_________________________________________________________________
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from . . . . . . . to . . . . . . . .
Commission File Number: 0-8898
MIDCOAST ENERGY RESOURCES, INC.
(Name of small business issuer in its charter)
Nevada 76-0378638
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1100 Louisiana, Suite 2950
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (713) 650-8900
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value $.01 Per Share
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____ Check if there
is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X
] The revenues for the fiscal year ended December 31, 1995 were $
15,622,290 The aggregate market value of the Common Stock, par
value $.01 per share, held by non-affiliates of Registrant as of
March 28, 1996 was approximately $286,584. For the purposes of the
determination of the above stated amount only, all directors and
executive officers of the Registrant are presumed to be affiliates.
Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13, or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed by
a court. Yes X No ____
The number of shares of Common Stock, par value $.01 per share,
outstanding as of March 28, 1996 was 328,557.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement to be filed
with the Commission on or before April 30, 1995, are incorporated
by reference into Part III of this Annual Report on Form 10-KSB.
__________________________________________________________________
TABLE CONTENTS
Part I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a
Vote of Security Holders
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
Item 6. Management's Discussion and Analysis of
Results of Operations
Item 7. Financial Statements
Item 8. Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure
Part III
Item 9. Directors, Executive Officers, Promoters
and Control Persons
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial
Owners and Management
Item 12. Certain Relationships and Related
Transactions
Part IV
Item 13. Exhibits and Reports on Form 8-K .
PART I
ITEM 1. BUSINESS
General
Midcoast Energy Resources, Inc., its subsidiaries and affiliate
companies (referred to collectively as the "Company" or
"Midcoast") is primarily engaged in the construction,
acquisition, and operation of pipelines for the end-use,
transmission, and gathering of natural gas, and crude oil.
Twenty-one intrastate pipeline systems are owned or operated by
the Company in Alabama, Alaska, Kansas, Louisiana, New York,
Oklahoma, and Texas. Natural gas marketing operations and oil
and gas production supplement the Companys pipeline business.
The Company became a corporation subject to the Securities and
Exchange Act of 1934, as amended, as a result of its merger with
a publicly-held shell corporation, Nugget Oil Corporation
(Nugget), that had previously filed for protection under
federal bankruptcy laws. The Company was formed on May 11, 1992,
as a Nevada corporation and in September 1992, became the
successor to Nugget through a merger pursuant to the Nugget Plan
of Reorganization (the Plan or the Nugget Plan) as approved
by the United States Bankruptcy Court for the Southern District
of Texas, Corpus Christi Division. The Nugget Plan included the
contribution of a joint venture's assets to the Company by the
owners of the venture. These assets represented substantially all
of the Company's assets upon completion of the merger.
The Company leases its principal executive offices at Suite 2950,
1100 Louisiana Street, Houston, Texas 77002, and its telephone
number is (713) 650-8900.
NATURAL GAS TRANSMISSION AND DISTRIBUTION
General: As of December 31, 1995, the Company owned an interest
in or operated twenty one intrastate pipeline systems in Alabama,
Alaska, Kansas, Louisiana, New York, Oklahoma, and Texas. These
systems consist of approximately 162.3 miles of pipeline.
End-Use: The majority of the Company's revenue is derived from
contracting with industrial end-users or electrical generating
facilities to provide natural gas transportation services to
their facilities through interconnect or by-pass gas pipelines
constructed by the Company. End-use pipelines provide the
Company's customers with a natural gas supply as an alternative
to their current energy source, which are usually local
distribution companies (LDCs). Frequently, the Company is able
to offer its end-use customers rates lower than the customer's
LDC. The Company's contracts with end-user customers typically
provide for the payment of a transportation fee by the customer
based on the volume of gas transported through the Company's
pipeline. The Company also offers its end-use customers gas
marketing services enabling them to purchase their gas supply
from the Company but without any obligation to do so. The
Company strives to structure the terms and transportation fees
for its end-use systems in such a way as to provide an acceptable
rate of return regardless of any gas marketing revenues. Twelve
of the Company's systems are end-use pipelines.
Transmission: The Company's transmission pipelines primarily
receive and deliver natural gas to and from other pipelines, but
may also involve some gathering functions. In September 1995,
the Company significantly expanded its gas transmission pipeline
activities by acquiring Magnolia Pipeline Corporation
("Magnolia") from a subsidiary of The Williams Company, Inc., the
principal asset of which was the Magnolia System, an
approximately 109 mile natural gas transmission line and
compressor station located in central Alabama. The Company owns
two transmission lines.
Gathering. The Company's gas gathering systems typically consist
of a network of small diameter pipelines which collect gas or
crude oil from points near producing wells and transport it to
larger pipelines for further transmission. Gathering systems may
include meters, separators, dehydration facilities, and other
treating equipment owned by the Company or others. The Company
derives revenues from gas gathering systems by transporting gas
or crude oil owned by others through its pipelines for a
transportation fee, by purchasing gas and utilizing its pipelines
to transport the gas to a customer in another location where the
gas is resold or, in certain instances, by purchasing gas and
arranging for the delivery and resale of an equivalent quantity
of gas to a customer not directly served by the Company's
pipelines. Transactions with customers not directly served by
the Company's pipelines are typically accomplished by entering
into agreements whereby the Company exchanges gas in its
pipelines for gas in the pipelines of other transmission
companies. The Company currently owns an interest in or operates
seven gas gathering systems.
Pipeline Acquisition and Disposition
In 1994 and 1995 the Company acquired ownership of, or interests
in, four pipelines, three of which were gathering systems and one
of which was a transmission line. The Company remains actively
engaged in seeking pipeline acquisitions. The Company plans to
evaluate investments in pipelines which involve not only natural
gas, but also liquefied petroleum gas, as well as both
hydrocarbon and non-hydrocarbon finished products, such as
nitrogen. Management believes that more acquisition
opportunities will become available as major pipeline companies
divest systems due to regulatory considerations or need to spin-
off smaller non-strategic systems acquired in connection with
larger acquisitions.
The Company's ability to consummate future acquisitions will
depend on the Company's availability of sufficient capital
resources at the time of the acquisition, to finance the
purchase, and to make any capital improvements and repairs to the
system. New pipeline acquisitions (and newly constructed
systems) may be expected to require additional cash to fund
temporary negative cash flow resulting from the initial
operations of the system and the costs of capital expended for
the newly acquired or constructed system. Additional cash
requirements stemming from the Company's acquisition and
construction activities will likely require a significant amount
of the Company's available sources of capital and liquidity.
Magnolia Acquisition: Effective September 8, 1995, the Company
acquired one hundred-percent (100% ) of the outstanding capital
stock of Magnolia Pipeline Corporation, an Alabama corporation
whose principal asset consists of approximately 109 miles of
6 inch to 24 inch gas pipelines and an approximately 4000
horsepower compressor station, located in central Alabama.
Magnolia was purchased from a subsidiary of The Williams
Companies, Inc. for cash consideration of $3,200,000. The
Magnolia system is primarily a transmission pipeline with
interconnections to one major interstate pipeline and one major
intrastate pipeline. The system also includes some gathering
lines which connect coal-seam gas production in the Black Warrior
Basin with the Magnolia system. There is the potential for
several interconnections to other pipelines in the area which
could greatly enhance Magnolia's revenues and which will be
pursued by the Company. See Management Certain Transactions
for information relating to the financing of the Magnolia
acquisition. See also "Properties."
Five Flags Acquisition and Disposition: In September 1995, the
Company and Rainbow Investments Company ("Rainbow"), an affiliate
owned by an officer and director of the Company, jointly acquired
one-hundred percent (100%) of the outstanding capital stock of
Five Flags Pipe Line Company ("Five Flags") from Five Flags
Holding Company. Total cash consideration of $2,052,000 was paid
to Five Flags Holding Company, of which the Company's share was
$1,872,450 for 91.25% of Five Flags capital stock. In October
1995, the Company and Rainbow jointly sold one-hundred percent
(100%) of the capital stock of Five Flags to an unaffiliated
third party for cash consideration of $4,664,865. After retiring
the purchase money note, the net proceeds to the Company from the
sale of Five Flags was $2,183,226.
Construction of New Pipelines
In 1994 and 1995, the Company was involved in the construction of
three pipelines, two of which were end-use systems and one of
which was a gathering system. The Company remains actively
engaged in seeking situations warranting construction of new end-
use and gathering systems. Entering into new construction
projects is no different than the search for new acquisitions,
both endeavors depend on the Company's availability of capital
resources at the time the opportunity arises. Hence, any
significant construction activities will likely limit the
Company's capital resources that may be made available for other
uses at the time the construction project is underway.
Gas Marketing
The Company markets natural gas on the spot market to end-users,
LDCs and other marketers. Generally, gas is purchased under
contracts that contain terms allowing prices to be determined by
prevailing market conditions. Concurrently, the Company resells
the gas at higher prices under sales contracts which are
compatible as to term, price escalation, renegotiation and other
material matters. The Company earns a margin equal to the
difference between the gas purchase price it pays and the sales
price it receives. Gas marketing is characterized by a high
degree of competition and narrow margins. These market
conditions may hinder the Company's ability to continue to expand
this portion of its business.
Oil and Gas Properties
The Company owns minor interests in a number of non-operated
working interests in producing and non-producing oil and gas
properties. For the year ended December 31, 1995, revenues from
the Company's oil and gas properties were less than one-percent
(1%) of its total revenues and at the same date the Company's oil
and gas properties represented less than three percent (3%) of
its total assets. The Company owns interests in 3,605 gross
acres of oil and gas leases on which are located 13 producing
wells. In 1995, the Company acquired a twenty-three percent
(23%) working interest in two leases together covering
approximately 1,700 gross acres in Starr County, Texas on which
are located seven (7) active and two (2) shut-in wells previously
owned by Exxon. The Company anticipates that the operator of the
property may recommend further developmental drilling on the
leases, although the extent, timing and cost to the Company of
any such operations is presently unknown. Although not currently
expected to become a major line of business for the Company,
management expects that acquisition and ownership of non-operated
oil and gas interests will remain a facet of the Company's
business for the foreseeable future.
Markets and Major Customers
The natural gas industry has undergone major transformations,
which have included significant changes in government regulation.
As a consequence, the industry has experienced a marked increase
in competition and volatility in natural gas prices. The result
has been an increase in gas sold directly to end-users by
producers and other nontraditional suppliers, and an increasing
reluctance of end-users to enter into long-term contracts.
Consumers have shown an increased willingness to switch fuels
between gas and oil in response to their relative price
fluctuations, and there is a growing use of gas purchase
contracts that require price adjustments in response to market
conditions.
The Company's single largest customer is a Fortune 500 natural
gas liquids pipeline company. The Company furnishes natural gas,
for fuel to ten turbine pump stations, and a main fractionation
facility of that customer. During the year ended December 31,
1995 the Company derived over ten percent (10%) of its revenues
from Mid-America Pipeline Company and Westlake Petrochemicals
Corporation which accounted for forty percent (40%) and fourteen
percent (14%) of the Company's revenues, respectively.
Gas Supply
The Company has historically purchased substantially all of its
gas from unaffiliated third parties. These purchase contracts
may be affected by factors beyond both the Company's and the gas
suppliers' control such as capacity restraints, temporary
regional supply shortages, and with regard to its gathering
systems, other parties having control over the drilling of new
wells, inability of wells to deliver gas at required pipeline
quality and pressure, and depletion of reserves.
In conjunction with the construction and acquisition of its
gathering systems, evaluations were made of well and reservoir
data furnished by producers to determine the availability of gas
for the systems. Based on those evaluations, the Company's
management determined that independent evaluations of reserves
dedicated to its systems were unnecessary, and such evaluations
were not obtained. Accordingly, the Company does not have
estimates of total reserves dedicated to its systems or the rates
at which such reserves are declining.
The gas transmission operations of the Company are dependent upon
continuing supplies of gas. The volumes of gas being supplied to
the Company's gathering systems from existing wells can be
expected to decline in the future as gas fields are depleted.
Additional gas supplies will be needed to maintain or increase
the gas being transported through some of the Company's systems.
The availability of additional gas supplies is generally
uncertain, principally as a result of increasing demand for gas,
the effect of existing and future governmental regulations on
future exploration for gas, and the amounts of natural gas
transported in interstate and intrastate commerce. There can be
no assurance that additional gas supplies will become available
in areas serviced by the Company's systems or that the Company
will be able to obtain such gas upon favorable terms.
Competition
The gas transmission, gathering and marketing industries are
highly competitive. In marketing gas, the Company has numerous
competitors, including marketing affiliates of interstate
pipelines, the major integrated oil companies, and local and
national gas gatherers, brokers and marketers of widely varying
sizes, financial resources and experience. Local utilities and
distributors of gas are, in some cases, engaged directly, and
through affiliates, in marketing activities that compete with the
Company.
The Company competes against other companies in the transmission,
gathering and marketing businesses for supplies of gas and for
sales customers. Competition for gas supplies is primarily based
on efficiency, reliability, availability of transportation and
the ability to offer a competitive price for the gas.
Competition for customers is primarily based upon reliability and
price of deliverable gas. For customers that have the capability
of using alternative fuels, such as oil and coal, the Company
also competes against companies capable of providing these
alternative fuels at a competitive price.
Government Regulation
Various aspects of the transportation, sale and marketing of
natural gas are subject to or affected by extensive federal
regulation under the Natural Gas Act (NGA), the Natural Gas
Policy Act of 1978 (NGPA), the Natural Gas Wellhead Decontrol
Act of 1989 (Decontrol Act) and regulations promulgated by the
FERC.
Natural Gas Transmission Industry: Historically, interstate
pipeline companies acted as wholesale merchants by purchasing
natural gas from producers, transporting that natural gas from
the fields to their markets, and reselling the natural gas to
local distribution companies and large end-users. Prior to the
enactment of the NGPA in 1978 and the Decontrol Act of 1989, all
sales of natural gas for resale in interstate commerce, including
sales by producers, were subject to the rates and service
jurisdiction of the FERC under the NGA and NGPA. However, as a
result of the NGPA and the Decontrol Act, all so-called first
sales' of natural gas were federally deregulated, thus allowing
all types of non-pipeline and non-local distribution sellers to
market their natural gas free from federal controls. Moreover,
pursuant to Section 311 of the NGPA, the FERC promulgated
regulations by which wholly-intrastate natural gas pipeline
companies could engage in interstate transactions without
becoming subject to the FERC's full rates and service
jurisdiction under the NGA. At the same time, however, the FERC
has retained its traditional jurisdiction over the activities of
interstate pipelines. Thus, under the NGA and NGPA, the
transportation and sale of natural gas by interstate pipeline
companies have been subject to extensive regulation, and the
construction of new facilities, the extension of existing
facilities and the commencement and cessation of sales or
transportation services by pipeline companies generally have
required prior FERC authorization.
Commencing in 1985, the FERC adopted regulatory changes that have
significantly altered the transportation, sale and marketing of
natural gas. These changes were intended to foster competition
in the natural gas industry by, among other things, transforming
the role of the interstate pipeline companies from wholesale
marketers of natural gas to primarily natural gas transporters,
and mandating that interstate pipeline companies provide open and
nondiscriminatory transportation services to all producers,
distributors, marketers and other shippers that seek such
services (so-called "open access" requirements). As an incentive
to cause the interstate pipeline companies to revamp their
services, the FERC also sought to expedite the certification
process for new services, facilities and operations of those
pipeline companies providing "open access" services. Throughout
the early years of this process, the FERC's actions in these
areas were subject to extensive judicial review and generated
significant industry comment and proposals for modification to
existing regulations.
In April 1992, the FERC issued its latest and most comprehensive
restructuring ruling, Order No. 636, a complex regulation that
has had a major impact on natural gas pipeline operations,
services and rates. Among other things, Order No. 636 generally
required each interstate pipeline company to unbundle its
traditional wholesale services and make available on an open and
nondiscriminatory basis numerous constituent services (such as
gathering services, storage services and firm and interruptible
transportation services) and to adopt a new rate making
methodology to determine appropriate rates for those services.
To the extent the pipeline company or its sales affiliate makes
natural gas sales as a merchant in the future, it will do so
pursuant to a blanket sales certificate that puts those entities
in direct competition with all other sellers pursuant to private
contracts; however, pipeline companies were not required by Order
636 to remain merchants of natural gas, and several of the
interstate pipeline companies have elected to become transporters
only. The FERC required that each pipeline company develop the
specific terms of service in individual restructuring proceedings
by means of a compliance filing that set forth the pipeline
company's new, detailed procedures. In subsequent orders, the
FERC largely affirmed the significant features of Order 636 and
denied requests for stay of the implementation of the new rules
pending judicial review. Order 636, as well as the FERC orders
approving the individual pipeline restructuring proceedings, are
the subject of numerous appeals to the United States Courts of
Appeals. The outcome of such proceedings and the ultimate impact
that they may have on the Company's business is uncertain.
Regulation of the Company's Facilities: The Company's operations
can be affected significantly by government regulation. Its
pipeline systems are regulated by federal, state and local
regulatory agencies. These regulations are extremely complex and
subject to changing administrative interpretations. The
Company's pipeline operations are subject to regulation by the
FERC which is an independent commission within the Department of
Energy that has authority over the transportation and marketing
of various categories of natural gas sold in interstate commerce.
The production and sale of oil and gas is subject to federal and
state governmental regulations including the imposition of excise
taxes, the prevention of waste, pollution controls and maximum
daily production allowables for oil and gas wells.
The Company's operations are further subject to regulation by
various agencies of the states in which the Company operates.
State regulatory requirements and policies vary from state to
state. The regulatory requirements of Texas, Kansas, Louisiana,
New York and Alabama have the greatest impact on the Company due
to the concentration of the Company's operations in those states.
The Company's operations in Texas are subject to the Texas Gas
Utility Regulatory Act, as implemented by the Texas Railroad
Commission. Generally, the Texas Railroad Commission is vested
with authority to ensure that rates charged for natural gas sales
and transportation services are just and reasonable. The Company
must make filings with the Texas Railroad Commission for all new
and increased rates.
The Company's operations in Kansas are subject to the
jurisdiction of the Kansas Corporation Commission (the "KCC")
with regard to pipeline safety standards and certification
procedures. The KCC has granted the Company Certificates of
Public Convenience and Necessity for its pipelines in Kansas.
The State of Louisiana Office of Conservation, Pipeline Division
has safety and certification jurisdiction over the Company's
operations in Louisiana. The Company was granted Certificates of
Transportation, to Interconnect, and to Construct and Operate its
system in Louisiana.
The State of New York Public Service Commission has safety and
certification jurisdiction over the Company's New York operations
and has granted a Certificate of Public Necessity and Convenience
for the Albany system.
The Company's systems in Alabama are subject to the jurisdiction
of the Federal Energy Regulatory Commission with respect to the
transportation rates under Section 311 (a)(2) of the Natural Gas
Act. These pipelines are audited on a yearly basis from a safety
standpoint by The Alabama Public Service Commission-Pipeline
Safety Section.
Environmental and Safety Matters: The Company's activities in
connection with the operation and construction of pipelines and
other facilities for transporting, processing, treating or
storing natural gas and other products are subject to
environmental and safety regulation by numerous federal and state
authorities. This can include ongoing oversight regulation as
well as construction or other permits and clearances which must
be granted in connection with new projects or expansions. On the
federal level, these agencies can include the Environmental
Protection Agency, the Occupational Safety and Health
Administration, the U. S. Army Corp of Engineers, the U. S. Fish
and Wildlife Service and others. State regulatory agencies or
boards can include various air and water quality control boards,
historical and cultural resources offices, fish and game services
and others. These regulations can increase the cost of planning,
designing, initial installation and the operations of such
facilities. All of these regulations carry a variety of civil and
criminal enforcement measures including monetary penalties,
assessment and remediation requirements and injunctions as to
future compliance.
Employees
As of December 31, 1995, the Company had 9 full time employees.
The Company is not party to any collective bargaining agreements.
There have been no significant labor disputes in the past and the
Company considers its relations with employees to be excellent.
ITEM 2. PROPERTIES
As of December 31, 1995, the Company owns an interest in or
operates twenty-one (21) intrastate end-use pipelines, gathering
systems and gas transmission systems situated in the states of
Alabama, Alaska, Kansas, Louisiana, New York, Oklahoma, and
Texas. Certain information concerning the Company's pipelines is
summarized in the table below:
<PAGE>
<TABLE>
<CAPTION>
Average Daily Percentage
Daily Volume Ownership or
Date of Acq. Length Volume (1) Capacity Interest in
Pipeline System or Initial Op. Location in Miles (MMBtu/d) (MMBtu/d) System
<S> <C> <C> <C> <C> <C>
End-Use:
Burnet............Dec. 1989 Burnet Co., TX 1.5 481 2,000 100%
Conway............Dec. 1989 Butler Co., KS (5) 8,134 14,000 100%
OCPL..............July 1991 Wyandotte, KS 1.0 2,377 5,500 100%
Turkey Creek......Dec. 1991 Fort Bend Co., TX 16.0 852 2,000 100%
Cat Springs.......Dec. 1991 Austin Co., TX 1.6 63 2,000 100%
Stratton Ridge....Feb. 1992 Brazoria Co., TX 2.0 125 2,000 100%
Clemens Dome......Feb. 1992 Brazoria Co., TX (5) 108 2,000 100%
Tuscaloosa.......Sept. 1992 Tuscaloosa, AL 3.0 (2) 2,000 100%
Augusta...........July 1993 Butler Co., KS 0.5 212 5,000 100%
Lake Charles......Nov. 1993 Calcasieu Parish,LA 1.3 2,649 50,000 100%
Quindaro..........Nov. 1994 Wyandotte Co., KS 3.0 611 60,000 100%
Albany............Dec. 1994 Albany Co., NY 0.5 1,243 3,000 100%
Transmission:
H&W...............Oct. 1993 Escambia Co., AL 9 Inactive 15,000 100%
Magnolia.........Sept. 1995 Central AL 109 16,882 120,000 100%
Gathering:
Tasco Cavasos.....July 1991 Willacy Co., TX 1.6 Inactive 2,000 50%
Sinton............July 1992 San Patricio Co.,TX 2.8 Inactive 2,000 100%
Fitzsimmons......April 1993 Duval Co., TX (5) 145 2,000 100%
Cook Inlet Gas....July 1994 Cook Inlet, AK 2.7 Inactive 15,000 (4)
Cook Inlet Oil....July 1994 Cook Inlet, AK 2.7 2,515(3) 20,000(3) (4)
Zmeskal...........June 1994 Victoria Co., TX (5) 167 2,000 100%
Foss............. Dec. 1994 Custer Co., OK 4.1 444 5,000 100%
</TABLE>
<PAGE>
(1) All volume and capacity information is approximate. Average
daily volumes are based on total volumes during the year ended
December 31, 1995, except for Magnolia which is based on total volumes
transported for the period August 1995 through December 31, 1995.
(2)Construction suspended pending the outcome of litigation. See
Legal Proceedings.
(3) Volume is reflected in barrels of oil production per day.
(4) The Company receives throughput charges from these systems but
does not own title to the pipeline.
(5) This system is less than a quarter-mile in length.
The Burnet System supplies an LPG mainline pump station in Burnet
County, Texas with one-hundred percent (100%) of their gas
requirements through a 1.5 mile 3 inch pipeline system containing
two measuring stations and pressure regulating equipment. The
pipeline connects the pump station to Lone Star Gas Company's
intrastate pipeline. The system was constructed by the Company
and placed in service during December 1989. The customer has
also frequently purchased its gas supply from the Company since
the inception of the contract. During 1995, average daily gas
usage at the pump station has been approximately 481 MMBtu/d, all
of which is supplied through the Burnet System which has a
capacity of 2,000 MMBtu/d.
The Conway System supplies a LPG Fractionation facility in Butler
County, Kansas with one-hundred percent (100%) of their gas
requirements through a 4 inch pipeline from an interconnection
with Williams Natural Gas Company's interstate pipeline. The
system began service during December 1989 and provides gas supply
to the facility. In August 1993, the Conway system also began
serving an Isomerization unit on a month to month basis and
cumulative daily volumes for the Conway System averaged
approximately 8,134 MMBtu/d for 1995.
The OCPL System supplies an industrial plant in Wyandotte County,
Kansas with one-hundred percent (100%) of their gas requirements
through a 1 mile 6 inch pipeline system connected to Williams
Natural Gas Company's interstate pipeline. The system was
constructed by the Company and placed in service during July
1991. During 1995, average daily gas usage at the plant has been
approximately 2,377 MMBtu/d, all of which is supplied through the
OCPL System which has a capacity of 5,500 MMBtu/d. The plant is
located in an industrial park with other similar plants nearby
which could be potential customers for the system.
The Turkey Creek System supplies a LPG pump station in Fort Bend
County, Texas with one-hundred percent (100%) of its gas
requirements through a 16 mile 6 inch and 4 inch pipeline system
containing eight measuring stations and pressure regulating
equipment. The Company also sells a small volume of gas through
this system to a local rice farmer. Additionally, the system
gathers, transports and redelivers natural gas from several
producing wells to Gulf Coast Natural Gas Company's intrastate
pipeline. The system was acquired by the Company and placed in
service during December 1991. The customer has also frequently
purchased its gas supply from the Company since the inception of
the contract. During 1995, average cumulative daily volumes have
averaged approximately 852 MMBtu/d for the Turkey Creek System
which has a capacity of 2,000 MMBtu/d.
The Cat Springs System supplies a LPG mainline pump station in
Austin County, Texas with one-hundred percent (100%) of their gas
requirements through a 1.6 mile 2 inch pipeline system containing
two measuring stations and pressure regulating equipment. The
pipeline connects the pump station to Tennessee Gas Pipeline
Company's interstate pipeline. The system was constructed by the
Company and placed in service during December 1991. The customer
has also frequently purchased its gas supply from the Company
since the inception of the contract. During 1995, average daily
gas usage at the pump station has been approximately 63 MMBtu/d,
all of which is supplied through the Cat Springs System which has
a capacity of 2,000 MMBtu/d.
The Stratton Ridge System supplies a LPG mainline pump station in
Brazoria County, Texas with one-hundred percent (100%) of its gas
requirements through a 2 mile 2 inch pipeline system containing a
measuring station and pressure regulating equipment. The pipeline
connects the pump station to Amoco Gas Company's pipeline. The
system was constructed by the Company and placed in service
during February 1992. The customer has also frequently purchased
its gas supply from the Company since the inception of the
contract. During 1995, average daily gas usage at the pump
station has been approximately 125 MMBtu/d, all of which is
supplied through the Stratton Ridge System which has a capacity
of 2,000 MMBtu/d.
The Clemens Dome System supplies a LPG mainline pump station in
Brazoria County, Texas with one-hundred percent (100%) of its gas
requirements through a 3 inch pipeline system containing a
measuring station and pressure regulating equipment. The pipeline
connects the pump station to Phillips Natural Gas Company's
Seagas pipeline. The system also includes 3,000 feet of 6 inch
pipeline that was deeded to Phillips Natural Gas Company as part
of the construction contract. The system was constructed by the
Company and placed in service during February 1992. The customer
has also frequently purchased its gas supply from the Company
since the inception of the contract. During 1995, average daily
gas usage at the pump station has been approximately 108 MMBtu/d,
all of which is supplied through the Clemens Dome System which
has a capacity of 2,000 MMBtu/d.
The Tuscaloosa System is a partially completed 3 mile 2.5 inch
pipeline constructed by the Company in September 1992 which
connects a chemical plant in Moundsville, Alabama to the Magnolia
Pipeline. The system is subject to an agreement, under which the
Company plans to provide the facility plant one-hundred percent
(100%) of its gas requirements. Completion of the Tuscaloosa
System has been suspended and all costs were written off in 1993
pending the outcome of certain litigation brought by a competitor
of the Company. See Legal Proceedings.
The Augusta System supplies the City of Augusta's #2 electric
generating power plant in Butler County, Kansas with one-hundred
percent (100%) of their gas requirements through a .5 mile 3 inch
pipeline system connected to Williams Natural Gas Company's
interstate pipeline. The system was constructed by the Company
and placed in service during July 1993 and provides gas supply to
the plant. During 1995, average daily gas usage at the plant has
been approximately 212 MMBtu/d, all of which is supplied through
the Augusta System which has a capacity of 5,000 MMBtu/d. The #2
plant is primarily used for peaking and back-up power generation
utilizing gas fired reciprocating engines. The load has
historically been seasonal with peak loads during the summer
months.
The Lake Charles System supplies an ethylene plant in Calcasieu
Parish, Louisiana with a portion of their gas requirements
through a 1.3 mile 8 inch pipeline system connected to Sabine
Pipeline Company's interstate pipeline. The system was
constructed by the Company and placed in service during November
1993. In addition, the customer has periodically purchased a
portion of its gas supply from the Company. During 1995, average
daily gas delivered to the plant through the Lake Charles System
has been approximately 2,649 MMBtu/d. The pipeline has a
capacity of 50,000 MMBtu/d.
The Quindaro System supplies a municipal power plant ("BPU") in
Wyandotte County, Kansas through a 3 mile 8 inch pipeline system
connected to Williams Natural Gas Company's interstate pipeline.
The system was constructed by the Company and placed in service
during November 1994 and provides one-hundred percent (100%) of
the plant's gas supply. During 1995, average gas usage at the
plant has been approximately 611 MMBtu/d with peak consumption
during the summer months, all of which is supplied through the
Quindaro System which has a capacity of 60,000 MMBtu/d. The
Plant is primarily coal fired with natural gas typically utilized
for start-up and/or in the event of disruptions in coal-handling
equipment or the supply of coal. However, as a result of the
Quindaro system's ability to deliver gas at a higher pressure
than the previous supplier, the plant has begun to utilize a
peaking gas turbine at the facility for supplemental power
generation, and also has plans to convert two oil fired turbines
to natural gas which could increase the overall gas requirements
for the facility.
The Albany System supplies an industrial plant in Albany County,
New York through a .5 mile 3.5 inch pipeline system connected to
Tennessee Gas Pipeline. The system was constructed by the
Company and placed in service during December 1994 and provides
gas supply to the plant. During 1995, average gas usage at the
plant has been approximately 1,243 MMBtu/d, all of which is
supplied through the Albany System which has a capacity of 3,000
MMBtu/d.
The H&W System in Escambia County, Alabama connects a gas
sweetening plant with a liquids extraction plant through a 9 mile
6 inch pipeline. The system is currently not in use. The
Company is engaged in finding a buyer for the system as it has the
potential to transport gas between the two plants, transport gas
to or for a local gas utility who has a system adjacent to the
east end of the pipeline, or make deliveries to an industrial
end-user who has a pipeline that culminates at the west end of
the pipeline system. As a result, this pipeline is classified as
an asset held for resale on the balance sheet valued at the lower
of cost or market ($210,447).
The Magnolia System transports gas for several customers in
central Alabama through a system consisting of 75 miles of 24
inch pipeline, 20 miles of 16 inch pipeline, and 14 miles of 8
inch and 12 inch pipeline. The system also has a compressor
station which has three Saturn gas turbines with C160 gas
compressors, each rated at 1,340 horsepower. The system was
acquired by the Company from The Williams Companies, Inc. during
September 1995 with an effective date of August 1, 1995. Average
daily gas volume transported for the period August 1995 to
December 1995 has been approximately 16,882 MMBtu/d. The system
had an original design capacity of 650,000 MMBtu/d, but based on
the current compressor configuration the daily volume capacity is
120,000 MMBtu/d. and connects coal-seam gas production in the
Black Warrior Basin with Transcontinental Pipeline Co.'s
interstate pipeline.
The Tasco Cavasos System in Willacy County, Texas is an inactive
gathering system which consists of 1.6 miles of 2 inch pipeline.
There is no book value associated with this system on the
December 31, 1995 financial statements.
The Sinton System is an inactive 2.8 mile 3 inch gas gathering
pipeline located in San Patricio County, Texas. The prospect for
placing this line in service is uncertain, and is dependent on an
increase in gas exploration in the area. This system is valued
at $100 on the Company's December 31, 1995 financial statements.
The Fitzsimmons System consists of gas delivery facilities
located in Duval County, Texas which connect a gas well to Valero
Energy's intrastate system. The Company purchases the gas from
the producer and resells the gas to a third party.
The Cook Inlet Gas and Crude Oil Systems consists of two separate
lines, a 2.7 mile 6 inch natural gas gathering pipeline and a 2.7
mile 8 inch crude oil gathering pipeline. The pipelines were
placed in service during July 1994 and connect the West McArthur
River Unit (WMRU) Production Facility, operated by Stewart
Petroleum Company (Stewart), to a delivery point at the Unocal
Oil Trading Bay Production Facility on the west side of Cook
Inlet near Anchorage, Alaska. The Company does not own title to
the pipeline but receives a throughput charge from Stewart for
all oil and gas transported through the system for the life of
the WMRU wells, subject to guaranteed minimum volumes by Stewart
for the first two years the pipeline is in service. The WMRU
presently contains three productive wells which have averaged
2,515 BOPD for the year ending December 31, 1995. All gas is
presently utilized on site as fuel for production equipment.
The Zmeskal System consists of delivery facilities in Victoria
County, Texas which connect three producing gas wells to an
intrastate gathering system. During 1995 the wells have averaged
production of 167 MMBtu/d which the Company purchases and resells
to a third party.
The Foss System gathers gas from four Anadarko Basin gas wells in
Custer County, Oklahoma through a 4.1 mile 2 and 4 inch pipeline
system connected to ANR Pipeline Company's interstate pipeline.
The system was acquired by the Company in December 1994. A
portion of the gas is purchased and resold while the remainder is
transported for a fee. The production from these wells has
averaged 444 MMBtu/d in 1995.
ITEM 3. LEGAL PROCEEDINGS
The Company owns a partially completed pipeline located in
Tuscaloosa County, Alabama which is subject to a gas sales
contract with a third party. On October 8, 1992, an injunction
was entered by the Circuit Court of Hale County, Alabama
prohibiting the completion of the pipeline pending the outcome of
a complaint filed by Alabama Gas Corporation with the Alabama
Public Service Commission (the APSC). Based upon this
complaint the APSC has refused to grant the Company certification
for this pipeline, and as a result, the Company elected to write-
off its investment in the system in 1993. An appeal was filed
with the Montgomery County, Alabama Circuit Court which issued a
favorable ruling on the Company's behalf in August 1994. This
ruling has been appealed to the Alabama Supreme Court, which is
expected to issue a final ruling during 1996. If the Montgomery
County Circuit Court ruling is upheld, the pipeline could be
placed in service, however, the Company cannot predict the
likelihood of a favorable ruling or whether it will be able to
recoup its investment in the system. The Company is not a party
to any other material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters during the fourth quarter
of 1995 to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is currently no public market for the Company's common
stock. The Company's common stock is not listed on any exchange,
and there is no recognized market for such stock. Since less
than 15% of the outstanding shares of common stock of the Company
are held by nonaffiliates, the Company does not expect that a
market for its common stock will develop absent significant
additional issuances of common stock to non-affiliates of the
Company through future offerings. However, even if the number of
shares of Common Stock held by persons not affiliated with the
Company is substantially increased, there nevertheless can be no
assurance that a trading market for the common stock will
develop.
There can be no assurance as to the liquidity of any markets that
may develop for the common stock, or the price at which holders
may be able to sell the common stock. Prices for the common
stock will be determined in the marketplace, should a trading
market develop, and may be influenced by many factors, including
the depth and liquidity of the market for the common stock,
investor perceptions of the Company, interest rates, the market
price of the common stock and general industry and economic
conditions.
As of March 1, 1996, there were approximately 292 shareholders of
the Company's common stock. The Company has not paid and does
not anticipate paying dividends to holders of common stock in the
immediate future.
There are 1 million shares authorized and 200,000 shares
outstanding of the Company's 5% cumulative preferred stock ("5%
Preferred") at December 31, 1995. The 5% Preferred will pay
quarterly dividends based on an annual rate of 5% of the stated
liquidation value and is redeemable in whole or in part at the
Company's option at a price per share based on the liquidation
value ($5.91 per share). The 5% Preferred votes as a separate
class with respect to any change in the preferences or other
rights attributable to the 5% Preferred. Upon the failure to
declare or pay quarterly dividends for two consecutive quarterly
periods, the holders of the 5% Preferred also have the right to
elect one director until such time as all accrued dividends have
been paid.
The Company may issue the remaining authorized shares of
preferred stock in one or more classes or series, with the
designations, powers, preferences, and rights thereon as
determined by the Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Operating Revenues:
Operating revenues generated during the twelve months ended
December 31, 1995 totaled approximately $15.6 million dollars as
compared to $15 million dollars in 1994 which represents a 4%
increase in 1995. The increase is primarily attributable to the
acquisition and subsequent sale of Five Flags Pipe Line Company
("Five Flags") mitigated by a 23% decrease in sales of natural
gas and transportation fees during 1995.
In September 1995, the Company and an affiliate owned by an
officer and director of the Company jointly acquired 100% of the
outstanding capital stock of Five Flags from a non-affiliated
company. Total cash consideration of $2,052,000 was paid on
September 13, 1995 of which Midcoast's share was $1,872,450 for
91.25% of Five Flags capital stock and the affiliates share was
$179,550 for 8.75% of Five Flags capital stock.
The acquisition of Five Flags stock was made as an investment to
be resold to another non-affiliated company pursuant to an
agreement for purchase and sale of stock dated September 6, 1995.
On October 2, 1995, Midcoast and the affiliate jointly sold 100%
of the capital stock of Five Flags for cash consideration of
which the Company's share was $4,092,850.
The decrease in sales of natural gas and transportation fees in
1995 revenues is primarily attributable to a decline in gas
marketing transactions. A decrease in gas marketing transactions
in 1995 is in response to declining profit margins and a focus on
servicing customer gas requirements where the Company has a fixed
asset investment. Despite the decline in sales of natural gas,
the Company's operating income increased by $2.2 million dollars
over 1994 as discussed in the Earnings section below.
Operating Expenses:
Operating expenses for the year ended December 31, 1995 totaled
approximately $13.1 million dollars, or 11% lower than the
comparable 1994 period. As explained in the preceding section,
the primary explanation for the decrease can be attributed to
reduced gas marketing transactions mitigated by the cost of
purchasing and subsequently selling Five Flags.
Depreciation, depletion, and amortization expense was
approximately $452,000 in 1995, as compared to $259,000 in 1994.
The increase in 1995 can be attributed to the acquisition of
Magnolia effective August 1, 1995, the construction of two new
pipelines during the fourth quarter of 1994 and the Company's
investment in Alaska which has been depreciated since July 1994.
General and administrative expenses incurred for the year ended
December 31, 1995 were approximately $785,000, or 8% lower than
1994. The reduction of general and administrative expenses in
1995 is a result of the Company's ongoing effort to control
expenses and effectively assimilate new business using existing
resources.
Interest expense totaled approximately $339,000 and $189,000 for
1995 and 1994, respectively. The Company was servicing an
average of approximately $3.3 million in debt during 1995 as
compared to an average of $2.1 million in debt during 1994. The
increased debt service in 1995 is attributable to the
construction of two new pipelines during the second quarter of
1994, investing in the Alaskan transmission facility during the
second quarter of 1994 and the acquisition of Magnolia in
September 1995. Additionally, the interest rates on the
Company's debt are adjusted for any changes to the Prime rate,
and therefore, the increase in interest rates during 1994 and
1995 adversely affected interest costs.
Earnings:
The Company recognized operating income and net income of
approximately $2,569,125 and $2,134,218, respectively, for the
year ended December 31, 1995 as compared to operating income of
$349,414 and a net loss of $32,394 for the year ended December
31, 1994. Despite a 74% increase in depreciation, depletion and
amortization expense in 1995 and despite sales of natural gas
decreasing by 23% in 1995, operating income increased by
$2,219,711 over 1994. The decrease in natural gas sales did not
have a significant impact on operating earning because the
decrease is related to gas marketing activities which are
characterized by large dollar sales but small earnings margins.
The primary factors which contributed to the increase in
operating earnings in 1995 is the revenue generated by the
Company's investment in Alaska, five months of revenue derived
from the acquisition of Magnolia and a $2,183,226 gain on the
sale of Five Flags as discussed in the Operating Revenue section
above. The Company anticipates that with a full years worth of
operations of Magnolia the Company will again have profitable
operations during 1996.
Business and Growth Strategy:
Midcoast is a company whose officers and employees are dedicated
to building a strong asset-based company in the energy industry.
The Company's principal growth and business strategy is to
rapidly acquire or build pipelines to serve the end-use market
while also continuing to pursue acquisition opportunities in
transmission and gathering of natural gas, other hydrocarbons and
nonhydrocarbon fluids. The Company will seek to implement its
strategy by taking advantage of a number of market conditions and
competitive factors, including the following, which management
believes may offer significant opportunities:
(a) Natural gas users in chemical and manufacturing industries
are seeking alternative suppliers to the LDCs which have been
their source of natural gas for many years. While many of these
users are small or local facilities, larger national companies
with plants located across the United States are also seeking
non-traditional gas suppliers to replace or augment their current
gas supply requirements at a competitive price.
(b) Many electrical generating facilities may in the future
consume greater volumes of natural gas than at present due to
more stringent environmental regulations which management
believes will have the effect of reducing their consumption of
coal or fuel oil. New pipelines will be required to deliver the
increased volumes of natural gas at greater pressures currently
available from existing systems which are necessary to enable
these generation facilities to utilize gas turbines.
(c) Acquisition opportunities may be presented as a result of
divestitures by major pipeline companies of transmission and
gathering pipelines incidentally acquired by them in connection
with large acquisition transactions. These spin-off sales may
result when the pipeline system does not fit the seller's overall
system plans or when dictated by regulatory concerns, or for
other strategic reasons. Management has demonstrated that it is
well positioned to capitalize on such situations due to its
relationship with other pipeline companies and its ability to
react quickly when pipelines become available for purchase as
demonstrated with its acquisition of Magnolia and Five Flags
Pipeline Company.
(d) The Company typically designs its systems to transport
greater volumes than are initially expected. As a result, the
Company believes that under existing conditions, its gathering
systems can quickly increase their volumes with little capital
expenditure should additional production be established in these
areas.
As of December 31, 1995, the Company had two executed gas
transportation contracts requiring the construction of pipelines
and related facilities which, if constructed, would cost
approximately $420,000. These construction obligations are
subject to the Company's obtaining necessary regulatory approvals
and financing. The Company expects construction of these
projects to begin during the second quarter of 1996. Midcoast's
ability to capitalize on these and other growth opportunities
will depend on the Company's availability of sufficient capital
resources.
Capital Resources and Liquidity:
The Company's primary sources of capital are its cash flows from
operations and borrowings from affiliates and commercial lenders.
For the year ended December 31, 1995, the Company generated cash
flow from operations of 2,360,864 and had $1,046,167 available to
the Company through its credit facilities with commercial
lenders. At December 31, 1995, the Company has three credit
facilities with availability of funds.
In December 1992, the Company entered into a financing agreement
which included a $400,000 line of credit. In September 1994, the
line of credit was renewed and the available line raised to
$750,000. The line of credit expires on June 1, 1996, however,
the Company expects that it will be renewed prior to that date.
Borrowings under this credit facility are collateralized by the
Company's non-transportation based accounts receivable and the
entire facility has been personally guaranteed by three major
stockholders who are also officers of the Company. At December
31, 1995, the Company had $725,000 of available funds under this
credit facility.
In October 1995, the Company entered into a new financing
agreement with an existing bank lender. The new agreement
provides for an initial $1,250,000 revolving line of credit with
the amount of available credit being reduced by $20,833 per month
beginning December 1, 1995. Upon maturity at November 1, 1998,
the balance of principal plus accrued interest then remaining
outstanding and unpaid is payable on full. In connection with
this financing agreement, eight of the Company's pipeline systems
are subject to a negative pledge to keep the pipelines free and
clear of all liens and encumbrances and has been personally
guaranteed by three major stockholders who are also officers of
the Company. At December 31, 1995, the Company had $121,167 of
available funds under this credit facility.
In December 1995, the Company entered into a new financing
agreement with a bank lender. The new agreement provides for an
initial $1,500,000 revolving line of credit with the amount of
available credit being reduced by $17,860 per month beginning
February 1, 1996. Upon maturity at January 15, 1999, the balance
of principal plus accrued interest then remaining outstanding and
unpaid is payable in full. In connection with this financing
agreement, a $50,000 certificate of deposit and 100% of
Magnolia's stock has been pledged as collateral and Magnolia's
pipeline system is subject to a negative pledge to keep the
pipeline free and clear of all liens and encumbrances and has
been personally guaranteed by three major stockholders who are
also officers of the Company. At December 31, 1995, the Company
had $200,000 of available funds under this credit facility.
The Company estimates that capital expenditures for 1996 could
range between $420,000 and $7,800,000 based on the status of
various agreements and proposals that were in process as of
December 31, 1995. At December 31, 1995, the Company was
committed to make capital expenditures of $420,000 during 1996.
The remaining uncommitted, but planned, 1996 capital expenditures
are entirely discretionary in nature and will be made only if
adequate financing is arranged.
The Company has historically arranged for project financing with
various banks to fund between seventy-five percent (75%) and
ninety percent (90%) of the construction or acquisition costs of
its new projects. Management of the Company believes that
project financing will be available to the Company to fund at
least seventy-five percent (75%) of the committed 1996
expenditures. The Company intends for the 1996 planned but
uncommitted capital expenditures to be funded from commercial
lenders or sources discussed below, however, no assurances can be
given that any additional financing will be available to the
Company.
As growth opportunities present themselves, management has
utilized and will continue to utilize investment banking firms as
consultants to seek sources of additional funds through new debt
or equity financing. There can be no assurance, however, that the
Company's efforts to raise additional capital or obtain new
financing will be successful.
Certain of the officers and shareholders have provided financing
to the Company in the past and during the third quarter financed
the Company's investment in Five Flags and in October 1995
partially financed the acquisition of Magnolia. Based on this
experience, it is management's opinion that additional loans may
be available from certain shareholders if additional capital
cannot be arranged from other sources.
The Company believes that it will be able to meet its obligations
as they become due during 1996 from cash generated from opera-
tions, existing lines of credit, additional project loans to be
arranged or from the other sources discussed above.
ITEM 7. FINANCIAL STATEMENTS<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Midcoast Energy Resources, Inc. and subsidiaries
Houston, Texas
We have audited the accompanying consolidated balance sheets of
Midcoast Energy Resources, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the related statements of
operations, stockholders' equity and cash flows for each of the
years in the two-year period ended December 31, 1995. 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 audits 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Midcoast Energy Resources, Inc. and subsidiaries as
of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the two-
year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements,
the Company changed its method of accounting for transportation
and exchange imbalances.
Hein + Associates LLP
Certified Public Accountants
Houston, Texas
February 12, 1996
<PAGE>
<TABLE>
MIDCOAST ENERGY RESOURCES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS December 31, December 31,
1995 1994
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 106,152 $ 65,921
Accounts receivable, no allowance for doubtful accounts 2,319,667 1,996,087
Asset held for resale 210,447 -
--------------- ---------------
Total current assets 2,636,266 2,062,008
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Natural gas transmission facilities 7,365,421 3,990,406
Investment in transmission facilities 1,284,609 1,284,609
Oil and gas properties, using the full cost method of accounting 302,293 69,499
Other property and equipment 85,819 84,679
--------------- ---------------
9,038,142 5,429,193
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION (831,981) (434,777)
--------------- ---------------
8,206,161 4,994,416
DEFERRED CONTRACT COSTS AND OTHER ASSETS, net of amortization 246,081 215,906
--------------- ---------------
Total assets $ 11,088,508 $ 7,272,330
--------------- ---------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,086,138 $ 1,943,145
Current portion of deferred income 83,000 83,000
Short-term borrowing from bank 25,000 210,000
Current portion of long-term debt payable to banks 540,998 930,692
--------------- ---------------
Total current liabilities 2,735,136 3,166,837
--------------- ---------------
LONG-TERM DEBT PAYABLE TO:
Bank 2,926,947 1,505,771
Shareholders and affiliates 1,033,822 275,000
--------------- ---------------
Total long-term debt 3,960,769 1,780,771
--------------- ---------------
DEFERRED INCOME 235,167 318,167
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (Note 10):
5% cumulative preferred stock, $1 par value, 1 million
shares authorized, 200,000 shares issued and outstanding
with a liquidation preference of $1,183,665 200,000 200,000
Common stock, $.01 par value, 6 million shares authorized,
328,557 and 314,357 shares issued and outstanding at
December 31, 1995 and 1994, respectively 3,286 3,144
Paid-in capital 18,836,052 18,751,131
Accumulated deficit (14,775,102) (16,909,320)
Unearned compensation (106,800) (38,400)
--------------- ---------------
Total stockholders' equity 4,157,436 2,006,555
--------------- ---------------
Total liabilities and stockholders' equity $ 11,088,508 $ 7,272,330
--------------- ---------------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
MIDCOAST ENERGY RESOURCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For The Year Ended
----------------------------------
December 31, December 31,
1995 1994
--------------- ---------------
<S> <C> <C>
OPERATING REVENUES:
Sale of natural gas and transportation fees $ 11,469,394 $ 14,901,222
Sale of pipeline 4,092,850 60,586
Oil and gas revenue 60,046 6,902
--------------- ---------------
Total operating revenues 15,622,290 14,968,710
--------------- ---------------
OPERATING EXPENSES:
Cost of natural gas and transportation charges 9,895,793 13,459,465
Cost of pipeline sold 1,909,624 48,606
Production of oil and gas 11,544 2,783
Depreciation, depletion, and amortization 451,551 259,440
General and administrative 784,653 849,002
--------------- ---------------
Total operating expenses 13,053,165 14,619,296
--------------- ---------------
Operating income 2,569,125 349,414
NON-OPERATING ITEMS:
Interest expense (339,324) (188,623)
Other income(expense), net (36,400) (13,066)
--------------- ---------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 2,193,401 147,725
PROVISION FOR INCOME TAXES (Note 11) - -
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE (Note 3) - (120,936)
--------------- ---------------
Net income 2,193,401 26,789
5% CUMULATIVE PREFERRED STOCK DIVIDENDS (59,183) (59,183)
--------------- ---------------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ 2,134,218 $ (32,394)
--------------- ---------------
NET INCOME (LOSS) PER COMMON SHARE:
Operations $ 6.61 $ 0.29
Accounting change 0.00 (0.39)
--------------- ---------------
$ 6.61 $ (0.10)
--------------- ---------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 322,712 311,716
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
\fn><PAGE>
</TABLE>
<TABLE>
MIDCOAST ENERGY RESOURCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS'EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<CAPTION>
5%
Cumulative Total
Preferred Common Paid-in Accumulated Unearned Stockholders'
Stock Stock Capital Deficit Compensation Equity
------------ ---------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 $ 200,000 $ 3,063 $18,702,672 $(16,876,926) $ - $ 2,028,809
Issuance of 8,000 shares
of which 1,600 shares are
vested in connection with
employee shareholder
agreements (Note 15) - 80 47,920 - (38,400) 9,600
Issuance of 100 shares
in connection with an
employee stock bonus - 1 539 - - 540
Net income - - - 26,789 - 26,789
5% cumulative preferred
stock dividends - - - (59,183) - (59,183)
----------- ---------- ----------- ------------- ---------- -------------
BALANCE, December 31, 1994 200,000 3,144 18,751,131 (16,909,320) (38,400) 2,006,555
Issuance of 13,000 shares
which are subject to a
four year vesting schedule
in connection with an
employment agreement
(Note 15) - 130 77,870 - (78,000) -
Issuance of 1,200 shares
in connection with
employee stock bonuses - 12 7,051 - - 7,063
Vesting of 1,600 shares
in connection with
employee shareholder
agreements entered
into in 1994 (Note 15) - - - - 9,600 9,600
Net income - - - 2,193,401 - 2,193,401
5% cumulative preferred
stock dividends - - - (59,183) - (59,183)
----------- ---------- ----------- ------------- ------------ -------------
BALANCE, December 31, 1995 $ 200,000 $ 3,286 $18,836,052 $(14,775,102) $ (106,800) $ 4,157,436
------------ ---------- ----------- ------------- ------------ -------------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
/TABLE
<PAGE>
<TABLE>
MIDCOAST ENERGY RESOURCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For The Year Ended
----------------------------------
December 31, December 31,
1995 1994
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) applicable to common shareholders $ 2,134,218 $ (32,394)
Adjustments to arrive at net cash provided (used) in
operating activities:
Depreciation, depletion and amortization 451,551 259,440
Recognition of deferred income (83,000) 401,167
Increase in deferred tax asset (43,868) -
Cumulative effect of a change in accounting principle - 120,936
Income from oil and gas program investment - (5,575)
Issuance of common stock to employees 16,663 10,140
Changes in working capital accounts-
(Increase) decrease in accounts receivable (321,155) 339,787
Increase (decrease) in accounts payable and
accrued liabilities 206,455 (1,596,036)
--------------- ---------------
Net cash provided (used) by operating activities 2,360,864 (514,515)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in transmission facilities - (1,284,609)
Capital expenditures (3,885,282) (1,088,117)
Other (40,655) (3,917)
--------------- ---------------
Net cash used in investing activities (3,925,937) (2,378,643)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank debt borrowings 5,857,505 5,448,000
Bank debt repayments (5,011,023) (3,836,317)
Proceeds from notes payable to
shareholders & affiliates 3,906,272 591,250
Repayments on notes payable to
shareholders & affiliates (3,147,450) (316,250)
Proceeds from notes payable 3,200,000 -
Repayments on notes payable (3,200,000) -
--------------- ---------------
Net cash provided by financing activities 1,605,304 1,886,683
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 40,231 (1,006,475)
--------------- ---------------
CASH AND CASH EQUIVALENTS, beginning of year 65,921 1,072,396
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of year $ 106,152 $ 65,921
--------------- ---------------
CASH PAID FOR INTEREST $ 323,376 $ 177,355
--------------- ---------------
CASH PAID FOR INCOME TAXES $ - $ -
--------------- ---------------
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
MIDCOAST ENERGY RESOURCES, INC., AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND INFORMATION:
Midcoast Energy Resources, Inc.("Midcoast" or "the Company"), was
formed on May 11, 1992, as a Nevada corporation and, in
September 1992, became the successor to Nugget Oil Corporation
("Nugget"). The merger was accounted for as a pooling of
interests.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying consolidated financial statements include the
accounts of the Company and all of its wholly-owned subsidiaries.
As of December 31, 1995, the Company's subsidiaries include
Magnolia Pipeline Corporation, H&W Pipeline Corporation, Midcoast
Holdings No. One, Inc., Midcoast Marketing, Inc. and Nugget
Drilling Corporation, of which only Magnolia Pipeline Corporation
is currently active. All significant intercompany transactions
and balances have been eliminated. Investments (reported in
other assets) that are 20% to 50% owned are accounted for using
the equity method of accounting.
Income Taxes
Midcoast and its subsidiaries file a consolidated federal income
tax return. Midcoast accounts for income taxes under the
provisions of Statement of Financial Accounting Standards (SFAS)
No. 109 - "Accounting for Income Taxes." Under SFAS 109, the
Company recognizes deferred income taxes for the differences
between the financial and income tax bases of its assets and
liabilities.
Property, Plant and Equipment
Natural gas transmission and distribution facilities and other
equipment are depreciated by the straight-line method at rates
based on the following estimated useful lives of the assets:
Natural gas transmission facilities 15 - 25 years
Pipeline right-of-ways 17.5 years
Other property and equipment 3 - 7 years
Repairs and maintenance are charged to expense as incurred;
renewals and betterments are capitalized.
The Company accounts for its oil and gas production activities
using the full cost method of accounting. Under this method of
accounting, all costs, including indirect costs related to
exploration and development activities, are capitalized as oil
and gas property costs. No gains or losses are recognized on the
sale or disposition of oil and gas reserves, except for sales
which include a significant portion of the total remaining
reserves.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers short-term, highly liquid investments that have a
maturity of three months or less as of the date of purchase as
cash equivalents except for a $50,000 certificate of deposit
which is pledged as collateral on the $1.5 million credit
facility (see Note 7).
Asset Held For Resale
Assets for which the Company anticipates consummating a sales
transaction within one year of the balance sheet date are valued
at the lower of cost or market and classified as current assets.
Transportation and Exchange Imbalances
Transportation and exchange gas imbalance volumes are accounted
for using the sales method of accounting (see Note 3).
Deferred Contract Costs
Costs incurred to construct natural gas transmission facilities
pursuant to long-term natural gas sales or transportation
contracts, which upon completion of construction are assigned to
the contracting party, are capitalized as deferred contract
costs. These costs are amortized over the life of the initial
contract on a straight-line basis.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issued SFAS No.
121 entitled "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived" Assets to be Disposed of" which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 121 specifies certain events and
circumstances which indicate the cost of an asset or assets may be impaired,
the method by which the evaluation should be performed, and the method by which
writedowns, if any, of the asset or assets are to be determined and recognized.
Management does not believe that adoption of this pronouncement in 1996 will
have a material impact on the Company's financial condition or operating
results.
The FASB also issued SFAS No. 123, "Accounting for Stock Based
Compensation", effective for fiscal years beginning after December 15, 1995.
This statement allows companies to choose to adopt the statements's new rules
for accounting for employee stock-based compensation plans. For those companies
who choose not to adopt the new rules, the statement requires disclosures as to
what earnings per share would have been if the new rules had been adopted.
Management intends to adot the disclosure requirements of this statement in
1996.
Use of Estimates
The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting
principles requires the Company's management to make estimates
and assumptions that effect the amounts reported in these
financial statements and accompanying notes. Actual results
could differ from those estimates.
Earnings Per Common Share
Net income (loss) per share was computed by dividing net income
(loss) applicable to common shareholders by the weighted average
common shares outstanding. The effect of the change in
accounting principle is reflected separately in the earnings per
share information.
3. ACCOUNTING POLICY CHANGE:
Transportation and exchange imbalances occur when volumes
delivered to a pipeline for transportation are different than
those delivered by the pipeline to its ultimate destination or
during an exchange of gas where amounts exchanged differ.
Parties to imbalances include producers, marketers, customers and
other pipelines. Transportation and exchange gas imbalance
volumes were being accounted for using the entitlements method of
accounting. The Company has elected to change its accounting to
the sales method. Under the sales method of accounting, the
Company recognizes sales revenue as the customer uses the gas and
recognizes cost of sales as the Company delivers gas to the
pipeline. The effect of this change was to decrease net income by
$120,936 in 1994 and is reflected in the Statement of Operations
on a separate line item labeled "Cumulative Effect of a Change in
Accounting Principle".
4. PIPELINE ACQUISITION AND SUBSEQUENT SALE:
In September 1995, the Company and an affiliate owned by an
officer and director of the Company jointly acquired 100% of the
outstanding capital stock of Five Flags Pipe Line Company ("Five
Flags") from a non-affiliated company. Total cash consideration
of $2,052,000 was paid on September 13, 1995 of which Midcoast's
share was $1,872,450 for 91.25% of Five Flags capital stock and
the affiliates share was $179,550 for 8.75% of Five Flags capital
stock. The principal asset of Five Flags consisted of
approximately 57 miles of natural gas pipelines located in
Escambia and Santa Rosa Counties, Florida. The investment was
financed by an officer and director of the Company as discussed
in Note 8 herein.
The acquisition of Five Flags stock was made as an investment to
be resold to another non-affiliated company pursuant to an
agreement for purchase and sale of stock dated September 6, 1995.
On October 2, 1995, Midcoast and the affiliate jointly sold 100%
of the capital stock of Five Flags for cash consideration of
which the Company's share was $4,092,850. A portion of the
proceeds from the sale were used to repay the related party
promissory note of $1,872,450 plus accrued interest. The
remainder of the proceeds were used to partially finance
Midcoast's acquisition of Magnolia Pipeline Corporation as
discussed in Note 5 herein.
5. PIPELINE CONSTRUCTION AND ACQUISITIONS:
Construction of a three mile pipeline in Kansas City, Kansas
commenced in July 1994. The pipeline was constructed pursuant to
a long-term transportation agreement and was completed in
November 1994 at a cost of $1,114,000. The project is being
partially funded by the customer through prepaid transportation
fees of $415,000 with the remainder being funded through long-
term bank financing (see Note 7) and cash generated from operations.
The prepaid transportation fees are classified as liabilities on the
Company's balance sheet under the caption "Deferred Income". The
fees are being recognized as income over the life of the
contract.
In April 1994, the New York Department of Public Services gave
approval for the issuance of a certificate of public convenience
and necessity which allows for the construction of a pipeline
providing natural gas transportation to an industrial customer in
Albany, New York pursuant to a long-term transportation
agreement. The pipeline was completed in December 1994 at a cost
of $294,000. The construction was financed through cash
generated from operations and long-term bank financing (see Note
7).
In June 1995, Midcoast acquired a 23% working interest in two
oil and gas production leases located in Starr County, Texas,
which together comprise approximately 1,700 acres. The $194,000
purchase price was partially funded by a $173,822 loan from an
affiliated company owned by certain officers and directors of the
Company (See Note 8 for further discussion). As consideration
for advising the Company in the acquisition of the working
interest, a consultant to the Company was assigned one percent of
the Company's working interest. In addition, a one-half percent
working interest was assigned to the affiliated company which
extended the loan for the acquisition.
In September 1995, Midcoast acquired 100% of the outstanding
capital stock of Magnolia Pipeline Corporation ("Magnolia"), an
Alabama corporation, from Williams Holdings of Delaware, Inc.
("Williams") a non-affiliated company. The acquisition was made
pursuant to the Agreement for Sale and Purchase of Stock dated
July 27, 1995 and had an effective date of August 1, 1995. The
acquisition was accounted for under the purchase method of
accounting. The total purchase price of $3,200,000 was allocated
to property, plant, and equipment as the principal asset of
Magnolia consists of approximately 109 miles of natural gas
pipeline located in central Alabama. Initially, the acquisition
was financed by Midcoast issuing a $500,000 subordinated
debenture ("Debenture") and a $2,700,000 nonrecourse promissory
note ("Note") to Williams. The Debenture accrued interest at 10%
and had a final maturity of September 15, 1996 but was redeemable
at the option of Midcoast. The Note was non-interest bearing and
was due on October 9, 1995. However, the Debenture and the Note
were paid in full on October 2, 1995 using the proceeds from the
sale of Five Flags (see Note 4) and borrowing $1,200,000 from an
affiliate owned by an officer and director of the Company (see
Note 8). In December 1995 the $1,200,000 related party note was
repaid using a new $1,500,000 credit facility with a commercial
lender (see Note 7).
6. INVESTMENTS:
In March 1994, the Company signed an agreement to fund $1,265,000
which represents half of the construction costs of a crude oil
gathering pipeline and a natural gas gathering pipeline near Cook
Inlet, Alaska. The agreement provided for the funds to be
advanced in five payments due upon the completion of certain
stages of the pipeline construction. In consideration for the
Company's contribution of funds for construction, Midcoast
receives a throughput fee based on the volumes of barrels/MCF
transported through the pipelines. These fees are subject to
certain minimum guaranteed volumes for the first two years which
began upon completion of the pipeline in July 1994. The payments
were being financed with available cash on hand and through
short-term loans with an affiliated company owned by certain
officers and directors of the Company. The short-term loans were
replaced with long-term bank project financing in May 1994 (see
Note 7).
<PAGE>
<TABLE>
7. DEBT OBLIGATIONS:
At December 31, 1995 and 1994, the Company had outstanding
debt obligations as follows (in thousands):
<CAPTION>
December 31, 1995 December 31, 1994
Current Long-Term Current Long-Term
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Note payable to a bank under a term loan bearing interest at the
banks prime rate plus 1%, principal of $30,435 and accrued interest
are payable in 35 monthly installments, with a final lump sum
payment of the remaining unpaid principal due December 1, 1995 $ - $ - $ 365 $ 304
Note payable to a bank under a $750,000 working capital line of
credit expiring on June 1, 1996 which the Company expects will
be renewed prior to that date. Advanced and unpaid principal
bears interest at the banks prime rate plus 1% (10.5% at December
31, 1995) which is accrued and paid monthly 25 - 210 -
Note payable to a bank under a term loan bearing interest at the
banks prime rate plus 1%, principal and accrued interest are
payable in 32 monthly installments of $12,720, with a final maturity of
December 15, 1996 - - 134 145
Note payable to a bank under a term loan bearing interest at the
banks prime rate plus 1% (9.5% at December 31, 1995) principal and
accrued interest are payable in 60 monthly installments of $6,915,
with a final maturity of October 13, 1999 59 215 57 270
Note payable to a bank under a term loan bearing interest at the
banks prime rate plus 1% (9.5% at December 31, 1995) principal of
$3,438 and accrued interestare payable in monthly installments,
with a final lump sum payment of the remaining unpaid principal
due February 15, 1997 41 79 42 120
Note payable to a bank under a term loan bearing interest at the
banks prime rate plus 1.5% (10% at December 31, 1995) principal
of $27,778 and accrued interest are payable in 36 monthly
installments, with a final maturity of December 15, 1997 333 333 333 667
Revolving credit line with a bank under a $1.25 million reducing
promissory note bearing interest at the banks prime rate plus 1.5%
(10% at December 31, 1995) Available credit is reduced monthly
by $20,833 beginning December 1, 1995. Accrued interest and any
principal amounts as may be required to cause the outstanding
principal to not exceed the amount of credit then available are
payable monthly, with a final maturity of November 1, 1998 108 1,000 - -
Revolving credit line with a bank under a $1.5 million reducing
promissory note bearing interest at the banks prime rate plus 1%
(9.5% at December 31, 1995). Available credit is reduced monthly
by $17,860 beginning February 1, 1996. Accrued interest and any
principal amounts as may be required to cause the outstanding
principal to not exceed the amount of credit then available are
payable monthly, with a final maturity of January 15, 1999 - 1,300 - -
Note payable to an affiliate owned by certain officers and
directors bearing interest at the Mercantile Bank, Corpus Christi
prime rate (9.5% at December 31, 1995). Principal and accrued
interest are due in full at maturity on April 1, 1997) - 200 - 275
Note payable to an affiliate owned by certain officers and
directors bearing interest at the Mercantile Bank, Corpus Christi
prime rate plus 1% (10.5% at December 31, 1995). Monthly payments
equal to 25% of the net revenue derived from the Starr County oil
and gas production acquisition (see Note 6) shall be allocated to
interest then principal. Any remaining principal and accrued
interest shall be due in full at maturity on April 1, 1997 - 174 - -
Note payable to an affiliate owned by an officer and director
bearing interest at the Mercantile Bank, Corpus Christi prime rate
plus 5% (14.5% at December 31, 1995). Principal and accrued interest
are due in full at maturity on January 1, 1997 - 660 - -
--------- ----------- ---------- -----------
$ 566 $ 3,961 $ 1,141 $ 1,781
--------- ----------- ---------- -----------
</TABLE>
<PAGE>
In December 1992, the Company entered into a financing agreement
with a bank under which the Company could borrow up to
$1,800,000. This credit facility included a term loan of
$1,400,000 which was payable in 36 monthly installments, the first
35 installments being the amount of $30,435 principal plus
accrued interest, and the 36th and final installment being the
amount of the balance of principal ($334,775) plus accrued
interest then remaining outstanding and unpaid. In conjunction
with obtaining a new debt facility with another bank as discussed
in a subsequent paragraph, the term loan was repaid in full on
October 31, 1995.
In addition to the term loan discussed above, the Company had a
line of credit of $400,000 under the bank financing agreement.
In September 1994, the line of credit was renewed and the
available line raised to $750,000. The line of credit expires on
June 1, 1996, however, the Company expects that it will be
renewed prior to that date. Borrowings under this credit facility
are collateralized by the Company's non-transportation based
accounts receivable and the entire facility has been personally
guaranteed by three major stockholders who are also officers of
the Company. At December 31, 1995, the Company had $725,000 of
available funds under this credit facility.
In July 1993, the same bank provided the Company with an
additional $360,000 facility under which the Company obtained
advances of funds as needed for construction of pipelines. In
conjunction with obtaining a new debt facility with another bank
as discussed in a subsequent paragraph, the term loan was repaid
in full on October 31, 1995.
In May 1994, the Company obtained a $1,000,000 credit facility
for financing of the Company's investment in transmission
facilities in Alaska. Under this facility, the Company was able
to repay the short-term loans of $316,250 advanced by an
affiliate owned by certain officers and directors, as discussed
in Note 8 herein, as well as obtain the funds as needed for the
Company's investment in Alaska. The agreement called for monthly
payments of accrued interest with the principal due in full at
maturity on January 15, 1996. Borrowings under this facility
bore interest at the banks prime rate. Affiliates owned by
certain officers and directors of the Company pledged U.S.
Treasury Bills and Certificates of Deposit as collateral for this
facility for which they were compensated as discussed in Note 8.
In December 1994, this facility was repaid and replaced with a
long-term financing agreement with a new bank. Under the new
agreement, principal and accrued interest are paid in 36 monthly
installments. This facility is secured by the throughput fee the
Company is receiving on its investment in Alaska (see Note 6).
In October 1994, the Company obtained $335,000 under a long-term
financing from a bank. The funds were utilized to partially
finance the construction of a three mile pipeline in Kansas City,
Kansas. In connection with this financing agreement, one of the
Company's pipeline systems is subject to a negative pledge to
keep the pipeline free and clear of all liens and encumbrances
and has been personally guaranteed by three major stockholders
who are also officers of the Company.
In November 1994, $165,000 was extended by a bank to partially
finance the construction of a pipeline in Albany, New York.
Under this agreement, the term loan is payable in monthly
installments of $3,438 principal plus accrued interest and the
final installment on February 15, 1997 being the amount of the
balance of principal ($75,625) plus accrued interest then
remaining outstanding and unpaid. In connection with this
financing agreement, one of the Company's pipeline systems is
subject to a negative pledge to keep the pipeline free and clear
of all liens and encumbrances and has been personally guaranteed
by three major stockholders who are also officers of the Company.
In October 1995, the Company entered into a new financing
agreement with an existing bank lender. The new agreement
provides for an initial $1,250,000 revolving line of credit with
the amount of available credit being reduced by $20,833 per
month. Upon maturity at November 1, 1998, the balance of
principal plus accrued interest then remaining outstanding and
unpaid is payable on full. The funds were used to repay existing
bank debt. In connection with this financing agreement, eight of
the Company's pipeline systems are subject to a negative pledge
to keep the pipelines free and clear of all liens and
encumbrances and has been personally guaranteed by three major
stockholders who are also officers of the Company. At December
31, 1995, the Company had $121,167 of available funds under this
credit facility.
In December 1995, the Company entered into a new financing
agreement with a bank lender. The new agreement provides for an
initial $1,500,000 revolving line of credit with the amount of
available credit being reduced by $17,860 per month. Upon
maturity at January 15, 1999, the balance of principal plus
accrued interest then remaining outstanding and unpaid is payable
in full. The funds were used to repay $1,200,000 in debt owed to
an affiliate for partially financing the Magnolia acquisition
(see Note 5) and other working capital needs. In connection with
this financing agreement, a $50,000 Certificate of Deposit and all of
Magnolia's stock has been pledged as collateral. Also, Magnolia's
pipeline system is subject to a negative pledge to keep the pipeline free
and clear of all liens and encumbrances and has been personally guaranteed
by three major stockholders who are also officers of the Company.
At December 31, 1995, the Company had $200,000 of available funds
under this credit facility.
In December 1994, an affiliate owned by certain officers and
directors of the Company provided a working capital loan of
$275,000 of which $75,000 was repaid during 1995. The loan
matures on April 1, 1997. No collateral was required to obtain
this loan.
In May 1995, an affiliate owned by certain officers and directors
of the Company provided a $173,822 loan to partially finance the
acquisition of a 23% working interest in oil and gas production
from two leases located in Starr County, Texas. The loan matures
on April 1, 1997. No collateral was required to obtain this
loan, although, in additional consideration for obtaining the
loan, the affiliated company was assigned a one-half percent
working interest in the oil and gas properties.
In December 1995, an affiliate owned by an officer and director
of the Company provided a working capital loan of $660,000. No
collateral was required to obtain this loan.
The Company is in compliance with various normal covenants and
certain financial ratios as required by its financing agreements.
The aggregate maturities of long-term debt for the five years
following December 31, 1995 are as follows:
For the Year Ending
December 31 (In Thousands)
1996 $ 541
1997 1,972
1998 1,036
1999 953
2000 -
Total $ 4,502
8. RELATED PARTY TRANSACTIONS:
In addition to the $275,000 working capital loan provided in
December 1994 as discussed in Note 7 herein, an affiliate owned
by certain officers and directors of the Company provided short-
term loans to fund the Company's investment in Alaska until long-
term bank financing was obtained. During 1994, short- term loans
of $316,250 were extended and subsequently repaid including
interest of $4,005 which was accrued at the prime rate plus 5%.
Affiliates owned by certain officers and directors of the Company
extended the collateral to obtain the long-term bank financing
for the Alaska investment. In consideration for extending the
collateral, the Company assigned a five percent net revenue
interest on the net income derived from the Company's investment
in the oil and natural gas gathering pipelines near Cook Inlet,
Alaska. However, the five percent net revenue interest applies
only after all costs associated with the investment have been
recouped by the Company. As a result, no amounts have yet been
paid under the assignment of the net revenue interest.
The Five Flags acquisition discussed in Note 4 above was financed
by an officer and director of the Company. A $1,872,450
promissory note was executed by the Company and called for
monthly payments of interest beginning April 1, 1996 until
December 31, 1996 at which time both principal any accrued
interest would be due in full. Interest accrued at the prime
rate plus 2%. However, the note plus accrued interest of
approximately $10,500 was repaid in full on October 2, 1995 using
the proceeds from the sale of the Five Flags investment.
In addition to the $660,000 working capital loan provided in
December 1995 as discussed in Note 7 herein, $1,200,000 was
borrowed from an affiliate owned by an officer and director of
the Company on October 2, 1995. These funds were used in
conjunction with the remainder of the sales proceeds of Five Flags
to fully retire the $500,000 Debenture and $2,700,000 Note due for the
acquisition of Magnolia. The loan agreement called for interest to be
accrued at the prime rate plus 5% and was due monthly beginning April 1,
1996. The loan was to mature on January 31, 1997, however, upon
consummation of the new $1,500,000 bank credit facility in
December 1995, the note plus accrued interest of $35,260 was
repaid in full.
As additional consideration for extending the $1,200,000 loan,
Midcoast granted the affiliate a 5% net revenue interest in
Magnolia's earnings before interest, income taxes and
depreciation to be paid on a monthly basis. At December 31,
1995, no amounts have yet been paid under the assignment of the
net revenue interest. Midcoast has the right to repurchase this
net revenue interest from the affiliate for a cash payment of
$25,000. However, the repurchase amount is increased an
additional $25,000 on November 1, 1995 and each following month
up to a maximum of $500,000.
9. COMMITMENTS AND CONTINGENCIES:
Gas Transportation Contracts
As of December 31, 1995, the Company had two executed gas
transportation contracts requiring the construction of pipelines
and related facilities which, if constructed, would cost
approximately $420,000. These construction obligations are subject
to the Company's obtaining necessary regulatory approvals and
financing.
The Company expects construction of these projects to begin during
the second quarter of 1996. Financing of the projects is
expected to be derived from one of the Company's existing bank
lenders.
Employment Contracts
The Chief Executive Officer and President of the Company, has an
employment agreement with the Company which terminates in
December 1997 pursuant to which he receives a base annual salary
of $125,000 adjusted for salary increases the Board of Directors
may approve. In 1994 and 1995, two key employees of the Company
entered into three and four year employment agreements,
respectively. These agreements may be terminated by mutual
consent or at the option of the Company for cause, death or
disability. In the event termination is due to death, disability
or defined changes in the ownership of the Company, the full
amount of compensation remaining to be paid during the term of
the agreement will be paid to the employee or their estate, after
discounting at 12% to reflect the current value of unpaid
amounts.
10. CAPITAL STOCK:
At December 31, 1995, the Company has authorized 6 million shares
of common stock of which 328,557 shares were issued and
outstanding. There are 17,800 shares issued and outstanding at
December 31, 1995 which are subject to a vesting schedule in
conjunction with employee shareholder agreements entered into
during 1994 and 1995 (see Note 15).
There are 1 million shares authorized and 200,000 shares
outstanding of the Company's 5% cumulative preferred stock ("5%
Preferred") at December 31, 1995. The 5% Preferred pays
quarterly dividends based on an annual rate of 5% of the stated
liquidation value and is redeemable in whole or in part at the
Company's option at a price per share based on the liquidation
value ($5.91 per share). The 5% Preferred votes as a separate
class with respect to any change in the preferences or other
rights attributable to the 5% Preferred. Upon the failure to
declare or pay quarterly dividends for two consecutive quarterly
periods, the holders of the 5% Preferred also have the right to
elect one director until such time as all accrued dividends have
been paid.
The Company may issue the remaining authorized shares of
preferred stock in one or more classes or series, with the
designations, powers, preferences, and rights thereon as
determined by the Board of Directors.
11. INCOME TAXES:
The Company has a net operating loss ("NOL") carryforward of
approximately $15.1 million expiring in various amounts from 1999
through 2008. In addition, the Company has an investment tax
credit (ITC) carryforward of approximately $354,000 which expires
primarily in 1997. These loss carryforwards were generated by
the Company's predecessor. The ability of the Company to utilize
the carryforwards is dependent upon the Company maintaining
profitable operations and staying in compliance with certain
Internal Revenue Service ("IRS") code provisions and regulations
associated with a change in shareholder control. Failure to
adhere to these IRS requirements could result in a significant
limitation of the Company's ability to utilize its NOL and ITC
carryforwards and could also result in a loss of utilization
altogether.
Under SFAS No. 109, deferred tax assets or liabilities are
computed based on the difference between the financial statements
and income tax bases of assets and liabilities using the enacted
tax rates. The tax effect of significant temporary differences
representing deferred tax assets and liabilities at December 31,
1995 and 1994, are as follows (in thousands):
December 31,
1995 1994
Net operating and capital loss carryforwards $ 5,124 $ 5,183
Investment tax credit carryforwards 354 354
Alternative minimum tax credits 44 -
Financial basis of assets in excess of tax basis (644) (644)
Valuation allowance (4,834) (4,893)
Net deferred tax assets $ 44 $ -
A reconciliation of the 1995 and 1994 provision for income taxes to
the statutory United States tax rate is as follows (in thousands):
December 31,
1995 1994
Federal tax computed at statutory rate $ 771 $ 50
Utilization of net operating loss carryforwards (771) (50)
Actual provision $ - $ -
12. MAJOR CUSTOMERS:
For the years ended December 31, 1995 and 1994, the Company derived
over 10% of its sales of natural gas and transportation fees from
Mid-America Pipeline Company and Westlake Petrochemicals
Corporation. They accounted for 40% and 14% during 1995, and 42%
and 21% during 1994, respectively.
13. CONCENTRATION OF CREDIT RISK:
The Company derives revenue from gas transmission and gathering
services for commercial companies located in Alabama, Alaska,
Kansas, Louisiana, New York, Oklahoma, and Texas. Two of Midcoast's
largest customers account for 49% or approximately $1.13 million of
the outstanding accounts receivable at December 31, 1995. The
Company performs ongoing evaluations of its customers and generally
does not require collateral. The Company assesses its credit risk
and provides an allowance for doubtful accounts for any accounts
which it deems doubtful of collection. At December 31, 1995, no
provision for doubtful accounts was required.
The Company maintains deposits in banks which may exceed the amount
of federal deposit insurance available. Management periodically
assesses the financial condition of the institutions and believes
that any possible deposit loss is minimal.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of trade receivables
and liabilities, notes payable to affiliates and various banks.
The Company believes the carrying value of these financial
instruments approximate their estimated fair value.
15. EMPLOYEE BENEFITS:
The Company issued a total of 14,200 and 8,100 common shares,
respectively, of the Company's common stock to certain key
employees in 1995 and 1994, respectively. Of the shares issued in
1995 and 1994, 13,000 and 8,000 respectively were issued in
connection with shareholder agreements with certain employees. The
shares vest in equal amounts: the 13,000 shares over a four year
period and the 8,000 shares over a five year period. The shares
were valued at the estimated fair market value on the date of
issuance. Compensation expense is being recognized rateably over
the vesting period.
In addition, employment agreements were entered into in 1995 and in
1994 which are further discussed in Note 9 herein.
16. SUBSEQUENT EVENT:
On February 28, 1996, the Company and Resource Energy Development
Company, L.L.C. ("Resource"), an unaffiliated third party, jointly
formed Pan Grande Pipeline, L.L.C. ("Pan Grande") a Texas Limited
Liability Company each owning a 50% interest. The companies joined
together for the purpose of acquiring, owning and operating
pipelines. On March 1, 1996, Pan Grande acquired six gas gathering
systems consisting of approximately 74 miles of pipeline located in
Texas from an unaffiliated third party. Cash consideration of
$1,000,000 was paid by Pan Grande for the systems. Pan Grande
financed $800,000 of the acquisition with a credit facility
obtained from a commercial lender. Midcoast as 50% owner of Pan
Grande has guaranteed 50% of the loan value. The remaining
$200,000 of the purchase price was obtained through equal $100,000
capital contributions from Midcoast and Resource. Midcoast will
act as manager of Pan Grande and operate the systems.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On March 17, 1994, Midcoast Energy Resources, Inc. (the "Company")
engaged the firm of Hein + Associates LLP, Houston, Texas, as
auditors to examine the books and accounts of the Company for the
fiscal year ending December 31, 1993. In connection therewith, on
March 18, 1994, the Company and Arthur Andersen & Co., the
Company's prior principal independent account, mutually agreed that
Arthur Andersen & Co. would be replaced by Hein + Associates LLP as
the Company's principal independent accountant. The decision to
replace Arthur Andersen & Co. and engage new auditors was
recommended and approved by the Board of Directors of the Company.
The decision to engage Hein + Associates LLP was largely based upon
financial considerations.
The prior reports of Arthur Andersen & Co., on the Company's
financial statements did not contain any adverse opinion or
disclaimer of opinion, and were not modified as to uncertainty,
audit scope or accounting principles.
There were no disagreements with Arthur Andersen & Co., whether or
not resolved, on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which, if not resolved to Arthur Andersen & Co.'s satisfaction,
would have caused it to make reference to the subject matter of the
disagreement in connection with its report.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 9, 10, 11 and 12 is incorporated
herein by reference to the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission in connection
with its Annual Shareholders' Meeting to be held on May 13, 1996.
Part IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-KSB
(a) 1. Financial Statements
All financial statements of Midcoast Energy Resources,
Inc. and subsidiaries are listed under Item 7 beginning on Page 22
of this Form 10-KSB.
2. Exhibits
The following instruments are included as exhibits to
this report. Those exhibits below incorporated by reference herein
are indicated as such by the information supplied in the
parenthetical thereafter. If no parenthetical appears after an
exhibit, copies of the instrument have been included herewith.
3.1 Certificate of Incorporation of Midcoast Energy
Resources, Inc.(Midcoast Form 10-KSB for the fiscal year ended
December 31, 1992).
3.2 By-Laws of Midcoast Energy Resources, Inc. (Midcoast
Form 10-KSB for the fiscal year ended December 31, 1992).
4.1 Restated Certificate of Voting Powers, Designations,
Preferences, Limitations, Restrictions and Relative Rights of the
5% Cumulative Preferred Stock of Midcoast Energy Resources, Inc.
(Midcoast Form 10-KSB for the year ended December 31, 1993).
4.2 Shareholder Agreement by and between Midcoast Energy
Resources, Inc. and Midcoast Natural Gas, Inc., Stevens G. Herbst
and Kenneth B. Holmes, Jr., dated November 16, 1992 (Midcoast Form
10-KSB for the fiscal year ended December 31, 1992).
4.3 Shareholder Agreement by and between Midcoast Energy
Resources, Inc., and Bill G. Bray dated April 30, 1994. (Midcoast
Form 10-KSB for the year ended December 31, 1994).
4.4 Shareholder Agreement by and between Midcoast Energy
Resources, Inc., and Duane S. Herbst dated April 30, 1994.
(Midcoast Form 10-KSB for the year ended December 31, 1994).
4.5 Shareholder Agreement by and between Midcoast Energy
Resources, Inc., and Richard A. Robert dated April 30, 1994.
(Midcoast Form 10-KSB for the year ended December 31, 1994).
4.6 Shareholder Agreement by and between Midcoast Energy
Resources, Inc., and Iris J. Berthelot, II dated April 30, 1994.
(Midcoast Form 10-KSB for the year ended December 31, 1994).
10.1 Employment Agreement by and between Midcoast Energy
Resources, Inc., and Dan C. Tutcher dated January 1, 1993 (Midcoast
Form 10-KSB for the year ended December 31, 1992).
10.2 Amendment dated April 1, 1993 to the Employment
Agreement by and between Midcoast Energy Resources, Inc., and Dan
C. Tutcher dated January 1, 1993 (Midcoast Form 10-KSB for the year
ended December 31, 1993).
10.3 Employment Agreement by and between Midcoast Energy
Resources, Inc., and Richard Robert dated April 30, 1994. (Midcoast
Form 10-KSB for the year ended December 31, 1994).
10.4 Employment Agreement by and between Midcoast Energy
Resources, Inc., and Bill G. Bray dated July 1, 1994. (Midcoast
Form 10-KSB for the year ended December 31, 1994).
10.5 Revolving Loan and Credit Agreement dated December 8,
1992, by and between New First City, Texas - Corpus Christi and
Midcoast Energy Resources, Inc. (Midcoast Form 8-K dated January 1,
1993).
10.6 First Amendment to Revolving Loan and Credit Agreement
dated December 8, 1992 by and between New First City, Texas -
Corpus Christi, N.A. and Midcoast Energy Resources, Inc. dated
January 6, 1993 (Midcoast Form 10-KSB for the year ended December
31, 1993).
10.7 Second Amendment to Revolving Loan and Credit Agreement
dated December 8, 1992 by and between Mercantile Bank, N.A.
formerly known as New First City, Texas - Corpus Christi, N.A. and
Midcoast Energy Resources, Inc., dated August 15, 1993 (Midcoast
Form 10-KSB for the year ended December 31, 1993).
10.8 Third Amendment to Revolving Loan and Credit Agreement
dated December 8, 1992 by and between Mercantile Bank, N.A.
formerly known as New First City, Texas-Corpus Christi, N.A. and
Midcoast Energy Resources, Inc., dated September 1, 1994. (Midcoast
Form 10-KSB for the year ended December 31, 1994).
10.9 Allonge and Amendment No. One to Promissory Note dated
December 8, 1992 by and between Mercantile Bank, N.A. formerly
known as New First City, Texas - Corpus Christi, N.A. and Midcoast
Energy Resources, Inc. dated April 29, 1993 (Midcoast Form 10-KSB
for the year ended December 31, 1993).
10.10 Allonge and Amendment No. Two to Promissory Note dated
December 8, 1992 by and between Mercantile Bank, N.A. formerly
known as New First City, Texas - Corpus Christi, N.A. and Midcoast
Energy Resources, Inc. dated June 16, 1993 (Midcoast Form 10-KSB
for the year ended December 31, 1993).
10.11 Allonge and Amendment No. Three to Promissory Note
dated December 8, 1992 by and between Mercantile Bank, N.A.
formerly known as New First City, Texas - Corpus Christi, N.A. and
Midcoast Energy Resources, Inc. dated August 15, 1993 (Midcoast
Form 10-KSB for the year ended December 31, 1993).
10.12 Promissory Note dated July 1, 1993 by and between
Mercantile Bank, N.A. and Midcoast Energy Resources, Inc. including
related Security Agreement and Continuing Unlimited Guaranty
Agreements also dated July 1, 1993 (Midcoast Form 10-KSB for the
year ended December 31, 1993).
10.13 First Amendment to Security Agreement dated July 1,
1993 by and between Midcoast Energy Resources, Inc., and Mercantile
Bank, N.A. dated September 1, 1994. (Midcoast Form 10-KSB for the
year ended December 31, 1994).
10.14 Promissory Note dated April 19, 1994 by and between
Mercantile Bank, N.A. and Midcoast Energy Resources, Inc.,
including related Security Agreements also dated April 19, 1994.
(Midcoast Form 10-KSB for the year ended December 31, 1994).
10.15 Revolving Credit Promissory Note dated September 1,
1994 by and between Mercantile Bank, N.A. and Midcoast Energy
Resources, Inc. (Midcoast Form 10-KSB for the year ended December
31, 1994).
10.16 Promissory Note dated December 1, 1994 by and between
American National Bank including related Non-Standard Financing
Agreement, Security Agreement and Commercial Guarantee Agreements
also dated December 1, 1994. (Midcoast Form 10-KSB for the year
ended December 31, 1994).
10.17 Promissory Note dated March 21, 1994 by and between
Texline Gas Company and Midcoast Energy Resources, Inc.. (Midcoast
Form 10-KSB for the year ended December 31, 1994).
10.18 Promissory Note dated April 1, 1994 by and between
Texline Gas Company and Midcoast Energy Resources, Inc.. (Midcoast
Form 10-KSB for the year ended December 31, 1994).
10.19 Promissory Note dated December 30, 1994 by and between
Texline Gas Company and Midcoast Energy Resources, Inc.. (Midcoast
Form 10-KSB for the year ended December 31, 1994).
10.20 Assignment of Net Revenue Interest dated July 1, 1994
by and between Texline Gas Company and Midcoast Energy Resources,
Inc.. (Midcoast Form 10-KSB for the year ended December 31, 1994).
10.21 Assignment of Net Revenue Interest dated July 1, 1994
by and between Rainbow Investments Co. and Midcoast Energy
Resources, Inc.. (Midcoast Form 10-KSB for the year ended December
31, 1994).
10.22 Agreement for Purchase and Sale of Stock dated November
20, 1992, by and between Harbert Holdings No. One, Inc., and
Midcoast Energy Resources, Inc. (Midcoast Form 8-K dated January 1,
1993, as Exhibit 2.1).
10.23 Agreement for Purchase and Sale of Stock dated July 15,
1993 by and between Midcoast Holdings No. One, Inc. and Sunshine
Interstate Pipeline Partners (Midcoast Form 8-K dated September 2,
1993).
10.24 Agreement dated March 31, 1994 by and between Midcoast
Energy Resources, Inc., and Stewart Petroleum Company (Midcoast
Form 10-KSB for the year ended December 31, 1993).
10.25 Agreement for Purchase and Sale of Stock dated
September 6, 1995, by and between Midcoast Holdings No. One, Inc.
and KOCH Gateway Pipeline Company.
10.26 First Amendment to Agreement for Purchase and Sale of
Stock dated September 6, 1995, by and between Midcoast Holdings No.
One, Inc. and KOCH Gateway Pipeline Company dated October 2, 1995.
10.27 Agreement for Purchase and Sale of Stock dated
September 13, 1995, by and between Five Flags Holding Company and
Midcoast Holding No. One, Inc.
10.28 Agreement for Purchase of Stock dated September 13,
1995, by and between Midcoast Holdings No. One, Inc. and Rainbow
Investments Company.
10.29 Agreement for Purchase and Sale of Stock dated July 27,
1995, by and between Williams Holdings of Delaware Inc. and
Midcoast Holdings No. One, Inc. (Midcoast Form 8-K dated September
22, 1995).
10.30 Subordinated Debenture dated September 8, 1995 by and
between Midcoast Energy Resources, Inc. and Williams Holdings of
Delaware, Inc. (Midcoast Form 8-K dated September 22, 1995).
10.31 Nonrecourse Promissory Note dated September 8, 1995 by
and between Midcoast Holdings No. One, Inc. and Williams Holdings
of Delaware, Inc. (Midcoast Form 8-K dated September 22, 1995).
10.32 Allonge and Amendment No. One to Revolving Credit
Promissory Note dated September 1, 1994, by and between Mercantile
Bank, N.A. and Midcoast Energy Resources, Inc. dated September 22,
1995.
10.33 Allonge and Amendment No. Two to Revolving Credit
Promissory Note dated September 1, 1994, by and between Mercantile
Bank, N.A. and Midcoast Energy Resources, Inc. dated November 1,
1995.
10.34 Fourth Amendment to Revolving Loan and Credit Agreement
dated December 8, 1992 by and between Mercantile Bank, N.A.
formerly known as New First City, Texas - Corpus Christi, N.A. and
Midcoast Energy Resources, Inc. dated November 1, 1995.
10.35 Revolving Credit Agreement dated October 31, 1995 by
and between American National Bank and Midcoast Energy Resources,
Inc. including related Revolving Credit Promissory Note, Security
Agreement, Non-Standard Financing Statement and Commercial
Guarantee Agreements also dated October 31, 1995.
10.36 Loan Agreement dated October 3, 1995 by and between
Midcoast Energy Resources, Inc. and Rainbow Investments Company
including related Promissory Note and Security Agreement also dated
October 3, 1995.
10.37 Assignment of Net Revenue Interest dated October 3,
1995, by and between Midcoast Energy Resources, Inc. and Rainbow
Investments Company.
10.38 Loan Agreement dated September 13, 1995, by and between
Midcoast Energy Resources, Inc. and Stevens G. Herbst including
related Promissory Note, Security Agreements and Guaranty Agreement
also dated September 13, 1995.
10.39 Promissory Note dated May 30, 1995 by and between
Midcoast Energy Resources, Inc. and Texline Gas Company.
10.40 Employment Agreement by and between Midcoast Energy
Resources, Inc. and I.J. Berthelot, II dated April 17, 1995.
10.41 Amendment to Employment Agreement dated April 17, 1995
by and between Midcoast Energy Resources, Inc. and I.J. Berthelot,
II dated December 8, 1995.
10.42 Credit Agreement dated December 20, 1995 by and between
Compass Bank - Houston and Magnolia Pipeline Corporation including
related Financing Statement, Subordination Agreement, Security
Agreements, Promissory Note, and Guaranty Agreements.
10.43 Operating Agreement of Pan Grande Pipeline, L.L.C. by
and between Midcoast Holdings No. One, Inc. and Resource Energy
Development, L.L.C. dated February 28, 1996.
16.1 Letter dated March 22, 1994, from Arthur Andersen & Co.
as to change in certifying accountant (Midcoast Form 8-K dated
March 17, 1994).
18.1 Preferability letter from Hein + Associates, independent
public accountants, regrding change in accounting principle.
22.1 Schedule listing subsidiaries of Midcoast Energy
Resources, Inc..
27.1 Financial Data Schedule for the year ended December 31,
1995.
(b) Reports on Form 8-K
A report on Form 8 was filed during the fourth quarter of 1995.
Such report was filed on November 16, 1995 and was filed as
Amendment No. 1 to the report on Form 8-K dated September 22, 1995.
The
amendment was filed to include the financial statements required as
a result
ofthe acquisition of Magnolia Pipeline Corporation.
Signatures
In accordance with Section 13 or 15 (d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
MIDCOAST ENERGY RESOURCES, INC.
(Registrant)
BY: /s/ Dan C. Tutcher
Dan C. Tutcher
Chief Executive Officer
Date: March 27, 1996
In accordance with the Exchange Act, this report has been
signed by the following persons on behalf of the registrant and in
the capacities on March 28, 1996.
Signatures Capacity in Which Signed
/s/ Dan C. Tutcher Chairman of the Board
(Dan C. Tutcher) Chief Executive Officer
and President
/s/ Stevens G. Herbst Executive Vice President
(Stevens G. Herbst) and Director
/s/ Kenneth B. Holmes, Jr. Vice President and Director
(Kenneth B. Holmes, Jr.)
/s/ Richard A. Robert Controller
(Richard A. Robert)
EXHIBIT 10.25
AGREEMENT FOR PURCHASE AND SALE OF STOCK
This Agreement for Purchase and Sale of Stock (this "Agreement") is
made and entered into as of the 6th day of September 1995, by and
between MIDCOAST HOLDINGS NO. ONE, INC., a Delaware corporation,
("Seller"), and KOCH GATEWAY PIPELINE COMPANY., a Delaware
corporation ("Buyer"). (Seller and Buyer are sometimes hereinafter
referred to collectively as the "Parties" and individually as a
"Party".)
W I T N E S S E T H:
WHEREAS, Seller is currently in the process of repurchasing
all of the issued and outstanding shares of capital stock of Five
Flags Pipe Line Company from Five Flags Holding Company (the HOLDING
COMPANY TRANSACTION), and Seller presently owns all of the issued and
outstanding shares of capital stock of H&W Pipeline Corporation
(Five Flags Pipe Line Company and H&W Pipeline Corporation being
hereinafter sometimes jointly referred to as the "Companies");
WHEREAS, Buyer desires to purchase from Seller, and Seller
desires to sell to Buyer, all of the issued and outstanding shares
of capital stock of Five Flags Pipe Line Company (the "Five Flags
Stock") immediately upon its acquisition by Seller from Five Flags
Holding Company and all of the issued and outstanding shares of
capital stock of H&W Pipeline Corporation (the "H&W Stock"); and
WHEREAS, the Parties desire this Agreement to set forth the
terms and conditions upon which they are willing to sell and
purchase the Five Flags Stock and the H&W Stock;
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements contained herein, the sufficiency
of which is hereby acknowledged, the Parties, intending to be
legally bound, covenant and agree as follows:
1. Purchase and Sale; Purchase Price.
Subject to the terms of this Agreement, at the closing
provided for in Section 3 of this Agreement (the "Closing"), Seller
agrees to sell, assign, transfer and deliver to Buyer, and Buyer
agrees to purchase and acquire from Seller, the Five Flags Stock
and the H&W Stock. Notwithstanding the above, Buyer may prior to
closing with or without cause elect in writing not to purchase the
H&W Stock, in which event, all references to H&W Pipeline
Corporation in this Agreement shall be void and have no force or
effect in this Aagreement, and the Parties agree that they shall
proceed with the purchase and sale of the Five Flag Stock as
otherwise described herein.
The amount to be paid by Buyer to Seller is Four Million
Seven Hundred Fifty Thousand and No/100 Dollars ($4,750,000.00) for
the Five Flags Stock and Two Hundred Fifty Thousand and No/100
Dollars ($250,000.00) for the H&W Stock, subject to any adjustments
which may be made pursuant to Section 10 of this Agreement
(collectively, the "Purchase Price"). The Purchase Price shall be
paid by Buyer to Seller at the Closing by cashier's or certified
check, or, at Seller's election, by wire transfer of immediately
available funds to a bank account designated by Seller.
2. Instruments of Conveyance. At the Closing, as provided
for in Section 3 of this Agreement, Seller will assign, transfer
and deliver to Buyer all right, title, and interest in and to the
Five Flags Stock and the H&W Stock, (such issued and outstanding
shares of the Five Flags Stock and the H&W Stock being hereinafter
collectively referred to as the "Stock"). Certificates
representing the Stock delivered to Buyer shall be duly endorsed in
blank, or accompanied by duly executed stock powers in blank and
otherwise in proper form for transfer. At the Closing, Seller
shall also deliver to Buyer a copy of all required resolutions or
consents of the Board of Directors and the sole Shareholder of
Seller, and a certificate of incumbency of representatives of
Seller executing this Agreement duly certified by an appropriate
officer, approving the execution and delivery of this Agreement and
the consummation of the transaction contemplated hereby.
3. Closing. The closing of the purchase and sale of the Five
Flags Stock and the H&W Stock shall all take place no later than
3:00 p.m. on the fifth day following the date on which all
conditions to Closing, as set out in Sections 8 and 9 of this
Agreement, have been met, unless terminated by either Party hereto
pursuant to Section 12 of this Agreement (the "Closing"). The
Closing shall be held at the offices of Seller in Houston, Texas,
or such other place as the Parties may mutually agree upon in
writing (the date on which Closing occurs being referred to herein
as the "Closing Date"). The Closing shall be effective as of 7:00
a.m. Florida time, on the Closing Date (the "Effective Date").
4. Representations, Warranties and Covenants of Seller.
Seller represents, warrants and covenants to Buyer as of the date
of this Agreement and on and as of the Closing Date, the following:
(a) Seller has full, complete and absolute title to the
H&W Stock. At the Closing, Seller will have full, complete and
absolute title to the Five Flags Stock. The Stock constitutes 100%
of the issued and outstanding securities of any kind. No person or
entity other than the Seller has any record or beneficial ownership
interest whatsoever in the Stock;
(b) Seller's ownership of the Stock at Closing shall
consist of good, valid and indefeasible title thereto, and the
Stock shall be free and clear of any liens, security interests,
encumbrances, options, calls, pledges, trusts, voting trusts,
covenants, restrictions, reservations, claims and other burdens of
any type whatsoever;
(c) Five Flags Pipe Line Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Florida. H&W Pipeline Corporation is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Alabama. Both of the Companies have the
requisite power and authority to own or lease and operate their
properties and to carry on their business as now being conducted,
and both of them are duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property
owned or leased and operated by them or the nature of the business
conducted by them make such qualifications or licensing necessary;
(d) All of the Stock is validly issued, fully paid and
nonassessable. All dividends and other distributions declared with
respect to the Stock have been paid or distributed. There are no
existing subscriptions, rights, warrants, calls, options,
commitments or agreements of any character relating to the Stock
which is authorized but unissued or held in the treasury. Copies
of the Articles of Incorporation (certified by the Secretary of
State) and the Bylaws (certified by the respective Secretary) of
both of the Companies shall be delivered by Seller to the Buyer no
later than 10 days after the closing of the Holding Company
Transaction, and will be true, correct and complete and reflect all
amendments thereto as of the date thereof;
(e) The present directors and officers of H&W Pipeline
Corporation are set forth on Schedule 4(e) attached hereto. After
Seller's reacquisition of Five Flags Pipe Line Company, Schedule
4(e) will be amended to set forth the then present directors and
officers of Five Flags Pipe Line Company. The written resignations
of all directors and officers of both of the Companies will be
delivered to Buyer at Closing;
(f) A balance sheet of H&W Pipeline Corporation dated as
of the 31st day of July, 1995 (the "H&W Balance Sheet") is attached
hereto as Schedule 4(f-1). A balance sheet of Five Flags Pipe Line
Company dated the effective date of the Holding Company Transaction
(the "Five Flags Balance Sheet") will be attached hereto as
Schedule 4(f-2) no later than ten (10) days after the closing of
the Holding Company Transaction. The H&W Balance Sheet and the
Five Flags Balance Sheet will both correctly set forth the
financial condition of the respective Companies as of the dates
indicated and title to all assets referred to or shown on the
respective balance sheet of the Companies will be vested in the
respective Companies as of said dates, except for cash and accounts
receivable which pursuant to Section 7 shall be retained by Seller.
All assets referred to or shown on the respective balance sheets
for the Companies will be free of any liens, indebtedness security
interests, claims to ownership by others, or other like
encumbrances. To the best of Seller's knowledge (as used in this
Agreement, the term to the best of Seller's knowledge' shall mean
the knowledge of Seller after due inquiry as well as the four
employees of Five Flags Pipe Line Company at the Pace Florida
office). The books of account, as summarized in the H&W Balance
Sheet and the Five Flags Balance Sheet, will accurately reflect the
assets and known liabilities of the respective Companies. Between
execution of this Agreement and Closing with respect to the
acquisition of H&W Pipeline Company and between the acquisition of
Five Flags Pipeline Company by Seller and Closing, there will not
be: (i) any materially adverse change in the financial condition,
business, operations, properties, assets or liabilities (whether
direct, indirect, accrued, absolute, contingent or otherwise) of
either of the Companies other than changes in the ordinary course
of business, (ii) any damage, destruction or loss whether covered
by insurance or not, materially and adversely affecting the
properties or business of either of the Companies; (iii) any
increase in the compensation payable or to become payable by either
of the Companies to any of its directors, officers, employees or
agents or in any stock option, bonus payment, service award,
pension, retirement, expense allowance or other arrangement made to
or with any of them; (iv) any sale, assignment, lease, transfer,
license, abandonment or other disposition by either of the
Companies of any interest in its properties, excluding inventory
sold in the ordinary course of business, and specifically including
but not limited to any machinery, equipment or other operating
property, any patent, trademark, service mark, trade name, brand
name, copyright (or pending application for any patent, trademark,
service mark or copyright), invention, process, know-how, formula,
pattern, design, trade secret or interest thereunder or other
intangible asset; (v) any declaration, setting aside or payment of
any dividend or other distribution on or in respect of shares of
the Stock, or any direct or indirect redemption, retirement,
purchase or other acquisition by the Company of any such shares;
(vi) any stock dividend, stock split, reorganization,
recapitalization or other change of any type whatsoever in the
Stock; (vii) any incurrence of indebtedness, pledge, security
interest, liens or like debts or encumbrances other than those
incurred in the ordinary course of business for trade account
payables; or (viii) any dispute or any other occurrence, event or
condition of any character, which reasonably could be anticipated
to give rise to a legal or administrative action or to a material
adverse effect upon the condition (financial or otherwise) of the
business, operations, properties, assets or liabilities (whether
direct, indirect, accrued, absolute, contingent or otherwise) of
the Company (whether or not covered by insurance); and to the best
of Seller's knowledge, none of the above events described in (i)
through (viii) are anticipated or shall have taken place between
the time of the execution of this Agreement and the reacquisition
by Seller of Five Flags Pipeline Line Company;
(g) All tax returns required to be filed by the
Companies on or before the Closing Date for all years prior to the
current tax year have been filed, and all taxes calculated thereon
have been paid, and to the best of Seller's knowledge such tax
returns have been properly prepared and executed pursuant to
applicable laws and regulations;
(h) Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state where
formed and conducting business. Seller has all requisite corporate
power and authority and is entitled to carry on its business as now
being conducted;
(i) Neither the execution, delivery, nor the performance
of this Agreement by Seller will conflict with, result in a default
or loss of rights under, or result in the creation of any lien,
charge or encumbrance pursuant to, any provision of Seller's
certificate of incorporation or by-laws or any material franchise,
mortgage, deed of trust, lease, license, agreement or
understanding, or any order or judgment or decree to which Seller
is a party or by which Seller is bound. Seller has the full power
and authority to enter into this Agreement and to carry out the
transaction contemplated hereby, and this Agreement has been duly
authorized and executed by Seller and constitutes a valid and
binding obligation of Seller, enforceable against Seller in
accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or other laws relating to or
affecting the enforcement of creditors' rights generally and
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law);
(j) To the best of Seller's knowledge, there are no
claims, legal actions or suits pending against or relating to the
Companies, their properties, assets or business, and Seller is not
aware of any facts which might result in such a claim, action,
suit, arbitration or other proceeding;
(k) To the best of Seller's knowledge, except as set
forth in Schedule 4(k) hereto: (i) the Companies have all permits,
licenses, certificates and other authorizations necessary for them
to carry on their respective business in its current manner; (ii)
the Companies have not received any written notice that they, or
either of them, have failed to comply with any laws, rules,
regulations, ordinances, licenses, permits, judgments, decrees and
orders of federal, state and local or other governmental
authorities having jurisdiction applicable to their respective
properties, assets or business which have not been previously
remedied; and (iii) Seller and each of the Companies, respectively,
are not in violation of or in default under any terms or provisions
of their certificate of incorporation or by-laws, as presently in
effect, or of any material liens, mortgage, lease or agreement, or
of any order, judgment or decree to which Seller or the Companies
are a named party;
(l) The Companies have good and marketable title to
their respective assets described or referred to in the Exhibits
hereto (the "Companies' Assets"), other than the Leased Property
and the pipeline rights-of-way of H&W Pipeline Company, free of any
liens, security interests or other like encumbrances;
(m) All ad valorem and personal property taxes assessed
against the Companies' Assets (including any penalties or
assessments for delinquencies in payment) and all other taxes of
any nature with respect to the Companies' Assets which are due and
payable by the Companies as of the Closing Date will be paid in
full by said Closing Date;
(n) Five Flags Pipe Line Company owns a natural gas
transmission pipeline system situated in Escambia and Santa Rosa
Counties, Florida, as depicted on the map attached as Exhibit "A-1"
hereto, consisting of approximately 42 miles of 10" diameter 0.219
wall 2X52 pipe, approximately 15 miles of 8" diameter 0.280 wall
X42 pipe, and various meters and metering stations, control
equipment, corrosion equipment, dehydration facilities, buildings
and other operating equipment attached to, or used or held for use
in the operation of said natural gas transmission pipeline system
(collectively the "Five Flags Pipeline System"). H&W Pipeline
Corporation owns a non-operating natural gas transmission pipeline
situated in Escambia County, Alabama, as depicted on the map
attached as Exhibit "A-2" hereto, consisting of approximately 350
feet of 6" O.D. schedule, 40 seamless, Grade B, coated and wrapped
pipe, 42,000 feet of 6" O.D. x 0.188" W.T., X-42 coated and wrapped
pipe, 2-6" block valve settings, and 200 feet of 6" O.D. x 0.250"
W.T., X-42 pipe (The Big Escambia Creek Crossing), station adjacent
to the Exxon-Big Escambia Creek Plant which consists of a 6" pig
launcher/receiver and the associated valves, fittings, and piping,
and a metering and control station at Exxon Flomation Plant which
consists of a 4" orifice meter, a 4" pressure control valve, a 2"
flow control valve and a 6" pig launcher/receiver with the
associated valves, fittings, piping and instrumentation (the "H&W
Pipeline");
(o) A schedule of (i) all vehicles, (ii) all, or
substantially all, office equipment, and (iii) all leases of
personal property, of Five Flags Pipe Line Company is attached
hereto as Exhibit "B" (collectively the "Equipment");
(p) That certain lease (the "Lease") of real property,
relating to office space and equipment storage ("Leased Premises"),
presently held in the name of Five Flags Pipe Line Company,
described in Exhibit "C" hereto, is the only lease of real property
affecting either of the Companies which is presently in force and
effect;
(q) A schedule of all easement agreements and other
similar agreements of Five Flags Pipe Line Company is attached
hereto as Exhibit "D" (the "Easement Agreements");
(r) A schedule of all or substantially all maintenance
and operating supplies, fuel and spare parts for the Equipment of
Five Flags Pipe Line Company is set forth as Exhibit "E" hereto
(collectively the "Inventory");
(s) A schedule of all gas transmission contracts and
other similar agreements of Five Flags Pipe Line Company is set
forth as Exhibit "F" hereto (the "Transmission Contracts");
(t) A schedule of all certificates of occupancy and
other licenses, permits, orders or approvals of any federal, state
or local governmental or regulatory body relating to the use,
operation, or enjoyment of the assets of Five Flags Pipe Line
Company is set forth in Exhibit "G" hereto (the "Permits");
(u) A schedule of all easements, rights-of-way,
licenses, permits, surface use agreements and other similar
agreements of H&W Pipeline Corporation is attached hereto as
Exhibit "H" (the "H&W Agreements");
(v) To the best of Seller's knowledge, the Exhibits to
this Agreement collectively constitute a complete and correct list
and description of all material agreements or contracts affecting
the Companies' Assets, as operated in the ordinary course of
business, including all amendments, modifications, revocations and
notices, except those that would not have a material adverse effect
upon the rights, obligations or liabilities of the Companies under
said contracts;
(w) To the best of Seller's knowledge, the contracts,
agreements, permits and other documents listed on Exhibits "D", "F"
and "G" hereto are all valid, binding and enforceable in accordance
with their terms and are in full force and effect and there are no
facts which would give rise to a claim otherwise. To the best of
Seller's knowledge, Five Flags Pipe Line Company has performed all
obligations and made all payments required, to be performed or paid
under such contracts, agreements and other documents and Seller has
not received any written or oral notice from any party to said
contracts and agreements claiming the existence of any default
under any of such contracts, agreements or other documents which
have not been previously remedied;
(x) To the best of Seller's knowledge, except as
disclosed to Buyer on Schedule<PAGE>
4(x) hereto, neither of the Companies is in
violation of any federal, state or local law, ordinance or regulation
relating to the environment on, under or about any real property or related
facilities and equipment owned or used by either of the Companies
including, but not limited to, soil and groundwater conditions. To
the best of Seller's knowledge, there is no contamination, waste or
Hazardous Substance in existence on or below the surface of any
real property within the United States owned by the Companies, or
in any building located upon such property, including without
limitation, contamination of the soil, subsoil or ground water,
which exposes the Companies to liability to third parties; nor are
the Companies subject to any reporting requirement with respect
thereto nor have they received any notices with respect thereto.
To the best of Seller's knowledge, there is no actual or threatened
proceeding or investigation by any governmental entity with respect
to the presence of such Hazardous Substance on any real property
owned or leased by either of the Companies or the migration thereof
from or to other property, and neither of the Companies has ever
been requested mandated or ordered by any governmental entity to
treat, clean-up or otherwise dispose, remove or neutralize any
Hazardous Substance from or on any real property owned or leased by
either of the Companies. For purposes of this Agreement,
"Hazardous Substances" shall mean (but shall not be limited to)
substances defined or listed as hazardous substances, hazardous
materials, hazardous wastes or toxic substances, or any
variation thereof, in or determined at any time to be such pursuant
to applicable laws, and regulations adopted and publications set
forth in or promulgated pursuant to such laws, including, without
limitation: (i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C.
Sections 9601 et seq.; Hazardous Materials Transportation Act, 49
U.S.C. Section 1801 et seq.; the Resource Conservation and
Recovery Act, 42 U.S.C. Sections 6901 et seq.; and (ii)
pesticides, fungicides, solvents, herbicides, flammable explosives,
asbestos, polychlorinated biphenyls, radioactive materials; and
petroleum, and drilling fluids, produced waters and other wastes
associated with the exploration, development, or production of
crude oil, natural gas or geothermal energy;
(y) To the best of Seller's knowledge, neither the
execution and delivery of, nor Seller's performance under this
Agreement, is prohibited by or requires any consent, authorization,
approval or registration under any law, rule or regulation, other
than those customarily required in transactions of this type, or
under any judgment, order, writ, injunction or decree to which
Seller was a named party;
(z) Neither of the Companies are subject to any
arrangement to purchase gas or under any arrangement which the
Companies will be obligated, by virtue of a prepayment arrangement,
a "take-or-pay" arrangement, a production payment, or any other
arrangement, to transport or deliver hydrocarbons at some future
time without then or thereafter receiving full payment therefor, or
to make payment at some future time for hydrocarbons or the
transportation or delivery of hydrocarbons previously purchased or
transported;
(aa) To the best of Seller's knowledge, none of the
statements, representations or warranties made by Seller in this
Agreement, or in any Exhibit or Schedule hereto, or in any
certificate or other document delivered with or pursuant to this
Agreement, contains any untrue statement of any material fact, or
omits to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under
which they were made, not misleading. Except as and to the extent
expressly set forth in this Agreement, or in any Exhibit or
Schedule hereto, Seller makes no representations or warranties
whatsoever. Seller disclaims all liability and responsibility for
any negligent representation, warranty, statement or information
made or communicated, by oversight or otherwise (orally or in
writing) to Buyer other than those expressly made by Seller in this
Agreement or in the Exhibits and Schedules hereto (including, but
not limited to, any opinion, information or advice which may have
been provided to Buyer by Seller or Five Flags Pipe Line Company,
H&W Pipeline Corporation, or any of their respective stockholders,
officers, directors, employees, agents, attorneys, consultants,
representatives, or any party acting on their behalf). This
subparagraph (aa) shall not excuse Seller from any intentional
misrepresentation, statement, warranty or act in furnishing
incorrect, false or misleading information to Buyer by Seller or
any person acting on behalf of Seller, if made, given or done with
the intent that the other Party rely thereon and be misled thereby;
(bb) there are no agreements allowing another party to
purchase all or some of the Companies' Assets;
(cc) the Lease is in full force and effect in accordance
with its terms and Seller knows of no default thereunder or no
condition or event under which the lessor under the Lease could
terminate the Lease prior to the end of the primary term or any
extension thereof;
(dd) Neither of the Companies is a party to any partner-
ship or joint venture;
(ee) Schedule 4(ee) attached hereto is a complete list
of all policies of insurance with respect to the Companies' Assets,
all of which will remain in full force and effect until the Closing
Date;
(ff) Between the date of this Agreement and the Closing
Date, neither of the Companies will: (a) transfer, sell or
otherwise dispose of any corporate property or assets material to
the operation of its business other than in the ordinary and
usual course of its business as heretofore conducted, save and
except such items as shall have become no longer useful, obsolete
or worn out, or rendered of no further use, and, if heretofore
useful in the conduct of its business and operations, as may have
been replaced with other items of substantially the same value and
utility as the items transferred, sold, exchanged or otherwise
disposed of; (b) create, participate in or agree to the creation of
any liens or encumbrances on its corporate property, save and
except liens for taxes not yet due and liens created in the
ordinary and usual course of its business as heretofore conducted
in connection with normal purchases of natural gas; (c) enter into
any leases, contracts or agreements of any kind or character
extending for more than a sixty (60) day period unless terminable
by giving sixty (60) days or less advance written notice, or incur
any liabilities, save and except those to which it is presently
committed and which are disclosed herein or in the Exhibits hereto;
(d) make any payments or distributions to or for the benefit of any
of its officers, directors, stockholders or employees, save and
except wages and salaries made to employees in the ordinary and
usual course of the business as heretofore conducted and
contributions required pursuant to any health and/or life insurance
plans presently in effect; (e) amend or repeal its Articles of
Incorporation or Bylaws or issue any shares of capital stock in
addition to, and other than, the shares heretofore issued, or
reissue any treasury stock; (f) take any action that is materially
different or varies from the ordinary course of its business; or
(g) not pay or agree to pay any severance or termination benefit to
any employee of the Companies that is triggered by the Closing and
that would be binding upon Buyer or it, or affect its ownership,
operation and enjoyment of its assets;
(gg) Schedule 4(gg) attached hereto is a schedule of (i)
the name of each bank, savings and loan or other financial
institution at which Five Flags Pipe Line Company has any account
or safe deposit box, including the style and number of each such
account or safe deposit box and the names of all persons authorized
to draw thereon or who have access thereto, and (ii) the name of
each person, corporation, firm, association or business entity or
enterprise holding a general or special power of attorney from the
Companies and a summary of the terms thereof. (H&W Pipeline
Corporation has no accounts and no safe deposit box);
(hh) Schedule 4(hh) attached hereto sets forth all
pension plans, profit sharing plans, retirement benefit plans,
executive compensation arrangements, deferred compensation
arrangements, retiree medical arrangements, employment contracts,
health, disability and/or life insurance plans, and other benefit
plans, payments or arrangements for employees of Five Flags Pipe
Line Company (the "Benefit Plans") presently in effect with respect
to the Companies. Seller has heretofore delivered to Buyer true,
correct and complete copies of summary plan descriptions of all
Benefit Plans and will provide Buyer with such additional
information regarding the Benefit Plans as Buyer may reasonably
request. (H&W Pipeline Corporation has no employees.);
(ii) To the best of Seller's knowledge, Schedule 4(ii)
hereto setting forth the Pipeline Class Location Rating and
M.A.O.P. Determination for the Five Flags Pipeline System, from
which pressure ratings may be obtained and pipeline capacities
evaluated, is accurate;
(jj) To the best of the Seller's knowledge except as
disclosed to Buyer on Schedule 4(x) hereto, neither of the
Companies is in violation of any federal, state or local law,
ordinance or regulation; and
(kk) Seller shall represent and warrant at Closing that
to the best of its knowledge it has made available at either its
office or that of the Companies all materials, records, documents,
and other information in its possession or in the possession of
Five Flags Pipe Line Company at its Pace Florida office to Buyer
for its inspection and review.
5. Representations, Covenants, and Warranties by
Buyer. Buyer represents, warrants, and covenants to Seller as of
the date of this Agreement and on and as of the Closing Date, the
following:
(a) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
where formed and conducting business. Buyer has all requisite
power and authority and is entitled to carry on its businesses as
now being conducted;
(b) Neither the execution, delivery nor the performance
of this Agreement by Buyer will conflict with, result in a default
or loss of rights under, or result in the creation of any lien,
charge or encumbrance pursuant to, any provision of Buyer's
certificate of incorporation or by-laws or any material franchise,
mortgage, deed of trust, lease, license, agreement or
understanding, or any order or judgment or decree to which Buyer is
a party or by which Buyer is bound or affected. Buyer or its
nominee has the full power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby,
and this Agreement has been duly authorized and executed by Buyer
and constitutes a valid and binding obligation of Buyer or its
nominee, enforceable against Buyer or its nominee in accordance
with its terms, except as such enforceability may be limited by
bankruptcy, insolvency or other laws relating to or affecting the
enforcement of creditors' rights generally and general principles
of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law). Buyer or its nominee has
complied with all applicable laws and regulations and has all
certificates, permits, approvals, and licenses from any and all
governmental authorities that may be required for Buyer or its
nominee to validly own the Stock;
(c) To the best of Buyer's knowledge, there are no
claims, legal actions, suits, arbitrations, governmental
investigations or other administrative proceedings in progress or
pending against or relating to Buyer, and Buyer is not aware of any
facts which might result in such claim, action, suit, arbitration
or other proceeding which might reasonably be expected to have a
material adverse effect on Buyer's or Buyer's assignee's ability to
perform this Agreement;
(d) To the best of Buyer's knowledge, none of the
statements, representations or warranties made by Buyer in this
Agreement, or in any certificate or other document delivered with
or pursuant to this Agreement, contains any untrue statement of any
material fact, or omits to state any material fact necessary in
order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading;
(e) In the event Buyer elects to inspect and/or
investigate the Five Flags Pipeline System, the H&W Pipeline or any
of the other assets constituting a portion of the Companies'
Assets, Buyer shall have the duty to disclose in writing to Seller,
prior to Closing, any fact or results obtained through such
inspection and/or investigation which Buyer knows to constitute a
material violation of any local, state or federal laws, rules or
regulations;
(f) Buyer has obtained prior to the date of this
Agreement, the requisite power and authority to execute and enter
into this Agreement and to close the transactions contemplated
hereby without further action or resolution by the Board of
Directors of Buyer; and
(g) Buyer covenants that it shall diligently seek to
obtain all requisite consent approvals needed from any government
entity to consummate the transactions contemplated herein. (The
period of time within it takes for Buyer to obtain such requisite
approvals, if any, is hereinafter referred as the "Approval
Period")
6. Liabilities and Obligations Assumed by Seller.
Notwithstanding Buyer's purchase of the Five Flags Stock and the
H&W Stock, Buyer and Seller expressly agree that Seller shall
expressly assume and timely pay or perform immediately prior to
Closing or as soon thereafter as practical if not payable prior, as
applicable, all liabilities and obligations related to the
operation of the Companies prior to the Effective Date, including
but not limited to the following liabilities and obligations of
Five Flags Pipe Line Company and H&W Pipeline Corporation:
(a) all accounts payable accruing prior to the Effective
Date or otherwise attributable to such period;
(b) all expenses and similar current liabilities accruing prior to
the Effective Date or otherwise attributable to such period;
(c) all "Taxes" (as defined in Section 16 of this
Agreement) arising from the ownership or use of the Companies'
Assets prior to the Effective Date and any other operations of the
Companies;
(d) all obligations accruing prior to the Effective Date
under, and all liabilities and obligations arising on or after the
Closing Date by reason of any breaches or defaults prior to the
Closing Date under, any of the following: (i) the Lease, (ii) the
Easement Agreements, (iii) the Transmission Contracts, (iv) the
Permits, and (v) the H&W documents;
(e) for periods prior to the Effective Date, any and all
claims, wages, payroll taxes, or other liabilities arising out of
any employment relationship of an individual or entity prior to the
Effective Date, for termination or severance of employees, for
deferred compensation, accrued vacation or sick leave under any
employment agreement or employee benefit plan or policy, or any
other claims alleged by employees or with respect to any
retirement, pension or profit sharing plan or similar agreement;
(f) all liabilities in respect of all indebtedness of
the Companies incurred prior to the Effective Date;
(g) all liabilities for claims for injury, disabilities,
death or workers compensation arising from employment by Five Flags
Pipe Line Company or H&W Pipeline Company during any period prior
to the Effective Date, but only to the extent not covered by
insurance carried by or for the benefit of Five Flags Pipe Line
Company;
(h) all liabilities for claims or damages arising from
environmental matters relating to Five Flags Pipe Line Company that
resulted from conditions first occurring between the Holding
Company Transaction and the Effective Date; and
(i) any imbalance of natural gas over delivered or
undelivered to any third party prior to the Effective Date.
7. Accounting Between Buyer and Seller. If Closing
occurs, Seller, at or immediately prior to Closing, shall cause the
Companies to make payment on any then outstanding accounts and
notes payable of the Companies to Seller and/or to the subsidiaries
and affiliates of Seller, and/or to employees or third parties with
the then remaining cash-on-hand of the Companies, and pay all other
cash-on-hand of the Companies to Seller, and Seller shall expressly
assume and discharge the unpaid balance of all then remaining
accounts and notes payable, if any, of the Companies, to Seller
and/or to the affiliates and subsidiaries of Seller, and/or to
employees or third parties, such that at Closing the Companies
shall have no cash-on-hand, and the Companies shall have no
accounts payable to Seller or to any affiliates or subsidiaries of
Seller, and/or third parties.
To the extent that either of the Companies receives
payment on accounts or notes receivable attributable to periods
prior to Closing Date, Buyer shall account to the Seller for the
same and shall pay or cause to be paid said sums to the Seller,
less any payments made by the Companies which are part of the
liabilities and obligations assumed by Seller pursuant to Section
6 of this Agreement. Such accountings and such payments by the
Companies to Seller shall be on a monthly basis, commencing as of
the 20th day of the second calendar month following the Closing
Date and thereafter on the 20th day of each succeeding month.
Buyer shall cause the Companies to use reasonable efforts to
collect any and all accounts and notes receivable attributable to
periods prior to Closing Date; provided, however, if all such
accounts and notes receivable have not been collected on or before
the expiration of six (6) months following the Closing Date, then
Seller, at Seller's sole cost and expense, shall be responsible for
the collection of all such accounts and notes receivable, and Buyer
shall, at Seller's request, assign them to Seller (without recourse
or warranty of title). Further, Buyer will cooperate with Seller
as long as necessary and reasonable for Seller to collect the
amounts and notes receivable for periods prior to Closing Date.
Seller shall have the same obligations to Buyer for any proceeds it
may receive on behalf of the Companies attributable to activities
and transactions of the Companies attributable to periods after the
Effective Date which it may receive.
8. Conditions to Obligation of Buyer to Close. The
obligation of Buyer to consummate the transactions contemplated by
this Agreement is subject to the satisfaction of the following
conditions unless waived by Buyer in writing:
(a) The representations and warranties of Seller set
forth herein shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date (including representations and
warranties made as of a specific date being true and correct as
though that specific date were changed to the Closing Date);
(b) Seller shall have performed all obligations and
agreements and complied all covenants and conditions applicable to
it contained in this Agreement in all material respects prior to or
on the Closing Date, except those which if not performed or
complied with would not materially and adversely effect Seller;
(c) Seller shall have endorsed in blank (or executed
stock powers in blank) and delivered to Buyer certificates
representing all outstanding and issued shares of the H&W Stock and
the Five Flags Stock on the Closing Date, and shall have delivered
to Buyer the written resignations of the present directors and
officers of the Companies in accordance with Section 4(e) of this
Agreement;
(d) No suit, action or other proceeding by a third party
or governmental authority shall be pending or threatened which
seeks damages from Buyer in connection with, or seeks to restrain,
enjoin or otherwise prohibit, the consummation of the transactions
contemplated by this Agreement or precludes Buyer from operating
the Companies' Assets;
(e) Buyer has all required governmental approvals, if
any, to consummate the transactions contemplated herein;
(f) Between the date of this Agreement and the Closing
Date, no material adverse change in the business or operations of
the Companies shall have occurred;
(g) If prior to Closing any of the Companies' Assets are
damaged or destroyed by fire, flood, storm or other casualty and
the repair or replacement cost thereof, as applicable, is in excess
of five percent (5%) of the Purchase Price, Seller shall agree to
reduce the Purchase Price by a sum equal to that amount by which
the repair or replacement cost thereof, as applicable, of such
damaged or destroyed assets exceeds five percent (5%) of the
Purchase Price, less all sums payable by insurance carriers to
Buyer and to the Companies, or either of them, by reason of such
loss;
(h) No uncured or unsatisfied items on the Defect List
exist which exceed five percent (5%) of the Purchase Price,
singularly or in the aggregate, upon the expiration of the Curative
Period; and
(i) An opinion of counsel to Seller, dated as of the
Closing Date, addressed to Buyer, and satisfactory to Buyer's
counsel in form and substance, as to the matters contained in
Sections 4(c), (i) and (j) of this Agreement.
9. Conditions to Obligation of Seller to Close.
The obligation of Seller to consummate the transaction contemplated
by this Agreement is subject to the satisfaction of the following
conditions unless waived by Seller:
(a) The representations and warranties of Buyer set
forth herein shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date (including representations and
warranties made as of a specific date being true and correct as
though that specific date were changed to the Closing Date);
(b) Buyer shall have performed all obligations and
agreements and complied with all covenants and conditions
applicable to it contained in this Agreement in all material
respects prior to or on the Closing Date, except those which if not
performed or complied with would not materially and adversely
affect Seller;
(c) No suit, action or other proceeding by a third party
or a governmental authority shall be pending or threatened which
seeks substantial damages from Seller in connection with, or seeks
to restrain, enjoin or otherwise prohibit, the consummation of the
transactions contemplated by this Agreement;
(d) Payment by Buyer to Seller of the Purchase Price;
and
(e) An opinion of counsel to Buyer, dated as of the
Closing Date, addressed to Seller, and satisfactory to Seller's
counsel in form and substance, as to the matters contained in
Section 5(a) and (b) of this agreement.
10. Due Diligence Review, Defect List, and Curative
Period.
(a) Due Diligence Review. Buyer shall have a period of
up to thirty (30) days after Seller's repurchase of Five Flags Pipe
Line Company from Five Flags Holding Company within which to
complete its due diligence review of both Companies (the "Due
Diligence Period") with respect to compliance with all applicable
laws, rules, orders and regulations, environmental matters,
personnel matters, legal matters and claims, operational matters,
financial matters, and all other matters which could have a
material and adverse affect upon any of Five Flags Pipe Line
Company, H&W Pipeline Corporation, Buyer or Buyer's affiliate, Koch
Gateway Pipeline Company (collectively the "Buyer's Group"). Buyer
shall make a good faith effort to complete its due diligence within
as short a period of time as reasonably possible. Commencing as of
the date of this Agreement, Seller shall give the officers,
attorneys, accountants and other authorized representatives of
Buyer access, during normal business hours, to all the records and
properties of H&W Pipeline Corporation relating to it and its
business, including access to its physical properties. Upon
Seller's reacquisition of Five Flags Pipe Line Company from Five
Flags Holding Company, Seller shall give the officers, attorneys,
and other authorized representatives of Buyer access, during normal
business hours, to all the records and properties of Five Flags
Pipe Line Company relating to it and its business, including access
to its physical properties. To the extent that Seller can do so
prior to its reacquisition of Five Flags Pipe Line Company, it
shall provide Buyer with right-of-way information and other
information, and if provided Buyer agrees to immediately commence
and diligently proceed with right-of-way due diligence and all
other due diligence which can be accomplished or partially
accomplished with the information furnished by Seller prior to its
reacquisition of Five Flags Pipe Line Company. During the Due
Diligence Period, Seller will furnish the representatives of Buyer
with all such information as such representatives may reasonably
request, and shall cause the employees, accountants and attorneys
of Seller and the Companies, to the extent reasonably possible, to
cooperate with such representatives in connection with such review
and examination, and to make full disclosure to Buyer of all
material facts affecting the Companies' Assets. When undertaking
visual inspections of the Five Flags Pipe Line System, the H&W
Pipeline or other properties of the Companies, a Seller
representative shall accompany Buyer's representatives responsible
for such inspections. Notwithstanding the foregoing, Buyer shall
not unduly or unreasonably disrupt or interfere with the conduct of
the Companies, and Buyer shall assume all risks involved in
entering upon the Five Flags Pipeline System, the H&W Pipeline, and
any of the other properties of the Companies. Further, Buyer shall
indemnify, protect, defend and hold Seller and the Companies
harmless from any liens, claims, losses, liabilities, costs and
expenses arising out of Buyer's exercising any right of access
granted hereunder, including, without limitation, any claims,
losses, and liabilities resulting from bodily injury or death to
persons or damage to property sustained by any party as a result of
the exercise of Buyer's right of access. Buyer's indemnity
contained in this Section 10 shall survive the rescission,
cancellation, termination or consummation of this Agreement;
(b) Defect List. On or before the expiration of the Due
Diligence Period, Seller shall deliver to MidCoast a complete,
written list (the "Defect List") of all matters that materially and
adversely affect the Buyer's Group. For purposes of this
Agreement, "materially and adversely affect" means at a cost or
loss to the Buyer's Group, of more than five percent (5%) of the
Purchase Price, singularly or in the aggregate. If Seller and
Buyer disagree as to the individual or aggregate amount of the cost
or loss to the Buyer's Group of matters on the Defect List or as to
whether a matter on the Defect List has been remedied or cured by
Seller, any and all such matters of disagreement shall be deemed
automatically referred to arbitration for decision by the
arbitrator pursuant to the provisions of Section 35 of this
Agreement; and
(c) Curative Period. Seller shall have a period of up
to thirty (30) days after its receipt of the Defect List within
which to remedy or cure any or all matters set forth thereon, at
its sole election, and deliver all curative documents and
information obtained by it to Buyer; provided, however, as to
disputed matters arbitrated in which the arbitrator finds in favor
of Buyer, Seller shall have an additional period of up to twenty
(20) days after its receipt of written notice from the arbitrator
of his decision within which to remedy or cure such matters, at its
sole election. Further provided, however, as to disputed matters
arbitrated in which the arbitrator finds in favor of Seller, the
Defect List shall be deemed revised in accordance with the
arbitrator's decision. Seller shall make a good faith effort to
complete its curative work within as short a period of time as
reasonably possible. (The entire period of time commencing with
the initial thirty (30) day period, the period of arbitration, if
applicable, and the additional twenty (20) day period, if
applicable, is referred to in this Agreement as the "Curative
Period".) If prior to Closing any of the defects cannot be cured
within the Curative Period, then Buyer shall have the right to
either terminate this Agreement or agree with to reduce the
Purchase Price by an appropriate amount mutually agreed; and
(d) Any period of time referenced in this Section 10
shall be extended for a like period during which access to the
facilities or records is unavailable due to storm, flood, or fire.
11. Casualty Loss Prior to Closing. If prior to
Closing any of the Companies' Assets are damaged or destroyed by
fire, flood, storm or other casualty and the repair or replacement
cost thereof, as applicable, is five percent (5%) of the Purchase
Price or less, then, subject to the other terms and provisions of
this Agreement, Buyer shall proceed to purchase the Five Flags
Stock and the H&W Stock without any reduction in the Purchase
Price. If prior to Closing any of the Companies' Assets are
damaged or destroyed by fire, flood, storm or other casualty and
the repair or replacement cost thereof, as applicable, is in excess
of five percent (5%) of the Purchase Price, then Buyer shall have
the right to terminate this Agreement unless Seller agrees to
reduce the Purchase Price by a sum equal to that amount by which
the repair or replacement cost thereof, as applicable, of such
damaged or destroyed assets exceeds five percent (5%) of the
Purchase Price, less all sums payable by insurance carriers to
Buyer and to the Companies, or either of them, by reason of such
loss.
All repair or replacement costs shall be determined jointly
by Seller and Buyer or, in the event of disagreement between Buyer and
Seller with respect thereto, such repair or replacement cost shall
be automatically referred to arbitration for decision by the
arbitrators pursuant to the provisions of Section 35 of this
Agreement.
12. Termination. Anything elsewhere in this Agreement
to the contrary notwithstanding, this Agreement may be terminated
and the transactions contemplated hereby abandoned at any time
prior to the Closing in the following manner:
(a) By mutual written consent of Seller and Buyer;
(b) By Seller, through written notice to Buyer, if, at
any time after the Curative Period and the Approval Period, any of
the conditions to the Closing set forth in Section 9 of this
Agreement shall not have been satisfied and shall not have been
waived by Seller;
(c) By Buyer, through written notice to Seller, if, at
any time after the Curative Period and the Approval Period, any of
the conditions set forth in Section 8 of this Agreement shall not
have been satisfied and shall not have been waived by Buyer;
(d) By Seller, if at any time prior to Closing Seller
determines that it has made a material misrepresentation or
materially breached a covenant or a warranty made under this
Agreement, which after delivery of written notice thereof to Buyer,
Buyer is unwilling to waive same as a condition to Closing and to
release Seller from any liability therefor;
(e) By Buyer, if at any time prior to Closing, Buyer
determines that it has made a material misrepresentation or
materially breached a covenant or a warranty under this Agreement,
which after delivery of written notice thereof to Seller, Seller is
unwilling to waive same as a condition to Closing and to release
Seller from any liability therefor;
(f) By Seller, if at any time prior to Closing Seller
determines that Buyer has made a material adverse misrepresentation
or materially and adversely breached a covenant or a warranty made
under this Agreement, which if after delivery of written notice
thereof to Buyer, Buyer is unwilling or unable to cure such
misrepresentation or breach;
(g) By Buyer, if at any time prior to Closing, Buyer
determines that Seller has made a material adverse
misrepresentation or materially and adversely breached a covenant
or a warranty under this Agreement, which if after delivery of
written notice thereof to Seller, Seller is unwilling or unable to
cure such misrepresentation or breach;
(h) By Buyer, if Seller or either of the Companies should
file for bankruptcy or have creditors file an involuntary
bankruptcy proceeding, prior to closing; and
(i) By Seller, if Buyer or its assignee should file for
bankruptcy, or have creditors file an involuntary bankruptcy
proceeding, prior to closing.
Upon the termination of this Agreement by either Party in
accordance with this Section 12, neither Party shall have any
liability whatsoever to the other Party in connection with this
Agreement and the transaction contemplated hereby, except as
otherwise expressly provided in this Agreement.
13. Expenses. All expenses incurred by Seller in
connection with or related to the authorization, preparation or
execution of this Agreement, the Exhibits and the Schedules hereto
and thereto, and all other matters related to the Closing,
including without limitation, all fees and expenses of counsel,
accountants and financial advisers employed by Seller, shall be
borne solely and entirely by Seller; and all such expenses incurred
by Buyer shall be borne solely and entirely by Buyer, and any
expenses incurred by Buyer or as the result of the exercise of its
right of access granted in this Agreement, shall be borne solely
and entirely by Buyer.
14. Broker's Fees, Counsel Fees and Expenses.
Seller and Buyer each represent to the other that neither has
employed any broker or entered into any agreement for the payment
of any fees, compensation or expense to any person, firm or
corporation in connection with the transactions contemplated by
this Agreement. Seller and Buyer further covenant and agree, each
to the other, to indemnify and hold the other harmless against any
loss, liability, costs, claims, demands, damages, actions, causes
of action and suits arising out of or in any manner related to the
alleged employment or use by the indemnifying Party of any broker
or agent in connection with this Agreement or the transactions
contemplated hereby. The indemnification provision of this Section
14 shall survive any rescission, cancellation, termination,
expiration or consummation of this Agreement.
15. Notices. Unless otherwise designated in
writing, any notice or demand required or permitted by any
provision of this Agreement shall be deemed to have been
sufficiently given or served for all purposes if it is sent by
United States Mail, return receipt requested, postage prepaid,
addressed as follows or by facsimile to the numbers contained
below:
If to Seller:
MidCoast Holdings No. One, Inc. Copy to:
Suite 3030, 1100 Louisiana Mr. Ronald L. Chachere,Esq.
Houston, Texas 77002 Mercantile Tower MT,115
Attention: Mr. Dan C. Tutcher, Corpus Christi, Texas 78477
President Telephone: (512) 883-2356
Facsimile: (713) 650-3232 Facsimile: (512) 883-2357
If to Buyer:
Koch Gateway Pipeline Company Copy to:
600 Travis Mr. David K.Martin,Attorney
Houston, Texas 77002 Koch Industries, Inc.
Attention: Mr. Troy Reusser 4111 East 37th St.North
Telephone: (713) 229-4123 Wichita, Kansas 67220
Facsimile: (713) 229-5775 Telephone: (316) 832-7177
Facsimile: (316) 832-5403
16. Operation of the Companies' Assets Prior to
Closing. From and after the date of this Agreement to the Closing
Date, Seller agrees to cause the Companies to maintain and operate
the Companies' Assets in a good and workmanlike manner in
accordance with present practices and in compliance with applicable
laws, rules and regulations, maintain in full force and effect that
insurance which is currently in force with respect to the
Companies' Assets, pay or cause to be paid all costs and expenses
incurred in connection therewith, keep all agreements relating to
the Companies' Assets in full force and effect according to their
present terms and conditions, and otherwise comply with all of the
covenants contained in all agreements relating to the Companies'
Assets. Seller further covenants and agrees that it and/or the
Companies, as applicable, shall:
(a) Promptly notify Buyer of any suit, action or other
proceeding or facts and circumstances that arise prior to the
Closing Date affecting or potentially affecting any of the
Companies' Assets or Seller's ability to consummate and perform
under this Agreement;
(b) Not mortgage, pledge or otherwise encumber any of
the Companies' Assets, or grant easements or licenses upon or
further encumber any of the Companies' Assets without the prior
written consent of Buyer;
(c) Not enter into or terminate any material Easement
Agreements, Transmission Contracts or make any material changes to
any of same, having an adverse effect, without the prior written
consent of Buyer, which consent shall not be unreasonably withheld
or delayed; and
(d) Not sell or otherwise dispose of any of the
Companies' Assets (except for use of such of the Inventory as shall
be necessary in normal day-to-day operations and maintenance), or
make any material changes to any of same, without the prior written
consent of Buyer, which consent shall not be unreasonably withheld
or delayed.
17. Internal Revenue Code.
The terms used herein which are defined in the Agreement shall
have the meanings specified in this Agreement unless specifically
otherwise defined herein. As used herein, (i) the term "Code"
means the U.S. Internal Revenue Code of 1986, as amended, or any
successor law, (ii) the term "Law" means the law of any country or
political jurisdiction thereof other than the Code and (iii) the
term "Taxes" means all federal, foreign, state, local and/or
combined taxes, specifically including gross income, net income,
gross receipts, petroleum revenue, sales, use, ad valorem, value-
added, franchise, withholding, payroll, employment, excise,
property, or windfall profit taxes, together with any interest
thereon and any penalties, additions to tax, or additional amounts
applicable thereto which have been or may be imposed upon the
Companies.
18. Section 338(h)(10) Election; Tax Allocation
Arrangements; Tax Audits.
(a) Section 338(h)(10) Election. The Buyer shall have
the unconditional right to make an election under Section 338(g) of
the Code or similar state statutes with respect to the purchase of
the stock. In addition, subject to the conditions set forth
hereunder, the Seller agrees that the Buyer may require the Seller
and the Buyer to make a joint election under Section 338(h)(10) of
the Code or under similar state statutes with respect to such
purchase (a "Joint Election"). If Buyer requires that a Joint
Election be made, subject to paragraph (b) below, and within 180
days after the Closing, the Seller and the Buyer shall exchange
completed and executed copies of Form 8023 and required schedules
thereto (the "Form") for the Companies. The Seller and the Buyer"
agree to take all other action and file all other necessary reports
to elect validly pursuant to Section 338(h)(10) to treat the
transaction as a sale of assets as opposed to a sale of the Stock.
The Buyer and the Seller shall each file a copy of the Form in a
timely manner and shall provide assurance to the other Party that
it has done so. The Seller shall report the sale of the
Corporation for federal, state, local, and foreign tax purposes
consistent with such elections (to the extent permitted under the
laws of the particular jurisdictions), and shall file a
consolidated federal income tax return for its taxable year that
includes the Closing Date. The deemed sale price of the assets of
the Corporation for federal and state tax purposes shall be
determined according to the MADSP formula described in Treasury
Regulation 1.338(h)(10)-1(f). The Buyer shall be held harmless
from any tax liability of the Seller resulting from the Section
338(h)(10) elections provided for in this Section;
(b) No Warranty. No party to this Agreement makes any
warranties to any other party hereto of the tax treatment of the
transaction contemplated by this Agreement under the provisions of
any Sections of the Code, regulations or state tax laws;
(c.) Section 1445(f)(3) Certification. At or prior to
Closing the Seller shall certify in writing the Buyer that the
Seller is not a "foreign person" as defined in Section 1445(f)(3)
of the Code, as amended;
(d) Transfer Taxes. Seller shall be liable for any
sales, use, transfer, gross receipts, excise and documentary taxes
and recording and filing fees applicable to the transactions
contemplated by this Agreement. To the extent Buyer must make such
payments, Seller shall remit to Buyer such amounts prior to the
date on which Buyer is obligated to pay the same to the applicable
government authority. Seller shall defend, indemnify and hold
Buyer harmless with respect to the payment of any such taxes and
fees including any interest or penalties assessed thereon;
(e) Tax Allocation Arrangements. Effective as of the
Closing Date, all liabilities and obligations between the Companies
and the Seller under any tax allocation agreement or arrangement in
effect prior to the Closing Date shall cease to exist, and any
liabilities or rights existing under any such agreement or
arrangement shall be extinguished in full and shall not be paid
thereafter. Seller shall execute any documents necessary to
effectuate the provisions of this paragraph;
(f) Pre-Closing and Post-Closing Tax Liabilities.
Seller shall be solely responsible for the payment of all Taxes
payable with respect to the Companies attributable to any period
ending on or before the Closing Date. Seller shall indemnify the
Buyer from any such Taxes (including any interest and penalties
thereon.) In the case of any state or local Taxes computed for a
period which includes the Closing Date but which ends after the
Closing Date, the Seller shall be liable for no more than its pro
rata share of such Taxes. The Buyer and the Companies shall be
liable for and indemnify the Seller and its Affiliates and
successors or assignees against all Taxes which are imposed on or
incurred by the Buyer for taxable years or periods or portions
thereof beginning on or after the Closing Date;
(g) Apportionment of Tax Liabilities. The apportionment
of tax liabilities shall be determined on the basis of actual
taxable events, taxable periods, and activities, except that
exemptions, allowances or deductions that are granted or calculated
on an annual or periodic basis, such as the deduction for property
taxes, franchise taxes (other than franchise taxes measured by
income), payments in lieu of such taxes and similar taxes or fees
shall be apportioned between the Seller and Buyer on a pro rata
daily basis over the relevant tax period, based on the tax periods
or portions thereof each is responsible for under Section 18(f) of
this Agreement;
(h) Tax Reimbursement. If, as a result of any
adjustment which is made after the Closing to Companies' liability
for Taxes for any taxable period, the Seller or Buyer or any
Affiliate of either makes a payment of Taxes in accordance with
Section 18(f) of this Agreement and, as a result of such
adjustment, Companies receives a refund of, or realizes a reduction
in, Taxes for any other Taxable period, then the amount of such
refund or reduction in Taxes shall promptly (and in any event no
later than thirty days after the close of the taxable period with
respect to which the refund or reduction in Taxes is received,
taken or obtained) be remitted to the Party which made such payment
of Taxes. If any refund or credit of Taxes for which a payment has
been made by Companies pursuant to this Section 18(h) is
subsequently reduced or disallowed, Seller or Buyer or any
Affiliate of either who received such refund or credit of Taxes,
shall pay Companies for the amount of such reduction or
disallowance within thirty days of such reduction or disallowance;
(i) Filing of Returns. The Seller shall prepare and
file or cause to be prepared and filed when due (i) all separate
company income or franchise tax returns and all consolidated,
combined or unitary income and franchise tax returns that are
required to be filed by or with respect to the Companies for
taxable years or periods ending on or before the Closing Date
including any returns as to which an election is made under the
provisions of Section 338(h)(10) of the Code or under any
comparable provisions under other Laws, and (ii) all other tax
returns and reports of the Companies which are required to be filed
or furnished on or before the Closing Date. Buyer shall prepare
and file, or cause to be prepared and filed, when due all other tax
returns and reports that are required to be filed by or with
respect to the Companies, including returns necessitated by a
stand-alone election under Section 338(g) of the Code or comparable
provisions under other Laws;
(j) Claims and Suits for Refunds. If Buyer or any
Affiliate of Buyer (including Companies) received a refund of any
Taxes that Seller is responsible for hereunder, or if Seller or any
Affiliate of Seller (other than Companies) receives a refund of any
Taxes that Buyer and the Companies are responsible for hereunder,
the Party receiving such refund shall, within thirty (30) days
after receipt of such refund, remit it to the Party who has
responsibility for such Taxes hereunder. For the purpose of this
Section 18(j), the term "refund" shall include a reduction in Tax
and the use of an overpayment as a credit or other tax offset, and
receipt of a refund shall occur upon the filing of a return or an
adjustment thereto using such reduction, overpayment or offset or
upon the receipt of cash;
(k) Payment. All Taxes, including Taxes owed after a
compromise or settlement of an audit or dispute with a taxing
authority, shall be paid to the taxing authority by the Party which
is legally responsible therefor under the Code or Law. Upon
payment of any Taxes with respect to which a Party is entitled to
receive indemnification hereunder, such Party shall submit an
invoice, with evidence of payment, to the indemnifying Party
stating that such Taxes have been paid and giving in reasonable
detail the particulars relating thereto. The indemnifying Party
shall remit payment for such Taxes promptly upon receipt of such
invoice, evidence of payment and particulars. Such payment will
include interest (at the Prime Rate) from the date Taxes are paid
by the Party entitled to indemnification through the date the
payment is remitted by the indemnifying Party;
(l) Assistance and Cooperation. Following Closing, in
the event that one Party receives notice of any examination, audit,
claim or other proceeding with respect to the liability of the
Companies for Taxes relating to any period for which the other
Party is liable, the first Party shall within ten (10) days notify
the other Party in writing thereof. In the event of an audit or
dispute with a taxing authority over Taxes for which a Party is
liable pursuant to this Section 18, that Party will be entitled to
control the proceedings, at its sole expense, related to such Taxes
(including action taken to pay, compromise or settle such Taxes),
provided, that Seller and Buyer shall jointly control, in good
faith with each other, any proceeding related to a taxable year or
period which begins before and ends after the Closing Date and
which both Parties have liability for pursuant to Section 18(f) of
this Agreement, provided further, however, that Seller will in any
event be entitled to solely control any proceeding which relates to
or impacts a consolidated, combined or unitary return filed in any
jurisdiction by Seller or its Affiliates. The Party which is not
entitled to control any such proceedings shall be afforded a
reasonable opportunity to participate in such proceedings at its
own expense; and
(m) Further Assurances. Each of the Parties hereby
agrees to provide to the other such cooperation and information as
reasonably requested and necessary for the preparation and/or
filing of any return, amended return or claim for refund; in
determining a liability or a right to refund; in conducting any
audit; or in responding to any examination, audit, claim or other
proceeding, involving any Taxes. The Companies and each Party will
preserve and retain all returns, schedules, work papers and all
material records or other documents relating to any Taxes until the
expiration of the statutory period of limitations (including
extensions) for the taxable periods to which such documents relate
and until the final determination of any payments which may be
required with respect to such periods under this Agreement. The
Companies shall make such documents available at the then current
administrative headquarters of the Companies to Seller upon
reasonable notice and at reasonable times. Seller shall be
entitled, at its sole expense, to make copies of any such books and
records as it shall deem necessary for any reason. The Buyer
further agrees to permit representatives of Seller to meet with
employees of the Buyer and the Companies on a mutually convenient
basis in order to enable such representatives to obtain additional
information and explanations of any documents provided pursuant to
this paragraph. Any information obtained pursuant to this
paragraph shall be kept confidential, except as may be otherwise
necessary in connection with the filing of returns or claims for
refund or in conducting or responding to any examination, audit,
claim or other proceeding.
19. Indemnification by Seller. Seller agrees that, on and
after the Closing, it will indemnify, hold harmless and defend
Buyer from and against any and all losses, claims, demands, costs
and expenses (including, without limitation, reasonable attorneys'
fees and disbursements) of every kind, nature and description based
upon, arising out of or otherwise in respect of the following:
(a) any untrue representation, breach of warranty or
nonfulfillment of any agreement by Seller contained in this
Agreement or in any documents entered into or delivered in
connection therewith;
(b) for a period of two (2) years after the Closing: (i)
seventy-five percent (75%) of any and all "Third Party Claims" (as
hereinafter defined) resulting from any and all violations by H&W
Pipeline Corporation, of "Environmental Protection Laws" (as
hereinafter defined) or from any other environmental matter or
practice occurring prior to the Effective Date with respect to its
ownership or operation of the H&W Pipeline, not to exceed, however,
an aggregate amount equal to fifty percent (50%) of the Purchase
Price paid by Buyer to Seller for the H&W Stock; and (ii) seventy-
five percent (75%) of any and all "Third Party Claims" resulting
from any and all violations by Five Flags Pipe Line Company of
"Environmental Laws" or from any other environmental matter or
practice, occurring prior to the Effective Date with respect to its
ownership or operation of the Five Flags Pipe Line System, not to
exceed, however, an aggregate amount equal to fifty percent (50%)
of that portion of the Purchase Price paid by Buyer to Seller for
the Five Flags Stock. In the event there are any "Third Party
Claims" pending at the end of said two (2) year period for which a
claim for indemnity has been made by Buyer to Seller, then the
indemnity of Seller to Buyer for such claim shall not terminate,
but shall continue in effect with respect to such claim.
"Environmental Protection Laws" means any and all laws, statutes,
rules, regulations, and judicial interpretation thereof of the
United States, of any state in which the Company Assets, or any
portion thereof, is located, and of any other governmental or
quasi-governmental authority having jurisdiction, that relate to
the prevention, abatement, and/or elimination of pollution and/or
protection of the environment, including, but not limited to, those
federal statutes commonly known as the Solid Waste Disposal Act of
1970, the Resource Conservation and Recovery Act of 1976, the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Superfund Amendments and Reauthorization Act of
1986, the Clean Water Act, the Clean Air Act, the Safe Drinking
Water Act, the Migratory Bird Treaty Act, the Toxic Substances
Control Act, and the Hazardous Materials Transportation Act,
together with all applicable state statutes serving any similar or
related purpose. "Third Party Claims" means any and all actions,
claims, demands or proceedings by any person or entity other than
the Parties hereto or their respective affiliates which give rise
to a right of indemnification under this Agreement provided that
such claims are not precipitated as a result of the actions of the
Party seeking indemnity hereunder with respect to such claim.
Submission of reports required by law shall not be considered to be
actions of a party seeking indemnity hereunder which precipitated
a claim arising from such reports. This Section 19(b) contains
Seller's exclusive indemnification of Buyer with respect to
environmental matters and the Environmental Protection Laws; and
(c) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses, including
without limitation, legal fees and expenses incurred by Buyer,
incident to any of the foregoing or incurred by Buyer in
investigation or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity.
This right to indemnification is in addition to any other
right available to Buyer, including, without limitation, the right
of Buyer to sue Seller for a misrepresentation, breach of warranty,
or breach of covenant under this Agreement.
20. Indemnification by Buyer. Buyer hereby agrees that, on
and after the Closing, it will indemnify, hold harmless and defend
Seller from and against any and all losses, claims, demands,
damages, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements) of every kind, nature
and description based upon, arising out of or otherwise in respect
of the following:
(a) any untrue representation, breach of warranty or
nonfulfillment of any agreement by Buyer contained in this
Agreement or in any documents entered into or delivered in
connection herewith;
(b) the operations, the use of the Companies' Assets,
and any work performed by the Companies or the Buyer, after the
Effective Date;
(c) any and all violations of Environmental Protection
Laws, as defined in Section 19(b) of this Agreement, resulting from
actions of Buyer or the Companies occurring on or after the
Effective Date with respect to the Buyer's ownership or operation
of the Pipeline Systems, the Equipment or any of the other assets
constituting a portion of the Assets of the Companies; and
(d) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses, including
without limitation, reasonable legal fees and expenses incurred by
Seller, directly related to any of the foregoing, or in enforcing
this indemnity.
This right to indemnification is in addition to any other
right available to Seller, including, without limitation, the right
of Seller to sue Buyer for a misrepresentation, breach of warranty,
or breach of covenant under this Agreement.
21. Defense by Parties and Indemnification Limits. Notice of
any claim for indemnification under this Agreement shall be given
promptly to the indemnifying Party stating in reasonable detail the
nature of such claim and the amount thereof. If an action, suit or
proceeding is brought against a Party with respect to which an
indemnifying Party has liability under an indemnity agreement
contained herein, the indemnifying Party shall, at its sole
expense, conduct the defense of any such action, suit or
proceeding. The Party seeking indemnity, at its sole expense, may
participate in the defense of any such action, suit or proceeding
and, in such event, all Parties shall cooperate fully with each
other and their counsel in order to ensure a proper and adequate
defense. If the indemnifying Party refuses or declines to defend
such action, suit or proceeding, the Party seeking indemnity shall
have the right, at the expense of the indemnifying Party to defend
such claim with counsel of its own choosing.
Other than with respect to Environmental claims which are
covered by Section 19(b) hereof, neither Party shall have any
obligation to indemnify the other with respect to any asserted
loss, claim, expense or liability which does not individually
exceed fifty thousand dollars ($50,000),except and unless such
claims in the aggregate exceed two hundred fifty thousand dollars
($250,000). Losses which individually exceed fifty thousand
dollars ($50,000) or in the aggregate exceed two hundred fifty
thousand dollars ($250,000) are referred to as "Allowable Losses".
Neither Party shall have an obligation to pay the other Party until
the aggregate of Allowable Losses exceeds $250,000. In such event,
such Party shall then be obligated thereafter to pay the other Party the
entire amount of any losses thereafter which are in excess of the
threshold $250,000 amount, such $250,000 threshold shall have to be met only
one time, with all losses thereafter being paid, except to the extent they
exceed 50% of the Purchase Price as described immediately below. Seller's
and Buyer's individual aggregate liability of all indemnification pursuant to
this Agreement, inclusive of Environmental claims under Section 19(b) hereof,
shall in no event exceed an amount equal to fifty percent (50%) of the
Purchase Price.
Any claim against Seller or Buyer for indemnity arising under or out of this
Agreement must be brought within two (2) years after the Closing Date or, in
the case of any claim relating to any Tax, within thirty (30) days after the
expiration of the applicable statute of limitations (including extensions
thereof) for the assessment of such Tax.
22. The Parties, Their Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the Parties and their respective successors,
legal representatives and assigns; provided, however, that no Party may assign
this Agreement without the prior written consent of the other Party, except
that Buyer may assign this Agreement to a wholly owned affiliate of its parent
company, Koch Industries, Inc. without the prior written consent
of Seller.
23. Entire Agreement. This Agreement and its Exhibits and Schedules
constitute the entire agreement of the Parties with respect to the subject
matter hereof, supersedes all prior and contemporaneous agreements and
understandings between the Parties, and may not be modified
or amended except by a written agreement executed by both Parties.
No representation, promise, or statement of intention has been made by either
Party that is not embodied in this Agreement, and neither Party shall
be bound or liable for any alleged representation, promise or statement of
intention not so set forth in this Agreement.
24. Governing Law. This Agreement shall in all respects be governed by and
construed in accordance with the laws of the State of Texas, except for any
conflict of laws rules which would refer any matter to the law of another
jurisdiction, and irrespective of (i) the respective jurisdictions of
incorporation of the Parties, (ii) the locations of the respective principal
offices or places of business of the Parties, (iii) the places of execution or
place of consummation of this Agreement, or (iv) the location of the property
which is the subject of this Agreement.
25. Cooperation After Closing. After the Closing, upon reasonable advance
notice, Buyer shall provide access during normal business hours to any books
and records and other information as Seller may reasonably require to close the
books and records of Seller and prepare Seller's tax returns.
26. Section and Subsection Headings. The Section and subsection headings
contained herein are for the purpose of convenience only and are not intended
to define or limit the contents thereof.
27. Counterparts. This Agreement may be executed in one or more counterparts,
all of which when taken together shall be deemed to be one original.
28. Exhibits and Schedules. All Exhibits and all Schedules attached to or
referred to in this Agreement are incorporated into and made of part of this
Agreement. Each Party shall with ten (10) days of discovery and in any event
no later than five (5) days before the Closing Date, advise the other in
writing of additions or changes to the Exhibits or Schedules of this
Agreement required to reflect events subsequent to the date of this Agreement
or facts discovered by such Party, so as to cause the representations,
warranties and covenants in Section 4 to be materially true and correct,
as amended, on the Closing Date. Each Party shall promptly advise the
other in writing if it or its counsel learns that any representation or
warranty of the other is inaccurate or incomplete.
29. Waivers. Any failure by either Party to comply with any of its
obligations, agreements or conditions herein contained may be waived in
writing, but not in any other manner, by the Party to whom such compliance
is owed. No waiver of, or consent to a change in, any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of, or
consent to a change in, other provisions hereof (whether or not similar),
nor shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
30. Further Assurances. Seller and Buyer agree to deliver or cause to be
delivered to each other on the Closing Date and at such other time thereafter
as shall be reasonably agreed, any such additional instruments as Buyer or
Seller may reasonably request for the purpose of carrying out this Agreement.
31. No Solicitation. Seller agrees that on and after the date this
Agreement has been fully executed by both Buyer and Seller and one
counterpart delivered to each of the Parties, except as otherwise consented
to in writing by Buyer, Seller and any affiliates or agents of Seller
will immediately terminate all discussions with any party other than Buyer
with respect to any sale or other similar transaction involving the Companies'
Assets. Further, Buyer agrees to execute a confidentiality agreement in
substantially the same form as attached hereto as Exhibit "J" and deliver
same to Seller with the counterparts of this Agreement which Buyer has
executed. Neither Buyer nor Seller, or any affiliates or agents of Buyer or
Seller, shall enter into or conduct discussions, whether or not solicited by
any of Buyer, Seller or their agents, with any party other than Buyer with
respect to any sale or other similar transaction involving the
Companies' Assets until Closing or termination of this Agreement.
32. Confidentiality. Seller expressly agrees that all copies of books, files,
maps and records pertaining to the Companies' Assets that are retained by
Seller (Buyer herewith acknowledging and agreeing that Seller shall be entitled
to retain duplicate copies at its own expense of any such books, files,
maps and records as Seller deems necessary or desirable) shall be, and
shall be handled by Seller as, confidential information of the Companies.
Seller shall not disclose any such information to any third party, including
without limitation, any local, state or federal governmental body or regulatory
agency, unless required to do so by applicable law. Prior to any such
disclosure, Seller shall notify the Companies, as far in advance of any such
required disclosure as is practicable, that Seller is required to disclose
such information and the basis for such required disclosure, and Seller shall
cooperate fully with the Companies to obtain confidential treatment for any
such disclosed information by the party to which such information is disclosed.
33. Amendment. At any time prior to the Closing Date this Agreement may be
amended or modified in any respect by the Parties by an agreement in writing
executed in the same manner as this Agreement. No supplement, modification,
waiver or termination of this Agreement shall be binding unless executed in
writing by the Party to be bound thereby.
34. Construction. Each Party acknowledges and agrees that this Agreement was
negotiated and drafted jointly by both Parties hereto, and that in the event
of any ambiguity, this Agreement shall not be construed against either Party
but rather the terms herein shall be given a reasonable interpretation.
35. Arbitration. Any of the following matters as to which there is
disagreement between the Parties shall be submitted to arbitration:
(i) the individual or aggregate amount of the cost or loss to the Buyer's
Group of matters on the Defect List and as to whether a matter
on the Defect List has been remedied or cured by Seller, pursuant to Section
10 of this Agreement, and (ii) the amount of repair or replacement cost of any
Companies' Assets damaged or destroyed by fire, flood, storm or other casualty
prior to Closing, pursuant to the determination which may be made under Section
11 of this Agreement. The following shall apply to all such issues arbitrated:
(a) The decision of the arbitrator(s) shall be final and binding upon all
Parties, and no Party shall seek to have the applicable issues litigated rather
than arbitrated (except as may be otherwise required by law);
(b) It is the intent of the Parties that, to the extent practicable, such
binding arbitration shall be conducted by a person mutually agreeable to the
parties knowledgeable and experienced in the type of matter that is the subject
of the dispute. In the event the Parties are unable to agree upon such person
within ten (10) days after a matter has been automatically referred to
arbitration, then each Party shall select a person that it believes has the
qualifications set forth above as its designated arbitrator (which selection
shall be accomplished by notifying the other Party of the identity of such
person), and such arbitrators so designated shall mutually agree upon a
similarly qualified third person to complete the arbitration panel. In the
event that the persons selected by the Parties are unable to agree on a third
member of the panel within ten (10) days after the selection of the latter of
the two arbitrators, such person shall be designated by the American
Arbitration Association. Upon final selection of the entire panel, such panel
shall, as expeditiously as possible (and if possible, within thirty (30) days
after the selection of the last arbitrator), render a decision on the matters
submitted for arbitration. The arbitration shall be conducted in Houston,
Texas, in accordance with the commercial arbitration rules of the American
Arbitration Association;
(c) Upon the determination of any such dispute, the arbitrators shall bill
the costs attributable to such binding arbitration in equal shares to the
Parties; and
(d) It is the intent of the Parties that, once arbitration is invoked pursuant
to the provisions of this Section 35, the matters set for arbitration shall be
decided as set forth herein, and they shall not seek to have this Section 35
rendered unenforceable or to have such matter decided in any other way,
provided, however, that nothing herein shall prevent the Parties from
negotiating a settlement of any issue at any time.
36. Indemnification by Seller's Parent Corporation. At the Closing, Seller
shall cause its parent corporation, MidCoast Energy Resources, Inc., a Nevada
corporation, to execute and deliver to Buyer an original of the Indemnity
Agreement attached hereto as Exhibit "I."
<PAGE>
IN WITNESS WHEREOF, the Parties have executed or caused this Agreement to be
executed in multiple originals by duly authorized officers as of the day and
year first above written.
SELLER:
MIDCOAST HOLDINGS NO. ONE, INC.
By:__________________
Dan C. Tutcher,
President
BUYER:
KOCH GATEWAY PIPELINE COMPANY
By:_______________________
Rolf A. Gafvert
President<PAGE>
EXHIBITS:
Exibit "A" -Map of the "Five Flags Pipe Line System"
Exhibit "A-2" -Map of the "H&W Pipeline"
Exhibit "B" -"Equipment"
Exhibit "C" -"Lease"
Exhibit "D" -"Easement Agreements"
Exhibit "E" -"Inventory"
Exhibit "F" -"Transmission Contracts"
Exhibit "G" -"Permits"
Exhibit "H" -"H&W Documents"
Exhibit "I" -"Indemnification Agreement"
Exhibit "J" -"Confidentiality Agreement"
SCHEDULES:
Schedule 4(e) -Directors and Officers of the Companies
Schedule 4(f) -"Balance Sheet"
Schedule 4(l) -Notices of Failure to Comply with Laws
Schedule 4(x) -Exceptions to Compliances with Environmental Laws
Schedule 4(ee)-Schedule of Insurance Coverages
Schedule 4(gg)-Bank Accounts
Schedule 4(hh)-"Benefit Plans"
Schedule 4(ii)-Pipeline Class Location Rating and M.A.O.P. Determination
EXHIBIT 10.26
FIRST AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF STOCK
This First Amendment to Agreement for Purchase and Sale of
Stock (the "First Amendment") is made and entered into October 2,
1995 by and between MIDCOAST HOLDINGS NO. ONE, INC., a Delaware
corporation (also hereinafter referred to as ("SELLER"), KOCH
GATEWAY PIPELINE COMPANY, a Delaware corporation (also hereinafter
referred to as either "KOCH GATEWAY" or "ASSIGNOR") ; and KOCH GP
SERVICES, INC., a Kansas Corporation (also hereinafter referred to
as "BUYER").
Whereas, MIDCOAST HOLDINGS NO. ONE, INC., and KOCH GATEWAY
PIPELINE COMPANY entered into that certain Agreement for Purchase
and Sale of Stock dated September 6, 1995 (the Agreement); and
Whereas, the parties thereto and Koch GP Services, Inc., now
agree to amend the Agreement as set out in this First Amendment;
NOW THEREFORE, for the mutual covenants and agreements set
forth below, the parties to this First Amendment agree as follows.
1. Defined Terms. All capitalized terms used in this First
Amendment shall have the meanings set forth in the Agreement,
unless otherwise defined herein.
2. Parties. Pursuant to Section 22 of the Agreement, Koch
Gateway Pipeline Company assigns the Agreement and the rights and
obligations therein to KOCH GP SERVICES, INC. KOCH GP SERVICES,
INC., accepts such assignment and agrees to be bound by and to
fulfill the rights and obligations thereunder.
3. H&W Pipeline/H&W Stock. Pursuant to Section 1 of the
Agreement, Buyer elects not to purchase the H&W Stock. All
references to H&W Pipeline Corporation in the Agreement shall be
void and have no force or effect.
4. Purchase Price. The second paragraph of Section 1 of
the Agreement is stricken and amended to read as follows:
The amount to be paid by Buyer to Seller is Four Million
Six Hundred Fifty Thousand and No/100 Dollars ($4,650,000) for
the Five Flags Stock, subject to any adjustments, including
but not limited to adjustments for Seller's pro rata share of
ad valorem taxes attributable to periods prior to the
Effective Date, set forth on the closing statement prepared by
and agreed upon between Buyer and Seller attached hereto as
Schedule 1 (the "Closing Statement"). Such payment shall be
made by wire transfer of immediately available funds to a bank
account designated by Seller.
5. Closing Date and Effective Date. Section 3 of the
Agreement is stricken and amended to read as follows:
3. Closing and Effective Date. The parties agree that
all conditions to closing in the Agreement have been satisfied
or waived, except to the extent and manner for resolution
agreed upon by the Parties after closing set forth on the
written attachment to this First Amendment ("Attachment 1"),
if any, and find it in their best interests to proceed to
closing immediately on the purchase and sale of the Five Flags
Stock this 2nd day of October 1995 at the offices of Seller at
1100 Louisiana, Houston, Texas, at 11:00 a.m. or such other
hour on that date as the parties may mutually agree (the
"Closing" and/or "Closing Date"). Upon Closing, the Parties
agree that the purchase and sale of the Five Flags Stock shall
be effective October 1, 1995 at 7:00 a.m., Florida time (the
Effective Date).
6. Section 6 of the Agreement is amended by adding at the
end of said section after subparagraph (i) the following paragraph:
Buyer and Seller agree that the amounts attributable to
the liabilities and obligations set forth on the Closing
Statement shall not be settled pursuant to this Section 6, but
rather shall be settled as an adjustment to the Purchase Price
at Closing pursuant to Section 1, as amended by this First
Amendment.
7. Section 7 of the Agreement is amended by adding at the
end of said section a new paragraph:
Buyer and Seller agree that the amounts attributable to
the accounts or notes payable and the accounts or notes
receivable set forth on the Closing Statement shall not be
settled pursuant to this Section 7, but rather shall be
settled as an adjustment to the Purchase Price at Closing
pursuant to Section 1, as amended by this First Amendment.
8. A new Section 37 shall be added which provides as
follows:
37. Additional Indemnifications.
(a) Ad valorem taxes. Notwithstanding any language
to the contrary in this Agreement, Seller expressly
agrees to indemnify Buyer for a period of three (3) years
for any losses, tax payments, penalties and interest
attributable to any failure by Five Flags Pipe Line
Company or its owners to file complete renditions and/or
the necessary information or forms or returns with the
appropriate county official and/or to pay ad
valorem/property taxes for all periods prior to the
Effective Date with respect to ad valorem/property taxes
attributable to that company's property located in
Escambia County, Florida. This provision shall not be
subject to the limitations set forth in Sections 18, 19,
20, or 21. At the Closing, Seller shall execute, and
shall cause its parent corporation, Midcoast Energy
Resources, Inc., a Nevada corporation, to execute and
deliver to Buyer an original of the Indemnity Agreement
attached hereto as Exhibit "K".
(b) Imbalances. Notwithstanding any language to
the contrary in the Agreement, Seller expressly agrees to
indemnify Buyer for any loss or losses attributable to
gas supply or gas transportation imbalances on the Five
Flags Pipe Line Company pipeline system, provided such
loss or losses arise from a matter identified by Buyer
within three (3) months from the Effective Date, provided
however, Five Flags Pipe Line Company shall have the
obligation to collect any imbalances in its favor to
offset any claims hereunder. This provision shall not
be subject to the limitations set forth in Sections 18,
19, 20, or 21. At the Closing, Seller shall execute, and
shall cause its parent corporation, Midcoast Energy
Resources, Inc., a Nevada corporation, to execute and
deliver to Buyer an original of the Indemnity Agreement
attached hereto as Exhibit "L".
(c) Defense of Matters in (a) or (b). Notice of
any claim for indemnification under subparagraphs (a) or
(b) or Exhibit "K" or "L" shall be given promptly to
Seller stating in reasonable detail the nature of such
claim and the amount thereof. If an action, suit or
proceeding is brought against Buyer or Seller with
respect to a matter indemnified pursuant to this Section
37, Seller or its parent corporation shall have the right
to assume the defense of any such action, suit or
proceeding. Buyer shall have the right in such instance
to participate in the defense of any such action, suit or
proceeding at its own expense, which in such event, all
Parties shall cooperate fully with each other and their
counsel in order to ensure a proper and adequate defense.
If Seller refuses or declines to defend such action, suit
or proceeding, Buyer shall have the right, at the expense
of Seller, to defend such action, suit or proceeding with
counsel of its own choosing.
9. Balance Sheet. Section 4(f) is amended to provide that
the Five Flags Balance Sheet to be attached as Schedule 4(f-2) will
be dated September 30, 1995.
10. Other Provisions in Agreement. All other provisions
in the Agreement not modified by this First Amendment shall remain
valid and in effect.
IN WITNESS WHEREOF, the Parties have executed or caused this
First Amendment to be executed in multiple originals by duly
authorized officers as of the day and year first above written.
MIDCOAST HOLDINGS NO. ONE, INC.
By: ______________________________
Dan C. Tutcher, President
KOCH GP SERVICES, INC.
By: ______________________________
Larry Lafferty, Vice-President
KOCH GATEWAY PIPELINE COMPANY
By: ______________________________
Rolf A. Gafvert, President
<PAGE>
ATTACHMENT 1
TO FIRST AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF STOCK
1. Satisfaction of Closing Conditions. The Parties agree
that the following conditions to Closing have not yet been met or
waived, but that it is in their best interest to proceed with
Closing immediately with the following understandings with respect
to said unfulfilled conditions:
NONE
<PAGE>
SCHEDULE 1
TO AGREEMENT FOR PURCHASE AND SALE OF STOCK October 2, 1995
CLOSING STATEMENT
PURCHASE PRICE $4,650,000.00
ADD: ACCOUNTS RECEIVABLE
Outstanding Customer Invoices Not Paid
Month Customer Invoice # Volume Rate $ Amount
May-95 Premier Gas 4120-60-2197 2,905 0.113 $ 328.27
May-95 Champion Intl 4120-60-2203 (1,340) 0.125 $ (167.50)
May-95 Prior Intrastate 4120-60-2204 3,300 0.02 $ 66.00
Jun-95 Champion Intl 4120-60-2200 4,027 0.126 $ 503.38
Jun-95 Premier Gas 4120-60-2201 4,965 0.113 $ 561.05
Jun-95 Prior Intrastate 4120-60-2202 73,121 0.02 $ 1,462.42
Jul-95 Champion Not Invoiced 3,767 0.125 $ 470.87
Jul-95 Premier Not Invoiced 4,677 0.113 $ 528.50
Aug-95 Okaloosa Gas 4120-60-2199 $11,334.00
Aug-95 Champion Intl 4120-60-2205 4,516 0.125 $ 564.50
Aug-95 Champion Est/Not Inv. 4,247 0.113 $ 530.88
Aug-95 Premier Est/Not Inv. 4,247 0.113 $ 479.91
Sep-95 Okaloosa Gas Not Invoiced $11,334.00
Sep-95 Champion Int Not Invoiced 3,927 0.12 $ 490.88
Sep-95 Premier Not Invoiced 5,707 0.113 $ 644.89
Sep-95 Champion Not Invoiced 8,210 0.125 $ 1,026.25
Sep-95 ANGI Not Invoiced 91,807 0.03 $ 2,754,21
$32,912.51
(continued)<PAGE>
LESS: PAYABLES TO BE BACKED OUT OF PURCHASE PRICE
ESTIMATED COSTS
ELECTRIC BILL $ 215.00
TELEPHONE BILL $ 260.00
WATER BILL $ 20.00
PROPERTY TAXES Jan'95-Sep'95 $ 11,636.93
PIPE SAFETY $ (1,290.20)
FIX NEWLY DMGD PIPE NEAR AIR PRODUCTS $ 7,000.00
SOUTHERN FLOW $ 206.00
$ 18,047.74
NET INCREASE TO PURCHASE PRICE $ 14,864.77
___________
Net Amount Due $4,664,864.77
SELLER BUYER
MIDCOAST NO. ONE HOLDINGS, INC. KOCH GP SERVICES, INC.
___________________________________ _________________________________
Dan C. Tutcher, President Larry Lafferty, Vice President
EXHIBIT 10.27
AGREEMENT FOR PURCHASE AND SALE OF STOCK
This Agreement for Purchase and Sale of Stock (this "Agreement") is
made and entered into as of the 13th day of September, 1995, by and
between FIVE FLAGS HOLDING COMPANY, a Florida corporation,
("Seller"), and MIDCOAST HOLDINGS NO. ONE, INC., a Delaware
corporation ("Buyer"). (Seller and Buyer are sometimes hereinafter
referred to collectively as the "Parties" and individually as a
"Party".)
W I T N E S S E T H:
WHEREAS, Five Flags Pipe Line Company, a Florida corporation (the
"Company"), is a wholly-owned subsidiary of Seller;
WHEREAS, Buyer desires to purchase from Seller, and Seller desires
to sell to Buyer, all of the issued and outstanding shares of
capital stock of the Company (the "Stock"); and
WHEREAS, the Parties desire this Agreement to set forth the terms
and conditions upon which they are willing to sell and purchase the
Stock;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, the sufficiency of which
is hereby acknowledged, the Parties, intending to be legally bound,
covenant and agree as follows:
1. Purchase and Sale; Purchase Price.
Subject to the terms of this Agreement, at the closing provided for
in Section 3 of this Agreement (the "Closing"), Seller agrees to
sell, assign, transfer and deliver to Buyer or its nominee, and
Buyer or its nominee agrees to purchase and acquire from Seller,
the Stock.
The amount to be paid by Buyer to Seller for the Stock is Two
Million and No/100 Dollars ($2,052,000.00), subject to any
adjustments which may be made pursuant to Section 10 of this
Agreement (the "Purchase Price"). The Purchase Price shall be paid
by Buyer to Seller at the Closing by cashier's or certified check,
or, at Seller's election, by wire transfer of immediately available
funds.
2. Instruments of Conveyance. At the Closing, as provided for in
Section 3 of this Agreement, Seller will assign, transfer and
deliver to Buyer the Stock. All certificates representing the
Stock delivered to Buyer shall be duly endorsed in blank, or
accompanied by duly executed stock powers in blank and otherwise in
proper form for transfer. At the Closing, Seller shall also
deliver to Buyer a copy of the resolutions or consents of the Board
of Directors and the Shareholder of Seller approving the execution
and delivery of this Agreement and the consummation of the
transaction contemplated hereby, and a certificate of incumbency of
representatives of Seller executing this Agreement duly certified
by an appropriate officer.
3. Closing. The closing of the purchase and sale of the Stock
shall all take place at 10:00 a.m. local time on September 15,
1995, or at such earlier date as Seller and Buyer may otherwise
mutually agree upon in writing (the "Closing"). The Closing shall
be held at the offices of Seller, at Nine Greenway Plaza - Coastal
Tower, Houston, Texas 77046, or such other place as the parties may
mutually agree upon in writing (the date on which Closing occurs
being referred to herein as the "Closing Date"). The Closing shall
be effective as of 7:00 a.m. Florida time, on the Closing Date.
4. Representations, Warranties and Covenants of Seller. Seller
represents, warrants and covenants to Buyer as of the date of this
Agreement and on and as of the Closing Date, the following:
(a) Seller has full, complete and absolute title to the Stock.
The Stock constitutes 100% of the issued and outstanding securities
of any kind of the Company. No person or entity other than the
Seller has any record or beneficial ownership interest whatsoever
in the Stock;
(b) Seller's ownership of the Stock consists of good, valid and
indefeasible title to the Stock and the Stock is free and clear of
any liens, security interests, encumbrances, options, calls,
pledges, trusts, voting trusts, covenants, restrictions,
reservations and other burdens of any type whatsoever;
(c) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida and has
the requisite corporate power and authority to own or lease and
operate its properties and to carry on its business as now being
conducted. The Company is duly qualified or licensed and is in
good standing to do business in each jurisdiction in which the
property owned or leased and operated by it or the nature of the
business conducted by it make such qualifications or licensing
necessary;
(d) All of the Stock is validly issued, fully paid and
nonassessable. All dividends and other distributions declared with
respect to the Stock have been paid or distributed. There are no
existing subscriptions, rights, warrants, calls, options,
commitments or agreements of any character relating to the capital
stock of the Company which is authorized but unissued or held in
the treasury. Copies of the Articles of Incorporation (certified
by the Secretary of State of Florida) and the Bylaws (certified by
the Secretary of the Company) of the Company heretofore delivered
to the Buyer, are true, correct and complete and reflect all
amendments thereto as of the date hereof;
(e) The present directors and officers of the Company are set
forth on Schedule 4(e) attached hereto, and the written
resignations of said directors and officers will be delivered to
Buyer at Closing;
(f) A balance sheet (the "Balance Sheet") of the Company dated as
of the 31st day of July, 1995 (the "Balance Sheet Date") is
attached hereto as Schedule 4(f). The Balance Sheet correctly sets
forth the financial condition of the Company as of said date and
title to all assets referred to or shown on the Balance Sheet was
vested in the Company as of the Balance Sheet Date, free of any
liens, security interests or other like encumbrances. To Seller's
best knowledge, except as otherwise disclosed by Seller to Buyer in
writing prior to Closing, the books of account, as summarized in
the Balance Sheet, reflect the Company's assets and known
liabilities, and the records and files of the Company reflect its
operations and transactions. Since the Balance Sheet date, there
has not been: (i) any change in the financial condition, business,
operations, properties, assets or liabilities (whether direct,
indirect, accrued, absolute, contingent or otherwise) of the
Company other than changes in the ordinary course of business, none
of which have been materially adverse; (ii) any damage, destruction
or loss whether covered by insurance or not, materially and
adversely affecting the properties or business of the Company;
(iii) any increase in the compensation payable or to become payable
by the Company to any of its directors, officers, employees or
agents or in any stock option, bonus payment, service award,
pension, retirement, expense allowance or other arrangement made to
or with any of them; (iv) any sale, assignment, lease, transfer,
license, abandonment or other disposition by the Company of any
interest in its properties, excluding inventory sold in the
ordinary course of business, and specifically including but not
limited to any machinery, equipment or other operating property,
any patent, trademark, service mark, trade name, brand name,
copyright (or pending application for any patent, trademark,
service mark or copyright), invention, process, know-how, formula,
pattern, design, trade secret or interest thereunder or other
intangible asset; (v) any declaration, setting aside or payment of
any dividend or other distribution on or in respect of shares of
the Stock, or any direct or indirect redemption, retirement,
purchase or other acquisition by the Company of any such shares;
(vi) any stock dividend, stock split, reorganization,
recapitalization or other change of any type whatsoever in the
Stock; or (vii) any dispute or any other occurrence, event or
condition of any character, which reasonably could be anticipated
to give rise to a legal or administrative action or to a material
adverse effect upon the condition (financial or otherwise) of the
business, operations, properties, assets or liabilities (whether
direct, indirect, accrued, absolute, contingent or otherwise) of
the Company (whether or not covered by insurance);
(g) Between the Balance Sheet Date and the date of this Agreement,
the Company has not: (i) transferred, sold or otherwise disposed of
any corporate property or assets material to the operation of its
business other than in the ordinary and usual course of its
business as heretofore conducted, save and except such items as
shall have become no longer useful, obsolete or worn out, or
rendered of no further use, and, if heretofore useful in the
conduct of its business and operations, as may have been replaced
with other items of substantially the same value and utility as the
items transferred, sold, exchanged or otherwise disposed of; (ii)
created, participated in or agreed to the creation of any liens or
encumbrances on its corporate property, save and except liens for
taxes not yet due and liens created in the ordinary and usual
course of its business as heretofore conducted in connection with
normal purchases of natural gas; (iii) entered into any leases,
contracts or agreements of any kind or character or incur any
liabilities, save and except those to which it is presently
committed and which are disclosed herein or in the Exhibits hereto;
(iv) made any payments or distributions to or for the benefit of
any of its officers, directors, stockholders or employees, save and
except (x) wages and salaries made to employees in the ordinary and
usual course of the business as heretofore conducted, and (y)
contributions required pursuant to any health and/or life insurance
plans presently in effect; (v) amended or repealed its Articles of
Incorporation or Bylaws or issued any shares of capital stock in
addition to, and other than, the shares heretofore issued, or
reissued any treasury stock; or (vi) taken any action that is
materially different or varies from the ordinary course of business
of the Company;
(h) To the best of Seller's knowledge, all tax returns required to
be filed by the Company on or before the Closing Date for all years
prior to the current tax year have been properly prepared, executed
and duly filed pursuant to applicable laws and regulations and all
taxes calculated thereon have been paid, and, to the best of
Seller's knowledge, the Company's tax returns filed since September
2, 1993 were all included in consolidated tax returns filed by Five
Flags Holding Company;
(i) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the state where formed and
conducting business. Seller has all requisite corporate power and
authority and is entitled to carry on its business as now being
conducted;
(j) Neither the execution, delivery, nor the performance of this
Agreement by Seller will conflict with, result in a default or loss
of rights under, or result in the creation of any lien, charge or
encumbrance pursuant to, any provision of Seller's certificate of
incorporation or by-laws or any material franchise, mortgage, deed
of trust, lease, license, agreement or understanding, or any order
or judgment or decree to which Seller is a party or by which Seller
is bound. Seller has the full power and authority to enter into
this Agreement and to carry out the transaction contemplated
hereby, and this Agreement has been duly authorized and executed by
Seller and constitutes a valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency or
other laws relating to or affecting the enforcement of creditors'
rights generally and general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity
or at law);
(k) To the best of Seller's knowledge, there are no claims, legal
actions or suits pending against or relating to the Company, its
properties, assets or business, and Seller is not aware of any
facts which might result in such claim, action, suit, arbitration
or other proceeding and which might reasonably be expected to have
a material adverse effect on the Company Assets, on the Company's
operation and enjoyment of the Company Assets, or on Seller's
ability to perform this Agreement;
(l) To the best of Seller's knowledge, except as set forth in
Schedule 4(l) hereto: (i) the Company has all permits, licenses,
certificates and other authorizations necessary for the Company to
carry on its business in its current manner; (ii) the Company has
not received any written notice that it has failed to comply with
any laws, rules, regulations, ordinances, licenses, permits,
judgments, decrees and orders of federal, state and local or other
governmental authorities having jurisdiction applicable to its
properties, assets or business which have not been previously
remedied; and (iii) Seller is not in violation of or in default
under any terms or provisions of its certificate of incorporation
or by-laws, as presently in effect, or of any material liens,
mortgage, lease or agreement, or of any order, judgment or decree
to which Seller was a named party;
(m) To the best of Seller's knowledge, the Company has good and
marketable title to its assets described or referred to in the
Exhibits hereto (the "Company Assets"), other than the Leased
Property, free of any liens, security interests or other like
encumbrances;
(n) All ad valorem and personal property taxes assessed against the
Company Assets (including any penalties or assessments for
delinquencies in payment) and all other taxes of any nature with
respect to the Company Assets or the operation by the Company of
the Pipeline System which are due and payable by the Company as of
the Closing Date will be paid in full by said Closing Date;
(o) The Company owns a natural gas transmission pipeline system
situated in Escambia and Santa Rosa Counties, Florida, as depicted
on the map attached as Exhibit "A" hereto, consisting of
approximately 42 miles of 10" diameter 0.219 wall 2X52 pipe,
approximately 15 miles of 8" diameter 0.280 wall X42 pipe, and
various meters and metering stations, control equipment, corrosion
equipment, dehydration facilities, storage facilities, buildings
and other operating equipment attached to, or used or held for use
in the operation of said natural gas transmission pipeline system
(collectively the "Pipeline System");
(p) A schedule of (i) all vehicles, (ii) all, or substantially
all, office equipment, and (iii) all leases of personal property,
of the Company is attached hereto as Exhibit "B" (collectively the
"Equipment");
(q) That certain lease (the "Lease") of real property, relating to
office space and equipment storage ("Leased Premises"), presently
held in the name of the Company, described in Exhibit "C" hereto,
is the only lease of real property affecting the Company which is
presently in force and effect;
(r) A schedule of all easement agreements and other similar
agreements of the Company is attached hereto as Exhibit "D" (the
"Easement Agreements");
(s) A schedule of all or substantially all maintenance and
operating supplies, fuel and spare parts for the Equipment is set
forth as Exhibit "E" hereto (collectively the "Inventory");
(t) A schedule of all gas transmission contracts and other similar
agreements of the Company is set forth as Exhibit "F" hereto (the
"Transmission Contracts");
(u) A schedule of all certificates of occupancy and other
licenses, permits, orders or approvals of any federal, state or
local governmental or regulatory body relating to the use,
operation, or enjoyment of the Company Assets is set forth in
Exhibit "G" hereto (the "Permits");
(v) To the best of Seller's knowledge, the Exhibits to this
Agreement collectively constitute a complete and correct list and
description of all material contracts affecting the Company Assets,
as operated by the Company in the ordinary course of business,
including all amendments, modifications, revocations and notices,
except those that would not have a material adverse effect upon the
Company's rights, obligations or liabilities under said contracts;
(w) To the best of Seller's knowledge, the contracts, agreements,
permits and other documents listed on Exhibits "D", "F" and "G"
hereto are all valid, binding and enforceable in accordance with
their terms and are in full force and effect. To the best of
Seller's knowledge, the Company has performed all obligations and
made all payments required, to be performed or paid under such
contracts, agreements and other documents and Seller has not
received any written notice from any party to said contracts and
agreements claiming the existence of any default under any of such
contracts, agreements or other documents which have not been
previously remedied;
(x) To the best of Seller's knowledge, except as disclosed to Buyer
on Schedule 4(x) hereto, the Company has complied with all
applicable Environmental Protection Laws (as defined in Section
18(d) of this Agreement) save and except where the failure to
comply would not have a material adverse effect upon the Company or
the Company Assets;
(y) To the best of Seller's knowledge, neither the execution and
delivery of, nor Seller's performance under this Agreement, is
prohibited by or requires any consent, authorization, approval or
registration under any law, rule or regulation, other than those
customarily required in transactions of this type, or under any
judgment, order, writ, injunction or decree to which Seller was a
named party;
(z) The Company is not subject to any arrangement under which it or
Buyer will be obligated, by virtue of a prepayment arrangement, a
"take-or-pay" arrangement, a production payment, or any other
arrangement, to transport or deliver hydrocarbons at some future
time without then or thereafter receiving full payment therefor, or
to make payment at some future time for hydrocarbons or the
transportation or delivery of hydrocarbons previously purchased or
transported;
(aa) To the best of Seller's knowledge, none of the statements,
representations or warranties made by Seller in this Agreement, or
in any Exhibit or Schedule hereto, or in any certificate or other
document delivered with or pursuant to this Agreement, contains any
untrue statement of any material fact, or omits to state any
material fact necessary in order to make the statements herein or
therein, in light of the circumstances under which they were made,
not misleading. Except as and to the extent expressly set forth in
this Agreement, or in any Exhibit or Schedule hereto, Seller makes
no representations or warranties whatsoever, and disclaims all
liability and responsibility for any negligent representation,
warranty, statement or information made or communicated, by
oversight or otherwise (orally or in writing) to Buyer (including,
but not limited to, any opinion, information or advice which may
have been provided to Buyer by Seller or the Company or any of
their stockholders, officers, directors, employees, agents,
attorneys, consultants, representatives, or any party acting on
their behalf). This subparagraph (aa) shall not excuse Seller from
any intentional misrepresentation, statement, warranty or act in
furnishing incorrect, false or misleading information to Buyer by
Seller or any person acting on behalf of Seller, if made, given or
done with the intent that the other party rely thereon and be
misled thereby;
(bb) there are no agreements allowing another party to purchase all
or some of the Company Assets except in the ordinary course of
business;
(cc) the Lease is in full force and effect in accordance with its
terms and Seller knows of no default thereunder or no condition or
event under which the lessor under the Lease could terminate the
Lease prior to the end of the primary term or any extension
thereof;
(dd) the Company is not a party to any partnership or joint
venture;
(ee) Schedule 4(ee) attached hereto is a complete list of all
policies of insurance with respect to the Company Assets, all of
which will remain in full force and effect until the Closing Date;
and
(ff) Seller expressly covenants and agrees that from and after the
date of this Agreement until the Closing Date:
(i) Seller shall give the officers, attorneys, accountants and
other authorized representatives of Buyer access, during normal
business hours, to all the records, properties and personnel of the
Company relating to it and its business. Seller will furnish the
representatives of Buyer during such period with all information as
such representatives may reasonably request and cause the
employees, accountants and attorneys of the Company, to the extent
reasonably possible, to cooperate with such representatives in
connection with such review and examination, and to make full
disclosure to Buyer of all material facts affecting the Company
Assets. Notwithstanding the foregoing, Buyer shall not unduly or
unreasonably disrupt or interfere with the conduct of the Company
or its business.
Buyer shall assume all risks involved in entering upon the
Company's premises or any of the Company's properties, and Buyer
shall indemnify, protect, defend and hold Seller and the Company
harmless from any liens, claims, losses, liabilities, costs and
expenses arising out of Buyer's exercising any right of access
granted hereunder, including, without limitation, any claims,
losses and liabilities resulting from bodily injury or death to
persons or damage to property sustained by any party as a result of
the exercise of Buyer's right of access. Buyer's indemnity
contained in this subsection shall survive the recision,
cancellation, termination or consummation of this Agreement; and
(ii) Between the date of this Agreement and the Closing Date, the
Company will not: (a) transfer, sell or otherwise dispose of any
corporate property or assets material to the operation of its
business other than in the ordinary and usual course of its
business as heretofore conducted, save and except such items as
shall have become no longer useful, obsolete or worn out, or
rendered of no further use, and, if heretofore useful in the
conduct of its business and operations, as may have been replaced
with other items of substantially the same value and utility as the
items transferred, sold, exchanged or otherwise disposed of; (b)
create, participate in or agree to the creation of any liens or
encumbrances on its corporate property, save and except liens for
taxes not yet due and liens created in the ordinary and usual
course of its business as heretofore conducted in connection with
normal purchases of natural gas; (c) enter into any leases,
contracts or agreements of any kind or character extending beyond
August 15, 1995 or incur any liabilities, save and except those to
which it is presently committed and which are disclosed herein or
in the Exhibits hereto; (d) make any payments or distributions to
or for the benefit of any of its officers, directors, stockholders
or employees, save and except wages and salaries made to employees
in the ordinary and usual course of the business as heretofore
conducted and contributions required pursuant to any health and/or
life insurance plans presently in effect; (e) amend or repeal its
Articles of Incorporation or Bylaws or issue any shares of capital
stock in addition to, and other than, the shares heretofore issued,
or reissue any treasury stock; (f) take any action that is
materially different or varies from the ordinary course of business
of the Company; or (g) not pay or agree to pay any severance or
termination benefit to any employee of the Company that is
triggered by the Closing and that would be binding upon Buyer or
the Company, or affect the Company's ownership, operation and
enjoyment of the Company Assets.
(gg) Schedule 4(gg) attached hereto is a schedule of (i) the name
of each bank, savings and loan or other financial institution at
which the Company has any account or safe deposit box, including
the style and number of each such account or safe deposit box and
the names of all persons authorized to draw thereon or who have
access thereto, and (ii) the name of each person, corporation,
firm, association or business entity or enterprise holding a
general or special power of attorney from the Company and a summary
of the terms thereof;
(hh) Schedule 4(hh) attached hereto sets forth all pension plans,
profit sharing plans, retirement benefit plans, executive
compensation arrangements, deferred compensation arrangements,
retiree medical arrangements, employment contracts, health,
disability and/or life insurance plans, and other benefit plans,
payments or arrangements for employees of the Company (the "Benefit
Plans") presently in effect with respect to the Company. Seller
has heretofore delivered to Buyer true, correct and complete copies
of summary plan descriptions of all Benefit Plans and will provide
Buyer with such additional information regarding the Benefit Plans
as Buyer may reasonably request.
5. Representations and Warranties by Buyer. Buyer represents and
warrants to Seller as of the date of this Agreement and on and as
of the Closing Date, the following:
(a) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction where formed and
conducting business. Buyer has all requisite power and authority
and is entitled to carry on its businesses as now being conducted;
(b) Neither the execution, delivery nor the performance of this
Agreement by Buyer will conflict with, result in a default or loss
of rights under, or result in the creation of any lien, charge or
encumbrance pursuant to, any provision of Buyer's certificate of
incorporation or by-laws or any material franchise, mortgage, deed
of trust, lease, license, agreement or understanding, or any order
or judgment or decree to which Buyer is a party or by which Buyer
is bound or affected. Buyer or its nominee has the full power and
authority to enter into this Agreement and to carry out the
transactions contemplated hereby, and this Agreement has been duly
authorized and executed by Buyer and constitutes a valid and
binding obligation of Buyer or its nominee, enforceable against
Buyer or its nominee in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other
laws relating to or affecting the enforcement of creditors' rights
generally and general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at
law). Buyer or its nominee has complied with all applicable laws
and regulations and has all certificates, permits, approvals, and
licenses from any and all governmental authorities that may be
required for Buyer or its nominee to validly own the Stock;
(c) To the best of Buyer's knowledge, there are no claims, legal
actions, suits, arbitrations, governmental investigations or other
administrative proceedings in progress or pending against or
relating to Buyer which might reasonably be expected to have a
material adverse effect upon Buyer, its properties, assets or
businesses, and Buyer is not aware of any facts which might result
in such claim, action, suit, arbitration or other proceeding which
might reasonably be expected to have a material adverse effect on
Buyer's or Buyer's nominee's ability to perform this Agreement;
(d) To the best of Buyer's knowledge, Buyer has complied with all
applicable material laws, rules, regulations, ordinances and orders
applicable to its respective businesses or properties. To the best
of Buyer's knowledge, Buyer is not in violation of or in default
under any material terms or provisions of any material lien,
mortgage, lease, agreement, instrument, order, judgment or decree;
(e) To the best of Buyer's knowledge, none of the statements,
representations or warranties made by Buyer in this Agreement, or
in any certificate or other document delivered with or pursuant to
this Agreement, contains any untrue statement of any material fact,
or omits to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under
which they were made, not misleading;
(f) In the event Buyer elects to inspect and/or investigate the
Pipeline System, the Equipment or any of the other assets
constituting a portion of the Company Assets, Buyer shall have the
duty to disclose in writing to Seller, prior to Closing, any fact
or results obtained through such inspection and/or investigation
which Buyer knows to constitute a material violation of any local,
state or federal laws, rules or regulations.
6. Liabilities and Obligations Assumed by Seller. Notwithstanding
Buyer's purchase of the Stock, Buyer and Seller expressly agree
that Seller shall expressly assume and timely pay or perform, as
applicable, the following liabilities and obligations of the
Company only to the extent not reflected on the Balance Sheet.
(a) accounts payable accruing between September 2, 1993 and the
Closing Date (the "Ownership Period");
(b) accrued expenses and similar current liabilities accruing
during the Ownership Period;
(c) all "Taxes" (as defined in Section 16 of this Agreement)
arising from the Company's ownership or use of the Company Assets
and any other operations of the Company during the Ownership
Period;
(d) all obligations accruing during the Ownership Period under,
and all liabilities and obligations arising on or after the Closing
Date by reason of any breaches or defaults during the Ownership
Period under, any of the following: (i) the Lease, (ii) the
Easement Agreements, (iii) the Transmission Contracts, (iv) the
Permits, and (v) the FERC Letter Order described in Section 6.(h);
(e) any and all claims or liabilities arising out of any
employment relationship during the Ownership Period, for
termination or severance of employees, for deferred compensation,
accrued vacation or sick leave under any employment agreement or
employee benefit plan or policy, or any other claims alleged by
employees or with respect to any retirement, pension or profit
sharing plan or similar agreement;
(f) all liabilities for claims for injury, disabilities, death or
workers compensation arising from employment during the Ownership
Period, but only to the extent not covered by insurance carried by
the Company;
(h) all liabilities for claims or damages arising from
environmental matters relating to the Company that resulted from
conditions first occurring during the Ownership Period;
(i) any refund obligations, including interest thereon, due to
customers for the transporting of gas during the Ownership Period,
including but not limited to those arising pursuant to paragraph 2
of that certain Letter Order, issued by the Federal Energy
Regulatory Commission ("FERC") in Docket Number PR91-3-000, dated
October 24, 1991, approving the Stipulation and Agreement filed
with FERC pursuant to Section 311 of the Natural Gas Policy Act.
7. Note Payable to ANR Southern Pipeline Company. Sixty
thousand, six hundred dollars ($60,600) of the Purchase Price shall
be applied towards the Note Payable to ANR Southern Pipeline
Company is the amount of $60,600 by the Company.
8. Conditions to Obligation of Buyer to Close. The obligation of
Buyer to consummate the transactions contemplated by this Agreement
is subject to the satisfaction of the following conditions unless
waived by Buyer:
(a) The representations and warranties of Seller set forth herein
shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (including representations and warranties
made as of a specific date being true and correct as though that
specific date were changed to the Closing Date);
(b) Seller shall have performed all obligations and agreements and
complied with all covenants and conditions applicable to it
contained in this Agreement prior to or on the Closing Date, except
those which if not performed or complied with would not materially
and adversely affect Buyer or the Company Assets or the fair market
value of the Company Assets;
(c) Seller shall have endorsed in blank (or executed stock powers
in blank) and delivered to Buyer certificates representing the
Stock on the Closing Date, and shall have delivered to Buyer the
written resignations of the present directors and officers of the
Company in accordance with Section 4(e) of this Agreement;
(d) No suit, action or other proceeding by a third party or
governmental authority shall be pending or threatened which seeks
damages from Buyer in connection with, or seeks to restrain, enjoin
or otherwise prohibit, the consummation of the transaction
contemplated by this Agreement;
(e) Between the date of this Agreement and the Closing Date, no
material adverse change in the business or operations of the
Company shall have occurred;
(f) Between the date of this Agreement and the Closing Date, no
damage to or destruction of any of the Company Assets resulting in
a repair or replacement cost in excess of $25,000.00 shall have
occurred;
(g) No material (i) environmental violations, (ii) title failures
or defects or (iii) violations of or noncompliance with applicable
pipeline safety laws and regulations determined in accordance with
the uses for which the Pipeline System is currently being utilized
shall have been determined by Buyer through its due diligence; and
(h) An opinion of counsel to Seller, dated as of the Closing Date,
addressed to Buyer, and satisfactory to Buyer's counsel in form and
substance, as to the matters contained in Sections 4(c), (i) and
(j) of this Agreement; and
(i) Buyer shall have determined through its due diligence that the
Pipeline System is an intrastate pipeline under applicable federal
and state laws and regulations.
9. Conditions to Obligation of Seller to Close. The obligation of
Seller to consummate the transaction contemplated by this Agreement
is subject to the satisfaction of the following conditions unless
waived by Seller:
(a) The representations and warranties of Buyer set forth herein
shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (including representations and warranties
made as of a specific date being true and correct as though that
specific date were changed to the Closing Date);
(b) Buyer shall have performed all obligations and agreements and
complied with all covenants and conditions applicable to it
contained in this Agreement prior to or on the Closing Date, except
those which if not performed or complied with would not materially
and adversely affect Seller;
(c) No suit, action or other proceeding by a third party or a
governmental authority shall be pending or threatened which seeks
substantial damages from Seller in connection with, or seeks to
restrain, enjoin or otherwise prohibit, the consummation of the
transactions contemplated by this Agreement;
(d) Payment by Buyer to Seller of the Purchase Price; and
(e) An opinion of counsel to Buyer, dated as of the Closing Date,
addressed to Seller, and satisfactory to Seller's counsel in form
and substance, as to the matters contained in Section 5(a) and (b)
of this agreement.
10. Casualty Loss Prior to Closing. If prior to Closing any of
the Company Assets are damaged or destroyed by fire, flood, storm
or other casualty and the repair or replacement cost thereof, as
applicable, is $25,000.00 or less, then, subject to the other terms
and provisions of this Agreement, Buyer shall proceed to purchase
the Stock without any reduction in the Purchase Price. If prior to
Closing any of the Company Assets are damaged or destroyed by fire,
flood, storm or other casualty and the repair or replacement cost
thereof, as applicable, is in excess of $25,000.00, but is less
than $250,000.00, then Buyer shall have the option to either
terminate this Agreement or to proceed to purchase the Stock with
a reduction in the Purchase Price by the amount of the repair or
replacement cost thereof, as applicable, of such damaged or
destroyed assets. If prior to Closing any of the Company Assets
are damaged or destroyed by fire, flood, storm or other casualty
and the repair or replacement cost thereof, as applicable, is
$250,000.00 or more, then both Buyer and Seller shall have the
option to terminate this Agreement; and if neither Buyer nor Seller
elects to terminate this Agreement, then Buyer shall proceed to
purchase the Stock with a reduction in the Purchase Price by the
amount of the repair or replacement cost thereof, as applicable, of
such damaged or destroyed assets.
All repair or replacement costs shall be determined jointly by
Seller and Buyer or, in the event of disagreement between Buyer and
Seller with respect thereto, such repair or replacement cost shall
be determined by arbitration as provided in Section 37 of this
Agreement.
11. Termination. Anything elsewhere in this Agreement to the
contrary notwithstanding, this Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the
Closing in the following manner:
(a) By mutual written consent of Seller and Buyer;
(b) By Seller, through written notice to Buyer, if, on September
12, 1995, any of the conditions to the Closing set forth in Section
9 of this Agreement shall not have been satisfied and shall not
have been waived by Seller;
(c) By Buyer, through written notice to Seller, if, on September
12, 1995, any of the conditions set forth in Section 8 of this
Agreement shall not have been satisfied and shall not have been
waived by Buyer;
(d) By Buyer, through written notice to Seller on or before 5:00
p.m., Texas time on September 12, 1995, specifying material
environmental violations and/or material title failures or defects
and/or material violations of or noncompliance with applicable
pipeline safety laws and regulations and/or that the Pipeline
System is not an intrastate pipeline, as determined by Buyer
through its due diligence;
(e) By Seller, if at any time prior to Closing Seller determines
that it has made a material misrepresentation or materially
breached a covenant or a warranty made under this Agreement, which
after delivery of written notice thereof to Buyer, Buyer is
unwilling to waive same as a condition to Closing and to release
Seller from any liability therefor;
(f) By Buyer, if at any time prior to Closing, Buyer determines
that it has made a material misrepresentation or materially
breached a covenant or a warranty under this Agreement, which after
delivery of written notice thereof to Seller, Seller is unwilling
to waive same as a condition to Closing and to release Seller from
any liability therefor;
(g) By Buyer, through written notice to Seller on or before 5:00
p.m., Texas time on September 12, 1995, specifying a material
breach by Seller of any of the representations, warranties and/or
covenants contained in Section 4 of this Agreement; and
(h) By Seller, through written notice to Buyer on or before 5:00
p.m., Texas time on September 12, 1995, specifying a material
breach by Buyer of any of the representations, warranties and/or
covenants contained in Section 5 of this Agreement.
For purposes of subsection (d) hereinabove and Section 8(g) of this
Agreement, material environmental violations, title failures or
defects, or violations of or noncompliance with applicable pipeline
safety laws and regulations means only those which will cost more
than $25,000.00 (singularly or in the aggregate) to correct as
jointly determined by Seller and Buyer or, in the event of
disagreement between Buyer and Seller with respect thereto, as
determined by arbitration as provided in Section 37 of this
Agreement.
Upon the termination of this Agreement by either Party in
accordance with this Section 11, neither Party shall have any
liability whatsoever to the other Party in connection with this
Agreement and the transaction contemplated hereby, except as
otherwise expressly provided in this Agreement.
12. Expenses. All expenses incurred by Seller in connection with
or related to the authorization, preparation or execution of this
Agreement, the Exhibits and the Schedules hereto and thereto, and
all other matters related to the Closing, including without
limitation, all fees and expenses of counsel, accountants and
financial advisers employed by Seller, shall be borne solely and
entirely by Seller; and all such expenses incurred by Buyer shall
be borne solely and entirely by Buyer, and any expenses incurred by
Buyer or as the result of the exercise of its right of access
granted in Section 4(ff)(i) of this Agreement, shall be borne
solely and entirely by Buyer.
13. Broker's Fees, Counsel Fees and Expenses. Seller and Buyer
each represent to the other that neither has employed any broker or
entered into any agreement for the payment of any fees,
compensation or expense to any person, firm or corporation in
connection with the transactions contemplated by this Agreement.
Seller and Buyer further covenant and agree, each to the other, to
indemnify and hold the other harmless against any loss, liability,
costs, claims, demands, damages, actions, causes of action and
suits arising out of or in any manner related to the alleged
employment or use by the indemnifying party of any broker or agent
in connection with this Agreement or the transactions contemplated
hereby. The indemnification provision of this Section 13 shall
survive any rescission, cancellation, termination, expiration or
consummation of this Agreement.
14. Notices. Unless otherwise designated in writing, any notice
or demand required or permitted by any provision of this Agreement
shall be deemed to have been sufficiently given or served for all
purposes if it is sent by United States Mail, return receipt
requested, postage prepaid, addressed as follows or by facsimile to
the numbers contained below:
If to Seller:
Five Flags Holding Company
c/o ANR Southern Pipeline Company
Nine Greenway Plaza - Coastal Tower
Houston, Texas 77046
Attention: James F. Cordes
Facsimile: (713) 297-1608
If to Buyer:
Midcoast Holdings No. One, Inc.
Suite 3030, 1100 Louisiana
Houston, Texas 77002
Attention: Mr. Dan C. Tutcher,
President
Facsimile: (713) 650-3232
15. Operation of the Company Assets Prior to Closing. From and
after the date of this Agreement to the Closing Date, Seller agrees
to cause the Company to maintain and operate the Company Assets in
a good and workmanlike manner in accordance with present practices
and in compliance with applicable laws, rules and regulations,
maintain in full force and effect that insurance which is currently
in force with respect to the Company Assets, pay or cause to be
paid all costs and expenses incurred in connection therewith, keep
all agreements relating to the Company Assets in full force and
effect according to their present terms and conditions, and
otherwise comply with all of the covenants contained in all
agreements relating to the Company Assets. Seller further
covenants and agrees that it and/or the Company, as applicable,
shall:
(a) Promptly notify Buyer of any suit, action or other proceeding
that arises prior to the Closing Date affecting any of the Company
Assets or Seller's ability to consummate and perform under this
Agreement;
(b) Not mortgage, pledge or otherwise encumber any of the Company
Assets, or grant easements or licenses upon or further encumbering
any of the Company Assets without the prior written consent of
Buyer;
(c) Not enter into or terminate any material Easement Agreements,
Transmission Contracts or make any material changes to any of same,
other than in the ordinary course of business without the prior
written consent of Buyer, which consent shall not be unreasonably
withheld or delayed; and
(d) Not sell or otherwise dispose of any of the Company Assets
(except for use of such of the Inventory as shall be necessary in
normal day-to-day operations and maintenance), or make any material
changes to any of same, without the prior written consent of Buyer,
which consent shall not be unreasonably withheld or delayed.
16. Internal Revenue Code.
The terms used herein which are defined in the Agreement shall have
the meanings specified in this Agreement unless specifically
otherwise defined herein. As used herein, (i) the term "Code"
means the U.S. Internal Revenue Code of 1986, as amended, or any
successor law, (ii) the term "Law" means the law of any country or
political jurisdiction thereof other than the Code and (iii) the
term "Taxes" means all federal, foreign, state, local and/or
combined taxes, specifically including gross income, net income,
gross receipts, petroleum revenue, sales, use, ad valorem, value-
added, franchise, withholding, payroll, employment, excise,
property, or windfall profit taxes, together with any interest
thereon and any penalties, additions to tax, or additional amounts
applicable thereto which have been or may be imposed upon the
Company.
17. Tax Allocation Arrangements; Tax Audits.
(a) Tax Allocation Arrangements. Effective as of the Closing
Date, all liabilities and obligations between the Company and the
Seller under any tax allocation agreement or arrangement in effect
prior to the Closing Date shall cease to exist, and any liabilities
or rights existing under any such agreement or arrangement shall be
extinguished in full and shall not be paid thereafter. Seller
shall execute any documents necessary to effectuate the provisions
of this paragraph;
(b) Pre-Closing and Post-Closing Tax Liabilities. Seller shall be
solely responsible for the payment of all Taxes payable with
respect to the Company attributable to any period ending on or
before the Closing Date. Seller shall indemnify the Buyer from any
such Taxes (including any interest and penalties thereon.) In the
case of any state or local Taxes computed for a period which
includes the Closing Date but which ends after the Closing Date,
the Seller shall be liable for no more than its pro rata share of
such Taxes. The Buyer and the Company shall be liable for and
indemnify the Seller and its Affiliates and successors or assignees
against all Taxes which are imposed on or incurred by the Buyer for
taxable years or periods or portions thereof beginning on or after
the Closing Date;
(c) Apportionment of Tax Liabilities. The apportionment of tax
liabilities addressed in Section 17(b) of this Agreement shall be
determined on the basis of actual taxable events, taxable periods,
and activities, except that exemptions, allowances or deductions
that are granted or calculated on an annual or periodic basis, such
as the deduction for property taxes, franchise taxes (other than
franchise taxes measured by income), payments in lieu of such taxes
and similar taxes or fees shall be apportioned between the Seller
and Buyer on a pro rata daily basis over the relevant tax period,
based on the tax periods or portions thereof each is responsible
for under Section 17(b) of this Agreement;
(d) Tax Reimbursement. If, as a result of any adjustment which is
made after the Closing to Company's liability for Taxes for any
taxable period, the Seller or Buyer or any Affiliate of either
makes a payment of Taxes in accordance with Section 17(b) of this
Agreement and, as a result of such adjustment, Company receives a
refund of, or realizes a reduction in, Taxes for any other Taxable
period, then the amount of such refund or reduction in Taxes shall
promptly (and in any event no later than thirty days after the
close of the taxable period with respect to which the refund or
reduction in Taxes is received, taken or obtained) be remitted to
the party which made such payment of Taxes. If any refund or
credit of Taxes for which a payment has been made by Company
pursuant to this Section 17(d) is subsequently reduced or
disallowed, Seller or Buyer or any Affiliate of either who received
such refund or credit of Taxes, shall pay Company for the amount of
such reduction or disallowance within thirty days of such reduction
or disallowance;
(e) Filing of Returns. The Seller shall prepare and file or cause
to be prepared and filed when due (i) all separate company income
or franchise tax returns and all consolidated, combined or unitary
income and franchise tax returns that are required to be filed by
or with respect to the Company for taxable years or periods during
the Ownership Period including any returns as to which an election
is made under the provisions of Section 338(h)(10) of the Code or
under any comparable provisions under other Laws, and (ii) all
other tax returns and reports of the Company which are required to
be filed or furnished on or before the Closing Date. Buyer shall
prepare and file, or cause to be prepared and filed, when due all
other tax returns and reports that are required to be filed by or
with respect to the Company, including returns necessitated by a
stand-alone election under Section 338(g) of the Code or comparable
provisions under other Laws;
(f) Claims and Suits for Refunds. If Buyer or any Affiliate of
Buyer (including Company) received a refund of any Taxes that
Seller is responsible for hereunder, or if Seller or any Affiliate
of Seller (other than Company) receives a refund of any Taxes that
Buyer and the Company are responsible for hereunder, the party
receiving such refund shall, within thirty (30) days after receipt
of such refund, remit it to the party who has responsibility for
such Taxes hereunder. For the purpose of this Section 17(f), the
term "refund" shall include a reduction in Tax and the use of an
overpayment as a credit or other tax offset, and receipt of a
refund shall occur upon the filing of a return or an adjustment
thereto using such reduction, overpayment or offset or upon the
receipt of cash;
(g) Payment. All Taxes, including Taxes owed after a compromise
or settlement of an audit or dispute with a taxing authority, shall
be paid to the taxing authority by the party which is legally
responsible therefor under the Code or Law. Upon payment of any
Taxes with respect to which a party is entitled to receive
indemnification hereunder, such party shall submit an invoice, with
evidence of payment, to the indemnifying party stating that such
Taxes have been paid and giving in reasonable detail the
particulars relating thereto. The indemnifying party shall remit
payment for such Taxes promptly upon receipt of such invoice,
evidence of payment and particulars. Such payment will include
interest (at the Prime Rate) from the date Taxes are paid by the
party entitled to indemnification through the date the payment is
remitted by the indemnifying party;
(h) Assistance and Cooperation. Following Closing, in the event
that one Party receives notice of any examination, audit, claim or
other proceeding with respect to the liability of the Company for
Taxes relating to any period for which the other Party is liable,
the first Party shall within ten (10) days notify the other Party
in writing thereof. In the event of an audit or dispute with a
taxing authority over Taxes for which a party is liable pursuant to
this Section 17, that Party will be entitled to control the
proceedings, at its sole expense, related to such Taxes (including
action taken to pay, compromise or settle such Taxes), provided,
that Seller and Buyer shall jointly control, in good faith with
each other, any proceeding related to a taxable year or period
which begins before and ends after the Closing Date and which both
parties have liability for pursuant to Section 17(b) of this
Agreement, provided further, however, that Seller will in any event
be entitled to solely control any proceeding which relates to or
impacts a consolidated, combined or unitary return filed in any
jurisdiction by Seller or its Affiliates. The Party which is not
entitled to control any such proceedings shall be afforded a
reasonable opportunity to participate in such proceedings at its
own expense;
(i) Further Assurances. Each of the Parties hereby agrees to
provide to the other such cooperation and information as reasonably
requested and necessary for the preparation and/or filing of any
return, amended return or claim for refund; in determining a
liability or a right to refund; in conducting any audit; or in
responding to any examination, audit, claim or other proceeding,
involving any Taxes. The Company and each Party will preserve and
retain all returns, schedules, work papers and all material records
or other documents relating to any Taxes until the expiration of
the statutory period of limitations (including extensions) for the
taxable periods to which such documents relate and until the final
determination of any payments which may be required with respect to
such periods under this Agreement. The Company shall make such
documents available at the then current administrative headquarters
of the Company to Seller upon reasonable notice and at reasonable
times. Seller shall be entitled, at its sole expense, to make
copies of any such books and records as it shall deem necessary for
any reason. The Buyer further agrees to permit representatives of
Seller to meet with employees of the Buyer and the Company on a
mutually convenient basis in order to enable such representatives
to obtain additional information and explanations of any documents
provided pursuant to this paragraph. Any information obtained
pursuant to this paragraph shall be kept confidential, except as
may be otherwise necessary in connection with the filing of returns
or claims for refund or in conducting or responding to any
examination, audit, claim or other proceeding.
(j) Prior Year Returns. The Seller represents that the Company
has copies of all separate and consolidated returns filed since
September 2, 1993 of prior year "Taxes", regardless of whether the
Seller owned the Company at the time the tax returns were filed.
18. Indemnification by Seller. Seller agrees that, on and after
the Closing, it will indemnify, hold harmless and defend Buyer from
and against any and all losses, claims, demands, costs and expenses
(including, without limitation, reasonable attorneys' fees and
disbursements) of every kind, nature and description based upon,
arising out of or otherwise in respect of the following:
(a) any misrepresentation, breach of warranty or breach of
covenant by Seller contained in this Agreement or in any documents
entered into or delivered in connection therewith;
(b) claims or demands of third parties arising from or otherwise
related to the operations of, or any work performed by Seller,
prior to the Closing;
(c) the nonfulfillment by Seller of any of the obliga-tions and
liabilities of the Company assumed by Seller pursuant to
subsections (a), (b), (c), (d), (e), (f), (g) and (h) of Section 6
of this Agreement;
(d) any and all violations of "Environmental Protection Laws"
occurring during the Ownership Period with respect to Seller's
ownership or operation of the Pipeline System, the Equipment or any
of the other assets constituting a portion of the Company Assets.
"Environmental Protection Laws" shall include any and all laws,
statutes, rules, regulations, and judicial interpretation thereof
of the United States, of any state in which the Company Assets, or
any portion thereof, is located, and of any other governmental or
quasi-governmental authority having jurisdiction, that relate to
the prevention, abatement, and/or elimination of pollution and/or
protection of the environment, including, but not limited to, those
federal statutes commonly known as the Solid Waste Disposal Act of
1970, the Resource Conservation and Recovery Act of 1976, the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Superfund Amendments and Reauthorization Act of
1986, the Clean Water Act, the Clean Air Act, the Safe Drinking
Water Act, the Migratory Bird Treaty Act, the Toxic Substances
Control Act, and the Hazardous Materials Transportation Act,
together with all applicable state statutes serving any similar or
related purpose;
(e) all "Taxes" (as defined in Section 16 of this Agreement) of
Seller attributable to all periods during the Ownership Period,
without regard to whether or not the period for which any "Taxes"
are determined ends either before or subsequent to the Closing
Date;
(f) the non-existence of any particular Company Assets which are
described in this Agreement or in the Exhibits or Schedules
thereto;
(g) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including without
limitation, legal fees and expenses incurred by Buyer, incident to
any of the foregoing or incurred by Buyer in investigation or
attempting to avoid the same or to oppose the imposition thereof,
or in enforcing this indemnity; and
(h) title defects by, through and under the Company occurring
during the Ownership Period.
This right to indemnification is in addition to any other right
available to Buyer, including, without limitation, the right of
Buyer to sue Seller for a misrepresentation, breach of warranty, or
breach of covenant under this Agreement.
19. Indemnification by Buyer. Buyer hereby agrees that, on and
after the Closing, it will indemnify, hold harmless and defend
Seller from and against any and all losses, claims, demands,
damages, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements) of every kind, nature
and description based upon, arising out of or otherwise in respect
of the following:
(a) any misrepresentation, breach of warranty or breach of
covenant by Buyer contained in this Agreement or in any documents
entered into or delivered in connection herewith;
(b) the nonfulfillment by Buyer of any Assumed Obligation;
(c) claims or demands of third parties arising from or otherwise
related to the operations of, or any work performed by the Company,
after the Closing;
(d) any and all violations of Environmental Protection Laws, as
defined in Section 18(d) of this Agreement, first occurring on or
after the Closing Date with respect to the Company's ownership or
operation of the Pipeline System, the Equipment or any of the other
assets constituting a portion of the Company Assets; and
(e) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including without
limitation, reasonable legal fees and expenses incurred by Seller,
directly related to any of the foregoing, or in enforcing this
indemnity. This right to indemnification is in addition to any
other right available to Seller, including, without limitation, the
right of Seller to sue Buyer for a misrepresentation, breach of
warranty, or breach of covenant under this Agreement.
20. Defense by Parties. Notice of any claim for indemnification
under this Agreement shall be given promptly to the indemnifying
party stating in reasonable detail the nature of such claim and the
amount thereof. If an action, suit or proceeding is brought
against a party with respect to which an indemnifying party has
liability under an indemnity agreement contained herein, the
indemnifying party shall, at its sole expense, conduct the defense
of any such action, suit or proceeding. The party seeking
indemnity, at its sole expense, may participate in the defense of
any such action, suit or proceeding and, in such event, all parties
shall cooperate fully with each other and their counsel in order to
ensure a proper and adequate defense. If the indemnifying party
refuses or declines to defend such action, suit or proceeding, the
party seeking indemnity shall have the right, at the expense of the
indemnifying party, to defend such claim with counsel of its own
choosing.
21. Limitations on Liabilities of the Parties. All statements,
covenants, representations, warranties and indemnity obligations
contained in this Agreement, in the Exhibits and Schedules hereto,
or in any certificate or document delivered hereunder shall not be
deemed merged into the Closing or the documents delivered at
Closing, but, rather shall survive until December 15, 1996 (unless
waived in writing at or prior to Closing). Both Seller's and
Buyer's liability for any claims against the other arising out of
or in any way pertaining to this Agreement or the purchase and sale
of the Stock, including but not limited to any misrepresentations,
breaches of covenants, breaches of warranties and breaches of
indemnity obligations, shall terminate on December 15, 1996, and it
shall, therefore, be a condition to a Party's liability for any
such claims under this Agreement that it receive due notice of such
claims, as provided under Section 15 of this Agreement, on or
before December 15, 1996; provided, however, in the event there is
a claim, for which notice has been given as provided above, pending
on December 15, 1996, then the liability of a Party for any such
claim shall not terminate, but shall continue in effect with
respect to any such claim. Notwithstanding the foregoing, Seller's
liability for Seller's breach of the obligations and liabilities of
the Company assumed by Seller pursuant to subsections (a), (b),
(c), (d), (e) (f), (g) and (h) of Section 6 of this Agreement
("Seller's Assumed Obligations"), shall survive the Closing and
continue in effect thereafter, and Buyer's liability for the
indemnity obligation of Buyer under Section 4(ff)(i) of this
Agreement shall survive the Closing and continue in effect
thereafter. Notwithstanding any provision to the contrary in this
Agreement or the Exhibits and Schedules hereto: (i) the aggregate
liability of (x) Seller's parent company, ANR Southern Pipeline
Company, under the Indemnity Agreement issued by it pursuant to
Section 22 of this Agreement and otherwise under any applicable
laws, and (y) Seller under this Agreement and otherwise under any
applicable laws, to Buyer for any claims and/or of any losses
arising out of or in any way pertaining to the sale and assignment
of the Stock, including but not limited to any misrepresentations,
breaches of covenants, breaches of warranties and breaches of
indemnity obligations, shall be limited to Two Million, Fifty-Two
Thousand and No/100 Dollars ($2,052,000); and (ii) the aggregate
liability of Buyer to Seller under this Agreement and otherwise
under any applicable laws for any claims and/or any of the losses
arising out of or any way pertaining to the sale and assignment of
the Stock, including but not limited to any misrepresentations,
breaches of covenants, breaches of warranties and breaches of
indemnity obligations, shall be limited to Two Million, Fifty-Two
Thousand and No/100 Dollars ($2,052,000).
22. Indemnity Agreement of Parent Corporation. At Closing, Seller
agrees to deliver to Buyer, and each of Seller and Buyer shall
execute, an Indemnity Agreement issued by ANR Southern Pipeline
Company, in substantially the same form as that attached hereto as
Exhibit "H".
23. The Parties, Their Successors and Assigns. This Agreement
shall inure to the benefit of and be binding upon the Parties and
their respective successors, legal representatives and assigns;
provided, however, that no Party may assign its obligations
hereunder without the prior written consent of the other Party.
24. Entire Agreement. This Agreement and its Exhibits and
Schedules constitute the entire agreement of the Parties with
respect to the subject matter hereof, supersedes all prior and
contemporaneous agreements and understandings between the Parties,
and may not be modified or amended except by a written agreement
executed by both Parties. No representation, promise, or statement
of intention has been made by either Party that is not embodied in
this Agreement, and neither Party shall be bound or liable for any
alleged representation, promise or statement of intention not so
set forth in this Agreement.
25. Governing Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State
of Texas, except for any conflict of laws rules which would refer
any matter to the law of another jurisdiction, and irrespective of
(i) the respective jurisdictions of incorporation of the Parties,
(ii) the locations of the respective principal offices or places of
business of the Parties, (iii) the places of execution or place of
consummation of this Agreement, or (iv) the location of the
property which is the subject of this Agreement.
26. Cooperation After Closing. After the Closing, upon reasonable
advance notice, Buyer shall provide access during normal business
hours to, and copying of, any books and records and other
information as Seller may reasonably require to close the books and
records of Seller and prepare Seller's tax returns or in connection
with, any claim made against, or obligation of, Seller or any
Affiliate of Seller, involving the Company or its property.
27. Section and SubSection Headings. The Section and subsection
headings contained herein are for the purpose of convenience only
and are not intended to define or limit the contents thereof.
28. Counterparts. This Agreement may be executed in one or more
counterparts, all of which when taken together shall be deemed to
be one original.
29. Exhibits and Schedules. All Exhibits and all Schedules
attached to or referred to in this Agreement are incorporated into
and made of part of this Agreement.
30. Waivers. Any failure by either Party to comply with any of
its obligations, agreements or conditions herein contained may be
waived in writing, but not in any other manner, by the Party to
whom such compliance is owed. No waiver of, or consent to a change
in, any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of, or consent to a change in, other
provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
31. Further Assurances. Seller and Buyer agree to deliver or
cause to be delivered to each other on the Closing Date and at such
other time thereafter as shall be reasonably agreed, any such
additional instruments as Buyer or Seller may reasonably request
for the purpose of carrying out this Agreement, including but not
limited to: (a) Seller and Buyer amending the Exhibits hereto as
required to effectuate the transactions contemplated hereunder; and
(b) Seller providing Buyer with immediate disclosure of
noncompliance with Environmental Protection Laws as contemplated by
Section 4(e) of this Agreement.
32. No Solicitation. Seller agrees that on and after the date
this Agreement has been fully executed by both Buyer and Seller and
one counterpart delivered to each of the parties, except as
otherwise consented to in writing by Buyer, Seller and any
affiliates or agents of Seller will immediately terminate all
discussions with any party other than Buyer with respect to any
sale or other similar transaction involving the Company Assets.
Neither Buyer nor Seller, or any affiliates or agents of Buyer or
Seller, shall enter into or conduct discussions, whether or not
solicited by any of Buyer, Seller or their agents, with any party
other than Buyer with respect to any sale or other similar
transaction involving the Company Assets until Closing or
termination of this Agreement.
33. Confidentiality. Seller expressly agrees that all copies of
books, files, maps and records pertaining to the Company Assets
that are retained by Seller (Buyer herewith acknowledging and
agreeing that Seller shall be entitled to retain copies of any such
books, files, maps and records as Seller deems necessary or
desirable) shall be, and shall be handled by Seller as,
confidential information of the Company. Seller shall not disclose
any such information to any third party, including without
limitation, any local, state or federal governmental body or
regulatory agency, unless required to do so by applicable law.
Prior to any such disclosure, Seller shall notify the Company, as
far in advance of any such required disclosure as is practicable,
that Seller is required to disclose such information and the basis
for such required disclosure, and Seller shall cooperate fully with
the Company to obtain confidential treatment for any such disclosed
information by the party to which such information is disclosed.
34. Amendment. At any time prior to the Closing Date this
Agreement may be amended or modified in any respect by the Parties
by an agreement in writing executed in the same manner as this
Agreement. No supplement, modification, waiver or termination of
this Agreement shall be binding unless executed in writing by the
party to be bound thereby.
35. Attorneys' Fees. In the event suit or action arising out of
the Agreement should be brought by either Party, the prevailing
Party, after conclusion of all appeals, shall be entitled to
reimbursement of court costs and reasonable attorneys' fees;
provided, however, that should the litigation concern the issue of
value or damages related to a breach of this Agreement and the
defendant offers to tender to the plaintiff a settlement amount and
plaintiff refuses said offer, then plaintiff must recover an
amount, exclusive of interest, attorneys' fees and court costs, at
least fifteen percent (15%) greater than the settlement offer in
order to be entitled to the cost and fee recovery provisions of
this Section 35.
36. Construction. Each Party acknowledges and agrees that this
Agreement was negotiated and drafted jointly by both Parties
hereto, and that in the event of any ambiguity, this Agreement
shall not be construed against either Party but rather the terms
herein shall be given a reasonable interpretation.
37. Arbitration. Either Party may upon notice given to the other
call for submission to arbitration (i) whether the cost of
correcting any environmental violation and/or title defect or title
failure and/or violations of or noncompliance with applicable
pipeline safety laws and regulations will exceed $25,000.00
(singularly or in the aggregate), pursuant to the notice which may
be given by Buyer to Seller under Section 11(d) of this Agreement
or (ii) the amount of repair or replacement cost of any Company
Assets damaged or destroyed by fire, flood, storm or other casualty
prior to Closing, pursuant to the determination which may be made
under Section 10 of this Agreement, in accordance with the
following:
(a) The Party requesting arbitration shall set forth in such
notice its proposed material amount. Within ten (10) days from the
receipt of such notice, the other Party may set forth its proposed
material amount. Within ten (10) days after the giving of such
latter notice, each Party shall furnish to the other Party a notice
("Decision Number") setting forth the amount that such Party wishes
the arbitrator(s) to select. Within ten (10) days after the giving
of the latter of the two Decision Numbers, the Parties shall attend
a meeting ("Meeting") at a mutually acceptable time and place to
discuss fully the content of such Decision Numbers and based
thereon determine whether either or both wish to modify their
Decision Numbers in any way. Any such modifications shall be
discussed with each other, so that when each Party finalizes its
Decision Number, it shall do so with full knowledge of the content
of the other Party's final Decision Number. The finalization of
such Decision Numbers and the delivery of same by each Party to the
other shall occur at the Meeting unless by mutual agreement they
agree to have one or more additional Meetings for such purposes.
If arbitration is invoked by either Party, the decision of the
arbitrator(s) shall be final and binding upon all Parties, and no
Party shall seek to have the applicable issues litigated rather
than arbitrated (except as may be otherwise required by law).
(b) It is the intent of the Parties that, to the extent
practicable, such binding arbitration shall be conducted by a
person knowledgeable and experienced in the type of matter that is
the subject of the dispute. In the event the Parties are unable to
agree upon such person within ten (10) days after the last Meeting
held pursuant to subsection (a) of this Section 37, then each Party
shall select a person that it believes has the qualifications set
forth above as its designated arbitrator (which selection shall be
accomplished by notifying the other Party of the identity of such
person), and such arbitrators so designated shall mutually agree
upon a similarly qualified third person to complete the arbitration
panel, provided, however, that if one of the Parties fails to
select its designated arbitrator as specified herein within ten
(10) days of receiving notice from the other Party that such other
Party has selected its designated arbitrator, then the arbitration
provided for herein shall be conducted by the one arbitrator so
designated. In the event that the persons selected by the Parties
are unable to agree on a third member of the panel within ten (10)
days after the selection of the latter of the two arbitrators, such
person shall be designated by the American Arbitration Association.
Upon final selection of the entire panel, such panel shall, as
expeditiously as possible (and if possible, within ninety (90) days
after the selection of the last arbitrator), render a decision on
the matter submitted for arbitration. Such panel shall be required
to adopt either one of the Decision Notices and shall have no power
whatsoever to reach any other result. Such panel shall adopt the
decision that in its judgment is the more fair, equitable and in
conformity with this Agreement. The arbitration shall be conducted
in Houston, Texas, in accordance with the commercial arbitration
rules of the American Arbitration Association.
(c) Upon the determination of any such dispute, the arbitrators
shall bill the costs attributable to such binding arbitration to
the losing Party; provided, however, that the arbitrators shall be
empowered to apportion such costs between the Parties if they deem
it appropriate.
(d) It is the intent of the Parties that, once arbitration is
invoked by either Party pursuant to the provisions of this Section
37, the matters set for arbitration shall be decided as set forth
herein, and they shall not seek to have this Section 37 rendered
unenforceable or to have such matter decided in any other way,
provided, however, that nothing herein shall prevent the Parties
from negotiating a settlement of any issue at any time.
IN WITNESS WHEREOF, the Parties have executed or caused this
Agreement to be executed in multiple originals by duly authorized
officers as of the day and year first above written.
SELLER:
FIVE FLAGS HOLDING COMPANY
By:__________________
Name:________________
Title:_______________
BUYER:
MIDCOAST HOLDINGS NO. ONE, INC.
By:_______________________
Dan C. Tutcher,
President
ffh.stk
EXHIBITS:
Exhibit "A" - "Map of the "Pipeline System"
Exhibit "B" - "Equipment"
Exhibit "C" - "Lease"
Exhibit "D" - "Easement Agreements"
Exhibit "E" - "Inventory"
Exhibit "F" - "Transmission Contracts"
Exhibit "G" - "Permits"
Exhibit "H" - "Indemnity Agreement"
SCHEDULES:
Schedule 4(e) - Directors and Officers of the Company
Schedule 4(f) - "Balance Sheet"
Schedule 4(l) - Notices of Failure to Comply with Laws
Schedule 4(x) - Exceptions to Compliances with Environmental Laws
Schedule 4(ee)- Schedule of Insurance Coverages
Schedule 4(gg)- Bank Accounts
Schedule 4(hh)-"Benefit Plans"
EXHIBIT 10.28
AGREEMENT FOR PURCHASE OF STOCK
THIS AGREEMENT is made and entered into by and between
MIDCOAST HOLDINGS NO ONE, INC., a Delaware corporation ("Midcoast")
and RAINBOW INVESTMENTS COMPANY, a Texas corporation ("Rainbow").
W I T N E S S E T H:
WHEREAS, Midcoast and Rainbow have agreed to join together for
the purpose of acquiring, owning and operating FIVE FLAGS PIPELINE
COMPANY, A Florida corporation ("Five Flags") which owns certain
pipeline facilities located in Florida; and
WHEREAS, the Parties desire to set forth the terms and
conditions upon which the capital stock of Five Flags is to be
acquired;
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, the parties hereto hereby agree as follows:
ARTICLE I
ACQUISITION OF FIVE FLAGS
Section 1.01. Five Flags Acquisition.
Midcoast and Rainbow shall collectively acquire and own all
the issued and outstanding capital stock of Five Flags which is now
owned by Five Flags Holding Company, a Florida corporation. Said
acquisition shall be in accordance with the terms and conditions of
the Agreement for Purchase and Sale of Stock attached hereto as
Exhibit "A".
Section 1.02. Ownership.
Midcoast shall purchase and own 91.25% of the Five Flags stock
and shall contribute $1,872,450 to acquire said interest. Rainbow
shall purchase and own 8.75% of the Five Flags stock and shall
contribute $179,550 for said interest.
Section 1.03. Issuance of Stock
Midcoast shall hold all issued and outstanding shares of Five
Flags in its name, including the 8.75% owned by Rainbow which shall
be held by Midcoast for the beneficial interest of Rainbow.
Rainbow may upon ten (10) days notice request that all shares
beneficially owned by Rainbow be issued directly into its name.
ARTICLE II
OWNERSHIP AND FINANCING
Section 2.01. Initial Ownership.
The capital stock of Five Flags to be acquired, shall be owned
91.25% by Midcoast and 8.75% by Rainbow. Each Party is responsible
for their proportionate share of the purchase price of the Five
Flags stock.
Section 2.02. Distributions.
Except as provided in Section 2.03 hereof, all Revenue
received from ownership of the stock, including but not limited to
dividends or liquidation of the stock, shall be paid to the Parties
in accordance with their respective ownership interest of Five
Flags stock at the time of distribution.
Section 2.03. Rainbow Priority.
Notwithstanding any provision to the contrary, Rainbow shall
be entitled to receive the first $179,550 which shall be collec-
tively received by the Parties. This provision shall cover all
revenue derived from the ownership of the Five Flags stock,
including but not limited to dividends, liquidation payments, stock
repurchases or sale of the stock. Prior to Rainbow's receipt of
$179,550, Midcoast shall remit to Rainbow, within three days of
receipt, any and all amounts it may receive in connection the
ownership of Five Flags stock. Once Rainbow has received the sum
of $179,550, all future revenues shall be paid to the parties in
accordance with their respective ownership interest of the Five
Flags stock.
ARTICLE III
TRANSFER OR PLEDGE OF FIVE FLAGS STOCK
Section 3.01. Restriction on Transfer.
Except as expressly permitted by this Agreement, no Party
shall have the right to sell, assign, transfer or dispose of all or
any portion of the Five Flags stock owned by the Party without the
written consent of the other Party, such consent not to be
unreasonably withheld.
Section 3.02. Permitted Transfers.
Nothing contained in this Agreement shall prevent:
(a) The transfer by any Party of all of its right, title and
interest in the Five Flags Stock (including indebtedness
thereof) if all of such right, title and interest is
transferred to another corporation, which is an affiliate
of the transferor pursuant to:
(i) a statutory merger or consolidation, or
(ii) a sale of all or substantially all of the assets of
the transferrer provided that such affiliate as-
sumes by operation of law or express agreement with
the other Party all of the obligations of the
transferrer under this Agreement and that no trans-
fer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabili-
ties of the Party are assumed by the successor
corporation by operation of law) shall relieve the
transferrer of its obligations under the Agreement
without the approval of all Parties to this agree-
ment. Upon such transfer such affiliate shall be
admitted in substitution of the transferrer.
(b) An assignment, pledge or other transfer creating a
security interest (and any transfer made in foreclosure
or other enforcement of such security interest) in all or
any portion of a Party's right, title or interest in the
profits of Five Flags.
Section 3.03. Sale of Five Flags Stock.
a) If any Party receives from an unaffiliated and
unrelated third party (the "Offeror") a bona
fide offer (the "Offer") to purchase all or a
part of their Five Flags stock which they are
willing to accept (the "Selling Party"), the
Selling Party shall submit a copy thereof to
the other party. The other Party shall have
the right of first refusal to purchase the
Five Flags stock on the same terms and condi-
tions by furnishing the Selling Party with
written notice to that effect within fifteen
(15) days of the receipt of the Offer. If
this right is not exercised, the Selling Party
may transfer its Five Flags stock to the
Offeror on the terms and conditions of the
Offer, provided however, the Offeror agrees to
be bound by the terms and conditions hereof.
If for any reason the Selling Party does not
sell its stock in accordance with the terms
and conditions of the Offer, the Selling
Party's stock shall again be subject to the
terms hereof.
b) In the event of a dispute any party may submit
to the others a buy-sell proposal setting
forth the basis on which the initiating Party
would acquire the interest of the non-initiat-
ing Party. If within thirty (30) days after
receipt of notice, the non-initiating Party
elects not to sell its Five Flags Stock to the
initiating Party on the exact terms and condi-
tions offered, then the non-initiating Party
shall be obligated to purchase the initiating
Party's Five Flags Stock on identical terms
and conditions.
ARTICLE IV
GENERAL
Section 4.01. Notices.
(a) Except as provided otherwise herein, all notices,
demands, requests, consents or approvals provided for or
permitted to be given pursuant to this Agreement must be
in writing. Meetings by telephone, shall be with the
Designated Representative listed below. All notices
authorized or required between the parties, and required
by any of the provisions of this Agreement, unless
otherwise specifically provided, shall be given in
writing by personal delivery or by United States mail,
postage or charges prepaid or by telecopier, and ad-
dressed to the party to whom directed at the address set
forth herein; provided, however, in the event the notice
period for any act is ten (10) days or less, such notice
may be given by telephone (confirmed by letter, telex, or
telegram). The originating notice given under any
provision hereof shall be deemed given only when received
by the party to whom such notice is directed, and the
time for such party to give any notice in response
thereto shall run from the date the originating notice is
received. The second or any responsive notice shall be
deemed given when deposited in the United States mail or
with the Western Union Telegraph Company, with postage or
charges prepaid, or when sent by telecopier or by
personal delivery or by telephone (if the act called for
is less than ten (10) days). Each party shall have the
right to change its address at any time, and from time to
time, by giving written notice hereof to all other
parties. The address and designated representative for
each of the parties is as follows:
Venturers Designated Representative
Midcoast Holdings No. One, Inc. Dan C. Tutcher
1100 Louisiana, Suite 3030 (713) 650-8900
Houston, Texas 77002
Rainbow Investments Company Duane S. Herbst
P.O. Box 1050 (512) 882-8407
Corpus Christi, TX 78403
Except as provided elsewhere here, all notices, demands,
requests, consents and approvals to be sent to Midcoast
and/or Rainbow pursuant hereto shall be deemed to have
been properly given or served by depositing same in the
United States mail, addressed, postage prepaid, and
registered or certified with return receipt requested at
the above designated addresses or at such other address
as any party may hereinafter designate.
(b) No transferee of any interest shall be entitled to
receive a notice independent of the notice sent to the
Party making such transfer. A notice sent or made to a
Party shall be deemed to have been sent and made to all
transferrees, if any, of such Party.
(c) All payments to be made pursuant hereto to any Party
shall be made at the address set forth above for such
Party or at such other address as may be designated by a
Party upon written notice.
Section 4.02. Governing Laws.
This Agreement and the obligations hereunder shall be
interpreted, construed and enforced in accordance with the laws of
the State of Texas.
Section 4.03. Entire Agreement.
This Agreement contains the entire agreement between the
parties hereto relative to the acquisition of the Five Flags Stock.
No variations, modifications, or changes herein or hereof shall be
binding upon any party hereto unless set forth in a document duly
executed by or on behalf of all parties.
Section 4.04. Waiver.
No consent or waiver, expressed or implied, by a Party to any
breach or default by the other in the performance of its obliga-
tions hereunder, shall be deemed or construed to be a consent or
waiver to any other breach or default in the performance by such
other party. Failure on the part of any Party to complain of any
act of the other Party in default, irrespective of how long such
failure continues, shall not constitute a waiver of such Party of
its rights hereunder.
Section 4.05. Headings.
The headings used in this Agreement are for convenience only
and do not constitute substantive matter to be considered in
construing the terms of this Agreement.
Section 4.06. Counterparts.
This Agreement may be executed in multiple counterparts, each
of which shall be an original, but all of which shall be deemed to
constitute one instrument.
Section 4.07. Binding Agreement.
Subject to the restrictions on transfer and encumbrances set
forth herein, this Agreement shall inure to the benefit of and be
binding upon the undersigned Parties and their respective heirs,
executors, legal representatives, successors and assigns.
Whenever, in this instrument, a reference to any party is made,
such reference shall be deemed to include a reference to the heirs,
executors, legal representatives, successors and assigns of such
party.
Section 4.08. Amendment.
This Agreement may be amended or modified from time to time
but only by a written instrument executed by those Parties then
collectively owning all the issued and outstanding Five Flags
Stock.
IN WITNESS WHEREOF, this Agreement is executed as of, and
shall be deemed effective as of, _______________________1995.
ATTEST: MIDCOAST HOLDINGS NO. ONE, INC.
___________________ By:______________________
Dan C. Tutcher
President
RAINBOW INVESTMENTS COMPANY
___________________ By:_______________________
Duane S. Herbst,
Vice President
AGR-STK
EXHIBIT 10.32
ALLONGE AND AMENDMENT NO. ONE TO PROMISSORY NOTE
MAKER:MIDCOAST ENERGY RESOURCES, INC.
ORIGINAL PRINCIPAL:$750,000.00
DATE OF NOTE:SEPTEMBER 1, 1994
PAYEE:MERCANTILE BANK, N.A.
This is an amendment and allonge to the Promissory Note described
above. The said Promissory Note is hereby amended as follows:
The maturity date on the above mentioned note will be extended from
SEPTEMBER 1, 1995 TO NOVEMBER 1, 1995 (60 DAYS)
All other terms of the note will continue in full force as
originally contracted.
THIS WRITTEN LOAN AGREEMENT REPRESENTS 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.
EXECUTED effective this ______ day of SEPTEMBER, 1995
HOLDER:MAKER:
MERCANTILE BANK, N.A.MIDCOAST ENERGY RESOURCES, INC.
BY:______________________________BY:______________________________
BY:___________________________________
STEVENS G. HERBST - GUARANTOR
BY:___________________________________
EXHIBIT 10.33
ALLONGE AND AMENDMENT NO. TWO
TO REVOLVING CREDIT PROMISSORY NOTE
MAKER:MIDCOAST ENERGY RESOURCES, INC.
PRINCIPAL SUM:$750,000.00
DATE OF NOTE:SEPTEMBER 1, 1994
PAYEE:MERCANTILE BANK, N.A.
This is an amendment and allonge to the Promissory Note described
above, as previously amended or modified by Allonge and Amendment
No. One dated September 22, 1995. The said Promissory Note is
hereby amended as follows:
(1)Maturity is extended to June 1, 1996.
Except as so amended, and such may have been previously amended,
said promissory Note shall remain in full force and effect.
EXECUTED effective the 1st day of November, 1995.
NOTICE TO BORROWER: THIS LOAN IS PAYABLE IN FULL ON JUNE 1, 1996.
YOU MUST REPAY THE ENTIRE PRINCIPAL BALANCE OF THE LOAN AND UNPAID
ACCRUED INTEREST THEN DUE. THE LENDER IS UNDER NO OBLIGATION TO
REFINANCE THE LOAN AT THAT TIME.
HOLDER:MAKER:
MERCANTILE BANK, N.A.MIDCOAST ENERGY RESOURCES, INC.
By:_____________________________By:_____________________________
Name:_________________________ Name:_________________________
Title:__________________________
Title:__________________________
EXHIBIT 10.34
FOURTH AMENDMENT TO REVOLVING LOAN
AND CREDIT AGREEMENT
This is a Fourth Amendment to that Revolving Loan and Credit
Agreement (the "Agreement") dated December 8, 1992 among NEW FIRST
CITY, TEXAS - CORPUS CHRISTI, N.A. ("Lender") and MIDCOAST ENERGY
RESOURCES, INC. (:Borrower") and STEVENS G. HERBST, KENNETH B.
HOLMES, JR. AND DAN C. TUTCHER (the"Guarantors"). The loans and
indebtedness extended under the Agreement have been assigned to
MERCANTILE BANK, N.A., who is now the "Lender" under the Agreement.
The Agreement was previously amended by a First Amendment dated
January 16, 1993 and by a Second Amendment dated August 15, 1993,
and by a Third Amendment dated September 1, 1994.
1.Increase and Extension of Maturity of Line of Credit. The
maturity of the line of credit established pursuant to section 1.01
of the Agreement is hereby extended to June 1, 1996, and the amount
of the line of credit remains Seven Hundred Fifty Dollars
($750,000.00), as increased by such Third Amendment. Borrower
shall execute a modification to the Revolving Credit Promissory
Note to evidence the extended maturity date.
2.Borrowing Base. Section 2.10 of the Agreement remains amended
to exclude from "eligible amounts receivable" all accounts
receivable from a particular company are over 60 days past due (as
"past due" is defined in Section 2.01). The exclusion herein
provided is in addition to, and not in lieu of, the other
exclusions set forth in Section 2.01.
3.Deletion of Ratios. Both Section 4.01(i) of the Agreement
(which requires a specified ratio of current assets to current
liabilities) and Section 4.01(j) of the Agreement (which requires
a specified ratio of cash flow to current maturities) are hereby
deleted.
4.Letter of Credit. From time to time Borrower may require Lender
to issue letters of credit for the benefit of Borrower under the
line of credit available under the Agreement. If Lender is
required to fund any such letter of credit, then such shall be
considered an advance on the line of credit. In no event shall
Lender ever be required to make an advance on the total line of
credit, or issue a letter of credit under the line of credit, if
such would cause the total of (1) the principal advanced and owing
on the line of credit PLUS (2) the amounts of then outstanding
letters of credit to exceed Seven Hundred Fifty Thousand Dollars
($750,000.00). Thus any letter of credit issued under the line of
credit shall reduce the availability of funds thereunder.
Upon issuance or renewal of a letter of credit the Borrower shall
pay Lender its then standard fee for such.
5.Terms Loans. The $140,000.00 term loan established in Section
1.03 of the Agreement no longer remains in effect. Also a prior
$400,000.00 term loan has been paid. The only remaining loan under
the agreement is the line of credit.
6.Ratification of Security Agreement and Guaranty Agreements.
Borrower and Guarantors ratify and confirm that the Security
Agreement and Guaranty Agreements executed and dated July 1, 1993
remain in force and effect, and without limiting them, apply to the
line of credit as hereby extended.
7.Ratification of Agreement. The Agreement, as amended hereby, is
hereby ratified as being in force and effect. This Fourth
Amendment replaces the terms and provisions of the First Amendment.
the Second Amendment and the Third Amendment.
Dated effective the 1st day of September, 1994.
THIS WRITTEN LOAN AGREEMENT REPRESENTS 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.
BORROWER:LENDER:
MIDCOAST ENERGY RESOURCES, INC.MERCANTILE BANK, N.A.
By:_________________________________By:__________________________
Name:_____________________________ Edward J. Bacak, II
Title:______________________________ Executive Vice President
GUARANTORS:
____________________________________
Stevens G. Herbst
____________________________________
Kenneth B. Holmes, Jr.
____________________________________
Dan C. Tutcher
EXHIBIT 10.35
REVOLVING CREDIT PROMISSORY NOTE
$1,250,000.00 October 31, 1995
For value received MIDCOAST ENERGY RESOURCES, INC., (hereinafter
called "Maker" whether one or more) promises to pay to the order of
AMERICAN NATIONAL BANK, ("Payee") at its office in Corpus Christi,
Nueces County, Texas, in lawful money of the United States the sum
of ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS, or so much
thereof as may be advanced and unpaid hereon from time to time,
together with interest on the unpaid principal balance hereon
outstanding from time to time prior to maturity at a rate which is
the lesser from time to time of: (i) a variable rate which is one
and one-half percent (1.5%) per annum ABOVE THE REFERENCE RATE as
such varies from time to time, such variable rate to change at the
same time and with changes in the said Reference Rate; or (ii) the
maximum legal rate which may be lawfully contracted for, charged
or received hereon from time to time under applicable law; or
(iii) 24% per annum. The term "Reference Rate" shall mean that
variable rate of interest per annum established by American
National Bank ("Reference Bank") from time to time as its "base
rate". Such rate is set by the Reference Bank as a general
reference rate of interest, taking into account such factors as the
Reference Bank may deem appropriate, it being understood that many
of the Reference Bank's commercial or other loans are priced in
relation to such rate, that it is not necessarily the lowest or
best rate actually charged to any customer and that the Reference
Bank may make various commercial or other loans at rates of
interest having no relationship to such rate. In the event that
Reference Bank does not have a rate designated by it as its "base
rate", then the "Reference Rate" under the note shall be deemed to
be the variable rate of interest per annum which is the general
reference rate designated by Reference Bank as its "prime rate",
"reference rate", or other similar rate and which is comparable to
the Reference Rate as described above. Any banking association
into which the Reference Bank may be converted or merged, or with
which it may be consolidated, or to which it might sell or transfer
its banking business and assets as a whole or substantially as a
whole, or any banking association resulting from any such
conversion, sale, merger, consolidation or transfer to which it is
a party, shall be and become successor Reference Bank hereunder.
All interest rates hereunder shall be computed on a full calendar
year (365/366 days) basis. Article 5069 Chapter 15 V.A.T.S.
shall not in any event apply to the loan evidenced hereby. After
maturity hereof, unpaid principal and accrued interest shall bear
interest from maturity until paid at the rate of eighteen percent
(18%) per annum, calculated on a full calendar year basis.
Principal shall be due and payable on or before November 1, 1998,
and also monthly payments, if any, shall be made as required under
a Revolving Credit Agreement of even date herewith. Accrued
interest shall be due and payable on a monthly basis commencing
December 1, 1995, and on the same day of each succeeding month
thereafter, and at maturity.
All payments hereon shall be first applied to accrued interest with
the remainder, if any, applied to unpaid principal. Principal and
accrued interest may be prepaid in whole or in part from time to
time without penalty or premium.
This note evidences funds to be advanced to Maker pursuant to a
Revolving Credit Agreement of even date. Payment hereof is secured
and guaranteed as set forth in such Agreement.
This note shall evidence the Maker's, endorsers', sureties' and
guarantors' joint and several obligation to pay all advances,
together with interest thereon, made by Payee to Maker or for
Maker's account. Interest shall accrue on principal only from the
date advanced until paid.
The Maker and all endorsers, guarantors and sureties hereof
authorize Payee from time to time to make advances to the Maker
hereof without any requirement that Payee notify them or any of
them of such advances, provided the total principal owing hereunder
shall not exceed at any one time the face amount of this note. The
amount owing hereunder at any given time shall be determined by the
total of all advances made less any principal payments made plus
the unpaid accrued interest thereon as determined by the provisions
hereof.
At the option of the holder hereof, the maturity of this note may
be accelerated and all unpaid amounts of principal and accrued
interest shall become immediately due and payable, without
presentment or demand or notice to any person obligated as Maker or
any other person obligated hereon, upon the occurrence of any of
the following events: default in the payment of any indebtedness or
any part thereof owing to holder by any person obligated as Maker
or any other person obligated hereon, whether evidenced by this
note or otherwise; or failure to perform or keep any of the
conditions and covenants contained in any document given to secure
indebtedness owing to holder by any person obligated as Maker or
any other person obligated hereon or any document evidencing loan
agreements made in connection herewith; or insolvency or making of
any general assignment for the benefit of creditors by any person
obligated as Maker or any other person obligated hereon; or the
filing of any petition or commencement of any proceeding by or
against any person obligated as Maker or any other person obligated
hereon for any relief, discharge, rearrangement, reorganization or
otherwise under any bankruptcy or insolvency laws; or the levying
on, seizure or freezing of any account of any person obligated as
Maker or any other person obligated hereon by any agency or
instrumentality of the State or Federal government; or the issuance
of any writ of attachment or garnishment relating to or affecting
any of the property or assets of any person obligated as Maker or
any other person obligated hereon; or if the holder hereof in good
faith deems itself insecure.
Maker and all sureties, endorsers and guarantors of this note
hereby severally waive demand, presentment for payment, notice of
non-payment, protest, notice of protest, notice of intention to
accelerate maturity, notice of acceleration of maturity, and all
other notice, and diligence in collecting this note or filing suit
thereon or enforcing any security given therefor, and agree to any
substitution, exchange or release of any security now or hereafter
given for this note or the release of any party primarily or
secondarily liable hereon. Maker and all sureties, endorsers and
guarantors of this note further severally agree that it will not be
necessary for the payee or any holder hereof, in order to enforce
payment of this note, to first institute or exhaust its remedies
against any person obligated as Maker or other party liable
therefor or to enforce its rights against any security for this
note and hereby consent to the renewal and extension or
modification from time to time of this note (regardless of the
number or length of time of the renewals, extensions or
modifications), and to any other indulgence with respect hereto,
without notice of any such renewal, extension, modification or
indulgence. All persons obligated hereon, whether as a maker,
endorser, surety, guarantor or otherwise, shall be jointly and
severally liable for repayment of the indebtedness evidenced by or
arising under this note.
In the event that this note is placed into the hands of an attorney
for collection, or if collected through probate, bankruptcy or
other judicial proceedings, then there shall be additionally owing
hereon all expenses and costs of collection, including reasonable
attorney's fees.
It is expressly provided and stipulated that, notwithstanding any
provision of this Note or any loan agreement or in any deed of
trust, assignment, security agreement or other agreement securing
payment of this note, in no event shall the aggregate of all
interest paid by the Maker to the holder hereof or contracted for,
chargeable or receivable hereunder ever exceed the maximum legal
rate of interest which may lawfully be charged Maker under the laws
of the State of Texas or the United States (whichever may permit
the higher rate) on the principal balance of this note from time to
time advanced and remaining unpaid. In this connection, it is
expressly stipulated and agreed that it is the intent of the payee
and the Maker in the execution and delivery of this note to
contract in strict compliance with usury laws of the State of Texas
or the United States (whichever may permit the higher rate). In
the event said maximum legal rate is calculated under Texas
statutes, the applicable rate ceiling (maximum rate) shall be the
indicated (weekly) rate ceiling from time to time in effect, as
provided in Article 5069-1.04 V.A.T.S., as amended. In furtherance
thereof, none of the terms of this note or any loan agreement or in
any deed of trust, assignment, security agreement or other
agreement securing payment of this note, shall ever be construed to
create a contract to pay for the use, forbearance or detention of
money, interest at a rate in excess of the maximum legal interest
rate permitted to be charged to the Maker under such laws. The
Maker or any guarantors, endorsers or other parties now or
hereafter becoming liable for payment of this note shall never be
liable for interest in excess of the maximum interest that may
lawfully be charged under such laws, and the provisions of this
paragraph shall govern over all other provisions of this note or
any loan agreement or any deed of trust, assignment, security
agreement or other agreement securing payment of this note, should
such provisions be in apparent conflict herewith. All sums paid or
agreed to be paid to payee or the holder of this note for the use,
forbearance or detention of the indebtedness of Maker under the
terms of this note or otherwise shall be amortized, prorated,
allocated and spread throughout the full term of such indebtedness
until payment in full so that the actual rate of interest with
respect to such indebtedness is uniform throughout the term hereof,
and, in conjunction therewith, if the loan evidenced by this note
should ever be deemed to consist of two or more loans, then any sum
paid or agreed to be paid to the holder hereof for the use,
forbearance or detention of the indebtedness of Maker to payee
under the terms of this note which is deemed to be excessive
interest with respect to one or more of such loans shall be
allocated to the loans for which a maximum lawful rate of interest
has not been contracted for, charged or received or for which no
maximum rate of interest exists.
NOTICE TO BORROWER: THIS LOAN IS PAYABLE IN FULL ON NOVEMBER 1,
1998. YOU MUST REPAY THE ENTIRE PRINCIPAL BALANCE OF THE LOAN AND
UNPAID ACCRUED INTEREST THEN DUE. THE LENDER IS UNDER NO OBLIGATION
TO REFINANCE THE LOAN AT THAT TIME.
MIDCOAST ENERGY RESOURCES, INC.
By:
Stevens G. Herbst
Executive Vice President<PAGE>
REVOLVING CREDIT AGREEMENT
This Agreement, made this 31st day of October, 1995, among AMERICAN
NATIONAL BANK ("Lender"), and MIDCOAST ENERGY RESOURCES, INC.
("Borrower"), whose address is 1100 Louisiana, Suite 3030, Houston,
Texas 77002 and STEVENS G. HERBST, KENNETH B. HOLMES, JR. and DAN
C. TUTCHER (the "Guarantors"); WITNESSETH:
SECTION ONE: LINE OF CREDIT
1.01 Amount. Subject to the further terms and provisions hereof,
Lender agrees to and does hereby grant to and establish in favor of
Borrower a reducing line of credit under which Lender shall be
committed to make loans or advances to Borrower from time to time.
The line of credit shall initially be in the amount of
$1,250,000.00; however on December 1, 1995 and on the first day of
each month thereafter the amount of available credit on the line of
credit shall reduce by $20,833.00 per month.
1.02 Term. The term of the line of credit shall be until November
1, 1998, and on and after such date the Borrower shall not be
entitled to any further advances on the line of credit; and on such
date shall repay all amounts then owing on the line of credit.
1.03 Repayment. Principal advanced and owing under the line of
credit shall be repayable in accordance with the terms hereof, but
in any event on November 1, 1998. Also, on the first day of each
month the Borrower shall make such principal payment, if any, as
may be necessary to cause the outstanding principal balance to not
exceed the amount of credit then available, as reduced on such
date. Interest accrued and owing on advanced and unpaid principal
shall be due and payable monthly on the first day of each month and
at maturity. In order to evidence the obligation to repay Lender
all advances, together with interest thereon, made by Lender
pursuant to the said line of credit, Borrower shall execute and
deliver to Lender a promissory note in the form attached hereto as
EXHIBIT "A". The line of credit shall be repaid in accordance with
such note.
1.04 Interest Rate. All amounts advanced hereunder on the line of
credit loan shall bear interest, prior to maturity from the date
advanced until repaid, at a variable rate which is to be determined
from time to time and which is equal to one and one-half percent
(1.5%) per annum above the Lender's "base rate" as such base rate
changes from time to time, not to exceed the legal maximum that may
be paid by Borrower, and as otherwise set forth in the said form of
promissory note. After maturity, all unpaid principal and all past
due interest shall bear interest until paid at the rate set forth
in said note.
1.05 Conditions Precedent. The performance of every covenant to be
performed by Borrower and Guarantors, and the truth of every
representation made by Borrower and Guarantors, shall be a
condition precedent to each and every advance to be made by Lender
under the terms hereof, or to any other obligation whatsoever of
Lender under the terms hereof; and, Lender shall not be required to
make any advance to Borrower at a time that any of Borrower or the
Guarantors are then in default on any obligation to Lender, or in
default hereunder or under any instrument executed pursuant hereto.
SECTION TWO: FUNDING AND ADVANCES
2.01 Funding. Advances on the line of credit shall be made as and
when requested by Borrower; provided Borrower shall not be entitled
to any advances which would cause the principal balance on the said
Note to exceed the amount of credit then available (as such has
been reduced) on the line of credit.
SECTION THREE: SECURITY, GUARANTEES
3.01 Collateral. The line of credit provided hereunder and all
other indebtedness now or hereafter owing by Borrower to Lender
shall be secured by first liens on all present and future contracts
and contract rights for the transportation of hydrocarbons related
to and pertaining to those eight pipeline systems described on
EXHIBIT "B" hereto attached, and all contracts and contract rights
for the purchase and/or sale of hydrocarbons in the Clemens Dome
and Conway pipeline systems described on EXHIBIT "B", and all
accounts receivable now or hereafter owing to Borrower arising out
of or related to said contracts.
3.02 Guarantees. All amounts now or hereafter owing to Lender by
Borrower shall be jointly and severally guaranteed by each of the
Guarantors on a form of guaranty normally used by Lender.
3.03 Negative Pledge. For so long as any indebtedness remains
owing by Borrower to Lender under the line of credit, Borrower
agrees that it will keep the pipeline systems described on EXHIBIT
"B" free and clear of all liens and encumbrances, and will not
pledge or mortgage said pipeline systems to any third party.
Borrower warrants and represents that said pipeline systems are
free and clear of all liens and encumbrances.
SECTION FOUR: FURTHER COVENANTS, CONDITIONS AND REPRESENTATIONS
4.01 Representations. In addition to the other covenants and
representations herein, Borrower makes the following
representations, covenants, or agreements to Lender, which
representations, covenants, or agreements Borrower covenants to
keep during the time that any indebtedness to be loaned to Borrower
pursuant hereto remains unpaid (including renewals and extensions),
to-wit:
(a)That it is a corporation duly organized and existing under the
laws of the State of Nevada;
(b)That it is authorized to execute this Agreement and the various
instruments to be executed pursuant hereto;
(c)That it has corporate authority and power to own its property
and conduct its business as it is currently carried on;
(d)That the performance of its obligations under this Agreement
will not conflict with any provision of law, nor with the Articles
of Incorporation and Bylaws of the corporation, nor with any
contractual agreement binding on the corporation;
(e)That it will pay all taxes, assessments and other liabilities,
as and when same become due except as they are contested in good
faith;
(f)That it will not become a party to any merger or consolidation
except as approved in writing by Lender; and
(g) Except for loans to or guarantee of loans to a subsidiary, that
it will not become a guarantor or surety, or pledge its credit on
any undertaking of another, or make any loans or advances to any
other, except trade credit extended in the normal course of
business.
4.02 Financial Condition. Each of the Borrower and the Guarantors
represents that, at the present time, it or he is not a party to
any material pending or threatened litigation, nor a party to any
proceeding or action for the assessment or collection of a material
amount of additional taxes, and that it or he does not know of any
material contingent liabilities not provided for or disclosed in
the financial statements heretofore provided Lender. Each of
Borrower and the Guarantors also represents to Lender that the
latest financial statements furnished heretofore to Lender fairly
represent its or his financial condition for the period as of the
date stated, all in accordance with generally accepted accounting
principles consistently applied; and that no substantial adverse
changes have occurred since the date of the last financial
statement furnished to Lender.
4.03 Financial Statements of Borrower. Borrower shall keep proper
books of record and account in which complete and correct entries
shall be made of Borrower's transactions in accordance with
generally accepted accounting principles and shall furnish or cause
to be furnished to Lender unaudited quarterly financial statements
within forty-five (45) days after the end of each month, and a
yearly audited financial statement within ninety (90) days of the
end of the fiscal year, such financial statements to be certified
by the chief financial officer of Borrower. Each such financial
statement shall include a balance sheet, cash flow statement and
contingent liabilities, and be in a form suitable to the Lender.
4.04 Tax Returns. A copy of each Federal income tax return of
Borrower shall be furnished to Lender within 30 days after such is
filed.
4.05 Financial Statements of Guarantors. Each of the Guarantors
shall furnish Lender within one hundred twenty (120) days after the
end of each year financial statements, prepared in accordance with
generally accepted accounting principles, relative to each
Guarantor individually. Each such financial statement shall include
a balance sheet, cash flow statement and contingent liabilities,
shall be in a form suitable to the Lender, and shall be signed by
the Guarantor.
SECTION FIVE: DEFAULT
5.01 Events of Default. In addition to any other provision for
acceleration of maturity contained in notes and collateral
instruments to be executed by Borrower, Lender at its election may
declare all sums owing by Borrower immediately due and payable upon
the happening of any of the following events:
(a)Lender shall determine that any material representation or
warranty by Borrower or by any Guarantor herein or elsewhere
contained, or any material representation or warranty contained in
any collateral instruments required hereunder shall not be correct
in any respect;
(b)Default by Borrower or by any Guarantor in the payment of any
obligation owing Lender;
(c)Failure of Borrower or any Guarantor to timely perform any act
or duty or furnish any report required under the terms of this
Agreement or under the terms of any note, security agreement or
other instrument to be executed pursuant hereto; or
(d)Failure of Borrower to effect a reduction of principal
indebtedness by reason of a decrease in the line of credit as
required in SECTION 1.03 hereof.
SECTION SIX: MISCELLANEOUS
6.01 Survival of Representations. All representations, covenants
or warranties of Borrower and any Guarantor shall survive the
execution and delivery of this Agreement and any notes, security
agreements or other instruments executed and delivered pursuant
hereto; and no investigation by Lender, nor information it might
have determined from any other source available to it, shall
diminish or otherwise affect the right of Lender to rely on such
representations and warranties and to enforce same.
6.02 Non-Merger. The covenants contained in the instruments made a
part hereof by reference which are to be executed from time to time
in connection with this loan are expressly adopted as covenants
between the parties hereto as a part of this Agreement. The
provisions of this Agreement shall not be merged into the execution
of any note, mortgage or other instrument executed pursuant hereto,
but shall continue to define the relationship of the parties hereto
even after the execution of such instruments. The covenants
contained in this Agreement are not in lieu of covenants contained
in the instruments to be executed in connection herewith even
though they may pertain to the same subject matters; rather, said
covenants shall be cumulative of each other and shall be construed
so as to not result in a conflict of terms, if possible, and only
if a conflict cannot be so avoided will it then be considered that
the express provisions of this Agreement shall be given controlling
effect.
6.03 Assignability. The rights of Borrower hereunder shall not be
assignable without the express prior written consent of Lender.
Lender shall have the right to assign its rights hereunder and
assign any and all notes executed in favor of Lender hereunder, as
well as the right to assign undivided interests therein.
6.04 Non-Waiver. No delay on the part of Lender or its assigns in
the exercise of any rights shall operate as a waiver, nor shall any
single or partial exercise of any right preclude the other or
additional exercise of any right. In the event of any default,
Lender may enforce its security interests as to such collateral as
it may elect. Its election to foreclose its lien on a particular
collateral shall not be a waiver of its right to foreclose its lien
in any other collateral. Only when all indebtedness owing Lender by
Borrower has been fully paid will Lender ever be required to
release any collateral.
6.05 Amendment. This Agreement shall not be amended except in
writing signed by the parties.
6.06 Other Documents. In addition to the instruments specifically
mentioned herein, Borrower shall execute and deliver such other and
further documents deemed necessary by Lender to evidence and secure
the indebtedness of Borrower to Lender contemplated herein, and to
otherwise effect the transactions herein contemplated.
6.07 Expenses. Borrower agrees to pay all reasonable expenses and
fees, including attorneys' fees, incurred by Lender in connection
with the making of the loan referred to herein as well as all other
reasonable expenses incurred by Lender in connection herewith.
6.08 Certificates. Prior to the first advance hereunder, Borrower
shall furnish Lender certified copies of resolutions adopted by its
Board of Directors authorizing or ratifying Borrower's entering
into this Agreement and the transactions herein contemplated; and
shall also furnish a certificate of good standing from the State
Comptroller.
6.09 Binding. This Agreement shall be binding on the parties
hereto, and their respective heirs, representatives, successors and
assigns; and shall inure to the benefit of Borrower and of Lender
and Lender's successors and assigns.
EXECUTED in multiple originals the date first set forth above.
THIS WRITTEN LOAN AGREEMENT AND THE PROMISSORY NOTES, SECURITY
AGREEMENTS, GUARANTY AGREEMENTS AND OTHER LOAN DOCUMENTS EXECUTED
BY THE PARTIES REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
BORROWER: LENDER:
MIDCOAST ENERGY RESOURCES, INC. AMERICAN NATIONAL BANK
By: By:
Stevens G. Herbst Charles A. Brett
Executive Vice President Senior Lending Officer
GUARANTORS:
Stevens G. Herbst
Kenneth B. Holmes, Jr.
Dan C. Tutcher
<PAGE>
EXHIBIT "A"
PIPELINE SYSTEMS OF MIDCOAST ENERGY RESOURCES, INC.
DESCRIPTION OF PIPELINE SYSTEMS:
1. Burnet (Long Mountain) - A 7,000 ft. pipeline, located in Burnet
County, Texas, which connects a Seminole Pipeline Company LPG
mainline pump station to Lone Star Gas Company's intrastate gas
pipeline, through which 100% of Seminole's gas requirements are
met.
2. Cat Springs - A 8,500 ft. pipeline, located in Austin County,
Texas, which connects a Seminole Pipeline Company LPG mainline pump
station to Tennessee Gas Pipeline Company's interstate gas
pipeline, through which 100% of Seminole's gas requirements are
met.
3. Clemens Dome - A 500 ft. pipeline, located in Brazoria County,
Texas, which connects a Seminole Pipeline Company LPG mainline pump
station to Phillips Natural Gas Company's Seagas Pipeline, through
which 100% of Seminole's gas requirements are met.
4. Stratton Ridge - A 8,500 ft. pipeline, located in Brazoria
County, Texas, which connects a Seminole Pipeline Company LPG
mainline pump station to Amoco Natural Gas Company's intrastate gas
pipeline, through which 100% of Seminole's gas requirements are
transported.
5. Turkey Creek (Beasley) - A 15 mile pipeline, located in Fort
Bend County, Texas which delivers 100% of the gas requirements of
a Seminole Pipeline Company LPG mainline pump station from the Gulf
Coast Natural Gas Gathering pipeline. The system also sells small
volumes of gas to a local rice farmer. In addition, the system
gathers, transports, and redelivers certain volumes of gas to Gulf
Coast Natural Gas Company.
6. Owens Corning - A 3,300 ft. pipeline, located in Wyandotte
County, Kansas, which connects the Owens Corning Fiberglas Plant to
Williams Natural Gas Company's interstate gas pipeline, through
which 100% of Owens Corning's gas requirements are transported.
7. Conway - A 50 ft. pipeline, located in Rice County, Kansas,
which connects a MAPCO, Inc. LPG Fractionator to Williams Natural
Gas Company's interstate gas pipeline through which 100% of MAPCO's
Conway Fractionation Facility gas requirements are met.
8. Westlake Pipeline - A 1.3 mile pipeline, located in Calcasieu
Parish, Louisiana, which connects Sabine Pipeline, in Lake Charles,
Louisiana, to Westlake Petrochemical's HDPE manufacturing facility.
<PAGE>
REVOLVING CREDIT AGREEMENT
This Agreement, made this 31st day of October, 1995, among AMERICAN
NATIONAL BANK ("Lender"), and MIDCOAST ENERGY RESOURCES, INC.
("Borrower"), whose address is 1100 Louisiana, Suite 3030, Houston,
Texas 77002 and STEVENS G. HERBST, KENNETH B. HOLMES, JR. and DAN
C. TUTCHER (the "Guarantors"); WITNESSETH:
SECTION ONE: LINE OF CREDIT
1.01 Amount. Subject to the further terms and provisions hereof,
Lender agrees to and does hereby grant to and establish in favor of
Borrower a reducing line of credit under which Lender shall be
committed to make loans or advances to Borrower from time to time.
The line of credit shall initially be in the amount of
$1,250,000.00; however on December 1, 1995 and on the first day of
each month thereafter the amount of available credit on the line of
credit shall reduce by $20,833.00 per month.
1.02 Term. The term of the line of credit shall be until November
1, 1998, and on and after such date the Borrower shall not be
entitled to any further advances on the line of credit; and on such
date shall repay all amounts then owing on the line of credit.
1.03 Repayment. Principal advanced and owing under the line of
credit shall be repayable in accordance with the terms hereof, but
in any event on November 1, 1998. Also, on the first day of each
month the Borrower shall make such principal payment, if any, as
may be necessary to cause the outstanding principal balance to not
exceed the amount of credit then available, as reduced on such
date. Interest accrued and owing on advanced and unpaid principal
shall be due and payable monthly on the first day of each month and
at maturity. In order to evidence the obligation to repay Lender
all advances, together with interest thereon, made by Lender
pursuant to the said line of credit, Borrower shall execute and
deliver to Lender a promissory note in the form attached hereto as
EXHIBIT "A". The line of credit shall be repaid in accordance with
such note.
1.04 Interest Rate. All amounts advanced hereunder on the line of
credit loan shall bear interest, prior to maturity from the date
advanced until repaid, at a variable rate which is to be determined
from time to time and which is equal to one and one-half percent
(1.5%) per annum above the Lender's "base rate" as such base rate
changes from time to time, not to exceed the legal maximum that may
be paid by Borrower, and as otherwise set forth in the said form of
promissory note. After maturity, all unpaid principal and all past
due interest shall bear interest until paid at the rate set forth
in said note.
1.05 Conditions Precedent. The performance of every covenant to be
performed by Borrower and Guarantors, and the truth of every
representation made by Borrower and Guarantors, shall be a
condition precedent to each and every advance to be made by Lender
under the terms hereof, or to any other obligation whatsoever of
Lender under the terms hereof; and, Lender shall not be required to
make any advance to Borrower at a time that any of Borrower or the
Guarantors are then in default on any obligation to Lender, or in
default hereunder or under any instrument executed pursuant hereto.
SECTION TWO: FUNDING AND ADVANCES
2.01 Funding. Advances on the line of credit shall be made as and
when requested by Borrower; provided Borrower shall not be entitled
to any advances which would cause the principal balance on the said
Note to exceed the amount of credit then available (as such has
been reduced) on the line of credit.
SECTION THREE: SECURITY, GUARANTEES
3.01 Collateral. The line of credit provided hereunder and all
other indebtedness now or hereafter owing by Borrower to Lender
shall be secured by first liens on all present and future contracts
and contract rights for the transportation of hydrocarbons related
to and pertaining to those eight pipeline systems described on
EXHIBIT "B" hereto attached, and all contracts and contract rights
for the purchase and/or sale of hydrocarbons in the Clemens Dome
and Conway pipeline systems described on EXHIBIT "B", and all
accounts receivable now or hereafter owing to Borrower arising out
of or related to said contracts.
3.02 Guarantees. All amounts now or hereafter owing to Lender by
Borrower shall be jointly and severally guaranteed by each of the
Guarantors on a form of guaranty normally used by Lender.
3.03 Negative Pledge. For so long as any indebtedness remains
owing by Borrower to Lender under the line of credit, Borrower
agrees that it will keep the pipeline systems described on EXHIBIT
"B" free and clear of all liens and encumbrances, and will not
pledge or mortgage said pipeline systems to any third party.
Borrower warrants and represents that said pipeline systems are
free and clear of all liens and encumbrances.
SECTION FOUR: FURTHER COVENANTS, CONDITIONS AND REPRESENTATIONS
4.01 Representations. In addition to the other covenants and
representations herein, Borrower makes the following
representations, covenants, or agreements to Lender, which
representations, covenants, or agreements Borrower covenants to
keep during the time that any indebtedness to be loaned to Borrower
pursuant hereto remains unpaid (including renewals and extensions),
to-wit:
(a)That it is a corporation duly organized and existing under the
laws of the State of Nevada;
(b)That it is authorized to execute this Agreement and the various
instruments to be executed pursuant hereto;
(c)That it has corporate authority and power to own its property
and conduct its business as it is currently carried on;
(d)That the performance of its obligations under this Agreement
will not conflict with any provision of law, nor with the Articles
of Incorporation and Bylaws of the corporation, nor with any
contractual agreement binding on the corporation;
(e)That it will pay all taxes, assessments and other liabilities,
as and when same become due except as they are contested in good
faith;
(f)That it will not become a party to any merger or consolidation
except as approved in writing by Lender; and
(g)Except for loans to or guarantee of loans to a subsidiary, that
it will not become a guarantor or surety, or pledge its credit on
any undertaking of another, or make any loans or advances to any
other, except trade credit extended in the normal course of
business.
4.02 Financial Condition. Each of the Borrower and the Guarantors
represents that, at the present time, it or he is not a party to
any material pending or threatened litigation, nor a party to any
proceeding or action for the assessment or collection of a material
amount of additional taxes, and that it or he does not know of any
material contingent liabilities not provided for or disclosed in
the financial statements heretofore provided Lender. Each of
Borrower and the Guarantors also represents to Lender that the
latest financial statements furnished heretofore to Lender fairly
represent its or his financial condition for the period as of the
date stated, all in accordance with generally accepted accounting
principles consistently applied; and that no substantial adverse
changes have occurred since the date of the last financial
statement furnished to Lender.
4.03 Financial Statements of Borrower. Borrower shall keep proper
books of record and account in which complete and correct entries
shall be made of Borrower's transactions in accordance with
generally accepted accounting principles and shall furnish or cause
to be furnished to Lender unaudited quarterly financial statements
within forty-five (45) days after the end of each month, and a
yearly audited financial statement within ninety (90) days of the
end of the fiscal year, such financial statements to be certified
by the chief financial officer of Borrower. Each such financial
statement shall include a balance sheet, cash flow statement and
contingent liabilities, and be in a form suitable to the Lender.
4.04 Tax Returns. A copy of each Federal income tax return of
Borrower shall be furnished to Lender within 30 days after such is
filed.
4.05 Financial Statements of Guarantors. Each of the Guarantors
shall furnish Lender within one hundred twenty (120) days after the
end of each year financial statements, prepared in accordance with
generally accepted accounting principles, relative to each
Guarantor individually. Each such financial statement shall include
a balance sheet, cash flow statement and contingent liabilities,
shall be in a form suitable to the Lender, and shall be signed by
the Guarantor.
SECTION FIVE: DEFAULT
5.01 Events of Default. In addition to any other provision for
acceleration of maturity contained in notes and collateral
instruments to be executed by Borrower, Lender at its election may
declare all sums owing by Borrower immediately due and payable upon
the happening of any of the following events:
(a)Lender shall determine that any material representation or
warranty by Borrower or by any Guarantor herein or elsewhere
contained, or any material representation or warranty contained in
any collateral instruments required hereunder shall not be correct
in any respect;
(b)Default by Borrower or by any Guarantor in the payment of any
obligation owing Lender;
(c)Failure of Borrower or any Guarantor to timely perform any act
or duty or furnish any report required under the terms of this
Agreement or under the terms of any note, security agreement or
other instrument to be executed pursuant hereto; or
(d)Failure of Borrower to effect a reduction of principal
indebtedness by reason of a decrease in the line of credit as
required in SECTION 1.03 hereof.
SECTION SIX: MISCELLANEOUS
6.01 Survival of Representations. All representations, covenants
or warranties of Borrower and any Guarantor shall survive the
execution and delivery of this Agreement and any notes, security
agreements or other instruments executed and delivered pursuant
hereto; and no investigation by Lender, nor information it might
have determined from any other source available to it, shall
diminish or otherwise affect the right of Lender to rely on such
representations and warranties and to enforce same.
6.02 Non-Merger. The covenants contained in the instruments made a
part hereof by reference which are to be executed from time to time
in connection with this loan are expressly adopted as covenants
between the parties hereto as a part of this Agreement. The
provisions of this Agreement shall not be merged into the execution
of any note, mortgage or other instrument executed pursuant hereto,
but shall continue to define the relationship of the parties hereto
even after the execution of such instruments. The covenants
contained in this Agreement are not in lieu of covenants contained
in the instruments to be executed in connection herewith even
though they may pertain to the same subject matters; rather, said
covenants shall be cumulative of each other and shall be construed
so as to not result in a conflict of terms, if possible, and only
if a conflict cannot be so avoided will it then be considered that
the express provisions of this Agreement shall be given controlling
effect.
6.03 Assignability. The rights of Borrower hereunder shall not be
assignable without the express prior written consent of Lender.
Lender shall have the right to assign its rights hereunder and
assign any and all notes executed in favor of Lender hereunder, as
well as the right to assign undivided interests therein.
6.04 Non-Waiver. No delay on the part of Lender or its assigns in
the exercise of any rights shall operate as a waiver, nor shall any
single or partial exercise of any right preclude the other or
additional exercise of any right. In the event of any default,
Lender may enforce its security interests as to such collateral as
it may elect. Its election to foreclose its lien on a particular
collateral shall not be a waiver of its right to foreclose its lien
in any other collateral. Only when all indebtedness owing Lender by
Borrower has been fully paid will Lender ever be required to
release any collateral.
6.05 Amendment. This Agreement shall not be amended except in
writing signed by the parties.
6.06 Other Documents. In addition to the instruments specifically
mentioned herein, Borrower shall execute and deliver such other and
further documents deemed necessary by Lender to evidence and secure
the indebtedness of Borrower to Lender contemplated herein, and to
otherwise effect the transactions herein contemplated.
6.07 Expenses. Borrower agrees to pay all reasonable expenses and
fees, including attorneys' fees, incurred by Lender in connection
with the making of the loan referred to herein as well as all other
reasonable expenses incurred by Lender in connection herewith.
6.08 Certificates. Prior to the first advance hereunder, Borrower
shall furnish Lender certified copies of resolutions adopted by its
Board of Directors authorizing or ratifying Borrower's entering
into this Agreement and the transactions herein contemplated; and
shall also furnish a certificate of good standing from the State
Comptroller.
6.09 Binding. This Agreement shall be binding on the parties
hereto, and their respective heirs, representatives, successors and
assigns; and shall inure to the benefit of Borrower and of Lender
and Lender's successors and assigns.
EXECUTED in multiple originals the date first set forth above.
THIS WRITTEN LOAN AGREEMENT AND THE PROMISSORY NOTES, SECURITY
AGREEMENTS, GUARANTY AGREEMENTS AND OTHER LOAN DOCUMENTS EXECUTED
BY THE PARTIES REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
BORROWER: LENDER:
MIDCOAST ENERGY RESOURCES, INC. AMERICAN NATIONAL BANK
By: By:
Stevens G. Herbst Charles A. Brett
Executive Vice President Senior Lending Officer
GUARANTORS:
Stevens G. Herbst<PAGE>
SECURITY AGREEMENT
Date: October 31, 1995
A. PARTIES
1. Debtor: MIDCOAST ENERGY RESOURCES, INC.
Check one: [ ] individual [ ] partnership
[ X ] corporation [ ] other
2. Address: 1100 Louisiana, Suite 3030, Houston, Texas 77002
Address shown is [ ] place of business [ X ] chiefexecutive office
(if more than one place of business) [ ] residence
3. Secured Party: AMERICAN NATIONAL BANK
4. Address: 100 American Bank Plaza, Corpus Christi, Texas 78475
(Information concerning this security interest may be obtained
at the office of the Secured Party shown above).
B. AGREEMENT
Subject to the applicable terms of this Security Agreement,
Debtor grants to Secured Party a security interest in the
collateral to secure the payment of the obligations. A carbon,
photographic, or other reproduction of this Security Agreement
may be filed as a financing statement.
C. OBLIGATIONS
1. The following are the obligations secured by this Agreement:
a. All past, present, and future advances, of whatever,
type, by Secured Party to Debtor, and extensions and
renewals thereof.
b. All existing and future liabilities of whatever type, of
Debtor to Secured Party, and including (but not limited
to) liability for overdrafts and as indorser and surety.
c. All costs incurred by Secured Party to obtain, preserve,
and enforce this security interest, collect the
obligation, and maintain and preserve the collateral,
including (but not limited to) taxes, assessments,
insurance premiums, repairs, reasonable attorney's fees
and legal expenses, feed, rent, storage costs, and
expenses of sale.
d. Interest on the above amounts, as agreed between Secured
Party and Debtor, or if no such agreement, at the maximum
rate permitted by law.
2. List notes included in the obligations as of the date of this
Agreement (show date and amount):
Revolving Credit Promissory Note of even date in the principal
amount of $1,250,000.00.
D.COLLATERAL
1.The security interest is granted in the following collateral:
All present and future contracts and contract rights for the
transportation of hydrocarbons related to and pertaining to those
eight pipeline systems described on EXHIBIT "A" hereto attached,
and all present and future contracts and contract rights for the
purchase and/or sale of hydrocarbons in the Clemens Dome and Conway
pipeline systems described on EXHIBIT "A", and all accounts
receivables now or hereafter owing to Borrower arising out of or
related to said contracts; and all proceeds of the foregoing.
E.AGREEMENTS OF DEBTOR
1.Debtor will: take adequate care of the collateral; insure the
collateral for such hazards and in such amounts as Secured Party
directs, policies to be satisfactory to Secured Party; pay all
costs necessary to obtain, preserve, and enforce this security
interest, collect the obligation, and preserve the collateral,
including (but not limited to) taxes, assessments, insurance
premiums, repairs, reasonable attorneys' fees and legal expenses,
feed, rent, storage costs, and expenses of sale; furnish Secured
Party with any information on the collateral requested by Secured
Party; allow Secured Party to inspect the collateral, and inspect
and copy all records relating to the collateral and the obligation;
sign any papers furnished by Secured Party which are necessary to
obtain and maintain this security interest; assist Secured Party in
complying with the Federal Assignment of Claims Act, where
necessary to enable Secured Party to become an assignee under such
Act; take necessary steps to preserve the liability of account
debtors, obligors, and secondary parties whose obligations are part
of the collateral; transfer possession of all instruments,
documents, and chattel paper which are part of the collateral to
Secured Party immediately, or as to those hereafter acquired,
immediately following acquisition; perfect a security interest
(using a method satisfactory to Secured Party) in goods covered by
chattel paper which is part of the collateral; notify Secured Party
of any change occurring in or to the collateral, or in any fact or
circumstance warranted or represented by Debtor in this agreement
or furnished to Secured Party, or if any event of default occurs.
2.Debtor will not (without Secured Party's consent): remove the
collateral from the locations specified herein; allow the
collateral to become an accession to other goods; sell,
lease,otherwise transfer, manufacture, process, assemble, or
furnish under contracts of service, the collateral, except goods
identified herein as inventory; allow the collateral to be affixed
to real estate, except goods identified herein as fixtures.
3.Debtor warrants: no financing statement has been filed with
respect to the collateral, other than relating to this security
interest; Debtor is absolute owner of the collateral, and it is not
encumbered other than by this security interest (and the same will
be true of collateral acquired hereafter when acquired); none of
the collateral is affixed to real estate or an accession to other
goods, nor will collateral acquired hereafter be affixed to real
estate or an accession to other goods when acquired,unless Debtor
has furnished Secured Party the consents or disclaimers necessary
to make this security interest valid against persons holding
interests in the real estate or other goods; all account debtors
and obligors, whose obligations are part of the collateral, are to
the extent permitted by law prevented from asserting against
Secured Party any claims or defenses they have against sellers, or
can be so prevented by Secured Party taking action provided by law
for such purposes.
F.RIGHTS OF SECURED PARTY
Secured Party may, in its discretion, after default: terminate, on
notice to Debtor, Debtor's authority to sell, lease, otherwise
transfer, manufacture, process or assemble, or furnish under
contracts of service, inventory collateral, or any other collateral
as to which such permission has been given; require Debtor to give
possession or control of the collateral to Secured Party; indorse
as Debtor's agent any instruments or chattel paper in the
collateral; notify account debtors and obligors on instruments to
make payment direct to Secured Party; contact account debtors
directly to verify information furnished by Debtor; take control of
proceeds and use cash proceeds to reduce any part of the
obligation; take any action Debtor is required to take or otherwise
necessary to obtain, preserve, and enforce this security interest,
and maintain and preserve the collateral, without notice to Debtor,
and add costs of same to the obligation (but Secured Party is under
no duty to take any such action); release collateral in its
possession to Debtor, temporarily or otherwise; take control of
funds generated by the collateral, such as dividends, interest, and
proceeds or refunds from insurance, and use same to reduce any part
of the obligation; vote any stock which is part of the collateral,
and exercise all other rights which an owner of such stock may
exercise; waive any of its rights hereunder without such waiver
prohibiting the later exercise of the same or similar rights;
revoke any permission or waiver previously granted to Debtor.
G.MISCELLANEOUS
The rights and privileges of Secured Party shall inure to its
successors and assigns. All representations, warranties, and
agreements of Debtor are joint and several if Debtor is more than
one and shall bind Debtor's personal representatives, heirs,
successors, and assigns. Definitions in the Uniform Commercial Code
apply to words and phrases in this agreement; if Code definitions
conflict, Article 9 definitions apply. Debtor waives presentment,
demand, notice of dishonor, protest, and extension of time without
notice as to any instruments and chattel paper in the collateral.
Notice mailed to Debtor's address in Item A2, or to Debtor's most
recent changed address on file with Secured Party, at least five
(5) days prior to the related action (or, if the Uniform Commercial
Code specifies a longer period, such longer period prior to the
related action), shall be deemed reasonable.
H.DEFAULT
1.Any of the following is an event of default: failure of Debtor to
pay any note in the obligation in accordance with its terms, or any
other liability in the obligation on demand, or to perform any act
or duty required by this agreement; falsity of any warranty or
representation in this agreement when made; substantial change in
any fact warranted or represented in this agreement; involvement of
Debtor in bankruptcy or insolvency proceedings, death, dissolution,
or other termination of Debtor's existence; merger or consolidation
of Debtor with another; substantial loss, theft, destruction, sale,
reduction in value, encumbrance of, damage to, or change in the
collateral; modification of any contract, the rights to which are
part of the collateral; levy on, seizure, or attachment of the
collateral; judgment against Debtor; filing any financing statement
with regard to the collateral, other than relating to this security
interest; Secured Party's belief that the prospect of payment of
any part of the obligation, or the performance of any part of this
agreement, is impaired.
2.When an event of default occurs, the entire obligation becomes
immediately due and payable at Secured Party's option without
notice to Debtor, and Secured Party may proceed to enforce payment
of same and exercise any and all of the rights and remedies
available to a secured party under the Uniform Commercial Code as
well as all other rights and remedies. When Debtor is in default,
Debtor, upon demand by Secured Party,shall assemble the collateral
and make it available to Secured Party at a place reasonably
convenient to both parties. Debtor is entitled to any surplus and
shall be liable to Secured Party for any deficiency.
I.FIRST AND PRIOR LIEN
This security interest grants to Secured Party, a first and prior
lien to secure the payment of the notes and obligations listed
herein, and extensions and renewals thereof. If Secured Party
disposes of the collateral following default, the proceeds of such
disposition available to satisfy the indebtedness shall be applied
first to the notes herein, and renewals and extension thereof, in
the order of execution, and there after to all remaining
indebtedness and obligations secured hereby, in the order in which
such remaining indebtedness and obligations were executed or
contracted. For the purpose of this paragraph, an extended or
renewed note will be considered executed on the date of the
original note.<PAGE>
NON-STANDARD FINANCING STATEMENT
1.DEBTOR'S NAME & ADDRESS: 2.SECURED PARTY'S NAME & ADDRESS:
Midcoast Energy Resources, Inc. American National Bank
1100 Louisiana, Suite 3030 100 American Bank Plaza
Houston, Texas 77002 Corpus Christi, Texas 78475
3. THIS FINANCING STATEMENT COVERS THE FOLLOWING TYPES OR ITEMS
OF PROPERTY:
All present and future contracts and contract rights for the
transportation of hydrocarbons related to and pertaining to those
eight pipeline systems described on EXHIBIT "A" hereto attached,
and all present and future contracts and contract rights for the
purchase and/or sale of hydrocarbons in the Clemens Dome and
Conway pipeline systems described on EXHIBIT "A", and all
accounts receivables now or hereafter owing to Borrower arising
out of or related to said contracts; and all proceeds of the
foregoing.
DEBTOR:
MIDCOAST ENERGY RESOURCES, INC.
By:
Stevens G. Herbst
Executive Vice President
<PAGE>
CONTINUING UNLIMITED GUARANTY AGREEMENT
1. The undersigned (hereinafter called "Guarantor") for good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and to induce AMERICAN NATIONAL BANK
(hereinafter called "Lender"), with offices at Corpus Christi,
Texas, at its option, at any time or from time to time, to loan
monies or otherwise extend credit with or without security, to or
for the account of MIDCOAST ENERGY RESOURCES, INC. (hereinafter
called "Borrower"), and at the special insistence and request of
Lender, Guarantor hereby unconditionally guarantees the prompt
payment, at the said office of Lender in Nueces County, Texas, when
due of the following (hereinafter called the "Indebtedness"):
All indebtedness, obligations and liabilities of any kind of the
Borrower to the Lender (and also to others to the extent of
participations granted them by the Lender), now outstanding or
owing or which may hereafter be executed or incurred, directly
between the Borrower and the Lender or acquired outright, as a
participation, conditionally or as collateral security from another
by the Lender, absolute or contingent, joint and/or several,
secured or unsecured, due or not due, arising by operation of law
or otherwise, or direct or indirect, including indebtedness,
obligations and liabilities to the Lender of the Borrower as a
member of any partnership, syndicate, association or other group,
and whether incurred by the Borrower as principal, surety,
endorser, guarantor, accommodation party or otherwise, and
including, but not limited to, principal, interest, and costs of
collection including attorneys' fees.
2. This guaranty is an absolute, completed and continuing one, and
no notice of the Indebtedness or any extension of credit already or
hereafter contracted by or extended to the Borrower need be given
to the Guarantor. Borrower and Lender may rearrange, extend and/or
renew from time to time any or all of the Indebtedness without
notice to the Guarantor and in such event Guarantor will remain
fully bound hereunder on such Indebtedness regardless of the number
of rearrangements, renewals and extensions. The Guarantor hereby
expressly waives marshalling of assets and liabilities, sale in
inverse order of alienation, presentment, demand, protest, notice
of intention to accelerate maturity, notice of acceleration of
maturity, and notice of protest and dishonor on any and all forms
of such Indebtedness, and also notice of acceptance of this
guaranty, acceptance on the part of Lender being conclusively
presumed by its request for this guaranty and delivery of the same
to it.
3. Guarantor authorizes Lender, without notice or demand and
without affecting Guarantor's liability hereunder, to take and hold
security for the payment of this guaranty and/or the Indebtedness
guaranteed, and exchange, enforce, waive and release any such
security; and to apply such security and direct the order or manner
of sale thereof as Lender in its discretion may determine; and to
obtain a guaranty of the Indebtedness from any one or more other
persons, corporations or entities whomsoever and at any time or
times to enforce, waive, rearrange, modify, limit or release such
other persons, corporations or entities from their obligations
under such guaranties. If at any time there be other debt of
Borrower to Lender not guaranteed hereby, then Lender may apply all
amounts realized by Lender from Borrower, from other guarantors or
from collateral to such other debt. Provided, if a particular
instrument (such as a guaranty or security agreement) expressly
requires application of amounts received by Lender different than
permitted under the preceding sentence, then such amounts shall be
applied as provided in such instrument.
4. Guarantor waives any right to require Lender to (a) proceed
against the Borrower or (b) proceed against or exhaust any security
held to secure the Indebtedness, or (c) exercise any right of set-
off against Borrower, or (d) pursue any other remedy in Lender's
power whatsoever. Guarantor waives any defense arising by reason
of any disability, lack of corporate authority or power, or other
defense of the Borrower or of any other guarantor of the
Indebtedness, and shall remain liable hereon regardless of whether
Borrower or any other guarantor be found not liable thereon for any
reason. Until all the Indebtedness shall have been paid in full,
Guarantor shall have no right of subrogation, and waives any right
to enforce any remedy which Lender now has or may hereafter have
against the Borrower, and waives any benefit of and any right to
participate in any security now or hereafter held by Lender.
5. In addition to the other obligations of Guarantor imposed by
this Guaranty Agreement, Guarantor agrees to pay the costs of
collection, including reasonable attorneys' fees, incurred by
Lender in collection of the Indebtedness from Guarantor.
6. Guarantor hereby grants to the Lender a right of set-off (which
right of set-off herein granted shall be in addition to and not in
lieu of any other right of set-off Lender may have) against the
balance of every deposit account (whether interest bearing or non-
interest bearing and whether a demand deposit or time deposit), now
or hereafter existing, of the Guarantor with the Lender and any
other claim of the Guarantor against the Lender, now or hereafter
existing. The grant of the above right of set-off shall not in
anywise limit or be construed as limiting Lender to collect payment
of any liability of Guarantor incurred hereby only by way of set-
off, but it is expressly understood and provided that all such
liability shall constitute the absolute and unconditional
obligation of Guarantor. Guarantor hereby subordinates all
indebtedness owing to the Guarantor from Borrower to all
Indebtedness of Borrower to Lender, and shall not attempt to set
off or reduce any obligations to Lender because of such
indebtedness. The Guarantor further subordinates any lien or
security interest that he may have on any collateral or security of
the Borrower or any other party to the liens and security interests
on said collateral and security in favor of the Lender. Upon an
event of default on the Indebtedness and for so long as such
default exists, Guarantor agrees not to accept any payment on the
subordinated indebtedness nor realize upon any collateral therefor.
If the Guarantor should receive any such payment, satisfaction or
security for indebtedness of the Borrower to the Guarantor in
violation of the terms hereof, the Guarantor agrees forthwith to
deliver the same to the Lender in the form received, endorsed or
assigned as may be appropriate for application on account of, or as
security for, the Indebtedness, and until so delivered, agree to
hold the same in trust for the Lender.
7. The term of this Agreement shall be for five years from the date
hereof and for so long thereafter as any of the Indebtedness
existing at the end of said five years, together with interest and
costs of collection thereafter accruing on and with respect to such
Indebtedness existing at the end of said five years, remains
outstanding and unpaid; and, it is agreed that such interest and
costs of collection accruing after the end of said five years is
also part of the Indebtedness guaranteed hereunder. It is further
agreed that maturity of the Indebtedness, as such may be extended
from time to time by agreement between Lender and Borrower as
aforesaid, shall be the same with respect to Guarantor as with
respect to Borrower.
8. Notwithstanding anything herein or in any notes, contracts,
agreements or other instruments of Borrower to the contrary,
Guarantor is not obligated to and shall never be required to pay
interest on amounts owing by Borrower to Lender in excess of the
maximum permissible to be paid by a guarantor of the Indebtedness
under applicable law; and if payment by Guarantor of the
Indebtedness of Borrower shall involve transcending the limit of
validity prescribed by law for a guarantor, then, ipso facto, the
obligation to be fulfilled shall be reduced as to Guarantor to the
limit of such validity.
9. Guarantor warrants to Lender that Guarantor has independent
means of obtaining financial and other information about Borrower,
and agrees that Guarantor has not been induced to sign this
guaranty by reason of information regarding Borrower furnished by
Lender, and agrees that Lender shall not in the future be required
to furnish Guarantor with any information regarding Borrower nor
notify Guarantor of any adverse changes as to Borrower's financial
condition or otherwise.
10. This Guaranty does not supersede, cancel, amend, discharge or
limit any other guaranty or similar obligation of Guarantor in
favor of Lender, but this Guaranty is in addition to and cumulative
of any other such guaranty. Guarantor's liability hereunder shall
be joint and several with the liability of Borrower and all
endorsers and other sureties and guarantors whether or not the
liability of other sureties and guarantors may be limited. This
guaranty is and shall be in every particular available to the
successors and assigns of Lender and is and shall always be fully
binding upon the heirs, successors and legal representatives of
Guarantor.
Dated the 31st day of October, 1995.
GUARANTOR:
Stevens G. Herbst, Individually
<PAGE>
CONTINUING UNLIMITED GUARANTY AGREEMENT
1. The undersigned (hereinafter called "Guarantor") for good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and to induce AMERICAN NATIONAL BANK
(hereinafter called "Lender"), with offices at Corpus Christi,
Texas, at its option, at any time or from time to time, to loan
monies or otherwise extend credit with or without security, to or
for the account of MIDCOAST ENERGY RESOURCES, INC. (hereinafter
called "Borrower"), and at the special insistence and request of
Lender, Guarantor hereby unconditionally guarantees the prompt
payment, at the said office of Lender in Nueces County, Texas, when
due of the following (hereinafter called the "Indebtedness"):
All indebtedness, obligations and liabilities of any kind of the
Borrower to the Lender (and also to others to the extent of
participations granted them by the Lender), now outstanding or
owing or which may hereafter be executed or incurred, directly
between the Borrower and the Lender or acquired outright, as a
participation, conditionally or as collateral security from another
by the Lender, absolute or contingent, joint and/or several,
secured or unsecured, due or not due, arising by operation of law
or otherwise, or direct or indirect, including indebtedness,
obligations and liabilities to the Lender of the Borrower as a
member of any partnership, syndicate, association or other group,
and whether incurred by the Borrower as principal, surety,
endorser, guarantor, accommodation party or otherwise, and
including, but not limited to, principal, interest, and costs of
collection including attorneys' fees.
2. This guaranty is an absolute, completed and continuing one, and
no notice of the Indebtedness or any extension of credit already or
hereafter contracted by or extended to the Borrower need be given
to the Guarantor. Borrower and Lender may rearrange, extend and/or
renew from time to time any or all of the Indebtedness without
notice to the Guarantor and in such event Guarantor will remain
fully bound hereunder on such Indebtedness regardless of the number
of rearrangements, renewals and extensions. The Guarantor hereby
expressly waives marshalling of assets and liabilities, sale in
inverse order of alienation, presentment, demand, protest, notice
of intention to accelerate maturity, notice of acceleration of
maturity, and notice of protest and dishonor on any and all forms
of such Indebtedness, and also notice of acceptance of this
guaranty, acceptance on the part of Lender being conclusively
presumed by its request for this guaranty and delivery of the same
to it.
3. Guarantor authorizes Lender, without notice or demand and
without affecting Guarantor's liability hereunder, to take and hold
security for the payment of this guaranty and/or the Indebtedness
guaranteed, and exchange, enforce, waive and release any such
security; and to apply such security and direct the order or manner
of sale thereof as Lender in its discretion may determine; and to
obtain a guaranty of the Indebtedness from any one or more other
persons, corporations or entities whomsoever and at any time or
times to enforce, waive, rearrange, modify, limit or release such
other persons, corporations or entities from their obligations
under such guaranties. If at any time there be other debt of
Borrower to Lender not guaranteed hereby, then Lender may apply all
amounts realized by Lender from Borrower, from other guarantors or
from collateral to such other debt. Provided, if a particular
instrument (such as a guaranty or security agreement) expressly
requires application of amounts received by Lender different than
permitted under the preceding sentence, then such amounts shall be
applied as provided in such instrument.
4. Guarantor waives any right to require Lender to (a) proceed
against the Borrower or (b) proceed against or exhaust any security
held to secure the Indebtedness, or (c) exercise any right of set-
off against Borrower, or (d) pursue any other remedy in Lender's
power whatsoever. Guarantor waives any defense arising by reason
of any disability, lack of corporate authority or power, or other
defense of the Borrower or of any other guarantor of the
Indebtedness, and shall remain liable hereon regardless of whether
Borrower or any other guarantor be found not liable thereon for any
reason. Until all the Indebtedness shall have been paid in full,
Guarantor shall have no right of subrogation, and waives any right
to enforce any remedy which Lender now has or may hereafter have
against the Borrower, and waives any benefit of and any right to
participate in any security now or hereafter held by Lender.
5. In addition to the other obligations of Guarantor imposed by
this Guaranty Agreement, Guarantor agrees to pay the costs of
collection, including reasonable attorneys' fees, incurred by
Lender in collection of the Indebtedness from Guarantor.
6. Guarantor hereby grants to the Lender a right of set-off (which
right of set-off herein granted shall be in addition to and not in
lieu of any other right of set-off Lender may have) against the
balance of every deposit account (whether interest bearing or non-
interest bearing and whether a demand deposit or time deposit), now
or hereafter existing, of the Guarantor with the Lender and any
other claim of the Guarantor against the Lender, now or hereafter
existing. The grant of the above right of set-off shall not in
anywise limit or be construed as limiting Lender to collect payment
of any liability of Guarantor incurred hereby only by way of set-
off, but it is expressly understood and provided that all such
liability shall constitute the absolute and unconditional
obligation of Guarantor. Guarantor hereby subordinates all
indebtedness owing to the Guarantor from Borrower to all
Indebtedness of Borrower to Lender, and shall not attempt to set
off or reduce any obligations to Lender because of such
indebtedness. The Guarantor further subordinates any lien or
security interest that he may have on any collateral or security of
the Borrower or any other party to the liens and security interests
on said collateral and security in favor of the Lender. Upon an
event of default on the Indebtedness and for so long as such
default exists, Guarantor agrees not to accept any payment on the
subordinated indebtedness nor realize upon any collateral therefor.
If the Guarantor should receive any such payment, satisfaction or
security for indebtedness of the Borrower to the Guarantor in
violation of the terms hereof, the Guarantor agrees forthwith to
deliver the same to the Lender in the form received, endorsed or
assigned as may be appropriate for application on account of, or as
security for, the Indebtedness, and until so delivered, agree to
hold the same in trust for the Lender.
7. The term of this Agreement shall be for five years from the date
hereof and for so long thereafter as any of the Indebtedness
existing at the end of said five years, together with interest and
costs of collection thereafter accruing on and with respect to such
Indebtedness existing at the end of said five years, remains
outstanding and unpaid; and, it is agreed that such interest and
costs of collection accruing after the end of said five years is
also part of the Indebtedness guaranteed hereunder. It is further
agreed that maturity of the Indebtedness, as such may be extended
from time to time by agreement between Lender and Borrower as
aforesaid, shall be the same with respect to Guarantor as with
respect to Borrower.
8. Notwithstanding anything herein or in any notes, contracts,
agreements or other instruments of Borrower to the contrary,
Guarantor is not obligated to and shall never be required to pay
interest on amounts owing by Borrower to Lender in excess of the
maximum permissible to be paid by a guarantor of the Indebtedness
under applicable law; and if payment by Guarantor of the
Indebtedness of Borrower shall involve transcending the limit of
validity prescribed by law for a guarantor, then, ipso facto, the
obligation to be fulfilled shall be reduced as to Guarantor to the
limit of such validity.
9. Guarantor warrants to Lender that Guarantor has independent
means of obtaining financial and other information about Borrower,
and agrees that Guarantor has not been induced to sign this
guaranty by reason of information regarding Borrower furnished by
Lender, and agrees that Lender shall not in the future be required
to furnish Guarantor with any information regarding Borrower nor
notify Guarantor of any adverse changes as to Borrower's financial
condition or otherwise.
10. This Guaranty does not supersede, cancel, amend, discharge or
limit any other guaranty or similar obligation of Guarantor in
favor of Lender, but this Guaranty is in addition to and cumulative
of any other such guaranty. Guarantor's liability hereunder shall
be joint and several with the liability of Borrower and all
endorsers and other sureties and guarantors whether or not the
liability of other sureties and guarantors may be limited. This
guaranty is and shall be in every particular available to the
successors and assigns of Lender and is and shall always be fully
binding upon the heirs, successors and legal representatives of
Guarantor.
Dated the 31st day of October, 1995.
GUARANTOR:
Kenneth B. Holmes, Jr., Individually<PAGE>
CONTINUING UNLIMITED GUARANTY AGREEMENT
1. The undersigned (hereinafter called "Guarantor") for good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and to induce AMERICAN NATIONAL BANK
(hereinafter called "Lender"), with offices at Corpus Christi,
Texas, at its option, at any time or from time to time, to loan
monies or otherwise extend credit with or without security, to or
for the account of MIDCOAST ENERGY RESOURCES, INC. (hereinafter
called "Borrower"), and at the special insistence and request of
Lender, Guarantor hereby unconditionally guarantees the prompt
payment, at the said office of Lender in Nueces County, Texas, when
due of the following (hereinafter called the "Indebtedness"):
All indebtedness, obligations and liabilities of any kind
of the Borrower to the Lender (and also to others to the
extent of participations granted them by the Lender), now
outstanding or owing or which may hereafter be executed
or incurred, directly between the Borrower and the Lender
or acquired outright, as a participation, conditionally
or as collateral security from another by the Lender,
absolute or contingent, joint and/or several, secured or
unsecured, due or not due, arising by operation of law or
otherwise, or direct or indirect, including indebtedness,
obligations and liabilities to the Lender of the Borrower
as a member of any partnership, syndicate, association or
other group, and whether incurred by the Borrower as
principal, surety, endorser, guarantor, accommodation
party or otherwise, and including, but not limited to,
principal, interest, and costs of collection including
attorneys' fees.
2. This guaranty is an absolute, completed and continuing one, and
no notice of the Indebtedness or any extension of credit already or
hereafter contracted by or extended to the Borrower need be given
to the Guarantor. Borrower and Lender may rearrange, extend and/or
renew from time to time any or all of the Indebtedness without
notice to the Guarantor and in such event Guarantor will remain
fully bound hereunder on such Indebtedness regardless of the number
of rearrangements, renewals and extensions. The Guarantor hereby
expressly waives marshalling of assets and liabilities, sale in
inverse order of alienation, presentment, demand, protest, notice
of intention to accelerate maturity, notice of acceleration of
maturity, and notice of protest and dishonor on any and all forms
of such Indebtedness, and also notice of acceptance of this
guaranty, acceptance on the part of Lender being conclusively
presumed by its request for this guaranty and delivery of the same
to it.
3. Guarantor authorizes Lender, without notice or demand and
without affecting Guarantor's liability hereunder, to take and hold
security for the payment of this guaranty and/or the Indebtedness
guaranteed, and exchange, enforce, waive and release any such
security; and to apply such security and direct the order or manner
of sale thereof as Lender in its discretion may determine; and to
obtain a guaranty of the Indebtedness from any one or more other
persons, corporations or entities whomsoever and at any time or
times to enforce, waive, rearrange, modify, limit or release such
other persons, corporations or entities from their obligations
under such guaranties. If at any time there be other debt of
Borrower to Lender not guaranteed hereby, then Lender may apply all
amounts realized by Lender from Borrower, from other guarantors or
from collateral to such other debt. Provided, if a particular
instrument (such as a guaranty or security agreement) expressly
requires application of amounts received by Lender different than
permitted under the preceding sentence, then such amounts shall be
applied as provided in such instrument.
4. Guarantor waives any right to require Lender to (a) proceed
against the Borrower or (b) proceed against or exhaust any security
held to secure the Indebtedness, or (c) exercise any right of set-
off against Borrower, or (d) pursue any other remedy in Lender's
power whatsoever. Guarantor waives any defense arising by reason
of any disability, lack of corporate authority or power, or other
defense of the Borrower or of any other guarantor of the
Indebtedness, and shall remain liable hereon regardless of whether
Borrower or any other guarantor be found not liable thereon for any
reason. Until all the Indebtedness shall have been paid in full,
Guarantor shall have no right of subrogation, and waives any right
to enforce any remedy which Lender now has or may hereafter have
against the Borrower, and waives any benefit of and any right to
participate in any security now or hereafter held by Lender.
5. In addition to the other obligations of Guarantor imposed by
this Guaranty Agreement, Guarantor agrees to pay the costs of
collection, including reasonable attorneys' fees, incurred by
Lender in collection of the Indebtedness from Guarantor.
6. Guarantor hereby grants to the Lender a right of set-off (which
right of set-off herein granted shall be in addition to and not in
lieu of any other right of set-off Lender may have) against the
balance of every deposit account (whether interest bearing or non-
interest bearing and whether a demand deposit or time deposit), now
or hereafter existing, of the Guarantor with the Lender and any
other claim of the Guarantor against the Lender, now or hereafter
existing. The grant of the above right of set-off shall not in
anywise limit or be construed as limiting Lender to collect payment
of any liability of Guarantor incurred hereby only by way of set-
off, but it is expressly understood and provided that all such
liability shall constitute the absolute and unconditional
obligation of Guarantor. Guarantor hereby subordinates all
indebtedness owing to the Guarantor from Borrower to all
Indebtedness of Borrower to Lender, and shall not attempt to set
off or reduce any obligations to Lender because of such
indebtedness. The Guarantor further subordinates any lien or
security interest that he may have on any collateral or security of
the Borrower or any other party to the liens and security interests
on said collateral and security in favor of the Lender. Upon an
event of default on the Indebtedness and for so long as such
default exists, Guarantor agrees not to accept any payment on the
subordinated indebtedness nor realize upon any collateral therefor.
If the Guarantor should receive any such payment, satisfaction or
security for indebtedness of the Borrower to the Guarantor in
violation of the terms hereof, the Guarantor agrees forthwith to
deliver the same to the Lender in the form received, endorsed or
assigned as may be appropriate for application on account of, or as
security for, the Indebtedness, and until so delivered, agree to
hold the same in trust for the Lender.
7. The term of this Agreement shall be for five years from the date
hereof and for so long thereafter as any of the Indebtedness
existing at the end of said five years, together with interest and
costs of collection thereafter accruing on and with respect to such
Indebtedness existing at the end of said five years, remains
outstanding and unpaid; and, it is agreed that such interest and
costs of collection accruing after the end of said five years is
also part of the Indebtedness guaranteed hereunder. It is further
agreed that maturity of the Indebtedness, as such may be extended
from time to time by agreement between Lender and Borrower as
aforesaid, shall be the same with respect to Guarantor as with
respect to Borrower.
8. Notwithstanding anything herein or in any notes, contracts,
agreements or other instruments of Borrower to the contrary,
Guarantor is not obligated to and shall never be required to pay
interest on amounts owing by Borrower to Lender in excess of the
maximum permissible to be paid by a guarantor of the Indebtedness
under applicable law; and if payment by Guarantor of the
Indebtedness of Borrower shall involve transcending the limit of
validity prescribed by law for a guarantor, then, ipso facto, the
obligation to be fulfilled shall be reduced as to Guarantor to the
limit of such validity.
9. Guarantor warrants to Lender that Guarantor has independent
means of obtaining financial and other information about Borrower,
and agrees that Guarantor has not been induced to sign this
guaranty by reason of information regarding Borrower furnished by
Lender, and agrees that Lender shall not in the future be required
to furnish Guarantor with any information regarding Borrower nor
notify Guarantor of any adverse changes as to Borrower's financial
condition or otherwise.
10. This Guaranty does not supersede, cancel, amend, discharge or
limit any other guaranty or similar obligation of Guarantor in
favor of Lender, but this Guaranty is in addition to and cumulative
of any other such guaranty. Guarantor's liability hereunder shall
be joint and several with the liability of Borrower and all
endorsers and other sureties and guarantors whether or not the
liability of other sureties and guarantors may be limited. This
guaranty is and shall be in every particular available to the
successors and assigns of Lender and is and shall always be fully
binding upon the heirs, successors and legal representatives of
Guarantor.
Dated the 31st day of October, 1995.
GUARANTOR:
Dan C. Tutcher, Individually
EXHIBIT 10.36
PROMISSORY NOTE
$1,200,000.00 Corpus Christi, Texas October 3, 1995
FOR VALUE RECEIVED, after date, without grace, in the manner,
on the dates, and in the amounts so herein stipulated, MIDCOAST
ENERGY RESOURCES, INC., a Nevada corporation, hereinafter called
"Maker", acting herein by and through its undersigned officers,
promises to pay to the order of RAINBOW INVESTMENTS COMPANY, a
Texas Corporation hereinafter called "Payee", at its office in the
City of Corpus Christi, Nueces County, Texas the sum of ONE MILLION
TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($1,200,000.00), pursuant
to the terms of this Note, in lawful money of the United States of
America which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment, and to pay
interest on the whole of the principal amount hereof from time to
time outstanding prior to the maturity of this Note at a rate per
annum equal to the lesser of: (a) the rate designated by Frost
Bank, N.A. or its successors, as its base commercial rate
(hereinafter called the "Prime Rate"), as such Prime Rate shall
vary from time to time, plus five percent (5%) (hereinafter called
the "Margin Percentage"), or (b) the "Maximum Rate" (as hereinafter
defined). The rate of interest payable on this Note shall change
without notice to Maker each time and as of the date that the Prime
Rate changes whether or not such Prime Rate change is published.
Notwithstanding the foregoing, if at any time the sum of the Margin
Percentage plus such Prime Rate exceeds the Maximum Rate, the rate
of interest to accrue on this Note shall be limited to the Maximum
Rate.
The sums of principal funded by Payee to Maker on this Note,
together with all accrued interest thereon, shall be due and
payable as follows:
Interest only, computed on the unpaid principal balance
of the sums funded by Payee to Maker on this Note, shall
be due and payable monthly as it accrues, on the 1st day
of each and every calendar month, beginning April 1,
1996, and continuing regularly thereafter until and
including January 31, 1997, after which date both the
unpaid sums of principal funded by Payee to Maker on this
Note and the unpaid interest accrued thereon shall be due
and payable.
All past-due, unpaid sums of principal funded on this Note,
together with all accrued and past-due, unpaid interest thereon,
shall bear interest from maturity until paid at the "Default Rate"
as hereinafter defined.
The Maker hereof may at any time and from time to time pay the
full amount or any part of the sums of principal funded by Maker to
Payee on this Note, without the payment of any premium or fee. All
payments on this Note, whether designated as payments of principal
or interest, shall be applied first to the payment of accrued
interest and balance, if any, to principal.
It is especially agreed that if default shall be made in any
payment due hereon, either principal or interest, or if there is a
default in any of the terms, covenants, agreements, conditions or
provisions set forth in any instrument or document given to secure
this Note or executed simultaneously with this Note or hereafter,
or if any certificate, affidavit and/or financial statement
furnished to Payee in connection with the loan evidenced by this
Note is false or misleading or omits to state any material fact, or
should any Maker, endorser, surety or guarantor hereof become
insolvent or commit an act of bankruptcy or make an assignment for
the benefit of creditors or authorize the filing of a voluntary
petition in bankruptcy, or should a receiver of any of their
property be appointed, or should involuntary bankruptcy proceedings
be filed or threatened against any Maker, endorser, surety or
guarantor hereof, or should any event occur which results in the
acceleration of the maturity of any indebtedness of any Maker,
endorser, surety or guarantor hereof to Payee or to any other party
under any mortgage, deed of trust, security or loan agreement,
indenture, note or other undertaking, then in any such event, at
the option of Payee or any legal holder hereof at any time
thereafter, without demand or notice, the unpaid balance of the
sums of principal funded by Payee to Maker on this Note, together
with all accrued and unpaid interest thereon, shall at once become
due and payable and shall bear interest from the date of such
default or event (whichever occurs first) until paid at the
"Default Rate" which is defined as the Maximum Rate or, if there is
no Maximum Rate, then a rate per annum equal to the Prime Rate plus
eight percent (8%).
If any sums becoming owing on this Note are not paid at
maturity, however such maturity may be brought about, and the same
is placed in the hands of an attorney for collection or if
collected by suit or through bankruptcy, probate, receivership or
other legal or judicial proceedings, the Maker hereof agrees to pay
an additional amount of not less than ten percent (10%) of all
unpaid sums of principal funded by Payee to Maker on this Note as
costs of collection and reasonable attorney's fees.
Each Maker and all sureties, endorsers and guarantors of this
Note, and each party hereafter assuming or otherwise becoming
liable hereon (i) waive demand, presentment for payment, notice of
intention to accelerate the maturity of this Note and to declare
the entire unpaid balance of the sums of principal funded by Payee
to Maker on this Note, together with all accrued and unpaid
interest thereon, due and payable, notice that the entire unpaid
balance of the sums of principal funded by Payee to Maker on this
Note, together with all accrued and unpaid interest thereon, has
been declared due and payable, notice of nonpayment, protest,
notice of protest and all other notices, filings of suit and
diligence in collecting this Note or enforcing any of the security
herefor, (ii) agree to any substitution, exchange or release of any
such security or the release of any party primarily or secondarily
liable hereon, (iii) agree that Payee or other holder hereof shall
not be required first to institute suit or exhaust its remedies
hereon against the Maker or others liable or to become liable
hereon or enforce its rights against any security herefor in order
to enforce payment of this Note by it, and (iv) consent to any
extensions or postponement of time of payment of this Note and to
any other indulgence with respect hereto without notice thereof to
any of them.
Any check, draft, money order or other instrument given in
payment of all or any portion of any sums becoming owing on this
Note may be accepted by the payee or any other holder hereof and
handled in collection in the customary manner, but the same shall
not constitute payment hereunder or diminish any rights of the
Payee or any other holder hereof, except to the extent that actual
cash proceeds of such instrument are unconditionally received by
the Payee or any other holder hereof and applied to this
indebtedness as herein provided.
For the purposes of this Note the term "Maximum Rate" shall
mean the maximum rate of interest which the Payee may charge the
Maker on the loan evidenced by this Note without thereby charging
interest which is usurious or unlawful under the state or federal
laws applicable for the purpose of determining the maximum lawful
rate of interest which may be charged on such loan and this Note;
and provided that all fees, "points", and other charges which
constitute interest shall be included and taken into account in
determining such Maximum Rate. It is expressly provided and
stipulated that, notwithstanding any other provision of this Note,
in no event shall the aggregate of (i) the aggregate interest which
has accrued on this Note from the date hereof through the date of
such calculation, and (ii) the aggregate of any other amounts
accrued or paid which, under applicable laws, are deemed to
constitute interest upon the loan evidenced hereby from the date
hereof through the date of such calculation, ever exceed the
Maximum Rate on the principal balance of the loan evidenced by this
Note from time to time remaining unpaid. In this connection, it is
expressly stipulated and agreed that it is the intent of the Payee
and the Maker in the execution and delivery of this Note to
contract in strict compliance with the usury laws, if any,
applicable to this Note. None of the terms of this Note or the
security instruments securing same shall ever be construed to
create a contract to pay interest for the use, forbearance or
detention of money, at a rate in excess of the Maximum Rate. The
Maker, and any guarantors, endorsers or other parties now or
hereafter becoming liable for the payment of this Note, shall never
be liable for interest in excess of the Maximum Rate and the
provisions of this Note and the security instruments securing same
which may be in apparent conflict herewith.
Should this Note be signed or endorsed by more than one person
and/or entity, all of the obligations herein contained shall be
considered the joint and several obligations of each maker and
endorser hereof.
Payment of all unpaid sums of principal funded by Payee to
Maker on this Note, together with all accrued and unpaid interest
thereon, and all fees and other charges, if any, becoming due and
owing on this Note shall be secured by any and all guaranties,
security agreements and other security instruments executed by the
Maker or any other party in favor of Payee as security for this
Note, including those executed simultaneously herewith, those
heretofore executed, and those hereafter executed.
If any payment on this Note shall become due on a Saturday,
Sunday, or public holiday on which Payee is not open for business,
such payment shall be made on the next succeeding day on which
Payee is open for business and such extension of time shall in such
case be included in computing interest in connection with such
payment.
IN WITNESS WHEREOF, the undersigned Maker has duly executed
this Note as of the day and year above first written.
MIDCOAST ENERGY RESOURCES,INC.
By:
Dan C. Tutcher,
President
EXHIBIT 10.37
ASSIGNMENT OF NET REVENUE INTEREST
THE STATE OF TEXAS ~
~ KNOWN ALL MEN BY THESE PRESENTS:
COUNTY OF NUECES ~
That MIDCOAST ENERGY RESOURCES, INC., a Nevada corporation
(Assignor), for and in consideration of the loan necessary to
finance the purchase of all capital stock of Magnolia Pipeline
Corporation, an Alabama corporation ("Magnolia") in compliance with
the Agreement set forth below and the sum of TEN DOLLARS ($10.00)
and other good and valuable consideration, cash in hand paid by
RAINBOW INVESTMENTS CO., (Assignee), the receipt and sufficiency of
which are hereby acknowledged, does hereby TRANSFER, BARGAIN, SELL,
ASSIGN and CONVEY unto the said Assignee a net revenue interest
equal to five percent (5%) of Assignor's net revenue derived from
the earnings from operations before interest, tax, depreciation and
amortization charges ("EBITDA"), but after all other ordinary
operating expenses of Magnolia excluding any lease payments
originating from the sale and lease back of equipment now owned by
Magnolia. Payments due hereunder shall be paid to the Assignee
before the 10th day of the following month.
Assignee shall grant Assignor the right to repurchase the
aforementioned Net Revenue Interest for $25,000. The repurchase
consideration shall however increase by $25,000 on November 1, 1995
and by an additional $25,000 on the first of each succeeding month
that the option is not exercised, provided that the repurchase
amount shall never exceed $500,000.
This Assignment shall be binding upon, and inure to the
benefit of, Assignor and Assignee and their respective successors,
assigns and legal representatives forever. Assignor shall warrant
and forever defend this interest unto Assignee, its successors,
assigns and legal representatives, against all persons whomsoever
lawfully claiming or to claim the same.
The effective date hereof shall be October 3, 1995.
MIDCOAST ENERGY RESOURCES, INC.
by _____________________________
Dan C. Tutcher
THE STATE OF TEXAS ~
~
COUNTY OF NUECES ~
BEFORE ME, the undersigned authority, on this day personally
appeared Dan C. Tutcher, President of MIDCOAST ENERGY RESOURCES,
INC., known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the
same for the purposes and consideration therein expressed, and in
the capacity therein stated and as the act and deed of said
corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this _____ day of
____________________, 1995.
__________________________________
Notary Public, State of Texas
EXHIBIT 10.38
September 13, 1995
Dan Tutcher
Midcoast Energy Resources, Inc.
1100 Louisiana St., Suite 3030
Houston, TX 77002
Dear Dan,
As requested I have remitted to Rainbow Investments Company
the proceeds from my $1,872,450 loan to Midcoast. Attached is my
letter to Rainbow instructing them to immediately forward to you
this amount and any funds Rainbow is paying Midcoast in a single
cashiers check to your specifications.
Please let me know if I can be of further help.
Sincerely,
Stevens G. Herbst<PAGE>
PROMISSORY NOTE
$1,872,450.00 Corpus Christi, Texas September 11, 1995
FOR VALUE RECEIVED, after date, without grace, in the manner,
on the dates, and in the amounts so herein stipulated, MIDCOAST
ENERGY RESOURCES, INC., a Nevada corporation, hereinafter called
"Maker", acting herein by and through its undersigned officers,
promises to pay to the order of STEVENS G. HERBST hereinafter
called "Payee", at his office in the City of Corpus Christi, Nueces
County, Texas the sum of ONE MILLION EIGHT HUNDRED SEVENTY TWO
THOUSAND FOUR HUNDRED FIFTY AND NO/100 DOLLARS ($1,872,450.00),
pursuant to the terms of this Note, in lawful money of the United
States of America which shall be legal tender in payment of all
debts and dues, public and private, at the time of payment, and to
pay interest on the whole of the principal amount hereof from time
to time outstanding prior to the maturity of this Note at a rate
per annum equal to the lesser of: (a) the rate designated by Frost
Bank, N.A. or its successors, as its base commercial rate
(hereinafter called the "Prime Rate"), as such Prime Rate shall
vary from time to time, plus two percent (2%) (hereinafter called
the "Margin Percentage"), or (b) the "Maximum Rate" (as hereinafter
defined). The rate of interest payable on this Note shall change
without notice to Maker each time and as of the date that the Prime
Rate changes whether or not such Prime Rate change is published.
Notwithstanding the foregoing, if at any time the sum of the Margin
Percentage plus such Prime Rate exceeds the Maximum Rate, the rate
of interest to accrue on this Note shall be limited to the Maximum
Rate.
The sums of principal funded by Payee to Maker on this Note,
together with all accrued interest thereon, shall be due and
payable as follows:
Interest only, computed on the unpaid principal balance
of the sums funded by Payee to Maker on this Note, shall
be due and payable monthly as it accrues, on the 1st day
of each and every calendar month, beginning April 1,
1996, and continuing regularly thereafter until and
including December 31, 1996, after which date both the
unpaid sums of principal funded by Payee to Maker on this
Note and the unpaid interest accrued thereon shall be due
and payable.
All past-due, unpaid sums of principal funded on this Note,
together with all accrued and past-due, unpaid interest thereon,
shall bear interest from maturity until paid at the "Default Rate"
as hereinafter defined.
The Maker hereof may at any time and from time to time pay the
full amount or any part of the sums of principal funded by Maker to
Payee on this Note, without the payment of any premium or fee. All
payments on this Note, whether designated as payments of principal
or interest, shall be applied first to the payment of accrued
interest and balance, if any, to principal.
It is especially agreed that if default shall be made in any
payment due hereon, either principal or interest, or if there is a
default in any of the terms, covenants, agreements, conditions or
provisions set forth in any instrument or document given to secure
this Note or executed simultaneously with this Note or hereafter,
or if any certificate, affidavit and/or financial statement
furnished to Payee in connection with the loan evidenced by this
Note is false or misleading or omits to state any material fact, or
should any Maker, endorser, surety or guarantor hereof become
insolvent or commit an act of bankruptcy or make an assignment for
the benefit of creditors or authorize the filing of a voluntary
petition in bankruptcy, or should a receiver of any of their
property be appointed, or should involuntary bankruptcy proceedings
be filed or threatened against any Maker, endorser, surety or
guarantor hereof, or should any event occur which results in the
acceleration of the maturity of any indebtedness of any Maker,
endorser, surety or guarantor hereof to Payee or to any other party
under any mortgage, deed of trust, security or loan agreement,
indenture, note or other undertaking, then in any such event, at
the option of Payee or any legal holder hereof at any time
thereafter, without demand or notice, the unpaid balance of the
sums of principal funded by Payee to Maker on this Note, together
with all accrued and unpaid interest thereon, shall at once become
due and payable and shall bear interest from the date of such
default or event (whichever occurs first) until paid at the
"Default Rate" which is defined as the Maximum Rate or, if there is
no Maximum Rate, then a rate per annum equal to the Prime Rate plus
eight percent (8%).
If any sums becoming owing on this Note are not paid at
maturity, however such maturity may be brought about, and the same
is placed in the hands of an attorney for collection or if
collected by suit or through bankruptcy, probate, receivership or
other legal or judicial proceedings, the Maker hereof agrees to pay
an additional amount of not less than ten percent (10%) of all
unpaid sums of principal funded by Payee to Maker on this Note as
costs of collection and reasonable attorney's fees.
Each Maker and all sureties, endorsers and guarantors of this
Note, and each party hereafter assuming or otherwise becoming
liable hereon (i) waive demand, presentment for payment, notice of
intention to accelerate the maturity of this Note and to declare
the entire unpaid balance of the sums of principal funded by Payee
to Maker on this Note, together with all accrued and unpaid
interest thereon, due and payable, notice that the entire unpaid
balance of the sums of principal funded by Payee to Maker on this
Note, together with all accrued and unpaid interest thereon, has
been declared due and payable, notice of nonpayment, protest,
notice of protest and all other notices, filings of suit and
diligence in collecting this Note or enforcing any of the security
herefor, (ii) agree to any substitution, exchange or release of any
such security or the release of any party primarily or secondarily
liable hereon, (iii) agree that Payee or other holder hereof shall
not be required first to institute suit or exhaust its remedies
hereon against the Maker or others liable or to become liable
hereon or enforce its rights against any security herefor in order
to enforce payment of this Note by it, and (iv) consent to any
extensions or postponement of time of payment of this Note and to any
other indulgence with respect hereto without notice thereof to any of them.
Any check, draft, money order or other instrument given in
payment of all or any portion of any sums becoming owing on this
Note may be accepted by the payee or any other holder hereof and
handled in collection in the customary manner, but the same shall
not constitute payment hereunder or diminish any rights of the
Payee or any other holder hereof, except to the extent that actual
cash proceeds of such instrument are unconditionally received by
the Payee or any other holder hereof and applied to this
indebtedness as herein provided.
For the purposes of this Note the term "Maximum Rate" shall
mean the maximum rate of interest which the Payee may charge the
Maker on the loan evidenced by this Note without thereby charging
interest which is usurious or unlawful under the state or federal
laws applicable for the purpose of determining the maximum lawful
rate of interest which may be charged on such loan and this Note;
and provided that all fees, "points", and other charges which
constitute interest shall be included and taken into account in
determining such Maximum Rate. It is expressly provided and
stipulated that, notwithstanding any other provision of this Note,
in no event shall the aggregate of (i) the aggregate interest which
has accrued on this Note from the date hereof through the date of
such calculation, and (ii) the aggregate of any other amounts
accrued or paid which, under applicable laws, are deemed to
constitute interest upon the loan evidenced hereby from the date
hereof through the date of such calculation, ever exceed the
Maximum Rate on the principal balance of the loan evidenced by this
Note from time to time remaining unpaid. In this connection, it is
expressly stipulated and agreed that it is the intent of the Payee
and the Maker in the execution and delivery of this Note to
contract in strict compliance with the usury laws, if any,
applicable to this Note. None of the terms of this Note or the
security instruments securing same shall ever be construed to
create a contract to pay interest for the use, forbearance or
detention of money, at a rate in excess of the Maximum Rate. The
Maker, and any guarantors, endorsers or other parties now or
hereafter becoming liable for the payment of this Note, shall never
be liable for interest in excess of the Maximum Rate and the
provisions of this Note and the security instruments securing same
which may be in apparent conflict herewith.
Should this Note be signed or endorsed by more than one person
and/or entity, all of the obligations herein contained shall be
considered the joint and several obligations of each maker and
endorser hereof.
Payment of all unpaid sums of principal funded by Payee to
Maker on this Note, together with all accrued and unpaid interest
thereon, and all fees and other charges, if any, becoming due and
owing on this Note shall be secured by any and all guaranties,
security agreements and other security instruments executed by the
Maker or any other party in favor of Payee as security for this
Note, including those executed simultaneously herewith, those
heretofore executed, and those hereafter executed.
If any payment on this Note shall become due on a Saturday,
Sunday, or public holiday on which Payee is not open for business,
such payment shall be made on the next succeeding day on which
Payee is open for business and such extension of time shall in such
case be included in computing interest in connection with such
payment.
IN WITNESS WHEREOF, the undersigned Maker has duly executed
this Note as of the day and year above first written.
MIDCOAST ENERGY RESOURCES,INC.
By:
Dan C. Tutcher,
President
<PAGE>
SECURITY AGREEMENT
(Third Party Pledge)
Date: October 3, 1995
A. PARTIES
1. Pledgor: MIDCOAST ENERGY RESOURCES, INC.
2. Address: 1100 Louisiana, Suite 3030, Houston, Texas 77002
3. Secured Party: RAINBOW INVESTMENTS COMPANY
4. Address: P.O. Box 1050, Corpus Christi, Texas 78403
B. AGREEMENT
In order to induce Secured Party to loan monies or otherwise
extend credit with or without credit to the hereafter named
Borrower, and at the request of Secured Party, the Pledgor hereby
pledges the hereafter described Collateral unto Secured Party
and grants a security interest in the Collateral unto Secured
Party,in order to secure payment of the Secured Obligations.
The Borrower to which this Pledge Agreement applies and
references is as follows:
Borrower: Midcoast Energy Resources, Inc.
C. SECURED OBLIGATIONS
1. The following are the obligations secured by this
Agreement (herein called the "Secured Obligations").
Note of even date in the original principal sum of
$1,200,000.00 executed by Borrower payable to Secured Party.
D. COLLATERAL
1. The security interest is granted in the following
Collateral:
All shares of Magnolia Pipeline Corporation common stock now
owned or hereafter acquired, described further in Exhibit "A".
E. AGREEMENTS OF PLEDGOR
1. Pledgor will: take adequate care of the Collateral;
insure the Collateral for such hazards and in such amounts as
Secured Party directs, policies to be satisfactory to Secured
Party; pay all costs necessary to obtain, preserve, and enforce
this security interest, collect the obligation, and preserve
the Collateral, including (but not limited to) taxes, assessments,
insurance premiums, reasonable attorneys' fees and legal expenses,
and expenses of sale; furnish Secured Party with any information on
the Collateral requested by Secured Party; allow Secured Party to
inspect the Collateral and inspect and copy all records relating to
the Collateral and the obligation; sign any papers furnished by
Secured Party which are necessary to obtain and maintain this
security interest; assist Secured Party in complying with the
Federal Assignment of Claims Act, where necessary to enable Secured
Party to become an assignee under such Act; take necessary steps to
preserve the liability of account debtors, obligors, and secondary
parties whose Secured Obligations are part of the Collateral;
transfer possession of all instruments, documents, and chattel
paper which are part of the Collateral to Secured Party
immediately, or as to those hereafter acquired, immediately
following acquisition; perfect a security interest (using a method
satisfactory to Secured Party) in goods covered by chattel paper
which is part of the Collateral; notify Secured Party of any change
occurring in or to the Collateral, or in any fact or circumstance
warranted or represented by Pledgor in this agreement or
furnished to Secured Party, or if any event of default occurs.
2. Pledgor will not (without Secured Party's consent):
remove the Collateral from the locations specified herein; allow
the Collateral to become an accession to other goods; sell, lease,
otherwise transfer, manufacture, process, assemble, or furnish
under contracts of service, the Collateral; allow the Collateral to
be affixed to real estate, except goods identified herein as
fixtures.
3. Pledgor warrants: no financing statement has been filed
with respect to the Collateral, other than relating to this
security interest; Pledgor is absolute owner of the Collateral, and
it is not encumbered other than by this security interest (and the
same will be true of Collateral acquired hereafter when acquired);
none of the Collateral is affixed to real estate or an accession to
other goods, nor will Collateral acquired hereafter be affixed to
real estate or an accession to other goods when acquired, unless
Pledgor has furnished Secured Party the consents or disclaimers
necessary to make this security interest valid against persons
holding interests in the real estate or other goods; all account
debtors and obligors, whose Secured Obligations are part of the
Collateral, are to the extent permitted by law prevented from
asserting against Secured Party any claims or defenses they have
against sellers, or can be so prevented by Secured Party taking
action provided by law for such purposes.
F. RIGHTS OF SECURED PARTY
Secured Party may, in its discretion, after default:
terminate, on notice to Pledgor, Pledgor's authority to sell,
lease, otherwise transfer, manufacture, process or assemble, or
furnish under contracts of service, inventory Collateral, or any
other Collateral as to which such permission has been given;
require Pledgor to give possession or control of the Collateral to
Secured Party; indorse as Pledgor's agent any instruments or
chattel paper in the Collateral; notify account debtors and
obligors on instruments to make payment direct to Secured Party;
contact account debtors directly to verify information furnished by
Pledgor; take control of proceeds and use cash proceeds to reduce
any part of the obligation; take any action Pledgor is required to
take or otherwise necessary to obtain, preserve, and enforce this
security interest, and maintain and preserve the Collateral,
without notice to Pledgor, and add costs of same to the obligation
(but Secured Party is under no duty to take any such action);
release Collateral in its possession to Pledgor, temporarily or
otherwise; take control of funds generated by the Collateral, such
as dividends, interest, and proceeds or refunds from insurance, and
use same to reduce any part of the Secured Obligations; waive any
of its rights hereunder without such waiver prohibiting the later
exercise of the same or similar rights; revoke any permission or
waiver previously granted to Pledgor.
G. MISCELLANEOUS
1. The rights and privileges of Secured Party shall inure to
its successors and assigns. All representations, warranties, and
agreements of Pledgor are joint and several if Pledgor is more than
one and shall bind Pledgor's personal representatives, heirs,
successors, and assigns. Definitions in the Uniform Commercial Code
(also known as the Texas Business and Commerce Code) apply to words and
phrases in this agreement; if Code definitions conflict, Article 9
definitions apply. Pledgor waives presentment, demand, notice of dishonor,
protest, and extension of time without notice as to any instruments and
chattel paper in the Collateral. Notice mailed to Pledgor's address in
Item A2, or to Pledgor's most recent changed address on file with
Secured Party, at least five (5) days prior to the related action
(or, if the Uniform Commercial Code specifies a longer period, such
longer period prior to the related action), shall be deemed
reasonable.
2. This pledge is an absolute, completed and continuing one,
and no notice of the Secured Obligations or any extension of credit
already or hereafter contracted by or extended to the Borrower need
be given to the Pledgor. Secured Party may extend credit to
Borrower in excess of the amount secured hereunder. Borrower and
Secured Party may rearrange, extend and/or renew from time to time
any or all of the Secured Obligations without notice to the Pledgor
and in such event Pledgor will remain fully bound hereunder to
secure such Secured Obligations regardless of the number of
rearrangements, renewals and extensions. The Pledgor hereby
expressly waives marshalling of assets and liabilities, sale in
inverse order of alienation, presentment, demand, protest, notice
of intention to accelerate maturity, notice of acceleration of
maturity, and notice of protest and dishonor on any and all forms
of such Secured Obligations, and also notice of acceptance of this
pledge, acceptance on the part of Secured Party being conclusively
presumed by its request for this pledge and delivery of the same to
it.
3. Pledgor authorizes Secured Party, without notice or
demand and without affecting Pledgor's liability hereunder, to take
and hold other security for the payment of the Secured Obligations,
and exchange, enforce, waive and release any such other security;
and to apply such other security and direct the order or manner of
sale thereof as Secured Party in its discretion may determine; and
to obtain a guaranty of the Secured Obligations from any one or
more other persons, corporations or entities whomsoever and at any
time or times to enforce, waive, rearrange, modify, limit or
release such other persons, corporations or entities from their
obligations under such guaranties. If at any time there be other
debt of Borrower to Secured Party not secured hereby, then Secured
Party may apply all amounts realized by Secured Party from
Borrower, from guarantors or from other collateral to such other
debt. Provided, if a particular instrument (such as a guaranty or
security agreement) expressly requires application of amounts
received by Secured Party different than permitted under the
preceding sentence, then such amounts shall be applied as provided
in such instrument.
4. Pledgor waives any right to require Secured Party to (a)
proceed against the Borrower or (b) proceed against or exhaust any
other security held to secure the Secured Obligations, or (c)
exercise any right of set-off against Borrower, or (d) pursue any
other remedy in Secured Party's power whatsoever. Pledgor waives
any defense arising by reason of any disability, lack of corporate
authority or power, or other defense of the Borrower or of any
guarantor of the Secured Obligations, and shall remain liable
hereon regardless of whether Borrower or any guarantor be found
not liable thereon for any reason. Until all the Secured
Obligations shall have been paid in full, Pledgor shall have no
right of subrogation, and waives any right to enforce any remedy
which Secured Party now has or may hereafter have against the
Borrower, and waives any benefit of and any right to participate in
any security now or hereafter held by Secured Party.
5.Pledgor agrees that if the maturity of any Secured
Obligations hereby secured is accelerated by bankruptcy or
otherwise, such maturity shall also be deemed accelerated for the
purpose of this pledge without demand or notice to Pledgor. In
addition to the other obligations of Pledgor imposed by this Pledge
Agreement, if it should become necessary for the Secured Party to
engage the services of an attorney to enforce this Pledge Agreement
against Pledgor, then Pledgor agrees to pay the costs of
collection, including reasonable attorneys' fees, incurred by
Secured Party in enforcing this Pledge Agreement against Pledgor,
and this pledge of the Collateral shall also secure amounts
expended by Secured Party in enforcing this Pledge Agreement
against Pledgor.
6.Pledgor hereby subordinates all indebtedness owing to the
Pledgor from Borrower to all Secured Obligations of Borrower to
Secured Party, and shall not attempt to set off or reduce any
obligations to Secured Party because of such indebtedness. The
Pledgor further subordinates any lien or security interest that he
may have on any collateral or security of the Borrower or any other
party to the liens and security interests on said collateral and
security in favor of the Secured Party. Upon and an event of
default on the Secured Obligations and for so long as such default
exists, Pledgor agrees not to accept any payment on the
subordinated indebtedness nor realize upon any collateral therefor.
If the Pledgor should receive any such payment, satisfaction or
security for indebtedness of the Borrower to the Pledgor in
violation of the terms hereof, the Pledgor agrees forthwith to
deliver the same to the Secured Party in the form received,
endorsed or assigned as may be appropriate for application on
account of, or as security for, the Secured Obligations, and until
so delivered, agree to hold the same in trust for the Secured
Party.
7.The term of this Agreement shall be for so long as any of the
Secured Obligations remains outstanding and unpaid. It is further
agreed that maturity of the Secured Obligations, as such may be
extended from time to time by agreement between Secured Party and
Borrower as aforesaid, shall be the same with respect to Pledgor as
with respect to Borrower.
8.Pledgor warrants to Secured Party that Pledgor has
independent means of obtaining financial and other information
about Borrower, and agrees that Pledgor has not been induced to
sign this pledge by reason of information regarding Borrower
furnished by Secured Party, and agrees that Secured Party shall not
in the future be required to furnish Pledgor with any information
regarding Borrower nor notify Pledgor of any adverse changes as to
Borrower's financial condition or otherwise.
9.If other persons or entities have executed other instruments
guaranteeing any indebtedness of Borrower to Secured Party, or
pledging property to secure any indebtedness of Borrower to Secured
Party, this pledge and instrument is in addition to such other
instruments, and the total indebtedness of Borrower to Secured
Party secured by Pledgor hereunder and by such other persons or
entities, if any, shall be compounded and be the sum of the amount
secured hereunder by Pledgor, plus the amounts guaranteed or
secured by each other person or entity.
H. DEFAULT
1.Any of the following is an event of default: failure of
Borrower to pay any note in the Secured Obligations in accordance
with its terms or any event of default under other loan documents
executed in connection with or evidencing the Secured Obligations;
failure of Pledgor to perform any act or duty required by this
agreement; falsity of any warranty or representation in this
agreement when made; substantial change in any fact warranted or
represented in this agreement; involvement of Pledgor in bankruptcy
or insolvency proceedings, death, dissolution, or other termination
of Pledgor's existence; merger or consolidation of Pledgor with
another; substantial loss, theft, destruction, sale, reduction in
value, encumbrance of, damage to, or change in the Collateral;
modification of any contract, the rights to which are part of the
Collateral; levy on, seizure, or attachment of the Collateral;
judgment against Pledgor; filing any financing statement with
regard to the Collateral, other than relating to this security
interest; Secured Party's belief that the prospect
of payment of any part of the obligation, or the performance of any
part of this agreement, is impaired.
2.At any time that the Secured Obligations (or any part
thereof) are matured, Secured Party may proceed to enforce the
security interest herein granted and exercise any and all of the
rights and remedies available to a secured party under the Uniform
Commercial Code as well as all other rights and remedies. When an
event of default occurs, Pledgor, upon demand by Secured Party,
shall assemble the Collateral and make it available to Secured
Party at a place reasonably convenient to both parties. Pledgor is
entitled to any surplus.
I. FIRST AND PRIOR LIEN
This security interest grants to Secured Party, a first and
prior lien to secure the payment of the Secured Obligations, and
extensions and renewals thereof, with or without notice to Pledgor.
PLEDGOR:
MIDCOAST ENERGY RESOURCES, INC.
By:
Dan C. Tutcher, President
<PAGE>
GUARANTY AGREEMENT
FOR VALUE RECEIVED and to induce STEVENS G. HERBST, ("Lender"), to
enter into that certain Loan Agreement of even date herewith (the
"Loan Agreement") by and among Lender, MIDCOAST ENERGY RESOURCES,
INC. ("Borrower") and the undersigned, MIDCOAST NATURAL GAS, INC.,
a Texas corporation, DAN C. TUTCHER, and K.B. HOLMES, JR.
("Guarantors"), Guarantors agree as follows:
1.Guarantors jointly and severally, hereby absolutely and
unconditionally guarantee to Lender, its successors and assigns,
the following: (a) the due and punctual payment of (and not merely
the collectibility of) all sums heretofore, herewith and hereafter
funded by Lender to Borrower, together with all interest accruing
on said sums so funded, under that one certain promissory note
dated of even date herewith in the principal amount of ONE MILLION
EIGHT HUNDRED SEVENTY TWO THOUSAND FOUR HUNDRED FIFTY AND NO/100
DOLLARS ($1,872,450.00), executed by Borrower and payable to the
order of Lender (the "Note"), when due and payable, whether on any
installment payment date or at stated or accelerated maturity, all
according to the terms of the Note; and, (b) the performance of all
other obligations of Borrower under that certain loan agreement
also of even date herewith by and among Lender, Borrower and
Guarantors (the "Loan Agreement").
2.Guarantors are shareholders and/or officers of Borrower.
Guarantors acknowledge that they shall directly or indirectly
benefit from Lender's extension of credit to Borrower. Guarantors
understand that Lender would not be entering into the Loan
Agreement or making the loan to Borrower evidenced by the Note but
for the execution by Guarantors of this Guaranty Agreement, the
delivery of same to Lender and the covenants and agreements of
Guarantors herein contained. The liability of any other persons or
entities, if any, now or hereafter guaranteeing payment of all or
any portion of the Note.
3. Guarantors shall further secure the Note and this Guaranty
Agreement with a security agreement covering all their interest in
and to all shares of common stock of Midcoast Energy Resources,
Inc. owned by Guarantors, said Security Agreement to be of even
date herewith.
4.Guarantors expressly agree that Lender in its sole and absolute
discretion, without notice to or further assent of Guarantors, and
without in any way releasing, affecting or impairing the
obligations and liabilities of Guarantors hereunder, may:
(a)
waive compliance with, or any default under, or grant any other
indulgences with respect to the Note, the Loan Agreement, and/or
any instrument(s) securing the Note;
(b)
modify, amend or change any provisions of the Note, the Loan
Agreement, and/or any instrument(s) securing the Note;
(c)
grant extensions or renewals of or with respect to the Note;
(d)
assign or otherwise transfer the Note, or this Guaranty Agreement,
or any interest therein or herein;
(e)
deal in all respects with Borrower or its successors or assigns as
if this Guaranty Agreement were not in effect. The obligations of
Guarantors under this Guaranty Agreement shall be valid and
enforceable according to the terms and conditions hereof,
irrespective of the genuineness, validity, regularity or
enforceability of the Note and/or any security given therefor.
5.Guarantors hereby expressly waive:
(a)
presentment and demand for payment and protest of nonpayment;
(b)
notice of acceptance of this Guaranty Agreement and of presentment,
demand and protest;
(c)
notice of any default hereunder or under the Note, the Loan
Agreement, or any instrument(s) securing the Note;
(d)
demand for observance or performance of provisions of this Guaranty
Agreement or the Note; and
(e)
all other notices and demands otherwise required by law which
Guarantors may lawfully waive. Guarantors agreed that if this
Guaranty Agreement shall be enforced by suit or otherwise,
Guarantors will reimburse Lender upon demand for its expenses
incurred in connection therewith, including without limitation
reasonable attorney's fees.
6.Every notice, demand, request or other communication given
hereunder or in connection herewith (hereinafter referred to as
"Notice" or "Notices") shall be deemed sufficient if in writing and
sent by registered or certified mail, postage prepaid, return
receipt requested, addressed to the party to receive such Notice,
as follows:
If to Lender: If to Guarantors:
Stevens G. Herbst Mr. Dan C. Tutcher
P.O. Box 1050 1100 Louisiana, Suite 3030
Corpus Christi, Texas 78403 Houston, Texas 77007
Midcoast Natural Gas, Inc.
1100 Louisiana, Suite 3030
Houston, Texas 77007
K.B. Holmes, Jr.
P.O. Box 1980
Corpus Christi, Texas 78403
7.All rights and remedies afforded to Lender by reason of this
Guaranty Agreement, whether under the terms hereof or by law, are
separate and cumulative, and the exercise of one shall not in any
way limit or prejudice the exercise of any other such rights and
remedies. No delay or omission by Lender in exercising any such
right or remedy shall operate as a waiver thereof. No waiver of
any rights or remedies hereunder and no modification or amendment
hereof shall be deemed made by Lender unless in writing and duly
signed by Lender. Any such written waiver shall apply only to the
particular instance specified therein and shall not impair the
further exercise of such right or remedy or of any other right or
remedy of Lender and no single or partial exercise of any right or
remedy hereunder shall preclude other or further exercise thereof
or any other right or remedy.
8.This Guaranty Agreement shall inure to the benefit of and be
enforceable by Lender, its successors, legal representatives and
assigns, as owners and holders of the Note, and shall be binding
upon and enforceable against Guarantors, and their heirs,
executors, administrators, other legal representatives and assigns.
9.This Guaranty Agreement shall be construed and enforced in
accordance with, and governed by, the laws of the State of Texas.
10.All payments to be made by Guarantors hereunder shall be to
Lender at Lender's offices in Corpus Christi, Nueces County, Texas,
in lawful money of the United States which shall be legal tender
for public and private debts at the time of payment.
11.A determination that any provision of this Guaranty Agreement is
unenforceable or invalid shall not affect the enforceability or
validity of any other provision.
IN WITNESS WHEREOF, Guarantors have duly executed this Guaranty
Agreement in multiple originals as of the day of September, 1995.
GUARANTORS:
DAN C. TUTCHER
MIDCOAST NATURAL GAS, INC.
By:
DAN C. TUTCHER, President
K.B. HOLMES, JR.
EXHIBIT 10.39
PROMISSORY NOTE
Date of Note: May 30, 1995
Maker: Midcoast Energy Resources, Inc.
Maker's Mailing Address: 1100 Louisiana Suite 3030, Houston, TX 77003
Payee: Texline Gas Company
Place for Payment: P.O. Box 1050, Corpus Christi, TX 78403-1050
Principal Amount: One Hundred Seventy Three Thousand Eight Hundred Twenty
Two Dollard and Sixteen Cents ($173,822.16)
Annual Interest Rate: Prime Rate plus 1% per annum (as defined hereafter)
The term "Prime Rate" as used herein shall mean the prime rate as
announced from time to time by Mercantile Bank, N.A. of Corpus Christi,
Texas, and thereafter entered in the Minutes of the Loan and Discount Committee
of said bank, such interest rate automatically fluctuating upward and downward
with each announcement without notice to Maker or any other person.
Said rate shall be computed on a per annum basis of a year of 360 days and
for the acual number of days elapsed, however, said maximum legal rate shall be
computed on a full calender year (365/366 days) basis. Article 5069 Chapter 15
V.A.T.S. shall not in any event apply to the loan evidenced hereby. After
maturity hereof, unpaid principal and accrued interest shall bear interest from
maturity until paid at the rate of eighteen percent 918%) per annum, calculated
on a full year basis.
Terms of Payment:
Maker shall make monthly payments to Payee equal to 25% of
Maker's net revenue check, after payment of expenses, received from its interest
in the Exxon SunField properties in Starr Co., Texas. All remaining amounts
owed, including principal and accrued interest, shall be due and payable not
later than June 1, 1996.
Maker reserves the right tp prepay, prior to maturity, all
or any part of the principal of this note without penalty, and interest shall
immediately cease on any amounts prepaid.
Maker promises to pay to the order of Payee at the place for
payment and according to the terms of payment the principal amount plus interest
at the rates stated above. All unpaid amounts shall be due by the final
scheduled payment date.
On default in the payment of this note the unpaid principal
balance and earned interest on this note shall become immediately due at
the election of Payee. Maker and each surety, endorser, and guarantor waive
all demands for payment, presentations for payment, notices of intentions to
accelerate maturity, protests, and notices or protest.
If this note is given to an attorney for collection or
enforcement, or if suit is brought for collection or enforcement, or if it
is collected or enforced through probate, bankruptcy, or other judicial
proceeding, Maker shall pay Payee all costs of collection and enforcement,
including reasonable attorney's fee and court costs, in addition to other
amounts due.
Interest on the debt evidenced by this note shall not exceed
the maximum amount of nonusurious interest that may be contracted for, taken,
reserved, charges, or received under law; any interest in excess of that
maximum amount shall be credited on the principal of the debt or, if that has
been paid, refunded. On any acceleration or required or permitted prepayment,
any such excess shall be cnaceled automatically as of the acceleration or
prepayment or, if already paid, credited on the principal of the debt or, if
the principal of the debt has been paid, refunded. This provision overrides
other provisions in this and all other instruments concerning debt.
When the context requires, singular nouns and pronouns
include the plural.
EXECUTED this day of , 1995.
Midcoast Energy Resources, Inc.
By:
Dan C. Tutcher, President
EXHBIT 10.40
EXECUTION COPY
EMPLOYMENT AGREEMENT
This Employment Agreement, effective as of April 17, 1995 (the
"Effective Date"), is by and between Midcoast Energy Resources, Inc.
("Employer" or "Midcoast") and I.J. Berthelot, II ("Employee").
Section I.: Employment and Scope of Service.
A. For and in consideration of the agreements set forth
herein, Employer hereby employs Employee, and Employee hereby
accepts employment from Employer in the capacity of Chief Engineer
of Employer, or in such other executive capacity as may be mutually
agreeable to the parties. Employee hereby agrees to perform the
services required of him in such capacity in good faith and with
reasonable diligence, such duties being those reasonable and
customary duties that are from time to time established, designated
and communicated to Employee by the President of Employer (the
"President") during the term of this Agreement.
B. Employer shall, at Employer's sole cost and expense,
provide Employee at Employer's principal place of business
reasonable office space and facilities, office supplies, and
reasonable secretarial and administrative assistance consistent
with Employee's position with Employer. In the event that Employee
deems the secretarial and administrative assistance provided to him
by the Employer to be unacceptable, Employee shall have the
authority to require that a satisfactory replacement be hired to
provide such services to Employee.
Section II.: Place of Employment.
Employee's duties under this Agreement shall be performed
principally and primarily at Employer's principal place of business
in Houston, Texas, and incidentally and secondarily at such other
place or places to which Employer, from time to time, may
reasonably request Employee to travel (at Employer's sole cost and
expense) in connection with Employee's duties hereunder.
Section III.: Time Devoted To Business.
Employee shall give best efforts and endeavors to the discharge of
his duties and responsibilities hereunder. Employee shall devote
his full business time and attention to Employer's business;
provided, however, that Employee may devote reasonable amounts of
time to personal, outside business, charitable, and professional
activities so long as such activities do not materially interfere
with the performance of Employee's duties hereunder; and provided
further, that subject to the foregoing, nothing in this Agreement
shall be construed to limit Employee's conduct of personal business
affairs nor private investments.
Section IV.: Term of Employment.
Employee's term of employment shall commence on the Effective Date
hereof and shall terminate on the fourth anniversary of such date,
unless earlier terminated in accordance with Section 6 hereof.
Section V.: Compensation.
In consideration of the services to be performed hereunder,
Employer agrees to pay or cause to be paid to Employee, and
Employee agrees to accept, the following:
A. Base Salary.Employee's base salary shall be Fifty-Five
Thousand, Two Hundred and No/100 Dollars ($55,200.00) for the first
year of this Agreement, payable in equal bi-monthly installments of
Two Thousand, Three Hundred and No/100 Dollars ($2,300.00) each.
Each year thereafter, Employee's salary shall be increased a
minimum of ten percent (10%) per annum. Employer shall make
appropriate deductions from Employee's salary for customary
withholding taxes and other employment taxes as required for
salaried compensation under Federal and State tax laws. The above-
described salary shall be in addition to any bonuses (in cash or
stock), which shall be given from time to time at the discretion of
the President.
B. Stock Grant. Upon execution of this Agreement and in
order to further encourage Employee to remain in the service of the
Employer, Employee is hereby awarded thirteen thousand (13,000)
shares of Employer's Common Stock, $.01 par value per share (the
"Common Stock"), ten thousand (10,000) of which shall be issued as
of the Effective Date and three thousand (3,000) of which shall be
issued as of July 31, 1995. The 13,000 shares granted hereunder
(the "Shares") shall be subject to the following vesting schedule:
Aggregate
Date Number of Shares Vested
April 15, 1996 3,250
April 15, 1997 6,500
April 15, 1998 9,750
April 15, 1999 13,000
C. Tax Reimbursement. Employer shall reimburse Employee
for the federal income tax liability incurred by Employee which is
attributable solely to the issuance of the Shares, as well as any
additional tax liability that is attributable to the sums to be
reimbursed hereunder (collectively, the "Tax Reimbursement").
Employer and Employee estimate that such Tax Reimbursement shall
equal approximately Thirty-Six Thousand Dollars ($36,000). The
estimated Tax Reimbursement shall be paid to Employee in nine (9)
equal monthly installments of Four Thousand Dollars ($4,000),
payable on the last day of each month, beginning July 31, 1995,
with a final installment to be paid on March 31st, 1996. In the
event that Employee's actual Tax Reimbursement exceeds $36,000,
Employer shall reimburse Employee for such additional amount on or
before the date on which the actual tax liability is due. In the
event that Employee's actual Tax Reimbursement is less than
$36,000, Employee shall promptly refund the amount of the
overpayment to Employer.
D. Certain Purchase Rights. At any time after the Effective
Date and prior to the date on which an active trading market exists
in the Common Stock (as evidenced by the Common Stock's listing on
the New York Stock Exchange, the American Stock Exchange, or the
NASDAQ National Market System), Employee shall give Employer
written notice if he desires to sell any of the Shares. On receipt
of such notice, Employer and Employee shall seek to agree on a
purchase price for the Shares (the "Purchase Price"). If Employee
and Employer agree on a Purchase Price, the amount so agreed upon
shall be the Purchase Price. If Employer and Employee cannot reach
agreement within fifteen (15) days of the Employee's notice to
Employer, the Purchase Price shall be determined by appraisal by
one or more nationally recognized securities brokerage firms having
offices in more than ten states in the United States ("Appraiser")
in accordance with the following procedure.
1. 1.If Employer and Employee agree on a single
Appraiser, the fair market value of the Shares as determined by
such Appraiser shall constitute the Purchase Price. In such event,
the fees and expenses of the Appraiser shall be paid jointly by
Employee and Employer.
2. 2.If Employer and Employee cannot agree on a single
Appraiser within twenty (20) days following the date of Employee's
notice, Employer and Employee shall each designate an Appraiser and
promptly notify the other party of such designation. Each
Appraiser shall be instructed to value the Shares as a single unit,
and each shall render an opinion of the fair market value of the
Shares within thirty (30) days after their designation. The
Purchase Price in this event shall be the average of the
Appraisers' determinations of fair market value of the Shares.
Each of Employer and Employee shall pay the respective fees and
expenses of their appointed Appraiser.
3.Each Appraiser may consider any information, facts,
and circumstances which it deems relevant to determine the fair market
value of the Shares.
4.Employer and Employee shall each cooperate fully with
the designated Appraiser or Appraisers.
Nothing contained in this Section 6D. shall require the
Employer to purchase the Shares; but in the event that Employer
does not purchase the Shares within ten (10) days of the
determination of the Purchase Price pursuant to the procedure set
forth in this Section, Employer shall pay the fees and expenses of
all Appraisers and Employee may sell the Shares in any manner he
desires, subject only to applicable securities laws.
E. Investment Intent The Employee understands that the
Shares are "restricted" securities within the meaning of the
Securities Act of 1933, as amended (the "Act"), and the Employee
represents that such securities are being acquired by him for
investment, and not with a view to, or for resale in connection
with, any "distribution" within the meaning of the Act.
Employee further acknowledges and agrees that
certificates for the Shares delivered to him will bear the
following legend:
SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE,
SOLD, PLEDGED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE
HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH,
IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER) THAT SUCH OFFER, SALE, PLEDGE,
TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL
OR STATE SECURITIES LAWS.
F. Adjustments and Assumptions. The number of Shares
awarded hereunder shall be adjusted proportionately for any
increase or decrease in the number of outstanding shares of Common
Stock resulting from a stock split or other subdivision or
consolidation of shares or other capital adjustment, or the payment
of a stock dividend; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated.
Notwithstanding the foregoing, no adjustment shall be made upon the
issuance of new shares of Common Stock for fair consideration.
Employer and Employee intend that Employee, together with
members of his immediate family, shall own, or through the grant of
the Shares be entitled to own, at least five percent (5%) of the
outstanding shares of Common Stock (the "Employees' Stock
Position").
G. Other Benefits. Employee shall be entitled to
vacation pay in accordance with Employer's written corporate policy
and to additional paid or unpaid vacation as approved by the
President. Such vacation shall be on a calendar year basis.
Beginning with the Effective Date, Employee shall be entitled to
three (3) weeks vacation pay. In addition, Employee shall be
entitled to such holidays and sick leave as well as other benefits,
including fringe benefits, provided other employees of Employer and
other benefits as may be agreed to by the parties.
H. Miscellaneous Expenses. Employer shall promptly
reimburse Employee for all reasonable and necessary expenses
incurred or paid by Employee incident to Employee's employment
under this Agreement, including without limitation reasonable
business entertainment. and other reasonable and necessary expenses
directly associated with Employer's business.
Section VI.: Termination of Employment.
This Agreement may be terminated by either party at any time when
Employer and Employee shall mutually agree in writing.
A. This Agreement may be terminated at Employer's option
for cause. For purposes of this Agreement cause shall exist only if (i)
Employee materially defaults in the performance of his duties
hereunder and fails to cure such default within ten (10) days after
written notice thereof has been delivered to Employee by Employer,
or (ii) Employee commits any material act of fraud or malfeasance
bearing on Employee's performance of his duties hereunder.
B. This Agreement may likewise be terminated at Employer's
option in the event Employee becomes Disabled. For the purposes
this Agreement, "Disabled" shall mean an illness or injury that
renders Employee unable to reasonably perform his essential
functions for a continuous period of six (6) months or longer;
provided, however, that Employer shall make reasonable and
necessary accommodations to enable Employee to perform such
functions. During any period of disability prior to termination of
this Agreement, Employee shall be paid his regular compensation as
defined hereinabove; and provided, further, that Employer's
payments of such compensation shall be directly reduced by any
amounts actually paid to Employee pursuant to any disability
insurance policy purchased by Employer.
C. This Agreement may be terminated at Employee's option
upon a Change of Control of Midcoast. As used herein, "Change of
Control" means (i) the sale of all or substantially all of the
assets of Midcoast to any person (other than a wholly-owned
subsidiary of Midcoast) or related group (as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934) of persons
(other than a wholly-owned subsidiary of Midcoast) as an entirety
or substantially as an entirety in one transaction or series of
related transactions, (ii) the first day on which a majority of the
members of the board of directors of Midcoast are not Continuing
Directors (i.e., any member of the board of directors who is a
member of the board of directors on the date hereof or who was
nominated for election to the board of directors with the
affirmative vote of 2/3 of the Continuing Directors who are members
of the board of directors at the time of such nomination or
election), (iii) the acquisition by any person or group (as so
defined) or persons (other than a wholly-owned subsidiary of
Midcoast) of more than fifty percent (50%) of the total voting
power entitled to vote generally in the election of the directors,
managers or trustees of Midcoast, or (iv) the liquidation or
dissolution of Midcoast. In the event Employee elects to terminate
his employment under this provision, Employee shall receive a lump
sum payment equal to fifty percent (50%) of Employee's then current
annual salary upon written notice of such election.
D. This Agreement shall automatically terminate upon
Employee's death.
E. This Agreement may be terminated, at Employee's sole
option, in the event that Employee's Stock Position is reduced to
less than five percent (5%) of Employer's outstanding Common Stock
on a fully diluted basis, unless such reduction is accompanied by
a proportionate reduction in the Common Stock ownership of Messrs.
Steve Herbst and Kenneth Holmes and Midcoast Natural Gas, Inc. (the
"Principal Stockholders"), or their respective successors or
assigns. Notwithstanding the foregoing, Employee shall have no
rights pursuant to this section and no breach of any provision of
this Agreement shall be deemed to have occurred, if a Principal
Stockholder increases his or its ownership position by virtue of
the conversion of shares of Midcoast's 5% Cumulative Preferred
Stock to Common Stock. Moreover, the issuance of Preferred Stock
or other stock senior to the Common Stock for fair consideration
shall not entitle the Employee to terminate this Agreement pursuant
to this provision.
F. In the event this Agreement is terminated under
Paragraphs 6C., 6E., or 6F., the full amount of compensation
remaining to be paid during the primary term of this Agreement
shall be paid to Employee or to his surviving heirs, as determined
at law or according to his Last Will and Testament, as applicable,
in a lump sum discounted to reflect the current value of all future
payments due hereunder at a discount rate of twelve percent (12%).
G. Notwithstanding anything in this Agreement to the
contrary, in the event that this Agreement is terminated by an
action on the part of the Employee or pursuant to Section 6B. prior
to the vesting of all the Shares issued hereunder, only the Shares
which were vested at the time of the termination of the Agreement
shall be held by the Employee with no risk of forfeiture. In the
event of termination of this Agreement pursuant to Section 6C.,
6D., 6E. or 6F., all Shares issued to the Employee hereunder shall
immediately vest in full.
Section VII.: Non-Disclosure of Confidential Information.
During the continuation of his employment hereunder, and at
all times thereafter, Employee shall keep with absolute secrecy and
shall not reveal, disclose, or publish to any person or entity
other than the President or other persons designated by the
President, or otherwise utilize (other than for the proper
performance of Employee's duties) any information of a confidential
or secret nature, including, without limitation, all trade secrets,
designs, inventions, computer software or other electronic data,
financial information, customer lists and business prospects
concerning the specific affairs of the Employer or any person or
entity owned by or owning, whole or in part, the Employer
("Confidential Information"). Except for information generated by
Employee during the course of his employment or otherwise available
to Employee by and through his Chief Engineer's position and
training, for a period of one (1) year after termination of this
Agreement, Employee shall not utilize the Confidential Information
to compete any manner with Employer with respect to Employer's then
active accounts or customers.
Section VIII.: General Provisions.
A. Notices. Any notice or other communications given or
made under or pursuant to this Agreement shall be given in writing,
shall be effective on receipt, and may be delivered to the relevant
party or sent by first class, postage prepaid, or sent by telefax
or facsimile transmission addressed to each party at the following
address or such other address as any party may hereafter designate
by written notice:
Employer<PAGE>
Employee Midcoast Energy Resources, Inc.
Attention: Dan C. Tutcher
1100 Louisiana, Suite 3030
Houston, Texas 77002
Telephone: (713) 650-8900
Facsimile: (713) 650-3232<PAGE>
I.J. Berthelot, II
2636 Silver Falls Drive
Kingwood, Texas 77339
Telephone: (713) 358-3327
Facsimile: (713) 358-7999
B. Other Agreements. This Agreement constitutes the entire
agreement of the parties hereto, expressly superseding all prior
understandings, commitments, and agreements other than those
expressly referred to in this Agreement, whether written or oral
between Employer and Employee.
C. Governing Law.This Agreement shall be governed by and
construed in all respects in accordance with the laws of the State
of Texas.
D. No Waiver. The failure of either party to insist in
one or more instances on the performance of any of the terms or
conditions of this Agreement shall not be considered as a waiver or
relinquishment of any right granted hereunder or of the future
performance of any such term, covenant, or condition.
E. Severability. If any provision of this Agreement shall
be invalid or unenforceable to any extent, the remainder of this
Agreement and the application of such provision to other persons or
circumstances shall not be affected thereby.
F. Headings. Any headings or titles of sections or
paragraphs are for convenience only and shall not limit nor amplify
the provisions of this Agreement.
G. Binding Agreement. This Agreement shall inure to the
benefit of and be binding on the undersigned parties and their
respective heirs, executors, successors, and assigns. Neither party
hereto may assign any or all of such party's rights or obligations
hereunder without prior written consent of the other party hereto.
In Witness Hereof, the parties hereto have executed this
Agreement, effective as of the day and year first set forth above.
EMPLOYER:
Midcoast Energy Resources, Inc.
By: ____________________________
Dan C. Tutcher, President
EMPLOYEE:
____________________________
EXHIBIT 10.41
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is by and
between Midcoast Energy Resources, Inc. ("Employer" or "Midcoast")
and I.J. Berthelot, II ("Employee").
WHEREAS effective April 17, 1995, Employer and Employee
entered into an Employment Agreement ("Agreement"); and
WHEREAS Employer and Employee desire to amend certain terms of
the Agreement to make it conform to the intent of the parties.
NOW, THEREFORE, for and in consideration of the mutual
covenants and promises set forth herein, the parties hereby agree
as follows:
1. Section 5(A) shall be deleted from the Agreement and replaced
with the following:
A. Base Salary. Beginning August 15, 1995, Employee's base salary
("Salary") shall be Fifty-Five Thousand, Two Hundred and No/100
Dollars ($55,200.00), payable in equal semi-monthly installments of
Two Thousand, Three Hundred and No/100 Dollars ($2,300.00) each.
Each year thereafter, on the anniversary date of this Agreement,
Employee's Salary shall be increased a minimum of ten percent (10%)
per annum. Employer shall make appropriate deductions from
Employee's Salary for customary withholding taxes and other
employment taxes as required for salaried compensation under
Federal and State tax laws. Employee's Salary shall be in addition
to any bonuses (in cash or stock), which shall be given from time
to time at the discretion of the President.
2.The first sentence of Section 5(B) of the Agreement shall be
revised to read as follows:
Upon execution of this Agreement and in order to further encourage
Employee to remain in the service of Employer, Employee is hereby
awarded thirteen thousand (13,000) shares of Employer's Common
Stock, $.01 par value per share (the "Common Stock"), ten thousand
(10,000) of which shall be issued as of the Effective Date and
three thousand (3,000) of which shall be issued as of September 20,
1995.
The remainder of Section 5(B) shall remain a part of the Agreement
and shall not be affected by the execution of this Amendment.
3.Section 5(C) shall be deleted from the Agreement and replaced
with the following:
C.Tax Reimbursement. Employer shall reimburse Employee for the
federal income tax liability, including, without limitation,
federal income taxes, social security tax, medicare tax, and other
such taxes, incurred by Employee which is attributable solely to
the issuance of the Shares, as well as any additional tax liability
that is attributable to the sums to be reimbursed hereunder
(collectively, the "Tax Reimbursement"). Employer and Employee
recognize that the tax liability shall accrue on the date that the
Common Stock is actually vested; however, Employer and Employee
agree that the present value of the Common Stock, which is
estimated to be Six and No/100 Dollars ($6.00) per share, shall be
the basis on which the Tax Reimbursement shall be made. Employer,
as required by Federal law, shall submit the required withholding
at the then current required withholding tax rate (currently
twenty-eight percent (28%)) and as well as any other applicable
payroll taxes to the Internal Revenue Service or the appropriate
taxing authorities (the "Tax Deposits"), at no expense to Employee,
on a timely basis whether the stock is vested according to the
schedule in Section 5(B) or pursuant to the accelerated vesting
schedule set forth in Section 6(H). Employer and Employee estimate
that the total Tax Reimbursement in excess of the Tax Deposits (the
"Excess Tax Reimbursement") shall equal Sixteen Thousand, One
Hundred, Seventy and No/100 Dollars ($16,170.00). This estimated
Excess Tax Reimbursement shall be paid to Employee upon the
execution of the Amendment to this Agreement; provided that
Employer shall deduct twenty-eight percent (28%) from such payment,
as required by Federal law, and shall submit that amount to the
Internal Revenue Service and such other payroll taxes that may be
applicable as Employee's tax deposit on the estimated Excess Tax
Reimbursement. In the event that Employee's actual Tax
Reimbursement exceeds the $16,170.00 plus the Tax Deposits,
Employer shall reimburse Employee for such additional amount on or
before the date on which the actual tax liability is due. In the
event that Employee's actual Excess Tax Reimbursement is less than
$16,170.00 plus the Tax Deposits, Employee shall promptly refund
the amount of the overpayment to Employer.
3.Section 8(B) shall be deleted from the Agreement and replaced
with the following:
B. Other Agreements. This Agreement constitutes the entire
agreement between the parties hereto, expressly superseding all
prior understandings, commitments, and agreements other than those
expressly referred to in this Agreement, whether written or oral,
between Employer and Employee; provided, however, that Employer and
Employee agree that the Shareholder's Agreement dated April 30,
1994, shall not be superseded by this Agreement and shall remain in
full force and effect.
4.All other provisions of the Agreement shall remain in full force
and effect and shall not be affected by this Amendment.
In Witness Hereof, the parties hereto have executed this Agreement
on this Eighth day of December, 1995.
EMPLOYER:
Midcoast Energy Resources, Inc.
By:
Dan C. Tutcher, President
EMPLOYEE:
I.J. Berthelot, II
EXHIBIT 10.42
CREDIT AGREEMENT
Dated as of December 20, 1995
Between
MAGNOLIA PIPELINE CORPORATION,
as Borrower
and
COMPASS BANK-HOUSTON,
as Lender
$1,500,000 Reducing Revolving Credit Facility<PAGE>
TABLE OF CONTENTS
ARTICLE I
Definitions and Accounting Matters
Section 1.01 Terms Defined Above
Section 1.02 Certain Defined Terms
Section 1.03 Accounting Terms and Determinations
ARTICLE II
Commitments
Section 2.01 Loans and Letters of Credit
Section 2.02 Borrowings and Letters of Credit
Section 2.03 Changes of Commitment
Section 2.04 Fees
Section 2.05 Note
Section 2.06 Prepayments
Section 2.07 Assumption of Risks
Section 2.08 Obligation to Reimburse and to Prepay
ARTICLE III
Payments of Principal and Interest
Section 3.01 Repayment of Loans
Section 3.02 Interest
ARTICLE IV
Payments; Computations; Etc.
Section 4.01 Payments
Section 4.02 Computations
Section 4.03 Set-off
Section 4.04 Taxes
ARTICLE V
Intentionally Left Blank
ARTICLE VI
Conditions Precedent
Section 6.01 Initial Funding
Section 6.02 Initial and Subsequent Loans
Section 6.03 Conditions Relating to Letters of Credit
ARTICLE VII
Representations and Warranties
Section 7.01 Corporate Existence
Section 7.02 Financial Condition
Section 7.03 Litigation
Section 7.04 No Breach
Section 7.05 Authority
Section 7.06 Approvals
Section 7.07 Use of Loans
Section 7.08 ERISA
Section 7.09 Taxes
Section 7.10 Titles, etc
Section 7.11 No Material Misstatements
Section 7.12 Investment Company Act
Section 7.13 Public Utility Holding Company Act
Section 7.14 Subsidiaries and Partnerships
Section 7.15 Location of Business and Offices
Section 7.16 Defaults
Section 7.17 Environmental Matters
Section 7.18 Compliance with the Law
Section 7.19 Insurance
Section 7.20 Designated Contracts
Section 7.21 Restriction on Liens
Section 7.22 Material Agreements
ARTICLE VIII
Affirmative Covenants
Section 8.01 Financial Statements
Section 8.02 Litigation
Section 8.03 Maintenance, Etc.
Section 8.04 Environmental Matters
Section 8.05 Further Assurances
Section 8.06 Performance of Obligations
Section 8.07 ERISA Information and Compliance
Section 8.08 Change in Management
ARTICLE IX
Negative Covenants
Section 9.01 Debt
Section 9.02 Liens
Section 9.03 Investments, Loans and Advances
Section 9.04 Dividends, Distributions and Redemptions
Section 9.05 Sales and Leasebacks
Section 9.06 Nature of Business
Section 9.07 Mergers, Etc.
Section 9.08 Proceeds of Note
Section 9.09 ERISA Compliance
Section 9.10 Sale or Discount of Receivables
Section 9.11 Tangible Net Worth
Section 9.12 Cash Flow to Debt Service Coverage Ratio
Section 9.13 Environmental Matters
Section 9.14 Transactions with Affiliates
Section 9.15 Subsidiaries and Partnerships
Section 9.16 Negative Pledge Agreements
Section 9.17 Preservation of Designated Contracts
ARTICLE X
Events of Default; Remedies
Section 10.01 Events of Default
Section 10.02 Remedies
ARTICLE XI
Miscellaneous
Section 11.01 Waiver
Section 11.02 Notices
Section 11.03 Payment of Expenses, Indemnities, etc
Section 11.04 Amendments, Etc.
Section 11.05 Successors and Assigns
Section 11.06 Assignments and Participations
Section 11.07 Invalidity
Section 11.08 Counterparts
Section 11.09 References
Section 11.10 Survival
Section 11.11 Captions
Section 11.12 no oral agreements
Section 11.14 Interest
Section 11.15 Confidentiality
Section 11.16 ERISA
Section 11.17 exculpation provisions
Exhibit A - Form of Note
Exhibit B - Form of Borrowing Request
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Legal Opinion of Hellums, Hartley & Johnson,
Special Alabama Counsel
Exhibit E - List of Security Instruments
Exhibit F - Form of Letter of Credit Application
Schedule 1.01 - Designated Contracts
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
Schedule 7.22 - Material Agreements
Schedule 9.01 - Debt
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances<PAGE>
THIS CREDIT AGREEMENT dated as of December 20, 1995, is
between: MAGNOLIA PIPELINE CORPORATION, a corporation formed under
the laws of the State of Alabama (the "Borrower"); and COMPASS
BANK-HOUSTON, a Texas State Chartered Banking Institution (the
"Lender").
R E C I T A L S
A. The Borrower has requested that the Lender provide
certain loans to and extensions of credit on behalf of the
Borrower.
B. The Lender has agreed to make such loans and extensions
of credit subject to the terms and conditions of this Agreement.
C. In consideration of the mutual covenants and agreements
herein contained and of the loans, extensions of credit and
commitments hereinafter referred to, the parties hereto agree as
follows:
ARTICLE I
Definitions and Accounting Matters
Section 1.01 Terms Defined Above. As used in this Agreement,
the terms "Borrower" and "Lender" shall have the meanings indicated
above.
Section 1.02 Certain Defined Terms. As used herein, the
following terms shall have the following meanings (all terms
defined in this Article I or in other provisions of this Agreement
in the singular to have the same meanings when used in the plural
and vice versa):
"Affiliate" of any Person shall mean (i) any Person directly
or indirectly controlled by, controlling or under common control
with such first Person, (ii) any director or officer of such first
Person or of any Person referred to in clause (i) above, and (iii)
if any Person in clause (i) above is an individual, any member of
the immediate family (including parents, spouse and children) of
such individual and any trust whose principal beneficiary is such
individual or one or more members of such immediate family and any
Person who is controlled by any such member or trust. As used in
this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall
mean any Person which owns directly or indirectly 10% or more of
the securities having ordinary voting power for the election of
directors or other governing body of a corporation or 10% or more
of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person.
"Agreement" shall mean this Credit Agreement, as the same may
from time to time be amended or supplemented.
"Applicable Margin" shall mean 1% per annum.
"Base Rate" shall mean for any day, the higher of (i) the
Federal Funds Rate for any such day or (ii) the Index Rate for such
day. Each change in any interest rate provided for herein based
upon the Base Rate resulting from a change in the Base Rate shall
take effect at the time of such change in the Base Rate.
"Business Day" shall mean any day other than a day on which
commercial banks are authorized or required to close in Houston,
Texas.
"Closing Date" shall mean December 20, 1995.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any successor statute.
"Commitment" shall mean the Lender's obligation to make the
Loans pursuant to Section 2.01(a) and to issue Letters of Credit as
provided in Section 2.01(b).
"Debt" shall mean, for any Person the sum of the following
(without duplication): (i) all obligations of such Person for
borrowed money or evidenced by bonds, debentures, notes or other
similar instruments (including principal, interest, fees and
charges); (ii) all obligations of such Person (whether contingent
or otherwise) in respect of bankers' acceptances, letters of
credit, surety or other bonds and similar instruments; (iii) all
obligations of such Person to pay the deferred purchase price of
Property or services (other than for borrowed money); (iv) all
obligations under leases which shall have been, or should have
been, in accordance with GAAP, recorded as capital leases in
respect of which such Person is liable (whether contingent or
otherwise); (v) all obligations under leases which require such
Person or its Affiliate to make payments over the term of such
lease, including payments at termination, which are substantially
equal to at least eighty percent (80%) of the purchase price of the
Property subject to such lease plus interest as an imputed rate of
interest; (vi) all Debt and other obligations of others secured by
a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person; (vii) all Debt (as described in the other
clauses of this definition) and other obligations of others
guaranteed by such Person or in which such Person otherwise assures
a creditor against loss of the Debtor or obligations of others;
(viii) all obligations or undertakings of such Person to maintain
or cause to be maintained the financial position or covenants of
others or to purchase the Debt or Property of others; and (ix)
obligations to deliver goods or services in consideration of
advance payments.
"Default" shall mean an Event of Default or an event which
with notice or lapse of time or both would become an Event of
Default.
"Designated Contracts" shall mean the contracts or agreements
described or referred to on Schedule 1.01.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"Environmental Laws" shall mean any and all Governmental
Requirements pertaining to health or the environment in effect in
any and all jurisdictions in which the Borrower is conducting or at
any time has conducted business, or where any Property of the
Borrower is located, including without limitation, the Oil
Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and Liability
Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of
1970, as amended, the Resource Conservation and Recovery Act of
1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended,
the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection laws. The term "oil"
shall have the meaning specified in OPA, the terms "hazardous
substance" and "release" (or "threatened release") have the
meanings specified in CERCLA, and the terms "solid waste" and
"disposal" (or "disposed") have the meanings specified in RCRA;
provided, however, that (i) in the event either OPA, CERCLA or RCRA
is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and (ii) to the extent the laws of
the state in which any Property of the Borrower is located
establish a meaning for "oil," "hazardous substance," "release,"
"solid waste" or "disposal" which is broader than that specified in
either OPA, CERCLA or RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether
or not incorporated) which together with the Borrower would be
deemed to be a "single employer" within the meaning of
section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of
section 414 of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii)
the withdrawal of the Borrower or any ERISA Affiliate from a Plan
during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, (iii) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under Section 4041 of ERISA, (iv) the
institution of proceedings to terminate a Plan by the PBGC or (v)
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 Plan.
"Event of Default" shall have the meaning assigned such term
in Section 10.01.
"Excepted Liens" shall mean: (i) Liens for taxes, assessments
or other governmental charges or levies not yet due or which are
being contested in good faith by appropriate action and for which
adequate reserves have been maintained; (ii) Liens in connection
with workmen's compensation, unemployment insurance or other social
security, old age pension or public liability obligations not yet
due or which are being contested in good faith by appropriate
action and for which adequate reserves have been maintained in
accordance with GAAP; (iii) operators', vendors', carriers',
warehousemen's, repairmen's, mechanics', workmen's, materialmen's,
construction or other like Liens arising by operation of law in the
ordinary course of business or statutory landlord's liens, each of
which is in respect of obligations that have not been outstanding
more than 90 days or which are being contested in good faith by
appropriate proceedings and for which adequate reserves have been
maintained in accordance with GAAP; (iv) any Liens reserved in
leases or farmout agreements for rent or royalties and for
compliance with the terms of the farmout agreements or leases in
the case of leasehold estates, to the extent that any such Lien
referred to in this clause does not materially impair the use of
the Property covered by such Lien for the purposes for which such
Property is held by the Borrower or materially impair the value of
such Property subject thereto; (v) encumbrances (other than to
secure the payment of borrowed money or the deferred purchase price
of Property or services), easements, restrictions, servitudes,
permits, conditions, covenants, exceptions or reservations in any
rights of way or other Property of the Borrower for the purpose of
roads, pipelines, transmission lines, transportation lines,
distribution lines for the removal of gas, oil, coal or other
minerals or timber, and other like purposes, or for the joint or
common use of real estate, rights of way, facilities and equipment,
and defects, irregularities, zoning restrictions and deficiencies
in title of any rights of way or other Property which in the
aggregate do not materially impair the use of such rights of way or
other Property for the purposes of which such rights of way and
other Property are held by the Borrower or materially impair the
value of such Property subject thereto; (vi) deposits of cash or
securities to secure the performance of bids, trade contracts,
leases, statutory obligations and other obligations of a like
nature incurred in the ordinary course of business; and (vii) Liens
permitted by the Security Instruments.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
equal to the weighted average of the rates on overnight federal
funds transactions with a member 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 date 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
charged to the Lender on such day on such transactions.
"Financial Statements" shall mean the financial statement or
statements of the Borrower described or referred to in Section
7.02.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"Governmental Authority" shall include the country, the state,
county, city and political subdivisions in which any Person or such
Person's Property is located or which exercises valid jurisdiction
over any such Person or such Person's Property, and any court,
agency, department, commission, board, bureau or instrumentality of
any of them including monetary authorities which exercises valid
jurisdiction over any such Person or such Person's Property.
Unless otherwise specified, all references to Governmental
Authority herein shall mean a Governmental Authority having
jurisdiction over, where applicable, the Borrower or any of its
Property or the Lender.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment,
decree, injunction, franchise, permit, certificate, license,
authorization or other directive or requirement (whether or not
having the force of law), including, without limitation,
Environmental Laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.
"Guarantors" shall collectively mean Dan C. Tutcher, Kenneth
B. Holmes, Jr., Stevens G. Herbst and MERI.
"Guaranty Agreement" shall mean a separate agreement executed
by each Guarantor in form and substance satisfactory to the Lender
guarantying, unconditionally, payment of the Indebtedness, as the
same may be amended, modified or supplemented from time to time.
"Highest Lawful Rate" shall mean the maximum nonusurious
interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Note or
on other Indebtedness under laws applicable to the Lender which are
presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a
higher maximum nonusurious interest rate than applicable laws now
allow, but in no event to exceed 18% per annum.
"Indebtedness" shall mean any and all amounts owing or to be
owing by the Borrower to the Lender in connection with the Loan
Documents, and all renewals, extensions and/or rearrangements of
any of the above.
"Indemnified Parties" shall have the meaning assigned such
term in Section 11.03(b).
"Indemnity Matters" shall mean any and all actions, suits,
proceedings (including any investigations, litigation or
inquiries), claims, demands and causes of action made or threatened
against a Person and, in connection therewith, all losses,
liabilities, damages (including, without limitation, consequential
damages) or reasonable costs and expenses of any kind or nature
whatsoever incurred by such Person whether caused by the sole or
concurrent negligence of such Person seeking indemnification.
"Index Rate" shall mean, on any day, the prime rate as
published in The Wall Street Journal's "Money Rates" table for such
day. If multiple prime rates are quoted in such table, then the
highest prime rate quoted therein shall be the Index Rate. In the
event that a prime rate is not published in The Wall Street
Journal's "Money Rates" table, the Lender will choose a substitute
Index Rate, for purposes of calculating the Base Rate, which is
based on comparable information, until such time as a prime rate is
published in The Wall Street Journal's "Money Rates" tables.
"Initial Funding" shall mean the funding of the initial Loans
pursuant to Section 6.01 hereof.
"LC Commitment" at any time shall mean $250,000.00.
"LC Exposure" at any time shall mean the aggregate face amount
of all undrawn and uncancelled Letters of Credit and the aggregate
of all amounts drawn under all Letters of Credit and not yet
reimbursed.
"Letters of Credit Application" shall mean a letter of credit
application, in the form of Exhibit F hereto, delivered to the
Lender requesting the issuance, reissuance, extension or renewal of
any Letter of Credit and containing the information set forth in
Section 2.02(e).
"Letters of Credit" shall mean the letters of credit issued
pursuant to Section 2.01(b) and all reimbursement obligations
pertaining to any such letters of credit, and "Letter of Credit"
shall mean any one of the Letters of Credit and the reimbursement
obligations pertaining thereto.
"Lien" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of
the Property, whether such interest is based on the common law,
statute or contract, and whether such obligation or claim is fixed
or contingent, and including but not limited to (i) the lien or
security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes. The term "Lien"
shall include reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases and
other title exceptions and encumbrances affecting Property. For
the purposes of this Agreement, the Borrower shall be deemed to be
the owner of any Property which it has acquired or holds subject to
a conditional sale agreement, or leases under a financing lease or
other arrangement pursuant to which title to the Property has been
retained by or vested in some other Person in a transaction
intended to create a financing.
"Loan Documents" shall mean this Agreement, the Note, the
Letters of Credit and the Security Instruments.
"Loans" shall mean the loans as provided for by Section
2.01(a).
"Material Adverse Effect" shall mean any material and adverse
effect on (i) the assets, liabilities, financial condition,
business, operations or affairs of the Borrower different from
those reflected in the Financial Statements or from the facts
represented or warranted in this Agreement or any Security
Instrument, or (ii) the ability of the Borrower to carry out its
business as at the Closing Date or as proposed as of the Closing
Date to be conducted or meet its obligations under the Loan
Documents on a timely basis.
"Material Change" shall mean a change in the ownership of the
shares of stock of the Borrower such that a Person (or group of
Persons acting together) other than a holder of stock of the
Borrower on the Closing Date acquires a direct or indirect interest
in more than 50% of the voting power of the voting stock of the
Borrower.
"Maximum Credit Amount" at any time shall equal $1,500,000.00,
subject to reductions in such amount in accordance with Section
2.03.
"MERI" shall mean Midcoast Energy Resources, Inc., a Nevada
corporation.
"MERI CD" shall mean Certificate of Deposit No. 728275 in the
principal amount of $50,000, as such principal amount may be
increased from time to time, payable to MERI and issued by the
Lender on December 20, 1995.
"Mortgaged Property" shall mean the Property owned by the
Borrower and which is subject to the Liens existing and to exist
under the terms of the Security Instruments.
"Multiemployer Plan" shall mean a Plan defined as such in
Section 3(37) or 4001(a)(3) of ERISA.
"Note" shall mean the Note provided for by Section 2.05,
together with any and all renewals, extensions for any period,
increases, rearrangements, substitutions or modifications thereof.
"Other Taxes" shall have the meaning assigned such term in
Section 4.04(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions.
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other form
of entity.
"Plan" shall mean any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which (i) is currently or
hereafter sponsored, maintained or contributed to by the Borrower
or an ERISA Affiliate or (ii) was at any time during the preceding
six calendar years, sponsored, maintained or contributed to, by the
Borrower or an ERISA Affiliate.
"Post-Default Rate" shall mean, in respect of any principal of
any Loan or any other amount payable by the Borrower under this
Agreement or the Note which is not paid when due (whether at stated
maturity, by acceleration or otherwise), a rate per annum during
the period commencing on the due date until such amount is paid in
full or the default is cured or waived equal to 5% per annum above
the Base Rate as in effect from time to time plus the Applicable
Margin (if any), but in no event to exceed the Highest Lawful Rate.
"Principal Office" shall mean the principal office of the
Lender, presently located at 24 Greenway Plaza, Suite 1401,
Houston, Texas 77046.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Quarterly Dates" shall mean the first day of each January,
April, July and October, in each year, the first of which shall be
April 1, 1996; provided, however, that if any such day is not a
Business Day, such Quarterly Date shall be the next succeeding
Business Day.
"Responsible Officer" shall mean, as to any Person, the Chief
Executive Officer, the President or any Vice President of such
Person and, with respect to financial matters, the term
"Responsible Officer" shall include the Controller of such Person.
Unless otherwise specified, all references to a Responsible Officer
herein shall mean a Responsible Officer of the Borrower.
"Revolving Credit Period" shall mean the period from the
Closing Date to and ending on the Revolving Credit Termination
Date.
"Revolving Credit Termination Date" shall mean, unless the
Commitment is sooner terminated pursuant to Sections 2.03(b) or
10.02 hereof, January 15, 1999.
"SEC" shall mean the Securities and Exchange Commission or any
successor Governmental Authority.
"Security Instruments" shall mean the Letters of Credit, the
agreements or instruments described or referred to in Exhibit E,
and any and all other agreements or instruments now or hereafter
executed and delivered by the Borrower or any other Person (other
than participation or similar agreements between the Lender and any
other lender or creditor with respect to any Indebtedness pursuant
to this Agreement) in connection with, or as security for the
payment or performance of the Note, this Agreement, or
reimbursement obligations under the Letters of Credit, as such
agreements may be amended, supplemented or restated from time to
time.
"Tangible Net Worth" shall mean, as at any date, the sum of
the following for the Borrower determined (without duplication) in
accordance with GAAP:
(i) the amount of preferred stock and common stock at
par plus the amount of capital surplus of the Borrower,
plus
(ii) the retained earnings (or, in the case of a retained
earnings deficit, minus the amount of such deficit), minus
(iii) the sum of the following:
cost of treasury shares and the book value of all assets
of the Borrower which should be classified as intangibles
(without duplication of deductions in respect of items
already deducted in arriving at surplus and retained
earnings) but in any event including as such intangibles
the following: goodwill, research and development costs,
trademarks, trade names, copyrights, patents and
franchises, unamortized debt discount and expense, all
reserves and any writeup in the book value of assets
resulting from a revaluation thereof or resulting from
any changes in GAAP subsequent to October 31, 1995.
"Taxes" shall have the meaning assigned such term in
Section 4.04(a).
Section 1.03 Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall
be interpreted, all determinations with respect to accounting
matters hereunder shall be made, and all financial statements and
certificates and reports as to financial matters required to be
furnished to the Lender hereunder shall be prepared, in accordance
with GAAP, applied on a basis consistent with the audited financial
statements of the Borrower referred to in Section 7.02 (except for
changes concurred with by the Borrower's independent public
accountants).
ARTICLE II
Commitments
Section 2.01 Loans and Letters of Credit.
(a)Loans. The Lender agrees, on the terms of this
Agreement, to make Loans to the Borrower during the period
from and including the Closing Date to and up to, but
excluding, the Revolving Credit Termination Date in an
aggregate principal amount at any one time outstanding up to
but not exceeding the Maximum Credit Amount as then in effect;
provided, however, that the aggregate principal amount of all
such Loans by the Lender hereunder at any one time outstanding
together with the LC Exposure shall not exceed the Maximum
Credit Amount. Subject to the terms of this Agreement, during
the period from the Closing Date to and up to, but excluding,
the Revolving Credit Termination Date, the Borrower may
borrow, repay and reborrow the amount described in this
Section 2.01(a).
(b)Letters of Credit. During the period from and
including the Closing Date but excluding the Revolving Credit
Termination Date, the Lender agrees to extend credit for the
account of the Borrower at any time and from time to time by
issuing renewing extending or reissuing Letters of Credit;
provided however, the LC Exposure at any one time outstanding
shall not exceed the lesser of (i) the LC Commitment or (ii)
the Maximum Credit Amount, as then in effect, minus the
aggregate principal amount of all Loans then outstanding.
Section 2.02 Borrowings and Letters of Credit.
(a) Borrowings. The Borrower shall give the Lender
advance notice as hereinafter provided of each borrowing
hereunder, which shall specify the aggregate amount of such
borrowing and the date (which shall be a Business Day) of the
Loans to be borrowed.
(b) Minimum Amounts. All borrowings shall be in amounts
of at least $25,000 or the remaining balance of the Maximum
Credit Amount, if less, or any whole multiple of $10,000 in
excess thereof.
(c) Notices. All borrowings shall require advance
written notice to the Lender in the form of Exhibit B hereto
(or telephonic notice promptly confirmed by such a written
notice), which in each case shall be irrevocable, from the
Borrower to be received by the Lender not later than 11:00
a.m. Houston, Texas time on the date of such borrowing.
Without in any way limiting the Borrower's obligation to
confirm in writing any telephonic notice, the Lender may act
without liability upon the basis of telephonic notice believed
by the Lender in good faith to be from the Borrower prior to
receipt of written confirmation. In each such case, the
Borrower hereby waives the right to dispute the Lender's
record of the terms of such telephonic notice except in the
case of gross negligence or willful misconduct by the Lender.
(d) Advances. Not later than 11:00 a.m. Houston, Texas
time on the date specified for each borrowing hereunder, the
Lender shall make available the amount of the Loan to be made
on such date in immediately available funds, for the account
of the Borrower. The amount shall, subject to the terms and
conditions of this Agreement, be made available to the
Borrower by transferring the same, in immediately available
funds, to an account of the Borrower, designated by the
Borrower and maintained at the Principal Office.
(e) Letters of Credit. The Borrower shall give the
Lender a Letter of Credit Application to be received by the
Lender not later than 11:00 a.m. Houston, Texas time not less
than three (3) Business Days prior thereto of each request for
the issuance, renewal or extension of a Letter of Credit
hereunder which request shall specify the amount of such
Letter of Credit, the date (which shall be a Business Day)
such Letter of Credit is to be issued, renewed or extended,
the duration thereof, the name and address of the beneficiary
thereof and such other information as the Lender may
reasonably request all of which shall be reasonably
satisfactory to the Lender. Subject to the terms and
conditions of this Agreement, on the date specified for the
issuance, renewal or extension of a Letter of Credit, the
Lender shall issue such Letter of Credit to the beneficiary
thereof.
The Lender will send to the Borrower, immediately upon
issuance of any Letter of Credit, or an amendment thereto, a
true and complete copy of such Letter of Credit, or such
amendment thereto.
Section 2.03 Changes of Commitment.
(a) Commencing on February 1, 1996, and on the first day
of each calendar month thereafter, the Maximum Credit Amount
shall be reduced by an amount equal to $17,860.00. The amount
of such reduction in the Maximum Credit Amount may be adjusted
from time to time based upon semi-annual reviews performed by
the Lender at its option.
(b) The Borrower shall have the right to terminate or to
reduce the amount of the Maximum Credit Amount at any time or
from time to time upon not less than three (3) Business Days'
prior notice to the Lender of each such termination or
reduction, which notice shall specify the effective date
thereof and the amount of any such reduction (which shall not
be less than $100,000 or any whole multiple of $10,000 in
excess thereof) and shall be irrevocable and effective only
upon receipt by the Lender.
(c) The Lender reserves the right, for any reason, to
redetermine at any time and from time to time the Maximum
Credit Amount upon 30 Business Days prior written notice to
the Borrower. Each such redetermination will be made using
Lender's then existing credit and engineering standards.
(d) The Maximum Credit Amount once terminated or reduced
may not be reinstated, without the credit approval of the
Lender.
Section 2.04 Fees.
(a) The Borrower shall pay to the Lender a commitment
fee on the daily average unused amount of the Maximum Credit
Amount for the period from and including the Closing Date up
to but excluding the earlier of the date the Commitment is
terminated or the Revolving Credit Termination Date, at a rate
per annum equal to 1/2 of 1%. Accrued commitment fees shall
be payable quarterly in arrears on each Quarterly Date and on
the earlier of the date the Commitment is terminated or the
Revolving Credit Termination Date.
(b) The Borrower agrees to pay the Lender commissions
for issuing the Letters of Credit on the daily average
outstanding of the maximum liability of the Lender existing
from time to time under such Letter of Credit (calculated
separately for each Letter of Credit) at the rate of 1 1/2%
per annum, provided that each Letter of Credit shall bear a
minimum commission of $500.00 and that each Letter of Credit
shall be deemed to be outstanding up to the full face amount
of the Letter of Credit until the Lender has received the
cancelled Letter of Credit or a written cancellation of the
Letter of Credit from the beneficiary of such Letter of Credit
in form and substance acceptable to the Lender or for any
reductions in the amount of the Letter of Credit (other than
from a drawing), written notification from the Borrower. Such
commissions are payable quarterly in arrears on each Quarterly
Date.
(c) The Borrower agrees to pay the Lender an engineering
fee of $2,500 for (i) each semi-annual engineering review
conducted by the Lender after the Closing Date, and (ii) each
other engineering review conducted by the Lender at the
request of the Borrower.
(d) The Borrower agrees to pay the Lender a facility fee
of $15,000. $7,500 of such fee has been paid, with the
balance of $7,500 being payable on the Closing Date.
Section 2.05 Note. The Loans shall be evidenced by a single
promissory note of the Borrower in substantially the form of
Exhibit A hereto, dated the Closing Date, payable to the order
of the Lender in a principal amount equal to the Commitment
and otherwise duly completed. The date and amount of each
Loan and all payments made on account of the principal
thereof, shall be recorded by the Lender on its books for the
Note, and, prior to any transfer, endorsed by the Lender on
the schedule attached to such Note or any continuation
thereof. Such records shall be deemed conclusive absent
manifest error.
Section 2.06 Prepayments.
(a) The Borrower may prepay the Loans upon not less than
one (1) Business Day's prior notice to the Lender, which
notice shall specify the prepayment date (which shall be a
Business Day) and the amount of the prepayment (which shall be
at least $50,000 or the remaining principal balance
outstanding on the Note) and shall be irrevocable and
effective only upon receipt by the Lender, provided that
interest on the principal prepaid, accrued to the prepayment
date, shall be paid on the prepayment date.
(b) (i) If, after giving effect to any termination or
reduction of the Commitment pursuant to Sections 2.03(a)
or (b), the outstanding aggregate principal amount of the
Loans plus the LC Exposure exceeds the Commitment, the
Borrower shall prepay the Loans on the date of such
termination or reduction in an aggregate principal amount
equal to the excess, together with interest on the
principal amount paid accrued to the date of such
prepayment and, if any excess remains after prepaying all
of the Loans, pay to the Lender an amount equal to the
excess to be held as cash collateral as provided in
Section 2.08(b) hereof.
(ii) If, after giving effect to any redetermination of
the Commitment pursuant to Section 2.03(c), the
outstanding aggregate principal amount of the Loans plus
the LC Exposure exceeds the Commitment, then the Borrower
shall within the 30 Business Days provided for in Section
2.03(c): (i) prepay the Loans in an aggregate principal
amount equal to the excess, together with interest on the
principal amount paid accrued to the date of such
prepayment and, if any excess remains after prepaying all
of the Loans, pay to the Lender an amount equal to the
excess to be held as cash collateral as provided in
Section 2.08(b) hereof; (ii) grant to the Lender, as
security for the Note and other Indebtedness, a first-
priority Lien (subject only to Excepted Liens) on
Property of the Borrower of a character and value
satisfactory to the Lender in its sole discretion; such
Lien to be created and perfected by and in accordance
with the provisions of deeds of trust, security
agreements and financing statements, or other Security
Instruments, all in form and substance satisfactory to
the Lender in its sole discretion and in sufficient
executed (and acknowledged where necessary or
appropriate) counterparts for recording purposes; or
(iii) effect any combination of the alternatives
described in clauses (i) and (ii) of this Section and
acceptable to the Lender in its sole discretion.
(c) Prepayments permitted or required under this Section
2.06 shall be without premium or penalty. Any prepayment
made during the Revolving Credit Period may be reborrowed
subject to the then effective Commitment.
Section 2.07 Assumption of Risks. The Borrower assumes
all risks of the acts or omissions of any beneficiary of any Letter
of Credit or any transferee thereof with respect to its use of such
Letter of Credit. Neither the Lender (except in the case of
willful misconduct or bad faith on the part of the Lender or any of
its employees) nor its correspondents shall be responsible for the
validity, sufficiency or genuineness of certificates or other
documents or any endorsements thereon, even if such certificates or
other documents should in fact prove to be invalid, insufficient,
fraudulent or forged; for errors, omissions, interruptions or
delays in transmissions or delivery of any messages by mail, telex,
or otherwise, whether or not they be in code; for errors in
translation or for errors in interpretation of technical terms; the
validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason;
the failure of any beneficiary or any transferee of any Letter of
Credit to comply fully with conditions required in order to draw
upon any Letter of Credit; or for any other consequences arising
from causes beyond the Lender's control or the control of its
correspondents. In addition, the Lender shall not be responsible
for any error, neglect, or default of any of its correspondents;
and none of the above shall affect, impair or prevent the vesting
of the Lender's or its rights or powers hereunder, all of which
rights shall be cumulative. The Lender and its correspondents may
accept certificates or other documents that appear on their face to
be in order, without responsibility for further investigation of
any matter contained therein regardless of any notice or
information to the contrary. In furtherance and not in limitation
of the foregoing provisions, the Borrower agrees that any action,
inaction or omission taken or not taken by the Lender or by any
correspondent for the Lender in good faith in connection with any
Letter of Credit, or any related drafts, certificates, documents or
instruments, shall be binding on the Borrower and shall not put the
Lender or its correspondents under any resulting liability to the
Borrower.
Section 2.08 Obligation to Reimburse and to Prepay.
(a) If a disbursement by the
Lender is made under any Letter of Credit, the Borrower shall
pay to the Lender within two (2) Business Days after notice of
any such disbursement is received by the Borrower, the amount
of each such disbursement made by the Lender under the Letter
of Credit (if such payment is not sooner effected as may be
required under this Section 2.08 of this Agreement or under
other provisions of the Letter of Credit) together with
interest on the amount disbursed from and including the date
of disbursement until payment in full of such disbursed amount
at a varying rate per annum equal to (i) the then applicable
interest rate for Base Rate Loans through the second Business
Day after notice of such disbursement is received by the
Borrower and (ii) the Post-Default Rate for Base Rate Loans
(but in no event to exceed the Highest Lawful Rate) for the
period from and including the third Business Day following the
date of such disbursement to and including the date of
repayment in full of such disbursed amount. The obligations
of the Borrower under this Agreement and each Letter of Credit
shall be absolute, unconditional and irrevocable and shall be
paid or performed strictly in accordance with the terms of
this Agreement under all circumstances whatsoever, including,
without limitation, but only to the fullest extent permitted
by applicable law, the following circumstances: (i) any lack
of validity or enforceability of this Agreement, any Letter of
Credit or any of the Security Instruments; (ii) any amendment
or waiver of (including any default), or any consent to
departure from this Agreement (except to the extent permitted
by any amendment or waiver), any Letter of Credit or any of
the Security Instruments; (iii) the existence of any claim,
set-off, defense or other rights which the Borrower may have
at any time against the beneficiary of any Letter of Credit or
any transferee of any Letter of Credit (or any Persons for
whom any such beneficiary or any such transferee may be
acting), the Lender or any other Person, whether in connection
with this Agreement, any Letter of Credit, the Security
Instruments, the transactions contemplated hereby or any
unrelated transaction; (iv) any statement, certificate, draft,
notice or any other document presented under any Letter of
Credit proves to have been forged, fraudulent, insufficient or
invalid in any respect or any statement therein proves to have
been untrue or inaccurate in any respect whatsoever; (v)
payment by the Lender under any Letter of Credit against
presentation of a draft or certificate which appears on its
face to comply, but does not comply, with the terms of such
Letter of Credit; and (vi) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing.
Notwithstanding anything in this Agreement to the contrary,
the Borrower will not be liable for payment or performance
that results from the gross negligence or willful misconduct
of the Lender, except (i) where the Borrower actually recovers
the proceeds for itself or the Lender of any payment made by
the Lender in connection with such gross negligence or willful
misconduct or (ii) in cases where the Lender makes payment to
the named beneficiary of a Letter of Credit.
(b) In the event of the occurrence of any Event of Default, a
payment or prepayment pursuant to Section 2.06(b) hereof or
the maturity of the Note, whether by acceleration or
otherwise, an amount equal to the LC Exposure shall be deemed
to be forthwith due and owing by the Borrower to the Lender as
of the date of any such occurrence; and the Borrower's
obligation to pay such amount shall be absolute and
unconditional, without regard to whether any beneficiary of
any such Letter of Credit has attempted to draw down all or a
portion of such amount under the terms of a Letter of Credit,
and, to the fullest extent permitted by applicable law, shall
not be subject to any defense or be affected by a right of
set-off, counterclaim or recoupment which the Borrower may now
or hereafter have against any such beneficiary, the Lender or
any other Person for any reason whatsoever. Such payments
shall be held by the Lender as cash collateral securing the LC
Exposure in an account or accounts at the Principal Office;
and the Borrower hereby grants to and by its deposit with the
Lender grants to the Lender a security interest in such cash
collateral. In the event of any such payment by the Borrower
of amounts contingently owing under outstanding Letters of
Credit and in the event that thereafter drafts or other
demands for payment complying with the terms of such Letters
of Credit are not made prior to the respective expiration
dates thereof, the Lender agrees, if no Event of Default has
occurred and is continuing or if no other amounts are
outstanding under any of the Loan Documents, to remit to the
Borrower amounts for which the contingent obligations
evidenced by the Letters of Credit have ceased.
ARTICLE III
Payments of Principal and Interest
Section 3.01 Repayment of Loans. The Borrower will pay to
the Lender, the principal payments required by this Section 3.01.
On the Revolving Credit Termination Date the Borrower shall repay
the outstanding principal amount of the Note.
Section 3.02 Interest. The Borrower will pay to the Lender
interest on the unpaid principal amount of each Loan for the period
commencing on the date such Loan is made to but excluding the date
such Loan shall be paid in full, at the Base Rate (as in effect
from time to time) plus the Applicable Margin, but in no event to
exceed the Highest Lawful Rate.
Notwithstanding the foregoing, the Borrower will pay to the Lender
interest at the applicable Post-Default Rate on any principal of
any Loan, and (to the fullest extent permitted by law) on any other
amount payable by the Borrower hereunder, under any Security
Instrument or under the Note which shall not be paid in full when
due (whether at stated maturity, by acceleration or otherwise), for
the period commencing on the due date thereof until the same is
paid in full.
Accrued interest on the Loans shall be payable monthly commencing
on February 1, 1996, and on the first day of each consecutive
calendar month thereafter.
Promptly after the determination of any interest rate provided for
herein or any change therein, the Lender shall notify the Borrower
thereof. Each determination by the Lender of an interest rate or
fee hereunder shall, except in cases of manifest error, be final,
conclusive and binding on the parties.
ARTICLE IV
Payments; Computations; Etc.
Section 4.01 Payments. Except to the extent otherwise
provided herein, all payments of principal, interest and other
amounts to be made by the Borrower under this Agreement, the Note
and any other Loan Document shall be made in Dollars, in
immediately available funds, to the Lender at such account as the
Lender shall specify by notice to the Borrower from time to time,
not later than 11:00 a.m. Houston, Texas time on the date on which
such payments shall become due (each such payment made after such
time on such due date to be deemed to have been made on the next
succeeding Business Day). Such payments shall be made without (to
the fullest extent permitted by applicable law) defense, set-off or
counterclaim. Each payment to be made to the Lender under this
Agreement or the Note shall be paid promptly to the Lender, in
immediately available funds. If the due date of any payment under
this Agreement or the Note would otherwise fall on a day which is
not a Business Day such date shall be extended to the next
succeeding Business Day and interest shall be payable for any
principal so extended for the period of such extension.
Section 4.02 Computations. Interest shall be computed on the
basis of a year of 365 or 366 days, as the case may be, and actual
days elapsed (including the first day but excluding the last day)
occurring in the period for which payable.
Section 4.03 Set-off. The Borrower agrees that, in addition
to (and without limitation of) any right of set-off, bankers' lien
or counterclaim the Lender may otherwise have, the Lender shall
have the right and be entitled, at its option, to offset balances
held by it or by any of its Affiliates for account of the Borrower
at any of its offices, in Dollars or in any other currency, against
any principal of or interest on any of the Loans or any other
amount payable to the Lender hereunder, which is not paid when due
(regardless of whether such balances are then due to the Borrower),
in which case it shall promptly notify the Borrower thereof,
provided that Lender's failure to give such notice shall not affect
the validity thereof.
Section 4.04 Taxes.
(a) Payments Free and Clear. Any
and all payments by the Borrower hereunder shall be made, in
accordance with Section 4.01, free and clear of and without
deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, taxes imposed on
its income, and franchise or similar taxes imposed on it, by
(i) any jurisdiction (or political subdivision thereof) of
which the Lender, is a citizen or resident, (ii) the
jurisdiction (or any political subdivision thereof) in which
the Lender is organized, or (iii) any jurisdiction (or
political subdivision thereof) in which the Lender is
presently doing business which taxes are imposed solely as a
result of doing business in such jurisdiction (all such non-
excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as
"Taxes"). If the Borrower shall be required by law to deduct
any Taxes from or in respect of any sum payable hereunder to
the Lender (i) the sum payable shall be increased by the
amount necessary so that after making all required deductions
(including deductions applicable to additional sums payable
under this Section 4.04) the Lender shall receive an amount
equal to the sum it would have received had no such deductions
been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the
relevant taxing authority or other Governmental Authority in
accordance with applicable law.
(b) Other Taxes. In addition, to the fullest extent
permitted by applicable law, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies that arise
from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to,
this Agreement or any Security Instrument (hereinafter
referred to as "Other Taxes").
(c) indemnification. To the fullest extent permitted by applicable
law, the Borrower will indemnify the Lender for the full amount of
Taxes and Other Taxes (including, but not limited to, any Taxes or
Other Taxes imposed by any Governmental Authority on amounts payable
under this section 4.04) paid by the Lender, and any liability
(including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted unless the payment of such Taxes was
not correctly or legally asserted and the Lender's payment of such
Taxes or Other Taxes was the result of its gross negligence or
willful misconduct. any payment pursuant to such indemnification
shall be made within thirty (30) days after the date the Lender
makes written demand therefor. if the Lender receives a refund or
credit in respect of any Taxes or Other Taxes for which the Lender
has received payment from the Borrower it shall promptly notify
the Borrower of such refund or credit and shall,if no default has
occurred and is continuing, within thirty (30) days after receipt of
a request by the Borrower (or promptly upon receipt, if the Borrower
has requested application for such refund or credit pursuant hereto),
pay an amount equal to such refund or credit to the
Borrower without interest (but with any interest so refunded or
credited), provided that the Borrower, upon the request of the
Lender, agrees to return such refund or credit (plus penalties,
interest or other charges) to the Lender in the event the Lender
is required to repay such refund or credit.
ARTICLE V
Intentionally Left Blank
ARTICLE VI
Conditions Precedent
Section 6.01 Initial Funding.
The obligation of the Lender to make the Initial Funding is
subject to the receipt by the Lender of all fees payable pursuant
to Section 2.04 on or before the Closing Date and the receipt by
the Lender of the following documents and satisfaction of the other
conditions provided in this Section 6.01, each of which shall be
satisfactory to the Lender in form and substance:
(a) A certificate of the Secretary or an Assistant Secretary
of the Borrower setting forth (i) resolutions of its board of
directors with respect to the authorization of the Borrower to
execute and deliver the Loan Documents to which it is a party
and to enter into the transactions contemplated in those
documents, (ii) the officers of the Borrower (y) who are
authorized to sign the Loan Documents to which Borrower is a
party and (z) who will, until replaced by another officer or
officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and
giving notices and other communications in connection with
this Agreement and the transactions contemplated hereby, (iii)
specimen signatures of the authorized officers, and (iv) the
articles or certificate of incorporation and bylaws of the
Borrower, certified as being true and complete. The Lender
may conclusively rely on such certificate until it receives
notice in writing from the Borrower to the contrary.
(b) A certificate of the Secretary or an Assistant Secretary
of MERI setting forth (i) resolutions of its board of
directors with respect to the authorization of MERI to execute
and deliver the Loan Documents to which it is a party and to
enter into the transactions contemplated in those documents,
(ii) the officers of MERI (y) who are authorized to sign the
Loan Documents to which MERI is a party and (z) who will,
until replaced by another officer or officers duly authorized
for that purpose, act as its representative for the purposes
of signing documents and giving notices and other
communications in connection with this Agreement and the
transactions contemplated hereby, (iii) specimen signatures of
the authorized officers, and (iv) the articles or certificate
of incorporation and bylaws of MERI, certified as being true
and complete. The Lender may conclusively rely on such
certificate until it receives notice in writing from MERI to
the contrary.
(c) Certificates of the appropriate state agencies with
respect to the existence, qualification and good standing of
the Borrower and MERI.
(d) A compliance certificate which shall be substantially in
the form of Exhibit C, duly and properly executed by a
Responsible Officer and dated as of the date of the Initial
Funding.
(e) The Note, duly completed and executed.
(f) The Security Instruments described on Exhibit E, duly
completed and executed in sufficient number of counterparts
for recording, if necessary.
(g) An opinion of Hellums, Hartley & Johnson, special Alabama
counsel to the Borrower, substantially in the form of
Exhibit D hereto.
(h) A certificate of insurance coverage of the Borrower
evidencing that the Borrower is carrying insurance in
accordance with Section 7.19 hereof.
(i) The Security Instruments and accompanying financing
statements covering the Mortgaged Property shall have been
properly filed and recorded in the appropriate offices to
establish and perfect the Liens and security interests created
thereby.
(j) The Lender shall have been furnished with appropriate UCC
search certificates reflecting the filing of all financing
statements required to perfect the security interests granted
by the Security Instruments and reflecting no prior liens or
security interests.
(k) Such other documents as the Lender or special counsel to
the Lender may reasonably request.
Section 6.02 Initial and Subsequent Loans. The obligation of
the Lender to make Loans to the Borrower upon the occasion of each
borrowing hereunder and to issue, renew, extend or reissue Letters
of Credit for the account of the Borrower (including the Initial
Funding) is subject to the further conditions precedent that, as of
the date of such Loans and after giving effect thereto: (i) no
Default shall have occurred and be continuing; (ii) no Material
Adverse Effect shall have occurred; and (iii) the representations
and warranties made by the Borrower in Article VII and in the
Security Instruments shall be true on and as of the date of the
making of such Loans or issuance, renewal, extension or reissuance
of a Letter of Credit with the same force and effect as if made on
and as of such date and following such new borrowing, except to the
extent such representations and warranties are expressly limited to
an earlier date or the Lender may expressly consent in writing to
the contrary. Each request for a borrowing or issuance, renewal,
extension or reissuance of a Letter of Credit by the Borrower
hereunder shall constitute a certification by the Borrower to the
effect set forth in the preceding sentence (both as of the date of
such notice and, unless the Borrower otherwise notifies the Lender
prior to the date of and immediately following such borrowing as of
the date thereof).
Section 6.03 Conditions Relating to Letters of Credit. In
addition to the satisfaction of all other conditions precedent set
forth in this Article VI, the issuance, renewal, extension or
reissuance of the Letters of Credit referred to in Section 2.01(b)
hereof is subject to the following conditions precedent:
(a) At least three (3) Business
Days prior to the date of the issuance and at least three (3)
Business Days prior to the date of the renewal, extension or
reissuance of each Letter of Credit, the Lender shall have
received a Letter of Credit Application.
(b) Each of the Letters of Credit
shall (i) be issued by the Lender, (ii) contain such terms and
provisions as are reasonably required by the Lender, (iii) be
for the account of the Borrower, and (iv) expire not later
than two (2) days before the Revolving Credit Termination
Date.
ARTICLE VII
Representations and Warranties
The Borrower represents and warrants to the Lender that (each
representation and warranty herein is given as of the Closing Date
and shall be deemed repeated and reaffirmed on the dates of each
borrowing and issuance, renewal, extension or reissuance of a
Letter of Credit as provided in Section 6.02):
Section 7.01 Corporate Existence. The Borrower: (i) is a
corporation duly organized, legally existing and in good standing
under the laws of the jurisdiction of its incorporation; (ii) has
all requisite corporate power, and has all material governmental
licenses, authorizations, consents and approvals necessary to own
its assets and carry on its business as now being or as proposed to
be conducted; and (iii) is qualified to do business in all
jurisdictions in which the nature of the business conducted by it
makes such qualification necessary and where failure so to qualify
would have a Material Adverse Effect.
Section 7.02 Financial Condition. The unaudited pro forma
balance sheet of the Borrower as at September 8, 1995 heretofore
furnished to the Lender, are complete and correct and fairly
present the financial condition of the Borrower as at said date,
all in accordance with GAAP, as applied on a consistent basis. The
Borrower does not have on the Closing Date any material Debt,
contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or
provided for in the Financial Statements or in Schedule 7.02.
Since September 8, 1995, there has been no change or event having
a Material Adverse Effect. Since the date of the Financial
Statements, neither the business nor the Properties of the Borrower
have been materially and adversely affected as a result of any
fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking
of Property or cancellation of contracts, permits or concessions by
any Governmental Authority, riot, activities of armed forces or
acts of God or of any public enemy.
Section 7.03 Litigation. Except as disclosed to the Lender
in Schedule 7.03 hereto, at the Closing Date there is no
litigation, legal, administrative or arbitral proceeding,
investigation or other action of any nature pending or, to the
knowledge of the Borrower threatened against or affecting the
Borrower which involves the possibility of any judgment or
liability against the Borrower not fully covered by insurance
(except for normal deductibles), and which would have a Material
Adverse Effect.
Section 7.04 No Breach. Neither the execution and delivery
of the Loan Documents, nor compliance with the terms and provisions
hereof will conflict with or result in a breach of, or require any
consent which has not been obtained as of the Closing Date under,
the respective charter or by-laws of the Borrower, or any
Governmental Requirement or any agreement or instrument to which
the Borrower is a party or by which it is bound or to which it or
its Properties are subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of
any Lien upon any of the revenues or assets of the Borrower
pursuant to the terms of any such agreement or instrument other
than the Liens created by the Loan Documents.
Section 7.05 Authority. The Borrower has all necessary
corporate power and authority to execute, deliver and perform their
obligations under the Loan Documents to which they are respectively
a party; and the execution, delivery and performance by the
Borrower of the Loan Documents to which it is party, have been duly
authorized by all necessary corporate action on their part; and the
Loan Documents constitute the legal, valid and binding obligations
of the Borrower, enforceable in accordance with their terms.
Section 7.06 Approvals. No authorizations, approvals or
consents of, and no filings or registrations with, any Governmental
Authority are necessary for the execution, delivery or performance
by the Borrower of the Loan Documents to which it is a party or for
the validity or enforceability thereof, except for the recording
and filing of the Security Instruments as required by this
Agreement.
Section 7.07 Use of Loans. The proceeds of the Loans shall
be used to (a) make an advance to MERI for the purpose of paying in
full certain existing indebtedness of MERI to Rainbow Investments
Company, and (b) for general corporate purposes. The Borrower is
not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose, whether
immediate, incidental or ultimate, of buying or carrying margin
stock (within the meaning of Regulation G, U or X of the Board of
Governors of the Federal Reserve System) and no part of the
proceeds of any Loan hereunder will be used to buy or carry any
margin stock.
Section 7.08 ERISA.
(a) The Borrower and each ERISA Affiliate have complied in
all material respects with ERISA and, where applicable, the
Code regarding each Plan.
(b) Each Plan is, and has been, maintained in substantial
compliance with ERISA and, where applicable, the Code.
(c) No act, omission or transaction has occurred which could
result in imposition on the Borrower or any ERISA Affiliate
(whether directly or indirectly) of (i) either a civil penalty
assessed pursuant to section 502(c), (i) or (l) of ERISA or a
tax imposed pursuant to Chapter 43 of Subtitle D of the Code
or (ii) breach of fiduciary duty liability damages under
section 409 of ERISA.
(d) No Plan (other than a defined contribution plan) or any
trust created under any such Plan has been terminated since
September 2, 1974. No liability to the PBGC (other than for
the payment of current premiums which are not past due) by the
Borrower or any ERISA Affiliate has been or is expected by the
Borrower or any ERISA Affiliate to be incurred with respect to
any Plan. No ERISA Event with respect to any Plan has
occurred.
(e) Full payment when due has been made of all amounts which
the Borrower or any ERISA Affiliate is required under the
terms of each Plan or applicable law to have paid as
contributions to such Plan, and no accumulated funding
deficiency (as defined in section 302 of ERISA and section 412
of the Code), whether or not waived, exists with respect to
any Plan.
(f) The actuarial present value of the benefit liabilities
under each Plan which is subject to Title IV of ERISA does
not, as of the end of the Borrower's most recently ended
fiscal year, exceed the current value of the assets (computed
on a plan termination basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities.
The term "actuarial present value of the benefit liabilities"
shall have the meaning specified in section 4041 of ERISA.
(g) None of the Borrower or any ERISA Affiliate sponsors,
maintains, or contributes to an employee welfare benefit plan,
as defined in section 3(1) of ERISA, including, without
limitation, any such plan maintained to provide benefits to
former employees of such entities, that may not be terminated
by the Borrower or any ERISA Affiliate in its sole discretion
at any time without any material liability.
(h) None of the Borrower or any ERISA Affiliate sponsors,
maintains or contributes to, or has at any time in the
preceding six calendar years sponsored, maintained or
contributed to, any Multiemployer Plan.
(i) None of the Borrower or any ERISA Affiliate is required
to provide security under section 401(a)(29) of the Code due to a
Plan amendment that results in an increase in current liability for
the Plan.
Section 7.09 Taxes. Except as set out in Schedule 7.09,
the Borrower has filed all United States Federal income tax returns
and all other tax returns which are required to be filed by them
and have paid all material taxes due pursuant to such returns or
pursuant to any assessment received by the Borrower. The charges,
accruals and reserves on the books of the Borrower in respect of
taxes and other governmental charges are, in the opinion of the
Borrower, adequate. No tax lien has been filed and, to the
knowledge of the Borrower, no claim is being asserted with respect
to any such tax, fee or other charge.
Section 7.10 Titles, etc.
(a) Except as set out in Schedule 7.10, the Borrower has good
and defensible title to its material (individually or in the
aggregate) Properties, free and clear of all Liens except
Liens permitted by Section 9.02.
(b) All leases and agreements necessary for the conduct of
the business of the Borrower are valid and subsisting, in full
force and effect and there exists no default or event or
circumstance which with the giving of notice or the passage of
time or both would give rise to a default under any such lease
or leases, which would affect in any material respect the
conduct of the business of the Borrower.
(c) The rights, properties and other assets presently owned,
leased or licensed by the Borrower including, without
limitation, all easements and rights of way, include all
rights, Properties and other assets necessary to permit the
Borrower to conduct its business in all material respects in
the same manner as its business has been conducted prior to
the Closing Date.
(d) All of the assets and Properties of the Borrower which
are reasonably necessary for the operation of its business are
in good working condition and are maintained in accordance
with prudent business standards.
Section 7.11 No Material Misstatements. No written informa-
tion, statement, exhibit, certificate, document or report furnished
to the Lender by the Borrower or MERI in connection with the
negotiation of this Agreement contained any material misstatement
of fact or omitted to state a material fact or any fact necessary
to make the statement contained therein not materially misleading
in the light of the circumstances in which made and with respect to
the Borrower. There is no fact peculiar to the Borrower which has
a Material Adverse Effect or in the future is reasonably likely to
have (so far as the Borrower can now foresee) a Material Adverse
Effect and which has not been set forth in this Agreement or the
other documents, certificates and statements furnished to the
Lender by or on behalf of the Borrower prior to, or on, the Closing
Date in connection with the transactions contemplated hereby.
Section 7.12 Investment Company Act. The Borrower is not an
"investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.13 Public Utility Holding Company Act. The
Borrower is not is a "holding company," or a "subsidiary company"
of a "holding company," or an "affiliate" of a "holding company" or
of a "subsidiary company" of a "holding company," or a "public
utility" within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
Section 7.14 Subsidiaries and Partnerships. Except as set
forth on Schedule 7.14, the Borrower has no subsidiaries and has no
interest in any partnerships.
Section 7.15 Location of Business and Offices. The
Borrower's principal place of business and chief executive offices
are located at the address stated on the signature page of this
Agreement.
Section 7.16 Defaults. Neither the Borrower nor MERI is in
default nor has any event or circumstance occurred which, but for
the expiration of any applicable grace period or the giving of
notice, or both, would constitute a default under any material
agreement or instrument to which the Borrower or MERI is a party or
by which the Borrower or MERI is bound which default would have a
Material Adverse Effect. No Default hereunder has occurred and is
continuing.
Section 7.17 Environmental Matters. Except (i) as provided
in Schedule 7.17 or (ii) as would not have a Material Adverse
Effect (or with respect to (c), (d) and (e) below, where the
failure to take such actions would not have a Material Adverse
Effect):
(a) Neither any Property of the Borrower nor the operations
conducted thereon violate any order or requirement of any
court or Governmental Authority or any Environmental Laws;
(b) Without limitation of clause (a) above, no Property of
the Borrower nor the operations currently conducted thereon
or, to the best knowledge of the Borrower, by any prior owner
or operator of such Property or operation, are in violation of
or subject to any existing, pending or threatened action,
suit, investigation, inquiry or proceeding by or before any
court or Governmental Authority or to any remedial obligations
under Environmental Laws;
(c) All notices, permits, licenses or similar authorizations,
if any, required to be obtained or filed in connection with
the operation or use of any and all Property of the Borrower,
including without limitation past or present treatment,
storage, disposal or release of a hazardous substance or solid
waste into the environment, have been duly obtained or filed,
and the Borrower is in compliance with the terms and
conditions of all such notices, permits, licenses and similar
authorizations;
(d) All hazardous substances, solid waste, and oil and gas
exploration and production wastes, if any, generated at any
and all Property of the Borrower have in the past been
transported, treated and disposed of in accordance with
Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the
environment, and, to the best knowledge of the Borrower, all
such transport carriers and treatment and disposal facilities
have been and are operating in compliance with Environmental
Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment,
and are not the subject of any existing, pending or threatened
action, investigation or inquiry by any Governmental Authority
in connection with any Environmental Laws;
(e) The Borrower has taken all steps reasonably necessary to
determine and has determined that no hazardous substances,
solid waste, or oil and gas exploration and production wastes,
have been disposed of or otherwise released and there has been
no threatened release of any hazardous substances on or to any
Property of the Borrower except in compliance with
Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the
environment;
(f) To the extent applicable, all
Property of the Borrower currently satisfies all design,
operation, and equipment requirements imposed by the OPA or
scheduled as of the Closing Date to be imposed by OPA during
the term of this Agreement, and the Borrower does not have any
reason to believe that such Property, to the extent subject to
OPA, will not be able to maintain compliance with the OPA
requirements during the term of this Agreement; and
(g) The Borrower has no known contingent liability in
connection with any release or threatened release of any oil,
hazardous substance or solid waste into the environment.
Section 7.18 Compliance with the Law. The Borrower has not
violated any Governmental Requirement or failed to obtain any
license, permit, franchise or other governmental authorization
necessary for the ownership of any of its Properties or the conduct
of its business, which violation or failure would have (in the
event such violation or failure were asserted by any Person through
appropriate action) a Material Adverse Effect.
Section 7.19 Insurance. Schedule 7.19 attached hereto
contains an accurate and complete description of all material
policies of fire, liability, workmen's compensation and other forms
of insurance owned or held by MERI. All such policies are in full
force and effect, all premiums with respect thereto covering all
periods up to and including the date of the closing have been paid,
and no notice of cancellation or termination has been received with
respect to any such policy. Such policies are sufficient for
compliance with all requirements of law and of all agreements to
which the Borrower is a party; are valid, outstanding and
enforceable policies; provide adequate insurance coverage in at
least such amounts and against at least such risks (but including
in any event public liability) as are usually insured against in
the same general area by companies engaged in the same or a similar
business for the assets and operations of the Borrower; will remain
in full force and effect through the respective dates set forth in
Schedule 7.19 without the payment of additional premiums; and will
not in any way be affected by, or terminate or lapse by reason of,
the transactions contemplated by this Agreement. Schedule 7.19
identifies all material risks, if any, which MERI and its Board of
Directors or officers have designated as being self insured.
Neither the Borrower nor MERI has not been refused any insurance
with respect to its assets or operations, nor has its coverage been
limited below usual and customary policy limits, by an insurance
carrier to which it has applied for any such insurance or with
which it has carried insurance during the last three years.
Section 7.20 Designated Contracts. The copies of the
Designated Contracts previously delivered by the Borrower to the
Lender are complete and accurate and have not been amended or
modified in any manner. Each Designated Contract is valid, binding
and enforceable against the parties thereto; and the Borrower has
the right to grant a Lien and has granted a Lien on the Borrower's
right to receive proceeds under each Designated Contract pursuant
to the Security Instruments, and the Lender may enforce its
remedies contained in the Security Instruments against such
collateral. The Borrower has obtained all consents from
Governmental Authorities necessary to perform under each Designated
Contract.
Section 7.21 Restriction on Liens. The Borrower is not a
party to any agreement or arrangement (other than this Agreement
and the Security Instruments), or subject to any order, judgment,
writ or decree, which either restricts or purports to restrict its
ability to grant Liens to other Persons on or in respect of its
assets or Properties.
Section 7.22 Material Agreements. Set forth on Schedule 7.22
hereto is a complete and correct list of all material credit
agreements, indentures, purchase agreements, obligations in respect
of letters of credit, guarantees, joint venture agreements, and
other instruments in effect or to be in effect as of the Closing
Date providing for, evidencing, securing or otherwise relating to
any Debt of the Borrower, and all obligations of the Borrower to
issuers of surety or appeal bonds issued for account of the
Borrower, and such list correctly sets forth the names of the
debtor or lessee and creditor or lessor with respect to the Debt or
lease obligations outstanding or to be outstanding and the property
subject to any Lien securing such Debt or lease obligation. The
Borrower has heretofore delivered to the Lender a complete and
correct copy of all such material credit agreements, indentures,
purchase agreements, contracts, letters of credit, guarantees,
joint venture agreements, or other instruments, including any
modifications or supplements thereto, as in effect on the Closing
Date.
ARTICLE VIII
Affirmative Covenants
The Borrower covenants and agrees that, so long as the
Commitment is in effect and until payment in full of all Loans
hereunder, all interest thereon and all other amounts payable by
the Borrower hereunder:
Section 8.01 Financial Statements. The Borrower shall
deliver, or shall cause to be delivered, to the Lender:
(a) As soon as available and in any event within 45 days
after the end of each calendar month, the unaudited statements
of income, stockholders' equity, changes in financial position
and cash flow of the Borrower for such period and for the
period from the beginning of the respective fiscal year of the
Borrower to the end of such period, and the related balance
sheets of the Borrower as at the end of such period, and
setting forth in each case in comparative form the
corresponding figures for the corresponding period in the
preceding fiscal year, and accompanied by the certificate of
a Responsible Officer, which certificate shall state that said
financial statements fairly present the financial condition
and results of operations of the Borrower in accordance with
GAAP, as at the end of, and for, such period (subject to
normal year-end audit adjustments).
(b) The financial statements and other financial information
of the Guarantors called for in their respective Guaranty
Agreements.
(c) Promptly after the Borrower knows that any Default or
any Material Adverse Effect has occurred, a notice of such Default
or Material Adverse Effect, describing the same in reasonable
detail and the action the Borrower proposes to take with
respect thereto.
(d) Promptly upon receipt thereof, a copy of each other
report or letter submitted to the Borrower by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Borrower and a copy of
any response by the Borrower or the Board of Directors of the
Borrower to such letter or report.
(e) Promptly after the furnishing thereof, copies of any
statement, report or notice furnished to or any Person
pursuant to the terms of any indenture, loan or credit or
other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lender pursuant to
any other provision of this Section 8.01.
(f) From time to time such other information regarding the
business, affairs or financial condition of the Borrower
(including, without limitation, any Plan or Multiemployer Plan
and any reports or other information required to be filed
under ERISA) as the Lender may reasonably request.
The Borrower will furnish to the Lender within 45 days after the
end of each of the first three (3) fiscal quarters of each fiscal
year of the Borrower and within 120 days after the end of each
fiscal year of the Borrower, a certificate substantially in the
form of Exhibit C hereto executed by a Responsible Officer (i)
certifying as to the matters set forth therein and stating that no
Default has occurred and is continuing (or, if any Default has
occurred and is continuing, describing the same in reasonable
detail), and (ii) setting forth in reasonable detail the
computations necessary to determine whether the Borrower is in
compliance with Sections 9.11 and 9.12 as of the end of the
respective fiscal quarter or fiscal year.
Section 8.02 Litigation. The Borrower shall promptly give to
the Lender notice of: (i) all legal or arbitral proceedings, and
of all proceedings before any Governmental Authority affecting the
Borrower, except proceedings which, if adversely determined, would
not have a Material Adverse Effect, and (ii) of any litigation or
proceeding against or adversely affecting the Borrower in which the
amount involved is not covered in full by insurance (subject to
normal and customary deductibles and for which the insurer has not
assumed the defense), or in which injunctive or similar relief is
sought. The Borrower will promptly notify the Lender of any claim,
judgment, Lien or other encumbrance affecting any Property of the
Borrower if the value of the claim, judgment, Lien, or other
encumbrance affecting such Property shall exceed $50,000.
Section 8.03 Maintenance, Etc.
(a) The Borrower shall: preserve and maintain its corporate
existence and all of its material rights, privileges and
franchises; keep books of record and account in which full,
true and correct entries will be made of all dealings or
transactions in relation to its business and activities;
comply with all Governmental Requirements if failure to comply
with such requirements will have a Material Adverse Effect;
pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or
on any of its Property prior to the date on which penalties
attach thereto, except for any such tax, assessment, charge or
levy the payment of which is being contested in good faith and
by proper proceedings and against which adequate reserves are
being maintained; upon reasonable notice, permit
representatives of the Lender, during normal business hours,
to examine, copy and make extracts from its books and records,
to inspect its Properties, and to discuss its business and
affairs with its officers, all to the extent reasonably
requested by the Lender; and keep, or cause to be kept,
insured by financially sound and reputable insurers all
Property of a character usually insured by Persons engaged in
the same or similar business similarly situated against loss
or damage of the kinds and in the amounts customarily insured
against by such Persons and carry such other insurance as is
usually carried by such Persons including, without limitation,
environmental risk insurance to the extent reasonably
available.
(b) On August 1 of each calendar year (or, if sooner, the
renewal date of any of the Borrower's policies of insurance),
the Borrower will furnish or cause to be furnished to the
Lender a certificate of insurance coverage from the insurer in
form and substance satisfactory to the Lender and, if
requested, will furnish the Lender copies of the applicable
policies.
(c) The Borrower will operate its Properties or cause such
Properties to be operated in a careful and efficient manner in
accordance with the practices of the industry and in
compliance with all applicable contracts and agreements and in
compliance in all material respects with all Governmental
Requirements.
Section 8.04 Environmental Matters.
(a) The Borrower will establish and implement such procedures
as may be reasonably necessary to continuously determine and
assure that any failure of the following does not have a
Material Adverse Effect: (i) all Property of the Borrower and
the operations conducted thereon and other activities of the
Borrower are in compliance with and do not violate the
requirements of any Environmental Laws, (ii) no oil, hazardous
substances or solid wastes are disposed of or otherwise
released on or to any Property owned by any such party except
in compliance with Environmental Laws, (iii) no hazardous
substance will be released on or to any such Property in a
quantity equal to or exceeding that quantity which requires
reporting pursuant to Section 103 of CERCLA, and (iv) no oil,
oil and gas exploration and production wastes or hazardous
substance is released on or to any such Property so as to pose
an imminent and substantial endangerment to public health or
welfare or the environment.
(b) The Borrower will promptly notify the Lender in writing
of any threatened action, investigation or inquiry by any
Governmental Authority of which the Borrower has knowledge in
connection with any Environmental Laws, excluding routine
testing and corrective action.
Section 8.05 Further Assurances. The Borrower will cure
promptly any defects in the creation and issuance of the Note and
the execution and delivery of the Security Instruments and this
Agreement. The Borrower at its expense will promptly execute and
deliver to the Lender upon request all such other documents,
agreements and instruments to comply with or accomplish the
covenants and agreements of the Borrower in the Security
Instruments and this Agreement, or to further evidence and more
fully describe the collateral intended as security for the Note, or
to correct any omissions in the Security Instruments, or state more
fully the security obligations set out herein or in any of the
Security Instruments, or to perfect, protect or preserve any Liens
created pursuant to any of the Security Instruments, or to make any
recordings, to file any notices, or obtain any consents, all as may
be necessary or appropriate in connection therewith.
Section 8.06 Performance of Obligations. The Borrower will
pay the Note according to the reading, tenor and effect thereof;
and the Borrower will do and perform every act and discharge all of
the obligations provided to be performed and discharged by them
under the Security Instruments and this Agreement, at the time or
times and in the manner specified.
Section 8.07 ERISA Information and Compliance. The Borrower
will promptly furnish and will cause any ERISA Affiliate to
promptly furnish to the Lender (i) promptly after the filing
thereof with the United States Secretary of Labor, the Internal
Revenue Service or the PBGC, copies of each annual and other report
with respect to each Plan or any trust created thereunder, (ii)
immediately upon becoming aware of the occurrence of any ERISA
Event or of any "prohibited transaction," as described in section
406 of ERISA or in section 4975 of the Code, in connection with any
Plan or any trust created thereunder, a written notice signed by a
Responsible Officer specifying the nature thereof, what action the
Borrower or the ERISA Affiliate is taking or proposes to take with
respect thereto, and, when known, any action taken or proposed by
the Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto, and (iii) immediately upon receipt thereof,
copies of any notice of the PBGC's intention to terminate or to
have a trustee appointed to administer any Plan. With respect to
each Plan (other than a Multiemployer Plan), the Borrower will, and
will cause each ERISA Affiliate to, (i) satisfy in full and in a
timely manner, without incurring any late payment or underpayment
charge or penalty and without giving rise to any lien, all of the
contribution and funding requirements of section 412 of the Code
(determined without regard to subsections (d), (e), (f) and (k)
thereof) and of section 302 of ERISA (determined without regard to
sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be
paid, to the PBGC in a timely manner, without incurring any late
payment or underpayment charge or penalty, all premiums required
pursuant to sections 4006 and 4007 of ERISA.
Section 8.08 Change in Management. The Borrower will notify
the Lender of any change in management of the Borrower.
ARTICLE IX
Negative Covenants
The Borrower covenants and agrees that, so long as the
Commitment is in effect and until payment in full of all Loans
hereunder, all interest thereon and all other amounts payable by
the Borrower hereunder, without the prior written consent of the
Lender:
Section 9.01 Debt. The Borrower will not incur, create,
assume or suffer to exist any Debt, except:
(a) the Note or other Indebtedness or any guaranty of or
suretyship arrangement for the Note or other Indebtedness;
(b) Debt of the Borrower existing on the Closing Date which
is reflected in the Financial Statements or is disclosed in
Schedule 9.01, and any renewals or extensions (but not
increases) thereof;
(c) accounts payable (for the deferred purchase price of
Property or services) from time to time incurred in the
ordinary course of business which, if greater than 90 days
past the invoice or billing date, are being contested in good
faith by appropriate proceedings if reserves adequate under
GAAP shall have been established therefor;
(d) advances to the Borrower from MERI; provided, however,
repayment of such advances shall not be permitted if any
Default or Event of Default has occurred and is continuing, or
if making such repayment would cause the occurrence of a
Default or Event of Default hereunder and MERI shall have
agreed to same in writing; and
(e) payments of net revenue interests owing by the Borrower
to Rainbow Investments Company; provided, however, such
payments shall be fully subordinated to the payment in full of
the Indebtedness pursuant to an instrument or instruments
satisfactory to the Lender as to form and substance.
Section 9.02 Liens. The Borrower will not create, incur,
assume or permit to exist any Lien on any of its Properties (now
owned or hereafter acquired), except:
(a) Liens securing the payment of the Indebtedness;
(b) Excepted Liens;
(c) Liens disclosed on Schedule 9.02.
<PAGE>
SECURITY AGREEMENT
(Accounts, Inventory, Equipment, Chattel Paper, Documents,
Instruments, General Intangibles and Other Property)
Between
MAGNOLIA PIPELINE CORPORATION
and
COMPASS BANK-HOUSTON
December 20, 1995<PAGE>
SECURITY AGREEMENT
Accounts, Inventory, Equipment, Chattel Paper, Documents,
Instruments, General Intangibles and Other Property
THIS SECURITY AGREEMENT (this "Agreement") is made as of
December 20, 1995, between MAGNOLIA PIPELINE CORPORATION, an
Alabama corporation with principal offices at 1100 Louisiana, Suite
3030, Houston, Texas 77002 ("Debtor"); and COMPASS BANK-HOUSTON,
a Texas State Chartered Banking Institution with offices at 24
Greenway Plaza, Suite 1401, Houston, Texas 77046 ("Secured
Party").
RECITALS
A. On even date herewith, Debtor and Secured Party are
executing a Credit Agreement (such Credit Agreement, as the same
may from time to time be amended or supplemented, being hereinafter
called the "Credit Agreement") pursuant to which, upon the terms
and conditions stated therein, Secured Party agrees to make loans
to and extensions of credit on behalf of Debtor.
B. Secured Party has conditioned its obligations under the
Credit Agreement upon the execution and delivery by Debtor of this
Agreement, and Debtor has agreed to enter into this Agreement.
C. Therefore, in order to comply with the terms and conditions
of the Credit Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor hereby agrees with Secured Party as follows:
ARTICLE 1
SECURITY INTEREST
Section 1.01 Pledge, Assignment and Grant of Security Interest.
Debtor hereby pledges, assigns and grants to Secured Party a
security interest in and right of set-off against the assets
referred to in Section 1.02 (the "Collateral") to secure the prompt
payment and performance of the "Obligations" (as defined in
Section 2.02) and the performance by Debtor of this Agreement.
Section 1.02 Collateral. The Collateral consists of the following
types or items of property (including property hereafter acquired
by Debtor as well as property which Debtor now owns or in which
Debtor has rights):
(a) All of Debtor's accounts, inventory, equipment, chattel paper,
documents, instruments and general intangibles.
(b) The certificates of deposit scribed on Schedule 1.02(b)
attached hereto and made a part hereof for all purposes, as such
Schedule 1.02(b) may be amended or supplemented from time to time
(collectively, the "Certificate of Deposit"), together with all
sums now or at any time hereafter evidenced thereby, and any and
all renewals, rearrangements or reissues thereof, whether in
respect of the value thereof, interest paid thereon, dividends
declared thereon or otherwise, and all interest, dividends, incomes
and profits from the foregoing and all other sums due or to become
due on account of any of the foregoing.
(c) All of Debtor's interest in and rights under (whether now
owned or hereafter acquired by operation of law or otherwise) all
presently existing and hereafter created operating agreements,
equipment leases, production agreements, sales agreements, purchase
and/or exchange agreements, transportation agreements, delivery
contracts, and other contracts and/or agreements, and all renewals,
amendments, supplements and modifications thereof and substitutions
and replacements therefor, including, without limitation, the
contracts and/or agreements described or referred to on Schedule
1.02(c) attached hereto and made a part hereof for all purposes, as
such Schedule 1.02(c) may be amended or supplemented from time to
time.
(d) (i) Any related or additional property from time to time
delivered to or deposited with Secured Party by or for the account
of Debtor; (ii) all certificates of title or other documents
evidencing ownership or possession of or otherwise relating to any
property referred to in this Section 1.02; (iii) all property used
or usable in connection with any property referred to in this
Section 1.02; (iv) all policies of insurance (whether or not
required by Secured Party) covering any property referred to in
this Section 1.02; (v) all goods which were at any time included in
the Collateral and which are returned to or for the account of
Debtor following their sale, lease or other disposition; (vi) all
proceeds, products, replacements, additions to, substitutions for,
accessions of, and property necessary for the operation of any of
the property referred to in this Section 1.02, including, without
limitation, insurance payable as a result of loss or damage to any
of the property referred to in this Section 1.02, refunds of
unearned premiums of any such insurance policy and claims against
third parties; and (vii) all books and records related to any of
the property referred to in this Section 1.02, including, without
limitation, any and all books of account, customer lists and other
records relating in any way to the accounts, chattel paper,
instruments or inventory referred to in this Section 1.02.
(e) All general intangibles related to any property referred to in
this Section 1.02, including, without limitation, all (i) letters
of credit, bonds, guaranties, purchase or sales agreements and
other contractual rights, rights to performance, and claims for
damages, refunds (including tax refunds) or other monies due or to
become due; (ii) orders, franchises, permits, certificates,
licenses, consents, exemptions, variances, authorizations or other
approvals by any governmental agency or court; (iii) consulting,
engineering and technological information and specifications,
design data, patent rights, trade secrets, literary rights,
copyrights, trademarks, labels, trade names and other intellectual
property; (iv) business records, computer tapes and computer
software; (v) goodwill; and (vi) other intangible personal
property, whether similar or dissimilar to the property referred to
in this Section 1.02.
It is expressly contemplated that additional property may from time
to time be pledged, assigned or granted to Secured Party as
additional security for the Obligations, and the term "Collateral"
as used herein shall be deemed for all purposes hereof to include
all such additional property, together with all other property of
the types described above related thereto.
Section 1.03 Location of Collateral. The Collateral is located or
(except as otherwise permitted by Section 4.01) shall be located
only in the following places (provided that the Collateral shall be
subject to the security interest created by this Agreement
irrespective of whether or not the Collateral is located in the
following places): The States of Texas and Alabama.
ARTICLE 2
DEFINITIONS
Section 2.01 Terms Defined Above or in the Credit Agreement. As
used in this Agreement, the terms defined above shall have the
meanings respectively assigned to them. Other capitalized terms
which are defined in the Credit Agreement but which are not defined
herein shall have the same meanings as defined in the Credit
Agreement.
Section 2.02 Certain Definitions. As used in this Agreement, the
following terms shall have the following meanings, unless the
context otherwise requires:
"Accounts" means all accounts, chattel paper and instruments (as
such terms are defined in the Code) at any time included in the
Collateral.
"Account Debtor" means any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or
performance of any obligations included in the Collateral, whether
as an account debtor (as defined in the Code), obligor on an
instrument, issuer of documents or securities, guarantor or
otherwise.
"Agreement" means this Security Agreement, as the same may from
time to time be amended or supplemented.
"Code" means the Uniform Commercial Code as presently in effect in
the State of Texas, Business and Commerce Code, Chapters 1 through
9. Unless otherwise indicated by the context herein, all
uncapitalized terms which are defined in the Code shall have their
respective meanings as used in Chapter 9 of the Code.
"Event of Default" means any event specified in Section 6.01.
"Inventory" means all inventory (as defined in the Code) at any
time included in the Collateral.
"Obligations" means:
(a) The payment and performance of all indebtedness, obligations
(including reimbursement obligations) and liabilities of Debtor to
Secured Party, now or hereafter existing under or in connection
with the Credit Agreement including, without limitation, such
indebtedness, obligations (including reimbursement obligations) and
liabilities arising out of, pursuant to, or evidenced by (i) the
Note, being that certain promissory note of even date herewith in
the principal amount of $1,500,000, issued or to be issued by
Debtor under the Credit Agreement, payable to Secured Party as
therein provided, with final maturity on December 1, 1998, (the
"Note"),(ii) any and all renewals, extensions for any period,
rearrangements, increases and/or modifications of any or all of the
Note, (iii) any Letters of Credit issued or to be issued by Secured
Party for the account of Debtor and described or referred to in the
Credit Agreement, (iv) any and all renewals, extensions, amendments
and/or reissues of any such Letters of Credit, and (v) any and all
other Loan Documents or other documents executed in connection with
or as security for the Credit Agreement, the Note and the Letters
of Credit.
(b) The performance by Debtor of all the terms, agreements and
obligations of Debtor pursuant to this Agreement and of Debtor and
any Obligor arising out of, pursuant to or incurred in connection
with the Loan Documents and any and all other instruments and
documents executed in connection therewith or pursuant thereto.
(c) All interest, charges, expenses, reasonable attorneys' or
other fees and any other sums payable to or incurred by Secured
Party in connection with the execution, administration or
enforcement of Secured Party's rights and remedies hereunder, or
under the Credit Agreement, the Note, the Letters of Credit or any
other Loan Document or other instruments and documents executed in
connection therewith or pursuant thereto.
(d) All post-petition interest on the liabilities in the event of
a bankruptcy or insolvency of Debtor.
(e) Any sums which may be advanced or paid by Secured Party under
the terms hereof or of any other Loan Document on account of the
failure of Debtor to comply with the covenants of Debtor contained
herein or in any other Loan Document; and all other indebtedness of
Debtor arising pursuant to the provisions hereof or thereof.
"Obligor" means any Person, other than Debtor, liable (whether
directly or indirectly, primarily or secondarily) for the payment
or performance of any of the Obligations whether as maker,
co-maker, endorser, guarantor, accommodation party, general partner
or otherwise.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Agreement,
Debtor represents and warrants to Secured Party (which
representations and warranties will survive the creation and
payment of the Obligations) that:
Section 3.01 Ownership of Collateral; Encumbrances. Debtor is
the legal and beneficial owner of the Collateral free and clear of
any adverse claim, lien, security interest, option or other charge
or encumbrance except for Excepted Liens, and Debtor has full
right, power and authority to assign and grant a security interest
in the Collateral to Secured Party.
Section 3.02 No Required Consent. No authorization, consent,
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body (other than the filing of
financing statements) is required for (i) the due execution,
delivery and performance by Debtor of this Agreement, (ii) the
grant by Debtor of the security interest granted by this Agreement,
(iii) the perfection of such security interest or (iv) the exercise
by Secured Party of its rights and remedies under this Agreement.
Section 3.03 First Priority Security Interest. The grant of
the security interest in the Collateral pursuant to this Agreement
creates a valid and perfected first priority security interest in
the Collateral, enforceable against Debtor and all third parties
and securing payment of the Obligations.
Section 3.04 No Filings By Third Parties. No financing
statement or other public notice or recording covering the
Collateral is on file in any public office (other than any
financing statement or other public notice or recording naming
Secured Party as the secured party therein), and Debtor will not
execute any such financing statement or other public notice or
recording so long as any of the Obligations are outstanding.
Section 3.05 No Name Changes. Debtor has not, since September
8, 1995, entered into any contract, agreement, security instrument
or other document using a name other than, or been known by or
otherwise used any name other than, the name used by Debtor herein.
Section 3.06 Location of Debtor and Collateral. Debtor's
chief executive office and Debtor's records concerning the
Collateral are located at the address or location set forth in the
opening paragraph hereof. The Collateral is located at Debtor's
address set forth in the opening paragraph hereof or at the
location(s), if any, specified in Section 1.02 or 1.03. Any
Collateral not at such location(s) nevertheless remains subject to
Secured Party's security interest.
Section 3.07 Collateral. All statements or other information
provided by Debtor to Secured Party describing or with respect to
the Collateral is or (in the case of subsequently furnished
information) will be when provided correct and complete in all
material respects. The delivery at any time by Debtor to Secured
Party of additional Collateral or of additional descriptions of
Collateral shall constitute a representation and warranty by Debtor
to Secured Party hereunder that the representations and warranties
of this Article 3 are correct insofar as they would pertain to such
Collateral or the descriptions thereof.
Section 3.08 Accounts.
(a) Each Account represents the genuine, valid and legally
enforceable indebtedness of an Account Debtor arising from the
sale, lease or rendition by Debtor of goods or services and is not
subject to contra accounts, set-offs, defenses, counterclaims,
allowances or adjustments (other than discounts for prompt payment
shown on the invoice), or objections or complaints by the Account
Debtor concerning its liability on the Account; and any goods, the
sale of which gave rise to an Account, have not been returned or
rejected by the Account Debtor or lost or damaged prior to receipt
by the Account Debtor.
(b) The amount shown as to each Account on Debtor's books is
or will be the true amount owing and unpaid thereon. Each Account
arose or shall have arisen in the ordinary course of Debtor's
business; provided, however, that any Accounts which arose or
hereafter arise outside the ordinary course of Debtor's business
shall nevertheless be included as part of the Collateral. Debtor
has no knowledge of any bankruptcy, insolvency or other action
affecting creditors' rights with respect to any Account Debtor.
(c) Each invoice or agreement evidencing the Accounts is or
will be due and payable not more than 90 days from the date
thereof; provided, however, that any Accounts not so due and
payable shall nevertheless be included as part of the Collateral.
Section 3.09 Delivery of Documents or Letters of Credit. With
respect to any Inventory or other Collateral covered by one or more
certificates of title or other documents evidencing ownership or
possession thereof, and with respect to any Accounts or other
Collateral supported by letters of credit, and with respect to the
Certificate of Deposit, each of such certificates, documents or
letters of credit and the Certificate of Deposit has been delivered
to Secured Party (provided that all certificates, documents and
letters of credit referred to in Section 1.02 shall be subject to
the security interest created by this Agreement irrespective of
whether or not such delivery shall have been made).
ARTICLE 4
COVENANTS AND AGREEMENTS
Debtor will at all times comply with the covenants and
agreements contained in this Article 4, from the date hereof and
for so long as any part of the Obligations are outstanding.
Section 4.01 Change in Location of Collateral or Debtor.
Debtor will notify Secured Party on or before the date of any
change in location of the Collateral. Debtor will not, without
Secured Party's prior written consent, change the location of the
Collateral to any state, county or other jurisdiction in which
Secured Party has not already filed a financing statement or taken
other necessary steps to perfect its security interests in the
Collateral or to maintain such perfection. Debtor will give
Secured Party 30 days' prior written notice of (i) the opening or
closing of any place of Debtor's business or (ii) any change in the
location of Debtor's chief executive office or address; provided,
however, only five days' prior written notice shall be required for
any change in the location of Debtor's chief executive office or
address if such change is to a location within the State of Texas.
Section 4.02 Change in Debtor's Name or Corporate Structure.
Debtor will not change its name, identity or corporate structure
(including, without limitation, any merger, consolidation or sale
of substantially all of its assets) without notifying Secured Party
of such change in writing at least 30 days prior to the effective
date of such change. Without the express written consent of
Secured Party, however, Debtor will not engage in any other
business or transaction under any name other than Debtor's name
hereunder.
Section 4.03 Documents; Collateral in Possession of Third
Parties. If certificates of title or other documents evidencing
ownership or possession of the Collateral are issued or
outstanding, Debtor will cause the interest of Secured Party to be
properly noted thereon and will, forthwith upon receipt, deliver
same to Secured Party. If any Collateral is at any time in the
possession or control of any warehouseman, bailee, agent or
independent contractor, Debtor shall notify such Person of Secured
Party's security interest in such Collateral. Upon Secured Party's
request, Debtor shall instruct any such Person to hold all such
Collateral for Secured Party's account subject to Debtor's
instructions, or, if an Event of Default shall have occurred,
subject to Secured Party's instructions.
Section 4.04 Delivery of Letters of Credit and Instruments.
Debtor will deliver each letter of credit, if any, included in the
Collateral to Secured Party, in each case forthwith upon receipt by
or for the account of Debtor. If any Account becomes evidenced by
a promissory note, trade acceptance or any other instrument for the
payment of money (other than checks or drafts in payment of
Accounts collected by Debtor in the ordinary course of business
prior to notification by Secured Party under Section 6.02(h)),
Debtor will immediately deliver such instrument to Secured Party
appropriately endorsed and, regardless of the form of presentment,
demand, notice of dishonor, protest and notice of protest with
respect thereto, Debtor will remain liable thereon until such
instrument is paid in full. Debtor shall immediately deliver any
instrument or certificate evidencing a renewal or reissue of the
Certificate of Deposit.
Section 4.05 Sale, Disposition or Encumbrance of Collateral.
Except as permitted by Section 4.10 or with Secured Party's prior
written consent, Debtor will not in any way encumber any of the
Collateral (or permit or suffer any of the Collateral to be
encumbered) or sell, assign, lend, rent, lease or otherwise dispose
of or transfer any of the Collateral to or in favor of any Person
other than Secured Party.
Section 4.06 Proceeds of Collateral. Except as permitted by
Sections 4.04, 4.10 and 4.11, Debtor will deliver to Secured Party
promptly upon receipt all proceeds delivered to Debtor from the
sale or disposition of any Collateral. If chattel paper, documents
or instruments are received as proceeds, which are required to be
delivered to Secured Party, they will be, immediately upon receipt,
properly endorsed or assigned and delivered to Secured Party as
Collateral. This Section 4.06 shall not be construed to permit
sales or dispositions of Collateral except as may be elsewhere
expressly permitted by this Agreement.
Section 4.07 Records and Information. Debtor shall keep
accurate and complete records of the Collateral (including
proceeds). These records shall reflect complete and accurate stock
records of the Inventory and all facts concerning each Account.
Debtor shall conduct a physical count of the Inventory at such
intervals as Secured Party requests and promptly supply Secured
Party with a copy of such count accompanied by a report of the
value (valued at the lower of cost or market value) of the
Inventory. Secured Party may at any time have access to, examine,
audit, make extracts from and inspect without hindrance or delay
Debtor's records, files and the Collateral. Debtor will promptly
provide written notice to Secured Party of all information which in
any way relates to or affects the filing of any financing statement
or other public notices or recordings, or the delivery and
possession of items of Collateral for the purpose of perfecting a
security interest in the Collateral. Debtor will also promptly
furnish such information as Secured Party may from time to time
reasonably request regarding (i) the business, affairs or financial
condition of Debtor or (ii) the Collateral or Secured Party's
rights or remedies with respect thereto.
Section 4.08 Reimbursement of Expenses. Debtor hereby assumes
all liability for the Collateral, the security interests created
hereunder and any use, possession, maintenance, management,
enforcement or collection of any or all of the Collateral. Debtor
agrees to indemnify and hold Secured Party harmless from and
against and covenants to defend Secured Party against any and all
losses, damages, claims, costs, penalties, liabilities and
expenses, including, without limitation, court costs and attorneys'
fees, incurred because of, incident to, or with respect to the
Collateral (including, without limitation, any use, possession,
maintenance or management thereof, or any injuries to or deaths of
persons or damage to property). All amounts for which Debtor is
liable pursuant to this Section 4.08 shall be due and payable by
Debtor to Secured Party upon demand. If Debtor fails to make such
payment upon demand (or if demand is not made due to an injunction
or stay arising from bankruptcy or other proceedings) and Secured
Party pays such amount, the same shall be due and payable by Debtor
to Secured Party, plus interest thereon from the date of Secured
Party's demand (or from the date of Secured Party's payment if
demand is not made due to such proceedings) at the Highest Lawful
Rate.
Section 4.09 Further Assurances. Upon the request of Secured
Party, Debtor shall (at Debtor's expense) execute and deliver all
such assignments, certificates, financing statements or other
documents and give further assurances and do all other acts and
things as Secured Party may reasonably request to perfect Secured
Party's interest in the Collateral or to protect, enforce or
otherwise effect Secured Party's rights and remedies hereunder.
Section 4.10 Inventory. Until an Event of Default occurs
hereunder, Debtor may use the Inventory in any lawful manner not
inconsistent with this Agreement and with the terms of insurance
thereon and may sell, lease or otherwise dispose of its Inventory
for cash or terms in the ordinary course of business, and Debtor
may retain the proceeds of such sales, leases or other dispositions
(subject to Section 4.04 and subsection 4.11(a)); provided,
however, the Inventory shall remain in Debtor's possession and
control at all times prior to sale, lease or other disposition at
Debtor's address set forth in the opening paragraph hereof or at
such other location(s) as may be specified in Section 1.02 or 1.03.
Debtor shall bear any risk of loss of the Inventory. Debtor shall
not use any item of Inventory in a manner inconsistent with the
holding thereof for sale, lease or other disposition in the
ordinary course of business or in contravention of the terms of any
agreement. A sale, lease or disposition in the ordinary course of
business does not include the exchange of Inventory for services or
goods in kind or transfers of Inventory for the satisfaction of
obligations to suppliers or other indebtedness. Upon an Event of
Default, Debtor will not sell, lease or otherwise dispose of any of
the Inventory without the prior written consent of Secured Party,
and Debtor shall immediately deliver to Secured Party any checks,
cash or other forms of payment which Debtor receives in connection
with any Inventory, appropriately endorsed.
Section 4.11 Accounts.
(a) Prior to notification by Secured Party under
Section 6.02(h), Debtor will collect the Accounts in the ordinary
course of its business and may retain the proceeds of such
collections (subject to Section 4.04).
(b) Debtor will not modify, extend or substitute any
contract, the terms of which shall at any time have given rise to
an Account, except in the ordinary course of business or with the
prior written consent of Secured Party. Debtor will not re-date
any invoice or sale or make sales with an extended payment date
beyond that customary in the industry, and in no event longer than
90 days. Debtor shall not adjust, settle, discount or compromise
any of the Accounts, except in the ordinary course of business or
with the prior written consent of Secured Party.
(c) Debtor will duly perform or cause to be performed
all of Debtor's obligations with respect to the Accounts and the
underlying sales of goods or other transactions giving rise to the
Accounts.
Section 4.12 Condition of Collateral. Debtor will maintain
all the Collateral in good condition, repair and working order, and
in accordance with any manufacturer's manual. Debtor will not
misuse, abuse, waste, destroy or endanger the Collateral or allow
it to deteriorate, except for ordinary wear and tear from its
intended use. Debtor will repair, replace or otherwise improve the
Collateral as may be necessary. Debtor will not use any Collateral
in violation of any law, statute, ordinance, regulation or
administrative order, or suffer it to be so used.
Section 4.13 Collateral Attached to Other Property. In the
event that the Collateral is to be attached or affixed to any real
property, Debtor hereby agrees that this Agreement may be filed for
record in any appropriate real estate records as a financing
statement which is a fixture filing. In connection therewith,
Debtor will take whatever action is required by Section 4.09. If
Debtor is not the record owner of such real property, Debtor will
provide Secured Party with any additional security agreements or
financing statements necessary for the perfection of Secured
Party's security interest in the Collateral. If the Collateral is
wholly or partly affixed to real estate or installed in or affixed
to other goods, Debtor will, on demand of Secured Party, furnish
Secured Party with a disclaimer (including landlord's or other lien
waivers or releases, if applicable), signed by all Persons or
entities having an interest in the real estate or other goods to
which the Collateral may have become affixed, of any prior interest
to Secured Party's interest in the Collateral.
Section 4.14 Collateral Separate and Distinct. Debtor shall
at all times keep the Collateral, including proceeds, or cause it
to be kept (when in the possession of warehousemen, bailees,
agents, independent contractors or other third parties), separate
and distinct from other property.
ARTICLE 5
RIGHTS, DUTIES AND POWERS OF SECURED PARTY
The following rights, duties and powers of Secured Party are
applicable irrespective of whether an Event of Default occurs and
is continuing:
Section 5.01 Discharge Encumbrances. Secured Party may, at
its option, discharge any taxes, liens, security interests or other
encumbrances at any time levied or placed on the Collateral, may
pay for insurance on the Collateral and may pay for the maintenance
and preservation of the Collateral. Debtor agrees to reimburse
Secured Party upon demand for any payment so made, plus interest
thereon from the date of Secured Party's demand at the Highest
Lawful Rate.
Section 5.02 Transfer of Collateral. Secured Party may
transfer any or all of the Obligations, and upon any such transfer
Secured Party may transfer its interest in any or all of the
Collateral and shall be fully discharged thereafter from all
liability therefor. Any transferee of the Collateral shall be
vested with all rights, powers and remedies of Secured Party
hereunder.
Section 5.03 Licenses and Rights to Use Collateral. In
connection with any transfer or sale (to Secured Party or any other
Person) of the Collateral, Secured Party is hereby granted a
transferable license or other right to use, without any charge, any
of Debtor's labels, patents, copyrights, trade names, trade
secrets, trademarks or other similar property in completing
production, advertising or selling such Collateral. Debtor's
rights under all licenses and franchise agreements shall inure to
the benefit of Secured Party and any transferee of all or any part
of the Collateral.
Section 5.04 Cumulative and Other Rights. The rights, powers
and remedies of Secured Party hereunder are in addition to all
rights, powers and remedies given by law or in equity. The
exercise by Secured Party of any one or more of the rights, powers
and remedies herein shall not be construed as a waiver of any other
rights, powers and remedies, including, without limitation, any
other rights of set-off. If any of the Obligations are given in
renewal, extension for any period or rearrangement, or applied
toward the payment of debt secured by any lien, Secured Party shall
be, and is hereby, subrogated to all the rights, titles, interests
and liens securing the debt so renewed, extended, rearranged or
paid.
Section 5.05 Disclaimer of Certain Duties.
(a) The powers conferred upon Secured Party by this Agreement
are to protect its interest in the Collateral and shall not impose
any duty upon Secured Party to exercise any such powers. Debtor
hereby agrees that Secured Party shall not be liable for, nor shall
the indebtedness evidenced by the Obligations be diminished by,
Secured Party's delay or failure to collect upon, foreclose, sell,
take possession of or otherwise obtain value for the Collateral.
(b) Secured Party shall be under no duty whatsoever to make
or give any presentment, notice of dishonor, protest, demand for
performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in
connection with any Collateral or the Obligations, or to take any
steps necessary to preserve any rights against any Obligor, Account
Debtor or other Person. Debtor waives any right of marshaling in
respect of any and all Collateral, and waives any right to require
Secured Party to proceed against any Obligor, Account Debtor or
other Person, exhaust any Collateral or enforce any other remedy
which Secured Party now has or may hereafter have against any
Obligor or other Person.
Section 5.06 Modification of Obligations; Other Security.
Debtor waives (i) any and all notice of acceptance, creation,
modification, rearrangement, renewal or extension for any period of
any instrument executed by any Obligor in connection with the
Obligations and (ii) any defense of any Obligor by reason of
disability, lack of authorization, cessation of the liability of
any Obligor or for any other reason. Debtor authorizes Secured
Party, without notice or demand and without any reservation of
rights against Debtor and without affecting Debtor's liability
hereunder or on the Obligations, from time to time to (x) take and
hold other property, other than the Collateral, as security for the
Obligations, and exchange, enforce, waive and release any or all of
the Collateral, (y) apply the Collateral in the manner permitted by
this Agreement and (z) renew, extend for any period, accelerate,
amend or modify, supplement, enforce, compromise, settle, waive or
release the obligations of any Obligor or any instrument or
agreement of such other Person with respect to any or all of the
Obligations or Collateral.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 Events. It shall constitute an Event of Default
under this Agreement if an Event of Default occurs and is
continuing under the Credit Agreement.
Section 6.02 Remedies. Upon the occurrence and during the
continuance of any Event of Default, Secured Party may take any or
all of the following actions without notice (except where expressly
required below or in the Credit Agreement) or demand to Debtor:
(a) Declare all or part of the indebtedness pursuant to
the Obligations immediately due and payable and enforce
payment of the same by Debtor or any Obligor.
(b) Take possession of the Collateral, or at Secured
Party's reasonable request Debtor shall, at Debtor's cost,
assemble the Collateral and make it available at a location to
be specified by Secured Party which is reasonably convenient
to Debtor and Secured Party. Secured Party may, at its
option, render any equipment unusable that may be included in
the Collateral, or, at Secured Party's request, Debtor will
render it unusable. In any event, Debtor shall bear the risk
of accidental loss or damage to or diminution in value of the
Collateral, and Secured Party shall have no liability
whatsoever for failure to obtain or maintain insurance, nor to
determine whether any insurance ever in force is adequate as
to amount or as to risk insured.
(c) Sell or lease, in one or more sales or leases and in
one or more parcels, or otherwise dispose of any or all of the
Collateral in its then condition or in any other commercially
reasonable manner as Secured Party may elect, in a public or
private transaction, at any location as deemed reasonable by
Secured Party (including, without limitation, Debtor's
premises), either for cash or credit or for future delivery at
such price as Secured Party may deem fair, and (unless
prohibited by the Code, as adopted in any applicable
jurisdiction) Secured Party may be the purchaser of any or all
Collateral so sold and may apply upon the purchase price
therefor any Obligations secured hereby. Any such sale or
transfer by Secured Party either to itself or to any other
Person shall be absolutely free from any claim of right by
Debtor, including any equity or right of redemption, stay or
appraisal which Debtor has or may have under any rule of law,
regulation or statute now existing or hereafter adopted. Upon
any such sale or transfer, Secured Party shall have the right
to deliver, assign and transfer to the purchaser or transferee
thereof the Collateral so sold or transferred. It shall not
be necessary that the Collateral or any part thereof be
present at the location of any such sale or transfer. Secured
Party may, at its discretion, provide for a public sale, and
any such public sale shall be held at such time or times
within ordinary business hours and at such place or places as
Secured Party may fix in the notice of such sale. Secured
Party shall not be obligated to make any sale pursuant to any
such notice. Secured Party may, without notice or publication,
adjourn any public or private sale by announcement at any time
and place fixed for such sale, and such sale may be made at any
time or place to which the same may be so adjourned. In the event
any sale or transfer hereunder is not completed or is defective in
the opinion of Secured Party, such sale or transfer shall not
exhaust the rights of Secured Party hereunder, and Secured Party
shall have the right to cause one or more subsequent sales or
transfers to be made hereunder. In the event that any of the
Collateral is sold or transferred on credit, or to be held by
Secured Party for future delivery to a purchaser or
transferee, the Collateral so sold or transferred may be
retained by Secured Party until the purchase price or other
consideration is paid by the purchaser or transferee thereof,
but in the event that such purchaser or transferee fails to
pay for the Collateral so sold or transferred or to take
delivery thereof, Secured Party shall incur no liability in
connection therewith. If only part of the Collateral is sold
or transferred such that the Obligations remain outstanding
(in whole or in part), Secured Party's rights and remedies
hereunder shall not be exhausted, waived or modified, and
Secured Party is specifically empowered to make one or more
successive sales or transfers until all the Collateral shall
be sold or transferred and all the Obligations are paid. In
the event that Secured Party elects not to sell the
Collateral, Secured Party retains its rights to lease or
otherwise dispose of or utilize the Collateral or any part or
parts thereof in any manner authorized or permitted by law or
in equity, and to apply the proceeds of the same towards
payment of the Obligations. Each and every method of
disposition of the Collateral described in this subsection or
in subsection (f) shall constitute disposition in a
commercially reasonable manner.
(d) Take possession of all books and records of Debtor
pertaining to the Collateral. Secured Party shall have the
authority to enter upon any real property or improvements
thereon in order to obtain any such books or records, or any
Collateral located thereon, and remove the same therefrom
without liability.
(e) Apply proceeds of the disposition of the Collateral
to the Obligations in any manner elected by Secured Party and
permitted by the Code or otherwise permitted by law or in
equity. Such application may include, without limitation, the
reasonable expenses of retaking, holding, preparing for sale
or other disposition, and the reasonable attorneys' fees and
legal expenses incurred by Secured Party.
(f) Appoint any Person as agent to perform any act or
acts necessary or incident to any sale or transfer by Secured
Party of the Collateral. Additionally, any sale or transfer
hereunder may be conducted by an auctioneer or any officer or
agent of Secured Party.
(g) Receive, change the address for delivery, open and
dispose of mail addressed to Debtor, and to execute, assign
and endorse negotiable and other instruments for the payment
of money, documents of title or other evidences of payment,
shipment or storage for any form of Collateral on behalf of
and in the name of Debtor.
(h) Notify or require Debtor to notify Account Debtors
that the Accounts have been assigned to Secured Party and
direct such Account Debtors to make payments on the Accounts
directly to Secured Party. To the extent Secured Party does
not so elect, Debtor shall continue to collect the Accounts.
Secured Party or its designee shall also have the right, in
its own name or in the name of Debtor, to do any of the
following: (i) to demand, collect, receipt for, settle,
compromise any amounts due, give acquittances for, prosecute
or defend any action which may be in relation to any monies
due or to become due by virtue of, the Accounts; (ii) to sell,
transfer or assign or otherwise deal in the Accounts or the
proceeds thereof or the related goods, as fully and
effectively as if Secured Party were the absolute owner
thereof; (iii) to extend the time of payment of any of the
Accounts, to grant waivers and make any allowance or other
adjustment with reference thereto; (iv) to endorse the name of
Debtor on notes, checks or other evidences of payments on
Collateral that may come into possession of Secured Party;
(v) to take control of cash and other proceeds of any
Collateral; (vi) to sign the name of Debtor on any invoice or
bill of lading relating to any Collateral, or any drafts
against Account Debtors or other persons making payment with
respect to Collateral; (vii) to send a request for
verification of Accounts to any Account Debtor; and (viii) to
do all other acts and things necessary to carry out the intent
of this Agreement.
(i) Receive or withdraw any or all funds evidenced by the
Certificate of Deposit.
(j) Exercise all other rights and remedies permitted by
law or in equity.
Section 6.03 Attorney-in-Fact. Debtor hereby irrevocably
appoints Secured Party as Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of
Debtor or otherwise, from time to time in Secured Party's
discretion upon the occurrence and during the continuance of an
Event of Default, but at Debtor's cost and expense and without
notice to Debtor:
(a) To obtain, adjust, sell and cancel any insurance with
respect to the Collateral, and endorse any draft drawn by
insurers of the Collateral. Secured Party may apply any
proceeds or unearned premiums of such insurance to the
Obligations (whether or not due).
(b) To take any action and to execute any assignment,
certificate, financing statement, notification, document or
instrument which Secured Party 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 Debtor representing any payment or
other distribution in respect of the Collateral or any part
thereof and to give full discharge for the same.
Section 6.04 Account Debtors. Any payment or settlement of an
Account made by an Account Debtor will be, to the extent of such
payment or to the extent provided under such settlement, a release,
discharge and acquittance of the Account Debtor with respect to
such Account, and Debtor shall take any action as may be required
by Secured Party in connection therewith. No Account Debtor on any
Account will ever be bound to make inquiry as to the termination of
this Agreement or the rights of Secured Party to act hereunder, but
shall be fully protected by Debtor in making payment directly to
Secured Party.
Section 6.05 Liability for Deficiency. If any sale or other
disposition of Collateral by Secured Party or any other action of
Secured Party hereunder results in reduction of the Obligations,
such action will not release Debtor from its liability to Secured
Party for any unpaid Obligations, including costs, charges and
expenses incurred in the liquidation of Collateral, together with
interest thereon, and the same shall be immediately due and payable
to Secured Party at Secured Party's address set forth in the
opening paragraph hereof.
Section 6.06 Reasonable Notice. If any applicable provision
of any law requires Secured Party to give reasonable notice of any
sale or disposition or other action, Debtor hereby agrees that five
days' prior written notice shall constitute reasonable notice
thereof. Such notice, in the case of public sale, shall state the
time and place fixed for such sale and, in the case of private
sale, the time after which such sale is to be made.
Section 6.07 Non-judicial Enforcement. Secured Party may
enforce its rights hereunder without prior judicial process or
judicial hearing, and to the extent permitted by law Debtor
expressly waives any and all legal rights which might otherwise
require Secured Party to enforce its rights by judicial process.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.01 Notices. Any notice required or permitted to be
given under or in connection with this Agreement shall be given in
accordance with the notice provisions of the Credit Agreement.
Section 7.02 Amendments and Waivers. Secured Party's
acceptance of partial or delinquent payments or any forbearance,
failure or delay by Secured Party in exercising any right, power or
remedy hereunder shall not be deemed a waiver of any obligation of
Debtor or any Obligor, or of any right, power or remedy of Secured
Party; and no partial exercise of any right, power or remedy shall
preclude any other or further exercise thereof. Secured Party may
remedy any Event of Default hereunder or in connection with the
Obligations without waiving the Event of Default so remedied.
Debtor hereby agrees that if Secured Party agrees to a waiver of
any provision hereunder, or an exchange of or release of the
Collateral, or the addition or release of any Obligor or other
Person, any such action shall not constitute a waiver of any of
Secured Party's other rights or of Debtor's obligations hereunder.
This Agreement may be amended only by an instrument in writing
executed jointly by Debtor and Secured Party and may be
supplemented only by documents delivered or to be delivered in
accordance with the express terms hereof.
Section 7.03 Copy as Financing Statement. A photocopy or
other reproduction of this Agreement or any financing statement
covering the Collateral is sufficient as a financing statement, and
the same may be filed with any appropriate filing authority for the
purpose of perfecting Secured Party's security interest in the
Collateral.
Section 7.04 Possession of Collateral. Secured Party shall be
deemed to have possession of any Collateral in transit to it or set
apart for it (or, in either case, any of its agents, affiliates or
correspondents).
Section 7.05 Redelivery of Collateral. If any sale or
transfer of Collateral by Secured Party results in full
satisfaction of the Obligations, and after such sale or transfer
and discharge there remains a surplus of proceeds, Secured Party
will deliver to Debtor such excess proceeds in a commercially
reasonable time; provided, however, that Secured Party shall not be
liable for any interest, cost or expense in connection with any
delay in delivering such proceeds to Debtor.
Section 7.06 Governing Law; Jurisdiction. This Agreement and
the security interest granted hereby shall be construed in
accordance with and governed by the laws of the State of Texas
(except to the extent that the laws of any other jurisdiction
govern the perfection and priority of the security interests
granted hereby).
Section 7.07 Continuing Security Agreement.
(a) Except as may be expressly applicable pursuant to
Section 9.505 of the Code, no action taken or omission to act by
Secured Party hereunder, including, without limitation, any action
taken or inaction pursuant to Section 6.02, shall be deemed to
constitute a retention of the Collateral in satisfaction of the
Obligations or otherwise to be in full satisfaction of the
Obligations, and the Obligations shall remain in full force and
effect, until Secured Party shall have applied payments (including,
without limitation, collections from Collateral) towards the
Obligations in the full amount then outstanding or until such
subsequent time as is hereinafter provided in subsection (b) below.
(b) To the extent that any payments on the Obligations or
proceeds of the Collateral are subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be
repaid to a trustee, debtor in possession, receiver or other Person
under any bankruptcy law, common law or equitable cause, then to
such extent the Obligations so satisfied shall be revived and
continue as if such payment or proceeds had not been received by
Secured Party, and Secured Party's security interests, rights,
powers and remedies hereunder shall continue in full force and
effect. In such event, this Agreement shall be automatically
reinstated if it shall theretofore have been terminated pursuant to
Section 7.08.
Section 7.08 Termination. The grant of a security interest
hereunder and all of Secured Party's rights, powers and remedies in
connection therewith shall remain in full force and effect until
Secured Party has retransferred and delivered all Collateral in its
possession to Debtor, and executed a written release or termination
statement and reassigned to Debtor without recourse or warranty any
remaining Collateral and all rights conveyed hereby. Upon the
complete payment of the Obligations and the compliance by Debtor
with all covenants and agreements hereof, Secured Party, at the
written request and expense of Debtor, will release, reassign and
transfer the Collateral to Debtor and declare this Agreement to be
of no further force or effect. Notwithstanding the foregoing, the
reimbursement and indemnification provisions of Section 4.08 and
the provisions of subsection 7.07(b) shall survive the termination
of this Agreement.
Section 7.09 Counterparts, Effectiveness. This Agreement may
be executed in two or more counterparts. Each counterpart is
deemed an original, but all such counterparts taken together
constitute one and the same instrument. This Agreement becomes
effective upon the execution hereof by Debtor and delivery of the
same to Secured Party, and it is not necessary for Secured Party to
execute any acceptance hereof or otherwise signify or express its
acceptance hereof.
DEBTOR: MAGNOLIA PIPELINE CORPORATION
By:
Name:
Title: <PAGE>
Schedule 1.02(b)
None<PAGE>
Schedule 1.02(c)
Transmission Contracts
1. Gas Transportation Agreement between Magnolia Pipeline
Corporation ("Magnolia") and Meridian Oil, Inc. ("Meridian")
dated August 23, 1991.
a. Dedication Agreement between Magnolia and Meridian dated
June 20, 1991.
b. Letter Agreement between Magnolia and Meridian dated July
7, 1992.
c. Notice from Magnolia to Meridian of July, 1993.
2. Gas Transportation Agreement between Magnolia and Transco
Energy Marketing Company ("Transco") dated July 12, 1990, as
amended by Amendment to the Gas Transportation Agreement dated
as of August 1, 1995, between Magnolia and Transco.
Section 9.03 Investments, Loans and Advances. The Borrower
will not make or permit to remain outstanding any loans or advances
to or investments in any Person, except that the foregoing
restriction shall not apply to:
(a) investments, loans or advances reflected in the Financial
Statements or which are disclosed to the Lender in
Schedule 9.03;
(b) accounts receivable arising in the ordinary course of
business;
(c) direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or any
agency thereof, in each case maturing within one year from the
date of creation thereof;
(d) commercial paper maturing within one year from the date
of creation thereof rated in the highest grade by Standard &
Poors Corporation or Moody's Investors Service, Inc.;
(e) deposits maturing within one year from the date of
creation thereof with, including certificates of deposit
issued by, the Lender or any office located in the United
States of any other bank or trust company which is organized
under the laws of the United States or any state thereof, has
capital, surplus and undivided profits aggregating at least
$100,000,000.00 (as of the date of the Lender's or bank or
trust company's most recent financial reports) and has a short
term deposit rating of no lower than A2 or P2, as such rating
is set forth from time to time, by Standard & Poors
Corporation or Moody's Investors Service, Inc., respectively;
(f) deposits in money market funds investing exclusively in
investments described in Section 9.03(d), 9.03(e) or 9.03(f);
(g) a one time advance of $300,000 to MERI; and
(h) other investments, loans or advances not to exceed
$50,000 in the aggregate at any time.
Section 9.04 Dividends, Distributions and Redemptions. The
Borrower will not declare or pay any dividend, purchase, redeem or
otherwise acquire for value any of its stock now or hereafter
outstanding, return any capital to its stockholders or make any
distribution of its assets to its stockholders.
Section 9.05 Sales and Leasebacks. The Borrower will not
enter into any arrangement, directly or indirectly, with any Person
whereby the Borrower shall sell or transfer any of its Property,
whether now owned or hereafter acquired, and whereby the Borrower
shall then or thereafter rent or lease as lessee such Property or
any part thereof or other Property which the Borrower intends to
use for substantially the same purpose or purposes as the Property
sold or transferred.
Section 9.06 Nature of Business. The Borrower will not allow
any material change to be made in the character of its business.
Section 9.07 Mergers, Etc. The Borrower will not merge into
or with or consolidate with any other Person, or sell, lease or
otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its Property or assets to
any other Person.
Section 9.08 Proceeds of Note. The Borrower will not permit
the proceeds of the Note to be used for any purpose other than
those permitted by Section 7.07. Neither the Borrower nor any
Person acting on behalf of the Borrower has taken or will take any
action which might cause any of the Loan Documents to violate
Regulation G, U or X or any other regulation of the Board of
Governors of the Federal Reserve System or to violate Section 7 of
the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may
hereinafter be in effect.
Section 9.09 ERISA Compliance. The Borrower will not at any
time:
(a) Engage in, or permit any ERISA Affiliate to engage in,
any transaction in connection with which the Borrower or any
ERISA Affiliate could be subjected to either a civil penalty
assessed pursuant to section 502(c), (i) or (l) of ERISA or a
tax imposed by Chapter 43 of Subtitle D of the Code;
(b) Terminate, or permit any ERISA Affiliate to terminate,
any Plan in a manner, or take any other action with respect to
any Plan, which could result in any liability to the Borrower
or any ERISA Affiliate to the PBGC;
(c) Fail to make, or permit any ERISA Affiliate to fail to
make, full payment when due of all amounts which, under the
provisions of any Plan, agreement relating thereto or
applicable law, the Borrower or any ERISA Affiliate is
required to pay as contributions thereto;
(d) Permit to exist, or allow any ERISA Affiliate to permit
to exist, any accumulated funding deficiency within the
meaning of Section 302 of ERISA or section 412 of the Code,
whether or not waived, with respect to any Plan;
(e) Permit, or allow any ERISA Affiliate to permit, the
actuarial present value of the benefit liabilities under any
Plan maintained by the Borrower or any ERISA Affiliate which
is regulated under Title IV of ERISA to exceed the current
value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to
such benefit liabilities. The term "actuarial present value
of the benefit liabilities" shall have the meaning specified
in section 4041 of ERISA;
(f) Contribute to or assume an obligation to contribute to,
or permit any ERISA Affiliate to contribute to or assume an
obligation to contribute to, any Multiemployer Plan;
(g) Acquire, or permit any ERISA Affiliate to acquire, an
interest in any Person that causes such Person to become an
ERISA Affiliate with respect to the Borrower or any ERISA
Affiliate if such Person sponsors, maintains or contributes
to, or at any time in the six-year period preceding such
acquisition has sponsored, maintained, or contributed to, (1)
any Multiemployer Plan, or (2) any other Plan that is subject
to Title IV of ERISA under which the actuarial present value
of the benefit liabilities under such Plan exceeds the current
value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to
such benefit liabilities;
(h) Incur, or permit any ERISA Affiliate to incur, a
liability to or on account of a Plan under sections 515, 4062,
4063, 4064, 4201 or 4204 of ERISA;
(i) Contribute to or assume an obligation to contribute to,
or permit any ERISA Affiliate to contribute to or assume an
obligation to contribute to, any employee welfare benefit
plan, as defined in section 3(1) of ERISA, including, without
limitation, any such plan maintained to provide benefits to
former employees of such entities, that may not be terminated
by such entities in their sole discretion at any time without
any material liability; or
(j) Amend or permit any ERISA Affiliate to amend, a Plan
resulting in an increase in current liability such that the
Borrower or any ERISA Affiliate is required to provide
security to such Plan under section 401(a)(29) of the Code.
Section 9.10 Sale or Discount of Receivables. The Borrower
will not discount or sell (with or without recourse) any of its
notes receivable or accounts receivable.
Section 9.11 Tangible Net Worth. The Borrower will not
permit its Tangible Net Worth to be less than $1,750,000 at any
time, with such minimum amount being permanently increased by an
amount equal to 50% of positive net income of the Borrower for each
fiscal quarter of the Borrower, and 100% of equity received by the
Borrower subsequent to September 30, 1995; provided, however such
minimum amount shall not be decreased as a result of any losses or
negative net income of the Borrower.
Section 9.12 Cash Flow to Debt Service Coverage Ratio. The
Borrower will not permit its Cash Flow to Debt Service Ratio as of
the end of any fiscal quarter of the Borrower (calculated on a
rolling four-quarter basis commencing with the quarter ended
December 31, 1995, provided, for the fiscal quarters ending
December 31, 1995, March 31, 1996 and June 30, 1996, the
calculation will be determined for the time period commencing on
October 1, 1995) to be less than 1.25 to 1.00. For purposes of
this Section 9.12, "Cash Flow to Debt Service Ratio" shall mean the
ratio of (i) net income, plus depreciation and other non-cash
expenses, plus the principal amount of the MERI CD if, and only
MERI CD is pledged to the Lender as security for the Indebtedness,
less non-cash income for the four fiscal quarters ending on such
date to (ii) cash payments made for principal on Debt other than
the Loan for such four fiscal quarters of the Borrower, plus
mandatory prepayments of principal pursuant to Section 2.03 made on
the Loans at the end of such four fiscal quarters.
Section 9.13 Environmental Matters. The Borrower will not
cause or permit any of its Property to be in violation of, or do
anything or permit anything to be done which will subject any such
Property to any remedial obligations under any Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions and circumstances, if any, pertaining to
such Property where such violations or remedial obligations would
have a Material Adverse Effect.
Section 9.14 Transactions with Affiliates. The Borrower will
not enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of Property or the rendering of
any service, with any Affiliate unless such transactions are
otherwise permitted under this Agreement, are in the ordinary
course of its business and are upon fair and reasonable terms no
less favorable to it than it would obtain in a comparable arm's
length transaction with a Person not an Affiliate.
Section 9.15 Subsidiaries and Partnerships. The Borrower
shall not create any subsidiaries or partnerships without the prior
written consent of the Lender.
Section 9.16 Negative Pledge Agreements. The Borrower will
not create, incur, assume or suffer to exist any contract,
agreement or understanding (other than this Agreement and the
Security Instruments) which in any way prohibits or restricts the
granting, conveying, creation or imposition of any Lien on any of
its Property or which requires the consent of or notice to other
Persons in connection therewith.
Section 9.17 Preservation of Designated Contracts. The
Borrower will not agree to any change, modification or amendment to
or waiver of any of the terms or provisions of any of the
Designated Contracts. The Borrower will not take any action or
permit any action to be taken by others which will release any
Person from its obligations or liabilities under any of the
Designated Contracts.
ARTICLE X
Events of Default; Remedies
Section 10.01 Events of Default. One or more of the
following events shall constitute an "Event of Default":
(a) the Borrower shall default in the payment or prepayment
when due of any principal of or interest on any Loan, of any
reimbursement obligation for a disbursement made under any
Letter of Credit, or any fees or other amount payable by it
hereunder or under any Security Instrument and such default,
other than a default of payment or prepayment of principal,
shall continue unremedied for a period of 3 Business Days; or
(b) the Borrower or MERI shall default in the payment when
due of any principal of or interest on any of its other Debt
aggregating $25,000 or more, or any event specified in any
note, agreement, indenture or other document evidencing or
relating to any such Debt shall occur if the effect of such
event is to cause, or (with the giving of any notice or the
lapse of time or both) to permit the holder or holders of such
Debt (or a trustee or agent on behalf of such holder or
holders) to cause, such Debt to become due prior to its stated
maturity; or
(c) any representation, warranty or certification made or
deemed made herein or in any Security Instrument by the
Borrower, or any certificate furnished to the Lender pursuant
to the provisions hereof or any Security Instrument, shall
prove to have been false or misleading as of the time made or
furnished in any material respect; or
(d) the Borrower shall default in the performance of any of
its obligations under Article IX, except for its obligations
under Sections 9.11, 9.12 and 9.13 of Article IX, or any other
Article of this Agreement other than under Article VIII; or
the Borrower shall default in the performance of any of its
obligations under Article VIII, Sections 9.11, 9.12 and 9.13
of Article IX, or any Security Instrument and such default
shall continue unremedied for a period of thirty (30) days
after the earlier to occur of (i) notice thereof to the
Borrower by the Lender or (ii) the Borrower otherwise becoming
aware of such default; or
(e) the Borrower shall admit in writing its inability to, or
be generally unable to, pay its debts as such debts become
due; or
(f) the Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a
voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, liquidation or composition or
readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the Federal
Bankruptcy Code, or (vi) take any corporate action for the
purpose of effecting any of the foregoing; or
(g) a proceeding or case shall be commenced, without the
application or consent of the Borrower, in any court of
competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition
or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the
Borrower of all or any substantial part of its assets, or
(iii) similar relief in respect of the Borrower under any law
relating to bankruptcy, insolvency, reorganization, winding-
up, or composition or adjustment of debts, and such proceeding
or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of
60 days; or (iv) an order for relief against the Borrower
shall be entered in an involuntary case under the Federal
Bankruptcy Code; or
(h) a judgment or judgments for the payment of money in
excess of $50,000 in the aggregate shall be rendered by a
court against the Borrower and the same shall not be
discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be
procured, within thirty (30) days from the date of entry
thereof and the Borrower shall not, within said period of 30
days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal; or
(i) the Security Instruments after delivery thereof shall
for any reason, except to the extent permitted by the terms
thereof, cease to be in full force and effect and valid,
binding and enforceable in accordance with their terms, or
cease to create a valid and perfected Lien of the priority
required thereby on any of the collateral purported to be
covered thereby, except to the extent permitted by the terms
of this Agreement, or the Borrower shall so state in writing;
or
(j) any Letter of Credit becomes the subject matter of any
order, judgment, injunction or any other such determination,
or if the Borrower or any other Person shall petition or apply
for or obtain any order restricting payment by the Lender
under any Letter of Credit or extending the Lender's liability
under any Letter of Credit beyond the expiration date stated
therein or otherwise agreed to by the Lender; or
(k) the Borrower discontinues its usual business; or
(l) any Guarantor takes, suffers or permits to exist any of
the events or conditions referred to in paragraphs (e), (f),
(g) or (h) hereof or if any provision of any Guaranty
Agreement related thereto shall for any reason cease to be
valid and binding on such Guarantor or if such Guarantor shall
so state in writing; or
(m) the occurrence of a Material Change without the written
consent of the Lender.
Section 10.02 Remedies.
(a) In the case of an Event of Default other than one
referred to in clauses (e), (f) or (g) of Section 10.01 or in
clause (l) to the extent it relates to clauses (e), (f) or
(g), the Lender may, by notice to the Borrower, cancel the
Commitment and/or declare the principal amount then
outstanding of, and the accrued interest on, the Loans and all
other amounts payable by the Borrower hereunder and under the
Note (including without limitation the payment of cash
collateral to secure the LC Exposure as provided in Section
2.08(b) hereof) to be forthwith due and payable, whereupon
such amounts shall be immediately due and payable without
presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other formalities of any kind, all
of which are hereby expressly waived by the Borrower.
(b) In the case of the occurrence of an Event of Default
referred to in clauses (e), (f) or (g) of Section 10.01 or in
clause (l) to the extent it relates to clauses (e), (f) or
(g), the Commitment shall be automatically cancelled and the
principal amount then outstanding of, and the accrued interest
on, the Loans and all other amounts payable by the Borrower
hereunder and under the Note (including without limitation the
payment of cash collateral to secure the LC Exposure as
provided in Section 2.08(b) hereof) shall become automatically
immediately due and payable without presentment, demand,
protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which
are hereby expressly waived by the Borrower.
(c) All proceeds received after maturity of the Note, whether
by acceleration or otherwise shall be applied first to
reimbursement of expenses and indemnities provided for in this
Agreement and the Security Instruments; second to accrued
interest on the Note; third to fees; fourth to principal
outstanding on the Note and other Indebtedness; fifth to serve
as cash collateral to be held by the Lender to secure the LC
Exposure; and, to the extent of any excess, to the Borrower or
as otherwise required by any Governmental Requirement.
ARTICLE XI
Miscellaneous
Section 11.01 Waiver. No failure on the part of the Lender
to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under any of the
Loan Documents shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege under
any of the Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
Section 11.02 Notices. All notices and other communications
provided for herein and in the other Loan Documents (including,
without limitation, any modifications of, or waivers or consents
under, this Agreement or the other Loan Documents) shall be given
or made by telex, telecopy, courier or U.S. Mail or in writing and
telexed, telecopied, mailed or delivered to the intended recipient
at the "Address for Notices" specified below its name on the
signature pages hereof or in the Loan Documents or, as to any
party, at such other address as shall be designated by such party
in a notice to each other party. Except as otherwise provided in
this Agreement or in the other Loan Documents, all such communica-
tions shall be deemed to have been duly given when transmitted, if
transmitted before 1:00 p.m. local time on a Business Day
(otherwise on the next succeeding Business Day) by telex or
telecopier and evidence or confirmation of receipt is obtained, or
personally delivered or, in the case of a mailed notice, three (3)
Business Days after the date deposited in the mails, postage
prepaid, in each case given or addressed as aforesaid.
Section 11.03 Payment of Expenses, Indemnities, etc. The
Borrower agrees:
(a)whether or not the transactions hereby contemplated are
consummated, to pay all reasonable expenses of the Lender in
the administration (both before and after the execution hereof
and including advice of counsel as to the rights and duties of
the Lender with respect thereto) of, and in connection with
the negotiation, syndication, investigation, preparation,
execution and delivery of, recording or filing of,
preservation of rights under, enforcement of, and refinancing,
renegotiation or restructuring of, the Loan Documents and any
amendment, waiver or consent relating thereto (including,
without limitation, travel, photocopy, mailing, courier,
telephone and other similar expenses of the Lender, the cost
of environmental audits, surveys and appraisals at reasonable
intervals, the reasonable fees and disbursements of counsel
and other outside consultants for the Lender and, in the case
of enforcement, the reasonable fees and disbursements of
counsel for the Lender); and promptly reimburse the Lender for
all amounts expended, advanced or incurred by the Lender to
satisfy any obligation of the Borrower under this Agreement or
any Security Instrument, including without limitation, all
costs and expenses of foreclosure;
(b)to indemnify the Lender and its Affiliates and each of their officers,
directors, employees, representatives, agents, attorneys, accountants and
experts ("Indemnified Parties") from, hold each of them harmless against and
promptly upon demand pay or reimburse each of them for, the Indemnity Matters
which may be incurred by or asserted against or involve any of them (whether
or not any of them is designated a party thereto) as a result of, arising out
of or in any way related to (i) any actual or proposed use by the Borrower
of the proceeds of any of the Loans, (ii) the execution, delivery and
performance of the Loan Documents, (iii) the operations of the business of the
Borrower, (iv) the failure of the Borrower or any Guarantor to comply with the
terms of any Security Instrument or this Agreement, or with any Governmental
Requirement, (v) any inaccuracy of any representation or any breach of any
warranty of the Borrower or any Guarantor set forth in any of the Loan
Documents, (vi) the issuance, execution and delivery or transfer of or payment
or failure to pay under any Letter of Credit, or (vii) the payment of a
drawing under any Letter of Credit notwithstanding the non-compliance, non-
delivery or other improper presentation of the manually executed draft(s) and
certification(s), (vii) any assertion that the Lender was not entitled to
receive the proceeds received pursuant to the Security Instruments or (viii)
any other aspect of the Loan Documents, including, without limitation, the
reasonable fees and disbursements of counsel and all other expenses incurred
in connection with investigating, defending or preparing to defend any such
action, suit, proceeding (including any investigations, litigation or
inquiries) or claim and including all Indemnity Matters arising by reason of
the ordinary negligence of any Indemnified Party, but excluding all Indemnity
Matters arising solely by reason of claims of the Lender's shareholders
against the Lender or by reason of the gross negligence or willful misconduct
on the part of the Indemnified Party; and
(c)to indemnify and hold harmless from time to time the Indemnified Party from
and against any and all losses, claims, cost recovery actions, administrative
orders or proceedings, damages and liabilities to which any such Person may
become subject (i) under any Environmental Law applicable to the Borrower or
any of its Properties, including without limitation, the treatment or disposal
of hazardous substances on any of their Properties, (ii) as a result of the
breach or non-compliance by the Borrower with any Environmental Law applicable
to the Borrower, (iii) due to past ownership by the Borrower of any of its
Properties or past activity on any of their Properties which, though lawful
and fully permissible at the time, could result in present liability, (iv) the
presence, use, release, storage, treatment or disposal of hazardous substances
on or at any of the Properties owned or operated by the Borrower, or (v) any
other environmental, health or safety condition in connection with the Loan
Documents, provided, however, no indemnity shall be afforded under this section
11.03(c) in respect of any Property for any occurrence arising from the acts
or omissions of the Lender during the period after which such Person, its
successors or assigns shall have obtained possession of such Property (whether
by foreclosure or deed in lieu of foreclosure, as mortgagee-in-possession or
otherwise).
(d)No Indemnified Party may settle any claim to be indemnified without the
consent of the indemnitor, such consent not to be unreasonably withheld;
provided, that the indemnitor may not reasonably withhold consent to any
settlement that an Indemnified Party proposes, if the indemnitor does not
have the financial ability to pay all its obligations outstanding and
asserted against the indemnitor at that time, including the maximum potential
claims against the Indemnified Party to be indemnified pursuant to this
Section 11.03.
(e)In the case of any indemnification hereunder, the Lender shall give
notice to the Borrower of any such claim or demand being made against the
Indemnified Party and the Borrower shall have the non-exclusive right to join
in the defense against any such claim or demand provided that if the Borrower
provides a defense, the Indemnified Party shall bear its own cost of
defense unless there is a conflict between the Borrower and such Indemnified
Party.
(f)the foregoing indemnities shall extend to the Indemnified Parties
notwithstanding the sole or concurrent negligence of every kind or character
whatsoever, whether active or passive, whether an affirmative act or an
omission, including without limitation, all types of negligent conduct
identified in the restatement (second) of torts of one or more of the
Indemnified Parties or by reason of strict liability imposed without fault on
any one or more of the Indemnified Parties. to the extent that an Indemnified
Party is found to have committed an act of gross negligence or willful
misconduct, this contractual obligation of indemnification shall continue but
shall only extend to the portion of the claim that is deemed to have occurred
by reason of events other than the gross negligence or willful misconduct of
the Indemnified Party.
(g)The Borrower's obligations nder this Section 11.03 shall survive any
termination of this Agreement and the payment of the Note and shall continue
thereafter in full force and effect.
(h)The Borrower shall pay any amounts due under this Section 11.03 within
thirty (30) days of the receipt by the Borrower of notice of the amount due.
Section 11.04 Amendments, Etc. Any provision of this
Agreement or any Security Instrument may be amended, modified or
waived with the Borrower's and the Lender's prior written consent.
Section 11.05 Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
Section 11.06 Assignments and Participations.
(a) The Borrower may not assign its rights or obligations
hereunder or under the Note or any Letters of Credit without
the prior consent of the Lender.
(b) The Lender may, upon the written consent of the Borrower
(which consent shall not be unreasonably withheld) assign to
one or more assignees all or a portion of its rights and
obligations under this Agreement. Any assignment will become
effective upon the execution and delivery of the assignment to
the Borrower. Upon receipt and acceptance of such executed
assignment, the Borrower, will execute and deliver new Notes
to the assignor and/or assignee, as appropriate, in accordance
with their respective interests as they appear. Upon the
effectiveness of any assignment pursuant to this Section
11.06(b), the assignee will become a "Lender," if not already
a "Lender," for all purposes of this Agreement and the
Security Instruments. The assignor shall be relieved of its
obligations hereunder to the extent of such assignment (and if
the assigning Lender no longer holds any rights or obligations
under this Agreement, such assigning Lender shall cease to be
a "Lender" hereunder except that its rights under Sections
4.04 and 11.03 shall not be affected).
(c) The Lender may transfer, grant or assign participations
in all or any part of its interests hereunder pursuant to this
Section 11.06(c) to any Person, provided that: (i) the Lender
shall remain the "Lender" for all purposes of this Agreement
and the transferee of such participation shall not constitute
a "Lender" hereunder; and (ii) no participant under any such
participation shall have rights to approve any amendment to or
waiver of any of the Loan Documents except to the extent such
amendment or waiver would (x) extend the Revolving Credit
Termination Date, (y) reduce the interest rate (other than as
a result of waiving the applicability of any post-default
increases in interest rates) or fees applicable to any of the
Commitment or Loans or Letters of Credit in which such
participant is participating, or postpone the payment of any
thereof, or (z) release all or substantially all of the
collateral (except as expressly provided in the Security
Instruments) supporting any of the Commitment or Loans or
Letters of Credit in which such participant is participating.
In the case of any such participation, the participant shall
not have any rights under this Agreement or any of the
Security Instruments (the participant's rights against the
Lender in respect of such participation to be those set forth
in the agreement creating such participation), and all amounts
payable by the Borrower hereunder shall be determined as if
the Lender had not sold such participation. In addition, each
agreement creating any participation must include an agreement
by the participant to be bound by the provisions of Section
11.15.
(d) The Lender may furnish any information concerning the
Borrower in its possession from time to time to assignees and
participants (including prospective assignees and
participants); provided that, such Persons agree to be bound
by the provisions of Section 11.15 hereof.
(e) Notwithstanding anything in this Section 11.06 to the
contrary, the Lender may assign and pledge the Note to any
Federal Reserve Bank or the United States Treasury 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 System and/or such
Federal Reserve Bank. No such assignment and/or pledge shall
release the Lender from its obligations hereunder.
(f) Notwithstanding any other provisions of this Section
11.06, no transfer or assignment of the interests or
obligations of the Lender or any grant of participations
therein shall be permitted if such transfer, assignment or
grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loans under the "Blue
Sky" laws of any state.
Section 11.07 Invalidity. In the event that any one or more
of the provisions contained in any of the Loan Documents or the
Letters of Credit, shall, for any reason, be held invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of any of the
other Loan Documents.
Section 11.08 Counterparts. This Agreement may be executed
in any number of counterparts, all of which taken together shall
constitute one and the same instrument and any of the parties
hereto may execute this Agreement by signing any such counterpart.
Section 11.09 References. The words "herein," "hereof,"
"hereunder" and other words of similar import when used in this
Agreement refer to this Agreement as a whole, and not to any
particular article, section or subsection. Any reference herein to
a Section shall be deemed to refer to the applicable Section of
this Agreement unless otherwise stated herein. Any reference
herein to an exhibit or schedule shall be deemed to refer to the
applicable exhibit or schedule attached hereto unless otherwise
stated herein.
Section 11.10 Survival. The obligations of the parties under
Section 4.04 and Sections 11.03 and 11.15 shall survive the
repayment of the Loans and the termination of the Commitment. To
the extent that any payments on the Indebtedness or proceeds of any
collateral are subsequently invalidated, declared to be fraudulent
or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver or other Person under any bankruptcy
law, common law or equitable cause, then to such extent, the
Indebtedness so satisfied shall be revived and continue as if such
payment or proceeds had not been received and the Lender's Liens,
security interests, rights, powers and remedies under this
Agreement and each Security Instrument shall continue in full force
and effect. In such event, each Security Instrument shall be
automatically reinstated and the Borrower shall take such action as
may be reasonably requested by the Lender to effect such
reinstatement.
Section 11.11 Captions. Captions and section headings
appearing herein are included solely for convenience of reference
and are not intended to affect the interpretation of any provision
of this Agreement.
Section 11.12 no oral agreements. the Loan Documents embody the
entire agreement and understanding between the parties and supersede all other
agreements and understandings between such parties relating to the subject
matter hereof and thereof. the 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 11.13 governing law; submission to jurisdiction.
(a)this Agreement and the Note shall be governed by, and construed in
accordance with, the laws of the state of texas except to the extent that
united states federal law permits the Lender to charge interest at the rate
allowed by the laws of the state where the Lender is located. tex. rev. civ.
stat. ann. art. 5069, ch. 15 (which regulates certain revolving credit loan
accounts and revolving tri-party accounts) shall not apply to this Agreement
or the notes.
(b)any legal action or proceeding with respect to the Loan Documents shall be
brought in the courts of the state of texas or of the united states of america
for the southern district of texas, and, by execution and delivery of this
Agreement, the Borrower hereby accepts for itself and (to the extent permitted
by law) in respect of its Property, generally and unconditionally, the
jurisdiction of the aforesaid courts. the Borrower hereby irrevocably waives
any objection, including, without limitation, any objection to the laying of
venue or based on the grounds of forum non conveniens, which it may now or
hereafter have to the bringing of any such action or proceeding in such
respective jurisdictions. this submission to jurisdiction is non-exclusive and
does not preclude the Lender from obtaining jurisdiction over the Borrower in
any court otherwise having jurisdiction.
(c) the Borrower hereby irrevocably designates Mr. Richard Robert located at
c/o Midcoast Energy Resources, Inc., 1100 Louisiana, Suite 3030, Houston, Texas
77002, as the designee, appointee and agent of the Borrower to receive, for
and on behalf of the Borrower, service of process in such respective
jurisdictions in any legal action or proceeding with respect to the Loan
Documents. it is understood that a copy of such process served on such agent
will be promptly forwarded by overnight courier to the Borrower at its address
set forth under its signature below, but the failure of the Borrower to
receive such copy shall not affect in any way the service of such process.
the Borrower further irrevocably consents to the service of process of any of
the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the
Borrower at its said address, such service to become effective thirty (30)
days after such mailing.
(d) nothing herein shall affect the right of the Lender or any holder of the
Note to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against the Borrower in any other
jurisdiction.
(e)each of the Borrower and the Lender hereby (i) irrevocably waive, to the
maximum extent not prohibited by law, any right it may have to claim or
recover in any such litigation any special, exemplary, punitive or
consequential damages, or damages other than, or in addition to, actual
damages; (ii) certify that no party hereto nor any representative or agent of
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 waiver, and (iii) acknowledge that it has been induced to enter
into this Agreement, the Security Instruments and the transactions contemplated
hereby and thereby by, among other things, the mutual waivers and
certifications contained in this section 11.13.
Section 11.14 Interest. It is the intention of the parties
hereto that Lender shall conform strictly to usury laws applicable
to it. Accordingly, if the transactions contemplated hereby would
be usurious as to the Lender under laws applicable to it (including
the laws of the United States of America and the State of Texas or
any other jurisdiction whose laws may be mandatorily applicable to
the Lender notwithstanding the other provisions of this Agreement),
then, in that event, notwithstanding anything to the contrary in
the Loan Documents or any agreement entered into in connection with
or as security for the Note, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under law
applicable to the Lender that is contracted for, taken, reserved,
charged or received by the Lender any of the Loan Documents or
agreements or otherwise in connection with the Note shall under no
circumstances exceed the maximum amount allowed by such applicable
law, and any excess shall be cancelled automatically and if
theretofore paid shall be credited by the Lender on the principal
amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid
in full, refunded by the Lender to the Borrower); and (ii) in the
event that the maturity of the Note is accelerated by reason of an
election of the holder thereof resulting from any Event of Default
under this Agreement or otherwise, or in the event of any required
or permitted prepayment, then such consideration that constitutes
interest under law applicable to the Lender may never include more
than the maximum amount allowed by such applicable law, and excess
interest, if any, provided for in this Agreement or otherwise shall
be cancelled automatically by the Lender as of the date of such
acceleration or prepayment and, if theretofore paid, shall be
credited by the Lender on the principal amount of the Indebtedness
(or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by the
Lender to the Borrower). All sums paid or agreed to be paid to the
Lender for the use, forbearance or detention of sums due hereunder
shall, to the extent permitted by law applicable to the Lender, be
amortized, prorated, allocated and spread throughout the full term
of the Loans evidenced by the Note until payment in full so that
the rate or amount of interest on account of any Loans hereunder
does not exceed the maximum amount allowed by such applicable law.
If at any time and from time to time (x) the amount of interest
payable to the Lender on any date shall be computed at the Highest
Lawful Rate applicable to the Lender pursuant to this Section 11.14
and (y) in respect of any subsequent interest computation period
the amount of interest otherwise payable to the Lender would be
less than the amount of interest payable to the Lender computed at
the Highest Lawful Rate applicable to the Lender, then the amount
of interest payable to the Lender in respect of such subsequent
interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to the Lender until the total amount
of interest payable to the Lender shall equal the total amount of
interest which would have been payable to the Lender if the total
amount of interest had been computed without giving effect to this
Section 11.14. To the extent that Article 5069-1.04 of the Texas
Revised Civil Statutes is relevant for the purpose of determining
the Highest Lawful Rate, the Lender elects to determine the
applicable rate ceiling under such Article by the indicated weekly
rate ceiling from time to time in effect.
Section 11.15 Confidentiality. In the event that the
Borrower provides to the Lender written confidential information
belonging to the Borrower, if the Borrower shall denominate such
information in writing as "confidential", the Lender shall
thereafter maintain such information in confidence in accordance
with the standards of care and diligence that each utilizes in
maintaining its own confidential information. This obligation of
confidence shall not apply to such portions of the information
which (i) are in the public domain, (ii) hereafter become part of
the public domain without the Lender breaching its obligation of
confidence to the Borrower, (iii) are previously known by the
Lender from some source other than the Borrower, (iv) are hereafter
developed by the Lender without using the Borrower's information,
(v) are hereafter obtained by or available to the Lender from a
third party who owes no obligation of confidence to the Borrower
with respect to such information or through any other means other
than through disclosure by the Borrower, (vi) are disclosed with
the Borrower's consent, (vii) must be disclosed either pursuant to
any Governmental Requirement or to Persons regulating the
activities of the Lender, or (viii) as may be required by law or
regulation or order of any Governmental Authority in any judicial,
arbitration or governmental proceeding. Further, the Lender may
disclose any such information to any independent petroleum
engineers or consultants, any independent certified public
accountants, any legal counsel employed by such Person in
connection with this Agreement or any Security Instrument,
including without limitation, the enforcement or exercise of all
rights and remedies thereunder, or any assignee or participant
(including prospective assignees and participants) in the Loans;
provided, however, that the Lender shall receive a confidentiality
agreement from the Person to whom such information is disclosed the
same obligation to maintain the confidentiality of such information
as is imposed upon it hereunder. Notwithstanding anything to the
contrary provided herein, this obligation of confidence shall cease
three (3) years from the date the information was furnished, unless
the Borrower requests in writing at least thirty (30) days prior to
the expiration of such three year period, to maintain the
confidentiality of such information for an additional three year
period. The Borrower waives any and all other rights it may have
to confidentiality as against the Lender arising by contract,
agreement, statute or law except as expressly stated in this
Section 11.15.
Section 11.16 ERISA. The parties hereto acknowledge that, as
of the Closing Date, neither the Borrower nor any ERISA Affiliate,
sponsors, maintains or contributes to any Plan and, therefore, the
representations, warranties and covenants contained herein relating
to any such Plan or ERISA shall not apply; provided, however, if,
after the Closing Date, the Borrower or any ERISA Affiliate,
sponsors, maintains or contributes to a Plan, the Borrower shall
immediately notify the Lender of such fact and all such
representations, warranties and covenants contained herein relating
to such Plan and ERISA shall apply.
Section 11.17 exculpation provisions. each of the parties hereto
specifically agrees that it has a duty to read this Agreement and the Security
Instruments and agrees that it is charged with notice and knowledge of the
terms of this Agreement and the Security Instruments; that it has in fact read
this Agreement and is fully informed and has full notice and knowledge of the
terms, conditions and effects of this Agreement; that it has been represented
by independent legal counsel of its choice throughout the negotiations
preceding its execution of this Agreement and the Security Instruments; and
has received the advice of its attorney in entering into this Agreement and
the Security Instruments; and that it recognizes that certain of the terms of
this Agreement and the Security Instruments result in one party assuming the
liability inherent in some aspects of the transaction and relieving the other
party of its responsibility for such liability. each party hereto agrees and
covenants that it will not contest the validity or enforceability of any
exculpatory provision of this Agreement and the Security Instruments on the
basis that the party had no notice or knowledge of such provision or that the
provision is not "conspicuous."
<PAGE>
The parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
BORROWER:
MAGNOLIA PIPELINE CORPORATION
By:_____________________________
Name:
Title:
Address for Notices:
1100 Louisiana, Suite 3030
Houston, Texas 77002
Telecopier No.: 713/650-3232
Telephone No.: 713/650-8900
Attention: Richard Robert
<PAGE>
LENDER:
COMPASS BANK - HOUSTON
By:_____________________________
Name:
Title:
Address for Notices:
24 Greenway Plaza,
Suite 1401
Houston, Texas 77046
Telecopier No.: (713) 968-8222
Telephone No.: (713) 968-8273
Attention: Kathy Bowen
<PAGE>
FINANCING STATEMENT
(Central)
This Financing Statement is presented to a Filing Officer for
filing pursuant to the Uniform Commercial Code.
1. The name and address of the Debtor is:
Magnolia Pipeline Corporation
1100 Louisiana, Suite 3030
Houston, Texas 77002
2. The name and address of Secured Party is:
Compass Bank - Houston
24 Greenway Plaza, Suite 1401
Houston, Texas 77046
3. This Financing Statement covers the following Collateral:
All of Debtor's rights, titles and interests in and to
the accounts, equipment, goods, fixtures, general
intangibles, inventory and any and all other personal
property of any kind or character described in and
covered by the Mortgage, Assignment of Proceeds, Security
Agreement and Financing Statement from Debtor to Secured
Party, a copy of which instrument is attached hereto as
Exhibit "A" and made a part hereof for all purposes, and
the proceeds and products of such personal property.
DEBTOR: MAGNOLIA PIPELINE CORPORATION
By:________________________________
Name:
Title:
<PAGE>
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT dated as of December 20, 1995, made by
RAINBOW INVESTMENTS COMPANY, a corporation organized and existing
under the laws of Texas (the "Subordinated Creditor"), and MIDCOAST
ENERGY RESOURCES, INC., a corporation organized and existing under
the laws of Nevada ("MERI"), in favor of COMPASS BANK-HOUSTON (the
"Lender").
R E C I T A L S
1. The Lender has entered into a Credit Agreement dated as
of December 20, 1995, with MAGNOLIA PIPELINE CORPORATION (the
"Borrower"), an Alabama corporation (said Credit Agreement, as same
may hereafter be amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"). Terms defined in the Credit
Agreement and not otherwise defined herein shall have the meanings
assigned to such terms in the Credit Agreement.
2. MERI has assigned to the Subordinated Creditor a net
revenue interest ("Net Revenue Interest") pursuant to and computed
as set forth in that certain Assignment of Net Revenue Interest
dated effective as of October 3, 1995, from MERI to Subordinated
Creditor (the "Assignment"). Such Net Revenue Interest and other
obligations now or hereafter existing under or in connection with
the Assignment or the Net Revenue Interest payable thereunder, all
future net revenue interests assigned by MERI to the Subordinated
Creditor pursuant to that certain Loan Agreement dated as of
October 3, 1995, between MERI and the Subordinated Creditor, and
all interest and premiums, if any, on the foregoing and all other
amounts payable in respect thereof, are herein collectively
referred to as the "Subordinated Debt".
3. MERI has guaranteed the full and prompt payment of any
and all obligations of the Borrower to the Lender under or in
connection with the Credit Agreement, pursuant to that certain
Guaranty Agreement dated December 20, 1995, executed by MERI for
the benefit of the Lender (as same may hereafter be amended,
supplemented or otherwise modified from time to time, the "Guaranty
Agreement").
4. It is a condition precedent to the obligation of the
Lender to make Loans and issue Letters of Credit to the Borrower
under the Credit Agreement that MERI and the Subordinated Creditor
shall have executed and delivered this Subordination Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Lender to make Loans under the Credit Agreement, the
Subordinated Creditor and MERI each hereby agree as follows:
SECTION 1.Agreement to Subordinate. The Subordinated Creditor
and MERI each agrees that the Subordinated Debt is and shall be
subordinate, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of (a) all
obligations of MERI to the Lender now or hereafter existing under
or in connection with the Guaranty Agreement, and (b) all
obligations (including reimbursement obligations) of the Borrower
to the Lender now or hereafter existing under or in connection with
the Credit Agreement, the Note, and any Letter of Credit and the
letter of credit reimbursement agreement executed in connection
therewith, whether for principal, interest (including, without
limitation, interest after the filing of a petition initiating any
proceeding referred to in Section 3(a)), fees, expenses or
otherwise (such obligations being collectively called the
"Obligations"). For the purposes of this Subordination Agreement,
the Obligations shall not be deemed to have been paid in full until
the Revolving Credit Termination Date shall have elapsed and unless
the Lender shall have received full and final payment of the
Obligations.
SECTION 2.No Payment on the Subordinated Debt. The
Subordinated Creditor agrees not to ask, demand, sue for, take or
receive from MERI, directly or indirectly, in cash or other
property or in any other manner (including without limitation from
or by way of collateral), payment of all or any of the Subordinated
Debt unless and until the Obligations shall have been fully and
finally paid; provided, however, with the prior written consent of
the Lender the Subordinated Creditor may receive and MERI may make
scheduled payments on the Subordinated Debt on the stated dates of
payment thereof if, at the time of making such payment and
immediately after giving effect thereto, no Event of Default or
event which, with the giving of notice or the lapse of time, or
both, would become an Event of Default shall occur and be con-
tinuing.
SECTION 3.In Furtherance of Subordination. The Subordinated
Creditor agrees as follows:
(a) Until the Obligations shall have been fully and
finally paid, upon any distribution of all or any of the
assets of MERI or the Borrower to creditors of MERI or the
Borrower upon the dissolution, winding up, liquidation,
arrangement, or reorganization of MERI or the Borrower,
whether in any bankruptcy, insolvency, arrangement,
reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other
marshalling of the assets and liabilities of MERI or the
Borrower or otherwise, any payment or distribution of any kind
(whether in cash, property or securities) which otherwise
would be payable or deliverable upon or with respect to the
Subordinated Debt shall be paid or delivered directly to the
Lender for application (in the case of cash) to or as
collateral (in the case of non-cash property or securities)
for the payment or prepayment of the Obligations.
(b) If any proceeding referred to
in subsection (a) above is commenced by or against MERI or the
Borrower,
(i) the Lender is hereby irrevocably authorized and empowered
(in its own name or in the name of the Subordinated Creditor
or otherwise), but shall have no obligation, to demand, sue
for, collect and receive every payment or distribution
referred to in Section 3(a) and give acquittance therefor and
to file claims and proofs of claim and take such other action
(including, without limitation, enforcing any security
interest or other lien securing payment of the Subordinated
Debt) as it may deem necessary or advisable for the exercise
or enforcement of any of the rights or interests of the Lender
hereunder; and
(ii) the Subordinated Creditor shall duly and promptly take
such action as the Lender may request (A) to collect the
Subordinated Debt for account of the Lender and to file
appropriate claims or proofs of claim in respect of the
Subordinated Debt, (B) to execute and deliver to the Lender
such powers of attorney, assignments, or other instruments as
it may request in order to enable it to enforce any and all
claims with respect to, and any security interests and other
liens securing payment of, the Subordinated Debt, and (C) to
collect and receive any and all payments or distributions
which may be payable or deliverable upon or with respect to
the Subordinated Debt.
(c) All payments or distributions upon or with respect to the
Subordinated Debt which are received by the Subordinated
Creditor contrary to the provisions of this Subordination
Agreement shall be received in trust for the benefit of the
Lender, shall be segregated from other funds and property held
by the Subordinated Creditor and shall be forthwith paid over
to the Lender in the same form as so received (with any
necessary indorsement) to be applied (in the case of cash) to
or held as collateral (in the case of non-cash property or
securities) for the payment or prepayment of the Obligations
in accordance with the terms of the Credit Agreement.
(d) The Lender is hereby authorized to demand specific
performance of this Subordination Agreement, whether or not
MERI shall have complied with any of the provisions hereof
applicable to it, at any time when the Subordinated Creditor
shall have failed to comply with any of the provisions of this
Subordination Agreement applicable to it. The Subordinated
Creditor hereby irrevocably waives any defense based on the
adequacy of a remedy at law, which might be asserted as a bar
to such remedy of specific performance.
Nothing contained in this Section 3 or elsewhere in this
Subordination Agreement is to be interpreted as implying Lender's
consent to the existence, placing, creating or permitting of any
such lien or security interest securing the Subordinated Debt.
SECTION 4. No Commencement of Any Proceeding. The
Subordinated Creditor agrees that, so long as any of the
Obligations shall remain unpaid, it will not commence, or join with
any creditor other than the Lender in commencing, any proceeding
referred to in Section 3(a).
SECTION 5. Rights of Subrogation. The Subordinated Creditor
agrees that no payment or distribution to the Lender pursuant to
the provisions of this Subordination Agreement shall entitle the
Subordinated Creditor to exercise any rights of subrogation in
respect thereof until the Obligations shall have been fully and
finally paid.
SECTION 6. Subordination Legend; Further Assurances. The
Subordinated Creditor and MERI will cause the Assignment and each
other instrument evidencing Subordinated Debt to be endorsed with
the following legend:
"The indebtedness evidenced by this instrument is
subordinated to the prior payment in full of the Obliga-
tions (as defined in the Subordination Agreement here-
inafter referred to) pursuant to, and to the extent pro-
vided in, the Subordination Agreement dated December 20,
1995 by Midcoast Energy Resources, Inc. and Rainbow
Investments Company in favor of Compass Bank-Houston.
The Subordinated Creditor and MERI each will further mark its books
of account in such a manner as shall be effective to give proper
notice of the effect of this Subordination Agreement and will, in
the case of any Subordinated Debt which is not evidenced by any
instrument, upon the Lender's request cause such Subordinated Debt
to be evidenced by an appropriate instrument or instruments
endorsed with the above legend. The Subordinated Creditor and MERI
each will, at its expense and at any time and from time to time,
promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or
that the Lender may request, in order to protect any right or
interest granted or purported to be granted hereby or to enable the
Lender to exercise and enforce its rights and remedies hereunder.
SECTION 7. No Change in or Disposition of Subordinated Debt.
The Subordinated Creditor will not:
(a) Cancel or otherwise discharge any of the Subordinated
Debt (except upon payment in full thereof paid to the Lender
as contemplated by Section 3(c)) or subordinate any of the
Subordinated Debt to any indebtedness of MERI other than the
Obligations;
(b) Sell, assign, pledge, encumber or otherwise dispose of any
of the Subordinated Debt unless such sale, assignment, pledge,
encumbrance or disposition is made expressly subject to this
Subordination Agreement; or
(c) Permit the terms of any of the Subordinated Debt to be
changed in such a manner as to have an adverse effect upon the
rights or interests of the Lender hereunder.
SECTION 8. Agreement by MERI. MERI agrees that it will not
make any payment of any of the Subordinated Debt, or take any other
action, in contravention of the provisions of this Subordination
Agreement.
SECTION 9 Obligations Hereunder Not Affected. All rights and
interests of the Lender hereunder, and all agreements and
obligations of the Subordinated Creditor and MERI under this
Subordination Agreement, shall remain in full force and effect
irrespective of:
(i) any lack of validity or enforceability of the Credit
Agreement, the Note, any Letter of Credit and the letter of
credit reimbursement agreement executed in connection
therewith, the Guaranty Agreement, or any other agreement or
instrument relating to any of the foregoing;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to departure from
the Credit Agreement, the Note, any Letter of Credit and the
letter of credit reimbursement agreement executed in
connection therewith, or the Guaranty Agreement;
(iii) any sale, exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or
consent to departure from any guaranty, for all or any of the
Obligations; or
(iv) any other circumstance which might otherwise constitute
a defense available to, or a discharge of, MERI or the
Borrower in respect of the Obligations or the Subordinated
Creditor in respect of this Subordination Agreement.
This Subordination Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any
of the Obligations is rescinded or must otherwise be returned by
the Lender upon the insolvency, bankruptcy or reorganization of
MERI or the Borrower or otherwise, all as though such payment had
not been made.
SECTION 10. Waiver. The Subordinated Creditor and MERI each
hereby waive promptness, diligence, notice of acceptance and any
other notice with respect to any of the Obligations and this
Subordination Agreement and any requirement that the Lender
protect, secure, perfect or insure any security interest or lien or
any property subject thereto or exhaust any right or take any
action against MERI or any other person or entity or any
collateral.
SECTION 11. Representations and Warranties.
The Subordinated Creditor and MERI each hereby represent and warrant as
follows:
(a) The Subordinated Debt is now outstanding.
(b) A true and complete copy of the Assignment and each other
instrument evidencing the Subordinated Debt has been furnished
to the Lender, has been duly authorized by MERI, has not been
amended or otherwise modified, and constitutes the legal,
valid and binding obligation of MERI enforceable against MERI
in accordance with its terms.
(c) There exists no default in respect of any Subordinated
Debt.
(d) The Subordinated Creditor owns the Subordinated Debt now
outstanding free and clear of any lien, security interest,
charge or encumbrance.
SECTION 12. Amendments, Etc. No amendment or waiver of any
provision of this Subordination Agreement nor consent to any
departure by the Subordinated Creditor or MERI therefrom shall in
any event be effective unless the same shall be in writing and
signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
SECTION 13.Expenses. MERI agrees to pay, upon demand, to the
Lender the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel, which the Lender may
incur in connection with the exercise or enforcement of any of its
rights or interests hereunder.
SECTION 14.Addresses for Notices. All demands, notices and
other communications provided for hereunder shall be in writing
(including telecopy or facsimile communication) and, if to the
Subordinated Creditor, mailed or sent by telecopy or facsimile or
delivered to it, addressed to it at the address of Subordinated
Creditor set forth below its signature on the signature page
hereof, if to MERI or the Lender, mailed, sent or delivered to it,
addressed to it at the address of MERI or the Lender (as the case
may be) specified in the Guaranty Agreement, or as to each party at
such other address as shall be designated by such party in a
written notice to each other party complying as to delivery with
the terms of this Section. All such demands, notices and other
communications shall be effective, when mailed, three days after
deposit in the mails, postage prepaid, when sent by telecopy or
facsimile, when receipt is acknowledged by the receiving equipment
(or at the opening of the next business day if receipt is after
normal business hours), or when delivered, as the case may be,
addressed as aforesaid.
SECTION 15.No Waiver; Remedies. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 16.Continuing Agreement. This Subordination Agreement
is a continuing agreement and shall (i) remain in full force and
effect until the Obligations shall have been fully and finally
paid, (ii) be binding upon the Subordinated Creditor, MERI and
their respective successors and assigns, and (iii) inure to the
benefit of and be enforceable by the Lender and its successors,
transferees and assigns.
SECTION 17.Acceptance Presumed. Notice of acceptance of this
Subordination Agreement is waived, acceptance on the part of Lender
being conclusively presumed by Lender's request for this
Subordination Agreement and delivery thereof to Lender.
SECTION 18.Governing Law. This Subordination Agreement shall
be governed by, and construed in accordance with, the laws of the
State of Texas.
IN WITNESS WHEREOF, the Subordinated Creditor and MERI each
has caused this Subordination Agreement to be duly executed and
delivered by its officer thereunto duly authorized as of the date
first above written.
MERI:MIDCOAST ENERGY RESOURCES, INC.
By:
Name:
Title:
SUBORDINATED CREDITOR:
RAINBOW INVESTMENTS COMPANY
By:
Name:
Title:
Address:
<PAGE>
$1,500,000.00 December 20, 1995
FOR VALUE RECEIVED, MAGNOLIA PIPELINE CORPORATION, an Alabama
corporation (the "Borrower"), hereby promises to pay to the order
of COMPASS BANK- HOUSTON (the "Lender"), at its Principal Office at
24 Greenway Plaza, P.O. Box 4444, Houston, Texas, 77210-4444, the
principal sum of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100
Dollars ($1,500,000.00) (or such lesser amount as shall equal the
aggregate unpaid principal amount of the Loans made by the Lender
to the Borrower under the Credit Agreement, as hereinafter
defined), in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on
the unpaid principal amount of each such Loan, at such office, in
like money and funds, for the period commencing on the date of such
Loan until such Loan shall be paid in full, at the rates per annum
and on the dates provided in the Credit Agreement.
The date, amount, and maturity of each Loan made by the Lender
to the Borrower, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to
any transfer of this Note, endorsed by the Lender on the schedule
attached hereto or any continuation thereof.
This Note is the Note referred to in the Credit Agreement
dated on even date herewith between the Borrower and the Lender and
evidences Loans made by the Lender thereunder (such Credit
Agreement as the same may be amended or supplemented from time to
time, the "Credit Agreement"). Capitalized terms used in this Note
have the respective meanings assigned to them in the Credit
Agreement.
This Note is issued pursuant to the Credit Agreement and is
entitled to the benefits provided for in the Credit Agreement and
the Security Instruments. The Credit Agreement provides for the
acceleration of the maturity of this Note upon the occurrence of
certain events, for prepayments of Loans upon the terms and
conditions specified therein and other provisions relevant to this
Note.
<PAGE>
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF TEXAS.
MAGNOLIA PIPELINE CORPORATION
By:
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF NOTE
$1,500,000.00 December 20, 1995
FOR VALUE RECEIVED, MAGNOLIA PIPELINE CORPORATION, an Alabama
corporation (the "Borrower"), hereby promises to pay to the order
of COMPASS BANK- HOUSTON (the "Lender"), at its Principal Office at
24 Greenway Plaza, P.O. Box 4444, Houston, Texas, 77210-4444, the
principal sum of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100
Dollars ($1,500,000.00) (or such lesser amount as shall equal the
aggregate unpaid principal amount of the Loans made by the Lender
to the Borrower under the Credit Agreement, as hereinafter
defined), in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on
the unpaid principal amount of each such Loan, at such office, in
like money and funds, for the period commencing on the date of such
Loan until such Loan shall be paid in full, at the rates per annum
and on the dates provided in the Credit Agreement.
The date, amount, and maturity of each Loan made by the Lender
to the Borrower, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to
any transfer of this Note, endorsed by the Lender on the schedule
attached hereto or any continuation thereof.
This Note is the Note referred to in the Credit Agreement
dated on even date herewith between the Borrower and the Lender and
evidences Loans made by the Lender thereunder (such Credit
Agreement as the same may be amended or supplemented from time to
time, the "Credit Agreement"). Capitalized terms used in this Note
have the respective meanings assigned to them in the Credit
Agreement.
This Note is issued pursuant to the Credit Agreement and is
entitled to the benefits provided for in the Credit Agreement and
the Security Instruments. The Credit Agreement provides for the
acceleration of the maturity of this Note upon the occurrence of
certain events, for prepayments of Loans upon the terms and
conditions specified therein and other provisions relevant to this
Note.
<PAGE>
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF TEXAS.
MAGNOLIA PIPELINE CORPORATION
By:
Name:
Title:
EXHIBIT B
FORM OF BORROWING REQUEST
____________________, 199__
MAGNOLIA PIPELINE CORPORATION, an Alabama corporation (the
"Borrower"), pursuant to the Credit Agreement dated as of December
20, 1995, between the Borrower and COMPASS BANK - HOUSTON (the
"Lender") (the "Credit Agreement") hereby requests loans on the
date and in the amounts as follows:
(a) Aggregate amount of new Loans to be
$______________________;
(b) Requested funding date is _________________, 199__;
The undersigned certifies that he is the _____________________
of the Borrower, and that as such he is authorized to execute this
certificate on behalf of the Borrower. The undersigned further
certifies, represents and warrants on behalf of the Borrower that
the Borrower is entitled to receive the requested borrowing under
the terms and conditions of the Credit Agreement.
MAGNOLIA PIPELINE CORPORATION
By:
Name:
Title:
<PAGE>
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is the
________________ of MAGNOLIA PIPELINE CORPORATION, an Alabama
corporation (the "Borrower") and that as such he is authorized to
execute this certificate on behalf of the Borrower. With reference
to the Credit Agreement dated as of December 20, 1995 (together
with all amendments or supplements thereto being the "Agreement")
between the Borrower and COMPASS BANK - HOUSTON (the "Lender"), the
undersigned represents and warrants as follows (each capitalized
term used herein having the same meaning given to it in the
Agreement unless otherwise specified):
(a) The representations and warranties of the Borrower
contained in Article VII of the Agreement and in the
Security Instruments and otherwise made in writing by or
on behalf of the Borrower pursuant to the Agreement and
the Security Instruments were true and correct when made,
and are repeated at and as of the time of delivery hereof
and are true and correct at and as of the time of
delivery hereof, except as such representations and
warranties are modified to give effect to the
transactions expressly permitted by the Agreement.
(b) The Borrower has performed and complied with all
agreements and conditions contained in the Agreement and
in the Security Instruments required to be performed or
complied with by it prior to or at the time of delivery
hereof.
(c) The Borrower has not incurred any material
liabilities, direct or contingent, since
_________________, except those set forth in
Schedule 9.01 to the Agreement and except those allowed
by the terms of the Agreement or consented to by the
Lender in writing.
(d) Since __________________, no change has occurred,
either in any case or in the aggregate, in the condition,
financial or otherwise, of the Borrower which would have
a Material Adverse Effect.
(e) There exists, and, after giving effect to the loan
or loans with respect to which this certificate is being
delivered, will exist, no Default under the Agreement or
any event or circumstance which constitutes, or with
notice or lapse of time (or both) would constitute, an
event of default under any loan or credit agreement,
indenture, deed of trust, security agreement or other
agreement or instrument evidencing or pertaining to any
Debt of the Borrower, or under any material agreement or
instrument to which the Borrower is a party or by which
the Borrower is bound.
(f) The compliance of the Borrower with the financial
covenants of the Agreement, as of the close of business
on __________________, is evidenced by the following:
(1) Section 9.01: Debt
Required:
Actual:
None:
(2) Section 9.11: Tangible Net Worth
Required:
Actual:
$1,750,000 plus 50% of positive
net income of Borrower for each
fiscal quarter of Borrower and
100% of equity received by
Borrower subsequent to September
30, 1995.
(3) Section 9.12: Cash Flow to Debt Service Coverage Ratio
Required:
Actual:
1.25 to 1.0
EXECUTED AND DELIVERED this ____ day of ______________.
MAGNOLIA PIPELINE CORPORATION
By:
Name:
Title:
<PAGE>
EXHIBIT D
[TO FOLLOW]<PAGE>
EXHIBIT E
LIST OF SECURITY INSTRUMENTS
1. Guaranty Agreements of:
(a) Dan C. Tutcher;
(b) Kenneth B. Holmes, Jr.;
(c) Stevens G. Herbst; and
(d) Midcoast Energy Resources, Inc. ("MERI");
each in favor of Compass Bank-Houston ("Lender")
2. Security Agreement (Accounts, Inventory, Equipment, Chattel
Paper, Documents, Instruments, General Intangibles and Other
Property) from Magnolia Pipeline Corporation ("Borrower") to
Lender
3. Financing Statement relating to document no. 3 above
4. Mortgage, Assignment of Proceeds, Security Agreement and
Financing Statement from Borrower to Lender
5. Financing Statement relating to document no. 4 above
6. Security Agreement (Stocks, Bonds and Other Securities) from
Midcoast Holdings No. One, Inc. to Lender, covering the stock
of Borrower
7. Assignments Separate from Stock Certificates relating to
document no. 6 above, together with original stock certificate
8. Security Agreement from MERI to Lender, covering Certificate
of Deposit No. 728275
9. Subordination Agreement between MERI and Rainbow Investments
Company
<PAGE>
GUARANTY AGREEMENT
Between
STEVENS G. HERBST
and
COMPASS BANK-HOUSTON
December ____, 1995
<PAGE>
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT by STEVENS G. HERBST (hereinafter
called "Guarantor"), in favor of COMPASS BANK-HOUSTON, a Texas
State Chartered Banking Institution, having banking quarters at 24
Greenway Plaza, Suite 1401, Houston, Texas 77046 (hereinafter
called "Lender");
W I T N E S S E T H:
WHEREAS, on even date herewith MAGNOLIA PIPELINE CORPORATION,
an Alabama corporation (hereinafter called "Borrower"), and Lender
entered into that certain Credit Agreement (said Credit Agreement,
as the same may from time to time be amended or supplemented,
hereinafter called the "Credit Agreement") pursuant to which Lender
agreed, upon certain terms and conditions therein stated, to make
loans and extend credit to Borrower from time to time; and
WHEREAS, one of the terms and conditions stated in the Credit
Agreement for the making of such loans and extending such credit is
the execution and delivery to Lender of this Guaranty Agreement
guaranteeing Borrower's repayment of such loans and such extensions
of credit;
NOW, THEREFORE, (i) in order to comply with the terms and
conditions of the Credit Agreement, (ii) to induce Lender, at its
option, at any time or from time to time, to loan monies, with or
without security to or for the account of Borrower, (iii) at the
special insistence and request of Lender, and (iv) for other good
and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Guarantor hereby agrees as follows:
ARTICLE I
General Terms
Section 1.1 Terms Defined Above. As used in this Guaranty
Agreement, the terms "Borrower," "Credit Agreement," "Guarantor"
and "Lender" and shall have the meanings indicated above.
Section 1.2 Certain Definitions. As used in this Guaranty
Agreement, the following terms shall have the following meanings,
unless the context otherwise requires:
"Collateral" shall have the meaning indicated in Section 4.1.
"Guaranty Agreement" shall mean this Guaranty Agreement, as
the same may from time to time be amended or supplemented.
"Liabilities" shall have the meaning indicated in Section 2.1.
Section 1.3 Credit Agreement Definitions. Unless otherwise
defined herein, all terms beginning with a capital letter which are
defined in the Credit Agreement shall have the same meanings herein
as therein.
ARTICLE 2
The Guaranty
Section 2.1 Liabilities Guaranteed; Maximum Liability. (a)
Guarantor hereby unconditionally and irrevocably guarantees the
prompt payment when due, whether at maturity or otherwise, of the
following (hereinafter called the "Liabilities"):
(i) All indebtedness, obligations including reimbursement
obligations and liabilities of any kind of Borrower to Lender and
the due fulfillment and performance of all obligations now or
hereafter owed by Borrower to Lender (and also to others to the
extent of participations granted them by Lender) arising out of and
pursuant to the Credit Agreement, now outstanding or owing or which
may hereafter be existing or incurred, directly between Borrower
and Lender or acquired outright as a participation, conditionally
or as collateral security from another by Lender, absolute or
contingent, joint and/or several, secured or unsecured, due or not
due, arising by operation of law or otherwise, or direct or
indirect, including indebtedness, obligations and liabilities to
Lender of Borrower as a member of any partnership, syndicate,
association or other group, and whether incurred by Borrower as
principal, surety, endorser, guarantor, accommodation party or
otherwise, including, without limitation, the Indebtedness, as
defined in the Credit Agreement, including without limitation (A)
the Note, being that certain promissory note of even date herewith
in the amount of $1,500,000.00, executed by Borrower and payable to
the order of Lender; (B) any and all renewals, extensions for any
period, rearrangements increases and/or modifications of the Note;
(C) any Letters of Credit issued or to be issued by the Lender for
the account of Borrower and described or referred to in the Credit
Agreement, and any and all renewals, extensions, amendments and/or
reissues of any such Letters of Credit; and (D) any and all other
Loan Documents or other documents executed in connection with or as
security for the Credit Agreement, the Note and/or the Letters of
Credit;
(ii) All interest, charges, expenses, attorneys' or other fees
and any other sums payable to or incurred by Lender in connection
with the execution, administration or enforcement of Lender's
rights and remedies under the Credit Agreement, the Note, the
Letters of Credit or any other Loan Documents or other agreements
with Borrower; and
(iii) All post-petition interest on the Liabilities in the event
of a bankruptcy or insolvency of the Borrower.
Section 2.2 Nature of Guaranty. This is an irrevocable, absolute,
unconditional, completed and continuing guaranty of payment and not
a guaranty of collection, and no notice of the Liabilities or any
extension of credit already or hereafter contracted by or extended
to Borrower need be given to Guarantor. The fact that the
Liabilities may be rearranged, increased, reduced, extended for any
period and/or renewed from time to time or paid in full without
notice to Guarantor shall not release, discharge or reduce the
obligation of Guarantor with respect to the Liabilities, and
Guarantor shall remain fully bound hereunder. In the event that
Lender must rescind or restore any payment received by Lender in
satisfaction of the Liabilities, as set forth herein, any prior
release or discharge from the terms of this Guaranty Agreement
given to Guarantor by Lender shall be without effect, and this
Guaranty Agreement shall remain in full force and effect. It is
the intention of Borrower and Guarantor that Guarantor's
obligations hereunder shall not be discharged except by Guarantor's
performance of such obligations and then only to the extent of such
performance. This Guaranty Agreement may be enforced by Lender and
any subsequent holder of the Liabilities and shall not be
discharged by the assignment or negotiation of all or part of the
Liabilities. This Guaranty Agreement may not be revoked by
Guarantor and shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the
Liabilities is rescinded or must otherwise be returned by Lender
upon the insolvency, bankruptcy, reorganization, receivership or
other debtor relief proceeding involving Borrower, or after any
attempted revocation by Guarantor and after Guarantor's death (in
which event this Guaranty Agreement shall be binding upon
Guarantor's estate and Guarantor's heirs and legal
representatives), all as though such payment had not been made.
Guarantor hereby expressly waives notice of intent to accelerate,
notice of acceleration, presentment, demand, notice of non-payment,
protest, notice of protest and dishonor or any other notice
whatsoever on any and all forms of such Liabilities, and also
notice of acceptance of this Guaranty Agreement, acceptance on the
part of Lender being conclusively presumed by its request for this
Guaranty Agreement and delivery of the same to it.
Section 2.3 Lender's Rights. Guarantor authorizes Lender, without
notice or demand and without affecting Guarantor's liability
hereunder, to take and hold security for the payment of this
Guaranty Agreement and/or any of the Liabilities, and exchange,
enforce, waive and release any such security; and to apply such
security and direct the order or manner of sale thereof as Lender
in its discretion may determine; and to obtain a guaranty of the
Liabilities from any one or more Persons and at any time or times
to enforce, waive, rearrange, modify, limit or release any of such
other Persons from their obligations under such guaranties, and
Guarantor hereby acknowledges and agrees that the obligations of
all Persons to pay and satisfy the Liabilities pursuant to their
respective guaranties (including Guarantor's obligations under this
Guaranty Agreement) shall be joint and several. It is hereby
understood and agreed that whether and when and in what order to
exercise any of the remedies of Lender under the Credit Agreement,
the Note, or any other Loan Document executed in connection with
the Liabilities, shall be in the sole and absolute discretion of
Lender, and no delay by Lender to enforce any remedy, including
delay in conducting a foreclosure sale or other disposition of
collateral, shall be a defense to Guarantor's liability under this
Guaranty Agreement.
Section 2.4 Guarantor's Waivers. Guarantor waives any right to
require Lender (and it shall not be necessary for Lender, in order
to enforce such payment by Guarantor to first) (a) to proceed
against Borrower or any other Person liable on the Liabilities,
(b) to proceed against or exhaust any security given to secure the
Liabilities, (c) to have Borrower joined with Guarantor in any suit
arising out of this Guaranty Agreement and/or any of the
Liabilities, (d) to enforce its rights against any other guarantor
of the Liabilities, (e) to pursue or exhaust any other remedy in
Lender's power whatsoever, or (f) to preserve or perfect any liens
or security interests against any collateral whatsoever. Lender
shall not be required to mitigate damages or take any action to
reduce, collect or enforce the Liabilities. Guarantor waives any
defense or right to the marshalling of any security given to secure
the Liabilities. Guarantor waives any defense arising by reason of
any disability, lack of corporate authority or power, or other
defense of Borrower or any other guarantor of any of the
Liabilities, and shall remain liable hereon regardless of whether
Borrower or any other guarantor be found not liable thereon for any
reason. Until all the Liabilities shall have been paid in full,
Guarantor shall have no right of subrogation, waives all of its
rights at law or in equity (including, without limitation, any law
subrogating Guarantor to the rights of Lender) to seek
contribution, indemnification or any other form of reimbursement
from or to enforce any remedy which Lender now has or may hereafter
have against Borrower or any other Person primarily or secondarily
liable for any of the Liabilities and waives any benefit of and any
right to participate in any security now or hereafter held by
Lender to secure directly or indirectly all or any of the
Liabilities. Guarantor waives any and all defenses which might
otherwise be available (but only to the extent permitted by law) by
virtue of any valuation, stay, moratorium law or similar law now or
hereafter in effect.
Section 2.5 Maturity of Liabilities; Payment. Guarantor agrees
that if the maturity of any Liabilities is accelerated by
bankruptcy or otherwise, such maturity shall also be deemed
accelerated for the purpose of this Guaranty Agreement without
demand or notice to Guarantor. Guarantor will pay, forthwith upon
notice from Lender of Borrower's failure to pay any Liabilities at
maturity, to Lender at Lender's banking quarters in Houston, Harris
County, Texas, the amount due and unpaid by Borrower and guaranteed
hereby. The failure of Lender to give this notice shall not in any
way release Guarantor hereunder.
Section 2.6 Lender's Expenses. If Guarantor fails to pay the
Liabilities after notice from Lender of Borrower's failure to pay
any Liabilities at maturity, and if Lender obtains the services of
an attorney for collection of amounts owing by Guarantor hereunder,
or obtains advise of counsel in respect of any of its rights
hereunder, or if suit is filed to enforce this Guaranty Agreement,
or if proceedings are had in any bankruptcy, probate, receivership
or other judicial proceedings for the establishment or collection
of any amount owing by Guarantor hereunder, or if any amount owing
by Guarantor hereunder is collected through such proceedings,
Guarantor agrees to pay Lender at Lender's banking quarters all
court costs and Lender's reasonable attorneys' fees.
Section 2.7 Primary Liability. It is expressly agreed that the
liability of Guarantor for the payment of the Liabilities
guaranteed hereby shall be primary and not secondary.
Section 2.8 Events and Circumstances Not Reducing or Discharging
Guarantor's Obligations. Guarantor hereby consents and agrees to
each of the following, and agrees that Guarantor's obligations
under this Guaranty Agreement shall not be released, diminished,
impaired, reduced or adversely affected by any of the following,
and waives any rights (including, without limitation, rights to
notice) which Guarantor might otherwise have as a result of or in
connection with any of the following:
(a) Modifications, etc. Any modification, amendment, supplement,
renewal, extension for any period, increase, decrease, alteration
or rearrangement of all or any part of the Liabilities, or of the
Note, or the Credit Agreement or any other Loan Document executed
in connection therewith, or any contract or understanding between
Borrower and Lender, or any other Person, pertaining to the
Liabilities;
(b) Adjustment, etc. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by Lender to Borrower or
Guarantor or any other Person liable on the Liabilities;
(c) Condition of Borrower or Guarantor. The insolvency,
bankruptcy, arrangement, adjustment, composition, liquidation,
disability, dissolution or lack of power of Borrower or any other
Person at any time liable for the payment of all or part of the
Liabilities; or any dissolution of Borrower or any sale, lease or
transfer of any or all of the assets of Borrower or Guarantor, or
any changes in the shareholders or members of Borrower; or any
reorganization of Borrower;
(d) Invalidity of Liabilities. The invalidity, illegality or
unenforceability of all or any part of the Liabilities, or any
document or agreement executed in connection with the Liabilities,
for any reason whatsoever, including without limitation the fact
that (i) the Liabilities, or any part thereof, exceeds the amount
permitted by law, (ii) the act of creating the Liabilities or any
part thereof is ultra vires, (iii) the officers or representatives
executing the documents or otherwise creating the Liabilities acted
in excess of their authority, (iv) the Liabilities or any part
thereof violate applicable usury laws, (v) the Borrower or any
other Person at any time liable for the payment of all or any part
of the Liabilities has valid defenses, claims or offsets (whether
at law or in equity, by agreement or by statute) which render the
Liabilities wholly or partially uncollectible from Borrower, (vi)
the creation, performance or repayment of the Liabilities (or the
execution, delivery and performance of any document or instrument
representing part of the Liabilities or executed in connection with
the Liabilities, or given to secure the repayment of the
Liabilities) is illegal, uncollectible, legally impossible or
unenforceable, or (vii) the Credit Agreement, any other Loan
Document, or any other document or instrument pertaining to the
Liabilities has been forged or otherwise is irregular or not
genuine or authentic;
(e) Release of Obligors. Any full or partial release of the
liability of Borrower on the Liabilities or any part thereof, or of
any co-guarantors, or any other Person now or hereafter liable,
whether directly or indirectly, jointly, severally, or jointly and
severally, to pay, perform, guarantee or assure the payment of the
Liabilities or any part thereof; it being recognized, acknowledged
and agreed by Guarantor that Guarantor may be required to pay the
Liabilities in full without assistance or support of any other
Person, and Guarantor has not been induced to enter into this
Guaranty Agreement on the basis of a contemplation, belief,
understanding or agreement that any other Person will be liable to
perform the Liabilities, or Lender will look to any other Person to
perform the Liabilities;
(f) Other Security. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment,
for all or any part of the Liabilities;
(g) Release of Collateral, etc. Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment (including,
without limitation, negligent, willful, unreasonable or
unjustifiable impairment) of any collateral, property or security,
at any time existing in connection with, or assuring or securing
payment of, all or any part of the Liabilities;
(h) Care and Diligence. The failure of Lender or any other Person
to exercise diligence or reasonable care in the preservation,
protection, enforcement, sale or other handling or treatment of all
or any part of such collateral, property or security;
(i) Status of Liens. The fact that any collateral, security or
Lien contemplated or intended to be given, created or granted as
security for the repayment of the Liabilities shall not be properly
perfected or created, or shall prove to be unenforceable or
subordinate to any other Lien; it being recognized and agreed by
Guarantor that Guarantor is not entering into this Guaranty
Agreement in reliance on, or in contemplation of the benefits of,
the validity, enforceability, collectibility or value of any of the
collateral for the Liabilities;
(j) Preference. Any payment by Borrower to Lender is held to
constitute a preference under bankruptcy laws, or for any reason
Lender is required to refund such payment or pay such amount to
Borrower or someone else; or
(k) Other Actions Taken or Omitted. Any other action taken or
omitted to be taken with respect to the Credit Agreement, any other
Loan Document, the Liabilities, or the security and collateral
therefor, whether or not such action or omission prejudices
Guarantor or increases the likelihood that Guarantor will be
required to pay the Liabilities pursuant to the terms hereof; it is
the unambiguous and unequivocal intention of Guarantor that
Guarantor shall be obligated to pay the Liabilities when due,
notwithstanding any occurrence, circumstance, event, action, or
omission whatsoever, whether contemplated or uncontemplated, and
whether or not otherwise or particularly described herein, except
for the full and final payment and satisfaction of the Liabilities.
ARTICLE 3
Representations, Warranties and Financial Information
Section 3.1 Representations and Warranties. In order to
induce Lender to accept this Guaranty Agreement, Guarantor
represents and warrants to Lender (which representations and
warranties will survive the creation of the Liabilities and any
extension of credit thereunder) that:
(a) Benefit to Guarantor. Guarantor's guaranty pursuant to
this Guaranty Agreement reasonably has benefitted or may be
expected to benefit, directly or indirectly, Guarantor.
(b) Binding Obligations. This Guaranty Agreement constitutes
valid and binding obligations of Guarantor, enforceable in
accordance with its terms (except that enforcement may be
subject to any applicable bankruptcy, insolvency or similar
laws generally affecting the enforcement of creditors'
rights).
(c) No Legal Bar or Resultant Lien. This Guaranty Agreement
will not violate any contract, agreement, law, regulation,
order, injunction, judgment, decree or writ to which Guarantor
is subject, or result in the creation or imposition of any
Lien upon any Properties of Guarantor (other than those, if
any, granted hereby or permitted by the Credit Agreement).
(d) No Consent. Guarantor's execution, delivery and
performance of this Guaranty Agreement does not require the
consent or approval of any other Person, including without
limitation any regulatory authority or governmental body of
the United States or any state thereof or any political
subdivision of the United States or any state thereof.
(e) Familiarity and Reliance. Guarantor is familiar with,
and has independently reviewed books and records regarding,
the financial condition of the Borrower and is familiar with
the value of any and all collateral intended to be created as
security for the payment of the Note and Liabilities;
provided, however, Guarantor is not relying on such financial
condition or the collateral as an inducement to enter into
this Guaranty Agreement.
(f) No Representation. Neither Lender nor any other Person
has made any representation, warranty or statement to
Guarantor with regard to the Borrower or any Person liable for
the payment of all or any part of the Liabilities, or their
respective financial condition in order to induce Guarantor to
execute this Guaranty Agreement.
(g) Solvency. Guarantor hereby represents that (i) it is not
insolvent as of the date hereof and will not be rendered
insolvent as a result of this Guaranty Agreement, (ii) it is
not engaged in business or a transaction, or about to engage
in a business or a transaction, for which any property or
assets remaining with such Guarantor is unreasonably small
capital, and (iii) it does not intend to incur, or believe it
will incur, debts that will be beyond its ability to pay as
such debts mature.
Section 3.2 Financial Information. Guarantor will furnish to
Lender such information respecting the condition, financial or
otherwise, of Guarantor as Lender may from time to time request and
will furnish to Lender as soon as available and in any event within
120 days after the end of each calendar year the personal financial
statement of Guarantor for such year, including statements of
contingent liabilities and cash flow, certified by Guarantor.
ARTICLE 4
Security
Section 4.1 Grant of Security Interest. As security for
Guarantor's obligations hereunder, Guarantor hereby grants to
Lender a security interest in, a general lien upon and/or right of
set-off against the following (herein referred to as the
Collateral): the balance of every deposit account, now or
hereafter existing, of Guarantor with Lender and any other claim of
Guarantor against Lender, now or hereafter existing, and all money,
instruments, securities, documents, chattel paper, credits, claims,
demands and any other property, rights and interest of Guarantor,
which at any time shall come into the possession or custody or
under the control of Lender or any of its agents or affiliates, for
any purpose, and shall include the proceeds, products and
accessions of and to any thereof. Lender shall be deemed to have
possession of any of the Collateral in transit to or set apart for
it or any of its agents or affiliates.
Section 4.2 Financing Statements. The right is expressly
granted to Lender, at its discretion, to file one or more financing
statements or a copy of this Guaranty Agreement under the Uniform
Commercial Code naming Guarantor, as Debtor, and Lender, as Secured
Party, and indicating therein the types or describing the items of
Collateral.
Section 4.3 Remedies. In the event of default under this
Guaranty Agreement, Lender may sell or cause to be sold in Harris
County, Texas, or elsewhere, in one or more sales or parcels, at
such price as Lender may deem best, and for cash or on credit or
for future delivery, without assumption of any credit risk, all or
any of the Collateral at any broker's board or at public or private
sale, without demand or performance or notice of intention to sell
or of time or place of sale (except such notice as is required by
applicable statute and cannot be waived), and Lender or anyone else
may be the purchaser of any or all of the Collateral so sold and
thereafter hold the same absolutely, free from any claim or right
of whatsoever kind, including any equity of redemption of
Guarantor, any such demand, notice or right and equity being hereby
expressly waived and released.
Section 4.4 Rights. The grant of the above security interest
and lien shall not in any way limit or be construed as limiting
Lender to collect payment of Guarantor's obligations hereunder only
out of the Collateral, but it is expressly understood and provided
that all such obligations shall constitute the absolute and
unconditional obligations of Guarantor. Lender shall not be
required to take any steps necessary to preserve any rights against
prior parties to any of the Collateral.
ARTICLE 5
Miscellaneous
Section 5.1 Successors and Assigns. This Guaranty Agreement
is and shall be in every particular available to the successors and
assigns of Lender and is and shall always be fully binding upon the
legal representatives, successors and assigns of Guarantor,
notwithstanding that some or all of the monies, the repayment of
which this Guaranty Agreement applies, may be actually advanced
after any bankruptcy, receivership, reorganization or other event
affecting Guarantor.
Section 5.2 Notices. Lender's address for notice hereunder
shall be 24 Greenway Plaza, Suite 1401, Houston, Texas 77046, until
Borrower has received express written notice of a change of
address. Guarantor's address for notice hereunder shall be the
address given under Guarantor's signature below, until Lender has
received express written notice of a change of address. Any notice
or demand to Guarantor under or in connection with this Guaranty
Agreement may be given and shall conclusively be deemed and
considered to have been given and received upon the deposit
thereof, in writing, duly stamped and addressed to Guarantor at the
address of Guarantor appearing on the records of Lender, in the
U.S. mail, but actual notice, however given or received, shall
always be effective.
Section 5.3 Applicable Law. This Guaranty Agreement is a contract
made under and shall be construed in accordance with and governed by the laws
of the State of Texas.
Section 5.4 Jurisdiction. All actions or proceedings with
respect to this Guaranty Agreement may be instituted in the courts
of the State of Texas, the United States District Court for the
Southern District of Texas (Houston Division), or elsewhere to the
extent that jurisdiction shall exist apart from the provisions of
this Section, as Lender may elect, and by execution and delivery of
this Guaranty Agreement, Guarantor irrevocably and unconditionally
submits to the jurisdiction (both subject matter and personal) of
such court, and irrevocably and unconditionally waives (a) any
objection Guarantor may now or hereafter have to the laying of
venue in any of such courts, and (b) any claim that any action or
proceeding brought in any of such courts has been brought in an
inconvenient forum. However, Guarantor does not waive its right to
remove any cause of action brought in State Court to the United
States District Court for the Southern District of Texas (Houston
Division). This submission to jurisdiction and venue is
nonexclusive and does not prevent Lender from obtaining
jurisdiction in any court otherwise having jurisdiction or venue.
Guarantor hereby designates and appoints as its authorized agent in the
State of Texas to accept and acknowledge on its behalf service of any and
all process which may be served in any suit, action or proceeding in the
State of Texas, and Guarantor agrees that any service of process upon such
agent shall be deemed in every respect effective service upon Guarantor.
Guarantor agrees that so long as Guarantor shall be obligated to
Lender under this Guaranty Agreement, Guarantor shall maintain duly
appointed agents satisfactory to Lender for the service of process
in the State of Texas and shall keep Lender advised in writing of
the identity and location of such agents. The failure of such
agents to give notice to Guarantor of any such service shall not
impair or affect the validity of such service or of any judgment
rendered in any action or proceeding based thereon.
Section 5.6 Complete Agreement.
This Guaranty Agreement represents 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.
WITNESS THE EXECUTION HEREOF, as of the _____ day of December,
1995.
By:
STEVENS G. HERBST
Address:
Accepted as of the _____ day of December, 1995.
COMPASS BANK-HOUSTON
By:
Name:
Title:
<PAGE>
GUARANTY AGREEMENT
Between
KENNETH B. HOLMES, JR.
and
COMPASS BANK-HOUSTON
December ____, 1995
<PAGE>
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT by KENNETH B. HOLMES, JR. (hereinafter
called "Guarantor"), in favor of COMPASS BANK-HOUSTON, a Texas
State Chartered Banking Institution, having banking quarters at 24
Greenway Plaza, Suite 1401, Houston, Texas 77046 (hereinafter
called "Lender");
W I T N E S S E T H:
WHEREAS, on even date herewith MAGNOLIA PIPELINE CORPORATION,
an Alabama corporation (hereinafter called "Borrower"), and Lender
entered into that certain Credit Agreement (said Credit Agreement,
as the same may from time to time be amended or supplemented,
hereinafter called the "Credit Agreement") pursuant to which Lender
agreed, upon certain terms and conditions therein stated, to make
loans and extend credit to Borrower from time to time; and
WHEREAS, one of the terms and conditions stated in the Credit
Agreement for the making of such loans and extending such credit is
the execution and delivery to Lender of this Guaranty Agreement
guaranteeing Borrower's repayment of such loans and such extensions
of credit;
NOW, THEREFORE, (i) in order to comply with the terms and
conditions of the Credit Agreement, (ii) to induce Lender, at its
option, at any time or from time to time, to loan monies, with or
without security to or for the account of Borrower, (iii) at the
special insistence and request of Lender, and (iv) for other good
and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Guarantor hereby agrees as follows:
ARTICLE I
General Terms
Section 1.1 Terms Defined Above. As used in this Guaranty
Agreement, the terms "Borrower," "Credit Agreement," "Guarantor"
and "Lender" and shall have the meanings indicated above.
Section 1.2 Certain Definitions. As used in this Guaranty
Agreement, the following terms shall have the following meanings,
unless the context otherwise requires:
"Collateral" shall have the meaning indicated in Section 4.1.
"Guaranty Agreement" shall mean this Guaranty Agreement, as
the same may from time to time be amended or supplemented.
"Liabilities" shall have the meaning indicated in Section 2.1.
Section 1.3 Credit Agreement Definitions. Unless otherwise
defined herein, all terms beginning with a capital letter which are
defined in the Credit Agreement shall have the same meanings herein
as therein.
ARTICLE 2
The Guaranty
Section 2.1 Liabilities Guaranteed; Maximum Liability. (a)
Guarantor hereby unconditionally and irrevocably guarantees the
prompt payment when due, whether at maturity or otherwise, of the
following (hereinafter called the "Liabilities"):
(i)All indebtedness, obligations including reimbursement
obligations and liabilities of any kind of Borrower to Lender
and the due fulfillment and performance of all obligations now
or hereafter owed by Borrower to Lender (and also to others to
the extent of participations granted them by Lender) arising
out of and pursuant to the Credit Agreement, now outstanding
or owing or which may hereafter be existing or incurred,
directly between Borrower and Lender or acquired outright as
a participation, conditionally or as collateral security from
another by Lender, absolute or contingent, joint and/or
several, secured or unsecured, due or not due, arising by
operation of law or otherwise, or direct or indirect,
including indebtedness, obligations and liabilities to Lender
of Borrower as a member of any partnership, syndicate,
association or other group, and whether incurred by Borrower
as principal, surety, endorser, guarantor, accommodation party
or otherwise, including, without limitation, the Indebtedness,
as defined in the Credit Agreement, including without
limitation (A) the Note, being that certain promissory note of
even date herewith in the amount of $1,500,000.00, executed by
Borrower and payable to the order of Lender; (B) any and all
renewals, extensions for any period, rearrangements increases
and/or modifications of the Note; (C) any Letters of Credit
issued or to be issued by the Lender for the account of
Borrower and described or referred to in the Credit Agreement,
and any and all renewals, extensions, amendments and/or
reissues of any such Letters of Credit; and (D) any and all
other Loan Documents or other documents executed in connection
with or as security for the Credit Agreement, the Note and/or
the Letters of Credit;
(ii)All interest, charges, expenses, attorneys' or other
fees and any other sums payable to or incurred by Lender in
connection with the execution, administration or enforcement
of Lender's rights and remedies under the Credit Agreement,
the Note, the Letters of Credit or any other Loan Documents or
other agreements with Borrower; and
(iii)All post-petition interest on the Liabilities in the
event of a bankruptcy or insolvency of the Borrower.
Section 2.2 Nature of Guaranty. This is an irrevocable,
absolute, unconditional, completed and continuing guaranty of
payment and not a guaranty of collection, and no notice of the
Liabilities or any extension of credit already or hereafter
contracted by or extended to Borrower need be given to Guarantor.
The fact that the Liabilities may be rearranged, increased,
reduced, extended for any period and/or renewed from time to time
or paid in full without notice to Guarantor shall not release,
discharge or reduce the obligation of Guarantor with respect to the
Liabilities, and Guarantor shall remain fully bound hereunder. In
the event that Lender must rescind or restore any payment received
by Lender in satisfaction of the Liabilities, as set forth herein,
any prior release or discharge from the terms of this Guaranty
Agreement given to Guarantor by Lender shall be without effect, and
this Guaranty Agreement shall remain in full force and effect. It
is the intention of Borrower and Guarantor that Guarantor's
obligations hereunder shall not be discharged except by Guarantor's
performance of such obligations and then only to the extent of such
performance. This Guaranty Agreement may be enforced by Lender and
any subsequent holder of the Liabilities and shall not be
discharged by the assignment or negotiation of all or part of the
Liabilities. This Guaranty Agreement may not be revoked by
Guarantor and shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the
Liabilities is rescinded or must otherwise be returned by Lender
upon the insolvency, bankruptcy, reorganization, receivership or
other debtor relief proceeding involving Borrower, or after any
attempted revocation by Guarantor and after Guarantor's death (in
which event this Guaranty Agreement shall be binding upon
Guarantor's estate and Guarantor's heirs and legal
representatives), all as though such payment had not been made.
Guarantor hereby expressly waives notice of intent to accelerate,
notice of acceleration, presentment, demand, notice of non-payment,
protest, notice of protest and dishonor or any other notice
whatsoever on any and all forms of such Liabilities, and also
notice of acceptance of this Guaranty Agreement, acceptance on the
part of Lender being conclusively presumed by its request for this
Guaranty Agreement and delivery of the same to it.
Section 2.3 Lender's Rights. Guarantor authorizes Lender,
without notice or demand and without affecting Guarantor's
liability hereunder, to take and hold security for the payment of
this Guaranty Agreement and/or any of the Liabilities, and
exchange, enforce, waive and release any such security; and to
apply such security and direct the order or manner of sale thereof
as Lender in its discretion may determine; and to obtain a guaranty
of the Liabilities from any one or more Persons and at any time or
times to enforce, waive, rearrange, modify, limit or release any of
such other Persons from their obligations under such guaranties,
and Guarantor hereby acknowledges and agrees that the obligations
of all Persons to pay and satisfy the Liabilities pursuant to their
respective guaranties (including Guarantor's obligations under this
Guaranty Agreement) shall be joint and several. It is hereby
understood and agreed that whether and when and in what order to
exercise any of the remedies of Lender under the Credit Agreement,
the Note, or any other Loan Document executed in connection with
the Liabilities, shall be in the sole and absolute discretion of
Lender, and no delay by Lender to enforce any remedy, including
delay in conducting a foreclosure sale or other disposition of
collateral, shall be a defense to Guarantor's liability under this
Guaranty Agreement.
Section 2.4 Guarantor's Waivers. Guarantor waives any right
to require Lender (and it shall not be necessary for Lender, in
order to enforce such payment by Guarantor to first) (a) to proceed
against Borrower or any other Person liable on the Liabilities,
(b) to proceed against or exhaust any security given to secure the
Liabilities, (c) to have Borrower joined with Guarantor in any suit
arising out of this Guaranty Agreement and/or any of the
Liabilities, (d) to enforce its rights against any other guarantor
of the Liabilities, (e) to pursue or exhaust any other remedy in
Lender's power whatsoever, or (f) to preserve or perfect any liens
or security interests against any collateral whatsoever. Lender
shall not be required to mitigate damages or take any action to
reduce, collect or enforce the Liabilities. Guarantor waives any
defense or right to the marshalling of any security given to secure
the Liabilities. Guarantor waives any defense arising by reason of
any disability, lack of corporate authority or power, or other
defense of Borrower or any other guarantor of any of the
Liabilities, and shall remain liable hereon regardless of whether
Borrower or any other guarantor be found not liable thereon for any
reason. Until all the Liabilities shall have been paid in full,
Guarantor shall have no right of subrogation, waives all of its
rights at law or in equity (including, without limitation, any law
subrogating Guarantor to the rights of Lender) to seek
contribution, indemnification or any other form of reimbursement
from or to enforce any remedy which Lender now has or may hereafter
have against Borrower or any other Person primarily or secondarily
liable for any of the Liabilities and waives any benefit of and any
right to participate in any security now or hereafter held by
Lender to secure directly or indirectly all or any of the
Liabilities. Guarantor waives any and all defenses which might
otherwise be available (but only to the extent permitted by law) by
virtue of any valuation, stay, moratorium law or similar law now or
hereafter in effect.
Section 2.5 Maturity of Liabilities; Payment. Guarantor
agrees that if the maturity of any Liabilities is accelerated by
bankruptcy or otherwise, such maturity shall also be deemed
accelerated for the purpose of this Guaranty Agreement without
demand or notice to Guarantor. Guarantor will pay, forthwith upon
notice from Lender of Borrower's failure to pay any Liabilities at
maturity, to Lender at Lender's banking quarters in Houston, Harris
County, Texas, the amount due and unpaid by Borrower and guaranteed
hereby. The failure of Lender to give this notice shall not in any
way release Guarantor hereunder.
Section 2.6 Lender's Expenses. If Guarantor fails to pay the
Liabilities after notice from Lender of Borrower's failure to pay
any Liabilities at maturity, and if Lender obtains the services of
an attorney for collection of amounts owing by Guarantor hereunder,
or obtains advise of counsel in respect of any of its rights
hereunder, or if suit is filed to enforce this Guaranty Agreement,
or if proceedings are had in any bankruptcy, probate, receivership
or other judicial proceedings for the establishment or collection
of any amount owing by Guarantor hereunder, or if any amount owing
by Guarantor hereunder is collected through such proceedings,
Guarantor agrees to pay Lender at Lender's banking quarters all
court costs and Lender's reasonable attorneys' fees.
Section 2.7 Primary Liability. It is expressly agreed that
the liability of Guarantor for the payment of the Liabilities
guaranteed hereby shall be primary and not secondary.
Section 2.8 Events and Circumstances Not Reducing or
Discharging Guarantor's Obligations. Guarantor hereby consents and
agrees to each of the following, and agrees that Guarantor's
obligations under this Guaranty Agreement shall not be released,
diminished, impaired, reduced or adversely affected by any of the
following, and waives any rights (including, without limitation,
rights to notice) which Guarantor might otherwise have as a result
of or in connection with any of the following:
(a) Modifications, etc. Any modification, amendment,
supplement, renewal, extension for any period, increase,
decrease, alteration or rearrangement of all or any part of
the Liabilities, or of the Note, or the Credit Agreement or
any other Loan Document executed in connection therewith, or
any contract or understanding between Borrower and Lender, or
any other Person, pertaining to the Liabilities;
(b) Adjustment, etc. Any adjustment, indulgence, forbearance
or compromise that might be granted or given by Lender to
Borrower or Guarantor or any other Person liable on the
Liabilities;
(c) Condition of Borrower or Guarantor. The insolvency,
bankruptcy, arrangement, adjustment, composition, liquidation,
disability, dissolution or lack of power of Borrower or any
other Person at any time liable for the payment of all or part
of the Liabilities; or any dissolution of Borrower or any
sale, lease or transfer of any or all of the assets of
Borrower or Guarantor, or any changes in the shareholders or
members of Borrower; or any reorganization of Borrower;
(d) Invalidity of Liabilities. The invalidity, illegality or
unenforceability of all or any part of the Liabilities, or any
document or agreement executed in connection with the
Liabilities, for any reason whatsoever, including without
limitation the fact that (i) the Liabilities, or any part
thereof, exceeds the amount permitted by law, (ii) the act of
creating the Liabilities or any part thereof is ultra vires,
(iii) the officers or representatives executing the documents
or otherwise creating the Liabilities acted in excess of their
authority, (iv) the Liabilities or any part thereof violate
applicable usury laws, (v) the Borrower or any other Person at
any time liable for the payment of all or any part of the
Liabilities has valid defenses, claims or offsets (whether at
law or in equity, by agreement or by statute) which render the
Liabilities wholly or partially uncollectible from Borrower,
(vi) the creation, performance or repayment of the Liabilities
(or the execution, delivery and performance of any document or
instrument representing part of the Liabilities or executed in
connection with the Liabilities, or given to secure the
repayment of the Liabilities) is illegal, uncollectible,
legally impossible or unenforceable, or (vii) the Credit
Agreement, any other Loan Document, or any other document or
instrument pertaining to the Liabilities has been forged or
otherwise is irregular or not genuine or authentic;
(e) Release of Obligors. Any full or partial release of the
liability of Borrower on the Liabilities or any part thereof,
or of any co-guarantors, or any other Person now or hereafter
liable, whether directly or indirectly, jointly, severally, or
jointly and severally, to pay, perform, guarantee or assure
the payment of the Liabilities or any part thereof; it being
recognized, acknowledged and agreed by Guarantor that
Guarantor may be required to pay the Liabilities in full
without assistance or support of any other Person, and
Guarantor has not been induced to enter into this Guaranty
Agreement on the basis of a contemplation, belief,
understanding or agreement that any other Person will be
liable to perform the Liabilities, or Lender will look to any
other Person to perform the Liabilities;
(f) Other Security. The taking or accepting of any other
security, collateral or guaranty, or other assurance of
payment, for all or any part of the Liabilities;
(g) Release of Collateral, etc. Any release, surrender,
exchange, subordination, deterioration, waste, loss or
impairment (including, without limitation, negligent, willful,
unreasonable or unjustifiable impairment) of any collateral,
property or security, at any time existing in connection with,
or assuring or securing payment of, all or any part of the
Liabilities;
(h) Care and Diligence. The failure of Lender or any other
Person to exercise diligence or reasonable care in the
preservation, protection, enforcement, sale or other handling
or treatment of all or any part of such collateral, property
or security;
(i) Status of Liens. The fact that any collateral, security
or Lien contemplated or intended to be given, created or
granted as security for the repayment of the Liabilities shall
not be properly perfected or created, or shall prove to be
unenforceable or subordinate to any other Lien; it being
recognized and agreed by Guarantor that Guarantor is not
entering into this Guaranty Agreement in reliance on, or in
contemplation of the benefits of, the validity,
enforceability, collectibility or value of any of the
collateral for the Liabilities;
(j) Preference. Any payment by Borrower to Lender is held to
constitute a preference under bankruptcy laws, or for any
reason Lender is required to refund such payment or pay such
amount to Borrower or someone else; or
(k) Other Actions Taken or Omitted. Any other action taken
or omitted to be taken with respect to the Credit Agreement,
any other Loan Document, the Liabilities, or the security and
collateral therefor, whether or not such action or omission
prejudices Guarantor or increases the likelihood that
Guarantor will be required to pay the Liabilities pursuant to
the terms hereof; it is the unambiguous and unequivocal
intention of Guarantor that Guarantor shall be obligated to
pay the Liabilities when due, notwithstanding any occurrence,
circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not otherwise
or particularly described herein, except for the full and
final payment and satisfaction of the Liabilities.
ARTICLE 3
Representations, Warranties and Financial Information
Section 3.1 Representations and Warranties. In order to
induce Lender to accept this Guaranty Agreement, Guarantor
represents and warrants to Lender (which representations and
warranties will survive the creation of the Liabilities and any
extension of credit thereunder) that:
(a) Benefit to Guarantor. Guarantor's guaranty pursuant to
this Guaranty Agreement reasonably has benefitted or may be
expected to benefit, directly or indirectly, Guarantor.
(b) Binding Obligations. This Guaranty Agreement constitutes
valid and binding obligations of Guarantor, enforceable in
accordance with its terms (except that enforcement may be
subject to any applicable bankruptcy, insolvency or similar
laws generally affecting the enforcement of creditors'
rights).
(c) No Legal Bar or Resultant Lien. This Guaranty Agreement
will not violate any contract, agreement, law, regulation,
order, injunction, judgment, decree or writ to which Guarantor
is subject, or result in the creation or imposition of any
Lien upon any Properties of Guarantor (other than those, if
any, granted hereby or permitted by the Credit Agreement).
(d) No Consent. Guarantor's execution, delivery and
performance of this Guaranty Agreement does not require the
consent or approval of any other Person, including without
limitation any regulatory authority or governmental body of
the United States or any state thereof or any political
subdivision of the United States or any state thereof.
(e) Familiarity and Reliance. Guarantor is familiar with,
and has independently reviewed books and records regarding,
the financial condition of the Borrower and is familiar with
the value of any and all collateral intended to be created as
security for the payment of the Note and Liabilities;
provided, however, Guarantor is not relying on such financial
condition or the collateral as an inducement to enter into
this Guaranty Agreement.
(f) No Representation. Neither Lender nor any other Person
has made any representation, warranty or statement to
Guarantor with regard to the Borrower or any Person liable for
the payment of all or any part of the Liabilities, or their
respective financial condition in order to induce Guarantor to
execute this Guaranty Agreement.
(g) Solvency. Guarantor hereby represents that (i) it is not
insolvent as of the date hereof and will not be rendered
insolvent as a result of this Guaranty Agreement, (ii) it is
not engaged in business or a transaction, or about to engage
in a business or a transaction, for which any property or
assets remaining with such Guarantor is unreasonably small
capital, and (iii) it does not intend to incur, or believe it
will incur, debts that will be beyond its ability to pay as
such debts mature.
Section 3.2 Financial Information. Guarantor will furnish to
Lender such information respecting the condition, financial or
otherwise, of Guarantor as Lender may from time to time request and
will furnish to Lender as soon as available and in any event within
120 days after the end of each calendar year the personal financial
statement of Guarantor for such year, including statements of
contingent liabilities and cash flow, certified by Guarantor.
ARTICLE 4
Security
Section 4.1 Grant of Security Interest. As security for
Guarantor's obligations hereunder, Guarantor hereby grants to
Lender a security interest in, a general lien upon and/or right of
set-off against the following (herein referred to as the
Collateral): the balance of every deposit account, now or
hereafter existing, of Guarantor with Lender and any other claim of
Guarantor against Lender, now or hereafter existing, and all money,
instruments, securities, documents, chattel paper, credits, claims,
demands and any other property, rights and interest of Guarantor,
which at any time shall come into the possession or custody or
under the control of Lender or any of its agents or affiliates, for
any purpose, and shall include the proceeds, products and
accessions of and to any thereof. Lender shall be deemed to have
possession of any of the Collateral in transit to or set apart for
it or any of its agents or affiliates.
Section 4.2 Financing Statements. The right is expressly
granted to Lender, at its discretion, to file one or more financing
statements or a copy of this Guaranty Agreement under the Uniform
Commercial Code naming Guarantor, as Debtor, and Lender, as Secured
Party, and indicating therein the types or describing the items of
Collateral.
Section 4.3 Remedies. In the event of default under this
Guaranty Agreement, Lender may sell or cause to be sold in Harris
County, Texas, or elsewhere, in one or more sales or parcels, at
such price as Lender may deem best, and for cash or on credit or
for future delivery, without assumption of any credit risk, all or
any of the Collateral at any broker's board or at public or private
sale, without demand or performance or notice of intention to sell
or of time or place of sale (except such notice as is required by
applicable statute and cannot be waived), and Lender or anyone else
may be the purchaser of any or all of the Collateral so sold and
thereafter hold the same absolutely, free from any claim or right
of whatsoever kind, including any equity of redemption of
Guarantor, any such demand, notice or right and equity being hereby
expressly waived and released.
Section 4.4 Rights. The grant of the above security interest
and lien shall not in any way limit or be construed as limiting
Lender to collect payment of Guarantor's obligations hereunder only
out of the Collateral, but it is expressly understood and provided
that all such obligations shall constitute the absolute and
unconditional obligations of Guarantor. Lender shall not be
required to take any steps necessary to preserve any rights against
prior parties to any of the Collateral.
ARTICLE 5
Miscellaneous
Section 5.1 Successors and Assigns. This Guaranty Agreement
is and shall be in every particular available to the successors and
assigns of Lender and is and shall always be fully binding upon the
legal representatives, successors and assigns of Guarantor,
notwithstanding that some or all of the monies, the repayment of
which this Guaranty Agreement applies, may be actually advanced
after any bankruptcy, receivership, reorganization or other event
affecting Guarantor.
Section 5.2 Notices. Lender's address for notice hereunder
shall be 24 Greenway Plaza, Suite 1401, Houston, Texas 77046, until
Borrower has received express written notice of a change of
address. Guarantor's address for notice hereunder shall be the
address given under Guarantor's signature below, until Lender has
received express written notice of a change of address. Any notice
or demand to Guarantor under or in connection with this Guaranty
Agreement may be given and shall conclusively be deemed and
considered to have been given and received upon the deposit
thereof, in writing, duly stamped and addressed to Guarantor at the
address of Guarantor appearing on the records of Lender, in the
U.S. mail, but actual notice, however given or received, shall
always be effective.
Section 5.3 Applicable Law. This Guaranty Agreement is a contract
made under and shall be construed in accordance with and governed by the laws
of the State of Texas.
Section 5.4 Jurisdiction. All actions or proceedings with
respect to this Guaranty Agreement may be instituted in the courts
of the State of Texas, the United States District Court for the
Southern District of Texas (Houston Division), or elsewhere to the
extent that jurisdiction shall exist apart from the provisions of
this Section, as Lender may elect, and by execution and delivery of
this Guaranty Agreement, Guarantor irrevocably and unconditionally
submits to the jurisdiction (both subject matter and personal) of
such court, and irrevocably and unconditionally waives (a) any
objection Guarantor may now or hereafter have to the laying of
venue in any of such courts, and (b) any claim that any action or
proceeding brought in any of such courts has been brought in an
inconvenient forum. However, Guarantor does not waive its right to
remove any cause of action brought in State Court to the United
States District Court for the Southern District of Texas (Houston
Division). This submission to jurisdiction and venue is
nonexclusive and does not prevent Lender from obtaining
jurisdiction in any court otherwise having jurisdiction or venue.
uarantor hereby designates and appoints as its authorized agent in the State
of Texas to accept and acknowledge on its behalf service of any and all
process which may be served in any suit, action or proceeding in the State of
Texas, and Guarantor agrees that any service of process upon such agent
shall be deemed in every respect effective service upon Guarantor.
Guarantor agrees that so long as Guarantor shall be obligated to
Lender under this Guaranty Agreement, Guarantor shall maintain duly
appointed agents satisfactory to Lender for the service of process
in the State of Texas and shall keep Lender advised in writing of
the identity and location of such agents. The failure of such
agents to give notice to Guarantor of any such service shall not
impair or affect the validity of such service or of any judgment
rendered in any action or proceeding based thereon.
Section 5.6 Complete Agreement.
This Guaranty Agreement represents 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.
WITNESS THE EXECUTION HEREOF, as of the _____ day of December,
1995.
By:
KENNETH B. HOLMES, JR.
Address:
Accepted as of the _____ day of December, 1995.
COMPASS BANK-HOUSTON
By:
Name:
Title:
<PAGE>
GUARANTY AGREEMENT
Between
DAN C. TUTCHER
and
COMPASS BANK-HOUSTON
December 20, 1995
<PAGE>
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT by DAN C. TUTCHER (hereinafter called
"Guarantor"), in favor of COMPASS BANK-HOUSTON, a Texas State
Chartered Banking Institution, having banking quarters at 24
Greenway Plaza, Suite 1401, Houston, Texas 77046 (hereinafter
called "Lender");
W I T N E S S E T H:
WHEREAS, on even date herewith MAGNOLIA PIPELINE CORPORATION,
an Alabama corporation (hereinafter called "Borrower"), and Lender
entered into that certain Credit Agreement (said Credit Agreement,
as the same may from time to time be amended or supplemented,
hereinafter called the "Credit Agreement") pursuant to which Lender
agreed, upon certain terms and conditions therein stated, to make
loans and extend credit to Borrower from time to time; and
WHEREAS, one of the terms and conditions stated in the Credit
Agreement for the making of such loans and extending such credit is
the execution and delivery to Lender of this Guaranty Agreement
guaranteeing Borrower's repayment of such loans and such extensions
of credit;
NOW, THEREFORE, (i) in order to comply with the terms and
conditions of the Credit Agreement, (ii) to induce Lender, at its
option, at any time or from time to time, to loan monies, with or
without security to or for the account of Borrower, (iii) at the
special insistence and request of Lender, and (iv) for other good
and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Guarantor hereby agrees as follows:
ARTICLE I
General Terms
Section 1.1 Terms Defined Above. As used in this Guaranty
Agreement, the terms "Borrower," "Credit Agreement," "Guarantor"
and "Lender" and shall have the meanings indicated above.
Section 1.2 Certain Definitions. As used in this Guaranty
Agreement, the following terms shall have the following meanings,
unless the context otherwise requires:
"Collateral" shall have the meaning indicated in Section 4.1.
"Guaranty Agreement" shall mean this Guaranty Agreement, as
the same may from time to time be amended or supplemented.
"Liabilities" shall have the meaning indicated in Section 2.1.
Section 1.3 Credit Agreement Definitions. Unless otherwise
defined herein, all terms beginning with a capital letter which are
defined in the Credit Agreement shall have the same meanings herein
as therein.
ARTICLE 2
The Guaranty
Section 2.1 Liabilities Guaranteed; Maximum Liability. (a)
Guarantor hereby unconditionally and irrevocably guarantees the
prompt payment when due, whether at maturity or otherwise, of the
following (hereinafter called the "Liabilities"):
(i)All indebtedness, obligations including reimbursement
obligations and liabilities of any kind of Borrower to Lender
and the due fulfillment and performance of all obligations now
or hereafter owed by Borrower to Lender (and also to others to
the extent of participations granted them by Lender) arising
out of and pursuant to the Credit Agreement, now outstanding
or owing or which may hereafter be existing or incurred,
directly between Borrower and Lender or acquired outright as
a participation, conditionally or as collateral security from
another by Lender, absolute or contingent, joint and/or
several, secured or unsecured, due or not due, arising by
operation of law or otherwise, or direct or indirect,
including indebtedness, obligations and liabilities to Lender
of Borrower as a member of any partnership, syndicate,
association or other group, and whether incurred by Borrower
as principal, surety, endorser, guarantor, accommodation party
or otherwise, including, without limitation, the Indebtedness,
as defined in the Credit Agreement, including without
limitation (A) the Note, being that certain promissory note of
even date herewith in the amount of $1,500,000.00, executed by
Borrower and payable to the order of Lender; (B) any and all
renewals, extensions for any period, rearrangements increases
and/or modifications of the Note; (C) any Letters of Credit
issued or to be issued by the Lender for the account of
Borrower and described or referred to in the Credit Agreement,
and any and all renewals, extensions, amendments and/or
reissues of any such Letters of Credit; and (D) any and all
other Loan Documents or other documents executed in connection
with or as security for the Credit Agreement, the Note and/or
the Letters of Credit;
(ii)All interest, charges, expenses, attorneys' or other
fees and any other sums payable to or incurred by Lender in
connection with the execution, administration or enforcement
of Lender's rights and remedies under the Credit Agreement,
the Note, the Letters of Credit or any other Loan Documents or
other agreements with Borrower; and
(iii)All post-petition interest on the Liabilities in the
event of a bankruptcy or insolvency of the Borrower.
Section 2.2 Nature of Guaranty. This is an irrevocable,
absolute, unconditional, completed and continuing guaranty of
payment and not a guaranty of collection, and no notice of the
Liabilities or any extension of credit already or hereafter
contracted by or extended to Borrower need be given to Guarantor.
The fact that the Liabilities may be rearranged, increased,
reduced, extended for any period and/or renewed from time to time
or paid in full without notice to Guarantor shall not release,
discharge or reduce the obligation of Guarantor with respect to the
Liabilities, and Guarantor shall remain fully bound hereunder. In
the event that Lender must rescind or restore any payment received
by Lender in satisfaction of the Liabilities, as set forth herein,
any prior release or discharge from the terms of this Guaranty
Agreement given to Guarantor by Lender shall be without effect, and
this Guaranty Agreement shall remain in full force and effect. It
is the intention of Borrower and Guarantor that Guarantor's
obligations hereunder shall not be discharged except by Guarantor's
performance of such obligations and then only to the extent of such
performance. This Guaranty Agreement may be enforced by Lender and
any subsequent holder of the Liabilities and shall not be
discharged by the assignment or negotiation of all or part of the
Liabilities. This Guaranty Agreement may not be revoked by
Guarantor and shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the
Liabilities is rescinded or must otherwise be returned by Lender
upon the insolvency, bankruptcy, reorganization, receivership or
other debtor relief proceeding involving Borrower, or after any
attempted revocation by Guarantor and after Guarantor's death (in
which event this Guaranty Agreement shall be binding upon
Guarantor's estate and Guarantor's heirs and legal
representatives), all as though such payment had not been made.
Guarantor hereby expressly waives notice of intent to accelerate,
notice of acceleration, presentment, demand, notice of non-payment,
protest, notice of protest and dishonor or any other notice
whatsoever on any and all forms of such Liabilities, and also
notice of acceptance of this Guaranty Agreement, acceptance on the
part of Lender being conclusively presumed by its request for this
Guaranty Agreement and delivery of the same to it.
Section 2.3 Lender's Rights. Guarantor authorizes Lender,
without notice or demand and without affecting Guarantor's
liability hereunder, to take and hold security for the payment of
this Guaranty Agreement and/or any of the Liabilities, and
exchange, enforce, waive and release any such security; and to
apply such security and direct the order or manner of sale thereof
as Lender in its discretion may determine; and to obtain a guaranty
of the Liabilities from any one or more Persons and at any time or
times to enforce, waive, rearrange, modify, limit or release any of
such other Persons from their obligations under such guaranties,
and Guarantor hereby acknowledges and agrees that the obligations
of all Persons to pay and satisfy the Liabilities pursuant to their
respective guaranties (including Guarantor's obligations under this
Guaranty Agreement) shall be joint and several. It is hereby
understood and agreed that whether and when and in what order to
exercise any of the remedies of Lender under the Credit Agreement,
the Note, or any other Loan Document executed in connection with
the Liabilities, shall be in the sole and absolute discretion of
Lender, and no delay by Lender to enforce any remedy, including
delay in conducting a foreclosure sale or other disposition of
collateral, shall be a defense to Guarantor's liability under this
Guaranty Agreement.
Section 2.4 Guarantor's Waivers. Guarantor waives any right
to require Lender (and it shall not be necessary for Lender, in
order to enforce such payment by Guarantor to first) (a) to proceed
against Borrower or any other Person liable on the Liabilities,
(b) to proceed against or exhaust any security given to secure the
Liabilities, (c) to have Borrower joined with Guarantor in any suit
arising out of this Guaranty Agreement and/or any of the
Liabilities, (d) to enforce its rights against any other guarantor
of the Liabilities, (e) to pursue or exhaust any other remedy in
Lender's power whatsoever, or (f) to preserve or perfect any liens
or security interests against any collateral whatsoever. Lender
shall not be required to mitigate damages or take any action to
reduce, collect or enforce the Liabilities. Guarantor waives any
defense or right to the marshalling of any security given to secure
the Liabilities. Guarantor waives any defense arising by reason of
any disability, lack of corporate authority or power, or other
defense of Borrower or any other guarantor of any of the
Liabilities, and shall remain liable hereon regardless of whether
Borrower or any other guarantor be found not liable thereon for any
reason. Until all the Liabilities shall have been paid in full,
Guarantor shall have no right of subrogation, waives all of its
rights at law or in equity (including, without limitation, any law
subrogating Guarantor to the rights of Lender) to seek
contribution, indemnification or any other form of reimbursement
from or to enforce any remedy which Lender now has or may hereafter
have against Borrower or any other Person primarily or secondarily
liable for any of the Liabilities and waives any benefit of and any
right to participate in any security now or hereafter held by
Lender to secure directly or indirectly all or any of the
Liabilities. Guarantor waives any and all defenses which might
otherwise be available (but only to the extent permitted by law) by
virtue of any valuation, stay, moratorium law or similar law now or
hereafter in effect.
Section 2.5 Maturity of Liabilities; Payment. Guarantor
agrees that if the maturity of any Liabilities is accelerated by
bankruptcy or otherwise, such maturity shall also be deemed
accelerated for the purpose of this Guaranty Agreement without
demand or notice to Guarantor. Guarantor will pay, forthwith upon
notice from Lender of Borrower's failure to pay any Liabilities at
maturity, to Lender at Lender's banking quarters in Houston, Harris
County, Texas, the amount due and unpaid by Borrower and guaranteed
hereby. The failure of Lender to give this notice shall not in any
way release Guarantor hereunder.
Section 2.6 Lender's Expenses. If Guarantor fails to pay the
Liabilities after notice from Lender of Borrower's failure to pay
any Liabilities at maturity, and if Lender obtains the services of
an attorney for collection of amounts owing by Guarantor hereunder,
or obtains advise of counsel in respect of any of its rights
hereunder, or if suit is filed to enforce this Guaranty Agreement,
or if proceedings are had in any bankruptcy, probate, receivership
or other judicial proceedings for the establishment or collection
of any amount owing by Guarantor hereunder, or if any amount owing
by Guarantor hereunder is collected through such proceedings,
Guarantor agrees to pay Lender at Lender's banking quarters all
court costs and Lender's reasonable attorneys' fees.
Section 2.7 Primary Liability. It is expressly agreed that
the liability of Guarantor for the payment of the Liabilities
guaranteed hereby shall be primary and not secondary.
Section 2.8 Events and Circumstances Not Reducing or
Discharging Guarantor's Obligations. Guarantor hereby consents and
agrees to each of the following, and agrees that Guarantor's
obligations under this Guaranty Agreement shall not be released,
diminished, impaired, reduced or adversely affected by any of the
following, and waives any rights (including, without limitation,
rights to notice) which Guarantor might otherwise have as a result
of or in connection with any of the following:
(a) Modifications, etc. Any modification, amendment,
supplement, renewal, extension for any period, increase,
decrease, alteration or rearrangement of all or any part of
the Liabilities, or of the Note, or the Credit Agreement or
any other Loan Document executed in connection therewith, or
any contract or understanding between Borrower and Lender, or
any other Person, pertaining to the Liabilities;
(b) Adjustment, etc. Any adjustment, indulgence, forbearance
or compromise that might be granted or given by Lender to
Borrower or Guarantor or any other Person liable on the
Liabilities;
(c) Condition of Borrower or Guarantor. The insolvency,
bankruptcy, arrangement, adjustment, composition, liquidation,
disability, dissolution or lack of power of Borrower or any
other Person at any time liable for the payment of all or part
of the Liabilities; or any dissolution of Borrower or any
sale, lease or transfer of any or all of the assets of
Borrower or Guarantor, or any changes in the shareholders or
members of Borrower; or any reorganization of Borrower;
(d) Invalidity of Liabilities. The invalidity, illegality or
unenforceability of all or any part of the Liabilities, or any
document or agreement executed in connection with the
Liabilities, for any reason whatsoever, including without
limitation the fact that (i) the Liabilities, or any part
thereof, exceeds the amount permitted by law, (ii) the act of
creating the Liabilities or any part thereof is ultra vires,
(iii) the officers or representatives executing the documents
or otherwise creating the Liabilities acted in excess of their
authority, (iv) the Liabilities or any part thereof violate
applicable usury laws, (v) the Borrower or any other Person at
any time liable for the payment of all or any part of the
Liabilities has valid defenses, claims or offsets (whether at
law or in equity, by agreement or by statute) which render the
Liabilities wholly or partially uncollectible from Borrower,
(vi) the creation, performance or repayment of the Liabilities
(or the execution, delivery and performance of any document or
instrument representing part of the Liabilities or executed in
connection with the Liabilities, or given to secure the
repayment of the Liabilities) is illegal, uncollectible,
legally impossible or unenforceable, or (vii) the Credit
Agreement, any other Loan Document, or any other document or
instrument pertaining to the Liabilities has been forged or
otherwise is irregular or not genuine or authentic;
(e) Release of Obligors. Any full or partial release of the
liability of Borrower on the Liabilities or any part thereof,
or of any co-guarantors, or any other Person now or hereafter
liable, whether directly or indirectly, jointly, severally, or
jointly and severally, to pay, perform, guarantee or assure
the payment of the Liabilities or any part thereof; it being
recognized, acknowledged and agreed by Guarantor that
Guarantor may be required to pay the Liabilities in full
without assistance or support of any other Person, and
Guarantor has not been induced to enter into this Guaranty
Agreement on the basis of a contemplation, belief,
understanding or agreement that any other Person will be
liable to perform the Liabilities, or Lender will look to any
other Person to perform the Liabilities;
(f) Other Security. The taking or accepting of any other
security, collateral or guaranty, or other assurance of
payment, for all or any part of the Liabilities;
(g) Release of Collateral, etc. Any release, surrender,
exchange, subordination, deterioration, waste, loss or
impairment (including, without limitation, negligent, willful,
unreasonable or unjustifiable impairment) of any collateral,
property or security, at any time existing in connection with,
or assuring or securing payment of, all or any part of the
Liabilities;
(h) Care and Diligence. The failure of Lender or any other
Person to exercise diligence or reasonable care in the
preservation, protection, enforcement, sale or other handling
or treatment of all or any part of such collateral, property
or security;
(i) Status of Liens. The fact that any collateral, security
or Lien contemplated or intended to be given, created or
granted as security for the repayment of the Liabilities shall
not be properly perfected or created, or shall prove to be
unenforceable or subordinate to any other Lien; it being
recognized and agreed by Guarantor that Guarantor is not
entering into this Guaranty Agreement in reliance on, or in
contemplation of the benefits of, the validity,
enforceability, collectibility or value of any of the
collateral for the Liabilities;
(j) Preference. Any payment by Borrower to Lender is held to
constitute a preference under bankruptcy laws, or for any
reason Lender is required to refund such payment or pay such
amount to Borrower or someone else; or
(k) Other Actions Taken or Omitted. Any other action taken
or omitted to be taken with respect to the Credit Agreement,
any other Loan Document, the Liabilities, or the security and
collateral therefor, whether or not such action or omission
prejudices Guarantor or increases the likelihood that
Guarantor will be required to pay the Liabilities pursuant to
the terms hereof; it is the unambiguous and unequivocal
intention of Guarantor that Guarantor shall be obligated to
pay the Liabilities when due, notwithstanding any occurrence,
circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not otherwise
or particularly described herein, except for the full and
final payment and satisfaction of the Liabilities.
ARTICLE 3
Representations, Warranties and Financial Information
Section 3.1 Representations and Warranties. In order to induce
Lender to accept this Guaranty Agreement, Guarantor represents and
warrants to Lender (which representations and warranties will
survive the creation of the Liabilities and any extension of credit
thereunder) that:
(a)Benefit to Guarantor. Guarantor's guaranty pursuant
to this Guaranty Agreement reasonably has benefitted or may be
expected to benefit, directly or indirectly, Guarantor.
(b)Binding Obligations. This Guaranty Agreement
constitutes valid and binding obligations of Guarantor,
enforceable in accordance with its terms (except that
enforcement may be subject to any applicable bankruptcy,
insolvency or similar laws generally affecting the enforcement
of creditors' rights).
(c)No Legal Bar or Resultant Lien. This Guaranty
Agreement will not violate any contract, agreement, law,
regulation, order, injunction, judgment, decree or writ to
which Guarantor is subject, or result in the creation or
imposition of any Lien upon any Properties of Guarantor (other
than those, if any, granted hereby or permitted by the Credit
Agreement).
(d)No Consent. Guarantor's execution, delivery and
performance of this Guaranty Agreement does not require the
consent or approval of any other Person, including without
limitation any regulatory authority or governmental body of
the United States or any state thereof or any political
subdivision of the United States or any state thereof.
(e)Familiarity and Reliance. Guarantor is familiar with,
and has independently reviewed books and records regarding,
the financial condition of the Borrower and is familiar with
the value of any and all collateral intended to be created as
security for the payment of the Note and Liabilities;
provided, however, Guarantor is not relying on such financial
condition or the collateral as an inducement to enter into
this Guaranty Agreement.
(f)No Representation. Neither Lender nor any other
Person has made any representation, warranty or statement to
Guarantor with regard to the Borrower or any Person liable for
the payment of all or any part of the Liabilities, or their
respective financial condition in order to induce Guarantor to
execute this Guaranty Agreement.
(g)Solvency. Guarantor hereby represents that (i) it is
not insolvent as of the date hereof and will not be rendered
insolvent as a result of this Guaranty Agreement, (ii) it is
not engaged in business or a transaction, or about to engage
in a business or a transaction, for which any property or
assets remaining with such Guarantor is unreasonably small
capital, and (iii) it does not intend to incur, or believe it
will incur, debts that will be beyond its ability to pay as
such debts mature.
Section 3.2 Financial Information. Guarantor will furnish to
Lender such information respecting the condition, financial or
otherwise, of Guarantor as Lender may from time to time request and
will furnish to Lender as soon as available and in any event within
120 days after the end of each calendar year the personal financial
statement of Guarantor for such year, including statements of
contingent liabilities and cash flow, certified by Guarantor.
ARTICLE 4
Security
Section 4.1 Grant of Security Interest. As security for
Guarantor's obligations hereunder, Guarantor hereby grants to
Lender a security interest in, a general lien upon and/or right of
set-off against the following (herein referred to as the
Collateral): the balance of every deposit account, now or
hereafter existing, of Guarantor with Lender and any other claim of
Guarantor against Lender, now or hereafter existing, and all money,
instruments, securities, documents, chattel paper, credits, claims,
demands and any other property, rights and interest of Guarantor,
which at any time shall come into the possession or custody or
under the control of Lender or any of its agents or affiliates, for
any purpose, and shall include the proceeds, products and
accessions of and to any thereof. Lender shall be deemed to have
possession of any of the Collateral in transit to or set apart for
it or any of its agents or affiliates.
Section 4.2 Financing Statements. The right is expressly
granted to Lender, at its discretion, to file one or more financing
statements or a copy of this Guaranty Agreement under the Uniform
Commercial Code naming Guarantor, as Debtor, and Lender, as Secured
Party, and indicating therein the types or describing the items of
Collateral.
Section 4.3 Remedies. In the event of default under this
Guaranty Agreement, Lender may sell or cause to be sold in Harris
County, Texas, or elsewhere, in one or more sales or parcels, at
such price as Lender may deem best, and for cash or on credit or
for future delivery, without assumption of any credit risk, all or
any of the Collateral at any broker's board or at public or private
sale, without demand or performance or notice of intention to sell
or of time or place of sale (except such notice as is required by
applicable statute and cannot be waived), and Lender or anyone else
may be the purchaser of any or all of the Collateral so sold and
thereafter hold the same absolutely, free from any claim or right
of whatsoever kind, including any equity of redemption of
Guarantor, any such demand, notice or right and equity being hereby
expressly waived and released.
Section 4.4 Rights. The grant of the above security interest
and lien shall not in any way limit or be construed as limiting
Lender to collect payment of Guarantor's obligations hereunder only
out of the Collateral, but it is expressly understood and provided
that all such obligations shall constitute the absolute and
unconditional obligations of Guarantor. Lender shall not be
required to take any steps necessary to preserve any rights against
prior parties to any of the Collateral.
ARTICLE 5
Miscellaneous
Section 5.1 Successors and Assigns. This Guaranty Agreement
is and shall be in every particular available to the successors and
assigns of Lender and is and shall always be fully binding upon the
legal representatives, successors and assigns of Guarantor,
notwithstanding that some or all of the monies, the repayment of
which this Guaranty Agreement applies, may be actually advanced
after any bankruptcy, receivership, reorganization or other event
affecting Guarantor.
Section 5.2 Notices. Lender's address for notice hereunder
shall be 24 Greenway Plaza, Suite 1401, Houston, Texas 77046, until
Borrower has received express written notice of a change of
address. Guarantor's address for notice hereunder shall be the
address given under Guarantor's signature below, until Lender has
received express written notice of a change of address. Any notice
or demand to Guarantor under or in connection with this Guaranty
Agreement may be given and shall conclusively be deemed and
considered to have been given and received upon the deposit
thereof, in writing, duly stamped and addressed to Guarantor at the
address of Guarantor appearing on the records of Lender, in the
U.S. mail, but actual notice, however given or received, shall
always be effective.
Section 5.3 Applicable Law. This Guaranty Agreement is a contract
made under and shall be construed in accordance with and governed by the laws
of the State of Texas.
Section 5.4 Jurisdiction. All actions or proceedings with
respect to this Guaranty Agreement may be instituted in the courts
of the State of Texas, the United States District Court for the
Southern District of Texas (Houston Division), or elsewhere to the
extent that jurisdiction shall exist apart from the provisions of
this Section, as Lender may elect, and by execution and delivery of
this Guaranty Agreement, Guarantor irrevocably and unconditionally
submits to the jurisdiction (both subject matter and personal) of
such court, and irrevocably and unconditionally waives (a) any
objection Guarantor may now or hereafter have to the laying of
venue in any of such courts, and (b) any claim that any action or
proceeding brought in any of such courts has been brought in an
inconvenient forum. However, Guarantor does not waive its right to
remove any cause of action brought in State Court to the United
States District Court for the Southern District of Texas (Houston
Division). This submission to jurisdiction and venue is
nonexclusive and does not prevent Lender from obtaining
jurisdiction in any court otherwise having jurisdiction or venue.
Guarantor hereby designates and appoints as its authorized agent in
the State of Texas to accept and acknowledge on its behalf service of
any and all process which may be served in any suit, action or proceeding
in the State of Texas, and Guarantor agrees that any service of process upon
such agent shall be deemed in every respect effective service upon Guarantor.
Guarantor agrees that so long as Guarantor shall be obligated to
Lender under this Guaranty Agreement, Guarantor shall maintain duly
appointed agents satisfactory to Lender for the service of process
in the State of Texas and shall keep Lender advised in writing of
the identity and location of such agents. The failure of such
agents to give notice to Guarantor of any such service shall not
impair or affect the validity of such service or of any judgment
rendered in any action or proceeding based thereon.
Section 5.6 Complete Agreement.
This Guaranty Agreement represents 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.
WITNESS THE EXECUTION HEREOF, as of the 20th day of December,
1995.
By:
DAN C. TUTCHER
Title:
Address:
Accepted as of the 20th day of December, 1995.
COMPASS BANK-HOUSTON
By:
Name:
Title:
<PAGE>
GUARANTY AGREEMENT
Between
MIDCOAST ENERGY RESOURCES, INC.
and
COMPASS BANK-HOUSTON
December 20, 1995
<PAGE>
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT by MIDCOAST ENERGY RESOURCES, INC., a
Nevada corporation (hereinafter called "Guarantor"), in favor of
COMPASS BANK-HOUSTON, a Texas State Chartered Banking Institution,
having banking quarters at 24 Greenway Plaza, Suite 1401, Houston,
Texas 77046 (hereinafter called "Lender");
W I T N E S S E T H:
WHEREAS, on even date herewith MAGNOLIA PIPELINE CORPORATION,
an Alabama corporation (hereinafter called "Borrower"), and Lender
entered into that certain Credit Agreement (said Credit Agreement,
as the same may from time to time be amended or supplemented,
hereinafter called the "Credit Agreement") pursuant to which Lender
agreed, upon certain terms and conditions therein stated, to make
loans and extend credit to Borrower from time to time; and
WHEREAS, one of the terms and conditions stated in the Credit
Agreement for the making of such loans and extending such credit is
the execution and delivery to Lender of this Guaranty Agreement
guaranteeing Borrower's repayment of such loans and such extensions
of credit;
NOW, THEREFORE, (i) in order to comply with the terms and
conditions of the Credit Agreement, (ii) to induce Lender, at its
option, at any time or from time to time, to loan monies, with or
without security to or for the account of Borrower, (iii) at the
special insistence and request of Lender, and (iv) for other good
and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Guarantor hereby agrees as follows:
ARTICLE I
General Terms
Section 1.1 Terms Defined Above. As used in this Guaranty
Agreement, the terms "Borrower," "Credit Agreement," "Guarantor"
and "Lender" and shall have the meanings indicated above.
Section 1.2 Certain Definitions. As used in this Guaranty
Agreement, the following terms shall have the following meanings,
unless the context otherwise requires:
"Collateral" shall have the meaning indicated in Section 4.1.
"Guaranty Agreement" shall mean this Guaranty Agreement, as
the same may from time to time be amended or supplemented.
"Liabilities" shall have the meaning indicated in Section 2.1.
Section 1.3 Credit Agreement Definitions. Unless otherwise
defined herein, all terms beginning with a capital letter which are
defined in the Credit Agreement shall have the same meanings herein
as therein.
ARTICLE 2
The Guaranty
Section 2.1 Liabilities Guaranteed; Maximum Liability. (a)
Guarantor hereby unconditionally and irrevocably guarantees the
prompt payment when due, whether at maturity or otherwise, of the
following (hereinafter called the "Liabilities"):
(i)All indebtedness, obligations including reimbursement
obligations and liabilities of any kind of Borrower to Lender
and the due fulfillment and performance of all obligations now
or hereafter owed by Borrower to Lender (and also to others to
the extent of participations granted them by Lender) arising
out of and pursuant to the Credit Agreement, now outstanding
or owing or which may hereafter be existing or incurred,
directly between Borrower and Lender or acquired outright as
a participation, conditionally or as collateral security from
another by Lender, absolute or contingent, joint and/or
several, secured or unsecured, due or not due, arising by
operation of law or otherwise, or direct or indirect,
including indebtedness, obligations and liabilities to Lender
of Borrower as a member of any partnership, syndicate,
association or other group, and whether incurred by Borrower
as principal, surety, endorser, guarantor, accommodation party
or otherwise, including, without limitation, the Indebtedness,
as defined in the Credit Agreement, including without
limitation (A) the Note, being that certain promissory note of
even date herewith in the amount of $1,500,000.00, executed by
Borrower and payable to the order of Lender; (B) any and all
renewals, extensions for any period, rearrangements increases
and/or modifications of the Note; (C) any Letters of Credit
issued or to be issued by the Lender for the account of
Borrower and described or referred to in the Credit Agreement,
and any and all renewals, extensions, amendments and/or
reissues of any such Letters of Credit; and (D) any and all
other Loan Documents or other documents executed in connection
with or as security for the Credit Agreement, the Note and/or
the Letters of Credit;
(ii)All interest, charges, expenses, attorneys' or other
fees and any other sums payable to or incurred by Lender in
connection with the execution, administration or enforcement
of Lender's rights and remedies under the Credit Agreement,
the Note, the Letters of Credit or any other Loan Documents or
other agreements with Borrower; and
(iii)All post-petition interest on the Liabilities in the
event of a bankruptcy or insolvency of the Borrower.
Section 2.2 Nature of Guaranty. This is an irrevocable,
absolute, unconditional, completed and continuing guaranty of
payment and not a guaranty of collection, and no notice of the
Liabilities or any extension of credit already or hereafter
contracted by or extended to Borrower need be given to Guarantor.
The fact that the Liabilities may be rearranged, increased,
reduced, extended for any period and/or renewed from time to time
or paid in full without notice to Guarantor shall not release,
discharge or reduce the obligation of Guarantor with respect to the
Liabilities, and Guarantor shall remain fully bound hereunder. In
the event that Lender must rescind or restore any payment received
by Lender in satisfaction of the Liabilities, as set forth herein,
any prior release or discharge from the terms of this Guaranty
Agreement given to Guarantor by Lender shall be without effect, and
this Guaranty Agreement shall remain in full force and effect. It
is the intention of Borrower and Guarantor that Guarantor's
obligations hereunder shall not be discharged except by Guarantor's
performance of such obligations and then only to the extent of such
performance. This Guaranty Agreement may be enforced by Lender and
any subsequent holder of the Liabilities and shall not be
discharged by the assignment or negotiation of all or part of the
Liabilities. This Guaranty Agreement may not be revoked by
Guarantor and shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the
Liabilities is rescinded or must otherwise be returned by Lender
upon the insolvency, bankruptcy, reorganization, receivership or
other debtor relief proceeding involving Borrower, or after any
attempted revocation by Guarantor, all as though such payment had
not been made. Guarantor hereby expressly waives notice of intent
to accelerate, notice of acceleration, presentment, demand, notice
of non-payment, protest, notice of protest and dishonor or any
other notice whatsoever on any and all forms of such Liabilities,
and also notice of acceptance of this Guaranty Agreement,
acceptance on the part of Lender being conclusively presumed by its
request for this Guaranty Agreement and delivery of the same to it.
Section 2.3 Lender's Rights. Guarantor authorizes Lender,
without notice or demand and without affecting Guarantor's
liability hereunder, to take and hold security for the payment of
this Guaranty Agreement and/or any of the Liabilities, and
exchange, enforce, waive and release any such security; and to
apply such security and direct the order or manner of sale thereof
as Lender in its discretion may determine; and to obtain a guaranty
of the Liabilities from any one or more Persons and at any time or
times to enforce, waive, rearrange, modify, limit or release any of
such other Persons from their obligations under such guaranties,
and Guarantor hereby acknowledges and agrees that the obligations
of all Persons to pay and satisfy the Liabilities pursuant to their
respective guaranties (including Guarantor's obligations under this
Guaranty Agreement) shall be joint and several. It is hereby
understood and agreed that whether and when and in what order to
exercise any of the remedies of Lender under the Credit Agreement,
the Note, or any other Loan Document executed in connection with
the Liabilities, shall be in the sole and absolute discretion of
Lender, and no delay by Lender to enforce any remedy, including
delay in conducting a foreclosure sale or other disposition of
collateral, shall be a defense to Guarantor's liability under this
Guaranty Agreement.
Section 2.4 Guarantor's Waivers. Guarantor waives any right
to require Lender (and it shall not be necessary for Lender, in
order to enforce such payment by Guarantor to first) (a) to proceed
against Borrower or any other Person liable on the Liabilities,
(b) to proceed against or exhaust any security given to secure the
Liabilities, (c) to have Borrower joined with Guarantor in any suit
arising out of this Guaranty Agreement and/or any of the
Liabilities, (d) to enforce its rights against any other guarantor
of the Liabilities, (e) to pursue or exhaust any other remedy in
Lender's power whatsoever, or (f) to preserve or perfect any liens
or security interests against any collateral whatsoever. Lender
shall not be required to mitigate damages or take any action to
reduce, collect or enforce the Liabilities. Guarantor waives any
defense or right to the marshalling of any security given to secure
the Liabilities. Guarantor waives any defense arising by reason of
any disability, lack of corporate authority or power, or other
defense of Borrower or any other guarantor of any of the
Liabilities, and shall remain liable hereon regardless of whether
Borrower or any other guarantor be found not liable thereon for any
reason. Until all the Liabilities shall have been paid in full,
Guarantor shall have no right of subrogation, waives all of its
rights at law or in equity (including, without limitation, any law
subrogating Guarantor to the rights of Lender) to seek
contribution, indemnification or any other form of reimbursement
from or to enforce any remedy which Lender now has or may hereafter
have against Borrower or any other Person primarily or secondarily
liable for any of the Liabilities and waives any benefit of and any
right to participate in any security now or hereafter held by
Lender to secure directly or indirectly all or any of the
Liabilities. Guarantor waives any and all defenses which might
otherwise be available (but only to the extent permitted by law) by
virtue of any valuation, stay, moratorium law or similar law now or
hereafter in effect.
Section 2.5 Maturity of Liabilities; Payment. Guarantor
agrees that if the maturity of any Liabilities is accelerated by
bankruptcy or otherwise, such maturity shall also be deemed
accelerated for the purpose of this Guaranty Agreement without
demand or notice to Guarantor. Guarantor will pay, forthwith upon
notice from Lender of Borrower's failure to pay any Liabilities at
maturity, to Lender at Lender's banking quarters in Houston, Harris
County, Texas, the amount due and unpaid by Borrower and guaranteed
hereby. The failure of Lender to give this notice shall not in any
way release Guarantor hereunder.
Section 2.6 Lender's Expenses. If Guarantor fails to pay the
Liabilities after notice from Lender of Borrower's failure to pay
any Liabilities at maturity, and if Lender obtains the services of
an attorney for collection of amounts owing by Guarantor hereunder,
or obtains advise of counsel in respect of any of its rights
hereunder, or if suit is filed to enforce this Guaranty Agreement,
or if proceedings are had in any bankruptcy, probate, receivership
or other judicial proceedings for the establishment or collection
of any amount owing by Guarantor hereunder, or if any amount owing
by Guarantor hereunder is collected through such proceedings,
Guarantor agrees to pay Lender at Lender's banking quarters all
court costs and Lender's reasonable attorneys' fees.
Section 2.7 Primary Liability. It is expressly agreed that
the liability of Guarantor for the payment of the Liabilities
guaranteed hereby shall be primary and not secondary.
Section 2.8 Events and Circumstances Not Reducing or
Discharging Guarantor's Obligations. Guarantor hereby consents and
agrees to each of the following, and agrees that Guarantor's
obligations under this Guaranty Agreement shall not be released,
diminished, impaired, reduced or adversely affected by any of the
following, and waives any rights (including, without limitation,
rights to notice) which Guarantor might otherwise have as a result
of or in connection with any of the following:
(a) Modifications, etc. Any modification, amendment,
supplement, renewal, extension for any period, increase,
decrease, alteration or rearrangement of all or any part of
the Liabilities, or of the Note, or the Credit Agreement or
any other Loan Document executed in connection therewith, or
any contract or understanding between Borrower and Lender, or
any other Person, pertaining to the Liabilities;
(b) Adjustment, etc. Any adjustment, indulgence, forbearance
or compromise that might be granted or given by Lender to
Borrower or Guarantor or any other Person liable on the
Liabilities;
(c) Condition of Borrower or Guarantor. The insolvency,
bankruptcy, arrangement, adjustment, composition, liquidation,
disability, dissolution or lack of power of Borrower or any
other Person at any time liable for the payment of all or part
of the Liabilities; or any dissolution of Borrower or
Guarantor, or any sale, lease or transfer of any or all of the
assets of Borrower or Guarantor, or any changes in the
shareholders or members of Borrower or Guarantor; or any
reorganization of Borrower or Guarantor;
(d) Invalidity of Liabilities. The invalidity, illegality or
unenforceability of all or any part of the Liabilities, or any
document or agreement executed in connection with the
Liabilities, for any reason whatsoever, including without
limitation the fact that (i) the Liabilities, or any part
thereof, exceeds the amount permitted by law, (ii) the act of
creating the Liabilities or any part thereof is ultra vires,
(iii) the officers or representatives executing the documents
or otherwise creating the Liabilities acted in excess of their
authority, (iv) the Liabilities or any part thereof violate
applicable usury laws, (v) the Borrower or any other Person at
any time liable for the payment of all or any part of the
Liabilities has valid defenses, claims or offsets (whether at
law or in equity, by agreement or by statute) which render the
Liabilities wholly or partially uncollectible from Borrower,
(vi) the creation, performance or repayment of the Liabilities
(or the execution, delivery and performance of any document or
instrument representing part of the Liabilities or executed in
connection with the Liabilities, or given to secure the
repayment of the Liabilities) is illegal, uncollectible,
legally impossible or unenforceable, or (vii) the Credit
Agreement, any other Loan Document, or any other document or
instrument pertaining to the Liabilities has been forged or
otherwise is irregular or not genuine or authentic;
(e) Release of Obligors. Any full or partial release of the
liability of Borrower on the Liabilities or any part thereof,
or of any co-guarantors, or any other Person now or hereafter
liable, whether directly or indirectly, jointly, severally, or
jointly and severally, to pay, perform, guarantee or assure
the payment of the Liabilities or any part thereof; it being
recognized, acknowledged and agreed by Guarantor that
Guarantor may be required to pay the Liabilities in full
without assistance or support of any other Person, and
Guarantor has not been induced to enter into this Guaranty
Agreement on the basis of a contemplation, belief,
understanding or agreement that any other Person will be
liable to perform the Liabilities, or Lender will look to any
other Person to perform the Liabilities;
(f) Other Security. The taking or accepting of any other
security, collateral or guaranty, or other assurance of
payment, for all or any part of the Liabilities;
(g) Release of Collateral, etc. Any release, surrender,
exchange, subordination, deterioration, waste, loss or
impairment (including, without limitation, negligent, willful,
unreasonable or unjustifiable impairment) of any collateral,
property or security, at any time existing in connection with,
or assuring or securing payment of, all or any part of the
Liabilities;
(h) Care and Diligence. The failure of Lender or any other
Person to exercise diligence or reasonable care in the
preservation, protection, enforcement, sale or other handling
or treatment of all or any part of such collateral, property
or security;
(i) Status of Liens. The fact that any collateral, security
or Lien contemplated or intended to be given, created or
granted as security for the repayment of the Liabilities shall
not be properly perfected or created, or shall prove to be
unenforceable or subordinate to any other Lien; it being
recognized and agreed by Guarantor that Guarantor is not
entering into this Guaranty Agreement in reliance on, or in
contemplation of the benefits of, the validity,
enforceability, collectibility or value of any of the
collateral for the Liabilities;
(j) Preference. Any payment by Borrower to Lender is held to
constitute a preference under bankruptcy laws, or for any
reason Lender is required to refund such payment or pay such
amount to Borrower or someone else; or
(k) Other Actions Taken or Omitted. Any other action taken
or omitted to be taken with respect to the Credit Agreement,
any other Loan Document, the Liabilities, or the security and
collateral therefor, whether or not such action or omission
prejudices Guarantor or increases the likelihood that
Guarantor will be required to pay the Liabilities pursuant to
the terms hereof; it is the unambiguous and unequivocal
intention of Guarantor that Guarantor shall be obligated to
pay the Liabilities when due, notwithstanding any occurrence,
circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not otherwise
or particularly described herein, except for the full and
final payment and satisfaction of the Liabilities.
ARTICLE 3
Representations, Warranties and Covenants
Section 3.1 Representations and Warranties. In order to
induce Lender to accept this Guaranty Agreement, Guarantor
represents and warrants to Lender (which representations and
warranties will survive the creation of the Liabilities and any
extension of credit thereunder) that:
(a) Benefit to Guarantor. Guarantor's guaranty pursuant to
this Guaranty Agreement reasonably has benefitted or may be
expected to benefit, directly or indirectly, Guarantor.
(b) Directors' Determination of Benefit. The Board of
Directors of Guarantor, acting pursuant to a duly called and
constituted meeting, after proper notice, or pursuant to a
valid unanimous consent, has determined that this Guaranty
Agreement directly or indirectly benefits and is in the best
interests of Guarantor.
(c) Corporate Existence. Guarantor is a corporation duly
organized, legally existing and in good standing under the
laws of Nevada, and is duly qualified as a foreign corporation
in all jurisdictions wherein the property owned or the
business transacted by it makes such qualification necessary.
(d) Corporate Power and Authorization. Guarantor is duly
authorized and empowered to execute, deliver and perform this
Guaranty Agreement and all corporate action on Guarantor's
part requisite for the due execution, delivery and performance
of this Guaranty Agreement has been duly and effectively
taken.
(e) Binding Obligations. This Guaranty Agreement constitutes
valid and binding obligations of Guarantor, enforceable in
accordance with its terms (except that enforcement may be
subject to any applicable bankruptcy, insolvency or similar
laws generally affecting the enforcement of creditors'
rights).
(f) No Legal Bar or Resultant Lien. This Guaranty Agreement
will not violate any provisions of Guarantor's articles or
certificate of incorporation, bylaws, or any contract,
agreement, law, regulation, order, injunction, judgment,
decree or writ to which Guarantor is subject, or result in the
creation or imposition of any Lien upon any Properties of
Guarantor (other than those, if any, granted hereby or
permitted by the Credit Agreement).
(g) No Consent. Guarantor's execution, delivery and
performance of this Guaranty Agreement does not require the
consent or approval of any other Person, including without
limitation any regulatory authority or governmental body of
the United States or any state thereof or any political
subdivision of the United States or any state thereof.
(h) Authorization. The undersigned, signing for and on
behalf of Guarantor is duly authorized and empowered to
execute this Guaranty Agreement for and on behalf of
Guarantor.
(i) Familiarity and Reliance. Guarantor is familiar with,
and has independently reviewed books and records regarding,
the financial condition of the Borrower and is familiar with
the value of any and all collateral intended to be created as
security for the payment of the Note and Liabilities;
provided, however, Guarantor is not relying on such financial
condition or the collateral as an inducement to enter into
this Guaranty Agreement.
(j) No Representation. Neither Lender nor any other Person
has made any representation, warranty or statement to
Guarantor with regard to the Borrower or any Person liable for
the payment of all or any part of the Liabilities, or their
respective financial condition in order to induce Guarantor to
execute this Guaranty Agreement.
(k) Solvency. Guarantor hereby represents that (i) it is not
insolvent as of the date hereof and will not be rendered
insolvent as a result of this Guaranty Agreement, (ii) it is
not engaged in business or a transaction, or about to engage
in a business or a transaction, for which any property or
assets remaining with such Guarantor is unreasonably small
capital, and (iii) it does not intend to incur, or believe it
will incur, debts that will be beyond its ability to pay as
such debts mature.
(l) Financial Representations. The balance sheets of
Guarantor and its subsidiaries as at December 31, 1994, and
the related statements of operations and retained earnings of
Guarantor and its subsidiaries for the fiscal year then ended,
and the balance sheet of Guarantor and its subsidiaries as at
October 31, 1995, and the related statements of operations and
retained earnings of Guarantor and its subsidiaries for the 10
months then ended, copies of which have been furnished to
Lender, fairly present (subject in the case of said balance
sheets as at October 31, 1995, and said statements of
operations and retained earnings for the 10 months then ended
to year end adjustments) the financial condition of Guarantor
and its subsidiaries as at such dates and the results of
operations of Guarantor and its subsidiaries for the period
ended on such dates, all in accordance with generally accepted
accounting principals consistently applied, and since October
31, 1995, there has been no material adverse change in such
condition or operations.
Section 3.2 Covenants. Guarantor covenants and agrees that,
so long as the Commitment is in effect and until payment in full of
the Liabilities:
(a) Financial Information. Guarantor will furnish to Lender
such information respecting the condition or operations,
financial or otherwise, of Guarantor and of any of its
subsidiaries as Lender may from time to time request and will
furnish to Lender (i) as soon as available and in any event
within 60 days after the end of each calendar month, the
consolidated balance sheets of Guarantor and its
subsidiaries as at the end of such month and the consolidated
statements of operations of Guarantor and its subsidiaries for
the period commencing at the end of the previous fiscal year
and ending with the end of such month, certified by a
Responsible Officer of Guarantor, (ii) as soon as available
and in any event within 60 days after the end of each of the
first three quarters of each fiscal year of Guarantor, the
consolidating balance sheets of Guarantor and its subsidiaries
as at the end of such quarter and the consolidating statements
of operations of Guarantor and its subsidiaries for the period
commencing at the end of the previous fiscal year and ending
with the end of such quarter, certified by a Responsible
Officer of Guarantor, and (iii) as soon as available and in
any event within 120 days after the end of each fiscal year of
Guarantor the audited consolidated (and the unaudited
consolidating) balance sheets of Guarantor and its
subsidiaries as at the end of such year and the audited
consolidated (and the unaudited consolidating) statements of
operations of Guarantor and its subsidiaries for the fiscal
year then ended, certified, in the case of such audited
statements, by independent public accountants acceptable to
Lender.
(b) Guarantor will furnish to Lender promptly upon its
becoming available, each financial statement, report, notice
or proxy statement sent by Guarantor to stockholders generally
and each regular or periodic report and any registration
statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by Guarantor
with or received by Guarantor in connection therewith from any
securities exchange or the SEC or any successor agency.
ARTICLE 4
Security
Section 4.1 Grant of Security Interest. As security for
Guarantor's obligations hereunder, Guarantor hereby grants to
Lender a security interest in, a general lien upon and/or right of
set-off against the following (herein referred to as the
Collateral): the balance of every deposit account, now or
hereafter existing, of Guarantor with Lender and any other claim of
Guarantor against Lender, now or hereafter existing, and all money,
instruments, securities, documents, chattel paper, credits, claims,
demands and any other property, rights and interest of Guarantor,
which at any time shall come into the possession or custody or
under the control of Lender or any of its agents or affiliates, for
any purpose, and shall include the proceeds, products and
accessions of and to any thereof. Lender shall be deemed to have
possession of any of the Collateral in transit to or set apart for
it or any of its agents or affiliates.
Section 4.2 Financing Statements. The right is expressly
granted to Lender, at its discretion, to file one or more financing
statements or a copy of this Guaranty Agreement under the Uniform
Commercial Code naming Guarantor, as Debtor, and Lender, as Secured
Party, and indicating therein the types or describing the items of
Collateral.
Section 4.3 Remedies. In the event of default under this
Guaranty Agreement, Lender may sell or cause to be sold in Harris
County, Texas, or elsewhere, in one or more sales or parcels, at
such price as Lender may deem best, and for cash or on credit or
for future delivery, without assumption of any credit risk, all or
any of the Collateral at any broker's board or at public or private
sale, without demand or performance or notice of intention to sell
or of time or place of sale (except such notice as is required by
applicable statute and cannot be waived), and Lender or anyone else
may be the purchaser of any or all of the Collateral so sold and
thereafter hold the same absolutely, free from any claim or right
of whatsoever kind, including any equity of redemption of
Guarantor, any such demand, notice or right and equity being hereby
expressly waived and released.
Section 4.4 Rights. The grant of the above security interest
and lien shall not in any way limit or be construed as limiting
Lender to collect payment of Guarantor's obligations hereunder only
out of the Collateral, but it is expressly understood and provided
that all such obligations shall constitute the absolute and
unconditional obligations of Guarantor. Lender shall not be
required to take any steps necessary to preserve any rights against
prior parties to any of the Collateral.
ARTICLE 5
Miscellaneous
Section 5.1 Successors and Assigns. This Guaranty Agreement
is and shall be in every particular available to the successors and
assigns of Lender and is and shall always be fully binding upon the
legal representatives, successors and assigns of Guarantor,
notwithstanding that some or all of the monies, the repayment of
which this Guaranty Agreement applies, may be actually advanced
after any bankruptcy, receivership, reorganization or other event
affecting Guarantor.
Section 5.2 Notices. Lender's address for notice hereunder
shall be 24 Greenway Plaza, Suite 1401, Houston, Texas 77046, until
Borrower has received express written notice of a change of
address. Guarantor's address for notice hereunder shall be the
address given under Guarantor's signature below, until Lender has
received express written notice of a change of address. Any notice
or demand to Guarantor under or in connection with this Guaranty
Agreement may be given and shall conclusively be deemed and
considered to have been given and received upon the deposit
thereof, in writing, duly stamped and addressed to Guarantor at the
address of Guarantor appearing on the records of Lender, in the
U.S. mail, but actual notice, however given or received, shall
always be effective.
Section 5.3 Applicable Law. This Guaranty Agreement is a
contract made under and shall be construed in accordance with and
governed by the laws of the State of Texas.
Section 5.4 Jurisdiction. All actions or proceedings with
respect to this Guaranty Agreement may be instituted in the courts
of the State of Texas, the United States District Court for the
Southern District of Texas (Houston Division), or elsewhere to the
extent that jurisdiction shall exist apart from the provisions of
this Section, as Lender may elect, and by execution and delivery of
this Guaranty Agreement, Guarantor irrevocably and unconditionally
submits to the jurisdiction (both subject matter and personal) of
such court, and irrevocably and unconditionally waives (a) any
objection Guarantor may now or hereafter have to the laying of
venue in any of such courts, and (b) any claim that any action or
proceeding brought in any of such courts has been brought in an
inconvenient forum. However, Guarantor does not waive its right to
remove any cause of action brought in State Court to the United
States District Court for the Southern District of Texas (Houston
Division). This submission to jurisdiction and venue is
nonexclusive and does not prevent Lender from obtaining
jurisdiction in any court otherwise having jurisdiction or venue.
Guarantor hereby designates and appoints Richard Robert, whose
address is c/o Midcoast Energy Resources, Inc., 1100 Louisiana,
Suite 3030, Houston, Texas 77002, as its authorized agent in the
State of Texas to accept and acknowledge on its behalf service of
any and all process which may be served in any suit, action or
proceeding in the State of Texas, and Guarantor agrees that any
service of process upon such agent shall be deemed in every respect
effective service upon Guarantor. Guarantor agrees that so long as
Guarantor shall be obligated to Lender under this Guaranty
Agreement, Guarantor shall maintain duly appointed agents
satisfactory to Lender for the service of process in the State of
Texas and shall keep Lender advised in writing of the identity and
location of such agents. The failure of such agents to give notice
to Guarantor of any such service shall not impair or affect the
validity of such service or of any judgment rendered in any action
or proceeding based thereon.
Section 5.6 Complete Agreement.
This Guaranty Agreement represents 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.
WITNESS THE EXECUTION HEREOF, as of the 20th day of December, 1995.
MIDCOAST ENERGY RESOURCES, INC.
Name:
Title:
Address:
1100 Louisiana, Suite 3030
Houston, Texas 77002
Accepted as of the 20th day of December, 1995.
COMPASS BANK-HOUSTON
By:
Name:
Title:
<PAGE>
EXHIBIT 10.43
OPERATING AGREEMENT
OF
PAN GRANDE PIPELINE, L.L.C.
THIS AGREEMENT is made and entered into by and between
MIDCOAST HOLDINGS NO. ONE, INC. ("Midcoast"), a corporation
organized under the laws of the State of Delaware which has its
principal place of business at Houston, Texas, herein appearing by
and through K. B. Holmes, Jr., its Vice President, duly authorized
by resolution of its Board of Directors; and RESOURCE ENERGY
DEVELOPMENT COMPANY, LLC ("Resource"), a Limited Liability Company
organized under the laws of the State of North Carolina, which has
its principal place of business at Houston, Texas, herein appearing
by and through Chester R. Cloudt, Jr., its Senior Vice President,
duly authorized by resolution of its Board of Members. Midcoast
and Resource are hereafter sometimes referred to collectively as
"Members" or individually as a "Member".
W I T N E S S E T H:
WHEREAS, the Members constitute all of the members of Pan
Grande Pipeline, L.L.C., a Texas Limited Liability Company (the
"Company"), organized under the Texas Limited Liability Company
Act, Tex.Rev.Civ.Stat.Ann.art. 1528n (Vernon Supp. 1993) (the
"Texas Limited Liability Company Act"), as evidenced by Articles of
Organization of the Company dated February 28, 1996, on which date
the existence of such company began, as evidenced by the
Certificate of Organization issued by the Secretary of State of the
State of Texas; and
WHEREAS, the Members have agreed to join together for the
purpose of acquiring, owning and operating those certain natural
gas gathering systems, pipelines and related equipment, all located
within the State of Texas, as described in Exhibit "A" attached
hereto, which may be amended from time-to-time.
WHEREAS, the Members desire to enter into an operating
agreement on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, the parties hereto hereby agree as follows:
ARTICLE I
FORMATION OF LIMITED LIABILITY COMPANY
Section 1.01. Formation of Limited Liability Company.
(a) Midcoast and Resource have formed the Company for the
limited purposes and scope set forth herein.
(b) Except as expressly provided for herein to the contrary,
the rights and obligations of the Members and the
administration and termination of the Company shall be
governed by the Texas Limited Liability Act and any
successor statute, as amended from time-to-time. All
real and other property owned by the Company shall be
deemed owned by the Company as an entity. A Member's
interest in the Company shall be personal property for
all purposes. The business and affairs of the Company
shall be conducted solely in the name of the Company; and
title to all Company property shall be taken solely in
the name of the Company, unless all Members agree in
writing otherwise.
Section 1.02. Scope of Company.
(a) The operations of the Company shall be limited strictly
to the following purposes: the purchase, sale and/or
transportation of natural gas and the liquid components
thereof (if any) and the acquisition, development,
construction, ownership, management, operation and
maintenance of the gas gathering systems, pipelines, and
related equipment described in Exhibit "A" attached
hereto (collectively, the "Systems"), and extensions of
and improvements to the Systems.
(b) The Company shall operate the Systems in accordance with
the terms of this Agreement.
Section 1.03. Principal Place of Business. The principal place of
business of the Company shall be 1100 Louisiana, Suite 2950,
Houston, Texas 77002.
ARTICLE II
ACQUISITIONS OF THE SYSTEMS AND
EXTENSIONS TO THE SYSTEMS
Section 2.01. Systems Acquisition.
The Company shall acquire the Systems by cash purchase from
Seahawk Natural Gas Company, together with the Rights-of-Way and
Permits described in Exhibits "A-1" through "A-6" attached hereto
and the contracts pertaining to the Systems.
Section 2.02. Extensions and Other Improvements to the Systems.
Acquisition of all permits, licenses, authorizations,
approvals and rights-of-way required for the extension and/or
improvements of the Systems will be obtained by the Manager but
shall be taken in the name of the Company, unless otherwise
approved by all the Members.
Section 2.03. Contracts.
The Manager (as designated in Section 3.01 hereof) will
execute contracts for the purchase of construction services and
materials required for any and all extensions of and improvements
to the Systems. All of such contracts executed by the Manager
shall be in the name of the Company, unless otherwise approved by
the Members.
Section 2.04. Insurance.
The Manager shall obtain and maintain such insurance coverage
on behalf of the Company (whether under a separate policy issued in
the name of the Company or as an additional insured under a policy
issued in the name of the Manager or an affiliate of the Manager)
as it, in its discretion, shall deem necessary but shall include:
(a) Worker's compensation and employer's liability insurance
in accordance with all applicable state and federal laws
during such time or times that the Company has one or
more employees and/or is doing business with an uninsured
contractor;
(b) General and umbrella liability insurance with a combined
single limit of liability for bodily injury and property
damage of not less than Five Million and No/100 Dollars
($5,000,000); and
(c) Automobile public liability with a combined single limit
of liability for bodily injury and property damage of not
less than One Million and No/100 Dollars ($1,000,000).
The cost of such coverages (which cost shall be at competitive
rates and which cost shall be allocated on a fair and equitable
basis to the Company where the Manager holds a blanket policy
covering other property and activities in addition to the Company
property and activities and where the Company is named as an
additional insured on said policy) will be charged to the Company.
ARTICLE III
MANAGEMENT OF COMPANY
Section 3.01. Management of Company.
(a) Midcoast is hereby designated as the initial Manager of
the Company. After Midcoast, as the initial Manager, or
any successor Manager, has served a term of two (2) years
as Manager, the then non-managing Member which has the
greatest percentage ownership in the Company shall have
the right to succeed Midcoast or the then Manager, as
applicable, at any time within, but not after, the six
(6) month period immediately following the expiration of
the two (2) year term, provided that ninety (90) days
prior written notice is given to all Members by such non-
managing Member and it can sufficiently demonstrate to
the then Manager (which demonstration shall not be
unreasonable) that it and/or its affiliate(s) has the
capability of operating the Systems and performing with
its own employees all functions of the Manager, and,
further provided, that it and/or its affiliate(s) has (i)
professional engineering employees, (ii) a federally and
state approved drug and alcohol testing program, and
(iii) employees with proven expertise in both state and
federal regulatory and environmental affairs. In the
event Midcoast or any successor Manager is not succeeded
by a new Manager within the six (6) month period
following the expiration of any two (2) year term as
Manager, it shall then continue as Manager for another
two (2) year term commencing as of the date of expiration
of its preceding two (2) year term.
(b) Upon the resignation of the Manager, a successor Manager
shall be elected by the Members based upon the unanimous
vote of all Members. Any successor Manager must own an
interest in the Company unless the Members unanimously
agree otherwise.
(c) Except as otherwise provided in this Agreement, the
overall management and conduct of the business affairs of
the Company shall be vested in the Members. In this
connection, it is understood and agreed:
(i) The day-to-day operation of the Company shall be
vested in the Manager; and
(ii) All accounting functions of the Company, including
the establishment of Company bank accounts, receipt
of revenue and payment of obligations, and
preparation of books, records and reports, shall be
performed by the Manager.
(d) Non-managing Members of the Company are not authorized to
bind the Company.
Section 3.02. Members' Designated Representatives.
Wherever in this Agreement it is provided that any action may
be taken only upon authorization or vote of the Members, it shall
mean by the Member itself, acting by and through its president or
other officer duly authorized by company resolution, or by any one
or more of the persons specified as a Designated Representative for
such Member in Section 10.01 hereof. Each Member represents and
warrants to the other Members that each of its Designated
Representatives have authority to act for and bind it with respect
to any matter pertaining to the Company other than approval of any
single expenditure by the Company which would require an additional
capital contribution from the Member in excess of twenty-five
thousand dollars ($25,000.00).
Section 3.03. Meetings.
(a) Meetings of the Members of the Company may be called by
any Member or one of its Designative Representatives on
seven (7) days' notice to the other Members or one of its
Designative Representatives. Any such notice shall state
the date, place and time of the meeting. All meetings
shall be held in Harris County, Texas, unless otherwise
agreed upon by a majority vote of the Members. Meetings
of the Company may be held upon less than seven (7) days'
notice if waived by all the Members. Attendance by all
Members at a gathering where Company business is
discussed shall, for all purposes hereof, be deemed a
Waiver of Notice unless expressly protested by any one or
more Members during the conduct of the business
discussion.
(b) Each Member of the Company shall be entitled to one (1)
vote (or fractional part thereof) for each one (1)
percent ownership in the Company. Except where
prohibited by law, any action, resolution, or decision
adopted by the Members shall require a majority
affirmative vote of Members holding more than fifty
percent (50%) of the voting rights of the Company.
Members are allowed to grant written proxies to any
competent person of the age of majority authorizing said
person to vote their vote(s).
(c) In lieu of meetings of the Members, the Members may act
or adopt resolutions by written consent of Member(s)
holding a majority in voting rights of the Members.
Meetings may be conducted by telephone. Members may
attend meetings by telephone.
Section 3.04. Standard of Care.
(a) The Manager shall perform all acts and things to be done
by it in good and workmanlike manner in conformity with
the usual practices of the natural gas gathering and
pipeline industry and in accordance with all valid and
applicable laws, rules and regulations of the
governmental authorities.
(b) The Manager shall be obligated to perform the
responsibilities and the obligations of the Manager
hereunder only to the extent that funds of the Company
are available therefor. Notwithstanding any other
provision hereof, the Manager shall be liable only for
willful misconduct or breach of an express provision of
this Agreement but in other respects shall not be liable
for mistakes of judgment.
(c) The Manager, the Members and the Designated Repre-
sentatives shall, in good faith and at all times, conduct
the business and affairs of the Company in a professional
manner in order to maximize the economic benefit to the
Company and each of the Members.
Section 3.05. Compensation of Manager.
For the period of one (1) year from the date of closing of the
purchase of the Systems, the Company shall pay to the Manager as
compensation for its services the sum of three thousand dollars
($3,000.00) for each month the Systems, or any of them, are in
operation. This compensation shall be called an Administrative
Overhead Fee and shall be paid in advance on the first day of each
month. At or near the expiration of the first one (1) year period
of operations and annually thereafter, the Members shall
redetermine the appropriate Administrative Overhead Fee to be paid
to the Manager. The Administrative Overhead Fee shall be paid in
lieu of reimbursing Manager for those costs and expenses incurred
by it and any of its affiliates for their employees providing
supervision and management, accounting, regulatory reporting, gas
balancing and nominations, and contract negotiations and
administration for the Company and the Systems. Thereafter, the
Manager shall be compensated by the Company in a manner and in
amounts to be determined by the Members upon recommendation by the
Manager, which recommendation shall be accompanied by such
accounting, financial and other data as shall be appropriate under
the circumstances. The Administrative Overhead Fee shall expressly
not include any costs of materials, equipment and supplies
purchased or furnished by Manager solely for use by the Company;
transportation of personnel while solely performing Company
business; contract services (such as outside attorneys,
accountants, landmen, etc.); utilities procured from outside
services; all taxes levied or assessed against Company property;
insurance premiums or allocations pertaining to Company property or
business; permits, licenses and bond premiums; and all labor costs,
whether for contract labor or Manager's employees while in the
field. For construction projects, repairs and extensions of any of
the Systems which will cost the Company twenty thousand dollars
($20,000.00) or more, the Manager shall receive an additional
Administrative Overhead Fee of five percent (5%) of the actual cost
of the project, repair or extension.
Section 3.06. Compensation of Members.
Except as may be expressly provided for herein or hereafter
approved by the Members, no payment will be made by the Company to
any Member for the services of such Member, provided, however, any
Members' direct, out-of-pocket costs incurred on behalf of the
Company may, with prior approval of the Manager, be reimbursed.
Section 3.07. Approval of Contracts.
Notwithstanding any other provisions of this Agreement to the
contrary, the Manager shall not enter any contracts or amendments
to contracts providing for the purchase, sale or transportation of
gas by or for the account of the Company unless submitted to each
Member or one or more of its Designated Representatives for
approval. Approval shall be conclusively deemed given if no
objection in writing is given to the Manager within one (1)
business day after the receipt of such contract or amendment by
such Member or one or more of its Designated Representatives.
Section 3.08. Limit on Expenditures.
In the event any expenditure (other than for the acquisition
of the Systems) is required for any item or materials in excess of
Twenty Thousand and No/100 Dollars (20,000.00), the Manager shall
have no authority to make such expenditure without the written
consent of all Member representatives or Members; provided,
however, that in case of explosion, fire, or emergencies of a
similar nature, the Manager may take such steps and incur such
expenses as, in its opinion, are required to deal with the
emergency to safeguard life and property. The Manager, as promptly
as possible, shall report the emergency to the other Members.
ARTICLE IV
OWNERSHIP AND FINANCING
Section 4.01. Initial Capital Contributions.
The Members agree that their respective initial percentage of
ownership in the Company shall be as follows: Midcoast - 50%,
Resource - 50%. The Members agree to each make an initial capital
contribution equal to twenty-five thousand dollars ($25,000.00),
plus one-half (1/2) of the total purchase price of the Systems,
except that if the Company obtains a bank loan that is guaranteed
by both Resources and Midcoast in equal proportions (the "Bank
Loan"), then the initial capital contribution of each of them shall
only be twenty-five thousand dollars ($25,000.00), plus one-half
(1/2) of the difference between (i) the total purchase of the
Systems and (ii) the amount of the Bank Loan.
Section 4.02. Distributions.
Except as provided in Sections 4.05 and 4.06 hereof, all Net
Operating Revenue received from the operation of the Systems shall
be distributed to the Members in accordance with their respective
ownership interest in the Company at the time of distribution.
Distributions to the Members of Net Operating Revenue shall be made
monthly (unless otherwise agreed upon in writing by the Members)
within sixty (60) days after the close of each calendar month.
"Net Operating Revenue", as used in this Agreement, is defined
herein as gross revenues less direct costs, note payments, retained
working capital, (such retained working capital shall at all times
be fifty thousand dollars ($50,000.00) unless an increase or
decrease is unanimously approved by all Members), and the
Administrative Overhead Fee (as set forth in Section 3.04 hereof),
but excluding any deduction of Federal or State Income Tax
Expenses. The above costs or expenses deducted from gross revenues
to determine Net Operating Revenue shall be paid as funds are
available on a priority basis in the order listed above with direct
costs, note payments, retained working capital, and the
Administrative Overhead Fee is paid and/or funded before any
distributions are made.
Section 4.03. Financing.
(a) The sums of money required to operate the business and
affairs of the Company shall be derived, first, from the
Company Revenues. As used in this Agreement, the term
"Company Revenues" means the total amounts received by
the Company for the period indicated from operation of or
sale of Company assets.
(b) From time-to-time, there may be insufficient Company
Revenues available for operation of the Company during
the next 30 days. In such case, the Manager may require
the Members to advance within ten (10) days after written
request from the Manager, as an additional capital
contribution, their share of estimated cash outlay for
all purposes other than those authorized under Section
4.04 hereof, as estimated by the Manager to be required
during the next thirty (30) days; and the amounts so
contributed shall be credited to the Members' respective
capital accounts.
Section 4.04. Additional Facilities and Extensions to the Systems.
Upon the unanimous approval of all Members, the Company may
acquire or construct additional facilities or extensions to the
Systems, and each Member shall pay an amount equal to their pro
rata share of the capital costs for such additions or extensions,
as an additional capital contribution, within twenty (20) days
after the Manager shall in writing request the same.
Section 4.05. Failure to Make Capital Contributions.
In the event a Member breaches this Agreement by failing to
make a capital contribution required under Sections 4.03(b) or 4.04
hereof (a "Defaulting Member"), then unless otherwise agreed by and
among those remaining Members who have made their required capital
contribution (the "Non-Defaulting Members"), the Non-Defaulting
Members shall, in proportion to their capital accounts, contribute
a pro rata share of the contribution which such Defaulting Member
failed to make, and thereafter all Net Operating Revenue from the
operation of the Systems and all extensions or expansions thereto,
as well as all gross revenues from sales of gathering systems and
pipelines, and all additions or expansions thereto, as well as all
gross revenues from sales of Company property, which would
otherwise be distributed and paid to the Defaulting Members, in the
same proportions in which the Non-Defaulting Members made the
contribution which such Defaulting Member failed to make, until the
Non-Defaulting Members collectively shall have recovered therefrom
a sum of money equal to three (3) times the amount of such capital
contribution which the Defaulting Member failed to make. The
provisions of this Section 4.05 shall in no manner alter or limit
all other remedies or rights available to the Non-Defaulting
Members under this Agreement, at law, in equity or otherwise, for
said breach.
4.06. Special Allocations.
It is anticipated that from time-to-time the Company will have
opportunities to purchase and resell gas for its own account,
rather than transporting such gas for a transportation fee. In
those situations, the Members agree that the Net Operating Revenue
received therefrom, after deducting an amount equal to what the
transportation fee of the Company would have been if the gas had
been only transported by the Company rather than being purchased
and resold, shall be distributed to the Members in accordance with
such agreement as the Members shall make at the time of the
purchase and resale of such gas.
ARTICLE V
ACCOUNTING
Section 5.01. Tax Status.
(a) Any provision hereof to the contrary notwithstanding,
solely for United States federal income tax purposes,
each of the Members hereby recognizes that the Company
will be subject to all provisions of Subchapter K of
Chapter 1 of Subtitle A of the United States Internal
Revenue Code of 1954; provided, however, the filing of
U.S. Partnership Returns of Income shall not be construed
to extend the purposes of the Company or expand the
obligations or liabilities of the Members. At the
request of any Member, the Company shall file an election
under Section 754 of the United States Internal Revenue
Code of 1954.
(b) The Manager shall prepare or cause to be prepared all tax
returns and statements, if any, which must be filed on
behalf of the Company with any taxing authority and shall
submit such returns and statements to all the Members for
their approval and, upon approval by all the Members,
make timely filing thereof.
(c) For accounting and federal and state income tax purposes,
except as herein otherwise specifically provided, all
income, deductions, credits, gains and losses of the
Company shall be allocated to the Members in proportion
to their respective Company ownership interests in the
Company; provided, however, in allocating depreciation,
gain or loss on sales or assets, and investment tax
credits, such depreciation, gains or losses, and
investment tax credits will be based on the respective
tax basis of assets contributed to the Company by each
Member. Any item which is stipulated to be an expense of
the Company under the terms of this Agreement or which
would be so treated in accordance with generally accepted
accounting principles, shall be treated as an expense of
the Company for all purposes whether or not such item is
deductible for purposes of computing net income for
federal income tax purposes. Neither the allocations
referred to in this section nor the utilization of
varying tax basis as herein provided shall have any
effect whatsoever upon any Member's ownership interest in
the Company.
Section 5.02. Accounting.
(a) The fiscal year of the Company shall end on the last day
of December of each year.
(b) The Manager shall prepare and furnish to the Members,
within sixty (60) days after the close of each calendar
month, statements showing the results of operation of the
Company for such month. The Manager shall prepare and
furnish to each of the Members, promptly after the close
of each fiscal year, financial statements showing the
financial condition and results of operation of the
Company as of and for the 12-month period ending on the
31st day of December of the year.
(c) Each Member shall have the right at all reasonable times
during usual business hours to audit, examine, and make
copies of or extracts from the records of the Company.
Such right may be exercised through any agent or employee
of such Member designated by it or by an independent
certified public accountant designated by such Member.
The Manager shall reasonably cooperate in any such audit.
Each Member shall bear all expenses incurred in any
examination made for such Member's account.
ARTICLE VI
TERM, OPTIONS AND TERMINATION
Section 6.01. Term.
The Company shall be in effect for a term beginning on the
date hereof and shall continue until December 31, 2020, unless
earlier terminated and liquidated in accordance with the provisions
hereof. All provisions of this Agreement relative to termination
and liquidation shall be cumulative; that is, the exercise of use
of one of the provisions hereof shall not preclude the exercise or
use of any other provision hereof.
Section 6.02. Events of Dissolution.
The term "Event of Dissolution", as used hereunder, shall
mean:
(a) the dissolution or termination of any person, company,
limited liability company, partnership or corporation
which is now or which shall hereafter become a Member, or
(b) the occurrence of any of the following events:
(1) If any Member shall file a voluntary petition in
bankruptcy or shall be adjudicated bankrupt or
insolvent or shall file any petition or answer
seeking any reorganization, dissolution or similar
relief for itself under the present or any future
federal bankruptcy act or any other present or
future applicable federal, state, or other statute
or law relative to bankruptcy, insolvency, or other
relief for debtors, or shall seek or consent to or
acquiesce in the appointment of any trustee,
receiver, conservator, or liquidator of said Member
or of all or any substantial part of its properties
or its interest in the Company (the term
"acquiesce" includes, but is not limited to, the
failure to file a petition or motion to vacate or
discharge any order, judgment or decree providing
for such appointment within ten (10) days after the
appointment); or
(2) If a court of competent jurisdiction shall enter an
order, judgment or decree approving a petition
against any Member seeking any reorganization,
arrangement, composition, readjustment, liqui-
dation, dissolution or similar relief under the
present or future applicable federal, state or
other statute or law relating to bankruptcy,
insolvency or other relief for debtors, and said
Member shall acquiesce in the entry of such order,
judgment or decree (the term "acquiesce" includes,
but is not limited to, the failure to file a
petition or motion to vacate or discharge such
order, judgment or decree within ten (10) days
after the entry of the order, judgment or decree),
or such other judgment or decree shall remain
unvacated and unstayed against any Member
(including its affiliates) for an aggregate of
thirty (30) days (whether or not consecutive) from
the date of entry thereof, or any trustee,
receiver, conservator or liquidator of said Member
or all or any substantial part of its property or
its interest in the Company shall be appointed
without the consent or acquiescence of said Member
and such appointment shall remain unvacated and
unstayed for an aggregate of sixty (60) days
(whether or not consecutive); or
(3) Any Member shall admit in writing its inability to
pay its debts as they mature; or,
(4) Any Member shall give notice to any governmental
body of insolvency or pending insolvency, or
suspension or pending suspension of operations; or,
(5) Except as authorized in Section 7.03(b), any Member
shall make an assignment for the benefit of
creditors or take any other similar action for the
protection or benefit of creditors.
The Company will be terminated by the occurrence of an Event
of Dissolution unless within 90 days the remaining Members agree to
continue the Company.
Section 6.03. Termination for Default.
(a) If any Member fails to perform any of its respective
obligations hereunder, the other Members ("Non-Defaulting
Parties") shall have the right to give such party
("Defaulting Party") a notice of default ("Notice of
Default"). The Notice of Default shall set forth the
nature of the obligation which the Defaulting Party has
not performed. For purposes of this Section 6.03,
"default" shall include actions taken by a Party which
are prohibited by this agreement.
(b) If, within the thirty (30) day period following receipt
of the Notice of Default, the Defaulting Party in good
faith commences to perform such obligation and cure such
default and thereafter prosecutes to completion with
diligence and continuity the curing thereof and cures
such default within a reasonable time, it shall be deemed
that the Notice of Default was not given and the
Defaulting Party shall lose no rights hereunder. If,
within such thirty (30) day period, the Defaulting Party
does not commence in good faith the curing of such
default or does not thereafter prosecute to completion
with diligence and continuity the curing thereof, the
Non-Defaulting Parties hereunder shall have the right to
terminate this Company by giving the Defaulting Party
written notice thereof. If the Company is so terminated,
the Defaulting Party shall be deemed to be the
"Withdrawing Party".
(c) The foregoing provisions of this Section 6.03 shall not
apply to any default with respect to the payment of any
sums of money by or to any Member, which sums of money,
except as otherwise provided herein, shall be paid within
fifteen (15) days after receipt of a Notice of Default
with respect thereto. If such sums are not so paid
within a fifteen (15) day period, the Non-Defaulting
parties shall have the right to terminate this Company by
giving the Defaulting Party and the other Member's
written notice thereof, whereupon the Defaulting Party
shall be deemed the "Withdrawing Party".
Section 6.04. Remedies of Non-Defaulting Parties.
(a) In the event of the occurrence of any event described in
Sections 6.02 and 6.03 hereof, the Non-Defaulting Parties
may purchase, in proportion to their capital account, the
entire undivided ownership interest in the Company of the
Defaulting Party at a price based on the value of the
Company at the time of the default, as determined by a
certified appraiser reasonably qualified by education,
experience and training as to the valuation of pipeline
companies. The certified appraiser having such
qualifications shall be mutually agreed upon by the Non-
Defaulting Parties and the Defaulting Party, and, in the
absence of mutual agreement, any of said parties may,
upon reasonable notice to others, apply to the person who
is then Chief Judge of the United States District Court
for the Southern District of Texas for the appointment of
a certified appraiser having such qualifications. An
encumbrance or assignment affecting the membership
interest of the Defaulting Party shall be considered in
determining the price under this provision.
(b) The rights of the Non-Defaulting Parties under this
Article VI shall not be the exclusive remedies of the
Non-Defaulting Parties but shall be in addition to all
other rights and remedies available to the Non-Defaulting
Parties under this Agreement at law, in equity or
otherwise.
Section 6.05. Company Liquidation Procedures.
(a) Contemporaneously with the closing of the purchase
pursuant to Section 6.04 hereof, the remaining Members
may elect to liquidate the Company. Otherwise, all
Members' consent is required to liquidate the Company.
In either event, the Company shall thereafter immediately
discharge the obligations and pay the indebtedness of the
Company, which obligations and indebtedness may be
discharged by assumption by one of the Members, and shall
distribute the balance, if any, of the assets of the
Company, to the Member that purchases the interest of the
other Members in and to the Company. After the foregoing
has been accomplished, it shall be deemed that the
Company has been liquidated and this Agreement shall
terminate and none of the Members shall have any further
rights or obligations hereunder.
(b) During the period beginning with termination of the
Company pursuant hereto and ending with the liquidation
thereof and termination of this Agreement, the business
affairs of the Company shall be conducted by the Non-
Defaulting Parties if such termination occurs pursuant to
Section 6.02 or 6.03 hereof. During such period, the
business and affairs of the Company shall be conducted so
as to preserve the assets of the Company and maintain the
status thereof which existed immediately prior to such
termination.
(c) If, at the time of the purchase by one party of the
interest in the Company of another party, such interest
is subject to an encumbrance, the purchasing party shall
have the right, but not obligation, to discharge such
encumbrance and reduce the amount of the purchase price
by the amount of money required to discharge such
encumbrance (but never more than the total amount of
indebtedness secured by such encumbrance).
ARTICLE VII
TRANSFER OR PLEDGE OF INTEREST IN COMPANY
Section 7.01. Restriction on Transfer.
Except as expressly permitted by this Agreement, no Member
shall have the right to sell, assign, transfer or hypothecate all
or any part of its interest in the Company without the prior
written consent of all the other Members.
Section 7.02. Sale of Joint Venture Interest.
(a) If any Member receives from an unaffiliated and unrelated
third party (the "Offeror") a bona fide written offer
(the "Offer") to purchase all or a part of its interest
in the Company which the Member receiving the Offer is
willing to accept (the "Selling Member"), the Selling
Member shall submit a copy thereof to the other Members.
The other Members shall have the right of first refusal
to purchase such interest on the same terms and
conditions by furnishing the Selling Member with written
notice to that effect within fifteen (15) days of such
other Member's receipt of the terms of the Offer. If
this right is not exercised, or if the exercising Members
cannot purchase all of such interest of the Selling
Member, the Selling Member can transfer such interest to
the Offeror on the terms and conditions stated in the
Offer; provided, however, the Offeror agrees to be bound
by the terms and conditions hereof. If for any reason,
the Selling Member does not sell such interest in
accordance with the terms and conditions provided in the
offer, such interest shall again be subject to the terms
hereof. The successor(s) in interest of any Selling
Member hereby shall only succeed to those rights of such
Member hereunder, including the revenue and cost sharing
provisions hereof.
(b) In the event of a dispute or difference in opinion
concerning operation, disposition, expansion or utiliza-
tion of any one or more of the Systems between the
Members, any Member may submit to any or all of the other
Members a written buy-sell proposal setting forth the
purchase price and the terms and conditions on which the
initiating Member offers to acquire the entire interest
of the non-initiating Member(s) in any one or more of the
Systems as to which there is such a dispute or difference
of opinion. Additionally, any Member, with or without a
dispute or difference in opinion concerning any matter
pertaining to the Company, may submit to any or all of
the other Members a buy-sell proposal setting forth the
terms and conditions on which the initiating Member
offers to acquire the entire interest of the non-
initiating Member(s) in the Company. Upon receipt of
written notice of a buy-sell offer concerning a System or
Systems, or concerning the Company, the non-initiating
Member(s) shall have the exclusive right and option,
exercisable at any time during a period of fifteen (15)
days from the date of receipt of said notice if
concerning a System or Systems, and exercisable at any
time during a period of sixty (60) days of the receipt of
said notice if concerning the Company, to either (i) sell
the entire interest covered by the offer in question at
the purchase price and on the terms and conditions as set
out in the notice from the initiating Member, or (ii)
purchase the initiating Member's entire interest on the
same terms and conditions, except that the purchase price
will be adjusted to take into account such Member's
percentage ownership in the Company. Within said fifteen
(15) day period or sixty (60) day period, as applicable,
the non-initiating Member(s) shall give written
notification to the initiating Member of his or its
desire to either sell his or its interest or purchase the
initiating Member's interest. If any non-initiating
Member does not respond in writing to the initiating
Member within such aforementioned applicable time period,
such non-initiating Member shall be deemed to have
elected to sell his or its entire interest covered by the
offer in question to the initiating Member. The sale and
purchase shall close not less than thirty (30) days after
the expiration of such aforementioned applicable time
period. The initiating Member shall disclose to the non-
initiating Members any and all material information known
by it which is relevant to the subject of the buy-sell
offer, so that an informed decision can be made by the
non-initiating Members.
Section 7.03. Permitted Transfers by Members.
Provided that such does not result in the termination of the
Company for federal income tax purposes, nothing contained in this
Agreement shall prevent:
(a) The transfer by any Member of all of its right, title and
interest in the Company (including indebtedness thereof)
and in this Agreement if all of such right, title and
interest is transferred to another corporation or limited
liability company, which is an affiliate of the
transferor pursuant to:
(i) a statutory merger or consolidation, or
(ii) a sale of all or substantially all of the assets of
the transferrer provided that such affiliate
assumes by operation of law or express agreement
with the Company (in form and substance
satisfactory to the Members) all of the obligations
of the transferrer under this Agreement and that no
transfer (other than pursuant to a statutory merger
or consolidation wherein all obligations and
liabilities of the Member are assumed by the
successor corporation by operation of law) shall
relieve the transferrer of its obligations under
the Agreement without the unanimous approval of the
Members. Upon such transfer such affiliate shall
be admitted as a Member in substitution of the
Member which was the transferrer.
(b) An assignment, pledge or other transfer creating a
security interest (and any transfer made in foreclosure
or other enforcement of such security interest) in all or
any portion of a Member's right, title or interest in the
profits of the Company or in any indebtedness of the
Company under any mortgage, indenture, deed of trust,
pledge or other security agreement executed by or binding
upon such Member.
Section 7.04. Effect of Permitted Transfers.
No assignment, pledge or other transfer pursuant to Section
7.02 hereof shall give rise to the right in any Member to dissolve
the Company.
Section 7.05. Prohibition of Withdrawals.
No Member shall have the right to withdraw from the Company
during the term of this Agreement except as otherwise expressly
provided in this Agreement.
Section 7.06. Effect of Prohibited Transfers.
Any transfer of an interest in the Company by a Member in
violation of the terms of this Agreement shall not cause a
dissolution of the Company but shall result in the forfeiture of
such Member's right to participate in the management of the
Company; provided, however, that nothing herein shall be deemed to
limit any right or remedies that the Company or the other Member
may have against such defaulting Member.
Section 7.07. Public Utility Holding Company.
No Member shall do any act to cause the Company to become
subject to the provisions of the Public Utility Holding Company
Act.
ARTICLE VIII
VOLUNTARY DISSOLUTION OF Company
Section 8.01. Voluntary Dissolution.
The Company may be dissolved at any time upon the unanimous
vote of the Members.
Section 8.02. Accounting on Dissolution.
The Capital, Income and Drawing Accounts shall be posted as of
the date of dissolution. Assets and liabilities shall be taken at
book value, but no value shall be assigned to good will or the
Company name.
Section 8.03. Winding Up and Liquidation.
Upon dissolution, the venture shall be wound up and liquidated
as rapidly as business circumstances permit. The assets shall be
applied to these purposes in the following order:
(a) To pay or to provide for all amounts owing by such
Company to creditors other than Company, and for expenses
of winding up;
(b) To pay or to provide for all amounts owing by such
Company other than for capital and profits;
(c) To pay or to provide for all amounts owing by such
Company in respect of capital; and
(d) To pay or to provide for all amounts owing to the Company
in respect of profits.
Section 8.04. Method of Distribution of Assets.
To the extent feasible, all distributions and liquidations
shall be made pro rata to the Members in kind.
ARTICLE IX
AREA OF INTEREST
No Member (nor any principal of and/or affiliate of any
Member) shall construct, purchase or otherwise acquire any pipeline
or gathering system and/or related facilities, or an interest
therein, or a contract right to acquire or develop a natural gas
pipeline or gathering system or related facilities or an interest
therein, or purchase or transport gas (but any party shall have
right to purchase oil and gas leasehold or fee interests for their
own account) (all of which pipeline or gathering system and related
facilities, or interest or rights relating thereto, or rights to
purchase gas or transport gas, are hereinafter referred to as
"Interest") within a radius of five (5) miles of any pipeline,
gathering or related facilities then owned by the Company without
presenting same to the Company for the Company's consideration as
to whether or not to propose the acquisition of the Interest. If
no proposal is made for the Company to acquire such Interest, or if
such proposal is made but the Members do not unanimously agree to
acquire such Interest within fifteen (15) days after the proposal
or having unanimously agreed such interest is for any reason not
acquired by the Company within a reasonable period of time, not to
exceed sixty (60) days, then the party holding rights to such
Interest may acquire same for its own account free and clear of the
terms and provisions of this Agreement. The foregoing provisions
of this Article IX are not applicable to the Olmitos Pipeline
System, Webb County, Texas, and the Fitzsimmons Pipeline System,
Duval County, Texas (both of which are currently owned by an
affiliate of Midcoast Energy Resources, Inc.), nor shall such
provisions be applicable to any marketing or brokerage transaction
by any Member pertaining to any pipeline system owned by a third
party. At such time as a Member (or any principal of and/or
affiliate of such Member) no longer owns an interest in the Company
such Member (and any principal of and/or affiliate of such Member)
shall be deemed released from the provisions of this Article IX.
Under no circumstances shall it be deemed a conflict of interest or
in any way violative of this Agreement for any Member (or any
principal of and/or affiliate of any Member) to construct, purchase
or otherwise acquire any pipeline or gathering system and/or
related facilities, or an interest therein, or a contract right to
acquire or develop a natural gas pipeline or gathering system or
related facilities or any interest therein, or purchase or
transport gas outside a radius of five (5) miles of any pipeline,
gathering or related facilities then owned by the Company, with or
without notice to or an opportunity for the Members or the Company
to participate therein.
ARTICLE X
GENERAL
Section 10.01. Notices.
(a) Except as provided otherwise herein, all notices,
demands, requests, consents or approvals provided for or
permitted to be given pursuant to this Agreement must be
in writing. Meetings by telephone, pursuant to Section
3.02 hereof, shall be with one or more of the Designated
Representatives of each Member listed below. All notices
authorized or required between the Members, and required
by any of the provisions of this Agreement, unless
otherwise specifically provided, shall be given in
writing by United States mail, postage prepaid, and
addressed to the party to whom directed at his or its
address set forth herein, or by facsimile transmission to
the party to whom directed at his or its fax number set
forth herein, or by personal delivery. Any notice may be
given by telephone (confirmed by letter, telex, or
telegram). The originating notice given under any
provision hereof shall be deemed given only when received
by the party to whom such notice is directed, and the
time for such party to give any notice in response
thereto shall run from the date the notice is received.
Each Member shall have the right to change its address
and fax number at any time, and from time to time, by
giving written notice hereof to all other Members. The
address, phone number and fax number of the Members and
of the Designated Representatives for each of the Members
is as follows:
Members Designated Representatives
Midcoast Holdings No. One.,Inc. Dan C. Tutcher
Suite 2950, 1100 Louisiana Suite 2950, 1100 Louisiana
Houston, Texas 77002 Houston, Texas 77002
Phone: (713) 650-8900 Phone (713) 650-8900
Fax: (713) 650-3232 Fax: (713) 650-3232
P. O. Box 1980 Stevens G. Herbst & K.B. Holmes, Jr.
Corpus Christi, Texas P. O. Box 1980
Phone: (512) 882-8407 Corpus Christi, Texas 78403
Fax: (512) 882-9210 Phone: (512) 882-8407
Fax: (512) 882-9210
Resource Energy Development Leon Bray, Chester Cloudt &
Company, LLC Terry Nixon
952 Echo Lane, Suite 130 952 Echo Lane, Suite 130
Houston, Texas 77024 Houston, Texas 77024
Phone: (713) 827-8983 Phone: (713) 827-8983
Fax: (713) 827-8978 Fax: (713) 827-8978
(b) No transferee of any interest of any Member shall be
entitled to receive a notice independent of the notice
sent to the Member making such transfer. A notice sent
or made to a Member shall be deemed to have been sent and
made to all transferrees, if any, of such Member.
(c) All payments to be made pursuant hereto to any Member
shall be made at the address set forth above for such
Member or at such other address as may be designated by
a Member upon written notice. All such payments shall be
effective upon receipt.
Section 10.02. Governing Laws.
This Agreement and the obligations of the Members hereunder
shall be interpreted, construed and enforced in accordance with the
laws of the State of Texas, excluding any conflict-of-law rules or
principle that might refer the governance or the construction of
this Agreement to the law of another jurisdiction. In the event of
a direct conflict between the provisions of this Agreement and (a)
any provision of the Articles of Organization, or (b) any mandatory
provision of the Texas Limited Liability Company Act, the
application provision of the Articles of Organization or the Texas
Limited Liability Company Act shall control. If any provision of
this Agreement or the application thereof to any Member or
circumstance is held invalid or unenforceable to any extent, the
remainder of this Agreement and the application of that provision
to other Members or circumstances is not affected thereby and that
provisions shall be enforced to the greatest extent permitted by
law.
Section 10.03. Entire Agreement.
This Agreement contains the entire agreement between the
parties hereto relative to the formation of a Company to acquire,
own, expand, improve, operate and maintain the Systems. No
variations, modifications, or changes herein or hereof shall be
binding upon any party hereto unless set forth in a document duly
executed by or on behalf of all parties.
Section 10.04. Waiver.
No consent or waiver, expressed or implied, by a Member to or
of any breach or default by the other in the performance by the
other of its obligations hereunder, shall be deemed or construed to
be a consent or waiver to or of any other breach or default in the
performance by such other party of the same or any other
obligations of such Member hereunder. Failure on the part of any
Member to complain of any act of any of the other Members in
default, irrespective of how long such failure continues, shall not
constitute a waiver of its rights hereunder.
Section 10.05. Headings.
The headings used in this Agreement are for convenience only
and do not constitute substantive matter to be considered in
construing the terms of this Agreement.
Section 10.06. Counterparts.
This Agreement may be executed in multiple counterparts, each
of which shall be an original, but all of which shall be deemed to
constitute one instrument.
Section 10.07. Binding Agreement.
Subject to the restrictions on transfer and encumbrances set
forth herein, this Agreement shall inure to the benefit of and be
binding upon the undersigned Members and their respective heirs,
executors, legal representatives, su
HEIN + ASSOCIATES LLP
Certified Public Accountants
EXHIBIT 22.1
Subsidiaries of Midcoast Energy Resources, Inc.
Ownership
Interest
State of Year Midcoast
Subsidiaries Incorp. Incorp. Energy
Magnolia Pipeline Corporation Alabama 1989 100%
H & W Pipeline Corporation* Alabama 1976 100%
Midcoast Holding No. One, Inc.* Delaware 1993 100%
Midcoast Marketing, Inc.* Texas 1991 100%
Nugget Drilling Corporation* Minnesota 1982 100%
* Presently Inactive
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995<F1>
<PERIOD-END> DEC-31-1995
<CASH> 106,152
<SECURITIES> 0
<RECEIVABLES> 2,319,667
<ALLOWANCES> 0
<INVENTORY> 210,447
<CURRENT-ASSETS> 2,636,266
<PP&E> 9,038,142
<DEPRECIATION> 831,981
<TOTAL-ASSETS> 11,088,508
<CURRENT-LIABILITIES> 2,735,136
<BONDS> 0
<COMMON> 3,286
0
200,000
<OTHER-SE> 3,954,150
<TOTAL-LIABILITY-AND-EQUITY> 11,088,508
<SALES> 15,622,290
<TOTAL-REVENUES> 15,622,290
<CGS> 11,816,961
<TOTAL-COSTS> 13,053,165
<OTHER-EXPENSES> 36,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 339,324
<INCOME-PRETAX> 2,193,401
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,193,401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,134,218
<EPS-PRIMARY> 6.61
<EPS-DILUTED> 6.61
<FN>
<F1>
</FN>
</TABLE>
