHERN SHALL INDEMNIFY AND HOLD CONTINENTAL HARMLESS FROM AND
AGAINST ANY AND ALL FINES AND PENALTIES WHICH ARE IMPOSED AS A RESULT OF
NORTHERN'S FAILURE TO COMPLY WITH THE REQUIREMENTS OF ALL APPLICABLE VALID
LAWS, RULES AND REGULATIONS OF GOVERNMENTAL BODIES HAVING JURISDICTION;
PROVIDED, HOWEVER, THAT NORTHERN SHALL HAVE NO OBLIGATION TO INDEMNIFY
CONTINENTAL AS PROVIDED HEREIN IF SUCH FINE OR PENALTY ARISES OUT OF THE
DESIGN, CONSTRUCTION AND/OR INSTALLATION OF THE INTERCONNECT FACILITIES, AND
NOT NORTHERN'S ERROR OR IF SUCH ERROR IS CONTINENTAL'S.
(d) If any provision of this Paragraph 9 or the
application thereof shall to any extent be rendered invalid or unenforceable,
the remainder of the paragraph shall not be affected thereby, it being intended
and agreed that this indemnity shall be construed and enforced to the fullest
extent permitted by applicable Texas law.
10. The Parties specifically recognize that performance under this
Agreement is subject to all valid laws, rules, judgments, regulations and
orders of courts or regulatory bodies that have jurisdiction. This Agreement is
subject to the receipt of any necessary regulatory approval, in form and
substance satisfactory to both Parties.
11. The provisions of this Agreement shall extend to the Parties
and to their successors, designees and assigns.
5
<PAGE> 6
12. This Agreement contains the entire agreement between the
Parties regarding the subject matter hereof, and there are no oral promises,
agreements, or warranties affecting it.
13. If any provision of this Agreement is declared invalid or
unenforceable, the remaining provisions shall not be affected. The waiver by
either Party of any default of the other Party under this Agreement shall not
operate as a waiver of any future default, whether of like or different
character or nature.
14. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with, the substantive law of the State
of Texas, excluding any conflict of laws principles.
15. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY
LOST OR PROSPECTIVE PROFITS OR ANY OTHER SPECIAL, PUNITIVE, EXEMPLARY,
CONSEQUENTIAL, INCIDENTAL OR INDIRECT LOSSES OR DAMAGES (IN TORT, CONTRACT OR
OTHERWISE) UNDER OR IN RESPECT OF THIS AGREEMENT OR FOR ANY FAILURE OF
PERFORMANCE RELATED HERETO.
16. In the event of either Party being rendered unable, wholly or
in part, by force majeure to carry out its obligations under the Agreement,
except payment of money, it is agreed that upon such Party giving notice and
reasonably full particulars of such force majeure in writing or by telegraph,
telefax, or telephone followed by written confirmation to the other Party
within a reasonable time after the occurrence of the cause relied on, then the
obligations of the Party giving such notice, so far as it is affected by such
force majeure, shall be suspended during the continuance of any inability so
caused, but for no longer period, and such cause shall so far as possible be
remedied with all reasonable dispatch. For the purposes of this Agreement, the
definition of Force Majeure is the same as that set forth in Northern's FERC
Gas Tariff.
6
<PAGE> 7
17. Any Notice, request or demand made pursuant to this Agreement
shall be in writing and shall be directed to such Party at the Address given
below or to such other address as the Party may designate from time to time.
Notice sent personally shall be deemed to have been given upon written
confirmation of receipt; notice transmitted by postage prepaid/registered mail
shall be deemed to have been given on the date of receipt; notice by overnight
mail or courier shall be deemed to have been received two business days after
it was sent or such earlier time as is confirmed by the receiving Party; notice
sent by facsimile shall be deemed to have been received by the close of the
business day following the day on which it was transmitted or such earlier time
as is confirmed by the receiving Party. The Parties addresses are:
Northern Natural Gas Company Continental Natural Gas, Inc.
P.O. Box 1188 1400 Boston Building, Suite 500
Houston, TX 77251-1188 1412 S. Boston
Telephone (713) 853-3084 Tulsa, Oklahoma 74119
Telefax: (713) 646-8000 Telephone (918) 852-4700
Telefax: (918) 560-4900
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed in duplicate originals as of the date first hereinabove written.
"NORTHERN" "CONTINENTAL"
NORTHERN NATURAL GAS COMPANY CONTINENTAL NATURAL GAS, INC.
By: /s/ By: /s/
--------------------------- --------------------------------
Title: /s/ Title: /s/
------------------------ -----------------------------
Date: /s/ Date: /s/
------------------------- ------------------------------
7
<PAGE> 1
EXHIBIT 10.24
ENRON
NORTHERN NATURAL GAS COMPANY
P. O. Box 1188 Houston, Texas 77251-1188 (713) 853-6161
February 16, 1996
Mr. Scott Longmore
Continental Natural Gas, Inc.
1400 Boston Building, Suite 500
1412 S. Boston
Tulsa, Oklahoma 74119
Re: Amendment to CR#101125
Northern Natural Gas Company (Northern) and Continental Natural Gas, Inc.
(Continental) are Parties to a Firm Throughput Service Agreement (CR#101125)
executed simultaneously herewith. Northern and Continental hereby agree to
amend CR#101125 as stated herein:
1. Rate. The commodity and demand rates stated in CR#101125 shall be
superseded by the following combined discounted commodity and demand
rate, which rate shall be applicable to transportation from the
Primary Receipt Points to the Primary Delivery Points designated in
CR#101125: $0.11 per MMBtu ("combined discount rate"). This combined
discount rate is based on 100% load factor and includes all applicable
surcharges, if any. Northern reserves the right to allocate the
combined discount rate between commodity and demand components
exclusive of surcharges, such that the combined discount rate shall
always equal $0.11 per MMBTU based on 100% load factor utilization.
Continental agrees to pay Northern the rate stated herein on the
contractual MDQ, irrespective of the amount of gas actually flowed by
Continental on a daily basis.
2. Term. The term of the above stated combined discount rate shall be
three hundred sixty-four (364) days from the date initial deliveries
are made under CR#101125. At the expiration of such period the rates
applicable to service provided under CR#101125 shall become Northern's
applicable tariff rates, as amended from time to time.
3. Fuel. In addition to the above stated combined discount rate,
Continental shall pay Northern the applicable fuel rate set forth in
Northern's FERC Gas Tariff, as amended from time to time.
4. FERC. If it is determined, as a result of any decision or regulation
issued by the FERC or other administrative agency or court of
competent jurisdiction: (i) that any discount provided to Continental
by Northern would, in effect, require Northern to provide similar
discounts to other shippers or that the providing of such discounted
rates to Continental provides Continental an undue preference or would
subject other shippers to undue discrimination; or (ii) that Northern
is required to allocate costs to the service provided hereunder or
recognize revenue as if it were charging rates in excess of the
combined discount rate provided for herein; Northern and Continental
agree to renegotiate the rate stated herein such that both parties
achieve the same economic value as contemplated in this
transportation.
Part of the Enron Group of Energy Companies
<PAGE> 2
EXHIBIT 3
Firm Throughput Service Agreement
Rate Schedule TFX
Shipper's Name and Address for Notices and Invoices: Date: January 26, 1996
Continental Natural Gas Incorporated
Boston Bldg.
1412 S. Boston
Tulsa, OK 74119
Attn: Gas Control
Address for Invoice
Continental Natural Gas Incorporated
Boston Bldg.
1412 S. Boston
Tulsa, OK 74119
Attn: Accounts Payable
Contract No: 101125
Term: This Agreement shall become effective on March 1, 1996, or upon
completion of construction of facilities at CNG A-line (S18, T13S,
R26E, Beaver County, OK), whichever is later, for a term of 364 days.
Rates shall be Northern's maximum rates and charges plus all applicable
surcharges in effect from time to time under the applicable Rate Schedule on
file with the Commission unless otherwise agreed to by the parties in writing.
This transportation shall be provided pursuant to Subpart G of Part 284 of the
Federal Energy Regulatory Commission's ("Commission") regulations.
The contract maximum daily quantities and primary receipt and delivery points
are set forth on Appendix A, and if necessary, Appendix B.
If made available by Shipper, Northern agrees to receive and deliver thermally
equivalent volumes of natural gas as set forth in this Agreement.
Other:
-----------------------------------------------------
Any notice, statement, or bill provided for in this Agreement shall be in
writing and shall be considered as having been given if delivered personally,
or if mailed by United States mail, postage prepaid, or if sent by express
mail, overnight delivery, telex, telecopy or other mutually agreeable means of
electronic transmission, to Shipper when sent to the address set forth on this
Agreement and to Northern when sent to the following:
<PAGE> 3
All Notices/Accounting Matters: Payments: Northern Natural Gas Company
Northern Natural Gas Company Citibank N.A.
P.O. Box 1188 399 Park Avenue
Houston, Texas 77251-1188 Account No. 4049-8026
Attn: Market Services New York, New York 10043
This Agreement shall incorporate and in all respects shall be subject to the
"General Terms and Conditions" and the applicable Rate Schedule(s) set forth in
Northern's FERC Gas Tariff, and may be revised from time to time. Northern may
file and seek Commission approval under Section 4 of the Natural Gas Act (NGA)
at any time and from time to time change any rates, charges or other provisions
set forth in the applicable Rate Schedule(s) and the "GENERAL TERMS AND
CONDITIONS" in Northern's FERC Gas Tariff, and Northern shall have the right to
place such changes in effect in accordance with the NGA, and this Throughput
Service Agreement shall be deemed to include such changes and any changes which
become effective by operation of law and Commission Order, without prejudice to
Shipper's right to protest the same.
Northern Natural Gas Company Continental Natural Gas Incorporated
By: /s/ By: /s/
--------------------------- --------------------------------
Title: /s/ Title: /s/
------------------------ -----------------------------
Date: /s/ Date: /s/
------------------------- ------------------------------
2
<PAGE> 1
EXHIBIT 10.25
INTERRUPTIBLE TRANSPORTATION SERVICE AGREEMENT
RATE SCHEDULE IT-1
This Interruptible Transportation Service Agreement ("Agreement") by and
between Northern Natural Gas Company, a Delaware Corporation ("Northern"), and
Continental Natural Gas, Inc., a Marketer ("Shipper"), covering the
transportation of natural gas on an interruptible basis by Northern for Shipper
on behalf of N/A , a _______________, as more particularly described
herein, is entered into in accordance with the following terms and conditions:
1. This transportation service shall be provided pursuant to Subpart G of
Part 284 of the Federal Energy Regulatory Commission's ("Commission" or
"F.E.R.C.") regulations.
2. INTERRUPTIBLE TRANSPORTATION QUANTITY: Up to 32,000 MMBtu per day.
3. TERM: This Agreement shall become effective on the date of initial
delivery and shall continue in full force and effect for a primary term
of One (1) year and month to month thereafter, unless and until
terminated by either party after the primary term upon thirty (30) days'
prior written notice to the other party. Initial delivery hereunder
shall not commence until this Agreement is executed and received by
Northern. Notwithstanding, should Northern at any time in its sole
discretion elect to terminate, on a non-discriminatory basis, all
transportation services commenced on or after October 9, 1985, pursuant
to Part 284 of the Commission's Regulations, then Northern may terminate
this agreement upon five (5) days' written notice to Shipper.
4. RATE: Unless Northern agrees in writing to a lower rate, Shipper shall
pay Northern each month for transportation service rendered hereunder of
the maximum rates and charges in effect from time to time under Rate
Schedule IT-1, or any effective superseding rate schedule on file with
the Commission or any successor thereto.
Addresses for Shipper:
FOR NOTICES FOR INVOICES
----------- ------------
Continental Natural Gas, Inc. Continental Natural Gas, Inc.
P.O. Box 21470 P.O. Box 21470
Tulsa, OK 74121 Tulsa, OK 74121
Attn: Diane Lawler Attn: Diane Lawler
<PAGE> 2
5. When this Agreement become effective, it shall supersede and cancel the
following transportation service agreement(s) between the parties
hereto: None
6. ADDITIONAL TERMS AND CONDITIONS: The additional Terms and Conditions
listed on the reverse side hereof and the Appendices incorporated herein
are made a part of this Agreement.
7. OTHER PROVISIONS: See Appendices attached hereto which are hereby made
a part hereof and incorporated herein.
7.1 Shipper understands and acknowledges that Shipper is responsible
for ensuring that the upstream transporting pipeline(s) which
deliver(s) gas for Shipper to Northern at the Point(s) of Receipt
has capacity on its system to deliver gas for Shipper's account,
and that the downstream party(s) which receive(s) gas from
Northern at the Point(s) of Delivery hereunder for Shipper's
account has capacity on its system to receive such gas.
Accordingly, Shipper shall remain responsible under this
Agreement for all charges set forth in Section 11-3, "Applicable
Rate Schedule, Incorporation by Reference" of this Agreement,
notwithstanding Shipper's inability to cause gas to be delivered
to Northern at the Point(s) of Receipt and/or received by the
downstream party(s) at the Point(s) of Delivery hereunder.
This Interruptible Transportation Service Agreement when executed by
Shipper constitutes a contract with Northern Natural Gas Company, for
the transportation of natural gas, subject to the terms and conditions
appearing on the face and reverse side hereof and the attached
Appendices.
SHIPPER:
CONTINENTAL NATURAL GAS,INC. NORTHERN NATURAL GAS COMPANY
By By
------------------------- ---------------------------
TITLE TITLE
---------------------- ------------------------
Date Executed: Date Executed:
------------- ---------------
Attest:
--------------------
8. QUANTITIES OF GAS TO BE TRANSPORTED
8.1 Northern agrees to receive and transport for Shipper, on an
interruptible basis, quantities of natural gas up to
2
<PAGE> 3
the Interruptible Transportation Quantity set forth in Section 2
of this Agreement.
8.2 Northern agrees to receive and transport natural gas for Shipper
in excess of the Interruptible Transportation Quantity provided
that Northern has determined that it has sufficient capacity to
transport such excess volumes.
9. POINT(S) OF RECEIPT, DELIVERY AND PRESSURES
9.1 Shipper agrees to tender, or cause to be tendered, gas for
transportation at the Point(s) of Receipt identified in Appendix
"A" at pressures sufficient to effect delivery into Northern's
facilities, as such pressure may vary from time to time, not to
exceed the maximum allowable operating pressure, provided
further, Northern shall have no obligation to provide compression
and/or alter its system operation to enable Shipper to effectuate
said deliveries.
9.2 Northern agrees to transport and deliver gas to Shipper, or for
Shipper's account, at the Point(s) of Delivery identified in
Appendix "A", provided further, Northern shall have no obligation
to provide compression and/or alter its system operation to
effectuate said deliveries.
10. TERMINATION
10.1 Notwithstanding the "Term" set forth in paragraph 3 on the face
of this Agreement, this Agreement shall terminate upon written
notice by Northern to Shipper within forty-five (45) days from
the effective date of this Agreement if Northern determines that
incomplete or inaccurate information has been submitted to
effectuate this transportation service which causes such service
not to comply with the Commission's regulations.
10.2 Termination of this Agreement shall not relieve Northern and
Shipper of the obligation to correct any imbalances hereunder, or
Shipper to pay money due hereunder to Northern.
11. GENERAL
11.1 This Agreement in all respects shall be subject to the provisions
of Rate Schedule IT-1, as well as the General Terms and
Conditions of Rate Schedule FT-1, if applicable, contained in
Northern's F.E.R.C. Gas Tariff, Third Revised Volume No. 1, as
may be revised from time to time.
3
<PAGE> 4
11.2 Northern's IT-1 Rate Schedule and the General Terms and
Conditions set forth in Northern's FT-1 Rate Schedule, as may be
revised from time to time, are hereby incorporated by reference
and made a part hereof.
11.3 Northern shall have the right to file and seek Commission
approval under Section 4 of the Natural Gas Act ("NGA") to change
any rates, charges or other provisions set forth in Rate Schedule
IT-1, or any superseding rate schedule, and to place such charges
in effect in accordance with Section 4(c) of the NGA. This
Agreement shall be deemed to include such charges and any changes
which become effective by operation of law and F.E.R.C. Order,
without prejudice to Shipper's right to protest the same.
12. NOTICES
12.1 Any notice, statement, or bill provided for in this Agreement
shall be in writing and shall be considered as having been given if
delivered personally or if mailed by United States mail, postage
prepaid, or if sent by express mail, overnight delivery, telex, telecopy
or any other mutually agreeable means of electronic transmission.
a. To Shipper when sent to the address set forth on the face of this
agreement.
b. To Northern:
Accounting Matters: Northern Natural Gas Company
P.O. Box 1188
Houston, Texas 77251-1188
ATTN: Gas Accounting Dept.
All Notices: Northern Natural Gas Company
P.O. Box 1188
Houston, Texas 77251-1188
ATTN: Transportation Services
Administration
Payments: Northern Natural Gas Company
Citibank, N.A.
399 Park Avenue
Account No. 4049-8026
New York, New York 10043
12.2 Either party may notify the other in writing of the address of the
person or persons who shall have authority to act for such party in
connection with the operation of pipelines, facilities, wells, and
leases in connection with this Agreement, and operating notices shall
thereafter be served upon such person or persons.
4
<PAGE> 5
SECTION 7. OTHER PROVISIONS
7.2 Subject to the terms of this Agreement as it may be amended from time to
time, Shipper may deliver or cause to be delivered to Northern, at the
suction side of Northern's Fort Buford Compressor Station located in
Section 4, Township 151 North, Range 103 West, McKenzie County, North
Dakota ("Fort Buford"), all or a portion of the interruptible quantities
of gas under this Agreement that Shipper desires Northern to compress.
Northern agrees to accept and compress, on an interruptible basis, such
gas delivered to it by Shipper under this Agreement, and to redeliver
such gas for the account of Shipper to Northern Border Pipeline Company
("NBPL") at the discharge side of Northern's Fort Buford Compressor
Station for subsequent transportation by NBPL. For the points listed on
Appendix "A", Shipper agrees to pay the transportation rates set forth
in Northern's F.E.R.C. Gas Tariff which includes the charge for
compression service at Fort Buford; provided, however, in the event
Shipper's gas compressed hereunder is not delivered to Northern for
transportation downstream of Fort Buford, Shipper agrees to pay
Northern's applicable rate for the compression service at Fort Buford.
5
<PAGE> 6
APPENDIX A
TRANSPORTATION SERVICE AGREEMENT UNDER THE IT-1 RATE SCHEDULE
SHIPPER: Continental Natural Gas, inc.
DATE: August 1, 1992 SUPERSEDED APPENDIX DATED: DNA*
Part I. Delivery Point Legal Descriptions
* Does Not Apply
6
<PAGE> 1
EXHIBIT 10.26
Throughput Request No. 12351
(for internal use only)
Throughput Agreement No. 22224
Effective Date: ______________
INTERRUPTIBLE THROUGHPUT SERVICE AGREEMENT
Rate Schedule TI
THIS INTERRUPTIBLE THROUGHPUT SERVICE AGREEMENT ("TI Agreement") by and
between Northern Natural Gas Company, a Delaware Corporation ("Northern"), and
Continental Natural Gas, Inc., a Marketer ("Shipper"), covering the
transportation of natural gas on an interruptible basis by Northern for Shipper
as more particularly described herein is entered into in accordance with the
following terms and conditions:
1. This transportation shall be provided pursuant to Subpart G of Part 284
of the Federal Energy Regulatory Commission's ("Commission") regulations.
2. INTERRUPTIBLE MAXIMUM DAILY QUANTITY ("MDQ"): Up to 40,000 MMBTU per
day.
3. TERM. Initial delivery hereunder shall not commence until this TI
Agreement is executed by Shipper and the executed Agreement is received by
Northern. This TI Agreement shall become effective upon the execution of both
parties and shall continue for a term of one (1) year and month to month
thereafter, unless and until terminated upon thirty (30) days' prior written
notice to the other party.
<PAGE> 2
4. RATE: Unless Northern agrees in writing to a lower rate, Shipper shall
pay Northern each month for transportation service rendered hereunder at the
maximum rates or charges in effect from time to time under Rate Schedule TI, or
any effective superseding rate schedule on file with the Commission.
The out-of-balance transportation rate for resolving imbalances shall be
the highest path rate actually used by Shipper during the billing month.
5. ADDRESS FOR NOTICES TO SHIPPER:
Continental Natural Gas, Inc.
P. O. Box 21470
Tulsa, OK 74121
ATTN: Diane Lawler
6. ADDRESS FOR INVOICES TO SHIPPER:
Continental Natural Gas, Inc.
P. O. Box 21470
Tulsa, OK 74121
ATTN: Diane Lawler
7. This Agreement supersedes and cancels the following Throughput Service
Agreement(s) between the parties hereto: NONE
8. OTHER PROVISIONS:
8.1 Subject to the terms of this Agreement as it may be amended from time to
time, Shipper may deliver or cause to be delivered to Northern, at the
suction side of Northern's Fort Buford Compressor Station located in
Section 4, Township 151 North, Range 103 West, McKenzie County, North
Dakota ("Fort
2
<PAGE> 3
Buford"), all or a portion of the quantities of gas under this Agreement
that Shipper desires Northern to compress. Northern agrees to accept
and compress, on an interruptible basis, such gas delivered to it by
Shipper under this Agreement, and to redeliver such gas for the account
of Shipper to Northern Border Pipeline Company ("NBPL") at the discharge
side of Northern's Fort Buford Compressor Station for subsequent
transportation by NBPL. Shipper agrees to pay the maximum
transportation rate(s) as set forth in the tariff, which includes the
charge for compression service at Fort Buford. Shipper shall not have
the right to use this agreement solely for compression service at Fort
Buford. Shipper shall bear a fuel use charge of 1.25% of gas quantities
delivered to Northern at the suction side of Fort Buford. Shipper shall
be required to nominate, in accordance with Section 3, "Nominations" of
Subpart A, of the General Terms and Conditions of this Tariff, NNG/NBPL
Fort Buford suction/discharge and those quantities it desires Northern
to compress at Fort Buford under this Agreement.
8.2 Shipper understands and acknowledges that Shipper is responsible for
ensuring that the upstream transporting pipeline which delivers gas for
Shipper to Northern at the Point(s) of Receipt has capacity on its
system to effectuate deliveries for Shipper's account, and that the
downstream party which receives gas from Northern at the Point(s) of
Delivery hereunder for Shipper's account has capacity on its
3
<PAGE> 4
system to receive such gas. Accordingly, Shipper shall remain
responsible under this Agreement for all charges set forth in Section 4,
"General" of this Agreement, notwithstanding Shipper's inability to
cause gas to be delivered to Northern at the Point(s) of Receipt and/or
received by the downstream party at the Point(s) of Delivery hereunder.
9. ADDITIONAL TERMS AND CONDITIONS: The additional Terms and Conditions
attached hereto and Appendix A are incorporated herein by reference and made a
part of this Agreement.
This TI Agreement constitutes a contract with Northern Natural Gas
Company, for the transportation of natural gas, subject to the terms and
conditions attached hereto and Appendix "A".
NORTHERN SHIPPER
NORTHERN NATURAL GAS COMPANY CONTINENTAL NATURAL GAS INC.
By: By:
----------------------------- ----------------------------------
Title: Title:
-------------------------- -------------------------------
Attest or Witness:
--------------------------------------
Date Executed: Date Executed:
------------------ -----------------------
4
<PAGE> 5
TERMS AND CONDITIONS
SECTION 1. MAXIMUM DAILY QUANTITY
1.1 If made available by Shipper, Northern agrees to receive and deliver
thermally equivalent volumes of natural gas on an interruptible basis up
to the MDQ as set forth on the face of this Agreement.
1.2 Northern agrees to transport overrun volumes and throughput peaking
volumes as defined in Section 5, "Overrun and Throughput Peaking," of
Rate Schedule TI for Shipper on an interruptible basis provided that
Northern has determined that it has sufficient capacity to transport
such volumes. Such transportation of interruptible overrun volumes and
throughput peaking volumes shall be in accordance with all terms and
conditions of Northern's FERC Gas Tariff and Rate Schedule TI.
SECTION 2. RECEIPT AND DELIVERY
2.1 Shipper agrees to tender, or cause to be tendered, gas for
transportation at the Point(s) of Receipt identified in Appendix "A" at
pressure sufficient to effect delivery into Northern's facilities, as
such pressure may vary from time to time, not to exceed the maximum
allowable operating pressure.
2.2 Northern agrees to transport and deliver gas to Shipper, or for
Shipper's account, on an interruptible basis at the Point(s) of Delivery
identified in Appendix "A".
SECTION 3. TERMINATION
3.1 Notwithstanding the "Term" set forth in paragraph 3 on the face of this
Agreement, this Agreement shall terminate upon written notice by
Northern to Shipper within forty-five (45) days from the effective date
of this Agreement if Northern determines that incomplete or inaccurate
information has been submitted to effectuate this transportation service
which causes such service not to comply with the Commission regulations;
provided, however, Shipper shall have five (5) work days from the date
of the notice to correct the information to keep the Agreement in
effect.
3.2 Termination of this Agreement shall not relieve Northern and Shipper of
the obligation to correct any volume imbalances hereunder or Shipper to
pay money due hereunder to Northern.
5
<PAGE> 6
SECTION 4. GENERAL
4.1 This Agreement in all respects shall be subject to the provisions of
Rate Schedule TI and the "GENERAL TERMS AND CONDITIONS" contained in
Northern's FERC Gas Tariff, as may be revised from time to time.
4.2 Northern's Rate Schedule TI and the "GENERAL TERMS AND CONDITIONS" set
forth in Northern's FERC Gas Tariff, as may be revised from time to
time, are hereby incorporated by reference and made a part hereof.
4.3 Northern may file and seek Commission approval under Section 4 of the
Natural Gas Act ("NGA") at any time and from time to time to change any
rates, charges or other provisions set forth in Rate Schedule TI and the
"GENERAL TERMS AND CONDITIONS" in Northern's FERC Gas Tariff, and
Northern shall have the right to place such changes in effect in
accordance with the NGA, and this Throughput Service Agreement shall be
deemed to include such changes and any changes which become effective by
operation and law and Commission Order, without prejudice to Shipper's
right to protest the same.
SECTION 5. NOTICES
5.1 Any notice, statement, or bill provided for in this Agreement shall be
in writing and shall be considered as having been given if delivered
personally, or if mailed by United States Mail, postage prepaid, or if
sent by express mail, overnight delivery, telex, telecopy or other
mutually agreeable means of electronic transmission, to Shipper when
sent to the address set forth on the face of this Agreement and to
Northern when sent to the following:
Accounting Matters: Northern Natural Gas Company
P.O. Box 1188
Houston, Texas 77251-1188
ATTN: Customer Service Department
All Notices: Northern Natural Gas Company
P.O. Box 1188
Houston, Texas 77251-1188
ATTN: Customer Services,
Contract Control (EB 4108)
Payments: Northern Natural Gas Company
Citibank, N.A.
399 Park Avenue
Account No. 4049-8026
New York, New York 10043
6
<PAGE> 7
APPENDIX A
INTERRUPTIBLE TRANSPORTATION SERVICE AGREEMENT
TI Rate Schedule
Shipper: Continental Natural Gas, Inc.
Date: _________________ Supersedes Appendix Dated: N/A
Maximum Daily Quantity: 40,000 MMBtu per day
RECEIPT AND DELIVERY POINT LEGAL DESCRIPTIONS
Part I. (See attached)
1/ For purposes of this Appendix A, any valid receipt point on Northern's
system can be utilized as a receipt point subject to the terms and
conditions of Rate Schedule TI.
7
<PAGE> 1
EXHIBIT 11.1
Continental Natural Gas, Inc. and Subsidiaries
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
----------------------------------------- ----------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Income before extraordinary item $4,756,112 $5,109,951 $7,620,280 $1,367,611 $ 986,528
Preferred dividends (47,250) (47,250) (587,250) (150,000) (111,750)
---------- ---------- ---------- ---------- ----------
Adjusted income before extraordinary item $4,708,862 $5,062,701 $7,033,030 $1,217,611 $ 874,778
---------- ---------- ---------- ---------- ----------
Net income 4,756,112 5,109,951 7,193,060 1,367,611 986,528
Preferred dividends (47,250) (47,250) (587,250) (150,000) (111,750)
---------- ---------- ---------- ---------- ----------
Adjusted net income $4,708,862 $5,062,701 $6,605,810 $1,217,611 $ 874,778
---------- ---------- ---------- ---------- ----------
Reconciliation of weighted average number of shares
outstanding to amount used in primary earnings per
share computation:
Weighted average number of shares outstanding 3,151,156 3,151,156 3,536,136 3,305,110 3,613,153
Dilutive effect of assumed exercise of options and
warrants 64,192 34,272
---------- ---------- ---------- --------- ----------
Weighted average number of common and common
equivalent shares outstanding 3,215,349 3,185,428 3,536,136 3,305,110 3,613,153
---------- ---------- ---------- --------- ----------
Primary Earnings Per Share:
Income before extraordinary item $ 1.46 $ 1.59 $ 1.99 $ 0.37 $ 0.24
---------- ---------- ---------- ---------- ----------
Net income $ 1.46 $ 1.59 $ 1.87 $ 0.37 $ 0.24
---------- ---------- ---------- ---------- ----------
FULLY DILUTED EARNINGS PER SHARE
Income before extraordinary item 4,756,112 5,109,951 7,620,280 1,367,611 986,528
Preferred dividends on nonconvertible preferred
stock (47,250) (47,250)
---------- ---------- ---------- ---------- ----------
Adjusted income before extraordinary item $4,708,862 $5,062,701 $7,620,280 $1,367,611 $ 986,528
---------- ---------- ---------- ---------- ----------
Net income 4,756,112 5,109,951 7,193,060 1,367,611 986,528
Preferred dividends on nonconvertible
preferred stock (47,250) (47,250)
---------- ---------- ---------- ---------- ---------
Adjusted net income 4,708,862 5,062,701 7,193,060 1,367,611 986,528
---------- ---------- ---------- --------- ---------
Reconciliation of weighted average number of shares
outstanding to amount used in fully diluted earnings
per share computation:
Weighted average number of shares outstanding 3,151,156 3,151,156 3,536,176 3,305,110 3,613,153
Dilutive effect of assumed conversion of preferred
stock 770,721 787,857 586,847
Dilutive effect of assumed exercise of options and
warrants 91,121 35,088 159,394 62,425 192,986
---------- ---------- ---------- ---------- ----------
Weighted average number of common and common
equivalent shares outstanding 3,242,277 3,186,244 4,466,291 4,155,391 4,392,986
---------- ---------- ---------- ---------- ----------
FULLY DILUTED EARNINGS PER SHARE:
Income before extraordinary item $ 1.45 $ 1.59 $ 1.71 $ 0.33 $ $0.22
---------- ---------- ---------- ---------- ----------
Net income $ 1.45 $ 1.59 $ 1.61 $ 0.33 $ $0.22
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE> 1
EXHIBIT 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Continental Natural Gas, Inc.
Registration on Form S-1
We are aware that our report dated June 10, 1997 on our review of interim
financial information of Continental Natural Gas, Inc. for the periods ended
March 31, 1997 and 1996 is included in this registration statement. Pursuant to
Rule 436(c) under the Securities Act of 1933, this report should not be
considered a part of the registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND L.L.P.
June 26, 1997
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-25719) of our report dated March 21, 1997 on our audits of the
consolidated financial statements of Continental Natural Gas, Inc. and
Subsidiaries. We also consent to the reference to our firm under the caption
"Independent Public Accountants."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
June 26, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF HART PUBLICATIONS, INC.
We hereby consent to the use in this Prospectus constituting party of
the Registration Statement on Form S-1 of Continental Natural Gas, Inc. ("CNG")
of a summary of surveys published by our firm in April, 1996 (Vol. 2 No. 4) and
the January, 1997 (Vol. 3 No. 1) issues of Hart's Report on Gas Customer
Satisfaction.
HART PUBLICATIONS, INC.
By: /s/ STEPHEN P. MUNRO
-----------------------------------
Stephen P. Munro
Associate Publisher
Rockville, Maryland
June 13, 1997
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