SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 16, 1999
SEMCO Energy, Inc.
(Exact name of registrant as specified in its charter)
Michigan 0-8503 38-2144267
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
405 Water Street, Port Huron, Michigan 48060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 810-987-2200
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Item 5. Other Events.
On July 15, 1999, the Company agreed to acquire ENSTAR Natural Gas Company
and Alaska Pipeline Company (together known as ENSTAR) from Ocean Energy, Inc.
for approximately $290 million. At the completion of the transaction, the
Company will be reorganized so that ENSTAR and SEMCO Energy Gas Company will be
divisions of the Company. See exhibits hereto.
Item 7.(c) Exhibits.
2 Purchase and Sale Agreement dated as of July 15, 1999, between
Ocean Energy, Inc. and SEMCO Energy, Inc.
99.1 Press Release issued July 15, 1999.
99.2 Acquisition Overview dated July 16, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEMCO Energy, Inc.
(Registrant)
Dated: July 16, 1999 By: /s/William L. Johnson
William L. Johnson
Chairman, President and C.E.O.
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EXHIBIT INDEX
Form 8-K
July 16, 1999
Filed
--------------------
Exhibit By
No. Description Herewith Reference
- -------- ----------- -------- ---------
2 Purchase and Sale Agreement dated as of
July 15, 1999, between Ocean Energy, Inc.
and SEMCO Energy, Inc. x
99.1 Press Release issued July 15, 1999. x
99.2 Acquisition Overview dated July 16, 1999. x
EXHIBIT 2
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement"), effective as of
July 15, 1999 is by and between OCEAN ENERGY, INC., a Texas corporation
("Seller"), and SEMCO ENERGY, INC., a Michigan corporation ("Purchaser").
Capitalized terms used herein shall have the meanings ascribed to them in
Article XI, unless otherwise provided.
W I T N E S S E T H:
WHEREAS, Seller owns the APC Shares and the Distribution Assets;
WHEREAS, Seller owns the APC Debt;
WHEREAS, Purchaser desires to purchase, and Seller desires to sell, the
APC Shares, the Distribution Assets and the APC Debt, subject in all respects
to the provisions of this Agreement; and
WHEREAS, the closing of the transactions contemplated by this Agreement
is subject to obtaining certain governmental approvals, including the
approval of the RCA, which the parties desire to obtain.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
Sale and Purchase
Section 1.1. Sale and Purchase of APC Shares. Subject to all of the
terms and conditions of this Agreement, at the Closing, Seller shall sell,
transfer and deliver to Purchaser the APC Shares; and Purchaser shall
purchase and accept delivery from Seller of the APC Shares at the Closing.
Section 1.2. Sale and Purchase of Distribution Assets. Subject to all
of the terms and conditions of this Agreement, at the Closing, Seller shall
sell, transfer and deliver to Purchaser the Distribution Assets; and
Purchaser shall purchase and accept delivery from Seller of the Distribution
Assets at the Closing.
Section 1.3. Sale and Purchase of APC Debt. Subject to all of the
terms and conditions of this Agreement, at the Closing, Seller shall sell,
transfer and deliver to Purchaser the APC Debt; and Purchaser shall purchase
and accept delivery from Seller of the APC Debt at the Closing.
ARTICLE II
Purchase Price
Section 2.1. Stock Purchase Price. The purchase price for the APC
Shares shall be $70,000,000, as adjusted pursuant to Section 2.4 ("Stock
Purchase Price").
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Section 2.2 Assets Purchase Price. The cash consideration to be paid
for the Distribution Assets shall be $161,500,000, as adjusted pursuant to
Section 2.4 ("Assets Purchase Price").
Section 2.3. APC Debt Purchase Price. The purchase price for the APC
Debt shall be equal to the principal amount thereof on the Closing Date, not
to exceed $58,700,000, together with accrued interest thereon (the "APC Debt
Purchase Price").
Section 2.4 Purchase Price Adjustment.
(a) Adjustment Mechanism. The Purchase Price is based on the
understanding that on the Closing Date, the working capital of the
Natural Gas Business shall be $2,000,000 (the "Target Working Capital
Amount"). For purposes of this Section 2.4, working capital shall be
determined in accordance with GAAP, applied on a basis consistent with
the manner in which the Base Financial Statements are prepared;
provided, however, that the current portion of any long-term debt shall
not be included in such calculation. If the working capital of the
Natural Gas Business is not at the Target Working Capital Amount, the
Purchase Price shall be adjusted as follows:
(i) On the date five days before the Closing Date, Seller
will provide Purchaser with an estimate of the working capital of
the Natural Gas Business as of the Closing Date, and if such
estimate is below or above the Target Working Capital Amount, the
Purchase Price payable on the Closing Date shall be adjusted
downward or upward, as the case may be, as provided in Section
2.4(a)(iii), subject to the provisions thereof.
(ii) If either party believes that an adjustment to the
Purchase Price is required in addition to the adjustment, if any,
provided in Section 2.4(a)(i), Purchaser will cause to be prepared
and delivered to Seller no later than 60 days after the Closing
Date an audited balance sheet of the Natural Gas Business, as at
the Closing Date, which balance sheet shall present fairly, in
conformity with GAAP, the assets and liabilities of the Natural Gas
Business as at the close of business on the Closing Date and shall
be prepared in a manner consistent with the Base Financial
Statements and shall set forth the working capital. If such
balance sheet shows that the working capital of the Natural Gas
Business is below or above the Target Working Capital Amount, the
Purchase Price shall be adjusted downward or upward, as the case
may be, as provided in Section 2.4(a)(iii).
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(iii) In the event that the working capital of the Natural
Gas Business determined pursuant to either the estimate or the
audited balance sheet prepared pursuant to Section 2.4(a)(i) or
(ii) above is less than or greater than the Target Working Capital
Amount, the Purchase Price shall be adjusted downward or upward, as
the case may be, by an amount equal to such difference; provided,
however, that in no event shall the net effect of such adjustment
be to increase the Purchase Price by more than $2,000,000. The
party required to make a payment to the other party pursuant to
this paragraph shall make any such payment pursuant to clause (ii)
within 30 business days after receipt of the applicable audited
balance sheet by Seller. Any adjustment shall adjust prorata the
Stock Purchase Price and the Asset Purchase Price.
(b) Dispute Procedures. During the 30-day period following
Seller's receipt of the audited balance sheet for the Natural Gas
Business, Seller and its independent auditors will be permitted to
review the working papers of the auditors relating to the audited
balance sheet. The audited balance sheet shall become final and binding
upon the parties on the thirtieth day following receipt thereof by
Seller unless Seller gives Purchaser written notice of its disagreement
prior to such date. Any notice of disagreement shall specify in
reasonable detail the nature of any disagreement so asserted and shall
be accompanied by a certificate of Seller's independent auditors that
they concur with each of the positions taken by Seller in the notice of
disagreement. If a notice of disagreement is received by Purchaser in a
timely manner, then the audited balance sheet (as revised in accordance
with clauses (i) or (ii) below) shall become final and binding upon the
parties on the earlier of (i) the date the parties hereto resolve in
writing any differences they have with respect to any matter specified
in the notice of disagreement or (ii) the date any disputed matters are
finally resolved in writing by the arbitrator referred to below. During
the 30-day period following the delivery of a notice of disagreement,
Seller and Purchaser shall seek in good faith to resolve in writing any
differences that they may have with respect to any matter specified in
the notice of disagreement. At the end of such 30-day period, Seller
and Purchaser shall submit to an arbitrator for review and resolution
any and all matters arising under this Section 2.4(b) which remain in
dispute. The arbitrator shall be a nationally recognized independent
public accounting firm as shall be agreed upon by the parties hereto in
writing. The arbitrator shall render a decision resolving the matters
submitted to the arbitrator within 30 days following submission thereto.
The cost of any arbitration (including the fees of the arbitrator)
pursuant to this Section 2.4 shall be borne 50% by Purchaser and 50% by
Seller. The fees and disbursements of Seller's independent auditors
incurred in connection with their review of the audited balance sheet
shall be borne by Seller, and the fees and disbursements of Purchaser's
independent auditors incurred in connection with their preparation and
review of the audited balance sheet shall be borne by Purchaser.
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Section 2.5. Letter of Credit. Concurrently with the execution of
this Agreement, Purchaser has delivered to Seller an irrevocable standby
letter of credit from Bank of America, in an amount equal to $10,000,000, a
copy of which is attached to this Agreement as Exhibit B (the "Letter of
Credit").
ARTICLE III
Representations and Warranties of Seller
Seller represents and warrants to Purchaser that, except as set forth or
disclosed in Seller's Disclosure Schedule:
Section 3.1. Corporate Status and Authority.
(a) Seller is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Texas. Seller has all
the requisite corporate power and corporate authority to execute and
deliver this Agreement and the other Operative Documents to which it is
a party and to perform its obligations hereunder and thereunder, and the
execution, delivery and performance of this Agreement and the other
Operative Documents to which Seller is a party have been duly authorized
by all necessary corporate action on the part of Seller. Seller has all
the requisite corporate power and corporate authority to carry on the
Distribution Business as it is now being conducted and to own or lease
and operate the Distribution Assets as and in the place where the
Distribution Business is now conducted or where the Distribution Assets
are now owned or leased and operated. Seller has the corporate power to
own the APC shares. Section 3.1(a) of Seller's Disclosure Schedule lists
all charter documents that, as of the date hereof, constitute the
Articles of Incorporation, as amended, of Seller and APC, respectively.
Prior to the date of this Agreement, Seller has delivered to Purchaser
true, correct and complete copies of the Articles of Incorporation and
Bylaws of Seller and APC.
(b) APC is a corporation duly organized, validly existing and in
good standing under the laws of the State of Alaska. APC has all the
requisite corporate power and corporate authority to carry on its
business as it is now being conducted and to own or lease and operate
its properties as, and in the places where, such business is now
conducted and where such properties are now owned or leased and
operated. APC has the corporate power to own the APC Assets and to own,
lease and operate the Transmission Business as and in the place where
such business is now conducted and where such properties are now owned
or leased and operated. APC owns no equity security of any other entity
and, as a result, has no subsidiaries.
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Section 3.2. Duly Executed. This Agreement has been duly executed
and delivered on behalf of Seller, and, when executed and delivered at the
Closing in accordance with this Agreement, each of the other Operative
Documents to which Seller is a party shall have been duly executed and
delivered on behalf of Seller. This Agreement does, and, when executed and
delivered at the Closing in accordance with this Agreement, each of the other
Operative Documents to which Seller is a party shall, constitute a legal,
valid and binding obligation of Seller enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and general
principles of equity.
Section 3.3. Qualification. Seller and APC are duly qualified and in
good standing, as foreign corporations authorized to do business in all
jurisdictions (including, without limitation, with respect to Seller, the
State of Alaska) where failure to so qualify would materially adversely
affect the Natural Gas Business.
Section 3.4 Governmental Consent. Except for those consents or
approvals set forth in Section 3.4 of Seller's Disclosure Schedule (the
"Seller's Required Governmental Consents"), no consent, waiver, approval or
authorization of, or designation, declaration or filing with, any
governmental authority is or has been required on the part of Seller or APC
in connection with the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby.
Section 3.5. Capitalization of APC; Title to APC Shares and APC
Debt. The authorized capital stock of APC consists of (i) 2,850,000 shares of
common stock, par value $1.00 per share, of which 1,900,000 shares are duly
authorized, validly issued and outstanding, fully paid and nonassessable, and
150,000 shares of Preferred Stock, of which no shares are outstanding. All
such outstanding common stock, as well as all of the APC Debt, is owned by
Seller. By delivery of payment for the APC Shares and the APC Debt and by
delivery of the certificates representing the APC Shares and the instruments
representing the APC Debt, in each case, as provided for in this Agreement,
Purchaser shall acquire good title to the APC Shares and the APC Debt, free
and clear of all liens, mortgages, charges, security interests, encumbrances
and other restrictions or limitations of any kind whatsoever. There are no
outstanding subscriptions, options, warrants, conversion rights, outstanding
convertible securities, preemptive rights, preferential rights, or other
rights (contractual or otherwise) or agreements of any kind for the purchase
or acquisition from (or the purchase, sale or issuance by) Seller of any APC
Debt or any shares of capital stock of APC, or other equity or ownership
interest in APC, and no outstanding authorization therefor has been given.
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Section 3.6. Title to Distribution Assets and APC Assets; Liens.
Seller has good and indefeasible title to the Distribution Assets and APC has
good and indefeasible title to the APC Assets, except, in each case, those
that in the aggregate are not material to the Natural Gas Business and those
disposed of since the date of the Base Financial Statements in the ordinary
course of business or otherwise disposed of in accordance with this
Agreement. None of the Distribution Assets nor any of the APC Assets are
subject to any mortgage, pledge, lien, security interest, charge or
encumbrance except (i) liens created by or pursuant to the Existing Loan
Documents, all of which shall be released at or prior to the Closing to the
extent not in favor of the holders of indebtedness to be acquired by
Purchaser in accordance with the provisions of this Agreement, (ii) liens
securing any indebtedness referred to in clause (d)(iv) of Section 3.9 hereof
and covering only the assets and properties securing such indebtedness at the
time of its renewal, extension, rearrangement or refunding as contemplated by
such clause (d)(iv), all of which shall be released at or prior to the
Closing to the extent not in favor of the holders of indebtedness to be
acquired by Purchaser in accordance with the provisions of this Agreement,
(iii) Permitted Encumbrances and (iv) other liens incidental to the conduct
of the Natural Gas Business or the ownership of the Distribution Assets or
the APC Assets that were not incurred in connection with the borrowing of
money or the obtaining of advances for credit and that do not in the
aggregate materially impair the value of the assets affected thereby or
materially impair the use of such assets in the operation of the Natural Gas
Business. Seller enjoys peaceful and undisturbed possession under all
material real property leases included in the Distribution Assets, and all
such leases are valid and subsisting and in full force and effect. APC enjoys
peaceful and undisturbed possession under all material leases of real
property on which the facilities operated by it are situated, and all such
leases are valid and subsisting and in full force and effect.
Section 3.7. No Breach, Etc. The execution, delivery and performance
of this Agreement and the Operative Document to which Seller is a party by
Seller and the consummation by Seller of the transactions contemplated hereby
will not result in (a) any conflict with or breach or violation of or default
under the Articles of Incorporation or by-laws of Seller or APC, or (b)
subject to obtaining those consents or approvals described in Sections 3.4
and Section 3.7 of Seller's Disclosure Schedule (the "Seller's Required
Approvals", which term shall not include any Seller's Required Governmental
Consents), any material conflict with or breach or violation of or default
under or right to terminate, cancel or accelerate under any Material
Contract, or the creation of imposition of any lien, charge, pledge or
encumbrance on any of the Distribution Assets or the APC Assets whatsoever,
except for such conflicts, breaches, violations, defaults, or rights of
termination, cancellation or acceleration, liens, charges, pledges or
encumbrances that individually or in the aggregate would not result in a
Material Adverse Effect on the Natural Gas Business. Seller has no knowledge
of any Material Permits that are currently required in connection with its
and APC's ownership and operation of the Natural Gas Business other than
those that either have been obtained or will be obtained in due course. The
Natural Gas Business is not being operated in violation of any of the
provisions of Seller's or APC's Material Permits or any applicable Legal
Requirement except for such violations, if any, which will not have,
individually or in the aggregate, a Material Adverse Effect on the Natural
Gas Business.
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Section 3.8. Financial Statements; Material Liabilities.
(a) Seller has heretofore delivered to Purchaser complete and
correct copies of (i) its annual report to shareholders for the fiscal
year ended December 31, 1998, (ii) its Annual Report on Form 10-K for
such fiscal year, as filed with the Securities and Exchange Commission,
(iii) audited combined financial statements of the Distribution Division
and APC for each of the three fiscal years ended December 31, 1998,
accompanied by the report thereon of KPMG LLP, certified accountants,
and (iv) the unaudited combined financial statements of the Distribution
Division and APC as of March 31, 1999 ("Base Financial Statements"). The
audited and unaudited financial statements referred to in clause (iii)
above and the Base Financial Statements are referred to herein as the
"Natural Gas Business Financial Statements." All Natural Gas Business
Financial Statements were prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except for changes
concurred in by said accountants and disclosed in said financial
statements, throughout the periods specified, and present fairly in all
material respects the financial condition and the results of operations
for the Natural Gas Business as of the dates thereof and for the periods
then ended (subject, in the case of unaudited financial statements, to
normal year-end audit adjustments).
(b) On the date hereof Seller is not aware of any matter that has
or is reasonably likely to have a Material Adverse Effect on the Natural
Gas Business or (so far as Seller can now reasonably foresee) has a
substantial likelihood in the future of having a Material Adverse Effect
on the Natural Gas Business (taken as a whole) other than (i) general
economic conditions, (ii) the matters referred to or set forth in the
annual report to shareholders of Seller referenced in Section 3.8(a),
the annual report on Form 10-K of Seller referenced in Section 3.8(a),
the Natural Gas Business Financial Statements or in any Material
Contracts furnished to Purchaser by Seller and (iii) matters and
conditions not relating specifically to the Distribution Division or APC
that are generally known to the public or to those in the oil and gas
industry, the natural gas or electric utility industry in the State of
Alaska or the natural gas transmission and distribution industry.
Section 3.9. Changes, etc. Since the date of the Base Financial
Statements:
(a) no Material Adverse Effect has occurred in respect of the
Natural Gas Business;
(b) except for those actions taken in compliance with this
Agreement, the Natural Gas Business has been conducted in substantially
the same manner in which it had been previously conducted;
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(c) (i) the Distribution Assets, the APC Assets and related
real property have been and are being operated in all material respects
in compliance with Environmental Law and Seller has disclosed to
Purchaser all past or present conditions of the real property, and all
matters and issues in any way pertinent or related to the acquisition,
operation or management of the Distribution Assets or the APC Assets
which could, individually or in the aggregate, lead to imposition of a
Material Liability on APC or the Distribution Division. Seller has
received no notice or claim or information requests from any federal,
state or local governmental or regulatory authority with jurisdiction
over Seller (with respect to the Distribution Division), APC or the
Distribution Assets or the APC Assets or from any third party alleging
non-compliance with Environmental Law.
(ii) there are no present or past conditions arising from or
relating to the Distribution Assets or the APC Assets involving or
resulting from a past or present spill, discharge, leak, emission,
injection, escape, dumping, migration, seepage, or release of any
kind whatsoever (other than on-site or off-site) of any substance
or exposure of any type of any workplace or to any medium,
including, but not limited to, air, land, surface waters or
underground waters, or from any past or present generation,
transportation, treatment, storage or disposal of any hazardous or
toxic waste materials, raw materials, products or other substances
of any kind or from the storage, use or handling of any such
materials, products or substances that may lead to imposition of a
Material Liability on APC or the Distribution Division.
(d) no indebtedness for borrowed money has been incurred or
committed to be incurred by the Distribution Division or APC, except
such indebtedness that has been incurred (i) in the ordinary course of
business, (ii) pursuant to the Credit Agreement between APC and First
National Bank (the "First National Credit Agreement"), (iii) pursuant to
advances made by Seller to the Distribution Division or APC, including
pursuant to the Intercompany Line of Credit Agreement, or (iv) in
connection with any renewal, extension, rearrangement or refunding of
any indebtedness of the Distribution Division or APC reflected on the
Base Financial Statements or incurred after the date thereof pursuant to
the Credit Agreement referred to in subclause (ii) above;
Section 3.10. Personal Property. To Seller's knowledge, all material
items of personal property and fixtures constituting a part of the
Distribution Assets and APC Assets that are used or useful in the normal
operations of the Distribution Business or the Transmission Business, as the
case may be, have been maintained in all material respects in a state of
repair (normal wear and tear excepted) that Seller believes to be adequate
for the normal use of such item in the ordinary conduct of the Distribution
Division or the Transmission Business, as the case may be, it being
understood and agreed, however, that Seller is making no representation
herein with respect to any item of property that the management of the
Natural Gas Business has determined to be not necessary or desirable for the
continued efficient and profitable operation of the Distribution Business or
the Transmission Business, as the case may be.
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Section 3.11. Regulatory Commission of Alaska.
(a) Section 3.11(a) of Seller's Disclosure Schedule lists all
currently effective certificates, permits and authorizations heretofore
issued by the RCA to APC or Seller in connection with the Natural Gas
Business.
(b) Section 3.11(b) of Seller's Disclosure Schedule reflects all
of the currently operative tariffs heretofore authorized and approved by
the RCA that are currently in effect and specifically applicable to the
Natural Gas Business and all of the currently pending rate, certificate
or other filings heretofore made by Seller or APC before the RCA and the
status of each such filing on the date hereof.
(c) All currently effective material filings heretofore made by
Seller or APC with the RCA were made in compliance with Legal
Requirements then applicable thereto and the information contained
therein was true and correct in all material respects as of the
respective dates of such filings.
Section 3.12. Material Contracts. Section 3.12 of Seller's Disclosure
Schedule contains a complete and correct list of all Material Contracts as of
the date hereof. There are no defaults by Seller, APC or the Distribution
Division under any contracts listed in such section that, individually or in
the aggregate, will materially and adversely impair the Natural Gas Business.
To Seller's knowledge, there are no defaults by any other party to any
contracts listed in such section that, individually or in the aggregate, will
materially and adversely impair the Natural Gas Business. Except for the
First National Credit Agreement, the Existing Loan Documents, the
Intercompany Line of Credit Agreement and as otherwise disclosed in Seller's
Disclosure Schedule, no Material Contract listed therein contains any
restriction on the incurrence by the Seller or APC of additional long-term
debt.
Section 3.13. Gas Purchase Contracts and Responsibilities.
(a) Section 3.13(a) of Seller's Disclosure Schedule accurately
lists all currently effective material gas purchase contracts heretofore
entered into by Seller or APC with respect to the Natural Gas Business
pursuant to which either Seller or APC is obligated as a purchaser of
natural gas.
(b) As to each such gas purchase contract, neither Seller nor APC
(i) has, since January 1, 1998, made any payments (and no such payments
have become due to sellers of gas thereunder for gas not taken) pursuant
to any "take or pay" or similar arrangements; (ii) is obligated to pay
any material amount (net of any applicable offsets and adjustments) for
gas taken or not taken prior to the date of the Base Financial
Statements other than as reflected in the Base Financial Statements; or
(iii) has received gas that is to be paid for in the future other than
in the normal cycle of billing in the ordinary course of business or as
otherwise reflected in the Base Financial Statements, in each case
except to the extent that such matters would not have a Material Adverse
Effect.
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(c) Section 3.13(c) of Seller's Disclosure Schedule accurately
lists all hedges, swaps and other financial or physical commodity
positions of the Natural Gas Business on the date hereof and the net
open commodity position of the Natural Gas Business on such date.
Section 3.14. Litigation. Section 3.14 of Seller's Disclosure
Schedule lists all actions, suits, proceedings or governmental investigations
pending or, to the knowledge of Seller, threatened against Seller or APC
which (i) could reasonably be expected to have a Material Adverse Effect on
the Natural Gas Business or (ii) challenges or may challenge the validity of
this Agreement or any of the Operative Documents or seeks to enjoin or
otherwise restrain the transactions contemplated herein.
Section 3.15. Rights-of-Way. Seller and APC own or possess all
rights-of-way necessary for the conduct of the Distribution Business and the
Transmission Business, respectively, as now being conducted without any known
conflict with the rights of others, in each case except to the extent that
the failure to own or possess such rights-of-way would not have a Material
Adverse Effect on the Natural Gas Business.
Section 3.16. Gas Transportation and Sales Contracts. Section 3.16 of
Seller's Disclosure Schedule lists all Material Contracts pursuant to which
either the Distribution Division or APC (a) is legally obligated to transport
natural gas owned by a third party or (b) is legally obligated to undertake
any such transportation. There are no agreements or other legally binding
arrangements that constitute Material Contracts pursuant to which either
Seller, with respect to the Distribution Business, or APC is a seller of
natural gas to any third party other than pursuant to tariffs or similar
arrangements approved or authorized by the RCA.
Section 3.17. Employment Agreements and Benefits, Etc.
(a) Employment Agreements. Section 3.17(a) of Seller's Disclosure
Schedule lists all currently effective employment, management,
consulting or similar agreements and all currently effective labor
contracts and collective bargaining agreements heretofore entered into
by APC or Seller with respect to the Natural Gas Business and neither
Seller nor APC has any commitment or obligation to establish or enter
into any such agreement not disclosed in Section 3.17(a) of Seller's
Disclosure Schedule other than those, if any, that do not constitute a
Material Employment Contract.
(b) Officers and Directors. Section 3.17(b) of Seller's
Disclosure Schedule contains a complete and accurate list of each
officer of the Distribution Division and each director and officer of
APC on the date hereof.
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(c) Employee Relations. Neither Seller nor APC is a party to any
collective bargaining agreements covering any of the Employees. There
is not occurring on the date hereof any slowdowns, pickets, work
stoppages or other similar disruptive labor activities on the part of
Seller's or APC's employees with respect to the Natural Gas Business. To
Seller's knowledge, no grievance, unfair labor practice charge or any
arbitration proceeding arising out of or under any collective bargaining
agreement relating to the Natural Gas Business exists or is pending on
the date hereof that would materially hinder the Natural Gas Business
from performing its operations in a manner consistent with past practice
or result in a material increase in the Natural Gas Business's aggregate
compensation expense.
(d) ERISA Plans.
(i) Except for (a) the ENSTAR Natural Gas Company
Retirement Plan for Operating Unit Employees and Clerical Unit
Employees (the "Operating Plan") and the ENSTAR Natural Gas Company
Retirement Plan For Salaried Employees, but only as it covers
non-union Natural Gas Business employees (the "Salaried Plan")
(collectively, the Operating Plan and the Salaried Plan are herein
referred to as the "Pension Plans"), (b) the ENSTAR Natural Gas
Company Thrift Investment Plan (the "Thrift Plan"), (c) the ENSTAR
Natural Gas Company Profit by Service Plan for Classified Employees
and the ENSTAR Natural Gas Company Profit by Service Plan for
Salaried Employees (the "Profit Sharing Plans"), (d) the ENSTAR
Natural Gas Company Supplemental Executive Retirement Plan (the
"SERP"), and (e) the other employee benefit plans listed in Section
3.17(d)(i) of Seller's Disclosure Schedule (the employee benefit
plans referred to in (a) through (e) hereof are hereinafter
collectively referred to as the "Plans"), neither APC, Seller nor
any affiliates thereof, currently sponsors or maintains any
employee benefit plan within the meaning of Section 3(3) of ERISA
or has at any time within the six years prior to the Closing Date
sponsored or maintained any employee pension benefit plan within
the meaning of Section 3(2) of ERISA for the benefit of any
employees of APC or employees of Seller performing services in
connection with the Natural Gas Business ("Employees").
Specifically, neither APC, Seller nor any entity under common
control with Seller within the meaning of Code Section 414
currently contributes to or has at any time within the six years
prior to the Closing Date contributed to any multiemployer plan
within the meaning of Section 3(37) of ERISA and Purchaser shall
have no liability for any such multiemployer plan.
(ii) APC and Seller have in all material respects performed
all material obligations required to be performed by them or under
or in connection with the Plans, and Seller has no knowledge of any
material default or violation (including but not limited to
fiduciary violations) by any other party to the Plans.
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(iii) Reports and disclosures relating to the Plans required
to be filed with or furnished to governmental agencies, Plan
participants or Plan beneficiaries prior to the date hereof have
been filed or furnished in accordance with applicable law in a
timely manner.
(iv) Each of the Thrift Plan, the Pension Plans and the
Profit Sharing Plans (a) satisfies in form the requirements of
Section 401 of the Code, except to the extent amendments are not
required by law to be made until a date after the Closing Date, (b)
has received a favorable determination letter from the Internal
Revenue Service regarding such qualified status, and (c) has not,
since receipt of the most recent favorable determination letter
been amended or operated in a way that would, to the knowledge of
Seller, materially adversely affect such qualified status.
(v) There are no actions, suits or claims pending (other
than routine claims for benefits) or, to the knowledge of Seller,
threatened against any of the Plans or against the assets of any of
the Thrift Plan, Pension Plans or the Profit Sharing Plans.
(vi) All contributions required to the be made prior to the
date hereof to the Thrift Plan, the Profit Sharing Plans and the
Pension Plans pursuant to their terms and the provisions of ERISA,
the Code or any other applicable Legal Requirement have been timely
made.
(vii) As to each Pension Plan, (a) there has been no event or
condition which presents the material risk of Plan termination, (b)
no accumulated funding deficiency, whether or not waived, within
the meaning of Section 302 of ERISA or Section 412 of the Code has
been incurred, (c) no reportable event within the meaning of
Section 4043 of ERISA (for which the disclosure requirements of
Regulation section 4043.1 et seq., promulgated by the Pension
Benefit Guaranty Corporation ("PBGC"), have not been waived) has
occurred, (d) no notice of intent to terminate the Plan has been
given under Section 4041 of ERISA, (e) no proceeding has been
instituted under Section 4042 of ERISA to terminate the Plan, (f)
no material liability to the PBGC has been incurred, and (g) the
fair market value of the assets of such Plan equals or exceeds the
present value of accumulated benefits under such Plan based upon
the actuarial assumptions used for purposes of the most recent
actuarial valuation.
(viii) The Base Financial Statements reflect contribution
liability accruals made in accordance with past practices
reflecting the estimated 1999 contribution liability of APC and the
Distribution Division to the Pension Plans, the Thrift Plan and the
Profit Sharing Plans as of March 31, 1999.
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(ix) No act, omission or transaction has occurred that would
result in imposition on the APC, Seller or any affiliates thereof
of (A) breach of fiduciary duty liability damages under Section 409
of ERISA, (B) a civil penalty assessed pursuant to subsections (c),
(i) or (l) of Section 502 of ERISA, or (C) a tax imposed pursuant
to Chapter 43 of Subtitle D of the Code.
(x) There is no action pending with respect to any of the
Plans before the Internal Revenue Service, the Department of Labor
or the Pension Benefit Guaranty Corporation, or, to the knowledge
of Seller, before any state or local governmental agency.
(xi) Each Plan subject to the requirements of Section 601 of
ERISA has been operated in material compliance therewith. Seller
has not contributed to a nonconforming group health plan (as
defined in Code Section 5000(c)) and no person under common control
with Seller within the meaning of Section 414 of the Code has
incurred a tax liability under Code Section 5000(a) that is or
could reasonably be expected to be a liability of Seller.
(xii) Except for amounts with respect to which Seller has
sole responsibility to pay, no amounts payable under any Plan or
other agreement, contract, or arrangement with respect to any
Employees will fail to be deductible for federal income tax
purposes by virtue of Section 280G or Section 162(m) of the Code.
(xiii) Complete and correct copies of the following documents
have been made available to Purchaser as of the date of this
Agreement: (i) all Plans and any related trust agreements or
insurance contracts, (ii) the most current summary descriptions of
each Plan subject to ERISA, (iii) the three most recent Form 5500s
and Schedules thereto for each Plan subject to such reporting, (iv)
the most recent determination of the IRS with respect to the
qualified status of each Plan that is intended to qualify under
Section 401(a) of the Code, (v) the most recent accountings with
respect to Plan funded through a trust and (vi) the most recent
actuarial report of the qualified actuary of each Plan with respect
to which actuarial valuations are conducted.
(e) Other Employee Benefit Plans. Section 3.17(e) of Seller's
Disclosure Schedule lists, in addition to the Plans, all bonus,
profit-sharing, incentive compensation, stock option, pension,
retirement, deferred compensation and other plans, agreements, trusts,
funds and arrangements for the benefit of the Employees other than
those, if any, which do not constitute a Material Employment Contract.
Section 3.18. Insurance. Seller, in connection with the Distribution
Business, and APC have been continuously since January 1, 1995, insured in
such amounts and against such risks and losses as are customary for companies
conducting businesses similar to the Natural Gas Business during such time
period. Neither Seller, in connection with the Distribution Business, nor
APC has received any notice of cancellation or termination with respect to
any material insurance policy thereof.
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Section 3.19. Patents, Trademarks, Etc. To Seller's knowledge, the
Natural Gas Business is conducted without conflict with or infringement of
asserted patent, trade names, trademark, copyright, trade secret, know-how or
other industrial property rights of others.
Section 3.20. APC Debt. The principal amount outstanding under the
APC Debt as of June 1, 1999, is $58,700,000. There is no default by the
obligor under the APC Debt with respect to payments of principal and interest
required to be made thereunder.
Section 3.21. Brokers. Except for Chase Securities, Inc., no broker
or finder has acted for or on behalf of Seller or any affiliate of Seller in
connection with this Agreement or the transactions contemplated by this
Agreement. No broker or finder is entitled to any brokerage or finder's fee,
or to any commission, based in any way on agreements, arrangements or
understandings made by or on behalf of Seller or any affiliate of Seller for
which Purchaser, APC or the Distribution Division has or will have any
liabilities or obligations (contingent or otherwise).
Section 3.22 Year 2000 Compliance. The Natural Gas Business has
adopted a Year 2000 compliance program (the "Y2K Program"), a copy of which
is attached as Section 3.22 of Seller's Disclosure Schedule, and has filed
the Y2K Program with the RCA. APC and the Distribution Division are in
compliance with the Y2K Program in all material respects and have
substantially performed the tasks required to be performed thereby on or
prior to any date as of which this representation is made or deemed to have
been made, in each case except to the extent that such failure would not, or
could not reasonably be expected to have, a Material Adverse Effect on the
Natural Gas Business.
ARTICLE IV
Representations and Warranties of Purchaser
Purchaser represents and warrants to Seller that, except as set forth or
disclosed in Purchaser's Disclosure Schedule:
Section 4.1. Corporate Status and Authority. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan. Purchaser has all the requisite corporate
power and corporate authority to execute and deliver this Agreement and the
other Operative Documents to which it is a party and to perform its
obligations hereunder and thereunder, and the execution, delivery and
performance of this Agreement and the other Operative Documents to which
Purchaser is a party have been duly authorized by Purchaser's Board of
Directors, which constitutes all necessary corporate action required on the
part of the Purchaser for such authorization. Purchaser has heretofore
delivered to Seller true and complete copies of its Certificate or Articles
of Incorporation and bylaws, in each case as amended.
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Section 4.2. Power; Duly Executed. Subject to those matters set
forth in this Agreement, Purchaser has full right, power and authority to
enter into this Agreement and the other Operative Documents to which
Purchaser is a party, and Purchaser has full, right, power and authority to
purchase and receive the APC Shares and the Distribution Assets pursuant
hereto. This Agreement has been duly executed and delivered on behalf of
Purchaser, and, when executed and delivered at the Closing in accordance with
this Agreement, each of the other Operative Documents to which Purchaser is a
party shall have been duly executed and delivered on behalf of Purchaser.
This Agreement does, and, when executed and delivered at the Closing in
accordance with this Agreement, each of the other Operative Documents to
which Purchaser is a party shall, constitute a legal, valid and binding
obligation of Purchaser enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors' rights generally and general principles of equity.
Section 4.3. Qualification. Purchaser is duly qualified and in good
standing, as a foreign corporation authorized to do business in all
jurisdictions where the failure to so qualify would materially adversely
affect the business or properties of Purchaser. Prior to the Closing,
Purchaser shall become duly qualified and in good standing to do business in
the State of Alaska.
Section 4.4. Governmental Consent. Except for those consents or
approvals set forth in Section 4.4 of Purchaser's Disclosure Schedule (the
"Purchaser's Required Government Consents"), no consent, waiver, approval or
authorization of, or designation, declaration or filing with any governmental
authority is or has been required on the part of Purchaser in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
Section 4.5. Brokers. Except for Banc of America Securities LLC and
Charlevoix Energy Partners, no broker or finder has acted for or on behalf of
Purchaser or any affiliate of Purchaser in connection with this Agreement or
the transactions contemplated by this Agreement. No broker or finder is
entitled to any brokerage or finder's fee, or to any commission, based in any
way on agreements, arrangements or understandings made by or on behalf of
Purchaser or any affiliate of Purchaser for which Seller or any affiliate
thereof has or will have any liabilities or obligations (contingent or
otherwise).
Section 4.6. Litigation. There are no actions, suits, proceedings or
governmental investigations pending or, to the knowledge of Purchaser,
threatened against Purchaser or any of the its subsidiaries which (a) will
have a Material Adverse Effect or can reasonably be expected to have a
Material Adverse Effect on the ability of Purchaser to consummate the
transactions contemplated in the Agreement, or (b) challenges or may
challenge the validity of this Agreement or any of the Operative Documents to
be executed at Closing or seeks to enjoin or otherwise restrain the
transactions contemplated herein.
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Section 4.7 No Breach, Etc. The execution, delivery and performance
of this Agreement and the Operative Documents to which Purchaser is a party
by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not result in (a) any conflict with or breach or
violation of or default under the Certificate or Articles of Incorporation or
by-laws of Purchaser, or (b) subject to obtaining those consents or approvals
described in Sections 4.4 and 4.7 of the Purchaser's Disclosure Schedule (the
"Purchaser's Required Approvals", which term shall not include any
Purchaser's Required Governmental Consents), any material conflict with or
breach or violation of or default under or right to terminate, cancel or
accelerate under any material indenture, contract, agreement, license, lease
or other instrument to which Purchaser is a party or the creation of
imposition of any lien, charge, pledge or encumbrance on any of the material
assets of the Purchaser. With respect to the credit agreement related to the
Purchaser's Required Approval described in Section 4.7 of the Purchaser's
Disclosure Schedule, such credit agreement is subject to renewal no later
than September 30, 1999, and upon such renewal the credit agreement will be
amended or otherwise modified so that no consent to the transactions
contemplated by this Agreement is required thereunder. Upon such renewal the
Purchaser's Disclosure Schedule shall be deemed to be modified so that the
requirement to obtain such consent is no longer disclosed thereon.
Section 4.8. Financial Arrangements of Purchaser. Purchaser
presently has and will at all times have adequate sources of funds to provide
at the Closing, and at the Closing will have, sufficient funds in order to
timely pay the Purchase Price and any adjustments thereto.
Section 4.9. Financial Statements. Purchaser has heretofore
delivered to Seller complete and correct copies of (a) its annual report to
shareholders of its most recently ended fiscal year, (b) its Annual Report on
Form 10-K for the same fiscal year, as filed with the Securities and Exchange
Commission, (c) its proxy statement relating its most recent Annual Meeting
of Shareholders and (d) its quarterly reports on Form 10-Q for any fiscal
quarters ended after the fiscal year described in clause (a). The
consolidated financial statements of the Purchaser contained therein were
prepared in accordance with generally accepted accounting principles applied
on a consistent basis, except for changes concurred in by the Purchaser's
accountants and disclosed in said financial statements, throughout the
periods specified, and present fairly in all material respects the financial
condition and results of operations of the businesses of Purchaser as of the
dates thereof and for the periods then ended (subject, in the case of
unaudited financial statements, to normal year-end audit adjustments) and the
absence of footnote disclosure.
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Section 4.10. Purchase for Investment. Purchaser is acquiring the APC
Shares for its own account, for investment only, without a view to
distribution, as that phrase has meaning under the Securities Act of 1933, as
amended (the "Act") and rules and regulations of the Securities and Exchange
Commission. Purchaser understands that the effect of the representation and
warranty made herein is that the APC Shares must be held by it indefinitely
unless subsequently registered under the Act or unless an exemption from
registration is available at the time of any proposed sale or other transfer
thereof. Purchaser agrees to indemnify and hold harmless Seller against all
liabilities, costs and expenses, including reasonable attorneys' fees, and
other Losses incurred by Seller as a result of any sale, transfer or other
disposition by Purchaser of all or any part of the APC Shares in violation of
the Act or applicable state securities laws.
ARTICLE V
Covenants and Certain Actions of the Parties
Section 5.1. Obligations of Seller.
Section 5.1.1. Conduct of Business, Etc.
From the date of this Agreement and until the Closing ("Interim
Period"), except as is otherwise approved by Purchaser in writing (which
approval shall not be unreasonably withheld or delayed), Seller shall:
(a) except as permitted or contemplated by this Agreement, carry
on the Distribution Business in the ordinary course consistent with past
practice and, to the extent consistent with such business, use all
reasonable efforts to preserve intact the present business organization
and to preserve its relationship with customers, suppliers and others
having business dealings with the Distribution Division;
(b) except as permitted or contemplated by this Agreement, cause
APC to carry on the Transmission Business in the ordinary course
consistent with past practice and, to the extent consistent with such
business, use all reasonable efforts to preserve intact the present
business organization and to preserve its relationships with customers,
suppliers and others having business dealings with APC;
(c) maintain its corporate existence and, to the extent within the
control of Seller, maintain all qualifications of Seller that are
required for it to carry on the Distribution Business as set forth in
clause (a) above; and cause APC to maintain its corporate existence and,
to the extent within the control of Seller, cause APC to maintain all
qualifications of APC that are required for it to carry on the
Transmission Business as set forth in clause (b) above;
(d) not permit APC to amend its Articles of Incorporation or
bylaws;
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(e) except as permitted or contemplated by this Agreement and
except for proposed transactions that are disclosed in Seller's
Disclosure Schedule, not enter into or amend or permit APC to enter into
or amend in any bonus, incentive compensation, deferred compensation,
profit sharing, retirement, pension, group insurance, death benefit or
other fringe benefit plan, trust agreement, or arrangement affecting any
Employees, or any compensation, severance or consulting agreement with
any such officer or employee other than in the ordinary course of
business or otherwise consistent with past practice or as required by
law or any presently existing collective bargaining agreement;
(f) not permit APC or the Distribution Division, other than in the
ordinary course of business, to create, incur, assume, guarantee or
otherwise become liable with respect to any indebtedness for money
borrowed except (i) pursuant to the First National Credit Agreement,
(ii) pursuant to advances made by Seller to the Distribution Division or
APC, including under the Intercompany Line of Credit Agreement, (iii) in
compliance with the provisions of this Agreement, or (iv) in connection
with any renewal, extension, rearrangement or refunding of any
indebtedness of the Distribution Division or APC reflected in the Base
Financial Statements or incurred after the date thereof pursuant to the
First National Credit Agreement;
(g) except for proposed transactions described in Section 5.1.1(g)
of Seller's Disclosure Schedule, refrain from disposing of any material
Distribution Assets or material APC Assets other than in the ordinary
course of business;
(h) except for any proposed transactions described in Section
5.1.1(h) of Seller's Disclosure Schedule, not permit APC to merge or
consolidate with any other corporation or acquire any stock, securities,
property or assets of any other Person; provided, however, that the
foregoing restriction shall not prohibit any acquisition of property or
assets to be used by the Natural Gas Business in the ordinary course of
business or for capital expenditures permitted by Section 5.1.1(k);
(i) not permit APC to issue any shares of any class of its capital
stock, or enter into any contract, or grant any option, warrant or
right, calling for the issuance of any such shares, or create or issue
any securities convertible into any such shares or convertible into
securities in turn so convertible, or enter into any contract, or grant
any option, warrant or right, calling for the issuance of any such
convertible securities;
(j) advise and consult, and cause APC to advise and consult, with
Purchaser in advance of any material actions (including, without
limitation, rate filings) to be taken with respect to regulatory matters
or other contested matters;
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(k) except as contemplated by the Natural Gas Business's capital
budget or as set forth in Section 5.1.1(k) of Seller's Disclosure
Schedule, not make or commit to make, or permit APC to make or commit to
make, any capital expenditures, capital additions or capital
improvements with respect to the Natural Gas Business in an amount in
excess of $1,000,000 with respect to all such capital projects and
except for repairs to the Natural Gas Business's property required for
safety and/or the continued operation of the Natural Gas Business in
accordance with past practice.
(l) use all reasonable efforts to obtain waivers of all
preferential rights to purchase all or any part of the Distribution
Assets and use all reasonable efforts to obtain, and cause APC to use
all reasonable efforts to obtain, any consent of third parties necessary
to complete the transactions contemplated by this Agreement;
(m) use all reasonable efforts to provide substantially in
accordance with past practices under that certain Agreement For
Services, dated January 1, 1993, as amended, between Seller, the
Distribution Division and APC, all material corporate general and
administrative services to APC and the Distribution Division of the type
previously provided by Seller and cooperate with Purchaser in the
transition of the performance of such services to Purchaser at the
Closing. Seller will, and will cause the Distribution Division and APC
to, terminate such Agreement For Services at Closing at no cost to the
Distribution Division or APC;
(n) not take undertake any hedging activity that is inconsistent
with net open commodity position, if any, described in Section 3.13(c)
of Seller's Disclosure Schedule; and
(o) enter into or amend any Material Contract or any other
contract listed on Section 3.12 of Seller's Disclosure Schedule, in each
case except to the extent related to any capital expenditure permitted
by Section 5.1.1(k).
Section 5.1.2. Access and Information. APC and Seller have given and,
during the Interim Period, Seller shall give, or shall cause to be given, to
Purchaser and its employees, agents and representatives full access, at all
reasonable times and at Purchaser's expense, to the properties, books, files,
records and officers of APC and of Seller, as such relate to the Natural Gas
Business, and will furnish or shall cause to be furnished, at Purchaser's
expense, all information and documents relating to the Natural Gas Business
as Purchaser may reasonably request, and permit Purchaser to contact and meet
with the employees of APC and Seller, as such are involved in the Natural Gas
Business, and others having business relations with such, at such place or
places and at such times as reasonably designated by Purchaser, provided that
no such investigation shall unreasonably interfere with the Natural Gas
Business, or relationships with employees or customers of Seller or APC.
During the Interim Period, Seller shall permit Purchaser to make copies of
information relating to the Natural Gas Business contained in the books,
files and records of Seller and APC. Purchaser will cause all information
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regarding Seller, the Distribution Division, APC or the Natural Gas Business
obtained or acquired by Purchaser or Purchaser's representatives, employees,
consultants, independent contractors, attorneys and financing sources and
other advisors (the "Purchaser Parties") pursuant to this Agreement to be
used and maintained by the Purchaser Parties in accordance with the terms of
the confidentiality agreement dated June 3, 1999, by and between Seller and
Purchaser (the "Confidentiality Agreement"). Notwithstanding the foregoing
provisions of this Section 5.1.2, Seller shall not be required to disclose
information to the extent that the disclosure thereof is prohibited under
confidentiality agreements currently in effect on the date hereof.
(b) Purchaser hereby agrees to defend, indemnify, release, protect,
save and hold harmless the Seller Indemnitees from and against any and all
Losses (including injury or death of any person or damage to property)
arising out of or relating to Purchaser's access to the properties, books,
files and records of APC or the Natural Gas Business in connection with this
Section 5.1.2, including without limitation any Losses resulting, in whole or
in part, from the actions of Purchaser's officers, employees, agents,
representatives or affiliates.
Section 5.1.3. Hart-Scott-Rodino.
(a) Seller will prepare and submit to the Federal Trade Commission
and the Department of Justice, in a timely manner, all necessary filings
for Seller in connection with the transactions contemplated by this
Agreement under the Hart-Scott-Rodino Antitrust Improvements Act or 1976
and the rules and regulations of the Federal Trade Commission thereunder
(collectively, the "Hart-Scott-Rodino Act").
(b) In the event that a request for additional information is made
of Seller pursuant to the Hart-Scott-Rodino Act, Seller shall use all
reasonable efforts to comply with such request as soon as practicable
after receipt of such request.
Section 5.1.4 Limit on Indebtedness For Borrowed Money. At or prior
to the Closing, Seller shall take such action as shall be necessary such
that, at the Closing, (i) the aggregate indebtedness of the Natural Gas
Business for borrowed money or evidenced by leases required to be capitalized
for financial reporting purposes in accordance with GAAP does not exceed
$58,700,000 (including the APC Debt), and (ii) the outstanding principal
balance of the APC Debt does not exceed $58,700,000.
Section 5.2. Obligations of Purchaser.
Section 5.2.1. Hart-Scott-Rodino.
(a) Purchaser will prepare and submit to the Federal Trade
Commission and the Department of Justice, in a timely manner, all
necessary filings for Purchaser in connection with the transactions
contemplated by this Agreement under the Hart-Scott-Rodino Act.
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(b) In the event that a request for additional information is made
of Purchaser pursuant to the Hart-Scott-Rodino Act, Purchaser shall use
all reasonable efforts to comply with such request as soon as
practicable after receipt of such request.
Section 5.2.2. Employee Matters. On or before the Closing Date,
Purchaser will offer employment to each Employee as of the Closing Date who
meets Purchaser's normal employment criteria for similar classifications of
employees. Except as hereinafter provided, and subject to the provisions of
any presently existing collective bargaining agreement, Purchaser shall have
full discretion in determining the terms, conditions and benefits relating to
such employment, provided however, that the salaries and other employment
benefits, taken as a whole, and the positions of responsibility offered by
Purchaser shall be consistent in all material respects with the salary ranges
and other employment benefits, taken as a whole, and the levels of
responsibility of such Employees in effect on the Closing Date.
Section 5.2.3. Access to Information. After Closing, Purchaser will,
and will cause its counsel and independent public accountants to, afford to
representatives of Seller, including its counsel and accountants, reasonable
access to all books, records, files and documents related to the Distribution
Division, APC or the Natural Gas Business in order to permit Seller to
prepare and file its tax returns and to prepare for and participate in any
investigation with respect thereto, to prepare for and participate in any
other investigation and defend any litigation relating to or involving the
Seller, Distribution Division, APC or the Natural Gas Business for which
Seller may be responsible, to discharge its obligations under this Agreement
and the other Operative Documents to which it is a party and for other
reasonable purposes and will afford Seller reasonable assistance in
connection therewith. Purchaser will cause such records to be maintained for
not less than seven years from the date of Closing and will not dispose of
such records without first offering in writing to deliver them to Seller;
provided, however, that in the event that Purchaser transfers all or a
portion of the Natural Gas Business to any third party during such period,
Purchaser may transfer to such third party all or a portion of the books,
records, files and documents related thereto, provided such third party
transferee expressly assumes in writing the obligations of Purchaser under
this Section 5.2.3. Following the Closing Date, and to the extent
reasonably necessary to permit Seller or any of its Affiliates to defend
(including, without limitation, any related investigation, appeal or
settlement) any lawsuit, mediation, enforcement action, arbitration,
administrative hearing or other adjudicative proceeding relating to the
Natural Gas Business, Purchaser agrees to afford Seller and its Affiliates
and their respective accountants and counsel, during normal business hours,
at no cost to Seller other than reasonable out-of-pocket expenses, (i)
reasonable access to all employees of Purchaser or any of its Affiliates and
all witnesses subject to the control or direction of Purchaser or any of its
Affiliates and (ii) reasonable access to all documents and records within the
custody or subject to the control of Purchaser or any of its Affiliates;
provided, however, that in the event of any litigation nothing herein shall
limit either party's rights of discovery under applicable law.
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Section 5.3. Joint Obligations.
(a) Purchaser and Seller will, as soon as reasonably possible
following the execution of this Agreement, prepare and file with
appropriate governmental authorities such requests for approval as may
be necessary to obtain any Seller's Required Governmental Consents and
Seller's Required Approvals. Purchaser and Seller will diligently pursue
such authorizations and will cooperate with each other in seeking such
authorizations.
(b) Seller, APC and Purchaser mutually agree and covenant as
follows with respect to the disposition of the Plans:
(i) Effective as of Closing, Purchaser shall adopt, or
cause the appropriate affiliate of Purchaser to adopt, those plans
listed on Section 5.3(b)(i) of Seller's Disclosure Schedule. Seller
(or its insurer) will be liable for benefits incurred by the
Employees under such plans, as a result of events occurring prior
to Closing.
(ii) Effective as of Closing, Purchaser shall also adopt, or
cause the appropriate affiliate of Purchaser to adopt, those plans
listed on Section 5.3(b)(ii) of Seller's Disclosure Schedule
(together with the plans listed on Section 5.3(b)(i) of Seller's
Disclosure Schedule, the "Scheduled Plans") as a successor employer
of the Employees who are participants therein, without gap or
interruption of coverage. Further, effective as of the Closing
Date, Purchaser shall assume Seller's obligations under any
presently existing collective bargaining agreement affecting the
Natural Gas Business.
(iii) Subject to the provisions of any presently existing
collective bargaining agreement and subject to the provisions of
applicable law, Purchaser shall have the right to amend or
terminate any Scheduled Plan following the Closing Date; provided,
however, that the overall level of benefits provided to the
Employees of the Natural Gas Business shall be comparable to the
benefits provided to such Employees on the date hereof for at least
two years after the Closing Date. With respect to any employee
benefit plan that is not a Scheduled Plan, Purchaser shall not
assume any obligations thereunder and Seller shall continue to be
liable therefor; provided, however, that Seller may amend or
terminate any such plan at any time.
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(iv) Effective as of Closing, Purchaser shall cause APC or
the appropriate affiliate of Purchaser to assume the Severance
Agreement between Seller and Richard F. Barnes ("Barnes"), a true
and correct copy of which has been furnished to Purchaser. Prior
to Closing, Purchaser shall enter into severance agreements with
each of the other officers of APC, which are identified on Section
5.3(b) of Seller's Disclosure Schedule, providing benefits
substantially similar to the benefits provided to such persons
under the MSP. In the event Barnes' or any other such officer's
employment is subject to an Involuntary Termination (as such term
is defined in the applicable severance agreement) within six months
following Closing, Seller shall reimburse Purchaser for the cost of
any severance benefits provided to such officer in accordance with
the applicable severance agreement. Purchaser shall provide
severance benefits to each of the other Employees as of Closing
(but not including Employees subject to any collective bargaining
agreement) in accordance with the terms of the Resource Group Plan
set forth in Section 5.3(b)(iv) of Purchaser's Disclosure Schedule.
Purchaser will continue to provide severance benefits to such
Employees substantially similar to those set forth in such Resource
Group Plan for a period of at least three years after the Closing
Date.
(v) APC, Seller and Purchaser shall cooperate in exchanging
information (including pertinent employment records, benefit
information, financial statements and other data) or in taking
actions respecting the interests of the Employees in each of the
plans described in this Section so as to secure an orderly and
effective transition of benefit arrangements for the Employees.
APC, the Seller and Purchaser agree to use all reasonable efforts
to accomplish the purposes of this Section 5.3(b), subject to such
changes as may be required by any governmental agency of proper
jurisdiction or other regulatory authority.
(c) During the Interim Period, neither Purchaser nor Seller shall
make, nor permit any of its affiliates or representatives to make, any
news release or other public disclosure pertaining to this Agreement or
the transactions contemplated hereby without the prior written approval
of the other as to both form and content, which approval shall not be
unreasonably withheld. Notwithstanding the foregoing, either party may
make such news release or other public disclosure which, in the opinion
of such party's outside counsel, is required to be made by such party
pursuant to applicable securities laws or securities exchange rules.
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ARTICLE VI
Approvals, Reasonable Efforts
The parties recognize the importance of obtaining the Seller's Required
Governmental Consents, the Seller's Required Approvals, the Purchaser
Required Governmental Consents and the Purchaser's Required Approvals and, in
this regard, agree to give priority to seeking such approvals. The parties
shall apply for and diligently prosecute all applications for, and shall use
all reasonable efforts promptly to obtain, such approvals or forebearances
from all applicable federal, state and local authorities, and such other
governmental authorities as shall be necessary to permit the consummation of
the transactions contemplated this Agreement, and shall use all reasonable
efforts to bring about the satisfaction as soon as practicable of the
transactions contemplated by this Agreement. To this end, the parties agree
to make available the personnel and other resources of their respective
organizations in order to accomplish actions reasonably required by them to
obtain all such approvals.
ARTICLE VII
Conditions Precedent
Section 7.1. Preamble. The respective obligations set forth herein
of Seller and Purchaser to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or before the Closing Date, in the
case of Seller, of the conditions set forth in Sections 7.2 and 7.3, and in
the case of Purchaser, of the conditions set forth in Sections 7.2 and 7.4.
Any of the following conditions may be waived in whole or in part by the
party whose obligation to perform at Closing is subject to such condition.
Section 7.2 Hart-Scott-Rodino Compliance. The applicable waiting
period under the Hart-Scott Rodino Act shall have expired or terminated.
Section 7.3. Conditions to Obligations of Seller.
Section 7.3.1. Representations and Warranties of Purchaser. The
representations and warranties of Purchaser contained in Article IV of this
Agreement shall be accurate in all respects (provided that, for purposes of
this Section 7.3.1 any representation or warranty contained in Article IV
that is qualified by a materiality standard or a Material Adverse Effect
qualification shall be read without regard to any such qualifications as if
such qualifications were not contained therein) as of the Closing Date,
except for such failures which, individually or in the aggregate, have not
had and could not reasonably be expected to have, a Material Adverse Effect
on Seller. Purchaser shall have duly performed and complied in all material
respects with all agreements contained herein required to be performed or
complied with by it at or before the Closing.
Section 7.3.2. Officer's Certificate. Purchaser shall have delivered
to Seller a certificate, dated the Closing Date and signed by its Chairman,
President or a Vice President, as to the fulfillment of the conditions set
forth in Section 7.3.1 hereof.
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Section 7.3.3 Seller's Required Governmental Consents. All of
Seller's Required Governmental Consents shall have been obtained by Final
Order.
Section 7.3.4 Seller's Required Approvals. All of Seller's Required
Approvals, the absence of which would have a Material Adverse Effect on
Seller or its businesses other than the Natural Gas Business after the
Closing, and all of Purchaser's Required Approvals, the absence of which
would have a Material Adverse Effect on Purchaser, in each case other than
those consents and approvals that are customarily obtained after the closing
of a transaction of the nature of the transaction contemplated by this
Agreement, have been obtained and are in full force and effect.
Section 7.3.5. Actions at Closing. Purchaser shall have taken the
respective actions to be taken by it at the Closing pursuant to Section 8.1
hereof.
Section 7.3.6. Absence of Proceedings. No action, suit or proceeding
instituted by any governmental authority shall be pending and no statute,
rule or regulation and no injunction, order, decree or judgment of any court
or governmental authority of competent jurisdiction shall be in effect that
could reasonably be expected to prohibit, restrain, enjoin or restrict the
consummation of the transactions contemplated by this Agreement.
Section 7.4. Conditions to Obligations of Purchaser.
Section 7.4.1. Representations and Warranties of Seller. The
representations and warranties of Seller contained in Article III and Section
10.1 of this Agreement shall be accurate in all respects (provided that, for
purposes of this Section 7.4.1 any representation or warranty contained in
Article III or Section 10.1 that is qualified by a materiality standard or a
Material Adverse Effect qualification shall be read without regard to any
such qualifications as if such qualifications were not contained therein) as
of the Closing Date, except for such failures which, individually or in the
aggregate, have not had and could not reasonably be expected to have, a
Material Adverse Effect on the Natural Gas Business. Seller shall have duly
performed and complied in all material respects with all agreements contained
herein required to be performed or complied with by it at or before the
Closing.
Section 7.4.2. Officer's Certificate. Seller shall have delivered to
Purchaser a certificate, dated the Closing Date and signed by its Chairman,
President or Vice President, as to the fulfillment of the conditions set
forth in Section 7.4.1 hereof.
Section 7.4.3 Governmental Consents. All of Seller's Required
Governmental Consents and Purchaser's Required Governmental Consents shall
have been obtained by Final Order.
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Section 7.4.4 Other Approvals. All of Seller's Required Approvals,
the absence of which would have a Material Adverse Effect on Purchaser and on
the Natural Gas Business after the Closing, and all of Purchaser's Required
Approvals, the absence of which would have a Material Adverse Effect on
Purchaser, in each case other than consents and approvals that are
customarily obtained after the closing of a transaction of this nature, have
been obtained and are in full force and effect.
Section 7.4.5. Actions at Closing. Seller shall have taken the actions
to be taken by Seller at the Closing pursuant to Section 8.1. hereof.
Section 7.4.6. Absence of Proceedings. No action, suit or proceeding
instituted by any governmental authority shall be pending and no statute,
rule or regulation and no injunction, order, decree or judgment of any court
or governmental authority of competent jurisdiction shall be in effect that
could reasonably be expected to prohibit, restrain, enjoin or restrict the
consummation of the transactions contemplated by this Agreement.
Section 7.4.7. Maintenance of Material Qualifications. Prior to
Closing, Seller shall have maintained all material qualifications of Seller
that are required for it to carry on the Distribution Business and shall have
maintained all material qualifications of APC that are required for it to
carry on the Transmission Business.
ARTICLE VIII
Closing
Section 8.1. Closing. The closing of the purchase and sale of the
APC and the Distribution Assets (the "Closing") will take place at the
offices of Vinson & Elkins L.L.P., 2300 First City Tower, 1001 Fannin,
Houston, Texas on the first business day following five calendar days after
all of the conditions specified in Section 7.3 and 7.4 have been satisfied,
unless another time, date and place is agreed to in writing by the parties.
The date of the Closing is referred to in this Agreement as the "Closing
Date." At the Closing the following events shall occur, each event being
deemed to have occurred simultaneously with the other events:
(a) Seller will deliver to Purchaser the APC Shares and the APC
Debt, by delivering the certificates representing the APC Shares and the
instruments representing the APC Debt, in each case endorsed or
accompanied by stock or bond powers, as applicable (in form reasonably
satisfactory to counsel for Purchaser), in favor of Purchaser; and
(b) Purchaser will pay the Purchase Price, as adjusted, by wire
transferring such amount, in lawful money of the United States of
America in immediately available funds, to such account as Seller shall
have designated by notice to Purchaser; and
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(c) Seller and Purchaser shall execute and deliver a General
Assignment and Bill of Sale ("General Assignment") substantially in the
form of Exhibit A attached hereto, it being understood and agreed that
the schedules attached to the General Assignment as so executed and
delivered shall be appropriately modified and amended to reflect
dispositions and acquisitions of Distribution Assets after the date
hereof;
(d) To the extent consistent with the other provisions of this
Agreement, Seller shall execute and deliver at Closing such other
conveyances, certificates of title and bills of sale reasonably
requested by Purchaser that are necessary in order to satisfy any
applicable Legal Requirement relating to the transfer of the
Distribution Assets to Purchaser or which are customarily given in
Alaska to accomplish transfers of assets of the type involved; provided,
however, that nothing in this clause (e) shall obligate Seller to
execute or deliver any document that affects, in a manner adverse to
Seller, Seller's liability to Purchaser as expressed herein and in the
General Assignment.
(e) Seller shall have delivered to Purchaser the original Letter
of Credit.
ARTICLE IX
Termination
Section 9.1. Termination. Subject to Section 9.2 hereof, this
Agreement and the transactions contemplated hereby may be terminated and
abandoned:
(a) at any time prior to the Closing Date by mutual consent of
Purchaser and Seller; or
(b) by Purchaser or Seller at any time after December 31, 1999
(the "Termination Date") if the Closing shall not have occurred on or
prior to such date; provided, however, that either party may extend the
Termination Date for an additional three months from such originally
scheduled Termination Date if all the conditions to consummation of the
transactions contemplated hereby set forth in Article VII hereof have
either been satisfied or are then capable of being satisfied by such
date, other than the conditions set forth in Sections 7.3.3 and 7.4.3;
and provided further, that the right to terminate this Agreement under
this Section 9.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before the
Termination Date;
(c) by Purchaser or Seller at any time within 30 days following
the issuance of a ruling by the RCA to the effect that the transactions
contemplated by this Agreement to occur at Closing will not be
authorized to occur; or
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(d) at any time on or before the Closing Date, by Purchaser if
Seller shall have failed to perform, satisfy and comply with, in any
material respect, on the date specified, any material term, condition or
provision herein required of Seller on or before the Closing Date;
(e) at any time on or before the Closing Date, by Seller if
Purchaser shall have failed to perform, satisfy and comply with, in any
material respect, on the date specified any material term, condition or
provision herein required of Purchaser on or before the Closing Date; or
(f) by Purchaser at any time on or before the Closing Date, upon
the immediate payment by Purchaser to Seller of a termination fee of $10
million, upon receipt of which by Seller (i) such termination shall
become effective and (ii) Seller shall promptly return the original
Letter of Credit to Purchaser.
The power of termination and abandonment of the transactions
contemplated by this Agreement pursuant to this Section 9.1 will be effective
only after written notice thereof, signed on behalf of the party for which it
is given by a duly authorized officer, shall have been given to the other
party hereto.
Section 9.2 Limitation on Right to Terminate; Effect of
Termination.
(a) A party shall not be allowed to exercise any right of
termination pursuant to Section 9.1 if the event giving rise to the
termination right shall be due to the willful failure of such party
seeking to terminate this Agreement to perform or observe in any
material respect any of the covenants, or agreements hereof to be
performed or observed by such party.
(b) If this Agreement is terminated as permitted under Section 9.1
hereof, such termination shall be without liability of or to any party
to this Agreement, or any shareholder, director, officer, employee,
agent, servant, consultant or representative of such party; provided,
however, that if such termination shall result from the willful failure
of any party to fulfill a condition to the performance of any other
party or to perform a covenant of this Agreement or from a material and
willful breach by any party to this Agreement, then such party shall
(subject to the limitation set forth in the last sentence of this
Section 9.2(b)) be fully liable for any and all damages sustained or
incurred by the other party. If either party to this Agreement resorts
to legal proceedings to enforce this Agreement, the prevailing party in
such proceedings shall be entitled to recover all costs incurred by such
party including reasonable attorney's fees, in addition to any other
relief to which such party may be entitled; provided, however, and
notwithstanding anything to the contrary in this Agreement, in no event
shall either party be entitled to receive any punitive, indirect or
consequential damages.
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(c) Notwithstanding anything in Section 9.2(b) to the contrary, if
Seller terminates this Agreement pursuant to Section 9.1(e) or as the
result of any default or breach by Purchaser of Purchaser's obligations
hereunder, then Seller shall be entitled to receive an amount equal to
$10,000,000 as liquidated damages, and as Seller's sole remedy in
connection therewith, free of any claims by Purchaser or any other
Person with respect thereto (the parties hereby acknowledging that the
extent of damages to Seller occasioned by such breach or default by
Purchaser would be impossible or extremely difficult to ascertain and
that the amount of such liquidated damages is a fair and reasonable
estimate of such damages under the circumstances).
(d) Upon the election by Seller to terminate this Agreement
pursuant to Section 9.1(e) hereof because of Purchaser being in default
or breach of its obligations under this Agreement (collectively, the
"Breach Event"), Seller shall give notice of the Breach Event and its
decision to terminate this Agreement to Purchaser. If Purchaser fails
to cure such Breach Event within one Business Day after such notice is
received by Purchaser, then Seller shall have the right to give notice
to Purchaser of the failure to cure the Breach Event and demand payment
from Purchaser of the $10 million liquidated damages. If Purchaser
fails to pay to Seller the $10 million liquidated damages, in cash or by
wire transfer to an account designated by Seller within one Business Day
after the notice demanding payment of the liquidated damages is received
by Purchaser, then Seller shall have the right to draw on the Letter of
Credit in the full amount of $10 million for the full payment of the $10
million liquidated damages. If it is finally determined (which
determination is no longer subject to further review or appeal) in
accordance with the dispute resolution mechanisms permitted by this
Agreement that Seller was not entitled to receive liquidated damages,
then Seller shall, within 10 business days after such final
determination, remit such liquidated damages, together with interest at
the annual rate equal to the prime rate of Bank of America plus 2% from
the date of payment to Seller until the date of payment to Purchaser.
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ARTICLE X
Taxes
Section 10.1 Seller Tax Representations and Warranties.
(a) Seller represents and warrants with respect to APC and the
Distribution Division that, except as set forth or disclosed in Section
10.1(a) of Seller's Disclosure Schedule (i) all Tax Returns required to
be filed have been filed or requests for extensions have been timely
filed, (ii) all such Tax Returns are true and correct in all material
respects, and (iii) all Taxes shown to be due on such Tax Returns have
been paid in full. Except as set forth in Section 10.1(a) of Seller's
Disclosure Schedule, no notice of deficiency or assessment has been
received from any taxing authority with respect to liabilities for Taxes
of APC or the Distribution Division which have not been fully paid or
finally settled, and any such deficiency shown in Section 10.1(a) of
Seller's Disclosure Schedule is being contested in good faith through
appropriate proceedings. Except as set in Section 10.1(a) of Seller's
Disclosure Schedule, there are no outstanding agreements or waivers
extending the applicable statutory periods of limitation for Taxes of
APC or the Distribution Division for any period of time. Except as set
forth in Section 10.1(a) of Seller's Disclosure Schedule, no audits or
other administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Tax Returns of APC or the
Distribution Division, and neither the Seller nor APC has any knowledge
of any threatened action, audit, or administrative or court proceeding
with respect to any Taxes or Tax Returns of APC or the Distribution
Division.
(b) Seller and APC are and will be members of an "affiliated
group" within the meaning of Section 1504 of the Code as of the Closing
Date.
(c) Except as set forth in Section 10.1(c) of Seller's Disclosure
Schedule, neither Seller nor APC is a party to any allocation or sharing
agreement regarding Taxes with any person.
(d) Seller is not a resident alien individual or foreign
corporation within the meaning of Section 897 of the Code and Purchaser
is not required to withhold Tax on the Purchase Price by reason of
Section 1445 of the Code or any other provision.
(e) Except as set forth in Section 10.1(e) of Seller's Disclosure
Schedule, there are no powers of attorney in effect relating to Taxes of
Seller or APC.
(f) Except as set forth in Section 10.1(f) of Seller's Disclosure
Schedule, there is no dispute or claim as to the Tax liability of any
other person as to which Seller or APC has an indemnification
obligation.
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10.2 Tax Covenants and Indemnification
(a) Code Section 338(h)(10) Election; Purchase Price Allocation.
Upon consummation of the transactions contemplated by this Agreement,
Seller and Purchaser shall join in making a timely election under
Section 338(h)(10) of the Code (a "Section 338(h)(10) Election") with
respect to the purchase of the APC Shares and shall make similar
elections under state and local law to the fullest extent possible.
Purchaser will be responsible for preparing and filing all documents and
materials necessary in connection with making the Section 338(h)(10)
Election and any similar elections under state and local law. Not later
than 120 days after the Closing Date, Purchaser shall prepare and
deliver to Seller a proposed allocation of the Purchase Price for
purposes of the Section 338(h)(10) Election. Purchaser and Seller shall
timely complete and file Form 8023 and any similar form under applicable
state law. If Purchaser and Seller cannot agree on such allocation,
Purchaser and Seller will select a nationally recognized accounting firm
or other recognized expert to appraise the assets of APC. The cost of
such appraisal will be divided between Purchaser and Seller equally.
Purchaser and Seller agree not to take any position inconsistent with
any such allocation for Tax reporting purposes. Purchaser and Seller
will file all Tax Returns in a manner consistent with the Section
338(h)(10) Election and the valuation of APC's assets determined as
provided above.
(b) Transfer Taxes. Seller shall be liable for all sales, use,
documentary, recording, stamp, transfer or similar Taxes, assessments or
fees arising from the transaction contemplated by this Agreement;
provided, however, that if and to the extent that the aggregate amount
thereof exceed $150,000, then Purchaser shall pay 50% of the amount of
such excess, up to a maximum payment with respect thereto by Purchaser
of $50,000.
(c) Information. Seller and Purchaser will make available to each
other, and to any taxing authority, all information, records, or
documents relating to the liability or potential liability for
Pre-Closing Taxes that may be reasonably requested by a party and will
preserve such information, records or documents until the expiration of
any applicable statute of limitations or extensions thereof, provided
Seller and Purchaser shall reserve the confidentiality of any such
information, records or documents.
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(d) Seller Indemnification. Seller shall be responsible for and
shall indemnify and hold harmless Purchaser, its subsidiaries and APC
from and against any and all Tax claims resulting from, arising out of
or relating to: (i) any and all Taxes imposed on or incurred by
Purchaser or APC as a result of a breach of the representations and
warranties made in Section 10.1 of this Article; (ii) any and all
Pre-Closing Taxes imposed on, incurred by or attributed to APC or the
Distribution Division, including any federal, state or local Taxes
incurred as a result of making the Section 338(h)(10) Election, except
to the extent any such Taxes are taken into account in determining the
adjustment to the Purchase Price pursuant to Section 2.4, and (iii) any
liability resulting from, arising out of or relating to, in the nature
of, or caused by any liability of APC for Taxes of any person other than
APC under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local or foreign law).
(e) Purchaser Indemnification. Purchaser shall be responsible for
and shall indemnify and hold harmless Seller from and against any and
all Tax claims resulting from, arising out of or relating to any and all
Post-Closing Taxes imposed on or incurred by APC or the Distribution
Division.
(f) Procedures for Indemnification. The procedures for
indemnification pursuant to this Article 10 shall be conducted in a
manner consistent with Section 12.2 hereof.
(g) Proration of Tax Items. The Parties agree that for purposes
of allocating tax items of APC and the Distribution Division between
Seller and Purchaser for the Tax year that includes the Closing Date,
such tax items for such Tax year shall be apportioned between Seller and
Purchaser based upon the actual operations of APC and the Distribution
Division during the portion of such period ending on the Closing Date
and the portion of such period beginning on the day following the
Closing Date, and each portion of such period shall be deemed to be a
taxable period (whether or not it is in fact a taxable period);
provided, that ad valorem Taxes shall be prorated on a daily basis.
(h) Filing Responsibility. Purchaser and APC shall be responsible
for filing all Tax Returns and paying all Taxes due with respect to
periods ending after the Closing Date. To the extent the law permits or
requires a short period return for the period or portion thereof ending
on or before the Closing Date, Seller shall be responsible for filing
such returns and paying all Taxes due with respect to such period.
Purchaser will take such steps as are reasonably requested by Seller so
that Seller will have the authority necessary for Seller to be able to
execute and timely file the Tax Returns required to be filed by Seller.
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(i) Tax Refunds and Tax Benefits. Any Tax refunds that are
received by Purchaser or APC, and any amounts credited against Tax to
which Purchaser or APC become entitled, that relate to Tax periods or
portions thereof ending on or before the Closing Date shall be for the
account of Seller, and Purchaser shall pay over to Seller any such
refund or the amount of any such credit within fifteen (15) days after
receipt or entitlement thereto. In addition, to the extent that a claim
for refund or a proceeding results in a payment or credit against any
Tax by a taxing authority to the Purchaser or APC of any amount accrued
as of the Closing Date, Purchaser shall pay such amount to Seller within
fifteen (15) days after receipt or entitlement thereto.
(j) Control of Tax Audits. Seller shall have the right, at its
own expense, to control any audit or examination by any taxing authority
("Tax Audit"), initiate any claim for refund, contest, resolve and
defend against any assessment, notice of deficiency, or other adjustment
or proposed adjustment relating to any and all Taxes for any taxable
period ending on or before the Closing Date and relating to APC or the
Distribution Division. With respect to the items described in the
preceding sentence, Seller shall consult with Purchaser with respect to
the resolution of any such issue that would adversely affect Purchaser,
and with respect to Taxes other than income Taxes will not settle any
such issue, or file any amended return relating to such issue, without
the consent of Purchaser, which consent shall not be unreasonably
withheld. Seller will not enter into any binding agreement with any
Tax Authority with respect to Taxes (other than income Taxes) for Tax
periods ending or beginning after the Closing Date. Purchaser shall
have the right, at its own expense, to control any other Tax Audit,
initiate any other claim for refund, and contest, resolve and defend
against any other assessment, notice of deficiency, or other adjustment
or proposed adjustment relating to any Taxes for any taxable period
beginning before the Closing Date and ending after the Closing Date,
provided, that Purchaser shall consult with Seller with respect to the
resolution of any issue that would adversely affect Seller, and, with
respect to Taxes, other than income Taxes, will not settle any such
issue, or file any amended return relating to any such issue, without
the consent of Seller, which consent shall not unreasonably be withheld.
Where consent to a settlement is withheld by the other party pursuant to
this Section, such other party may continue or initiate any further
proceedings at its own expense, provided that the liability of the first
party, after giving effect to this Agreement, shall not exceed the
liability that would have resulted from the settlement or amended
return.
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(k) Cooperation on Tax Matters.
(i) Purchaser, APC and Seller shall cooperate fully, as and
to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this
Agreement and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the preservation of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Seller agrees
(A) to retain all books and records in its possession with respect
to Tax matters pertinent to APC and the Distribution Assets
relating to any taxable period beginning before the Closing Date
until the expiration of the statute of limitations (and, to the
extent notified by Purchaser or Seller, any extensions thereof) of
the respective taxable periods, and to abide by all record
retention requirements or agreements entered into with any taxing
authority, and (B) to give the other party reasonable written
notice prior to transferring, destroying or discarding any such
books and records and, if the other party so requests, Seller shall
allow Purchaser to take possession of such books and records.
(ii) Purchaser and Seller further agree, upon request, to
provide the other party with all information that either party may
be required to report pursuant to Section 6043 of the Code and all
Treasury Regulations promulgated thereunder with respect to the
transactions contemplated by this Agreement.
(l) Survival of Obligations. The obligations of the parties set
forth in this Article X shall be unconditional and absolute and shall
remain in effect until the expiration of the applicable statute(s) of
limitations.
ARTICLE XI
Definitions
As used herein, the following terms have the following meanings:
AAA: As defined in Section 13.11(b)(ii).
Act: As defined in Section 4.10.
Agreement: This Purchase and Sale Agreement, dated as of July 15, 1999,
between Seller and Purchaser, as the same may be amended or modified in
writing by the parties from time to time.
APC: Alaska Pipeline Company, an Alaska corporation.
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APC Assets: All assets, properties and rights of APC.
APC Debt: The (i) debt of APC owned by Seller and described in the
Seller's Disclosure Schedule and (ii) indebtedness under the Intercompany
Line of Credit.
APC Debt Purchase Price: As defined in Section 2.3.
APC Shares: All the outstanding shares of capital stock of APC.
Assets Purchase Price: As defined in Section 2.2.
Barnes: As defined in 5.3(b)(iv).
Base Financial Statements: As defined in Section 3.8.
Business Day: Any day except Saturday, Sunday and any other day on which
banking institutions located in the City of New York, New York are required
or authorized to close.
Board of Directors: Either of the respective boards of directors of
Seller and Purchaser or any duly authorized committee of that board.
Claim Notice: A written notice of claim given by a party seeking
indemnification pursuant to the terms of this Agreement that specifies in
reasonable detail the specific nature of the Losses and the estimated amount
of such Losses.
Closing: As defined in Section 8.1.
Closing Date: As defined in Section 8.1.
Code: The Internal Revenue Code of 1986, as amended.
Contracts: In the case of Seller, all agreements, contracts, notes and
other legally binding commitments to which Seller is a party and which relate
to the Distribution Division and, in the case of APC, all agreements,
contracts, notes and other legally binding commitments to which APC is a
party.
Distribution Assets: The "Assets," as defined in the General Assignment.
Distribution Business: The business carried on and conducted by the
Distribution Division.
Distribution Division: Seller's Alaskan natural gas distribution
division generally known as "ENSTAR Natural Gas Company."
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Environmental Laws: Any and all federal, state and local laws, statutes,
regulations, rules, orders, ordinances or permits of any governmental
authority pertaining to health, the environment, wildlife or natural
resources in effect in any and all jurisdictions in which the APC Assets and
Distribution Assets are located, including, without limitation, the Clean Air
Act, as amended, and the Federal Water Pollution Control Act, as amended, the
Rivers and Harbors Act of 1899, as amended, the Safe Drinking Water Act, as
amended, the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Resource Conservation and Recovery Act, as amended, The
Hazardous and Solid Waste Amendments Act of 1984, as amended, the Toxic
Substances Control Act, as amended, the Occupational Safety and Health Act,
as amended, the Hazardous Materials Transportation Act, as amended, the
Natural Gas Pipeline Safety Act of 1968, as amended and the Hazardous Liquid
Pipeline Safety Act of 1979, as amended.
Employees: As defined in Section 3.17(d)(i).
ERISA: The Employee Retirement Income Security Act of 1974, as amended
from time to time.
Existing Loan Documents: The mortgages, indentures, security agreements
and other instruments listed in Seller's Disclosure Schedule, together with
any mortgages, indentures, security agreements or other instruments executed
and delivered by Seller or APC after the date hereof in connection with the
renewal, extension, rearrangement or refunding of the indebtedness evidenced
or secured by any of such listed mortgages, indentures, security agreements
or other instruments to the extent accomplished in compliance with this
Agreement.
Final Order: An action by the relevant regulatory authority that has not
been reversed, stayed, enjoined, set aside, annulled or suspended, with
respect to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
First National Credit Agreement: As defined in Section 3.9(d).
General Assignment: As defined in Section 8.1(c).
Hart-Scott-Rodino Act: As defined in Section 5.1.3.
Indemnified Party: As defined in Section 12.2(e).
Indemnifying Party: As defined in Section 12.2(e).
Intercompany Line of Credit Agreement: The Revolving Credit Agreement
dated as of July 1, 1998, between the Distribution Division and Seller.
Interim Period: As defined in Section 5.1.1.
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knowledge: When used in the phrases "to Seller's knowledge," "to the
knowledge of Seller" or similar phases with respect to Seller, means, and
shall be limited to, the actual knowledge of the executive officers of Seller
or APC or the senior employee of Seller or APC who are responsible for the
area of operation of the Natural Gas Business to which such person's
knowledge relates.
Legal Requirements: Any and all applicable (i) federal, state, local and
foreign laws (statutory and administrative), ordinances and regulations, (ii)
judgments, orders, writs, injunctions, decrees and (iii) contracts with any
federal, state or foreign court, arbitrator or administrative or governmental
authority, bureau or agency relating to compliance with matters described in
(i) or (ii) above.
Losses: As defined in Section 12.2(a).
Material Adverse Effect: With respect to any Person, an occurrence or
condition that has a material adverse effect on the condition (financial or
otherwise) of operations, business, property or prospects of such Person,
taken as a whole, or materially hinders or impedes the consummation of the
transactions contemplated by this Agreement; provided, however, that an
occurrence or condition shall not constitute a Material Adverse Effect to the
extent that the Distribution Division or APC realizes the benefit of
insurance maintained by or for the benefit of the Natural Gas Business or is
recoverable by the Natural Gas Business through operation of current tariffed
rates; provided further that any action or threatened action from the RCA,
either in connection with its consideration of the approval of the
transactions contemplated by this Agreement or otherwise, shall not form the
basis, directly or indirectly, for a Material Adverse Effect with respect to
the Distribution Division, APC or the Natural Gas Business.
Material Contract: Any Contract which (a) calls for payments to or from
Seller or APC, on the one hand, and any third party, on the other hand, of an
amount in excess of $1,250,000 for any 12-month period commencing on or after
the date hereof and (b) is not terminable solely at the option of Seller or
APC, as the case may be, without penalty on no more than 90 days notice.
Material Employment Contract: Any employment, management, consulting or
similar agreements or any labor contracts or collective bargaining agreement
that (a) calls for payments from Seller or APC of an amount in excess of
$50,000 for any 12-month period commencing on or after the date hereof and
(b) is not terminable solely at the option of Seller or APC, as the case may
be, without penalty on no more than 90 days notice.
Material Liability: In the case of any Person, any material liability of
such Person; provided however, such term shall not include any material
liability the cost or expense associated with which insurance proceeds have
been recovered by such Person or is recoverable by such Person through
operation of current tariffed rates.
Material Permits: All Permits relating to the Natural Gas Business other
than those the absence of which would not have a Material Adverse Effect.
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MSP: As defined in Section 5.3(b)(i).
Natural Gas Business: The Distribution Business and the Transmission
Business, taken together.
Natural Gas Business Financial Statements: As defined in Section 3.8.
Notice Period: As defined in Section 12.2(e)
Operating Plan: As defined in Section 3.17(d)(i).
Operative Documents: This Agreement, the General Assignment, the Tax
Agreement and all other documents executed and delivered by Seller or
Purchaser at Closing.
Pension Plans: As defined in Section 3.17(d).
Permits: Any and all permits, authorizations, certificates, approvals,
registrations, legal status, variances, franchises, orders or other approvals
and licenses (i) under any Legal Requirement or (ii) granted by any federal,
state, local or foreign administrative authority, bureau or agency.
Permitted Encumbrances: As applied to Seller or APC:
(a) liens for taxes, assessments and governmental charges not yet
delinquent or, if delinquent, that are being contested in good faith in
the ordinary course of business and for which adequate reserves have
been established;
(b) carriers', warehousemen's, materialmen's, mechanics',
repairmen's, employees' or other similar liens or charges for liquidated
amounts arising in the ordinary course of business (i) if securing
amounts that have not yet become due and payable or payment is being
withheld as provided by law or (ii) if their validity is being contested
in good faith in the ordinary course of business by appropriate action
and for which adequate reserves have been established;
(d) liens incurred or deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment
insurance and other social security, or to secure the performance of
leases, tenders, statutory obligations, surety and appeal bonds,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations incurred in connection with the borrowing of
money or the obtaining of advances or credit);
(e) any judgment lien relating to a judgment for not more than
$50,000, unless the judgment it secures shall not, within 30 days after
the entry thereof, have been discharged or execution thereof stayed
pending appeal, or shall not have been discharged within 30 days after
the expiration of any such stay;
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(f) leases granted in the ordinary course of business or leases to
which any property acquired in connection with the Natural Gas Business
in the ordinary course of business is subject;
(g) any encumbrances (other than to secure the payment of money),
easements, rights-of-way, permits, reservations, leases, rights in
respect of gravels, minerals, oil, gases or water or in respect of
grazing, logging, mining, canals, ditches, reservoirs or the like,
conditions, covenants, and restrictions, provided that such
encumbrances, easements, rights-of-way, permits, reservations, leases,
rights, conditions, covenants, and restrictions are such that they will
not either individually or in the aggregate, if exercised or availed of,
interfere materially with the use or operation of the property of Seller
or APC affected thereby for the purpose for which such property is
currently used;
(h) all Legal Requirements and rights reserved to or vested in any
municipality or public authority to control, regulate or use any
property of Seller or APC;
(i) other than any consents of any governmental authority, any
required third party consents to assignment and similar agreements and
obligations with respect to which prior to Closing (A) waivers or
consents have been obtained from the appropriate Person, (B) the
applicable period of time for asserting such rights has expired without
any exercise of such rights or (C) arrangements reasonably satisfactory
to Purchaser have been made by the parties to allow Purchaser to receive
substantially the same economic benefits as if all such waivers and
consents had been obtained;
(j) all rights to consent by, required notices to, filings with,
or other actions by any governmental authority in connection with the
transactions contemplated hereby;
(k) reservations and other matters relating to titles to leases
and leasehold interests in oil and gas properties and the lands covered
thereby, if such reservations and other matters do not, in the
aggregate, do not materially impair the use of such leases or leasehold
interests for the purposes for which they are held or the value of the
interest therein;
(l) any liens, mortgages or encumbrances given by the Distribution
Division and/or APC for the benefit of the other securing indebtedness
owing from one of the foregoing to the other; and
(m) any other liens, charges, encumbrances, contracts, agreements,
instruments, obligations, defects or irregularities of any kind
whatsoever (but not including liens to securing indebtedness for
borrowed money) affecting the APC Assets or the Distribution Assets that
individually or in the aggregate do not, in the aggregate, materially
impair the use of such assets for the purposes for which they are held
or the value of the interest therein.
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Person: An individual, corporation, limited liability company,
partnership, joint venture, bank, trust, unincorporated organization and/or a
government or any department or agency thereof. Such term shall also include
the Distribution Division.
PBGC: As defined in Section 3.17(d)(vii).
Plans: As defined in Section 3.17(d)(i).
Post-Closing Taxes: Any taxable period beginning after the Closing Date,
and, for any taxable period beginning before the Closing Date and ending
after the Closing Date, Taxes relating to the portion of such taxable period
after but not including the Closing Date.
Pre-Closing Taxes: Any taxable period ending on or prior to the Closing
Date, and, for any taxable period beginning before the Closing Date and
ending after the Closing Date, Taxes relating to the portion of such taxable
period up to and including the Closing Date.
Profit Sharing Plans: As defined in Section 3.17(d)(i).
Purchase Price: The Stock Purchase Price, the Assets Purchase Price and
the APC Debt Purchase Price, taken together.
Purchaser: SEMCO ENERGY, Inc., a Michigan corporation.
Purchaser Indemnitees: Purchaser and its officers, directors, employees,
agents, representatives, affiliates, subsidiaries (including, from and after
the Closing, APC), successors and assigns.
Purchaser's Disclosure Schedule: The disclosure schedule of Purchaser
attached hereto; and the phrase disclosed in Purchaser's Disclosure Schedule
shall mean as set forth or referred to in Purchaser's Disclosure Schedule.
Purchaser's Required Approvals: As defined in Section 4.7.
Purchaser's Required Governmental Consents: As defined in Section 4.4.
RCA: The Regulatory Commission of Alaska, together with any predecessor
commission or agency (including, without limitation, the Alaska Public
Utilities Commission) or any successor commission or agency.
Salaried Plan: As defined in Section 3.17(d)(i).
Section 338(h)(10) Election: As defined in Section 10.2(a).
Seller: Ocean Energy, Inc., a Texas corporation.
Seller's Disclosure Schedule: The disclosure schedule of Seller attached
hereto; and the phrase "disclosed in Seller's Disclosure Schedule" shall mean
as set forth or referred to in Seller's Disclosure Schedule.
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Seller's Required Approvals: As defined in Section 3.7.
Seller's Required Governmental Consents: As defined in Section 3.4.
Seller Indemnitees: Seller and its officers, directors, employees,
agents, representatives, affiliates, subsidiaries, successors and assigns.
SERP: As defined in Section 3.17(d)(i).
Stock Purchase Price: As defined in Section 2.1.
Tax Agreement: As defined in Section 8.1(e).
Taxes means all taxes, charges, fees, levies, penalties or other
assessments imposed by any federal, state or local foreign taxing authority,
including but not limited to, income, excise, real or personal property,
sales, transfer, franchise, payroll, withholding, social security, gross
receipts, license, stamp, occupation, employment or other taxes, including
any interest, penalties or additions attributable thereto.
Tax Return: Any return, report, information return, declaration, claim
for refund or other document (including any schedule or related or supporting
information) required to be supplied to any taxing authority with respect to
Taxes including amendments thereto.
Termination Date: As defined in Section 9.1(b).
Thrift Plan: As defined in Section 3.16(d)(i).
Transmission Business: The business carried on and conducted by APC.
ARTICLE XII
Assumption and Indemnification
12.1 Assumption. Subject to Section 5.1.4 and Seller's indemnification
obligation set forth in Section 12.2(b), at the Closing, Purchaser shall
assume all liabilities, duties and obligations of every kind whatsoever of
Seller relative to the ownership or operation of the Natural Gas Business,
including, without limitation, the obligation to pay all trade and other
accounts payable relative to the Natural Gas Business.
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12.2 Indemnification.
(a) Subject to Section 12.2(c), and except for those matters set
forth in Article X which shall be governed by the terms of Article X,
Purchaser shall indemnify, defend and hold harmless the Seller
Indemnitees from and against any and all claims, liabilities, losses,
causes of actions, costs and expenses (including, without limitation,
involving theories of negligence or strict liability and including court
costs and attorneys' fees) ("Losses") asserted against, resulting from,
imposed upon or incurred by any of the Seller Indemnitees as a result
of, or arising out of, the breach of any of the representations,
warranties, covenants or agreements of Purchaser contained in this
Agreement, or as a result of, or arising out of, the ownership or
operation of the Natural Gas Business, the Distribution Assets or the
APC Assets, regardless in each case whether known or unknown, or whether
attributable to periods of time before or after the Closing Date;
provided, however, that Purchaser shall have no obligation to indemnify
any of the Seller Indemnitees with respect to any matter to the extent
Seller is indemnifying Purchaser for such matter pursuant to Section
12.2(b).
(b) Subject to Section 12.2(d), and except for those matters set
forth in Article X which shall be governed by the terms of Article X,
Seller shall indemnify, defend and hold harmless the Purchaser
Indemnitees from and against all Losses asserted against, resulting
from, imposed upon or incurred by any of the Purchaser Indemnitees as a
result of, or arising out of (i) the breach of any of the
representations, warranties, covenants or agreements of Seller contained
in this Agreement, (ii) the litigation described under Item Nos. 1 and 2
on Section 3.14 of Seller's Disclosure Schedule or (iii) any oral or
written representations or other actions by Seller, APC or the
Distribution Division prior to the Closing Date to any Employee not
subject to collective bargaining agreements, if and to the extent such
representations or actions are a significant cause of such Employee's
employment status being other than at-will; provided, however, that with
respect to the matters set forth in clause (iii) above, the amount of
Losses attributable to an Employee's not having at-will status shall
only be the amount by which Purchaser suffers Losses in excess of the
amount, if any, that Purchaser would otherwise be obligated to pay such
Employee upon termination under the terms of a severance agreement
referred to in Section 5.3(b)(iv) hereof or the Resource Group Plan
described in Section 5.3(b)(iv) hereof. Notwithstanding any provision
in this Agreement to the contrary, the indemnification for Losses
described in clauses (ii) and (iii) shall not be subject to the
threshold set forth in Section 12.2(d)(iv) hereof. Notwithstanding any
provision in this Agreement to the contrary, Seller's obligation to
indemnify Purchaser with respect to any litigation proceeding described
in clause (ii) above shall terminate upon a final, nonappealable
judgment is obtained with respect to such proceeding or such proceeding
is dismissed with prejudice, whichever is earlier. Notwithstanding any
provision in this Agreement to the contrary, Seller's obligation to
indemnify Purchaser with respect to the matters set forth in clause
(iii) above shall terminate on the third anniversary of the Closing
Date.
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(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN
NO EVENT SHALL PURCHASER BE LIABLE TO SELLER INDEMNITEES FOR ANY
EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT, CONSEQUENTIAL, REMOTE OR
SPECULATIVE DAMAGES; provided, however, that if a Seller Indemnitee is
held liable to a third party for any of such damages and Purchaser is
obligated to indemnify such Seller Indemnitee for the matter that gave
rise to such damages, then Purchaser shall be liable for, and obligated
to reimburse such Seller Indemnitee for, such damages.
(d) Notwithstanding anything to the contrary in this Agreement,
but subject to the last two sentences of Section 12.2(b), the liability
of Seller under this Agreement and any documents delivered in connection
herewith or contemplated hereby shall be limited as follows:
(i) IN NO EVENT SHALL SELLER BE LIABLE TO PURCHASER
INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT,
CONSEQUENTIAL, REMOTE OR SPECULATIVE DAMAGES; provided, however,
that if a Purchaser Indemnitee is held liable to a third party for
any of such damages and Seller is obligated to indemnify such
Purchaser Indemnitee for the matter that gave rise to such damages,
then Seller shall be liable for, and obligated to reimburse such
Purchaser Indemnitee for, such damages.
(ii) In no event shall any amounts be recovered from Seller
under Section 12.2(b) or otherwise for any matter for which a Claim
Notice is not delivered to Seller; (A) in the case of indemnity for
breach of a representation or warranty, prior to the close of
business on the date of termination of such representation or
warranty pursuant to Section 12.2(d)(iii), (B) in the case of any
covenant or agreement of Seller, other than those covenants or
agreements set forth in Section 5.2.2 or 5.3(b)(i), prior to the
close of business on the 18-month anniversary of the Closing Date,
and (C) in the case of the covenants or agreements of Seller set
forth in Sections 5.2.2 or Section 5.3(b)(i), prior to the end of
any applicable statute of limitations; provided, however, that
such indemnities shall survive with respect only to the specific
matter that is the subject of any Claim Notice delivered in good
faith in compliance with the requirements of this Section
12.2(d)(ii) until the earlier to occur of (A) the date on which a
final nonappealable resolution of the matter described in such
Claim Notice has been reached or (B) the date on which the matter
described in such Claim Notice has otherwise reached final
resolution.
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(iii) The representations and warranties of Seller (i) set
forth in Section 3.10 shall survive the Closing for a period of 180
days, and such representations and warranties of Seller shall
terminate at 5:00 p.m., local time in Alaska, on the 180th day
after the Closing Date, and (ii) the representations and warranties
of Seller set forth in Section 3.17 shall survive the Closing for
the full period of any applicable statute of limitation. Except as
set forth in the preceding sentence, the representations,
warranties, covenants and agreements of Seller set forth in this
Agreement shall survive the Closing for a period of 18 months, and
all representations, warranties, covenants and agreements of Seller
under this Agreement shall terminate at 5:00 p.m., local time in
Alaska, on the 18 month anniversary of the Closing Date; provided,
however, that any such representation, warranty, covenant or
agreement that is the subject of a proper Claim Notice delivered in
good faith shall survive with respect only to the specific matter
described in such Claim Notice until the earlier to occur of (A)
the date on which a final nonappealable resolution of the matter
described in such Claim Notice has been reached or (B) the date on
which the matter described in such Claim Notice has otherwise
reached final resolution.
(iv) Notwithstanding anything to the contrary in this
Agreement, in no event shall Seller indemnify the Purchaser
Indemnitees, or be otherwise liable in any way whatsoever to the
Purchaser Indemnitees, for any Losses until the Purchaser
Indemnitees have suffered Losses in the aggregate in excess of a
deductible in an amount equal to $3,000,000, after which point
Seller will be obligated only to indemnify the Purchaser
Indemnitees from and against further Losses in excess of such
deductible.
(v) Notwithstanding anything to the contrary herein, in no
event shall Seller indemnify the Purchaser Indemnitees, or be
otherwise liable in any way whatsoever to the Purchaser
Indemnitees, for any Losses in excess of an amount equal to the
Purchase Price (before giving effect to any adjustments provided
for pursuant to this Agreement).
(vi) Seller may (but will not be required to), from time to
time prior to or at the Closing, by notice in accordance with this
Agreement, supplement or amend the Seller's Disclosure Schedule,
including without limitation one or more supplements or amendments
to correct any matter which would constitute a breach of any
representation, warranty or covenant herein contained; provided,
however, that subject to the following sentence, no such supplement
or amendment will affect the rights or obligations of the parties
to this Agreement (including without limitation the right to assert
a breach of a representation or warranty as a failed closing
condition) until after the Closing Date. Notwithstanding any other
provision hereof, if the Closing occurs, any such supplement or
amendment of any Schedule will be effective to cure and correct for
indemnification purposes any breach of any representation, warranty
or covenant which would have existed by reason of Seller not having
made such supplement or amendment.
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(vii) Seller shall have no liability for any claim (A) to the
extent that such claim is covered by insurance maintained by or for
the benefit of Seller (including any such insurance coverage
applicable to the Natural Gas Business the benefit of which the
Distribution Division or APC will realize) and Purchaser or APC
actually receive the proceeds of such insurance or (B) that, in the
case of a claim against or affecting the Distribution Division or
APC, is recoverable by the Distribution Division or APC (consistent
with the prior practices of the RCA) through the operation of
current tariffed rates.
(e) All claims for indemnification under Sections 12.2(a) or
12.2(b) shall be asserted and resolved pursuant to this Section 12.2(e).
Any Person claiming indemnification hereunder is hereinafter referred to
as the "Indemnified Party" and any Person against whom such claims are
asserted hereunder is hereinafter referred to as the "Indemnifying
Party." In the event that any Losses are asserted against or sought to
be collected from an Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness provide to the
Indemnifying Party a Claim Notice. The Indemnifying Party shall not be
obligated to indemnify the Indemnified Party with respect to any such
Losses if the Indemnified Party fails to notify the Indemnifying Party
thereof in accordance with the provisions of this Agreement in
reasonably sufficient time so that the Indemnifying Party's ability to
defend against the Losses is not prejudiced. The Indemnifying Party
shall have 30 days from the personal delivery or receipt of the Claim
Notice (the "Notice Period") to notify the Indemnified Party (i) whether
or not it disputes the liability of the Indemnifying Party to the
Indemnified Party hereunder with respect to such Losses and/or (ii)
whether or not it desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Party against such Losses;
provided, however, that any Indemnified Party is hereby authorized prior
to and during the Notice Period to file any motion, answer or other
pleading that it shall deem necessary or appropriate to protect its
interests or those of the Indemnifying Party (and of which it shall have
given notice and opportunity to comment to the Indemnifying Party) and
not prejudicial to the Indemnifying Party. In the event that the
Indemnifying Party notifies the Indemnified Party within the Notice
Period that it desires to defend the Indemnified Party against such
Losses, the Indemnifying Party shall have the right to defend all
appropriate proceedings, and with counsel of its own choosing, which
proceedings shall be promptly settled or prosecuted by them to a final
conclusion. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement it may do so at its sole cost
and expense. If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any Losses that the Indemnifying Party elects to contest or,
if appropriate and related to the claim in question, in making any
counterclaim against the Person asserting the third party Losses, or any
cross-complaint against any Person. No claim may be settled or otherwise
compromised without the prior written consent of the Indemnifying Party.
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(f) The rights, remedies and obligations of the Purchaser
Indemnitees and the Seller Indemnitees set forth in this Section 12.2
and Article X will be the exclusive rights, remedies and obligations of
such Persons after the Closing with respect to this Agreement, the
events giving rise to this Agreement and the transactions provided for
herein or contemplated hereby or thereby.
(g) WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION
OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN INDEMNIFIED PARTY SHALL BE
ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS
HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO SUCH
INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY, VIOLATION OF ANY LAW OR OTHER
LEGAL FAULT OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS
PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
12.3 Independent Investigation. Purchaser represents and acknowledges
that it is knowledgeable of with respect to the transmission and distribution
of natural gas and of the usual and customary practices of natural gas local
distribution companies such as the Natural Gas Business and that it has had
access to the Natural Gas Business, the officers and employees of Seller, the
Distribution Division and APC, and the books, records and files of Seller,
the Distribution Division and APC, relating to the Natural Gas Business and
in making the decision to enter into this Agreement and consummate the
transactions contemplated hereby, Purchaser has relied solely on the basis of
its own independent due diligence investigation of the Natural Gas Business
and upon the representations and warranties made in Article III. Accordingly,
Purchaser acknowledges that Seller has not made, and Seller hereby expressly
disclaims and negates any representation or warranty (other than those
express representations and warranties made in Article III), express,
implied, at common law, by statute or otherwise, relating to the Natural Gas
Business.
12.4 Disclaimer Regarding Natural Gas Business. Except as otherwise
expressly provided in Article III above, Purchaser ACKNOWLEDGES THAT SELLER
HAS NOT MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE CONDITION OF
ANY REAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND PERSONAL
PROPERTY CONSTITUTING PART OF THE NATURAL GAS BUSINESS (INCLUDING, WITHOUT
LIMITATION, (A) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (b) ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (c) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,
(d) ANY RIGHTS OF PURCHASER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION OR RETURN OF THE PURCHASE PRICE, (e) ANY IMPLIED OR EXPRESS
WARRANTY OF FREEDOM FROM VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN, (f) ANY
IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT,
(g) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW NOW OR
HEREAFTER IN EFFECT, AND (h) ANY IMPLIED OR EXPRESS WARRANTY REGARDING
ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR
PROTECTION OF THE ENVIRONMENT OR HEALTH) IT BEING THE EXPRESS INTENTION OF
PURCHASER AND SELLER THAT (EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN ARTICLE
3) THE DISTRIBUTION ASSETS AND THE APC ASSETS SHALL BE CONVEYED (DIRECTLY OR
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INDIRECTLY, AS APPLICABLE) TO PURCHASER "AS IS," "WHERE IS" AND IN THEIR
PRESENT CONDITION AND STATE OF REPAIR AND PURCHASER REPRESENTS TO SELLER THAT
PURCHASER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO THE
DISTRIBUTION ASSETS AND THE APC ASSETS AS PURCHASER DEEMS APPROPRIATE AND
PURCHASER WILL ACCEPT THE DISTRIBUTION ASSETS AND THE APC ASSETS "AS IS,"
"WHERE IS" AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR.
ARTICLE XIII
Miscellaneous
Section 13.1. Modification; Waiver. This Agreement may be modified,
amended or supplemented in any manner and at any time only by a written
instrument executed by purchaser and Seller.
Section 13.2. Entire Agreement. This Agreement supersedes any and all
other agreements, oral or written, among the parties hereto in respect of the
subject matter of this Agreement.
Section 13.3. Expenses. Whether or not the transactions contemplated
herein shall be consummated, each party shall (except as otherwise
specifically provided herein) pay its own expenses incident to the
preparation and performance of this Agreement, including broker's fees and
commissions; and each party shall indemnify and hold harmless the other party
with respect to brokerage fees and commissions incurred by the indemnifying
party in connection with the transactions contemplated by this Agreement.
Section 13.4 Further Actions. Each party shall execute and deliver
such other certificates, agreements, conveyances, certificates of title, and
other documents and take such other actions as may reasonably be requested by
the other parties in order to consummate or implement the transactions
contemplated by this Agreement.
Section 13.5. Notices. Any and all notices or other communications
required or permitted under this Agreement shall be given in writing and
delivered in person or sent by United States certified or registered mail,
postage prepaid, return receipt requested, or by overnight express mail, or
by telex, facsimile or telecopy to the address of such party set forth below.
Any such notice shall be effective upon receipt or three days after placed in
the mail, whichever is earlier.
If to Purchaser:
SEMCO ENERGY, Inc.
405 Water Street, P.O. Box 5026
Port Huron, Michigan 48061-5026
Attention: Sebastian Coppola
Telecopy Number: (810) 989-4099
with copies to:
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Arnold R. Madigan
303 E. 17th Avenue, Suite 780
Denver, Colorado 80203-1260
Telecopy Number: (303) 894-0756
and
LeBouef, Lamb, Greene & MacRae, LLP
633 17th Street, Suite 2000
Denver, Colorado 80202
Attention: Thomas J. Moore
Telecopy Number: (303) 297-0422
If to Seller:
Ocean Energy, Inc.
1001 Fannin, Suite 1600
Houston, Texas 77002
Attention: Robert K. Reeves
Telecopy Number: (713) 265-8840
with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002
Attention: J. Mark Metts
Telecopy Number: (713) 615-5605
Any party may, by notice so delivered, change its address for notice purposes
hereunder.
Section 13.6. Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, by operation of law or otherwise, by any party hereto without the
prior written consent of the other party; provided, however, in the event of
any such assignment by a party by operation of law without the consent of the
other party as required above, such other party may consent to such
assignment after it has occurred and, in such event, this Agreement and all
the provisions hereof shall be binding upon the Person receiving such
assignment by operation of law.
Section 13.7. No Third Party Beneficiaries. Nothing in this Agreement
shall provide any benefit to any third party or entitle any third party to
any claim, cause of action, remedy or right of any kind, it being the intent
of the parties that this Agreement shall not be construed as a third party
beneficiary contract; provided, however, that the indemnification provisions
in Section 12.2 shall inure to the benefit of the Purchaser Indemnitees and
the Seller Indemnitees as provided therein.
48
<PAGE>
Section 13.8. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in
any adverse manner to either Party. Upon such determination that any term or
other provisions is invalid, illegal or incapable of being e-nforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
Section 13.9. Counterparts. This Agreement may be executed in
multiple counterparts, all of which shall constitute one and the same
instrument.
Section 13.10. Construction. Any section headings in this Agreement
are for convenience of reference only, and shall be given no effect in the
construction or interpretation of this Agreement or any provisions thereof.
No provision of this Agreement will be interpreted in favor of, or against,
any party by reason of the extent to which any such party or its counsel
participated in the drafting thereof or by reason of the extent to which any
such provision is inconsistent with any prior draft hereof or thereof.
Section 13.11. Applicable Law; Alternative Dispute Resolution.
(a) This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Texas.
(b) Any dispute arising under this Agreement or otherwise in
connection with or relating to the transactions contemplated hereby
shall be resolved pursuant to this Section 13.11(b):
(i) Any party has the right to request the other to meet to
discuss a dispute. The party requesting the meeting will give at
least 10 business days notice in writing of the subject it wishes
to discuss, provide a written statement of the dispute, and
designate an officer of the party with complete power to resolve
the dispute to attend the meeting. Within three business days after
receipt to such request, the party receiving the request will
provide a responsive written statement and will designate an
officer of the party who will attend the meeting with complete
power to resolve the dispute.
(ii) If the meeting fails to resolve the dispute by a signed
agreement among the officers, the dispute shall be submitted for
binding arbitration administered by the AAA under its Commercial
Arbitration Rules before a single arbitrator, and judgment on the
award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
49
<PAGE>
(iii) The parties agree to make discovery and disclosure of
all matters relevant to the dispute to the extent and in the manner
provided by the Federal Rules of Civil Procedure. The arbitrator
will rule on all requests for discovery and disclosure and
discovery shall be completed within 90 days of the date of the
first notice pursuant to Section 13.11(b)(i). The arbitrator may
consider any matter relevant to the subject to the dispute and
shall follow the statutes and decisions of the substantive law of
Texas relevant to the subject. The arbitrator shall not have the
authority or power to alter, amend or modify any of the terms and
conditions of the agreement of the parties. The arbitrator shall
issue a final ruling within 180 days of the date of the first
notice pursuant to Section 13.11(b)(i).
(iv) The ruling of the arbitrator shall be in writing and
signed and shall be final and binding upon the parties. The fees
and expenses of counsel, witnesses and employees of the parties and
all other costs and expenses incurred exclusively for the benefit
of the party incurring the same shall be borne by the party
incurring such fees and expenses. All other fees and expenses
including, without limitation, compensation for the judge, shall be
divided equally between the parties. All meetings and arbitrations
held pursuant to this Section 13.11 shall take place in the Borough
of Manhattan, New York, New York.
Section 13.12. Disclosure Schedules. With respect to the disclosure
schedules delivered pursuant to this Agreement, the disclosures made on any
section of a disclosure schedule with respect to any representation or
warranty shall be deemed to be made with respect to any other representation
or warranty requiring the same or similar disclosure only if the relevance of
such disclosure to other representations and warranties is evident from the
face of the applicable section of the such disclosure schedule. The
inclusion of any matter on any disclosure schedule will not be deemed an
admission by any party that such listed matter is material or that such
listed matter has or would have Material Adverse Effect or constitutes a
Material Liability or Material Contract, as the case may be.
Section 13.13. General Assignment. The parties acknowledge that
Schedule A to the General Assignment describing the real property included in
the Distribution Assets has not yet been prepared. Such schedule shall
include all of the real property located in the State of Alaska that is owned
or used by the Distribution Division in connection with the Distribution
Business and such schedule shall be prepared by Seller and shall be delivered
to Purchaser prior to the Closing. Upon such delivery, such schedule shall
be deemed to be incorporated into the General Assignment and this Agreement
by this reference. Until such schedule is prepared, the General Assignment
shall be deemed to cover all of the real property located in the State of
Alaska that is owned or used by the Distribution Division in connection with
the Distribution Business.
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
OCEAN ENERGY, INC.
By /s/James T. Hackett
James T. Hackett
President and Chief Executive
Officer
SEMCO ENERGY, INC.
By /s/William L. Johnson
William L. Johnson
Chairman of the Board, President
and Chief Executive Officer
51
EXHIBIT 99.1
SEMCO ENERGY NEWS
405 Water Street, Port Huron, MI 48060 RELEASE
FOR IMMEDIATE RELEASE
Media Contact: Barrett Hatches
Phone: 810-987-2200 ext. 4108
FAX: 810-989-4098
Analysts Contact: Edric R. Mason, Jr.
Phone: 810-989-4104
FAX: 810-989-4098
SEMCO ENERGY ACQUIRES ALASKAN GAS COMPANY AND PIPELINE
PORT HURON, MI, JULY 15 -- SEMCO ENERGY, Inc. (NASDAQ/NM:SMGS) today
announced that it has signed a definitive agreement to acquire ENSTAR Natural
Gas Company and the Alaska Pipeline Company (together known as "ENSTAR"). The
Anchorage, Alaska-based natural gas distribution system and transmission
company are currently owned by Ocean Energy, Inc.
SEMCO ENERGY has agreed to buy ENSTAR for approximately $290 million in
cash, which includes the purchase of approximately $60 million of ENSTAR debt
held by Ocean Energy. At the completion of the transaction SEMCO ENERGY will
be reorganized so that ENSTAR and SEMCO ENERGY GAS COMPANY will be divisions
of SEMCO ENERGY. The combination will be accounted for using the purchase
method of accounting.
The acquisition is consistent with SEMCO ENERGY's strategic plan, which
includes expanding the company's gas distribution business. It is expected to
be accretive to both earnings and cash flow per share beginning in the first
full year following the completion of this transaction.
ENSTAR Natural Gas Company currently serves more than 100,000
residential, commercial and industrial customers in the Anchorage area. The
company has experienced annual customer growth of nearly 3 percent in the
last few years, which is significantly above the natural gas industry average
growth rate. Alaska Pipeline Company delivers natural gas from several
producing fields in south central Alaska to ENSTAR Natural Gas Company's
distribution system.
The combination of ENSTAR and SEMCO ENERGY creates a gas distribution
company with more than 350,000 gas customers and assets of nearly $700
million.
William L. Johnson, Chairman, President and Chief Executive Officer of
SEMCO ENERGY, Inc. stated, "I am delighted that we were successful in
reaching this agreement with ENSTAR. It is an excellent, well-run company
with a long record of profitability in a growing gas market area and access
to an ample natural gas supply. This acquisition will accelerate our bottom
line growth."
He added, "The addition of ENSTAR also will increase the scale and scope
of SEMCO ENERGY operations, which ultimately will provide opportunities for
operational synergies, revenue growth and an increased presence in the public
financial markets." Johnson also noted that, "SEMCO ENERGY management has
developed an excellent record among its industry peers of being skilled at
managing utility properties in non-contiguous service areas in a very
efficient manner. ENSTAR fits well with our expertise."
The transaction is subject to regulatory approval by the Regulatory
Commission of Alaska and review under the Hart-Scott-Rodino Act. Final
approval is expected within six months.
Banc of America Securities LLC advised SEMCO ENERGY in this transaction
and financing is being provided through an interim bridge loan facility
arranged through the Bank of America. Permanent financing, which will likely
include a combination of equity and debt securities, is anticipated to be
completed within one year of closing.
SEMCO ENERGY is a diversified energy services and infrastructure company
currently organized into two major segments: natural gas distribution and
unregulated diversified businesses. The Company's natural gas distribution
group is operated under SEMCO ENERGY GAS COMPANY and currently serves over
250,000 customers in Michigan's Upper and Lower Peninsulas.
The diversified businesses are operated under SEMCO ENERGY VENTURES and
consist of energy engineering and quality assurance services, underground
construction services, propane operations and intrastate pipeline businesses
in Iowa, Kansas, Louisiana, Michigan, Missouri, New Jersey, Tennessee, Texas
and Wisconsin.
This news release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 that are based on
current expectations, estimates and projections. Statements that are not
historical facts, including statements about the Company's beliefs and
expectations are forward-looking statements. These statements are subject to
potential risks and uncertainties and, therefore, actual results may differ
materially.
<TABLE>
Business Description
<CAPTION>
Profile ENSTAR Profile SEMCO Combined
-------------- ------------- --------
<S> <C> <C> <C>
Operating Statistics
- --------------------
Business: Gas Distribution & Gas Distribution Gas Distribution &
Intrastate Transmission Intrastate Transmission
Service Area: Anchorage, Alaska and Michigan Anchorage Region
Surrounding communities and Michigan
Transmission 410 MMcf/d 410 MMcf/d
Capacity:
Avg. Throughput: 120 MMcf/d 120 MMcf/d
Customers: 100,000 250,000 350,000
Gas Sales: 23.0 Bcf 41.0 Bcf<F1> 64.0 Bcf
Gas Transportation 20.8 Bcf 23.8 Bcf 44.6 Bcf
Total Gas 43.8 Bcf 64.8 Bcf<F1> 108.6 Bcf
Deliveries:
Heating Degree 10,026 5,566 7,439
Days
Financial Data
($ in Millions)
- ----------------
Revenues $93.5 $286.7<F1> $380.2
Net Income $11.3 $17.2<F1> -
ROE 15.7% 15.3%<F1> -
Assets $199.0 $489.7 -
Cash Flow $21.5 $30.0<F1> -
Capital $9.4 $25.2 -
Expenditures
<FN>
<F1>
Reflects normal weather and excludes Gas Marketing business which was sold in 1999
</FN>
</TABLE>
EXHIBIT 99.2
SEMCO ENERGY, Inc.
Acquisition Overview
July 16, 1999
<PAGE>
Transaction Summary
- -------------------
Acquisition: 100% of the assets of ENSTAR Natural Gas Company
and 100% of the stock of Alaska Pipeline Company
(collectively called ENSTAR) from Ocean Energy, Inc.
Price: $230 million cash acquisition for all equity and
approximately $60 million of long-term debt(a)
Corporate Structure: Holding Company structure eliminated.
SEMCO ENERGY, Inc. as a parent gas utility company.
Two gas utility divisions: Michigan and Alaska
SEMCO ENERGY Ventures: Non-Utility subsidiary of
gas company
Accounting Treatment: Purchase Accounting
Required Approvals: Regulatory Commission of Alaska, Hart-Scott-Rodino
Expected Closing: December 1999
(a) Long-Term debt held by Ocean Energy.
<PAGE>
<TABLE>
Valuation of ENSTAR
- -------------------
<CAPTION>
LTM Net LTM LTM Book
Income PE EBIT EBITDA Value ROE
-------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
ENSTAR @ $230 million $13.5 million 17.0x 10.8x 8.0x 3.2x 15.7%
Median Precedent Acquisition 22.6x 15.8x 10.6x 2.5x 11.3%
</TABLE>
<PAGE>
Strategic Benefits of the Transaction
- -------------------------------------
I. ENHANCES LONG-TERM VALUE FOR SEMCO ENERGY SHAREHOLDERS
A. Increases earnings and cash flow per share
B. Creates operational efficiencies
1. Synergies
2. Increased scale of operations
C. Expands breadth and diversity of assets
1. Geographic - Michigan and Alaska
2. Assets - Pipe and LDC
D. Increased market presence
1. Greater market capitalization
2. Expanded investor base
3. Increased trading volume and liquidity
4. Encourages broader research coverage
<PAGE>
Strategic Benefits of the Transaction
- -------------------------------------
II. ENHANCES VALUE FOR CUSTOMERS
A. Creates operational efficiencies
1. Operations and maintenance savings
B. Enhances competition
1. Creates a stronger, more aggressive supplier
2. Brings experienced management team into Alaska with
non-regulated focus
III. POSITIONS SEMCO ENERGY FOR FUTURE GROWTH OPPORTUNITIES
<PAGE>
Service Territory
- -----------------
Map of Alaska showing the service territory of ENSTAR, which is in Anchorage
and the surrounding area.
<PAGE>
<TABLE>
Business Description - Operating Statistics
- -------------------------------------------
<CAPTION>
Profile ENSTAR Profile SEMCO Combined
-------------- ------------- --------
<S> <C> <C> <C>
Business: Gas Distribution & Gas Distribution Gas Distribution &
Intrastate Transmission Intrastate Transmission
Service Area: Anchorage, Alaska and Michigan Anchorage Region
Surrounding communities and Michigan
Transmission 410 MMcf/d 410 MMcf/d
Capacity:
Avg. Throughput: 120 MMcf/d 120 MMcf/d
Customers: 100,000 250,000 350,000
Gas Sales: 23.0 Bcf 41.0 Bcf<F1> 64.0 Bcf
Gas Transportation 20.8 Bcf 23.8 Bcf 44.6 Bcf
------------------------ ------------------ -----------------
Total Gas Deliveries: 43.8 Bcf 64.8 Bcf<F1> 108.6 Bcf
Heating Degree Days 10,026 5,566 7,439
<FN>
<F1>
Reflects normal weather and excludes Gas Marketing business which was sold in 1999
</FN>
</TABLE>
<PAGE>
<TABLE>
Business Description - Financial Data
- -------------------------------------
<CAPTION>
($ in Millions) Profile ENSTAR Profile SEMCO Combined
-------------- ------------- --------
<S> <C> <C> <C>
Revenues $93.5 $286.7<F1> $380.2
Net Income $11.3 $17.2<F1> -
ROE 15.7% 15.3%<F1> -
Assets $199.0 $489.7 -
Cash Flow $21.5 $30.0<F1> -
Capital Expenditures $9.4 $25.2 -
<FN>
<F1>
Reflects normal weather and excludes Gas Marketing business which was sold in 1999
</FN>
</TABLE>
<PAGE>
Gas Markets
- -----------
1998 Volume
(43.4 bcf)
Power & Industrial Transport 37%
Residential Sales 35%
Commercial Sales 16%
Commercial Transport 12%
1998 Gross Margin
($52.4 million)
Residential Sales 56%
Commercial Sales 20%
Power & Industrial Transport 13%
Commercial Transport 11%
<PAGE>
Gas Supply
- ----------
- -- Gas supply is in close proximity to major gas producing fields in the
Cook Inlet area
- -- Supply contracts are with Marathon Oil (77%) and a consortium consisting
of ARCO, Chevron and the Municipality of Anchorage (23%)
Map showing gas fields and pipelines in relation to ENSTAR's service
territory, which is in the Anchorage area.
<PAGE>
Gas Price Comparison
- --------------------
- -- ENSTAR customer rates are among the lowest in the U.S.
<TABLE>
<CAPTION>
Residential Natural Gas Rates Commercial Natural Gas Rates
($ per Mcf) ($ per Mcf)
<S> <C> <S> <C>
Anchorage 3.78 Anchorage 2.98
Dallas 4.36 Dallas 4.06
Memphis 4.65 Denver 4.47
Denver 4.93 Minneapolis 4.55
Houston 4.98 Chicago 4.61
Minneapolis 5.04 Memphis 4.81
Atlanta 5.86 Atlanta 5.47
Chicago 5.94 San Diego 5.78
Phoenix 7.93 Phoenix 6.09
San Diego 8.58 Houston 6.24
</TABLE>
<PAGE>
Regulation
- ----------
- -- Regulatory Commission of Alaska (RCA) consists of five members appointed
by the Governor
- -- Gas rates are adjusted annually via Gas Cost Adjustment
- -- 1985 rate case authorizes a return on equity of 15.65%
<PAGE>
Achieved Return on Equity
- -------------------------
1995 15.6%
1996 18.0%
1997 15.6%
1998 16.7%
<PAGE>
<TABLE>
Employee Productivity
- ---------------------
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industry
Average 249 251 252 253 254 253 275 295 315 335
ENSTAR 350 380 367 369 365 369 381 420 427 434 442 450
SEMCO 238 313 321 329 347 368 395 400 445 463 523 669
</TABLE>
<PAGE>
Attractive Gas Market
- ---------------------
- -- Favorable Alaskan fundamentals
-- Highest gas usage per residential customer among investor owned
utilities (180 MMBtu vs. U.S. Average of 91 MMBtu)
-- Natural barrier to entry due to prohibitive start-up costs
-- Proximity to Cook Inlet provides steady supply of gas at favorable
prices and transportation costs
- -- Steady and consistent growth
-- 2.7% annual customer growth since 1995
<PAGE>
Attractive Gas Market
- ---------------------
- -- Substantial growth opportunities
-- Co-gen opportunities
-- Industrial customers
-- Area expansion opportunities
-- Pipeline construction and engineering business
- -- Fuel source switching opportunities
-- Propane (4.0x as expensive as gas)
-- Fuel oil (2.0x as expensive as gas)
<PAGE>
Cash Flow vs. CAPEX
- -------------------
- -- Strong cash flow generation
-- Consistently generates cash flow from operations before working
capital changes in excess of its maintenance capital expenditure
requirements
-- Low operational costs due to young (completed after 1960)
transmission infrastructure and superior quality (over 70% of
distribution system is polyethylene pipe)
1995 1996 1997 1998
Cash Flow from Operations $20,000 $22,500 $20,000 $20,000
Capital Expenditures $7,500 $9,000 $9,000 $9,000
<PAGE>
Cash Flow vs. CAPEX
- -------------------
- -- Initial Financing - Bridge Loan
-- $290 million unsecured bank syndicated credit facility lead by Bank
of America
-- Repayment required within 12 month of initial funding
-- Management expects to pay-off the bridge loan in six months
- -- Permanent Financing - Year 2000
-- Common Equity, Preferred Stock and Debt Issuance
