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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 17, 1999
TESORO PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-3473 95-0862768
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
300 CONCORD PLAZA DRIVE, SAN ANTONIO, TEXAS 78216-6999
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 210-828-8484
8700 TESORO DRIVE, SAN ANTONIO, TEXAS 78217-6218
(Former name or former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 17, 1999, Tesoro Petroleum Corporation ("Tesoro" or "Company")
completed the sale of its domestic exploration and production business to EEX
Corporation effective July 1, 1999. The business sold included Tesoro's four
core areas of domestic exploration and production operations located in Texas
and Louisiana and all of Tesoro's acreage in those areas, together with Tesoro's
interests in other miscellaneous exploration and production properties and gas
transportation facilities. The cash sale prices in the purchase agreements
totaled $222,000,000, which were adjusted on a preliminary basis for revenues,
expenses, capital expenditures, working capital changes and certain other items
after the effective date to approximately $214,826,000 in cash received at
closing. Under the terms of the purchase agreements, these transactions were
structured as sales of stock in subsidiary corporations and membership interests
in subsidiary limited liability companies. The consideration received, which was
determined through a competitive bidding process and negotiations with EEX
Corporation, is subject to post-closing adjustments within 120 days after
closing for operations between July 1, 1999, the effective date, and December
17, 1999, the closing date.
The cash received by Tesoro was used to reduce term loans outstanding under its
Senior Credit Facility by $97.4 million. The remaining cash proceeds of
approximately $117 million are being held by the Company for general corporate
purposes.
ITEM 5. OTHER EVENTS
On December 29, 1999, the Company closed on the sale of its Bolivian exploration
and production operations to BG International, Ltd., a subsidiary of BG plc,
effective July 1, 1999. The sale, which requires authorization from certain
Bolivian authorities, generated cash proceeds of approximately $100 million.
These cash proceeds, which are subject to post-closing adjustments, will be used
to repay debt. The transaction was structured as a sale of stock in a subsidiary
corporation. The business sold included five shared-risk contracts with an
agency of the Bolivian government to explore for and produce hydrocarbons on
more than one million gross acres in two producing blocks and three
non-producing blocks. The Company intends to file a current report on Form 8-K
within 15 days of this event to report the disposition of its Bolivian assets.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) PRO FORMA FINANCIAL INFORMATION.
Included as Exhibit 99.1 of this Form 8-K are the
unaudited pro forma condensed financial statements of the
Company as of September 30, 1999 and for the year ended
December 31, 1998 and nine months ended September 30,
1999.
(c) EXHIBITS.
+2.1 Stock Purchase Agreement, dated as of October 8,
1999, but effective as of July 1, 1999 among the
Company, Tesoro Gas Resources Company, Inc., EEX
Operating LLC and EEX Corporation.
+2.2 First Amendment to Stock Purchase Agreement dated
December 16, 1999, but effective as of October 8,
1999, among the Company, Tesoro Gas Resources
Company, Inc., EEX Operating LLC and EEX
Corporation.
+2.3 Purchase Agreement dated as of December 17, 1999
among the Company, Tesoro Gas Resources Company,
Inc. and EEX Operating LLC (Membership Interests
in Tesoro Grande LLC).
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+2.4 Purchase Agreement dated as of December 17, 1999
among the Company, Tesoro Gas Resources Company,
Inc. and EEX Operating LLC (Membership Interests
in Tesoro Reserves Company, LLC).
+2.5 Purchase Agreement dated as of December 17, 1999
among the Company, Tesoro Gas Resources Company,
Inc. and EEX Operating LLC (Membership Interests
in Tesoro Southeast LLC).
+4.1 Amended and Restated First Amendment and Consent,
dated as of November 10, 1999, to the Third
Amended and Restated Credit Agreement, dated as of
July 2, 1998, among the Company, the several banks
and other financial institutions or entities from
time to time parties thereto, Lehman Brothers
Inc., as advisor and arranger, Lehman Commercial
Paper Inc., as syndication agent, Paribas and Bank
One, NA, as co-administrative agents, Bank One,
NA, as general administrative agent, Paribas, as
collateral agent, and The Bank of Nova Scotia, as
documentation agent.
+99.1 Unaudited Pro Forma Condensed Financial Statements
of the Company as of September 30, 1999 and for
the year ended December 31, 1998 and nine months
ended September 30, 1999.
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+ Filed herewith.
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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 hereunto duly authorized.
TESORO PETROLEUM CORPORATION
REGISTRANT
Date: January 3, 2000
By: /s/ JAMES C. REED, JR.
-----------------------------------
James C. Reed, Jr.
Executive Vice President,
General Counsel and Secretary
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<S> <C>
+2.1 Stock Purchase Agreement, dated as of October 8, 1999, but effective
as of July 1, 1999 among the Company, Tesoro Gas Resources Company,
Inc., EEX Operating LLC and EEX Corporation.
+2.2 First Amendment to Stock Purchase Agreement dated December 16, 1999,
but effective as of October 8, 1999, among the Company, Tesoro Gas
Resources Company, Inc., EEX Operating LLC and EEX Corporation.
+2.3 Purchase Agreement dated as of December 17, 1999 among the Company,
Tesoro Gas Resources Company, Inc. and EEX Operating LLC (Membership
Interests in Tesoro Grande LLC).
+2.4 Purchase Agreement dated as of December 17, 1999 among the Company,
Tesoro Gas Resources Company, Inc. and EEX Operating LLC (Membership
Interests in Tesoro Reserves Company, LLC).
+2.5 Purchase Agreement dated as of December 17, 1999 among the Company,
Tesoro Gas Resources Company, Inc. and EEX Operating LLC (Membership
Interests in Tesoro Southeast LLC).
+4.1 Amended and Restated First Amendment and Consent, dated as of
November 10, 1999, to the Third Amended and Restated Credit
Agreement, dated as of July 2, 1998, among the Company, the several
banks and other financial institutions or entities from time to time
parties thereto, Lehman Brothers Inc., as advisor and arranger,
Lehman Commercial Paper Inc., as syndication agent, Paribas and Bank
One, NA, as co-administrative agents, Bank One, NA, as general
administrative agent, Paribas, as collateral agent, and The Bank of
Nova Scotia, as documentation agent.
+99.1 Unaudited Pro Forma Condensed Financial Statements of the Company as
of September 30, 1999 and for the year ended December 31, 1998 and
nine months ended September 30, 1999.
</TABLE>
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+ Filed herewith.
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
Dated as of October 8, 1999,
but effective as of
July 1, 1999
by and between
TESORO PETROLEUM CORPORATION
AND
TESORO GAS RESOURCES COMPANY, INC.
AS "SELLER"
AND
EEX OPERATING LLC
AS "BUYER"
AND
EEX CORPORATION
FOR THE LIMITED PURPOSES SET FORTH HEREIN
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TABLE OF CONTENTS
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ARTICLE I.
DEFINITIONS 1
ARTICLE II.
PURCHASE AND SALE 11
2.1 SALE OF COMMON STOCK 11
2.2 EFFECT OF SALE 11
2.3 PARTNERSHIP 11
2.4 OPERATING ASSETS 12
2.5 FINANCIAL ASSETS AND LIABILITIES 13
2.6 PRE-CLOSING FINANCIAL ADJUSTMENTS 13
2.7 ADJUSTMENT ASSETS AND LIABILITIES 13
2.8 BOLIVIA TRANSACTION 14
2.9 PUT AND CALL OPTIONS 14
ARTICLE III.
PURCHASE PRICE AND SETTLEMENT PRICE 14
3.1 PURCHASE PRICE 14
3.2 SETTLEMENT PRICE 14
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES 15
4.1 SELLER'S REPRESENTATIONS AND WARRANTIES 15
4.2 BUYER'S REPRESENTATIONS 27
ARTICLE V.
ACCESS TO INFORMATION AND INSPECTION 29
5.1 ACCESS TO INFORMATION 29
5.2 TITLE FILES 29
5.3 LEGAL FILES 30
5.4 FINANCIAL AND ACCOUNTING FILES 30
5.5 WARRANTIES AS TO DOCUMENTS 30
5.6 INSPECTIONS 30
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ARTICLE VI.
TITLE 30
6.1 BUYER'S TITLE REVIEW 30
6.2 TITLE DEFECTS 31
6.3 PROCEDURES TO DETERMINE PROPERTY VALUE ADJUSTMENTS
FOR TITLE DEFECTS 34
6.4 PROPERTY VALUE ADJUSTMENT FOR TITLE DEFECTS 36
6.5 PREFERENTIAL RIGHTS AND CONSENTS TO ASSIGNMENT 37
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ARTICLE VII.
ENVIRONMENTAL 39
7.1 DISCLOSURES AND AVAILABILITY OF DATA TO BUYER 39
7.2 NORM 40
7.3 ENVIRONMENTAL CONDITIONS 40
7.4 RESPONSIBILITIES FOR REMEDIATION OF CONTAMINATION 40
7.5 ENVIRONMENTAL ASSESSMENT 41
7.6 ENVIRONMENTAL CONDITION VALUE REDUCTION FOR
ENVIRONMENTAL CONDITIONS 41
7.7 PROCEDURES TO DETERMINE ENVIRONMENTAL PRICE ADJUSTMENT 42
ARTICLE VIII.
CASUALTY LOSS AND CONDEMNATION 44
8.1 NO TERMINATION 44
8.2 PROCEEDS AND AWARDS 44
8.3 RISKS OF OTHER LOSSES 45
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ARTICLE IX.
COVENANTS 45
9.1 PRE-CLOSING COVENANTS OF SELLER REGARDING THE BUSINESS 45
9.2 PRE-CLOSING COVENANTS OF SELLER REGARDING THE OPERATING
ASSETS 45
9.3 SELLER'S COVENANTS REGARDING ENCUMBRANCES 48
9.4 COVENANTS REGARDING CORPORATE AND FINANCIAL MATTERS 48
9.5 NO SOLICITATION OF TRANSACTIONS 49
9.6 EMERGENCIES AND OVERSIGHTS 49
9.7 BUYER'S COVENANTS REGARDING PERFORMANCE AND CONTINUED
EXISTENCE 49
9.8 BUYER'S COVENANTS REGARDING TRADE NAME 49
9.9 BUYER'S COVENANTS REGARDING EMPLOYMENT 50
9.10 AUTHORIZATIONS 51
9.11 SOFTWARE AND COMPUTER PROGRAMS 51
9.12 GENERAL 51
9.13 SUPPLEMENTAL INFORMATION REGARDING REPRESENTATIONS
AND WARRANTIES 52
9.14 CERTAIN PIPELINE ASSETS 54
9.15 GATHERING AGREEMENT EXTENSION 54
ARTICLE X.
PRE-CLOSING PROCEDURES 56
10.1 NOTICE OF SETTLEMENT PRICE ADJUSTMENTS 56
10.2 INITIAL SETTLEMENT STATEMENT 56
10.3 CLOSING DOCUMENTS 56
10.4 ESCROW AGENT 56
10.5 WIRE TRANSFER INSTRUCTIONS 56
ARTICLE XI.
CLOSING CONDITIONS 56
11.1 SELLER'S CLOSING CONDITIONS 56
11.2 BUYER'S CLOSING CONDITIONS 57
ARTICLE XII.
CLOSING 58
12.1 CLOSING 58
12.2 SELLER'S CLOSING OBLIGATIONS 58
12.3 BUYER'S CLOSING OBLIGATIONS 59
12.4 GOVERNMENTAL FILINGS 59
12.5 CLOSING ON PROPERTIES WITH UNCURED TITLE DEFECTS
OR ENVIRONMENTAL CONDITIONS 59
</TABLE>
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ARTICLE XIII.
ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS 60
13.1 LIMITATIONS ON LIABILITY FOR PRICE ADJUSTMENTS 60
13.2 SETTLEMENT STATEMENTS 60
13.3 OPERATING TAXES 61
13.4 SHARED OBLIGATIONS 62
ARTICLE XIV.
POST-CLOSING PROCEDURES 63
14.1 DELIVERY OF FILES 63
14.2 THIRD PARTY DATA 63
14.3 COOPERATION 63
14.4 PREFERENTIAL RIGHTS TO PURCHASE AND CONSENTS TO
ASSIGNMENT 64
14.5 FILING AND RECORDING OF DOCUMENTS 64
14.6 FURTHER ASSURANCES 64
14.7 INCIDENTAL COSTS 64
ARTICLE XV.
SURVIVAL; INDEMNITIES 64
15.1 SURVIVAL 64
15.2 BUYER'S INDEMNITY 64
15.3 SELLER'S INDEMNITY 65
15.4 PROCEDURE FOR INDEMNIFICATION 65
15.5 EXCLUSIVITY 66
15.6 ASSIGNMENT OF THIRD PERSON INDEMNITIES 66
ARTICLE XVI.
TAX MATTERS 66
16.1 INDEMNIFICATION FOR TAXES 66
16.2 OTHER TAX MATTERS 68
16.3 EXCLUSIVE REMEDY FOR TAXES 71
ARTICLE XVII.
DEFAULT AND REMEDIES 71
17.1 LIABILITIES UPON TERMINATION 71
17.2 RECOVERY OF COSTS 71
17.3 WAIVER OF EXTRAORDINARY DAMAGES 71
17.4 WAIVER OF JURY TRIAL 71
17.5 INDEPENDENT OBLIGATIONS 71
17.6 CHANGES OF LAW 72
17.7 MERGER 72
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ARTICLE XVIII.
NOTICES 72
18.1 NOTICES 72
ARTICLE XIX.
CONFIDENTIALITY AND DISCLOSURES 73
19.1 NON DISCLOSURE OF DATA 73
19.2 PUBLIC ANNOUNCEMENTS 73
ARTICLE XX.
TERMINATION 73
20.1 TERMINATION 73
ARTICLE XXI.
MISCELLANEOUS 74
21.1 ENTIRE AGREEMENT 74
21.2 NO VERBAL MODIFICATIONS OR WAIVERS 74
21.3 SEVERABILITY 74
21.4 INTERPRETATION 74
21.5 COUNSEL 74
21.6 GOVERNING LAW 74
21.7 CONSENTS 75
21.8 TIME OF ESSENCE 75
21.9 BINDING EFFECT, ASSIGNMENT 75
21.10 NO RELATIONSHIP 75
21.11 NO RECORDATION 75
21.12 EXHIBITS AND SCHEDULES 75
21.13 COUNTERPARTS 75
21.14 NO THIRD PARTY BENEFICIARIES 75
21.15 JOINT AND SEVERAL LIABILITY 76
21.16 DISPUTE RESOLUTION 76
21.17 EEX CORPORATION GUARANTEE 76
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TABLE OF CONTENTS
SCHEDULES
1A HEDGING CONTRACTS
1B PERMITTED ENCUMBRANCES
2.4 EXCEPTIONS TO OPERATING ASSETS
2.6(a) RETAINED LIABILITIES
4.1(b)(iv) NO CONFLICT - SELLER
4.1(b)(v) CONSENTS AND WAIVERS - SELLER
4.1(f)(iii) TITLE TO ASSETS
4.1(g) LITIGATION
4.1(h) LABOR MATTERS
4.1(i) TAXES
4.1(k) ABSENCE OF CERTAIN CHANGES
4.1(m)(iii) PERMITS AND LICENSES
4.1(m)(iv) EXCEPTIONS TO RIGHT TO USE ASSETS
4.1(o) SUSPENSE FUNDS
4.1(p) INSURANCE
4.1(q) CONTRACTS ON PRODUCTION
4.1(s) TAX PARTNERSHIPS
4.1(u) ENVIRONMENTAL CONDITIONS
4.1(v) CONTRACTS
4.1(x) WELLS
4.1(z) PAYOUT BALANCES
6.2(b) TITLE DEFECTS
6.2(c)(iv) BOB WEST FIELD ROYALTY POOL
7.3(b)(vii) ENVIRONMENTAL EXCLUSIONS
9.2 EXCEPTIONS TO PRE-CLOSING OPERATING COVENANTS
9.2(f) COMMITTED EXPENDITURES
9.4 EXCEPTIONS TO PRE-CLOSING FINANCIAL COVENANTS
9.9(a) RETAINED EMPLOYEES
9.9(c) RETENTION RELATED SALARY INCREASES
EXHIBITS
A ALLOCATED VALUES
B LEASES AND RELATED PIPELINES
C SUBSIDIARIES AND PARTNERSHIP BALANCE SHEET
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STOCK PURCHASE AGREEMENT
THIS AGREEMENT is dated October 8, 1999, but effective as of the
Effective Time, between Tesoro Petroleum Corporation, a Delaware corporation,
and Tesoro Gas Resources Company, Inc., a Delaware corporation, collectively as
"Seller", and EEX Operating LLC, a Delaware limited liability company, as
"Buyer", and EEX Corporation, for the limited purposes set forth herein.
WITNESSETH:
WHEREAS, Tesoro Exploration and Production Company, a Delaware
corporation ("Exploration"), has authorized capital stock consisting of 1,000
shares of $1.00 par value common stock, of which 1,000 shares are issued and
outstanding, all of which are owned by Tesoro Petroleum Corporation; and
WHEREAS, Tesoro Reserves Company, a Delaware corporation ("Reserves"),
has authorized capital stock consisting of 1,000 shares of $1.00 par value
common stock, of which 1,000 shares are issued and outstanding, all of which are
owned by Tesoro Gas Resources Company, Inc.; and
WHEREAS, Exploration and Reserves are the two partners in Tesoro E&P
Company, L.P., a Delaware limited partnership (the "Partnership"), in which
Exploration is the general partner owning a 1% interest and Reserves is the
limited partner owning a 99% interest; and
WHEREAS, the Partnership owns certain assets used in the business of
the exploration, production, gathering, transportation and marketing of oil,
natural gas, condensate and associated hydrocarbons; and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller all issued and outstanding Common Stock of Exploration and Reserves,
and all Seller's rights and interests in the Partnership, under the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I. DEFINITIONS
"AAA" shall have the meaning set forth in Section 21.16.
"ACCEPTING PARTY" shall have the meaning set forth in Section 16.1(e).
"ACCOUNTS RECEIVABLE" shall have the meaning set forth in Section 13.5.
"ACTION" means any action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.
"ADJUSTMENT ASSETS AND LIABILITIES" shall mean those certain items set
forth in Section 2.7.
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"AFFILIATE" shall have the same meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"AGREEMENT" shall mean this Stock Purchase Agreement.
"ALLOCATED VALUE" shall mean the monetary value allocated to each
Property or group of Properties and the Hedging Contracts on Exhibit A.
"APO" shall mean "after payout", as such payout may be established
under the respective farmout agreements, joint operating agreements,
participation interests and similar agreements affecting each Property,
including payouts providing reversionary rights of parties who have elected not
to participate in an operation under a joint operating agreement. If there are
multiple outstanding payouts affecting any particular well or Property, then the
APO interest shall mean the interests after all applicable payouts have
occurred. If at the Effective Time there are no outstanding payout balances
affecting any particular well or Property, then the listed APO interest in such
well or Property shall reflect the Partnership's WI and NRI at the Effective
Time.
"APPLICABLE ENVIRONMENTAL LAWS" means all Applicable Laws in effect
pertaining to (i) pollution, or the protection of the environment, including
those relating to waste materials and/or hazardous substances, (ii) the
protection of Persons or property from actual or potential exposure (or the
effects of exposure) to an actual or potential spill or release of Hazardous
Substances or petroleum or produced brine or (iii) the manufacture, processing,
production, gathering, transportation, use, treatment, storage or disposal of a
Hazardous Substance or petroleum or produced brine.
"APPLICABLE LAW" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Authority to
which a specified Person, Operating Asset or property is subject.
"ARBITRATOR" shall have the meaning set forth in Section 21.16.
"BALANCE SHEETS" shall mean the unaudited combined financial balance
sheet of the Subsidiaries and the Partnership as of June 30, 1999, attached
hereto as Exhibit C.
"BOLIVIA TRANSACTION" shall have the meaning set forth in Section 2.8.
"BOOKS AND RECORDS" shall mean all of the following which pertain to
the conduct of the Business: books, records, manuals and other materials,
accounting books and records, continuing property records for property, plant
and equipment, land and lease files, title opinions, suspense records,
production records, any inventories of equipment and property, well files,
engineering files, maps, surveys, electric logs, seismic records, geological and
geophysical files, and all other technical data, division order files, contract
files, other files, computer tapes, disks, other storage media and records,
advertising matter, correspondence, lists of customers and suppliers, maps,
photographs, production data, sales and promotional materials and records,
purchasing materials and records, work and recent salary history for personnel,
credit records, manufacturing and quality control records and procedures, patent
and trademark files and disclosures, litigation files, leases, oil and gas
leases, deeds, easements and other instruments relating to the Business, any
copies of Tax Returns filed by or with respect to the Subsidiaries or the
Partnership, including copies of all work papers and
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calculations relating to the Subsidiaries and the Partnership in support of such
Tax Returns, and any comparable information with respect to predecessors of the
Subsidiaries or the Partnership to the extent available, and copies of any other
applicable accounting and tax records of the Seller and the Partnership
pertaining to the Business.
"BPO" shall mean "before payout", as such payout may be established
under the respective farmout agreements, joint operating agreements,
participation interests and similar agreements affecting each Property,
including payouts providing reversionary rights of parties who have elected not
to participate in an operation under a joint operating agreement. If at the
Effective Time there is an outstanding payout balance affecting any particular
well or Property, the listed BPO interest in such well or Property shall reflect
the Partnership's WI and NRI at the Effective Time.
"BUSINESS" shall mean the Partnership's business of exploring for,
developing, producing, gathering, transporting and marketing natural gas,
condensate and oil.
"BUSINESS DAY" shall mean any day exclusive of Saturdays, Sundays and
national holidays.
"BUYER GROUP" shall have the meaning set forth in Section 15.3.
"BUYER'S GROUP HEALTH PLANS" shall have the meaning set forth in
Section 9.9(a).
"BUYER'S KNOWLEDGE" shall mean knowledge of Buyer and management
employees of Buyer's ultimate parent, EEX Corporation, with knowledge of Buyer's
activities, including the negotiation of this Agreement.
"BYLAWS" shall mean a corporation's bylaws, code of regulations or
equivalent document.
"CALL OPTION" shall have the meaning set forth in Section 2.9.
"CASUALTY PRICE ADJUSTMENT" shall have the meaning set forth in Section
13.1(c).
"CHARTER" shall mean a company's articles of association, articles of
incorporation, certificate of incorporation or equivalent organizational
documents.
"CLOSING" shall have the meaning set forth in Section 12.1.
"CLOSING DATE" shall have the meaning set forth in Section 12.1.
"CLOSING SETTLEMENT PRICE" shall mean the Settlement Price calculated
in accordance with the best information available to the Seller prior to
Closing, as reflected on the Settlement Statement delivered prior to Closing
pursuant to Article X and Section 13.2(a).
"CODE" shall mean the United States Internal Revenue Code of 1986 and
any successor statute thereto, as amended.
"COMMON STOCK" shall mean all issued and outstanding shares of common
stock of Exploration and Reserves, collectively.
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"CONSENT TO ASSIGNMENT" shall mean an existing contractual or legal
right of any third party to consent to the Partnership's assignment of a
Property to Buyer under such terms as are set forth in this Agreement.
"CONTRACTS" shall mean all of the contracts that govern or relate to
the ownership or operation of the Operating Assets (including without
limitation, the wells, facilities and equipment associated therewith and the
production therefrom, acreage contribution agreements, assignments, bidding
agreements, bottom-hole agreements, contribution agreements, drilling contracts,
dry-hole agreements, exploration agreements, development agreements, farm-in and
farmout agreements, gas balancing agreements, joint venture agreements,
production, sales, marketing and/or brokerage contracts, gas processing
agreements, operating agreements, participation agreements, service contracts,
storage contracts, gathering agreements, transportation agreements, treating
contracts, water rights agreements and the unitization, unit operating,
communitization and pooling declarations, agreements and orders that create or
govern units). To the extent that Seller, the Subsidiaries or the Partnership
have rights of indemnification or warranty rights with respect to any Operating
Asset or any part of an Operating Asset, the same shall be included in the
meaning of "Contracts."
"DAMAGES" shall mean any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses, expert fees and expenses and court costs), of any nature whatsoever.
"EFFECTIVE TIME" shall mean July 1, 1999, at 12:00 a.m. local time for
each Operating Asset.
"ENCUMBRANCE" shall mean any interest (including any security
interest), pledge, mortgage, lien, charge, adverse claim or other right of third
Persons.
"ENVIRONMENTAL CONDITION" shall have the meaning set forth in Section
7.3.
"ENVIRONMENTAL CONDITION VALUE REDUCTION" shall mean the reduction in
value of an Operating Asset attributable to an Environmental Condition affecting
that Operating Asset, determined as set forth in Section 7.6.
"ENVIRONMENTAL PRICE ADJUSTMENT" shall have the meaning set forth in
Section 13.1(b).
"EXPLORATION" shall mean Tesoro Exploration and Production Company, a
Delaware corporation.
"FINAL SETTLEMENT PRICE" shall mean the Settlement Price calculated in
accordance with the best information available to the Parties during the one
hundred twenty (120) day period after Closing, as reflected on the Final
Statement agreed upon pursuant to Article XIII.
"FINAL STATEMENT" shall mean the final accounting statement to be
agreed upon by the Parties no later than one hundred twenty (120) days after
Closing pursuant to Section 13.2(c).
"FINANCIAL ASSETS AND LIABILITIES" shall mean the assets, liabilities
and other financial items on the Balance Sheets, effective as of 11:59 p.m. on
June 30, 1999, (i) as adjusted for revenues, income, expenses and other assets
and liabilities incurred between the Effective Time and the Closing Date and
included within the Adjustment Assets and Liabilities, and (ii) as adjusted for
the Pre-
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Closing Financial Adjustments and (iii) as otherwise adjusted as provided
herein. The term "Financial Assets" shall not include any assets, liabilities or
other financial items included within the Operating Assets.
"FORMS" shall have the meaning set forth in Section 16.2(j).
"GAAP" shall mean U.S. generally accepted accounting principles, unless
expressly described otherwise.
"GATHERING" shall mean Tesoro Gathering Company, a Delaware
corporation.
"GOVERNMENTAL AUTHORITY" shall mean any international, national,
Federal, state, municipal or local government, governmental authority,
regulatory or administrative agency, governmental commission, department, board,
bureau, agency or instrumentality, court, tribunal, arbitrator or arbitral body.
"GOVERNMENTAL ORDER" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"HAZARDOUS SUBSTANCE" means a substance, chemical, pollutant, waste or
other material (i) that consists, wholly or in part, of a substance that is
regulated as toxic or hazardous to human health or the environment under any
Environmental Law or (ii) that exists in a condition or under circumstances that
constitute a violation of any Environmental Law. "Hazardous Substance" includes
without limitation any "hazardous substance" under the Comprehensive
Environmental Response, Compensation and Liability Act, any "hazardous chemical"
under the Occupational Safety and Health Act, any "hazardous material" under the
Hazardous Materials Transportation Act, any "hazardous chemical substance" under
the Federal Water Pollution Control Act and any "hazardous waste" under the
Resource Conservation and Recovery Act.
"HEDGING CONTRACTS" shall mean those natural gas derivative pricing
contracts listed on Schedule 1A .
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"INCOME TAXES" shall mean any Taxes, including franchise taxes, which
are based upon or in respect of income.
"INDEMNIFIED PARTY" shall mean any Party or other Person entitled to an
indemnity under Article XV of this Agreement, with respect to the indemnity so
owed.
"INDEMNIFYING PARTY" shall mean a Party owing an indemnity to any other
Party or Person under Article XV of this Agreement, with respect to the
indemnity so owed.
"IRS" shall mean the U.S. Internal Revenue Service.
"LENDER" shall have the meaning set forth in Section 9.12(c).
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<PAGE> 14
"LIABILITIES" shall mean any and all debts, claims, liabilities and
obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, mature or unmatured or determined or indeterminable.
"LICENSE AGREEMENT" shall mean the agreement to be entered into between
the Partnership and Digicomp, Inc., permitting Digicomp, Inc. and its partners
to use certain geological and geophysical data owned by the Partnership in
connection with the development of technology for the compression and
transmission of such data, for demonstration purposes only and not for
distribution to third parties.
"MATERIAL ADVERSE EFFECT" shall mean any event with respect to, change
in, or effect on, the Subsidiaries, the Partnership or the Business which,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the Business, or the financial results of operations, assets
or properties or financial condition of the Subsidiaries and the Partnership,
taken as a whole, but the term "Material Adverse Effect" shall not include any
change in market conditions or other conditions affecting the oil and gas
exploration and production industry generally.
"NATURAL GAS" shall mean Tesoro Natural Gas Company, a Delaware
corporation.
"NORM" shall have the meaning set forth in Section 7.2.
"NRI" shall mean the decimal net revenue interest in oil and gas
production from a Property.
"OPERATING ASSETS" shall mean all property rights and interests of the
Partnership being sold hereunder, as set forth in Section 2.4.
"OTHER TAXES" shall mean all Taxes other than Income Taxes.
"PARTIES" shall mean Buyer and Seller, collectively.
"PARTNERSHIP" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"PARTY" shall mean either Buyer or Seller.
"PERMITTED ENCUMBRANCES" shall include any Encumbrance which is: (i)
listed on Schedule 1B, for which a duly executed release in recordable form will
be delivered to Buyer at or before Closing; (ii) a lien securing amounts claimed
for services provided by operators or other oil field contractors which are not
yet due and owing or which are being contested in good faith, through adequate
procedures; (iii) a statutory lien arising for Taxes not yet delinquent or which
are being contested in good faith, through adequate procedures; (iv) a
reservation, exception, limitation, encumbrance or burden expressly included
within a recorded oil and gas lease constituting part of a Property with respect
to which Seller or the Partnership is not in default at Closing which does not
reduce the Partnership's NRI in such Property below the respective decimal
interests set forth in Exhibit A; (v) any royalty, overriding royalty or other
production burden affecting any Property which does not and will not reduce the
Partnership's NRI in such Property below the respective decimal interests set
forth in Exhibit A; (vi) any joint operating agreement containing terms and
conditions reasonable and customary in the industry (other than a Preferential
Right to Purchase that is exercised prior to Closing or a required Consent to
Assignment, or a reversionary right that is not reflected in the BPO and APO
interests on Exhibit A); (vii) the right of a third party under any equipment
rental
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<PAGE> 15
or lease contract, oilfield service contract, production sales contract or
transportation contract affecting any Property, which either may be terminated
by the parties thereto without penalty or does not extend for a term of more
than sixty days after the Closing Date; (viii) any other easement, operating
right, concurrent use right or similar encumbrance that does not affect the
Partnership's rights to a Property or reduce the production revenues
attributable thereto or increase the costs associated with ownership or
operation of that Property; and (ix) a severance tax, production tax, occupation
tax, ad valorem tax or similar tax of general application.
"PERSON" shall include any individual, trustee, firm, corporation,
partnership, limited liability company, Governmental Authority or other entity,
whether acting in an individual, fiduciary or any other capacity.
"PIPELINE" shall meaning Tesoro Pipeline Company, L.P., a Delaware
limited partnership.
"PIPELINE OPERATOR" shall have the meaning set forth in Section 1.3 of
the Starr-Zapata Transportation Agreement.
"PIPELINE PARTNERS" shall have the meaning set forth in Section 2.10 of
the Starr-Zapata Partnership Agreement or Section 2.12 of the Starr County Joint
Venture Agreement, as applicable.
"POST-CLOSING RETURN" shall have the meaning set forth in Section
16.2(c).
"PRE-CLOSING FINANCIAL ADJUSTMENTS" shall mean those certain financial
accounting adjustments and payments set forth in Section 2.6.
"PRE-CLOSING PERIOD" shall have the meaning set forth in Section
16.2(c).
"PRE-CLOSING RETURN" shall have the meaning set forth in Section
16.2(c).
"PREFERENTIAL RIGHT TO PURCHASE" shall mean the right of any third
party under an existing contract or agreement allowing that third party to
purchase the Partnership's interest in a Property whenever Seller proposes to
transfer its interests in the Partnership under terms such as are set forth in
this Agreement.
"PRODUCTION" shall mean all oil, natural gas, condensate, natural gas
liquids, and other hydrocarbons or products produced from or attributable to the
Properties.
"PROPERTIES" shall mean, collectively, (i) all valid and existing oil
and gas leaseholds and mineral fee rights, and all rights and interests
appurtenant thereto, which are owned by the Partnership in the States of Texas,
North Dakota, New Mexico, Oklahoma, Louisiana, Mississippi, Wyoming, West
Virginia, Montana and Alabama and the province of Alberta, Canada, including
without limitation all oil and gas WIs, NRIs, mineral fee interests, oil, gas
and mineral deeds, leases and/or subleases, royalties, overriding royalties,
leasehold interests, mineral servitudes, production payments and net profits
interests, fee mineral interests, surface estates, fee estates, royalty
interests, overriding royalty interests, or other non-working or carried
interests, reversionary rights, farmout and farmin rights, operating rights,
pooled or unitized acreage, and all other rights, privileges and interests in
such oil, gas and other minerals (and the production thereof), and other mineral
rights of every nature now owned by the Partnership, and specifically including
without limitation, all rights, title and interests of the Partnership in the
oil, gas and mineral leases and leasehold estates described in Exhibit
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<PAGE> 16
B; (ii) all of the contractual rights to interests described in (i) above and in
all units in which such interests are pooled, communitized or unitized, and in
any other oil, gas and/or mineral leases or assets arising pursuant to the terms
of the oil and gas leases listed on Exhibit B hereto, and any other rights and
agreements or contracts affecting or relating to interests described in (i)
above, or to Production, whether or not listed on Exhibit B, including any
tenements, appurtenances, surface leases, easements, permits, licenses,
servitudes, franchises or rights of way; and (iii) all rights and interests of
the Partnership in the pipelines set forth on Exhibit B, together with all
easements and contract rights.
"PROPERTY" shall mean any individual one of the Properties.
"PROPERTY TAX PERIOD" shall have the meaning set forth in Section
13.3(a).
"PROPERTY TAXES" shall have the meaning set forth in Section 13.3(a).
"PROPERTY VALUE ADJUSTMENT" shall have the meaning set forth in Section
6.4.
"PROPERTY VALUE INCREASE" shall mean, for any Property in which Seller
owns greater than the interest set forth on Exhibit A, an amount equal to the
difference between the Allocated Value of the Property stated in Exhibit A and
the proportionately increased value of such Property with the correct adjusted
interests, determined as set forth in Section 6.4.
"PROPERTY VALUE REDUCTION" shall mean the reduction in value of a
Property attributable to a Title Defect in that Property, determined as set
forth in Section 6.4.
"PROPOSED SETTLEMENT" shall have the meaning set forth in Section
16.1(e).
"PURCHASE PRICE" shall have the meaning set forth in Section 3.1.
"PUT OPTION" shall have the meaning set forth in Section 2.9.
"RECORD TITLE" means for each lease affecting a Property or Well, as
applicable, such title that is deducible (i) in the case of fee leases, from a
review of the records of the applicable county, (ii) in the case of federal
leases, from a review of records of the applicable office of the Bureau of Land
Management or Minerals Management Service, (iii) in the case of state leases,
from a review of the records of the applicable state land office or the records
of the applicable county, or (iv) in the case of state-mandated pooling orders,
in the office of the applicable Governmental Authority.
"REFUSING PARTY" shall have the meaning set forth in Section 16.1(e).
"RESERVES" shall mean Tesoro Reserves Company, a Delaware corporation.
"RETAINED EMPLOYEES" shall have the meaning set forth in Section
9.9(a).
"SELLER" shall mean, collectively, Tesoro Petroleum Corporation, a
Delaware corporation, and Tesoro Gas Resources Company, Inc., a Delaware
corporation.
"SELLER INITIATED ENVIRONMENTAL DEFECT" shall have the meaning set
forth in Section 9.13.
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"SELLER INITIATED TITLE DEFECT" shall have the meaning set forth in
Section 9.13.
"SELLER'S GROUP HEALTH PLANS" shall have the meaning set forth in
Section 9.9(a).
"SELLER'S KNOWLEDGE" shall mean actual knowledge of any fact,
circumstance or condition by the officers or management employees (including
those with titles of "Manager", "Vice President" and "President" or those in the
internal legal department of Seller, the Subsidiaries and the Partnership who
provide specific advice related to the operations of the Business) of Seller,
the Subsidiaries and the Partnership involved and knowledge of any fact,
circumstance or condition which such officer or management employee would have
been aware of with the exercise of reasonable diligence and inquiry in the
course of his or her duties.
"SETTLEMENT PRICE" shall have the meaning set forth in Section 3.2.
"SETTLEMENT PRICE ADJUSTMENT" shall mean an aggregate reduction in the
Settlement Price for the Operating Assets computed as the sum of (i) Title Price
Adjustments attributable to one or more Title Defects, (ii) Environmental Price
Adjustments attributable to one or more Environmental Conditions and (iii)
Casualty Price Adjustments attributable to one or more casualty losses.
"SETTLEMENT STATEMENT" shall mean the accounting statement calculating
the Settlement Price, to be furnished by Seller to Buyer prior to Closing,
pursuant to Article X and Section 13.2(a).
"STARR COUNTY GATHERING" shall mean the Texas general partnership
created pursuant to and governed by the Starr County Joint Venture Agreement for
the purpose of owning, operating and maintaining the Starr County Gathering
System.
"STARR COUNTY GATHERING AGREEMENT" shall mean the Gas Gathering
Contract dated effective February 1, 1991 by and among Exploration and Coastal
Oil and Gas Corporation, as producers, and Starr County Gathering, as gatherer,
as subsequently amended, supplemented, or otherwise modified to the date hereof
or as consented to by Buyer in accordance with this Agreement.
"STARR COUNTY GATHERING SYSTEM" shall mean the pipeline gathering and
transportation system in the vicinity of the Bob West Field, Starr County,
Texas, which is owned by Starr County Gathering.
"STARR COUNTY JOINT VENTURE AGREEMENT" shall mean that certain Joint
Venture Agreement effective February 1, 1991 by and between Natural Gas and
Coastal States Gas Transmission Company, as subsequently amended, supplemented
or otherwise modified to the date hereof or as consented to by Buyer in
accordance with this Agreement.
"STARR PARTNERSHIPS" shall mean Starr County Gathering and the
Starr-Zapata Partnership, collectively.
"STARR-ZAPATA LINE" shall have the meaning set forth in Section 1.1 of
the Starr-Zapata Transportation Agreement.
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<PAGE> 18
"STARR-ZAPATA PARTNERSHIP" shall mean the Texas general partnership
created pursuant to and governed by the Starr-Zapata Partnership Agreement for
the purpose of owning, maintaining and operating the Starr-Zapata Line.
"STARR-ZAPATA PARTNERSHIP AGREEMENT" shall mean that certain
Partnership Agreement effective May 13, 1994 by and between Natural Gas and
Coastal States Gas Transmission Company, as subsequently amended, supplemented
or otherwise modified to the date hereof or as consented to by Buyer in
accordance with this Agreement.
"STARR-ZAPATA TRANSPORTATION AGREEMENT" shall mean that certain
Transportation Agreement dated February 8, 1994 by and between the Partnership
and Coastal States Gas Transmission Company, as subsequently amended,
supplemented or otherwise modified to the date hereof or as consented to by
Buyer in accordance with this Agreement.
"STRADDLE PERIOD" shall have the meaning set forth in Section 16.1(e).
"STRADDLE RETURN" shall have the meaning set forth in Section 16.2(c).
"SUBSIDIARIES" shall mean Exploration and Reserves, collectively.
"TAX" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, parking, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 50A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, ad valorem,
value added, alternative or add-on minimum, estimated tax, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, including such item for which Liability arises as a transferee
or successor-in-interest.
"TAX CLAIM" shall have the meaning set forth in Section 16.1(c).
"TAX RETURN" shall mean any return, declaration, report, claim for
refund, information return or statement relating to Taxes, including any
schedules or attachments thereto, and including any amendment thereof.
"TAXING AUTHORITY" shall mean any Governmental Authority responsible
for the imposition or collection of any Tax.
"TESORO GROUP" shall have the meaning set forth in Section 4.1(i).
"TESORO MARK" shall have the meaning set forth in Section 9.8.
"TESORO PARENT" shall have the meaning set forth in Section 4.1(i).
"TITLE DEFECT" shall have the meaning set forth in Section 6.2.
"TITLE PRICE ADJUSTMENT" shall have the meaning set forth in Section
13.1(a).
"TRANSACTION" shall mean the purchase and sale of the Common Stock
pursuant to this Agreement and the related transactions contemplated herein.
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"VAL VERDE PIPELINE" shall have the meaning set forth in Section 9.14.
"WELL" shall have the meaning set forth in Section 6.2(a)(vi).
"WI" shall mean a working interest under an oil and gas lease or other
Contract affecting a Property which shall reflect the decimal interest for
participation in the decisions, costs and risks concerning operations.
"WORKING CAPITAL" shall mean, at any time, the difference between (a)
the sum of the amounts on the line items "cash", "accounts receivable",
"inventories" and "prepayment and other" on the Balance Sheet, less (b) the sum
of the amounts on the line items "accounts payable" and "accrued liabilities" on
the Balance Sheet; all as computed in accordance with GAAP and past practice for
the Subsidiaries and the Partnership except as expressly provided herein, and in
a manner as reflected on the Balance Sheets; provided, however, that the amounts
on the line items "prepayment and other", "accounts payable" and "accrued
liabilities" on the Balance Sheet shall not include the impact of any amounts
referred to in the first proviso in Section 3.2(a)(i); and provided further,
that the stated amount of Working Capital shall be reduced by the amount of
inventories that existed as of the Effective Time.
"WORKING CAPITAL ACCOUNTS" shall mean the line items "cash", "accounts
receivable", "inventories", "prepayment and other", "accounts payable" and
"accrued liabilities" on the Balance Sheet, all as computed in accordance with
GAAP and past practice for the Subsidiaries and the Partnership, and in a manner
as reflected on the Balance Sheets; provided, however, that the line items
"prepayment and other", "accounts payable" and "accrued liabilities" shall not
include the impact of any items referred to in the first proviso in Section
3.2(a)(i).
ARTICLE II.
PURCHASE AND SALE
2.1 SALE OF COMMON STOCK. Subject to the terms and conditions of this
Agreement, Seller agrees to sell and assign to Buyer, and Buyer agrees to
purchase and pay for, at Closing, all the Common Stock.
2.2 EFFECT OF SALE. The sale of the Common Stock at Closing shall
transfer to Buyer all of Seller's rights in the Subsidiaries. On the Closing
Date, the Subsidiaries shall hold certain interests, assets and liabilities, as
set forth in this Article II. Except as otherwise specifically set forth in this
Agreement, the transfer of Seller's rights in the Subsidiaries shall assign to
Buyer all of Seller's beneficial right, title, interest and obligations in and
to such interests, assets and liabilities held by the Subsidiaries.
2.3 PARTNERSHIP. On the Closing Date, Exploration and Reserves shall
own all rights and interests in the Partnership. Exploration shall be the one
percent (1%) general partner, and Reserves shall be the ninety-nine percent
(99%) limited partner in the Partnership. The partnership rights and interests
described in this Section 2.3 shall pass to Buyer as an attribute of the sale of
the Common Stock pursuant to this Agreement.
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2.4 OPERATING ASSETS. On the Closing Date, the Partnership shall own
the Operating Assets, subject to the Permitted Encumbrances, and excluding the
items set forth on Schedule 2.4 and as otherwise limited herein, as follows:
(a) Exploration and Production Assets.
(i) the Properties;
(ii) All the interests in oil and gas wells described on
Exhibit A, together with an interest in the
production, compression, treating, dehydration or
processing facilities and other real or tangible
personal property appurtenances and fixtures, which
are located on the lands covered by or within the
Properties or are being used by the Partnership in
connection with the operations on the Properties or
Production;
(iii) Subject to the license granted under the License
Agreement (with respect to the rights covered
thereby), rights and interests in geological data and
records, seismic data, whether in digital or paper
format, well logs, well files, geological data,
records and maps, land and contract files and
records, accounting files, data and records, computer
hardware and software and other materials (whether
electronically stored or otherwise) used or held for
use by Seller, the Subsidiaries or the Partnership,
or any of their direct or indirect parents,
subsidiaries or other Affiliates, regarding ownership
of the Properties or operations and Production which
relate to the Properties, and other files, documents
and records which relate to the Properties;
(iv) Rights, obligations, title and interests in and to
permits, orders, contracts, abstracts of title,
leases, deeds, unitization agreements, pooling
agreements, operating agreements, farmout agreements,
participation agreements, division of interest
statements, division orders, participation
agreements, and other agreements and instruments
applicable to the Properties;
(v) All the rights, obligations, title and interests of
Seller in and to all easements, rights of way,
certificates, licenses and permits and all other
rights, privileges, benefits and powers conferred
upon the owner and holder of interests in the
Properties, or concerning software used in
conjunction with ownership or operation of the
Properties;
(vi) Rights, title, obligations and interests in or
concerning any gas imbalances affecting the
Properties; and
(vii) All office equipment, computer equipment, light
tables, drafting tables, drafting equipment, office
supplies, facsimile machines, pool cars and any other
equipment or furniture not herein named which is
utilized by the Partnership in its day to day
operations.
(b) Leased Assets. To the extent any of the items of office equipment
listed in Section 2.4(a) above are leased and not owned, Seller, the
Subsidiaries and the Partnership shall use their best efforts to cause such
leases to be assigned to Buyer at Closing.
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2.5 FINANCIAL ASSETS AND LIABILITIES. On the Closing Date, the
Partnership shall own the Financial Assets and Liabilities. Each of the
Subsidiaries shall be allocated its respective share of the Partnership's
respective Financial Assets and Liabilities in proportion to its ownership of
the Partnership. The Financial Assets and Liabilities at Closing of the
Partnership and each partner in the Partnership shall be computed by Seller in
accordance with GAAP. The Financial Assets and Liabilities shall be adjusted
from those set forth on the Balance Sheet to reflect certain Pre-Closing
Financial Adjustments and the Adjustment Assets and Liabilities, as set forth in
Sections 2.6 and 2.7.
2.6 PRE-CLOSING FINANCIAL ADJUSTMENTS. Prior to the Closing Date,
Seller shall make certain accounting adjustments and payments regarding the
assets, liabilities and equity of the Partnership and the Subsidiaries, to the
effect that Sellers shall remove all intercompany accounts involving the
Partnership, the Subsidiaries and their Affiliates, and all intercompany
liabilities shall have been removed. At Closing the only assets and liabilities
of the Partnership and the Subsidiaries shall be the Operating Assets and the
Adjustment Assets and Liabilities.
(a) Certain Accounts. Immediately prior to the Closing, Tesoro
Petroleum Corporation shall take, and shall cause the Subsidiaries and the
Partnership to take, all necessary action deemed appropriate to adjust the
Balance Sheets to account for those items that are to be retained by Seller, as
set forth in Schedule 2.6(a). In doing so, Tesoro Petroleum Corporation shall
take, and shall cause the Subsidiaries and the Partnership to take, all
necessary actions deemed appropriate so that the Balance Sheets as of the
Closing Date, as adjusted to reflect such actions, will show zero for those line
items listed in Schedule 2.6(a) as financial items that are to be retained by
Seller.
(b) Pre-Closing Cash Distribution. Immediately prior to the Closing,
Tesoro Petroleum Corporation shall cause Exploration to pay it an amount equal
to the arithmetic mean of Seller's and Buyer's good faith estimates of the
consolidated cash and cash equivalents (other than amounts in suspense accounts)
of Exploration as of the Closing Date. Immediately prior to the Closing, Tesoro
Gas Resources Company, Inc. shall cause Reserves to pay to it an amount equal to
the arithmetic mean of Seller's and Buyer's good faith estimates of the
consolidated cash and cash equivalents (other than amounts in suspense accounts)
of Reserves as of the Closing Date.
(c) Changes in Balance Sheets Due to Continuing Operations. Buyer and
Seller expressly recognize that the assets and liabilities of the Subsidiaries
and the Partnership shall be affected by the effects of ongoing ownership and
operation of the Operating Assets between the Effective Time and the Closing
Date. These changes shall be handled exclusively by adjustments to the
Settlement Price as set forth in Section 3.2 and Article XIII.
2.7 ADJUSTMENT ASSETS AND LIABILITIES. At Closing, the Partnership
shall retain, to the extent permitted by applicable law and regulations, the
following interests:
(a) All rights, obligations, liabilities, title and interests of Seller
and the Partnership in and to all Hedging Contracts in effect at the Effective
Time or thereafter;
(b) All Working Capital Accounts; and
(c) All rights to future proceeds, defenses and indemnities owed under
any bonds or insurance policies covering the Operating Assets, the Partnership,
the Subsidiaries or the Business
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for policy periods prior to the Closing Date, for losses, claims or occurrences,
as applicable, arising prior to the Closing Date.
2.8 BOLIVIA TRANSACTION. Buyer recognizes that Tesoro Petroleum
Corporation is separately selling exploration and production subsidiaries or
assets in Bolivia (the "Bolivia Transaction") and that some of the personnel and
facilities used in connection with the operation of the Partnership are also
used in connection with the operation of the Bolivia assets. Buyer and Seller
acknowledge and agree that this Agreement shall not restrict or otherwise affect
the Bolivia Transaction or impose any liabilities or responsibilities arising
from or relating to interests or operations of Tesoro Petroleum Corporation or
its Affiliates in Bolivia.
2.9 PUT AND CALL OPTIONS. Seller shall have a put option (the "Put
Option") with respect to Seller's interest in the stock of Natural Gas and
Gathering and Buyer shall have a call option (the "Call Option") with respect to
Seller's interest in the stock of Natural Gas and Gathering, both on mutually
agreeable terms to be negotiated in good faith between Seller and Buyer.
ARTICLE III.
PURCHASE PRICE AND SETTLEMENT PRICE
3.1 PURCHASE PRICE. The monetary consideration ("Purchase Price") for
the sale and conveyance of all the Common Stock to Buyer, effective as of the
date of Closing, is Buyer's payment of two hundred sixteen million Dollars
($216,000,000) in cash.
3.2 SETTLEMENT PRICE. Pursuant to the provisions as described below,
the Purchase Price to be paid by Seller will be subject to certain adjustments
made at Closing and within one hundred twenty (120) days thereafter, as set
forth in Article XIII, to determine the Settlement Price amount that will
actually be paid by Buyer. The Settlement Price will be calculated as follows:
(a) Increases. The Purchase Price shall be increased by the
following amounts:
(i) An amount equal to the expenses properly accrued in
accordance with GAAP and past practice, and as
provided for in Section 13.3, attributable to the
period from the Effective Time to the end of business
on the Closing Date; provided, however, that such
expenses shall exclude all (1) depreciation,
depletion and amortization, (2) income and franchise
taxes, (3) one-half of the amount accrued by the
Subsidiaries and the Partnership under incentive
compensation arrangements for the Retained Employees,
as provided in Section 9.9(c), and (4) severance
obligations and other amounts accrued under any
employment retention and management stability
agreements, as provided in Section 9.9(b); provided,
further, however that Seller, the Subsidiaries and
the Partnership shall be permitted to accrue no more
than $40,000 per month from the close of business on
June 30, 1999 to the Closing Date for corporate
general and administrative expenses;
(ii) An amount equal to the capital expenditures relating
to the Business properly accrued in accordance with
GAAP and past practice attributable to the period
from the Effective Time to the end of business on the
Closing Date; and
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(iii) The amount of change in Working Capital between the
Effective Time and the end of business on the Closing
Date, if the amount of change is a positive number.
(b) Decreases. The Settlement Price shall be decreased by the
following amounts:
(i) An amount equal to the revenues properly accrued in
accordance with GAAP and past practice attributable
to the period from the Effective Time to the end of
business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment,
subject to the application of Section 13.1;
(iii) The amount of the Allocated Value of any Properties
that third parties shall have purchased before the
Closing through the exercise of Preferential Rights
to Purchase or pursuant to any other sale permitted
by Section 9.2(a); and
(iv) The amount, stated as a positive number, of any
change in Working Capital between the Effective Time
and the end of business on the Closing Date, if and
only if, the amount of change is a negative number.
The Purchase Price as adjusted pursuant to this Section 3.2 is herein
called the "Settlement Price".
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and
warrants that:
(a) Disclosure. To Seller's Knowledge, the representations and
warranties set forth in this Agreement, the exhibits to this Agreement, and the
information, documents and Balance Sheets provided under the terms of this
Agreement represent full and fair disclosure as of the date of this Agreement
and the Closing Date and do not contain any untrue statement of any material
fact or omit any material fact necessary in order to make the facts stated not
misleading.
(b) Authorization and Enforceability.
(i) This Agreement and the Transaction have been duly
authorized by each Seller.
(ii) Neither the execution and delivery of this Agreement
by Seller, nor the consummation by Seller of the
transactions contemplated hereby, will violate or
conflict with, or result in the acceleration of
rights, benefits or obligations under, (1) any
provision of any of Seller's, the Subsidiaries' or
the Partnerships' respective Charters or Bylaws or
Partnership Agreements, or (2) any applicable
statute, law, regulation or Governmental Order to
which Seller or the Subsidiaries or the Partnerships
or the assets and properties of such entities,
including without limitation the Operating Assets,
are bound or subject.
(iii) This Agreement has been duly executed and delivered
by each Seller and constitutes the valid and binding
obligation of each Seller, enforceable against it in
accordance with its terms, except as such
enforceability may be limited
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by bankruptcy, insolvency or other laws relating to
or affecting the enforcement of creditors' rights
generally and general principles of equity
(regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(iv) Except as set forth on Schedule 4.1(b)(iv), or as
otherwise specifically provided herein, the
execution, delivery, and performance of this
Agreement (assuming that all applicable consents are
received and all applicable Preferential Rights to
Purchase individual Operating Assets are waived) will
not (A) be in violation of any provisions of any
regulation or order that could reasonably be expected
to adversely affect the ownership or operations of
the Operating Asset affected thereby or give rise to
damages, penalties or claims of third parties, or (B)
result in the breach of, or constitute a default
under, any indenture or other material agreement or
instrument to which Seller, the Subsidiaries or the
Partnerships are bound, or (C) cause the recognition
of gain for which the Buyer (or, after the Closing,
the Subsidiaries) will be responsible for the tax
thereon or loss for Tax purposes with respect to any
Subsidiary or subject any Subsidiary or its assets to
any Tax.
(v) Except for any filings required under the HSR Act, as
set forth on Schedule 4.1(b)(v) or as otherwise
specifically provided herein, no consent, waiver,
approval, order or authorization of, notice to, or
registration, declaration, designation, qualification
or filing with, any Governmental Authority or third
Person, domestic or foreign, is or has been or will
be required on the part of Seller in connection with
the execution and delivery of this Agreement or the
consummation by Seller of the transactions
contemplated hereby or thereby, other than (A)
consents and Preferential Rights to Purchase
affecting individual Operating Assets or (B) where
the failure to obtain such consents, waivers,
approvals, orders or authorizations or to make or
effect such registrations, declarations,
designations, qualifications or filings (1) is not
reasonably likely to prevent or materially delay
consummation of the transactions contemplated by this
Agreement (2) could reasonably be expected to
adversely affect the Business or (3) could give rise
to damages, penalties or claims of third parties.
(c) Organizational Status.
(i) Each Seller: (1) is a corporation duly organized,
validly existing and in good standing under the laws
of Delaware, (2) is duly qualified to transact
business in each jurisdiction where the nature and
extent of its business and properties require such
qualification, and (3) possesses all requisite
authority and power to conduct its business and
execute, deliver and comply with the terms and
provisions of this Agreement and to perform all of
its obligations hereunder. There are no pending or
threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or
rehabilitation of any Seller.
(ii) Exploration (1) is a corporation duly organized,
validly existing and in good standing under the laws
of Delaware, (2) is duly qualified to transact
business in each jurisdiction where the nature and
extent of its business and properties
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<PAGE> 25
require such qualification, and (3) possesses all
requisite authority and power to conduct its
business. There are no pending or threatened Actions
(or basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of Exploration.
(iii) Reserves (1) is a corporation duly organized, validly
existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business
in each jurisdiction where the nature and extent of
its business and properties require such
qualification, and (3) possesses all requisite
authority and power to conduct its business. There
are no pending or threatened Actions (or basis
therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of Reserves.
(iv) The Partnership (1) is a limited partnership duly
organized, validly existing and in good standing
under the laws of Delaware, (2) is duly qualified to
transact business in each jurisdiction where the
nature and extent of its business and properties
require such qualification, and (3) possesses all
requisite authority and power to conduct its
business. There are no pending or threatened Actions
(or basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of the Partnership.
(d) Subsidiary and Other Equity Interests.
(i) Exploration has no subsidiaries and does not own any
stock or other interest in any other corporation,
partnership, joint venture, or other business entity,
with the exception of the Partnership.
(ii) Reserves has no subsidiaries and does not own any
stock or other interest in any other corporation,
partnership, joint venture, or other business entity,
with the exception of the Partnership.
(iii) The Partnership has no subsidiaries and does not own
any stock or other interest in any other corporation,
partnership, joint venture, or other business entity.
(e) Common Stock and Partnership Interests. Other than as set
forth in Schedule 1B:
(i) Exploration has authorized capital stock consisting
of 1,000 shares of $1.00 par value common stock, of
which 1,000 shares are issued and outstanding, with
all of such shares owned by Tesoro Petroleum
Corporation. The common stock has been duly
authorized by Exploration, and the shares owned by
Tesoro Petroleum Corporation are validly issued and
outstanding, fully paid and nonassessable. There are
no preemptive rights, or authorized or outstanding
subscriptions, options, consents to assignment or
rights of first refusal, convertible securities,
warrants, calls, stock appreciation rights, phantom
stock, profit participation, or other similar rights,
or other
17
<PAGE> 26
agreements or commitments obligating Seller or
Exploration to issue or to transfer (or preventing
the transfer of) any common stock or other equity
interest in Exploration.
(ii) Reserves has authorized capital stock consisting of
1,000 shares of $1.00 par value common stock, of
which 1,000 shares are issued and outstanding, with
all of such shares owned by Tesoro Gas Resources
Company, Inc. The common stock has been duly
authorized by Reserves, and the shares owned by
Tesoro Gas Resources Company, Inc. are validly issued
and outstanding, fully paid and nonassessable. There
are no preemptive rights, subscriptions, options,
consents to assignment or rights of first refusal,
convertible securities, warrants, calls, stock
appreciation rights, phantom stock, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller or
Reserves to issue or to transfer (or preventing the
transfer of) any common stock or other equity
interest in Reserves.
(iii) In the Partnership, a 99% limited partnership
interest is held by Reserves, and a 1% general
partnership interest is held by Exploration. Such
interests are duly authorized under the agreement
forming the Partnership and are valid. There are no
preemptive rights, or authorized or outstanding
subscriptions, options, consents to assignment or
rights of first refusal, convertible securities,
warrants, calls, appreciation rights, phantom
interests, profit participation, or other similar
rights, or other agreements or commitments obligating
Seller, the Partnership, Reserves or Exploration to
issue or to transfer (or preventing the transfer of)
any equity interest in the Partnership.
(iv) Seller has made available and will deliver to Buyer
prior to Closing correct and complete copies of each
Subsidiary's and the Partnership's respective
Charter, Bylaws or Partnership Agreement, as amended
to date, and the minute books of each Subsidiary and
the Partnership. Neither any Subsidiary nor the
Partnership is in breach of any provision of its
Charter, Bylaws or Partnership Agreement.
(f) Title to Stock, Partnership Interests and Assets.
(i) All of the issued and outstanding shares of capital
stock of Exploration and Reserves, which consist only
of the Common Stock, are owned of record and
beneficially by Tesoro Petroleum Corporation and
Tesoro Gas Resources Company, Inc., respectively,
free and clear of any Encumbrance except, prior to
the Closing only, as set forth on Schedule 1B. Upon
delivery to Buyer of the certificates for the Common
Stock in accordance with this Agreement, assuming
that Buyer pays the consideration contemplated by
this Agreement and has no notice of any adverse
claim, good and valid title to the Common Stock
represented by such certificate will have been
transferred to Buyer, free and clear of any
Encumbrances. Neither Tesoro Petroleum Corporation
nor Tesoro Gas Resources Company, Inc. has received
any notice of any adverse
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<PAGE> 27
claim to their respective title to the Common Stock
except, prior to the Closing only, as set forth on
Schedule 1B.
(ii) All of the issued and outstanding partnership
interests in the Partnership are owned of record and
beneficially with good and valid title by Reserves
and Exploration as described in Section 4.1(e)(iii),
free and clear of any Encumbrance except, prior to
the Closing only, as set forth on Schedule 1B.
Neither Reserves nor Exploration has received any
notice of any adverse claim to their respective
interests in the Partnership except, prior to the
Closing only, as set forth on Schedule 1B.
(iii) Except as set forth in Schedule 4.1(f)(iii), the
Subsidiaries and the Partnership have good title to
all of the assets and properties (except the
Operating Assets) which they own or purport to own,
including the Financial Assets and Liabilities
reflected on the Balance Sheets, except for
properties sold, consumed or otherwise disposed of in
the ordinary course of business since the date of the
Balance Sheets, free and clear of any Encumbrances
other than Permitted Encumbrances.
(g) Litigation. Except as set forth in Schedule 4.1(g), none of
Seller, the Subsidiaries or the Partnership have been served with and, to
Seller's Knowledge, there are no pending or threatened Actions before any
Governmental Authority against or affecting Seller, the Subsidiaries, the
Partnership or the Operating Assets, which, if adversely determined, either
would be reasonably expected to expose the Subsidiaries or the Partnership to a
risk of loss of greater than $100,000 after the Effective Time or would
interfere with Seller's ability or right to execute and deliver this Agreement
or consummate the transactions contemplated by this Agreement.
(h) Labor Matters. Except as set forth on Schedule 4.1(h), there
are no contracts, agreements, or other arrangements whereby the Subsidiaries or
the Partnership are obligated to compensate or provide health and welfare
benefit plans or retirement benefits to any employees or other persons, except
for employment agreements that are terminable at will, without breach or
penalty. To Sellers' Knowledge, Seller, the Subsidiaries and the Partnership are
in compliance with all federal, state, and local laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours
and are not engaged in any unfair labor practice with regard to those persons
employed in connection with the Subsidiaries' or the Partnership's operations.
No employee of the Subsidiaries is covered under any collective bargaining
agreement. There is no unfair labor practice complaint against the Subsidiaries
pending or, to Seller's Knowledge, threatened before the National Labor
Relations Board or any comparable state or local Governmental Authority. There
is no labor strike, slowdown or work stoppage pending or, to Seller's Knowledge,
threatened against or directly affecting the Subsidiaries, and no grievance or
any Action arising out of or under collective bargaining agreements is pending
or, to Seller's Knowledge, threatened against the Subsidiaries.
(i) Taxes.
(i) Except as set forth in Schedule 4.1(i), Seller, the
Subsidiaries and the Partnership have timely filed or
caused to be timely filed (or will timely file or
cause to be timely filed) with the appropriate Taxing
Authorities, all Tax
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<PAGE> 28
Returns required to be filed on or prior to the
Closing Date by or with respect to the Subsidiaries
and the Partnership (or their respective Operating
Assets) and have timely paid or adequately provided
for (or will timely pay or adequately provide for)
all Taxes shown thereon as owing, except where the
failure to file such Tax Returns or pay any such
Taxes would not, or could not reasonably be expected
to, in the aggregate, result in losses or costs or
expenses to the Subsidiaries and the Partnership in
excess of $100,000 after the Closing Date.
(ii) Sellers and the Subsidiaries are members of an
affiliated group of corporations which file
consolidated federal income tax returns ("Tesoro
Group") with Tesoro Petroleum Corporation as the
common parent ("Tesoro Parent"). The Tesoro Group has
been subject to normal and routine audits,
examinations and adjustments of Taxes from time to
time, but there are no current audits or audits for
which written notification has been received (in
either case, with respect to or which include the
Subsidiaries), other than those set forth in Schedule
4.1(i). There are no written agreements with any
Taxing Authority with respect to or including the
Subsidiaries which will in any way affect the
Subsidiaries' liability for Taxes after the Closing
Date.
(iii) Except as set forth in Schedule 4.1(i), no
assessment, deficiency or adjustment for any Taxes
has been asserted in writing or, to the knowledge of
Sellers, is proposed with respect to any Tax Return
of, or which includes, the Subsidiaries.
(iv) Except as set forth in Schedule 4.1(i), there is not
in force any extension of time with respect to the
due date for the filing of any Tax Return of or with
respect to or which includes the Subsidiaries or any
waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect
to or which includes the Subsidiaries.
(v) Except for Taxes due with respect to Tax Returns that
will be paid by Tesoro Parent (and not subject to
reimbursement by the Subsidiaries), the accounting
records of the Subsidiaries will include immediately
prior to the Closing Date adequate provisions for the
payment of all Taxes of the Subsidiaries for all
taxable periods or portions thereof through the
Closing Date.
(vi) All Tax allocation or sharing agreements or
arrangements have been or will be canceled on or
prior to the Closing Date. No payments are or will
become due by the Subsidiaries after the Closing Date
pursuant to any such agreement or arrangement.
(vii) Except as set forth on Schedule 4.1(i), none of the
Sellers or the Subsidiaries will, as a result of the
transactions contemplated by this Agreement, be
obligated to make a payment after the Closing Date to
an individual that would be a "parachute payment" as
defined in Section 280G of the Code without regard to
whether such payment is reasonable compensation for
personal services performed or to be performed in the
future.
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<PAGE> 29
(viii) The Subsidiaries have not participated in or
cooperated with an international boycott within the
meaning of Section 999 of the Code.
(ix) No Subsidiary has filed a consent under Code Section
341(f) concerning collapsible corporations.
(x) Neither the Subsidiaries nor the Partnership has been
a United States real property holding corporation
within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section
897(c)(1)(A)(ii).
(xi) All monies required to be withheld by either Seller,
the Subsidiaries and the Partnership and paid to
Taxing Authorities for all Taxes have been (i)
collected or withheld and either paid to the
respective Taxing Authorities or set aside in
accounts for such purpose or (ii) properly reflected
in the Balance Sheets.
(j) Balance Sheets.
(i) The Balance Sheets have been prepared in accordance
with GAAP applied on a basis consistent with prior
periods, except as described in the notes thereto,
which will qualify that the Partnership and the
Subsidiaries have been accounted for as part of a
consolidated financial group with their affiliates
and not as completely separate stand-alone entities.
(ii) The Balance Sheets present fairly, in all material
respects, the financial condition of the combined
Partnership and the Subsidiaries as of June 30, 1999.
The books and records of the Subsidiaries and the
Partnership from which the Balance Sheets were
prepared were complete and accurate in all material
respects at the time of such preparation.
(iii) Each Subsidiary and Partnership has no Liabilities,
except for Liabilities (1) reflected in the Balance
Sheets, (2) incurred by the Subsidiaries or the
Partnership in the ordinary course of business and
consistent with past practices since the date of the
Balance Sheets, or (3) which are Permitted
Encumbrances, (4) for which the Buyer is being
indemnified hereunder, or (5) which individually
amount to a loss or liability of greater than
$100,000 or in the aggregate amount to a loss or
liability of greater than $250,000. As used in this
subparagraph, the term "Liabilities" excludes any
Liabilities not required to be reflected in the
Balance Sheets under GAAP.
(k) Absence of Certain Changes. Except as set forth in Schedule
4.1(k), or as otherwise contemplated by this Agreement (including without
limitation Sections 2.5 and 2.6), since the close of business on June 30, 1999:
(i) none of the Subsidiaries nor the Partnership has
sold, leased, transferred, or assigned any assets
other than surplus equipment not necessary for
operations of the Business having a value less than
$25,000 and for a reasonable consideration;
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<PAGE> 30
(ii) the Subsidiaries and Partnership have not incurred,
assumed or become subject to any additional
indebtedness for money borrowed or purchase money
indebtedness, including capitalized leases;
(iii) the Subsidiaries and Partnership have not entered
into any transaction not in the ordinary course of
business, except as contemplated by this Agreement;
(iv) there have been no additional Encumbrances placed on
the assets of the Subsidiaries or the Partnership
other than Permitted Encumbrances;
(v) no event has occurred which constitutes a Material
Adverse Effect;
(vi) none of the Subsidiaries nor the Partnership has made
any loan to, or entered into any contract with (other
than severance agreements for which Seller shall
remain responsible), any of its directors or
officers;
(vii) no Subsidiary has issued, sold, or otherwise disposed
of any of its interests in the Partnership;
(viii) there has been no change made or authorized to the
Charter, Bylaws or Partnership Agreement of any
Subsidiary or the Partnership;
(ix) none of the Subsidiaries nor the Partnership has
canceled, compromised, waived, or released any debt
or Action (or series of related debts or Actions)
involving more than fifty thousand dollars ($50,000);
(x) none of the Subsidiaries nor the Partnership has
delayed or postponed the payment of accounts payable
or other Liabilities owed either involving more than
$50,000 (individually or in the aggregate), other
than amounts which Seller reasonably and in good
faith disputes;
(xi) none of the Subsidiaries nor the Partnership has made
any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other
Person (or series of related capital investments,
loans, and acquisitions) involving more than $50,000,
except in connection with operations conducted
pursuant to Section 9.2(f);
(xii) none of the Subsidiaries nor the Partnership has made
any capital expenditure (or series of related capital
expenditures) involving more than $50,000, except in
connection with operations conducted pursuant to
Section 9.2(f);
(xiii) none of the Subsidiaries nor the Partnership has
entered into any Contract (or series of related
Contracts) involving more than $50,000 other than (i)
to effectuate operations set forth on Schedule 9.2(f)
or (ii) constituting joint operating agreements or
oil and gas leases entered into in the ordinary
course of business or (iii) contracts with officers
and directors for which the Seller shall remain
responsible;
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<PAGE> 31
(xiv) to Seller's Knowledge, none of the Subsidiaries nor
the Partnership has materially breached any Contract
by which it is bound or to which any of its assets is
subject; and
(xv) none of the Subsidiaries nor the Partnership has
declared, set aside, or paid any dividend or made any
distribution with respect to its interests in the
Partnership (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its interests
in the Partnership, other than in the ordinary course
of business or as contemplated by this Agreement.
(l) Compliance With Law. Since June 30, 1999, neither the
Subsidiaries nor the Partnership has violated any law, statute or regulation
which have subjected them to fines or penalties (nor to Seller's Knowledge have
any third parties violated any Applicable Law for which the Subsidiaries or the
Partnership may have any responsibility) that individually or in the aggregate
exceed $100,000. As of the date of this Agreement, to Seller's Knowledge, the
Subsidiaries and the Partnership are in compliance in all material respects with
all laws, statutes or regulations applicable to the Subsidiaries and the
Partnership, except where the noncompliance with which would not, in the
aggregate, result in the imposition on the Subsidiaries and the Partnership of
fines or penalties that individually or in the aggregate could reasonably be
expected to exceed $100,000.
(m) Operating Assets.
(i) Seller represents that as of Closing, Seller's and
the Partnership's interests in the Operating Assets
shall be free and clear of any liens other than
Permitted Encumbrances.
(ii) To Seller's Knowledge, the Operating Assets are being
operated in compliance in all material respects with
all applicable federal, state or local laws, and the
rules and regulations of any agency or authority
having jurisdiction.
(iii) Except as set forth in Schedule 4.1(m)(iii), the
Subsidiaries and the Partnership possess all permits,
licenses, orders, approvals and authorizations
required by any applicable law, statute, regulation
or Governmental Order, or by the property and
contract rights of third Persons, reasonably
necessary to permit the operation of the Business in
the manner currently conducted by the Subsidiaries
and the Partnership, except where the failure to
possess such permit, license, order, approval,
authorization or rights would not result in losses,
costs or expenses to the Subsidiaries, in the
aggregate, in excess of $100,000. Neither the
Subsidiaries nor the Partnership has received written
notice from any Governmental Authority that any such
permit, license, order, approval or authorization has
been, or will be, revoked or terminated.
(iv) Except as set forth in Schedule 4.1(m)(iv),
immediately before the Closing Date, the Subsidiaries
and the Partnership will hold or have the right to
use in the Business all of the assets and properties
(including all licenses and agreements) currently
being used (except those disposed of or expiring in
the ordinary course of business or otherwise as
contemplated or permitted by this Agreement) or which
are reasonably necessary to permit the operation of
the
23
<PAGE> 32
Business in the manner currently conducted by the
Subsidiaries and the Partnership. Since June 30,
1999, the Subsidiaries have conducted no business
other than the Business.
(n) No Brokers' Fees. Except for Credit Suisse First Boston, the
fees and expenses of which will be paid by Seller, neither Seller nor any of its
directors, officers or employees has employed any broker, finder or investment
banker or incurred any Liability for any brokerage fees, commissions, finders'
fees or similar fees in connection with the transactions contemplated by this
Agreement. Buyer shall have no responsibility whatsoever, contingent or
otherwise, for any brokers' or finders' fees incurred by Seller, the
Subsidiaries or the Partnership relating to the Transaction.
(o) Suspense Funds. Schedule 4.1(o) is a true and correct list as
of August 31, 1999 of all amounts held by the Partnership and/or the
Subsidiaries in suspense accounts, or otherwise, related to the Properties for
the benefit or account of any other Person.
(p) Insurance. As listed on Schedule 4.1(p) Seller, the
Subsidiaries and the Partnership maintain insurance on and bonds with respect to
the Operating Assets, as set forth on Schedule 4.1(p), covering such risks and
with such deductible amounts as are consistent with general oil and gas industry
practice.
(q) Contracts on Production. Except as set forth on Schedule
4.1(q), there are no Contracts involving the purchase, marketing, brokering or
sale of Production that require a dedication of Production for a term in excess
of three (3) months that will not be terminable without penalty or other
liability at the sole discretion of the Subsidiaries or the Partnership upon not
more than one (1) month's notice, except for commitments under operating
agreements.
(r) Equipment. Since June 30, 1999, neither Seller, the
Subsidiaries nor the Partnership, nor to Seller's Knowledge the operator of any
of the Operating Assets, has removed any of the equipment, facilities or other
property from the Operating Assets except in the ordinary course of business.
(s) Tax Partnerships. Except as disclosed in Schedule 4.1(s), no
Property is subject to, or considered to be held by, any partnership for federal
income tax purposes, other than tax partnerships under joint operating
agreements.
(t) Disclaimer. Except as otherwise expressly set forth in this
Article and elsewhere in this Agreement, Seller and the Affiliates of Seller
expressly disclaim any representations or warranties of any kind or nature,
express or implied, as to the condition, value or quality of the assets or
properties currently or formerly used, operated, owned, leased, controlled,
possessed, occupied or maintained by the Subsidiaries or the Partnership, and
SELLERS AND ALL OTHER TESORO AFFILIATES SPECIFICALLY DISCLAIM ANY REPRESENTATION
OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE WITH RESPECT TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO
THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT
OR PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING
ACQUIRED "AS IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION,
WITH ALL FAULTS, AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND
INVESTIGATION THEREOF.
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<PAGE> 33
(u) Environmental Matters. Except as set forth on Schedule 4.1(u),
to Seller's Knowledge:
(i) There are no underground storage tanks, as defined in
Applicable Environmental Law, on the Properties or
any of the Operating Assets which constitute a
violation of Environmental Law.
(ii) The Operating Assets contain no friable asbestos,
mercury or polychlorinated biphenyls above 50 ppm or
other Hazardous Substances which constitute a
violation of Applicable Environmental Law.
(iii) The Operating Assets have been used solely for oil
and gas operations and related operations. Except for
the production, storage and transportation of oil,
gas and other hydrocarbons and the storage and
disposal of brine in the ordinary course of business
consistent with prevailing oil and gas industry
practices, the Properties have not been used to
dispose of Hazardous Substances. No Hazardous
Substances have been disposed of that would cause an
adverse material impact to any of the Operating
Assets.
(iv) There have been no spills or releases of any
Hazardous Substance related to the ownership or
operation of the Operating Assets which constitutes a
violation of Applicable Environmental Law, except for
matters that have been addressed and have no
continuing adverse consequence to Seller, the
Subsidiaries, the Partnership or the Operating
Assets.
(v) There are no Actions pending or threatened against
the Partnership, the Subsidiaries, or either Seller
with respect to any of the Operating Assets relating
to the violation of, liability under, or
noncompliance with, any Applicable Environmental Law;
the discharge, disposal or release of a Hazardous
Substance; or the exposure of a Person or property to
a Hazardous Substance. Seller, the Subsidiaries and
the Partnership have no current contingent liability
in connection with the release of Hazardous
Substances.
(vi) The Operating Assets have been, and are operating, in
material compliance under all Applicable
Environmental Laws.
(vii) Seller, the Subsidiaries and the Partnership have
provided (or within five Business Days from the date
hereof will provide) Buyer all environmental audits,
tests, results of investigations and analyses that
have been performed with respect to the Operating
Assets.
(v) Contracts. Except as set forth on Schedule 4.1(v) and in the
Contracts described in Schedule 1B or Section 4.1(q) (other than those set forth
in Schedule 4.1(v)) and in joint operating agreements entered into in the normal
course of business, the Operating Assets are not subject to any instrument,
agreement or other Contract evidencing or related to indebtedness for borrowed
money. All of the existing Contracts between any of the Subsidiaries, the
Partnership and/or either Seller and any of their respective Affiliates with
respect to sales, services or support to any of the Operating Assets or
operations on the Operating Assets shall terminate except for such Contracts
otherwise
25
<PAGE> 34
indicated on Schedule 4.1(v) to survive Closing. Except as set forth on Schedule
4.1(v) and other than Consents to Assignment or Preferential Rights to Purchase,
to Seller's Knowledge, no Contracts to which Seller, the Subsidiaries or the
Partnership is a party or a successor-in-interest and to which Buyer will be
subject after the Effective Time contain any provision that prevents Buyer from
owning, managing and operating the Operating Assets in accordance with the
Partnership's past practices.
(w) Seismic Information. At Closing, subject to the terms of the
License Agreement, neither Seller nor any affiliate of Seller other than the
Subsidiaries and the Partnership shall have any further right to any of the
seismic data of the Subsidiaries or the Partnership which has been assigned or
leased to the Subsidiaries, the Partnership and/or the Buyer.
(x) Wells. Except to the extent set forth on Schedule 4.1(x), to
Seller's Knowledge, no well included in the Properties is subject to material
penalties on allowables because of any overproduction or any other violation of
Applicable Law. Except for the wells included in the Properties and listed in
Schedule 4.1(x), there are no wells included in the Properties that Seller, the
Subsidiaries or the Partnership, or to Seller's Knowledge the operator of such
wells, are currently obligated by Applicable Law, Applicable Environmental Law
or order of any Governmental Authority to plug and abandon within a time certain
or that have been shut-in or temporarily abandoned.
(y) Expenditure Obligations. Except as set forth on Schedule
9.2(f), the Subsidiaries and the Partnership have not executed or are not
otherwise contractually bound by any authority for expenditure with respect to
any of the Operating Assets under any operating agreement, unit operating
agreement, or other similar agreements that will obligate any of the
Subsidiaries, the Partnership or Buyer to pay, after the Effective Time, more
than $50,000 for a single project, operation or expenditure. Except as set forth
on Schedule 9.2(f), with respect to authorizations for expenditure relating to
any of the Operating Assets, which obligate any of the Subsidiaries, the
Partnership or Buyer to pay more than $50,000, (i) there are no outstanding
calls under such authorizations for expenditures for payments which are due or
which the Subsidiaries or the Partnership have committed to make which have not
been made; (ii) there are no material operations with respect to which any of
the Subsidiaries and/or the Partnership has become a non-consenting party where
the effect of such non-consent is not disclosed on Exhibit B, and (iii) there
are no commitments for the expenditures of funds for drilling or other capital
projects other than projects with respect to which the operator is not required
under the applicable operating agreement to seek consent.
(z) Payout. To Seller's Knowledge, the payout balances with
respect to any of the Properties operated by the Partnership that are subject to
future change on account of reversionary interests, non-consent penalties or
similar agreements or arrangements are set forth on Schedule 4.1(z) and are
correct as of the dates shown on such statements.
(aa) Absence of Certain Changes Regarding Properties. Since June
30, 1999, except as listed on Schedule 4.1(k), the Subsidiaries and the
Partnership:
(i) have maintained and operated each of the Properties
operated by any of them as a reasonably prudent
operator consistent with prevailing oil and gas
industry practice;
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(ii) have used reasonable efforts consistent with their
past practices to cause each of the Properties not
operated by them to be maintained and operated in a
good and workmanlike manner and in substantially the
same manner as theretofore operated;
(iii) have paid timely their share of all costs and
expenses attributable to the Operating Assets, except
for such costs and expenses that they were contesting
in good faith by appropriate action;
(iv) have performed all accounting, royalty disbursement
and reporting requirements, as applicable, related
thereto for the Production; and
(v) have not agreed, whether in writing or otherwise, to
take any action described in this Section 4.1(aa).
(bb) Schedule 1B states all liens and mortgages encumbering the
Common Stock or the Operating Assets securing obligations of Seller, the
Subsidiaries or the Partnership (other than those items listed in clause (ii)
through (ix) of the definition of "Permitted Encumbrances").
4.2 BUYER'S REPRESENTATIONS. Buyer represents that:
(a) Disclosure. To Buyer's Knowledge, the representations and
warranties set forth in this Agreement represent full and fair disclosure as of
the date of this Agreement and the date of Closing and do not contain any untrue
statement of any material fact or omit any material fact necessary in order to
make the facts stated not misleading.
(b) Authorization and Enforceability
(i) This Agreement and the Transaction have been duly
authorized by Buyer.
(ii) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated
hereby or thereby, will violate or conflict with (1)
any provision of Buyer's Charter or Bylaws, or (2)
any applicable statute, law, regulation or
Governmental Order to which Buyer or the assets or
properties of Buyer are bound.
(iii) This Agreement has been duly executed and delivered
by Buyer and constitutes the valid and binding
obligation of Buyer, enforceable against it in
accordance with its terms, except as such
enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the
enforcement of creditors' rights generally and
general principles of equity (regardless of whether
such enforceability is considered in a proceeding in
equity or at law).
(iv) Except as set forth on Schedule 4.2(b)(iv) or as
otherwise specifically provided herein, the
execution, delivery, and performance of this
Agreement (assuming that all applicable consents are
received) will not (A) be in material violation of
any provisions of any regulation, or order or (B)
result in the breach of, or constitute a default
under, any material indenture or other agreement or
instrument to which Buyer is bound.
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(v) Except as set forth on Schedule 4.2(b)(v) or as
otherwise specifically provided herein, no consent,
waiver, approval, order or authorization of, notice
to, or registration, declaration, designation,
qualification or filing with, any Governmental
Authority or third Person, domestic or foreign, is or
has been or will be required on the part of Buyer in
connection with the execution and delivery of this
Agreement or the consummation by Buyer of the
transactions contemplated hereby or thereby, other
than where the failure to obtain such consents,
waivers, approvals, orders or authorizations or to
make or effect such registrations, declarations,
designations, qualifications or filings is not
reasonably likely to prevent or materially delay
consummation of the transactions contemplated by this
Agreement or prevent Buyer from performing its
obligations under this Agreement.
(c) Organizational Status. Buyer: (i) is a limited liability
company duly organized, validly existing and in good standing under the laws of
Delaware, (ii) is duly qualified to transact business in each jurisdiction where
the nature and extent of its business and properties require the same in order
for it to perform its obligations under this Agreement; and (iii) possesses all
requisite authority and power to conduct its business and execute, deliver and
comply with the terms and provisions of this Agreement, to purchase, receive,
and accept conveyance of the Common Stock from Sellers and to perform all of its
obligations hereunder.
(d) Ability to Perform. On the Closing Date, Buyer will have
sufficient cash, available lines of credit or other sources of immediately
available funds to enable it to make its payment of the Closing Settlement Price
at the Closing.
(e) Investment Intent. The Common Stock is being purchased for
Buyer's own account and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the Securities
Act. Buyer understands that the Common Stock has not been registered under the
Securities Act by reason of their issuance in transactions exempt from the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(2) thereof. Buyer is knowledgeable, competent, and experienced in
the oil and gas industry and has independently evaluated and interpreted the
technical data and other information regarding the Operating Assets prior to
entering into this Agreement, understands and is financially able to bear the
risk associated with ownership of the Subsidiaries and the Partnership, and will
independently conduct all the due diligence investigations and reviews of all
matters concerning the Subsidiaries, the Partnership and the Operating Assets as
it deems necessary prior to Closing. Buyer acknowledges that Buyer is not
relying upon any statement or representations made by Seller concerning the
present or future value of, or anticipated income, costs, or profits, if any, to
be derived from, the Subsidiaries, the Partnership or the Operating Assets, and
Buyer has relied solely upon its independent inspections, estimates,
computations, evaluations, reports, studies, knowledge and other information
regarding the Subsidiaries, the Partnership and the Operating Assets.
(f) Litigation. There are no pending or, to Buyer's Knowledge,
threatened suits, actions, proceedings, claims, or investigations that would
interfere with Buyer's ability or right to execute and deliver this Agreement or
consummate the transactions contemplated by this Agreement.
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(g) No Brokers' Fees. Buyer has incurred no liability, contingent
or otherwise, for brokers' or finders' fees relating to the Transaction for
which Seller shall have any responsibility whatsoever.
(h) Buyer's Knowledge. To Buyer's Knowledge, on the date hereof,
Buyer's representations and warranties made in this Section 4.2 are true and
correct in all material respects.
(i) Tax Matters. Buyer is taxable as a corporation for purposes of
Federal income tax and is qualified to make an election under Section 338 of the
Code in connection with the transaction.
ARTICLE V.
ACCESS TO INFORMATION AND INSPECTION
5.1 ACCESS TO INFORMATION. Until the Closing Date, upon reasonable
notice, Seller, the Subsidiaries and the Partnership shall (i) afford the
officers, employees and authorized agents and representatives of Buyer
reasonable access during normal business hours to the offices, Operating Assets
and Books and Records and (ii) furnish to the officers, employees and authorized
agents and representatives of Buyer such additional financial and operating data
and other information regarding the assets, Operating Assets and Liabilities of
the Subsidiaries, the Partnership, Pipeline and the Starr Partnerships and the
Business (or legible copies thereof) as Buyer may from time to time reasonably
request, as set forth in this Article V. In addition, Seller shall cause
Pipeline, the Subsidiaries, and the Partnership to each use its reasonable
efforts to obtain for Buyer such access to books and records and other
information regarding the Starr-Zapata Partnership and Starr County Gathering as
Buyer may reasonably request that are not in the possession of the Seller,
Pipeline, the Subsidiaries or the Partnership but in the possession of the third
party partner in the Starr Partnerships.
5.2 TITLE FILES. Promptly after the execution of this Agreement and
until five Business Days prior to the Closing Date, Seller shall permit Buyer
and its representatives at reasonable times during normal business hours to
examine, in Seller's offices, those title and contract files, permit files,
operating and maintenance files, and related documents, records and materials
concerning the Operating Assets and the assets of Pipeline and the Starr
Partnerships that are now in existence and in the possession of Seller, the
Subsidiaries, the Partnership or Pipeline (except to the extent disclosure of
same is prohibited pursuant to agreements with third parties and with respect to
which Seller has been unable to secure consent to disclose despite its
commercially reasonable efforts to do so), including abstracts of title, title
opinions, title files, ownership maps, lease files, contract files, assignments,
division orders, check vouchers, payout statements and agreements pertaining to
the Operating Assets and the assets of Pipeline and the Starr Partnerships.
Seller shall cooperate with Buyer and provide such assistance as is reasonably
necessary to assist Buyer in determining the validity of the Partnership's title
to the Operating Assets and Pipeline's title to its assets and the assets of the
Starr Partnerships from the information contained in Seller's files.
5.3 LEGAL FILES. Until five Business Days prior to the Closing Date,
Seller shall make available to Buyer for inspection by Buyer at reasonable times
during normal business hours at their actual location, all legal, evidentiary,
litigation support, records and data in possession of Seller concerning the
Subsidiaries, the Partnership, Pipeline or the Starr Partnerships, except such
records or data which Seller the Subsidiaries, or the Partnership, Pipeline or
the Starr Partnerships are prevented by contractual obligations with third
parties from disclosing or which might be subject to a claim of legal privilege.
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5.4 FINANCIAL AND ACCOUNTING FILES. Until five Business Days prior to
the Closing Date, Seller shall make available to Buyer for inspection by Buyer
at reasonable times during normal business hours at their actual location, all
financial and accounting records and data in possession of Seller concerning the
Subsidiaries, the Partnership, Pipeline or the Starr Partnerships, except such
records or data which Seller, the Subsidiaries, the Partnership, Pipeline or the
Starr Partnerships are prevented by contractual obligations with third parties
from disclosing or which might be subject to a claim of privilege.
5.5 WARRANTIES AS TO DOCUMENTS. Seller shall advise Buyer of the
nature and existence of any confidential documents that might be withheld from
disclosure. Seller does not warrant or represent the accuracy of any materials
that may be made available for Buyer's review, except that Seller does represent
and warrant that it has not and will not conceal or intentionally or willfully
misrepresent or withhold any information, data or materials in its possession
except for confidential information, data or materials, the existence of which
is disclosed as otherwise provided herein.
5.6 INSPECTIONS. Promptly after the execution of this Agreement,
Seller the Subsidiaries and the Partnership, subject to third party operator
approval, shall permit Buyer and its representatives at reasonable times and at
their sole risk, cost and expense, to conduct reasonable inspections of any or
all of the Operating Assets. BUYER SHALL AND DOES HEREBY INDEMNIFY, RELEASE,
DEFEND AND HOLD HARMLESS SELLER, THE SUBSIDIARIES AND THE PARTNERSHIP FROM AND
AGAINST ANY AND ALL LOSSES, COSTS, DAMAGES, OBLIGATIONS, CLAIMS, LIABILITIES,
EXPENSES OR CAUSES OF ACTION RELATING TO PERSONAL INJURIES, DEATH OR PROPERTY
DAMAGE ARISING FROM BUYER'S INSPECTION OF THE OPERATING ASSETS, INCLUDING CLAIMS
AND LIABILITIES ARISING OUT OF SELLER'S, THE SUBSIDIARIES' OR THE PARTNERSHIP'S
NEGLIGENCE OR STRICT LIABILITY.
ARTICLE VI.
TITLE
6.1 BUYER'S TITLE REVIEW. Immediately upon execution by both parties
hereto of this Agreement, Buyer may, at Buyer's sole cost and expense, pursue
such examination of title to the Operating Assets as Buyer desires. Seller shall
provide reasonable cooperation with Buyer's examination and shall make files
available as provided under Article V. Promptly after completion of Buyer's
title review of any Property, Buyer shall advise Seller of any Title Defects
affecting that Property, to enable Seller to cure any such Title Defects before
Closing, if Seller believes that it is practical to do so. If Seller should cure
any Title Defect during the period of Buyer's review, Seller shall promptly
notify Buyer accordingly and provide Buyer with suitable documentation of such
cure.
6.2 TITLE DEFECTS. For the purpose of this Agreement, a "Title Defect"
shall mean (1) any liens, encumbrances, encroachments, defects in or
irregularities in or objections to the Partnership's title to the Properties:
(A) which result in a breach of any warranty or representation made by Seller,
or (B) would result in Buyer receiving less than the NRI stated in Exhibit A for
any Property; or (C) would require Buyer to share costs and expenses with
respect to the operation of any Property in amounts greater than the WI (without
a corresponding increase in the NRI) set forth in Exhibit A for such Property,
and (2) other burdens in a category specifically listed in Section 6.2(a), but
not (3) those burdens specifically excluded in Section 6.2(b).
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(a) Title Defects shall include the following:
(i) The Partnership's title to any Property, is subject
to an outstanding mortgage, deed of trust, lien or
encumbrance or other adverse claim which is not a
Permitted Encumbrance;
(ii) Any Property (or any of the Subsidiaries or the
Partnership) is affected by any suit, action or other
proceeding before any court or government agency
which is not listed on Schedule 4.1(g);
(iii) Any Property is subject to any take-or-pay contract,
gas balancing agreement, production payment or other
contract or agreement under which payment in full to
the owners of the Property will not be made for any
sales of their NRI share of future oil or gas
production at or about the time such oil or gas is
produced, and which is not listed on Schedule 1B;
(iv) A default of the Partnership or the Subsidiaries
exists under some provision of a lease or other
Contract affecting a Property, which default will not
be cured prior to or at the Closing;
(v) The rights and interests of the Partnership in a
Property are subject to being reduced by virtue of
the exercise by a third party of a reversionary
interest, back-in interest, Preferential Right to
Purchase, Consent to Assignment or similar right or
interest, which is not a Permitted Encumbrance;
(vi) The Partnership's title to any lease affecting a
Property or any well covered by any lease (including
any well within any pooled, unitized or communitized
area, covering or including any lease) (a "Well") is
not Record Title;
(vii) Other than as set forth on Schedule 6.2(b), there are
no obligations to engage in continuous development
operations to maintain in force or to retain all
rights to the lease creating the Partnership's
working interest in a Well listed in Exhibit A;
(viii) Other than as set forth on Schedule 6.2(b), the lease
or other Contract affecting a Property has an
expiration date which occurs less than ninety (90)
days following the Closing Date;
(ix) The Subsidiaries, the Partnership or the Operating
Assets are subject to a contract or agreement (except
contracts containing terms that are customary in the
oil and gas exploration and production industry)
which materially and adversely affects the value of
the interest affected; and
(x) Any matter constituting a Seller Initiated Title
Defect under the provisions of Section 9.13.
(b) For each lease or other similar interest, or other Contract
affecting a Property, a "Title Defect" shall also mean any fact, circumstance,
or occurrence that causes any of the following statements to be untrue in any
material respect:
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(i) the lease or Contract affecting a Property is, and
has been maintained, in force and effect according to
its terms;
(ii) the Partnership have paid or caused to be paid all
royalties, delay rentals, shut-in royalties, minimum
royalties, and other payments due under the lease or
other Contract affecting such Property;
(iii) no party to the lease or other Contract affecting
such Property is in breach or default of its
obligations under the lease or other Contract ;
(iv) no event, fact, or circumstance has occurred that,
with the lapse of time, the giving of notice, or
both, would constitute a breach of the lease or other
Contract affecting such Property;
(v) neither the Partnership nor any other party to the
lease or other Contract affecting a Property has
given or threatened to give notice of a claim or
action to terminate, cancel, rescind or procure a
judicial reformation of the lease or other Contract
affecting such Property or any contract to which the
lease or other Contract affecting such Property is
subject;
(vi) other than as set forth on Schedule 6.2(b), no
provision of the lease or other Contract affecting a
Property or any contract to which the lease or other
Contract affecting such Property is subject will
increase the royalty share of the lessor;
(vii) In addition, if either of the following statements is
untrue with respect to a lease or other Contract
affecting a Property, Buyer may elect to treat as a
Title Defect the fact, circumstance, or occurrence
that causes the statement to be untrue:
(A) Other than as set forth on Schedule 6.2(b), there
has been substantial compliance with the Applicable
Laws of any Governmental Authority having
jurisdiction over the Properties, such that there is
not substantial risk of loss of any lease or other
Contract affecting a Property or the value thereof;
or
(B) Other than as set forth on Schedule 6.2(b) and
Schedule 4.1(g), no Action exists that will or
reasonably may result in loss, diminution, or
impairment of the Partnership's title to any lease or
other Contract affecting a Property or the use,
operation, or value thereof.
(c) Title Defects shall not include the following:
(i) Any Permitted Encumbrances;
(ii) Any prior oil and gas lease in favor of third parties
affecting a Property which was not released of
record, but which the records of the applicable
regulatory agencies reflect did not continually
produce (either directly or on lands with which such
lease has been pooled or unitized) oil and gas in
commercial quantities during any consecutive period
of more than one year after the expiration of its
primary term;
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(iii) Any consents of governmental agencies to the
assignment of Properties or permits or licenses that
are customarily obtained by participants in the oil
and gas industry after an assignment, and it is
reasonable to believe such consent will be obtained
in the ordinary course of business;
(iv) Any rights of third parties to receive overriding
royalty interests through Seller's Bob West Field
royalty pool (described on Schedule 6.2(c)(iv));
(v) Any failure of the Partnership or their predecessors
to obtain affidavits of use and possession,
affidavits or heirship or affidavits of
non-production;
(vi) Any failure to obtain division orders or transfer
orders from any co-owner in a Property;
(vii) Any unsubordinated lien encumbering the interest of a
lessor or other predecessor in the Partnership's
chain of title to a Property, unless the obligation
secured by such lien is in default, or the lien
otherwise creates a substantial risk of a loss of the
Property;
(viii) Any Preferential Right to Purchase a Property;
(ix) Any rights of third parties to be elected as operator
of any Property under the terms of an existing
operating agreement or related agreement; or
(x) Any other minor irregularity for which oil and gas
operators customarily waive requirements in division
order title opinions.
6.3 PROCEDURES TO DETERMINE PROPERTY VALUE ADJUSTMENTS FOR TITLE
DEFECTS.
(a) Notice Of Title Defects. Not later than ten (10) Business Days
prior to the Closing Date, Buyer will conclude Buyer's title review and provide
a notice to Seller describing all asserted Title Defects. To be effective,
Buyer's written notice must describe each Title Defect, including: (i) the
Property affected by such Title Defect; (ii) a description of the matter
constituting the asserted Title Defect; (iii) supporting documents reasonably
necessary for Seller to verify the existence and nature of such asserted Title
Defect; and (iv) the amount of any Property Value Reduction asserted to be
attributable to such Title Defect. Buyer shall also notify Seller, and Seller
shall notify Buyer, of any increases revealed by Buyer's title review in the
Partnership's NRI stated on Exhibit A for any Property, including: (i) the basis
for such increase in ownership interest; (ii) the amount of the increase in the
Partnership's interest; and (iii) the corresponding increase to the Settlement
Price arising by reason of such increased ownership interest, calculated in the
same manner as decreases are calculated under Section 6.4(a). Subject to Section
9.13 below, Buyer and Seller shall not be entitled to any adjustment to the
Settlement Price for any matters not described in a written notice of Title
Defect delivered to the other party at least ten (10) Business Days prior to the
Closing Date.
(b) Seller's Response. Within five (5) Business Days after receipt of
Buyer's notice of Title Defects, Seller shall provide Buyer with Seller's
response to such notice and any increases revealed by Seller's title review in
the Partnership's NRI stated on Exhibit A for any property. If Seller disputes
any asserted Title Defect, Seller's response shall state the basis for Seller's
position that such Title Defect should not be asserted. If Seller intends to
cure a Title Defect before Closing,
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Seller's response shall so state and describe the manner by which such Title
Defect shall be cured. If Seller proposes to cure a Title Defect after Closing,
Seller's response shall describe the manner by which such Title Defect shall be
cured. If Seller disputes the amount asserted by Buyer for any Property Value
Reduction under Section 6.4, then Seller's response shall state the basis for
such dispute and the amount that Seller contends should be the correct Property
Value Reduction. Seller's response shall include all supporting information
required to substantiate Seller's positions.
(c) Discussions Between the Parties. The Parties shall negotiate in
good faith to resolve any disputed issues concerning Title Defects or Property
Value Reductions or Property Value Increases between the time Seller delivers
its response and the Closing Date, in order to agree upon the aggregate Title
Price Adjustment for all Title Defects. The Closing Settlement Price shall
reflect the terms so negotiated by the Parties. Without limitation, one or more
of the following procedures may be used with respect to particular outstanding
or disputed Title Defects and corresponding Property Value Reductions or
Property Value Increases:
(i) If any Property is burdened by a Title Defect which
may be cured by Seller after Closing and if there is
a Title Price Adjustment, then Seller may propose to
cure such Title Defect at its own expense after
Closing. If the Property Value Reduction to be paid
by Buyer to Seller for such Title Defect is the
entire Allocated Value of the Property, then the
Property shall be excluded from the Operating Assets
to be owned by the Subsidiaries and the Partnership
at Closing, Buyer may withhold from the Settlement
Price the Allocated Value of the Property and Seller
shall instead, effective as of the day before the
Closing Date, assign that Property to a different
subsidiary of Seller, and (unless and until such
Property is reconveyed to the Partnership pursuant to
other provisions herein) Seller shall indemnify Buyer
against any liabilities, costs and expenses of any
kind relating or arising in any fashion from such
Property. If within an agreed upon period not to
exceed two (2) months, Seller cures the Title Defect
to Buyer's reasonable satisfaction, Buyer shall pay
Seller the amount withheld from the Settlement Price
for such Title Defect, as determined above, and
Seller's subsidiary shall deliver an assignment of
such Property to Buyer. If the Title Defect is not
cured to Buyer's reasonable satisfaction within such
period, the Buyer shall make no further payment for
such Property, and Seller's subsidiary shall not be
required to assign the Property to Buyer. If the
Title Defect is partially cured, then Buyer shall pay
Seller the amount withheld from the Settlement Price,
as determined above, allocable to the cured portion
of the Title Defect, Buyer shall retain the remainder
of such proceeds and Seller's subsidiary shall assign
to Buyer the portion of the Property allocable to the
cured portion of the Title Defect.
(ii) If at Closing, the Parties reasonably disagree upon
the existence or amount of a Property Value Reduction
attributable to a Title Defect asserted by Buyer
which is not a liquidated amount as set forth in
Section 6.4(a) and (b), and if there is a Title Price
Adjustment, then the Parties may nevertheless
mutually elect to proceed to Closing as scheduled and
to resolve the correct amount of such Property Value
Reduction after Closing. In such an instance, Seller
shall deliver to the escrow agent for the escrow
account, instruments executed by
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the Partnership, dated effective as of the day before
the Closing Date, individually assigning to another
subsidiary of Seller each Property subject to the
Title Defects for which the Parties have agreed to
resolve the correct amount of such Property Value
Reduction after Closing, and the applicable Property
Value Reduction used for computing the Closing
Settlement Price shall be the Allocated Value of each
such Property. Such Allocated Value amounts shall
instead be paid into the escrow account. If within an
agreed period (not to exceed sixty (60) days), Seller
and Buyer agree upon the correct amount of a Property
Value Reduction, the escrow agent shall be instructed
to deliver the assignment of such Property to Buyer,
and to pay the Buyer the Property Value Reduction
agreed upon and to pay to Seller the remaining
portion of the Allocated Value for such Property.
Each Party shall also be entitled to receive its
proportionate part of any earned interest allocable
to the amounts paid by the escrow agent, and they
shall bear any escrow fees and expenses equally. If
during such period, the Parties do not agree upon the
correct amount of a Property Value Reduction and
neither Party has requested that such value be
determined by Arbitration under Section 21.16, then
the escrow agent shall deliver to Seller the
assignment for the Property burdened by such uncured
Title Defect, and shall return to Buyer the escrowed
proceeds, including accrued interest, but deducting
any applicable escrow fees. Such Property shall be
excluded from the sale hereunder shall instead be
assigned to Seller's other subsidiary, and Seller
shall indemnify Buyer against any liabilities, costs
and expenses of any kind relating or arising in any
fashion from such Property. If the value has been
submitted to Arbitration under Section 21.16, then
promptly after the Arbitrator's ruling, the Parties
shall deliver instructions directing the escrow agent
to perform in accordance with such ruling.
(iii) If the Parties reasonably and in good faith disagree
upon the amount of a Property Value Reduction
attributable to a Title Defect asserted by Buyer,
which is not a liquidated amount as set forth in
Section 6.4(a) and (b), and if there is a Title Price
Adjustment, then either Party may elect to have the
disagreement resolved by Arbitration in accordance
with Section 21.16.
6.4 PROPERTY VALUE ADJUSTMENT FOR TITLE DEFECTS. The amount of a
Property Value Adjustment for each Title Defect shall be computed as follows:
(a) If the Title Defect consists of the Partnership owning a
lesser NRI than that set forth on Exhibit A (together with a
proportionate reduction in the WI for the Partnership), and if
the Title Defect may be cured by making a correction to the WI
and a proportionate change to the NRI, then the corresponding
Property Value Reduction shall be computed as an amount equal
to the difference between the Allocated Value of the Property
stated in Exhibit A and the proportionately reduced value of
such Property with the correct adjusted interests. Likewise,
if the Parties determine that the Partnership's title to any
Property is greater than that set forth on Exhibit A, a
Property Value Increase shall be computed as an amount equal
to the difference between the Allocated Value of the Property
stated in Exhibit A and the proportionately increased value of
such Property with the correct adjusted interests.
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Such proportionately reduced or increased value shall be
determined by multiplying the Allocated Value of such Property
stated in Exhibit A by a fraction, the numerator of which is
the NRI in such Property actually owned by the Partnership,
and the denominator of which is the NRI in such Property set
forth on Exhibit A. If the Property, or any well included
therein, has different BPO and APO interests in effect on the
Effective Time, and the asserted Title Defect or Property
Value Increase has different effects on the BPO and APO
interests, then the Parties shall in good faith agree upon an
allocation of the proportionately reduced or increased values
between the BPO and APO interests in proportion to the
respective values that should be assigned to the BPO and APO
interests in accordance with recognized reservoir engineering
valuation principles.
(b) If a Title Defect concerns a lien, encumbrance, charge or
other defect which is liquidated in amount, then the
corresponding Property Value Reduction shall be based upon the
monetary amount needed to pay the obligee to remove the Title
Defect from the Property at Closing.
(c) If any Title Defect is asserted as a result of a claim,
demand, encumbrance or other defect reducing the value of a
Property for which the potential economic detriment to the
Partnership is not liquidated, as provided in subparagraphs
(i) or (ii) above, but the appropriate amount may be estimated
with reasonable certainty by the Parties, then the Parties may
mutually agree upon an acceptable amount by which the Title
Defect will reduce the Allocated Value of the interest in the
Property owned by the Partnership, and that agreed upon amount
shall be the Property Value Reduction attributable to such
Title Defect.
(d) If any Title Defect other than one described under
subparagraphs (i), (ii) or (iii) above is asserted affecting a
Property, then that Property shall be excluded from the sale
hereunder, the Partnership shall execute an instrument, dated
effective as of the day before the Closing Date, assigning
that Property to another subsidiary of Seller, the Property
Value Reduction attributable to such Title Defect shall be
equal to the Allocated Value of such Property stated in
Exhibit A, and Seller shall indemnify and hold the
Partnership, the Subsidiaries and the Buyer harmless against
any Damages related to such Property.
(e) The Property Value Reduction with respect to a Title Defect
shall be determined without duplication of any costs or losses
included in another Title Defect hereunder. For example, but
without limitation, if a lien affects more than one Title
Defect or the curative work with respect to one Title Defect
results (or is reasonably expected to result) in the curing of
any other Title Defect affecting the same or another Title
Defect, the amount necessary to discharge such lien or the
cost and expense of such curative work shall only be included
in the Property Value Reduction for one Title Defect and only
once in such Property Value Reduction.
(f) The Property Value Reduction attributable to a Title Defect or
any portion thereof shall not exceed the portion of the
Purchase Price allocated to such Title Defect Property Value
Reduction. For example, but without limitation, if the
Subsidiaries or the Partnership do not own fifty percent (50%)
of the NRI for a Property and such
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unowned fifty percent (50%) interest is also burdened by a
lien, the Property Value Reduction for such Property shall not
exceed the portion of the Purchase Price allocable to such
fifty percent (50%) interest, notwithstanding that it may be
affected by multiple Title Defects.
6.5 PREFERENTIAL RIGHTS AND CONSENTS TO ASSIGNMENT.
(a) Preferential Rights to Purchase. Promptly after execution of this
Agreement, Seller shall cause the Partnership to contact all third Persons who
Seller reasonably believes may hold an enforceable Preferential Right to
Purchase any Property that would be triggered by reason of the Transaction. The
Partnership shall provide such third Persons with the documentation required
under existing agreements and allow them to determine whether or not they should
exercise or waive such Preferential Right to Purchase. Seller shall provide
reasonable advance notice to Buyer of the Properties and interests therein for
which third Persons may be given the opportunity to exercise Preferential Rights
to Purchase, and Seller shall keep Buyer reasonably apprised of the status of
dealings with such third Persons. If Buyer believes that any such third Person
does not hold a valid Preferential Right to Purchase such Property that would be
triggered by the Transaction, Buyer must promptly provide Seller with notice of
Buyer's objection to any proposed exercise of that Preferential Right to
Purchase, and in such case, the Parties shall negotiate in good faith to
determine a mutually acceptable procedure for handling such questioned
Preferential Rights to Purchase. Similarly, without affecting any other right of
Buyer hereunder, if Buyer believes that other valid and enforceable Preferential
Rights to Purchase exist that are not on the notices sent to Buyer by Seller,
Buyer shall promptly send notice to Seller, and the Parties shall negotiate in
good faith to determine a mutually acceptable procedure for handling such
questioned Preferential Rights to Purchase. Whenever any third Person elects to
exercise a Preferential Right to Purchase any Property, Seller shall provide
Buyer with prompt notice, listing the interest purchased and the amount received
from such third Person. In such an instance, the interest in any such Property
that is sold to such a third Person before Closing shall be removed from the
Operating Assets, and the Settlement Price shall be reduced by the Allocated
Value attributable to such interest, and in such case Seller shall indemnify the
Partnership, the Subsidiaries and the Buyer against any Liabilities relating to
such Property; if the interest so removed is less than the Partnership's entire
interest in the Property, then the Allocated Value of the Property shall be
proportionately reduced in accordance with the formula set forth in Section
6.4(a). Seller shall use reasonable efforts to cause the Partnership to obtain
the exercise or waiver before Closing of all Preferential Rights to Purchase;
provided however, that if on the Closing Date any valid Preferential Right to
Purchase should exist which shall not have been exercised or waived, and the
time for exercise of which has not yet passed, Buyer shall obtain at Closing
Seller's entire outstanding interest in the Property, subject to such
Preferential Right to Purchase, and Buyer and Seller shall cooperate in good
faith to honor such third Person's rights. In such case, if the holder of such
Preferential Right to Purchase should propose to exercise the same while it
remains valid and enforceable as a result of the Transaction, then Buyer shall
cause the Partnership to assign the affected interest to such third Person and
Buyer, through the Partnerships and the Subsidiaries, shall be entitled to the
proceeds attributable to the sale of such interest to the third Person, and in
such case Seller shall indemnify the Partnership, the Subsidiaries and the Buyer
against any Liabilities relating to such Property, except during the period the
Partnership is owned by Buyer and the Partnership own the Operating Assets.
(b) Consents to Assignment. Promptly after execution of this Agreement,
Seller shall cause the Partnership to contact all third Persons who Seller
reasonably believes may hold an
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enforceable Consent to Assignment affecting a Property, which would be triggered
by reason of the Transaction. Seller shall cause the Partnership to provide such
third Persons with the documentation required under existing agreements and to
use reasonable efforts to persuade them to consent to the assignment to Buyer of
Seller's interest in the Partnership and the Subsidiaries; provided, however,
that Buyer shall not be required to pay any funds, offer any concessions, amend
any existing agreement or resolve any disputed issues as a requisite of
obtaining a consent to any assignment. Seller shall provide reasonable advance
notice to Buyer of the Properties and interests therein for which third Persons
may be requested to consent to the assignment of the Partnership's interest to
Buyer, and Seller shall keep Buyer reasonably apprised of the status of dealings
with such third Persons. If Buyer believes that any such third Person does not
hold a valid and enforceable Consent to Assignment that would be triggered by
the Transaction, Buyer must immediately provide Seller with notice of Buyer's
objection to any proposed request for such third Person's consent to Seller's
assignment to Buyer, and in such case, the Parties shall negotiate in good faith
to determine a mutually acceptable procedure for handling such questioned
Consent to Assignment. Similarly, if Buyer believes that other valid and
enforceable Consents to Assignment exist that are not on the notices sent to
Buyer by Seller, then without limitation of Buyer's other remedies hereunder,
Buyer shall promptly send notice to Seller, and the Parties shall negotiate in
good faith to determine a mutually acceptable procedure for handling such
questioned Consents to Assignment. Seller shall use reasonable efforts to obtain
before Closing all required consents to the assignment of its interests in the
Subsidiaries and the Partnership to Buyer hereunder. Seller shall provide Buyer
with prompt notice whenever any third party consents or refuses to consent to
Seller's assignment of its interest in the Subsidiaries or the Partnership. If
ten (10) days before the Closing Date, Seller has not obtained a required
consent to assignment of its interests in the Subsidiaries or the Partnership
that reduces the value of the Subsidiaries' or the Partnership's interests in a
Property, then Buyer may assert that Consent to Assignment as a Title Defect to
the Property so affected. In determining whether a failure to obtain a required
consent to assignment reduces the value of the Subsidiaries' or the
Partnership's interests in a Property, the following standards shall control:
(i) If the terms of the Consent to Assignment expressly
state that any such assignment shall be invalid or
create a reversion to a prior owner if consent is not
obtained, then any failure to obtain such required
consent shall reduce the value of the Subsidiaries'
and the Partnership's interests in the affected
Property, unless such terms also reflect that such
required consent may not be unreasonably withheld or
may be withheld only if Buyer does not meet certain
financial or technical standards; and
(ii) If the terms of the Consent to Assignment do not
expressly state that any failure to obtain the
consent shall cause an assignment to be invalid or
create a reversion to a prior owner, then any failure
to obtain such required consent shall be considered
to reduce the value of the Subsidiaries' or the
Partnership's interests in the affected Property only
if Buyer, the Subsidiaries or the Partnership would
incur a liability due to the Parties' failure to
obtain such required consent prior to Closing.
(c) Governmental Consents. After the execution of this Agreement, and
upon Closing and thereafter, Buyer and Seller shall cooperate to obtain all
routine or standard governmental consents or waivers necessary to transfer
Seller's rights and interests in the Subsidiaries and the Partnership owning the
Operating Assets to Buyer. Without limiting the foregoing, each Party (i) will
file any Notification and Report Forms and related material that such Party may
be required to file
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under the HSR Act, (ii) will use their best efforts to obtain an early
termination of the applicable waiting period, (iii) and will make any further
filings pursuant thereto that may be necessary, proper, or advisable in
connection therewith. Such governmental consents or waivers shall not form the
basis for any Title Defect, unless it is reasonable to believe that consent will
not be obtained in the ordinary course of business.
ARTICLE VII.
ENVIRONMENTAL
7.1 DISCLOSURES AND AVAILABILITY OF DATA TO BUYER. The Operating Assets
have been utilized by the Partnership for the purposes of exploration,
development and production of oil and gas, for related oilfield operations and
possibly for the storage and disposal of waste materials or hazardous substances
generated or otherwise used in association with oil and gas exploration and
production activities on the Properties. The Operating Assets also may contain
buried pipelines, the locations of which may not now be known by Seller or
readily apparent by a physical inspection of the Operating Assets. In addition
to providing any environmental audits and studies as per Section 4.1(u), Seller
shall make available to Buyer Seller's historical files regarding the foregoing
operations, to the extent available and to the extent Seller, the Subsidiaries
and the Partnership are authorized to disclose same (excepting documents which
Seller, the Subsidiaries or the Partnership are contractually prohibited from
disclosing or are subject to legal privilege or are in the possession of another
operator, and with respect to which Seller been unable to secure consent to
disclose despite its commercially reasonable efforts to do so).
7.2 NORM. Without affecting Seller's representations and warranties or
the provisions of Section 7.3, Buyer acknowledges that some or all of the
Operating Assets may contain naturally occurring radioactive materials ("NORM"),
and that NORM is an anticipated hazard in oil and gas production operations.
Certain of the Operating Assets, including without limitation, pipe and
equipment may have deposits that contain NORM. Buyer agrees that it shall cause
the Partnership to properly handle and dispose of all materials containing NORM
in a safe manner in accordance with all applicable laws and regulations, at
their sole risk, liability and expense.
7.3 ENVIRONMENTAL CONDITIONS.
(a) Definition. For any Operating Asset, an "Environmental Condition"
shall mean any fact, circumstances or condition present in or with respect to
such Operating Asset as of the Effective Time and the Closing Date (i) that
constitutes a breach of any environmental representation or warranty in Section
4.1(u) of this Agreement or would have been a breach but for being listed on
Schedule 4.1(u) of this Agreement, (ii) that violates any Applicable
Environmental Law, (iii) that results in any liability to any Person, contingent
or otherwise related to pollution or the protection of human health and the
environment under any Applicable Environmental Law or (iv) that results from a
spill or release of any Hazardous Substance, petroleum or brine which spill
constitutes a violation of any Applicable Environmental Law or Contract, as such
Contracts are in effect as of the Closing Date.
(b) Specific Exclusions. Environmental Conditions shall in no event
include any of the following conditions:
(i) Basic Sediment and Water (BSW) and similar materials
contained inside storage tanks and tank bottoms;
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(ii) Produced substances contained within firewalls
surrounding tanks and equipment, provided that such
substances have not contaminated, or do not pose a
potential risk of contamination of the groundwater;
(iii) Materials in or from pits which have been disposed of
and closed in accordance with all laws and
regulations;
(iv) Existing tanks, pits, disposal wells, and materials
contained therein which are in compliance with
regulatory and permit requirements;
(v) Plugging and abandonment requirements for any wells
which are in compliance with regulatory and permit
requirements;
(vi) Conditions arising from or relating to use of the
surface estate for any purpose other than oil and gas
production, gathering, transportation or processing
for which the Subsidiaries and the Partnership could
not have any liability; or
(vii) Any condition listed on Schedule 7.3(b)(vii).
7.4 RESPONSIBILITIES FOR REMEDIATION OF CONTAMINATION. As between the
parties hereto, but subject to the provisions of applicable laws, joint
operating agreements, other third party agreements and the indemnities and other
provisions set forth herein, from and after the Closing, the Partnership shall
remain responsible for costs of remediation of all Environmental Conditions
occurring on or arising from any Operating Asset at any time, whether before, on
or after the Effective Time; provided however, that Seller shall fund payment of
any fines or regulatory penalties that might be assessed against the Partnership
by reason of any violation of regulatory or permit requirements before the
Closing Date.
7.5 ENVIRONMENTAL ASSESSMENT. Before Closing, Buyer may perform an
environmental assessment of any of the Operating Assets, at its own risk and
expense. Seller will cooperate with Buyer (and its representatives) to enable
Buyer to gain reasonable access to the Operating Assets to conduct the
environmental assessment; provided that Seller may require Buyer and its
representatives to comply with Seller's, the Subsidiaries, the Partnership
and/or any operator's safety procedures, and may require any inspector to
provide a reasonable access and confidentiality agreement. Buyer shall provide
Seller three (3) days prior notice of a desired date(s) for such assessment, the
proposed locations, and the anticipated scope of any testing or other
activities. Seller shall have the right to be present during any assessment, and
Buyer shall provide Seller with an invoice setting forth the costs incurred in
obtaining such analysis or report. If Seller pays Buyer one-half of such costs,
Buyer shall provide to Seller a copy thereof within three (3) days of Buyer's
receipt of such payment. Seller and Buyer shall treat all information regarding
any Environmental Condition as confidential, whether material or not (unless
such information is disclosed on an anonymous basis), and shall not make any
contact with any Governmental Authority or third party regarding same without
the other Party's written consent, unless required by Applicable Law. Seller
shall have the right to be present during any inspection of the Properties and
shall have the right, at its option and expense, to split samples with Buyer.
7.6 ENVIRONMENTAL CONDITION VALUE REDUCTION FOR ENVIRONMENTAL
CONDITIONS. The amount of an Environmental Condition Value Reduction for each
Environmental Condition, and the aggregate Environmental Price Adjustment for
all Environmental Conditions shall be computed as follows:
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(a) If the Environmental Condition may be cured by obtaining a
required permit, which can be reasonably obtained, then the
Environmental Condition Value Reduction shall be based upon a
reasonable projection of the costs attributable to the
Partnership's interest that will be required to obtain such
permit, including reasonable design and consultants fees for
obtaining the permit, the costs of any modifications to the
Operating Asset (and any diminution in value of the affected
Operating Asset which may result from such modification) that
are anticipated to be required in order to obtain the permit,
and any fines or penalties that are reasonably anticipated to
be owed for delays until 30 days after the Closing Date in
obtaining the permit.
(b) If the Environmental Condition may be cured by an
environmental remediation program, then the Environmental
Condition Value Reduction shall be based upon a reasonable
projection of the costs attributable to the Partnership's
interest that will be required to design, implement and
complete a reasonable environmental remediation program,
together with any fines or penalties that are reasonably
anticipated to be owed for delays until 30 days after the
Closing Date in commencing remediation and any other adverse
effect on the Property affected thereby.
(c) If the Environmental Condition may be cured through
modifications to the Operating Asset, then the Environmental
Condition Value Reduction shall be based upon a reasonable
projection of the costs attributable to the Partnership's
interest that will be required for such modifications to the
Operating Asset and any other adverse effect on the property
affected thereby.
(d) If any Environmental Condition may not be cured in a manner
set forth in subparagraphs (i), (ii) and (iii) above, then the
Environmental Condition Value Reduction shall be an amount
reasonably determined to reflect the reduction in market value
of the Operating Asset by reason of such Environmental
Condition.
7.7 PROCEDURES TO DETERMINE ENVIRONMENTAL PRICE ADJUSTMENT.
(a) Buyer's Notice of Environmental Conditions. Not later than ten (10)
Business Days prior to the Closing Date, Buyer shall provide a notice to Seller
describing all asserted Environmental Conditions which Buyer deems to be
unacceptable and shall provide evidence thereof. To be effective, Buyer's
written notice must describe each asserted Environmental Condition, including
(i) the Property affected by such asserted Environmental Condition; (ii) a
description of the matter constituting the asserted Environmental Condition;
(iii) supporting documents reasonably necessary for Seller (or an environmental
consultant hired by Seller) to verify generally the existence, extent and nature
of such asserted Environmental Condition; (iv) any requirements asserted by
Buyer as being required to cure such Environmental Condition; (v) the amount of
any Environmental Condition Value Reduction asserted to be attributable to such
Environmental Condition; and (vi) the manner by which such Environmental
Condition Value Reduction was determined, together with supporting detail. Buyer
shall not be entitled to any Environmental Price Adjustment to the Settlement
Price for any matters not described in a written notice of Environmental
Conditions delivered to Seller at least ten (10) Business Days prior to the
Closing Date.
(b) Seller's Response. Within five (5) Business Days after receipt of
Buyer's notice of Environmental Conditions, Seller shall provide Buyer with
Seller's response to such notice. If Seller
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disputes any asserted Environmental Condition, Seller's response shall state the
basis for Seller's position that no such Environmental Condition should be
asserted. If Seller intends to cure any Environmental Condition before Closing
at its expense, Seller's response shall so state and describe the manner by
which such Environmental Condition shall be cured. If Seller disputes the amount
asserted by Buyer for any Environmental Condition Value Reduction, then Seller's
response shall state the basis for such dispute and the amount that Seller
contends should be the correct Environmental Condition Value Reduction. If
Seller intends to indemnify Buyer against all risks associated with such
Environmental Condition, Seller's notice shall state the same. Seller's response
shall include all supporting information required to substantiate Seller's
positions.
(c) Discussions Between the Parties. The Parties shall negotiate in
good faith to resolve any disputed issues concerning Environmental Conditions or
Environmental Condition Value Reductions between the time Seller delivers its
response and the Closing Date, and to agree upon the aggregate Environmental
Price Adjustment for all Environmental Conditions. The Closing Settlement Price
shall reflect the terms so negotiated by the Parties. Without limitation, the
Parties may agree to one or more of the following procedures with respect to
particular outstanding or disputed Environmental Conditions and corresponding
Environmental Condition Value Reduction:
(i) If any Property is burdened by an Environmental
Condition which may be cured by the Partnership
before Closing, then the parties may mutually agree
to allow the Partnership to cure such Environmental
Condition at Seller's expense before Closing. In such
case, no Environmental Condition Value Reduction
shall be asserted for such Environmental Condition,
but the costs of such cure shall not be deducted in
computing the Settlement Price.
(ii) If Seller and Buyer agree for Buyer to retain the
risks associated with such Environmental Condition,
then Seller and Buyer may negotiate the terms of a
mutually acceptable agreement to be delivered by
Seller to Buyer at Closing, whereby Seller would
indemnify and defend Buyer against any and all risks,
losses, claims and damages that might be incurred by
Buyer, the Subsidiaries or the Partnership as a
result of the Environmental Condition. In such case,
no Environmental Condition Value Reduction shall be
asserted for such Environmental Condition.
(iii) If at Closing, there is an Environmental Price
Adjustment and the Parties disagree upon the amount
of an Environmental Condition Value Reduction
attributable to an Environmental Condition asserted
by Buyer, for which Seller and Buyer do not agree for
Seller to provide an indemnity to Buyer, then the
Parties may nevertheless mutually elect to proceed to
Closing as scheduled and to resolve the correct
amount of such Environmental Condition Value
Reduction after Closing. In such an instance, the
Partnership shall execute an instrument, dated
effective as of the day before the Closing Date,
assigning to another subsidiary of Seller each
Property subject to the Environmental Conditions for
which the Parties have agreed to resolve the correct
amount of such Environmental Condition, and Seller
shall deliver such instrument(s) to the escrow agent
for the escrow account. In such event, Seller shall
indemnify the Partnership, the Subsidiaries and the
Buyer for and against all Liabilities relating to
such Property unless and until such property
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is reconveyed to the Partnership pursuant to further
provisions hereof. Further, the Settlement Price paid
to Seller at Closing shall be reduced by the amount
of the Allocated Value of the Property burdened by
such Environmental Conditions. Such amount of the
Environmental Price Adjustment amount shall instead
be paid into the escrow account. If within an agreed
period (not to exceed sixty (60) days) Seller and
Buyer agree upon the correct amount of a
Environmental Condition Value Reduction, the escrow
agent shall be instructed to deliver the assignment
of such Property to Buyer together with the amount of
the agreed upon Environmental Condition Value
Reduction, and to pay to Seller the remainder of the
Allocated Value for such Property, plus any earned
interest, but less any associated escrow fees and
expenses. If during such period, the Parties do not
agree upon the correct amount of an Environmental
Condition Value Reduction, then the escrow agent (1)
shall, pursuant to Seller's directions, either
deliver the assignment for the Property burdened by
such uncured Environmental Condition to Seller's
subsidiary or destroy such assignment, and (2) shall
return to Buyer the escrowed proceeds, including
accrued interest, but deducting any applicable escrow
fees. If the Seller instructs the escrow agent to
deliver the assignment of the Property to Seller's
subsidiary, such Property shall be excluded from the
sale hereunder; if the Seller instructs the escrow
agent to destroy the assignment of the Property, such
Property shall be included in the Operating Assets of
the Partnership that are within the sale hereunder,
but the Settlement Price shall not reflect any
amounts allocable to such Property.
(iv) If at Closing, there is an Environmental Price
Adjustment and the Parties reasonably disagree upon
the existence or amount of an Environmental Condition
Value Reduction attributable to an Environmental
Condition asserted by Buyer and if the Parties do not
elect to place proceeds in escrow, then the Parties
shall resolve such disagreement in accordance with
Section 21.16.
ARTICLE VIII.
CASUALTY LOSS AND CONDEMNATION
8.1 NO TERMINATION. Except as specifically provided to the contrary
herein, the Subsidiaries and the Partnership shall retain all risk of loss with
respect to any loss of, reduction in value of or damage to the Operating Assets
from the Effective Time until Closing, and Buyer assumes the risk of loss of
value of the Subsidiaries and the Partnership associated with such matters. If
after the Effective Time and prior to the Closing, any part of the Operating
Assets should be destroyed by fire or other casualty or if any part of the
Operating Assets should be taken in condemnation or under the right of eminent
domain or if proceedings for such purposes should be pending or threatened, this
Agreement shall remain in full force and effect notwithstanding any such
destruction, taking or proceeding or the threat thereof, except as expressly
provided in Article XX.
8.2 PROCEEDS AND AWARDS. In the event of any loss described in Section
8.1, Seller (with Buyer's consent, which shall not be unreasonably withheld)
shall either (a) at the Closing assign to the Partnership all of Seller's rights
in any insurance proceeds, third party damage payments,
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condemnation awards or other amounts paid or to be paid by reason of such
destruction, less any costs and expenses incurred by Seller in collecting same,
or (b) prior to Closing, use or have the Partnership apply such sums (less any
costs and expenses incurred by Seller in collecting same) to repair, restore or
replace such damaged or taken Operating Assets. In addition, Seller shall at
Closing assign to the Partnership all of the right, title and interest of Seller
in and to any claims for loss of or damages to the Operating Asset, that might
be asserted against third parties with respect to the event or circumstance
causing such loss to and any unpaid insurance proceeds, condemnation awards or
other payments arising out of such destruction or taking, less any costs and
expenses previously incurred by Seller in collecting same. The Settlement Price
shall be reduced by the Casualty Price Adjustment, if any, attributable to
casualty losses that are not fully covered by insurance. Notwithstanding
anything to the contrary in this Section 8.2, neither Seller, the Subsidiaries
nor the Partnership shall be obligated to carry or maintain, nor shall they have
any obligation or liability to Buyer for their failure to carry or maintain any
insurance coverage with respect to any of the Operating Assets, except as
required by Section 9.2.
8.3 RISKS OF OTHER LOSSES. Except as otherwise set forth in this
Agreement, Buyer shall assume all risks of loss with respect to the
Partnership's ownership or operation of the Operating Assets after the Effective
Time, including without limitation, the following risks:
(a) Operations. With respect to each Operating Asset, Buyer shall
assume all risk of loss with respect to any loss of value or change in the
condition of the Operating Asset, and all wells thereon, after the Effective
Time, relating to the production of oil, gas or other hydrocarbons, including
without limitation normal depletion, water encroachment, coning, pressure
depletion, formation changes and sand infiltration. The Partnership shall
continue to bear its proportionate share of the risks allocated under applicable
joint operating agreements and assume their proportionate share of the risks
that such operations may be unsuccessful, and Closing shall not be conditioned
upon the success of any operations.
(b) Market Conditions. With respect to each Operating Asset, Buyer
shall assume all risk of loss with respect to any change in market conditions
affecting any Operating Asset or production therefrom after the Effective Time,
and this Agreement shall not be terminated or suspended, nor shall Closing be
delayed, due to any such change in market conditions.
ARTICLE IX.
COVENANTS
9.1 PRE-CLOSING COVENANTS OF SELLER REGARDING THE BUSINESS. Sellers
shall cause the Subsidiaries and the Partnership to operate the Business only in
its usual, regular and ordinary manner and substantially in the same manner as
heretofore conducted, and as set forth in Section 9.2. Sellers shall cause the
Subsidiaries and the Partnership to use commercially reasonable efforts and as
set forth in Section 9.2, to (i) preserve the Business; (ii) keep available to
Buyer the services of the present officers, employees, agents and independent
contractors of the Subsidiaries; and (iii) maintain the assets of the Business
in their current state of repair, order and condition, usual and ordinary wear
and tear excepted and subject to requirements in the ordinary course of
business.
9.2 PRE-CLOSING COVENANTS OF SELLER REGARDING THE OPERATING ASSETS.
Subject to the terms of applicable operating and other existing agreements,
Seller covenants and agrees that between the date of this Agreement and the
Closing Date, except as set forth on Schedule 9.2 or as may be
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consented to in writing by Buyer, which consent shall not be unreasonably
withheld, Seller shall manage the Partnership's ownership of the Operating
Assets as follows:
(a) Disposal of Operating Assets. The Partnership shall not sell or
otherwise dispose of any of the Operating Assets, except for the sale in the
ordinary course of the Partnership's business of oil, gas, condensate and
products thereof and surplus equipment.
(b) New Third Party Rights. Except for Contracts entered into in
furtherance of operations listed on Schedule 9.2 and Schedule 9.2(f), without
Buyer's consent, the Partnership shall not enter into any new or amended
contracts, agreements or relationships (i) granting any Preferential Right to
Purchase or Consent to Assignment affecting any of the Operating Assets
hereunder, (ii) which involve total payments in excess of $50,000, or (iii)
which if in existence as of the date hereof would be a material Contract.
(c) Preservation of Operating Assets. The Partnership shall use
reasonable efforts to preserve in full force and effect all leases, operating
agreements, easements, rights-of-way, permits, licenses, contracts and other
agreements which relate to the Operating Assets and shall perform the
obligations of the Partnership in or under any such agreement relating to such
Operating Assets as a reasonable and prudent operator, provided however, that
the Partnership shall not be required to conduct any drilling, recompletion or
reworking activities to maintain any lease, farmout agreement or other
defeasible interest in force or to settle any adverse claims, demands or
litigation in a manner that Seller deems inappropriate.
(d) Maintenance of Equipment. The Partnership shall maintain all
material and equipment within the Operating Assets in accordance with customary
industry operating practices and procedures.
(e) Insurance. The Partnership shall maintain in full force and effect
all policies of insurance now maintained by Seller and the Partnership covering
the Operating Assets. Seller and Buyer will cooperate in making claims under
Seller's insurance policies prior to the Closing. Seller additionally agrees to
cooperate with Buyer to allow Buyer, the Subsidiaries or the Partnership to
obtain, at Buyer's expense, at a reasonable market price an additional reporting
period policy for any of Seller's insurance policies which are on a claims-made
basis.
(f) Operations.
(i) Except for operations covered by committed
expenditures listed on Schedule 9.2(f), the
Partnership shall not propose or conduct for its own
account any operation which might reasonably be
expected to require an expenditure in excess of fifty
thousand dollars ($50,000). The Partnership shall
have the right to conduct, at its sole election and
discretion, any operations that either (1) are
covered by committed expenditures listed on Schedule
9.2(f), (2) are required by law or regulations, (3)
are required under a binding existing agreement with
a third party, or (4) which the Partnership
reasonably expects to require an expenditure of less
than fifty thousand dollars ($50,000).
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(ii) Except for operations covered by committed
expenditures listed on Schedule 9.2(f), the
Partnership shall not agree to participate in any
reworking, deepening, drilling, completion,
recompletion, equipping or other operation that is
proposed by a co-owner in any well or other asset, if
such operation might reasonably be expected to
require an expenditure by the Partnership in excess
of fifty thousand dollars ($50,000), without Seller
having first provided Buyer written or oral notice
thereof as soon as reasonably practicable after the
Partnership receives notice thereof from the
Partnership's co-owner in such Operating Asset. If
Seller provides Buyer with such notice, Buyer and
Seller shall promptly consult about the advisability
of participating in such operations. If Buyer and
Seller cannot agree, the following provisions shall
apply:
(1) If Seller should wish to participate in an
operation proposed by a third party and Buyer should
object to the operation, then the Partnership may
agree to participate, but Buyer may assert a Title
Defect with respect to the Property affected by such
operation, and in such event such Property shall be
excluded from the sale hereunder and instead shall be
assigned to another subsidiary of Seller prior to
Closing and the Purchase Price shall be reduced by
the Allocated Value of the affected Property. In such
event, Seller shall indemnify and defend Buyer
against any and all Damages relating to such
operation and such Property.
(2) If Buyer should wish to participate in such
operation and Seller objects to the operation, the
Partnership shall not be obligated to make any such
payment or to elect to participate in such operation
unless within a reasonable time prior to the date
when such payment or election is required to be made
by the Partnership, the Partnership receives from
Buyer, (A) the written election and agreement of
Buyer to require the Partnership to take such action
and to indemnify Seller therefrom and (B) all funds
necessary for such action.
(3) If (A) Buyer advances any funds pursuant to
subparagraph (2), and (B) the Common Stock is not
assigned to Buyer at Closing, and (C) Seller does not
reimburse Buyer for all advances made by Buyer with
respect to such Operating Assets pursuant to
subparagraph (2) within thirty (30) days after this
Agreement terminates, then Buyer shall own and be
entitled to any right of the Partnership that would
have lapsed but for such payment, and in the case of
operations, Seller shall be entitled to receive the
penalty which the Partnership, as non-consenting
party, would have suffered under the applicable
operating agreement with respect to such operations
as if Buyer were a consenting party thereunder.
(g) Data Restrictions. Seller shall advise Buyer in writing of the
identity, nature and existence of any technical or interpretive information or
data that cannot be assigned to Buyer hereunder because of confidentiality
agreements with third parties, identify such third parties, and provide
reasonable cooperation (for before and up to one year after Closing) in
obtaining the agreement of such third parties to the release or assignment of
such information and data to Buyer;
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provided however, that Seller shall not be required to expend any material funds
or release any rights to allow such release or assignment.
(h) Operating Assets Operated by Others. To the extent the Partnership
is not the operator of any Operating Asset, the obligations of Seller in this
Section 9.2, which have reference to operations or activities which normally are
or pursuant to existing contracts are to be carried out or performed by
operator, shall be construed to require only that the Partnership use reasonable
efforts to request that the operator of such Operating Asset either take such
actions, render such performance or refrain from performance, within the
constraints of the applicable operating agreements, applicable agreements and
applicable law.
9.3 SELLER'S COVENANTS REGARDING ENCUMBRANCES. Seller covenants that
on or before the Closing Date, Seller shall cause the Encumbrances in Schedule
1B to be released, in a form reasonably acceptable to Buyer.
9.4 COVENANTS REGARDING CORPORATE AND FINANCIAL MATTERS. Through the
Closing Date, except as set forth in Schedule 9.4 or as contemplated by this
Agreement (including without limitation Sections 2.5 and 2.6) or otherwise
consented to or approved by Buyer in writing, which consent or approval shall
not be unreasonably withheld, Seller shall cause the Subsidiaries and the
Partnership not to:
(a) Amend the Charter or Bylaws of any the Subsidiaries or amend the
Partnership Agreements of the Partnership;
(b) Incur, assume or become subject to any additional indebtedness for
money borrowed or purchase money indebtedness, except in the ordinary course of
business and consistent with past practices;
(c) Except as necessary to effect the transactions contemplated herein,
declare or pay any dividend or make any other distribution to any shareholder of
any of the Subsidiaries or any partner of the Partnership;
(d) Redeem or otherwise acquire any shares of capital stock of any of
the Subsidiaries or issue any capital stock of any the Subsidiaries or any
option, warrant or right relating thereto or any securities exchangeable for or
convertible into any such shares;
(e) Permit or allow any of the Subsidiaries' assets or properties to be
subject to any additional Encumbrance (other than Permitted Encumbrances) or
sell, transfer, lease or otherwise dispose of any such assets or properties,
other than surplus equipment not necessary for operations of the Business and
sold for a reasonable consideration of less than $25,000;
(f) Make any change in any method of accounting or accounting practice
or policy, other than those required by GAAP;
(g) Engage in any transactions with an Affiliate of Seller, other than
transactions in the ordinary course and consistent with past practices;
(h) Make any changes in the method of selling natural gas, condensate,
oil or products thereof which is not consistent with past practices;
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(i) Enter into any new derivative or Hedging Contracts with respect to
natural gas, condensate, oil, products thereof, interest or any other
commodities or other financial instruments; or
(j) Agree, whether in writing or otherwise, to do any of the foregoing.
9.5 NO SOLICITATION OF TRANSACTIONS. Except as otherwise permitted
herein from the date of this Agreement through the Closing Date, neither Seller
nor any of their representatives, Affiliates, directors, officers, employees,
subsidiaries or agents will (a) solicit, consider, encourage or accept any other
offers to acquire any of the Common Stock or Seller's interests in the
Partnership or (b) solicit, consider, encourage or accept any other offers to
acquire any of the assets or properties of the Partnership (other than as
permitted by this Agreement) or (c) assist any third Person in preparing or
soliciting such an offer. Seller shall not have, and shall cause such
representatives, Affiliates, directors, officers, employees, subsidiaries and
agents not to have any discussions, conversations, negotiations or other
communication with any Person(s) expressing an interest in any such offer.
9.6 EMERGENCIES AND OVERSIGHTS. Notwithstanding the other provisions
of this Article IX, (a) Seller, the Subsidiaries and/or the Partnership may take
any action with respect to the Operating Assets without penalty, if reasonably
necessary under emergency circumstances or if required to protect life, public
safety or the environment, and provided Buyer is notified as soon thereafter as
reasonably practical, and (b) Seller shall have no liability to Buyer for the
loss or reduction of any rights or interests by reason of the nonpayment or
incorrect payment of delay rentals, royalties, shut-in royalties or similar
payments or for any failure to pay any such payments through mistake or
oversight; provided, however, Buyer shall be permitted to assert the items in
this clause (b) as Title Defects under Article VI.
9.7 BUYER'S COVENANTS REGARDING PERFORMANCE AND CONTINUED EXISTENCE.
Buyer covenants that between the date of this Agreement and the Closing Date:
(a) Buyer shall take all steps and perform all operations reasonably
necessary to allow Buyer to perform its obligations at Closing;
(b) Buyer shall maintain its existence as a limited liability company
in good standing in Delaware; and
(c) Buyer shall cause the representations and warranties of Buyer to be
true and correct as of the Closing Date.
9.8 BUYER'S COVENANTS REGARDING TRADE NAME. Buyer acknowledges and
agrees with Seller that Seller shall have the absolute and exclusive proprietary
right to all names, marks, trade names, trademarks and corporate symbols and
logos incorporating "Tesoro," together with all other names, marks, trade names,
trademarks and corporate symbols and logos owned by any Affiliates of Seller
(collectively, the "Tesoro Marks"), all rights to which and the goodwill
represented thereby and pertaining thereto are being retained by Seller and the
Affiliates of Seller. Within ninety (90) days after the Closing Date, Buyer
shall change the name of the Subsidiaries and the Partnership, to not include
the name "Tesoro", cease using any Tesoro Mark and shall promptly remove from
all the assets and properties of the Subsidiaries any and all Tesoro Marks, and
change the name on all permits and licenses, to not include the name "Tesoro".
Thereafter, Buyer shall not use any Tesoro
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Mark in connection with the conduct of its business. In the event that Buyer
breaches this Section 9.8, Seller shall be entitled to specific performance of
this Section 9.8 and to injunctive relief against further violations, as well as
any other remedies available at law or in equity.
9.9 BUYER'S COVENANTS REGARDING EMPLOYMENT.
(a) Schedule 9.9(a) sets forth the employees of Seller or its
Affiliates to whom Buyer (or an Affiliate of Buyer) expects to offer employment
after the Closing. Buyer in its sole discretion will determine the capacity in
which the employees listed on Schedule 9.9(a) who accept employment with Buyer
or its Affiliate (the "Retained Employees") will be employed and with which
entity each of the Retained Employees will be employed after the Closing. After
the Closing, Buyer (or its Affiliates which will employ Retained Employees) will
initially provide to the Retained Employees the same base salary or wages (but
not any retention-related salary increases described in Schedule 9.9(c))
provided to such employees prior to the Closing, subject to such changes in base
salary or wages as are consistent with the Buyer's compensation structure. Buyer
will take all actions necessary or appropriate to permit the Retained Employees
to participate from and after the Closing in the employee benefit plans or
arrangements of Buyer and/or Affiliates of Buyer customarily provided to new
employees of Buyer and its Affiliates (including, without limitation, the
Employee Stability Plan); provided that Buyer shall, with respect to Buyer's or
its Affiliate's group health and dental plans ("Buyer's Group Health Plans"), to
the extent necessary after the Closing, (i) reimburse such Retained Employees,
for the year during which participation in Buyer's Group Health Plan begins, for
any duplicate deductibles and copayments already incurred during such year under
the group health and dental plans of Seller or its Affiliates ("Seller's Group
Health Plans"), and (ii) waive any preexisting condition limitations applicable
to the Retained Employees (and their eligible dependents) under Buyer's Group
Health Plans to the extent that a Retained Employee's (or dependent's) condition
would not have operated as a preexisting condition under Seller's Group Health
Plans.
(b) Buyer (and its Affiliates) will not be required to assume any
obligation to Retained Employees (or any other employees of Seller or its
Affiliates) under Seller's existing severance, retention or management stability
agreements, or similar agreements. As described in Section 9.9(a), from and
after the Closing, the Retained Employees will be permitted to participate in
the employee benefit plans or arrangements of Buyer and/or its Affiliates
customarily provided to new employees of Buyer and its Affiliates (including,
without limitation, the Employee Stability Plan), or other benefits as may be
individually negotiated between Buyer and a Retained Employee.
(c) Buyer (or its Affiliate) will assume half, and Seller and its
Affiliates will remain responsible for half, of the liability to all Retained
Employees for the annual incentive compensation bonuses described on Schedule
9.9(c). Buyer (or its Affiliate) will not assume the liability to certain
Retained Employees for the retention-related salary payment.
(d) Any obligations to employees of Seller and its Affiliates not
specifically assumed by Buyer (or its Affiliates) in this Section 9.9, including
without limitation all such obligations accrued prior to the Closing, will be
the responsibility of the Seller, and Seller will indemnify Buyer with respect
to those obligations.
(e) Buyer agrees to open an office in San Antonio, Texas and to
maintain such office for so long as prudent business practices justify its
operation.
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(f) Schedules 9.9(a) and 9.9(c) shall be supplemented by Buyer within
twenty-five (25) days following the date of this Agreement. During such
twenty-five day period, none of Seller, the Subsidiaries (on behalf of Seller
and its Affiliates) or the Partnership (on behalf of Seller and its Affiliates)
shall be permitted to solicit any of the employees listed on Schedule 9.9(a) for
employment after the Closing Date. If after the Closing Date, Seller or any of
its Affiliates continues to employ any individual listed on the final Schedule
9.9(a), Seller agrees to cooperate with Buyer to make such individual available
to provide services required by Buyer for up to six months after the Closing
Date for transition purposes, with Buyer reimbursing Seller for the actual cost
of such employee's services (including without limitation, salary and benefits).
9.10 AUTHORIZATIONS.
(a) Each of Buyer and Seller, as promptly as practicable after the
Agreement Date, shall (i) deliver, or cause to be delivered, all notices and
make, or cause to be made, all such declarations, designations, registrations,
filings and submissions under all statutes, laws, regulations and Governmental
Orders applicable to it as may be required for it to consummate the sale of the
Common Stock and the other transactions contemplated hereby in accordance with
the terms of this Agreement; (ii) use commercially reasonable efforts to obtain,
or cause to be obtained, all authorizations, approvals, orders, consents and
waivers from all Persons necessary to consummate the foregoing; and (iii) use
commercially reasonable efforts to take, or cause to be taken, all other actions
necessary, proper or advisable in order for it to fulfill its respective
obligations hereunder and to carry out the intentions of the parties expressed
herein. The preceding sentence notwithstanding, neither party shall have any
obligation to waive any condition herein for its benefit or any performance
hereunder by any other party. Without limiting the foregoing, each Party (i)
will file any Notification and Report Forms and related material that such Party
may be required to file under the HSR Act, (ii) will use their best efforts to
obtain an early termination of the applicable waiting period, (iii) and will
make any further filings pursuant thereto that may be necessary, proper, or
advisable in connection therewith.
(b) Each Party shall use its commercially reasonable efforts to satisfy
the conditions to Closing applicable to it in Article XI as soon as commercially
practicable.
9.11 SOFTWARE AND COMPUTER PROGRAMS. From the date of this Agreement
through the date which is ninety (90) days after the Closing Date, each Seller,
the Subsidiaries and the Partnership, as applicable, agree to engage in
discussions with the licensors of applicable software and computer programs and
seismic data and processing identified in a written notice provided to Seller by
Buyer on or prior to the Closing Date, the purpose of which discussions shall be
to assist Buyer in its efforts to obtain a license with respect to such software
and/or computer programs and seismic data and processing with terms acceptable
to Buyer. Buyer will pay all fees (including fees agreed to as part of a
settlement) required to transfer or retain such records, programs and data that
Buyer chooses to retain after Closing.
9.12 GENERAL.
(a) Each of the Parties will use their reasonable best efforts to take
all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Article
XI).
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(b) Buyer agrees to cooperate at no cost or liability to Buyer with
Seller so that Seller's transfer of the Operating Assets to Buyer shall, at
Seller's election, be accomplished in a manner enabling the transfer to qualify
as a part of a like-kind exchange of property by Seller within the meaning of
Section 1031 of the Code. If Seller so elects, Buyer shall reasonably cooperate
with Seller to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller reasonably requests in order
to pay the Purchase Price in a manner which enables such transfer to qualify as
part of a like-kind exchange of property within the meaning of Section 1031 of
the Code, and Buyer agrees that Seller may assign its rights (but not its
obligations) under this Agreement to an escrow agent acting as a qualified
intermediary under United States Treasury Regulations, to qualify the transfer
of the Purchase Price as a part of a like-kind exchange of property within the
meaning of Section 1031 of the Code.
(c) If prior to Closing Buyer elects to obtain financing for a portion
of the Purchase Price from a bank or other lender (the "Lender") (whether
through conventional loans or through a production payment or similar
off-balance sheet financing mechanism), Seller shall (and shall cause the
Subsidiaries and the Partnership to) cooperate reasonably with Buyer in Buyer's
negotiation and finalization of any loan or other documents with the Lender,
provided that such cooperation does not result in Seller, the Subsidiaries and
the Partnership incurring material additional expenses. Seller shall (and shall
cause the Subsidiaries and the Partnership to) use its commercially reasonable
efforts to give representatives of the Lender the access to information and
right to inspection provided to Buyer under Article V, subject to the Lender
agreeing to be bound by the terms of the Confidentiality Agreement. This Section
9.12(c) does not change or modify Buyer's obligation to close the Transactions
in accordance with the other provisions of this Agreement.
9.13 SUPPLEMENTAL INFORMATION REGARDING REPRESENTATIONS AND WARRANTIES.
(a) If at any time prior to the Closing there shall arise any
occurrence, or change in circumstances or development causing a breach of any of
the representations and warranties in paragraphs (m)(i), (u), (w), (x), (y),
(z), (aa) or (bb) (to the extent such paragraph (bb) applies to the Operating
Assets and not the Common Stock) of Section 4.1, the Party discovering such
occurrence, change or development shall promptly notify the other Party of the
same. Such notice will be deemed to have qualified the representations and
warranties contained in such paragraphs of Section 4.1 to reflect the
information contained in the notice.
(b) Such notices of changes in the representations and warranties under
paragraphs (m)(i), (w), (x), (y), (z) and (bb) (to the extent such paragraph
(bb) applies to the Operating Assets and not the Common Stock) of Section 4.1
will be deemed to constitute a Title Defect (a "Seller Initiated Title Defect")
timely asserted under Sections 6.2 and 6.3 hereof (regardless of when Seller's
notice shall have been given) without any need for any action by Buyer, unless
such changes are within the exclusions for Title Defects set forth in Section
6.2(c). In such event, subject to the provisions of Articles VI and XIII, the
Property Value Reduction resulting from such Seller Initiated Title Defect shall
be determined in accordance with the provisions of Sections 6.3 and 6.4;
provided, however, that if the Seller Initiated Title Defect would not have
constituted a Title Defect under the provisions of Section 6.2 (other than
Section 6.2(b)(i)), then the Property Value Reduction shall be the adverse
economic effect upon the Subsidiaries or the Partnership which would reasonably
be expected to result from such Seller Initiated Title Defect.
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(c) Such notices of changes in the representations and warranties
under paragraph (aa) of Section 4.1 will be deemed to constitute a Seller
Initiated Title Defect, unless such change would be considered an "Environmental
Condition" (as that term is defined hereunder), in which case it shall be deemed
to be an Environmental Condition (a "Seller Initiated Environmental Defect"),
timely asserted under Sections 6.2, 6.3 or 7.3 hereof, as applicable (regardless
of when Seller's notice shall have been given), without any need for any action
by Buyer, unless such changes are within the exclusions for Title Defects set
forth in Section 6.2(c) or Environmental Conditions set forth in Section 7.3(c).
In such event, subject to the provisions of Articles VI, VII and XIII, the
Property Value Reduction resulting from such Seller Initiated Title Defect or
the Environmental Condition Value Reduction resulting from such Environmental
Condition shall be determined in accordance with the provisions of Sections 6.3
and 6.4 or Sections 7.6 and 7.7, as applicable; provided, however, that if the
Seller Initiated Title Defect would have not constituted a Title Defect under
the provisions of Section 6.2 (other than Section 6.2(b)(i)), then the Property
Value Reduction shall be the adverse economic effect upon the Subsidiaries or
the Partnership which would reasonably be expected to result from such Seller
Initiated Title Defect.
(d) Such notices of changes in the representations and warranties under
paragraphs (u) of Section 4.1 will be deemed to constitute a Seller Initiated
Environmental Defect timely asserted under Section 7.3 hereof (regardless of
when Seller's notice shall have been given) without any need for any action by
Buyer, unless such changes are within the exclusions for Environmental
Conditions set forth in Section 7.3(c). In such event, subject to the provisions
of Articles VII and XIII, the Environmental Condition Value Reduction resulting
from such Environmental Condition shall be determined in accordance with the
provisions of Sections 7.6 and 7.7.
(e) Any adjustment to the Purchase Price resulting from any such Seller
Initiated Title Defect or Seller Initiated Environmental Defect shall be
considered for the purposes of Sections 11.2(g), 20.1(b) and (c). The written
notice pursuant to this Section 9.13 and the resulting qualification of the
applicable representation shall otherwise be deemed to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder because of the development, and the certificate to be delivered by
Seller pursuant to Section 11.1(c) may reflect the applicable representation as
so qualified.
(f) If at any time prior to the Closing, there shall arise any
occurrence, or change in circumstances or development causing a breach of any of
the representations and warranties in paragraphs (g), (l), and subparagraphs
(m)(ii), m(iii), m(iv) and (k)(xiv) of Section 4.1, the Party discovering such
occurrence, change or development shall promptly notify the other Party of the
same, and either (i) the Parties shall negotiate in good faith an adjustment to
the Purchase Price to reflect the Damages caused by such breach, or (ii) if the
Parties are unable to decide on an adjustment to the Purchase Price under clause
(i), then (A) Seller may elect to retain the Liabilities which caused the
representations and warranties to be inaccurate, and Seller shall indemnify,
defend and hold harmless Buyer against such Liabilities, and (B) to the extent
the Parties agree that the Liabilities which caused the representations and
warranties to be inaccurate relate to a Property, then Seller may elect to have
such Property assigned to a different subsidiary of Seller, and the Purchase
Price shall be reduced by the Allocated Value of such Property; or (iii) if the
Parties are unable to decide on an adjustment to the Purchase Price under clause
(i), and if Seller does not elect to retain the Liabilities which caused the
representations and warranties to be inaccurate and indemnify the Buyer, and if
such
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breach of the representations and warranties causes the representations and
warranties not to be true and correct in all material respects on the Closing
Date as though made on and as of that date, then the Parties agree that the
condition of the Closing set forth in Section 11.2(a) shall not have been
satisfied, and, unless Buyer waives the satisfaction of such condition to the
Closing, Buyer shall not be obligated to consummate the Transaction. If the
Parties resolve the matters contemplated in this Section 9.13(f) through any of
the options described in clause (i) or (ii) above, the notice delivered pursuant
to the first sentence of this Section 9.13(f) will be deemed to have qualified
the representations and warranties contained in the relevant paragraphs of
Section 4.1 to reflect the information contained in the notice.
9.14 CERTAIN PIPELINE ASSETS. Seller agrees that, prior to the
Closing, it shall cause Tesoro Pipeline Company, L.P. to transfer to the
Partnership all pipeline assets described on Exhibit B (the "Val Verde
Pipeline") relating to Production from the Partnership's Vinegarone East
Prospect located in Edwards and Val Verde Counties, Texas. It is hereby
expressly understood, and Seller acknowledges, that all representations,
warranties, covenants and agreements contained herein are made as if the Val
Verde Pipeline were owned by the Partnership as of the date hereof.
9.15 GATHERING AGREEMENT EXTENSION. Seller agrees that, prior to the
Closing, it shall cause Tesoro Pipeline Company, L.P., as majority owner of the
Starr County Gathering System, to amend the existing gathering agreement between
the Partnership and Starr County Gathering System to extend its term to the date
of the last to expire of the leases for the Bob West Royalty Field set forth in
Exhibit B.
9.16. SELLER'S COVENANTS CONCERNING THE STARR-ZAPATA PARTNERSHIP.
Seller shall cause Pipeline and Natural Gas, in their capacity as Pipeline
Partners under the Starr-Zapata Partnership Agreement, to vote to keep the
Starr-Zapata Transportation Agreement in full force and effect from and after
the Closing Date and, in connection therewith, refrain from taking any action
which would hinder, diminish or otherwise impair the rights and benefits of the
Partnership under the Starr-Zapata Transportation Agreement. Without limiting
the generality of the foregoing, but without obligating Seller or the Pipeline
Partners to make any future capital expenditures for expansion, repair or
replacement of any pipeline facilities not funded out of Starr-Zapata
Partnership's cash flow from the Effective Date, Seller shall not permit
Pipeline or Natural Gas to exercise their respective voting rights, powers or
privileges under the Starr-Zapata Partnership Agreement to cause, assist or
permit the Pipeline Operator to (i) reject any volume of gas tendered by the
Partnership in excess of 100 MMcf per day pursuant to Section 2.2(b) of the
Starr-Zapata Transportation Agreement, (ii) cease operation of the Starr-Zapata
Line pursuant to Section 4.2 of the Starr-Zapata Transportation Agreement or
(iii) reject any gas tendered by the Partnership on the basis that such gas does
not meet the quality specifications set forth in Section 5.1 of the Starr-Zapata
Transportation Agreement, if the Pipeline Operator accepted gas tendered by the
Partnership prior to the Closing Date with quality specifications similar to
those of the gas tendered by the Partnership from and after the Closing Date.
During the time that the Put Option and Call Option are outstanding, Seller
shall not allow Pipeline and Natural Gas, in their capacity as Pipeline Partners
under the Starr-Zapata Partnership Agreement, to vote to cause the Starr Zapata
Partnership or Starr-Zapata Line to be operated in a manner not in compliance
with the covenants contained in Section 9.1 (except clause (ii), Section 9.2,
Paragraphs (a), (b)(i), (b)(ii), (b)(iii), (c), (d), (e), (f)(i) and (h)
(provided with respect to subparagraphs (b)(ii), (b)(iii) and (f)(i), Seller
will obtain the consent of Buyer prior to taking such actions, which consent
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shall not be unreasonably withheld), and Sections 9.4 (provided with respect to
Paragraph (e), Seller will obtain the consent of Buyer prior to taking such
actions, which consent shall not be unreasonably withheld), 9.5, 9.6 and 9.10,
as if such covenants applied to the Starr-Zapata Partnership to the same extent
such covenants apply to the Partnership. Seller, the Subsidiaries and the
Partnership agree to provide access, consistent with the type of access provided
in Article V, to books and records concerning the assets of Natural Gas,
Gathering and Pipeline, and to cooperate with Buyer to provide Buyer access, by
appointing Buyer as Seller's agent, to whatever books and records of the
Starr-Zapata Partnership that Pipeline or Natural Gas would have access to under
the Starr-Zapata Partnership Agreement.
9.17. SELLER'S COVENANTS CONCERNING THE STARR COUNTY GATHERING SYSTEM.
Seller shall cause Pipeline and Natural Gas, in their capacity as Partners under
the Starr County Joint Venture Agreement, to vote to keep the Starr County
Gathering Agreement in full force and effect from and after the Closing Date
and, in connection therewith, refrain from taking any action which would hinder,
diminish or otherwise impair the rights and benefits of the Partnership under
the Starr County Gathering Agreement. Without limiting the generality of the
foregoing, but without obligating Seller or the Pipeline Partners to make any
future capital expenditures for expansion, repair or replacement of any pipeline
facilities not funded out of Starr County Gathering's cash flow from the
Effective Date, Sellers shall not permit Pipeline or Natural Gas to exercise
their respective voting rights, powers or privileges under the Starr County
Joint Venture Agreement to cause, assist or permit Starr County Gathering to (i)
terminate the Starr County Gathering Agreement pursuant to Article 6.2 thereof
or (ii) to cause, assist or permit the Pipeline Operators to reject any volume
of gas tendered by the Partnership from and after the Closing Date under the
Starr County Gathering Agreement on the basis that such gas does not meet the
quality specifications set forth in Article 7.2 of the Starr County Gathering
Agreement, if Starr County Gathering accepted gas tendered by the Partnership
prior to the Closing Date with quality specifications similar to those of the
gas tendered by the Partnership from and after the Closing Date. During the time
that the Put Option and Call Option are outstanding, Seller shall not allow
Pipeline and Natural Gas, in their capacity as Pipeline Partners under the Starr
County Joint Venture Agreement, to vote to cause Starr County Gathering and
Starr County Gathering System to be operated in a manner not in compliance with
the covenants contained in Section 9.1 (except clause (ii)), Section 9.2,
Paragraphs (a), (b)(i), (b)(ii), (b)(iii), (c), (d), (e), (f)(i) and (h),
(provided with respect to subparagraphs (b)(ii), (b)(iii) and (f)(i), Seller
will obtain the consent of Buyer prior to taking such actions, which consent
shall not be unreasonably withheld), and Sections 9.4 (provided with respect to
Paragraph (e), Seller will obtain the consent of Buyer prior to taking such
actions, which consent shall not be unreasonably withheld), 9.5, 9.6 and 9.10,
as if such covenants apply to Starr County Gathering to the same extent such
covenants apply to the Partnership. Seller, the Subsidiaries and the Partnership
agree to provide access, consistent with the type of access provided in Article
V, to books and records concerning the assets of Natural Gas, Gathering and
Pipeline, and to cooperate with Buyer to provide Buyer access, by appointing
Buyer as Seller's agent, to whatever books and records of Starr County Gathering
that Pipeline or Natural Gas would have access to under the Starr County Joint
Venture Agreement.
ARTICLE X.
PRE-CLOSING PROCEDURES
10.1 NOTICE OF SETTLEMENT PRICE ADJUSTMENTS. At least ten (10)
Business Days prior to Closing, Buyer shall furnish Seller with notices listing
all Title Defects, Environmental Conditions and
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casualty losses that Buyer asserts as bases for reducing the Settlement Price.
At least five (5) Business Days prior to the Closing Date, Seller shall advise
Buyer whether Seller disputes any such amounts, whether Seller elects to cure
any such amounts, and what other actions Seller believes is appropriate
concerning any such amounts. Buyer and Seller shall then negotiate in good faith
to resolve all disputed issues prior to the Closing Date.
10.2 INITIAL SETTLEMENT STATEMENT. Eight (8) Business Days before the
Closing Date, Seller shall furnish Buyer with a preliminary draft of the
Settlement Statement, in accordance with Section 13.2. Buyer shall have the
right to audit and request appropriate adjustments to the amounts reflected
therein until four (4) Business Days before the Closing Date. At least four (4)
Business Days before the Closing Date, Buyer shall furnish Seller with any
comments, and adjustments or revisions Buyer believes are appropriate to conform
the Settlement Statement to accurately reflect the best information available at
Closing, and the Parties shall endeavor in good faith to reconcile the
accounting issues and to produce as accurate a Settlement Statement as possible
based upon the information available at Closing. At least two (2) Business Days
before the Closing Date, Seller shall furnish Buyer with the Settlement
Statement, including any appropriate updates, adjustments or revisions, showing
the Closing Settlement Price.
10.3 CLOSING DOCUMENTS. At least ten (10) Business Days before the
Closing Date, the Parties shall provide each other with preliminary drafts of
all attorneys opinions, certificates, corporate guarantees, assignments and
other instruments to be delivered at Closing. The Parties shall thereafter
cooperate to make such revisions as are needed to prepare mutually acceptable
forms of all such instruments.
10.4 ESCROW AGENT. If the Parties should agree to place any funds into
an escrow account at Closing, then they shall negotiate in good faith to select
a mutually acceptable escrow agent, who is willing and able to perform such
role. In such an instance, at least five (5) Business Days before the Closing
Date, the Parties shall agree upon an escrow agent, and they shall use their
best efforts to negotiate a mutually acceptable Escrow Agreement before the
Closing Date.
10.5 WIRE TRANSFER INSTRUCTIONS. At least two (2) Business Days prior
to the Closing Date, Seller shall provide to Buyer wire transfer instructions
designating a bank account and Federal Reserve ABA designation ID number, at a
bank within the United States of America where the Closing Settlement Price
shall be transferred.
ARTICLE XI.
CLOSING CONDITIONS
11.1 SELLER'S CLOSING CONDITIONS. Seller's obligation to consummate
the Transaction is subject to the satisfaction by Buyer or the waiver by Seller,
at or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Buyer
contained in Section 4.2 shall be true and correct in all material respects on
the Closing Date as though made on and as of that date.
(b) Performance. Buyer shall have performed in all material respects
the obligations, covenants and agreements hereunder to be performed by it at or
prior to Closing.
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(c) Corporate Certificates and Opinion. Buyer shall have delivered to
Seller (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of Buyer that the representations set forth in Section 4.2
are true and correct as of the Closing Date; (ii) a certificate of incumbency;
(iii) a certificate of good standing of Buyer as a limited liability company;
(iv) certified resolutions of the members of Buyer, authorizing Buyer to enter
into this Agreement and the Transaction and to perform its obligations at
Closing; (v) certified resolutions of the Board of Directors of EEX Corporation,
authorizing Buyer's parent to perform its obligations under the corporate
guarantee under Section 21.17; and (vi) an opinion of counsel for Buyer,
acceptable to Seller, dated the Closing Date, as to such matters as may
reasonably be requested by Seller and its counsel and are typical for
transactions such as the Transaction.
(d) Pending Matters. No suit, action or other legal proceeding by a
third party or a governmental authority shall be pending which seeks material
damages from Seller in connection with, or seeks to restrain, enjoin or
otherwise prohibit, the consummation of the Transaction.
(e) No Orders. This Closing hereunder shall not violate any order or
decree of any governmental authority having competent jurisdiction over the
Transaction.
(f) HSR. Any applicable waiting period under the HSR Act shall have
expired or been terminated.
11.2 BUYER'S CLOSING CONDITIONS. Buyer's obligations to consummate the
Transaction is subject to the satisfaction by Seller or the waiver by Buyer, at
or before the Closing, of the following conditions:
(a) Representations. Except as provided otherwise in Section 9.13, the
representations and warranties of Seller contained in Section 4.1 (other than
with respect to paragraphs (u), (w), (x), (y), (z) and (aa) of Section 4.1)
shall be true and correct in all material respects on the Closing Date as though
made on and as of that date; provided, however, that the accuracy of the
representations and warranties in subparagraphs (k)(i), (ix), (x), (xi), (xii)
and (xiii) of Section 4.1 shall, for purposes of satisfying this condition, not
be affected to the extent of inaccuracies resulting solely from Buyer
unreasonably withholding its prior written consent (after written request by
Seller duly provided to Buyer) to the action taken by (or omission of) Seller,
the Subsidiaries or the Partnership which caused such representations and
warranties to be inaccurate.
(b) Performance. Seller shall have performed, or caused to be
performed, in all material respects the obligations, covenants and agreements
hereunder to be performed by it, the Subsidiaries and the Partnership at or
prior to Closing.
(c) Corporate Certificates and Opinion. Each Seller shall have
delivered to Buyer, and Seller shall cause each Subsidiary and the Partnership
to deliver to Buyer: (i) a certificate of an executive officer, dated the
Closing Date, certifying on behalf of such Seller that the representations made
in Section 4.1, are true and correct as of the Closing Date; (ii) a certificate
of incumbency for each Seller and each of the Subsidiaries, (iii) a certificate
of corporate good standing for the Partnership as a Delaware limited
partnership, and for each Seller and each of the Subsidiaries as Delaware
corporations; (iv) with respect to each Seller only, certified resolutions of
the Boards of Directors of each Seller, authorizing each Seller to enter into
this Agreement and the Transaction and to perform its obligations at Closing;
and (v) an opinion of counsel for the Seller and each of the
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Subsidiaries and the Partnership, acceptable to Buyer, dated the Closing Date,
as to such matters as may reasonably be requested by Buyer and its counsel and
are typical for transactions such as the Transaction.
(d) Other Certificates and Documents. Buyer shall have also received
the certificates and documents described in Section 12.2.
(e) Pending Matters. No suit, action or other legal proceeding by a
third party or a governmental authority shall be pending which seeks material
damages from Buyer in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
(f) No Orders. The Closing hereunder shall not violate any order or
decree of any governmental authority having competent jurisdiction over the
Transaction.
(g) Adjustments. The reduction (if any) to be made at Closing to the
Purchase Price which results from the application of Articles VI, VII, VIII and
XIII does not exceed fifteen percent (15%) of the Purchase Price.
(h) Liens and Mortgages. Seller shall have secured release of all liens
and mortgages listed on Schedule 1B and released all obligations of the
Subsidiaries and the Partnerships under the Seller's credit facility and
provided Buyer evidence of the same.
(i) There shall not have occurred a Material Adverse Effect.
(j) HSR. Any applicable waiting period under the HSR Act shall have
expired or been terminated.
ARTICLE XII.
CLOSING
12.1 CLOSING. The closing of the Transaction (the "Closing") shall be
held on November 30, 1999 (the "Closing Date"), at 9:00 a.m. Houston time, at
the office of Seller's counsel, 1301 McKinney, Suite 5100, Houston, Texas 77010,
or at such other date or place as the parties may direct; provided, however,
that if all conditions to Closing set forth in Article XI have not been waived
or satisfied prior to November 30, 1999, the Closing Date shall be on the second
Business Day following the waiver or satisfaction of such conditions.
12.2 SELLER'S CLOSING OBLIGATIONS. At Closing, Seller shall deliver to
Buyer the following:
(a) Stock certificates representing all of the Common Stock for each of
the Subsidiaries, duly endorsed in blank or with separate stock powers duly
endorsed in blank;
(b) The stock books, stock ledgers, minute books, and corporate seal
for each of the Subsidiaries;
(c) All books and records of the Partnership;
(d) The resignations of the officers and directors of each of the
Subsidiaries;
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(e) Such other documents or authorizations as Buyer may reasonably
request, or as might be reasonably necessary to assign all of Seller's interest
in the Subsidiaries, the Partnership and the Operating Assets to Buyer in
accordance with the provisions hereof;
(f) The certificates of Seller referred to in Section 11.2(c) hereof;
(g) The opinion of counsel referred to in Section 11.2(c) hereof; and
(h) Releases, in a form acceptable to Buyer, of all liens and mortgages
listed on Schedule 1B.
12.3 BUYER'S CLOSING OBLIGATIONS. At Closing, Buyer shall deliver to
Seller the following:
(a) The Closing Settlement Price, paid in immediately available funds,
by wire transfer into the U.S. bank account designated by Seller;
(b) The certificates of Buyer referred to in Section 11.1(c) hereof;
and
(c) The opinions of counsel referred to in Section 11.1(c) hereof.
12.4 GOVERNMENTAL FILINGS. At Closing, the Parties shall execute such
guarantees, bonds, forms and other instruments as are needed allow Buyer to
assume all of Seller's existing obligations under governmental permits and
licenses and leases affecting the Operating Assets. Buyer shall diligently file
such instruments and obtain governmental approval of the transfer of all such
rights, obligations and interests.
12.5 CLOSING ON PROPERTIES WITH UNCURED TITLE DEFECTS OR ENVIRONMENTAL
CONDITIONS. If the parties should mutually agree to allow an extended cure
period for Title Defects affecting one or more of the Properties, as set forth
in Sections 6.3(c)(i), then at Closing, Buyer and Seller shall execute such
instruments required to effectuate the procedures in such Section. The Parties
shall thereafter perform as set forth in Sections 6.3(c)(i) with respect to the
affected Operating Assets, and the Closing Settlement Price paid at Closing
shall be reduced as set forth in those Sections. For Operating Assets for which
assignments are later delivered, then the effect shall thereafter be the same as
if such Operating Assets were released at Closing. If the parties should
mutually agree to resolve Title Defects or Environmental Conditions using an
escrow agent under Sections 6.3(c)(ii) or 7.7(c), Buyer and Seller shall execute
an escrow agreement together with any other instruments required to effectuate
the procedures in such Section.
ARTICLE XIII.
ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS
13.1 LIMITATIONS ON LIABILITY FOR PRICE ADJUSTMENTS .
(a) Title Price Adjustment The aggregate Title Price Adjustment for all
Title Defects shall be computed as the amount by which the aggregate sum of all
Property Value Reductions for all Title Defects less any applicable Property
Value Increases exceeds the amount of one million dollars ($1,000,000).
Notwithstanding anything to the contrary herein, if the aggregate sum of all
Property Value Reductions less Property Value Increases for all Title Defects
does not exceed one million dollars ($1,000,000), then the Title Price
Adjustment shall be deemed to be zero ($0), no adjustments
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shall be made to the Settlement Price by reason of any such Property Value
Adjustment, and no amounts shall be deposited into escrow for any Title Defect.
If the aggregate sum of all Property Value Reductions for all Title Defects less
any applicable Property Value Increases does exceed one million dollars
($1,000,000), then the Title Price Adjustment shall be the aggregate amount of
(i) all Property Value Reduction amounts, (ii) less any applicable Property
Value Increases, (iii) less one million dollars ($1,000,000). If the sum of the
Property Value Increases is greater than the sum of the Property Value
Reductions, the Title Price Adjustment shall be deemed to be zero ($0).
(b) Environmental Price Adjustment. The aggregate Environmental Price
Adjustment for all Environmental Conditions shall be computed as the amount by
which the aggregate sum of all Environmental Condition Value Reductions for all
Environmental Conditions exceeds the amount of one million dollars ($1,000,000).
Notwithstanding anything to the contrary herein, if the aggregate sum of all
Environmental Condition Value Reductions for all Environmental Conditions does
not exceed one million dollars ($1,000,000), then the Environmental Price
Adjustment shall be deemed to be zero ($0) and no adjustments shall be made to
the Settlement Price by reason of any such Environmental Condition Value
Reductions. If the aggregate sum of all Environmental Condition Value Reductions
for all Environmental Conditions does exceed one million dollars ($1,000,000),
then the Environmental Price Adjustment shall be the full amount of all
Environmental Condition Value Reduction amounts.
(c) Casualty Price Adjustment. The aggregate Casualty Price Adjustment
for all uninsured casualty losses under Article VIII shall be computed as the
amount by which the aggregate sum of all uninsured casualty losses exceeds the
amount of one million dollars ($1,000,000). Notwithstanding anything to the
contrary herein, if the aggregate sum of all uninsured casualty losses does not
exceed one million dollars ($1,000,000), then the Casualty Price Adjustment
shall be deemed to be zero ($0) and no adjustments shall be made to the
Settlement Price by reason of any uninsured casualty losses. If the aggregate
sum of all uninsured casualty losses does exceed one million dollars
($1,000,000), then the Casualty Price Adjustment shall be the full amount of all
uninsured casualty losses.
13.2 SETTLEMENT STATEMENTS.
(a) Pre-Closing. At least eight (8) Business Days prior to the Closing
Date, Seller shall furnish Buyer with a draft Settlement Statement showing the
Settlement Price calculated in reasonable detail with the estimated accounting
adjustments and/or prorations of any amounts described in and subject to
Articles III, VI, VII, VIII and XIII of this Agreement. Buyer shall advise
Seller of any proposed changes or objections to such draft Settlement Statement
no less than four (4) Business Days prior to Closing, and the Parties shall
thereafter diligently attempt to resolve any disputes relating to such estimates
before Closing. The Parties shall then cooperate in good faith to prepare the
Settlement Statement at least two (2) Business Days prior to the Closing Date,
as set forth in Section 10.2.
(b) Settlement Statement Disputes. If matters in the Settlement
Statement cannot be resolved by the Parties using their best reasonable efforts,
any portion of estimates which have not been resolved shall for purposes of
Closing employ an arithmetic mean of Seller's and Buyer's good faith estimates
of such unresolved amounts. The actual amount of such adjustments shall be
computed and shall be included in the calculation of the Final Settlement Price.
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(c) Final Statement. As soon as practicable after the Closing Date, but
in no event later than one hundred twenty (120) days thereafter, Buyer shall
prepare and submit to Seller a draft Final Statement, which shall show the
calculation of the adjusted Final Settlement Price, based upon the best
information then available. Seller shall have the right to audit such Final
Statement and all supporting data and accountings. As soon as practicable after
receipt of the Final Statement, but in any event within thirty (30) days after
receipt thereof, Seller shall deliver to Buyer a written report containing the
changes, if any, which Seller proposes be made to the Final Statement. If no
response is made by Seller within such thirty (30) day period, it shall be
presumed that Seller concurs with the Final Statement, and such Final Statement
shall be the basis for the Final Settlement Price. If Seller submits a response,
the Parties shall cooperate in good faith to produce not later than one hundred
eighty (180) days after the Closing Date as accurate a Settlement Statement as
possible based upon the information then available. After agreement upon a Final
Statement setting forth the Final Settlement Price, the difference between such
Final Settlement Price and the Closing Settlement Price paid at Closing shall be
paid within five (5) Business Days thereafter by the Party owing the same.
13.3 OPERATING TAXES.
(a) Apportionment of Ad Valorem and Property Taxes. All ad valorem,
real property taxes and personal property taxes, including interest and
penalties attributable thereto (hereinafter "Property Taxes"), attributable to
the Partnership's ownership and operation of the Operating Assets with respect
to the assessment period ("Property Tax Period") during which the Effective Time
occurs shall be apportioned between Seller and Buyer by multiplying the total
amount of such Property Taxes by a fraction, the numerator of which is the
number of days in the partial period through and including the Effective Time
and the denominator of which is the total number of days in the Property Tax
Period. The Partnership shall file or cause to be filed all required reports and
returns incident to the Property Taxes and shall pay or cause to be paid to the
taxing authorities all Property Taxes relating to the Property Tax Period during
which the Effective Time occurs. If Seller is the owner of the Partnership on
the Property Tax assessment date, then the Settlement Price shall be increased
by the amount of Buyer's portion of Property Taxes owed as set forth above. If
the Property Tax assessment date occurs after Closing, then the Settlement Price
shall be reduced by the estimated amount of Seller's portion of Property Taxes
owed as set forth above. The allocation and payment of ad valorem taxes shall be
handled through adjustments to the Settlement Price.
(b) Other Operating Taxes. With the exception of Income Taxes, all
other federal, state, foreign and local Taxes (including interest and penalties
attributable thereto) on the ownership or operation of the Operating Assets
which are imposed upon the Subsidiaries or the Partnership for periods or
portions of periods prior to the Effective Time shall be borne by Seller, and
all such Taxes imposed upon the Partnership for periods or portions of periods
beginning on or after the Effective Time shall be borne by Buyer. Such Taxes
shall be apportioned between Seller and Buyer for the period or portion thereof
up to and including the Effective Time, (i) in the case of a flat minimum dollar
amount of tax, by multiplying the total amount of such Taxes by a fraction, the
numerator of which is the number of days in the partial period through and
including the Effective Time and the denominator of which is the total number of
days in such tax period, and (ii) in the case of all other operating Taxes, on
the basis of actual activities creating such Tax liability of the Subsidiaries
and the Partnership for the partial period through and including the Effective
Time as are determined from their respective Books and Records. To the extent
any such amounts are borne prior to the delivery of the Final Statement by a
Party who is not required to bear them hereunder, they shall be included
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in the adjustments to the Settlement Price. The allocation and payment of these
Taxes shall be handled through adjustments to the Settlement Price.
13.4 SHARED OBLIGATIONS. If an invoice or other evidence of an
obligation is received which under the terms of this Article XIII is partially
the obligation of Seller and partially the obligation of Buyer, then the parties
shall consult with each other, the Partnership shall promptly pay such
obligation to the obligee, and Seller shall promptly reimburse Buyer for
Seller's portion so paid.
13.5 UNCOLLECTIBLE ACCOUNTS RECEIVABLE. Buyer (and, prior to the
Closing, Seller) shall cause the Subsidiaries and the Partnership to use
commercially reasonable efforts to collect in full, consistent with the past
practices of the Business, all accounts receivable of the Business (the
"Accounts Receivable"). If the Accounts Receivable outstanding at the Closing
shall not have been fully collected within 120 days following the Closing Date
in an amount equal to the outstanding unpaid amounts thereof at the Closing,
Buyer may require the Seller to purchase any Accounts Receivable that have not
been so fully collected at a purchase price equal to the original outstanding
amount of such Accounts Receivable at the Closing less net collections thereon
from the Closing Date to the repurchase date; provided, however, that the Seller
shall be required to repurchase such unpaid Accounts Receivable only to the
extent that the aggregate amount of such unpaid Accounts Receivable exceeds the
allowance for doubtful accounts deducted from accounts receivable set forth on
the Balance Sheets, and if such an excess exists, the Seller shall only be
required to pay an amount for such unpaid Accounts Receivable equal to such
excess; provided, further, during such 120-day period, that Buyer may not settle
or compromise any Accounts Receivable without the prior written consent of
Seller. As a condition to any such repurchase, Buyer shall reconvey to the
Seller the unpaid Accounts Receivable to be repurchased and shall provide Seller
with sufficient detail regarding such Accounts Receivable. Buyer shall not
transfer or convey such Accounts Receivable to any other Person. Payment for the
repurchase of any Accounts Receivable shall be made within ten (10) days
following the transfer thereof to Seller. Buyer shall provide to the Seller any
documents or information reasonably requested by the Seller in connection with
the Seller's collection of any Accounts Receivable repurchased from Buyer.
ARTICLE XIV.
POST-CLOSING PROCEDURES
14.1 DELIVERY OF FILES. Within ten (10) days after Closing, Buyer
shall, at Buyer's expense, take delivery at Seller's present offices in San
Antonio, Texas of all of the Partnership's and the Subsidiaries' original land,
lease, revenue and cost accounting, geologic, geophysical, engineering and well
files, data and materials which relate to the Operating Assets. Applicable legal
and litigation files shall be delivered by Seller to Buyer at Seller's present
office location in San Antonio, Texas, subject to the Parties and their
attorneys making mutually acceptable arrangements for preserving the privileged
and confidential nature of protected information. Seller may retain copies of
its accounting and legal files, data and information, as might be needed by
Seller, and Seller shall retain all originals of insurance policies covering
periods prior to the Effective Time. Subject to the License Agreement, Seller
shall not retain originals or copies of any seismic, geological, geophysical or
engineering files, materials, data or interpretations thereof concerning the
Operating Assets sold hereunder, without Buyer's prior written consent; provided
however, that Seller shall not be required to deliver to Buyer, nor shall Buyer
be required to accept delivery of any such data or materials which either Party
reasonably believes to be subject to confidentiality agreements with third
parties that would prevent
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Buyer from obtaining such data or expose either Party to a claim for material
damages if Buyer were to receive such data or materials. Notwithstanding the
above, Seller shall be permitted to retain original tax and financial accounting
records for the period prior to the Closing, copies of which will be delivered
to Buyer.
14.2 THIRD PARTY DATA. To the extent not obtained or satisfied as of
Closing, Seller agrees to continue to use reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to obtain for Buyer, the Partnership and the
Subsidiaries (i) access to files, records and data relating to the Operating
Assets in the possession of third parties; (ii) access to wells constituting a
part of the Operating Assets operated by third parties for purposes of
inspecting same; and (iii) the waiver of confidentiality or other restrictions
on the review by and/or transfer of seismic, geophysical, engineering or other
data pertaining to the Operating Assets that might be triggered by Seller's
assignment to Buyer of the Partnership and the Subsidiaries.
14.3 COOPERATION. After the Closing, each Party shall provide the
other Party with reasonable access to all relevant documents, data and other
information (other than that which is subject to any attorney-client privilege)
which may be required by the other Party for the purpose of financial reporting,
preparing tax returns, filing refund claims, responding to any audit by any
taxing jurisdiction or replying to any third party or governmental claim or
demand concerning the Partnership, the Subsidiaries or the Operating Assets.
Each Party shall cooperate with all reasonable requests of the other Party made
in connection with contesting the imposition of Taxes. Notwithstanding anything
to the contrary in this Agreement, neither Party shall be required at any time
to disclose to the other Party any Tax Return or other confidential information,
except for Tax Returns concerning Taxes of the Partnership and the Subsidiaries.
Except where disclosure is required by applicable law or judicial order, any
information obtained by a Party pursuant to this Section 14.3 shall be kept
confidential by such Party, except to the extent disclosure is required in
connection with the filing of any Tax Returns or claims for refunds or in
connection with the conduct of an audit, or other proceedings in response to an
audit, by a taxing jurisdiction, or otherwise required by law or binding
judicial order.
14.4 PREFERENTIAL RIGHTS TO PURCHASE AND CONSENTS TO ASSIGNMENT.
Before Closing and for up to one year after Closing, the Parties shall continue
to provide reasonable cooperation in obtaining all required Consents to
Assignment and in complying with all enforceable Preferential Rights to Purchase
that remain in force after Closing. Buyer shall be primarily responsible for
handling such matters, shall assume all risks and liabilities in connection with
the rights of the holders thereof, and shall release, indemnify and defend
Seller against any claims, damages, suits, demands or other liabilities
associated with any Consents to Assignment or Preferential Rights to Purchase.
14.5 FILING AND RECORDING OF DOCUMENTS. Buyer shall promptly file all
appropriate forms, declarations or bonds with governmental agencies relative to
its assumption of ownership of the Subsidiaries, and Seller shall cooperate with
Buyer in connection with such filings. Seller shall not be responsible for any
loss to Buyer because of Buyer's failure to file or record documents correctly
or promptly.
14.6 FURTHER ASSURANCES. After Closing, each of the Parties will
execute, acknowledge and deliver to the other such further instruments, and take
such other action, as may be reasonably requested in order to more effectively
assure to each Party all of the respective properties, rights,
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titles, interests, estates, and privileges intended to be assigned, delivered or
to inure to the benefit of such Party in consummation of the Transaction.
14.7 INCIDENTAL COSTS. Each party shall bear its own respective
expenses incurred in connection with the Closing of the Transaction, including
its own consultants' fees, attorney's fees, accountants' fees, and other similar
costs and expenses.
ARTICLE XV.
SURVIVAL; INDEMNITIES
15.1 SURVIVAL. All representations, warranties or covenants made
herein, except for those in Sections 4.1(a), 4.1(e), 4.1(f), 4.1(g), 4.1(i),
4.1(k), 4.1(l), 4.1(m), 4.1(n), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w), 4.1(x),
4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets only),
4.2(e), 4.2(i), Sections 5.6, 7.1, 7.2, 7.3, 7.4, 8.3, 9.1, 9.2(e), 9.9(d),
9.12(b), 9.13, 9.14, 9.15, 9.16 and 9.17, and Articles XV, XVI and XVII, shall
survive for two years from the Closing Date. The covenants made in Section 9.13
shall survive until the Parties reach agreement on the Final Statement pursuant
to Section 13.2(c). The representations and warranties or covenants made in
Sections 4.1(a), 4.1(g), 4.1(k), 4.1(l), 4.1(m), 4.1(o), 4.1(q), 4.1(u), 4.1(v),
4.1(w), 4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating
Assets only) and Section 9.1 shall not survive Closing and shall automatically
expire upon Closing. The representations, releases, covenants, indemnities,
defenses and hold harmless obligations and other obligations referenced in
Sections 4.1(e), 4.1(f), 4.1(i), 4.1(n), 4.2(e), 4.2(i), 5.6, 7.1, 7.2, 7.3,
7.4, 8.3, 9.2(e), 9.9(d), 9.12(b), 9.14, 9.15, 9.16 (including portions of other
covenants set forth in such sections) and 9.17 (including portions of other
covenants set forth in such sections) and this Article XV, and all provisions of
Article XVI and Article XVII, shall each survive Closing, and each shall
continue to remain fully enforceable in accordance with its terms.
15.2 BUYER'S INDEMNITY. EXCEPT AS EXPRESSLY AND SPECIFICALLY INDICATED
OTHERWISE IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION SECTIONS 9.9(d) AND
15.3), AFTER THE CLOSING DATE, BUYER SHALL AND HEREBY DOES RELEASE, DEFEND,
INDEMNIFY, SAVE, AND HOLD HARMLESS SELLER AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS, AGAINST ANY
AND ALL DAMAGES WHICH ARISE OUT OF OR IN CONNECTION WITH THE OWNERSHIP OF,
OPERATION OF, PRODUCTION FROM OR ACCOUNTING BY, INCOME OF OR PAYMENTS BY THE
PARTNERSHIP, THE SUBSIDIARIES OR THE OPERATING ASSETS, AT ANY TIME EITHER BEFORE
OR AFTER THE EFFECTIVE TIME, OR WHICH ARISE OUT OF ANY ENVIRONMENTAL CONDITION
OR OTHER HAZARDOUS CONDITION RELATING TO OR AFFECTING ANY OPERATING ASSET AT ANY
TIME EITHER BEFORE OR AFTER THE EFFECTIVE TIME, INCLUDING WITHOUT LIMITATION,
ALL SUCH COSTS, CLAIMS OR LIABILITIES ARISING OUT OF SELLER'S NEGLIGENCE OR
STRICT LIABILITY.
15.3 SELLER'S INDEMNITY. SUBJECT TO THE TERMS AND CONDITIONS OF THIS
ARTICLE XV, SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS
PARENT OR SUBSIDIARY COMPANIES, PARTNERS AND OTHER AFFILIATES (INCLUDING AFTER
CLOSING, THE SUBSIDIARIES AND THE PARTNERSHIP), AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS (HEREINAFTER
COLLECTIVELY REFERRED TO AS THE "BUYER GROUP"), FROM AND AGAINST ANY AND ALL
DAMAGES ASSERTED AGAINST, RESULTING TO, IMPOSED UPON, OR INCURRED BY THE BUYER
GROUP, DIRECTLY OR INDIRECTLY, BY REASON OF OR RESULTING FROM OR RELATING TO (i)
ANY BREACH BY SELLER (FOR WHICH SELLER SHALL BE RESPONSIBLE) OF ITS SURVIVING
REPRESENTATIONS, WARRANTIES, COVENANTS OR
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AGREEMENTS CONTAINED IN THIS AGREEMENT, (ii) ANY LIABILITIES OF THE SUBSIDIARIES
AND THE PARTNERSHIP WHICH ARE UNRELATED TO THE OPERATING ASSETS, (iii) ANY
LIABILITIES OF THE SUBSIDIARIES AND THE PARTNERSHIP FOR INCOME TAXES PRIOR TO
CLOSING, AND (iv) ANY EXISTING LIABILITIES OF THE SUBSIDIARIES AND THE
PARTNERSHIP OWED UNDER FEDERAL LEASES FOR PRIOR ROYALTIES RELATED TO THE PERIOD
OF TIME PRIOR TO CLOSING.
15.4 PROCEDURE FOR INDEMNIFICATION.
(a) Any Indemnified party making a claim for indemnification hereunder
shall notify the indemnifying party or parties of the claim in writing. Subject
to Sections 17.1, 17.2, 17.3 and 17.4, an indemnified party may take any and all
actions against an indemnifying party or parties to enforce its rights to
indemnification under this Agreement.
(b) With respect to third Person claims which are indemnifiable
hereunder, promptly after receipt by an Indemnified Party under Sections 15.2 or
15.3 of notice of the commencement of any action, such Indemnified Party shall,
if a claim in respect thereof is to be made against an Indemnifying Party under
such Section, give written notice to the Indemnifying Party of the commencement
thereof. The failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party of any liability that it may have to an Indemnified Party
with respect to such action, only to the extent the Indemnifying Party is
prejudiced by the failure to be so notified. In case any such action shall be
brought against an Indemnified Party and the Indemnified Party shall give
written notice to the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Party. If the Indemnifying Party elects to
assume the defense of such action, the Indemnified Party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the Indemnifying Party elects not to assume (or fails to assume) the
defense of such action, the Indemnified Party shall be entitled to assume the
defense of such action with counsel of its own choice, at the expense of the
Indemnifying Party. If the action is asserted against both the Indemnifying
Party and the Indemnified Party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the Indemnifying
Party and the Indemnified Party, the Indemnifying Party shall be responsible for
paying for separate counsel for the Indemnified Party; provided, however, that
if there is more than one Indemnified Party, the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the Indemnified Parties, regardless of the number of Indemnified Parties. If the
Indemnifying Party elects to assume the defense of such action, (a) no
compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party's written consent (which shall not be unreasonably
withheld) unless the sole relief provided is monetary damages that are paid in
full by the Indemnifying Party and (b) the Indemnifying Party shall have no
liability with respect to any compromise or settlement thereof effected without
its written consent (which shall not be unreasonably withheld).
15.5 EXCLUSIVITY. The parties hereto agree that, in relation to any
breach, default, or nonperformance of any representation, warranty, covenant, or
agreement made or entered into by a party hereto pursuant to this Agreement or
any certificate, instrument, or document delivered pursuant hereto or arising
out of the transactions contemplated herein or the ownership or operation of the
Operating Assets, the only relief and remedy available to the other party hereto
in respect of said breach, default, or nonperformance shall be:
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(a) termination, but only if said termination is expressly permitted
under the provisions of Article XX; or
(b) actual damages, but only to the extent properly claimable hereunder
and as limited pursuant to this Article XV or otherwise hereunder; or
(c) specific performance if a court of competent jurisdiction in its
discretion grants the same; or
(d) injunctive or declaratory relief if a court of competent
jurisdiction in its discretion grants the same.
15.6 ASSIGNMENT OF THIRD PERSON INDEMNITIES. To the extent the same are
assignable by an Indemnified Party, such Indemnified Party does hereby assign to
the Indemnifying Party all rights to defense, contribution and indemnity that
the Indemnified Party may hold with respect to the obligations for which the
Indemnifying Party is indemnifying and defending the Indemnified Party
hereunder, and the Indemnifying Party shall be subrogated to assert the
Indemnified Party's rights to such third-party defense, contribution and
indemnity obligations with respect to the indemnified claims or Actions.
ARTICLE XVI.
TAX MATTERS
16.1 INDEMNIFICATION FOR TAXES.
(a) Seller shall be responsible for, and shall indemnify Buyer against,
all (i) Income Taxes imposed on the Subsidiaries and the Partnership, and all
Liabilities, losses, costs, fines, penalties, damages (actual, punitive or
other), reasonable attorneys' fees, and expenses arising therefrom, relating to
(A) taxable periods or portions thereof ending on or before the Closing Date,
(B) Income Taxes resulting from the ss.ss. 338(g) and 338(h)(10) elections (or
any comparable elections under foreign, state or local tax law) contemplated by
Section 16.2, (C) Income Taxes resulting from the application of Treas. Reg. ss.
1.1502-6 or any comparable state, local or foreign tax law attributable to
Tesoro Parent, or any corporation or entity which is or has been affiliated with
or been part of a combined, unitary or affiliated group with Tesoro Parent, and
(D) the portion of the Income Taxes for any Straddle Period (as defined in
subsection 16.1(e)) allocable to Sellers with respect to any of the Subsidiaries
or the Partnership under subsection 16.2(f) and (ii) all Other Taxes imposed on
the Subsidiaries and the Partnership relating to the taxable periods or portions
thereof ending on or before the Effective Date (allocated as described in
Section 13.3); provided, Sellers shall not be responsible for, and shall not be
required to indemnify Buyer against, any Taxes to the extent that such Taxes do
not exceed the accrued liability for Taxes on the Balance Sheets which are taken
into account in determining the Working Capital.
(b) Buyer shall be responsible for and shall indemnify Sellers against
all (i) Income Taxes imposed upon the Subsidiaries and the Partnership and all
Liabilities, losses, costs, fines, penalties, damages (actual, punitive, or
other), reasonable attorneys' fees and expenses arising therefrom, relating to
(A) taxable periods beginning after the Closing Date or (B) the portion of the
Income Taxes for any Straddle Period which are allocable to Buyer under
subsection 16.2(f), and (ii) except as provided in Section 13.3 and in this
Article XVI, all Other Taxes imposed upon the Subsidiaries and the Partnership
and all Liabilities, losses, costs, fines, penalties, damages (actual, punitive
or
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other), reasonable attorneys fees and expenses arising therefrom arising in or
relating to taxable periods or portions thereof beginning after the Effective
Date (allocated as described in Section 13.3).
(c) Each Party shall promptly notify the other Party of the
commencement of any demand, claim, audit, examination, Action or other proposed
change or adjustment by any Taxing Authority concerning any Tax which could give
rise to a claim for indemnity pursuant to subsection 16.1(a) or subsection
16.1(b), as the case may be (each a "Tax Claim"). Such notice shall contain
factual information describing the asserted Tax Claim in reasonable detail and
shall include copies of any notice or other document received from any Taxing
Authority in respect of any such asserted Tax Claim.
(d) Seller, at its own expense, shall have the sole right to represent
the Subsidiaries' and the Partnership's interests in any Tax Claim for Taxes for
which it is indemnifying Buyer against and to employ counsel of its choice.
Buyer shall have the right to participate in such Action at its own expense, but
in the case of Income Taxes, only in the event that any Tax Claim for Income
Taxes impacts a subsidiary for which no Section 338(h)(10) election was filed.
Seller shall not consent to any settlement that reasonably would be expected to
have an adverse effect on the Income Taxes of the Subsidiaries or the
Partnership in any period after the Closing Date without Buyer's consent, which
consent shall not be unreasonably withheld. Buyer's consent shall in no way
reduce any indemnification due to Buyer under subsection 16.1(a). If Seller
elects to control the defense, compromise or settlement of any Tax Claim, Seller
shall keep Buyer informed of the progress and disposition of such Tax Claim.
Buyer shall handle any other Tax Claims of the Subsidiaries and the Partnership
and Buyer shall be entitled to defend, compromise or settle such Tax Claims in
its sole discretion without in any way reducing its rights to indemnification
under subsection 16.1(a), unless any such settlement would give rise to a tax
claim against Seller, and in such event such settlement shall be subject to
Seller's consent, which shall not be unreasonably withheld.
(e) With respect to any taxable period of the Subsidiaries or the
Partnership beginning before and ending after the Closing Date (a "Straddle
Period"), Buyer shall control, and Seller, at its own expense, shall have the
right to participate in, the defense and settlement of any Tax Claim and each
Party shall cooperate with the other Party and there shall be no settlement or
closing or other agreement with respect thereto without the consent of the other
Party, which consent shall not be unreasonably withheld; provided, that if
either Party shall refuse (the "Refusing Party") to consent to any settlement,
closing or other agreement agreed to by the relevant Taxing Authority with
respect to any such Tax Claim that the other party (the "Accepting Party")
proposed to accept (a "Proposed Settlement"), then (i) the Accepting Party's
Liability with respect to the subject matter of the Proposed Settlement shall be
limited to the amount that such Liability would have been if the Proposed
Settlement had been accepted, and (ii) the Refusing Party shall be responsible
for all Liabilities and expenses incurred or imposed thereafter in connection
with the contest of such Tax Claim to the extent that the final settlement is
more than the Proposed Settlement.
16.2 OTHER TAX MATTERS.
(a) All Tax sharing agreements between the Subsidiaries and any other
Person, including without limitation, the Affiliates of Seller, are hereby
terminated as of the Closing Date and all rights and obligations of the
Subsidiaries with respect to Taxes shall be as provided herein.
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(b) Any Tax allocation agreement or arrangement in effect shall be
extinguished in full as of the Closing Date.
(c) Tax Returns (each a "Pre-Closing Return") which are required to be
filed with respect to the Subsidiaries or the Partnership on a consolidated,
unitary or other combined basis with the Tesoro Group, or the appropriate parent
for a taxable period which ends on or before the Closing Date (a "Pre-Closing
Period") shall be prepared and filed by (or shall be the responsibility of)
Seller, which shall include the preparation and filing of the consolidated
federal and state income Tax Returns of the Tesoro Group which includes the
Subsidiaries and the Partnership for the period up to and including the Closing
Date. In the case of those jurisdictions which require a short-period Tax Return
ending on or before the Closing Date, Seller shall prepare and file all
appropriate returns required to be filed with respect to Income Taxes
attributable to the operations and the Operating Assets for the pre-Closing
periods. All such Pre-Closing Returns shall be filed on a basis consistent with
prior Tax Returns filed with respect to the Subsidiaries and the Partnership.
Seller or the appropriate parent of the Subsidiaries or the Partnership shall
timely pay or cause to be paid all Taxes shown on such Pre-Closing Returns. All
Tax Returns which (i) are required to be filed by the Subsidiaries or the
Partnership on a separate basis (including the preparation of supporting
schedules, Tax Returns and other Tax information with respect to the
Subsidiaries and the Partnership necessary for completion of the Pre-Closing
Returns) after the Closing Date for a Pre-Closing Period (a "Post-Closing
Return"), and (ii) are required to be filed by or with respect to the
Subsidiaries or the Partnership for a taxable period that ends after the Closing
Date, including any Tax Return (a "Straddle Return") for a Straddle Period,
shall be prepared and filed by Buyer; subject to the rights to indemnification
and other rights under 16.1(a) and subsection 16.2(f), Buyer shall timely pay or
cause to be paid all Taxes shown on such Tax Returns.
(d) Seller agrees to provide Buyer and Buyer agrees to provide Seller
with such cooperation and information as the other shall reasonably request in
connection with the preparation or filing of any Tax Return required under this
Agreement.
(e) Seller shall use its reasonable efforts to cause any partnership or
Tax partnership in which the Subsidiaries or the Partnership are a partner to
make an election under Section 754 of the Code to adjust the basis of the assets
of such partnerships. Seller must amend all internal partnership agreements
accordingly prior to the Closing Date.
(f) With respect to any Straddle Period, to the extent permitted by
applicable law, the Subsidiaries shall elect to treat the Closing Date as the
last day of the taxable period. If applicable law, regulation or Governmental
Order will not permit the Closing Date to be the last day of a period, the
Income Tax attributable to the operations of the Subsidiaries and the
Partnership for the portion of the period up to and including the Closing Date
shall be (i) in the case of a flat minimum dollar amount Tax, the total amount
of such Taxes multiplied by a fraction, the numerator of which is the number of
days in the partial period through and including the Effective Time and the
denominator of which is the total number of days in such Straddle Period, and
(ii) in the case of all Income Taxes, the Tax computed on the basis of the
taxable income or loss of the Subsidiaries or the Partnership for the partial
period through and including the Closing Date as determined from their Books and
Records. All Other Taxes arising with or related to a Straddle Period will be
allocated as provided in Section 13.3.
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(g) With respect to any Post-Closing Return or Straddle Return, Buyer
shall deliver, at least 30 days prior to the due date for filing such Tax Return
(including any extension) to Seller a statement setting forth the amount of
Income Tax which Seller owes pursuant to subsection 16.1(a), including the
allocation of Taxes under subsection 16.2(f), and copies of such Tax Return.
Seller shall have the right to review such Tax Returns and the allocation of
Taxes and to suggest to Buyer any reasonable changes to such Tax Returns no
later than 15 days prior to the date for the filing of such Tax Returns. Seller
and Buyer agree to consult and to attempt to resolve in good faith any issue
arising as a result of the review of such Tax Returns and allocation of Taxes
and mutually to consent to the filing as promptly as possible of such Tax
Returns. Not later than 15 days before the due date for the payment of Income
Taxes with respect to such Tax Returns, Seller shall pay to Buyer an amount
equal to the Income Taxes as agreed to by Buyer and Seller as being owed by
Seller, pursuant to subsection 16.1(a). In the event that Buyer and Seller
cannot agree on the amount of Income Taxes owed by Seller, with respect to a
Straddle Return or a Post-Closing Return, Seller shall pay to Buyer the amount
of Income Taxes reasonably determined by Buyer to be owed by them pursuant to
subsection 16.1(a). Within ten (10) days following such payment, Seller and
Buyer shall refer the matter to an independent "Big-Five" accounting firm agreed
to by Buyer and Seller to arbitrate the dispute. Seller and Buyer shall equally
share the fees and expenses of such accounting firm, and its determination as to
the amount owing by Seller, pursuant to Section 16.1(a) with respect to a
Straddle Return or Post-Closing Return shall be binding on both parties. Within
five (5) days of the determination by such accounting firm, if necessary, the
appropriate Party shall pay the other Party any amount which is determined by
such accounting firm to be owed. Seller shall be entitled to reduce its
obligation to pay Taxes with respect to a Straddle Return or a Post-Closing
Return by the amount of any estimated Taxes paid with respect to such Taxes by
or on behalf of the Subsidiaries on or before the Closing Date.
(h) Seller shall have the right to all refunds of Taxes (including
interest thereon), which relate to Taxes of the Subsidiaries for Pre-Closing
Periods and Straddle Periods, to the extent provided in the following sentences.
Buyer shall pay over to Seller any such refunds within ten (10) days of receipt
thereof, net of any Taxes imposed on Buyer or the Subsidiaries by reason of the
receipt of such refund. To the extent any refund of Taxes is made with respect
to a Pre-Closing Period or a Straddle Period, such refund shall be apportioned
between Buyer and Seller, based on the appropriate allocation method set forth
in Section 16.2(f).
(i) Buyer and Seller agree to consult and resolve in good faith any
issues arising in connection with the preparation or review of any Tax Return or
the calculation of any Tax described in this Section 16.2.
(j) Both Seller and Buyer will join in making a timely and effective
election under Section 338(h)(10) of the Code (and any comparable provision of
foreign, state or local law) with respect to the purchase by Buyer of the stock
of Exploration and Reserves hereunder (collectively, together with the elections
under Section 338(g) of the Code and any comparable provision of foreign, state
or local law, the "Section 338(h)(10) Elections"). At the Closing, Seller and
Buyer shall execute IRS Form 8023, completed to the extent reasonably
practicable for those Subsidiaries. Seller and Buyer agree to take all other
action and file all other necessary reports to elect validly pursuant to Section
338(h)(10) of the Code to treat the Transaction as a sale of assets as opposed
to a sale of the stock of Exploration and Reserves. Within 120 days after the
Closing Date, Buyer shall deliver to Seller any additional information or
required schedules thereto and any similar forms under applicable state or local
law (the "Forms") with respect to Taxes relating to Buyer's purchase of the
stock of
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Exploration and Reserves and their interests in the Partnership. Provided that
the information on such Forms is, in the reasonable determination of Seller,
correct and complete in all material respects, Seller will consent to the filing
of such Forms. Seller and Buyer shall cooperate fully with each other and make
available to each other such Tax data and other information as may be reasonably
required by Seller or Buyer in order to prepare and timely file the Forms and
any other required statements or schedules. With respect to the Sections
338(h)(10) Elections, the Modified Aggregate Deemed Sales Price as defined in
Treas. Reg. Section 1.338(h)(10)-1 shall be allocated among the stock of
Exploration and Reserves pursuant to Treas. Reg. Section 1.338(h)(10)-1. The
Buyer and the Seller shall use their good faith best efforts to agree upon such
allocation. The Seller shall provide to the Buyer a schedule and supporting
material reflecting such allocation for the Buyer's review and consent, which
consent shall not be unreasonably withheld. The parties shall take no action
inconsistent with, or fail to take any action necessary for the validity of, the
Section 338(h)(10) Elections, and shall adopt and utilize the asset values
determined from such allocation for the purpose of all tax returns filed by
them, and shall not voluntarily take any action inconsistent therewith upon
examination of any tax return, in any refund claim, in any litigation or
otherwise with respect to such tax returns. In the event that Buyer and Seller
are unable to resolve any disagreements regarding the allocation of the
"modified aggregate deemed sales price" (as defined under applicable Treasury
Regulations) among the assets or other aspects of the Forms, Buyer (i) shall be
entitled to file the Forms, but only if either the information not agreed upon
is deleted or the Forms reflect that the information has not been agreed upon;
or (ii) if acceptable to Buyer and Seller within 30 days after notice of such
disagreement, the matter in dispute shall be resolved as soon as practicable by
a "Big Five" independent accounting firm or, if the disagreement involves
valuation, to a nationally recognized appraisal firm mutually satisfactory to
the parties (but in no event longer than 30 days), which resolution shall be
binding and conclusive upon Buyer and Seller without further appeal therefrom.
Buyer and Seller shall bear equally the fees and expenses of such firm. Buyer
will timely file the Forms, and any required supplements thereto, in the manner
prescribed by Treasury Regulation 1.338(h)(10)-1(d) or the corresponding
provisions of applicable foreign, state or local law, and will provide written
evidence to Seller that it has done so. Buyer and Seller agree that neither of
them will take, or permit any of their Affiliates to take, any action to modify
or revoke the elections contained in or the content of any Forms without the
express written consent of the other.
(k) At the Closing, Seller, the Subsidiaries and the Partnership each
shall deliver to Buyer certificates signed under penalties of perjury (i)
stating that it is not a foreign corporation, foreign partnership, foreign trust
or foreign estate, (ii) providing its U.S. Employer Identification Number and
(iii) providing its address, all pursuant to Section 1445 of the Code.
16.3 EXCLUSIVE REMEDY FOR TAXES. This Article XVI provides the sole
and exclusive remedy for any claim against Seller for indemnification, damages
or breach of any representation or warranty with respect to or relating to
Taxes.
ARTICLE XVII.
DEFAULT AND REMEDIES
17.1 LIABILITIES UPON TERMINATION. If Closing does not occur due to
Seller's violation of the terms of this Agreement, then Buyer may seek such
legal or equitable remedies as Buyer may desire including, without limitation,
damages for the breach or failure of any representation, warranty, covenant or
agreement contained herein and the right to enforce specific performance of this
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Agreement. If Closing does not occur due to Buyer's violation of the terms of
this Agreement, then Seller may seek such legal or equitable remedies as Seller
may desire, including, without limitation, damages for the breach or failure of
any representation, warranty, covenant or agreement contained herein and the
right to enforce specific performance of this Agreement.
17.2 RECOVERY OF COSTS. The prevailing Party in any litigation or
alternative dispute resolution proceeding between the Parties in a dispute
arising under this Agreement shall be entitled to recover, from the other Party,
reimbursement for reasonable attorneys fees, expert fees, court costs and costs
of discovery and investigation.
17.3 WAIVER OF EXTRAORDINARY DAMAGES. TO THE FULL EXTENT ALLOWED BY
LAW, AND EXCEPT AS MAY BE INCLUDED IN THIRD PARTY DAMAGES SUBJECT TO ANY
INDEMNITY OBLIGATION HEREUNDER, THE PARTIES HEREBY WAIVE AND RELEASE ANY RIGHTS
OR CLAIMS TO PUNITIVE OR EXEMPLARY DAMAGES RESULTING FROM A BREACH OF THIS
AGREEMENT. THE PARTIES HEREBY WAIVE THE APPLICATION OF THE TEXAS DECEPTIVE
TRADE PRACTICES-CONSUMER PROTECTION ACT TO THE TRANSACTION.
17.4 WAIVER OF JURY TRIAL. SELLER AND BUYER DO HEREBY IRREVOCABLY
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION.
17.5 INDEPENDENT OBLIGATIONS. The express release, indemnity, defense
and hold harmless obligations contained herein shall exist separate and
independent from the representations and warranties in this Agreement, and the
limitations of representations and warranties shall not be construed to limit
the scope of the express releases, indemnities, and defense and hold harmless
obligations.
17.6 CHANGES OF LAW. Sellers do not make any representations and
warranties and do not assume any responsibilities or liabilities for any Damages
to Buyer arising out of or related to changes in the law or new interpretations
of existing law that may occur after Closing.
17.7 MERGER. No representations, warranties, indemnities, covenants or
other provisions of this Agreement shall merge with provisions of any other
instrument.
ARTICLE XVIII.
NOTICES
18.1 NOTICES. All notices authorized or required by any of the
provisions of this Agreement, unless otherwise specifically provided, shall be
in writing and delivered in person or by United States mail, courier service,
telegram, or telephone facsimile, postage or charges prepaid, and addressed to
the Parties at the respective addresses set forth below:
If to Seller: Tesoro Petroleum Corporation.
8700 Tesoro Drive
San Antonio, Texas 75217
Attention: James C. Reed, Jr.
Fax Number: (210) 283-2400
Phone Number: (210) 828-8484
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With a copy to: Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Michael W. Conlon
Fax Number: (713) 651-5246
Phone Number: (713) 651-5151
If to Buyer: EEX Operating L.L.C.
2500 City West Boulevard, Suite 1400
Houston, Texas 77042
Attention: Janice K. Hartrick
Fax Number: (713) 243-3359
Phone Number: (713) 243-3371
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Pennzoil Place--South Tower
711 Louisiana Street
Houston, Texas 77002
Attention: Robert B. (Skip) Allen
Fax Number: (713) 220-5816
Phone Number: (713) 220-5800
Any Party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
ARTICLE XIX.
CONFIDENTIALITY AND DISCLOSURES
19.1 NON DISCLOSURE OF DATA. To the extent Buyer does not acquire all
of the Common Stock for any reason, Buyer shall not directly or indirectly
disclose or use any materials, data or other information provided by or obtained
from Seller, the Subsidiaries or the Partnership, and Buyer and its
representatives shall continue to be bound by the terms of the existing
Confidentiality Agreement dated June 17, 1999, between the Parties.
19.2 PUBLIC ANNOUNCEMENTS. The Parties hereto agree that prior to
making any public announcement or statement with respect to the Transaction, the
Party desiring to make such public announcement or statement shall consult with
the other Party and exercise reasonable efforts to obtain the consent of the
other Party to the text of such public announcement or statement. If the Parties
cannot agree upon the text of any such public disclosure, a Party may
nevertheless disclose information with respect to the to the extent required by
applicable law or by any applicable rules, regulations or orders of any
governmental or judicial authority or agency having jurisdiction or to the
extent such disclosure is necessary to comply with requirements of the New York
Stock Exchange.
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ARTICLE XX.
TERMINATION
20.1 TERMINATION. Notwithstanding anything herein to the contrary, this
Agreement and the Transaction may be terminated in the following instances:
(a) At any time by the mutual written agreement of Buyer and Seller;
(b) By Seller, if the Settlement Price Adjustment exceeds fifteen
percent (15%) of the Purchase Price; or by Buyer, if the sum of the Settlement
Price Adjustment and any reductions to the purchase price as a result of the
exercise by third parties of Preferential Rights to Purchase described in
Section 6.5(a) exceeds fifteen percent (15%) of the Purchase Price;
(c) By Seller or Buyer, if any of the Environmental Price Adjustment,
Casualty Price Adjustment or Title Price Adjustment individually exceeds ten
percent (10%) of the Purchase Price; or
(d) By Buyer or Seller, if Closing has not taken place before December
31, 1999 (which date shall be extended until five Business Days after the
resolution of any disputed matters submitted to arbitration under Section 21.16
to the extent still pending on December 31, 1999); provided, however, that the
Party seeking to terminate this Agreement pursuant to Section 20.1(d) shall not
have breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the failure to consummate
the Transaction prior to December 31, 1999.
ARTICLE XXI.
MISCELLANEOUS
21.1 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the Parties (superseding all prior agreements, negotiations,
representations, discussions, arrangements and understandings related to the
subject matter hereof), and may be supplemented, altered, amended, modified or
revoked only by a written instrument signed by each of the Parties; provided,
however, the Confidentiality Agreement dated June 17, 1999, between the Parties
shall remain effective until Closing. If the sale of the Operating Assets to
Buyer is not consummated, then the Confidentiality Agreement shall remain
effective as stated therein.
21.2 NO VERBAL MODIFICATIONS OR WAIVERS. Any of the terms, provisions,
covenants, representations, warranties or conditions hereof may be supplemented,
amended, modified, released or waived only by a written instrument executed by
the Parties. Except as otherwise expressly provided in this Agreement, the
failure of any Party at any time or times to require performance of any
provision hereof shall in no manner affect such Party's right to enforce the
same. No waiver by any Party of any condition, or of the breach of any term,
provision, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such condition or
breach or a waiver of any other condition or of the breach of any other term,
provision, covenant, representation or warranty.
21.3 SEVERABILITY. If any term or provision of this Agreement is held
to be illegal, invalid or unenforceable, the legality, validity and
enforceability of the remaining terms and provisions of this
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Agreement shall not be affected thereby, and in lieu of each such illegal,
invalid or unenforceable term or provision, there shall be added automatically
to this Agreement a legal, valid and enforceable term or provision as similar as
possible to the term or provision declared illegal, invalid or unenforceable.
21.4 INTERPRETATION. Words of any gender used in this Agreement shall
be held and construed to include any other gender, and words in the singular
shall be held to include the plural, unless the context otherwise requires. None
of the terms or conditions of this Agreement, including any Exhibits or
Schedules hereto, shall be construed for or against any Party hereto on the
basis that such Party did or did not author the same. All terms of this
Agreement and the Exhibits shall be harmonized, but in the event of any conflict
between the definition of a term in Article I and a more complete description or
limitation of such term in a subsequent Article, the subsequent Article shall
prevail. The Article and Section headings are for convenience only and shall
have no significance in the interpretation hereof.
21.5 COUNSEL. EACH PARTY EXPRESSLY ACKNOWLEDGES THAT IT WAS REPRESENTED
BY COUNSEL OF ITS OWN SELECTION IN NEGOTIATION AND PREPARATION OF THE TERMS OF
THE AGREEMENT AND THE ATTACHED EXHIBITS AND THAT IT IS SOPHISTICATED AND
EXPERIENCED IN TRANSACTIONS OF THIS TYPE AND IS AWARE OF ALL TERMS AND
CONDITIONS CONTAINED HEREIN. EACH PARTY SHALL BE RESPONSIBLE FOR THE COSTS AND
EXPENSES OF ITS OWN COUNSEL.
21.6 GOVERNING LAW. This Agreement and other documents delivered
pursuant to this Agreement and the legal relations between the Parties shall be
governed and construed and enforced in accordance with the laws of the State of
Texas, without giving effect to principles of conflict of laws.
21.7 CONSENTS. Except as expressly provided otherwise herein, any
consent required of a Party with respect to any matters covered by this
Agreement shall not be unreasonably withheld or action with respect thereto
unduly delayed.
21.8 TIME OF ESSENCE. Time is of the essence in all matters provided
for in this Agreement.
21.9 BINDING EFFECT, ASSIGNMENT. All the terms, provisions, covenants,
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the Parties and, except
as otherwise prohibited, their respective successors; however, this Agreement
and the rights and obligations hereunder shall not be assignable or delegable by
any Party without the express written consent of the non-assigning or
non-delegating Parties, which consent may be withheld for any or no reason. Any
assignment or delegation without such consent will be void.
21.10 NO RELATIONSHIP. Nothing contained in this Agreement shall be
deemed to create a joint venture, partnership, agency or other fiduciary
relationship between the Parties, nor is this Agreement intended to create, nor
shall it be construed to create, any rights in any third party, to create any
third party beneficiaries or to ratify, adopt or confirm any other lease,
agreement or other instrument, whether or not affecting the Subsidiaries, the
Partnership or the Operating Assets. Notwithstanding the above, the Parties
acknowledge that the Transaction shall be subject to the rights of all third
parties holding Preferential Rights to Purchase and Consents to Assignment
concerning the Operating Assets, to the extent that they are valid, in effect
and enforceable by reason of the Transaction, and that such third party rights
shall be handled as set forth herein.
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21.11 NO RECORDATION. Without limiting any Party's right to file suit
to enforce its rights under this Agreement, Buyer and Seller expressly covenant
and agree not to record or place of record this Agreement or any copy or
memorandum hereof, unless required under the Securities Exchange Act of 1934.
21.12 EXHIBITS AND SCHEDULES. All Exhibits and Schedules which are
referred to herein are hereby made a part hereof and incorporated herein by
reference.
21.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one agreement.
21.14 NO THIRD PARTY BENEFICIARIES. Any agreement contained, expressed
or implied in this Agreement shall be only for the benefit of the Parties hereto
and the Indemnified Parties specified in Article XV and their respective legal
representatives, successors and assigns. Such agreements shall not inure to the
benefit of any employees of the Subsidiaries or the Partnership (except in their
capacity as Indemnified Parties) or the obligees of any indebtedness of any
Party hereto, it being the intention of the Parties hereto that no Person shall
be deemed a third party beneficiary of this Agreement, except to the extent a
third Person is expressly given rights herein.
21.15 JOINT AND SEVERAL LIABILITY. Tesoro Petroleum Corporation and
Tesoro Gas Resources Company, Inc. agree to be jointly and severally liable for
all of the Seller's duties and obligations hereunder.
21.16 DISPUTE RESOLUTION. If despite their good faith efforts to do
so, the Parties are unable to reach agreement (or the matter is not otherwise
resolved pursuant to Section 6.3 or 7.7, as applicable) regarding (i) the
existence of a Title Defect or Environmental Condition, (ii) the value of a
Title Defect or Environmental Condition (and the corresponding Property Value
Reduction or Environmental Condition Value Reduction) or the value of a Property
Value Increase, or (iii) the cure, partial cure or failure to cure of a Title
Defect or Environmental Condition, either Party may elect to refer the matter to
arbitration in accordance with the commercial arbitration rules of the American
Arbitration Association (the "AAA") (expedited procedures). The AAA shall be
instructed to choose a neutral arbitrator (the "Arbitrator") who shall have a
minimum of 15 years experience in the oil and gas industry, such that he or she
is considered an expert on the oil and gas matters in dispute. Notice of a
Party's election to submit the matter for arbitration shall be given promptly to
the other Party pursuant to Article XVIII. Upon receipt by a Party of notice
that an Arbitrator has been appointed, such Party shall have ten (10) days to
provide the Arbitrator (and the other Party) with a statement of its position
(with supporting documentation) regarding the matter or matters in dispute,
together with its best and final offer for settlement of the dispute. The
failure to provide a statement of position within this period shall constitute a
waiver of a party's right to have such materials considered by the Arbitrator.
The Arbitrator shall consider the statements of position submitted by the
parties and shall, within ten (10) business days after receipt of such
materials, issue his or her decision adopting the best and final statement offer
for settlement of the dispute provided either by Buyer or Seller. All
determinations made by the Arbitrator shall be final, conclusive and binding on
the Parties. Each Party will pay one-half of the fees of the Arbitrator and all
other arbitration fees and expenses and the fees of their respective arbitrators
(if required).
21.17 EEX CORPORATION GUARANTEE. EEX Corporation, Buyer's parent, (a)
agrees to be jointly and severally liable with the Buyer for all of Buyer's
payment obligations under this Agreement
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and (b) irrevocably and unconditionally guarantees the performance by Buyer of
its indemnity obligations under Article XV.
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<PAGE> 84
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SELLER
TESORO PETROLEUM CORPORATION TESORO GAS RESOURCES COMPANY, INC.
By: /s/ BRUCE A. SMITH By: /s/ JEFFREY B. FABIAN
------------------------------------- -------------------------
Name: Bruce A. Smith Name: Jeffrey B. Fabian
------------------------------------- -------------------------
Title: Chairman of the Board of Directors, Title: President
President and Chief Executive Officer -------------------------
-------------------------------------
BUYER
EEX OPERATING LLC
By: EEX CORPORATION
By: /s/ T. M. HAMILTON
------------------------------------
Name: T. M. Hamilton
------------------------------------
Title: Chairman and President,
Chief Executive Officer
------------------------------------
EEX CORPORATION
FOR PURPOSES OF SECTION 21.17
By: /s/ T. M. HAMILTON
------------------------------------
Name: T. M. Hamilton
------------------------------------
Title: Chairman and President,
Chief Executive Officer
------------------------------------
<PAGE> 85
The Schedules and Exhibits listed in the Table of Contents to the Stock Purchase
Agreement have been omitted. The Registrant will furnish a copy of any omitted
schedules or exhibits to the Securities and Exchange Commission upon request.
<PAGE> 1
EXHIBIT 2.2
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Amendment") is
dated December 16, 1999, but effective as of October 8, 1999, among Tesoro
Petroleum Corporation, a Delaware corporation ("TPC"), Tesoro Gas Resources
Company, Inc., a Delaware corporation ("TGRC"), EEX Operating LLC, a Delaware
limited liability company ("EEX Operating"), and EEX Corporation, a Texas
corporation ("EEX Corporation"), for the limited purposes set forth herein and
in the Agreement.
Capitalized terms used and not otherwise defined, or defined as amended, in
this Amendment shall have the meanings given such terms in the Agreement.
WITNESSETH:
WHEREAS, TPC, TGRC, EEX Operating and EEX Corporation (for limited
purposes), entered into a Stock Purchase Agreement (the "Agreement") dated
October 8, 1999 providing for the sale by TPC and TGRC to EEX Operating of all
shares of capital stock of Tesoro Exploration and Production Company, a Delaware
corporation ("Exploration") and Tesoro Reserves Company, a Delaware corporation
("Reserves"), together with the partnership interests owned by Reserves and
Exploration in Tesoro E&P Company, L.P., a Delaware limited partnership (the
"E&P Partnership"); and
WHEREAS, Section 2.9 of the Agreement provides for the Parties to enter
into put and call options for the purchase of the stock of Tesoro Natural Gas
Company, a Delaware corporation ("Natural Gas"), and Tesoro Gathering Company, a
Delaware corporation ("Gathering"), together with the partnership interests (i)
owned by Natural Gas and Gathering in Tesoro Pipeline Company, L.P., a Delaware
limited partnership (the "Pipeline Partnership"), and (ii) owned by Natural Gas
and the Pipeline Partnership in the Starr-Zapata Partnership and the Starr
County Gathering System; and
WHEREAS, Section 9.12(b) of the Agreement provides for the Parties to
cooperate, at no cost or liability to Buyer, to enable Seller, at Seller's
election, to transfer the Operating Assets (as defined in the Agreement) to
Buyer in a manner enabling the transfer to qualify as a like-kind exchange of
property by Seller within the meaning of Section 1031 of the Code; and
WHEREAS, in connection with a financing contemplated by Section 9.12(c) of
the Agreement, the Agreement will be amended to provide for the possibility of
(i) two separate buyers, one of which will purchase the Common Stock, and the
other of which will purchase the Membership Interests, and (ii) EEX Operating,
which is executing this Amendment in its capacities as the purchaser of the
Common Stock and the Membership Interests, to transfer its rights and
obligations as the buyer of the Common Stock and/or the Membership Interests to
an Affiliate of EEX Operating; and
WHEREAS, in order to effect the sale contemplated by Section 2.9, the
like-kind exchange contemplated by Section 9.12 of the Agreement and the
separation of the buyers of the Common Stock and the Membership Interests, the
Parties have agreed to amend the Agreement in accordance with the terms of this
Amendment;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
<PAGE> 2
1. CHANGES TO ARTICLE I, DEFINITIONS.
a. New Defined Terms The following defined terms shall be added to Article
I of the Agreement:
"AMENDMENT" shall mean this First Amendment to Stock Purchase Agreement
dated December 16, 1999, among Tesoro Petroleum Corporation, Tesoro Gas
Resources Company, Inc. and EEX Operating LLC, and EEX Corporation, for
limited purposes.
"COASTAL" shall mean Coastal States Gas Transmission Company, a Delaware
corporation.
"E&P BUYER" shall mean the buyer of the Membership Interests, and shall
initially be EEX Operating LLC, a Delaware limited liability company.
"E&P CLOSING SETTLEMENT PRICE" shall mean the E&P Settlement Price
calculated in accordance with the best information available to the Seller
prior to Closing, as reflected on the E&P Settlement Statement delivered
prior to Closing pursuant to Article X and Section 13.2(a).
"E&P FINAL SETTLEMENT PRICE" shall mean the E&P Settlement Price calculated
in accordance with the best information available to the Parties during the
one hundred twenty (120) day period after Closing, as reflected on the E&P
Final Statement agreed upon pursuant to Article XIII.
"E&P FINAL STATEMENT" shall mean the final accounting statement with
respect to the Membership Interests to be agreed upon by the Parties no
later than one hundred twenty (120) days after Closing pursuant to Section
13.2(b).
"E&P PARTNERSHIP" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"E&P PROPERTY PACKAGE" shall mean the Properties listed on Schedule I.
"E&P PURCHASE PRICE" shall have the meaning given such term in Section
3.1(a) hereof.
"E&P SETTLEMENT PRICE" shall have the meaning set forth in Section 3.2.
"E&P SETTLEMENT STATEMENT" shall mean the accounting statement calculating
the E&P Settlement Price described in Section 13.2(a).
"EXPLORATION AND PRODUCTION ASSETS" shall mean all property rights and
interests of the E&P Partnership being sold hereunder in the lands and
leases described in Exhibit B, as set forth in Section 2.4(a).
"EXPLORATION LLC" shall mean Tesoro Exploration and Production Company,
LLC, a Delaware limited liability company.
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<PAGE> 3
"GRANDE" shall mean Tesoro Grande LLC, a Delaware limited liability
company.
"GRANDE PROPERTY PACKAGE" shall mean the Properties listed on Schedule II.
"GRANDE QUALIFIED INTERMEDIARY" shall mean Bank One Exchange Corporation,
in its capacity as a qualified intermediary to implement a like-kind
exchange of the Grande Property Package under Section 1031 of the Code.
"LLC PURCHASE AGREEMENTS" shall have the meaning set forth in Section
12.2(g) hereof.
"LLCS" shall mean Grande, Southeast, Exploration LLC and Reserves LLC.
"MEMBERSHIP INTERESTS" shall mean all issued and outstanding membership
interests in Exploration LLC, Reserves LLC, Grande and Southeast,
collectively.
"PIPELINE BUYER" shall mean the buyer of the Common Stock, and shall
initially be EEX Operating LLC, a Delaware limited liability company.
"PIPELINE CLOSING SETTLEMENT PRICE" shall mean the Settlement Price
calculated in accordance with the best information available to the Seller
prior to Closing, as reflected on the Settlement Statement delivered prior
to Closing pursuant to Article X and Section 13.2(a).
"PIPELINE FINAL SETTLEMENT PRICE" shall mean the Pipeline Settlement Price
calculated in accordance with the best information available to the Parties
during the one hundred twenty (120) day period after Closing, as reflected
on the Pipeline Final Statement agreed upon pursuant to Article XIII.
"PIPELINE FINAL STATEMENT" shall mean the final accounting statement with
respect to the Common Stock to be agreed upon by the Parties no later than
one hundred twenty (120) days after Closing pursuant to Section 13.2(b).
"PIPELINE PARTNERSHIP" shall mean Tesoro Pipeline Company, L.P., a Delaware
limited partnership.
"PIPELINE PROPERTIES" shall mean the pipelines and appurtenances, and
rights-of-ways, easements, servitudes, licenses, permits and other rights
and interests in the pipelines listed on Exhibit B-1 attached hereto.
"PIPELINE PURCHASE PRICE" shall have the meaning given such term in Section
3.1(a) hereof.
"PIPELINE SETTLEMENT PRICE" shall have the meaning set forth in Section
3.3.
"PIPELINE SETTLEMENT STATEMENT" shall mean the accounting statement
calculating the Pipeline Settlement Price described in Section 13.2(a).
3
<PAGE> 4
"QUALIFIED INTERMEDIARY" shall mean both, or either, as applicable, the
Southeast Qualified Intermediary and the Grande Qualified Intermediary.
"RESERVES LLC" shall mean Tesoro Reserves Company, LLC, a Delaware limited
liability company.
"SOUTHEAST" shall mean Tesoro Southeast LLC, a Delaware limited liability
company.
"SOUTHEAST PROPERTY PACKAGE" shall mean the Properties listed on Schedule
III.
"SOUTHEAST QUALIFIED INTERMEDIARY" shall mean 44 Exchange Services L.L.C.,
in its capacity as a qualified intermediary to implement a like-kind
exchange of the Southeast Property Package under Section 1031 of the Code.
b. Amended Definitions: The following defined terms in Article I of the
Agreement shall be amended to read as follows:
"AGREEMENT" shall mean this Stock Purchase Agreement, as amended.
"ALLOCATED VALUES" shall mean the monetary value allocated to each Property
or group of Properties, the Pipeline Properties and the Hedging Contracts
in Exhibit A.
"BALANCE SHEETS" shall mean the unaudited combined financial balance sheet
of the Subsidiaries and the Partnership as of June 30, 1999, attached
hereto as Exhibits C and C-1.
"BUYER" shall mean (i) EEX Operating LLC, a Delaware limited liability
company, if acting as both the E&P Buyer and the Pipeline Buyer or (ii) the
E&P Buyer and the Pipeline Buyer, collectively, if the E&P Buyer and the
Pipeline Buyer are different Persons.
"COMMON STOCK" shall mean all issued and outstanding shares of common stock
of Natural Gas and Gathering, collectively; further, during the period
Exploration and Reserves remain as corporations, prior to their conversion
to limited liability companies, then the term "Common Stock" shall also
include all issued and outstanding shares of common stock of Exploration
and Reserves.
"CONSENT TO ASSIGNMENT" shall mean an existing contractual or legal right
of any third party to consent to a Partnership's assignment of an Operating
Asset or an interest in an Operating Asset to Buyer under such terms as are
set forth in this Agreement.
"OPERATING ASSETS" shall mean the Exploration and Production Assets, the
Pipeline Properties and, otherwise, all property rights and interests of
the Partnership being sold hereunder in the lands and leases described in
Exhibit B and Exhibit B-1, as set forth in Section 2.4.
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<PAGE> 5
"PARTNERSHIP" shall mean either or both of the E&P Partnership and the
Pipeline Partnership, as the context may require.
"PREFERENTIAL RIGHT TO PURCHASE" shall mean the right of any third party
under an existing contract or agreement allowing that third party to
purchase a Property or either of the Starr Partnership's interest in a
Pipeline Property whenever Seller proposes to transfer its interests in a
Partnership under terms such as are set forth in this Agreement.
"PURCHASE PRICE" shall mean the sum of the E&P Purchase Price and the
Pipeline Purchase Price.
"SUBSIDIARIES" shall mean Exploration LLC (and Exploration, its predecessor
corporation), Reserves LLC (and Reserves, its predecessor corporation),
Grande, Southeast, Natural Gas and Gathering, collectively.
"TRANSACTION" shall mean the purchase and sale of the Common Stock and the
Membership Interests pursuant to this Agreement and the related
transactions contemplated herein.
c. The following defined terms in Article I of the Agreement shall be
deleted in their entirety:
"CLOSING SETTLEMENT PRICE"
"FINAL SETTLEMENT PRICE"
"FINAL STATEMENT"
"SETTLEMENT PRICE"
"SETTLEMENT STATEMENT"
2. CHANGES TO ARTICLE II, PURCHASE AND SALE.
a. Section 2.1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
2.1 SALE OF MEMBERSHIP INTERESTS AND COMMON STOCK. Subject to the terms and
conditions of this Agreement, (a) Seller agrees to sell and assign to E&P
Buyer, and E&P Buyer agrees to purchase and pay for, at Closing, all the
Membership Interests, and (b) Seller agrees to sell and assign to Pipeline
Buyer, and Pipeline Buyer agrees to purchase and pay for, at Closing, all
the Common Stock.
b. Section 2.2 of the Agreement is hereby amended and restated in its
entirety to read as follows:
2.2 EFFECT OF SALE. The sale of the Membership Interests at Closing shall
transfer to E&P Buyer all of Seller's rights in the LLCs, and the sale of
the Common Stock at Closing shall transfer to Pipeline Buyer all of
Seller's rights in Natural Gas and Gathering. On the Closing Date, the
Subsidiaries shall hold certain interests, assets and liabilities, as set
forth in this Article II. Except as otherwise specifically set forth in
this Agreement, the transfer of
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<PAGE> 6
Seller's rights in the Subsidiaries shall assign to Buyer all of Seller's
beneficial right, title, interest and obligations in and to such interests,
assets and liabilities held by the Subsidiaries.
c. Section 2.3 of the Agreement is hereby amended and restated in its
entirety to read as follows:
2.3 PARTNERSHIP. On the Closing Date, the E&P Partnership and the Pipeline
Partnership shall be owned in the following manner:
(a) E&P Partnership Exploration LLC, Grande, Southeast and Reserves LLC
shall collectively own all rights and interests in the E&P Partnership.
Exploration LLC shall be the sole general partner in the E&P
Partnership, and Grande, Southeast and Reserves LLC shall be the sole
limited partners in the E&P Partnership. The partnership rights and
interests described in this Section 2.3(a) shall pass to E&P Buyer as
an attribute of the sale of the Membership Interests pursuant to this
Agreement.
(b) Pipeline Partnership. Natural Gas and Gathering shall collectively
own all rights and interests in the Pipeline Partnership. Natural Gas
shall be the sole general partner, owning a one percent (1%)
partnership interest, and Gathering shall be the sole limited partner,
owning a ninety-nine percent (99%) partnership interest in the Pipeline
Partnership. The partnership rights and interests described in this
Section 2.3(b) shall pass to Pipeline Buyer as an attribute of the sale
of the Common Stock pursuant to this Agreement.
(c) Starr Partnerships. On the Closing Date, (i) Pipeline Partnership
shall be the 49% partner and Natural Gas shall be the 1% partner of
Starr-Zapata Partnership and (ii) Pipeline Partnership shall be the 69%
partner and Natural Gas shall be the 1% partner of the Starr County
Gathering System. The partnership rights and interests described in
this Section 2.3(c) shall pass to Pipeline Buyer as an attribute of the
sale of the Common Stock pursuant to this Agreement.
d. The introductory paragraph of Section 2.4 of the Agreement is amended
and restated in its entirety to read as follows:
On the Closing Date, the Partnership and the Starr Partnerships shall
own the Operating Assets, subject to the Permitted Encumbrances, and
excluding the items set forth on Schedule 2.4 and as otherwise limited
herein as follows:
e. The existing subparagraphs (vi) and (vii) of Section 2.4(a) are
renumbered (vii) and (viii), respectively, and a new subparagraph (vi)
is added as follows:
(vi) All the rights, title and interests of Seller and the Partnership
in and to the Bob West Field compression facility and the Bob
West Field amine plant;
f. The following paragraph (c) is added to Section 2.4 of the Agreement:
6
<PAGE> 7
(c) Pipeline Assets.
(i) Rights, title and interests of the Pipeline Partnership and
the Starr Partnerships in the Pipeline Properties in Starr,
Edwards, Val Verde and Zapata Counties, Texas, as described in
Exhibit B-1;
(ii) Rights, obligations, title and interests of the Pipeline
Partnership and the Starr Partnerships in and to permits, orders,
abstracts of title, leases, deeds, operating agreements,
participation agreements, and other agreements and instruments
applicable to the Pipeline Properties;
(iii) Rights, obligations, title and interests in easements,
rights of way, licenses and permits and all other rights,
privileges, benefits and powers conferred upon the owner and
holder of interests in the Pipeline Properties.
(iv) Rights and interests in records and maps, contract files and
records, accounting files, data and records, all computer
software and other materials (whether electronically stored or
otherwise) used or held for use by Seller, the Subsidiaries, the
Pipeline Partnership or the Starr Partnerships, or any of their
direct or indirect parents, subsidiaries or other Affiliates
(other than Coastal), regarding ownership or operation of the
Pipeline Properties, and other files, documents and records of
Seller, the Subsidiaries, the Pipeline Partnership or the Starr
Partnerships, or any of their direct or indirect parents,
subsidiaries or other Affiliates (other than Coastal), which
relate to the Pipeline Properties.
g. Section 2.9 of the Agreement is hereby deleted in its entirety.
3. CHANGES TO ARTICLE III, PURCHASE PRICE AND SETTLEMENT PRICE.
a. Section 3.1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
3.1 PURCHASE PRICE.
(a) Purchase Price. The monetary consideration ("E&P Purchase Price")
for the sale and conveyance of all the Membership Interests to E&P
Buyer, effective as of the date of Closing, is E&P Buyer's payment of
$215,253,969 in cash. The monetary consideration ("Pipeline Purchase
Price") for the sale and conveyance of all the Common Stock to Pipeline
Buyer, effective as of the date of Closing, is Pipeline Buyer's payment
of $6,746,031 in cash.
(b) Allocation of E&P Purchase Price. The E&P Purchase Price shall be
allocated among the Grande Property Package, the Southeast Property
Package and the E&P Property Package as follows:
(i) Grande Property Package ----------- $115,304,126
7
<PAGE> 8
(ii) Southeast Property Package ------- $ 14,426,631
(iii) E&P Property Package ------------ $ 85,523,212
Total --------------------------- $215,253,969
(c) The parties agree that the allocation of the E&P Purchase Price
provided herein, and any inability to allocate the E&P Purchase Price
as provided herein, shall not affect the total E&P Purchase Price paid
by E&P Buyer under this Agreement, and the total adjustments to the E&P
Purchase Price described in this Agreement (including without
limitation Section 3.2 and Article XIII).
(d) None of the E&P Buyer, the Pipeline Buyer, or any Affiliate of
either Buyer shall be obligated to pay Seller the E&P Purchase Price,
the Pipeline Purchase Price, or any amounts for any of the Membership
Interests or the Common Stock, or pursuant to indemnification claims,
except pursuant to this Agreement.
b. Section 3.2 of the Agreement is hereby amended and restated in its
entirety to read as follows:
3.2 E&P SETTLEMENT PRICE. Pursuant to the provisions as described
below, the E&P Purchase Price to be paid by E&P Buyer will be subject to
certain adjustments made at Closing and within one hundred twenty (120)
days thereafter, as set forth in Article XIII, to determine the E&P
Settlement Price amount that will actually be paid by E&P Buyer. The E&P
Settlement Price will be allocated separately for the E&P Property Package,
the Grande Property Package and the Southeast Property Package, and shall
be calculated as follows:
(a) Increases. The E&P Purchase Price shall be increased by the following
amounts:
(i) An amount equal to the expenses attributable to the Membership
Interests, the E&P Partnership or the Properties (without
duplication) properly accrued in accordance with GAAP and past
practice, and as provided for in Section 13.3, attributable to
the period from the Effective Time to the end of business on the
Closing Date; provided, however, that such expenses shall exclude
all (1) depreciation, depletion and amortization, (2) income and
franchise taxes, (3) one-half of the amount accrued by the
Subsidiaries and the Partnership under incentive compensation
arrangements for the Retained Employees, as provided in Section
9.9(c), and (4) severance obligations and other amounts accrued
under any employment retention and management stability
agreements, as provided in Section 9.9(b); provided, further,
however that Seller, the Subsidiaries and the Partnership shall
be permitted to accrue no more than $40,000 per month from the
close of business on June 30, 1999 to the Closing Date for
corporate general and administrative expenses;
8
<PAGE> 9
(ii) An amount equal to the capital expenditures relating to the
Business attributable to the Membership Interests, the E&P
Partnership or the Properties (without duplication), properly
accrued in accordance with GAAP and past practice attributable to
the period from the Effective Time to the end of business on the
Closing Date; and
(iii) The amount of change in Working Capital attributable to the
Membership Interests, the E&P Partnership or the Properties
(without duplication) between the Effective Time and the end of
business on the Closing Date, if the amount of change is a
positive number.
(b) Decreases. The E&P Purchase Price shall be decreased by the following
amounts:
(i) An amount equal to the revenues properly accrued in accordance
with GAAP and past practice attributable to the Membership
Interests, the E&P Partnership or the Properties (without
duplication) and attributable to the period from the Effective
Time to the end of business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment, subject to
the application of Section 13.1;
(iii) The amount of the Allocated Value of any Properties that third
parties shall have purchased before the Closing through the
exercise of Preferential Rights to Purchase or pursuant to any
other sale permitted by Section 9.2(a); and
(iv) The amount, stated as a positive number, of any change in Working
Capital attributable to the Membership Interests, the E&P
Partnership or the Properties (without duplication) between the
Effective Time and the end of business on the Closing Date, if
and only if, the amount of change is a negative number.
The E&P Purchase Price as adjusted pursuant to this Section 3.2 is herein
called the "E&P Settlement Price."
c. The following Section 3.3 is hereby added to the Agreement:
3.3 PIPELINE SETTLEMENT PRICE.Pursuant to the provisions as described
below, the Pipeline Purchase Price to be paid by Pipeline Buyer will be
subject to certain adjustments made at Closing and within one hundred
twenty (120) days thereafter, as set forth in Article XIII, to determine
the Pipeline Settlement Price amount that will actually be paid by Pipeline
Buyer, and shall be calculated as follows:
(a) Increases. The Pipeline Purchase Price shall be increased by the
following amounts:
(i) An amount equal to the expenses attributable to the Common Stock
(excluding Reserves and Exploration), the Pipeline Partnership or
the Pipeline Properties (without duplication) properly accrued in
accordance with GAAP and past practice, and as provided for in
Section 13.3, attributable to the period from the Effective Time
to the end of business on the Closing
9
<PAGE> 10
Date; provided, however, that such expenses shall exclude all (1)
depreciation, depletion and amortization, (2) income and
franchise taxes, (3) amounts accrued by the Subsidiaries and the
Partnership under incentive compensation arrangements for the
Retained Employees, as provided in Section 9.9(c), and (4)
severance obligations and other amounts accrued under any
employment retention and management stability agreements, as
provided in Section 9.9(b); provided, further, however that
Seller, the Subsidiaries and the Partnership shall not be
permitted to accrue any corporate general and administrative
expenses from the close of business on June 30, 1999 to the
Closing Date;
(ii) An amount equal to the capital expenditures relating to the
Business attributable to the Common Stock (excluding Reserves and
Exploration), the Pipeline Partnership or the Pipeline Properties
(without duplication), properly accrued in accordance with GAAP
and past practice attributable to the period from the Effective
Time to the end of business on the Closing Date; and
(iii) The amount of change in Working Capital attributable to the
Common Stock (excluding Reserves and Exploration), the Pipeline
Partnership or the Pipeline Properties (without duplication),
between the Effective Time and the end of business on the Closing
Date, if the amount of change is a positive number.
(b) Decreases. The Pipeline Purchase Price shall be decreased by the
following amounts:
(i) An amount equal to the revenues attributable to the Common Stock
(excluding Reserves and Exploration), the Pipeline Partnership or
the Pipeline Properties (without duplication) properly accrued in
accordance with GAAP and past practice attributable to the period
from the Effective Time to the end of business on the Closing
Date;
(ii) An amount equal to any Settlement Price Adjustment, subject to
the application of Section 13.1;
(iii) The amount of the Allocated Value of the Pipeline Properties that
third parties shall have purchased before the Closing through the
exercise of Preferential Rights to Purchase or pursuant to any
other sale permitted by Section 9.2(a); and
(iv) The amount, stated as a positive number, of any change in Working
Capital, attributable to the Common Stock (excluding Reserves and
Exploration), the Pipeline Partnership or the Pipeline Properties
(without duplication), between the Effective Time and the end of
business on the Closing Date, if and only if, the amount of
change is a negative number.
The Pipeline Purchase Price as adjusted pursuant to this Section 3.2 is
herein called the "Pipeline Settlement Price."
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<PAGE> 11
4. CHANGES TO ARTICLE IV, REPRESENTATIONS AND WARRANTIES.
a. Section 4.1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
(a) Disclosure. To Seller's Knowledge, the representations and
warranties set forth in this Section 4.1 of this Agreement, the exhibits to
this Agreement, and the information, documents and Balance Sheets provided
under the terms of this Agreement represent full and fair disclosure as of
the date of this Agreement and do not contain any untrue statement of any
material fact or omit any material fact necessary in order to make the
facts stated not misleading.
b. Paragraph (e) of Section 4.2 of the Agreement is amended and restated in
its entirety to read as follows:
(e) Investment Intent. The Common Stock and the Membership Interests
are being purchased for Buyer's own account and not with a view to, or for
resale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act. Buyer understands that the Common
Stock and the Membership Interests have not been registered under the
Securities Act by reason of their issuance in transactions exempt from the
registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) thereof. Buyer is knowledgeable, competent, and
experienced in the oil and gas industry and has independently evaluated and
interpreted the technical data and other information regarding the
Operating Assets prior to entering into this Agreement, understands and is
financially able to bear the risk associated with ownership of the
Subsidiaries and the Partnership, and will independently conduct all the
due diligence investigations and reviews of all matters concerning the
Subsidiaries, the Partnership and the Operating Assets as it deems
necessary prior to Closing. Buyer acknowledges that Buyer is not relying
upon any statement or representations made by Seller concerning the present
or future value of, or anticipated income, costs, or profits, if any, to be
derived from, the Subsidiaries, the Partnership or the Operating Assets,
and Buyer has relied solely upon its independent inspections, estimates,
computations, evaluations, reports, studies, knowledge and other
information regarding the Subsidiaries, the Partnership and the Operating
Assets.
c. The following Section 4.3 shall be added to the Agreement as follows:
4.3 SELLER'S REPRESENTATIONS AND WARRANTIES TO BE MADE AT CLOSING.
Effective as of the Closing Date, Seller shall represent and warrant that:
(a) Disclosure. To Seller's Knowledge, the representations and warranties
set forth in this Section 4.3, the exhibits to this Agreement, and the
information, documents and Balance Sheets provided under the terms of this
Agreement represent full and fair disclosure as of the Closing Date and do
not contain any untrue statement of any material fact or omit any material
fact necessary in order to make the facts stated not misleading.
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<PAGE> 12
(b) Authorization and Enforceability.
(i) This Agreement and the Transaction have been duly authorized by
each Seller.
(ii) Neither the execution and delivery of this Agreement by Seller,
nor the consummation by Seller of the transactions contemplated
hereby, will violate or conflict with, or result in the
acceleration of rights, benefits or obligations under, (1) any
provision of any Seller's, Subsidiary's, Partnership's or Starr
Partnership's respective Charters, Bylaws, management agreements,
limited liability company agreements, operating agreements or
partnership agreements, or (2) any applicable statute, law,
regulation or Governmental Order to which Seller or the
Subsidiaries or the Partnerships or the assets and properties of
such entities, including without limitation the Operating Assets,
are bound or subject.
(iii) This Agreement has been duly executed and delivered by each
Seller and constitutes the valid and binding obligation of each
Seller, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the enforcement
of creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(iv) Except as set forth on Schedule 4.1(b)(iv), or as otherwise
specifically provided herein, the execution, delivery, and
performance of this Agreement (assuming that all applicable
consents are received and all applicable Preferential Rights to
Purchase individual Operating Assets are waived) will not (A) be
in violation of any provisions of any regulation or order that
could reasonably be expected to adversely affect the ownership or
operations of the Operating Asset affected thereby or give rise
to damages, penalties or claims of third parties, or (B) result
in the breach of, or constitute a default under, any indenture or
other material agreement or instrument to which any Seller,
Subsidiary, Partnership or Starr Partnership is bound, or (C)
cause the recognition of gain for which the Buyer (or, after the
Closing, the Subsidiaries) will be responsible for the tax
thereon or subject any Subsidiary or its assets to any Tax other
than Tax for which Seller is responsible under Article XVI.
(v) Except as set forth on Schedule 4.1(b)(v) or as otherwise
specifically provided herein, no consent, waiver, approval, order
or authorization of, notice to, or registration, declaration,
designation, qualification or filing with, any Governmental
Authority or third Person, domestic or foreign, is or has been or
will be required on the part of Seller in connection with the
execution and delivery of this Agreement or the consummation by
Seller of the transactions contemplated hereby or thereby, other
than (A) consents and Preferential Rights to Purchase
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<PAGE> 13
affecting individual Operating Assets; (B) filings required (1)
to form Grande and Southeast under Delaware law, (2) to convert
Reserves into Reserves LLC under Delaware law and (3) to convert
Exploration into Exploration LLC under Delaware law; (C) tax
filings or (D) where the failure to obtain such consents,
waivers, approvals, orders or authorizations or to make or effect
such registrations, declarations, designations, qualifications or
filings (1) is not reasonably likely to prevent or materially
delay consummation of the transactions contemplated by this
Agreement (2) could reasonably be expected to adversely affect
the Business or (3) could give rise to damages, penalties or
claims of third parties.
(c) Organizational Status.
(i) Each Seller: (1) is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, (2) is
duly qualified to transact business in each jurisdiction where
the nature and extent of its business and properties require such
qualification, and (3) possesses all requisite authority and
power to conduct its business and execute, deliver and comply
with the terms and provisions of this Agreement and to perform
all of its obligations hereunder. There are no pending or
threatened Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of any Seller.
(ii) Exploration LLC (1) is a limited liability company duly
organized, validly existing and in good standing under the laws
of Delaware, (2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business and
properties require such qualification, and (3) possesses all
requisite authority and power to conduct its business. There are
no pending or threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or rehabilitation of
Exploration LLC.
(iii) Reserves LLC (1) is a limited liability company duly organized,
validly existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business and
properties require such qualification, and (3) possesses all
requisite authority and power to conduct its business. There are
no pending or threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or rehabilitation of
Reserves LLC.
(iv) Grande(1) is a limited liability company duly organized, validly
existing and in good standing under the laws of Delaware, (2) is
duly qualified to transact business in each jurisdiction where
the nature and extent of its business and properties require
such qualification, and (3) possesses all requisite authority
and power to conduct its business. There are no pending or
threatened Actions (or basis
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<PAGE> 14
therefor) for the dissolution, liquidation, insolvency, or
rehabilitation of Grande.
(v) Southeast (1) is a limited liability company duly organized,
validly existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business and
properties require such qualification, and (3) possesses all
requisite authority and power to conduct its business. There are
no pending or threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or rehabilitation of
Southeast.
(vi) The E&P Partnership (1) is a limited partnership duly organized,
validly existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business and
properties require such qualification, and (3) possesses all
requisite authority and power to conduct its business. There are
no pending or threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or rehabilitation of the
E&P Partnership.
(vii) The Pipeline Partnership (1) is a limited partnership duly
organized, validly existing and in good standing under the laws
of Delaware, (2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business and
properties require such qualification, and (3) possesses all
requisite authority and power to conduct its business. There are
no pending or threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or rehabilitation of the
Pipeline Partnership.
(viii) Gathering (1) is a corporation duly organized, validly existing
and in good standing under the laws of Delaware, (2) is duly
qualified to transact business in each jurisdiction where the
nature and extent of its business and properties require such
qualification, and (3) possesses all requisite authority and
power to conduct its business. There are no pending or
threatened Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of Gathering.
(ix) Natural Gas (1) is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, (2) is
duly qualified to transact business in each jurisdiction where
the nature and extent of its business and properties require
such qualification, and (3) possesses all requisite authority
and power to conduct its business. There are no pending or
threatened Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of Natural Gas.
(x) Starr-Zapata Partnership (1) is a general partnership duly
formed and validly existing under the laws of Texas and (2)
possesses all requisite authority and power to conduct its
business. To Seller's Knowledge, there are no pending or
threatened Actions (or basis
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<PAGE> 15
therefor) for the dissolution, liquidation, insolvency, or
rehabilitation of Starr-Zapata Partnership.
(xi) Starr County Gathering System (1) is a general partnership duly
formed and validly existing under the laws of Texas and (2)
possesses all requisite authority and power to conduct its
business. To Seller's Knowledge, there are no pending or
threatened Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of Starr County
Gathering System.
(d) Subsidiary and Other Equity Interests.
(i) Exploration LLC has no subsidiaries and does not own any stock
or other interest in any other corporation, partnership, joint
venture, or other business entity, with the exception of the E&P
Partnership.
(ii) Reserves LLC has no subsidiaries and does not own any stock or
other interest in any other corporation, partnership, joint
venture, or other business entity, with the exception of the E&P
Partnership.
(iii) Grande has no subsidiaries and does not own any stock or other
interest in any other corporation, partnership, joint venture,
or other business entity, with the exception of the E&P
Partnership.
(iv) Southeast has no subsidiaries and does not own any stock or
other interest in any other corporation, partnership, joint
venture, or other business entity, with the exception of the E&P
Partnership.
(v) The E&P Partnership has no subsidiaries and does not own any
stock or other interest in any other corporation, partnership,
joint venture, or other business entity.
(vi) Natural Gas has no subsidiaries and does not own any stock or
other interest in any other corporation, partnership, joint
venture, or other business entity, with the exception of the
Pipeline Partnership and the Starr Partnerships.
(vii) Gathering has no subsidiaries and does not own any stock or
other interest in any other corporation, partnership, joint
venture, or other business entity, with the exception of the
Pipeline Partnership.
(viii) The Pipeline Partnership has no subsidiaries and does not own
any stock or other interest in any other corporation,
partnership, joint venture, or other business entity, with the
exception of the Starr Partnerships.
(ix) Starr-Zapata Pipe Line has no subsidiaries and does not own any
stock or other interest in any other corporation, partnership,
joint venture, or other business entity.
(ix) Starr County Gathering System has no subsidiaries and does not
own any stock or other interest in any other corporation,
partnership, joint venture, or other business entity
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<PAGE> 16
(e) Membership Interests and Partnership Interests.
(i) Exploration LLC has authorized membership interests, of which
all are issued and outstanding and owned by Tesoro Gas Resources
Company, Inc. The membership interests of Exploration LLC have
been duly authorized by Exploration LLC, and the membership
interests of Exploration LLC owned by Tesoro Gas Resources
Company, Inc. are validly issued and outstanding, fully paid and
nonassessable. There are no preemptive rights, or authorized or
outstanding subscriptions, options, consents to assignment or
rights of first refusal, convertible securities, warrants,
calls, stock appreciation rights, phantom stock, profit
participation, or other similar rights, or other agreements or
commitments obligating Seller or Exploration LLC to issue or to
transfer (or preventing the transfer of) any membership
interests, capital stock or other equity interest in Exploration
LLC.
(ii) Reserves LLC has authorized membership interests, of which all
are issued and outstanding and owned by Tesoro Gas Resources
Company, Inc. The membership interests of Reserves LLC have been
duly authorized by Reserves, and the membership interests of
Reserves LLC owned by Tesoro Gas Resources Company, Inc. are
validly issued and outstanding, fully paid and nonassessable.
There are no preemptive rights, subscriptions, options, consents
to assignment or rights of first refusal, convertible
securities, warrants, calls, stock appreciation rights, phantom
stock, profit participation, or other similar rights, or other
agreements or commitments obligating Seller or Reserves LLC to
issue or to transfer (or preventing the transfer of) any
membership interests, capital stock or other equity interest in
Reserves LLC.
(iii) Grande has authorized membership interests, of which all are
issued and outstanding and owned by Tesoro Gas Resources
Company, Inc. The membership interests of Grande have been duly
authorized by Grande, and the membership interests of Grande
owned by Tesoro Gas Resources Company, Inc. are validly issued
and outstanding, fully paid and nonassessable. There are no
preemptive rights, subscriptions, options, consents to
assignment or rights of first refusal, convertible securities,
warrants, calls, stock appreciation rights, phantom stock,
profit participation, or other similar rights, or other
agreements or commitments obligating Seller or Grande to issue
or to transfer (or preventing the transfer of) any membership
interests, capital stock or other equity interest in Grande.
(iv) Southeast has authorized membership interests, of which all are
issued and outstanding and owned by Tesoro Gas Resources
Company, Inc. The membership interests of Southeast have been
duly authorized by Southeast, and the membership interests of
Southeast owned by Tesoro Gas Resources Company, Inc. are
validly
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<PAGE> 17
issued and outstanding, fully paid and nonassessable. There are
no preemptive rights, subscriptions, options, consents to
assignment or rights of first refusal, convertible securities,
warrants, calls, stock appreciation rights, phantom stock,
profit participation, or other similar rights, or other
agreements or commitments obligating Seller or Southeast to
issue or to transfer (or preventing the transfer of) any
membership interests, capital stock or other equity interest in
Southeast.
(v) In the E&P Partnership, the entire Series A limited partnership
interest (representing a 99% interest in all of the capital and
assets associated with Series A) is held by Reserves LLC, the
entire Series B limited partnership interest (representing a
100% interest in all of the capital and assets associated with
Series B) is held by Grande and the entire Series C limited
partnership interest (representing a 100% interest in all of the
capital and assets associated with Series C) is held by
Southeast. Exploration LLC is the general partner of the E&P
Partnership (representing a 1% interest in all of the capital
and assets of Series A). Such interests are duly authorized
under the agreement governing the E&P Partnership, as currently
amended, and are valid. There are no preemptive rights, or
authorized or outstanding subscriptions, options, consents to
assignment or rights of first refusal, convertible securities,
warrants, calls, appreciation rights, phantom interests, profit
participation, or other similar rights, or other agreements or
commitments obligating Seller, the Partnership, Reserves LLC,
Grande, Southeast or Exploration LLC to issue or to transfer (or
preventing the transfer of) any equity interest in the E&P
Partnership.
(vi) Seller has delivered to Buyer correct and complete copies of
each Subsidiary's, each Partnership's and each Starr
Partnership's respective Charter, Bylaws, organizational
documents, management agreement, limited liability company
agreement, operating agreement or partnership agreement, as
amended to date, and the minute books of each Subsidiary and
Partnership. No Subsidiary, Partnership or Starr Partnership is
in breach of any provision of its Charter, Bylaws organizational
documents, management agreement, limited liability company
agreement, operating agreement or partnership agreement.
(vii) Natural Gas has authorized capital stock consisting of 1,000
shares of $1.00 par value common stock, of which 1,000 shares
are issued and outstanding, with all of such shares owned by
Tesoro Petroleum Corporation. The common stock has been duly
authorized by Natural Gas and the shares owned by Tesoro
Petroleum Corporation are validly issued and outstanding, fully
paid and nonassessable. There are no preemptive rights, or
authorized or outstanding subscriptions, options, consents to
assignment or rights of first refusal, convertible securities,
warrants, calls, stock appreciation rights, phantom stock,
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<PAGE> 18
profit participation, or other similar rights, or other
agreements or commitments obligating Seller or Natural Gas to
issue or to transfer (or preventing the transfer of) any common
stock or other equity interest in Natural Gas.
(viii) Gathering has authorized capital stock consisting of 1,000
shares of $1.00 par value common stock, of which 1,000 shares
are issued and outstanding, with all of such shares owned by
Tesoro Gas Resources Company, Inc. The common stock has been
duly authorized by Gathering, and the shares owned by Tesoro Gas
Resources Company, Inc. are validly issued and outstanding,
fully paid and nonassessable. There are no preemptive rights,
subscriptions, options, consents to assignment or rights of
first refusal, convertible securities, warrants, calls, stock
appreciation rights, phantom stock, profit participation, or
other similar rights, or other agreements or commitments
obligating Seller or Gathering to issue or to transfer (or
preventing the transfer of) any common stock or other equity
interest in Gathering.
(ix) In the Pipeline Partnership, a 99% limited partnership interest
is held by Gathering, and a 1% general partnership interest is
held by Natural Gas. Such interests are duly authorized under
the agreement forming the Pipeline Partnership and are valid.
There are no preemptive rights, or authorized or outstanding
subscriptions, options, consents to assignment or rights of
first refusal, convertible securities, warrants, calls,
appreciation rights, phantom interests, profit participation, or
other similar rights, or other agreements or commitments
obligating Seller, the Pipeline Partnership, Natural Gas or
Gathering to issue or to transfer (or preventing the transfer
of) any equity interest in the Pipeline Partnership.
(x) In Starr County Gathering, a 69% general partnership interest is
held by Pipeline, a 1% general partnership interest is held by
Natural Gas, and a 30% general partnership interest is held by
Coastal. Such interests have been duly authorized under the
agreement forming Starr County Gathering, and are valid. Except
as set forth in the Starr County Joint Venture Agreement, there
are no preemptive rights, or authorized or outstanding
subscriptions, options, consents to assignment or rights of
first refusal, convertible securities, warrants, calls,
appreciation rights, phantom interests, profit participation, or
other similar rights, or other agreements or commitments
obligating Seller, the Pipeline Partnership, Natural Gas, Starr
County Gathering, or, to Seller's Knowledge, Coastal, to issue
or to transfer (or preventing the transfer of) any equity
interest in Starr County Gathering.
(xi) In the Starr-Zapata Partnership, a 49% general partnership
interest is held by Pipeline, a 1% general partnership interest
is held by Natural Gas, and a 50% general partnership interest
is held by Coastal. Such
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<PAGE> 19
interests have been duly authorized under the agreement forming
the Starr-Zapata Partnership, and are valid. Except as set forth
in the Starr-Zapata Partnership Agreement, there are no
preemptive rights, or authorized or outstanding subscriptions,
options, consents to assignment or rights of first refusal,
convertible securities, warrants, calls, appreciation rights,
phantom interests, profit participation, or other similar
rights, or other agreements or commitments obligating Seller,
the Pipeline Partnership, Natural Gas, Starr County Gathering,
or, to Seller's Knowledge, Coastal to issue or to transfer (or
preventing the transfer of) any equity interest in Starr County
Gathering.
(f) Title to Stock, Partnership Interests and Assets.
(i) All of the issued and outstanding membership interests of
Exploration LLC, Reserves LLC, Grande and Southeast, which
consist only of the Membership Interests, are owned of record
and beneficially with good and valid title by Tesoro Gas
Resources Company, Inc., free and clear of any Encumbrance. Upon
delivery to E&P Buyer of the certificates for the Membership
Interests in the manner and with the powers described in Section
12.2(b), assuming that E&P Buyer pays the consideration
contemplated by this Agreement and has no notice of any adverse
claim, good and valid title to the Membership Interests will
have been transferred to E&P Buyer, free and clear of any
Encumbrances. Neither Tesoro Petroleum Corporation nor Tesoro
Gas Resources Company, Inc. has received any notice of any
adverse claim to their interests in and to the title to the
Membership Interests.
(ii) All of the issued and outstanding partnership interests in the
E&P Partnership are owned of record and beneficially with good
and valid title by Reserves LLC, Grande, Southeast and
Exploration LLC as described in Section 4.3(e)(v), free and
clear of any Encumbrance. Neither Reserves LLC, Grande,
Southeast nor Exploration LLC has received any notice of any
adverse claim to their respective interests in the Partnership.
(iii) Each Subsidiary and Partnership has good title to all of the
assets and properties (except the Operating Assets) which it
owns or purports to own, including the Financial Assets and
Liabilities reflected on the Balance Sheets, except for
properties sold, consumed or otherwise disposed of in the
ordinary course of business since the date of the Balance
Sheets, free and clear of any Encumbrances other than Permitted
Encumbrances.
(iv) All of the issued and outstanding shares of capital stock of
Natural Gas and Gathering, which consist only of the Common
Stock, are owned of record and beneficially by Tesoro Petroleum
Corporation and Tesoro Gas Resources Company, Inc.,
respectively, free and clear of any Encumbrance. Upon delivery
to Pipeline Buyer in the manner
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<PAGE> 20
and with the powers described in Section 12.2(a) of the
certificates for the Common Stock of Natural Gas and Gathering,
assuming that Pipeline Buyer pays the consideration contemplated
by the Agreement and has no notice of any adverse claim, good
and valid title to the Common Stock represented by such
certificate will have been transferred to Buyer, free and clear
of any Encumbrances. Neither Tesoro Petroleum Corporation nor
Tesoro Gas Resources Company, Inc. has received any notice of
any adverse claim to their respective title to the Common Stock.
(v) All of the issued and outstanding partnership interests in the
Pipeline Partnership are owned of record and beneficially with
good and valid title by Natural Gas and Gathering, free and
clear of any Encumbrance. Neither Natural Gas nor Gathering has
received any notice of any adverse claim to their respective
interests in the Pipeline Partnership.
(vi) All of the issued and outstanding partnership interests in the
Starr Partnerships are owned of record and beneficially with
good and valid title by Pipeline, Natural Gas and Coastal, and
with respect to Pipeline and Natural Gas, free and clear of any
Encumbrance. Neither Natural Gas nor Pipeline has received any
notice of any adverse claim to their respective interests in the
Starr Partnerships.
(g) Litigation. Except as set forth in Schedule 4.1(g), no Seller,
Subsidiary, Partnership or Starr Partnership has been served with and, to
Seller's Knowledge, there are no pending or threatened Actions before any
Governmental Authority against or affecting any Seller, Subsidiary, Partnership
or Starr Partnership or any of the Operating Assets, which, if adversely
determined, either would be reasonably expected to expose any Subsidiary,
Partnership or Starr Partnership to a risk of loss of greater than $100,000
after the Effective Time or would interfere with Seller's ability or right to
execute and deliver this Agreement or consummate the transactions contemplated
by this Agreement.
(h) Labor Matters. Except as set forth on Schedule 4.1(h), there are no
contracts, agreements, or other arrangements whereby the Subsidiaries or the
Partnership are obligated to compensate or provide health and welfare benefit
plans or retirement benefits to any employees or other persons, except for
employment agreements that are terminable at will, without breach or penalty. To
Sellers' Knowledge, each Seller, Subsidiary, Partnership and Starr Partnership
is in compliance with all federal, state, and local laws respecting employment
and employment practices, terms and conditions of employment, and wages and
hours and is not engaged in any unfair labor practice with regard to those
persons employed in connection with a Subsidiary's, Partnership's or Starr
Partnership's operations. No employee of any Subsidiary, Partnership or Starr
Partnership is covered under any collective bargaining agreement. There is no
unfair labor practice complaint against any Subsidiary, Partnership or Starr
Partnership pending or, to Seller's Knowledge, threatened before the National
Labor Relations Board or any comparable state or local Governmental Authority.
There is no labor strike, slowdown or work stoppage pending or, to Seller's
Knowledge, threatened against or directly affecting a Subsidiary, Partnership or
Starr Partnership and no grievance or any Action arising out of or under
collective bargaining agreements is pending
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or, to Seller's Knowledge, threatened against any Subsidiary, Partnership or
Starr Partnership.
(i) Taxes.
(i) Except as set forth in Schedule 4.1(i), each Seller, Subsidiary
and Partnership has timely filed or caused to be timely filed
(or will timely file or cause to be timely filed) with the
appropriate Taxing Authorities all Tax Returns required to be
filed on or prior to the Closing Date by or with respect to such
Subsidiary or Partnership (or their respective Operating Assets)
and has timely paid or adequately provided for (or will timely
pay or adequately provide for) all Taxes shown thereon as owing,
except where the failure to file such Tax Returns or pay any
such Taxes would not, or could not reasonably be expected to, in
the aggregate, result in losses or costs or expenses to the
Subsidiaries, the Partnership and the Starr Partnerships in
excess of $100,000 after the Closing Date.
(ii) Sellers and the Subsidiaries are members of an affiliated group
of corporations which file consolidated federal income tax
returns ("Tesoro Group") with Tesoro Petroleum Corporation as
the common parent ("Tesoro Parent"). The Tesoro Group has been
subject to normal and routine audits, examinations and
adjustments of Taxes from time to time, but there are no current
audits or audits for which written notification has been
received (in either case, with respect to or which include the
Subsidiaries), other than those set forth in Schedule 4.1(i).
There are no written agreements with any Taxing Authority with
respect to or including the Subsidiaries which will in any way
affect the Subsidiaries' liability for Taxes after the Closing
Date.
(iii) Except as set forth in Schedule 4.1(i), no assessment,
deficiency or adjustment for any Taxes has been asserted in
writing or, to the knowledge of Sellers, is proposed with
respect to any Tax Return of, or which includes, the
Subsidiaries.
(iv) Except as set forth in Schedule 4.1(i), there is not in force
any extension of time with respect to the due date for the
filing of any Tax Return of or with respect to or which includes
the Subsidiaries or any waiver or agreement for any extension of
time for the assessment or payment of any Tax of or with respect
to or which includes the Subsidiaries.
(v) Except for Taxes due with respect to Tax Returns that will be
paid by Tesoro Parent (and not subject to reimbursement by the
Subsidiaries), the accounting records of the Subsidiaries will
include immediately prior to the Closing Date adequate
provisions for the payment of all Taxes of the Subsidiaries for
all taxable periods or portions thereof through the Closing
Date.
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(vi) All Tax allocation or sharing agreements or arrangements have
been or will be canceled on or prior to the Closing Date. No
payments are or will become due by the Subsidiaries after the
Closing Date pursuant to any such agreement or arrangement.
(vii) Except as set forth on Schedule 4.1(i), none of the Sellers or
the Subsidiaries will, as a result of the transactions
contemplated by this Agreement, be obligated to make a payment
after the Closing Date to an individual that would be a
"parachute payment" as defined in Section 280G of the Code
without regard to whether such payment is reasonable
compensation for personal services performed or to be performed
in the future.
(viii) The Subsidiaries have not participated in or cooperated with an
international boycott within the meaning of Section 999 of the
Code.
(ix) No Subsidiary has filed a consent under Code Section 341(f)
concerning collapsible corporations.
(x) No Subsidiary or Partnership has been a United States real
property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).
(xi) All monies required to be withheld by either Seller, any
Subsidiary or any Partnership and paid to Taxing Authorities for
all Taxes have been (i) collected or withheld and either paid to
the respective Taxing Authorities or set aside in accounts for
such purpose or (ii) properly reflected in the Balance Sheets.
(j) Balance Sheets.
(i) The Balance Sheets have been prepared in accordance with GAAP
applied on a basis consistent with prior periods, except as
described in the notes thereto, which will reflect that the
Partnership and the Subsidiaries have been accounted for as part
of a consolidated financial group with their affiliates and not
as completely separate stand-alone entities.
(ii) The Balance Sheets present fairly, in all material respects, the
financial condition of the combined Partnership and the
Subsidiaries as of June 30, 1999. The books and records of the
Subsidiaries and the Partnership from which the Balance Sheets
were prepared were complete and accurate in all material
respects at the time of such preparation.
(iii) Each Subsidiary and Partnership has no Liabilities, except for
Liabilities (1) reflected in the Balance Sheets, (2) incurred by
the Subsidiaries or the Partnership in the ordinary course of
business and consistent with past practices since the date of
the Balance Sheets, or (3) which are Permitted Encumbrances, (4)
for which the Buyer is being indemnified hereunder, or (5) which
individually amount to a
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loss or liability of not greater than $100,000 or in the
aggregate amount to a loss or liability of not greater than
$250,000. As used in this subparagraph, the term "Liabilities"
excludes any Liabilities not required to be reflected in the
Balance Sheets under GAAP.
(k) Absence of Certain Changes. Except as set forth in Schedule 4.1(k), or
as otherwise contemplated by this Agreement (including without limitation
Sections 2.5, 2.6, 9.4(b) and 10.6), or with Buyer's prior written consent,
since the close of business on June 30, 1999:
(i) no Subsidiary, Partnership or Starr Partnership has sold,
leased, transferred, or assigned any assets other than surplus
equipment not necessary for operations of the Business having a
value less than $25,000 and for a reasonable consideration;
(ii) no Subsidiary, Partnership or Starr Partnership has incurred,
assumed or become subject to any additional indebtedness for
money borrowed or purchase money indebtedness, including
capitalized leases;
(iii) no Subsidiary, Partnership or Starr Partnership has entered into
any transaction not in the ordinary course of business, except
as contemplated by this Agreement;
(iv) there have been no additional Encumbrances placed on the assets
of any Subsidiary, Partnership or Starr Partnership other than
Permitted Encumbrances;
(v) no event has occurred which constitutes a Material Adverse
Effect;
(vi) no Subsidiary, Partnership or Starr Partnership has made any
loan to, or entered into any contract with (other than severance
agreements for which Seller shall remain responsible), any of
its directors or officers;
(vii) no Subsidiary has issued, sold, or otherwise disposed of any of
its interests in any Partnership, and no Subsidiary or
Partnership has issued, sold or otherwise disposed of any of its
interests in any Starr Partnership;
(viii) there has been no change made or authorized to the Charter,
Bylaws or Partnership Agreement of any Subsidiary, Partnership
or Starr Partnership;
(ix) no Subsidiary, Partnership or Starr Partnership has canceled,
compromised, waived, or released any debt or Action (or series
of related debts or Actions) involving more than fifty thousand
dollars ($50,000);
(x) no Subsidiary, Partnership or Starr Partnership has delayed or
postponed the payment of accounts payable or other Liabilities
owed either involving more than $50,000 (individually or in the
aggregate), other than amounts which Seller reasonably and in
good faith disputes;
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(xi) no Subsidiary, Partnership or Starr Partnership has made any
capital investment in, any loan to, or any acquisition of the
securities or
assets of, any other Person (or series of related capital
investments, loans, and acquisitions) involving more than
$50,000;
(xii) no Subsidiary, Partnership or Starr Partnership has made any
capital expenditure (or series of related capital expenditures)
involving more than $50,000, except in connection with
operations conducted pursuant to Section 9.2(f);
(xiii) no Subsidiary, Partnership or Starr Partnership has entered into
any Contract (or series of related Contracts) involving more
than $50,000 other than (i) to effectuate operations set forth
on Schedule 9.2(f) or (ii) constituting joint operating
agreements or oil and gas leases entered into in the ordinary
course of business or (iii) contracts with officers and
directors for which the Seller shall remain responsible;
(xiv) to Seller's Knowledge, no Subsidiary, Partnership or Starr
Partnership has materially breached any Contract by which it is
bound or to which any of its assets is subject; and
(xv) no Subsidiary or Partnership has declared, set aside, or paid
any dividend or made any distribution with respect to its
interests in any Partnership or Starr Partnership (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired
any of its interests in any Partnership or Starr Partnership,
other than in the ordinary course of business or as contemplated
by this Agreement.
(l) Compliance With Law. Since June 30, 1999, no Subsidiary, Partnership or
Starr Partnership has violated any law, statute or regulation which have
subjected them to fines or penalties (nor to Seller's Knowledge have any third
parties violated any Applicable Law for which any Subsidiary, Partnership or
Starr Partnership may have any responsibility) that individually or in the
aggregate exceed $100,000. As of the date of this Agreement, to Seller's
Knowledge, each Subsidiary, Partnership and Starr Partnership is in compliance
in all material respects with all laws, statutes or regulations applicable to
such Subsidiary, Partnership and Starr Partnership, except where the
noncompliance with which would not, in the aggregate, result in the imposition
on the Subsidiaries, the Partnership and the Starr Partnerships of fines or
penalties that individually or in the aggregate could reasonably be expected to
exceed $100,000.
(m) Operating Assets.
(i) Seller represents that as of Closing, each Seller's,
Partnership's and Starr Partnership's interest in the Operating
Assets shall be free and clear of any liens other than Permitted
Encumbrances.
(ii) To Seller's Knowledge, the Operating Assets are being operated
in compliance in all material respects with all applicable
federal, state or local laws, and the rules and regulations of
any agency or authority having jurisdiction.
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(iii) Except as set forth in Schedule 4.1(m)(iii), each Subsidiary,
Partnership and Starr Partnership possess all permits, licenses,
orders, approvals and authorizations required by any applicable
law, statute, regulation or Governmental Order, or by the
property and contract rights of third Persons, reasonably
necessary to permit the operation of the Business in the manner
currently conducted by the Subsidiaries, the Partnership and the
Starr Partnerships, except where the failure to possess such
permit, license, order, approval, authorization or rights would
not result in losses, costs or expenses to the Subsidiaries, the
Partnership and the Starr Partnerships, in the aggregate, in
excess of $100,000. No Subsidiary, Partnership or Starr
Partnership has received written notice from any Governmental
Authority that any such permit, license, order, approval or
authorization has been, or will be, revoked or terminated.
(iv) Except as set forth in Schedule 4.1(m)(iv), immediately before
the Closing Date, the Subsidiaries, the Partnership and the
Starr Partnerships will hold or have the right to use in the
Business all of the assets and properties (including all
licenses and agreements) currently being used (except those
disposed of or expiring in the ordinary course of business or
otherwise as contemplated or permitted by this Agreement) or
which are reasonably necessary to permit the operation of the
Business in the manner currently conducted by the Subsidiaries,
the Partnership and the Starr Partnerships. Since June 30, 1999,
the Subsidiaries, the Partnership and the Starr Partnerships
have conducted no business other than the Business.
(n) No Brokers' Fees. Except for Credit Suisse First Boston, the fees and
expenses of which will be paid by Seller, neither Seller nor any of its
directors, officers or employees has employed any broker, finder or investment
banker or incurred any Liability for any brokerage fees, commissions, finders'
fees or similar fees in connection with the transactions contemplated by this
Agreement. Buyer shall have no responsibility whatsoever, contingent or
otherwise, for any brokers' or finders' fees incurred by any Seller, Subsidiary
or Partnership relating to the Transaction.
(o) Suspense Funds. Schedule 4.1(o) is a true and correct list as of August
31, 1999 of all amounts held by the E&P Partnership and/or the Subsidiaries in
suspense accounts, or otherwise, related to the Properties for the benefit or
account of any other Person.
(p) Insurance. As listed on Schedule 4.1(p) Seller, the Subsidiaries, the
Partnership and the Starr Partnerships maintain insurance on and bonds with
respect to the Operating Assets, as set forth on Schedule 4.1(p), covering such
risks and with such deductible amounts as are consistent with general oil and
gas industry practice.
(q) Contracts on Production. Except as set forth on Schedule 4.1(q), there
are no Contracts involving the purchase, marketing, brokering or sale of
Production that require a dedication of Production for a term in excess of three
(3) months that will not be terminable without penalty or other liability at the
sole discretion of the Subsidiaries or the Partnership
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upon not more than one (1) month's notice, except for commitments under
operating agreements.
(r) Equipment. Since June 30, 1999, neither Seller, the Subsidiaries, any
Partnership nor the Starr Partnerships, nor to Seller's Knowledge the operator
of any of the Operating Assets, has removed any of the equipment, facilities or
other property from the Operating Assets except in the ordinary course of
business.
(s) Tax Partnerships. Except as disclosed in Schedule 4.1(s), no Property
is subject to, or considered to be held by, any partnership for federal income
tax purposes, other than tax partnerships under joint operating agreements.
(t) Disclaimer. Except as otherwise expressly set forth in this Article and
elsewhere in this Agreement, Seller and the Affiliates of Seller expressly
disclaim any representations or warranties of any kind or nature, express or
implied, as to the condition, value or quality of the assets or properties
currently or formerly used, operated, owned, leased, controlled, possessed,
occupied or maintained by the Subsidiaries or the Partnership, and SELLERS AND
ALL OTHER TESORO AFFILIATES SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY
OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE
WITH RESPECT TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO THE
WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING ACQUIRED
"AS IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, WITH ALL
FAULTS, AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND INVESTIGATION
THEREOF.
(u) Environmental Matters. Except as set forth on Schedule 4.1(u), to
Seller's Knowledge:
(i) There are no underground storage tanks, as defined in Applicable
Environmental Law, on the Properties or any of the Operating
Assets which constitute a violation of Environmental Law.
(ii) The Operating Assets contain no friable asbestos, mercury or
polychlorinated biphenyls above 50 ppm or other Hazardous
Substances which constitute a violation of Applicable
Environmental Law.
(iii) The Operating Assets have been used solely for oil and gas
operations and related operations. Except for the production,
storage and transportation of oil, gas and other hydrocarbons
and the storage and disposal of brine in the ordinary course of
business consistent with prevailing oil and gas industry
practices, the Operating Assets have not been used to dispose of
Hazardous Substances. No Hazardous Substances have been disposed
of that would cause an adverse material impact to any of the
Operating Assets.
(iv) There have been no spills or releases of any Hazardous Substance
related to the ownership or operation of the Operating Assets
which
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constitutes a violation of Applicable Environmental Law, except
for matters that have been addressed and have no continuing
adverse consequence to any Seller, Subsidiary, Partnership or
Starr Partnership or any of the Operating Assets.
(v) There are no Actions pending or threatened against any
Partnership, Subsidiary, Starr Partnership or either Seller with
respect to any of the Operating Assets relating to the violation
of, liability under, or noncompliance with, any Applicable
Environmental Law; the discharge, disposal or release of a
Hazardous Substance; or the exposure of a Person or property to
a Hazardous Substance. No Seller, Subsidiary, Partnership or
Starr Partnership has any current contingent liability in
connection with the release of Hazardous Substances.
(vi) The Operating Assets have been, and are operating, in material
compliance under all Applicable Environmental Laws.
(vii) Each Seller, Subsidiary, Partnership and Starr Partnership has
provided (or within five Business Days from the date hereof will
provide) Buyer all environmental audits, tests, results of
investigations and analyses that have been performed with
respect to the Operating Assets.
(v) Contracts. Except as set forth on Schedule 4.1(v) or Section 4.1(q) and
in joint operating agreements entered into in the normal course of business, the
Operating Assets are not subject to any instrument, agreement or other Contract
evidencing or related to indebtedness for borrowed money. All of the existing
Contracts between any Subsidiary, Partnership, Starr Partnership and/or either
Seller and any of their respective Affiliates with respect to sales, services or
support to any of the Operating Assets or operations on the Operating Assets
shall terminate except for such Contracts otherwise indicated on Schedule 4.1(v)
to survive Closing. Except as set forth on Schedule 4.1(v) and other than
Consents to Assignment or Preferential Rights to Purchase, to Seller's
Knowledge, no Contracts to which any Seller, Subsidiary, Partnership or Starr
Partnership is a party or a successor-in-interest and to which Buyer will be
subject after the Effective Time contain any provision that prevents Buyer from
owning, managing and operating the Operating Assets in accordance with the
Partnership's or Starr Partnerships' past practices.
(w) Seismic Information. At Closing, subject to the terms of the License
Agreement, neither Seller nor any affiliate of Seller other than the
Subsidiaries and the Partnership shall have any further right to any of the
seismic data of the Subsidiaries or the Partnership which has been assigned or
leased to the Subsidiaries, the Partnership and/or the Buyer.
(x) Wells. Except to the extent set forth on Schedule 4.1(x), to Seller's
Knowledge, no well included in the Properties is subject to material penalties
on allowables because of any overproduction or any other violation of Applicable
Law. Except for the wells included in the Properties and listed in Schedule
4.1(x), there are no wells included in the Properties that Seller, the
Subsidiaries or the E&P Partnership, or to Seller's Knowledge the operator of
such wells, are currently obligated by Applicable Law, Applicable
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Environmental Law or order of any Governmental Authority to plug and abandon
within a time certain or that have been shut-in or temporarily abandoned.
(y) Expenditure Obligations. Except as set forth on Schedule 9.2(f), the
Subsidiaries and the Partnership have not executed or are not otherwise
contractually bound by any authority for expenditure with respect to any of the
Operating Assets under any operating agreement, unit operating agreement, or
other similar agreements that will obligate any of the Subsidiaries, the
Partnership or Buyer to pay, after the Effective Time, more than $50,000 for a
single project, operation or expenditure. Except as set forth on Schedule
9.2(f), with respect to authorizations for expenditure relating to any of the
Operating Assets, which obligate any Subsidiary, Partnership or Buyer to pay
more than $50,000, (i) there are no outstanding calls under such authorizations
for expenditures for payments which are due or which the Subsidiaries or the
Partnership have committed to make which have not been made; (ii) there are no
material operations with respect to which any of the Subsidiaries and/or the
Partnership has become a non-consenting party where the effect of such
non-consent is not disclosed on Exhibit B, and (iii) there are no commitments
for the expenditures of funds for drilling or other capital projects other than
projects with respect to which the operator is not required under the applicable
operating agreement to seek consent.
(z) Payout. To Seller's Knowledge, the payout balances with respect to any
of the Properties operated by the Partnership that are subject to future change
on account of reversionary interests, non-consent penalties or similar
agreements or arrangements are set forth on Schedule 4.1(z) and are correct as
of the dates shown on such statements.
(aa) Absence of Certain Changes Regarding Properties. Since June 30, 1999,
except as listed on Schedule 4.1(k), each Subsidiary, Partnership and Starr
Partnership:
(i) has maintained and operated each of the Operating Assets
operated by it as a reasonably prudent operator consistent with
prevailing oil and gas industry practice;
(ii) has used reasonable efforts consistent with its past practices
to cause each of the Operating Assets not operated by them to be
maintained and operated in a good and workmanlike manner and in
substantially the same manner as theretofore operated;
(iii) has paid timely their share of all costs and expenses
attributable to the Operating Assets, except for such costs and
expenses that they were contesting in good faith by appropriate
action;
(iv) has performed all accounting, royalty disbursement and reporting
requirements, as applicable, related thereto for the Production;
and
(v) has not agreed, whether in writing or otherwise, to take any
action described in this Section 4.3(aa).
(bb) Schedule 1B states all liens and mortgages that prior to the Closing
encumbered the Membership Interests, the Common Stock or the Operating Assets,
securing obligations of any Seller, Subsidiary or Partnership (other than those
items listed in clause (ii) through (ix) of the definition of "Permitted
Encumbrances"), and all of the liens and mortgages listed on Schedule 1B have
been released, insofar as they encumber the Membership Interests, the Common
Stock or the Operating Assets.
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5. CHANGES TO ARTICLE V, ACCESS TO INFORMATION AND INSPECTION.
There are no amendments to Article V of the Agreement.
6. CHANGES TO ARTICLE VI, TITLE
There are no amendments to Article VI of the Agreement.
7. CHANGES TO ARTICLE VII, ENVIRONMENTAL
There are no amendments to Article VII of the Agreement.
8. CHANGES TO ARTICLE VIII, CASUALTY LOSS AND CONDEMNATION
There are no amendments to Article VIII of the Agreement.
9. CHANGES TO ARTICLE IX, COVENANTS
a. Paragraph (f)(ii)(3) of Section 9.2 of the Agreement is hereby amended
and restated in its entirety to read as follows:
(3) If (A) Buyer advances any funds pursuant to subparagraph (2), and (B)
the Membership Interests are not assigned to E&P Buyer and the Common Stock is
not assigned to Pipeline Buyer at Closing, and (C) Seller does not reimburse
Buyer for all advances made by Buyer with respect to such Operating Assets
pursuant to subparagraph (2) within thirty (30) days after this Agreement
terminates, then Buyer shall own and be entitled to any right of any Partnership
that would have lapsed but for such payment, and in the case of operations,
Seller shall be entitled to receive the penalty which such Partnership, as
non-consenting party, would have suffered under the applicable operating
agreement with respect to such operations as if Buyer were a consenting party
thereunder.
b. Section 9.4 is hereby amended and restated in its entirety to read as
follows:
9.4 COVENANTS REGARDING CORPORATE AND FINANCIAL MATTERS.
(a) Through the Closing Date, except as set forth in Section
9.4(b) or in Schedule 9.4 or as contemplated by this Agreement
(including without limitation Sections 2.5 and 2.6) or otherwise
consented to or approved by Buyer in writing, which consent or approval
shall not be unreasonably withheld, Seller shall cause each Subsidiary,
Partnership and Starr Partnership not to:
(i) Amend the Charter, Bylaws, management agreements, limited
liability company agreements, operating agreements or other
organizational or management documents of any the Subsidiaries or
amend the partnership agreements of the Partnership or the Starr
Partnerships;
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(ii) Incur, assume or become subject to any additional
indebtedness for money borrowed or purchase money indebtedness,
except in the ordinary course of business and consistent with past
practices;
(iii) Except as necessary to effect the transactions contemplated
herein, declare or pay any dividend or make any other distribution
to any shareholder of any of the Subsidiaries or any partner of any
Partnership or Starr Partnership;
(iv) Redeem or otherwise acquire any shares of capital stock of
any of the Subsidiaries or issue any capital stock, membership
interests or other equity interests in any the Subsidiaries or any
option, warrant or right relating thereto or any securities
exchangeable for or convertible into any such shares;
(v) Permit or allow any Subsidiary's, Partnership's or Starr
Partnership's assets or properties to be subject to any additional
Encumbrance (other than Permitted Encumbrances) or sell, transfer,
lease or otherwise dispose of any such assets or properties, other
than surplus equipment not necessary for operations of the Business
and sold for a reasonable consideration of less than $25,000;
(vi) Make any change in any method of accounting or accounting
practice or policy, other than those required by GAAP;
(vii) Engage in any transactions with an Affiliate of Seller,
other than transactions in the ordinary course and consistent with
past practices;
(viii) Make any changes in the method of selling natural gas,
condensate, oil or products thereof which is not consistent with
past practices;
(ix) Enter into any new derivative or Hedging Contracts with
respect to natural gas, condensate, oil, products thereof, interest
or any other commodities or other financial instruments; or
(x) Agree, whether in writing or otherwise, to do any of the
foregoing.
(b) Prior to the Closing Date, Seller covenants to take the following
actions to reorganize the E&P Partnership and ownership of the E&P Partnership:
(i) Contribute the limited partnership interest in the Pipeline
Partnership owned by Tesoro Gas Resources Company, Inc. to Gathering.
(ii) Form Grande and Southeast as Delaware limited liability
companies, with all Membership Interests in each being wholly owned by
Tesoro Gas Resources Company, Inc.
(iii) Contribute all of the capital stock of Exploration to Tesoro Gas
Resources Company, Inc.
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(iv) Convert Exploration and Reserves into Delaware limited liability
companies, each of whose sole member is Tesoro Gas Resources Company,
Inc.
(v) Amend the limited partnership agreement of the E&P Partnership to
provide for establishment of series limited partnership interests, and
approve resolutions of the partners in the E&P Partnership resulting in
allocation of profits and losses and distributions from specific
partnership property to specific series of limited partners, all
initially to be held by Reserves LLC, as follows:
(1) Series A Properties listed on Schedule I ("E&P Property
Package")
(2) Series B Properties listed on Schedule II ("Grande Property
Package")
(3) Series C Properties listed on Schedule III ("Southeast
Property Package")
(vi) Transfer the Series B limited partnership interest in the E&P
Partnership from Reserves LLC to Grande and transfer the Series C
limited partnership interest in the E&P Partnership from Reserves LLC to
Southeast.
c. Section 9.5 of the Agreement is hereby amended and restated in its
entirety to read as follows:
9.5 NO SOLICITATION OF TRANSACTIONS. Except as otherwise permitted
herein, from the date of this Agreement through the Closing Date, neither
Seller nor any of their representatives, Affiliates, directors, officers,
employees, subsidiaries or agents will (a) solicit, consider, encourage or
accept any other offers to acquire any of the Membership Interests or the
Common Stock or a Subsidiary's interest or a Partnership's interest in a
Partnership or a Starr Partnership or (b) solicit, consider, encourage or
accept any other offers to acquire any of the assets or properties of any
Partnership (other than as permitted by this Agreement) or (c) assist any
third Person in preparing or soliciting such an offer. Seller shall not
have, and shall cause such representatives, Affiliates, directors,
officers, employees, subsidiaries and agents not to have any discussions,
conversations, negotiations or other communication with any Person(s)
expressing an interest in any such offer.
d. Paragraph (a) of Section 9.10 of the Agreement is hereby amended and
restated in its entirety to read as follows:
(a) Each of Buyer and Seller, as promptly as practicable after the
Agreement Date, shall (i) deliver, or cause to be delivered, all notices
and make, or cause to be made, all such declarations, designations,
registrations, filings and submissions under all statutes, laws,
regulations and Governmental Orders applicable to it as may be required for
it to consummate the sale of the Membership Interests and the Common Stock
and the other transactions contemplated hereby in accordance with the terms
of this Agreement; (ii) use commercially reasonable efforts to obtain, or
cause to be obtained, all authorizations, approvals, orders, consents and
waivers from all Persons necessary to consummate the foregoing; and (iii)
use commercially reasonable efforts to take, or cause to be taken, all
other actions necessary, proper or advisable in order for it to fulfill its
respective obligations
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hereunder and to carry out the intentions of the parties expressed herein.
The preceding sentence notwithstanding, neither party shall have any
obligation to waive any condition herein for its benefit or any performance
hereunder by any other party.
e. Section 9.12 of the Agreement is hereby amended to add a new subsection
(c) to read as follows and to renumber existing subsection (c) as
subsection (d):
(c) Seller shall reimburse Buyer for Buyer's reasonable costs and
expenses incurred in connection with evaluating and implementing the
like kind exchange transaction, including without limitation, legal and
accounting fees incurred in connection with evaluating and implementing
the like kind exchange transaction and revising this Agreement. Seller
shall reimburse Buyer in cash for such costs and expenses within ten
(10) days after receiving a notice from Buyer describing such costs and
expenses in reasonable detail, and requesting payment.
f. Section 9.14 of the Agreement is hereby amended and restated in its
entirety as follows:
9.14 PERFORMANCE OF COVENANTS WITH RESPECT TO STARR PARTNERSHIPS.
Seller shall perform, or shall cause the Subsidiaries or the Partnership to
perform, the covenants set forth in Sections 9.1, 9.2, 9.4, 9.5, 9.6, 9.10,
9.11 and 9.12 with respect to the Starr Partnerships to the extent
permitted by the Starr-County Joint Venture Agreement or the Starr-Zapata
Partnership Agreement.
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g. Section 9.15 of the Agreement is hereby amended and restated in its
entirety as follows:
9.15 COVENANT AND INDEMNITY WITH RESPECT TO CASH FLOW. Seller covenants
to use its best efforts to insure that after the Closing all cash, checks,
wire transfers and other cash flow attributable to the Operating Assets
received by Seller or any Affiliate of Seller will be transferred on or
before the next Business Day after such cash flow is received by Seller or
such Affiliate of Seller to an account designated by Buyer prior to the
Closing (such that the transfer is recorded by the transferring bank on or
before the next Business Day after such cash flow is received by Seller or
an Affiliate of Seller). To the extent Seller does not make the transfer
required by this Section 9.15 on or before the next Business Day after
receipt of such cash flow, Seller agrees to pay to Buyer (a) interest at
the prime rate of Buyer's primary lender (accruing from the second Business
Day after receipt by Seller of such cash flow) on any such cash flow
remaining outstanding for the second and third Business Day after receiving
such funds and (b) the maximum interest allowable by Applicable Law on any
such cash flow remaining outstanding thereafter. Seller agrees to indemnify
and hold the Buyer Group harmless for any Damages asserted against,
resulting to, imposed upon or incurred by the Buyer Group arising from any
failure by Seller to transfer any amounts that, together with any other
amounts not transferred pursuant to this Section 9.15, aggregate greater
than $1 million and that Seller has not transferred within one Business Day
after written notice by Buyer is received by Seller. Buyer and Seller agree
to cooperate in identifying amounts that may need to be transferred by
Seller to Buyer under this Section 9.15.
h Section 9.16 of the Agreement is hereby deleted.
i Section 9.17 of the Agreement is hereby deleted.
10. CHANGES TO ARTICLE X, PRE-CLOSING PROCEDURES.
a. Section 10.5 of the Agreement is hereby amended and restated in its
entirety to read as follows:
10.5 WIRE TRANSFER INSTRUCTIONS. At least two (2) Business Days prior
to the Closing Date, Seller shall provide to E&P Buyer and Pipeline Buyer
wire transfer instructions designating a bank account and Federal Reserve
ABA designation ID number, at a bank within the United States of America
where the E&P Closing Settlement Price and the Pipeline Closing Settlement
Price shall be transferred. For sales through Qualified Intermediaries,
such accounts shall be the accounts established by the Qualified
Intermediaries for this transaction.
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b. A new Section 10.6 is hereby added to the Agreement as follows:
10.6 QUALIFIED INTERMEDIARIES. Seller may assign to Qualified
Intermediaries its rights to proceeds of the sale of the membership
interests of Grande and Southeast as follows:
(a) Seller may assign to the Grande Qualified Intermediary, as a
qualified intermediary under Section 1031 of the Code, all of Seller's
rights in the proceeds of the sale of the membership interests in Grande,
for the portion of the Purchase Price allocated to the Grande Property
Package. Seller is selling and assigning to E&P Buyer all of the membership
interests in Grande, for the portion of the Purchase Price allocated to the
Grande Property Package, pursuant to this Agreement and, subject to Section
21.4, an agreement in the form attached as Exhibit II to this Agreement,
and all proceeds owed Seller for the sale of Grande will be paid to the
Grande Qualified Intermediary.
(b) Seller and Reserves LLC may assign to the Southeast Qualified
Intermediary, as a qualified intermediary under Section 1031 of the Code,
all of Seller's rights in the proceeds of the sale of the membership
interests in Southeast, for the portion of the Purchase Price allocated to
the Southeast Property Package. Seller is selling and assigning to E&P
Buyer all of the membership interests in Southeast, for the portion of the
Purchase Price allocated to the Southeast Property Package, pursuant to
this Agreement and, subject to Section 21.4, an agreement in the form
attached as Exhibit III to this Agreement, and all proceeds owed Seller for
the sale of Southeast will be paid to the Southeast Qualified Intermediary.
11. CHANGES TO ARTICLE XI, CLOSING CONDITIONS
a. Paragraph (a) of Section 11.2 of the Agreement is hereby amended and
restated in its entirety to read as follows:
(a) Representations. Except as provided otherwise in Section 9.13, the
representations and warranties of Seller contained in Section 4.3 (other
than with respect to paragraphs (u), (w), (x), (y), (z) and (aa) of Section
4.3) shall be true and correct in all material respects on the Closing Date
as though made on and as of that date; provided, however, that the accuracy
of the representations and warranties in subparagraphs (k)(i), (ix), (x),
(xi), (xii) and (xiii) of Section 4.3 shall, for purposes of satisfying
this condition, not be affected to the extent of inaccuracies resulting
solely from Buyer unreasonably withholding its prior written consent (after
written request by Seller duly provided to Buyer) to the action taken by
(or omission of) Seller, the Subsidiaries or the Partnership which caused
such representations and warranties to be inaccurate.
b. Paragraph (c) of Section 11.2 of the Agreement is hereby amended and
restated in its entirety to read as follows:
(c) Corporate Certificates and Opinion. The Seller shall have delivered
to Buyer: (i) a certificate of an executive officer of each Seller, dated
the Closing Date, certifying on
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behalf of such Seller that the representations made in Section 4.3, are
true and correct as of the Closing Date; (ii) a certificate of incumbency
for each Seller, (iii) a certificate of good standing for the E&P
Partnership and the Pipeline Partnership as Delaware limited partnerships,
and for each Seller and each of the Subsidiaries as Delaware corporations
or as Delaware LLCs, as applicable; (iv) certified resolutions of the
Boards of Directors of each Seller, authorizing each Seller to enter into
this Agreement and the Transaction and to perform its obligations at
Closing; and (v) an opinion of counsel for the Seller, acceptable to Buyer,
dated the Closing Date, as to such matters as may reasonably be requested
by Buyer and its counsel and are typical for transactions such as the
Transaction.
c. The following is added as a new paragraph (k) of Section 11.2 of the
Agreement:
(k) Seller shall have delivered proof, acceptable to Buyer in its
reasonable discretion, of the effectiveness of a post-effective amendment
to Seller's Registration Statement on Form S-3 (Reg. No. 333-51789), as
amended, removing any entities being transferred hereunder (including,
without limitation, Exploration, the E&P Partnership, Natural Gas and the
Pipeline Partnership) as co-registrants under such registration statement.
12. CHANGES TO ARTICLE XII, CLOSING
a. Section 12.1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
12.1 CLOSING. The closing of the Transaction (the "Closing") shall be
held on December 17, 1999 (the "Closing Date"), at 9:00 a.m. Houston time,
at the office of Seller's counsel, 1301 McKinney, Suite 5100, Houston,
Texas 77010, or at such other date or place as the parties may direct;
provided, however, that if all conditions to Closing set forth in Article
XI have not been waived or satisfied prior to December 17, 1999, the
Closing Date shall be on the second Business Day following the waiver or
satisfaction of such conditions.
b. Section 12.2 of the Agreement is hereby amended and restated in its
entirety to read as follows:
12.2 SELLER'S CLOSING OBLIGATIONS. At Closing, Seller shall deliver to
Buyer the following:
(a) Stock certificates representing all of the Common Stock, duly
endorsed in blank or with separate duly executed stock powers duly endorsed
in blank;
(b) The certificates representing membership interests for each of
Reserves LLC, Exploration LLC, Grande and Southeast, respectively, duly
endorsed in blank or with separate duly executed powers duly endorsed in
blank;
(c) The stock books, stock ledgers, minute books, organizational
documents and corporate seal for each of the Subsidiaries who are
corporations;
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(d) All organizational documents and books and records of Grande,
Southeast, Reserves LLC and Exploration LLC;
(e) All books and records of the E&P Partnership and the Pipeline
Partnership;
(f) The resignations of the officers, managers and directors of each of
the Subsidiaries, the E&P Partnership and the Pipeline Partnership;
(g) Executed originals of (i) the Purchase Agreement covering the sale
of the membership interests in Reserves LLC, (ii) the Purchase Agreement
covering the sale of the membership interests of Grande, and (iii) the
Purchase Agreement covering the sale of the membership interests of
Southeast (collectively, the "LLC Purchase Agreements"), using the
respective forms attached as Exhibit I, Exhibit II and Exhibit III to this
Agreement;
(h) Instruments assigning Seller's rights under each such Purchase
Agreement of Grande and Southeast to a respective Qualified Intermediary;
(i) A certificate of each Seller signed under penalties of perjury (i)
stating that it is not a foreign corporation, foreign partnership, foreign
trust or foreign estate, (ii) providing its U.S. Employer Identification
Number (if applicable) and (iii) providing its address, all pursuant to
Section 1445 of the Code.
(j) Such other documents or authorizations as Buyer may reasonably
request, or as might be reasonably necessary to assign all of Seller's
interest in the Subsidiaries, each Partnership, the Starr Partnerships and
the Operating Assets to Buyer in accordance with the provisions hereof;
(k) The certificates of Seller referred to in Section 11.2(c) hereof;
(l) The opinion of counsel referred to in Section 11.2(c) hereof; and
(m) Releases, in a form acceptable to Buyer, of all liens and mortgages
listed on Schedule 1B.
c. Section 12.3 is hereby amended to read as follows:
12.3 BUYER'S CLOSING OBLIGATIONS. At Closing, Buyer shall deliver to
Seller the following:
(a) The E&P Closing Settlement Price and the Pipeline Closing Settlement
Price, paid in immediately available funds, by wire transfer into the U.S.
bank account designated by Seller for the Membership Interests and the
Common Stock; proceeds for sale of each of Grande and Southeast shall be
paid by wire transfer to the account designated by the Qualified
Intermediary for such sale;
(b) The certificates of Buyer referred to in Section 11.1(c) hereof;
(c) The opinions of counsel referred to in Section 11.1(c) hereof; and
(d) Executed originals of the LLC Purchase Agreements using the
respective forms attached as Exhibit I, Exhibit II and Exhibit III to the
Agreement;
13. CHANGES TO ARTICLE XIII, ADJUSTMENT BASKET; PRORATION OF REVENUES
AND COSTS
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a. Section 13.2 of the Agreement is hereby amended and restated
in its entirety to read as follows:
(a) Pre-Closing Settlement Statements. The E&P Settlement Statement and
the Pipeline Settlement Statement are attached hereto as Exhibit IV and
Exhibit V, respectively.
(b) Final Statements.
(i) As soon as practicable after the Closing Date, but in no event
later than one hundred twenty (120) days thereafter, E&P Buyer shall
prepare and submit to Seller a draft E&P Final Statement, which shall show
the calculation of the adjusted E&P Final Settlement Price, as allocated to
the E&P Property Package, the Grande Property Package and the Southeast
Property Package, based upon the best information then available. Such E&P
Final Statement shall separately break out and allocate the estimated
accounting adjustments and/or prorations of amounts attributable to the E&P
Settlement Price, as allocated to each of the E&P Property Package, the
Grande Property Package and the Southeast Property Package. Seller shall
have the right to audit such E&P Final Statement and all supporting data
and accountings. As soon as practicable after receipt of the E&P Final
Statement, but in any event within thirty (30) days after receipt thereof,
Seller shall deliver to E&P Buyer a written report containing the changes,
if any, which Seller proposes be made to such E&P Final Statement. If no
response is made by Seller within such thirty (30) day period, it shall be
presumed that Seller concurs with such E&P Final Statement, and such E&P
Final Statement shall be the basis for the E&P Final Settlement Price. If
Seller submits a response, the Seller and E&P Buyer shall cooperate in good
faith to produce not later than one hundred eighty (180) days after the
Closing Date as accurate an E&P Final Statement as possible based upon the
information then available. After agreement upon an E&P Final Statement
setting forth the E&P Final Settlement Price, the difference between such
E&P Final Settlement Price and the E&P Closing Settlement Price paid at
Closing shall be paid within five (5) Business Days thereafter by the Party
owing the same.
(ii) As soon as practicable after the Closing Date, but in no event
later than one hundred twenty (120) days thereafter, Pipeline Buyer shall
prepare and submit to Seller a draft Pipeline Final Statement, which shall
show the calculation of the adjusted Pipeline Final Settlement Price, based
upon the best information then available. Seller shall have the right to
audit such Pipeline Final Statement and all supporting data and
accountings. As soon as practicable after receipt of the Pipeline Final
Statement, but in any event within thirty (30) days after receipt thereof,
Seller shall deliver to Pipeline Buyer a written report containing the
changes, if any, which Seller proposes be made to such Pipeline Final
Statement. If no response is made by Seller within such thirty (30) day
period, it shall be presumed that Seller concurs with such Pipeline Final
Statement, and such Pipeline Final Statement shall be the basis for the
Pipeline Final Settlement Price for the Common Stock. If Seller submits a
response, the Seller and E&P Buyer shall cooperate in good faith to produce
not later than one hundred eighty (180) days after the Closing Date as
accurate a Pipeline Final Statement as possible based upon the information
then available. After agreement upon a Pipeline Final Statement setting
forth the Pipeline Final Settlement Price for the Common Stock, the
difference between such Pipeline Final Settlement Price and the
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Pipeline Closing Settlement Price paid at Closing shall be paid within five
(5) Business Days thereafter by the Party owing the same.
b. Section 13.3 of the Agreement is hereby amended to add the following
paragraph (c):
(c) Taxes and tax prorations attributable to each of the E&P Property
Package, the Grande Property Package, the Southeast Property Package and
the Common Stock shall be allocated and accounted for separately, provided
that such allocation shall not affect the total division of tax burdens and
the total tax prorations hereunder.
14. CHANGES TO ARTICLE XIV, POST-CLOSING PROCEDURES
There are no amendments to Article XIV to the Agreement.
15. CHANGES TO ARTICLE XV, SURVIVAL, INDEMNITIES
a. Section 15.1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
15.1 SURVIVAL. All representations, warranties or covenants made herein,
except for those in Sections 4.1(a), 4.1(e), 4.1(f), 4.1(g), 4.1(i),
4.1(k), 4.1(l), 4.1(m), 4.1(n), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w),
4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets
only), 4.2(e), 4.2(i), 4.3(a), 4.3(e), 4.3(f), 4.3(g), 4.3(i), 4.3(k),
4.3(l), 4.3(m), 4.3(n), 4.3(o), 4.3(q), 4.3(u), 4.3(v), 4.3(w), 4.3(x),
4.3(y), 4.3(z), 4.3(aa), 4.3(bb) (with respect to Operating Assets only),
Sections 5.6, 7.1, 7.2, 7.3, 7.4, 8.3, 9.1, 9.2(e), 9.9(d), 9.12(b),
9.12(c), 9.13, 9.14 and 9.15, and Articles XV, XVI, XVII and XXI, shall
survive for two years from the Closing Date. The covenants made in Section
9.13 shall survive until the Parties reach agreement on the E&P Final
Statement and the Pipeline Final Statement pursuant to Section 13.2. The
representations and warranties or covenants made in Sections 4.1(a),
4.1(g), 4.1(k), 4.1(l), 4.1(m), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w),
4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets
only), 4.3(a), 4.3(g), 4.3(k), 4.3(l), 4.3(m), 4.3(o), 4.3(q), 4.3(u),
4.3(v), 4.3(w), 4.3(x), 4.3(y), 4.3(z), 4.3(aa), 4.3(bb) and Section 9.1
shall not survive Closing and shall automatically expire upon Closing. The
representations, releases, covenants, indemnities, defenses and hold
harmless obligations and other obligations referenced in Sections 4.1(e),
4.1(f), 4.1(i), 4.1(n), 4.2(e), 4.2(i), 4.3(e), 4.3(f), 4.3(i), 4.3(n),
5.6, 7.1, 7.2, 7.3, 7.4, 8.3, 9.2(e), 9.9(d), 9.12(b), 9.12(c), 9.14 and
9.15 and this Article XV, and all provisions of Articles XVI, XVII and XXI,
shall each survive Closing, and each shall continue to remain fully
enforceable in accordance with its terms.
b. Section 15.2 of the Agreement is hereby amended and restated in its
entirety as follows:
15.2 BUYER'S INDEMNITY. EXCEPT AS EXPRESSLY AND SPECIFICALLY INDICATED
OTHERWISE IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION SECTIONS 9.9(D)
AND 15.3), AFTER THE CLOSING DATE, BUYER SHALL AND HEREBY DOES RELEASE,
DEFEND, INDEMNIFY, SAVE,
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AND HOLD HARMLESS SELLER AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS, AGAINST ANY AND
ALL DAMAGES WHICH ARISE OUT OF OR IN CONNECTION WITH THE OWNERSHIP OF,
OPERATION OF, PRODUCTION FROM OR ACCOUNTING BY, INCOME OF OR PAYMENTS BY
THE PARTNERSHIP, THE SUBSIDIARIES OR THE OPERATING ASSETS, AT ANY TIME
EITHER BEFORE OR AFTER THE EFFECTIVE TIME, OR WHICH ARISE OUT OF ANY
ENVIRONMENTAL CONDITION OR OTHER HAZARDOUS CONDITION RELATING TO OR
AFFECTING ANY OPERATING ASSET AT ANY TIME EITHER BEFORE OR AFTER THE
EFFECTIVE TIME, INCLUDING WITHOUT LIMITATION, ALL SUCH COSTS, CLAIMS OR
LIABILITIES ARISING OUT OF SELLER'S NEGLIGENCE OR STRICT LIABILITY.
c. Section 15.3 of the Agreement is hereby amended and restated in its
entirety as follows:
15.3 SELLER'S INDEMNITY.
(a) SUBJECT TO THE TERMS AND CONDITIONS OF THIS ARTICLE XV, SELLER SHALL
INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS PARENT OR SUBSIDIARY
COMPANIES, PARTNERS AND OTHER AFFILIATES (INCLUDING AFTER CLOSING, THE
SUBSIDIARIES AND THE PARTNERSHIP), AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS
(HEREINAFTER COLLECTIVELY REFERRED TO AS THE "BUYER GROUP"), FROM AND
AGAINST ANY AND ALL DAMAGES ASSERTED AGAINST, RESULTING TO, IMPOSED UPON,
OR INCURRED BY THE BUYER GROUP, DIRECTLY OR INDIRECTLY, BY REASON OF OR
RESULTING FROM OR RELATING TO (I) ANY BREACH BY SELLER (FOR WHICH SELLER
SHALL BE RESPONSIBLE) OF ITS SURVIVING REPRESENTATIONS, WARRANTIES,
COVENANTS OR AGREEMENTS CONTAINED IN THIS AGREEMENT, (II) ANY LIABILITIES
OF THE SUBSIDIARIES AND THE PARTNERSHIP WHICH ARE UNRELATED TO THE
OPERATING ASSETS, (III) ANY LIABILITIES OF THE SUBSIDIARIES AND THE
PARTNERSHIP FOR INCOME TAXES PRIOR TO CLOSING, AND (IV) ANY EXISTING
LIABILITIES OF THE SUBSIDIARIES AND THE PARTNERSHIP OWED UNDER FEDERAL
LEASES FOR PRIOR ROYALTIES RELATED TO THE PERIOD OF TIME PRIOR TO CLOSING.
(b) SELLER HEREBY AGREES TO AND DOES INDEMNIFY, DEFEND AND HOLD HARMLESS
E&P BUYER AND PIPELINE BUYER FROM AND AGAINST ANY DAMAGES RESULTING FROM
CLAIMS BY COASTAL AND/OR ITS ASSIGNS RELATING TO ANY ADVERSE TAX
CONSEQUENCES TO COASTAL AND/OR ITS ASSIGNS ARISING AS A RESULT OF THE
TRANSACTIONS AND/OR THE TRANSACTIONS OCCURRING PURSUANT TO THE LLC PURCHASE
AGREEMENTS.
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16. CHANGES TO ARTICLE XVI, TAX MATTERS
a. Section 16.2(e) of the Agreement is amended and restated in its entirety
as follows:
(e) Seller shall cause the Pipeline Partnership to make an election
under Section 754 of the Code to adjust the basis of the assets of such
partnerships, and shall use its reasonable efforts to cause the Starr
Partnerships, if permitted by the applicable Charter, to make an election
under Section 754 of the Code to adjust the basis of the assets of such
partnerships. Seller must amend all internal partnership agreements
accordingly prior to the Closing Date.
b. Section 16.2(j) of the Agreement shall be amended and restated in its
entirety to read as follows:
(j) Both Seller and Buyer will join in making a timely and effective
election under Section 338(h)(10) of the Code (and any comparable provision
of foreign, state or local law) with respect to the purchase by Buyer of
the stock of Gathering hereunder (together with the elections under Section
338(g) of the Code and any comparable provision of foreign, state or local
law, the "Section 338(h)(10) Elections"). At the Closing, Seller and Buyer
shall execute IRS Form 8023, completed to the extent reasonably practicable
for Gathering. Seller and Buyer agree to take all other action and file all
other necessary reports to elect validly pursuant to Section 338(h)(10) of
the Code to treat the Transaction as a sale of assets as opposed to a sale
of the stock of Gathering. Within 120 days after the Closing Date, Buyer
shall deliver to Seller any additional information or required schedules
thereto and any similar forms under applicable state or local law (the
"Forms") with respect to Taxes relating to Buyer's purchase of the stock of
Gathering and its interests in Pipeline. Provided that the information on
such Forms is, in the reasonable determination of Seller, correct and
complete in all material respects, Seller will consent to the filing of
such Forms. Seller and Buyer shall cooperate fully with each other and make
available to each other such Tax data and other information as may be
reasonably required by Seller or Buyer in order to prepare and timely file
the Forms and any other required statements or schedules. With respect to
the Sections 338(h)(10) Elections, the Modified Aggregate Deemed Sales
Price as defined in Treas. Reg. Section 1.338(h)(10)-1 shall be allocated
among the stock of Gathering pursuant to Treas. Reg. Section
1.338(h)(10)-1. The Buyer and the Seller shall use their good faith best
efforts to agree upon such allocation. The Seller shall provide to the
Buyer a schedule and supporting material reflecting such allocation for the
Buyer's review and consent, which consent shall not be unreasonably
withheld. The parties shall take no action inconsistent with, or fail to
take any action necessary for the validity of, the Section 338(h)(10)
Elections for Gathering, and shall adopt and utilize the asset values
determined from such allocation for the purpose of all tax returns filed by
them, and shall not voluntarily take any action inconsistent therewith upon
examination of any tax return, in any refund claim, in any litigation or
otherwise with respect to such tax returns. In the event that Buyer and
Seller are unable to resolve any disagreements regarding the allocation of
the "modified aggregate deemed sales price" (as defined under applicable
Treasury Regulations) among the assets or other aspects of the Forms, Buyer
(i) shall be entitled to file the Forms, but only if either the information
not agreed upon is deleted or the Forms reflect that the information has
not been
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agreed upon; or (ii) if acceptable to Buyer and Seller within 30 days after
notice of such disagreement, the matter in dispute shall be resolved as
soon as practicable by a "Big Five" independent accounting firm or, if the
disagreement involves valuation, to a nationally recognized appraisal firm
mutually satisfactory to the parties (but in no event longer than 30 days),
which resolution shall be binding and conclusive upon Buyer and Seller
without further appeal therefrom. Buyer and Seller shall bear equally the
fees and expenses of such firm. Buyer will timely file the Forms, and any
required supplements thereto, in the manner prescribed by Treasury
Regulation 1.338(h)(10)-1(d) or the corresponding provisions of applicable
foreign, state or local law, and will provide written evidence to Seller
that it has done so. Buyer and Seller agree that neither of them will take,
or permit any of their Affiliates to take, any action to modify or revoke
the elections contained in or the content of any Forms without the express
written consent of the other.
17. CHANGES TO ARTICLE XVII, DEFAULT AND REMEDIES
a. Section 17.3 of the Agreement shall be amended and restated in its
entirety to read as follows:
17.3 WAIVER OF EXTRAORDINARY DAMAGES. TO THE FULL EXTENT ALLOWED BY
LAW, AND EXCEPT AS MAY BE INCLUDED IN THIRD PARTY DAMAGES SUBJECT TO ANY
INDEMNITY OBLIGATION HEREUNDER, THE PARTIES HEREBY WAIVE AND RELEASE ANY
RIGHTS OR CLAIMS TO PUNITIVE OR EXEMPLARY DAMAGES RESULTING FROM A BREACH
OF THIS AGREEMENT. THE PARTIES HEREBY WAIVE THE APPLICATION OF THE TEXAS
DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT TO THE TRANSACTION.
b. Section 17.4 of the Agreement shall be amended and restated in its
entirety to read as follows:
17.4 WAIVER OF JURY TRIAL. SELLER AND BUYER DO HEREBY IRREVOCABLY WAIVE,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTION.
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18. CHANGES TO ARTICLE XVIII, NOTICES.
a. Section 18.1 of the Agreement is amended such that notices to Seller
shall be delivered to the following address instead of the address listed
in the Agreement prior to this Amendment:
Tesoro Petroleum Company
300 Concord Plaza Drive
San Antonio, Texas 78216-6999
Attention: James C. Reed, Jr.
Fax Number: (210) 283-2400
Phone Number: (210) 828-8484
b. Section 18.1 of the Agreement is amended such that copies of notices to
the E&P Buyer or the Pipeline Buyer shall be delivered to the following
address instead of the address listed in the Agreement prior to this
Amendment:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Attention: Michael E. Dillard, P.C.
Fax Number: (214) 969-4343
Phone Number: (214) 969-2876
19. CHANGES TO ARTICLE XIX, CONFIDENTIALITY AND DISCLOSURE.
There are no amendments to Article XIX to the Agreement.
20. CHANGES TO ARTICLE XX, TERMINATION.
There are no amendments to Article XX to the Agreement.
21. CHANGES TO ARTICLE XX, MISCELLANEOUS.
a. Section 21.1 of the Agreement shall be amended and restated to read in
its entirety as follows:
21.1 ENTIRE AGREEMENT. This Agreement, as amended, together with the LLC
Purchase Agreements, embody the entire agreement between the Parties
(superseding all prior agreements, negotiations, representations,
discussions, arrangements and understandings related to the subject matter
hereof), and may be supplemented, altered, amended, modified or revoked
only by a written instrument signed by each of the Parties; provided,
however, the Confidentiality Agreement dated June 17, 1999, between the
Parties shall remain effective until Closing. If the sale of the Operating
Assets to Buyer is not consummated, then the Confidentiality Agreement
shall remain effective as stated therein.
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b. Section 21.4 of the Agreement shall be amended and restated to read
in its entirety as follows:
21.4 INTERPRETATION. Words of any gender used in this Agreement shall be
held and construed to include any other gender, and words in the singular
shall be held to include the plural, unless the context otherwise requires.
None of the terms or conditions of this Agreement, including any Exhibits
or Schedules hereto, shall be construed for or against any Party hereto on
the basis that such Party did or did not author the same. All terms of this
Agreement and the Exhibits shall be harmonized, but in the event of any
conflict between the definition of a term in Article I and a more complete
description or limitation of such term in a subsequent Article, the
subsequent Article shall prevail. The LLC Purchase Agreements are being
executed in connection with this Agreement, and the instruments shall be
harmonized, to the extent possible, provided however, that no Party shall
be entitled to receive duplicate payments (including, without limitation,
duplicate payment of any purchase price) or other relief regarding the same
matters under both this Agreement, as amended and an LLC Purchase
Agreement. In the event of any conflict, redundancy or inconsistency
between the terms of this Agreement, as amended, and an LLC Purchase
Agreement or any other agreements or documents executed in connection with
this Transaction (including without limitation any conflict, redundancy or
inconsistency with respect to the provisions relating to indemnification,
payment of purchase price, adjustments to the purchase price, transfer of
the Common Stock or Membership Interests, representations, warranties and
covenants or any provisions of the exhibits or schedules), the provisions
of this Agreement, as amended, shall control and prevail. The Article and
Section headings are for convenience only and shall have no significance in
the interpretation hereof.
c. Section 21.9 of the Agreement shall be amended and restated in its
entirety as follows:
21.9 BINDING EFFECT, ASSIGNMENT. All the terms, provisions, covenants,
representations, warranties and conditions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the Parties
and, except as otherwise prohibited, their respective successors; however,
this Agreement and the rights and obligations hereunder shall not be
assignable or delegable by any Party without the express written consent of
the non-assigning or non-delegating Parties, which consent may be withheld
for any or no reason; provided that Buyer may assign some or all its
rights, duties and obligations under this Agreement to an Affiliate of EEX
Corporation. Any assignment or delegation requiring consent which is made
without such consent will be void.
d. Section 21.15 of the Agreement shall be amended by adding the following
as a new sentence at the end thereof:
If E&P Buyer and Pipeline Buyer are different Persons as a result of a
permitted assignment of the rights and obligations of either E&P Buyer or
Pipeline Buyer hereunder, E&P Buyer and Pipeline Buyer shall be jointly and
severally liable for all of the duties and obligations of E&P Buyer and
Pipeline Buyer hereunder.
43
<PAGE> 44
e. Section 21.17 of the Agreement shall be amended and restated in its
entirety as follows:
21.17 EEX CORPORATION GUARANTEE. EEX Corporation (a) agrees to be
jointly and severally liable with E&P Buyer and Pipeline Buyer for all of
E&P Buyer's and Pipeline Buyer's payment obligations under this Agreement
and (b) irrevocably and unconditionally guarantees the performance by E&P
Buyer and Pipeline Buyer of their respective indemnity obligations under
Article XV.
22. ADDITION OF EXHIBITS AND SCHEDULES.
The Agreement is amended to add the following exhibits and schedules to the
Agreement, each of which is attached to this Amendment:
Exhibit B-1 Pipeline Properties
Exhibit C-1 Pipeline Balance Sheet
Exhibit I Reserves LLC Purchase Agreement
Exhibit II Grande LLC Purchase Agreement
Exhibit III Southeast LLC Purchase Agreement
Exhibit IV E&P Settlement Statement
Exhibit V Pipeline Settlement Statement
Schedule I E&P Property Package
Schedule II Grande Property Package
Schedule III Southeast Property Package
23. GENERAL AMENDMENT PROVISIONS.
The parties hereto acknowledge that the terms of the Agreement, as amended
by this Amendment, shall continue in full force and effect. This Amendment shall
be governed and construed and enforced in accordance with the laws of the State
of Texas, without giving effect to principles of conflict of laws. This
Amendment may be executed in any number of counterparts, and each and every
counterpart shall be deemed for all purposes one agreement.
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<PAGE> 45
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their duly authorized officers as of the date first above written.
SELLER BUYER
TESORO PETROLEUM CORPORATION EEX OPERATING LLC
BY: EEX CORPORATION
By: /s/ SHARON L. LAYMAN By: /s/ RICHARD S. LANGDON
-------------------------------- ------------------------------
Name: Sharon L. Layman Name: Richard S. Langdon
------------------------------ ----------------------------
Title: Vice President and Treasurer Title: EVP & CFO
----------------------------- ---------------------------
TESORO GAS RESOURCES COMPANY, INC. EEX CORPORATION, FOR PURPOSES OF
SECTION 21.17
By: /s/ JEFFREY B. FABIAN By: /s/ RICHARD S. LANGDON
-------------------------------- ----------------------------------
Name: Jeffrey B. Fabian Name: Richard S. Langdon
------------------------------ --------------------------------
Title: President Title: EVP & CFO
----------------------------- -------------------------------
<PAGE> 46
The exhibits and schedules listed in Section 22 of the First Amendment to Stock
Purchase Agreement have been omitted. The Registrant will furnish a copy of any
omitted exhibits and schedules to the Securities and Exchange Commission upon
request.
<PAGE> 1
EXHIBIT 2.3
(Grande)
PURCHASE AGREEMENT
Dated as of December 17, 1999,
by and between
TESORO PETROLEUM CORPORATION
AND
TESORO GAS RESOURCES COMPANY, INC.
AS "SELLER"
AND
EEX OPERATING LLC
AS "BUYER"
<PAGE> 2
SCHEDULES
---------
1A HEDGING CONTRACTS
1B PERMITTED ENCUMBRANCES
2.6(a) RETAINED LIABILITIES
4.1(b)(iv) NO CONFLICT - SELLER
4.1(b)(v) CONSENTS AND WAIVERS - SELLER
4.1(g) LITIGATION
4.1(h) LABOR MATTERS
4.1(i) TAXES
4.1(k) ABSENCE OF CERTAIN CHANGES
4.1(m)(iii) PERMITS AND LICENSES
4.1(m)(iv) EXCEPTIONS TO RIGHT TO USE ASSETS
4.1(o) SUSPENSE FUNDS
4.1(p) INSURANCE
4.1(q) CONTRACTS ON PRODUCTION
4.1(s) TAX PARTNERSHIPS
4.1(u) ENVIRONMENTAL CONDITIONS
4.1(v) CONTRACTS
4.1(x) WELLS
4.1(z) PAYOUT BALANCES
9.2 EXCEPTIONS TO PRE-CLOSING OPERATING COVENANTS
9.2(f) COMMITTED EXPENDITURES
9.4 EXCEPTIONS TO PRE-CLOSING FINANCIAL COVENANTS
EXHIBITS
--------
A ALLOCATED VALUES
B LEASES AND RELATED PIPELINES
C SUBSIDIARIES AND PARTNERSHIP BALANCE SHEET
D SETTLEMENT STATEMENT
<PAGE> 3
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is dated December 17, 1999, but effective as of
the Effective Time, between Tesoro Petroleum Corporation, a Delaware
corporation, and Tesoro Gas Resources Company, Inc., a Delaware corporation,
collectively as "Seller", and EEX Operating LLC, a Delaware limited liability
company, as "Buyer".
WITNESSETH:
WHEREAS, Tesoro Gas Resources Company, Inc. owns all of the Membership
Interests in Tesoro Grande LLC, a Delaware limited liability company ("Grande");
and
WHEREAS, Tesoro Petroleum Corporation, a Delaware corporation, and
Tesoro Gas Resources Company, Inc., a Delaware corporation, collectively as
"Seller", and EEX Operating LLC, a Delaware limited liability company, as
"Buyer", and EEX Corporation, entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") dated October 8, 1999 providing for the sale by
Seller to Buyer of all shares of capital stock of Tesoro Exploration and
Production Company, a Delaware corporation ("Exploration") and Tesoro Reserves
Company, a Delaware corporation ("Reserves"), together with the partnership
interests in Tesoro E&P Company, L.P., a Delaware limited partnership (the
"Partnership"); and
WHEREAS, the Partnership owns certain assets used in the business of
the exploration, production, gathering, transportation and marketing of oil,
natural gas, condensate and associated hydrocarbons; and
WHEREAS, on the date of the Stock Purchase Agreement, Exploration and
Reserves were the two partners in the Partnership, in which Exploration was the
general partner owning a 1% interest and Reserves was the limited partner owning
a 99% interest; and
WHEREAS, the Partnership was converted into a series limited
partnership, with the entire Series B limited partnership interest being
transferred to Grande, insofar as such interest covers the revenues, expenses,
profits and losses from the Properties described in Exhibit B; and
WHEREAS, Section 9.12 of the Stock Purchase Agreement provides for the
Parties to cooperate at no cost or liability to Buyer, to enable Seller at
Seller's election, to transfer the Operating Assets to Buyer in a manner
enabling the transfer to qualify as a part of a like-kind exchange of property
by Seller within the meaning of Section 1031 of the Code; and
WHEREAS, the Stock Purchase Agreement has been amended to provide for
such a like-kind exchange of property, among other purposes, by a First
Amendment to Stock Purchase Agreement dated December 16, 1999 (the "Amendment");
and
WHEREAS, to facilitate such a like-kind exchange transaction, Seller
has arranged to assign its interests in the proceeds of the sale of Grande and
its interest in the Properties to Bank One Exchange Corporation, as a Qualified
Intermediary;
1
<PAGE> 4
WHEREAS, the Parties have agreed to restructure the Transaction set
forth in the Stock Purchase Agreement, to allow the separate sale of Grande and
its interest in the Properties through the Qualified Intermediary; and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller all issued and outstanding Membership Interests of Grande, including
all of Grande's rights and interests in the Partnership and the Properties,
under the terms and conditions set forth in this Agreement and the Stock
Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
"ACCEPTING PARTY" shall have the meaning set forth in Section 16.1(e).
"ACCOUNTS RECEIVABLE" shall have the meaning set forth in Section 13.4.
"ACTION" means any action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.
"ADJUSTMENT ASSETS AND LIABILITIES" shall mean the items set forth in
Section 2.7.
"AFFILIATE" shall have the same meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"AGREEMENT" shall mean this Purchase Agreement.
"ALLOCATED VALUE" shall mean the monetary value allocated to each
Property or group of Properties and the Hedging Contracts on Exhibit A.
"AMENDMENT" shall mean the First Amendment to Stock Purchase Agreement
dated December 16, 1999, by and among Tesoro Petroleum Corporation, a Delaware
corporation, Tesoro Gas Resources Company, Inc., a Delaware corporation, and EEX
Operating LLC, a Delaware limited liability company, and EEX Corporation, a
Texas corporation, for the limited purposes set forth therein
"APO" shall mean "after payout", as such payout may be established
under the respective farmout agreements, joint operating agreements,
participation interests and similar agreements affecting each Property,
including payouts providing reversionary rights of parties who have elected not
to participate in an operation under a joint operating agreement. If there are
multiple outstanding payouts affecting any particular well or Property, then the
APO interest shall mean the interests after all applicable payouts have
occurred. If at the Effective Time there are no outstanding payout balances
affecting any particular well or Property, then the listed APO interest in such
well or Property shall reflect the Partnership's WI and NRI at the Effective
Time.
2
<PAGE> 5
"APPLICABLE ENVIRONMENTAL LAWS" means all Applicable Laws in effect
pertaining to (i) pollution, or the protection of the environment, including
those relating to waste materials and/or hazardous substances, (ii) the
protection of Persons or property from actual or potential exposure (or the
effects of exposure) to an actual or potential spill or release of Hazardous
Substances or petroleum or produced brine or (iii) the manufacture, processing,
production, gathering, transportation, use, treatment, storage or disposal of a
Hazardous Substance or petroleum or produced brine.
"APPLICABLE LAW" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Authority to
which a specified Person, Operating Asset or property is subject.
"BALANCE SHEETS" shall mean the unaudited combined financial balance
sheet of Grande and the Partnership as of June 30, 1999, attached hereto as
Exhibit C.
"BOOKS AND RECORDS" shall mean all of the following which pertain to
the conduct of the Business: books, records, manuals and other materials,
accounting books and records, continuing property records for property, plant
and equipment, land and lease files, title opinions, suspense records,
production records, any inventories of equipment and property, well files,
engineering files, maps, surveys, electric logs, seismic records, geological and
geophysical files, and all other technical data, division order files, contract
files, other files, computer tapes, disks, other storage media and records,
advertising matter, correspondence, lists of customers and suppliers, maps,
photographs, production data, sales and promotional materials and records,
purchasing materials and records, work and recent salary history for personnel,
credit records, manufacturing and quality control records and procedures, patent
and trademark files and disclosures, litigation files, leases, oil and gas
leases, deeds, easements and other instruments relating to the Business, any
copies of Tax Returns filed by or with respect to Grande or the Partnership,
including copies of all work papers and calculations relating to Grande and the
Partnership in support of such Tax Returns, and any comparable information with
respect to predecessors of Grande or the Partnership to the extent available,
and copies of any other applicable accounting and tax records of the Seller and
the Partnership pertaining to the Business.
"BPO" shall mean "before payout", as such payout may be established
under the respective farmout agreements, joint operating agreements,
participation interests and similar agreements affecting each Property,
including payouts providing reversionary rights of parties who have elected not
to participate in an operation under a joint operating agreement. If at the
Effective Time there is an outstanding payout balance affecting any particular
well or Property, the listed BPO interest in such well or Property shall reflect
the Partnership's WI and NRI at the Effective Time.
"BUSINESS" shall mean the Partnership's business of exploring for,
developing, producing, gathering, transporting and marketing natural gas,
condensate and oil.
"BUSINESS DAY" shall mean any day exclusive of Saturdays, Sundays and
national holidays.
"BUYER GROUP" shall have the meaning set forth in Section 15.3.
3
<PAGE> 6
"BUYER'S KNOWLEDGE" shall mean knowledge of Buyer and management
employees of Buyer's ultimate parent, EEX Corporation, with knowledge of Buyer's
activities, including the negotiation of this Agreement.
"BYLAWS" shall mean a corporation's bylaws, code of regulations or
equivalent document.
"CHARTER" shall mean a company's management agreement, articles of
association, articles of incorporation, certificate of incorporation or
equivalent organizational documents.
"CLOSING" shall have the meaning set forth in Section 12.1.
"CLOSING DATE" shall have the meaning set forth in Section 12.1.
"CLOSING SETTLEMENT PRICE" shall mean the Settlement Price calculated
in accordance with the best information available to the Seller prior to
Closing, as reflected on the Settlement Statement delivered prior to Closing
pursuant to Article X and Section 13.1(a).
"CODE" shall mean the United States Internal Revenue Code of 1986 and
any successor statute thereto, as amended.
"CONSENT TO ASSIGNMENT" shall mean an existing contractual or legal
right of any third party to consent to the Partnership's assignment of a
Property to Buyer under such terms as are set forth in this Agreement.
"CONTRACTS" shall mean all of the contracts that govern or relate to
the ownership or operation of the Operating Assets (including without
limitation, the wells, facilities and equipment associated therewith and the
production therefrom, acreage contribution agreements, assignments, bidding
agreements, bottom-hole agreements, contribution agreements, drilling contracts,
dry-hole agreements, exploration agreements, development agreements, farm-in and
farmout agreements, gas balancing agreements, joint venture agreements,
production, sales, marketing and/or brokerage contracts, gas processing
agreements, operating agreements, participation agreements, service contracts,
storage contracts, gathering agreements, transportation agreements, treating
contracts, water rights agreements and the unitization, unit operating,
communitization and pooling declarations, agreements and orders that create or
govern units). To the extent that Seller, Grande or the Partnership have rights
of indemnification or warranty rights with respect to any Operating Asset or any
part of an Operating Asset, the same shall be included in the meaning of
"Contracts."
"DAMAGES" shall mean any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses, expert fees and expenses and court costs), of any nature whatsoever.
"EFFECTIVE TIME" shall mean July 1, 1999, at 12:00 a.m. local time for
each Operating Asset.
"ENCUMBRANCE" shall mean any interest (including any security
interest), pledge, mortgage, lien, charge, adverse claim or other right of third
Persons.
"ENVIRONMENTAL CONDITIONS" shall have the meaning set forth in Section
7.3 of the Stock Purchase Agreement.
4
<PAGE> 7
"EXPLORATION LLC" shall mean Tesoro Exploration and Production LLC, a
Delaware limited liability company.
"FINAL SETTLEMENT PRICE" shall mean the Settlement Price calculated in
accordance with the best information available to the Parties during the one
hundred twenty (120) day period after Closing, as reflected on the Final
Statement agreed upon pursuant to Article XIII.
"FINAL STATEMENT" shall mean the final accounting statement to be
agreed upon by the Parties no later than one hundred twenty (120) days after
Closing pursuant to Section 13.1(b).
"FINANCIAL ASSETS AND LIABILITIES" shall mean the assets, liabilities
and other financial items on the Balance Sheets, effective as of 11:59 p.m. on
June 30, 1999, (i) as adjusted for revenues, income, expenses and other assets
and liabilities incurred between the Effective Time and the Closing Date and
included within the Adjustment Assets and Liabilities, and (ii) as adjusted for
the Pre-Closing Financial Adjustments and (iii) as otherwise adjusted as
provided herein. The term "Financial Assets" shall not include any assets,
liabilities or other financial items included within the Operating Assets.
"GAAP" shall mean U.S. generally accepted accounting principles, unless
expressly described otherwise.
"GOVERNMENTAL AUTHORITY" shall mean any international, national,
Federal, state, municipal or local government, governmental authority,
regulatory or administrative agency, governmental commission, department, board,
bureau, agency or instrumentality, court, tribunal, arbitrator or arbitral body.
"GOVERNMENTAL ORDER" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"GRANDE" shall mean Tesoro Grande LLC, a Delaware limited liability
company
"HAZARDOUS SUBSTANCE" means a substance, chemical, pollutant, waste or
other material (i) that consists, wholly or in part, of a substance that is
regulated as toxic or hazardous to human health or the environment under any
Environmental Law or (ii) that exists in a condition or under circumstances that
constitute a violation of any Environmental Law. "Hazardous Substance" includes
without limitation any "hazardous substance" under the Comprehensive
Environmental Response, Compensation and Liability Act, any "hazardous chemical"
under the Occupational Safety and Health Act, any "hazardous material" under the
Hazardous Materials Transportation Act, any "hazardous chemical substance" under
the Federal Water Pollution Control Act and any "hazardous waste" under the
Resource Conservation and Recovery Act.
"HEDGING CONTRACTS" shall mean those natural gas derivative pricing
contracts listed on Schedule 1A.
"INCOME TAXES" shall mean any Taxes, including franchise taxes, which
are based upon or in respect of income.
"INDEMNIFIED PARTY" shall mean any Party or other Person entitled to an
indemnity under Article XV of this Agreement, with respect to the indemnity so
owed.
5
<PAGE> 8
"INDEMNIFYING PARTY" shall mean a Party owing an indemnity to any other
Party or Person under Article XV of this Agreement, with respect to the
indemnity so owed.
"LENDER" shall have the meaning set forth in Section 9.12(d).
"LIABILITIES" shall mean any and all debts, claims, liabilities and
obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, mature or unmatured or determined or indeterminable.
"MATERIAL ADVERSE EFFECT" shall mean any event with respect to, change
in, or effect on, Grande, the Partnership or the Business which, individually or
in the aggregate, is reasonably likely to have a material adverse effect on the
Business, or the financial results of operations, assets or properties or
financial condition of Grande and the Partnership, taken as a whole, but the
term "Material Adverse Effect" shall not include any change in market conditions
or other conditions affecting the oil and gas exploration and production
industry generally.
"MEMBERSHIP INTERESTS" shall mean shall mean all issued and outstanding
membership interests in Grande.
"NORM" shall have the meaning set forth in Section 7.2.
"NRI" shall mean the decimal net revenue interest in oil and gas
production from a Property.
"OPERATING ASSETS" shall mean all property rights and interests of the
Partnership being sold hereunder in the lands and leases described in Exhibit B,
as set forth in Section 2.4.
"OTHER TAXES" shall mean all Taxes other than Income Taxes.
"PARTIES" shall mean Buyer and Seller, collectively.
"PARTNERSHIP" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership of
the Partnership, as amended.
"PARTY" shall mean either Buyer or Seller.
"PERMITTED ENCUMBRANCES" shall include any Encumbrance which is: (i)
listed on Schedule 1B, for which a duly executed release in recordable form will
be delivered to Buyer at or before Closing; (ii) a lien securing amounts claimed
for services provided by operators or other oil field contractors which are not
yet due and owing or which are being contested in good faith, through adequate
procedures; (iii) a statutory lien arising for Taxes not yet delinquent or which
are being contested in good faith, through adequate procedures; (iv) a
reservation, exception, limitation, encumbrance or burden expressly included
within a recorded oil and gas lease constituting part of a Property with respect
to which Seller or the Partnership is not in default at Closing which does not
reduce the Partnership's NRI in such Property below the respective decimal
interests set forth in Exhibit A; (v) any royalty, overriding royalty or other
production burden affecting any Property which does not and will not reduce the
Partnership's NRI in such Property below the respective decimal interests set
forth in Exhibit A; (vi) any joint operating agreement containing terms and
6
<PAGE> 9
conditions reasonable and customary in the industry (other than a Preferential
Right to Purchase that is exercised prior to Closing or a required Consent to
Assignment, or a reversionary right that is not reflected in the BPO and APO
interests on Exhibit A); (vii) the right of a third party under any equipment
rental or lease contract, oilfield service contract, production sales contract
or transportation contract affecting any Property, which either may be
terminated by the parties thereto without penalty or does not extend for a term
of more than sixty days after the Closing Date; (viii) any other easement,
operating right, concurrent use right or similar encumbrance that does not
affect the Partnership's rights to a Property or reduce the production revenues
attributable thereto or increase the costs associated with ownership or
operation of that Property; and (ix) a severance tax, production tax, occupation
tax, ad valorem tax or similar tax of general application.
"PERSON" shall include any individual, trustee, firm, corporation,
partnership, limited liability company, Governmental Authority or other entity,
whether acting in an individual, fiduciary or any other capacity.
"POST-CLOSING RETURN" shall have the meaning set forth in Section
16.2(c).
"PRE-CLOSING FINANCIAL ADJUSTMENTS" shall mean those certain financial
accounting adjustments and payments set forth in Section 2.6.
"PRE-CLOSING PERIOD" shall have the meaning set forth in Section
16.2(c).
"PRE-CLOSING RETURN" shall have the meaning set forth in Section
16.2(c).
"PREFERENTIAL RIGHT TO PURCHASE" shall mean the right of any third
party under an existing contract or agreement allowing that third party to
purchase the Partnership's interest in a Property whenever Seller proposes to
transfer its interests in the Partnership under terms such as are set forth in
this Agreement and the Stock Purchase Agreement.
"PRODUCTION" shall mean all oil, natural gas, condensate, natural gas
liquids, and other hydrocarbons or products produced from or attributable to the
Properties.
"PROPERTIES" shall mean, collectively, (i) all valid and existing oil
and gas leaseholds and mineral fee rights, and all rights and interests
appurtenant thereto, which are owned by the Partnership in the lands and leases
described on Exhibit B attached hereto, including without limitation all oil and
gas WIs, NRIs, mineral fee interests, oil, gas and mineral deeds, leases and/or
subleases, royalties, overriding royalties, leasehold interests, mineral
servitudes, production payments and net profits interests, fee mineral
interests, surface estates, fee estates, royalty interests, overriding royalty
interests, or other non-working or carried interests, reversionary rights,
farmout and farmin rights, operating rights, pooled or unitized acreage, and all
other rights, privileges and interests in such oil, gas and other minerals (and
the production thereof), and other mineral rights of every nature now owned by
the Partnership in such lands and leases listed on Exhibit B hereto, (ii) all of
the contractual rights to interests described in (i) above and in all units in
which such interests are pooled, communitized or unitized, and in any other oil,
gas and/or mineral leases or assets arising pursuant to the terms of the oil and
gas leases listed on Exhibit B hereto, and any other rights and agreements or
contracts affecting or relating to interests described in (i) above, or to
Production, whether or not listed on Exhibit B, including any tenements,
appurtenances, surface leases, easements, permits, licenses, servitudes,
franchises or rights of way.
7
<PAGE> 10
"PROPERTY" shall mean any individual one of the Properties.
"PROPERTY TAX PERIOD" shall have the meaning set forth in Section
13.2(a).
"PROPERTY TAXES" shall have the meaning set forth in Section 13.2(a).
"PROPOSED SETTLEMENT" shall have the meaning set forth in Section
16.1(e).
"PURCHASE PRICE" shall have the meaning set forth in Section 3.1.
"QUALIFIED INTERMEDIARY" shall mean Bank One Exchange Corporation, in
its capacity as a qualified intermediary to implement a like-kind exchange of
the Properties under Section 1031 of the Code.
"REFUSING PARTY" shall have the meaning set forth in Section 16.1(e).
"RESERVES LLC" shall mean Tesoro Reserves Company, LLC, a Delaware
limited liability company.
"SELLER" shall mean, collectively, Tesoro Petroleum Corporation, a
Delaware corporation, and Tesoro Gas Resources Company, Inc., a Delaware
corporation.
"SELLER'S KNOWLEDGE" shall mean actual knowledge of any fact,
circumstance or condition by the officers or management employees (including
those with titles of "Manager", "Vice President" and "President" or those in the
internal legal department of Seller, Grande and the Partnership who provide
specific advice related to the operations of the Business) of Seller, Grande and
the Partnership involved and knowledge of any fact, circumstance or condition
which such officer or management employee would have been aware of with the
exercise of reasonable diligence and inquiry in the course of his or her duties.
"SETTLEMENT PRICE" shall have the meaning set forth in Section 3.2.
"SETTLEMENT STATEMENT" shall mean the accounting statement calculating
the Settlement Price, to be furnished by Seller to Buyer prior to Closing,
pursuant to Article X and Section 13.1(a).
"SOUTHEAST" shall mean Tesoro Southeast LLC, a Delaware limited
liability company.
"STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement
dated October 8, 1999, as amended by the Amendment, by and among Tesoro
Petroleum Corporation, a Delaware corporation, Tesoro Gas Resources Company,
Inc., a Delaware corporation, and EEX Operating LLC, a Delaware limited
liability company, and EEX Corporation, a Texas corporation, for the limited
purposes set forth therein.
"STRADDLE PERIOD" shall have the meaning set forth in Section 16.1(e).
"STRADDLE RETURN" shall have the meaning set forth in Section 16.2(c).
"SUBSIDIARIES" shall mean Exploration LLC, Grande, Southeast and
Reserves LLC, collectively.
8
<PAGE> 11
"TAX" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, parking, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 50A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, ad valorem,
value added, alternative or add-on minimum, estimated tax, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, including such item for which Liability arises as a transferee
or successor-in-interest.
"TAX CLAIM" shall have the meaning set forth in Section 16.1(c).
"TAX RETURN" shall mean any return, declaration, report, claim for
refund, information return or statement relating to Taxes, including any
schedules or attachments thereto, and including any amendment thereof.
"TAXING AUTHORITY" shall mean any Governmental Authority responsible
for the imposition or collection of any Tax.
"TESORO GROUP" shall have the meaning set forth in Section 4.1(i).
"TESORO PARENT" shall have the meaning set forth in Section 4.1(i).
"TRANSACTION" shall mean the purchase and sale of the Membership
Interests pursuant to this Agreement and the related transactions contemplated
herein.
"WI" shall mean a working interest under an oil and gas lease or other
Contract affecting a Property which shall reflect the decimal interest for
participation in the decisions, costs and risks concerning operations.
"WORKING CAPITAL" shall mean, at any time, the difference between (a)
the sum of the amounts on the line items "cash", "accounts receivable",
"inventories" and "prepayment and other" on the Balance Sheet, less (b) the sum
of the amounts on the line items "accounts payable" and "accrued liabilities" on
the Balance Sheet; all as computed in accordance with GAAP and past practice for
Grande and the Partnership except as expressly provided herein, and in a manner
as reflected on the Balance Sheets; provided, however, that the amounts on the
line items "prepayment and other", "accounts payable" and "accrued liabilities"
on the Balance Sheet shall not include the impact of any amounts referred to in
the first proviso in Section 3.2(a)(i); and provided further, that the stated
amount of Working Capital shall be reduced by the amount of inventories that
existed as of the Effective Time.
"WORKING CAPITAL ACCOUNTS" shall mean the line items "cash", "accounts
receivable", "inventories", "prepayment and other", "accounts payable" and
"accrued liabilities" on the Balance Sheet, all as computed in accordance with
GAAP and past practice for Grande and the Partnership, and in a manner as
reflected on the Balance Sheets; provided, however, that the line items
"prepayment and other", "accounts payable" and "accrued liabilities" shall not
include the impact of any items referred to in the first proviso in Section
3.2(a)(i).
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<PAGE> 12
ARTICLE II.
PURCHASE AND SALE
2.1 SALE OF MEMBERSHIP INTERESTS. Subject to the terms and conditions
of this Agreement, Seller agrees to sell and assign to Buyer, and Buyer agrees
to purchase and pay for, at Closing, all of the Membership Interests.
2.2 EFFECT OF SALE. The sale of the Membership Interests at Closing
shall transfer to Buyer all of Seller's rights in Grande. On the Closing Date,
Grande shall hold certain interests, assets and liabilities, as set forth in
this Article II. Except as otherwise specifically set forth in this Agreement,
the transfer of Seller's rights in Grande shall assign to Buyer all of Seller's
beneficial right, title, interest and obligations in and to such interests,
assets and liabilities held by Grande.
2.3 PARTNERSHIP. On the Closing Date, Exploration LLC and Grande shall
own the rights and interests in the Partnership, insofar as they pertain to the
Properties. Exploration LLC shall be the general partner of the Partnership and
Grande shall own the entire Series B limited partnership interest in the
Partnership insofar as it pertains to allocable revenues and expenses
attributable to the Properties. The partnership rights and interests of Grande
described in this Section 2.3 shall pass to Buyer as an attribute of the sale of
the Membership Interests pursuant to this Agreement.
2.4 OPERATING ASSETS. On the Closing Date, the Partnership shall own
the Operating Assets, subject to the Permitted Encumbrances, as follows:
(a) Exploration and Production Assets.
(i) the Properties;
(ii) All the interests in oil and gas wells described on
Exhibit A, together with an interest in the
production, compression, treating, dehydration or
processing facilities and other real or tangible
personal property appurtenances and fixtures, which
are located on the lands covered by or within the
Properties or are being used by the Partnership in
connection with the operations on the Properties or
Production;
(iii) Subject to the license granted under the License
Agreement (with respect to the rights covered
thereby), rights and interests in geological data and
records, seismic data, whether in digital or paper
format, well logs, well files, geological data,
records and maps, land and contract files and
records, accounting files, data and records, computer
hardware and software and other materials (whether
electronically stored or otherwise) used or held for
use by Seller, Grande or the Partnership, or any of
their direct or indirect parents, subsidiaries or
other Affiliates, regarding ownership of the
Properties or operations and Production which relate
to the Properties, and other files, documents and
records which relate to the Properties;
(iv) Rights, obligations, title and interests in and to
permits, orders, contracts, abstracts of title,
leases, deeds, unitization agreements, pooling
agreements,
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operating agreements, farmout agreements,
participation agreements, division of interest
statements, division orders, participation
agreements, and other agreements and instruments
applicable to the Properties;
(v) All the rights, obligations, title and interests of
Seller in and to all easements, rights of way,
certificates, licenses and permits and all other
rights, privileges, benefits and powers conferred
upon the owner and holder of interests in the
Properties, or concerning software used in
conjunction with ownership or operation of the
Properties;
(vi) All the rights, title and interests of Seller and the
Partnership in and to the Bob West Field compression
facility and the Bob West Field amine plant;
(vii) Rights, title, obligations and interests in or
concerning any gas imbalances affecting the
Properties; and
(viii) All office equipment, computer equipment, light
tables, drafting tables, drafting equipment, office
supplies, facsimile machines, pool cars and any other
equipment or furniture not herein named which is
utilized by the Partnership in its day to day
operations.
(b) Leased Assets. To the extent any of the items of office equipment
listed in Section 2.4(a) above are leased and not owned, Seller, Grande and the
Partnership shall use their best efforts to cause such leases to be assigned to
Buyer at Closing.
2.5 FINANCIAL ASSETS AND LIABILITIES. On the Closing Date, the
Partnership shall own the Financial Assets and Liabilities. Grande shall be
allocated its share of the Partnership's respective Financial Assets and
Liabilities attributable to ownership and operation of the Properties in
proportion to its ownership of the Partnership's interests in the Properties.
The Financial Assets and Liabilities at Closing of the Partnership and each
partner in the Partnership shall be computed by Seller in accordance with GAAP,
and shall be allocated to the Properties and the partners in the Partnership in
accordance with the Partnership Agreement. The Financial Assets and Liabilities
shall be adjusted from those set forth on the Balance Sheet to reflect certain
Pre-Closing Financial Adjustments and the Adjustment Assets and Liabilities, as
set forth in Sections 2.6 and 2.7.
2.6 PRE-CLOSING FINANCIAL ADJUSTMENTS. Prior to the Closing Date,
Seller shall make certain accounting adjustments and payments regarding the
assets, liabilities and equity of the Partnership and Grande, to the effect that
Sellers shall remove all intercompany accounts involving the Partnership, Grande
and their Affiliates, and all intercompany liabilities shall have been removed.
At Closing the only assets and liabilities of the Partnership and Grande shall
be the Operating Assets and the Adjustment Assets and Liabilities.
(a) Certain Accounts. Immediately prior to the Closing, Seller shall
take, and shall cause Grande and the Partnership to take, all necessary action
deemed appropriate to adjust the Balance Sheets to account for those items that
are to be retained by Seller, as set forth in Schedule 2.6(a). In doing so,
Seller shall take, and shall cause Grande and the Partnership to take, all
necessary actions deemed appropriate so that the Balance Sheets as of the
Closing Date, as adjusted to reflect
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such actions, will show zero for those line items listed in Schedule 2.6(a) as
financial items that are to be retained by Seller.
(b) Pre-Closing Cash Distribution. Immediately prior to the Closing,
Tesoro Gas Resources Company, Inc. shall cause Grande to pay to it an amount
equal to the arithmetic mean of Seller's and Buyer's good faith estimates of the
consolidated cash and cash equivalents (other than amounts in suspense accounts)
of Grande as of the Closing Date.
(c) Changes in Balance Sheets Due to Continuing Operations. Buyer and
Seller expressly recognize that the assets and liabilities of Grande and the
Partnership shall be affected by the effects of ongoing ownership and operation
of the Operating Assets between the Effective Time and the Closing Date. These
changes shall be handled exclusively by adjustments to the Settlement Price as
set forth in Section 3.2 and Article XIII.
2.7 ADJUSTMENT ASSETS AND LIABILITIES. At Closing, the Partnership
shall retain, to the extent permitted by applicable law and regulations, the
following interests:
(a) All rights, obligations, liabilities, title and interests of Seller
and the Partnership in and to all Hedging Contracts in effect at the Effective
Time or thereafter;
(b) All Working Capital Accounts; and
(c) All rights to future proceeds, defenses and indemnities owed under
any bonds or insurance policies covering the Operating Assets, the Partnership,
Grande or the Business for policy periods prior to the Closing Date, for losses,
claims or occurrences, as applicable, arising prior to the Closing Date.
ARTICLE III.
PURCHASE PRICE AND SETTLEMENT PRICE
3.1 PURCHASE PRICE. The monetary consideration ("Purchase Price") for
the sale and conveyance of all the Membership Interests to Buyer, effective as
of the date of Closing, is Buyer's payment of $115,304,126 in cash.
3.2 SETTLEMENT PRICE. Pursuant to the provisions as described below,
the Purchase Price to be paid by Seller will be subject to certain adjustments
made at Closing and within one hundred twenty (120) days thereafter, as set
forth in Article XIII, to determine the Settlement Price amount that will
actually be paid by Buyer. The Settlement Price will be calculated as follows:
(a) Increases. The Purchase Price shall be increased by the following
amounts:
(i) An amount equal to the expenses properly accrued in
accordance with GAAP and past practice, and allocated
to Grande under the Partnership Agreement, and as
provided for in Section 13.3, attributable to the
period from the Effective Time to the end of business
on the Closing Date; provided, however, that such
expenses shall exclude all (1) depreciation,
depletion and amortization, (2) income and franchise
taxes, (3) one-half of the amount accrued by and the
Partnership and allocated to Grande under the
Partnership
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Agreement, incentive compensation arrangements for
the Retained Employees, as provided in Section
9.9(c), and (4) severance obligations and other
amounts accrued under any employment retention and
management stability agreements, as provided in
Section 9.9(b); provided, further, however that
Seller and the Partnership shall be permitted to
accrue no more than $40,000 per month from the close
of business on June 30, 1999 to the Closing Date for
corporate general and administrative expenses;
(ii) An amount equal to the capital expenditures relating
to the Business properly accrued in accordance with
GAAP and past practice and allocated to Grande under
the Partnership Agreement, attributable to the period
from the Effective Time to the end of business on the
Closing Date; and
(iii) The amount of change in Working Capital and allocated
to Grande under the Partnership Agreement between the
Effective Time and the end of business on the Closing
Date, if the amount of change is a positive number.
(b) Decreases. The Settlement Price shall be decreased by the following
amounts:
(i) An amount equal to the revenues properly accrued in
accordance with GAAP and past practice and allocated
to Grande under the Partnership Agreement
attributable to the period from the Effective Time to
the end of business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment
allocated to Grande under the Partnership Agreement,
subject to the application of Section 13.1;
(iii) The amount, stated as a positive number, of any
change in Working Capital and allocated to Grande
under the Partnership Agreement between the Effective
Time and the end of business on the Closing Date, if
and only if, the amount of change is a negative
number.
The Purchase Price as adjusted pursuant to this Section 3.2 is herein called the
"Settlement Price".
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Effective as of the
Closing Date, Seller shall represent and warrant that:
(a) Disclosure. To Seller's Knowledge, the representations and
warranties set forth in this Section 4.1 of this Agreement, the exhibits to this
Agreement, and the information, documents and Balance Sheets provided under the
terms of this Agreement represent full and fair disclosure as of the Closing
Date and do not contain any untrue statement of any material fact or omit any
material fact necessary in order to make the facts stated not misleading.
(b) Authorization and Enforceability.
(i) This Agreement and the Transaction have been duly
authorized by each
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Seller.
(ii) Neither the execution and delivery of this Agreement
by Seller, nor the consummation by Seller of the
transactions contemplated hereby, will violate or
conflict with, or result in the acceleration of
rights, benefits or obligations under, (1) any
provision of any of Seller's, Grande's or the
Partnerships' respective Charters, Bylaws, management
agreements, limited liability company agreements,
operating agreements or partnership agreements, or
(2) any applicable statute, law, regulation or
Governmental Order to which Seller or Grande or the
Partnerships or the assets and properties of such
entities, including without limitation the Operating
Assets, are bound or subject.
(iii) This Agreement has been duly executed and delivered
by each Seller and constitutes the valid and binding
obligation of each Seller, enforceable against it in
accordance with its terms, except as such
enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the
enforcement of creditors' rights generally and
general principles of equity (regardless of whether
such enforceability is considered in a proceeding in
equity or at law).
(iv) Except as set forth on Schedule 4.1(b)(iv), or as
otherwise specifically provided herein, the
execution, delivery, and performance of this
Agreement (assuming that all applicable consents are
received and all applicable Preferential Rights to
Purchase individual Operating Assets are waived) will
not (A) be in violation of any provisions of any
regulation or order that could reasonably be expected
to adversely affect the ownership or operations of
the Operating Asset affected thereby or give rise to
damages, penalties or claims of third parties, or (B)
result in the breach of, or constitute a default
under, any indenture or other material agreement or
instrument to which Seller, Grande or the
Partnerships are bound, or (C) cause the recognition
of gain for which the Buyer (or, after the Closing,
the Subsidiaries) will be responsible for the tax
thereon or subject any Subsidiary or its assets to
any Tax other than Tax for which Seller is
responsible under Article XVI;
(v) Except as set forth on Schedule 4.1(b)(v) or as
otherwise specifically provided herein, no consent,
waiver, approval, order or authorization of, notice
to, or registration, declaration, designation,
qualification or filing with, any Governmental
Authority or third Person, domestic or foreign, is or
has been or will be required on the part of Seller in
connection with the execution and delivery of this
Agreement or the consummation by Seller of the
transactions contemplated hereby or thereby, other
than (A) consents and Preferential Rights to Purchase
affecting individual Operating Assets; (B) filings
required (1) to form Grande under Delaware law; (C)
tax filings or (D) where the failure to obtain such
consents, waivers, approvals, orders or
authorizations or to make or effect such
registrations, declarations, designations,
qualifications or filings (1) is not reasonably
likely to prevent or materially delay consummation of
the transactions contemplated by this Agreement (2)
could reasonably be expected to adversely affect the
Business or (3) could give rise to damages, penalties
or claims of third parties.
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(c) Organizational Status.
(i) Each Seller: (1) is a corporation duly organized,
validly existing and in good standing under the laws
of Delaware, (2) is duly qualified to transact
business in each jurisdiction where the nature and
extent of its business and properties require such
qualification, and (3) possesses all requisite
authority and power to conduct its business and
execute, deliver and comply with the terms and
provisions of this Agreement and to perform all of
its obligations hereunder. There are no pending or
threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or
rehabilitation of any Seller.
(ii) Grande(1) is a limited liability company duly
organized, validly existing and in good standing
under the laws of Delaware, (2) is duly qualified to
transact business in each jurisdiction where the
nature and extent of its business and properties
require such qualification, and (3) possesses all
requisite authority and power to conduct its
business. There are no pending or threatened Actions
(or basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of Grande.
(iii) The Partnership (1) is a limited partnership duly
organized, validly existing and in good standing
under the laws of Delaware, (2) is duly qualified to
transact business in each jurisdiction where the
nature and extent of its business and properties
require such qualification, and (3) possesses all
requisite authority and power to conduct its
business. There are no pending or threatened Actions
(or basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of the Partnership.
(d) Subsidiary and Other Equity Interests.
(i) Grande has no subsidiaries and does not own any stock
or other interest in any other corporation,
partnership, joint venture, or other business entity,
with the exception of the Partnership.
(ii) The Partnership has no subsidiaries and does not own
any stock or other interest in any other corporation,
partnership, joint venture, or other business entity.
(e) Membership Interests and Partnership Interests.
(i) Grande has authorized membership interests, of which
all are issued and outstanding and owned by Tesoro
Gas Resources Company, Inc. The membership interests
have been duly authorized by Grande, and the
membership interests owned by Tesoro Gas Resources
Company, Inc. are validly issued and outstanding,
fully paid and nonassessable. There are no preemptive
rights, subscriptions, options, consents to
assignment or rights of first refusal, convertible
securities, warrants, calls, stock appreciation
rights, phantom stock, profit participation, or other
similar rights, or other agreements or commitments
obligating Seller or Grande to issue or to transfer
(or preventing the transfer of) any membership
interests, capital stock or other equity interest in
Grande.
(ii) In the Partnership, the entire Series B limited
partnership interest
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(representing a 100% interest in all of the capital
and assets of Series C) is held by Grande.
Exploration LLC is the general partner of the
Partnership (representing a 1% interest in all of the
capital and assets of Series A). Such interests are
duly authorized under the agreement governing the
Partnership, as currently amended, and are valid.
There are no preemptive rights, or authorized or
outstanding subscriptions, options, consents to
assignment or rights of first refusal, convertible
securities, warrants, calls, appreciation rights,
phantom interests, profit participation, or other
similar rights, or other agreements or commitments
obligating Seller, the Partnership, Reserves LLC,
Grande, Southeast or Exploration LLC to issue or to
transfer (or preventing the transfer of) any equity
interest in the Partnership.
(iii) Seller has delivered to correct and complete copies
of Grande's and the Partnership's respective Charter,
Bylaws, management agreement, limited liability
company agreement, operating agreement or partnership
agreement, as amended to date, and the minute books
of Grande and the Partnership. Neither Grande nor the
Partnership is in breach of any provision of its
Charter, Bylaws, management agreement, limited
liability company agreement, operating agreement or
partnership agreement.
(f) Title to Membership Interests, Partnership Interests and Assets.
(i) The Membership Interests constitute all of the issued
and outstanding membership interests and other equity
interests in Grande. All of the issued and
outstanding membership interests of Grande are owned
of record and beneficially with good and valid title
by Tesoro Gas Resources Company, Inc., free and clear
of any Encumbrance. Upon delivery to Buyer of the
certificates representing the Membership Interests in
the manner and with the powers described in Section
12.2(a), assuming that Buyer pays the consideration
contemplated by this Agreement and has no notice of
any adverse claim, good and valid title to the
Membership Interests will have been transferred to
Buyer, free and clear of any Encumbrances. Neither
Tesoro Petroleum Corporation nor Tesoro Gas Resources
Company, Inc. has received any notice of any adverse
claim to their title to the Membership Interests.
(ii) All of the issued and outstanding partnership
interests in the Partnership are owned of record and
beneficially with good and valid title by Reserves
LLC, Grande, Southeast, and Exploration LLC, free and
clear of any Encumbrance. Neither Reserves LLC,
Grande, Southeast, nor Exploration LLC has received
any notice of any adverse claim to their respective
interests in the Partnership.
(iii) Grande and the Partnership have good title to all of
the assets and properties (except the Operating
Assets) which they own or purport to own, including
the Financial Assets and Liabilities reflected on the
Balance Sheets and allocable to the Properties under
the Partnership Agreement, except for properties
sold, consumed or otherwise disposed of in the
ordinary course of business since the date of the
Balance Sheets, free and clear of any Encumbrances
other than Permitted Encumbrances.
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(g) Litigation. Except as set forth in Schedule 4.1(g), none of Seller,
Grande or the Partnership have been served with and, to Seller's Knowledge,
there are no pending or threatened Actions before any Governmental Authority
against or affecting Seller, Grande, the Partnership or the Operating Assets,
which, if adversely determined, either would be reasonably expected to expose
Grande or the Partnership to a risk of loss after the Effective Time or would
interfere with Seller's ability or right to execute and deliver this Agreement
or consummate the transactions contemplated by this Agreement.
(h) Labor Matters. Except as set forth on Schedule 4.1(h), there are no
contracts, agreements, or other arrangements whereby Grande or the Partnership
are obligated to compensate or provide health and welfare benefit plans or
retirement benefits to any employees or other persons, except for employment
agreements that are terminable at will, without breach or penalty. To Sellers'
Knowledge, Seller, Grande and the Partnership are in compliance with all
federal, state, and local laws respecting employment and employment practices,
terms and conditions of employment, and wages and hours and are not engaged in
any unfair labor practice with regard to those persons employed in connection
with Grande's or the Partnership's operations. No employee of Grande is covered
under any collective bargaining agreement. There is no unfair labor practice
complaint against Grande pending or, to Seller's Knowledge, threatened before
the National Labor Relations Board or any comparable state or local Governmental
Authority. There is no labor strike, slowdown or work stoppage pending or, to
Seller's Knowledge, threatened against or directly affecting Grande, and no
grievance or any Action arising out of or under collective bargaining agreements
is pending or, to Seller's Knowledge, threatened against Grande.
(i) Taxes.
(i) Except as set forth in Schedule 4.1(i), Seller, and
the Partnership have timely filed or caused to be
timely filed (or will timely file or cause to be
timely filed) with the appropriate Taxing
Authorities, all Tax Returns required to be filed on
or prior to the Closing Date by or with respect to
Sellers and the Partnership (or their respective
Operating Assets) and have timely paid or adequately
provided for (or will timely pay or adequately
provide for) all Taxes shown thereon as owing, except
where the failure to file such Tax Returns or pay any
such Taxes would not, or could not reasonably be
expected to, in the aggregate, result in losses or
costs or expenses to Grande's interests or the
Partnership after the Closing Date.
(ii) Sellers are members of an affiliated group of
corporations which file consolidated federal income
tax returns ("Tesoro Group") with Tesoro Petroleum
Corporation as the common parent ("Tesoro Parent").
Grande is not required to and does not file federal
income tax returns as a taxpaying entity, and, for
purposes of federal income taxation, Grande is
accounted for and included as a part of Tesoro Gas
Resources Company, Inc.. The Tesoro Group has been
subject to normal and routine audits, examinations
and adjustments of Taxes from time to time, but there
are no current audits or audits for which written
notification has been received, other than those set
forth in Schedule 4.1(i). There are no written
agreements with any Taxing Authority with respect to
or including Grande's interests which will in any way
affect liability for Taxes attributable to Grande's
interests after the Closing Date.
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(iii) Except as set forth in Schedule 4.1(i), no
assessment, deficiency or adjustment for any Taxes
has been asserted in writing or, to the knowledge of
Sellers, is proposed with respect to any Tax Return
of, or which includes, Grande's interests.
(iv) Except as set forth in Schedule 4.1(i), there is not
in force any extension of time with respect to the
due date for the filing of any Tax Return of or with
respect to or which includes Grande's interests or
any waiver or agreement for any extension of time for
the assessment or payment of any Tax of or with
respect to or which includes Grande's interests.
(v) Except for Taxes due with respect to Tax Returns that
will be paid by Tesoro Parent (and not subject to
reimbursement by Grande), the accounting records of
Grande will include immediately prior to the Closing
Date adequate provisions for the payment of all Taxes
allocable to Grande's interests for all taxable
periods or portions thereof through the Closing Date.
(vi) All Tax allocation or sharing agreements or
arrangements have been or will be canceled on or
prior to the Closing Date. No payments are or will
become due by Grande after the Closing Date pursuant
to any such agreement or arrangement.
(vii) Except as set forth on Schedule 4.1(i), none of the
Sellers or Grande will, as a result of the
transactions contemplated by this Agreement, be
obligated to make a payment after the Closing Date to
an individual that would be a "parachute payment" as
defined in Section 280G of the Code without regard to
whether such payment is reasonable compensation for
personal services performed or to be performed in the
future.
(viii) Neither Grande nor the Partnership have participated
in or cooperated with an international boycott within
the meaning of Section 999 of the Code.
(ix) Neither Grande nor the Partnership has filed a
consent under Code Section 341(f) concerning
collapsible corporations.
(x) Neither Grande nor the Partnership has been a United
States real property holding corporation within the
meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section
897(c)(1)(A)(ii).
(xi) All monies required to be withheld by either Seller,
Grande and the Partnership and paid to Taxing
Authorities for all Taxes have been (i) collected or
withheld and either paid to the respective Taxing
Authorities or set aside in accounts for such purpose
or (ii) properly reflected in the Balance Sheets.
(j) Balance Sheets.
(i) The Balance Sheets have been prepared in accordance
with GAAP applied on a basis consistent with prior
periods, except as described in the notes thereto,
which will qualify that the Partnership and Grande
have been accounted for as part of a consolidated
financial group with their affiliates and not as
completely separate stand-alone entities.
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<PAGE> 21
(ii) The Balance Sheets present fairly, in all material
respects, the financial condition of the combined
Partnership and Grande as of June 30, 1999. The books
and records of Grande and the Partnership from which
the Balance Sheets were prepared were complete and
accurate in all material respects at the time of such
preparation.
(iii) Grande and the Partnership have no Liabilities,
except for Liabilities (1) reflected in the Balance
Sheets, (2) incurred by Grande or the Partnership in
the ordinary course of business and consistent with
past practices since the date of the Balance Sheets,
or (3) which are Permitted Encumbrances, or (4) for
which the Buyer is being indemnified hereunder. As
used in this subparagraph, the term "Liabilities"
excludes any Liabilities not required to be reflected
in the Balance Sheets under GAAP.
(k) Absence of Certain Changes. Except as set forth in Schedule 4.1(k),
or as otherwise contemplated by this Agreement (including without limitation
Sections 2.5 and 2.6), or with Buyer's prior written consent, since the close of
business on June 30, 1999:
(i) Neither Grande nor the Partnership has sold, leased,
transferred, or assigned any assets other than
surplus equipment not necessary for operations of the
Business and for a reasonable consideration;
(ii) Grande and Partnership have not incurred, assumed or
become subject to any additional indebtedness for
money borrowed or purchase money indebtedness,
including capitalized leases;
(iii) Grande and Partnership have not entered into any
transaction not in the ordinary course of business,
except as contemplated by this Agreement;
(iv) there have been no additional Encumbrances placed on
the assets of Grande or the Partnership other than
Permitted Encumbrances;
(v) no event has occurred which constitutes a Material
Adverse Effect;
(vi) Neither Grande nor the Partnership has made any loan
to, or entered into any contract with (other than
severance agreements for which Seller shall remain
responsible), any of its directors or officers;
(vii) Grande has not issued, sold, or otherwise disposed of
any of its interests in the Partnership, except in
connection with the transactions outlined in Section
9.4(b) of the Stock Purchase Agreement;
(viii) there has been no change made or authorized to the
Charter, Bylaws, management agreement, limited
liability company agreement, operating agreement or
partnership agreement of Grande or the Partnership,
except in connection with the transactions outlined
in Section 9.4(b) of the Stock Purchase Agreement;
(ix) Neither Grande nor the Partnership has canceled,
compromised, waived, or released any debt or Action
(or series of related debts or Actions);
(x) Neither Grande nor the Partnership has delayed or
postponed the payment of accounts payable or other
Liabilities owed, other than amounts which Seller
reasonably and in good faith disputes;
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(xi) Neither Grande nor the Partnership has made any
capital investment in, any loan to, or any
acquisition of the securities or assets of, any other
Person (or series of related capital investments,
loans, and acquisitions), except in connection with
operations conducted pursuant to Section 9.2(f) or in
connection with the transactions outlined in Section
9.4(b) of the Stock Purchase Agreement;
(xii) Neither Grande nor the Partnership has made any
capital expenditure (or series of related capital
expenditures), except in connection with operations
conducted pursuant to Section 9.2(f); or in
connection with the transactions outlined in Section
9.4(b) of the Stock Purchase Agreement
(xiii) Neither Grande nor the Partnership has entered into
any Contract (or series of related Contracts) other
than (i) to effectuate operations set forth on
Schedule 9.2(f) or (ii) constituting joint operating
agreements or oil and gas leases entered into in the
ordinary course of business or (iii) contracts with
officers and directors for which the Seller shall
remain responsible or (iv) contracts in connection
with the transactions outlined in Section 9.4(b) of
the Stock Purchase Agreement;
(xiv) to Seller's Knowledge, neither Grande nor the
Partnership has materially breached any Contract by
which it is bound or to which any of its assets is
subject; and
(xv) Neither Grande nor the Partnership has declared, set
aside, or paid any dividend or made any distribution
with respect to its interests in the Partnership
(whether in cash or in kind) or redeemed, purchased,
or otherwise acquired any of its interests in the
Partnership, other than in the ordinary course of
business or as contemplated by this Agreement or in
connection with the transactions outlined in Section
9.4(b) of the Stock Purchase Agreement.
(l) Compliance With Law. Since June 30, 1999, neither Grande nor the
Partnership has violated any law, statute or regulation which have subjected
them to fines or penalties (nor to Seller's Knowledge have any third parties
violated any Applicable Law for which Grande or the Partnership may have any
responsibility). As of the date of this Agreement, to Seller's Knowledge, Grande
and the Partnership are in compliance in all material respects with all laws,
statutes or regulations applicable to Grande and the Partnership, except where
the noncompliance with which would not, in the aggregate, result in the
imposition on Grande and the Partnership of fines or penalties.
(m) Operating Assets.
(i) Seller represents that as of Closing, Seller's and
the Partnership's interests in the Operating Assets
shall be free and clear of any liens other than
Permitted Encumbrances.
(ii) To Seller's Knowledge, the Operating Assets are being
operated in compliance in all material respects with
all applicable federal, state or local laws, and the
rules and regulations of any agency or authority
having jurisdiction.
(iii) Except as set forth in Schedule 4.1(m)(iii), Grande
and the Partnership
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possess all permits, licenses, orders, approvals and
authorizations required by any applicable law,
statute, regulation or Governmental Order, or by the
property and contract rights of third Persons,
reasonably necessary to permit the operation of the
Business in the manner currently conducted by Grande
and the Partnership. Neither Grande nor the
Partnership has received written notice from any
Governmental Authority that any such permit, license,
order, approval or authorization has been, or will
be, revoked or terminated.
(iv) Except as set forth in Schedule 4.1(m)(iv),
immediately before the Closing Date, Grande and the
Partnership will hold or have the right to use in the
Business all of the assets and properties (including
all licenses and agreements) currently being used
(except those disposed of or expiring in the ordinary
course of business or otherwise as contemplated or
permitted by this Agreement) or which are reasonably
necessary to permit the operation of the Business in
the manner currently conducted by Grande and the
Partnership. Since June 30, 1999, Grande have
conducted no business other than the Business.
(n) No Brokers' Fees. Except for Credit Suisse First Boston, the fees
and expenses of which will be paid by Seller, neither Seller nor any of its
directors, officers or employees has employed any broker, finder or investment
banker or incurred any Liability for any brokerage fees, commissions, finders'
fees or similar fees in connection with the transactions contemplated by this
Agreement. Buyer shall have no responsibility whatsoever, contingent or
otherwise, for any brokers' or finders' fees incurred by Seller, Grande or the
Partnership relating to the Transaction.
(o) Suspense Funds. Schedule 4.1(o) is a true and correct list as of
August 31, 1999 of all amounts held by the Partnership and/or Grande in suspense
accounts, or otherwise, related to the Properties for the benefit or account of
any other Person.
(p) Insurance. As listed on Schedule 4.1(p) Seller, Grande and the
Partnership maintain insurance on and bonds with respect to the Operating
Assets, as set forth on Schedule 4.1(p), covering such risks and with such
deductible amounts as are consistent with general oil and gas industry practice.
(q) Contracts on Production. Except as set forth on Schedule 4.1(q),
there are no Contracts involving the purchase, marketing, brokering or sale of
Production that require a dedication of Production for a term in excess of three
(3) months that will not be terminable without penalty or other liability at the
sole discretion of Grande or the Partnership upon not more than one (1) month's
notice, except for commitments under operating agreements.
(r) Equipment. Since June 30, 1999, neither Seller, Grande nor the
Partnership, nor to Seller's Knowledge the operator of any of the Operating
Assets, has removed any of the equipment, facilities or other property from the
Operating Assets except in the ordinary course of business.
(s) Tax Partnerships. Except as disclosed in Schedule 4.1(s), no
Property is subject to, or considered to be held by, any partnership for federal
income tax purposes, other than tax partnerships under joint operating
agreements.
(t) Disclaimer. Except as otherwise expressly set forth in this Article
and elsewhere in this Agreement, Seller and the Affiliates of Seller expressly
disclaim any representations or warranties of any kind or nature, express or
implied, as to the condition, value or quality of the assets
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or properties currently or formerly used, operated, owned, leased, controlled,
possessed, occupied or maintained by Grande or the Partnership, and SELLERS AND
ALL OTHER TESORO AFFILIATES SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY
OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE
WITH RESPECT TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO THE
WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING ACQUIRED
"AS IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, WITH ALL
FAULTS, AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND INVESTIGATION
THEREOF.
(u) Environmental Matters. Except as set forth on Schedule 4.1(u), to
Seller's Knowledge:
(i) There are no underground storage tanks, as defined in
Applicable Environmental Law, on the Properties or
any of the Operating Assets which constitute a
violation of Environmental Law.
(ii) The Operating Assets contain no friable asbestos,
mercury or polychlorinated biphenyls above 50 ppm or
other Hazardous Substances which constitute a
violation of Applicable Environmental Law.
(iii) The Operating Assets have been used solely for oil
and gas operations and related operations. Except for
the production, storage and transportation of oil,
gas and other hydrocarbons and the storage and
disposal of brine in the ordinary course of business
consistent with prevailing oil and gas industry
practices, the Properties have not been used to
dispose of Hazardous Substances. No Hazardous
Substances have been disposed of that would cause an
adverse material impact to any of the Operating
Assets.
(iv) There have been no spills or releases of any
Hazardous Substance related to the ownership or
operation of the Operating Assets which constitutes a
violation of Applicable Environmental Law, except for
matters that have been addressed and have no
continuing adverse consequence to Seller, Grande, the
Partnership or the Operating Assets.
(v) There are no Actions pending or threatened against
the Partnership, Grande, or either Seller with
respect to any of the Operating Assets relating to
the violation of, liability under, or noncompliance
with, any Applicable Environmental Law; the
discharge, disposal or release of a Hazardous
Substance; or the exposure of a Person or property to
a Hazardous Substance. Seller, Grande and the
Partnership have no current contingent liability in
connection with the release of Hazardous Substances.
(vi) The Operating Assets have been, and are operating, in
material compliance under all Applicable
Environmental Laws.
(vii) Seller, Grande and the Partnership have provided
Buyer all environmental audits, tests, results of
investigations and analyses that have been performed
with respect to the Operating Assets.
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(v) Contracts. Except as set forth on Schedule 4.1(v) or Section 4.1(q)
and in joint operating agreements entered into in the normal course of business,
the Operating Assets are not subject to any instrument, agreement or other
Contract evidencing or related to indebtedness for borrowed money. All of the
existing Contracts between any of Grande, the Partnership and/or either Seller
and any of their respective Affiliates with respect to sales, services or
support to any of the Operating Assets or operations on the Operating Assets
shall terminate except for such Contracts otherwise indicated on Schedule 4.1(v)
to survive Closing. Except as set forth on Schedule 4.1(v) and other than
Consents to Assignment or Preferential Rights to Purchase, to Seller's
Knowledge, no Contracts to which Seller, Grande or the Partnership is a party or
a successor-in-interest and to which Buyer will be subject after the Effective
Time contain any provision that prevents Buyer from owning, managing and
operating the Operating Assets in accordance with the Partnership's past
practices.
(w) Seismic Information. At Closing, subject to the terms of the
License Agreement, neither Seller nor any affiliate of Seller other than Grande
and the Partnership shall have any further right to any of the seismic data of
Grande or the Partnership which has been assigned or leased to Grande, the
Partnership and/or the Buyer.
(x) Wells. Except to the extent set forth on Schedule 4.1(x), to
Seller's Knowledge, no well included in the Properties is subject to material
penalties on allowables because of any overproduction or any other violation of
Applicable Law. Except for the wells included in the Properties and listed in
Schedule 4.1(x), there are no wells included in the Properties that Seller,
Grande or the Partnership, or to Seller's Knowledge the operator of such wells,
are currently obligated by Applicable Law, Applicable Environmental Law or order
of any Governmental Authority to plug and abandon within a time certain or that
have been shut-in or temporarily abandoned.
(y) Expenditure Obligations. Except as set forth on Schedule 9.2(f),
Grande and the Partnership have not executed or are not otherwise contractually
bound by any authority for expenditure with respect to any of the Operating
Assets under any operating agreement, unit operating agreement, or other similar
agreements. Except as set forth on Schedule 9.2(f), with respect to
authorizations for expenditure relating to any of the Operating Assets, (i)
there are no outstanding calls under such authorizations for expenditures for
payments which are due or which Grande or the Partnership have committed to make
which have not been made; (ii) there are no material operations with respect to
which any of Grande and/or the Partnership has become a non-consenting party
where the effect of such non-consent is not disclosed on Exhibit B, and (iii)
there are no commitments for the expenditures of funds for drilling or other
capital projects other than projects with respect to which the operator is not
required under the applicable operating agreement to seek consent.
(z) Payout. To Seller's Knowledge, the payout balances with respect to
any of the Properties operated by the Partnership that are subject to future
change on account of reversionary interests, non-consent penalties or similar
agreements or arrangements are set forth on Schedule 4.1(z) and are correct as
of the dates shown on such statements.
(aa) Absence of Certain Changes Regarding Properties. Since June 30,
1999, except as listed on Schedule 4.1(k), Grande and the Partnership:
(i) have maintained and operated each of the Properties
operated by any of them as a reasonably prudent
operator consistent with prevailing oil and gas
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industry practice;
(ii) have used reasonable efforts consistent with their
past practices to cause each of the Properties not
operated by them to be maintained and operated in a
good and workmanlike manner and in substantially the
same manner as theretofore operated;
(iii) have paid timely their share of all costs and
expenses attributable to the Operating Assets, except
for such costs and expenses that they were contesting
in good faith by appropriate action;
(iv) have performed all accounting, royalty disbursement
and reporting requirements, as applicable, related
thereto for the Production; and
(v) have not agreed, whether in writing or otherwise, to
take any action described in this Section 4.1(aa).
(bb) Schedule 1B states all liens and mortgages that previously
encumbered the Membership Interests or the Operating Assets, securing
obligations of Seller, Grande or the Partnership (other than those items listed
in clause (ii) through (ix) of the definition of "Permitted Encumbrances"), and
all of the liens and mortgages listed on Schedule 1B have been released, insofar
as they encumber the Membership Interests or the Operating Assets.
4.2 BUYER'S REPRESENTATIONS. Buyer represents that:
(a) Disclosure. To Buyer's Knowledge, the representations and
warranties set forth in this Agreement represent full and fair disclosure as of
the date of this Agreement and the date of Closing and do not contain any untrue
statement of any material fact or omit any material fact necessary in order to
make the facts stated not misleading.
(b) Authorization and Enforceability
(i) This Agreement and the Transaction have been duly
authorized by Buyer.
(ii) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated
hereby or thereby, will violate or conflict with (1)
any provision of Buyer's Charter or Bylaws, or (2)
any applicable statute, law, regulation or
Governmental Order to which Buyer or the assets or
properties of Buyer are bound.
(iii) This Agreement has been duly executed and delivered
by Buyer and constitutes the valid and binding
obligation of Buyer, enforceable against it in
accordance with its terms, except as such
enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the
enforcement of creditors' rights generally and
general principles of equity (regardless of whether
such enforceability is considered in a proceeding in
equity or at law).
(iv) Except as set forth on Schedule 4.2(b)(iv) or as
otherwise specifically provided herein, the
execution, delivery, and performance of this
Agreement (assuming that all applicable consents are
received) will not (A) be in material violation of
any provisions of any regulation, or order or (B)
result
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<PAGE> 27
in the breach of, or constitute a default under, any
material indenture or other agreement or instrument
to which Buyer is bound.
(v) Except as set forth on Schedule 4.2(b)(v) or as
otherwise specifically provided herein, no consent,
waiver, approval, order or authorization of, notice
to, or registration, declaration, designation,
qualification or filing with, any Governmental
Authority or third Person, domestic or foreign, is or
has been or will be required on the part of Buyer in
connection with the execution and delivery of this
Agreement or the consummation by Buyer of the
transactions contemplated hereby or thereby, other
than where the failure to obtain such consents,
waivers, approvals, orders or authorizations or to
make or effect such registrations, declarations,
designations, qualifications or filings is not
reasonably likely to prevent or materially delay
consummation of the transactions contemplated by this
Agreement or prevent Buyer from performing its
obligations under this Agreement.
(c) Organizational Status. Buyer: (i) is a limited liability company
duly organized, validly existing and in good standing under the laws of
Delaware, (ii) is duly qualified to transact business in each jurisdiction where
the nature and extent of its business and properties require the same in order
for it to perform its obligations under this Agreement; and (iii) possesses all
requisite authority and power to conduct its business and execute, deliver and
comply with the terms and provisions of this Agreement, to purchase, receive,
and accept conveyance of the Membership Interests from Seller and to perform all
of its obligations hereunder.
(d) Ability to Perform. On the Closing Date, Buyer will have sufficient
cash, available lines of credit or other sources of immediately available funds
to enable it to make its payment of the Closing Settlement Price at the Closing.
(e) Investment Intent. The Membership Interests are being purchased for
Buyer's own account and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the Securities
Act. Buyer understands that the Membership Interests have not been registered
under the Securities Act by reason of their issuance in transactions exempt from
the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) thereof. Buyer is knowledgeable, competent, and
experienced in the oil and gas industry and has independently evaluated and
interpreted the technical data and other information regarding the Operating
Assets prior to entering into this Agreement, understands and is financially
able to bear the risk associated with ownership of Grande and the Partnership,
and will independently conduct all the due diligence investigations and reviews
of all matters concerning Grande, the Partnership and the Operating Assets as it
deems necessary prior to Closing. Buyer acknowledges that Buyer is not relying
upon any statement or representations made by Seller concerning the present or
future value of, or anticipated income, costs, or profits, if any, to be derived
from, Grande, the Partnership or the Operating Assets, and Buyer has relied
solely upon its independent inspections, estimates, computations, evaluations,
reports, studies, knowledge and other information regarding Grande, the
Partnership and the Operating Assets.
(f) Litigation. There are no pending or, to Buyer's Knowledge,
threatened suits, actions, proceedings, claims, or investigations that would
interfere with Buyers ability or right to execute and deliver this Agreement or
consummate the transactions contemplated by this Agreement.
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(g) No Brokers' Fees. Buyer has incurred no liability, contingent or
otherwise, for brokers' or finders' fees relating to the Transaction for which
Seller shall have any responsibility whatsoever.
(h) Buyer's Knowledge. To Buyer's Knowledge, on the date hereof,
Buyer's representations and warranties made in this Section 4.2 are true and
correct in all material respects.
ARTICLE V.
ACCESS TO INFORMATION AND INSPECTION
5.1 ACCESS TO INFORMATION. Prior to the Closing Date, upon reasonable
notice, Seller, Grande and the Partnership have (i) afforded the officers,
employees and authorized agents and representatives of Buyer reasonable access
during normal business hours to the offices, Operating Assets and Books and
Records, title and contract files, permit files, legal, evidentiary, litigation
support, records and data financial and accounting records and operating and
maintenance files, and related documents, records and materials concerning the
Operating Assets data in possession of Seller and (ii) furnished to the
officers, employees and authorized agents and representatives of Buyer such
additional financial and operating data and other information regarding the
assets, Operating Assets and Liabilities of Grande, the Partnership, and the
Business (or legible copies thereof) as Buyer may have from time to time
reasonably requested.
5.2 WARRANTIES AS TO DOCUMENTS. Seller has advised Buyer of the nature
and existence of any confidential documents that have been withheld from
disclosure. Seller does not warrant or represent the accuracy of any materials
that may have been made available for Buyer's review, except that Seller does
represent and warrant that it has not concealed or intentionally or willfully
misrepresented or withheld any information, data or materials in its possession
except for confidential information, data or materials, the existence of which
has been disclosed as otherwise provided herein.
ARTICLE VI.
TITLE
6.1 GOVERNMENTAL CONSENTS. After the execution of this Agreement, and
upon Closing and thereafter, Buyer and Seller shall cooperate to obtain all
routine or standard governmental consents or waivers necessary to transfer
Seller's rights and interests in Grande and the Partnership owning the Operating
Assets to Buyer.
ARTICLE VII.
ENVIRONMENTAL
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7.1 DISCLOSURES AND AVAILABILITY OF DATA TO BUYER. The Operating Assets
have been utilized by the Partnership for the purposes of exploration,
development and production of oil and gas, for related oilfield operations and
possibly for the storage and disposal of waste materials or hazardous substances
generated or otherwise used in association with oil and gas exploration and
production activities on the Properties. The Operating Assets also may contain
buried pipelines, the locations of which may not now be known by Seller or
readily apparent by a physical inspection of the Operating Assets. In addition
to providing any environmental audits and studies as per Section 4.1(u), Seller
has made and shall make available to Buyer Seller's historical files regarding
the foregoing operations, to the extent available and to the extent Seller,
Grande and the Partnership are authorized to disclose same (excepting documents
which Seller, Grande or the Partnership are contractually prohibited from
disclosing or are subject to legal privilege or are in the possession of another
operator, and with respect to which Seller has been unable to secure consent to
disclose despite its commercially reasonable efforts to do so).
7.2 NORM. Without affecting Seller's representations and warranties or
the provisions of Section 7.3, Buyer acknowledges that some or all of the
Operating Assets may contain naturally occurring radioactive materials ("NORM"),
and that NORM is an anticipated hazard in oil and gas production operations.
Certain of the Operating Assets, including without limitation, pipe and
equipment may have deposits that contain NORM. Buyer agrees that it shall cause
the Partnership to properly handle and dispose of all materials containing NORM
in a safe manner in accordance with all applicable laws and regulations, at
their sole risk, liability and expense.
7.3 BUYER'S ENVIRONMENTAL ASSESSMENT. Buyer has pursued such
environmental assessments of the Operating Assets as Buyer has desired.
7.4 RESPONSIBILITIES FOR REMEDIATION OF CONTAMINATION. As between the
parties hereto, but subject to the provisions of applicable laws, joint
operating agreements, other third party agreements and the indemnities and other
provisions set forth herein, from and after the Closing, the Partnership shall
remain responsible for costs of remediation of all Environmental Conditions
occurring on or arising from any Operating Asset at any time, whether before, on
or after the Effective Time; provided however, that Seller shall fund payment of
any fines or regulatory penalties that might be assessed against the Partnership
by reason of any violation of regulatory or permit requirements before the
Closing Date.
ARTICLE VIII.
CASUALTY LOSS AND CONDEMNATION
8.1 NO TERMINATION. Except as specifically provided to the contrary
herein, Grande and the Partnership shall retain all risk of loss with respect to
any loss of, reduction in value of or damage to the Operating Assets from the
Effective Time until Closing, and Buyer assumes the risk of loss of value of
Grande and the Partnership associated with such matters. If after the Effective
Time and prior to the Closing, any part of the Operating Assets should be
destroyed by fire or other casualty or if any part of the Operating Assets
should be taken in condemnation or under the right of eminent domain or if
proceedings for such purposes should be pending or threatened, this Agreement
shall remain in full force and effect notwithstanding any such destruction,
taking or proceeding or the threat thereof, except as expressly provided in
Article XX.
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8.2 PROCEEDS AND AWARDS. In the event of any loss described in Section
8.1, Seller (with Buyer's consent, which shall not be unreasonably withheld)
shall either (a) at the Closing assign to the Partnership all of Seller's rights
in any insurance proceeds, third party damage payments, condemnation awards or
other amounts paid or to be paid by reason of such destruction, less any costs
and expenses incurred by Seller in collecting same, or (b) prior to Closing, use
or have the Partnership apply such sums (less any costs and expenses incurred by
Seller in collecting same) to repair, restore or replace such damaged or taken
Operating Assets. In addition, Seller shall at Closing assign to the Partnership
all of the right, title and interest of Seller in and to any claims for loss of
or damages to the Operating Asset, that might be asserted against third parties
with respect to the event or circumstance causing such loss to and any unpaid
insurance proceeds, condemnation awards or other payments arising out of such
destruction or taking, less any costs and expenses previously incurred by Seller
in collecting same. The Settlement Price shall be reduced by the Casualty Price
Adjustment, if any, attributable to casualty losses that are not fully covered
by insurance. Notwithstanding anything to the contrary in this Section 8.2,
neither Seller, Grande nor the Partnership shall be obligated to carry or
maintain, nor shall they have any obligation or liability to Buyer for their
failure to carry or maintain any insurance coverage with respect to any of the
Operating Assets, except as required by Section 9.2.
8.3 RISKS OF OTHER LOSSES. Except as otherwise set forth in this
Agreement, Buyer shall assume all risks of loss with respect to the
Partnership's ownership or operation of the Operating Assets after the Effective
Time, including without limitation, the following risks:
(a) Operations. With respect to each Operating Asset, Buyer shall
assume all risk of loss with respect to any loss of value or change in the
condition of the Operating Asset, and all wells thereon, after the Effective
Time, relating to the production of oil, gas or other hydrocarbons, including
without limitation normal depletion, water encroachment, coning, pressure
depletion, formation changes and sand infiltration. The Partnership shall
continue to bear its proportionate share of the risks allocated under applicable
joint operating agreements and assume their proportionate share of the risks
that such operations may be unsuccessful, and Closing shall not be conditioned
upon the success of any operations.
(b) Market Conditions. With respect to each Operating Asset, Buyer
shall assume all risk of loss with respect to any change in market conditions
affecting any Operating Asset or production therefrom after the Effective Time,
and this Agreement shall not be terminated or suspended, nor shall Closing be
delayed, due to any such change in market conditions.
ARTICLE IX.
COVENANTS
9.1 PRE-CLOSING COVENANTS OF SELLER REGARDING THE BUSINESS. Sellers
shall cause Grande and the Partnership to operate the Business only in its
usual, regular and ordinary manner and substantially in the same manner as
heretofore conducted, and as set forth in Section 9.2. Sellers shall cause
Grande and the Partnership to use commercially reasonable efforts and as set
forth in Section 9.2, to (i) preserve the Business; (ii) keep available to Buyer
the services of the present officers, employees, agents and independent
contractors of Grande; and (iii) maintain the assets of the Business in their
current state of repair, order and condition, usual and ordinary wear and tear
excepted and subject to requirements in the ordinary course of business.
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9.2 PRE-CLOSING COVENANTS OF SELLER REGARDING THE OPERATING ASSETS.
Subject to the terms of applicable operating and other existing agreements,
Seller covenants and agrees that between the date of this Agreement and the
Closing Date, except as set forth on Schedule 9.2 or as may be consented to in
writing by Buyer, which consent shall not be unreasonably withheld, Seller shall
manage the Partnership's ownership of the Operating Assets as follows:
(a) Disposal of Operating Assets. The Partnership shall not sell or
otherwise dispose of any of the Operating Assets, except for the sale in the
ordinary course of the Partnership's business of oil, gas, condensate and
products thereof and surplus equipment.
(b) New Third Party Rights. Except for Contracts entered into in
furtherance of operations listed on Schedule 9.2 and Schedule 9.2(f), without
Buyer's consent, the Partnership shall not enter into any new or amended
contracts, agreements or relationships (i) granting any Preferential Right to
Purchase or Consent to Assignment affecting any of the Operating Assets
hereunder, or (ii) which if in existence as of the date hereof would be a
material Contract.
(c) Preservation of Operating Assets. The Partnership shall use
reasonable efforts to preserve in full force and effect all leases, operating
agreements, easements, rights-of-way, permits, licenses, contracts and other
agreements which relate to the Operating Assets and shall perform the
obligations of the Partnership in or under any such agreement relating to such
Operating Assets as a reasonable and prudent operator, provided however, that
the Partnership shall not be required to conduct any drilling, recompletion or
reworking activities to maintain any lease, farmout agreement or other
defeasible interest in force or to settle any adverse claims, demands or
litigation in a manner that Seller deems inappropriate.
(d) Maintenance of Equipment. The Partnership shall maintain all
material and equipment within the Operating Assets in accordance with customary
industry operating practices and procedures.
(e) Insurance. The Partnership shall maintain in full force and effect
all policies of insurance now maintained by Seller and the Partnership covering
the Operating Assets. Seller and Buyer will cooperate in making claims under
Seller's insurance policies prior to the Closing. Seller additionally agrees to
cooperate with Buyer to allow Buyer, Grande or the Partnership to obtain, at
Buyer's expense, at a reasonable market price an additional reporting period
policy for any of Seller's insurance policies which are on a claims-made basis.
(f) Operations.
(i) Except for operations covered by committed
expenditures listed on Schedule 9.2(f), the
Partnership shall not propose or conduct for its own
account any operation. The Partnership shall have the
right to conduct, at its sole election and
discretion, any operations that either (1) are
covered by committed expenditures listed on Schedule
9.2(f), (2) are required by law or regulations, or
(3) are required under a binding existing agreement
with a third party.
(ii) Except for operations covered by committed
expenditures listed on Schedule 9.2(f), the
Partnership shall not agree to participate in any
reworking, deepening, drilling, completion,
recompletion, equipping or other operation
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that is proposed by a co-owner in any well or other
asset, without Seller having first provided Buyer
written or oral notice thereof as soon as reasonably
practicable after the Partnership receives notice
thereof from the Partnership's co-owner in such
Operating Asset. If Seller provides Buyer with such
notice, Buyer and Seller shall promptly consult about
the advisability of participating in such operations.
If Buyer and Seller cannot agree, the following
provisions shall apply:
(1) If Seller should wish to participate in an
operation proposed by a third party and Buyer should
object to the operation, then the Partnership may
agree to participate, but Buyer may assert a Title
Defect with respect to the Property affected by such
operation, and in such event such Property shall be
excluded from the sale hereunder and instead shall be
assigned to another subsidiary of Seller prior to
Closing and the Purchase Price shall be reduced by
the Allocated Value of the affected Property. In such
event, Seller shall indemnify and defend Buyer
against any and all Damages relating to such
operation and such Property.
(2) If Buyer should wish to participate in such
operation and Seller objects to the operation, the
Partnership shall not be obligated to make any such
payment or to elect to participate in such operation
unless within a reasonable time prior to the date
when such payment or election is required to be made
by the Partnership, the Partnership receives from
Buyer, (A) the written election and agreement of
Buyer to require the Partnership to take such action
and to indemnify Seller therefrom and (B) all funds
necessary for such action.
(3) If (A) Buyer advances any funds pursuant to
subparagraph (2), and (B) the Membership Interests
are not assigned to Buyer at Closing, and (C) Seller
does not reimburse Buyer for all advances made by
Buyer with respect to such Operating Assets pursuant
to subparagraph (2) within thirty (30) days after
this Agreement terminates, then Buyer shall own and
be entitled to any right of the Partnership that
would have lapsed but for such payment, and in the
case of operations, Seller shall be entitled to
receive the penalty which the Partnership, as
non-consenting party, would have suffered under the
applicable operating agreement with respect to such
operations as if Buyer were a consenting party
thereunder.
(g) Data Restrictions. Seller shall advise Buyer in writing of the
identity, nature and existence of any technical or interpretive information or
data that cannot be assigned to Buyer hereunder because of confidentiality
agreements with third parties, identify such third parties, and provide
reasonable cooperation (for before and up to one year after Closing) in
obtaining the agreement of such third parties to the release or assignment of
such information and data to Buyer; provided however, that Seller shall not be
required to expend any material funds or release any rights to allow such
release or assignment.
(h) Operating Assets Operated by Others. To the extent the Partnership
is not the operator of any Operating Asset, the obligations of Seller in this
Section 9.2, which have reference
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to operations or activities which normally are or pursuant to existing contracts
are to be carried out or performed by operator, shall be construed to require
only that the Partnership use reasonable efforts to request that the operator of
such Operating Asset either take such actions, render such performance or
refrain from performance, within the constraints of the applicable operating
agreements, applicable agreements and applicable law.
9.3 SELLER'S COVENANTS REGARDING ENCUMBRANCES. Seller covenants that on
or before the Closing Date, Seller shall cause the Encumbrances in Schedule 1B
to be released, in a form reasonably acceptable to Buyer.
9.4 COVENANTS REGARDING CORPORATE AND FINANCIAL MATTERS. Through the
Closing Date, except as set forth in Schedule 9.4 or as contemplated by this
Agreement (including without limitation Sections 2.5 and 2.6) or otherwise
consented to or approved by Buyer in writing, which consent or approval shall
not be unreasonably withheld, Seller shall cause Grande and the Partnership not
to:
(a) Amend the Charter, Bylaws, management agreement, limited liability
company agreement or operating agreement of any Grande or amend the partnership
agreement of the Partnership;
(b) Incur, assume or become subject to any additional indebtedness for
money borrowed or purchase money indebtedness, except in the ordinary course of
business and consistent with past practices;
(c) Except as necessary to effect the transactions contemplated herein,
declare or pay any dividend or make any other distribution to any shareholder of
any of Grande or any partner of the Partnership;
(d) Redeem or otherwise acquire any shares of capital stock of any of
Grande or issue any capital stock of any Grande or any option, warrant or right
relating thereto or any securities exchangeable for or convertible into any such
shares;
(e) Permit or allow any of Grande' assets or properties to be subject
to any additional Encumbrance (other than Permitted Encumbrances) or sell,
transfer, lease or otherwise dispose of any such assets or properties, other
than surplus equipment not necessary for operations of the Business and sold for
a reasonable consideration of less than $25,000;
(f) Make any change in any method of accounting or accounting practice
or policy, other than those required by GAAP;
(g) Engage in any transactions with an Affiliate of Seller, other than
transactions in the ordinary course and consistent with past practices;
(h) Make any changes in the method of selling natural gas, condensate,
oil or products thereof which is not consistent with past practices;
(i) Enter into any new derivative or Hedging Contracts with respect to
natural gas, condensate, oil, products thereof, interest or any other
commodities or other financial instruments; or
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(j) Agree, whether in writing or otherwise, to do any of the foregoing.
9.5 NO SOLICITATION OF TRANSACTIONS. Except as otherwise permitted
herein from the date of this Agreement through the Closing Date, neither Seller
nor any of their representatives, Affiliates, directors, officers, employees,
subsidiaries or agents will (a) solicit, consider, encourage or accept any other
offers to acquire any of the Membership Interests or Seller's interests in the
Partnership or (b) solicit, consider, encourage or accept any other offers to
acquire any of the assets or properties of the Partnership (other than as
permitted by this Agreement) or (c) assist any third Person in preparing or
soliciting such an offer. Seller shall not have, and shall cause such
representatives, Affiliates, directors, officers, employees, subsidiaries and
agents not to have any discussions, conversations, negotiations or other
communication with any Person(s) expressing an interest in any such offer.
9.6 EMERGENCIES AND OVERSIGHTS. Notwithstanding the other provisions of
this Article IX, (a) Seller, Grande and/or the Partnership may take any action
with respect to the Operating Assets without penalty, if reasonably necessary
under emergency circumstances or if required to protect life, public safety or
the environment, and provided Buyer is notified as soon thereafter as reasonably
practical, and (b) Seller shall have no liability to Buyer for the loss or
reduction of any rights or interests by reason of the nonpayment or incorrect
payment of delay rentals, royalties, shut-in royalties or similar payments or
for any failure to pay any such payments through mistake or oversight; provided,
however, Buyer shall be permitted to assert the items in this clause (b) as
Title Defects under Article VI.
9.7 BUYER'S COVENANTS REGARDING PERFORMANCE AND CONTINUED EXISTENCE.
Buyer covenants that between the date of this Agreement and the Closing Date:
(a) Buyer shall take all steps and perform all operations reasonably
necessary to allow Buyer to perform its obligations at Closing;
(b) Buyer shall maintain its existence as a limited liability company
in good standing in Delaware; and
(c) Buyer shall cause the representations and warranties of Buyer to be
true and correct as of the Closing Date.
9.8 BUYER'S COVENANTS REGARDING TRADE NAME. Buyer acknowledges and
agrees with Seller that Seller shall have the absolute and exclusive proprietary
right to all names, marks, trade names, trademarks and corporate symbols and
logos incorporating "Tesoro," together with all other names, marks, trade names,
trademarks and corporate symbols and logos owned by any Affiliates of Seller
(collectively, the "Tesoro Marks"), all rights to which and the goodwill
represented thereby and pertaining thereto are being retained by Seller and the
Affiliates of Seller. Within ninety (90) days after the Closing Date, Buyer
shall change the name of Grande and the Partnership, to not include the name
"Tesoro", cease using any Tesoro Mark and shall promptly remove from all the
assets and properties of Grande any and all Tesoro Marks, and change the name on
all permits and licenses, to not include the name "Tesoro". Thereafter, Buyer
shall not use any Tesoro Mark in connection with the conduct of its business. In
the event that Buyer breaches this Section 9.8, Seller shall be entitled to
specific performance of this Section 9.8 and to injunctive relief against
further violations, as well as any other remedies available at law or in equity.
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9.9 BUYER'S COVENANTS REGARDING EMPLOYMENT.
(a) Schedule 9.9(a) sets forth the employees of Seller or its
Affiliates to whom Buyer (or an Affiliate of Buyer) expects to offer employment
after the Closing. Buyer in its sole discretion will determine the capacity in
which the employees listed on Schedule 9.9(a) who accept employment with Buyer
or its Affiliate (the "Retained Employees") will be employed and with which
entity each of the Retained Employees will be employed after the Closing. After
the Closing, Buyer (or its Affiliates which will employ Retained Employees) will
initially provide to the Retained Employees the same base salary or wages (but
not any retention-related salary increases described in Schedule 9.9(c))
provided to such employees prior to the Closing, subject to such changes in base
salary or wages as are consistent with the Buyer's compensation structure. Buyer
will take all actions necessary or appropriate to permit the Retained Employees
to participate from and after the Closing in the employee benefit plans or
arrangements of Buyer and/or Affiliates of Buyer customarily provided to new
employees of Buyer and its Affiliates (including, without limitation, the
Employee Stability Plan); provided that Buyer shall, with respect to Buyer's or
its Affiliate's group health and dental plans ("Buyer's Group Health Plans"), to
the extent necessary after the Closing, (i) reimburse such Retained Employees,
for the year during which participation in Buyer's Group Health Plan begins, for
any duplicate deductibles and copayments already incurred during such year under
the group health and dental plans of Seller or its Affiliates ("Seller's Group
Health Plans"), and (ii) waive any preexisting condition limitations applicable
to the Retained Employees (and their eligible dependents) under Buyer's Group
Health Plans to the extent that a Retained Employee's (or dependent's) condition
would not have operated as a preexisting condition under Seller's Group Health
Plans.
(b) Buyer (and its Affiliates) will not be required to assume any
obligation to Retained Employees (or any other employees of Seller or its
Affiliates) under Seller's existing severance, retention or management stability
agreements, or similar agreements. As described in Section 9.9(a), from and
after the Closing, the Retained Employees will be permitted to participate in
the employee benefit plans or arrangements of Buyer and/or its Affiliates
customarily provided to new employees of Buyer and its Affiliates (including,
without limitation, the Employee Stability Plan), or other benefits as may be
individually negotiated between Buyer and a Retained Employee.
(c) Buyer (or its Affiliate) will assume half, and Seller and its
Affiliates will remain responsible for half, of the liability to all Retained
Employees for the annual incentive compensation bonuses described on Schedule
9.9(c). Buyer (or its Affiliate) will not assume the liability to certain
Retained Employees for the retention-related salary payment.
(d) Any obligations to employees of Seller and its Affiliates not
specifically assumed by Buyer (or its Affiliates) in this Section 9.9, including
without limitation all such obligations accrued prior to the Closing, will be
the responsibility of the Seller, and Seller will indemnify Buyer with respect
to those obligations.
(e) Buyer agrees to open an office in San Antonio, Texas and to
maintain such office for so long as prudent business practices justify its
operation.
(f) If after the Closing Date, Seller or any of its Affiliates
continues to employ any individual listed on Schedule 9.9(a), Seller agrees to
cooperate with Buyer to make such individual available to provide services
required by Buyer for up to six months after the Closing Date for
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transition purposes, with Buyer reimbursing Seller for the actual cost of such
employee's services (including without limitation, salary and benefits).
9.10 AUTHORIZATIONS.
(a) Each of Buyer and Seller, as promptly as practicable after the
Agreement Date, shall (i) deliver, or cause to be delivered, all notices and
make, or cause to be made, all such declarations, designations, registrations,
filings and submissions under all statutes, laws, regulations and Governmental
Orders applicable to it as may be required for it to consummate the sale of the
Membership Interests and the other transactions contemplated hereby in
accordance with the terms of this Agreement; (ii) use commercially reasonable
efforts to obtain, or cause to be obtained, all authorizations, approvals,
orders, consents and waivers from all Persons necessary to consummate the
foregoing; and (iii) use commercially reasonable efforts to take, or cause to be
taken, all other actions necessary, proper or advisable in order for it to
fulfill its respective obligations hereunder and to carry out the intentions of
the parties expressed herein. The preceding sentence notwithstanding, neither
party shall have any obligation to waive any condition herein for its benefit or
any performance hereunder by any other party.
(b) Each Party shall use its commercially reasonable efforts to satisfy
the conditions to Closing applicable to it in Article XI as soon as commercially
practicable.
9.11 SOFTWARE AND COMPUTER PROGRAMS. From the date of this Agreement
through the date which is ninety (90) days after the Closing Date, each Seller,
Grande and the Partnership, as applicable, agree to engage in discussions with
the licensors of applicable software and computer programs and seismic data and
processing identified in a written notice provided to Seller by Buyer on or
prior to the Closing Date, the purpose of which discussions shall be to assist
Buyer in its efforts to obtain a license with respect to such software and/or
computer programs and seismic data and processing with terms acceptable to
Buyer. Buyer will pay all fees (including fees agreed to as part of a
settlement) required to transfer or retain such records, programs and data that
Buyer chooses to retain after Closing.
9.12 GENERAL.
(a) Each of the Parties will use their reasonable best efforts to take
all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Article
XI).
(b) Buyer agrees to cooperate at no cost or liability to Buyer with
Seller so that Seller's transfer of the Operating Assets to Buyer shall, at
Seller's election, be accomplished in a manner enabling the transfer to qualify
as a part of a like-kind exchange of property by Seller within the meaning of
Section 1031 of the Code. If Seller so elects, Buyer shall reasonably cooperate
with Seller to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller reasonably requests in order
to pay the Purchase Price in a manner which enables such transfer to qualify as
part of a like-kind exchange of property within the meaning of Section 1031 of
the Code, and Buyer agrees that Seller may assign its rights (but not its
obligations) under this Agreement to an escrow agent acting as a qualified
intermediary under United States Treasury Regulations, to qualify the transfer
of the Purchase Price as a part of a like-kind exchange of property within the
meaning of Section 1031 of the Code.
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(c) Seller shall reimburse Buyer for Buyer's reasonable costs and
expenses incurred in connection with evaluating and implementing the like kind
exchange transaction, including without limitation, legal and accounting fees
incurred in connection with evaluating and implementing the like kind exchange
transaction and revising this Agreement. Seller shall reimburse Buyer in cash
for such costs and expenses within ten (10) days after receiving a notice from
Buyer describing such costs and expenses in reasonable detail, and requesting
payment.
(d) If prior to Closing Buyer elects to obtain financing for a portion
of the Purchase Price from a bank or other lender (the "Lender") (whether
through conventional loans or through a production payment or similar
off-balance sheet financing mechanism), Seller shall (and shall cause Grande and
the Partnership to) cooperate reasonably with Buyer in Buyer's negotiation and
finalization of any loan or other documents with the Lender, provided that such
cooperation does not result in Seller, Grande and the Partnership incurring
material additional expenses. Seller shall (and shall cause Grande and the
Partnership to) use its commercially reasonable efforts to give representatives
of the Lender the access to information and right to inspection provided to
Buyer under Article V, subject to the Lender agreeing to be bound by the terms
of the Confidentiality Agreement. This Section 9.12(c) does not change or modify
Buyer's obligation to close the Transactions in accordance with the other
provisions of this Agreement.
9.13 COVENANT AND INDEMNITY WITH RESPECT TO CASH FLOW. Seller covenants
to use its best efforts to insure that after the Closing all cash, checks, wire
transfers and other cash flow attributable to the Operating Assets received by
Seller or any Affiliate of Seller will be transferred on or before the next
Business Day after such cash flow is received by Seller or such Affiliate of
Seller to an account designated by Buyer prior to the Closing (such that the
transfer is recorded by the transferring bank on or before the next Business Day
after such cash flow is received by Seller or an Affiliate of Seller). To the
extent Seller does not make the transfer required by this Section 9.13 on or
before the next Business Day after receipt of such cash flow, Seller agrees to
pay to Buyer (a) interest at the prime rate of Buyer's primary lender (accruing
from the second Business Day after receipt by Seller of such cash flow) on any
such cash flow remaining outstanding for the second and third Business Day after
receiving such funds and (b) the maximum interest allowable by Applicable Law on
any such cash flow remaining outstanding thereafter. Seller agrees to indemnify
and hold the Buyer Group harmless for any Damages asserted against, resulting
to, imposed upon or incurred by the Buyer Group arising from any failure by
Seller to transfer any amounts that, together with any other amounts not
transferred pursuant to this Section 9.13, aggregate greater than $1 million and
that Seller has not transferred within one Business Day after written notice by
Buyer is received by Seller. Buyer and Seller agree to cooperate in identifying
amounts that may need to be transferred by Seller to Buyer under this Section
9.13.
ARTICLE X.
PRE-CLOSING PROCEDURES
10.1 INITIAL SETTLEMENT STATEMENT. Before Closing, Seller shall furnish
Buyer with a preliminary draft of the Settlement Statement, in accordance with
Section 13.1. Buyer shall have the right to audit and request appropriate
adjustments to the amounts reflected therein. Buyer shall furnish Seller with
any comments, and adjustments or revisions Buyer believes are appropriate to
conform the Settlement Statement to accurately reflect the best information
available at Closing, and
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the Parties shall endeavor in good faith to reconcile the accounting issues and
to produce as accurate a Settlement Statement as possible based upon the
information available at Closing. Seller shall then furnish Buyer with the
Settlement Statement, including any appropriate updates, adjustments or
revisions, showing the Closing Settlement Price.
10.2 CLOSING DOCUMENTS. Before Closing, the Parties shall provide each
other with preliminary drafts of all attorneys opinions, certificates, corporate
guarantees, assignments and other instruments to be delivered at Closing. The
Parties shall thereafter cooperate to make such revisions as are needed to
prepare mutually acceptable forms of all such instruments.
10.3 ESCROW AGENT. If the Parties should agree to place any funds into
an escrow account at Closing, then they shall negotiate in good faith to select
a mutually acceptable escrow agent, who is willing and able to perform such
role. In such an before the Closing Date, the Parties shall agree upon an escrow
agent, and they shall use their best efforts to negotiate a mutually acceptable
Escrow Agreement before the Closing Date.
10.4 QUALIFIED INTERMEDIARY. Seller will assign to the Qualified
Intermediary all of Seller's rights in the proceeds of this Agreement. All
proceeds owed Seller for the sale under the Stock Purchase Agreement and,
subject to Section 21.4, this Agreement shall then be paid to the Qualified
Intermediary.
10.5 WIRE TRANSFER INSTRUCTIONS. At least two (2) Business Days prior
to the Closing Date, Seller shall provide to Buyer wire transfer instructions
designating a bank account and Federal Reserve ABA designation ID number, at a
bank within the United States of America where the Closing Settlement Price
shall be paid to the Qualified Intermediary.
ARTICLE XI.
CLOSING CONDITIONS
11.1 SELLER'S CLOSING CONDITIONS. Seller's obligation to consummate the
Transaction is subject to the satisfaction by Buyer or the waiver by Seller, at
or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Buyer
contained in Section 4.2 shall be true and correct in all material respects on
the Closing Date as though made on and as of that date.
(b) Performance. Buyer shall have performed in all material respects
the obligations, covenants and agreements hereunder to be performed by it at or
prior to Closing.
(c) Corporate Certificates and Opinion. Buyer shall have delivered to
Seller (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of Buyer that the representations set forth in Section 4.2
are true and correct as of the Closing Date; (ii) a certificate of incumbency;
(iii) a certificate of good standing of Buyer as a limited liability company;
(iv) certified resolutions of the members of Buyer, authorizing Buyer to enter
into this Agreement and the Transaction and to perform its obligations at
Closing; and (v) an opinion of counsel for Buyer, acceptable to Seller, dated
the Closing Date, as to such matters as may reasonably be requested by Seller
and its counsel and are typical for transactions such as the Transaction.
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(d) Pending Matters. No suit, action or other legal proceeding by a
third party or a governmental authority shall be pending which seeks material
damages from Seller in connection with, or seeks to restrain, enjoin or
otherwise prohibit, the consummation of the Transaction.
(e) No Orders. This Closing hereunder shall not violate any order or
decree of any governmental authority having competent jurisdiction over the
Transaction.
(f) HSR. Any applicable waiting period under the HSR Act shall have
expired or been terminated.
11.2 BUYER'S CLOSING CONDITIONS. Buyer's obligations to consummate the
Transaction is subject to the satisfaction by Seller or the waiver by Buyer, at
or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Seller
contained in Section 4.1 (other than with respect to paragraphs (u), (w), (x),
(y), (z) and (aa) of Section 4.1) shall be true and correct in all material
respects on the Closing Date as though made on and as of that date; provided,
however, that the accuracy of the representations and warranties in
subparagraphs (k)(i), (ix), (x), (xi), (xii) and (xiii) of Section 4.1 shall,
for purposes of satisfying this condition, not be affected to the extent of
inaccuracies resulting solely from Buyer unreasonably withholding its prior
written consent (after written request by Seller duly provided to Buyer) to the
action taken by (or omission of) Seller, Grande or the Partnership which caused
such representations and warranties to be inaccurate.
(b) Performance. Seller shall have performed, or caused to be
performed, in all material respects the obligations, covenants and agreements
hereunder to be performed by it, Grande and the Partnership at or prior to
Closing.
(c) LLC Certificates and Opinion. Each Seller shall have delivered to
Buyer, and Seller shall cause Grande and the Partnership to deliver to Buyer:
(i) a certificate of an executive officer, dated the Closing Date, certifying on
behalf of such Seller that the representations made in Section 4.1, are true and
correct as of the Closing Date; (ii) a certificate of incumbency for each
Seller, (iii) a certificate of corporate good standing for the Partnership as a
Delaware limited partnership, for each Seller as Delaware corporations and for
Grande as a Delaware limited liability company; (iv) with respect to each Seller
only, certified resolutions of the Boards of Directors of each Seller,
authorizing each Seller to enter into this Agreement and the Transaction and to
perform its obligations at Closing; and (v) an opinion of counsel for the Seller
and each of Grande and the Partnership, acceptable to Buyer, dated the Closing
Date, as to such matters as may reasonably be requested by Buyer and its counsel
and are typical for transactions such as the Transaction.
(d) Other Certificates and Documents. Buyer shall have also received
the certificates and documents described in Section 12.2.
(e) Pending Matters. No suit, action or other legal proceeding by a
third party or a governmental authority shall be pending which seeks material
damages from Buyer in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
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(f) No Orders. The Closing hereunder shall not violate any order or
decree of any governmental authority having competent jurisdiction over the
Transaction.
(g) Adjustments. The reduction (if any) to be made at Closing to the
Purchase Price which results from the application of Articles VIII and XIII does
not exceed fifteen percent (15%) of the Purchase Price.
(h) Liens and Mortgages. Seller shall have secured release of all liens
and mortgages listed on Schedule 1B and released all obligations of Grande and
the Partnerships under the Seller's credit facility and provided Buyer evidence
of the same.
(i) There shall not have occurred a Material Adverse Effect.
(j) HSR. Any applicable waiting period under the HSR Act shall have
expired or been terminated.
(k) Seller shall have delivered proof, acceptable to Buyer in its
reasonable discretion, of the effectiveness of a post-effective amendment to
Seller's Registration Statement on Form S-3 (Reg. No. 333-51789), as amended,
removing any entities being transferred hereunder as co-registrants under such
registration statement.
ARTICLE XII.
CLOSING
12.1 CLOSING. The closing of the Transaction (the "Closing") shall be
held on December 17, 1999 (the "Closing Date"), at 9:00 a.m. Houston time, at
the office of Seller's counsel, 1301 McKinney, Suite 5100, Houston, Texas 77010,
or at such other date or place as the parties may direct; provided, however,
that if all conditions to Closing set forth in Article XI have not been waived
or satisfied prior to December 17, 1999, the Closing Date shall be on the second
Business Day following the waiver or satisfaction of such conditions.
12.2 SELLER'S CLOSING OBLIGATIONS. At Closing, Seller shall deliver to
Buyer the following:
(a) The certificates representing Membership Interests in Grande, duly
endorsed in blank or with separate duly executed powers duly endorsed in blank;
(b) All organizational documents and books and records of each of
Grande, Reserves LLC and Exploration LLC;
(c) All books and records of the Partnership;
(d) The resignations of the officers and directors of Grande;
(e) Such other documents or authorizations as Buyer may reasonably
request, or as might be reasonably necessary to assign all of Seller's interest
in Grande, the Partnership and the Operating Assets to Buyer in accordance with
the provisions hereof;
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(f) Instruments assigning Seller's rights under this Agreement to the
Qualified Intermediary;
(g) A certificate of each Seller signed under penalties of perjury (i)
stating that it is not a foreign corporation, foreign partnership, foreign trust
or foreign estate, (ii) providing its U.S. Employer Identification Number (if
applicable) and (iii) providing its address, all pursuant to Section 1445 of the
Code.
(h) The certificates of Seller referred to in Section 11.2(c) hereof;
(i) The opinion of counsel referred to in Section 11.2(c) hereof; and
(j) Releases, in a form acceptable to Buyer, of all liens and mortgages
listed on Schedule 1B.
12.3 BUYER'S CLOSING OBLIGATIONS. At Closing, Buyer shall deliver the
following:
(a) The Closing Settlement Price, paid to the Qualified Intermediary in
immediately available funds, by wire transfer into the U.S. bank account
designated by the Qualified Intermediary;
(b) The certificates of Buyer referred to in Section 11.1(c) hereof;
and
(c) The opinions of counsel referred to in Section 11.1(c) hereof.
12.4 GOVERNMENTAL FILINGS. At Closing, the Parties shall execute such
guarantees, bonds, forms and other instruments as are needed allow Buyer to
assume all of Seller's existing obligations under governmental permits and
licenses and leases affecting the Operating Assets. Buyer shall diligently file
such instruments and obtain governmental approval of the transfer of all such
rights, obligations and interests.
ARTICLE XIII.
ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS
13.1 SETTLEMENT STATEMENTS.
(a) Pre-Closing. The Settlement Statement is attached hereto as Exhibit
D.
(b) Final Statement. As soon as practicable after the Closing Date, but
in no event later than one hundred twenty (120) days thereafter, Buyer shall
prepare and submit to Seller a draft Final Statement, which shall show the
calculation of the adjusted Final Settlement Price, based upon the best
information then available. Seller shall have the right to audit such Final
Statement and all supporting data and accountings. As soon as practicable after
receipt of the Final Statement, but in any event within thirty (30) days after
receipt thereof, Seller shall deliver to Buyer a written report containing the
changes, if any, which Seller proposes be made to the Final Statement. If no
response is made by Seller within such thirty (30) day period, it shall be
presumed that Seller concurs with the Final Statement, and such Final Statement
shall be the basis for the Final Settlement Price. If Seller submits a response,
the Parties shall cooperate in good faith to produce not later than one hundred
eighty (180) days after the Closing Date as accurate a Settlement Statement as
possible
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based upon the information then available. After agreement upon a Final
Statement setting forth the Final Settlement Price, the difference between such
Final Settlement Price and the Closing Settlement Price paid at Closing shall be
paid within five (5) Business Days thereafter by the Party owing the same.
13.2 OPERATING TAXES.
(a) Apportionment of Ad Valorem and Property Taxes. All ad valorem,
real property taxes and personal property taxes, including interest and
penalties attributable thereto (hereinafter "Property Taxes"), attributable to
Grande's limited partnership interest in the Partnership's ownership and
operation of the Properties with respect to the assessment period ("Property Tax
Period") during which the Effective Time occurs shall be apportioned between
Seller and Buyer by multiplying the total amount of such Property Taxes by a
fraction, the numerator of which is the number of days in the partial period
through and including the Effective Time and the denominator of which is the
total number of days in the Property Tax Period. The Partnership shall file or
cause to be filed all required reports and returns incident to the Property
Taxes and shall pay or cause to be paid to the taxing authorities all Property
Taxes relating to the Property Tax Period during which the Effective Time
occurs. If Seller is the owner of Grande on the Property Tax assessment date,
then the Settlement Price shall be increased by the amount of Buyer's portion of
Property Taxes owed as set forth above. If the Property Tax assessment date
occurs after Closing, then the Settlement Price shall be reduced by the
estimated amount of Seller's portion of Property Taxes owed as set forth above.
The allocation and payment of ad valorem taxes shall be handled through
adjustments to the Settlement Price.
(b) Other Operating Taxes. With the exception of Income Taxes, all
other federal, state, foreign and local Taxes (including interest and penalties
attributable thereto) on the ownership or operation of the Operating Assets
which are imposed upon Grande or the Partnership for periods or portions of
periods prior to the Effective Time shall be borne by Seller, and all such Taxes
imposed upon the Partnership for periods or portions of periods beginning on or
after the Effective Time shall be borne by Buyer. Such Taxes shall be
apportioned between Seller and Buyer for the period or portion thereof up to and
including the Effective Time, (i) in the case of a flat minimum dollar amount of
tax, by multiplying the total amount of such Taxes by a fraction, the numerator
of which is the number of days in the partial period through and including the
Effective Time and the denominator of which is the total number of days in such
tax period, and (ii) in the case of all other operating Taxes, on the basis of
actual activities creating such Tax liability of Grande and the Partnership for
the partial period through and including the Effective Time as are determined
from their respective Books and Records. To the extent any such amounts are
borne prior to the delivery of the Final Statement by a Party who is not
required to bear them hereunder, they shall be included in the adjustments to
the Settlement Price. The allocation and payment of these Taxes shall be handled
through adjustments to the Settlement Price.
13.3 SHARED OBLIGATIONS. If an invoice or other evidence of an
obligation is received which under the terms of this Article XIII is partially
the obligation of Seller and partially the obligation of Buyer, then the parties
shall consult with each other, the Partnership shall promptly pay such
obligation to the obligee, and Seller shall promptly reimburse Buyer for
Seller's portion so paid.
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13.4 UNCOLLECTIBLE ACCOUNTS RECEIVABLE. Buyer (and, prior to the
Closing, Seller) shall cause Grande and the Partnership to use commercially
reasonable efforts to collect in full, consistent with the past practices of the
Business, all accounts receivable of the Business (the "Accounts Receivable").
If the Accounts Receivable outstanding at the Closing shall not have been fully
collected within 120 days following the Closing Date in an amount equal to the
outstanding unpaid amounts thereof at the Closing, Buyer may require the Seller
to purchase any Accounts Receivable that have not been so fully collected at a
purchase price equal to the original outstanding amount of such Accounts
Receivable at the Closing less net collections thereon from the Closing Date to
the repurchase date; provided, however, that the Seller shall be required to
repurchase such unpaid Accounts Receivable only to the extent that the aggregate
amount of such unpaid Accounts Receivable exceeds the allowance for doubtful
accounts deducted from accounts receivable set forth on the Balance Sheets, and
if such an excess exists, the Seller shall only be required to pay an amount for
such unpaid Accounts Receivable equal to such excess; provided, further, during
such 120-day period, that Buyer may not settle or compromise any Accounts
Receivable without the prior written consent of Seller. As a condition to any
such repurchase, Buyer shall reconvey to the Seller the unpaid Accounts
Receivable to be repurchased and shall provide Seller with sufficient detail
regarding such Accounts Receivable. Buyer shall not transfer or convey such
Accounts Receivable to any other Person. Payment for the repurchase of any
Accounts Receivable shall be made within ten (10) days following the transfer
thereof to Seller. Buyer shall provide to the Seller any documents or
information reasonably requested by the Seller in connection with the Seller's
collection of any Accounts Receivable repurchased from Buyer.
ARTICLE XIV.
POST-CLOSING PROCEDURES
14.1 DELIVERY OF FILES. Within ten (10) days after Closing, Buyer
shall, at Buyer's expense, take delivery at Seller's present offices in San
Antonio, Texas of all of the Partnership's and Grande's original land, lease,
revenue and cost accounting, geologic, geophysical, engineering and well files,
data and materials which relate to the Operating Assets. Applicable legal and
litigation files shall be delivered by Seller to Buyer at Seller's present
office location in San Antonio, Texas, subject to the Parties and their
attorneys making mutually acceptable arrangements for preserving the privileged
and confidential nature of protected information. Seller may retain copies of
its accounting and legal files, data and information, as might be needed by
Seller, and Seller shall retain all originals of insurance policies covering
periods prior to the Effective Time. Subject to the License Agreement, Seller
shall not retain originals or copies of any seismic, geological, geophysical or
engineering files, materials, data or interpretations thereof concerning the
Operating Assets sold hereunder, without Buyer's prior written consent; provided
however, that Seller shall not be required to deliver to Buyer, nor shall Buyer
be required to accept delivery of any such data or materials which either Party
reasonably believes to be subject to confidentiality agreements with third
parties that would prevent Buyer from obtaining such data or expose either Party
to a claim for material damages if Buyer were to receive such data or materials.
Notwithstanding the above, Seller shall be permitted to retain original tax and
financial accounting records for the period prior to the Closing, copies of
which will be delivered to Buyer.
14.2 THIRD PARTY DATA. To the extent not obtained or satisfied as of
Closing, Seller agrees to continue to use reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to obtain for Buyer, the Partnership and
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Grande (i) access to files, records and data relating to the Operating Assets in
the possession of third parties; (ii) access to wells constituting a part of the
Operating Assets operated by third parties for purposes of inspecting same; and
(iii) the waiver of confidentiality or other restrictions on the review by
and/or transfer of seismic, geophysical, engineering or other data pertaining to
the Operating Assets that might be triggered by Seller's assignment to Buyer of
the Partnership and Grande.
14.3 COOPERATION. After the Closing, each Party shall provide the other
Party with reasonable access to all relevant documents, data and other
information (other than that which is subject to any attorney-client privilege)
which may be required by the other Party for the purpose of financial reporting,
preparing tax returns, filing refund claims, responding to any audit by any
taxing jurisdiction or replying to any third party or governmental claim or
demand concerning the Partnership, Grande or the Operating Assets. Each Party
shall cooperate with all reasonable requests of the other Party made in
connection with contesting the imposition of Taxes. Notwithstanding anything to
the contrary in this Agreement, neither Party shall be required at any time to
disclose to the other Party any Tax Return or other confidential information,
except for Tax Returns concerning Taxes of the Partnership and Grande. Except
where disclosure is required by applicable law or judicial order, any
information obtained by a Party pursuant to this Section 14.3 shall be kept
confidential by such Party, except to the extent disclosure is required in
connection with the filing of any Tax Returns or claims for refunds or in
connection with the conduct of an audit, or other proceedings in response to an
audit, by a taxing jurisdiction, or otherwise required by law or binding
judicial order.
14.4 PREFERENTIAL RIGHTS TO PURCHASE AND CONSENTS TO ASSIGNMENT. Before
Closing and for up to one year after Closing, the Parties shall continue to
provide reasonable cooperation in obtaining all required Consents to Assignment
and in complying with all enforceable Preferential Rights to Purchase that
remain in force after Closing. Buyer shall be primarily responsible for handling
such matters, shall assume all risks and liabilities in connection with the
rights of the holders thereof, and shall release, indemnify and defend Seller
against any claims, damages, suits, demands or other liabilities associated with
any Consents to Assignment or Preferential Rights to Purchase.
14.5 FILING AND RECORDING OF DOCUMENTS. Buyer shall promptly file all
appropriate forms, declarations or bonds with governmental agencies relative to
its assumption of ownership of Grande, and Seller shall cooperate with Buyer in
connection with such filings. Seller shall not be responsible for any loss to
Buyer because of Buyer's failure to file or record documents correctly or
promptly.
14.6 FURTHER ASSURANCES. After Closing, each of the Parties will
execute, acknowledge and deliver to the other such further instruments, and take
such other action, as may be reasonably requested in order to more effectively
assure to each Party all of the respective properties, rights, titles,
interests, estates, and privileges intended to be assigned, delivered or to
inure to the benefit of such Party in consummation of the Transaction.
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14.7 INCIDENTAL COSTS. Each party shall bear its own respective
expenses incurred in connection with the Closing of the Transaction, including
its own consultants' fees, attorney's fees, accountants' fees, and other similar
costs and expenses.
ARTICLE XV.
SURVIVAL; INDEMNITIES
15.1 SURVIVAL. All representations, warranties or covenants made
herein, except for those in Sections 4.1(a), 4.1(e), 4.1(f), 4.1(g), 4.1(i),
4.1(k), 4.1(l), 4.1(m), 4.1(n), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w), 4.1(x),
4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets only),
4.2(e), 4.2(i), Sections 7.1, 7.2, 7.4, 8.3, 9.1, 9.2(e), 9.9(d), 9.12(b),
9.12(c) and 9.13 and Articles XV, XVI, XVII and XXI, shall survive for two years
from the Closing Date. The representations and warranties or covenants made in
Sections 4.1(a), 4.1(g), 4.1(k), 4.1(l), 4.1(m), 4.1(o), 4.1(q), 4.1(u), 4.1(v),
4.1(w), 4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating
Assets only) and Section 9.1 shall not survive Closing and shall automatically
expire upon Closing. The representations, releases, covenants, indemnities,
defenses and hold harmless obligations and other obligations referenced in
Sections 4.1(e), 4.1(f), 4.1(i), 4.1(n), 4.2(e), 4.2(i), 7.1, 7.2, 7.4, 8.3,
9.2(e), 9.9(d), 9.12(b), 9.12(c) and 9.13 and this Article XV, and all
provisions of Article XVI, Article XVII and Article XXI shall each survive
Closing, and each shall continue to remain fully enforceable in accordance with
its terms.
15.2 BUYER'S INDEMNITY. EXCEPT AS EXPRESSLY AND SPECIFICALLY INDICATED
OTHERWISE IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION SECTIONS 9.9(D) AND
15.3), AFTER THE CLOSING DATE, BUYER SHALL AND HEREBY DOES RELEASE, DEFEND,
INDEMNIFY, SAVE, AND HOLD HARMLESS SELLER AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS, AGAINST ANY
AND ALL DAMAGES WHICH ARISE OUT OF OR IN CONNECTION WITH THE OWNERSHIP OF,
OPERATION OF, PRODUCTION FROM OR ACCOUNTING BY, INCOME OF OR PAYMENTS BY THE
PARTNERSHIP, GRANDE OR THE OPERATING ASSETS, AT ANY TIME EITHER BEFORE OR AFTER
THE EFFECTIVE TIME, OR WHICH ARISE OUT OF ANY ENVIRONMENTAL CONDITION OR OTHER
HAZARDOUS CONDITION RELATING TO OR AFFECTING ANY OPERATING ASSET AT ANY TIME
EITHER BEFORE OR AFTER THE EFFECTIVE TIME, INCLUDING WITHOUT LIMITATION, ALL
SUCH COSTS, CLAIMS OR LIABILITIES ARISING OUT OF SELLER'S NEGLIGENCE OR STRICT
LIABILITY.
15.3 SELLER'S INDEMNITY. SUBJECT TO THE TERMS AND CONDITIONS OF THIS
ARTICLE XV, SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS
PARENT OR SUBSIDIARY COMPANIES, PARTNERS AND OTHER AFFILIATES (INCLUDING AFTER
CLOSING, GRANDE AND THE PARTNERSHIP), AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS (HEREINAFTER
COLLECTIVELY REFERRED TO AS THE "BUYER GROUP"), FROM AND AGAINST ANY AND ALL
DAMAGES ASSERTED AGAINST, RESULTING TO, IMPOSED UPON, OR INCURRED BY THE BUYER
GROUP, DIRECTLY OR INDIRECTLY, BY REASON OF OR
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RESULTING FROM OR RELATING TO (I) ANY BREACH BY SELLER (FOR WHICH SELLER SHALL
BE RESPONSIBLE) OF ITS SURVIVING REPRESENTATIONS, WARRANTIES, COVENANTS OR
AGREEMENTS CONTAINED IN THIS AGREEMENT, (II) ANY LIABILITIES OF GRANDE AND THE
PARTNERSHIP WHICH ARE UNRELATED TO THE OPERATING ASSETS, (III) ANY LIABILITIES
OF GRANDE AND GRANDE'S INTEREST IN THE PARTNERSHIP FOR INCOME TAXES PRIOR TO
CLOSING, AND (IV) ANY EXISTING LIABILITIES OF GRANDE AND GRANDE'S INTEREST IN
THE PARTNERSHIP OWED UNDER FEDERAL LEASES FOR PRIOR ROYALTIES RELATED TO THE
PERIOD OF TIME PRIOR TO CLOSING.
15.4 PROCEDURE FOR INDEMNIFICATION.
(a) Any Indemnified Party making a claim for indemnification hereunder
shall notify the indemnifying party or parties of the claim in writing. Subject
to Sections 17.1, 17.2, 17.3 and 17.4, an indemnified party may take any and all
actions against an indemnifying party or parties to enforce its rights to
indemnification under this Agreement.
(b) With respect to third Person claims which are indemnifiable
hereunder, promptly after receipt by an Indemnified Party under Sections 15.2 or
15.3 of notice of the commencement of any action, such Indemnified Party shall,
if a claim in respect thereof is to be made against an Indemnifying Party under
such Section, give written notice to the Indemnifying Party of the commencement
thereof. The failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party of any liability that it may have to an Indemnified Party
with respect to such action, only to the extent the Indemnifying Party is
prejudiced by the failure to be so notified. In case any such action shall be
brought against an Indemnified Party and the Indemnified Party shall give
written notice to the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Party. If the Indemnifying Party elects to
assume the defense of such action, the Indemnified Party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the Indemnifying Party elects not to assume (or fails to assume) the
defense of such action, the Indemnified Party shall be entitled to assume the
defense of such action with counsel of its own choice, at the expense of the
Indemnifying Party. If the action is asserted against both the Indemnifying
Party and the Indemnified Party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the Indemnifying
Party and the Indemnified Party, the Indemnifying Party shall be responsible for
paying for separate counsel for the Indemnified Party; provided, however, that
if there is more than one Indemnified Party, the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the Indemnified Parties, regardless of the number of Indemnified Parties. If the
Indemnifying Party elects to assume the defense of such action, (a) no
compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party's written consent (which shall not be unreasonably
withheld) unless the sole relief provided is monetary damages that are paid in
full by the Indemnifying Party and (b) the Indemnifying Party shall have no
liability with respect to any compromise or settlement thereof effected without
its written consent (which shall not be unreasonably withheld).
15.5 EXCLUSIVITY. The parties hereto agree that, in relation to any
breach, default, or nonperformance of any representation, warranty, covenant, or
agreement made or entered into by
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a party hereto pursuant to this Agreement or any certificate, instrument, or
document delivered pursuant hereto or arising out of the transactions
contemplated herein or the ownership or operation of the Operating Assets, the
only relief and remedy available to the other party hereto in respect of said
breach, default, or nonperformance shall be:
(a) termination, but only if said termination is expressly permitted
under the provisions of Article XX; or
(b) actual damages, but only to the extent properly claimable hereunder
and as limited pursuant to this Article XV or otherwise hereunder; or
(c) specific performance if a court of competent jurisdiction in its
discretion grants the same; or
(d) injunctive or declaratory relief if a court of competent
jurisdiction in its discretion grants the same.
15.6 ASSIGNMENT OF THIRD PERSON INDEMNITIES. To the extent the same are
assignable by an Indemnified Party, such Indemnified Party does hereby assign to
the Indemnifying Party all rights to defense, contribution and indemnity that
the Indemnified Party may hold with respect to the obligations for which the
Indemnifying Party is indemnifying and defending the Indemnified Party
hereunder, and the Indemnifying Party shall be subrogated to assert the
Indemnified Party's rights to such third-party defense, contribution and
indemnity obligations with respect to the indemnified claims or Actions.
ARTICLE XVI.
TAX MATTERS
16.1 INDEMNIFICATION FOR TAXES.
(a) Seller shall be responsible for, and shall indemnify Buyer against,
all (i) Income Taxes imposed on Grande or Grande's interest in Partnership, and
all Liabilities, losses, costs, fines, penalties, damages (actual, punitive or
other), reasonable attorneys' fees, and expenses arising therefrom, relating to
(A) taxable periods or portions thereof ending on or before the Closing Date,
(B) Income Taxes resulting from the application of Treas. Reg. Section 1.1502-6
or any comparable state, local or foreign tax law attributable to Tesoro Parent,
or any corporation or entity which is or has been affiliated with or been part
of a combined, unitary or affiliated group with Tesoro Parent, and (C) the
portion of the Income Taxes for any Straddle Period (as defined in subsection
16.1(e)) allocable to Sellers with respect to either Grande or Grande's interest
in the Partnership under subsection 16.2(e) and (ii) all Other Taxes imposed on
Grande or Grande's interest in the Partnership relating to the taxable periods
or portions thereof ending on or before the Effective Time (allocated as
described in Section 13.3); provided, Sellers shall not be responsible for, and
shall not be required to indemnify Buyer against, any Taxes to the extent that
such Taxes do not exceed the accrued liability for Taxes on the Balance Sheets
which are taken into account in determining the Working Capital.
(b) Buyer shall be responsible for and shall indemnify Sellers against
all (i) Income Taxes imposed upon Grande or Grande's interest in the Partnership
and all Liabilities, losses, costs,
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fines, penalties, damages (actual, punitive, or other), reasonable attorneys'
fees and expenses arising therefrom, relating to (A) taxable periods beginning
after the Closing Date or (B) the portion of the Income Taxes for any Straddle
Period which are allocable to Buyer under subsection 16.2(e), and (ii) except as
provided in Section 13.3 and in this Article XVI, all Other Taxes imposed upon
Grande or Grande's interest in the Partnership and all Liabilities, losses,
costs, fines, penalties, damages (actual, punitive or other), reasonable
attorneys fees and expenses arising therefrom arising in or relating to taxable
periods or portions thereof beginning after the Effective Time (allocated as
described in Section 13.3).
(c) Each Party shall promptly notify the other Party of the
commencement of any demand, claim, audit, examination, Action or other proposed
change or adjustment by any Taxing Authority concerning any Tax which could give
rise to a claim for indemnity pursuant to subsection 16.1(a) or subsection
16.1(b), as the case may be (each a "Tax Claim"). Such notice shall contain
factual information describing the asserted Tax Claim in reasonable detail and
shall include copies of any notice or other document received from any Taxing
Authority in respect of any such asserted Tax Claim.
(d) Seller, at its own expense, shall have the sole right to represent
Grande and the Partnership's interests in any Tax Claim for Taxes for which it
is indemnifying Buyer against and to employ counsel of its choice. Buyer shall
have the right to participate in such Action at its own expense. Seller shall
not consent to any settlement that reasonably would be expected to have an
adverse effect on the Income Taxes of Grande or Grande's interest in the
Partnership in any period after the Closing Date without Buyer's consent, which
consent shall not be unreasonably withheld. Buyer's consent shall in no way
reduce any indemnification due to Buyer under subsection 16.1(a). If Seller
elects to control the defense, compromise or settlement of any Tax Claim, Seller
shall keep Buyer informed of the progress and disposition of such Tax Claim.
Buyer shall handle any other Tax Claims of Grande or Grande's interest in the
Partnership, and Buyer shall be entitled to defend, compromise or settle such
Tax Claims in its sole discretion without in any way reducing its rights to
indemnification under subsection 16.1(a), unless any such settlement would give
rise to a tax claim against Seller, and in such event such settlement shall be
subject to Seller's consent, which shall not be unreasonably withheld.
(e) With respect to any taxable period of Grande or the Partnership
beginning before and ending after the Closing Date (a "Straddle Period"), Buyer
shall control, and Seller, at its own expense, shall have the right to
participate in, the defense and settlement of any Tax Claim and each Party shall
cooperate with the other Party and there shall be no settlement or closing or
other agreement with respect thereto without the consent of the other Party,
which consent shall not be unreasonably withheld; provided, that if either Party
shall refuse (the "Refusing Party") to consent to any settlement, closing or
other agreement agreed to by the relevant Taxing Authority with respect to any
such Tax Claim that the other party (the "Accepting Party") proposed to accept
(a "Proposed Settlement"), then (i) the Accepting Party's Liability with respect
to the subject matter of the Proposed Settlement shall be limited to the amount
that such Liability would have been if the Proposed Settlement had been
accepted, and (ii) the Refusing Party shall be responsible for all Liabilities
and expenses incurred or imposed thereafter in connection with the contest of
such Tax Claim to the extent that the final settlement is more than the Proposed
Settlement.
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16.2 OTHER TAX MATTERS.
(a) All Tax sharing agreements between Grande and any other Person,
including without limitation, the Affiliates of Seller, are hereby terminated as
of the Closing Date and all rights and obligations of Grande with respect to
Taxes shall be as provided herein.
(b) Any Tax allocation agreement or arrangement in effect shall be
extinguished in full as of the Closing Date.
(c) Tax Returns (each a "Pre-Closing Return") which are required to be
filed with respect to Grande or Grande's interest in the Partnership on a
consolidated, unitary or other combined basis with the Tesoro Group, or the
appropriate parent for a taxable period which ends on or before the Closing Date
(a "Pre-Closing Period") shall be prepared and filed by (or shall be the
responsibility of) Seller, which shall include the preparation and filing of the
consolidated federal and state income Tax Returns of the Tesoro Group which
includes Grande's interest in the Partnership for the period up to and including
the Closing Date. In the case of those jurisdictions which require a
short-period Tax Return ending on or before the Closing Date, Seller shall
prepare and file all appropriate returns required to be filed with respect to
Income Taxes attributable to the operations and the Operating Assets for the
pre-Closing periods. All such Pre-Closing Returns shall be filed on a basis
consistent with prior Tax Returns filed with respect to Grande's interest in the
Partnership. Seller or the appropriate parent of Grande or the Partnership shall
timely pay or cause to be paid all Taxes shown on such Pre-Closing Returns. All
Tax Returns which (i) are required to be filed with respect to Grande's interest
in the Partnership on a separate basis (including the preparation of supporting
schedules, Tax Returns and other Tax information with respect to Grande's
interest in the Partnership necessary for completion of the Pre-Closing Returns)
after the Closing Date for a Pre-Closing Period (a "Post-Closing Return"), and
(ii) are required to be filed or with respect to Grande's interest in the
Partnership for a taxable period that ends after the Closing Date, including any
Tax Return (a "Straddle Return") for a Straddle Period, shall be prepared and
filed by Buyer; subject to the rights to indemnification and other rights under
16.1(a) and subsection 16.2(e), Buyer shall timely pay or cause to be paid all
Taxes shown on such Tax Returns.
(d) Seller agrees to provide Buyer and Buyer agrees to provide Seller
with such cooperation and information as the other shall reasonably request in
connection with the preparation or filing of any Tax Return required under this
Agreement.
(e) With respect to any Straddle Period, to the extent permitted by
applicable law, Seller shall elect to treat the Closing Date as the last day of
the taxable period. If applicable law, regulation or Governmental Order will not
permit the Closing Date to be the last day of a period, the Income Tax
attributable to the operations of Grande and Grande's interest in the
Partnership for the portion of the period up to and including the Closing Date
shall be (i) in the case of a flat minimum dollar amount Tax, the total amount
of such Taxes multiplied by a fraction, the numerator of which is the number of
days in the partial period through and including the Effective Time and the
denominator of which is the total number of days in such Straddle Period, and
(ii) in the case of all Income Taxes, the Tax computed on the basis of the
taxable income or loss attributable to Grande's interest in the Partnership for
the partial period through and including the Closing Date as determined from
their Books and Records. All Other Taxes arising with or related to a Straddle
Period will be allocated as provided in Section 13.3.
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(f) With respect to any Post-Closing Return or Straddle Return, Buyer
shall deliver, at least 30 days prior to the due date for filing such Tax Return
(including any extension) to Seller a statement setting forth the amount of
Income Tax which Seller owes pursuant to subsection 16.1(a), including the
allocation of Taxes under subsection 16.2(e), and copies of such Tax Return.
Seller shall have the right to review such Tax Returns and the allocation of
Taxes and to suggest to Buyer any reasonable changes to such Tax Returns no
later than 15 days prior to the date for the filing of such Tax Returns. Seller
and Buyer agree to consult and to attempt to resolve in good faith any issue
arising as a result of the review of such Tax Returns and allocation of Taxes
and mutually to consent to the filing as promptly as possible of such Tax
Returns. Not later than 15 days before the due date for the payment of Income
Taxes with respect to such Tax Returns, Seller shall pay to Buyer an amount
equal to the Income Taxes as agreed to by Buyer and Seller as being owed by
Seller, pursuant to subsection 16.1(a). In the event that Buyer and Seller
cannot agree on the amount of Income Taxes owed by Seller, with respect to a
Straddle Return or a Post-Closing Return, Seller shall pay to Buyer the amount
of Income Taxes reasonably determined by Buyer to be owed by them pursuant to
subsection 16.1(a). Within ten (10) days following such payment, Seller and
Buyer shall refer the matter to an independent "Big-Five" accounting firm agreed
to by Buyer and Seller to arbitrate the dispute. Seller and Buyer shall equally
share the fees and expenses of such accounting firm, and its determination as to
the amount owing by Seller, pursuant to Section 16.1(a) with respect to a
Straddle Return or Post-Closing Return shall be binding on both parties. Within
five (5) days of the determination by such accounting firm, if necessary, the
appropriate Party shall pay the other Party any amount which is determined by
such accounting firm to be owed. Seller shall be entitled to reduce its
obligation to pay Taxes with respect to a Straddle Return or a Post-Closing
Return by the amount of any estimated Taxes paid with respect to such Taxes by
or on behalf of Grande on or before the Closing Date.
(g) Seller shall have the right to all refunds of Taxes (including
interest thereon), which relate to Taxes of Grande or Grande's interest in the
Partnership for Pre-Closing Periods and Straddle Periods, to the extent provided
in the following sentences. Buyer shall pay over to Seller any such refunds
within ten (10) days of receipt thereof, net of any Taxes imposed on Buyer or
Grande by reason of the receipt of such refund. To the extent any refund of
Taxes is made with respect to a Pre-Closing Period or a Straddle Period, such
refund shall be apportioned between Buyer and Seller, based on the appropriate
allocation method set forth in Section 16.2(e).
(h) Buyer and Seller agree to consult and resolve in good faith any
issues arising in connection with the preparation or review of any Tax Return or
the calculation of any Tax described in this Section 16.2.
(i) At the Closing, Seller, Grande and the Partnership each shall
deliver to Buyer certificates signed under penalties of perjury (i) stating that
it is not a foreign corporation, foreign partnership, foreign trust or foreign
estate, (ii) providing its U.S. Employer Identification Number and (iii)
providing its address, all pursuant to Section 1445 of the Code.
16.3 EXCLUSIVE REMEDY FOR TAXES. This Article XVI provides the sole and
exclusive remedy for any claim against Seller for indemnification, damages or
breach of any representation or warranty with respect to or relating to Taxes.
ARTICLE XVII.
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DEFAULT AND REMEDIES
17.1 LIABILITIES UPON TERMINATION. If Closing does not occur due to
Seller's violation of the terms of this Agreement, then Buyer may seek such
legal or equitable remedies as Buyer may desire including, without limitation,
damages for the breach or failure of any representation, warranty, covenant or
agreement contained herein and the right to enforce specific performance of this
Agreement. If Closing does not occur due to Buyer's violation of the terms of
this Agreement, then Seller may seek such legal or equitable remedies as Seller
may desire, including, without limitation, damages for the breach or failure of
any representation, warranty, covenant or agreement contained herein and the
right to enforce specific performance of this Agreement.
17.2 RECOVERY OF COSTS. The prevailing Party in any litigation or
alternative dispute resolution proceeding between the Parties in a dispute
arising under this Agreement shall be entitled to recover, from the other Party,
reimbursement for reasonable attorneys fees, expert fees, court costs and costs
of discovery and investigation.
17.3 WAIVER OF EXTRAORDINARY DAMAGES. TO THE FULL EXTENT ALLOWED BY
LAW, AND EXCEPT AS MAY BE INCLUDED IN THIRD PARTY DAMAGES SUBJECT TO ANY
INDEMNITY OBLIGATION HEREUNDER, THE PARTIES HEREBY WAIVE AND RELEASE ANY RIGHTS
OR CLAIMS TO PUNITIVE OR EXEMPLARY DAMAGES RESULTING FROM A BREACH OF THIS
AGREEMENT. THE PARTIES HEREBY WAIVE THE APPLICATION OF THE TEXAS DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT TO THE TRANSACTION.
17.4 WAIVER OF JURY TRIAL. SELLER AND BUYER DO HEREBY IRREVOCABLY
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION.
17.5 INDEPENDENT OBLIGATIONS. The express release, indemnity, defense
and hold harmless obligations contained herein shall exist separate and
independent from the representations and warranties in this Agreement, and the
limitations of representations and warranties shall not be construed to limit
the scope of the express releases, indemnities, and defense and hold harmless
obligations.
17.6 CHANGES OF LAW. Sellers do not make any representations and
warranties and do not assume any responsibilities or liabilities for any Damages
to Buyer arising out of or related to changes in the law or new interpretations
of existing law that may occur after Closing.
17.7 MERGER. No representations, warranties, indemnities, covenants or
other provisions of this Agreement shall merge with provisions of any other
instrument.
ARTICLE XVIII.
NOTICES
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18.1 NOTICES. All notices authorized or required by any of the
provisions of this Agreement, unless otherwise specifically provided, shall be
in writing and delivered in person or by United States mail, courier service,
telegram, or telephone facsimile, postage or charges prepaid, and addressed to
the Parties at the respective addresses set forth below:
If to Seller: Tesoro Petroleum Corporation.
300 Concord Plaza Drive
San Antonio, Texas 78216-6999
Attention: James C. Reed, Jr.
Fax Number: (210) 283-2400
Phone Number: (210) 828-8484
With a copy to: Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Michael W. Conlon
Fax Number: (713) 651-5246
Phone Number: (713) 651-5151
If to Buyer: EEX Operating LLC
2500 City West Boulevard, Suite 1400
Houston, Texas 77042
Attention: Janice K. Hartrick
Fax Number: (713) 243-3359
Phone Number: (713) 243-3371
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Attention: Michael E. Dillard
Fax Number: (214) 969-4343
Phone Number: (214) 969-2876
Any Party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
ARTICLE XIX.
CONFIDENTIALITY AND DISCLOSURES
19.1 NON DISCLOSURE OF DATA. To the extent Buyer does not acquire all
of the Membership Interests for any reason, Buyer shall not directly or
indirectly disclose or use any materials, data or other information provided by
or obtained from Seller, Grande or the Partnership, and Buyer and its
representatives shall continue to be bound by the terms of the existing
Confidentiality Agreement dated June 17, 1999, between the Parties.
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19.2 PUBLIC ANNOUNCEMENTS. The Parties hereto agree that prior to
making any public announcement or statement with respect to the Transaction, the
Party desiring to make such public announcement or statement shall consult with
the other Party and exercise reasonable efforts to obtain the consent of the
other Party to the text of such public announcement or statement. If the Parties
cannot agree upon the text of any such public disclosure, a Party may
nevertheless disclose information with respect to the to the extent required by
applicable law or by any applicable rules, regulations or orders of any
governmental or judicial authority or agency having jurisdiction or to the
extent such disclosure is necessary to comply with requirements of the New York
Stock Exchange.
ARTICLE XX.
TERMINATION
20.1 TERMINATION. Notwithstanding anything herein to the contrary,
this Agreement and the Transaction may be terminated in the following instances:
(a) At any time by the mutual written agreement of Buyer and Seller;
(b) By Seller, if the Settlement Price Adjustment exceeds fifteen
percent (15%) of the Purchase Price; or by Buyer, if the sum of the Settlement
Price Adjustment and any reductions to the purchase price as a result of the
exercise by third parties of Preferential Rights to Purchase exceeds fifteen
percent (15%) of the Purchase Price;
(c) By Seller or Buyer, if any of the Casualty Price individually
exceeds ten percent (10%) of the Purchase Price; or
(d) By Buyer or Seller, if Closing has not taken place before December
31, 1999; provided, however, that the Party seeking to terminate this Agreement
pursuant to Section 20.1(d) shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have proximately
contributed to the failure to consummate the Transaction prior to December 31,
1999.
ARTICLE XXI.
MISCELLANEOUS
21.1 ENTIRE AGREEMENT. This Agreement, together with the Stock Purchase
Agreement, embody the entire agreement between the Parties (superseding all
prior agreements, negotiations, representations, discussions, arrangements and
understandings related to the subject matter hereof), and may be supplemented,
altered, amended, modified or revoked only by a written instrument signed by
each of the Parties; provided, however, the Confidentiality Agreement dated June
17, 1999, between the Parties shall remain effective until Closing. If the sale
of the Operating Assets to Buyer is not consummated, then the Confidentiality
Agreement shall remain effective as stated therein.
21.2 NO VERBAL MODIFICATIONS OR WAIVERS. Any of the terms, provisions,
covenants, representations, warranties or conditions hereof may be supplemented,
amended, modified, released or waived only by a written instrument executed by
the Parties. Except as otherwise expressly
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<PAGE> 54
provided in this Agreement, the failure of any Party at any time or times to
require performance of any provision hereof shall in no manner affect such
Party's right to enforce the same. No waiver by any Party of any condition, or
of the breach of any term, provision, covenant, representation or warranty
contained in this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such condition or breach or a waiver of any other condition or of the
breach of any other term, provision, covenant, representation or warranty.
21.3 SEVERABILITY. If any term or provision of this Agreement is held
to be illegal, invalid or unenforceable, the legality, validity and
enforceability of the remaining terms and provisions of this Agreement shall not
be affected thereby, and in lieu of each such illegal, invalid or unenforceable
term or provision, there shall be added automatically to this Agreement a legal,
valid and enforceable term or provision as similar as possible to the term or
provision declared illegal, invalid or unenforceable.
21.4 INTERPRETATION. Words of any gender used in this Agreement shall
be held and construed to include any other gender, and words in the singular
shall be held to include the plural, unless the context otherwise requires. None
of the terms or conditions of this Agreement, including any Exhibits or
Schedules hereto, shall be construed for or against any Party hereto on the
basis that such Party did or did not author the same. All terms of this
Agreement and the Exhibits shall be harmonized, but in the event of any conflict
between the definition of a term in Article I and a more complete description or
limitation of such term in a subsequent Article, the subsequent Article shall
prevail. This Agreement is being executed in connection with the Stock Purchase
Agreement, as amended by the Amendment, and the two instruments shall be
harmonized, to the extent possible, provided however, that no Party shall be
entitled to receive duplicate payments (including, without limitation, duplicate
payment of any purchase price) or other relief regarding the same matters under
both this Agreement and the Stock Purchase Agreement, as amended, and the rights
of the Parties hereunder are subject to the terms of the Stock Purchase
Agreement, as amended by the Amendment. In the event of any conflict, redundancy
or inconsistency between the terms of the Stock Purchase Agreement, as amended,
and this Agreement (including without limitation any conflict, redundancy or
inconsistency with respect to the provisions relating to indemnification,
payment of purchase price, adjustments to the purchase price, transfer of the
Membership Interests, representations, warranties and covenants or any
provisions of the exhibits or schedules), the provisions of the Stock Purchase
Agreement, as amended, shall control and prevail in all respects. The Article
and Section headings are for convenience only and shall have no significance in
the interpretation hereof.
21.5 COUNSEL. EACH PARTY EXPRESSLY ACKNOWLEDGES THAT IT WAS REPRESENTED
BY COUNSEL OF ITS OWN SELECTION IN NEGOTIATION AND PREPARATION OF THE TERMS OF
THE AGREEMENT AND THE ATTACHED EXHIBITS AND THAT IT IS SOPHISTICATED AND
EXPERIENCED IN TRANSACTIONS OF THIS TYPE AND IS AWARE OF ALL TERMS AND
CONDITIONS CONTAINED HEREIN. EACH PARTY SHALL BE RESPONSIBLE FOR THE COSTS AND
EXPENSES OF ITS OWN COUNSEL.
21.6 GOVERNING LAW. This Agreement and other documents delivered
pursuant to this Agreement and the legal relations between the Parties shall be
governed and construed and enforced in accordance with the laws of the State of
Texas, without giving effect to principles of conflict of laws.
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<PAGE> 55
21.7 CONSENTS. Except as expressly provided otherwise herein, any
consent required of a Party with respect to any matters covered by this
Agreement shall not be unreasonably withheld or action with respect thereto
unduly delayed.
21.8 TIME OF ESSENCE. Time is of the essence in all matters provided
for in this Agreement.
21.9 BINDING EFFECT, ASSIGNMENT. All the terms, provisions, covenants,
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the Parties and, except
as otherwise prohibited, their respective successors; however, this Agreement
and the rights and obligations hereunder shall not be assignable or delegable by
any Party without the express written consent of the non-assigning or
non-delegating Parties, which consent may be withheld for any or no reason;
provided that Buyer may assign some or all of its rights, duties and obligations
under this Agreement to an Affiliate of EEX Corporation. Any assignment or
delegation without such consent will be void.
21.10 NO RELATIONSHIP. Nothing contained in this Agreement shall be
deemed to create a joint venture, partnership, agency or other fiduciary
relationship between the Parties, nor is this Agreement intended to create, nor
shall it be construed to create, any rights in any third party, to create any
third party beneficiaries or to ratify, adopt or confirm any other lease,
agreement or other instrument, whether or not affecting Grande, the Partnership
or the Operating Assets. Notwithstanding the above, the Parties acknowledge that
the Transaction shall be subject to the rights of all third parties holding
Preferential Rights to Purchase and Consents to Assignment concerning the
Operating Assets, to the extent that they are valid, in effect and enforceable
by reason of the Transaction, and that such third party rights shall be handled
as set forth herein.
21.11 NO RECORDATION. Without limiting any Party's right to file suit
to enforce its rights under this Agreement, Buyer and Seller expressly covenant
and agree not to record or place of record this Agreement or any copy or
memorandum hereof, unless required under the Securities Exchange Act of 1934.
21.12 EXHIBITS AND SCHEDULES. All Exhibits and Schedules which are
referred to herein are hereby made a part hereof and incorporated herein by
reference.
21.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one agreement.
21.14 NO THIRD PARTY BENEFICIARIES. Any agreement contained, expressed
or implied in this Agreement shall be only for the benefit of the Parties hereto
and the Indemnified Parties specified in Article XV and their respective legal
representatives, successors and assigns. Such agreements shall not inure to the
benefit of any employees of Seller, Grande or the Partnership (except in their
capacity as Indemnified Parties) or the obligees of any indebtedness of any
Party hereto, it being the intention of the Parties hereto that no Person shall
be deemed a third party beneficiary of this Agreement, except to the extent a
third Person is expressly given rights herein.
21.15 JOINT AND SEVERAL LIABILITY. Tesoro Petroleum Corporation and
Tesoro Gas Resources Company, Inc. agree to be jointly and severally liable for
all of the Seller's duties and obligations hereunder.
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<PAGE> 56
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SELLER BUYER
TESORO PETROLEUM CORPORATION EEX OPERATING LLC
By: /s/ SHARON L. LAYMAN By: EEX CORPORATION
--------------------------------- ----------------------------------
Name: Sharon L. Layman By: /s/ RICHARD S. LANGDON
------------------------------- --------------------------------
Title: Vice President and Treasurer Name: Richard S. Langdon
------------------------------ -------------------------------
Title: EVP & CFO
------------------------------
TESORO GAS RESOURCES COMPANY, INC.
By: /s/ JEFFREY B. FABIAN
---------------------------------
Name: Jeffrey B. Fabian
-------------------------------
Title: President
------------------------------
54
The schedules and exhibits referenced in this Purchase Agreement have
been omitted. The Registrant will furnish a copy of any omitted schedules and
exhibits to the Securities and Exchange Commission upon request.
<PAGE> 1
EXHIBIT 2.4
(RESERVES)
PURCHASE AGREEMENT
Dated as of December 17, 1999,
by and between
TESORO PETROLEUM CORPORATION
AND
TESORO GAS RESOURCES COMPANY, INC.
AS "SELLER"
AND
EEX OPERATING LLC
AS "BUYER"
<PAGE> 2
SCHEDULES
---------
1A HEDGING CONTRACTS
1B PERMITTED ENCUMBRANCES
2.6(a) RETAINED LIABILITIES
4.1(b)(iv) NO CONFLICT - SELLER
4.1(b)(v) CONSENTS AND WAIVERS - SELLER
4.1(g) LITIGATION
4.1(h) LABOR MATTERS
4.1(i) TAXES
4.1(k) ABSENCE OF CERTAIN CHANGES
4.1(m)(iii) PERMITS AND LICENSES
4.1(m)(iv) EXCEPTIONS TO RIGHT TO USE ASSETS
4.1(o) SUSPENSE FUNDS
4.1(p) INSURANCE
4.1(q) CONTRACTS ON PRODUCTION
4.1(s) TAX PARTNERSHIPS
4.1(u) ENVIRONMENTAL CONDITIONS
4.1(v) CONTRACTS
4.1(x) WELLS
4.1(z) PAYOUT BALANCES
9.2 EXCEPTIONS TO PRE-CLOSING OPERATING COVENANTS
9.2(f) COMMITTED EXPENDITURES
9.4 EXCEPTIONS TO PRE-CLOSING FINANCIAL COVENANTS
EXHIBITS
--------
A ALLOCATED VALUES
B LEASES AND RELATED PIPELINES
C SUBSIDIARIES AND PARTNERSHIP BALANCE SHEET
D SETTLEMENT STATEMENT
<PAGE> 3
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is dated December 17, 1999, but effective as of
the Effective Time, between Tesoro Petroleum Corporation, a Delaware
corporation, and Tesoro Gas Resources Company, Inc., a Delaware corporation,
collectively as "Seller", and EEX Operating LLC, a Delaware limited liability
company, as "Buyer".
WITNESSETH:
WHEREAS, Tesoro Gas Resources Company, Inc. owns all of the Membership
Interests in Tesoro Reserves Company, LLC, a Delaware limited liability company
("Reserves LLC"); and
WHEREAS, Tesoro Petroleum Corporation, a Delaware corporation, and
Tesoro Gas Resources Company, Inc., a Delaware corporation, collectively as
"Seller", and EEX Operating LLC, a Delaware limited liability company, as
"Buyer", and EEX Corporation, entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") dated October 8, 1999 providing for the sale by
Seller to Buyer of all shares of capital stock of Tesoro Exploration and
Production Company, a Delaware corporation ("Exploration") and Tesoro Reserves
Company, a Delaware corporation ("Reserves"), together with the partnership
interests in Tesoro E&P Company, L.P., a Delaware limited partnership (the
"Partnership"); and
WHEREAS, the Partnership owns certain assets used in the business of
the exploration, production, gathering, transportation and marketing of oil,
natural gas, condensate and associated hydrocarbons; and
WHEREAS, on the date of the Stock Purchase Agreement, Exploration and
Reserves were the two partners in the Partnership, in which Exploration was the
general partner owning a 1% interest and Reserves was the limited partner owning
a 99% interest; and
WHEREAS, the Partnership was converted into a series limited
partnership. with the entire Series A limited partnership interest remaining in
Reserves, insofar as such interest covers the revenues, expenses, profits and
losses from the Properties described in Exhibit B; and
WHEREAS, Section 9.12 of the Stock Purchase Agreement provides for the
Parties to cooperate at no cost or liability to Buyer, to enable Seller at
Seller's election, to transfer the Operating Assets to Buyer in a manner
enabling the transfer to qualify as a part of a like-kind exchange of property
by Seller within the meaning of Section 1031 of the Code; and
WHEREAS, the Stock Purchase Agreement has been amended to provide for
such a like-kind exchange of property, among other purposes, by a First
Amendment to Stock Purchase Agreement dated December 16, 1999 (the "Amendment");
and
WHEREAS, Reserves LLC is not currently participating in a like-kind
exchange as are the other two limited partners in the Partnership; and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller all issued and outstanding Membership Interests of Reserves LLC,
including all of Reserves LLC's
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<PAGE> 4
rights and interests in the Partnership and the Reserves Properties, under the
terms and conditions set forth in this Agreement and the Stock Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
"ACCEPTING PARTY" shall have the meaning set forth in Section 16.1(e).
"ACCOUNTS RECEIVABLE" shall have the meaning set forth in Section 13.5.
"ACTION" means any action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.
"AFFILIATE" shall have the same meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"AGREEMENT" shall mean this Purchase Agreement.
"ALLOCATED VALUE" shall mean the monetary value allocated to each
Property or group of Properties on Exhibit A.
"AMENDMENT" shall mean the First Amendment to Stock Purchase Agreement
dated December 16, 1999, by and among Tesoro Petroleum Corporation, a Delaware
corporation, Tesoro Gas Resources Company, Inc., a Delaware corporation, and EEX
Operating LLC, a Delaware limited liability company, and EEX Corporation, a
Texas corporation, for the limited purposes set forth therein
"APO" shall mean "after payout", as such payout may be established
under the respective farmout agreements, joint operating agreements,
participation interests and similar agreements affecting each Property,
including payouts providing reversionary rights of parties who have elected not
to participate in an operation under a joint operating agreement. If there are
multiple outstanding payouts affecting any particular well or Property, then the
APO interest shall mean the interests after all applicable payouts have
occurred. If at the Effective Time there are no outstanding payout balances
affecting any particular well or Property, then the listed APO interest in such
well or Property shall reflect the Partnership's WI and NRI at the Effective
Time.
"APPLICABLE ENVIRONMENTAL LAWS" means all Applicable Laws in effect
pertaining to (i) pollution, or the protection of the environment, including
those relating to waste materials and/or hazardous substances, (ii) the
protection of Persons or property from actual or potential exposure (or the
effects of exposure) to an actual or potential spill or release of Hazardous
Substances or petroleum or produced brine or (iii) the manufacture, processing,
production, gathering, transportation, use, treatment, storage or disposal of a
Hazardous Substance or petroleum or produced brine.
2
<PAGE> 5
"APPLICABLE LAW" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Authority to
which a specified Person, Operating Asset or property is subject.
"BALANCE SHEETS" shall mean the unaudited combined financial balance
sheet of Reserves LLC and the Partnership as of June 30, 1999, attached hereto
as Exhibit C.
"BOOKS AND RECORDS" shall mean all of the following which pertain to
the conduct of the Business: books, records, manuals and other materials,
accounting books and records, continuing property records for property, plant
and equipment, land and lease files, title opinions, suspense records,
production records, any inventories of equipment and property, well files,
engineering files, maps, surveys, electric logs, seismic records, geological and
geophysical files, and all other technical data, division order files, contract
files, other files, computer tapes, disks, other storage media and records,
advertising matter, correspondence, lists of customers and suppliers, maps,
photographs, production data, sales and promotional materials and records,
purchasing materials and records, work and recent salary history for personnel,
credit records, manufacturing and quality control records and procedures, patent
and trademark files and disclosures, litigation files, leases, oil and gas
leases, deeds, easements and other instruments relating to the Business, any
copies of Tax Returns filed by or with respect to Reserves LLC or the
Partnership, including copies of all work papers and calculations relating to
Reserves LLC and the Partnership in support of such Tax Returns, and any
comparable information with respect to predecessors of Reserves LLC or the
Partnership to the extent available, and copies of any other applicable
accounting and tax records of the Seller and the Partnership pertaining to the
Business.
"BPO" shall mean "before payout", as such payout may be established
under the respective farmout agreements, joint operating agreements,
participation interests and similar agreements affecting each Property,
including payouts providing reversionary rights of parties who have elected not
to participate in an operation under a joint operating agreement. If at the
Effective Time there is an outstanding payout balance affecting any particular
well or Property, the listed BPO interest in such well or Property shall reflect
the Partnership's WI and NRI at the Effective Time.
"BUSINESS" shall mean the Partnership's business of exploring for,
developing, producing, gathering, transporting and marketing natural gas,
condensate and oil.
"BUSINESS DAY" shall mean any day exclusive of Saturdays, Sundays and
national holidays.
"BUYER GROUP" shall have the meaning set forth in Section 15.3.
"BUYER'S KNOWLEDGE" shall mean knowledge of Buyer and management
employees of Buyer's ultimate parent, EEX Corporation, with knowledge of Buyer's
activities, including the negotiation of this Agreement.
"BYLAWS" shall mean a corporation's bylaws, code of regulations or
equivalent document.
"CHARTER" shall mean a company's management agreement, articles of
association, articles of incorporation, certificate of incorporation or
equivalent organizational documents.
"CLOSING" shall have the meaning set forth in Section 12.1.
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<PAGE> 6
"CLOSING DATE" shall have the meaning set forth in Section 12.1.
"CLOSING SETTLEMENT PRICE" shall mean the Settlement Price calculated
in accordance with the best information available to the Seller prior to
Closing, as reflected on the Settlement Statement delivered prior to Closing
pursuant to Article X and Section 13.1(a).
"CODE" shall mean the United States Internal Revenue Code of 1986 and
any successor statute thereto, as amended.
"CONSENT TO ASSIGNMENT" shall mean an existing contractual or legal
right of any third party to consent to the Partnership's assignment of a
Property to Buyer under such terms as are set forth in this Agreement.
"CONTRACTS" shall mean all of the contracts that govern or relate to
the ownership or operation of the Operating Assets (including without
limitation, the wells, facilities and equipment associated therewith and the
production therefrom, acreage contribution agreements, assignments, bidding
agreements, bottom-hole agreements, contribution agreements, drilling contracts,
dry-hole agreements, exploration agreements, development agreements, farm-in and
farmout agreements, gas balancing agreements, joint venture agreements,
production, sales, marketing and/or brokerage contracts, gas processing
agreements, operating agreements, participation agreements, service contracts,
storage contracts, gathering agreements, transportation agreements, treating
contracts, water rights agreements and the unitization, unit operating,
communitization and pooling declarations, agreements and orders that create or
govern units). To the extent that Seller, Reserves LLC or the Partnership have
rights of indemnification or warranty rights with respect to any Operating Asset
or any part of an Operating Asset, the same shall be included in the meaning of
"Contracts."
"DAMAGES" shall mean any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses, expert fees and expenses and court costs), of any nature whatsoever.
"EFFECTIVE TIME" shall mean July 1, 1999, at 12:00 a.m. local time for
each Operating Asset.
"ENCUMBRANCE" shall mean any interest (including any security
interest), pledge, mortgage, lien, charge, adverse claim or other right of third
Persons.
"ENVIRONMENTAL CONDITIONS" shall have the meaning set forth in Section
7.3 of the Stock Purchase Agreement.
"EXPLORATION" shall mean Tesoro Exploration and Production LLC, a
Delaware limited liability company.
"FINAL SETTLEMENT PRICE" shall mean the Settlement Price calculated in
accordance with the best information available to the Parties during the one
hundred twenty (120) day period after Closing, as reflected on the Final
Statement agreed upon pursuant to Article XIII.
"FINAL STATEMENT" shall mean the final accounting statement to be
agreed upon by the Parties no later than one hundred twenty (120) days after
Closing pursuant to Section 13.1(c).
4
<PAGE> 7
"FINANCIAL ASSETS AND LIABILITIES" shall mean the assets, liabilities
and other financial items on the Balance Sheets, effective as of 11:59 p.m. on
June 30, 1999, (i) as adjusted for revenues, income, expenses and other assets
and liabilities incurred between the Effective Time and the Closing Date and
included within the Adjustment Assets and Liabilities, and (ii) as adjusted for
the Pre-Closing Financial Adjustments and (iii) as otherwise adjusted as
provided herein. The term "Financial Assets" shall not include any assets,
liabilities or other financial items included within the Operating Assets.
"GAAP" shall mean U.S. generally accepted accounting principles, unless
expressly described otherwise.
"GOVERNMENTAL AUTHORITY" shall mean any international, national,
Federal, state, municipal or local government, governmental authority,
regulatory or administrative agency, governmental commission, department, board,
bureau, agency or instrumentality, court, tribunal, arbitrator or arbitral body.
"GOVERNMENTAL ORDER" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"GRANDE" shall mean Tesoro Grande LLC, a Delaware limited liability
company
"HAZARDOUS SUBSTANCE" means a substance, chemical, pollutant, waste or
other material (i) that consists, wholly or in part, of a substance that is
regulated as toxic or hazardous to human health or the environment under any
Environmental Law or (ii) that exists in a condition or under circumstances that
constitute a violation of any Environmental Law. "Hazardous Substance" includes
without limitation any "hazardous substance" under the Comprehensive
Environmental Response, Compensation and Liability Act, any "hazardous chemical"
under the Occupational Safety and Health Act, any "hazardous material" under the
Hazardous Materials Transportation Act, any "hazardous chemical substance" under
the Federal Water Pollution Control Act and any "hazardous waste" under the
Resource Conservation and Recovery Act.
"HEDGING CONTRACTS" shall mean those natural gas derivative pricing
contracts listed on Schedule A.
"INCOME TAXES" shall mean any Taxes, including franchise taxes, which
are based upon or in respect of income.
"INDEMNIFIED PARTY" shall mean any Party or other Person entitled to an
indemnity under Article XV of this Agreement, with respect to the indemnity so
owed.
"INDEMNIFYING PARTY" shall mean a Party owing an indemnity to any other
Party or Person under Article XV of this Agreement, with respect to the
indemnity so owed.
"LENDER" shall have the meaning set forth in Section 9.12(d).
"LIABILITIES" shall mean any and all debts, claims, liabilities and
obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, mature or unmatured or determined or indeterminable.
5
<PAGE> 8
"MATERIAL ADVERSE EFFECT" shall mean any event with respect to, change
in, or effect on, Reserves LLC, the Partnership or the Business which,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the Business, or the financial results of operations, assets
or properties or financial condition of Reserves LLC and the Partnership, taken
as a whole, but the term "Material Adverse Effect" shall not include any change
in market conditions or other conditions affecting the oil and gas exploration
and production industry generally.
"MEMBERSHIP INTERESTS" shall mean shall mean all issued and outstanding
membership interests in Reserves LLC.
"NORM" shall have the meaning set forth in Section 7.2.
"NRI" shall mean the decimal net revenue interest in oil and gas
production from a Property.
"OPERATING ASSETS" shall mean all property rights and interests of the
Partnership being sold hereunder in the lands and leases described in Exhibit
"B", as set forth in Section 2.4.
"OTHER TAXES" shall mean all Taxes other than Income Taxes.
"PARTIES" shall mean Buyer and Seller, collectively.
"PARTNERSHIP" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership of
the Partnership, as amended.
"PARTY" shall mean either Buyer or Seller.
"PERMITTED ENCUMBRANCES" shall include any Encumbrance which is: (i)
listed on Schedule 1B, for which a duly executed release in recordable form will
be delivered to Buyer at or before Closing; (ii) a lien securing amounts claimed
for services provided by operators or other oil field contractors which are not
yet due and owing or which are being contested in good faith, through adequate
procedures; (iii) a statutory lien arising for Taxes not yet delinquent or which
are being contested in good faith, through adequate procedures; (iv) a
reservation, exception, limitation, encumbrance or burden expressly included
within a recorded oil and gas lease constituting part of a Property with respect
to which Seller or the Partnership is not in default at Closing which does not
reduce the Partnership's NRI in such Property below the respective decimal
interests set forth in Exhibit A; (v) any royalty, overriding royalty or other
production burden affecting any Property which does not and will not reduce the
Partnership's NRI in such Property below the respective decimal interests set
forth in Exhibit A; (vi) any joint operating agreement containing terms and
conditions reasonable and customary in the industry (other than a Preferential
Right to Purchase that is exercised prior to Closing or a required Consent to
Assignment, or a reversionary right that is not reflected in the BPO and APO
interests on Exhibit A); (vii) the right of a third party under any equipment
rental or lease contract, oilfield service contract, production sales contract
or transportation contract affecting any Property, which either may be
terminated by the parties thereto without penalty or does not extend for a term
of more than sixty days after the Closing Date; (viii) any other easement,
operating right, concurrent use right or similar encumbrance that does not
affect the Partnership's rights to a Property or reduce the production revenues
attributable thereto or
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<PAGE> 9
increase the costs associated with ownership or operation of that Property; and
(ix) a severance tax, production tax, occupation tax, ad valorem tax or similar
tax of general application.
"PERSON" shall include any individual, trustee, firm, corporation,
partnership, limited liability company, Governmental Authority or other entity,
whether acting in an individual, fiduciary or any other capacity.
"POST-CLOSING RETURN" shall have the meaning set forth in Section
16.2(c).
"PRE-CLOSING FINANCIAL ADJUSTMENTS" shall mean those certain financial
accounting adjustments and payments set forth in Section 2.6.
"PRE-CLOSING PERIOD" shall have the meaning set forth in Section
16.2(c).
"PRE-CLOSING RETURN" shall have the meaning set forth in Section
16.2(c).
"PREFERENTIAL RIGHT TO PURCHASE" shall mean the right of any third
party under an existing contract or agreement allowing that third party to
purchase the Partnership's interest in a Property whenever Seller proposes to
transfer its interests in the Partnership under terms such as are set forth in
this Agreement and the Stock Purchase Agreement.
"PRODUCTION" shall mean all oil, natural gas, condensate, natural gas
liquids, and other hydrocarbons or products produced from or attributable to the
Properties.
"PROPERTIES" shall mean, collectively, (i) all valid and existing oil
and gas leaseholds and mineral fee rights, and all rights and interests
appurtenant thereto, which are owned by the Partnership in the lands and leases
described on Exhibit B attached hereto, including without limitation all oil and
gas WIs, NRIs, mineral fee interests, oil, gas and mineral deeds, leases and/or
subleases, royalties, overriding royalties, leasehold interests, mineral
servitudes, production payments and net profits interests, fee mineral
interests, surface estates, fee estates, royalty interests, overriding royalty
interests, or other non-working or carried interests, reversionary rights,
farmout and farmin rights, operating rights, pooled or unitized acreage, and all
other rights, privileges and interests in such oil, gas and other minerals (and
the production thereof), and other mineral rights of every nature now owned by
the Partnership in such lands and leases listed on Exhibit B hereto, (ii) all of
the contractual rights to interests described in (i) above and in all units in
which such interests are pooled, communitized or unitized, and in any other oil,
gas and/or mineral leases or assets arising pursuant to the terms of the oil and
gas leases listed on Exhibit B hereto, and any other rights and agreements or
contracts affecting or relating to interests described in (i) above, or to
Production, whether or not listed on Exhibit B, including any tenements,
appurtenances, surface leases, easements, permits, licenses, servitudes,
franchises or rights of way.
"PROPERTY" shall mean any individual one of the Properties.
"PROPERTY TAX PERIOD" shall have the meaning set forth in Section
13.2(a).
"PROPERTY TAXES" shall have the meaning set forth in Section 13.2(a).
"PROPOSED SETTLEMENT" shall have the meaning set forth in Section
16.1(e).
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"PURCHASE PRICE" shall have the meaning set forth in Section 3.1.
"REFUSING PARTY" shall have the meaning set forth in Section 16.1(e).
"RESERVES LLC" shall mean Tesoro Reserves Company, LLC, a Delaware
limited liability company.
"SELLER" shall mean, collectively, Tesoro Petroleum Corporation, a
Delaware corporation, and Tesoro Gas Resources Company, Inc., a Delaware
corporation.
"SELLER'S KNOWLEDGE" shall mean actual knowledge of any fact,
circumstance or condition by the officers or management employees (including
those with titles of "Manager", "Vice President" and "President" or those in the
internal legal department of Seller, Reserves LLC and the Partnership who
provide specific advice related to the operations of the Business) of Seller,
Reserves LLC and the Partnership involved and knowledge of any fact,
circumstance or condition which such officer or management employee would have
been aware of with the exercise of reasonable diligence and inquiry in the
course of his or her duties.
"SETTLEMENT PRICE" shall have the meaning set forth in Section 3.2.
"SETTLEMENT STATEMENT" shall mean the accounting statement calculating
the Settlement Price, to be furnished by Seller to Buyer prior to Closing,
pursuant to Article X and Section 13.1(a).
"SOUTHEAST" shall mean Tesoro Southeast LLC, a Delaware limited
liability company.
"STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement
dated October 8, 1999, as amended by the Amendment, by and among Tesoro
Petroleum Corporation, a Delaware corporation, Tesoro Gas Resources Company,
Inc., a Delaware corporation, and EEX Operating LLC, a Delaware limited
liability company, and EEX Corporation, a Texas corporation, for the limited
purposes set forth therein.
"STRADDLE PERIOD" shall have the meaning set forth in Section 16.1(e).
"STRADDLE RETURN" shall have the meaning set forth in Section 16.2(c).
"SUBSIDIARIES" shall mean Exploration, Reserves LLC, Southeast and
Grande, collectively.
"TAX" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, parking, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 50A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, ad valorem,
value added, alternative or add-on minimum, estimated tax, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, including such item for which Liability arises as a transferee
or successor-in-interest.
"TAX CLAIM" shall have the meaning set forth in Section 16.1(c).
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<PAGE> 11
"TAX RETURN" shall mean any return, declaration, report, claim for
refund, information return or statement relating to Taxes, including any
schedules or attachments thereto, and including any amendment thereof.
"TAXING AUTHORITY" shall mean any Governmental Authority responsible
for the imposition or collection of any Tax.
"TESORO GROUP" shall have the meaning set forth in Section 4.1(i).
"TESORO PARENT" shall have the meaning set forth in Section 4.1(i).
"TRANSACTION" shall mean the purchase and sale of the Membership
Interests pursuant to this Agreement and the related transactions contemplated
herein.
"WI" shall mean a working interest under an oil and gas lease or other
Contract affecting a Property which shall reflect the decimal interest for
participation in the decisions, costs and risks concerning operations.
"WORKING CAPITAL" shall mean, at any time, the difference between (a)
the sum of the amounts on the line items "cash", "accounts receivable",
"inventories" and "prepayment and other" on the Balance Sheet, less (b) the sum
of the amounts on the line items "accounts payable" and "accrued liabilities" on
the Balance Sheet; all as computed in accordance with GAAP and past practice for
Reserves LLC and the Partnership except as expressly provided herein, and in a
manner as reflected on the Balance Sheets; provided, however, that the amounts
on the line items "prepayment and other", "accounts payable" and "accrued
liabilities" on the Balance Sheet shall not include the impact of any amounts
referred to in the first proviso in Section 3.2(a)(i); and provided further,
that the stated amount of Working Capital shall be reduced by the amount of
inventories that existed as of the Effective Time.
"WORKING CAPITAL ACCOUNTS" shall mean the line items "cash", "accounts
receivable", "inventories", "prepayment and other", "accounts payable" and
"accrued liabilities" on the Balance Sheet, all as computed in accordance with
GAAP and past practice for Reserves LLC and the Partnership, and in a manner as
reflected on the Balance Sheets; provided, however, that the line items
"prepayment and other", "accounts payable" and "accrued liabilities" shall not
include the impact of any items referred to in the first proviso in Section
3.2(a)(i).
ARTICLE II.
PURCHASE AND SALE
2.1 SALE OF MEMBERSHIP INTERESTS. Subject to the terms and conditions
of this Agreement, Seller agrees to sell and assign to Buyer, and Buyer agrees
to purchase and pay for, at Closing, all of the Membership Interests.
2.2 EFFECT OF SALE. The sale of the Membership Interests at Closing
shall transfer to Buyer all of Seller's rights in Reserves LLC. On the Closing
Date, Reserves LLC shall hold certain interests, assets and liabilities, as set
forth in this Article II. Except as otherwise specifically set forth in this
Agreement, the transfer of Seller's rights in Reserves LLC shall assign to Buyer
all of Seller's
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beneficial right, title, interest and obligations in and to such interests,
assets and liabilities held by Reserves LLC.
2.3 PARTNERSHIP. On the Closing Date, Exploration and Reserves LLC
shall own the rights and interests in the Partnership, insofar as they pertain
to the Properties. Exploration shall be the general partner, of the Partnership
and Reserves LLC shall own the entire Series A limited partnership interest in
the Partnership insofar as it pertains to allocable revenues and expenses
attributable to the Properties. The partnership rights and interests of Reserves
LLC described in this Section 2.3 shall pass to Buyer as an attribute of the
sale of the Membership Interests pursuant to this Agreement.
2.4 OPERATING ASSETS. On the Closing Date, the Partnership shall own
the Operating Assets, subject to the Permitted Encumbrances, as follows:
(a) Exploration and Production Assets.
(i) the Properties;
(ii) All the interests in oil and gas wells described on
Exhibit A, together with an interest in the
production, compression, treating, dehydration or
processing facilities and other real or tangible
personal property appurtenances and fixtures, which
are located on the lands covered by or within the
Properties or are being used by the Partnership in
connection with the operations on the Properties or
Production;
(iii) Subject to the license granted under the License
Agreement (with respect to the rights covered
thereby), rights and interests in geological data and
records, seismic data, whether in digital or paper
format, well logs, well files, geological data,
records and maps, land and contract files and
records, accounting files, data and records, computer
hardware and software and other materials (whether
electronically stored or otherwise) used or held for
use by Seller, Reserves LLC or the Partnership, or
any of their direct or indirect parents, subsidiaries
or other Affiliates, regarding ownership of the
Properties or operations and Production which relate
to the Properties, and other files, documents and
records which relate to the Properties;
(iv) Rights, obligations, title and interests in and to
permits, orders, contracts, abstracts of title,
leases, deeds, unitization agreements, pooling
agreements, operating agreements, farmout agreements,
participation agreements, division of interest
statements, division orders, participation
agreements, and other agreements and instruments
applicable to the Properties;
(v) All the rights, obligations, title and interests of
Seller in and to all easements, rights of way,
certificates, licenses and permits and all other
rights, privileges, benefits and powers conferred
upon the owner and holder of interests in the
Properties, or concerning software used in
conjunction with ownership or operation of the
Properties;
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(vi) Rights, title, obligations and interests in or
concerning any gas imbalances affecting the
Properties; and
(vii) All office equipment, computer equipment, light
tables, drafting tables, drafting equipment, office
supplies, facsimile machines, pool cars and any other
equipment or furniture not herein named which is
utilized by the Partnership in its day to day
operations.
(b) Leased Assets. To the extent any of the items of office equipment
listed in Section 2.4(a) above are leased and not owned, Seller, Reserves LLC
and the Partnership shall use their best efforts to cause such leases to be
assigned to Buyer at Closing.
2.5 FINANCIAL ASSETS AND LIABILITIES. On the Closing Date, the
Partnership shall own the Financial Assets and Liabilities. Reserves LLC shall
be allocated its share of the Partnership's respective Financial Assets and
Liabilities attributable to ownership and operation of the Properties in
proportion to its ownership of the Partnership's interests in the Properties.
The Financial Assets and Liabilities at Closing of the Partnership and each
partner in the Partnership shall be computed by Seller in accordance with GAAP,
and shall be allocated to the Properties and the partners in the Partnership in
accordance with the Partnership Agreement. The Financial Assets and Liabilities
shall be adjusted from those set forth on the Balance Sheet to reflect certain
Pre-Closing Financial Adjustments and the Adjustment Assets and Liabilities, as
set forth in Sections 2.6 and 2.7.
2.6 PRE-CLOSING FINANCIAL ADJUSTMENTS. Prior to the Closing Date,
Seller shall make certain accounting adjustments and payments regarding the
assets, liabilities and equity of the Partnership and Reserves LLC, to the
effect that Sellers shall remove all intercompany accounts involving the
Partnership, Reserves LLC and their Affiliates, and all intercompany liabilities
shall have been removed. At Closing the only assets and liabilities of the
Partnership and Reserves LLC shall be the Operating Assets and the Adjustment
Assets and Liabilities.
(a) Certain Accounts. Immediately prior to the Closing, Seller shall
take, and shall cause Reserves LLC and the Partnership to take, all necessary
action deemed appropriate to adjust the Balance Sheets to account for those
items that are to be retained by Seller, as set forth in Schedule 2.6(a). In
doing so, Seller shall take, and shall cause Reserves LLC and the Partnership to
take, all necessary actions deemed appropriate so that the Balance Sheets as of
the Closing Date, as adjusted to reflect such actions, will show zero for those
line items listed in Schedule 2.6(a) as financial items that are to be retained
by Seller.
(b) Pre-Closing Cash Distribution. Immediately prior to the Closing,
Tesoro Gas Resources Company, Inc. shall cause Reserves LLC to pay to it an
amount equal to the arithmetic mean of Seller's and Buyer's good faith estimates
of the consolidated cash and cash equivalents (other than amounts in suspense
accounts) of Reserves LLC as of the Closing Date.
(c) Changes in Balance Sheets Due to Continuing Operations. Buyer and
Seller expressly recognize that the assets and liabilities of Reserves LLC and
the Partnership shall be affected by the effects of ongoing ownership and
operation of the Operating Assets between the Effective Time and the Closing
Date. These changes shall be handled exclusively by adjustments to the
Settlement Price as set forth in Section 3.2 and Article XIII.
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2.7 ADJUSTMENT ASSETS AND LIABILITIES. At Closing, the Partnership
shall retain, to the extent permitted by applicable law and regulations, the
following interests:
(a) All rights, obligations, liabilities, title and interests of Seller
and the Partnership in and to all Hedging Contracts in effect at the Effective
Time or thereafter;
(b) All Working Capital Accounts; and
(c) All rights to future proceeds, defenses and indemnities owed under
any bonds or insurance policies covering the Operating Assets, the Partnership,
Reserves LLC or the Business for policy periods prior to the Closing Date, for
losses, claims or occurrences, as applicable, arising prior to the Closing Date.
ARTICLE III.
PURCHASE PRICE AND SETTLEMENT PRICE
3.1 PURCHASE PRICE. The monetary consideration ("Purchase Price") for
the sale and conveyance of all the Membership Interests to Buyer, effective as
of the date of Closing, is Buyer's payment of $85,523,212 in cash.
3.2 SETTLEMENT PRICE. Pursuant to the provisions as described below,
the Purchase Price to be paid by Seller will be subject to certain adjustments
made at Closing and within one hundred twenty (120) days thereafter, as set
forth in Article XIII, to determine the Settlement Price amount that will
actually be paid by Buyer. The Settlement Price will be calculated as follows:
(a) Increases. The Purchase Price shall be increased by the following
amounts:
(i) An amount equal to the expenses properly accrued in
accordance with GAAP and past practice, and allocated
to Reserves LLC under the Partnership Agreement, and
as provided for in Section 13.3, attributable to the
period from the Effective Time to the end of business
on the Closing Date; provided, however, that such
expenses shall exclude all (1) depreciation,
depletion and amortization, (2) income and franchise
taxes, (3) one-half of the amount accrued by and the
Partnership and allocated to Reserves LLC under the
Partnership Agreement, incentive compensation
arrangements for the Retained Employees, as provided
in Section 9.9(c), and (4) severance obligations and
other amounts accrued under any employment retention
and management stability agreements, as provided in
Section 9.9(b); provided, further, however that
Seller and the Partnership shall be permitted to
accrue no more than $40,000 per month from the close
of business on June 30, 1999 to the Closing Date for
corporate general and administrative expenses;
(ii) An amount equal to the capital expenditures relating
to the Business properly accrued in accordance with
GAAP and past practice and allocated to Reserves LLC
under the Partnership Agreement, attributable to the
period from the Effective Time to the end of business
on the Closing Date; and
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(iii) The amount of change in Working Capital and allocated
to Reserves LLC under the Partnership Agreement
between the Effective Time and the end of business on
the Closing Date, if the amount of change is a
positive number.
(b) Decreases. The Settlement Price shall be decreased by the following
amounts:
(i) An amount equal to the revenues properly accrued in
accordance with GAAP and past practice and allocated
to Reserves LLC under the Partnership Agreement
attributable to the period from the Effective Time to
the end of business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment
allocated to Reserves LLC under the Partnership
Agreement, subject to the application of Section
13.1;
(iii) The amount, stated as a positive number, of any
change in Working Capital and allocated to Reserves
LLC under the Partnership Agreement between the
Effective Time and the end of business on the Closing
Date, if and only if, the amount of change is a
negative number.
The Purchase Price as adjusted pursuant to this Section 3.2 is herein called the
"Settlement Price".
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Effective as of the
Closing Date, Seller shall represent and warrant that:
(a) Disclosure. To Seller's Knowledge, the representations and
warranties set forth in this Section 4.1 of this Agreement, the exhibits to this
Agreement, and the information, documents and Balance Sheets provided under the
terms of this Agreement represent full and fair disclosure as of the Closing
Date and do not contain any untrue statement of any material fact or omit any
material fact necessary in order to make the facts stated not misleading.
(b) Authorization and Enforceability.
(i) This Agreement and the Transaction have been duly
authorized by each Seller.
(ii) Neither the execution and delivery of this Agreement
by Seller, nor the consummation by Seller of the
transactions contemplated hereby, will violate or
conflict with, or result in the acceleration of
rights, benefits or obligations under, (1) any
provision of any of Seller's, Reserves LLC's or the
Partnerships' respective Charters, Bylaws, management
agreements, limited liability company agreements,
operating agreements or partnership agreements, or
(2) any applicable statute, law, regulation or
Governmental Order to which Seller or Reserves LLC or
the Partnerships or the assets and properties of such
entities, including without limitation the Operating
Assets, are bound or subject.
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(iii) This Agreement has been duly executed and delivered
by each Seller and constitutes the valid and binding
obligation of each Seller, enforceable against it in
accordance with its terms, except as such
enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the
enforcement of creditors' rights generally and
general principles of equity (regardless of whether
such enforceability is considered in a proceeding in
equity or at law).
(iv) Except as set forth on Schedule 4.1(b)(iv), or as
otherwise specifically provided herein, the
execution, delivery, and performance of this
Agreement (assuming that all applicable consents are
received and all applicable Preferential Rights to
Purchase individual Operating Assets are waived) will
not (A) be in violation of any provisions of any
regulation or order that could reasonably be expected
to adversely affect the ownership or operations of
the Operating Asset affected thereby or give rise to
damages, penalties or claims of third parties, or (B)
result in the breach of, or constitute a default
under, any indenture or other material agreement or
instrument to which Seller, Reserves LLC or the
Partnerships are bound, or (C) cause the recognition
of ain for which the Buyer (or, after the Closing,
the Subsidiaries) will be responsible for the tax
thereon or subject any Subsidiary or its assets to
any Tax other than Tax for which Seller is
responsible under Article XVI;
(v) Except as set forth on Schedule 4.1(b)(v) or as
otherwise specifically provided herein, no consent,
waiver, approval, order or authorization of, notice
to, or registration, declaration, designation,
qualification or filing with, any Governmental
Authority or third Person, domestic or foreign, is or
has been or will be required on the part of Seller in
connection with the execution and delivery of this
Agreement or the consummation by Seller of the
transactions contemplated hereby or thereby, other
than (A) consents and Preferential Rights to Purchase
affecting individual Operating Assets; (B) filings
required (1) to form Reserves LLC under Delaware law;
(C) tax filings or (D) where the failure to obtain
such consents, waivers, approvals, orders or
authorizations or to make or effect such
registrations, declarations, designations,
qualifications or filings (1) is not reasonably
likely to prevent or materially delay consummation of
the transactions contemplated by this Agreement (2)
could reasonably be expected to adversely affect the
Business or (3) could give rise to damages, penalties
or claims of third parties.
(c) Organizational Status.
(i) Each Seller: (1) is a corporation duly organized,
validly existing and in good standing under the laws
of Delaware, (2) is duly qualified to transact
business in each jurisdiction where the nature and
extent of its business and properties require such
qualification, and (3) possesses all requisite
authority and power to conduct its business and
execute, deliver and comply with the terms and
provisions of this Agreement and to perform all of
its obligations hereunder. There are no pending or
threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or
rehabilitation of any Seller.
(ii) Reserves LLC(1) is a limited liability company duly
organized, validly
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existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business
in each jurisdiction where the nature and extent of
its business and properties require such
qualification, and (3) possesses all requisite
authority and power to conduct its business. There
are no pending or threatened Actions (or basis
therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of Reserves LLC.
(iii) The Partnership (1) is a limited partnership duly
organized, validly existing and in good standing
under the laws of Delaware, (2) is duly qualified to
transact business in each jurisdiction where the
nature and extent of its business and properties
require such qualification, and (3) possesses all
requisite authority and power to conduct its
business. There are no pending or threatened Actions
(or basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of the Partnership.
(d) Subsidiary and Other Equity Interests.
(i) Reserves LLC has no subsidiaries and does not own any
stock or other interest in any other corporation,
partnership, joint venture, or other business entity,
with the exception of the Partnership.
(ii) The Partnership has no subsidiaries and does not own
any stock or other interest in any other corporation,
partnership, joint venture, or other business entity.
(e) Membership Interests and Partnership Interests.
(i) Reserves LLC has authorized membership interests, of
which all are issued and outstanding and owned by
Tesoro Gas Resources Company, Inc. The membership
interests have been duly authorized by Reserves LLC,
and the membership interests owned by Tesoro Gas
Resources Company, Inc. are validly issued and
outstanding, fully paid and nonassessable. There are
no preemptive rights, subscriptions, options,
consents to assignment or rights of first refusal,
convertible securities, warrants, calls, stock
appreciation rights, phantom stock, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller or
Reserves LLC to issue or to transfer (or preventing
the transfer of) any membership interests, capital
stock or other equity interest in Reserves LLC.
(ii) In the Partnership, the entire Series A limited
partnership interest (representing a 99% interest in
all of the capital and assets of Series A) is held by
Reserves LLC. Exploration LLC is the general partner
of the Partnership (representing a 1% interest in all
of the capital and assets of Series A). Such
interests are duly authorized under the agreement
governing the Partnership, as currently amended, and
are valid. There are no preemptive rights, or
authorized or outstanding subscriptions, options,
consents to assignment or rights of first refusal,
convertible securities, warrants, calls, appreciation
rights, phantom interests, profit participation, or
other similar rights, or other agreements or
commitments obligating Seller, the Partnership,
Grande, Reserves LLC, Southeast or Exploration LLC to
issue or to transfer (or preventing the transfer of)
any equity interest in the
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Partnership.
(iii) Seller has delivered to correct and complete copies
of Reserves LLC's and the Partnership's respective
Charter, Bylaws, management agreement, limited
liability company agreement, operating agreement or
partnership agreement, as amended to date, and the
minute books of Reserves LLC and the Partnership.
Neither Reserves LLC nor the Partnership is in breach
of any provision of its Charter, Bylaws, management
agreement, limited liability company agreement,
operating agreement or partnership agreement.
(f) Title to Membership Interests, Partnership Interests and Assets.
(i) The Membership Interests constitute all of the issued
and outstanding membership interests and other equity
interests in Reserves LLC. All of the issued and
outstanding membership interests of Reserves LLC are
owned of record and beneficially with good and valid
title by Tesoro Gas Resources Company, Inc., free and
clear of any Encumbrance. Upon delivery to Buyer of
the certificates representing the Membership
Interests in the manner and with the powers described
in Section 12.2(a), assuming that Buyer pays the
consideration contemplated by this Agreement and has
no notice of any adverse claim, good and valid title
to the Membership Interests will have been
transferred to Buyer, free and clear of any
Encumbrances. Neither Tesoro Petroleum Corporation
nor Tesoro Gas Resources Company, Inc. has received
any notice of any adverse claim to their title to the
Membership Interests.
(ii) All of the issued and outstanding partnership
interests in the Partnership are owned of record and
beneficially with good and valid title by Grande,
Reserves LLC, Southeast, and Exploration, free and
clear of any Encumbrance. Neither Grande, Reserves
LLC, Southeast, nor Exploration has received any
notice of any adverse claim to their respective
interests in the Partnership.
(iii) Reserves LLC and the Partnership have good title to
all of the assets and properties (except the
Operating Assets) which they own or purport to own,
including the Financial Assets and Liabilities
reflected on the Balance Sheets and allocable to the
Properties under the Partnership Agreement, except
for properties sold, consumed or otherwise disposed
of in the ordinary course of business since the date
of the Balance Sheets, free and clear of any
Encumbrances other than Permitted Encumbrances.
(g) Litigation. Except as set forth in Schedule 4.1(g), none of Seller,
Reserves LLC or the Partnership have been served with and, to Seller's
Knowledge, there are no pending or threatened Actions before any Governmental
Authority against or affecting Seller, Reserves LLC, the Partnership or the
Operating Assets, which, if adversely determined, either would be reasonably
expected to expose Reserves LLC or the Partnership to a risk of loss after the
Effective Time or would interfere with Seller's ability or right to execute and
deliver this Agreement or consummate the transactions contemplated by this
Agreement.
(h) Labor Matters. Except as set forth on Schedule 4.1(h), there are no
contracts, agreements, or other arrangements whereby Reserves LLC or the
Partnership are obligated to
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compensate or provide health and welfare benefit plans or retirement benefits to
any employees or other persons, except for employment agreements that are
terminable at will, without breach or penalty. To Sellers' Knowledge, Seller,
Reserves LLC and the Partnership are in compliance with all federal, state, and
local laws respecting employment and employment practices, terms and conditions
of employment, and wages and hours and are not engaged in any unfair labor
practice with regard to those persons employed in connection with Reserves LLC's
or the Partnership's operations. No employee of Reserves LLC is covered under
any collective bargaining agreement. There is no unfair labor practice complaint
against Reserves LLC pending or, to Seller's Knowledge, threatened before the
National Labor Relations Board or any comparable state or local Governmental
Authority. There is no labor strike, slowdown or work stoppage pending or, to
Seller's Knowledge, threatened against or directly affecting Reserves LLC, and
no grievance or any Action arising out of or under collective bargaining
agreements is pending or, to Seller's Knowledge, threatened against Reserves
LLC.
(i) Taxes.
(i) Except as set forth in Schedule 4.1(i), Seller, and
the Partnership have timely filed or caused to be
timely filed (or will timely file or cause to be
timely filed) with the appropriate Taxing
Authorities, all Tax Returns required to be filed on
or prior to the Closing Date by or with respect to
Sellers and the Partnership (or their respective
Operating Assets) and have timely paid or adequately
provided for (or will timely pay or adequately
provide for) all Taxes shown thereon as owing, except
where the failure to file such Tax Returns or pay any
such Taxes would not, or could not reasonably be
expected to, in the aggregate, result in losses or
costs or expenses to Reserves LLC's interests or the
Partnership after the Closing Date.
(ii) Sellers are members of an affiliated group of
corporations which file consolidated federal income
tax returns ("Tesoro Group") with Tesoro Petroleum
Corporation as the common parent ("Tesoro Parent").
Reserves LLC is not required to and does not file
federal income tax returns as a taxpaying entity,
and, for purposes of federal income taxation,
Reserves LLC is accounted for and included as a part
of Tesoro Gas Resources Company, Inc. The Tesoro
Group has been subject to normal and routine audits,
examinations and adjustments of Taxes from time to
time, but there are no current audits or audits for
which written notification has been received, other
than those set forth in Schedule 4.1(i). There are no
written agreements with any Taxing Authority with
respect to or including Reserves LLC's interests
which will in any way affect liability for Taxes
attributable to Reserves LLC's interests after the
Closing Date.
(iii) Except as set forth in Schedule 4.1(i), no
assessment, deficiency or adjustment for any Taxes
has been asserted in writing or, to the knowledge of
Sellers, is proposed with respect to any Tax Return
of, or which includes, Reserves LLC's interests.
(iv) Except as set forth in Schedule 4.1(i), there is not
in force any extension of time with respect to the
due date for the filing of any Tax Return of or with
respect to or which includes Reserves LLC's interests
or any waiver or agreement for any extension of time
for the assessment or payment of any
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Tax of or with respect to or which includes Reserves
LLC's interests.
(v) Except for Taxes due with respect to Tax Returns that
will be paid by Tesoro Parent (and not subject to
reimbursement by Reserves LLC), the accounting
records of Reserves LLC will include immediately
prior to the Closing Date adequate provisions for the
payment of all Taxes allocable to Reserves LLC's
interests for all taxable periods or portions thereof
through the Closing Date.
(vi) All Tax allocation or sharing agreements or
arrangements have been or will be canceled on or
prior to the Closing Date. No payments are or will
become due by Reserves LLC after the Closing Date
pursuant to any such agreement or arrangement.
(vii) Except as set forth on Schedule 4.1(i), none of the
Sellers or Reserves LLC will, as a result of the
transactions contemplated by this Agreement, be
obligated to make a payment after the Closing Date to
an individual that would be a "parachute payment" as
defined in Section 280G of the Code without regard to
whether such payment is reasonable compensation for
personal services performed or to be performed in the
future.
(viii) Neither Reserves LLC nor the Partnership have
participated in or cooperated with an international
boycott within the meaning of Section 999 of the
Code.
(ix) Neither Reserves LLC nor the Partnership has filed a
consent under Code Section 341(f) concerning
collapsible corporations.
(x) Neither Reserves LLC nor the Partnership has been a
United States real property holding corporation
within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section
897(c)(1)(A)(ii).
(xi) All monies required to be withheld by either Seller,
Reserves LLC and the Partnership and paid to Taxing
Authorities for all Taxes have been (i) collected or
withheld and either paid to the respective Taxing
Authorities or set aside in accounts for such purpose
or (ii) properly reflected in the Balance Sheets.
(j) Balance Sheets.
(i) The Balance Sheets have been prepared in accordance
with GAAP applied on a basis consistent with prior
periods, except as described in the notes thereto,
which will qualify that the Partnership and Reserves
LLC have been accounted for as part of a consolidated
financial group with their affiliates and not as
completely separate stand-alone entities.
(ii) The Balance Sheets present fairly, in all material
respects, the financial condition of the combined
Partnership and Reserves LLC as of June 30, 1999. The
books and records of Reserves LLC and the Partnership
from which the Balance Sheets were prepared were
complete and accurate in all material respects at the
time of such preparation.
(iii) Reserves LLC and the Partnership have no Liabilities,
except for Liabilities (1) reflected in the Balance
Sheets, (2) incurred by Reserves LLC or the
Partnership in the ordinary course of business and
consistent with past
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practices since the date of the Balance Sheets, or
(3) which are Permitted Encumbrances, or (4) for
which the Buyer is being indemnified hereunder. As
used in this subparagraph, the term "Liabilities"
excludes any Liabilities not required to be reflected
in the Balance Sheets under GAAP.
(k) Absence of Certain Changes. Except as set forth in Schedule 4.1(k),
or as otherwise contemplated by this Agreement (including without limitation
Sections 2.5 and 2.6), or with Buyer's prior written consent, since the close of
business on June 30, 1999:
(i) Neither Reserves LLC nor the Partnership has sold,
leased, transferred, or assigned any assets other
than surplus equipment not necessary for operations
of the Business and for a reasonable consideration;
(ii) Reserves LLC and Partnership have not incurred,
assumed or become subject to any additional
indebtedness for money borrowed or purchase money
indebtedness, including capitalized leases;
(iii) Reserves LLC and Partnership have not entered into
any transaction not in the ordinary course of
business, except as contemplated by this Agreement;
(iv) there have been no additional Encumbrances placed on
the assets of Reserves LLC or the Partnership other
than Permitted Encumbrances;
(v) no event has occurred which constitutes a Material
Adverse Effect;
(vi) Neither Reserves LLC nor the Partnership has made any
loan to, or entered into any contract with (other
than severance agreements for which Seller shall
remain responsible), any of its directors or
officers;
(vii) Reserves LLC has not issued, sold, or otherwise
disposed of any of its interests in the Partnership,
except in connection with the transactions outlined
in Section 9.4(b) of the Stock Purchase Agreement;
(viii) there has been no change made or authorized to the
Charter, Bylaws, management agreement, limited
liability company agreement, operating agreement or
partnership agreement of Reserves LLC or the
Partnership, except in connection with the
transactions outlined in Section 9.4(b) of the Stock
Purchase Agreement;
(ix) Neither Reserves LLC nor the Partnership has
canceled, compromised, waived, or released any debt
or Action (or series of related debts or Actions);
(x) Neither Reserves LLC nor the Partnership has delayed
or postponed the payment of accounts payable or other
Liabilities owed, other than amounts which Seller
reasonably and in good faith disputes;
(xi) Neither Reserves LLC nor the Partnership has made any
capital investment in, any loan to, or any
acquisition of the securities or assets of, any other
Person (or series of related capital investments,
loans, and acquisitions), except in connection with
operations conducted pursuant to Section 9.2(f) or in
connection with the transactions outlined in Section
9.4(b) of the Stock Purchase Agreement;
(xii) Neither Reserves LLC nor the Partnership has made any
capital expenditure
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(or series of related capital expenditures), except
in connection with operations conducted pursuant to
Section 9.2(f); or in connection with the
transactions outlined in Section 9.4(b) of the Stock
Purchase Agreement
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<PAGE> 23
(xiii) Neither Reserves LLC nor the Partnership has entered
into any Contract (or series of related Contracts)
other than (i) to effectuate operations set forth on
Schedule 9.2(f) or (ii) constituting joint operating
agreements or oil and gas leases entered into in the
ordinary course of business or (iii) contracts with
officers and directors for which the Seller shall
remain responsible or (iv) contracts in connection
with the transactions outlined in Section 9.4(b) of
the Stock Purchase Agreement;
(xiv) to Seller's Knowledge, neither Reserves LLC nor the
Partnership has materially breached any Contract by
which it is bound or to which any of its assets is
subject; and
(xv) Neither Reserves LLC nor the Partnership has
declared, set aside, or paid any dividend or made any
distribution with respect to its interests in the
Partnership (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its interests
in the Partnership, other than in the ordinary course
of business or as contemplated by this Agreement or
in connection with the transactions outlined in
Section 9.4(b) of the Stock Purchase Agreement.
(l) Compliance With Law. Since June 30, 1999, neither Reserves LLC nor
the Partnership has violated any law, statute or regulation which have subjected
them to fines or penalties (nor to Seller's Knowledge have any third parties
violated any Applicable Law for which Reserves LLC or the Partnership may have
any responsibility). As of the date of this Agreement, to Seller's Knowledge,
Reserves LLC and the Partnership are in compliance in all material respects with
all laws, statutes or regulations applicable to Reserves LLC and the
Partnership, except where the noncompliance with which would not, in the
aggregate, result in the imposition on Reserves LLC and the Partnership of fines
or penalties.
(m) Operating Assets.
(i) Seller represents that as of Closing, Seller's and
the Partnership's interests in the Operating Assets
shall be free and clear of any liens other than
Permitted Encumbrances.
(ii) To Seller's Knowledge, the Operating Assets are being
operated in compliance in all material respects with
all applicable federal, state or local laws, and the
rules and regulations of any agency or authority
having jurisdiction.
(iii) Except as set forth in Schedule 4.1(m)(iii), Reserves
LLC and the Partnership possess all permits,
licenses, orders, approvals and authorizations
required by any applicable law, statute, regulation
or Governmental Order, or by the property and
contract rights of third Persons, reasonably
necessary to permit the operation of the Business in
the manner currently conducted by Reserves LLC and
the Partnership. Neither Reserves LLC nor the
Partnership has received written notice from any
Governmental Authority that any such permit, license,
order, approval or authorization has been, or will
be, revoked or terminated.
(iv) Except as set forth in Schedule 4.1(m)(iv),
immediately before the Closing
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Date, Reserves LLC and the Partnership will hold or
have the right to use in the Business all of the
assets and properties (including all licenses and
agreements) currently being used (except those
disposed of or expiring in the ordinary course of
business or otherwise as contemplated or permitted by
this Agreement) or which are reasonably necessary to
permit the operation of the Business in the manner
currently conducted by Reserves LLC and the
Partnership. Since June 30, 1999, Reserves LLC have
conducted no business other than the Business.
(n) No Brokers' Fees. Except for Credit Suisse First Boston, the fees
and expenses of which will be paid by Seller, neither Seller nor any of its
directors, officers or employees has employed any broker, finder or investment
banker or incurred any Liability for any brokerage fees, commissions, finders'
fees or similar fees in connection with the transactions contemplated by this
Agreement. Buyer shall have no responsibility whatsoever, contingent or
otherwise, for any brokers' or finders' fees incurred by Seller, Reserves LLC or
the Partnership relating to the Transaction.
(o) Suspense Funds. Schedule 4.1(o) is a true and correct list as of
August 31, 1999 of all amounts held by the Partnership and/or Reserves LLC in
suspense accounts, or otherwise, related to the Properties for the benefit or
account of any other Person.
(p) Insurance. As listed on Schedule 4.1(p) Seller, Reserves LLC and
the Partnership maintain insurance on and bonds with respect to the Operating
Assets, as set forth on Schedule 4.1(p), covering such risks and with such
deductible amounts as are consistent with general oil and gas industry practice.
(q) Contracts on Production. Except as set forth on Schedule 4.1(q),
there are no Contracts involving the purchase, marketing, brokering or sale of
Production that require a dedication of Production for a term in excess of three
(3) months that will not be terminable without penalty or other liability at the
sole discretion of Reserves LLC or the Partnership upon not more than one (1)
month's notice, except for commitments under operating agreements.
(r) Equipment. Since June 30, 1999, neither Seller, Reserves LLC nor
the Partnership, nor to Seller's Knowledge the operator of any of the Operating
Assets, has removed any of the equipment, facilities or other property from the
Operating Assets except in the ordinary course of business.
(s) Tax Partnerships. Except as disclosed in Schedule 4.1(s), no
Property is subject to, or considered to be held by, any partnership for federal
income tax purposes, other than tax partnerships under joint operating
agreements.
(t) Disclaimer. Except as otherwise expressly set forth in this Article
and elsewhere in this Agreement, Seller and the Affiliates of Seller expressly
disclaim any representations or warranties of any kind or nature, express or
implied, as to the condition, value or quality of the assets or properties
currently or formerly used, operated, owned, leased, controlled, possessed,
occupied or maintained by Reserves LLC or the Partnership, and SELLERS AND ALL
OTHER TESORO AFFILIATES SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY OF
MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH
RESPECT TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO THE
WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING ACQUIRED
"AS
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<PAGE> 25
IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, WITH ALL
FAULTS, AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND INVESTIGATION
THEREOF.
(u) Environmental Matters. Except as set forth on Schedule 4.1(u), to
Seller's Knowledge:
(i) There are no underground storage tanks, as defined in
Applicable Environmental Law, on the Properties or
any of the Operating Assets which constitute a
violation of Environmental Law.
(ii) The Operating Assets contain no friable asbestos,
mercury or polychlorinated biphenyls above 50 ppm or
other Hazardous Substances which constitute a
violation of Applicable Environmental Law.
(iii) The Operating Assets have been used solely for oil
and gas operations and related operations. Except for
the production, storage and transportation of oil,
gas and other hydrocarbons and the storage and
disposal of brine in the ordinary course of business
consistent with prevailing oil and gas industry
practices, the Properties have not been used to
dispose of Hazardous Substances. No Hazardous
Substances have been disposed of that would cause an
adverse material impact to any of the Operating
Assets.
(iv) There have been no spills or releases of any
Hazardous Substance related to the ownership or
operation of the Operating Assets which constitutes a
violation of Applicable Environmental Law, except for
matters that have been addressed and have no
continuing adverse consequence to Seller, Reserves
LLC, the Partnership or the Operating Assets.
(v) There are no Actions pending or threatened against
the Partnership, Reserves LLC, or either Seller with
respect to any of the Operating Assets relating to
the violation of, liability under, or noncompliance
with, any Applicable Environmental Law; the
discharge, disposal or release of a Hazardous
Substance; or the exposure of a Person or property to
a Hazardous Substance. Seller, Reserves LLC and the
Partnership have no current contingent liability in
connection with the release of Hazardous Substances.
(vi) The Operating Assets have been, and are operating, in
material compliance under all Applicable
Environmental Laws.
(vii) Seller, Reserves LLC and the Partnership have
provided Buyer all environmental audits, tests,
results of investigations and analyses that have been
performed with respect to the Operating Assets.
(v) Contracts. Except as set forth on Schedule 4.1(v) or Section 4.1(q)
and in joint operating agreements entered into in the normal course of business,
the Operating Assets are not subject to any instrument, agreement or other
Contract evidencing or related to indebtedness for borrowed money. All of the
existing Contracts between any of Reserves LLC, the Partnership and/or either
Seller and any of their respective Affiliates with respect to sales, services or
support to any of the Operating Assets or operations on the Operating Assets
shall terminate except for such Contracts otherwise indicated on Schedule 4.1(v)
to survive Closing. Except as set forth on Schedule 4.1(v) and other than
Consents to Assignment or Preferential Rights to Purchase, to Seller's
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<PAGE> 26
Knowledge, no Contracts to which Seller, Reserves LLC or the Partnership is a
party or a successor-in-interest and to which Buyer will be subject after the
Effective Time contain any provision that prevents Buyer from owning, managing
and operating the Operating Assets in accordance with the Partnership's past
practices.
(w) Seismic Information. At Closing, subject to the terms of the
License Agreement, neither Seller nor any affiliate of Seller other than
Reserves LLC and the Partnership shall have any further right to any of the
seismic data of Reserves LLC or the Partnership which has been assigned or
leased to Reserves LLC, the Partnership and/or the Buyer.
(x) Wells. Except to the extent set forth on Schedule 4.1(x), to
Seller's Knowledge, no well included in the Properties is subject to material
penalties on allowables because of any overproduction or any other violation of
Applicable Law. Except for the wells included in the Properties and listed in
Schedule 4.1(x), there are no wells included in the Properties that Seller,
Reserves LLC or the Partnership, or to Seller's Knowledge the operator of such
wells, are currently obligated by Applicable Law, Applicable Environmental Law
or order of any Governmental Authority to plug and abandon within a time certain
or that have been shut-in or temporarily abandoned.
(y) Expenditure Obligations. Except as set forth on Schedule 9.2(f),
Reserves LLC and the Partnership have not executed or are not otherwise
contractually bound by any authority for expenditure with respect to any of the
Operating Assets under any operating agreement, unit operating agreement, or
other similar agreements. Except as set forth on Schedule 9.2(f), with respect
to authorizations for expenditure relating to any of the Operating Assets, (i)
there are no outstanding calls under such authorizations for expenditures for
payments which are due or which Reserves LLC or the Partnership have committed
to make which have not been made; (ii) there are no material operations with
respect to which any of Reserves LLC and/or the Partnership has become a
non-consenting party where the effect of such non-consent is not disclosed on
Exhibit B, and (iii) there are no commitments for the expenditures of funds for
drilling or other capital projects other than projects with respect to which the
operator is not required under the applicable operating agreement to seek
consent.
(z) Payout. To Seller's Knowledge, the payout balances with respect to
any of the Properties operated by the Partnership that are subject to future
change on account of reversionary interests, non-consent penalties or similar
agreements or arrangements are set forth on Schedule 4.1(z) and are correct as
of the dates shown on such statements.
(aa) Absence of Certain Changes Regarding Properties. Since June 30,
1999, except as listed on Schedule 4.1(k), Reserves LLC and the Partnership:
(i) have maintained and operated each of the Properties
operated by any of them as a reasonably prudent
operator consistent with prevailing oil and gas
industry practice;
(ii) have used reasonable efforts consistent with their
past practices to cause each of the Properties not
operated by them to be maintained and operated in a
good and workmanlike manner and in substantially the
same manner as theretofore operated;
(iii) have paid timely their share of all costs and
expenses attributable to the Operating Assets, except
for such costs and expenses that they were
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<PAGE> 27
contesting in good faith by appropriate action;
(iv) have performed all accounting, royalty disbursement
and reporting requirements, as applicable, related
thereto for the Production; and
(v) have not agreed, whether in writing or otherwise, to
take any action described in this Section 4.1(aa).
(bb) Schedule 1B states all liens and mortgages that previously
encumbered the Membership Interests or the Operating Assets, securing
obligations of Seller, Reserves LLC or the Partnership (other than those items
listed in clause (ii) through (ix) of the definition of "Permitted
Encumbrances"), and all of the liens and mortgages listed on Schedule 1B have
been released, insofar as they encumber the Membership Interests or the
Operating Assets.
4.2 BUYER'S REPRESENTATIONS. Buyer represents that:
(a) Disclosure. To Buyer's Knowledge, the representations and
warranties set forth in this Agreement represent full and fair disclosure as of
the date of this Agreement and the date of Closing and do not contain any untrue
statement of any material fact or omit any material fact necessary in order to
make the facts stated not misleading.
(b) Authorization and Enforceability
(i) This Agreement and the Transaction have been duly
authorized by Buyer.
(ii) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated
hereby or thereby, will violate or conflict with (1)
any provision of Buyer's Charter or Bylaws, or (2)
any applicable statute, law, regulation or
Governmental Order to which Buyer or the assets or
properties of Buyer are bound.
(iii) This Agreement has been duly executed and delivered
by Buyer and constitutes the valid and binding
obligation of Buyer, enforceable against it in
accordance with its terms, except as such
enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the
enforcement of creditors' rights generally and
general principles of equity (regardless of whether
such enforceability is considered in a proceeding in
equity or at law).
(iv) Except as set forth on Schedule 4.2(b)(iv) or as
otherwise specifically provided herein, the
execution, delivery, and performance of this
Agreement (assuming that all applicable consents are
received) will not (A) be in material violation of
any provisions of any regulation, or order or (B)
result in the breach of, or constitute a default
under, any material indenture or other agreement or
instrument to which Buyer is bound.
(v) Except as set forth on Schedule 4.2(b)(v) or as
otherwise specifically provided herein, no consent,
waiver, approval, order or authorization of, notice
to, or registration, declaration, designation,
qualification or filing with, any Governmental
Authority or third Person, domestic or foreign, is or
has been or will be required on the part of Buyer in
connection with the execution and delivery of this
Agreement or the consummation by Buyer of the
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<PAGE> 28
transactions contemplated hereby or thereby, other
than where the failure to obtain such consents,
waivers, approvals, orders or authorizations or to
make or effect such registrations, declarations,
designations, qualifications or filings is not
reasonably likely to prevent or materially delay
consummation of the transactions contemplated by this
Agreement or prevent Buyer from performing its
obligations under this Agreement.
(c) Organizational Status. Buyer: (i) is a limited liability company
duly organized, validly existing and in good standing under the laws of
Delaware, (ii) is duly qualified to transact business in each jurisdiction where
the nature and extent of its business and properties require the same in order
for it to perform its obligations under this Agreement; and (iii) possesses all
requisite authority and power to conduct its business and execute, deliver and
comply with the terms and provisions of this Agreement, to purchase, receive,
and accept conveyance of the Membership Interests from Seller and to perform all
of its obligations hereunder.
(d) Ability to Perform. On the Closing Date, Buyer will have sufficient
cash, available lines of credit or other sources of immediately available funds
to enable it to make its payment of the Closing Settlement Price at the Closing.
(e) Investment Intent. The Membership Interests are being purchased for
Buyer's own account and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the Securities
Act. Buyer understands that the Membership Interests have not been registered
under the Securities Act by reason of their issuance in transactions exempt from
the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) thereof. Buyer is knowledgeable, competent, and
experienced in the oil and gas industry and has independently evaluated and
interpreted the technical data and other information regarding the Operating
Assets prior to entering into this Agreement, understands and is financially
able to bear the risk associated with ownership of Reserves LLC and the
Partnership, and will independently conduct all the due diligence investigations
and reviews of all matters concerning Reserves LLC, the Partnership and the
Operating Assets as it deems necessary prior to Closing. Buyer acknowledges that
Buyer is not relying upon any statement or representations made by Seller
concerning the present or future value of, or anticipated income, costs, or
profits, if any, to be derived from, Reserves LLC, the Partnership or the
Operating Assets, and Buyer has relied solely upon its independent inspections,
estimates, computations, evaluations, reports, studies, knowledge and other
information regarding Reserves LLC, the Partnership and the Operating Assets.
(f) Litigation. There are no pending or, to Buyer's Knowledge,
threatened suits, actions, proceedings, claims, or investigations that would
interfere with Buyers ability or right to execute and deliver this Agreement or
consummate the transactions contemplated by this Agreement.
(g) No Brokers' Fees. Buyer has incurred no liability, contingent or
otherwise, for brokers' or finders' fees relating to the Transaction for which
Seller shall have any responsibility whatsoever.
(h) Buyer's Knowledge. To Buyer's Knowledge, on the date hereof,
Buyer's representations and warranties made in this Section 4.2 are true and
correct in all material respects.
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ARTICLE V.
ACCESS TO INFORMATION AND INSPECTION
5.1 ACCESS TO INFORMATION. Prior to the Closing Date, upon reasonable
notice, Seller, Reserves LLC and the Partnership have (i) afforded the officers,
employees and authorized agents and representatives of Buyer reasonable access
during normal business hours to the offices, Operating Assets and Books and
Records , title and contract files, permit files, legal, evidentiary, litigation
support, records and data financial and accounting records and operating and
maintenance files, and related documents, records and materials concerning the
Operating Assets data in possession of Seller and (ii) furnished to the
officers, employees and authorized agents and representatives of Buyer such
additional financial and operating data and other information regarding the
assets, Operating Assets and Liabilities of Reserves LLC, the Partnership, and
the Business (or legible copies thereof) as Buyer may have from time to time
reasonably requested.
. 5.2 WARRANTIES AS TO DOCUMENTS. Seller has advised Buyer of the nature and
existence of any confidential documents that have been withheld from disclosure.
Seller does not warrant or represent the accuracy of any materials that may have
been made available for Buyer's review, except that Seller does represent and
warrant that it has not concealed or intentionally or willfully misrepresented
or withheld any information, data or materials in its possession except for
confidential information, data or materials, the existence of which has been
disclosed as otherwise provided herein.
ARTICLE VI.
TITLE
6.1 GOVERNMENTAL CONSENTS. After the execution of this Agreement, and
upon Closing and thereafter, Buyer and Seller shall cooperate to obtain all
routine or standard governmental consents or waivers necessary to transfer
Seller's rights and interests in Reserves LLC and the Partnership owning the
Operating Assets to Buyer.
ARTICLE VII.
ENVIRONMENTAL
7.1 DISCLOSURES AND AVAILABILITY OF DATA TO BUYER. The Operating Assets
have been utilized by the Partnership for the purposes of exploration,
development and production of oil and gas, for related oilfield operations and
possibly for the storage and disposal of waste materials or hazardous substances
generated or otherwise used in association with oil and gas exploration and
production activities on the Properties. The Operating Assets also may contain
buried pipelines, the locations of which may not now be known by Seller or
readily apparent by a physical inspection of the Operating Assets. In addition
to providing any environmental audits and studies as per Section 4.1(u), Seller
has made and shall make available to Buyer Seller's historical files regarding
the foregoing operations, to the extent available and to the extent Seller,
Reserves LLC and the Partnership are authorized to disclose same (excepting
documents which Seller, Reserves LLC or the Partnership are contractually
prohibited from disclosing or are subject to legal privilege or are in the
possession of another operator, and with respect to which Seller has been unable
to secure consent to disclose despite its commercially reasonable efforts to do
so).
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<PAGE> 30
7.2 NORM. Without affecting Seller's representations and warranties or
the provisions of Section 7.3, Buyer acknowledges that some or all of the
Operating Assets may contain naturally occurring radioactive materials ("NORM"),
and that NORM is an anticipated hazard in oil and gas production operations.
Certain of the Operating Assets, including without limitation, pipe and
equipment may have deposits that contain NORM. Buyer agrees that it shall cause
the Partnership to properly handle and dispose of all materials containing NORM
in a safe manner in accordance with all applicable laws and regulations, at
their sole risk, liability and expense.
7.3 BUYER'S ENVIRONMENTAL ASSESSMENT. Buyer has pursued such
environmental assessments of the Operating Assets as Buyer has desired.
7.4 RESPONSIBILITIES FOR REMEDIATION OF CONTAMINATION. As between the
parties hereto, but subject to the provisions of applicable laws, joint
operating agreements, other third party agreements and the indemnities and other
provisions set forth herein, from and after the Closing, the Partnership shall
remain responsible for costs of remediation of all Environmental Conditions
occurring on or arising from any Operating Asset at any time, whether before, on
or after the Effective Time; provided however, that Seller shall fund payment of
any fines or regulatory penalties that might be assessed against the Partnership
by reason of any violation of regulatory or permit requirements before the
Closing Date.
ARTICLE VIII.
CASUALTY LOSS AND CONDEMNATION
8.1 NO TERMINATION. Except as specifically provided to the contrary
herein, Reserves LLC and the Partnership shall retain all risk of loss with
respect to any loss of, reduction in value of or damage to the Operating Assets
from the Effective Time until Closing, and Buyer assumes the risk of loss of
value of Reserves LLC and the Partnership associated with such matters. If after
the Effective Time and prior to the Closing, any part of the Operating Assets
should be destroyed by fire or other casualty or if any part of the Operating
Assets should be taken in condemnation or under the right of eminent domain or
if proceedings for such purposes should be pending or threatened, this Agreement
shall remain in full force and effect notwithstanding any such destruction,
taking or proceeding or the threat thereof, except as expressly provided in
Article XX.
8.2 PROCEEDS AND AWARDS. In the event of any loss described in Section
8.1, Seller (with Buyer's consent, which shall not be unreasonably withheld)
shall either (a) at the Closing assign to the Partnership all of Seller's rights
in any insurance proceeds, third party damage payments, condemnation awards or
other amounts paid or to be paid by reason of such destruction, less any costs
and expenses incurred by Seller in collecting same, or (b) prior to Closing, use
or have the Partnership apply such sums (less any costs and expenses incurred by
Seller in collecting same) to repair, restore or replace such damaged or taken
Operating Assets. In addition, Seller shall at Closing assign to the Partnership
all of the right, title and interest of Seller in and to any claims for loss of
or damages to the Operating Asset, that might be asserted against third parties
with respect to the event or circumstance causing such loss to and any unpaid
insurance proceeds, condemnation awards or other payments arising out of such
destruction or taking, less any costs and expenses previously incurred by Seller
in collecting same. The Settlement Price shall be reduced by the Casualty Price
Adjustment, if any, attributable to casualty losses that are not fully covered
by insurance. Notwithstanding anything to the contrary in this Section 8.2,
neither Seller, Reserves LLC nor the Partnership shall be obligated to carry or
maintain, nor shall they have any obligation
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or liability to Buyer for their failure to carry or maintain any insurance
coverage with respect to any of the Operating Assets, except as required by
Section 9.2.
8.3 RISKS OF OTHER LOSSES. Except as otherwise set forth in this
Agreement, Buyer shall assume all risks of loss with respect to the
Partnership's ownership or operation of the Operating Assets after the Effective
Time, including without limitation, the following risks:
(a) Operations. With respect to each Operating Asset, Buyer shall
assume all risk of loss with respect to any loss of value or change in the
condition of the Operating Asset, and all wells thereon, after the Effective
Time, relating to the production of oil, gas or other hydrocarbons, including
without limitation normal depletion, water encroachment, coning, pressure
depletion, formation changes and sand infiltration. The Partnership shall
continue to bear its proportionate share of the risks allocated under applicable
joint operating agreements and assume their proportionate share of the risks
that such operations may be unsuccessful, and Closing shall not be conditioned
upon the success of any operations.
(b) Market Conditions. With respect to each Operating Asset, Buyer
shall assume all risk of loss with respect to any change in market conditions
affecting any Operating Asset or production therefrom after the Effective Time,
and this Agreement shall not be terminated or suspended, nor shall Closing be
delayed, due to any such change in market conditions.
ARTICLE IX.
COVENANTS
9.1 PRE-CLOSING COVENANTS OF SELLER REGARDING THE BUSINESS. Sellers
shall cause Reserves LLC and the Partnership to operate the Business only in its
usual, regular and ordinary manner and substantially in the same manner as
heretofore conducted, and as set forth in Section 9.2. Sellers shall cause
Reserves LLC and the Partnership to use commercially reasonable efforts and as
set forth in Section 9.2, to (i) preserve the Business; (ii) keep available to
Buyer the services of the present officers, employees, agents and independent
contractors of Reserves LLC; and (iii) maintain the assets of the Business in
their current state of repair, order and condition, usual and ordinary wear and
tear excepted and subject to requirements in the ordinary course of business.
9.2 PRE-CLOSING COVENANTS OF SELLER REGARDING THE OPERATING ASSETS.
Subject to the terms of applicable operating and other existing agreements,
Seller covenants and agrees that between the date of this Agreement and the
Closing Date, except as set forth on Schedule 9.2 or as may be consented to in
writing by Buyer, which consent shall not be unreasonably withheld, Seller shall
manage the Partnership's ownership of the Operating Assets as follows:
(a) Disposal of Operating Assets. The Partnership shall not sell or
otherwise dispose of any of the Operating Assets, except for the sale in the
ordinary course of the Partnership's business of oil, gas, condensate and
products thereof and surplus equipment.
(b) New Third Party Rights. Except for Contracts entered into in
furtherance of operations listed on Schedule 9.2 and Schedule 9.2(f), without
Buyer's consent, the Partnership shall not enter into any new or amended
contracts, agreements or relationships (i) granting any
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Preferential Right to Purchase or Consent to Assignment affecting any of the
Operating Assets hereunder, or (ii) which if in existence as of the date hereof
would be a material Contract.
(c) Preservation of Operating Assets. The Partnership shall use
reasonable efforts to preserve in full force and effect all leases, operating
agreements, easements, rights-of-way, permits, licenses, contracts and other
agreements which relate to the Operating Assets and shall perform the
obligations of the Partnership in or under any such agreement relating to such
Operating Assets as a reasonable and prudent operator, provided however, that
the Partnership shall not be required to conduct any drilling, recompletion or
reworking activities to maintain any lease, farmout agreement or other
defeasible interest in force or to settle any adverse claims, demands or
litigation in a manner that Seller deems inappropriate.
(d) Maintenance of Equipment. The Partnership shall maintain all
material and equipment within the Operating Assets in accordance with customary
industry operating practices and procedures.
(e) Insurance. The Partnership shall maintain in full force and effect
all policies of insurance now maintained by Seller and the Partnership covering
the Operating Assets. Seller and Buyer will cooperate in making claims under
Seller's insurance policies prior to the Closing. Seller additionally agrees to
cooperate with Buyer to allow Buyer, Reserves LLC or the Partnership to obtain,
at Buyer's expense, at a reasonable market price an additional reporting period
policy for any of Seller's insurance policies which are on a claims-made basis.
(f) Operations.
(i) Except for operations covered by committed
expenditures listed on Schedule 9.2(f), the
Partnership shall not propose or conduct for its own
account any operation. The Partnership shall have the
right to conduct, at its sole election and
discretion, any operations that either (1) are
covered by committed expenditures listed on Schedule
9.2(f), (2) are required by law or regulations, or
(3) are required under a binding existing agreement
with a third party.
(ii) Except for operations covered by committed
expenditures listed on Schedule 9.2(f), the
Partnership shall not agree to participate in any
reworking, deepening, drilling, completion,
recompletion, equipping or other operation that is
proposed by a co-owner in any well or other asset
without Seller having first provided Buyer written or
oral notice thereof as soon as reasonably practicable
after the Partnership receives notice thereof from
the Partnership's co-owner in such Operating Asset.
If Seller provides Buyer with such notice, Buyer and
Seller shall promptly consult about the advisability
of participating in such operations. If Buyer and
Seller cannot agree, the following provisions shall
apply:
(1) If Seller should wish to participate in an
operation proposed by a third party and Buyer should
object to the operation, then the Partnership may
agree to participate, but Buyer may assert a Title
Defect with respect to the Property affected by such
operation, and in such event such Property shall be
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excluded from the sale hereunder and instead shall be
assigned to another subsidiary of Seller prior to
Closing and the Purchase Price shall be reduced by
the Allocated Value of the affected Property. In such
event, Seller shall indemnify and defend Buyer
against any and all Damages relating to such
operation and such Property.
(2) If Buyer should wish to participate in such
operation and Seller objects to the operation, the
Partnership shall not be obligated to make any such
payment or to elect to participate in such operation
unless within a reasonable time prior to the date
when such payment or election is required to be made
by the Partnership, the Partnership receives from
Buyer, (A) the written election and agreement of
Buyer to require the Partnership to take such action
and to indemnify Seller therefrom and (B) all funds
necessary for such action.
(3) If (A) Buyer advances any funds pursuant to
subparagraph (2), and (B) the Membership Interests
are not assigned to Buyer at Closing, and (C) Seller
does not reimburse Buyer for all advances made by
Buyer with respect to such Operating Assets pursuant
to subparagraph (2) within thirty (30) days after
this Agreement terminates, then Buyer shall own and
be entitled to any right of the Partnership that
would have lapsed but for such payment, and in the
case of operations, Seller shall be entitled to
receive the penalty which the Partnership, as
non-consenting party, would have suffered under the
applicable operating agreement with respect to such
operations as if Buyer were a consenting party
thereunder.
(g) Data Restrictions. Seller shall advise Buyer in writing of the
identity, nature and existence of any technical or interpretive information or
data that cannot be assigned to Buyer hereunder because of confidentiality
agreements with third parties, identify such third parties, and provide
reasonable cooperation (for before and up to one year after Closing) in
obtaining the agreement of such third parties to the release or assignment of
such information and data to Buyer; provided however, that Seller shall not be
required to expend any material funds or release any rights to allow such
release or assignment.
(h) Operating Assets Operated by Others. To the extent the Partnership
is not the operator of any Operating Asset, the obligations of Seller in this
Section 9.2, which have reference to operations or activities which normally are
or pursuant to existing contracts are to be carried out or performed by
operator, shall be construed to require only that the Partnership use reasonable
efforts to request that the operator of such Operating Asset either take such
actions, render such performance or refrain from performance, within the
constraints of the applicable operating agreements, applicable agreements and
applicable law.
9.3 SELLER'S COVENANTS REGARDING ENCUMBRANCES. Seller covenants that on
or before the Closing Date, Seller shall cause the Encumbrances in Schedule 1B
to be released, in a form reasonably acceptable to Buyer.
9.4 COVENANTS REGARDING CORPORATE AND FINANCIAL MATTERS. Through the
Closing Date, except as set forth in Schedule 9.4 or as contemplated by this
Agreement (including without
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limitation Sections 2.5 and 2.6) or otherwise consented to or approved by Buyer
in writing, which consent or approval shall not be unreasonably withheld, Seller
shall cause Reserves LLC and the Partnership not to:
(a) Amend the Charter, Bylaws, management agreement, limited liability
company agreement or operating agreement of any Reserves LLC or amend the
partnership agreement of the Partnership;
(b) Incur, assume or become subject to any additional indebtedness for
money borrowed or purchase money indebtedness, except in the ordinary course of
business and consistent with past practices;
(c) Except as necessary to effect the transactions contemplated herein,
declare or pay any dividend or make any other distribution to any shareholder of
any of Reserves LLC or any partner of the Partnership;
(d) Redeem or otherwise acquire any shares of capital stock of any of
Reserves LLC or issue any capital stock of any Reserves LLC or any option,
warrant or right relating thereto or any securities exchangeable for or
convertible into any such shares;
(e) Permit or allow any of Reserves LLC' assets or properties to be
subject to any additional Encumbrance (other than Permitted Encumbrances) or
sell, transfer, lease or otherwise dispose of any such assets or properties,
other than surplus equipment not necessary for operations of the Business and
sold for a reasonable consideration of less than $25,000;
(f) Make any change in any method of accounting or accounting practice
or policy, other than those required by GAAP;
(g) Engage in any transactions with an Affiliate of Seller, other than
transactions in the ordinary course and consistent with past practices;
(h) Make any changes in the method of selling natural gas, condensate,
oil or products thereof which is not consistent with past practices;
(i) Enter into any new derivative or Hedging Contracts with respect to
natural gas, condensate, oil, products thereof, interest or any other
commodities or other financial instruments; or
(j) Agree, whether in writing or otherwise, to do any of the foregoing.
9.5 NO SOLICITATION OF TRANSACTIONS. Except as otherwise permitted
herein from the date of this Agreement through the Closing Date, neither Seller
nor any of their representatives, Affiliates, directors, officers, employees,
subsidiaries or agents will (a) solicit, consider, encourage or accept any other
offers to acquire any of the Membership Interests or Seller's interests in the
Partnership or (b) solicit, consider, encourage or accept any other offers to
acquire any of the assets or properties of the Partnership (other than as
permitted by this Agreement) or (c) assist any third Person in preparing or
soliciting such an offer. Seller shall not have, and shall cause such
representatives, Affiliates, directors, officers, employees, subsidiaries and
agents not to have any
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discussions, conversations, negotiations or other communication with any
Person(s) expressing an interest in any such offer.
9.6 EMERGENCIES AND OVERSIGHTS. Notwithstanding the other provisions of
this Article IX, (a) Seller, Reserves LLC and/or the Partnership may take any
action with respect to the Operating Assets without penalty, if reasonably
necessary under emergency circumstances or if required to protect life, public
safety or the environment, and provided Buyer is notified as soon thereafter as
reasonably practical, and (b) Seller shall have no liability to Buyer for the
loss or reduction of any rights or interests by reason of the nonpayment or
incorrect payment of delay rentals, royalties, shut-in royalties or similar
payments or for any failure to pay any such payments through mistake or
oversight; provided, however, Buyer shall be permitted to assert the items in
this clause (b) as Title Defects under Article VI.
9.7 BUYER'S COVENANTS REGARDING PERFORMANCE AND CONTINUED EXISTENCE.
Buyer covenants that between the date of this Agreement and the Closing Date:
(a) Buyer shall take all steps and perform all operations reasonably
necessary to allow Buyer to perform its obligations at Closing;
(b) Buyer shall maintain its existence as a limited liability company
in good standing in Delaware; and
(c) Buyer shall cause the representations and warranties of Buyer to be
true and correct as of the Closing Date.
9.8 BUYER'S COVENANTS REGARDING TRADE NAME. Buyer acknowledges and
agrees with Seller that Seller shall have the absolute and exclusive proprietary
right to all names, marks, trade names, trademarks and corporate symbols and
logos incorporating "Tesoro," together with all other names, marks, trade names,
trademarks and corporate symbols and logos owned by any Affiliates of Seller
(collectively, the "Tesoro Marks"), all rights to which and the goodwill
represented thereby and pertaining thereto are being retained by Seller and the
Affiliates of Seller. Within ninety (90) days after the Closing Date, Buyer
shall change the name of Reserves LLC and the Partnership, to not include the
name "Tesoro", cease using any Tesoro Mark and shall promptly remove from all
the assets and properties of Reserves LLC any and all Tesoro Marks, and change
the name on all permits and licenses, to not include the name "Tesoro".
Thereafter, Buyer shall not use any Tesoro Mark in connection with the conduct
of its business. In the event that Buyer breaches this Section 9.8, Seller shall
be entitled to specific performance of this Section 9.8 and to injunctive relief
against further violations, as well as any other remedies available at law or in
equity.
9.9 BUYER'S COVENANTS REGARDING EMPLOYMENT.
(a) Schedule 9.9(a) sets forth the employees of Seller or its
Affiliates to whom Buyer (or an Affiliate of Buyer) expects to offer employment
after the Closing. Buyer in its sole discretion will determine the capacity in
which the employees listed on Schedule 9.9(a) who accept employment with Buyer
or its Affiliate (the "Retained Employees") will be employed and with which
entity each of the Retained Employees will be employed after the Closing. After
the Closing, Buyer (or its Affiliates which will employ Retained Employees) will
initially provide to the Retained Employees the same base salary or wages (but
not any retention-related salary increases described
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in Schedule 9.9(c)) provided to such employees prior to the Closing, subject to
such changes in base salary or wages as are consistent with the Buyer's
compensation structure. Buyer will take all actions necessary or appropriate to
permit the Retained Employees to participate from and after the Closing in the
employee benefit plans or arrangements of Buyer and/or Affiliates of Buyer
customarily provided to new employees of Buyer and its Affiliates (including,
without limitation, the Employee Stability Plan); provided that Buyer shall,
with respect to Buyer's or its Affiliate's group health and dental plans
("Buyer's Group Health Plans"), to the extent necessary after the Closing, (i)
reimburse such Retained Employees, for the year during which participation in
Buyer's Group Health Plan begins, for any duplicate deductibles and copayments
already incurred during such year under the group health and dental plans of
Seller or its Affiliates ("Seller's Group Health Plans"), and (ii) waive any
preexisting condition limitations applicable to the Retained Employees (and
their eligible dependents) under Buyer's Group Health Plans to the extent that a
Retained Employee's (or dependent's) condition would not have operated as a
preexisting condition under Seller's Group Health Plans.
(b) Buyer (and its Affiliates) will not be required to assume any
obligation to Retained Employees (or any other employees of Seller or its
Affiliates) under Seller's existing severance, retention or management stability
agreements, or similar agreements. As described in Section 9.9(a), from and
after the Closing, the Retained Employees will be permitted to participate in
the employee benefit plans or arrangements of Buyer and/or its Affiliates
customarily provided to new employees of Buyer and its Affiliates (including,
without limitation, the Employee Stability Plan), or other benefits as may be
individually negotiated between Buyer and a Retained Employee.
(c) Buyer (or its Affiliate) will assume half, and Seller and its
Affiliates will remain responsible for half, of the liability to all Retained
Employees for the annual incentive compensation bonuses described on Schedule
9.9(c). Buyer (or its Affiliate) will not assume the liability to certain
Retained Employees for the retention-related salary payment.
(d) Any obligations to employees of Seller and its Affiliates not
specifically assumed by Buyer (or its Affiliates) in this Section 9.9, including
without limitation all such obligations accrued prior to the Closing, will be
the responsibility of the Seller, and Seller will indemnify Buyer with respect
to those obligations.
(e) Buyer agrees to open an office in San Antonio, Texas and to
maintain such office for so long as prudent business practices justify its
operation.
(f) If after the Closing Date, Seller or any of its Affiliates
continues to employ any individual listed on Schedule 9.9(a), Seller agrees to
cooperate with Buyer to make such individual available to provide services
required by Buyer for up to six months after the Closing Date for transition
purposes, with Buyer reimbursing Seller for the actual cost of such employee's
services (including without limitation, salary and benefits).
9.10 AUTHORIZATIONS.
(a) Each of Buyer and Seller, as promptly as practicable after the
Agreement Date, shall (i) deliver, or cause to be delivered, all notices and
make, or cause to be made, all such declarations, designations, registrations,
filings and submissions under all statutes, laws, regulations and Governmental
Orders applicable to it as may be required for it to consummate the sale of the
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Membership Interests and the other transactions contemplated hereby in
accordance with the terms of this Agreement; (ii) use commercially reasonable
efforts to obtain, or cause to be obtained, all authorizations, approvals,
orders, consents and waivers from all Persons necessary to consummate the
foregoing; and (iii) use commercially reasonable efforts to take, or cause to be
taken, all other actions necessary, proper or advisable in order for it to
fulfill its respective obligations hereunder and to carry out the intentions of
the parties expressed herein. The preceding sentence notwithstanding, neither
party shall have any obligation to waive any condition herein for its benefit or
any performance hereunder by any other party.
(b) Each Party shall use its commercially reasonable efforts to satisfy
the conditions to Closing applicable to it in Article XI as soon as commercially
practicable.
9.11 SOFTWARE AND COMPUTER PROGRAMS. From the date of this Agreement
through the date which is ninety (90) days after the Closing Date, each Seller,
Reserves LLC and the Partnership, as applicable, agree to engage in discussions
with the licensors of applicable software and computer programs and seismic data
and processing identified in a written notice provided to Seller by Buyer on or
prior to the Closing Date, the purpose of which discussions shall be to assist
Buyer in its efforts to obtain a license with respect to such software and/or
computer programs and seismic data and processing with terms acceptable to
Buyer. Buyer will pay all fees (including fees agreed to as part of a
settlement) required to transfer or retain such records, programs and data that
Buyer chooses to retain after Closing.
9.12 GENERAL.
(a) Each of the Parties will use their reasonable best efforts to take
all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Article
XI).
(b) Buyer agrees to cooperate at no cost or liability to Buyer with
Seller so that Seller's transfer of the Operating Assets to Buyer shall, at
Seller's election, be accomplished in a manner enabling the transfer to qualify
as a part of a like-kind exchange of property by Seller within the meaning of
Section 1031 of the Code. If Seller so elects, Buyer shall reasonably cooperate
with Seller to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller reasonably requests in order
to pay the Purchase Price in a manner which enables such transfer to qualify as
part of a like-kind exchange of property within the meaning of Section 1031 of
the Code, and Buyer agrees that Seller may assign its rights (but not its
obligations) under this Agreement to an escrow agent acting as a qualified
intermediary under United States Treasury Regulations, to qualify the transfer
of the Purchase Price as a part of a like-kind exchange of property within the
meaning of Section 1031 of the Code.
(c) Seller shall reimburse Buyer for Buyer's reasonable costs and
expenses incurred in connection with evaluating and implementing the like kind
exchange transaction, including without limitation, legal and accounting fees
incurred in connection with evaluating and implementing the like kind exchange
transaction and revising this Agreement. Seller shall reimburse Buyer in cash
for such costs and expenses within ten (10) days after receiving a notice from
Buyer describing such costs and expenses in reasonable detail, and requesting
payment.
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(d) If prior to Closing Buyer elects to obtain financing for a portion
of the Purchase Price from a bank or other lender (the "Lender") (whether
through conventional loans or through a production payment or similar
off-balance sheet financing mechanism), Seller shall (and shall cause Reserves
LLC and the Partnership to) cooperate reasonably with Buyer in Buyer's
negotiation and finalization of any loan or other documents with the Lender,
provided that such cooperation does not result in Seller, Reserves LLC and the
Partnership incurring material additional expenses. Seller shall (and shall
cause Reserves LLC and the Partnership to) use its commercially reasonable
efforts to give representatives of the Lender the access to information and
right to inspection provided to Buyer under Article V, subject to the Lender
agreeing to be bound by the terms of the Confidentiality Agreement. This Section
9.12(d) does not change or modify Buyer's obligation to close the Transactions
in accordance with the other provisions of this Agreement.
9.13 COVENANT AND INDEMNITY WITH RESPECT TO CASH FLOW. Seller covenants
to use its best efforts to insure that after the Closing all cash, checks, wire
transfers and other cash flow attributable to the Operating Assets received by
Seller or any Affiliate of Seller will be transferred on or before the next
Business Day after such cash flow is received by Seller or such Affiliate of
Seller to an account designated by Buyer prior to the Closing (such that the
transfer is recorded by the transferring bank on or before the next Business Day
after such cash flow is received by Seller or an Affiliate of Seller). To the
extent Seller does not make the transfer required by this Section 9.13 on or
before the next Business Day after receipt of such cash flow, Seller agrees to
pay to Buyer (a) interest at the prime rate of Buyer's primary lender (accruing
from the second Business Day after receipt by Seller of such cash flow) on any
such cash flow remaining outstanding for the second and third Business Day after
receiving such funds and (b) the maximum interest allowable by Applicable Law on
any such cash flow remaining outstanding thereafter. Seller agrees to indemnify
and hold the Buyer Group harmless for any Damages asserted against, resulting
to, imposed upon or incurred by the Buyer Group arising from any failure by
Seller to transfer any amounts that, together with any other amounts not
transferred pursuant to this Section 9.13, aggregate greater than $1 million and
that Seller has not transferred within one Business Day after written notice by
Buyer is received by Seller. Buyer and Seller agree to cooperate in identifying
amounts that may need to be transferred by Seller to Buyer under this Section
9.13.
ARTICLE X.
PRE-CLOSING PROCEDURES
10.1 INITIAL SETTLEMENT STATEMENT. Before Closing, Seller shall furnish
Buyer with a preliminary draft of the Settlement Statement, in accordance with
Section 13.1. Buyer shall have the right to audit and request appropriate
adjustments to the amounts reflected therein. Buyer shall furnish Seller with
any comments, and adjustments or revisions Buyer believes are appropriate to
conform the Settlement Statement to accurately reflect the best information
available at Closing, and the Parties shall endeavor in good faith to reconcile
the accounting issues and to produce as accurate a Settlement Statement as
possible based upon the information available at Closing. Seller shall then
furnish Buyer with the Settlement Statement, including any appropriate updates,
adjustments or revisions, showing the Closing Settlement Price.
10.2 CLOSING DOCUMENTS. Before Closing, the Parties shall provide each
other with preliminary drafts of all attorneys opinions, certificates, corporate
guarantees, assignments and other
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instruments to be delivered at Closing. The Parties shall thereafter cooperate
to make such revisions as are needed to prepare mutually acceptable forms of all
such instruments.
10.3 ESCROW AGENT. If the Parties should agree to place any funds into
an escrow account at Closing, then they shall negotiate in good faith to select
a mutually acceptable escrow agent, who is willing and able to perform such
role. In such an before the Closing Date, the Parties shall agree upon an escrow
agent, and they shall use their best efforts to negotiate a mutually acceptable
Escrow Agreement before the Closing Date.
10.4 WIRE TRANSFER INSTRUCTIONS. At least two (2) Business Days prior
to the Closing Date, Seller shall provide to Buyer wire transfer instructions
designating a bank account and Federal Reserve ABA designation ID number, at a
bank within the United States of America where the Closing Settlement Price
shall be paid.
ARTICLE XI.
CLOSING CONDITIONS
11.1 SELLER'S CLOSING CONDITIONS. Seller's obligation to consummate the
Transaction is subject to the satisfaction by Buyer or the waiver by Seller, at
or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Buyer
contained in Section 4.2 shall be true and correct in all material respects on
the Closing Date as though made on and as of that date.
(b) Performance. Buyer shall have performed in all material respects
the obligations, covenants and agreements hereunder to be performed by it at or
prior to Closing.
(c) Corporate Certificates and Opinion. Buyer shall have delivered to
Seller (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of Buyer that the representations set forth in Section 4.2
are true and correct as of the Closing Date; (ii) a certificate of incumbency;
(iii) a certificate of good standing of Buyer as a limited liability company;
(iv) certified resolutions of the members of Buyer, authorizing Buyer to enter
into this Agreement and the Transaction and to perform its obligations at
Closing; and (v) an opinion of counsel for Buyer, acceptable to Seller, dated
the Closing Date, as to such matters as may reasonably be requested by Seller
and its counsel and are typical for transactions such as the Transaction.
(d) Pending Matters. No suit, action or other legal proceeding by a
third party or a governmental authority shall be pending which seeks material
damages from Seller in connection with, or seeks to restrain, enjoin or
otherwise prohibit, the consummation of the Transaction.
(e) No Orders. This Closing hereunder shall not violate any order or
decree of any governmental authority having competent jurisdiction over the
Transaction.
(f) HSR. Any applicable waiting period under the HSR Act shall have
expired or been terminated.
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11.2 BUYER'S CLOSING CONDITIONS. Buyer's obligations to consummate the
Transaction is subject to the satisfaction by Seller or the waiver by Buyer, at
or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Seller
contained in Section 4.1 (other than with respect to paragraphs (u), (w), (x),
(y), (z) and (aa) of Section 4.1) shall be true and correct in all material
respects on the Closing Date as though made on and as of that date; provided,
however, that the accuracy of the representations and warranties in
subparagraphs (k)(i), (ix), (x), (xi), (xii) and (xiii) of Section 4.1 shall,
for purposes of satisfying this condition, not be affected to the extent of
inaccuracies resulting solely from Buyer unreasonably withholding its prior
written consent (after written request by Seller duly provided to Buyer) to the
action taken by (or omission of) Seller, Reserves LLC or the Partnership which
caused such representations and warranties to be inaccurate.
(b) Performance. Seller shall have performed, or caused to be
performed, in all material respects the obligations, covenants and agreements
hereunder to be performed by it, Reserves LLC and the Partnership at or prior to
Closing.
(c) LLC Certificates and Opinion. Each Seller shall have delivered to
Buyer, and Seller shall cause Reserves LLC and the Partnership to deliver to
Buyer: (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of such Seller that the representations made in Section
4.1, are true and correct as of the Closing Date; (ii) a certificate of
incumbency for each Seller, (iii) a certificate of corporate good standing for
the Partnership as a Delaware limited partnership, for each Seller as Delaware
corporations and for Reserves LLC as a Delaware limited liability company; (iv)
with respect to each Seller only, certified resolutions of the Boards of
Directors of each Seller, authorizing each Seller to enter into this Agreement
and the Transaction and to perform its obligations at Closing; and (v) an
opinion of counsel for the Seller and each of Reserves LLC and the Partnership,
acceptable to Buyer, dated the Closing Date, as to such matters as may
reasonably be requested by Buyer and its counsel and are typical for
transactions such as the Transaction.
(d) Other Certificates and Documents. Buyer shall have also received
the certificates and documents described in Section 12.2.
(e) Pending Matters. No suit, action or other legal proceeding by a
third party or a governmental authority shall be pending which seeks material
damages from Buyer in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
(f) No Orders. The Closing hereunder shall not violate any order or
decree of any governmental authority having competent jurisdiction over the
Transaction.
(g) Adjustments. The reduction (if any) to be made at Closing to the
Purchase Price which results from the application of Articles VIII and XIII does
not exceed fifteen percent (15%) of the Purchase Price.
(h) Liens and Mortgages. Seller shall have secured release of all liens
and mortgages listed on Schedule 1B and released all obligations of Reserves LLC
and the Partnerships under the Seller's credit facility and provided Buyer
evidence of the same.
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(i) There shall not have occurred a Material Adverse Effect.
(j) HSR. Any applicable waiting period under the HSR Act shall have
expired or been terminated.
(k) Seller shall have delivered proof, acceptable to Buyer in its
reasonable discretion, of the effectiveness of a post-effective amendment to
Seller's Registration Statement on Form S-3 (Reg. No. 333-51789), as amended,
removing any entities being transferred hereunder as co-registrants under such
registration statement.
ARTICLE XII.
CLOSING
12.1 CLOSING. The closing of the Transaction (the "Closing") shall be
held on December 17, 1999 (the "Closing Date"), at 9:00 a.m. Houston time, at
the office of Seller's counsel, 1301 McKinney, Suite 5100, Houston, Texas 77010,
or at such other date or place as the parties may direct; provided, however,
that if all conditions to Closing set forth in Article XI have not been waived
or satisfied prior to December 17, 1999, the Closing Date shall be on the second
Business Day following the waiver or satisfaction of such conditions.
12.2 SELLER'S CLOSING OBLIGATIONS. At Closing, Seller shall deliver to
Buyer the following:
(a) The certificates representing Membership Interests in Reserves LLC,
duly endorsed in blank or with separate duly executed powers duly endorsed in
blank;
(b) All organizational documents and books and records of each of
Reserves LLC and Exploration;
(c) All books and records of the Partnership;
(d) The resignations of the officers and directors of Reserves LLC;
(e) Such other documents or authorizations as Buyer may reasonably
request, or as might be reasonably necessary to assign all of Seller's interest
in Reserves LLC, the Partnership and the Operating Assets to Buyer in accordance
with the provisions hereof;
(f) A certificate of each Seller signed under penalties of perjury (i)
stating that it is not a foreign corporation, foreign partnership, foreign trust
or foreign estate, (ii) providing its U.S. Employer Identification Number (if
applicable) and (iii) providing its address, all pursuant to Section 1445 of the
Code.
(g) The certificates of Seller referred to in Section 11.2(c) hereof;
(h) The opinion of counsel referred to in Section 11.2(c) hereof; and
(i) Releases, in a form acceptable to Buyer, of all liens and mortgages
listed on Schedule 1B.
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12.3 BUYER'S CLOSING OBLIGATIONS. At Closing, Buyer shall deliver the
following:
(a) The Closing Settlement Price, paid to the Seller in immediately
available funds, by wire transfer into the U.S. bank account designated by the
Seller;
(b) The certificates of Buyer referred to in Section 11.1(c) hereof;
and
(c) The opinions of counsel referred to in Section 11.1(c) hereof.
12.4 GOVERNMENTAL FILINGS. At Closing, the Parties shall execute such
guarantees, bonds, forms and other instruments as are needed allow Buyer to
assume all of Seller's existing obligations under governmental permits and
licenses and leases affecting the Operating Assets. Buyer shall diligently file
such instruments and obtain governmental approval of the transfer of all such
rights, obligations and interests.
ARTICLE XIII.
ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS
13.1 SETTLEMENT STATEMENTS.
(a) Pre-Closing. The Settlement Statement is attached hereto as Exhibit
D.
(b) Final Statement. As soon as practicable after the Closing Date, but
in no event later than one hundred twenty (120) days thereafter, Buyer shall
prepare and submit to Seller a draft Final Statement, which shall show the
calculation of the adjusted Final Settlement Price, based upon the best
information then available. Seller shall have the right to audit such Final
Statement and all supporting data and accountings. As soon as practicable after
receipt of the Final Statement, but in any event within thirty (30) days after
receipt thereof, Seller shall deliver to Buyer a written report containing the
changes, if any, which Seller proposes be made to the Final Statement. If no
response is made by Seller within such thirty (30) day period, it shall be
presumed that Seller concurs with the Final Statement, and such Final Statement
shall be the basis for the Final Settlement Price. If Seller submits a response,
the Parties shall cooperate in good faith to produce not later than one hundred
eighty (180) days after the Closing Date as accurate a Settlement Statement as
possible based upon the information then available. After agreement upon a Final
Statement setting forth the Final Settlement Price, the difference between such
Final Settlement Price and the Closing Settlement Price paid at Closing shall be
paid within five (5) Business Days thereafter by the Party owing the same.
13.2 OPERATING TAXES.
(a) Apportionment of Ad Valorem and Property Taxes. All ad valorem,
real property taxes and personal property taxes, including interest and
penalties attributable thereto (hereinafter "Property Taxes"), attributable to
Reserves LLC's limited partnership interest in the Partnership's ownership and
operation of the Properties with respect to the assessment period ("Property Tax
Period") during which the Effective Time occurs shall be apportioned between
Seller and Buyer by multiplying the total amount of such Property Taxes by a
fraction, the numerator of which is the number of days in the partial period
through and including the Effective Time and the denominator of which is the
total number of days in the Property Tax Period. The Partnership shall file or
cause
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to be filed all required reports and returns incident to the Property Taxes and
shall pay or cause to be paid to the taxing authorities all Property Taxes
relating to the Property Tax Period during which the Effective Time occurs. If
Seller is the owner of Reserves LLC on the Property Tax assessment date, then
the Settlement Price shall be increased by the amount of Buyer's portion of
Property Taxes owed as set forth above. If the Property Tax assessment date
occurs after Closing, then the Settlement Price shall be reduced by the
estimated amount of Seller's portion of Property Taxes owed as set forth above.
The allocation and payment of ad valorem taxes shall be handled through
adjustments to the Settlement Price.
(b) Other Operating Taxes. With the exception of Income Taxes, all
other federal, state, foreign and local Taxes (including interest and penalties
attributable thereto) on the ownership or operation of the Operating Assets
which are imposed upon Reserves LLC or the Partnership for periods or portions
of periods prior to the Effective Time shall be borne by Seller, and all such
Taxes imposed upon the Partnership for periods or portions of periods beginning
on or after the Effective Time shall be borne by Buyer. Such Taxes shall be
apportioned between Seller and Buyer for the period or portion thereof up to and
including the Effective Time, (i) in the case of a flat minimum dollar amount of
tax, by multiplying the total amount of such Taxes by a fraction, the numerator
of which is the number of days in the partial period through and including the
Effective Time and the denominator of which is the total number of days in such
tax period, and (ii) in the case of all other operating Taxes, on the basis of
actual activities creating such Tax liability of Reserves LLC and the
Partnership for the partial period through and including the Effective Time as
are determined from their respective Books and Records. To the extent any such
amounts are borne prior to the delivery of the Final Statement by a Party who is
not required to bear them hereunder, they shall be included in the adjustments
to the Settlement Price. The allocation and payment of these Taxes shall be
handled through adjustments to the Settlement Price.
13.3 SHARED OBLIGATIONS. If an invoice or other evidence of an
obligation is received which under the terms of this Article XIII is partially
the obligation of Seller and partially the obligation of Buyer, then the parties
shall consult with each other, the Partnership shall promptly pay such
obligation to the obligee, and Seller shall promptly reimburse Buyer for
Seller's portion so paid.
13.4 UNCOLLECTIBLE ACCOUNTS RECEIVABLE. Buyer (and, prior to the
Closing, Seller) shall cause Reserves LLC and the Partnership to use
commercially reasonable efforts to collect in full, consistent with the past
practices of the Business, all accounts receivable of the Business (the
"Accounts Receivable"). If the Accounts Receivable outstanding at the Closing
shall not have been fully collected within 120 days following the Closing Date
in an amount equal to the outstanding unpaid amounts thereof at the Closing,
Buyer may require the Seller to purchase any Accounts Receivable that have not
been so fully collected at a purchase price equal to the original outstanding
amount of such Accounts Receivable at the Closing less net collections thereon
from the Closing Date to the repurchase date; provided, however, that the Seller
shall be required to repurchase such unpaid Accounts Receivable only to the
extent that the aggregate amount of such unpaid Accounts Receivable exceeds the
allowance for doubtful accounts deducted from accounts receivable set forth on
the Balance Sheets, and if such an excess exists, the Seller shall only be
required to pay an amount for such unpaid Accounts Receivable equal to such
excess; provided, further, during such 120-day period, that Buyer may not settle
or compromise any Accounts Receivable without the prior written consent of
Seller. As a condition to any such repurchase, Buyer shall reconvey to the
Seller
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the unpaid Accounts Receivable to be repurchased and shall provide Seller with
sufficient detail regarding such Accounts Receivable. Buyer shall not transfer
or convey such Accounts Receivable to any other Person. Payment for the
repurchase of any Accounts Receivable shall be made within ten (10) days
following the transfer thereof to Seller.
Buyer shall provide to the Seller any documents or information reasonably
requested by the Seller in connection with the Seller's collection of any
Accounts Receivable repurchased from Buyer.
ARTICLE XIV.
POST-CLOSING PROCEDURES
14.1 DELIVERY OF FILES. Within ten (10) days after Closing, Buyer
shall, at Buyer's expense, take delivery at Seller's present offices in San
Antonio, Texas of all of the Partnership's and Reserves LLC's original land,
lease, revenue and cost accounting, geologic, geophysical, engineering and well
files, data and materials which relate to the Operating Assets. Applicable legal
and litigation files shall be delivered by Seller to Buyer at Seller's present
office location in San Antonio, Texas, subject to the Parties and their
attorneys making mutually acceptable arrangements for preserving the privileged
and confidential nature of protected information. Seller may retain copies of
its accounting and legal files, data and information, as might be needed by
Seller, and Seller shall retain all originals of insurance policies covering
periods prior to the Effective Time. Subject to the License Agreement, Seller
shall not retain originals or copies of any seismic, geological, geophysical or
engineering files, materials, data or interpretations thereof concerning the
Operating Assets sold hereunder, without Buyer's prior written consent; provided
however, that Seller shall not be required to deliver to Buyer, nor shall Buyer
be required to accept delivery of any such data or materials which either Party
reasonably believes to be subject to confidentiality agreements with third
parties that would prevent Buyer from obtaining such data or expose either Party
to a claim for material damages if Buyer were to receive such data or materials.
Notwithstanding the above, Seller shall be permitted to retain original tax and
financial accounting records for the period prior to the Closing, copies of
which will be delivered to Buyer.
14.2 THIRD PARTY DATA. To the extent not obtained or satisfied as of
Closing, Seller agrees to continue to use reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to obtain for Buyer, the Partnership and Reserves
LLC (i) access to files, records and data relating to the Operating Assets in
the possession of third parties; (ii) access to wells constituting a part of the
Operating Assets operated by third parties for purposes of inspecting same; and
(iii) the waiver of confidentiality or other restrictions on the review by
and/or transfer of seismic, geophysical, engineering or other data pertaining to
the Operating Assets that might be triggered by Seller's assignment to Buyer of
the Partnership and Reserves LLC.
14.3 COOPERATION. After the Closing, each Party shall provide the other
Party with reasonable access to all relevant documents, data and other
information (other than that which is subject to any attorney-client privilege)
which may be required by the other Party for the purpose of financial reporting,
preparing tax returns, filing refund claims, responding to any audit by any
taxing jurisdiction or replying to any third party or governmental claim or
demand concerning the Partnership, Reserves LLC or the Operating Assets. Each
Party shall cooperate with all reasonable requests of the other Party made in
connection with contesting the imposition of Taxes. Notwithstanding anything to
the contrary in this Agreement, neither Party shall be required at any
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time to disclose to the other Party any Tax Return or other confidential
information, except for Tax Returns concerning Taxes of the Partnership and
Reserves LLC. Except where disclosure is required by applicable law or judicial
order, any information obtained by a Party pursuant to this Section 14.3 shall
be kept confidential by such Party, except to the extent disclosure is required
in connection with the filing of any Tax Returns or claims for refunds or in
connection with the conduct of an audit, or other proceedings in response to an
audit, by a taxing jurisdiction, or otherwise required by law or binding
judicial order.
14.4 PREFERENTIAL RIGHTS TO PURCHASE AND CONSENTS TO ASSIGNMENT. Before
Closing and for up to one year after Closing, the Parties shall continue to
provide reasonable cooperation in obtaining all required Consents to Assignment
and in complying with all enforceable Preferential Rights to Purchase that
remain in force after Closing. Buyer shall be primarily responsible for handling
such matters, shall assume all risks and liabilities in connection with the
rights of the holders thereof, and shall release, indemnify and defend Seller
against any claims, damages, suits, demands or other liabilities associated with
any Consents to Assignment or Preferential Rights to Purchase.
14.5 FILING AND RECORDING OF DOCUMENTS. Buyer shall promptly file all
appropriate forms, declarations or bonds with governmental agencies relative to
its assumption of ownership of Reserves LLC, and Seller shall cooperate with
Buyer in connection with such filings. Seller shall not be responsible for any
loss to Buyer because of Buyer's failure to file or record documents correctly
or promptly.
14.6 FURTHER ASSURANCES. After Closing, each of the Parties will
execute, acknowledge and deliver to the other such further instruments, and take
such other action, as may be reasonably requested in order to more effectively
assure to each Party all of the respective properties, rights, titles,
interests, estates, and privileges intended to be assigned, delivered or to
inure to the benefit of such Party in consummation of the Transaction.
14.7 INCIDENTAL COSTS. Each party shall bear its own respective
expenses incurred in connection with the Closing of the Transaction, including
its own consultants' fees, attorney's fees, accountants' fees, and other similar
costs and expenses.
ARTICLE XV.
SURVIVAL; INDEMNITIES
15.1 SURVIVAL. All representations, warranties or covenants made
herein, except for those in Sections 4.1(a), 4.1(e), 4.1(f), 4.1(g), 4.1(i),
4.1(k), 4.1(l), 4.1(m), 4.1(n), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w), 4.1(x),
4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets only),
4.2(e), 4.2(i), Sections 5.6, 7.1, 7.2, 7.3, 7.4, 8.3, 9.1, 9.2(e), 9.9(d),
9.12(b), 9.12(c) and 9.13, and Articles XV, XVI, XVII and XXI, shall survive for
two years from the Closing Date. The representations and warranties or covenants
made in Sections 4.1(a), 4.1(g), 4.1(k), 4.1(l), 4.1(m), 4.1(o), 4.1(q), 4.1(u),
4.1(v), 4.1(w), 4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to
Operating Assets only) and Section 9.1 shall not survive Closing and shall
automatically expire upon Closing. The representations, releases, covenants,
indemnities, defenses and hold harmless obligations and other obligations
referenced in Sections 4.1(e), 4.1(f), 4.1(i), 4.1(n), 4.2(e), 4.2(i), 7.1, 7.2,
7.4, 8.3, 9.2(e), 9.9(d), 9.12(b), 9.12(c) and 9.13 and this Article XV, and all
provisions of
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Article XVI, Article XVII and Article XXI shall each survive Closing, and each
shall continue to remain fully enforceable in accordance with its terms.
15.2 BUYER'S INDEMNITY. EXCEPT AS EXPRESSLY AND SPECIFICALLY INDICATED
OTHERWISE IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION SECTIONS 9.9(D) AND
15.3), AFTER THE CLOSING DATE, BUYER SHALL AND HEREBY DOES RELEASE, DEFEND,
INDEMNIFY, SAVE, AND HOLD HARMLESS SELLER AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS, AGAINST ANY
AND ALL DAMAGES WHICH ARISE OUT OF OR IN CONNECTION WITH THE OWNERSHIP OF,
OPERATION OF, PRODUCTION FROM OR ACCOUNTING BY, INCOME OF OR PAYMENTS BY THE
PARTNERSHIP, RESERVES LLC OR THE OPERATING ASSETS, AT ANY TIME EITHER BEFORE OR
AFTER THE EFFECTIVE TIME, OR WHICH ARISE OUT OF ANY ENVIRONMENTAL CONDITION OR
OTHER HAZARDOUS CONDITION RELATING TO OR AFFECTING ANY OPERATING ASSET AT ANY
TIME EITHER BEFORE OR AFTER THE EFFECTIVE TIME, INCLUDING WITHOUT LIMITATION,
ALL SUCH COSTS, CLAIMS OR LIABILITIES ARISING OUT OF SELLER'S NEGLIGENCE OR
STRICT LIABILITY.
15.3 SELLER'S INDEMNITY. SUBJECT TO THE TERMS AND CONDITIONS OF THIS
ARTICLE XV, SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS
PARENT OR SUBSIDIARY COMPANIES, PARTNERS AND OTHER AFFILIATES (INCLUDING AFTER
CLOSING, RESERVES LLC AND THE PARTNERSHIP), AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS (HEREINAFTER
COLLECTIVELY REFERRED TO AS THE "BUYER GROUP"), FROM AND AGAINST ANY AND ALL
DAMAGES ASSERTED AGAINST, RESULTING TO, IMPOSED UPON, OR INCURRED BY THE BUYER
GROUP, DIRECTLY OR INDIRECTLY, BY REASON OF OR RESULTING FROM OR RELATING TO (I)
ANY BREACH BY SELLER (FOR WHICH SELLER SHALL BE RESPONSIBLE) OF ITS SURVIVING
REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS CONTAINED IN THIS
AGREEMENT, (II) ANY LIABILITIES OF RESERVES LLC AND THE PARTNERSHIP WHICH ARE
UNRELATED TO THE OPERATING ASSETS, (III) ANY LIABILITIES OF RESERVES LLC AND
RESERVES LLC'S INTEREST IN THE PARTNERSHIP FOR INCOME TAXES PRIOR TO CLOSING,
AND (IV) ANY EXISTING LIABILITIES OF RESERVES LLC AND RESERVES LLC'S INTEREST IN
THE PARTNERSHIP OWED UNDER FEDERAL LEASES FOR PRIOR ROYALTIES RELATED TO THE
PERIOD OF TIME PRIOR TO CLOSING.
15.4 PROCEDURE FOR INDEMNIFICATION.
(a) Any Indemnified party making a claim for indemnification hereunder
shall notify the indemnifying party or parties of the claim in writing. Subject
to Sections 17.1, 17.2, 17.3 and 17.4, an indemnified party may take any and all
actions against an indemnifying party or parties to enforce its rights to
indemnification under this Agreement.
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(b) With respect to third Person claims which are indemnifiable
hereunder, promptly after receipt by an Indemnified Party under Sections 15.2 or
15.3 of notice of the commencement of any action, such Indemnified Party shall,
if a claim in respect thereof is to be made against an Indemnifying Party under
such Section, give written notice to the Indemnifying Party of the commencement
thereof. The failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party of any liability that it may have to an Indemnified Party
with respect to such action, only to the extent the Indemnifying Party is
prejudiced by the failure to be so notified. In case any such action shall be
brought against an Indemnified Party and the Indemnified Party shall give
written notice to the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Party. If the Indemnifying Party elects to
assume the defense of such action, the Indemnified Party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the Indemnifying Party elects not to assume (or fails to assume) the
defense of such action, the Indemnified Party shall be entitled to assume the
defense of such action with counsel of its own choice, at the expense of the
Indemnifying Party. If the action is asserted against both the Indemnifying
Party and the Indemnified Party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the Indemnifying
Party and the Indemnified Party, the Indemnifying Party shall be responsible for
paying for separate counsel for the Indemnified Party; provided, however, that
if there is more than one Indemnified Party, the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the Indemnified Parties, regardless of the number of Indemnified Parties. If the
Indemnifying Party elects to assume the defense of such action, (a) no
compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party's written consent (which shall not be unreasonably
withheld) unless the sole relief provided is monetary damages that are paid in
full by the Indemnifying Party and (b) the Indemnifying Party shall have no
liability with respect to any compromise or settlement thereof effected without
its written consent (which shall not be unreasonably withheld).
15.5 EXCLUSIVITY. The parties hereto agree that, in relation to any
breach, default, or nonperformance of any representation, warranty, covenant, or
agreement made or entered into by a party hereto pursuant to this Agreement or
any certificate, instrument, or document delivered pursuant hereto or arising
out of the transactions contemplated herein or the ownership or operation of the
Operating Assets, the only relief and remedy available to the other party hereto
in respect of said breach, default, or nonperformance shall be:
(a) termination, but only if said termination is expressly permitted
under the provisions of Article XX; or
(b) actual damages, but only to the extent properly claimable hereunder
and as limited pursuant to this Article XV or otherwise hereunder; or
(c) specific performance if a court of competent jurisdiction in its
discretion grants the same; or
(d) injunctive or declaratory relief if a court of competent
jurisdiction in its discretion grants the same.
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15.6 ASSIGNMENT OF THIRD PERSON INDEMNITIES. To the extent the same are
assignable by an Indemnified Party, such Indemnified Party does hereby assign to
the Indemnifying Party all rights to defense, contribution and indemnity that
the Indemnified Party may hold with respect to the obligations for which the
Indemnifying Party is indemnifying and defending the Indemnified Party
hereunder, and the Indemnifying Party shall be subrogated to assert the
Indemnified Party's rights to such third-party defense, contribution and
indemnity obligations with respect to the indemnified claims or Actions.
ARTICLE XVI.
TAX MATTERS
16.1 INDEMNIFICATION FOR TAXES.
(a) Seller shall be responsible for, and shall indemnify Buyer against,
all (i) Income Taxes imposed on Reserves LLC or Reserves LLC's interest in
Partnership, and all Liabilities, losses, costs, fines, penalties, damages
(actual, punitive or other), reasonable attorneys' fees, and expenses arising
therefrom, relating to (A) taxable periods or portions thereof ending on or
before the Closing Date, (B) Income Taxes resulting from the application of
Treas. Reg. ss. 1.1502-6 or any comparable state, local or foreign tax law
attributable to Tesoro Parent, or any corporation or entity which is or has been
affiliated with or been part of a combined, unitary or affiliated group with
Tesoro Parent, and (C) the portion of the Income Taxes for any Straddle Period
(as defined in subsection 16.1(e)) allocable to Sellers with respect to either
Reserves LLC or Reserves LLC's interest in the Partnership under subsection
16.2(e) and (ii) all Other Taxes imposed on Reserves LLC or Reserves LLC's
interest in the Partnership relating to the taxable periods or portions thereof
ending on or before the Effective Time (allocated as described in Section 13.3);
provided, Sellers shall not be responsible for, and shall not be required to
indemnify Buyer against, any Taxes to the extent that such Taxes do not exceed
the accrued liability for Taxes on the Balance Sheets which are taken into
account in determining the Working Capital.
(b) Buyer shall be responsible for and shall indemnify Sellers against
all (i) Income Taxes imposed upon Reserves LLC or Reserves LLC's interest in the
Partnership and all Liabilities, losses, costs, fines, penalties, damages
(actual, punitive, or other), reasonable attorneys' fees and expenses arising
therefrom, relating to (A) taxable periods beginning after the Closing Date or
(B) the portion of the Income Taxes for any Straddle Period which are allocable
to Buyer under subsection 16.2(e), and (ii) except as provided in Section 13.3
and in this Article XVI, all Other Taxes imposed upon Reserves LLC or Reserves
LLC's interest in the Partnership and all Liabilities, losses, costs, fines,
penalties, damages (actual, punitive or other), reasonable attorneys fees and
expenses arising therefrom arising in or relating to taxable periods or portions
thereof beginning after the Effective Time (allocated as described in Section
13.3).
(c) Each Party shall promptly notify the other Party of the
commencement of any demand, claim, audit, examination, Action or other proposed
change or adjustment by any Taxing Authority concerning any Tax which could give
rise to a claim for indemnity pursuant to subsection 16.1(a) or subsection
16.1(b), as the case may be (each a "Tax Claim"). Such notice shall contain
factual information describing the asserted Tax Claim in reasonable detail and
shall include copies of any notice or other document received from any Taxing
Authority in respect of any such asserted Tax Claim.
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(d) Seller, at its own expense, shall have the sole right to represent
Reserves LLC and the Partnership's interests in any Tax Claim for Taxes for
which it is indemnifying Buyer against and to employ counsel of its choice.
Buyer shall have the right to participate in such Action at its own expense.
Seller shall not consent to any settlement that reasonably would be expected to
have an adverse effect on the Income Taxes of Reserves LLC or Reserves LLC's
interest in the Partnership in any period after the Closing Date without Buyer's
consent, which consent shall not be unreasonably withheld. Buyer's consent shall
in no way reduce any indemnification due to Buyer under subsection 16.1(a). If
Seller elects to control the defense, compromise or settlement of any Tax Claim,
Seller shall keep Buyer informed of the progress and disposition of such Tax
Claim. Buyer shall handle any other Tax Claims of Reserves LLC or Reserves LLC's
interest in the Partnership, and Buyer shall be entitled to defend, compromise
or settle such Tax Claims in its sole discretion without in any way reducing its
rights to indemnification under subsection 16.1(a), unless any such settlement
would give rise to a tax claim against Seller, and in such event such settlement
shall be subject to Seller's consent, which shall not be unreasonably withheld.
(e) With respect to any taxable period of Reserves LLC or the
Partnership beginning before and ending after the Closing Date (a "Straddle
Period"), Buyer shall control, and Seller, at its own expense, shall have the
right to participate in, the defense and settlement of any Tax Claim and each
Party shall cooperate with the other Party and there shall be no settlement or
closing or other agreement with respect thereto without the consent of the other
Party, which consent shall not be unreasonably withheld; provided, that if
either Party shall refuse (the "Refusing Party") to consent to any settlement,
closing or other agreement agreed to by the relevant Taxing Authority with
respect to any such Tax Claim that the other party (the "Accepting Party")
proposed to accept (a "Proposed Settlement"), then (i) the Accepting Party's
Liability with respect to the subject matter of the Proposed Settlement shall be
limited to the amount that such Liability would have been if the Proposed
Settlement had been accepted, and (ii) the Refusing Party shall be responsible
for all Liabilities and expenses incurred or imposed thereafter in connection
with the contest of such Tax Claim to the extent that the final settlement is
more than the Proposed Settlement.
16.2 OTHER TAX MATTERS.
(a) All Tax sharing agreements between Reserves LLC and any other
Person, including without limitation, the Affiliates of Seller, are hereby
terminated as of the Closing Date and all rights and obligations of Reserves LLC
with respect to Taxes shall be as provided herein.
(b) Any Tax allocation agreement or arrangement in effect shall be
extinguished in full as of the Closing Date.
(c) Tax Returns (each a "Pre-Closing Return") which are required to be
filed with respect to Reserves LLC or Reserves LLC's interest in the Partnership
on a consolidated, unitary or other combined basis with the Tesoro Group, or the
appropriate parent for a taxable period which ends on or before the Closing Date
(a "Pre-Closing Period") shall be prepared and filed by (or shall be the
responsibility of) Seller, which shall include the preparation and filing of the
consolidated federal and state income Tax Returns of the Tesoro Group which
includes Reserves LLC's interest in the Partnership for the period up to and
including the Closing Date. In the case of those jurisdictions which require a
short-period Tax Return ending on or before the Closing Date, Seller shall
prepare and file all appropriate returns required to be filed with respect to
Income Taxes attributable to the operations and the Operating Assets for the
pre-Closing periods. All such Pre-Closing Returns shall
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be filed on a basis consistent with prior Tax Returns filed with respect to
Reserves LLC's interest in the Partnership. Seller or the appropriate parent of
Reserves LLC or the Partnership shall timely pay or cause to be paid all Taxes
shown on such Pre-Closing Returns. All Tax Returns which (i) are required to be
filed with respect to Reserves LLC's interest in the Partnership on a separate
basis (including the preparation of supporting schedules, Tax Returns and other
Tax information with respect to Reserves LLC's interest in the Partnership
necessary for completion of the Pre-Closing Returns) after the Closing Date for
a Pre-Closing Period (a "Post-Closing Return"), and (ii) are required to be
filed or with respect to Reserves LLC's interest in the Partnership for a
taxable period that ends after the Closing Date, including any Tax Return (a
"Straddle Return") for a Straddle Period, shall be prepared and filed by Buyer;
subject to the rights to indemnification and other rights under 16.1(a) and
subsection 16.2(f), Buyer shall timely pay or cause to be paid all Taxes shown
on such Tax Returns.
(d) Seller agrees to provide Buyer and Buyer agrees to provide Seller
with such cooperation and information as the other shall reasonably request in
connection with the preparation or filing of any Tax Return required under this
Agreement.
(e) With respect to any Straddle Period, to the extent permitted by
applicable law, Seller shall elect to treat the Closing Date as the last day of
the taxable period. If applicable law, regulation or Governmental Order will not
permit the Closing Date to be the last day of a period, the Income Tax
attributable to the operations of Reserves LLC and Reserves LLC's interest in
the Partnership for the portion of the period up to and including the Closing
Date shall be (i) in the case of a flat minimum dollar amount Tax, the total
amount of such Taxes multiplied by a fraction, the numerator of which is the
number of days in the partial period through and including the Effective Time
and the denominator of which is the total number of days in such Straddle
Period, and (ii) in the case of all Income Taxes, the Tax computed on the basis
of the taxable income or loss attributable to Reserves LLC's interest in the
Partnership for the partial period through and including the Closing Date as
determined from their Books and Records. All Other Taxes arising with or related
to a Straddle Period will be allocated as provided in Section 13.3.
(f) With respect to any Post-Closing Return or Straddle Return, Buyer
shall deliver, at least 30 days prior to the due date for filing such Tax Return
(including any extension) to Seller a statement setting forth the amount of
Income Tax which Seller owes pursuant to subsection 16.1(a), including the
allocation of Taxes under subsection 16.2(e), and copies of such Tax Return.
Seller shall have the right to review such Tax Returns and the allocation of
Taxes and to suggest to Buyer any reasonable changes to such Tax Returns no
later than 15 days prior to the date for the filing of such Tax Returns. Seller
and Buyer agree to consult and to attempt to resolve in good faith any issue
arising as a result of the review of such Tax Returns and allocation of Taxes
and mutually to consent to the filing as promptly as possible of such Tax
Returns. Not later than 15 days before the due date for the payment of Income
Taxes with respect to such Tax Returns, Seller shall pay to Buyer an amount
equal to the Income Taxes as agreed to by Buyer and Seller as being owed by
Seller, pursuant to subsection 16.1(a). In the event that Buyer and Seller
cannot agree on the amount of Income Taxes owed by Seller, with respect to a
Straddle Return or a Post-Closing Return, Seller shall pay to Buyer the amount
of Income Taxes reasonably determined by Buyer to be owed by them pursuant to
subsection 16.1(a). Within ten (10) days following such payment, Seller and
Buyer shall refer the matter to an independent "Big-Five" accounting firm agreed
to by Buyer and Seller to arbitrate the dispute. Seller and Buyer shall equally
share the fees and expenses of such accounting
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<PAGE> 51
firm, and its determination as to the amount owing by Seller, pursuant to
Section 16.1(a) with respect to a Straddle Return or Post-Closing Return shall
be binding on both parties. Within five (5) days of the determination by such
accounting firm, if necessary, the appropriate Party shall pay the other Party
any amount which is determined by such accounting firm to be owed. Seller shall
be entitled to reduce its obligation to pay Taxes with respect to a Straddle
Return or a Post-Closing Return by the amount of any estimated Taxes paid with
respect to such Taxes by or on behalf of Reserves LLC on or before the Closing
Date.
(g) Seller shall have the right to all refunds of Taxes (including
interest thereon), which relate to Taxes of Reserves LLC or Reserves LLC's
interest in the Partnership for Pre-Closing Periods and Straddle Periods, to the
extent provided in the following sentences. Buyer shall pay over to Seller any
such refunds within ten (10) days of receipt thereof, net of any Taxes imposed
on Buyer or Reserves LLC by reason of the receipt of such refund. To the extent
any refund of Taxes is made with respect to a Pre-Closing Period or a Straddle
Period, such refund shall be apportioned between Buyer and Seller, based on the
appropriate allocation method set forth in Section 16.2(e).
(h) Buyer and Seller agree to consult and resolve in good faith any
issues arising in connection with the preparation or review of any Tax Return or
the calculation of any Tax described in this Section 16.2.
(i) At the Closing, Seller, Reserves LLC and the Partnership each shall
deliver to Buyer certificates signed under penalties of perjury (i) stating that
it is not a foreign corporation, foreign partnership, foreign trust or foreign
estate, (ii) providing its U.S. Employer Identification Number and (iii)
providing its address, all pursuant to Section 1445 of the Code.
16.3 EXCLUSIVE REMEDY FOR TAXES. This Article XVI provides the sole and
exclusive remedy for any claim against Seller for indemnification, damages or
breach of any representation or warranty with respect to or relating to Taxes.
ARTICLE XVII.
DEFAULT AND REMEDIES
17.1 LIABILITIES UPON TERMINATION. If Closing does not occur due to
Seller's violation of the terms of this Agreement, then Buyer may seek such
legal or equitable remedies as Buyer may desire including, without limitation,
damages for the breach or failure of any representation, warranty, covenant or
agreement contained herein and the right to enforce specific performance of this
Agreement. If Closing does not occur due to Buyer's violation of the terms of
this Agreement, then Seller may seek such legal or equitable remedies as Seller
may desire, including, without limitation, damages for the breach or failure of
any representation, warranty, covenant or agreement contained herein and the
right to enforce specific performance of this Agreement.
17.2 RECOVERY OF COSTS. The prevailing Party in any litigation or
alternative dispute resolution proceeding between the Parties in a dispute
arising under this Agreement shall be entitled to recover, from the other Party,
reimbursement for reasonable attorneys fees, expert fees, court costs and costs
of discovery and investigation.
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<PAGE> 52
17.3 WAIVER OF EXTRAORDINARY DAMAGES. TO THE FULL EXTENT ALLOWED BY
LAW, AND EXCEPT AS MAY BE INCLUDED IN THIRD PARTY DAMAGES SUBJECT TO ANY
INDEMNITY OBLIGATION HEREUNDER, THE PARTIES HEREBY WAIVE AND RELEASE ANY RIGHTS
OR CLAIMS TO PUNITIVE OR EXEMPLARY DAMAGES RESULTING FROM A BREACH OF THIS
AGREEMENT. THE PARTIES HEREBY WAIVE THE APPLICATION OF THE TEXAS DECEPTIVE TRADE
PRACTICES- CONSUMER PROTECTION ACT TO THE TRANSACTION.
17.4 WAIVER OF JURY TRIAL. SELLER AND BUYER DO HEREBY IRREVOCABLY
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION.
17.5 INDEPENDENT OBLIGATIONS. The express release, indemnity, defense
and hold harmless obligations contained herein shall exist separate and
independent from the representations and warranties in this Agreement, and the
limitations of representations and warranties shall not be construed to limit
the scope of the express releases, indemnities, and defense and hold harmless
obligations.
17.6 CHANGES OF LAW. Sellers do not make any representations and
warranties and do not assume any responsibilities or liabilities for any Damages
to Buyer arising out of or related to changes in the law or new interpretations
of existing law that may occur after Closing.
17.7 MERGER. No representations, warranties, indemnities, covenants or
other provisions of this Agreement shall merge with provisions of any other
instrument.
ARTICLE XVIII.
NOTICES
18.1 NOTICES. All notices authorized or required by any of the
provisions of this Agreement, unless otherwise specifically provided, shall be
in writing and delivered in person or by United States mail, courier service,
telegram, or telephone facsimile, postage or charges prepaid, and addressed to
the Parties at the respective addresses set forth below:
If to Seller: Tesoro Petroleum Corporation.
300 Concord Plaza Drive
San Antonio, Texas 78216-6999
Attention: James C. Reed, Jr.
Fax Number: (210) 283-2400
Phone Number: (210) 828-8484
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<PAGE> 53
With a copy to: Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Michael W. Conlon
Fax Number: (713) 651-5246
Phone Number: (713) 651-5151
If to Buyer: EEX Operating LLC
2500 City West Boulevard, Suite 1400
Houston, Texas 77042
Attention: Janice K. Hartrick
Fax Number: (713) 243-3359
Phone Number: (713) 243-3371
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Attention: Michael E. Dillard
Fax Number: (214) 969-4343
Phone Number: (214) 969-2876
Any Party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
ARTICLE XIX.
CONFIDENTIALITY AND DISCLOSURES
19.1 NON DISCLOSURE OF DATA. To the extent Buyer does not acquire all
of the Membership Interests for any reason, Buyer shall not directly or
indirectly disclose or use any materials, data or other information provided by
or obtained from Seller, Reserves LLC or the Partnership, and Buyer and its
representatives shall continue to be bound by the terms of the existing
Confidentiality Agreement dated June 17, 1999, between the Parties.
19.2 PUBLIC ANNOUNCEMENTS. The Parties hereto agree that prior to
making any public announcement or statement with respect to the Transaction, the
Party desiring to make such public announcement or statement shall consult with
the other Party and exercise reasonable efforts to obtain the consent of the
other Party to the text of such public announcement or statement. If the Parties
cannot agree upon the text of any such public disclosure, a Party may
nevertheless disclose information with respect to the to the extent required by
applicable law or by any applicable rules, regulations or orders of any
governmental or judicial authority or agency having jurisdiction or to the
extent such disclosure is necessary to comply with requirements of the New York
Stock Exchange.
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<PAGE> 54
ARTICLE XX.
TERMINATION
20.1 TERMINATION. Notwithstanding anything herein to the contrary,
this Agreement and the Transaction may be terminated in the following instances:
(a) At any time by the mutual written agreement of Buyer and Seller;
(b) By Seller, if the Settlement Price Adjustment exceeds fifteen
percent (15%) of the Purchase Price; or by Buyer, if the sum of the Settlement
Price Adjustment and any reductions to the purchase price as a result of the
exercise by third parties of Preferential Rights to Purchase exceeds fifteen
percent (15%) of the Purchase Price;
(c) By Seller or Buyer, if any of the Casualty Price individually
exceeds ten percent (10%) of the Purchase Price; or
(d) By Buyer or Seller, if Closing has not taken place before December
31, 1999; provided, however, that the Party seeking to terminate this Agreement
pursuant to Section 20.1(d) shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have proximately
contributed to the failure to consummate the Transaction prior to December 31,
1999.
ARTICLE XXI.
MISCELLANEOUS
21.1 ENTIRE AGREEMENT. This Agreement, together with the Stock Purchase
Agreement, embody the entire agreement between the Parties (superseding all
prior agreements, negotiations, representations, discussions, arrangements and
understandings related to the subject matter hereof), and may be supplemented,
altered, amended, modified or revoked only by a written instrument signed by
each of the Parties; provided, however, the Confidentiality Agreement dated June
17, 1999, between the Parties shall remain effective until Closing. If the sale
of the Operating Assets to Buyer is not consummated, then the Confidentiality
Agreement shall remain effective as stated therein.
21.2 NO VERBAL MODIFICATIONS OR WAIVERS. Any of the terms, provisions,
covenants, representations, warranties or conditions hereof may be supplemented,
amended, modified, released or waived only by a written instrument executed by
the Parties. Except as otherwise expressly provided in this Agreement, the
failure of any Party at any time or times to require performance of any
provision hereof shall in no manner affect such Party's right to enforce the
same. No waiver by any Party of any condition, or of the breach of any term,
provision, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such condition or
breach or a waiver of any other condition or of the breach of any other term,
provision, covenant, representation or warranty.
21.3 SEVERABILITY. If any term or provision of this Agreement is held
to be illegal, invalid or unenforceable, the legality, validity and
enforceability of the remaining terms and provisions of
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<PAGE> 55
this Agreement shall not be affected thereby, and in lieu of each such illegal,
invalid or unenforceable term or provision, there shall be added automatically
to this Agreement a legal, valid and enforceable term or provision as similar as
possible to the term or provision declared illegal, invalid or unenforceable.
21.4 INTERPRETATION. Words of any gender used in this Agreement shall
be held and construed to include any other gender, and words in the singular
shall be held to include the plural, unless the context otherwise requires. None
of the terms or conditions of this Agreement, including any Exhibits or
Schedules hereto, shall be construed for or against any Party hereto on the
basis that such Party did or did not author the same. All terms of this
Agreement and the Exhibits shall be harmonized, but in the event of any conflict
between the definition of a term in Article I and a more complete description or
limitation of such term in a subsequent Article, the subsequent Article shall
prevail. This Agreement is being executed in connection with the Stock Purchase
Agreement, as amended by the Amendment, and the two instruments shall be
harmonized, to the extent possible, provided however, that no Party shall be
entitled to receive duplicate payments (including, without limitation, duplicate
payment of any purchase price) or other relief regarding the same matters under
both this Agreement and the Stock Purchase Agreement, as amended, and the rights
of the Parties hereunder are subject to the terms of the Stock Purchase
Agreement, as amended by the Amendment. In the event of any conflict, redundancy
or inconsistency between the terms of the Stock Purchase Agreement, as amended,
and this Agreement (including without limitation any conflict, redundancy or
inconsistency with respect to the provisions relating to indemnification,
payment of purchase price, adjustments to the purchase price, transfer of the
Membership Interests, representations, warranties and covenants or any
provisions of the exhibits or schedules), the provisions of the Stock Purchase
Agreement, as amended, shall control and prevail in all respects. The Article
and Section headings are for convenience only and shall have no significance in
the interpretation hereof.
21.5 COUNSEL. EACH PARTY EXPRESSLY ACKNOWLEDGES THAT IT WAS REPRESENTED
BY COUNSEL OF ITS OWN SELECTION IN NEGOTIATION AND PREPARATION OF THE TERMS OF
THE AGREEMENT AND THE ATTACHED EXHIBITS AND THAT IT IS SOPHISTICATED AND
EXPERIENCED IN TRANSACTIONS OF THIS TYPE AND IS AWARE OF ALL TERMS AND
CONDITIONS CONTAINED HEREIN. EACH PARTY SHALL BE RESPONSIBLE FOR THE COSTS AND
EXPENSES OF ITS OWN COUNSEL.
21.6 GOVERNING LAW. This Agreement and other documents delivered
pursuant to this Agreement and the legal relations between the Parties shall be
governed and construed and enforced in accordance with the laws of the State of
Texas, without giving effect to principles of conflict of laws.
21.7 CONSENTS. Except as expressly provided otherwise herein, any
consent required of a Party with respect to any matters covered by this
Agreement shall not be unreasonably withheld or action with respect thereto
unduly delayed.
21.8 TIME OF ESSENCE. Time is of the essence in all matters provided
for in this Agreement.
21.9 BINDING EFFECT, ASSIGNMENT. All the terms, provisions, covenants,
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the Parties and, except
as otherwise prohibited, their respective successors; however, this Agreement
and the rights and obligations hereunder shall not be assignable or
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<PAGE> 56
delegable by any Party without the express written consent of the non-assigning
or non-delegating Parties, which consent may be withheld for any or no reason;
provided that Buyer may assign some or all of its rights, duties and obligations
under this Agreement to an Affiliate of EEX Corporation. Any assignment or
delegation without such consent will be void.
21.10 NO RELATIONSHIP. Nothing contained in this Agreement shall be
deemed to create a joint venture, partnership, agency or other fiduciary
relationship between the Parties, nor is this Agreement intended to create, nor
shall it be construed to create, any rights in any third party, to create any
third party beneficiaries or to ratify, adopt or confirm any other lease,
agreement or other instrument, whether or not affecting Reserves LLC, the
Partnership or the Operating Assets. Notwithstanding the above, the Parties
acknowledge that the Transaction shall be subject to the rights of all third
parties holding Preferential Rights to Purchase and Consents to Assignment
concerning the Operating Assets, to the extent that they are valid, in effect
and enforceable by reason of the Transaction, and that such third party rights
shall be handled as set forth herein.
21.11 NO RECORDATION. Without limiting any Party's right to file suit
to enforce its rights under this Agreement, Buyer and Seller expressly covenant
and agree not to record or place of record this Agreement or any copy or
memorandum hereof, unless required under the Securities Exchange Act of 1934.
21.12 EXHIBITS AND SCHEDULES. All Exhibits and Schedules which are
referred to herein are hereby made a part hereof and incorporated herein by
reference.
21.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one agreement.
21.14 NO THIRD PARTY BENEFICIARIES. Any agreement contained, expressed
or implied in this Agreement shall be only for the benefit of the Parties hereto
and the Indemnified Parties specified in Article XV and their respective legal
representatives, successors and assigns. Such agreements shall not inure to the
benefit of any employees of Seller, Reserves LLC or the Partnership (except in
their capacity as Indemnified Parties) or the obligees of any indebtedness of
any Party hereto, it being the intention of the Parties hereto that no Person
shall be deemed a third party beneficiary of this Agreement, except to the
extent a third Person is expressly given rights herein.
21.15 JOINT AND SEVERAL LIABILITY. Tesoro Petroleum Corporation and
Tesoro Gas Resources Company, Inc. agree to be jointly and severally liable for
all of the Seller's duties and obligations hereunder.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SELLER BUYER
TESORO PETROLEUM CORPORATION EEX OPERATING LLC
By: /s/ SHARON L. LAYMAN By: EEX CORPORATION
--------------------------------- ---------------------------------
Name: Sharon L. Layman Name: /s/ RICHARD S. LANGDON
------------------------------- -------------------------------
Title: Vice President and Treasurer Title: EVP & Chief Financial Officer
------------------------------ ------------------------------
TESORO GAS RESOURCES COMPANY, INC.
By: /s/ JEFFREY B. FABIAN
---------------------------------
Name: Jeffrey B. Fabian
-------------------------------
Title: President
------------------------------
The exhibits and schedules referenced in this Purchase Agreement have been
omitted. The Registrant will furnish a copy of any omitted exhibits and
schedules to the Securities and Exchange Commission upon request
<PAGE> 1
EXHIBIT 2.5
(Southeast)
PURCHASE AGREEMENT
Dated as of December 17, 1999,
by and between
TESORO PETROLEUM CORPORATION
AND
TESORO GAS RESOURCES COMPANY, INC.
AS "SELLER"
AND
EEX OPERATING LLC
AS "BUYER"
<PAGE> 2
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
1A HEDGING CONTRACTS
1B PERMITTED ENCUMBRANCES
2.6(a) RETAINED LIABILITIES
4.1(b)(iv) NO CONFLICT - SELLER
4.1(b)(v) CONSENTS AND WAIVERS - SELLER
4.1(g) LITIGATION
4.1(h) LABOR MATTERS
4.1(i) TAXES
4.1(k) ABSENCE OF CERTAIN CHANGES
4.1(m)(iii) PERMITS AND LICENSES
4.1(m)(iv) EXCEPTIONS TO RIGHT TO USE ASSETS
4.1(o) SUSPENSE FUNDS
4.1(p) INSURANCE
4.1(q) CONTRACTS ON PRODUCTION
4.1(s) TAX PARTNERSHIPS
4.1(u) ENVIRONMENTAL CONDITIONS
4.1(v) CONTRACTS
4.1(x) WELLS
4.1(z) PAYOUT BALANCES
9.2 EXCEPTIONS TO PRE-CLOSING OPERATING COVENANTS
9.2(f) COMMITTED EXPENDITURES
9.4 EXCEPTIONS TO PRE-CLOSING FINANCIAL COVENANTS
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
A ALLOCATED VALUES
B LEASES AND RELATED PIPELINES
C SUBSIDIARIES AND PARTNERSHIP BALANCE SHEET
D SETTLEMENT STATEMENT
</TABLE>
<PAGE> 3
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is dated December 17, 1999, but effective as of
the Effective Time, between Tesoro Petroleum Corporation, a Delaware
corporation, and Tesoro Gas Resources Company, Inc., a Delaware corporation,
collectively as "Seller", and EEX Operating LLC, a Delaware limited liability
company, as "Buyer".
WITNESSETH:
WHEREAS, Tesoro Gas Resources Company, Inc. owns all of the Membership
Interests in Tesoro Southeast LLC, a Delaware limited liability company
("Southeast"); and
WHEREAS, Tesoro Petroleum Corporation, a Delaware corporation, and
Tesoro Gas Resources Company, Inc., a Delaware corporation, collectively as
"Seller", and EEX Operating LLC, a Delaware limited liability company, as
"Buyer", and EEX Corporation, entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") dated October 8, 1999 providing for the sale by
Seller to Buyer of all shares of capital stock of Tesoro Exploration and
Production Company, a Delaware corporation ("Exploration") and Tesoro Reserves
Company, a Delaware corporation ("Reserves"), together with the partnership
interests in Tesoro E&P Company, L.P., a Delaware limited partnership (the
"Partnership"); and
WHEREAS, the Partnership owns certain assets used in the business of
the exploration, production, gathering, transportation and marketing of oil,
natural gas, condensate and associated hydrocarbons; and
WHEREAS, on the date of the Stock Purchase Agreement, Exploration and
Reserves were the two partners in the Partnership, in which Exploration was the
general partner owning a 1% interest and Reserves was the limited partner owning
a 99% interest; and
WHEREAS, the Partnership was converted into a series limited
partnership, with the entire Series C limited partnership interest being
transferred to Southeast, insofar as such interest covers the revenues,
expenses, profits and losses from the Properties described in Exhibit B; and
WHEREAS, Section 9.12 of the Stock Purchase Agreement provides for the
Parties to cooperate at no cost or liability to Buyer, to enable Seller at
Seller's election, to transfer the Operating Assets to Buyer in a manner
enabling the transfer to qualify as a part of a like-kind exchange of property
by Seller within the meaning of Section 1031 of the Code; and
WHEREAS, the Stock Purchase Agreement has been amended to provide for
such a like-kind exchange of property, among other purposes, by a First
Amendment to Stock Purchase Agreement dated December 16, 1999 (the "Amendment");
and
WHEREAS, to facilitate such a like-kind exchange transaction, Seller
has arranged to assign its interests in the proceeds of the sale of Southeast
and its interest in the Properties to 44 Exchange Services L.L.C., as a
Qualified Intermediary;
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<PAGE> 4
WHEREAS, the Parties have agreed to restructure the Transaction set
forth in the Stock Purchase Agreement, to allow the separate sale of Southeast
and its interest in the Southeast Properties through the Qualified Intermediary;
and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller all issued and outstanding Membership Interests of Southeast,
including all of Southeast's rights and interests in the Partnership and the
Properties, under the terms and conditions set forth in this Agreement and the
Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
"ACCEPTING PARTY" shall have the meaning set forth in Section 16.1(e).
"ACCOUNTS RECEIVABLE" shall have the meaning set forth in Section 13.4.
"ACTION" means any action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.
"ADJUSTMENT ASSETS AND LIABILITIES" shall mean the items set forth in
Section 2.7.
"AFFILIATE" shall have the same meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"AGREEMENT" shall mean this Purchase Agreement.
"ALLOCATED VALUE" shall mean the monetary value allocated to each
Property or group of Properties and the Hedging Contracts on Exhibit A.
"AMENDMENT" shall mean the First Amendment to Stock Purchase Agreement
dated December 16, 1999, by and among Tesoro Petroleum Corporation, a Delaware
corporation, Tesoro Gas Resources Company, Inc., a Delaware corporation, and EEX
Operating LLC, a Delaware limited liability company, and EEX Corporation, a
Texas corporation, for the limited purposes set forth therein
"APO" shall mean "after payout", as such payout may be established
under the respective farmout agreements, joint operating agreements,
participation interests and similar agreements affecting each Property,
including payouts providing reversionary rights of parties who have elected not
to participate in an operation under a joint operating agreement. If there are
multiple outstanding payouts affecting any particular well or Property, then the
APO interest shall mean the interests after all applicable payouts have
occurred. If at the Effective Time there are no outstanding payout balances
affecting any particular well or Property, then the listed APO interest in such
well or Property shall reflect the Partnership's WI and NRI at the Effective
Time.
2
<PAGE> 5
"APPLICABLE ENVIRONMENTAL LAWS" means all Applicable Laws in effect
pertaining to (i) pollution, or the protection of the environment, including
those relating to waste materials and/or hazardous substances, (ii) the
protection of Persons or property from actual or potential exposure (or the
effects of exposure) to an actual or potential spill or release of Hazardous
Substances or petroleum or produced brine or (iii) the manufacture, processing,
production, gathering, transportation, use, treatment, storage or disposal of a
Hazardous Substance or petroleum or produced brine.
"APPLICABLE LAW" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Authority to
which a specified Person, Operating Asset or property is subject.
"BALANCE SHEETS" shall mean the unaudited combined financial balance
sheet of Southeast and the Partnership as of June 30, 1999, attached hereto as
Exhibit C.
"BOOKS AND RECORDS" shall mean all of the following which pertain to
the conduct of the Business: books, records, manuals and other materials,
accounting books and records, continuing property records for property, plant
and equipment, land and lease files, title opinions, suspense records,
production records, any inventories of equipment and property, well files,
engineering files, maps, surveys, electric logs, seismic records, geological and
geophysical files, and all other technical data, division order files, contract
files, other files, computer tapes, disks, other storage media and records,
advertising matter, correspondence, lists of customers and suppliers, maps,
photographs, production data, sales and promotional materials and records,
purchasing materials and records, work and recent salary history for personnel,
credit records, manufacturing and quality control records and procedures, patent
and trademark files and disclosures, litigation files, leases, oil and gas
leases, deeds, easements and other instruments relating to the Business, any
copies of Tax Returns filed by or with respect to Southeast or the Partnership,
including copies of all work papers and calculations relating to Southeast and
the Partnership in support of such Tax Returns, and any comparable information
with respect to predecessors of Southeast or the Partnership to the extent
available, and copies of any other applicable accounting and tax records of the
Seller and the Partnership pertaining to the Business.
"BPO" shall mean "before payout", as such payout may be established
under the respective farmout agreements, joint operating agreements,
participation interests and similar agreements affecting each Property,
including payouts providing reversionary rights of parties who have elected not
to participate in an operation under a joint operating agreement. If at the
Effective Time there is an outstanding payout balance affecting any particular
well or Property, the listed BPO interest in such well or Property shall reflect
the Partnership's WI and NRI at the Effective Time.
"BUSINESS" shall mean the Partnership's business of exploring for,
developing, producing, gathering, transporting and marketing natural gas,
condensate and oil.
"BUSINESS DAY" shall mean any day exclusive of Saturdays, Sundays and
national holidays.
"BUYER GROUP" shall have the meaning set forth in Section 15.3.
3
<PAGE> 6
"BUYER'S KNOWLEDGE" shall mean knowledge of Buyer and management
employees of Buyer's ultimate parent, EEX Corporation, with knowledge of Buyer's
activities, including the negotiation of this Agreement.
"BYLAWS" shall mean a corporation's bylaws, code of regulations or
equivalent document.
"CHARTER" shall mean a company's management agreement, articles of
association, articles of incorporation, certificate of incorporation or
equivalent organizational documents.
"CLOSING" shall have the meaning set forth in Section 12.1.
"CLOSING DATE" shall have the meaning set forth in Section 12.1.
"CLOSING SETTLEMENT PRICE" shall mean the Settlement Price calculated
in accordance with the best information available to the Seller prior to
Closing, as reflected on the Settlement Statement delivered prior to Closing
pursuant to Article X and Section 13.1(a).
"CODE" shall mean the United States Internal Revenue Code of 1986 and
any successor statute thereto, as amended.
"CONSENT TO ASSIGNMENT" shall mean an existing contractual or legal
right of any third party to consent to the Partnership's assignment of a
Property to Buyer under such terms as are set forth in this Agreement.
"CONTRACTS" shall mean all of the contracts that govern or relate to
the ownership or operation of the Operating Assets (including without
limitation, the wells, facilities and equipment associated therewith and the
production therefrom, acreage contribution agreements, assignments, bidding
agreements, bottom-hole agreements, contribution agreements, drilling contracts,
dry-hole agreements, exploration agreements, development agreements, farm-in and
farmout agreements, gas balancing agreements, joint venture agreements,
production, sales, marketing and/or brokerage contracts, gas processing
agreements, operating agreements, participation agreements, service contracts,
storage contracts, gathering agreements, transportation agreements, treating
contracts, water rights agreements and the unitization, unit operating,
communitization and pooling declarations, agreements and orders that create or
govern units). To the extent that Seller, Southeast or the Partnership have
rights of indemnification or warranty rights with respect to any Operating Asset
or any part of an Operating Asset, the same shall be included in the meaning of
"Contracts."
"DAMAGES" shall mean any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses, expert fees and expenses and court costs), of any nature whatsoever.
"EFFECTIVE TIME" shall mean July 1, 1999, at 12:00 a.m. local time for
each Operating Asset.
"ENCUMBRANCE" shall mean any interest (including any security
interest), pledge, mortgage, lien, charge, adverse claim or other right of third
Persons.
"ENVIRONMENTAL CONDITIONS" shall have the meaning set forth in Section
7.3 of the Stock Purchase Agreement.
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"EXPLORATION LLC" shall mean Tesoro Exploration and Production LLC, a
Delaware limited liability company.
"FINAL SETTLEMENT PRICE" shall mean the Settlement Price calculated in
accordance with the best information available to the Parties during the one
hundred twenty (120) day period after Closing, as reflected on the Final
Statement agreed upon pursuant to Article XIII.
"FINAL STATEMENT" shall mean the final accounting statement to be
agreed upon by the Parties no later than one hundred twenty (120) days after
Closing pursuant to Section 13.1(b).
"FINANCIAL ASSETS AND LIABILITIES" shall mean the assets, liabilities
and other financial items on the Balance Sheets, effective as of 11:59 p.m. on
June 30, 1999, (i) as adjusted for revenues, income, expenses and other assets
and liabilities incurred between the Effective Time and the Closing Date and
included within the Adjustment Assets and Liabilities, and (ii) as adjusted for
the Pre-Closing Financial Adjustments and (iii) as otherwise adjusted as
provided herein. The term "Financial Assets" shall not include any assets,
liabilities or other financial items included within the Operating Assets.
"GAAP" shall mean U.S. generally accepted accounting principles, unless
expressly described otherwise.
"GOVERNMENTAL AUTHORITY" shall mean any international, national,
Federal, state, municipal or local government, governmental authority,
regulatory or administrative agency, governmental commission, department, board,
bureau, agency or instrumentality, court, tribunal, arbitrator or arbitral body.
"GOVERNMENTAL ORDER" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"GRANDE" shall mean Tesoro Grande LLC, a Delaware limited liability
company.
"HAZARDOUS SUBSTANCE" means a substance, chemical, pollutant, waste or
other material (i) that consists, wholly or in part, of a substance that is
regulated as toxic or hazardous to human health or the environment under any
Environmental Law or (ii) that exists in a condition or under circumstances that
constitute a violation of any Environmental Law. "Hazardous Substance" includes
without limitation any "hazardous substance" under the Comprehensive
Environmental Response, Compensation and Liability Act, any "hazardous chemical"
under the Occupational Safety and Health Act, any "hazardous material" under the
Hazardous Materials Transportation Act, any "hazardous chemical substance" under
the Federal Water Pollution Control Act and any "hazardous waste" under the
Resource Conservation and Recovery Act.
"HEDGING CONTRACTS" shall mean those natural gas derivative pricing
contracts listed on Schedule 1A.
"INCOME TAXES" shall mean any Taxes, including franchise taxes, which
are based upon or in respect of income.
"INDEMNIFIED PARTY" shall mean any Party or other Person entitled to an
indemnity under Article XV of this Agreement, with respect to the indemnity so
owed.
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<PAGE> 8
"INDEMNIFYING PARTY" shall mean a Party owing an indemnity to any other
Party or Person under Article XV of this Agreement, with respect to the
indemnity so owed.
"LENDER" shall have the meaning set forth in Section 9.12(d).
"LIABILITIES" shall mean any and all debts, claims, liabilities and
obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, mature or unmatured or determined or indeterminable.
"MATERIAL ADVERSE EFFECT" shall mean any event with respect to, change
in, or effect on, Southeast, the Partnership or the Business which, individually
or in the aggregate, is reasonably likely to have a material adverse effect on
the Business, or the financial results of operations, assets or properties or
financial condition of Southeast and the Partnership, taken as a whole, but the
term "Material Adverse Effect" shall not include any change in market conditions
or other conditions affecting the oil and gas exploration and production
industry generally.
"MEMBERSHIP INTERESTS" shall mean shall mean all issued and outstanding
membership interests in Southeast.
"NORM" shall have the meaning set forth in Section 7.2.
"NRI" shall mean the decimal net revenue interest in oil and gas
production from a Property.
"OPERATING ASSETS" shall mean all property rights and interests of the
Partnership being sold hereunder in the lands and leases described in Exhibit
"B", as set forth in Section 2.4.
"OTHER TAXES" shall mean all Taxes other than Income Taxes.
"PARTIES" shall mean Buyer and Seller, collectively.
"PARTNERSHIP" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership of
the Partnership, as amended.
"PARTY" shall mean either Buyer or Seller.
"PERMITTED ENCUMBRANCES" shall include any Encumbrance which is: (i)
listed on Schedule 1B, for which a duly executed release in recordable form will
be delivered to Buyer at or before Closing; (ii) a lien securing amounts claimed
for services provided by operators or other oil field contractors which are not
yet due and owing or which are being contested in good faith, through adequate
procedures; (iii) a statutory lien arising for Taxes not yet delinquent or which
are being contested in good faith, through adequate procedures; (iv) a
reservation, exception, limitation, encumbrance or burden expressly included
within a recorded oil and gas lease constituting part of a Property with respect
to which Seller or the Partnership is not in default at Closing which does not
reduce the Partnership's NRI in such Property below the respective decimal
interests set forth in Exhibit A; (v) any royalty, overriding royalty or other
production burden affecting any Property which does not and will not reduce the
Partnership's NRI in such Property below the respective decimal interests set
forth in Exhibit A; (vi) any joint operating agreement containing terms and
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<PAGE> 9
conditions reasonable and customary in the industry (other than a Preferential
Right to Purchase that is exercised prior to Closing or a required Consent to
Assignment, or a reversionary right that is not reflected in the BPO and APO
interests on Exhibit A); (vii) the right of a third party under any equipment
rental or lease contract, oilfield service contract, production sales contract
or transportation contract affecting any Property, which either may be
terminated by the parties thereto without penalty or does not extend for a term
of more than sixty days after the Closing Date; (viii) any other easement,
operating right, concurrent use right or similar encumbrance that does not
affect the Partnership's rights to a Property or reduce the production revenues
attributable thereto or increase the costs associated with ownership or
operation of that Property; and (ix) a severance tax, production tax, occupation
tax, ad valorem tax or similar tax of general application.
"PERSON" shall include any individual, trustee, firm, corporation,
partnership, limited liability company, Governmental Authority or other entity,
whether acting in an individual, fiduciary or any other capacity.
"POST-CLOSING RETURN" shall have the meaning set forth in Section
16.2(c).
"PRE-CLOSING FINANCIAL ADJUSTMENTS" shall mean those certain financial
accounting adjustments and payments set forth in Section 2.6.
"PRE-CLOSING PERIOD" shall have the meaning set forth in Section
16.2(c).
"PRE-CLOSING RETURN" shall have the meaning set forth in Section
16.2(c).
"PREFERENTIAL RIGHT TO PURCHASE" shall mean the right of any third
party under an existing contract or agreement allowing that third party to
purchase the Partnership's interest in a Property whenever Seller proposes to
transfer its interests in the Partnership under terms such as are set forth in
this Agreement and the Stock Purchase Agreement.
"PRODUCTION" shall mean all oil, natural gas, condensate, natural gas
liquids, and other hydrocarbons or products produced from or attributable to the
Properties.
"PROPERTIES" shall mean, collectively, (i) all valid and existing oil
and gas leaseholds and mineral fee rights, and all rights and interests
appurtenant thereto, which are owned by the Partnership in the lands and leases
described on Exhibit B attached hereto, including without limitation all oil and
gas WIs, NRIs, mineral fee interests, oil, gas and mineral deeds, leases and/or
subleases, royalties, overriding royalties, leasehold interests, mineral
servitudes, production payments and net profits interests, fee mineral
interests, surface estates, fee estates, royalty interests, overriding royalty
interests, or other non-working or carried interests, reversionary rights,
farmout and farmin rights, operating rights, pooled or unitized acreage, and all
other rights, privileges and interests in such oil, gas and other minerals (and
the production thereof), and other mineral rights of every nature now owned by
the Partnership in such lands and leases listed on Exhibit B hereto, (ii) all of
the contractual rights to interests described in (i) above and in all units in
which such interests are pooled, communitized or unitized, and in any other oil,
gas and/or mineral leases or assets arising pursuant to the terms of the oil and
gas leases listed on Exhibit B hereto, and any other rights and agreements or
contracts affecting or relating to interests described in (i) above, or to
Production, whether or not listed on Exhibit B, including any tenements,
appurtenances, surface leases, easements, permits, licenses, servitudes,
franchises or rights of way.
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<PAGE> 10
"PROPERTY" shall mean any individual one of the Properties.
"PROPERTY TAX PERIOD" shall have the meaning set forth in Section
13.3(a).
"PROPERTY TAXES" shall have the meaning set forth in Section 13.3(a).
"PROPOSED SETTLEMENT" shall have the meaning set forth in Section
16.1(e).
"PURCHASE PRICE" shall have the meaning set forth in Section 3.1.
"QUALIFIED INTERMEDIARY" shall mean 44 Exchange Services L.L.C., in its
capacity as a qualified intermediary to implement a like-kind exchange of the
Properties under Section 1031 of the Code.
"REFUSING PARTY" shall have the meaning set forth in Section 16.1(e).
"RESERVES LLC" shall mean Tesoro Reserves Company, LLC, a Delaware
limited liability company.
"SELLER" shall mean, collectively, Tesoro Petroleum Corporation, a
Delaware corporation, and Tesoro Gas Resources Company, Inc., a Delaware
corporation.
"SELLER'S KNOWLEDGE" shall mean actual knowledge of any fact,
circumstance or condition by the officers or management employees (including
those with titles of "Manager", "Vice President" and "President" or those in the
internal legal department of Seller, Southeast and the Partnership who provide
specific advice related to the operations of the Business) of Seller, Southeast
and the Partnership involved and knowledge of any fact, circumstance or
condition which such officer or management employee would have been aware of
with the exercise of reasonable diligence and inquiry in the course of his or
her duties.
"SETTLEMENT PRICE" shall have the meaning set forth in Section 3.2.
"SETTLEMENT STATEMENT" shall mean the accounting statement calculating
the Settlement Price, to be furnished by Seller to Buyer prior to Closing,
pursuant to Article X and Section 13.1(a).
"SOUTHEAST" shall mean Tesoro Southeast LLC, a Delaware limited
liability company
"STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement
dated October 8, 1999, as amended by the Amendment, by and among Tesoro
Petroleum Corporation, a Delaware corporation, Tesoro Gas Resources Company,
Inc., a Delaware corporation, and EEX Operating LLC, a Delaware limited
liability company, and EEX Corporation, a Texas corporation, for the limited
purposes set forth therein.
"STRADDLE PERIOD" shall have the meaning set forth in Section 16.1(e).
"STRADDLE RETURN" shall have the meaning set forth in Section 16.2(c).
"SUBSIDIARIES" shall mean Exploration LLC, Southeast, Grande and
Reserves LLC, collectively.
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<PAGE> 11
"TAX" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, parking, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 50A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, ad valorem,
value added, alternative or add-on minimum, estimated tax, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, including such item for which Liability arises as a transferee
or successor-in-interest.
"TAX CLAIM" shall have the meaning set forth in Section 16.1(c).
"TAX RETURN" shall mean any return, declaration, report, claim for
refund, information return or statement relating to Taxes, including any
schedules or attachments thereto, and including any amendment thereof.
"TAXING AUTHORITY" shall mean any Governmental Authority responsible
for the imposition or collection of any Tax.
"TESORO GROUP" shall have the meaning set forth in Section 4.1(i).
"TESORO PARENT" shall have the meaning set forth in Section 4.1(i).
"TRANSACTION" shall mean the purchase and sale of the Membership
Interests pursuant to this Agreement and the related transactions contemplated
herein.
"WI" shall mean a working interest under an oil and gas lease or other
Contract affecting a Property which shall reflect the decimal interest for
participation in the decisions, costs and risks concerning operations.
"WORKING CAPITAL" shall mean, at any time, the difference between (a)
the sum of the amounts on the line items "cash", "accounts receivable",
"inventories" and "prepayment and other" on the Balance Sheet, less (b) the sum
of the amounts on the line items "accounts payable" and "accrued liabilities" on
the Balance Sheet; all as computed in accordance with GAAP and past practice for
Southeast and the Partnership except as expressly provided herein, and in a
manner as reflected on the Balance Sheets; provided, however, that the amounts
on the line items "prepayment and other", "accounts payable" and "accrued
liabilities" on the Balance Sheet shall not include the impact of any amounts
referred to in the first proviso in Section 3.2(a)(i); and provided further,
that the stated amount of Working Capital shall be reduced by the amount of
inventories that existed as of the Effective Time.
"WORKING CAPITAL ACCOUNTS" shall mean the line items "cash", "accounts
receivable", "inventories", "prepayment and other", "accounts payable" and
"accrued liabilities" on the Balance Sheet, all as computed in accordance with
GAAP and past practice for Southeast and the Partnership, and in a manner as
reflected on the Balance Sheets; provided, however, that the line items
"prepayment and other", "accounts payable" and "accrued liabilities" shall not
include the impact of any items referred to in the first proviso in Section
3.2(a)(i).
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ARTICLE II.
PURCHASE AND SALE
2.1 SALE OF MEMBERSHIP INTERESTS. Subject to the terms and conditions
of this Agreement, Seller agrees to sell and assign to Buyer, and Buyer agrees
to purchase and pay for, at Closing, all of the Membership Interests.
2.2 EFFECT OF SALE. The sale of the Membership Interests at Closing
shall transfer to Buyer all of Seller's rights in Southeast. On the Closing
Date, Southeast shall hold certain interests, assets and liabilities, as set
forth in this Article II. Except as otherwise specifically set forth in this
Agreement, the transfer of Seller's rights in Southeast shall assign to Buyer
all of Seller's beneficial right, title, interest and obligations in and to such
interests, assets and liabilities held by Southeast.
2.3 PARTNERSHIP. On the Closing Date, Exploration LLC and Southeast
shall own the rights and interests in the Partnership, insofar as they pertain
to the Properties. Exploration LLC shall be the one percent (1%) general
partner, and Southeast shall own the entire Series C limited partnership
interest in the Partnership insofar as it pertains to allocable revenues and
expenses attributable to the Properties. The partnership rights and interests of
Southeast described in this Section 2.3 shall pass to Buyer as an attribute of
the sale of the Membership Interests pursuant to this Agreement.
2.4 OPERATING ASSETS. On the Closing Date, the Partnership shall own
the Operating Assets, subject to the Permitted Encumbrances, as follows:
(a) Exploration and Production Assets.
(i) the Properties;
(ii) All the interests in oil and gas wells described on
Exhibit A, together with an interest in the
production, compression, treating, dehydration or
processing facilities and other real or tangible
personal property appurtenances and fixtures, which
are located on the lands covered by or within the
Properties or are being used by the Partnership in
connection with the operations on the Properties or
Production;
(iii) Subject to the license granted under the License
Agreement (with respect to the rights covered
thereby), rights and interests in geological data and
records, seismic data, whether in digital or paper
format, well logs, well files, geological data,
records and maps, land and contract files and
records, accounting files, data and records,
computer hardware and software and other materials
(whether electronically stored or otherwise) used or
held for use by Seller, Southeast or the Partnership,
or any of their direct or indirect parents,
subsidiaries or other Affiliates, regarding ownership
of the Properties or operations and Production which
relate to the Properties, and other files, documents
and records which relate to the Properties;
(iv) Rights, obligations, title and interests in and to
permits, orders, contracts, abstracts of title,
leases, deeds, unitization agreements, pooling
agreements,
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operating agreements, farmout agreements,
participation agreements, division of interest
statements, division orders, participation
agreements, and other agreements and instruments
applicable to the Properties;
(v) All the rights, obligations, title and interests of
Seller in and to all easements, rights of way,
certificates, licenses and permits and all other
rights, privileges, benefits and powers conferred
upon the owner and holder of interests in the
Properties, or concerning software used in
conjunction with ownership or operation of the
Properties;
(vi) Rights, title, obligations and interests in or
concerning any gas imbalances affecting the
Properties; and
(vii) All office equipment, computer equipment, light
tables, drafting tables, drafting equipment, office
supplies, facsimile machines, pool cars and any other
equipment or furniture not herein named which is
utilized by the Partnership in its day to day
operations.
(b) Leased Assets. To the extent any of the items of office equipment
listed in Section 2.4(a) above are leased and not owned, Seller, Southeast and
the Partnership shall use their best efforts to cause such leases to be assigned
to Buyer at Closing.
2.5 FINANCIAL ASSETS AND LIABILITIES. On the Closing Date, the
Partnership shall own the Financial Assets and Liabilities. Southeast shall be
allocated its share of the Partnership's respective Financial Assets and
Liabilities attributable to ownership and operation of the Properties in
proportion to its ownership of the Partnership's interests in the Properties.
The Financial Assets and Liabilities at Closing of the Partnership and each
partner in the Partnership shall be computed by Seller in accordance with GAAP,
and shall be allocated to the Properties and the partners in the Partnership in
accordance with the Partnership Agreement. The Financial Assets and Liabilities
shall be adjusted from those set forth on the Balance Sheet to reflect certain
Pre-Closing Financial Adjustments and the Adjustment Assets and Liabilities, as
set forth in Sections 2.6 and 2.7.
2.6 PRE-CLOSING FINANCIAL ADJUSTMENTS . Prior to the Closing Date,
Seller shall make certain accounting adjustments and payments regarding the
assets, liabilities and equity of the Partnership and Southeast, to the effect
that Sellers shall remove all intercompany accounts involving the Partnership,
Southeast and their Affiliates, and all intercompany liabilities shall have been
removed. At Closing the only assets and liabilities of the Partnership and
Southeast shall be the Operating Assets and the Adjustment Assets and
Liabilities.
(a) Certain Accounts. Immediately prior to the Closing, Seller shall
take, and shall cause Southeast and the Partnership to take, all necessary
action deemed appropriate to adjust the Balance Sheets to account for those
items that are to be retained by Seller, as set forth in Schedule 2.6(a). In
doing so, Seller shall take, and shall cause Southeast and the Partnership to
take, all necessary actions deemed appropriate so that the Balance Sheets as of
the Closing Date, as adjusted to reflect such actions, will show zero for those
line items listed in Schedule 2.6(a) as financial items that are to be retained
by Seller.
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(b) Pre-Closing Cash Distribution. Immediately prior to the Closing,
Tesoro Gas Resources Company, Inc. shall cause Southeast to pay to it an amount
equal to the arithmetic mean of Seller's and Buyer's good faith estimates of the
consolidated cash and cash equivalents (other than amounts in suspense accounts)
of Southeast as of the Closing Date.
(c) Changes in Balance Sheets Due to Continuing Operations. Buyer and
Seller expressly recognize that the assets and liabilities of Southeast and the
Partnership shall be affected by the effects of ongoing ownership and operation
of the Operating Assets between the Effective Time and the Closing Date. These
changes shall be handled exclusively by adjustments to the Settlement Price as
set forth in Section 3.2 and Article XIII.
2.7 ADJUSTMENT ASSETS AND LIABILITIES . At Closing, the Partnership
shall retain, to the extent permitted by applicable law and regulations, the
following interests:
(a) All rights, obligations, liabilities, title and interests of Seller
and the Partnership in and to all Hedging Contracts in effect at the Effective
Time or thereafter;
(b) All Working Capital Accounts; and
(c) All rights to future proceeds, defenses and indemnities owed under
any bonds or insurance policies covering the Operating Assets, the Partnership,
Southeast or the Business for policy periods prior to the Closing Date, for
losses, claims or occurrences, as applicable, arising prior to the Closing Date.
ARTICLE III.
PURCHASE PRICE AND SETTLEMENT PRICE
3.1 PURCHASE PRICE. The monetary consideration ("Purchase Price") for
the sale and conveyance of all the Membership Interests to Buyer, effective as
of the date of Closing, is Buyer's payment of $14,426,631 in cash.
3.2 SETTLEMENT PRICE. Pursuant to the provisions as described below,
the Purchase Price to be paid by Seller will be subject to certain adjustments
made at Closing and within one hundred twenty (120) days thereafter, as set
forth in Article XIII, to determine the Settlement Price amount that will
actually be paid by Buyer. The Settlement Price will be calculated as follows:
(a) Increases. The Purchase Price shall be increased by the
following amounts:
(i) An amount equal to the expenses properly accrued in
accordance with GAAP and past practice, and allocated
to Southeast under the Partnership Agreement, and as
provided for in Section 13.3, attributable to the
period from the Effective Time to the end of business
on the Closing Date; provided, however, that such
expenses shall exclude all (1) depreciation,
depletion and amortization, (2) income and franchise
taxes, (3) one-half of the amount accrued by and the
Partnership and allocated to Southeast under the
Partnership Agreement, incentive compensation
arrangements for the Retained Employees, as provided
in Section 9.9(c), and (4) severance obligations and
other amounts accrued under any employment retention
and
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management stability agreements, as provided in
Section 9.9(b); provided, further, however that
Seller and the Partnership shall be permitted to
accrue no more than $40,000 per month from the close
of business on June 30, 1999 to the Closing Date for
corporate general and administrative expenses;
(ii) An amount equal to the capital expenditures relating
to the Business properly accrued in accordance with
GAAP and past practice and allocated to Southeast
under the Partnership Agreement, attributable to the
period from the Effective Time to the end of business
on the Closing Date; and
(iii) The amount of change in Working Capital and allocated
to Southeast under the Partnership Agreement between
the Effective Time and the end of business on the
Closing Date, if the amount of change is a positive
number.
(b) Decreases. The Settlement Price shall be decreased by the
following amounts:
(i) An amount equal to the revenues properly accrued in
accordance with GAAP and past practice and allocated
to Southeast under the Partnership Agreement
attributable to the period from the Effective Time to
the end of business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment
allocated to Southeast under the Partnership
Agreement, subject to the application of Section
13.1;
(iii) The amount, stated as a positive number, of any
change in Working Capital and allocated to Southeast
under the Partnership Agreement between the Effective
Time and the end of business on the Closing Date, if
and only if, the amount of change is a negative
number.
The Purchase Price as adjusted pursuant to this Section 3.2 is herein called the
"Settlement Price".
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Effective as of the
Closing Date, Seller shall represent and warrant that:
(a) Disclosure. To Seller's Knowledge, the representations and
warranties set forth in this Section 4.1 of this Agreement, the exhibits to this
Agreement, and the information, documents and Balance Sheets provided under the
terms of this Agreement represent full and fair disclosure as of the Closing
Date and do not contain any untrue statement of any material fact or omit any
material fact necessary in order to make the facts stated not misleading.
(b) Authorization and Enforceability.
(i) This Agreement and the Transaction have been duly
authorized by each Seller.
(ii) Neither the execution and delivery of this Agreement
by Seller, nor the consummation by Seller of the
transactions contemplated hereby, will violate
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or conflict with, or result in the acceleration of
rights, benefits or obligations under, (1) any
provision of any of Seller's, Southeast's or the
Partnerships' respective Charters, Bylaws, management
agreements, limited liability company agreements,
operating agreements or partnership agreements, or
(2) any applicable statute, law, regulation or
Governmental Order to which Seller or Southeast or
the Partnerships or the assets and properties of such
entities, including without limitation the Operating
Assets, are bound or subject.
(iii) This Agreement has been duly executed and delivered
by each Seller and constitutes the valid and binding
obligation of each Seller, enforceable against it in
accordance with its terms, except as such
enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the
enforcement of creditors' rights generally and
general principles of equity (regardless of whether
such enforceability is considered in a proceeding in
equity or at law).
(iv) Except as set forth on Schedule 4.1(b)(iv), or as
otherwise specifically provided herein, the
execution, delivery, and performance of this
Agreement (assuming that all applicable consents are
received and all applicable Preferential Rights to
Purchase individual Operating Assets are waived)
will not (A) be in violation of any provisions of
any regulation or order that could reasonably be
expected to adversely affect the ownership or
operations of the Operating Asset affected thereby
or give rise to damages, penalties or claims of
third parties, or (B) result in the breach of, or
constitute a default under, any indenture or other
material agreement or instrument to which Seller,
Southeast or the Partnerships are bound, or (C)
cause the recognition of gain for which the Buyer
(or, after the Closing, the Subsidiaries) will be
responsible for the tax thereon or subject any
Subsidiary or its assets to any Tax other than Tax
for which Seller is responsible under Article XVI;
(v) Except as set forth on Schedule 4.1(b)(v) or as
otherwise specifically provided herein, no consent,
waiver, approval, order or authorization of, notice
to, or registration, declaration, designation,
qualification or filing with, any Governmental
Authority or third Person, domestic or foreign, is
or has been or will be required on the part of
Seller in connection with the execution and delivery
of this Agreement or the consummation by Seller of
the transactions contemplated hereby or thereby,
other than (A) consents and Preferential Rights to
Purchase affecting individual Operating Assets; (B)
filings required (1) to form Southeast under
Delaware law; (C) tax filings or (D) where the
failure to obtain such consents, waivers, approvals,
orders or authorizations or to make or effect such
registrations, declarations, designations,
qualifications or filings (1) is not reasonably
likely to prevent or materially delay consummation
of the transactions contemplated by this Agreement
(2) could reasonably be expected to adversely affect
the Business or (3) could give rise to damages,
penalties or claims of third parties.
(c) Organizational Status.
(i) Each Seller: (1) is a corporation duly organized,
validly existing and in good standing under the laws
of Delaware, (2) is duly qualified to transact
business
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in each jurisdiction where the nature and extent of
its business and properties require such
qualification, and (3) possesses all requisite
authority and power to conduct its business and
execute, deliver and comply with the terms and
provisions of this Agreement and to perform all of
its obligations hereunder. There are no pending or
threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or
rehabilitation of any Seller.
(ii) Southeast(1) is a limited liability company duly
organized, validly existing and in good standing
under the laws of Delaware, (2) is duly qualified to
transact business in each jurisdiction where the
nature and extent of its business and properties
require such qualification, and (3) possesses all
requisite authority and power to conduct its
business. There are no pending or threatened Actions
(or basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of Southeast.
(iii) The Partnership (1) is a limited partnership duly
organized, validly existing and in good standing
under the laws of Delaware, (2) is duly qualified to
transact business in each jurisdiction where the
nature and extent of its business and properties
require such qualification, and (3) possesses all
requisite authority and power to conduct its
business. There are no pending or threatened Actions
(or basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of the Partnership.
(d) Subsidiary and Other Equity Interests.
(i) Southeast has no subsidiaries and does not own any
stock or other interest in any other corporation,
partnership, joint venture, or other business entity,
with the exception of the Partnership.
(ii) The Partnership has no subsidiaries and does not own
any stock or other interest in any other corporation,
partnership, joint venture, or other business entity.
(e) Membership Interests and Partnership Interests.
(i) Southeast has authorized membership interests, of
which all are issued and outstanding and owned by
Tesoro Gas Resources Company, Inc. The membership
interests have been duly authorized by Southeast,
and the membership interests owned by Tesoro Gas
Resources Company, Inc. are validly issued and
outstanding, fully paid and nonassessable. There are
no preemptive rights, subscriptions, options,
consents to assignment or rights of first refusal,
convertible securities, warrants, calls, stock
appreciation rights, phantom stock, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller or
Southeast to issue or to transfer (or preventing the
transfer of) any membership interests, capital stock
or other equity interest in Southeast.
(ii) In the Partnership, the entire Series C limited
partnership interest (representing a 100% interest
in all of the capital and assets of Series C) is
held by Southeast. Exploration LLC is the general
partner of the Partnership (representing a 1%
interest in all of the capital and assets of Series
A). Such
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<PAGE> 18
interests are duly authorized under the agreement
governing the Partnership, as currently amended, and
are valid. There are no preemptive rights, or
authorized or outstanding subscriptions, options,
consents to assignment or rights of first refusal,
convertible securities, warrants, calls, appreciation
rights, phantom interests, profit participation, or
other similar rights, or other agreements or
commitments obligating Seller, the Partnership,
Reserves LLC, Southeast, Grande or Exploration LLC to
issue or to transfer (or preventing the transfer of)
any equity interest in the Partnership.
(iii) Seller has delivered to correct and complete copies
of Southeast's and the Partnership's respective
Charter, Bylaws, management agreement, limited
liability company agreement, operating agreement or
partnership agreement, as amended to date, and the
minute books of Southeast and the Partnership.
Neither Southeast nor the Partnership is in breach of
any provision of its Charter, Bylaws, management
agreement, limited liability company agreement,
operating agreement or partnership agreement.
(f) Title to Membership Interests, Partnership Interests and
Assets.
(i) The Membership Interests constitute all of the
issued and outstanding membership interests and
other equity interests in Southeast. All of the
issued and outstanding membership interests of
Southeast are owned of record and beneficially with
good and valid title by Tesoro Gas Resources
Company, Inc., free and clear of any Encumbrance.
Upon delivery to Buyer of the certificates
representing the Membership Interests in the manner
and with the powers described in Section 12.2(a),
assuming that Buyer pays the consideration
contemplated by this Agreement and has no notice of
any adverse claim, good and valid title to the
Membership Interests will have been transferred to
Buyer, free and clear of any Encumbrances. Neither
Tesoro Petroleum Corporation nor Tesoro Gas Resources
Company, Inc. has received any notice of any adverse
claim to their title to the Membership Interests.
(ii) All of the issued and outstanding partnership
interests in the Partnership are owned of record and
beneficially with good and valid title by Reserves
LLC, Southeast, Grande, and Exploration LLC, free and
clear of any Encumbrance. Neither Reserves LLC,
Southeast, Grande, nor Exploration LLC has received
any notice of any adverse claim to their respective
interests in the Partnership.
(iii) Southeast and the Partnership have good title to all
of the assets and properties (except the Operating
Assets) which they own or purport to own, including
the Financial Assets and Liabilities reflected on the
Balance Sheets and allocable to the Properties under
the Partnership Agreement, except for properties
sold, consumed or otherwise disposed of in the
ordinary course of business since the date of the
Balance Sheets, free and clear of any Encumbrances
other than Permitted Encumbrances.
(g) Litigation. Except as set forth in Schedule 4.1(g), none of Seller,
Southeast or the Partnership have been served with and, to Seller's Knowledge,
there are no pending or threatened
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<PAGE> 19
Actions before any Governmental Authority against or affecting Seller,
Southeast, the Partnership or the Operating Assets, which, if adversely
determined, either would be reasonably expected to expose Southeast or the
Partnership to a risk of loss after the Effective Time or would interfere with
Seller's ability or right to execute and deliver this Agreement or consummate
the transactions contemplated by this Agreement.
(h) Labor Matters. Except as set forth on Schedule 4.1(h), there are no
contracts, agreements, or other arrangements whereby Southeast or the
Partnership are obligated to compensate or provide health and welfare benefit
plans or retirement benefits to any employees or other persons, except for
employment agreements that are terminable at will, without breach or penalty. To
Sellers' Knowledge, Seller, Southeast and the Partnership are in compliance with
all federal, state, and local laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours and are not
engaged in any unfair labor practice with regard to those persons employed in
connection with Southeast's or the Partnership's operations. No employee of
Southeast is covered under any collective bargaining agreement. There is no
unfair labor practice complaint against Southeast pending or, to Seller's
Knowledge, threatened before the National Labor Relations Board or any
comparable state or local Governmental Authority. There is no labor strike,
slowdown or work stoppage pending or, to Seller's Knowledge, threatened against
or directly affecting Southeast, and no grievance or any Action arising out of
or under collective bargaining agreements is pending or, to Seller's Knowledge,
threatened against Southeast.
(i) Taxes.
(i) Except as set forth in Schedule 4.1(i), Seller, and
the Partnership have timely filed or caused to be
timely filed (or will timely file or cause to be
timely filed) with the appropriate Taxing
Authorities, all Tax Returns required to be filed on
or prior to the Closing Date by or with respect to
Sellers and the Partnership (or their respective
Operating Assets) and have timely paid or adequately
provided for (or will timely pay or adequately
provide for) all Taxes shown thereon as owing,
except where the failure to file such Tax Returns or
pay any such Taxes would not, or could not
reasonably be expected to, in the aggregate, result
in losses or costs or expenses to Southeast's
interests or the Partnership after the Closing Date.
(ii) Sellers are members of an affiliated group of
corporations which file consolidated federal income
tax returns ("Tesoro Group") with Tesoro Petroleum
Corporation as the common parent ("Tesoro Parent").
Southeast is not required to and does not file
federal income tax returns as a taxpaying entity,
and, for purposes of federal income taxation,
Southeast is accounted for and included as a part of
Tesoro Gas Resources Company, Inc. The Tesoro Group
has been subject to normal and routine audits,
examinations and adjustments of Taxes from time to
time, but there are no current audits or audits for
which written notification has been received, other
than those set forth in Schedule 4.1(i). There are
no written agreements with any Taxing Authority with
respect to or including Southeast's interests which
will in any way affect liability for Taxes
attributable to Southeast's interests after the
Closing Date.
(iii) Except as set forth in Schedule 4.1(i), no
assessment, deficiency or adjustment for any Taxes
has been asserted in writing or, to the knowledge
17
<PAGE> 20
of Sellers, is proposed with respect to any Tax
Return of, or which includes, Southeast's interests.
(iv) Except as set forth in Schedule 4.1(i), there is not
in force any extension of time with respect to the
due date for the filing of any Tax Return of or with
respect to or which includes Southeast's interests or
any waiver or agreement for any extension of time for
the assessment or payment of any Tax of or with
respect to or which includes Southeast's interests.
(v) Except for Taxes due with respect to Tax Returns that
will be paid by Tesoro Parent (and not subject to
reimbursement by Southeast), the accounting records
of Southeast will include immediately prior to the
Closing Date adequate provisions for the payment of
all Taxes allocable to Southeast's interests for all
taxable periods or portions thereof through the
Closing Date.
(vi) All Tax allocation or sharing agreements or
arrangements have been or will be canceled on or
prior to the Closing Date. No payments are or will
become due by Southeast after the Closing Date
pursuant to any such agreement or arrangement.
(vii) Except as set forth on Schedule 4.1(i), none of the
Sellers or Southeast will, as a result of the
transactions contemplated by this Agreement, be
obligated to make a payment after the Closing Date to
an individual that would be a "parachute payment" as
defined in Section 280G of the Code without regard to
whether such payment is reasonable compensation for
personal services performed or to be performed in the
future.
(viii) Neither Southeast nor the Partnership have
participated in or cooperated with an international
boycott within the meaning of Section 999 of the
Code.
(ix) Neither Southeast nor the Partnership has filed a
consent under Code Section 341(f) concerning
collapsible corporations.
(x) Neither Southeast nor the Partnership has been a
United States real property holding corporation
within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section
897(c)(1)(A)(ii).
(xi) All monies required to be withheld by either Seller,
Southeast and the Partnership and paid to Taxing
Authorities for all Taxes have been (i) collected or
withheld and either paid to the respective Taxing
Authorities or set aside in accounts for such purpose
or (ii) properly reflected in the Balance Sheets.
(j) Balance Sheets.
(i) The Balance Sheets have been prepared in accordance
with GAAP applied on a basis consistent with prior
periods, except as described in the notes thereto,
which will qualify that the Partnership and Southeast
have been accounted for as part of a consolidated
financial group with their affiliates and not as
completely separate stand-alone entities.
(ii) The Balance Sheets present fairly, in all material
respects, the financial condition of the combined
Partnership and Southeast as of June 30, 1999.
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<PAGE> 21
The books and records of Southeast and the
Partnership from which the Balance Sheets were
prepared were complete and accurate in all material
respects at the time of such preparation.
(iii) Southeast and the Partnership have no Liabilities,
except for Liabilities (1) reflected in the Balance
Sheets, (2) incurred by Southeast or the Partnership
in the ordinary course of business and consistent
with past practices since the date of the Balance
Sheets, or (3) which are Permitted Encumbrances, (4)
for which the Buyer is being indemnified hereunder.
As used in this subparagraph, the term "Liabilities"
excludes any Liabilities not required to be reflected
in the Balance Sheets under GAAP.
(k) Absence of Certain Changes. Except as set forth in Schedule
4.1(k), or as otherwise contemplated by this Agreement (including without
limitation Sections 2.5 and 2.6), or with Buyer's prior written consent, since
the close of business on June 30, 1999:
(i) Neither Southeast nor the Partnership has sold,
leased, transferred, or assigned any assets other
than surplus equipment not necessary for operations
of the Business and for a reasonable consideration;
(ii) Southeast and Partnership have not incurred, assumed
or become subject to any additional indebtedness for
money borrowed or purchase money indebtedness,
including capitalized leases;
(iii) Southeast and Partnership have not entered into any
transaction not in the ordinary course of business,
except as contemplated by this Agreement;
(iv) there have been no additional Encumbrances placed on
the assets of Southeast or the Partnership other than
Permitted Encumbrances;
(v) no event has occurred which constitutes a Material
Adverse Effect;
(vi) Neither Southeast nor the Partnership has made any
loan to, or entered into any contract with (other
than severance agreements for which Seller shall
remain responsible), any of its directors or
officers;
(vii) Southeast has not issued, sold, or otherwise disposed
of any of its interests in the Partnership, except in
connection with the transactions outlined in Section
9.4(b) of the Stock Purchase Agreement;
(viii) there has been no change made or authorized to the
Charter, Bylaws, management agreement, limited
liability company agreement, operating agreement or
partnership agreement of Southeast or the
Partnership, except in connection with the
transactions outlined in Section 9.4(b) of the Stock
Purchase Agreement;
(ix) Neither Southeast nor the Partnership has canceled,
compromised, waived, or released any debt or Action
(or series of related debts or Actions);
(x) Neither Southeast nor the Partnership has delayed or
postponed the payment of accounts payable or other
Liabilities owed, other than amounts which Seller
reasonably and in good faith disputes;
(xi) Neither Southeast nor the Partnership has made any
capital investment in,
19
<PAGE> 22
any loan to, or any acquisition of the securities or
assets of, any other Person (or series of related
capital investments, loans, and acquisitions), except
in connection with operations conducted pursuant to
Section 9.2(f) or in connection with the transactions
outlined in Section 9.4(b) of the Stock Purchase
Agreement;
(xii) Neither Southeast nor the Partnership has made any
capital expenditure (or series of related capital
expenditures), except in connection with operations
conducted pursuant to Section 9.2(f); or in
connection with the transactions outlined in Section
9.4(b) of the Stock Purchase Agreement
(xiii) Neither Southeast nor the Partnership has entered
into any Contract (or series of related Contracts)
other than (i) to effectuate operations set forth on
Schedule 9.2(f) or (ii) constituting joint operating
agreements or oil and gas leases entered into in the
ordinary course of business or (iii) contracts with
officers and directors for which the Seller shall
remain responsible or (iv) contracts in connection
with the transactions outlined in Section 9.4(b) of
the Stock Purchase Agreement;
(xiv) to Seller's Knowledge, neither Southeast nor the
Partnership has materially breached any Contract by
which it is bound or to which any of its assets is
subject; and
(xv) Neither Southeast nor the Partnership has declared,
set aside, or paid any dividend or made any
distribution with respect to its interests in the
Partnership (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its interests
in the Partnership, other than in the ordinary course
of business or as contemplated by this Agreement or
in connection with the transactions outlined in
Section 9.4(b) of the Stock Purchase Agreement.
(l) Compliance With Law. Since June 30, 1999, neither Southeast
nor the Partnership has violated any law, statute or regulation which have
subjected them to fines or penalties (nor to Seller's Knowledge have any third
parties violated any Applicable Law for which Southeast or the Partnership may
have any responsibility). As of the date of this Agreement, to Seller's
Knowledge, Southeast and the Partnership are in compliance in all material
respects with all laws, statutes or regulations applicable to Southeast and the
Partnership, except where the noncompliance with which would not, in the
aggregate, result in the imposition on Southeast and the Partnership of fines or
penalties.
(m) Operating Assets.
(i) Seller represents that as of Closing, Seller's and
the Partnership's interests in the Operating Assets
shall be free and clear of any liens other than
Permitted Encumbrances.
(ii) To Seller's Knowledge, the Operating Assets are being
operated in compliance in all material respects with
all applicable federal, state or local laws, and the
rules and regulations of any agency or authority
having jurisdiction.
(iii) Except as set forth in Schedule 4.1(m)(iii),
Southeast and the Partnership
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<PAGE> 23
possess all permits, licenses, orders, approvals and
authorizations required by any applicable law,
statute, regulation or Governmental Order, or by the
property and contract rights of third Persons,
reasonably necessary to permit the operation of the
Business in the manner currently conducted by
Southeast and the Partnership. Neither Southeast nor
the Partnership has received written notice from any
Governmental Authority that any such permit, license,
order, approval or authorization has been, or will
be, revoked or terminated.
(iv) Except as set forth in Schedule 4.1(m)(iv),
immediately before the Closing Date, Southeast and
the Partnership will hold or have the right to use
in the Business all of the assets and properties
(including all licenses and agreements) currently
being used (except those disposed of or expiring in
the ordinary course of business or otherwise as
contemplated or permitted by this Agreement) or
which are reasonably necessary to permit the
operation of the Business in the manner currently
conducted by Southeast and the Partnership. Since
June 30, 1999, Southeast have conducted no business
other than the Business.
(n) No Brokers' Fees. Except for Credit Suisse First Boston, the
fees and expenses of which will be paid by Seller, neither Seller nor any of its
directors, officers or employees has employed any broker, finder or investment
banker or incurred any Liability for any brokerage fees, commissions, finders'
fees or similar fees in connection with the transactions contemplated by this
Agreement. Buyer shall have no responsibility whatsoever, contingent or
otherwise, for any brokers' or finders' fees incurred by Seller, Southeast or
the Partnership relating to the Transaction.
(o) Suspense Funds. Schedule 4.1(o) is a true and correct list as
of August 31, 1999 of all amounts held by the Partnership and/or Southeast in
suspense accounts, or otherwise, related to the Properties for the benefit or
account of any other Person.
(p) Insurance. As listed on Schedule 4.1(p) Seller, Southeast and
the Partnership maintain insurance on and bonds with respect to the Operating
Assets, as set forth on Schedule 4.1(p), covering such risks and with such
deductible amounts as are consistent with general oil and gas industry practice.
(q) Contracts on Production. Except as set forth on Schedule
4.1(q), there are no Contracts involving the purchase, marketing, brokering or
sale of Production that require a dedication of Production for a term in excess
of three (3) months that will not be terminable without penalty or other
liability at the sole discretion of Southeast or the Partnership upon not more
than one (1) month's notice, except for commitments under operating agreements.
(r) Equipment. Since June 30, 1999, neither Seller, Southeast nor
the Partnership, nor to Seller's Knowledge the operator of any of the Operating
Assets, has removed any of the equipment, facilities or other property from the
Operating Assets except in the ordinary course of business.
(s) Tax Partnerships. Except as disclosed in Schedule 4.1(s), no
Property is subject to, or considered to be held by, any partnership for federal
income tax purposes, other than tax partnerships under joint operating
agreements.
(t) Disclaimer. Except as otherwise expressly set forth in this
Article and elsewhere in
21
<PAGE> 24
this Agreement, Seller and the Affiliates of Seller expressly disclaim any
representations or warranties of any kind or nature, express or implied, as to
the condition, value or quality of the assets or properties currently or
formerly used, operated, owned, leased, controlled, possessed, occupied or
maintained by Southeast or the Partnership, and SELLERS AND ALL OTHER TESORO
AFFILIATES SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY OF
MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH
RESPECT TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO THE
WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING ACQUIRED
"AS IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION, WITH ALL
FAULTS, AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND INVESTIGATION
THEREOF.
(u) Environmental Matters. Except as set forth on Schedule 4.1(u),
to Seller's Knowledge:
(i) There are no underground storage tanks, as defined in
Applicable Environmental Law, on the Properties or
any of the Operating Assets which constitute a
violation of Environmental Law.
(ii) The Operating Assets contain no friable asbestos,
mercury or polychlorinated biphenyls above 50 ppm or
other Hazardous Substances which constitute a
violation of Applicable Environmental Law.
(iii) The Operating Assets have been used solely for oil
and gas operations and related operations. Except for
the production, storage and transportation of oil,
gas and other hydrocarbons and the storage and
disposal of brine in the ordinary course of business
consistent with prevailing oil and gas industry
practices, the Properties have not been used to
dispose of Hazardous Substances. No Hazardous
Substances have been disposed of that would cause an
adverse material impact to any of the Operating
Assets.
(iv) There have been no spills or releases of any
Hazardous Substance related to the ownership or
operation of the Operating Assets which constitutes a
violation of Applicable Environmental Law, except for
matters that have been addressed and have no
continuing adverse consequence to Seller, Southeast,
the Partnership or the Operating Assets.
(v) There are no Actions pending or threatened against
the Partnership, Southeast, or either Seller with
respect to any of the Operating Assets relating to
the violation of, liability under, or noncompliance
with, any Applicable Environmental Law; the
discharge, disposal or release of a Hazardous
Substance; or the exposure of a Person or property to
a Hazardous Substance. Seller, Southeast and the
Partnership have no current contingent liability in
connection with the release of Hazardous Substances.
(vi) The Operating Assets have been, and are operating, in
material compliance under all Applicable
Environmental Laws.
(vii) Seller, Southeast and the Partnership have provided
Buyer all environmental
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<PAGE> 25
audits, tests, results of investigations and analyses
that have been performed with respect to the
Operating Assets.
(v) Contracts. Except as set forth on Schedule 4.1(v) Schedule
4.1(q) and in joint operating agreements entered into in the normal course of
business, the Operating Assets are not subject to any instrument, agreement or
other Contract evidencing or related to indebtedness for borrowed money. All of
the existing Contracts between any of Southeast, the Partnership and/or either
Seller and any of their respective Affiliates with respect to sales, services or
support to any of the Operating Assets or operations on the Operating Assets
shall terminate except for such Contracts otherwise indicated on Schedule 4.1(v)
to survive Closing. Except as set forth on Schedule 4.1(v) and other than
Consents to Assignment or Preferential Rights to Purchase, to Seller's
Knowledge, no Contracts to which Seller, Southeast or the Partnership is a party
or a successor-in-interest and to which Buyer will be subject after the
Effective Time contain any provision that prevents Buyer from owning, managing
and operating the Operating Assets in accordance with the Partnership's past
practices.
(w) Seismic Information. At Closing, subject to the terms of the
License Agreement, neither Seller nor any affiliate of Seller other than
Southeast and the Partnership shall have any further right to any of the seismic
data of Southeast or the Partnership which has been assigned or leased to
Southeast, the Partnership and/or the Buyer.
(x) Wells. Except to the extent set forth on Schedule 4.1(x), to
Seller's Knowledge, no well included in the Properties is subject to material
penalties on allowables because of any overproduction or any other violation of
Applicable Law. Except for the wells included in the Properties and listed in
Schedule 4.1(x), there are no wells included in the Properties that Seller,
Southeast or the Partnership, or to Seller's Knowledge the operator of such
wells, are currently obligated by Applicable Law, Applicable Environmental Law
or order of any Governmental Authority to plug and abandon within a time certain
or that have been shut-in or temporarily abandoned.
(y) Expenditure Obligations. Except as set forth on Schedule
9.2(f), Southeast and the Partnership have not executed or are not otherwise
contractually bound by any authority for expenditure with respect to any of the
Operating Assets under any operating agreement, unit operating agreement, or
other similar agreements. Except as set forth on Schedule 9.2(f), with respect
to authorizations for expenditure relating to any of the Operating Assets, (i)
there are no outstanding calls under such authorizations for expenditures for
payments which are due or which Southeast or the Partnership have committed to
make which have not been made; (ii) there are no material operations with
respect to which any of Southeast and/or the Partnership has become a
non-consenting party where the effect of such non-consent is not disclosed on
Exhibit B, and (iii) there are no commitments for the expenditures of funds for
drilling or other capital projects other than projects with respect to which the
operator is not required under the applicable operating agreement to seek
consent.
(z) Payout. To Seller's Knowledge, the payout balances with
respect to any of the Properties operated by the Partnership that are subject to
future change on account of reversionary interests, non-consent penalties or
similar agreements or arrangements are set forth on Schedule 4.1(z) and are
correct as of the dates shown on such statements.
(aa) Absence of Certain Changes Regarding Properties. Since
June 30, 1999, except as listed on Schedule 4.1(k), Southeast and the
Partnership:
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<PAGE> 26
(i) have maintained and operated each of the Properties
operated by any of them as a reasonably prudent
operator consistent with prevailing oil and gas
industry practice;
(ii) have used reasonable efforts consistent with their
past practices to cause each of the Properties not
operated by them to be maintained and operated in a
good and workmanlike manner and in substantially the
same manner as theretofore operated;
(iii) have paid timely their share of all costs and
expenses attributable to the Operating Assets, except
for such costs and expenses that they were contesting
in good faith by appropriate action;
(iv) have performed all accounting, royalty disbursement
and reporting requirements, as applicable, related
thereto for the Production; and
(v) have not agreed, whether in writing or otherwise, to
take any action described in this Section 4.1(aa).
(bb) Schedule 1B states all liens and mortgages that previously
encumbered the Membership Interests or the Operating Assets, securing
obligations of Seller, Southeast or the Partnership (other than those items
listed in clause (ii) through (ix) of the definition of "Permitted
Encumbrances"), and all of the liens and mortgages listed on Schedule 1B have
been released, insofar as they encumber the Membership Interests or the
Operating Assets.
4.2 BUYER'S REPRESENTATIONS. Buyer represents that:
(a) Disclosure. To Buyer's Knowledge, the representations and
warranties set forth in this Agreement represent full and fair disclosure as of
the date of this Agreement and the date of Closing and do not contain any untrue
statement of any material fact or omit any material fact necessary in order to
make the facts stated not misleading.
(b) Authorization and Enforceability
(i) This Agreement and the Transaction have been duly
authorized by Buyer.
(ii) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated
hereby or thereby, will violate or conflict with (1)
any provision of Buyer's Charter or Bylaws, or (2)
any applicable statute, law, regulation or
Governmental Order to which Buyer or the assets or
properties of Buyer are bound.
(iii) This Agreement has been duly executed and delivered
by Buyer and constitutes the valid and binding
obligation of Buyer, enforceable against it in
accordance with its terms, except as such
enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the
enforcement of creditors' rights generally and
general principles of equity (regardless of whether
such enforceability is considered in a proceeding in
equity or at law).
(iv) Except as set forth on Schedule 4.2(b)(iv) or as
otherwise specifically provided herein, the
execution, delivery, and performance of this
Agreement (assuming that all applicable consents are
received) will not (A) be in
24
<PAGE> 27
material violation of any provisions of any
regulation, or order or (B) result in the breach of,
or constitute a default under, any material indenture
or other agreement or instrument to which Buyer is
bound.
(v) Except as set forth on Schedule 4.2(b)(v) or as
otherwise specifically provided herein, no consent,
waiver, approval, order or authorization of, notice
to, or registration, declaration, designation,
qualification or filing with, any Governmental
Authority or third Person, domestic or foreign, is
or has been or will be required on the part of Buyer
in connection with the execution and delivery of
this Agreement or the consummation by Buyer of the
transactions contemplated hereby or thereby, other
than where the failure to obtain such consents,
waivers, approvals, orders or authorizations or to
make or effect such registrations, declarations,
designations, qualifications or filings is not
reasonably likely to prevent or materially delay
consummation of the transactions contemplated by this
Agreement or prevent Buyer from performing its
obligations under this Agreement.
(c) Organizational Status. Buyer: (i) is a limited liability
company duly organized, validly existing and in good standing under the laws of
Delaware, (ii) is duly qualified to transact business in each jurisdiction where
the nature and extent of its business and properties require the same in order
for it to perform its obligations under this Agreement; and (iii) possesses all
requisite authority and power to conduct its business and execute, deliver and
comply with the terms and provisions of this Agreement, to purchase, receive,
and accept conveyance of the Membership Interests from Seller and to perform all
of its obligations hereunder.
(d) Ability to Perform. On the Closing Date, Buyer will have
sufficient cash, available lines of credit or other sources of immediately
available funds to enable it to make its payment of the Closing Settlement Price
at the Closing.
(e) Investment Intent. The Membership Interests are being
purchased for Buyer's own account and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act. Buyer understands that the Membership Interests have not
been registered under the Securities Act by reason of their issuance in
transactions exempt from the registration and prospectus delivery requirements
of the Securities Act pursuant to Section 4(2) thereof. Buyer is knowledgeable,
competent, and experienced in the oil and gas industry and has independently
evaluated and interpreted the technical data and other information regarding the
Operating Assets prior to entering into this Agreement, understands and is
financially able to bear the risk associated with ownership of Southeast and the
Partnership, and will independently conduct all the due diligence investigations
and reviews of all matters concerning Southeast, the Partnership and the
Operating Assets as it deems necessary prior to Closing. Buyer acknowledges that
Buyer is not relying upon any statement or representations made by Seller
concerning the present or future value of, or anticipated income, costs, or
profits, if any, to be derived from, Southeast, the Partnership or the Operating
Assets, and Buyer has relied solely upon its independent inspections, estimates,
computations, evaluations, reports, studies, knowledge and other information
regarding Southeast, the Partnership and the Operating Assets.
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(f) Litigation. There are no pending or, to Buyer's Knowledge,
threatened suits, actions, proceedings, claims, or investigations that would
interfere with Buyers ability or right to execute and deliver this Agreement or
consummate the transactions contemplated by this Agreement.
(g) No Brokers' Fees. Buyer has incurred no liability, contingent
or otherwise, for brokers' or finders' fees relating to the Transaction for
which Seller shall have any responsibility whatsoever.
(h) Buyer's Knowledge. To Buyer's Knowledge, on the date hereof,
Buyer's representations and warranties made in this Section 4.2 are true and
correct in all material respects.
ARTICLE V.
ACCESS TO INFORMATION AND INSPECTION
5.1 ACCESS TO INFORMATION. Prior to the Closing Date, upon
reasonable notice, Seller, Southeast and the Partnership have (i) afforded the
officers, employees and authorized agents and representatives of Buyer
reasonable access during normal business hours to the offices, Operating Assets
and Books and Records , title and contract files, permit files, legal,
evidentiary, litigation support, records and data financial and accounting
records and operating and maintenance files, and related documents, records and
materials concerning the Operating Assets data in possession of Seller and (ii)
furnished to the officers, employees and authorized agents and representatives
of Buyer such additional financial and operating data and other information
regarding the assets, Operating Assets and Liabilities of Southeast, the
Partnership, and the Business (or legible copies thereof) as Buyer may have from
time to time reasonably requested.
5.2 WARRANTIES AS TO DOCUMENTS. Seller has advised Buyer of the
nature and existence of any confidential documents that have been withheld from
disclosure. Seller does not warrant or represent the accuracy of any materials
that may have been made available for Buyer's review, except that Seller does
represent and warrant that it has not concealed or intentionally or willfully
misrepresented or withheld any information, data or materials in its possession
except for confidential information, data or materials, the existence of which
has been disclosed as otherwise provided herein.
ARTICLE VI.
TITLE
6.1 GOVERNMENTAL CONSENTS. After the execution of this Agreement,
and upon Closing and thereafter, Buyer and Seller shall cooperate to obtain all
routine or standard governmental consents or waivers necessary to transfer
Seller's rights and interests in Southeast and the Partnership owning the
Operating Assets to Buyer.
ARTICLE VII.
ENVIRONMENTAL
7.1 DISCLOSURES AND AVAILABILITY OF DATA TO BUYER. The Operating
Assets have been utilized by the Partnership for the purposes of exploration,
development and production of oil and gas, for related oilfield operations and
possibly for the storage and disposal of waste materials or
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hazardous substances generated or otherwise used in association with oil and gas
exploration and production activities on the Properties. The Operating Assets
also may contain buried pipelines, the locations of which may not now be known
by Seller or readily apparent by a physical inspection of the Operating Assets.
In addition to providing any environmental audits and studies as per Section
4.1(u), Seller has made and shall make available to Buyer Seller's historical
files regarding the foregoing operations, to the extent available and to the
extent Seller, Southeast and the Partnership are authorized to disclose same
(excepting documents which Seller, Southeast or the Partnership are
contractually prohibited from disclosing or are subject to legal privilege or
are in the possession of another operator, and with respect to which Seller has
been unable to secure consent to disclose despite its commercially reasonable
efforts to do so).
7.2 NORM. Without affecting Seller's representations and
warranties or the provisions of Section 7.3, Buyer acknowledges that some or all
of the Operating Assets may contain naturally occurring radioactive materials
("NORM"), and that NORM is an anticipated hazard in oil and gas production
operations. Certain of the Operating Assets, including without limitation, pipe
and equipment may have deposits that contain NORM. Buyer agrees that it shall
cause the Partnership to properly handle and dispose of all materials containing
NORM in a safe manner in accordance with all applicable laws and regulations, at
their sole risk, liability and expense.
7.3 BUYER'S ENVIRONMENTAL ASSESSMENT. Buyer has pursued such
environmental assessments of the Operating Assets as Buyer has desired.
7.4 RESPONSIBILITIES FOR REMEDIATION OF CONTAMINATION. As between
the parties hereto, but subject to the provisions of applicable laws, joint
operating agreements, other third party agreements and the indemnities and other
provisions set forth herein, from and after the Closing, the Partnership shall
remain responsible for costs of remediation of all Environmental Conditions
occurring on or arising from any Operating Asset at any time, whether before, on
or after the Effective Time; provided however, that Seller shall fund payment of
any fines or regulatory penalties that might be assessed against the Partnership
by reason of any violation of regulatory or permit requirements before the
Closing Date.
ARTICLE VIII.
CASUALTY LOSS AND CONDEMNATION
8.1 NO TERMINATION. Except as specifically provided to the
contrary herein, Southeast and the Partnership shall retain all risk of loss
with respect to any loss of, reduction in value of or damage to the Operating
Assets from the Effective Time until Closing, and Buyer assumes the risk of loss
of value of Southeast and the Partnership associated with such matters. If after
the Effective Time and prior to the Closing, any part of the Operating Assets
should be destroyed by fire or other casualty or if any part of the Operating
Assets should be taken in condemnation or under the right of eminent domain or
if proceedings for such purposes should be pending or threatened, this Agreement
shall remain in full force and effect notwithstanding any such destruction,
taking or proceeding or the threat thereof, except as expressly provided in
Article XX.
8.2 PROCEEDS AND AWARDS. In the event of any loss described in
Section 8.1, Seller (with Buyer's consent, which shall not be unreasonably
withheld) shall either (a) at the Closing assign to the Partnership all of
Seller's rights in any insurance proceeds, third party damage payments,
condemnation awards or other amounts paid or to be paid by reason of such
destruction, less any
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costs and expenses incurred by Seller in collecting same, or (b) prior to
Closing, use or have the Partnership apply such sums (less any costs and
expenses incurred by Seller in collecting same) to repair, restore or replace
such damaged or taken Operating Assets. In addition, Seller shall at Closing
assign to the Partnership all of the right, title and interest of Seller in and
to any claims for loss of or damages to the Operating Asset, that might be
asserted against third parties with respect to the event or circumstance causing
such loss to and any unpaid insurance proceeds, condemnation awards or other
payments arising out of such destruction or taking, less any costs and expenses
previously incurred by Seller in collecting same. The Settlement Price shall be
reduced by the Casualty Price Adjustment, if any, attributable to casualty
losses that are not fully covered by insurance. Notwithstanding anything to the
contrary in this Section 8.2, neither Seller, Southeast nor the Partnership
shall be obligated to carry or maintain, nor shall they have any obligation or
liability to Buyer for their failure to carry or maintain any insurance coverage
with respect to any of the Operating Assets, except as required by Section 9.2.
8.3 RISKS OF OTHER LOSSES. Except as otherwise set forth in this
Agreement, Buyer shall assume all risks of loss with respect to the
Partnership's ownership or operation of the Operating Assets after the Effective
Time, including without limitation, the following risks:
(a) Operations. With respect to each Operating Asset, Buyer shall
assume all risk of loss with respect to any loss of value or change in the
condition of the Operating Asset, and all wells thereon, after the Effective
Time, relating to the production of oil, gas or other hydrocarbons, including
without limitation normal depletion, water encroachment, coning, pressure
depletion, formation changes and sand infiltration. The Partnership shall
continue to bear its proportionate share of the risks allocated under applicable
joint operating agreements and assume their proportionate share of the risks
that such operations may be unsuccessful, and Closing shall not be conditioned
upon the success of any operations.
(b) Market Conditions. With respect to each Operating Asset, Buyer
shall assume all risk of loss with respect to any change in market conditions
affecting any Operating Asset or production therefrom after the Effective Time,
and this Agreement shall not be terminated or suspended, nor shall Closing be
delayed, due to any such change in market conditions.
ARTICLE IX.
COVENANTS
9.1 PRE-CLOSING COVENANTS OF SELLER REGARDING THE BUSINESS.
Sellers shall cause Southeast and the Partnership to operate the Business only
in its usual, regular and ordinary manner and substantially in the same manner
as heretofore conducted, and as set forth in Section 9.2. Sellers shall cause
Southeast and the Partnership to use commercially reasonable efforts and as set
forth in Section 9.2, to (i) preserve the Business; (ii) keep available to Buyer
the services of the present officers, employees, agents and independent
contractors of Southeast; and (iii) maintain the assets of the Business in their
current state of repair, order and condition, usual and ordinary wear and tear
excepted and subject to requirements in the ordinary course of business.
9.2 PRE-CLOSING COVENANTS OF SELLER REGARDING THE OPERATING
ASSETS. Subject to the terms of applicable operating and other existing
agreements, Seller covenants and agrees that between the date of this Agreement
and the Closing Date, except as set forth on Schedule 9.2 or as
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may be consented to in writing by Buyer, which consent shall not be unreasonably
withheld, Seller shall manage the Partnership's ownership of the Operating
Assets as follows:
(a) Disposal of Operating Assets. The Partnership shall not sell
or otherwise dispose of any of the Operating Assets, except for the sale in the
ordinary course of the Partnership's business of oil, gas, condensate and
products thereof and surplus equipment.
(b) New Third Party Rights. Except for Contracts entered into in
furtherance of operations listed on Schedule 9.2 and Schedule 9.2(f), without
Buyer's consent, the Partnership shall not enter into any new or amended
contracts, agreements or relationships (i) granting any Preferential Right to
Purchase or Consent to Assignment affecting any of the Operating Assets
hereunder, or (ii) which if in existence as of the date hereof would be a
material Contract.
(c) Preservation of Operating Assets. The Partnership shall use
reasonable efforts to preserve in full force and effect all leases, operating
agreements, easements, rights-of-way, permits, licenses, contracts and other
agreements which relate to the Operating Assets and shall perform the
obligations of the Partnership in or under any such agreement relating to such
Operating Assets as a reasonable and prudent operator, provided however, that
the Partnership shall not be required to conduct any drilling, recompletion or
reworking activities to maintain any lease, farmout agreement or other
defeasible interest in force or to settle any adverse claims, demands or
litigation in a manner that Seller deems inappropriate.
(d) Maintenance of Equipment. The Partnership shall maintain all
material and equipment within the Operating Assets in accordance with customary
industry operating practices and procedures.
(e) Insurance. The Partnership shall maintain in full force and
effect all policies of insurance now maintained by Seller and the Partnership
covering the Operating Assets. Seller and Buyer will cooperate in making claims
under Seller's insurance policies prior to the Closing. Seller additionally
agrees to cooperate with Buyer to allow Buyer, Southeast or the Partnership to
obtain, at Buyer's expense, at a reasonable market price an additional reporting
period policy for any of Seller's insurance policies which are on a claims-made
basis.
(f) Operations.
(i) Except for operations covered by committed
expenditures listed on Schedule 9.2(f), the
Partnership shall not propose or conduct for its own
account any operation. The Partnership shall have the
right to conduct, at its sole election and
discretion, any operations that either (1) are
covered by committed expenditures listed on Schedule
9.2(f), (2) are required by law or regulations, or
(3) are required under a binding existing agreement
with a third party.
(ii) Except for operations covered by committed
expenditures listed on Schedule 9.2(f), the
Partnership shall not agree to participate in any
reworking, deepening, drilling, completion,
recompletion, equipping or other operation that is
proposed by a co-owner in any well or other asset,
without Seller having first provided Buyer written
or oral notice thereof as soon as reasonably
practicable after the Partnership receives notice
thereof from the
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Partnership's co-owner in such Operating Asset. If
Seller provides Buyer with such notice, Buyer and
Seller shall promptly consult about the advisability
of participating in such operations. If Buyer and
Seller cannot agree, the following provisions shall
apply:
(1) If Seller should wish to participate in an
operation proposed by a third party and Buyer should
object to the operation, then the Partnership may
agree to participate, but Buyer may assert a Title
Defect with respect to the Property affected by such
operation, and in such event such Property shall be
excluded from the sale hereunder and instead shall be
assigned to another subsidiary of Seller prior to
Closing and the Purchase Price shall be reduced by
the Allocated Value of the affected Property. In such
event, Seller shall indemnify and defend Buyer
against any and all Damages relating to such
operation and such Property.
(2) If Buyer should wish to participate in such
operation and Seller objects to the operation, the
Partnership shall not be obligated to make any such
payment or to elect to participate in such operation
unless within a reasonable time prior to the date
when such payment or election is required to be made
by the Partnership, the Partnership receives from
Buyer, (A) the written election and agreement of
Buyer to require the Partnership to take such action
and to indemnify Seller therefrom and (B) all funds
necessary for such action.
(3) If (A) Buyer advances any funds pursuant to
subparagraph (2), and (B) the Membership Interests
are not assigned to Buyer at Closing, and (C) Seller
does not reimburse Buyer for all advances made by
Buyer with respect to such Operating Assets pursuant
to subparagraph (2) within thirty (30) days after
this Agreement terminates, then Buyer shall own and
be entitled to any right of the Partnership that
would have lapsed but for such payment, and in the
case of operations, Seller shall be entitled to
receive the penalty which the Partnership, as
non-consenting party, would have suffered under the
applicable operating agreement with respect to such
operations as if Buyer were a consenting party
thereunder.
(g) Data Restrictions. Seller shall advise Buyer in writing of the
identity, nature and existence of any technical or interpretive information or
data that cannot be assigned to Buyer hereunder because of confidentiality
agreements with third parties, identify such third parties, and provide
reasonable cooperation (for before and up to one year after Closing) in
obtaining the agreement of such third parties to the release or assignment of
such information and data to Buyer; provided however, that Seller shall not be
required to expend any material funds or release any rights to allow such
release or assignment.
(h) Operating Assets Operated by Others. To the extent the
Partnership is not the operator of any Operating Asset, the obligations of
Seller in this Section 9.2, which have reference to operations or activities
which normally are or pursuant to existing contracts are to be carried out or
performed by operator, shall be construed to require only that the Partnership
use reasonable efforts to request that the operator of such Operating Asset
either take such actions, render such
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performance or refrain from performance, within the constraints of the
applicable operating agreements, applicable agreements and applicable law.
9.3 SELLER'S COVENANTS REGARDING ENCUMBRANCES. Seller covenants
that on or before the Closing Date, Seller shall cause the Encumbrances in
Schedule 1B to be released, in a form reasonably acceptable to Buyer.
9.4 COVENANTS REGARDING CORPORATE AND FINANCIAL MATTERS. Through
the Closing Date, except as set forth in Schedule 9.4 or as contemplated by this
Agreement (including without limitation Sections 2.5 and 2.6) or otherwise
consented to or approved by Buyer in writing, which consent or approval shall
not be unreasonably withheld, Seller shall cause Southeast and the Partnership
not to:
(a) Amend the Charter, Bylaws, management agreement, limited
liability company agreement or operating agreement of any Southeast or amend the
partnership agreement of the Partnership;
(b) Incur, assume or become subject to any additional indebtedness
for money borrowed or purchase money indebtedness, except in the ordinary course
of business and consistent with past practices;
(c) Except as necessary to effect the transactions contemplated
herein, declare or pay any dividend or make any other distribution to any
shareholder of any of Southeast or any partner of the Partnership;
(d) Redeem or otherwise acquire any shares of capital stock of any
of Southeast or issue any capital stock of any Southeast or any option, warrant
or right relating thereto or any securities exchangeable for or convertible into
any such shares;
(e) Permit or allow any of Southeast' assets or properties to be
subject to any additional Encumbrance (other than Permitted Encumbrances) or
sell, transfer, lease or otherwise dispose of any such assets or properties,
other than surplus equipment not necessary for operations of the Business and
sold for a reasonable consideration of less than $25,000;
(f) Make any change in any method of accounting or accounting
practice or policy, other than those required by GAAP;
(g) Engage in any transactions with an Affiliate of Seller, other
than transactions in the ordinary course and consistent with past practices;
(h) Make any changes in the method of selling natural gas,
condensate, oil or products thereof which is not consistent with past practices;
(i) Enter into any new derivative or Hedging Contracts with
respect to natural gas, condensate, oil, products thereof, interest or any other
commodities or other financial instruments; or
(j) Agree, whether in writing or otherwise, to do any of the
foregoing.
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9.5 NO SOLICITATION OF TRANSACTIONS. Except as otherwise permitted
herein from the date of this Agreement through the Closing Date, neither Seller
nor any of their representatives, Affiliates, directors, officers, employees,
subsidiaries or agents will (a) solicit, consider, encourage or accept any other
offers to acquire any of the Membership Interests or Seller's interests in the
Partnership or (b) solicit, consider, encourage or accept any other offers to
acquire any of the assets or properties of the Partnership (other than as
permitted by this Agreement) or (c) assist any third Person in preparing or
soliciting such an offer. Seller shall not have, and shall cause such
representatives, Affiliates, directors, officers, employees, subsidiaries and
agents not to have any discussions, conversations, negotiations or other
communication with any Person(s) expressing an interest in any such offer.
9.6 EMERGENCIES AND OVERSIGHTS. Notwithstanding the other
provisions of this Article IX, (a) Seller, Southeast and/or the Partnership may
take any action with respect to the Operating Assets without penalty, if
reasonably necessary under emergency circumstances or if required to protect
life, public safety or the environment, and provided Buyer is notified as soon
thereafter as reasonably practical, and (b) Seller shall have no liability to
Buyer for the loss or reduction of any rights or interests by reason of the
nonpayment or incorrect payment of delay rentals, royalties, shut-in royalties
or similar payments or for any failure to pay any such payments through mistake
or oversight; provided, however, Buyer shall be permitted to assert the items in
this clause (b) as Title Defects under Article VI.
9.7 BUYER'S COVENANTS REGARDING PERFORMANCE AND CONTINUED
EXISTENCE. Buyer covenants that between the date of this Agreement and the
Closing Date:
(a) Buyer shall take all steps and perform all operations
reasonably necessary to allow Buyer to perform its obligations at Closing;
(b) Buyer shall maintain its existence as a limited liability
company in good standing in Delaware; and
(c) Buyer shall cause the representations and warranties of Buyer
to be true and correct as of the Closing Date.
9.8 BUYER'S COVENANTS REGARDING TRADE NAME. Buyer acknowledges and
agrees with Seller that Seller shall have the absolute and exclusive proprietary
right to all names, marks, trade names, trademarks and corporate symbols and
logos incorporating "Tesoro," together with all other names, marks, trade names,
trademarks and corporate symbols and logos owned by any Affiliates of Seller
(collectively, the "Tesoro Marks"), all rights to which and the goodwill
represented thereby and pertaining thereto are being retained by Seller and the
Affiliates of Seller. Within ninety (90) days after the Closing Date, Buyer
shall change the name of Southeast and the Partnership, to not include the name
"Tesoro", cease using any Tesoro Mark and shall promptly remove from all the
assets and properties of Southeast any and all Tesoro Marks, and change the name
on all permits and licenses, to not include the name "Tesoro". Thereafter, Buyer
shall not use any Tesoro Mark in connection with the conduct of its business. In
the event that Buyer breaches this Section 9.8, Seller shall be entitled to
specific performance of this Section 9.8 and to injunctive relief against
further violations, as well as any other remedies available at law or in equity.
9.9 BUYER'S COVENANTS REGARDING EMPLOYMENT.
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(a) Schedule 9.9(a) sets forth the employees of Seller or its
Affiliates to whom Buyer (or an Affiliate of Buyer) expects to offer employment
after the Closing. Buyer in its sole discretion will determine the capacity in
which the employees listed on Schedule 9.9(a) who accept employment with Buyer
or its Affiliate (the "Retained Employees") will be employed and with which
entity each of the Retained Employees will be employed after the Closing. After
the Closing, Buyer (or its Affiliates which will employ Retained Employees) will
initially provide to the Retained Employees the same base salary or wages (but
not any retention-related salary increases described in Schedule 9.9(c))
provided to such employees prior to the Closing, subject to such changes in base
salary or wages as are consistent with the Buyer's compensation structure. Buyer
will take all actions necessary or appropriate to permit the Retained Employees
to participate from and after the Closing in the employee benefit plans or
arrangements of Buyer and/or Affiliates of Buyer customarily provided to new
employees of Buyer and its Affiliates (including, without limitation, the
Employee Stability Plan); provided that Buyer shall, with respect to Buyer's or
its Affiliate's group health and dental plans ("Buyer's Group Health Plans"), to
the extent necessary after the Closing, (i) reimburse such Retained Employees,
for the year during which participation in Buyer's Group Health Plan begins, for
any duplicate deductibles and copayments already incurred during such year under
the group health and dental plans of Seller or its Affiliates ("Seller's Group
Health Plans"), and (ii) waive any preexisting condition limitations applicable
to the Retained Employees (and their eligible dependents) under Buyer's Group
Health Plans to the extent that a Retained Employee's (or dependent's) condition
would not have operated as a preexisting condition under Seller's Group Health
Plans.
(b) Buyer (and its Affiliates) will not be required to assume any
obligation to Retained Employees (or any other employees of Seller or its
Affiliates) under Seller's existing severance, retention or management stability
agreements, or similar agreements. As described in Section 9.9(a), from and
after the Closing, the Retained Employees will be permitted to participate in
the employee benefit plans or arrangements of Buyer and/or its Affiliates
customarily provided to new employees of Buyer and its Affiliates (including,
without limitation, the Employee Stability Plan), or other benefits as may be
individually negotiated between Buyer and a Retained Employee.
(c) Buyer (or its Affiliate) will assume half, and Seller and its
Affiliates will remain responsible for half, of the liability to all Retained
Employees for the annual incentive compensation bonuses described on Schedule
9.9(c). Buyer (or its Affiliate) will not assume the liability to certain
Retained Employees for the retention-related salary payment.
(d) Any obligations to employees of Seller and its Affiliates not
specifically assumed by Buyer (or its Affiliates) in this Section 9.9, including
without limitation all such obligations accrued prior to the Closing, will be
the responsibility of the Seller, and Seller will indemnify Buyer with respect
to those obligations.
(e) Buyer agrees to open an office in San Antonio, Texas and to
maintain such office for so long as prudent business practices justify its
operation.
(f) If after the Closing Date, Seller or any of its Affiliates
continues to employ any individual listed on Schedule 9.9(a), Seller agrees to
cooperate with Buyer to make such individual available to provide services
required by Buyer for up to six months after the Closing Date for transition
purposes, with Buyer reimbursing Seller for the actual cost of such employee's
services (including without limitation, salary and benefits).
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9.10 AUTHORIZATIONS.
(a) Each of Buyer and Seller, as promptly as practicable after the
Agreement Date, shall (i) deliver, or cause to be delivered, all notices and
make, or cause to be made, all such declarations, designations, registrations,
filings and submissions under all statutes, laws, regulations and Governmental
Orders applicable to it as may be required for it to consummate the sale of the
Membership Interests and the other transactions contemplated hereby in
accordance with the terms of this Agreement; (ii) use commercially reasonable
efforts to obtain, or cause to be obtained, all authorizations, approvals,
orders, consents and waivers from all Persons necessary to consummate the
foregoing; and (iii) use commercially reasonable efforts to take, or cause to be
taken, all other actions necessary, proper or advisable in order for it to
fulfill its respective obligations hereunder and to carry out the intentions of
the parties expressed herein. The preceding sentence notwithstanding, neither
party shall have any obligation to waive any condition herein for its benefit or
any performance hereunder by any other party.
(b) Each Party shall use its commercially reasonable efforts to
satisfy the conditions to Closing applicable to it in Article XI as soon as
commercially practicable.
9.11 SOFTWARE AND COMPUTER PROGRAMS. From the date of this
Agreement through the date which is ninety (90) days after the Closing Date,
each Seller, Southeast and the Partnership, as applicable, agree to engage in
discussions with the licensors of applicable software and computer programs and
seismic data and processing identified in a written notice provided to Seller by
Buyer on or prior to the Closing Date, the purpose of which discussions shall be
to assist Buyer in its efforts to obtain a license with respect to such software
and/or computer programs and seismic data and processing with terms acceptable
to Buyer. Buyer will pay all fees (including fees agreed to as part of a
settlement) required to transfer or retain such records, programs and data that
Buyer chooses to retain after Closing.
9.12 GENERAL.
(a) Each of the Parties will use their reasonable best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Article
XI).
(b) Buyer agrees to cooperate at no cost or liability to Buyer
with Seller so that Seller's transfer of the Operating Assets to Buyer shall, at
Seller's election, be accomplished in a manner enabling the transfer to qualify
as a part of a like-kind exchange of property by Seller within the meaning of
Section 1031 of the Code. If Seller so elects, Buyer shall reasonably cooperate
with Seller to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller reasonably requests in order
to pay the Purchase Price in a manner which enables such transfer to qualify as
part of a like-kind exchange of property within the meaning of Section 1031 of
the Code, and Buyer agrees that Seller may assign its rights (but not its
obligations) under this Agreement to an escrow agent acting as a qualified
intermediary under United States Treasury Regulations, to qualify the transfer
of the Purchase Price as a part of a like-kind exchange of property within the
meaning of Section 1031 of the Code.
(c) Seller shall reimburse Buyer for Buyer's reasonable costs and
expenses incurred in connection with evaluating and implementing the like kind
exchange transaction, including without
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limitation, legal and accounting fees incurred in connection with evaluating and
implementing the like kind exchange transaction and revising this Agreement.
Seller shall reimburse Buyer in cash for such costs and expenses within ten (10)
days after receiving a notice from Buyer describing such costs and expenses in
reasonable detail, and requesting payment.
(d) If prior to Closing Buyer elects to obtain financing for a
portion of the Purchase Price from a bank or other lender (the "Lender")
(whether through conventional loans or through a production payment or similar
off-balance sheet financing mechanism), Seller shall (and shall cause Southeast
and the Partnership to) cooperate reasonably with Buyer in Buyer's negotiation
and finalization of any loan or other documents with the Lender, provided that
such cooperation does not result in Seller, Southeast and the Partnership
incurring material additional expenses. Seller shall (and shall cause Southeast
and the Partnership to) use its commercially reasonable efforts to give
representatives of the Lender the access to information and right to inspection
provided to Buyer under Article V, subject to the Lender agreeing to be bound by
the terms of the Confidentiality Agreement. This Section 9.12(c) does not change
or modify Buyer's obligation to close the Transactions in accordance with the
other provisions of this Agreement.
9.13 COVENANT AND INDEMNITY WITH RESPECT TO CASH FLOW. Seller
covenants to use its best efforts to insure that after the Closing all cash,
checks, wire transfers and other cash flow attributable to the Operating Assets
received by Seller or any Affiliate of Seller will be transferred on or before
the next Business Day after such cash flow is received by Seller or such
Affiliate of Seller to an account designated by Buyer prior to the Closing (such
that the transfer is recorded by the transferring bank on or before the next
Business Day after such cash flow is received by Seller or an Affiliate of
Seller). To the extent Seller does not make the transfer required by this
Section 9.13 on or before the next Business Day after receipt of such cash flow,
Seller agrees to pay to Buyer (a) interest at the prime rate of Buyer's primary
lender (accruing from the second Business Day after receipt by Seller of such
cash flow) on any such cash flow remaining outstanding for the second and third
Business Day after receiving such funds and (b) the maximum interest allowable
by Applicable Law on any such cash flow remaining outstanding thereafter. Seller
agrees to indemnify and hold the Buyer Group harmless for any Damages asserted
against, resulting to, imposed upon or incurred by the Buyer Group arising from
any failure by Seller to transfer any amounts that, together with any other
amounts not transferred pursuant to this Section 9.13, aggregate greater than $1
million and that Seller has not transferred within one Business Day after
written notice by Buyer is received by Seller. Buyer and Seller agree to
cooperate in identifying amounts that may need to be transferred by Seller to
Buyer under this Section 9.13.
ARTICLE X.
PRE-CLOSING PROCEDURES
10.1 INITIAL SETTLEMENT STATEMENT. Before Closing, Seller shall
furnish Buyer with a preliminary draft of the Settlement Statement, in
accordance with Section 13.1. Buyer shall have the right to audit and request
appropriate adjustments to the amounts reflected therein. Buyer shall furnish
Seller with any comments, and adjustments or revisions Buyer believes are
appropriate to conform the Settlement Statement to accurately reflect the best
information available at Closing, and the Parties shall endeavor in good faith
to reconcile the accounting issues and to produce as accurate a Settlement
Statement as possible based upon the information available at Closing. Seller
shall then
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furnish Buyer with the Settlement Statement, including any appropriate updates,
adjustments or revisions, showing the Closing Settlement Price.
10.2 CLOSING DOCUMENTS. Before Closing, the Parties shall provide
each other with preliminary drafts of all attorneys opinions, certificates,
corporate guarantees, assignments and other instruments to be delivered at
Closing. The Parties shall thereafter cooperate to make such revisions as are
needed to prepare mutually acceptable forms of all such instruments.
10.3 ESCROW AGENT. If the Parties should agree to place any funds
into an escrow account at Closing, then they shall negotiate in good faith to
select a mutually acceptable escrow agent, who is willing and able to perform
such role. In such an before the Closing Date, the Parties shall agree upon an
escrow agent, and they shall use their best efforts to negotiate a mutually
acceptable Escrow Agreement before the Closing Date.
10.4 QUALIFIED INTERMEDIARY. Seller will assign to the Qualified
Intermediary all of Seller's rights in the proceeds of this Agreement. All
proceeds owed Seller for the sale under the Stock Purchase Agreement and,
subject to Section 21.4, this Agreement shall then be paid to the Qualified
Intermediary.
10.5 WIRE TRANSFER INSTRUCTIONS. At least two (2) Business Days
prior to the Closing Date, Seller shall provide to Buyer wire transfer
instructions designating a bank account and Federal Reserve ABA designation ID
number, at a bank within the United States of America where the Closing
Settlement Price shall be paid to the Qualified Intermediary.
ARTICLE XI.
CLOSING CONDITIONS
11.1 SELLER'S CLOSING CONDITIONS. Seller's obligation to consummate
the Transaction is subject to the satisfaction by Buyer or the waiver by Seller,
at or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Buyer
contained in Section 4.2 shall be true and correct in all material respects on
the Closing Date as though made on and as of that date.
(b) Performance. Buyer shall have performed in all material
respects the obligations, covenants and agreements hereunder to be performed by
it at or prior to Closing.
(c) Corporate Certificates and Opinion. Buyer shall have delivered
to Seller (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of Buyer that the representations set forth in Section 4.2
are true and correct as of the Closing Date; (ii) a certificate of incumbency;
(iii) a certificate of good standing of Buyer as a limited liability company;
(iv) certified resolutions of the members of Buyer, authorizing Buyer to enter
into this Agreement and the Transaction and to perform its obligations at
Closing; and (v) an opinion of counsel for Buyer, acceptable to Seller, dated
the Closing Date, as to such matters as may reasonably be requested by Seller
and its counsel and are typical for transactions such as the Transaction.
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(d) Pending Matters. No suit, action or other legal proceeding by
a third party or a governmental authority shall be pending which seeks material
damages from Seller in connection with, or seeks to restrain, enjoin or
otherwise prohibit, the consummation of the Transaction.
(e) No Orders. This Closing hereunder shall not violate any order
or decree of any governmental authority having competent jurisdiction over the
Transaction.
(f) HSR. Any applicable waiting period under the HSR Act shall
have expired or been terminated.
11.2 BUYER'S CLOSING CONDITIONS. Buyer's obligations to consummate
the Transaction is subject to the satisfaction by Seller or the waiver by Buyer,
at or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Seller
contained in Section 4.1 (other than with respect to paragraphs (u), (w), (x),
(y), (z) and (aa) of Section 4.1) shall be true and correct in all material
respects on the Closing Date as though made on and as of that date; provided,
however, that the accuracy of the representations and warranties in
subparagraphs (k)(i), (ix), (x), (xi), (xii) and (xiii) of Section 4.1 shall,
for purposes of satisfying this condition, not be affected to the extent of
inaccuracies resulting solely from Buyer unreasonably withholding its prior
written consent (after written request by Seller duly provided to Buyer) to the
action taken by (or omission of) Seller, Southeast or the Partnership which
caused such representations and warranties to be inaccurate.
(b) Performance. Seller shall have performed, or caused to be
performed, in all material respects the obligations, covenants and agreements
hereunder to be performed by it, Southeast and the Partnership at or prior to
Closing.
(c) LLC Certificates and Opinion. Each Seller shall have delivered
to Buyer, and Seller shall cause Southeast and the Partnership to deliver to
Buyer: (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of such Seller that the representations made in Section
4.1, are true and correct as of the Closing Date; (ii) a certificate of
incumbency for each Seller, (iii) a certificate of corporate good standing for
the Partnership as a Delaware limited partnership, for each Seller as Delaware
corporations and for Southeast as a Delaware limited liability company; (iv)
with respect to each Seller only, certified resolutions of the Boards of
Directors of each Seller, authorizing each Seller to enter into this Agreement
and the Transaction and to perform its obligations at Closing; and (v) an
opinion of counsel for the Seller and each of Southeast and the Partnership,
acceptable to Buyer, dated the Closing Date, as to such matters as may
reasonably be requested by Buyer and its counsel and are typical for
transactions such as the Transaction.
(d) Other Certificates and Documents. Buyer shall have also
received the certificates and documents described in Section 12.2.
(e) Pending Matters. No suit, action or other legal proceeding by
a third party or a governmental authority shall be pending which seeks material
damages from Buyer in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
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(f) No Orders. The Closing hereunder shall not violate any order
or decree of any governmental authority having competent jurisdiction over the
Transaction.
(g) Adjustments. The reduction (if any) to be made at Closing to
the Purchase Price which results from the application of Articles VIII and XIII
does not exceed fifteen percent (15%) of the Purchase Price.
(h) Liens and Mortgages. Seller shall have secured release of all
liens and mortgages listed on Schedule 1B and released all obligations of
Southeast and the Partnerships under the Seller's credit facility and provided
Buyer evidence of the same.
(i) There shall not have occurred a Material Adverse Effect.
(j) HSR. Any applicable waiting period under the HSR Act shall
have expired or been terminated.
(k) Seller shall have delivered proof, acceptable to Buyer in its
reasonable discretion, of the effectiveness of a post-effective amendment to
Seller's Registration Statement on Form S-3 (Reg. No. 333-51789), as amended,
removing any entities being transferred hereunder as co-registrants under such
registration statement.
ARTICLE XII.
CLOSING
12.1 CLOSING. The closing of the Transaction (the "Closing") shall
be held on December 17, 1999 (the "Closing Date"), at 9:00 a.m. Houston time, at
the office of Seller's counsel, 1301 McKinney, Suite 5100, Houston, Texas 77010,
or at such other date or place as the parties may direct; provided, however,
that if all conditions to Closing set forth in Article XI have not been waived
or satisfied prior to December 17, 1999, the Closing Date shall be on the second
Business Day following the waiver or satisfaction of such conditions.
12.2 SELLER'S CLOSING OBLIGATIONS. At Closing, Seller shall deliver
to Buyer the following:
(a) The certificates representing Membership Interests in
Southeast, duly endorsed in blank or with separate duly executed powers duly
endorsed in blank;
(b) All organizational documents and books and records of each of
Southeast, Reserves LLC and Exploration LLC;
(c) All books and records of the Partnership;
(d) The resignations of the officers and directors of Southeast;
(e) Such other documents or authorizations as Buyer may reasonably
request, or as might be reasonably necessary to assign all of Seller's interest
in Southeast, the Partnership and the Operating Assets to Buyer in accordance
with the provisions hereof;
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(f) Instruments assigning Seller's rights under this Agreement to
the Qualified Intermediary;
(g) A certificate of each Seller, signed under penalties of
perjury (i) stating that it is not a foreign corporation, foreign partnership,
foreign trust or foreign estate, (ii) providing its U.S. Employer Identification
Number (if applicable) and (iii) providing its address, all pursuant to Section
1445 of the Code.
(h) The certificates of Seller referred to in Section 11.2(c)
hereof;
(i) The opinion of counsel referred to in Section 11.2(c) hereof;
and
(j) Releases, in a form acceptable to Buyer, of all liens and
mortgages listed on Schedule 1B.
12.3 BUYER'S CLOSING OBLIGATIONS. At Closing, Buyer shall deliver
the following:
(a) The Closing Settlement Price, paid to the Qualified
Intermediary in immediately available funds, by wire transfer into the U.S. bank
account designated by the Qualified Intermediary;
(b) The certificates of Buyer referred to in Section 11.1(c)
hereof; and
(c) The opinions of counsel referred to in Section 11.1(c) hereof.
12.4 GOVERNMENTAL FILINGS. At Closing, the Parties shall execute
such guarantees, bonds, forms and other instruments as are needed allow Buyer to
assume all of Seller's existing obligations under governmental permits and
licenses and leases affecting the Operating Assets. Buyer shall diligently file
such instruments and obtain governmental approval of the transfer of all such
rights, obligations and interests.
ARTICLE XIII.
ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS
13.1 SETTLEMENT STATEMENTS.
(a) Pre-Closing. The Settlement Statement is attached hereto as
Exhibit D.
(b) Final Statement. As soon as practicable after the Closing
Date, but in no event later than one hundred twenty (120) days thereafter, Buyer
shall prepare and submit to Seller a draft Final Statement, which shall show the
calculation of the adjusted Final Settlement Price, based upon the best
information then available. Seller shall have the right to audit such Final
Statement and all supporting data and accountings. As soon as practicable after
receipt of the Final Statement, but in any event within thirty (30) days after
receipt thereof, Seller shall deliver to Buyer a written report containing the
changes, if any, which Seller proposes be made to the Final Statement. If no
response is made by Seller within such thirty (30) day period, it shall be
presumed that Seller concurs with the Final Statement, and such Final Statement
shall be the basis for the Final Settlement Price. If Seller submits a response,
the Parties shall cooperate in good faith to produce not later than one hundred
eighty (180) days after the Closing Date as accurate a Settlement Statement as
possible
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based upon the information then available. After agreement upon a Final
Statement setting forth the Final Settlement Price, the difference between such
Final Settlement Price and the Closing Settlement Price paid at Closing shall be
paid within five (5) Business Days thereafter by the Party owing the same.
13.2 OPERATING TAXES.
(a) Apportionment of Ad Valorem and Property Taxes. All ad
valorem, real property taxes and personal property taxes, including interest and
penalties attributable thereto (hereinafter "Property Taxes"), attributable to
Southeast's limited partnership interest in the Partnership's ownership and
operation of the Properties with respect to the assessment period ("Property Tax
Period") during which the Effective Time occurs shall be apportioned between
Seller and Buyer by multiplying the total amount of such Property Taxes by a
fraction, the numerator of which is the number of days in the partial period
through and including the Effective Time and the denominator of which is the
total number of days in the Property Tax Period. The Partnership shall file or
cause to be filed all required reports and returns incident to the Property
Taxes and shall pay or cause to be paid to the taxing authorities all Property
Taxes relating to the Property Tax Period during which the Effective Time
occurs. If Seller is the owner of Southeast on the Property Tax assessment date,
then the Settlement Price shall be increased by the amount of Buyer's portion of
Property Taxes owed as set forth above. If the Property Tax assessment date
occurs after Closing, then the Settlement Price shall be reduced by the
estimated amount of Seller's portion of Property Taxes owed as set forth above.
The allocation and payment of ad valorem taxes shall be handled through
adjustments to the Settlement Price.
(b) Other Operating Taxes. With the exception of Income Taxes, all
other federal, state, foreign and local Taxes (including interest and penalties
attributable thereto) on the ownership or operation of the Operating Assets
which are imposed upon Southeast or the Partnership for periods or portions of
periods prior to the Effective Time shall be borne by Seller, and all such Taxes
imposed upon the Partnership for periods or portions of periods beginning on or
after the Effective Time shall be borne by Buyer. Such Taxes shall be
apportioned between Seller and Buyer for the period or portion thereof up to and
including the Effective Time, (i) in the case of a flat minimum dollar amount of
tax, by multiplying the total amount of such Taxes by a fraction, the numerator
of which is the number of days in the partial period through and including the
Effective Time and the denominator of which is the total number of days in such
tax period, and (ii) in the case of all other operating Taxes, on the basis of
actual activities creating such Tax liability of Southeast and the Partnership
for the partial period through and including the Effective Time as are
determined from their respective Books and Records. To the extent any such
amounts are borne prior to the delivery of the Final Statement by a Party who is
not required to bear them hereunder, they shall be included in the adjustments
to the Settlement Price. The allocation and payment of these Taxes shall be
handled through adjustments to the Settlement Price.
13.3 SHARED OBLIGATIONS. If an invoice or other evidence of an
obligation is received which under the terms of this Article XIII is partially
the obligation of Seller and partially the obligation of Buyer, then the parties
shall consult with each other, the Partnership shall promptly pay such
obligation to the obligee, and Seller shall promptly reimburse Buyer for
Seller's portion so paid.
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13.4 UNCOLLECTIBLE ACCOUNTS RECEIVABLE. Buyer (and, prior to the
Closing, Seller) shall cause Southeast and the Partnership to use commercially
reasonable efforts to collect in full, consistent with the past practices of the
Business, all accounts receivable of the Business (the "Accounts Receivable").
If the Accounts Receivable outstanding at the Closing shall not have been fully
collected within 120 days following the Closing Date in an amount equal to the
outstanding unpaid amounts thereof at the Closing, Buyer may require the Seller
to purchase any Accounts Receivable that have not been so fully collected at a
purchase price equal to the original outstanding amount of such Accounts
Receivable at the Closing less net collections thereon from the Closing Date to
the repurchase date; provided, however, that the Seller shall be required to
repurchase such unpaid Accounts Receivable only to the extent that the aggregate
amount of such unpaid Accounts Receivable exceeds the allowance for doubtful
accounts deducted from accounts receivable set forth on the Balance Sheets, and
if such an excess exists, the Seller shall only be required to pay an amount for
such unpaid Accounts Receivable equal to such excess; provided, further, during
such 120-day period, that Buyer may not settle or compromise any Accounts
Receivable without the prior written consent of Seller. As a condition to any
such repurchase, Buyer shall reconvey to the Seller the unpaid Accounts
Receivable to be repurchased and shall provide Seller with sufficient detail
regarding such Accounts Receivable. Buyer shall not transfer or convey such
Accounts Receivable to any other Person. Payment for the repurchase of any
Accounts Receivable shall be made within ten (10) days following the transfer
thereof to Seller. Buyer shall provide to the Seller any documents or
information reasonably requested by the Seller in connection with the Seller's
collection of any Accounts Receivable repurchased from Buyer.
ARTICLE XIV.
POST-CLOSING PROCEDURES
14.1 DELIVERY OF FILES. Within ten (10) days after Closing, Buyer
shall, at Buyer's expense, take delivery at Seller's present offices in San
Antonio, Texas of all of the Partnership's and Southeast's original land, lease,
revenue and cost accounting, geologic, geophysical, engineering and well files,
data and materials which relate to the Operating Assets. Applicable legal and
litigation files shall be delivered by Seller to Buyer at Seller's present
office location in San Antonio, Texas, subject to the Parties and their
attorneys making mutually acceptable arrangements for preserving the privileged
and confidential nature of protected information. Seller may retain copies of
its accounting and legal files, data and information, as might be needed by
Seller, and Seller shall retain all originals of insurance policies covering
periods prior to the Effective Time. Subject to the License Agreement, Seller
shall not retain originals or copies of any seismic, geological, geophysical or
engineering files, materials, data or interpretations thereof concerning the
Operating Assets sold hereunder, without Buyer's prior written consent; provided
however, that Seller shall not be required to deliver to Buyer, nor shall Buyer
be required to accept delivery of any such data or materials which either Party
reasonably believes to be subject to confidentiality agreements with third
parties that would prevent Buyer from obtaining such data or expose either Party
to a claim for material damages if Buyer were to receive such data or materials.
Notwithstanding the above, Seller shall be permitted to retain original tax and
financial accounting records for the period prior to the Closing, copies of
which will be delivered to Buyer.
14.2 THIRD PARTY DATA. To the extent not obtained or satisfied as
of Closing, Seller agrees to continue to use reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to obtain for Buyer, the Partnership and
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Southeast (i) access to files, records and data relating to the Operating Assets
in the possession of third parties; (ii) access to wells constituting a part of
the Operating Assets operated by third parties for purposes of inspecting same;
and (iii) the waiver of confidentiality or other restrictions on the review by
and/or transfer of seismic, geophysical, engineering or other data pertaining to
the Operating Assets that might be triggered by Seller's assignment to Buyer of
the Partnership and Southeast.
14.3 COOPERATION. After the Closing, each Party shall provide the
other Party with reasonable access to all relevant documents, data and other
information (other than that which is subject to any attorney-client privilege)
which may be required by the other Party for the purpose of financial reporting,
preparing tax returns, filing refund claims, responding to any audit by any
taxing jurisdiction or replying to any third party or governmental claim or
demand concerning the Partnership, Southeast or the Operating Assets. Each Party
shall cooperate with all reasonable requests of the other Party made in
connection with contesting the imposition of Taxes. Notwithstanding anything to
the contrary in this Agreement, neither Party shall be required at any
time to disclose to the other Party any Tax Return or other confidential
information, except for Tax Returns concerning Taxes of the Partnership and
Southeast. Except where disclosure is required by applicable law or judicial
order, any information obtained by a Party pursuant to this Section 14.3 shall
be kept confidential by such Party, except to the extent disclosure is required
in connection with the filing of any Tax Returns or claims for refunds or in
connection with the conduct of an audit, or other proceedings in response to an
audit, by a taxing jurisdiction, or otherwise required by law or binding
judicial order.
14.4 PREFERENTIAL RIGHTS TO PURCHASE AND CONSENTS TO ASSIGNMENT.
Before Closing and for up to one year after Closing, the Parties shall continue
to provide reasonable cooperation in obtaining all required Consents to
Assignment and in complying with all enforceable Preferential Rights to Purchase
that remain in force after Closing. Buyer shall be primarily responsible for
handling such matters, shall assume all risks and liabilities in connection with
the rights of the holders thereof, and shall release, indemnify and defend
Seller against any claims, damages, suits, demands or other liabilities
associated with any Consents to Assignment or Preferential Rights to Purchase.
14.5 FILING AND RECORDING OF DOCUMENTS. Buyer shall promptly file
all appropriate forms, declarations or bonds with governmental agencies relative
to its assumption of ownership of Southeast, and Seller shall cooperate with
Buyer in connection with such filings. Seller shall not be responsible for any
loss to Buyer because of Buyer's failure to file or record documents correctly
or promptly.
14.6 FURTHER ASSURANCES. After Closing, each of the Parties will
execute, acknowledge and deliver to the other such further instruments, and take
such other action, as may be reasonably requested in order to more effectively
assure to each Party all of the respective properties, rights, titles,
interests, estates, and privileges intended to be assigned, delivered or to
inure to the benefit of such Party in consummation of the Transaction.
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14.7 INCIDENTAL COSTS. Each party shall bear its own respective
expenses incurred in connection with the Closing of the Transaction, including
its own consultants' fees, attorney's fees, accountants' fees, and other similar
costs and expenses.
ARTICLE XV.
SURVIVAL; INDEMNITIES
15.1 SURVIVAL. All representations, warranties or covenants made
herein, except for those in Sections 4.1(a), 4.1(e), 4.1(f), 4.1(g), 4.1(i),
4.1(k), 4.1(l), 4.1(m), 4.1(n), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w), 4.1(x),
4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets only),
4.2(e), 4.2(i), Sections 7.1, 7.2, 7.4, 8.3, 9.1, 9.2(e), 9.9(d), 9.12(b),
9.12(c) and 9.13, and Articles XV, XVI, XVII and XXI, shall survive for two
years from the Closing Date. The representations and warranties or covenants
made in Sections 4.1(a), 4.1(g), 4.1(k), 4.1(l), 4.1(m), 4.1(o), 4.1(q), 4.1(u),
4.1(v), 4.1(w), 4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to
Operating Assets only) and Section 9.1 shall not survive Closing and shall
automatically expire upon Closing. The representations, releases, covenants,
indemnities, defenses and hold harmless obligations and other obligations
referenced in Sections 4.1(e), 4.1(f), 4.1(i), 4.1(n), 4.2(e), 4.2(i), 7.1, 7.2,
7.4, 8.3, 9.2(e), 9.9(d), 9.12(b), 9.12(c) and 9.13 and this Article XV, and all
provisions of Article XVI, Article XVII, and Article XXI shall each survive
Closing, and each shall continue to remain fully enforceable in accordance with
its terms.
15.2 BUYER'S INDEMNITY. EXCEPT AS EXPRESSLY AND SPECIFICALLY
INDICATED OTHERWISE IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION SECTIONS
9.9(D) AND 15.3), AFTER THE CLOSING DATE, BUYER SHALL AND HEREBY DOES RELEASE,
DEFEND, INDEMNIFY, SAVE, AND HOLD HARMLESS SELLER AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS, AGAINST ANY
AND ALL DAMAGES WHICH ARISE OUT OF OR IN CONNECTION WITH THE OWNERSHIP OF,
OPERATION OF, PRODUCTION FROM OR ACCOUNTING BY, INCOME OF OR PAYMENTS BY THE
PARTNERSHIP, SOUTHEAST OR THE OPERATING ASSETS, AT ANY TIME EITHER BEFORE OR
AFTER THE EFFECTIVE TIME, OR WHICH ARISE OUT OF ANY ENVIRONMENTAL CONDITION OR
OTHER HAZARDOUS CONDITION RELATING TO OR AFFECTING ANY OPERATING ASSET AT ANY
TIME EITHER BEFORE OR AFTER THE EFFECTIVE TIME, INCLUDING WITHOUT LIMITATION,
ALL SUCH COSTS, CLAIMS OR LIABILITIES ARISING OUT OF SELLER'S NEGLIGENCE OR
STRICT LIABILITY.
15.3 SELLER'S INDEMNITY. SUBJECT TO THE TERMS AND CONDITIONS OF
THIS ARTICLE XV, SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS
PARENT OR SUBSIDIARY COMPANIES, PARTNERS AND OTHER AFFILIATES (INCLUDING AFTER
CLOSING, SOUTHEAST AND THE PARTNERSHIP), AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS (HEREINAFTER
COLLECTIVELY REFERRED TO AS THE "BUYER GROUP"), FROM AND AGAINST ANY AND ALL
DAMAGES ASSERTED AGAINST, RESULTING TO, IMPOSED UPON, OR INCURRED BY THE BUYER
GROUP, DIRECTLY OR INDIRECTLY, BY REASON OF OR
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RESULTING FROM OR RELATING TO (I) ANY BREACH BY SELLER (FOR WHICH SELLER SHALL
BE RESPONSIBLE) OF ITS SURVIVING REPRESENTATIONS, WARRANTIES, COVENANTS OR
AGREEMENTS CONTAINED IN THIS AGREEMENT, (II) ANY LIABILITIES OF SOUTHEAST AND
THE PARTNERSHIP WHICH ARE UNRELATED TO THE OPERATING ASSETS, (III) ANY
LIABILITIES OF SOUTHEAST AND SOUTHEAST'S INTEREST IN THE PARTNERSHIP FOR INCOME
TAXES PRIOR TO CLOSING, AND (IV) ANY EXISTING LIABILITIES OF SOUTHEAST AND
SOUTHEAST'S INTEREST IN THE PARTNERSHIP OWED UNDER FEDERAL LEASES FOR PRIOR
ROYALTIES RELATED TO THE PERIOD OF TIME PRIOR TO CLOSING.
15.4 PROCEDURE FOR INDEMNIFICATION.
(a) Any Indemnified Party making a claim for indemnification
hereunder shall notify the indemnifying party or parties of the claim in
writing. Subject to Sections 17.1, 17.2, 17.3 and 17.4, an indemnified party may
take any and all actions against an indemnifying party or parties to enforce its
rights to indemnification under this Agreement.
(b) With respect to third Person claims which are indemnifiable
hereunder, promptly after receipt by an Indemnified Party under Sections 15.2 or
15.3 of notice of the commencement of any action, such Indemnified Party shall,
if a claim in respect thereof is to be made against an Indemnifying Party under
such Section, give written notice to the Indemnifying Party of the commencement
thereof. The failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party of any liability that it may have to an Indemnified Party
with respect to such action, only to the extent the Indemnifying Party is
prejudiced by the failure to be so notified. In case any such action shall be
brought against an Indemnified Party and the Indemnified Party shall give
written notice to the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Party. If the Indemnifying Party elects to
assume the defense of such action, the Indemnified Party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the Indemnifying Party elects not to assume (or fails to assume) the
defense of such action, the Indemnified Party shall be entitled to assume the
defense of such action with counsel of its own choice, at the expense of the
Indemnifying Party. If the action is asserted against both the Indemnifying
Party and the Indemnified Party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the Indemnifying
Party and the Indemnified Party, the Indemnifying Party shall be responsible for
paying for separate counsel for the Indemnified Party; provided, however, that
if there is more than one Indemnified Party, the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the Indemnified Parties, regardless of the number of Indemnified Parties. If the
Indemnifying Party elects to assume the defense of such action, (a) no
compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party's written consent (which shall not be unreasonably
withheld) unless the sole relief provided is monetary damages that are paid in
full by the Indemnifying Party and (b) the Indemnifying Party shall have no
liability with respect to any compromise or settlement thereof effected without
its written consent (which shall not be unreasonably withheld).
15.5 EXCLUSIVITY. The parties hereto agree that, in relation to any
breach, default, or nonperformance of any representation, warranty, covenant, or
agreement made or entered into by
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a party hereto pursuant to this Agreement or any certificate, instrument, or
document delivered pursuant hereto or arising out of the transactions
contemplated herein or the ownership or operation of the Operating Assets, the
only relief and remedy available to the other party hereto in respect of said
breach, default, or nonperformance shall be:
(a) termination, but only if said termination is expressly
permitted under the provisions of Article XX; or
(b) actual damages, but only to the extent properly claimable
hereunder and as limited pursuant to this Article XV or otherwise hereunder; or
(c) specific performance if a court of competent jurisdiction in
its discretion grants the same; or
(d) injunctive or declaratory relief if a court of competent
jurisdiction in its discretion grants the same.
15.6 ASSIGNMENT OF THIRD PERSON INDEMNITIES. To the extent the same
are assignable by an Indemnified Party, such Indemnified Party does hereby
assign to the Indemnifying Party all rights to defense, contribution and
indemnity that the Indemnified Party may hold with respect to the obligations
for which the Indemnifying Party is indemnifying and defending the Indemnified
Party hereunder, and the Indemnifying Party shall be subrogated to assert the
Indemnified Party's rights to such third-party defense, contribution and
indemnity obligations with respect to the indemnified claims or Actions.
ARTICLE XVI.
TAX MATTERS
16.1 INDEMNIFICATION FOR TAXES.
(a) Seller shall be responsible for, and shall indemnify Buyer
against, all (i) Income Taxes imposed on Southeast or Southeast's interest in
Partnership, and all Liabilities, losses, costs, fines, penalties, damages
(actual, punitive or other), reasonable attorneys' fees, and expenses arising
therefrom, relating to (A) taxable periods or portions thereof ending on or
before the Closing Date, (B) Income Taxes resulting from the application of
Treas. Reg. ss. 1.1502-6 or any comparable state, local or foreign tax law
attributable to Tesoro Parent, or any corporation or entity which is or has been
affiliated with or been part of a combined, unitary or affiliated group with
Tesoro Parent, and (C) the portion of the Income Taxes for any Straddle Period
(as defined in subsection 16.1(e)) allocable to Sellers with respect to either
Southeast or Southeast's interest in the Partnership under subsection 16.2(e)
and (ii) all Other Taxes imposed on Southeast or Southeast's interest in the
Partnership relating to the taxable periods or portions thereof ending on or
before the Effective Time (allocated as described in Section 13.3); provided,
Sellers shall not be responsible for, and shall not be required to indemnify
Buyer against, any Taxes to the extent that such Taxes do not exceed the accrued
liability for Taxes on the Balance Sheets which are taken into account in
determining the Working Capital.
(b) Buyer shall be responsible for and shall indemnify Sellers
against all (i) Income Taxes imposed upon Southeast or Southeast's interest in
the Partnership and all Liabilities, losses,
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costs, fines, penalties, damages (actual, punitive, or other), reasonable
attorneys' fees and expenses arising therefrom, relating to (A) taxable periods
beginning after the Closing Date or (B) the portion of the Income Taxes for any
Straddle Period which are allocable to Buyer under subsection 16.2(e), and (ii)
except as provided in Section 13.3 and in this Article XVI, all Other Taxes
imposed upon Southeast or Southeast's interest in the Partnership and all
Liabilities, losses, costs, fines, penalties, damages (actual, punitive or
other), reasonable attorneys fees and expenses arising therefrom arising in or
relating to taxable periods or portions thereof beginning after the Effective
Time (allocated as described in Section 13.3).
(c) Each Party shall promptly notify the other Party of the
commencement of any demand, claim, audit, examination, Action or other proposed
change or adjustment by any Taxing Authority concerning any Tax which could give
rise to a claim for indemnity pursuant to subsection 16.1(a) or subsection
16.1(b), as the case may be (each a "Tax Claim"). Such notice shall contain
factual information describing the asserted Tax Claim in reasonable detail and
shall include copies of any notice or other document received from any Taxing
Authority in respect of any such asserted Tax Claim.
(d) Seller, at its own expense, shall have the sole right to
represent Southeast and the Partnership's interests in any Tax Claim for Taxes
for which it is indemnifying Buyer against and to employ counsel of its choice.
Buyer shall have the right to participate in such Action at its own expense.
Seller shall not consent to any settlement that reasonably would be expected to
have an adverse effect on the Income Taxes of Southeast or Southeast's interest
in the Partnership in any period after the Closing Date without Buyer's consent,
which consent shall not be unreasonably withheld. Buyer's consent shall in no
way reduce any indemnification due to Buyer under subsection 16.1(a). If Seller
elects to control the defense, compromise or settlement of any Tax Claim, Seller
shall keep Buyer informed of the progress and disposition of such Tax Claim.
Buyer shall handle any other Tax Claims of Southeast or Southeast's interest in
the Partnership, and Buyer shall be entitled to defend, compromise or settle
such Tax Claims in its sole discretion without in any way reducing its rights to
indemnification under subsection 16.1(a), unless any such settlement would give
rise to a tax claim against Seller, and in such event such settlement shall be
subject to Seller's consent, which shall not be unreasonably withheld.
(e) With respect to any taxable period of Southeast or the
Partnership beginning before and ending after the Closing Date (a "Straddle
Period"), Buyer shall control, and Seller, at its own expense, shall have the
right to participate in, the defense and settlement of any Tax Claim and each
Party shall cooperate with the other Party and there shall be no settlement or
closing or other agreement with respect thereto without the consent of the other
Party, which consent shall not be unreasonably withheld; provided, that if
either Party shall refuse (the "Refusing Party") to consent to any settlement,
closing or other agreement agreed to by the relevant Taxing Authority with
respect to any such Tax Claim that the other party (the "Accepting Party")
proposed to accept (a "Proposed Settlement"), then (i) the Accepting Party's
Liability with respect to the subject matter of the Proposed Settlement shall be
limited to the amount that such Liability would have been if the Proposed
Settlement had been accepted, and (ii) the Refusing Party shall be responsible
for all Liabilities and expenses incurred or imposed thereafter in connection
with the contest of such Tax Claim to the extent that the final settlement is
more than the Proposed Settlement.
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16.2 OTHER TAX MATTERS.
(a) All Tax sharing agreements between Southeast and any other
Person, including without limitation, the Affiliates of Seller, are hereby
terminated as of the Closing Date and all rights and obligations of Southeast
with respect to Taxes shall be as provided herein.
(b) Any Tax allocation agreement or arrangement in effect shall be
extinguished in full as of the Closing Date.
(c) Tax Returns (each a "Pre-Closing Return") which are required
to be filed with respect to Southeast or Southeast's interest in the Partnership
on a consolidated, unitary or other combined basis with the Tesoro Group, or the
appropriate parent for a taxable period which ends on or before the Closing Date
(a "Pre-Closing Period") shall be prepared and filed by (or shall be the
responsibility of) Seller, which shall include the preparation and filing of the
consolidated federal and state income Tax Returns of the Tesoro Group which
includes Southeast's interest in the Partnership for the period up to and
including the Closing Date. In the case of those jurisdictions which require a
short-period Tax Return ending on or before the Closing Date, Seller shall
prepare and file all appropriate returns required to be filed with respect to
Income Taxes attributable to the operations and the Operating Assets for the
pre-Closing periods. All such Pre-Closing Returns shall be filed on a basis
consistent with prior Tax Returns filed with respect to Southeast's interest in
the Partnership. Seller or the appropriate parent of Southeast or the
Partnership shall timely pay or cause to be paid all Taxes shown on such
Pre-Closing Returns. All Tax Returns which (i) are required to be filed with
respect to Southeast's interest in the Partnership on a separate basis
(including the preparation of supporting schedules, Tax Returns and other Tax
information with respect to Southeast's interest in the Partnership necessary
for completion of the Pre-Closing Returns) after the Closing Date for a
Pre-Closing Period (a "Post-Closing Return"), and (ii) are required to be filed
or with respect to Southeast's interest in the Partnership for a taxable period
that ends after the Closing Date, including any Tax Return (a "Straddle Return")
for a Straddle Period, shall be prepared and filed by Buyer; subject to the
rights to indemnification and other rights under 16.1(a) and subsection 16.2(e),
Buyer shall timely pay or cause to be paid all Taxes shown on such Tax Returns.
(d) Seller agrees to provide Buyer and Buyer agrees to provide
Seller with such cooperation and information as the other shall reasonably
request in connection with the preparation or filing of any Tax Return required
under this Agreement.
(e) With respect to any Straddle Period, to the extent permitted
by applicable law, Seller shall elect to treat the Closing Date as the last day
of the taxable period. If applicable law, regulation or Governmental Order will
not permit the Closing Date to be the last day of a period, the Income Tax
attributable to the operations of Southeast and Southeast's interest in the
Partnership for the portion of the period up to and including the Closing Date
shall be (i) in the case of a flat minimum dollar amount Tax, the total amount
of such Taxes multiplied by a fraction, the numerator of which is the number of
days in the partial period through and including the Effective Time and the
denominator of which is the total number of days in such Straddle Period, and
(ii) in the case of all Income Taxes, the Tax computed on the basis of the
taxable income or loss attributable to Southeast's interest in the Partnership
for the partial period through and including the Closing Date as determined from
their Books and Records. All Other Taxes arising with or related to a Straddle
Period will be allocated as provided in Section 13.3.
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<PAGE> 50
(f) With respect to any Post-Closing Return or Straddle Return,
Buyer shall deliver, at least 30 days prior to the due date for filing such Tax
Return (including any extension) to Seller a statement setting forth the amount
of Income Tax which Seller owes pursuant to subsection 16.1(a), including the
allocation of Taxes under subsection 16.2(e), and copies of such Tax Return.
Seller shall have the right to review such Tax Returns and the allocation of
Taxes and to suggest to Buyer any reasonable changes to such Tax Returns no
later than 15 days prior to the date for the filing of such Tax Returns. Seller
and Buyer agree to consult and to attempt to resolve in good faith any issue
arising as a result of the review of such Tax Returns and allocation of Taxes
and mutually to consent to the filing as promptly as possible of such Tax
Returns. Not later than 15 days before the due date for the payment of Income
Taxes with respect to such Tax Returns, Seller shall pay to Buyer an amount
equal to the Income Taxes as agreed to by Buyer and Seller as being owed by
Seller, pursuant to subsection 16.1(a). In the event that Buyer and Seller
cannot agree on the amount of Income Taxes owed by Seller, with respect to a
Straddle Return or a Post-Closing Return, Seller shall pay to Buyer the amount
of Income Taxes reasonably determined by Buyer to be owed by them pursuant to
subsection 16.1(a). Within ten (10) days following such payment, Seller and
Buyer shall refer the matter to an independent "Big-Five" accounting firm agreed
to by Buyer and Seller to arbitrate the dispute. Seller and Buyer shall equally
share the fees and expenses of such accounting firm, and its determination as to
the amount owing by Seller, pursuant to Section 16.1(a) with respect to a
Straddle Return or Post-Closing Return shall be binding on both parties. Within
five (5) days of the determination by such accounting firm, if necessary, the
appropriate Party shall pay the other Party any amount which is determined by
such accounting firm to be owed. Seller shall be entitled to reduce its
obligation to pay Taxes with respect to a Straddle Return or a Post-Closing
Return by the amount of any estimated Taxes paid with respect to such Taxes by
or on behalf of Southeast on or before the Closing Date.
(g) Seller shall have the right to all refunds of Taxes (including
interest thereon), which relate to Taxes of Southeast or Southeast's interest in
the Partnership for Pre-Closing Periods and Straddle Periods, to the extent
provided in the following sentences. Buyer shall pay over to Seller any such
refunds within ten (10) days of receipt thereof, net of any Taxes imposed on
Buyer or Southeast by reason of the receipt of such refund. To the extent any
refund of Taxes is made with respect to a Pre-Closing Period or a Straddle
Period, such refund shall be apportioned between Buyer and Seller, based on the
appropriate allocation method set forth in Section 16.2(e).
(h) Buyer and Seller agree to consult and resolve in good faith
any issues arising in connection with the preparation or review of any Tax
Return or the calculation of any Tax described in this Section 16.2.
(i) At the Closing, Seller, Southeast and the Partnership each
shall deliver to Buyer certificates signed under penalties of perjury (i)
stating that it is not a foreign corporation, foreign partnership, foreign trust
or foreign estate, (ii) providing its U.S. Employer Identification Number and
(iii) providing its address, all pursuant to Section 1445 of the Code.
16.3 EXCLUSIVE REMEDY FOR TAXES. This Article XVI provides the sole
and exclusive remedy for any claim against Seller for indemnification, damages
or breach of any representation or warranty with respect to or relating to
Taxes.
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ARTICLE XVII.
DEFAULT AND REMEDIES
17.1 LIABILITIES UPON TERMINATION. If Closing does not occur due to
Seller's violation of the terms of this Agreement, then Buyer may seek such
legal or equitable remedies as Buyer may desire including, without limitation,
damages for the breach or failure of any representation, warranty, covenant or
agreement contained herein and the right to enforce specific performance of this
Agreement. If Closing does not occur due to Buyer's violation of the terms of
this Agreement, then Seller may seek such legal or equitable remedies as Seller
may desire, including, without limitation, damages for the breach or failure of
any representation, warranty, covenant or agreement contained herein and the
right to enforce specific performance of this Agreement.
17.2 RECOVERY OF COSTS. The prevailing Party in any litigation or
alternative dispute resolution proceeding between the Parties in a dispute
arising under this Agreement shall be entitled to recover, from the other Party,
reimbursement for reasonable attorneys fees, expert fees, court costs and costs
of discovery and investigation.
17.3 WAIVER OF EXTRAORDINARY DAMAGES. TO THE FULL EXTENT ALLOWED BY
LAW, AND EXCEPT AS MAY BE INCLUDED IN THIRD PARTY DAMAGES SUBJECT TO ANY
INDEMNITY OBLIGATION HEREUNDER, THE PARTIES HEREBY WAIVE AND RELEASE ANY RIGHTS
OR CLAIMS TO PUNITIVE OR EXEMPLARY DAMAGES RESULTING FROM A BREACH OF THIS
AGREEMENT. THE PARTIES HEREBY WAIVE THE APPLICATION OF THE TEXAS DECEPTIVE TRADE
PRACTICES- CONSUMER PROTECTION ACT TO THE TRANSACTION.
17.4 WAIVER OF JURY TRIAL. SELLER AND BUYER DO HEREBY IRREVOCABLY
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION.
17.5 INDEPENDENT OBLIGATIONS. The express release, indemnity, defense
and hold harmless obligations contained herein shall exist separate and
independent from the representations and warranties in this Agreement, and the
limitations of representations and warranties shall not be construed to limit
the scope of the express releases, indemnities, and defense and hold harmless
obligations.
17.6 CHANGES OF LAW. Sellers do not make any representations and
warranties and do not assume any responsibilities or liabilities for any Damages
to Buyer arising out of or related to changes in the law or new interpretations
of existing law that may occur after Closing.
17.7 MERGER. No representations, warranties, indemnities, covenants or
other provisions of this Agreement shall merge with provisions of any other
instrument.
ARTICLE XVIII.
NOTICES
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18.1 NOTICES. All notices authorized or required by any of the
provisions of this Agreement, unless otherwise specifically provided, shall be
in writing and delivered in person or by United States mail, courier service,
telegram, or telephone facsimile, postage or charges prepaid, and addressed to
the Parties at the respective addresses set forth below:
If to Seller: Tesoro Petroleum Corporation.
300 Concord Plaza Drive
San Antonio, Texas 78216-6999
Attention: James C. Reed, Jr.
Fax Number: (210) 283-2400
Phone Number: (210) 828-8484
With a copy to: Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Michael W. Conlon
Fax Number: (713) 651-5246
Phone Number: (713) 651-5151
If to Buyer: EEX Operating LLC
2500 City West Boulevard, Suite 1400
Houston, Texas 77042
Attention: Janice K. Hartrick
Fax Number: (713) 243-3359
Phone Number: (713) 243-3371
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Attention: Michael E. Dillard
Fax Number: (214) 969-4343
Phone Number: (214) 969-2876
Any Party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
ARTICLE XIX.
CONFIDENTIALITY AND DISCLOSURES
19.1 NON DISCLOSURE OF DATA. To the extent Buyer does not acquire all
of the Membership Interests for any reason, Buyer shall not directly or
indirectly disclose or use any materials, data or other information provided by
or obtained from Seller, Southeast or the Partnership, and Buyer and its
representatives shall continue to be bound by the terms of the existing
Confidentiality Agreement dated June 17, 1999, between the Parties.
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19.2 PUBLIC ANNOUNCEMENTS. The Parties hereto agree that prior to
making any public announcement or statement with respect to the Transaction, the
Party desiring to make such public announcement or statement shall consult with
the other Party and exercise reasonable efforts to obtain the consent of the
other Party to the text of such public announcement or statement. If the Parties
cannot agree upon the text of any such public disclosure, a Party may
nevertheless disclose information with respect to the to the extent required by
applicable law or by any applicable rules, regulations or orders of any
governmental or judicial authority or agency having jurisdiction or to the
extent such disclosure is necessary to comply with requirements of the New York
Stock Exchange.
ARTICLE XX.
TERMINATION
20.1 TERMINATION . Notwithstanding anything herein to the contrary,
this Agreement and the Transaction may be terminated in the following instances:
(a) At any time by the mutual written agreement of Buyer and
Seller;
(b) By Seller, if the Settlement Price Adjustment exceeds fifteen
percent (15%) of the Purchase Price; or by Buyer, if the sum of the Settlement
Price Adjustment and any reductions to the purchase price as a result of the
exercise by third parties of Preferential Rights to Purchase exceeds fifteen
percent (15%) of the Purchase Price;
(c) By Seller or Buyer, if any of the Casualty Price individually
exceeds ten percent (10%) of the Purchase Price; or
(d) By Buyer or Seller, if Closing has not taken place before
December 31, 1999; provided, however, that the Party seeking to terminate this
Agreement pursuant to Section 20.1(d) shall not have breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Transaction prior to
December 31, 1999.
ARTICLE XXI.
MISCELLANEOUS
21.1 ENTIRE AGREEMENT. This Agreement, together with the Stock Purchase
Agreement, embody the entire agreement between the Parties (superseding all
prior agreements, negotiations, representations, discussions, arrangements and
understandings related to the subject matter hereof), and may be supplemented,
altered, amended, modified or revoked only by a written instrument signed by
each of the Parties; provided, however, the Confidentiality Agreement dated June
17, 1999, between the Parties shall remain effective until Closing. If the sale
of the Operating Assets to Buyer is not consummated, then the Confidentiality
Agreement shall remain effective as stated therein.
21.2 NO VERBAL MODIFICATIONS OR WAIVERS. Any of the terms, provisions,
covenants, representations, warranties or conditions hereof may be supplemented,
amended, modified, released or waived only by a written instrument executed by
the Parties. Except as otherwise expressly
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provided in this Agreement, the failure of any Party at any time or times to
require performance of any provision hereof shall in no manner affect such
Party's right to enforce the same. No waiver by any Party of any condition, or
of the breach of any term, provision, covenant, representation or warranty
contained in this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such condition or breach or a waiver of any other condition or of the
breach of any other term, provision, covenant, representation or warranty.
21.3 SEVERABILITY. If any term or provision of this Agreement is held
to be illegal, invalid or unenforceable, the legality, validity and
enforceability of the remaining terms and provisions of this Agreement shall not
be affected thereby, and in lieu of each such illegal, invalid or unenforceable
term or provision, there shall be added automatically to this Agreement a legal,
valid and enforceable term or provision as similar as possible to the term or
provision declared illegal, invalid or unenforceable.
21.4 INTERPRETATION. Words of any gender used in this Agreement shall
be held and construed to include any other gender, and words in the singular
shall be held to include the plural, unless the context otherwise requires. None
of the terms or conditions of this Agreement, including any Exhibits or
Schedules hereto, shall be construed for or against any Party hereto on the
basis that such Party did or did not author the same. All terms of this
Agreement and the Exhibits shall be harmonized, but in the event of any conflict
between the definition of a term in Article I and a more complete description or
limitation of such term in a subsequent Article, the subsequent Article shall
prevail. This Agreement is being executed in connection with the Stock Purchase
Agreement, as amended by the Amendment, and the two instruments shall be
harmonized, to the extent possible, provided however, that no Party shall be
entitled to receive duplicate payments (including, without limitation, duplicate
payment of any purchase price) or other relief regarding the same matters under
both this Agreement and the Stock Purchase Agreement, as amended, and the rights
of the Parties hereunder are subject to the terms of the Stock Purchase
Agreement, as amended by the Amendment. In the event of any conflict, redundancy
or inconsistency between the terms of the Stock Purchase Agreement, as amended,
and this Agreement (including without limitation any conflict, redundancy or
inconsistency with respect to the provisions relating to indemnification,
payment of purchase price, adjustments to the purchase price, transfer of the
Membership Interests, representations, warranties and covenants or any
provisions of the exhibits or schedules), the provisions of the Stock Purchase
Agreement, as amended, shall control and prevail in all respects. The Article
and Section headings are for convenience only and shall have no significance in
the interpretation hereof.
21.5 COUNSEL. EACH PARTY EXPRESSLY ACKNOWLEDGES THAT IT WAS REPRESENTED
BY COUNSEL OF ITS OWN SELECTION IN NEGOTIATION AND PREPARATION OF THE TERMS OF
THE AGREEMENT AND THE ATTACHED EXHIBITS AND THAT IT IS SOPHISTICATED AND
EXPERIENCED IN TRANSACTIONS OF THIS TYPE AND IS AWARE OF ALL TERMS AND
CONDITIONS CONTAINED HEREIN. EACH PARTY SHALL BE RESPONSIBLE FOR THE COSTS AND
EXPENSES OF ITS OWN COUNSEL.
21.6 GOVERNING LAW. This Agreement and other documents delivered
pursuant to this Agreement and the legal relations between the Parties shall be
governed and construed and enforced in accordance with the laws of the State of
Texas, without giving effect to principles of conflict of laws.
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21.7 CONSENTS. Except as expressly provided otherwise herein, any
consent required of a Party with respect to any matters covered by this
Agreement shall not be unreasonably withheld or action with respect thereto
unduly delayed.
21.8 TIME OF ESSENCE. Time is of the essence in all matters provided
for in this Agreement.
21.9 BINDING EFFECT, ASSIGNMENT. All the terms, provisions, covenants,
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the Parties and, except
as otherwise prohibited, their respective successors; however, this Agreement
and the rights and obligations hereunder shall not be assignable or delegable by
any Party without the express written consent of the non-assigning or
non-delegating Parties, which consent may be withheld for any or no reason;
provided that Buyer may assign some or all of its rights, duties and obligations
under this Agreement to an Affiliate of EEX Corporation. Any assignment or
delegation without such consent will be void.
21.10 NO RELATIONSHIP. Nothing contained in this Agreement shall be
deemed to create a joint venture, partnership, agency or other fiduciary
relationship between the Parties, nor is this Agreement intended to create, nor
shall it be construed to create, any rights in any third party, to create any
third party beneficiaries or to ratify, adopt or confirm any other lease,
agreement or other instrument, whether or not affecting Southeast, the
Partnership or the Operating Assets. Notwithstanding the above, the Parties
acknowledge that the Transaction shall be subject to the rights of all third
parties holding Preferential Rights to Purchase and Consents to Assignment
concerning the Operating Assets, to the extent that they are valid, in effect
and enforceable by reason of the Transaction, and that such third party rights
shall be handled as set forth herein.
21.11 NO RECORDATION. Without limiting any Party's right to file suit
to enforce its rights under this Agreement, Buyer and Seller expressly covenant
and agree not to record or place of record this Agreement or any copy or
memorandum hereof, unless required under the Securities Exchange Act of 1934.
21.12 EXHIBITS AND SCHEDULES. All Exhibits and Schedules which are
referred to herein are hereby made a part hereof and incorporated herein by
reference.
21.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one agreement.
21.14 NO THIRD PARTY BENEFICIARIES. Any agreement contained, expressed
or implied in this Agreement shall be only for the benefit of the Parties hereto
and the Indemnified Parties specified in Article XV and their respective legal
representatives, successors and assigns. Such agreements shall not inure to the
benefit of any employees of Seller, Southeast or the Partnership (except in
their capacity as Indemnified Parties) or the obligees of any indebtedness of
any Party hereto, it being the intention of the Parties hereto that no Person
shall be deemed a third party beneficiary of this Agreement, except to the
extent a third Person is expressly given rights herein.
21.15 JOINT AND SEVERAL LIABILITY. Tesoro Petroleum Corporation and
Tesoro Gas Resources Company, Inc. agree to be jointly and severally liable for
all of the Seller's duties and obligations hereunder.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
<TABLE>
<CAPTION>
SELLER BUYER
<S> <C>
TESORO PETROLEUM CORPORATION EEX OPERATING LLC
By: /s/ SHARON L. LAYMAN By: EEX CORPORATION
-------------------------------
Name: Sharon L. Layman By: /s/ RICHARD S. LANGDON
----------------------------- ----------------------------------
Title: Vice President and Treasurer Name: Richard S. Langdon
----------------------------- ---------------------------------
Title: EVP and Chief Financial Officer
TESORO GAS RESOURCES COMPANY, INC. --------------------------------
By: /s/ JEFFREY B. FABIAN
------------------------------
Name: Jeffrey B. Fabian
----------------------------
Title: President
---------------------------
</TABLE>
55
The schedules and exhibits referenced in this Purchase Agreement have been
omitted. The Registrant will furnish a copy of any omitted schedules and
exhibits to the Securities and Exchange Commission upon request.
<PAGE> 1
EXHIBIT 4.1
AMENDED AND RESTATED FIRST AMENDMENT AND CONSENT
AMENDED AND RESTATED FIRST AMENDMENT AND CONSENT, dated as of November
10, 1999 (this "Amendment"), to the THIRD AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of July 2, 1998, among TESORO PETROLEUM CORPORATION, a Delaware
corporation (the "Borrower"), the several banks and other financial institutions
or entities from time to time parties to thereto (the "Lenders"), LEHMAN
BROTHERS INC. ("LBI"), as advisor and arranger thereunder (in such capacity, the
"Arranger"), LEHMAN COMMERCIAL PAPER INC. ("LCPI"), as syndication agent
thereunder (in such capacity, the "Syndication Agent"), PARIBAS and BANK ONE, NA
(formerly known as The First National Bank of Chicago), as co-administrative
agents thereunder (in such capacity, the "Co-Administrative Agents"), BANK ONE,
NA (formerly known as The First National Bank of Chicago), as general
administrative agent thereunder (in such capacity, the "General Administrative
Agent"), PARIBAS, as collateral agent thereunder (in such capacity, the
"Collateral Agent"), and THE BANK OF NOVA SCOTIA, as documentation agent
thereunder (in such capacity, the "Documentation Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make, and have made, certain loans and other extensions of credit to the
Borrower;
WHEREAS, the Borrower intends to sell, in two or more transactions, all
of the issued and outstanding Capital Stock of its subsidiaries and affiliates
engaged in the business of exploring and developing hydrocarbons, including
Tesoro Hydrocarbons Company USA, Tesoro Exploration and Production Company,
Tesoro E&P, L.P., Tesoro Reserves Company, Tesoro Gathering Company, Tesoro
Natural Gas Company and Tesoro Pipeline Company, L.P. (collectively, the
Domestic E&P Entities"; the sale of such entities, the "Domestic E&P Sale") and
Tesoro Bolivia Petroleum Company and Tesoro Latin American Company
(collectively, the "Bolivian E&P Entities"; the sale of such entities, the
"Bolivian E&P Sale"), and has requested the Lenders to consent thereto;
WHEREAS, the Domestic E&P Sale and the Bolivian E&P Sale (collectively,
the "Sale") will require the release of all of the Domestic E&P Entities and the
Bolivian E&P Entities as Subsidiary Guarantors under the Guarantee and
Collateral Agreement, the release of all security interests in the Capital Stock
and assets of the Domestic E&P Entities and the Bolivian E&P Entities under the
Guarantee and Collateral Agreement, and the release of all of the Oil and Gas
Mortgages;
WHEREAS, the Sale could be interpreted as a Fundamental Change under
the Credit Agreement;
WHEREAS, pursuant to the First Amendment and Consent, dated as of
October 1, 1999 (the "Existing Amendment"), the Lenders consented to the Sale
upon the terms and conditions set forth therein;
<PAGE> 2
WHEREAS, the Borrower has advised the Lenders that, as permitted (upon
Borrower providing the required Reinvestment Notice) by the Credit Agreement as
in effect prior to the effectiveness of the Existing Amendment, the Borrower may
wish to apply all or a portion of the proceeds of the Domestic E&P Sale toward
the acquisition of other assets useful in the business of the Borrower and its
Subsidiaries, and, to effect such acquisition as a like kind exchange pursuant
to applicable law, the Borrower wishes to deposit the portion of such proceeds
to be used for such acquisition in an escrow account (the "Escrow Account")
pending such application;
WHEREAS, the agreements governing the Escrow Account will provide that
(i) the Borrower may withdraw funds from the Escrow Account during the six month
period following the consummation of the Domestic E&P Sale for application
toward the acquisition of assets useful in the business of the Borrower and its
Subsidiaries and qualifying for "like kind exchange" under applicable law, (ii)
the Borrower may at any time withdraw funds from the Escrow Account and apply
such proceeds toward prepayment of the Term Loans and (iii) any funds on deposit
in the Escrow Account on the date which is six months after the date of
consummation of the Domestic E&P Sale will be transferred to the General
Administrative Agent for application toward prepayment of the Term Loans, and
any such funds remaining after such prepayment will be transferred to the
Borrower;
WHEREAS, in order to reflect the matters described in the preceding
recitals, the parties hereto wish to amend and restate the Existing Amendment in
its entirety;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other valuable consideration the receipt of which is
hereby acknowledged, the Borrower and the Lenders hereby agree that on the
Amendment Effective Date (as defined in Section 4 below) the Existing Amendment
will be amended and restated in its entirety as follows:
Definitions. Capitalized terms used herein and not otherwise defined
shall have the meanings assigned to such terms in the Credit Agreement.
2. Consent. Subject to the terms and conditions hereof, the Lenders hereby
(a) consent to the Sale subject to the proceeds of the Sale being applied toward
the prepayment of the Term Loans and all accrued and unpaid interest thereon,
provided that all or any portion of the proceeds of the Domestic E&P Sale may be
deposited in the Escrow Account; and (b) authorize the Collateral Agent (i) to
release its security interest in all Capital Stock of, and property owned by,
the Domestic E&P Entities in connection with the Domestic E&P Sale (including,
without limitation, the Oil and Gas Mortgages), (ii) to release its security
interest in the Capital Stock of the Bolivian E&P Entities in connection with
the Bolivian E&P Sale and (iii) to release from its obligations under the
Guarantee and Collateral Agreement any Domestic E&P Entity and any Bolivian E&P
Entity whose Capital Stock is sold pursuant to the Sale.
3. Amendments to Credit Agreement. (a) Section 1.1. of the Credit
Agreement is hereby amended by deleting the definitions of "Excluded
Subsidiaries" and "Responsible Officer" therefrom in their entirety and
substituting therefor the following:
"Excluded Subsidiaries": the collective reference to the "Excluded
Subsidiaries" listed on Schedule 4.15 attached hereto.
<PAGE> 3
"Responsible Officer": the chief executive officer, president, chief
financial officer, general counsel, executive vice president corporate
resources, senior vice president financial resources, vice president
finance, vice president controller, or vice president treasurer of the
Borrower, but in any event, with respect to financial matters, the chief
financial officer, controller, senior vice president financial resources,
vice president finance, or vice president treasurer of the Borrower.
(b) Schedule 4.15 of the Credit Agreement is hereby amended by deleting
such Schedule in its entirety and substituting in lieu thereof Schedule 4.15 in
Exhibit A attached hereto.
(c) Section 7.7(g) of the Credit Agreement is hereby amended by deleting
such Section in its entirety and substituting in lieu thereof the following:
"(g) to hold a 50% limited partnership interest in Tesoro Building
Project, Ltd., a Delaware limited partnership."
4. Conditions to Effectiveness. This Amendment shall become effective, as
of the date first written above, on the date (the "Amendment Effective Date") of
receipt by the General Administrative Agent of (i) counterparts of this
Amendment duly executed by the Borrower and the Required Lenders, and (ii)
counterparts of the Acknowledgment and Consent attached hereto executed by each
Subsidiary of the Borrower.
5. Representations and Warranties. On and as of the date hereof, and after
giving effect to this Amendment, the Borrower confirms, reaffirms and restates
that the representations and warranties set forth in Section 4 of the Credit
Agreement are true and correct in all material respects, provided that the
references to the Credit Agreement therein shall be deemed to be references to
the Credit Agreement as amended by this Amendment.
6. Limited Amendment. Except as expressly amended hereby, the Credit
Agreement is, and shall remain, in full force and effect. This Amendment shall
not be deemed to be a waiver of, or consent to, or a modification or amendment
of, any other term or condition of the Credit Agreement or to prejudice any
other right or rights which the Lenders may now have or may have in the future
under or in connection with the Credit Agreement or any of the instruments or
agreements referred to therein, as the same may be amended from time to time.
7. Counterparts. This Amendment may be executed by one or more of the
parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
date first above written.
TESORO PETROLEUM CORPORATION
By: /s/ SHARON L. LAYMAN
----------------------------------
Name: Sharon L. Layman
Title: Vice President, Treasurer
LEHMAN BROTHERS INC.,
as Arranger
By: /s/ MICHELE SWANSON
----------------------------------
SYNDICATED LOAN FUNDING TRUST Name: Michele Swanson
BY: LEHMAN COMMERCIAL PAPER Title: Authorized Signatory
INC. NOT IN ITS INDIVIDUAL
CAPACITY BUT SOLELY AS ASSET
MANAGER LEHMAN COMMERCIAL PAPER INC.,
as Syndication Agent and as a Lender
/s/ MICHELE SWANSON
- -----------------------------
Name: Michele Swanson By: /s/ MICHELE SWANSON
Title: Authorized Signatory ----------------------------------
Name: Michele Swanson
Title: Authorized Signatory
BANK ONE, NA (formerly known as The
First National Bank of Chicago), as Co-
Administrative Agent, General Administrative
Agent and as a Lender
By: /s/ THOMAS E. BOTH
----------------------------------
Name: Thomas E. Both
Title: First Vice President
<PAGE> 5
PARIBAS,
as Co-Administrative Agent, Collateral
Agent and as a Lender
By: /s/ BRIAN M. MALONE
----------------------------------
Name: Brian M. Malone
Title: Director
By: /s/ BETSY JOCHER
----------------------------------
Name: Betsy Jocher
Title: Vice President
THE BANK OF NOVA SCOTIA,
as Documentation Agent and as a Lender
By: /s/ F.C.H. ASHBY
----------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
ABN AMRO BANK N.V.
By: /s/ ALLEN V. POOLE
----------------------------------
Name: Allen V. Poole
Title: Senior Vice President
By: /s/ W. BRYAN CHAPMAN
----------------------------------
Name: W. Bryan Chapman
Title: Group Vice President
BANK LEUMI USA
By: /s/ JOUNG HEE HONG
----------------------------------
Name: Joung Hee Hong
Title: Vice President
BANK OF HAWAII
By: /s/ BRENDA K. TESTERMAN
----------------------------------
Name: Brenda Testerman
Title: Vice President
<PAGE> 6
BANK OF SCOTLAND
By: /s/ ANNIE GLYNN
----------------------------------
Name: Annie Glynn
Title: Senior Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.
By: /s/ JOHN MCGHEE
----------------------------------
Name: John McGhee
Title: VP & Manager
BALANCED HIGH YIELD FUND I LTD. by BHF (USA)
Capital corporation acting as attorney-in-fact
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
BHF (USA) Capital Corporation
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
CIBC INC.
By: /s/ ROGER COLDEN
----------------------------------
Name: Roger Colden
Title: Authorized Signatory
<PAGE> 7
COMERICA BANK
By: /s/ MARK B. GROVER
----------------------------------
Name: Mark B. Grover
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ PHILIPPE SOUSTRA
----------------------------------
Name: Philippe Soustra
Title: Senior Vice President
FIRST HAWAIIAN BANK
By: /s/ CHARLES L. JENKINS
----------------------------------
Name: Charles L. Jenkins
Title: Vice President, Manager
FIRST UNION NATIONAL BANK
By: /s/ ROBERT R. WETTEROFF
----------------------------------
Name: Robert R. Wetteroff
Title: Senior Vice President
FROST NATIONAL BANK
By: /s/ JENNIFER JENNINGS
----------------------------------
Name: Jennifer Jennings
Title: Credit Administrative Officer
THE FUJI BANK, LIMITED
By: /s/ TEIJI TERAMOTO
----------------------------------
Name: Teiji Teramoto
Title: Vice President & Manager
<PAGE> 8
GUARANTY FEDERAL BANK
By: /s/ JIM R. HAMILTON
----------------------------------
Name:
Title:
HIBERNIA NATIONAL BANK
By: /s/ NANCY G. MORAGAS
----------------------------------
Name: Nancy G. Moragas
Title: Assistant Vice President
THE INDUSTRIAL BANK OF JAPAN, LTD.
By: /s/ MICHAEL N. OAKES
----------------------------------
Name: Michael N. Oakes
Title: Senior Vice President,
HOUSTON OFFICE
MEESPIERSON CAPITAL CORP.
By: /s/ DEIRDRE SANBORN
----------------------------------
Name: Deirdre Sanborn
Title: Vice President
By: /s/ DARRELL W. HOLLEY
----------------------------------
Name: Darrell W. Holley
Title: Managing Director
NATIONAL BANK OF ALASKA
By: /s/ PATRICIA JELLEY BENZ
----------------------------------
Name: Patricia Jelley Benz
Title: Vice President
NATIONAL BANK OF CANADA
By: /s/ LARRY L. SEARS
----------------------------------
Name: Larry L. Sears
Title: Vice President & Manager
By: /s/ DOUG CLARK
----------------------------------
Name: Doug Clark
Title: Vice President
<PAGE> 9
THE ROYAL BANK OF SCOTLAND
By: /s/ SCOTT BARTON
----------------------------------
Name: Scott Barton
Title: Vice President
SOCIETE GENERALE
By: /s/ RICHARD A. GOULD
----------------------------------
Name: Richard A. Gould
Title: Director
THE SUMITOMO BANK, LTD.
By:
----------------------------------
Name:
Title:
TORONOTO-DOMINION (TEXAS), INC.
By: /s/ DEBBIE A. GREENE
----------------------------------
Name: Debbie A. Greene
Title: Vice President
MOUNTAIN CLO TRUST
By:
----------------------------------
Name:
Title:
Schedule 4.15 listing Excluded Subsidiaries has been omitted. The Registrant
will furnish a copy of this omitted schedule to the Securities and Exchange
Commission upon request.
<PAGE> 1
EXHIBIT 99.1
PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma financial statements give effect to the following
transactions (collectively, the "Transactions"):
(i) On December 17, 1999, Tesoro Petroleum Corporation ("Tesoro" or
"Company") completed the sale of its domestic exploration and
production business to EEX Corporation effective July 1, 1999. The
cash sale prices in the purchase agreements totaled $222.0 million,
which were adjusted on a preliminary basis for revenues, expenses,
capital expenditures, working capital changes and certain other items
after the effective date to approximately $214.8 million in cash
received at closing.
(ii) On December 20, 1999, the Company reduced term loans outstanding under
its Senior Credit Facility by $97.4 million.
(iii) On December 29, 1999, the Company closed on the sale of its Bolivian
exploration and production operations to BG International, Ltd., a
subsidiary of BG plc, effective July 1, 1999 ("Bolivia Transaction").
The sale, which requires authorization from certain Bolivian
authorities, generated cash proceeds of $100.8 million. These cash
proceeds, which are subject to post-closing adjustments, will be used
to repay debt.
The unaudited pro forma condensed balance sheet gives effect to the Transactions
as if each had occurred on September 30, 1999. The unaudited pro forma condensed
statements of operations for the year ended December 31, 1998 and the nine
months ended September 30, 1999 give effect to the Transactions as if each had
occurred on January 1, 1998. The unaudited pro forma condensed financial
statements have been prepared by the Company and necessarily include assumptions
deemed appropriate by the Company. The unaudited pro forma financial statements
are intended for informational purposes and are not necessarily indicative of
the future financial position or future results of the Company or of the
financial position or the results of operations that would have actually
occurred had the Transactions been in effect as of the date or for the periods
presented.
The unaudited pro forma financial statements should be read in conjunction with
the Company's historical Consolidated Financial Statements and Notes thereto
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and the Condensed Consolidated Financial Statements contained
in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999.
<PAGE> 2
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Adjustments
-------------------
Historical U.S. Bolivia Pro Forma
--------- ------- ------- ---------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................... $ 15.6 210.8 (a) 94.5 (a) 142.3
(97.4) (b) (81.2) (b)
Receivables................................................... 244.6 (8.5) (a) (3.2) (a) 232.9
Inventories................................................... 197.7 (0.5) (a) 197.2
Prepayments and other......................................... 10.6 (1.8) (a) (0.2) (a) 8.6
--------- -------
Total Current Assets....................................... 468.5 581.0
--------- -------
Property, Plant and Equipment:
Refining and marketing........................................ 878.3 878.3
Marine services............................................... 53.2 53.2
Exploration and production.................................... 474.4 (373.5) (a) (100.9) (a) --
Corporate..................................................... 29.0 29.0
--------- -------
1,434.9 960.5
Less accumulated depreciation, depletion and amortization.. 496.6 (199.0) (a) (47.2) (a) 250.4
--------- -------
Net Property, Plant and Equipment.......................... 938.3 710.1
--------- -------
Other Assets...................................................... 150.5 (0.1) (a) (7.8) (a) 139.0
(2.0) (b) (1.6) (b)
--------- ------- ------- -------
Total Assets............................................ $ 1,557.3 (74.0) (53.2) 1,430.1
========= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities...................... $ 281.6 (11.7) (a) 2.1 (a) 310.3
37.1 (a) 2.6 (a)
(0.8) (b) (0.6) (b)
Current maturities of long-term debt and other
obligations .............................................. 24.5 (18.8) (b) 5.7
--------- -------
Total Current Liabilities............................... 306.1 316.0
--------- -------
Deferred Income Taxes............................................. 82.7 (22.3) (a) 8.4 (a) 68.8
--------- -------
Other Liabilities ................................................ 68.3 68.3
--------- -------
Long-Term Debt and Other Obligations, Less
Current Maturities........................................... 491.0 (78.6) (b) (81.2) (b) 331.2
--------- -------
Stockholders' Equity:
Preferred stock............................................... 165.0 165.0
Common stock.................................................. 5.4 5.4
Additional paid-in capital.................................... 279.1 279.1
Retained earnings............................................. 164.7 22.3 (a) 16.5 (a) 201.3
(1.2) (b) (1.0) (b)
Treasury stock................................................ (5.0) (5.0)
--------- -------
Total Stockholders' Equity................................. 609.2 645.8
--------- ------- ------- -------
Total Liabilities and Stockholders' Equity.............. $ 1,557.3 (74.0) (53.2) 1,430.1
========= ======= ======= =======
</TABLE>
<PAGE> 3
NOTES TO UNAUDITED PRO FORMA CONDENSED
BALANCE SHEET
SEPTEMBER 30, 1999
(a) The adjustment gives effect to the elimination of assets and liabilities
related to the Company's exploration and production operations in the U.S.
and Bolivia. It is assumed that the Company would have received cash
proceeds of approximately $215 million ($210.8 million after payment of
transaction costs) for the sale of its U.S. operations. The adjustment to
retained earnings represents an estimated gain from disposition of $37.1
million pretax ($22.3 million after deferred tax benefits of $22.3 million
and current income tax expense of $37.1 million), as if the U.S. sale had
occurred on September 30, 1999. For the disposition of the Company's
Bolivian operations, it is assumed that the Company would receive cash
proceeds of approximately $100 million ($94.5 million after payment of
transaction costs) and recognize a pretax gain, net of expenses, of
approximately $27.5 million ($16.5 million after deferred taxes of $8.4
million and current taxes of $2.6 million).
(b) The adjustment gives effect to the use of $97.4 million of the cash
proceeds from the U.S. sale to reduce the term loans outstanding under the
Senior Credit Facility ($18.8 million in current maturities and $78.6
million in long-term debt) and $81.2 million of cash proceeds from the
Bolivian sale to eliminate remaining bank debt outstanding at September 30,
1999. Prepaid financing costs are reduced by $3.6 million pretax ($2.2
million aftertax), reflecting write-downs of deferred costs related to debt
repayments. The remaining cash proceeds of approximately $127 million, on
a pro forma basis, are being held for general corporate purposes.
(c) The following are pro forma consolidated balance sheet data excluding the
effects of the Bolivia Transaction (in millions):
<TABLE>
<S> <C>
Current assets......................................... $ 571.1
Property, plant and equipment, net..................... $ 763.8
Total assets........................................... $ 1,483.3
Total long-term debt and other obligations............. $ 418.1
Stockholders' equity................................... $ 630.3
</TABLE>
<PAGE> 4
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Adjustments
-------------------
Historical U.S. Bolivia Pro Forma
--------- ------- ------- ---------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues:
Refining and marketing...................................... $ 1,268.0 -- -- 1,268.0
Marine services............................................. 118.6 -- -- 118.6
Exploration and production.................................. 82.0 (71.5) (a) (10.5) (a) --
Other income................................................ 21.7 (22.4) (a) 0.4 (a) (0.3)
--------- ------- ------- ---------
Total Revenues........................................... 1,490.3 (93.9) (10.1) 1,386.3
--------- ------- ------- ---------
Operating Costs and Expenses:
Refining and marketing...................................... 1,172.6 -- -- 1,172.6
Marine services............................................. 107.9 -- -- 107.9
Exploration and production.................................. 16.2 (12.1) (a) (4.1) (a) --
Depreciation, depletion and amortization.................... 66.0 (35.9) (a) (2.6) (a) 27.5
Write-downs of oil and gas properties....................... 68.3 (28.4) (a) (39.9) (a) --
--------- ------- ------- ---------
Total Operating Costs and Expenses....................... 1,431.0 (76.4) (46.6) 1,308.0
--------- ------- ------- ---------
Segment Operating Profit........................................ 59.3 (17.5) 36.5 78.3
General and Administrative...................................... (19.7) -- -- (19.7)
Interest and Financing Costs, Net of Capitalized Interest....... (33.0) 6.7 (a) 1.1 (a) (9.5)
9.0 (b) 6.7 (b)
Interest Income................................................. 2.0 -- -- 2.0
Other Expense (Including other operating costs)................. (24.1) 0.5 (a) 0.3 (a) (23.3)
--------- ------- ------- ---------
Earnings (Loss) Before Income Taxes and Extraordinary Item.... (15.5) (1.3) 44.6 27.8
Income Tax Provision (Benefit).................................. (0.5) (0.5) (c) 11.2 (c) 10.2
--------- ------- ------- ---------
Earnings (Loss) Before Extraordinary Item....................... (15.0) (0.8) 33.4 17.6
Preferred Dividends............................................. 6.0 -- -- 6.0
--------- ------- ------- ---------
Earnings (Loss) Before Extraordinary Item
Available for Common Shares................................. $ (21.0) (0.8) 33.4 11.6
========= ======= ======= =========
Weighted Average Common Shares - Basic.......................... 29.4 29.4
========= =========
Weighted Average Common Shares and Potentially
Dilutive Common Shares - Diluted............................ 29.4 29.9
========= =========
Earnings (Loss) Before Extraordinary Item:
Basic ...................................................... $ (0.71) 0.39
========= =========
Diluted..................................................... $ (0.71) 0.39
========= =========
</TABLE>
<PAGE> 5
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Adjustments
-------------------
Historical U.S. Bolivia Pro Forma
--------- ------- ------- ---------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues:
Refining and marketing...................................... $ 2,021.3 -- -- 2,021.3
Marine services............................................. 104.4 -- -- 104.4
Exploration and production.................................. 49.0 (43.5) (a) (5.5) (a) --
Other income................................................ 1.0 (0.2) (a) (0.6) (a) 0.2
--------- ------- ------- ---------
Total Revenues........................................... 2,175.7 (43.7) (6.1) 2,125.9
--------- ------- ------- ---------
Operating Costs and Expenses:
Refining and marketing...................................... 1,852.5 -- -- 1,852.5
Marine services............................................. 97.6 -- -- 97.6
Exploration and production.................................. 13.8 (10.4) (a) (3.4) (a) --
Depreciation, depletion and amortization.................... 50.7 (19.9) (a) (1.5) (a) 29.3
--------- ------- ------- ---------
Total Operating Costs and Expenses....................... 2,014.6 (30.3) (4.9) 1,979.4
--------- ------- ------- ---------
Segment Operating Profit........................................ 161.1 (13.4) (1.2) 146.5
General and Administrative...................................... (23.3) -- -- (23.3)
Interest and Financing Costs, Net of Capitalized Interest....... (36.5) 7.2 (a) 0.3 (a) (18.8)
4.6 (b) 5.6 (b)
Interest Income................................................. 0.7 -- -- 0.7
Other Expense (including other operating costs)................. (6.6) -- -- (6.6)
--------- ------- ------- ---------
Earnings Before Income Taxes.................................... 95.4 (1.6) 4.7 98.5
Income Tax Provision............................................ 37.3 (0.6) (c) (0.2) (c) 36.5
--------- ------- ------- ---------
Net Earnings.................................................... 58.1 (1.0) 4.9 62.0
Preferred Dividends............................................. 9.0 -- -- 9.0
--------- ------- ------- ---------
Earnings Available for Common Shares............................ $ 49.1 (1.0) 4.9 53.0
========= ======= ======= =========
Weighted Average Common Shares - Basic.......................... 32.4 32.4
========= =========
Weighted Average Common Shares and Potentially
Dilutive Common Shares - Diluted............................ 43.1 43.1
========= =========
Earnings Per Share:
Basic ...................................................... $ 1.52 1.64
========= =========
Diluted..................................................... $ 1.35 1.44
========= =========
</TABLE>
<PAGE> 6
NOTES TO UNAUDITED PRO FORMA CONDENSED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(a) The adjustment gives effect to the elimination of the results of operations
related to the Company's exploration and production operations in the U.S.
and Bolivia, as if such dispositions occurred as of January 1, 1998.
(b) The adjustment gives effect to the reduction of interest expense resulting
from the application of cash proceeds to repay debt.
(c) The income tax effects are computed using a combined federal and state rate
of 37% for both the year ended December 31, 1998 and the nine months ended
September 30, 1999. The disposition of Bolivian operations also eliminates
the Company's foreign income tax expense for the periods presented.
(d) Pro forma results are before estimated gains on the sale of the Company's
U.S. and Bolivian exploration and production operations. During the fourth
quarter of 1999, the Company expects to record a pretax gain of
approximately $30.7 million ($18.4 million aftertax) for the sale of the
U.S. operations. The Company expects to writedown deferred charges of
approximately $3.0 million pretax ($1.8 million aftertax) related to debt
repayments. The pretax gain on the sale of the Company's Bolivian
operations is estimated to be approximately $27 million ($16 million
aftertax). These amounts differ from those in Notes (a) and (b) of Notes
to Unaudited Pro Forma Condensed Balance Sheet as of September 30, 1999 to
reflect adjustments for estimated operations and capital expenditures in
the fourth quarter of 1999.
(e) The following are pro forma consolidated results of operations excluding
the effects of the Bolivia Transaction (in millions except per share
amounts):
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Revenues............................................... $ 1,396.4 $ 2,132.0
Operating costs and expenses........................... $ 1,354.6 $ 1,984.3
Earnings (loss) before income taxes.................... $ (16.8) $ 93.8
Income tax provision (benefit)......................... $ (1.0) $ 36.7
Earnings (loss) before extraordinary items:
Total............................................... $ (15.8) $ 57.1
Per share - basic................................... $ (0.74) $ 1.48
Per share - dilutive................................ $ (0.74) $ 1.32
</TABLE>
