<PAGE>
As filed with the Securities and Exchange Commission on December 24, 1996
File No. 333-_____
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
------------
TRANSMONTAIGNE OIL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 06-1052062
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Harold R. Logan, Jr.
TransMontaigne Oil Company
370 Seventeenth Street, Suite 2750 370 Seventeenth Street, Suite 2750
Denver, Colorado 80202 Denver, Colorado 80202
(303) 626-8200 (303) 626-8200
(Address, including zip code, (Address, including zip code, and telephone
and telephone number, including number, including area code, of agent for
area code, of registrant's service)
principal executive offices)
Copies to:
Nick Nimmo, Esq. Roger Meltzer, Esq.
Holme Roberts & Owen LLP Cahill Gordon & Reindel
1700 Lincoln, Ste. 4100 80 Pine Street
Denver, Colorado 80203 New York, NY 10005
(303) 861-7000 (212) 701-3000
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of the Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier registration statement for
the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered(1) Offering Price per Share(2) Aggregate Offering Price Registration Fee
<S> <C> <C> <C> <C>
Common Stock $14.125 $69,389,063(2) $21,027
=============================================================================================================================
</TABLE>
(1) Includes up to 562,500 shares of Common Stock issuable by the registrant
upon exercise of the underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933. The registration fee has been
calculated based upon the average of the high and low prices of TransMontaigne's
Common Stock as reported on the American Stock Exchange on December 20, 1996.
----------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY+
+OFFERS TO BUY BE ACCEPTED TO PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+ SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF +
+ANY SUCH STATE. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1996
4,350,000 SHARES
TRANSMONTAIGNE OIL COMPANY
COMMON STOCK
Of the 4,350,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby, 4,000,000 are being issued and sold by
TransMontaigne Oil Company, a Delaware corporation ("TransMontaigne") and
350,000 are being offered by the Selling Stockholders. See "Selling
Stockholders." TransMontaigne will not receive any of the proceeds from the
sale of shares by the Selling Stockholders.
Of the 4,000,000 shares of Common Stock offered by TransMontaigne, 600,000
shares are being offered directly by TransMontaigne to Merrill Lynch Growth Fund
for Investment and Retirement ("Merrill Lynch") pursuant to certain antidilution
rights. See "Description of Capital Stock." Shares offered to Merrill Lynch are
being offered at a price equal to the public offering price, net of underwriting
discounts and commissions. Merrill Lynch has indicated its intention to
purchase such shares. Upon consummation of the offering to Merrill Lynch,
TransMontaigne will receive proceeds of $ per share and $ in the
aggregate, which are not reflected in the table below.
The Common Stock is listed on the American Stock Exchange under the symbol
"TMG." On December 20, 1996, the last reported sales price of the Common Stock
on the American Stock Exchange was $14 per share. See "Price Range of Common
Stock and Dividend Policy."
For a discussion of certain risks of an investment in the shares of Common
Stock offered hereby, see "Risk Factors" on pages 9 - 11.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds to Proceeds to Selling
Price to Public Commissions* Company+ Stockholders
<S> <C> <C> <C> <C>
Per Share.... $ $ $ $
Total++...... $ $ $ $
</TABLE>
* TransMontaigne and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act of 1933. See "Underwriting."
+ Before deducting estimated expenses of the Offerings of $ , all of which
will be paid by TransMontaigne.
++ TransMontaigne has granted to the Underwriters a 30-day option to purchase up
to 562,500 additional shares of Common Stock on the same terms per share
solely to cover over-allotments, if any. If such option is exercised in full,
the total price to public will be $ ,the total underwriting discounts and
commissions will be $ and the total proceeds to TransMontaigne will be $ .
See "Underwriting."
----------------
The Common Stock being offered by the Underwriters is being offered as set
forth under "Underwriting" herein. It is expected that delivery of certificates
therefor and for the offering to Merrill Lynch will be made at the offices of
Dillon, Read & Co. Inc., New York, New York on or about , 1997
against payment therefor. The Underwriters include:
Dillon, Read & Co. Inc.
A.G. Edwards & Sons, Inc.
Petrie Parkman & Co.
The date of this Prospectus is , 1997
<PAGE>
[Map of the United States depicting the location of
TransMontaigne's facilities and the basins in which it operates.]
-2-
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus are (i) TransMontaigne's Annual
Report on Form 10-K for the fiscal year ended April 30, 1996, (ii)
TransMontaigne's Quarterly Reports on Form 10-Q for the quarters ended July 31,
1996 and October 31, 1996 and (iii) TransMontaigne's Current Reports on Form 8-K
filed with the Securities and Exchange Commission (the "Commission") June 6,
July 23 and December 11, 1996 pursuant to Section 13 of the Exchange Act. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
TransMontaigne will provide without charge to each person, including any
beneficial owner of Common Stock, to whom a copy of this Prospectus has been
delivered, on the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference in this Prospectus, other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to
Harold R. Logan, Jr., TransMontaigne Oil Company, 370 17th Street, Republic
Plaza, Suite 2750, Denver, Colorado 80202 (telephone: (303) 626-8200).
-3-
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and the Consolidated Financial
Statements (including the notes thereto) appearing elsewhere in this Prospectus
and other information incorporated herein by reference. Unless the context
otherwise requires, "TransMontaigne" refers to TransMontaigne Oil Company and
its subsidiaries. Unless otherwise indicated, the information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
The Company
Overview
TransMontaigne provides a broad range of integrated transportation,
terminaling, supply, distribution, gathering, processing and marketing services
to producers, refiners, distributors, marketers and end-users of petroleum
products, natural gas and crude oil in the downstream sector of the petroleum
industry. TransMontaigne is a holding company which conducts its operations
through its subsidiaries primarily in the mid-continent and Rocky Mountain
regions of the United States. TransMontaigne does not explore for, or produce,
crude oil or natural gas, and it owns no crude oil or natural gas reserves..
The principal predecessor of TransMontaigne was formed in 1977 under the name
of Continental Ozark Corporation. In April 1995, the present management and
certain of the institutional stockholders of TransMontaigne acquired control of
Continental Ozark Corporation through a merger in which the name of the
corporation was changed to TransMontaigne Oil Company. In June 1996,
TransMontaigne and a publicly held corporation merged, with the stockholders of
TransMontaigne acquiring approximately 93% of the stock of the publicly held
corporation. Since the present management of TransMontaigne assumed control in
April 1995, TransMontaigne has raised $55,000,000 in equity and has entered into
a Credit Agreement (the "Credit Agreement") providing for a $130,000,000 credit
facility (the "Credit Facility") with a money center bank. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
TransMontaigne owns and operates refined petroleum product, crude oil and
natural gas assets. TransMontaigne's refined petroleum product and crude oil
assets consist primarily of 747 miles of pipeline and ten storage and terminal
facilities in seven states with a combined tank storage capacity of
approximately 4,820,000 barrels. Its natural gas gathering and processing
assets consist of four gathering and processing systems in two states with
combined throughput capacity of approximately 85 million cubic feet per day and
over 2,700 miles of pipelines. The use of these facilities and an extensive
network of additional common carrier pipelines and terminal facilities owned by
others allows TransMontaigne to significantly expand its geographic service area
and the types of services it provides.
TransMontaigne believes that fundamental structural changes and the trend
toward outsourcing in the petroleum industry are creating opportunities for its
continued growth. Major oil companies and independents are undertaking
reorganization, rationalization and cost-saving measures in an effort to improve
operating and financial performance. In many instances this results in the
disposition of domestic non-strategic, non-core businesses and downstream assets
and facilities, and in the outsourcing of procurement, maintenance,
transportation, supply, distribution, gathering, processing, marketing and
administrative functions.
TransMontaigne believes that this disposition of downstream assets and
facilities provides opportunities for it to purchase pipeline, storage,
terminaling, processing and gathering assets, and to apply focused management
and more cost effective utilization of these facilities while providing value-
added service at competitive prices to its customers, often including the former
owners of the assets. TransMontaigne has acquired, designed and developed its
physical assets and its operating, risk management and information systems in
order to take advantage of these opportunities.
During the first fiscal year after assuming control of Continental Ozark
Corporation in April 1995, TransMontaigne increased net operating margins to
$12,700,000 from $5,800,000 for the prior fiscal year by improving the
performance of its facilities through selective capital improvements,
restructured operating and administrative functions and expanded marketing of
services. TransMontaigne's management has implemented an operating plan and
financial management systems which provide the foundation for its current
operations and future growth.
In December 1996 TransMontaigne acquired the Grasslands natural gas gathering,
processing, treating and fractionation system (the "Grasslands Facilities") for
approximately $71,000,000 in cash. The Grasslands system is one of the largest
natural gas facilities in the Williston Basin which is currently among the most
active areas of onshore domestic drilling activity. The acquisition of the
Grasslands Facilities represents for TransMontaigne the
-4-
<PAGE>
opportunity to enhance its earnings performance by capitalizing on the
industry's divestiture trend and applying its management expertise in the
downstream sector of the petroleum industry. The facilities will complement
TransMontaigne's existing natural gas gathering and processing facilities in the
Williston Basin of the Rocky Mountain region, and will enable TransMontaigne to
improve service to oil and gas producers as well as to end-users of natural gas
liquids ("NGLs") and natural gas. See "Selected Pro Forma Consolidated
Financial Data" and "Business--Natural Gas Gathering and Processing."
Operating Strategy
TransMontaigne intends to achieve its primary objective of growth in cash flow
and earnings by:
. Increasing throughput volumes and utilization of existing assets through
system improvements, competitive pricing, identification of and response
to market needs and quality service.
. Using advanced management information and financial systems to timely
supply petroleum products to market areas with the most favorable profit
margins and to effectively manage inventory levels and product costs.
. Expanding existing assets and identifying the need for and constructing
new facilities in order to satisfy market demand.
. Capitalizing on the industry's divestiture and outsourcing trends through
the acquisition of businesses and assets which offer potential for
continued improvement in operating results.
. Employing management's experience, business relationships and reputation
for directing the growth of companies providing services to the
downstream sector of the petroleum industry.
. Maintaining a balance sheet that allows financial flexibility providing
ready access to sources of capital required for expansion and growth.
The executive offices of TransMontaigne, a Delaware corporation, are
located at 370 17th Street, Republic Plaza, Suite 2750, Denver, CO 80202, and
its telephone number is (303) 626-8200.
The Offerings
<TABLE>
<S> <C>
Common Stock offered by TransMontaigne.... 4,000,000 shares(1)
Common Stock offered by the Selling
Stockholders............................. 350,000 shares
--------------
Total..................................... 4,350,000 shares
================
Common Stock to be Outstanding After the
Offerings................................ 24,963,107 shares(2)
Use of Proceeds........................... To repay $45,000,000 of bank debt
incurred to finance the
Grasslands Facilities with the
balance to be used for general
corporate purposes.
TransMontaigne will not receive
any of the proceeds from the sale
of shares by the Selling
Stockholders. See "Use of
Proceeds."
American Stock Exchange Symbol............ TMG
</TABLE>
----------------
(1) Includes 600,000 shares of Common Stock offered by TransMontaigne directly
to Merrill Lynch (the "Concurrent Offering" and together with the underwritten
offering made hereby (the "Underwritten Offering"), the "Offerings").
(2) Does not include 1,243,686 shares (as of October 31, 1996) of Common Stock
issuable upon exercise of currently outstanding options and warrants.
-5-
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary historical financial data of TransMontaigne set forth below for the
years ended April 30, 1996 and 1995 have been derived from the audited
consolidated financial statements of TransMontaigne. The summary historical
financial data of TransMontaigne set forth below for the six months ended
October 31, 1996 and 1995 have been derived from unaudited consolidated
financial statements of TransMontaigne. The interim consolidated financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of TransMontaigne's management, necessary
to a fair presentation of the financial position and results of operations for
the interim periods presented. This historical data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the consolidated financial statements and notes
thereto of TransMontaigne incorporated by reference or included herein.
<TABLE>
<CAPTION>
Six months ended October 31 Years ended April 30
------------------------------ ------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $470,822,944 $242,015,171 $533,106,747 $324,591,409
Costs and expenses:
Product costs and direct operating expenses 462,096,897 235,772,166 520,389,482 318,811,953
General and administrative 3,158,305 2,256,778 4,998,771 4,226,123
Depreciation and amortization 955,028 560,348 1,169,541 1,147,291
------------ ------------ ------------ ------------
466,210,230 238,589,292 526,557,794 324,185,367
------------ ------------ ------------ ------------
Operating income 4,612,714 3,425,879 6,548,953 406,042
Other income (expenses):
Interest income 893,051 258,693 520,900 -
Equity in earning of affiliates, net of
minority interests 274,102 261,084 604,963 294,653
Interest expense and other financing costs (1,370,280) (1,403,938) (2,864,100) (3,512,050)
Other, net 340,076 - - (286,735)
------------ ------------ ------------ ------------
136,949 (884,161) (1,738,237) (3,504,132)
------------ ------------ ------------ ------------
Earnings (losses) before income taxes 4,749,663 2,541,718 4,810,716 (3,098,090)
Income taxes - current (270,000) (73,002) (192,747) (119,545)
------------ ------------ ------------ ------------
Net earnings (loss) $ 4,479,663 $ 2,468,716 $ 4,617,969 $ (3,217,635)
============ ============ ============ ============
Weighted average common shares outstanding 21,290,302 14,902,347 15,129,637 2,860,390
============ ============ ============ ============
Earnings (loss) per common share $0.21 $0.17 $0.31 $(1.32)
============ ============ ============ ============
Statement of Cash Flows Data:
Net cash provided by (used in):
Operating activities $(10,382,647) $ (8,654,468) $ (3,919,753) $ (236,580)
Investing activities (4,043,784) (1,716,770) (4,181,377) (233,562)
Financing activities 9,024,701 18,959,234 44,702,536 61,543
Other Financial Data:
Capital expenditures $ 5,837,277 $ 1,522,392 $ 4,124,264 $ 747,774
EBITDA (1) 7,074,971 4,506,004 8,844,357 1,561,251
Operating Data:
Volumes (2) (in thousands):
Pipeline operations 9,765 10,044 18,902 13,721
Terminal operations 352,000 285,000 587,000 547,000
Products supply and distributions operations 746,000 445,000 958,000 620,000
Net operating margins (3):
Pipeline operations $ 3,380,000 $ 2,041,000 $ 4,454,000 $ 2,678,000
Terminal operations 1,748,000 1,209,000 2,434,000 2,340,000
Products supply and distributions operations 3,598,000 2,993,000 5,829,000 761,000
October 31,
1996
----
Balance Sheet Data:
Working capital $ 67,221,310
Total assets 161,052,487
Long-term debt, excluding current maturities 37,684,067
Stockholders' equity 71,671,884
</TABLE>
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<PAGE>
(1) EBITDA is earnings (loss) before income taxes plus interest expense and
other financing costs and depreciation and amortization. TransMontaigne
believes that, in addition to cash flow from operations and net earnings
(loss), EBITDA is a useful financial performance measurement for assessing
operating performance as it provides investors with an additional basis to
evaluate the ability of TransMontaigne to incur and service debt and to
fund capital expenditures. In evaluating EBITDA, TransMontaigne believes
that investors should consider, among other things, the amount by which
EBITDA exceeds interest costs for the period, how EBITDA compares to
principal repayments on debt for the period and how EBITDA compares to
capital expenditures for the period. To evaluate EBITDA, the components of
EBITDA such as revenue and operating expenses and the variability of such
components over time, should also be considered. Investors should be
cautioned, however, that EBITDA should not be construed as an alternative
to operating income (loss) (as determined in accordance with generally
accepted accounting principles ("GAAP"), as an indicator of
TransMontaigne's operating performance or to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of
liquidity. See TransMontaigne's consolidated financial statements
incorporated by reference and included herein. TransMontaigne's method of
calculating EBITDA may differ from methods used by other companies, and as
a result, EBITDA measures disclosed herein may not be comparable to other
similarly titled measures used by other companies.
(2) Pipeline volumes are expressed in barrels (42 gallons per barrel), and
terminal and products supply and distribution volumes are expressed in
gallons.
(3) Net operating margin represents revenues less direct operating expenses for
pipeline and terminal operations, and revenues less cost of refined
petroleum products purchased for products supply and distribution
operations.
-7-
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
In December 1996, TransMontaigne acquired the Grasslands Facilities for
approximately $71,000,000 in cash. The acquisition will be accounted for as a
purchase.
The summary pro forma consolidated financial data has been derived from the pro
forma consolidated financial statements appearing elsewhere herein and should be
read in conjunction with those statements and the notes thereto. This pro forma
data is not necessarily indicative of the results to be expected after the
acquisition of the Grasslands Facilities. The unaudited pro forma consolidated
balance sheet at October 31, 1996 gives effect to the acquisition as if it had
occurred at that date. The unaudited pro forma consolidated statements of
operations data for the six months ended October 31, 1996 and the year ended
April 30, 1996 give effect to the acquisition as if it had occurred on May 1,
1995.
<TABLE>
<CAPTION>
Six months Year ended
ended October 31, April 30,
1996 1996
---- ----
<S> <C> <C>
Pro Forma Statement of
Operations Data:
Revenue $ 494,471,136 $ 578,573,825
Costs and expenses:
Product costs and direct
operating expenses 479,455,680 555,589,509
General and administrative 3,428,305 5,538,771
Depreciation and amortization 2,680,028 4,669,541
------------ ------------
485,589,013 565,797,821
------------ ------------
Operating income 8,882,123 12,826,004
Other income (expense):
Interest income 893,051 520,900
Equity in earnings of
affiliates, net 274,102 604,963
Interest expense and other
financial costs (4,170,028) (8,464,100)
Other, net 340,076 --
------------ ------------
(2,663,051) (7,338,237)
------------ ------------
Earnings before income taxes 6,179,072 5,357,767
Income taxes - current (270,000) (192,747)
------------ ------------
Net earnings $ 5,909,072 $ 5,165,020
============ ============
Earnings per common share $ 0.28 $ 0.34
==== ====
October 31, 1996
----------------
Pro forma
Pro forma as adjusted (1)
----------------- --------------
Pro Forma Balance Sheet Data:
Working capital $ 67,221,310
Total assets 232,052,487
Long-term debt, excluding current
maturities 108,684,067
Stockholders' equity 71,671,884
</TABLE>
(1) As adjusted to give effect to the sale of the 4,000,000 shares of Common
Stock offered hereby by TransMontaigne and the application of the net
proceeds therefrom. See "Use of Proceeds" and "Capitalization".
-8-
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. TransMontaigne's actual results could differ
materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed in "Prospectus Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business,"
as well as those discussed elsewhere in this Prospectus. Statements contained
in this Prospectus that are not historical facts are forward-looking
statements that are subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995.
RISK FACTORS
In evaluating an investment in the Common Stock being offered hereby,
prospective investors should consider carefully, among other things, the
following risk factors.
Losses in Prior Years
Prior to present management's acquisition of control of TransMontaigne in
April 1995, TransMontaigne incurred net losses for several years, primarily
due to the underutilization of its facilities; realization of small or
negative margins from bulk product sales and wholesale marketing activities;
and a lack of adequate equity capital. This underutilization was primarily
the result of TransMontaigne's inability to finance capital improvements and
the inventory required to more fully utilize these facilities. The small or
negative margins from bulk product sales and wholesale marketing activities
were primarily the result of volatile market prices of refined petroleum
products and ineffective inventory management. Volatile market prices of
refined petroleum products during these periods frequently resulted in sales
of products at prices lower than cost and caused losses from inventory write-
downs. Although TransMontaigne has recorded net earnings since April 1995,
there can be no assurance that such earnings will continue. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Sales Volume Volatility
Because TransMontaigne generates small net margins from product sales, it
is dependent on high sales volumes. The volumes of TransMontaigne's sales can
be impacted by the prices of refined products, NGLs and natural gas, which are
subject to significant fluctuation depending upon numerous factors beyond
TransMontaigne's control, including the supply of and demand for gasoline and
other refined products, NGLs and natural gas, which are affected by, among
other things, changes in domestic and foreign economies, political affairs,
production levels, industry-wide inventory levels, the availability of
imports, the marketing of gasoline and other refined products by competitors,
the marketing of competitive fuels, the impact of energy conservation efforts
and the extent of government regulation. Sales volumes are also affected by
regional factors, such as local market conditions, the availability of
transportation systems with adequate capacity, transportation costs,
fluctuating and seasonal demands for products, variations in weather patterns
from year to year and the operations of companies providing competing
services. See "Business--Product Services."
Competition
TransMontaigne competes with other petroleum companies, national, regional
and local pipeline and terminaling companies and other product suppliers and
exchangers, as well as national, regional and local natural gas gathering,
processing and marketing companies, of which many have more extensive
facilities, control substantially greater supplies of product and have
significantly greater financial resources than TransMontaigne.
Price and Credit Risks
While TransMontaigne attempts to reduce its exposure to the risk of price
volatility of oil and gas products by selectively hedging a limited portion of
its inventory through the purchase and sale of futures and options contracts,
some risks cannot be effectively hedged, including price risks on products for
which futures contracts are not regularly traded, such as mid-continent
conventional gasoline (as opposed to New York Harbor reformulated unleaded
gasoline, which is regularly traded) and basis risks (the risk that price
differentials between delivery points, delivery periods or types of products
will change). TransMontaigne experiences basis risk in its mid-continent
operations because of the differences between mid-continent spot refined
product prices and futures contract prices on the New York Mercantile Exchange
(the "NYMEX"). TransMontaigne is also exposed to credit risks in the event
the other party to a futures contract or bulk sale is unable to perform its
contractual obligations or a wholesale customer is unable to pay for products
purchased. TransMontaigne generally does not hedge the price risk on certain
portions of its inventory, consisting of pipeline fill, tank bottoms and a
minimum product supply required to satisfy exchange obligations.
TransMontaigne could be required to recognize a financial
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<PAGE>
statement loss on a portion of its inventory arising from market price
fluctuations in order to reflect lower of cost or market adjustments, although
such losses would have no impact on cash flow as long as TransMontaigne
continues to operate its facilities. See "Business--Product Services."
Dependence on Petroleum Supplies
A material decline in crude oil and refined products supplies could
adversely affect TransMontaigne's tariff revenues from pipeline shipments of
refined petroleum products, terminaling and storage fees and margins from bulk
and truck loading rack product sales. TransMontaigne must continually connect
new wells to its natural gas gathering systems in order to maintain or
increase throughput levels to offset natural declines in dedicated volumes.
The future level of drilling will depend upon, among other factors, the prices
for crude oil and natural gas, the energy policy of the federal government and
the availability of foreign supplies, none of which are within
TransMontaigne's control. There is no assurance that TransMontaigne will
continue to be successful in replacing the supply of dedicated natural gas
reserves gathered and processed by its facilities.
Acquisition and Expansion Opportunities; Availability of Financing
In order for TransMontaigne to expand its business through the selective
purchase or construction of new or expanded facilities, TransMontaigne is
required to identify those opportunities and to finance such activities using
a combination of cash flow and equity and debt financing. Any additional
equity financing could be dilutive to TransMontaigne's earnings and book value
per share, and any debt financing could significantly increase
TransMontaigne's interest expense and involve restrictive covenants. No
assurance can be given that TransMontaigne will identify appropriate
opportunities for expansion at levels of profitability which will satisfy its
target rates of return; that financing on terms acceptable to TransMontaigne
can be obtained; that TransMontaigne will be successful in negotiating
satisfactory terms of acquisition; that TransMontaigne will be successful in
integrating acquired businesses into its organization; or that such
acquisitions will improve operating results. Oil and gas price volatility may
make it difficult to estimate the value and agree on the purchase price and
terms of acquisitions as well as to forecast the return on investment in
TransMontaigne projects.
Operational Hazards and Uninsured Risks
TransMontaigne's operations are subject to customary hazards and
unforeseen interruptions, including leaks, spills, fires and injury to
personnel. Operations also could be interrupted by natural disasters, adverse
weather or other events beyond TransMontaigne's control. Furthermore,
TransMontaigne transports, gathers and processes volatile and toxic petroleum
products such as gasoline, diesel oil, jet fuel and NGLs and natural gas in
certain areas of dense population. TransMontaigne carries insurance for some,
but not all, accidents and disruptions, and there can be no assurance that
such coverage, if any, will be adequate to cover all losses. Consistent with
insurance coverage typically available to the petroleum industry,
TransMontaigne's insurance policies do not provide coverage for losses or
liabilities relating to pollution, except for sudden and accidental
occurrences.
Environmental, Safety and Other Regulatory Matters
The operations of TransMontaigne are subject to the jurisdiction of local,
state and federal governmental agencies with respect to environmental, safety
and other regulatory matters. TransMontaigne could be adversely affected by
environmental costs and liabilities which may be incurred. Risks of
substantial environmental costs and liabilities are inherent in pipeline,
terminaling, storage, gathering, treating and processing operations, and there
can be no assurance that substantial environmental costs and liabilities will
not be incurred. TransMontaigne currently owns and operates, and has in the
past owned and operated, properties which have been used for transporting,
terminaling, storing and processing of petroleum products and gathering,
transportation and processing of natural gas. Hydrocarbons or other
pollutants or wastes may have been previously disposed of or released on or
under some of these properties. Moreover, it is possible that other
developments, such as increasingly strict environmental laws, regulations and
enforcement policies thereunder, could result in substantial costs and
liabilities. See "Business-Environmental Regulation."
Federal and state agencies also could require TransMontaigne to alter its
pipeline tariffs or impose additional safety requirements, either of which
could affect profitability. TransMontaigne cannot predict how future
regulation of interstate and intrastate petroleum product pipelines may change
and there can be no assurance that any such future regulation will not have a
material adverse effect on TransMontaigne. See "Business-Tariff Regulation."
Concentrated Ownership
-10-
<PAGE>
Upon consummation of the Offerings, the officers and directors of
TransMontaigne and the institutional affiliates of certain directors will
control approximately 61.5% of the outstanding Common Stock. As a result,
they will be able to control TransMontaigne. See "Security Ownership of
Certain Beneficial Owners and Management."
Limited Trading Market
Because there is a small public float in the Common Stock and it is thinly
traded, sales of small amounts of Common Stock in the public market could
adversely affect the market price for the Common Stock. See "Security
Ownership of Certain Beneficial Owners and Management." Sales of Common
Stock, or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock and may make it more difficult
for TransMontaigne to sell shares of Common Stock in the future at times and
for prices that it deems appropriate. Upon completion of the Offerings,
TransMontaigne will have 24,963,107 shares of Common Stock outstanding
(assuming no exercise of the Underwriters' over-allotment option and no
exercise of outstanding stock options). The shares of Common Stock offered
hereby will be freely tradeable without restriction under the Securities Act
of 1933, as amended (the "Securities Act"). Approximately 16,728,920 shares
of outstanding Common Stock may not be resold unless they are registered under
the Securities Act or sold pursuant to an applicable exemption from
registration, including Rule 144 under the Securities Act. All of such
16,728,920 outstanding shares are subject to "lock-up" agreements with the
Underwriters expiring 180 days after the date of this Prospectus and may be
sold during that period only with the prior written consent of Dillon, Read &
Co. Inc. Dillon, Read & Co. Inc., in its sole discretion, and at any time
without prior notice, may release all or any portion of the Common Stock
subject to the lock-up agreements described herein. When such lock-up
restrictions lapse, the Common Stock may be sold in the public market or
otherwise disposed of in compliance with the Securities Act.
-11-
<PAGE>
USE OF PROCEEDS
The net proceeds to TransMontaigne from the sale of the shares of Common
Stock being offered hereby (based on an assumed public offering price of
$__.00 per share) are estimated to be approximately $____________ ($__________
if the Underwriters' over-allotment option is exercised in full) after
deducting underwriting discounts and commissions and estimated offering
expenses, of which $45,000,000 will be used to repay a portion of the debt
incurred under the Credit Facility and any balance will be used for general
corporate purposes.
The Credit Facility consists of a five year $45,000,000 working capital
revolving credit facility and an $85,000,000 acquisition revolving credit
facility. The acquisition revolving credit facility was used to finance the
acquisition of the Grasslands Facilities. On December 31, 1999, the
acquisition revolving credit facility will convert to a term loan and 5% of
the amount outstanding on December 31, 1999 will be due each quarter beginning
March 31, 2000, with the balance due December 31, 2001. The first $45,000,000
of proceeds of any public or private debt or equity issuance (including the
Offerings) are required to be applied to the repayment of the amounts
outstanding under the acquisition revolving credit facility. After repayment
of $45,000,000 of the acquisition revolving credit facility, and if
TransMontaigne then has consolidated tangible net worth (as defined in the
Credit Agreement) of $100,000,000, the balance of the Credit Facility will
convert into a single $85,000,000 successor facility (the "Successor
Facility") due December 31, 2001. The amount available under the Successor
Facility will be reduced by $3,125,000 each quarter beginning March 31, 2000.
Borrowings under the Credit Facility generally bear interest at a rate per
year equal to the lender's announced Base Rate, subject to a Eurodollar
pricing option at TransMontaigne's election. The interest rate on amounts
outstanding under the acquisition revolving credit facility under the Credit
Facility as of December 23, 1996 was 7.25%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources."
TransMontaigne will not receive any of the proceeds from the sale of
shares of Common Stock being sold by the Selling Stockholders.
-12-
<PAGE>
PRICE RANGE OF COMMON STOCK
AND DIVIDEND POLICY
The Common Stock is traded on the American Stock Exchange under the symbol
"TMG." The following table sets forth, for the periods indicated, the range
of high and low per share sale prices for Common Stock as reported on the
American Stock Exchange, adjusted for a 2.432599 to 1 reverse stock split that
occurred in June 1996. The common stock of a much smaller predecessor of
TransMontaigne was traded on the American Stock Exchange (Emerging Company
Marketplace) from December 14, 1993 until June 3, 1996. On June 5, 1996,
following the merger of TransMontaigne and the predecessor, the Common Stock
began to trade on the American Stock Exchange (Primary List).
<TABLE>
<CAPTION>
Low High
--- ----
<S> <C> <C>
1995
----
First Calendar Quarter $2.89 $3.50
Second Calendar Quarter $3.04 $3.97
Third Calendar Quarter $3.65 $3.97
Fourth Calendar Quarter $3.36 $4.40
1996
----
First Calendar Quarter $3.04 $10.80
Second Calendar Quarter (through June 3, 1996) $10.03 $17.94
June 5, 1996 through July 31, 1996(1) $9.75 $15.13
August 1, 1996 through October 31, 1996 $9.69 $10.88
November 1, 1996 through December 20, 1996 $9.81 $14.25
------ ------
</TABLE>
- ----------------------
(1) In June 1996, TransMontaigne adopted a fiscal year end of April 30.
On December 20, 1996, the last reported sale price for the Common Stock on
the American Stock Exchange was $14. As of December 20, 1996, there were
approximately 233 stockholders of record of the Common Stock.
No dividends were declared or paid on the Common Stock during the periods
reported in the table above. TransMontaigne intends to retain future cash flow
for use in its business and has no current intention of paying dividends in
the foreseeable future. Any payment of future dividends and the amounts
thereof will depend upon TransMontaigne's earnings, financial condition,
capital requirements and other factors deemed relevant by TransMontaigne's
Board of Directors. TransMontaigne's Credit Facility, as well as instruments
governing certain of its other indebtedness, contain certain restrictions on
the payment of dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
-13-
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of TransMontaigne at
October 31,1996, (ii) the pro forma capitalization of TransMontaigne giving
effect to borrowings of approximately $71,000,000 under the Credit Facility to
fund the purchase price for the Grasslands Facilities and (iii) the pro forma
capitalization of TransMontaigne adjusted to give effect to the shares offered
hereby by TransMontaigne (assuming a public offering price of $ per
share), including shares offered in the Concurrent Offering, and the
application of estimated net proceeds therefrom. See "Use of Proceeds." This
table should be read in conjunction with the consolidated financial statements
and notes thereto incorporated by reference and included herein.
<TABLE>
<CAPTION>
At October 31, 1996
-------------------------------------------------
Actual Pro Forma Pro Forma
------ --------- As Adjusted
-----------
<S> <C> <C> <C>
Long-term debt:
Credit facility $ 33,730,000 $104,730,000 $59,730,000
Senior subordinated debentures 3,954,067 3,954,067 3,954,067
------------ ------------ ------------
Total long-term debt 37,684,067 108,684,067 63,684,067
------------ ------------ ------------
Stockholders' equity:
Common Stock, par value $.01 per share;
40,000,000 shares authorized;
20,982,960 shares issued actual
and pro forma;
24,732,960 shares issued pro
forma as adjusted (1) 209,830 209,830
Additional paid-in capital 72,283,793 72,283,794
Accumulated deficit (821,739) (821,739) (821,739)
------------ ------------ ------------
Total stockholders' equity 71,671,884 71,671,884
------------ ------------ ------------
Total capitalization $109,355,951 $180,355,951 $
============ ============ ============
</TABLE>
- -----------------------
(1) Does not include 1,243,686 shares of Common Stock issuable upon exercise
of outstanding stock options and stock purchase warrants.
-14-
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected historical financial data of TransMontaigne set forth below for the
years ended April 30, 1996 and 1995, the seven months ended April 30, 1994 and
the years ended September 30, 1993, 1992 and 1991 have been derived from the
audited consolidated financial statements of TransMontaigne. The selected
historical financial data for TransMontaigne set forth below for the six months
ended October 31, 1996 and 1995 have been derived from unaudited consolidated
financial statements of TransMontaigne. The interim consolidated financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of TransMontaigne's management, necessary
to a fair presentation of the financial position and results of operations for
the interim periods presented. This historical data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the consolidated financial statements and notes
thereto of TransMontaigne incorporated by reference or included herein.
<TABLE>
<CAPTION>
Six months ended October 31 Years ended April 30
--------------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of
Operations Data:
Revenue $ 470,822,944 $ 242,015,171 $ 533,106,747 $ 324,591,409
Costs and expenses:
Product costs and direct
operating expenses 462,096,897 235,772,166 520,389,482 318,811,953
General and administrative 3,158,305 2,256,778 4,998,771 4,226,123
Depreciation and
amortization 955,028 560,348 1,169,541 1,147,291
----------- ----------- ----------- -----------
466,210,230 238,589,292 526,557,794 324,185,367
----------- ----------- ----------- -----------
Operating income (loss) 4,612,714 3,425,879 6,548,953 406,042
Other income (expenses):
Interest income 893,051 258,693 520,900 -
Equity in earnings
(losses) of affiliates,
net of minority
interests 274,102 261,084 604,963 294,653
Interest expense and
other financing costs (1,370,280) (1,403,938) (2,864,100) (3,512,050)
Other 340,076 - - (286,735)
----------- ----------- ----------- -----------
136,949 (884,161) (1,738,237) (3,504,132)
Earnings (loss) before
income taxes 4,749,663 2,541,718 4,810,716 (3,098,090)
Income taxes - current (270,000) (73,002) (192,747) (119,545)
----------- ----------- ----------- -----------
Net earnings (loss) $ 4,479,663 $ 2,468,716 $ 4,617,969 $ (3,217,635)
=========== =========== =========== ===========
Weighted average
common shares oustanding 21,290,320 14,902,347 15,129,637 2,860,390
=========== =========== =========== ===========
Earnings (loss) per
common share $ 0.21 $ 0.17 $ 0.31 (1.32)
==== ==== ==== ====
Statement of Cash
Flows Data:
Net cash provided
by (used in):
Operating activities $ (10,382,647) $ (8,654,468) $ (3,919,753) $ (236,580)
Investing activities (4,043,784) (1,716,770) (4,181,377) (233,562)
Financing activities 9,024,701 18,959,234 44,702,536 61,543
Other Financial Data:
Capital expenditures $ 5,837,277 $ 1,522,392 $ 4,124,264 $ 747,774
EBITDA (1) 7,074,971 4,506,004 8,844,357 1,561,251
Operating Data:
Volumes (2)(in thousands):
Pipeline operations 9,765 10,044 18,902 13,721
Terminal operations 352,000 285,000 587,000 547,000
Products supply and
distributions operations 746,000 445,000 958,000 620,000
Net operating margins (3):
Pipeline operations $ 3,380,000 $ 2,041,000 $ 4,454,000 $ 2,678,000
Terminal operations 1,748,000 1,209,000 2,434,000 2,340,000
Products supply and
distributions operations 3,598,000 2,993,000 5,829,000 761,000
<CAPTION>
Seven months Years ended September 30
ended April 30, ------------------------
1994 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of
Operations Data:
Revenue $ 296,086,981 $ 507,936,810 $ 515,547,695 $ 417,834,881
Costs and expenses:
Product costs and direct
operating expenses 294,773,790 505,348,576 513,875,940 417,423,279
General and administrative 2,156,817 3,199,223 2,787,591 3,031,269
Depreciation and
amortization 665,955 1,099,253 814,778 748,438
----------- ----------- ----------- -----------
297,596,562 509,647,052 517,478,309 421,202,986
----------- ----------- ----------- -----------
Operating income (loss) (1,509,581) (1,710,242) (1,930,614) (3,368,105)
Other income (expenses):
Interest income - - - -
Equity in earnings
(losses) of affiliates,
net of minority
interests 479,470 (58,709) 156,559 521,075
Interest expense and
other financing costs (1,752,941) (2,673,375) (2,350,740) (2,076,131)
Other - - - -
----------- ----------- ----------- -----------
(1,273,471)) (2,732,084) (2,194,181) (1,555,056)
Earnings (loss) before
income taxes (2,783,052) (4,442,326) (4,124,795) (4,923,161)
Income taxes - current (70,557) (48,142) (76,127) 773,000
----------- ----------- ----------- -----------
Net earnings (loss) $ (2,853,609) $ (4,490,468) $ (4,200,992) $ (4,150,161)
=========== =========== =========== ===========
Weighted average
common shares oustanding 2,649,830 2,649,830 2,694,830 2,649,830
=========== =========== =========== ===========
Earnings (loss) per
common share $ (1.15) $ (1.85) $ (1.73) $ (1.62)
=========== =========== =========== ===========
Statement of Cash
Flows Data:
Net cash provided
by (used in):
Operating activities $ (2,187,251) $ 5,004,187 $ (8,153,054) $ (12,051,430)
Investing activities (1,041,069) (4,614,892) (2,327,191) (1,062,093)
Financing activities 3,691,885 (1,315,700) (9,581,869) 14,701,613
Other Financial Data:
Capital expenditures $ 461,888 $ 4,730,726 $ 2,247,052 $ 350,421
EBITDA (1) (364,156) (669,698) (959,277) (2,098,592)
Operating Data:
Volumes (2)(in thousands):
Pipeline operations 8,654 12,245 2,878 1,444
Terminal operations 321,100 433,200 326,900 352,400
Products supply and
distributions operations 645,000 941,000 920,000 622,000
Net operating margins (3):
Pipeline operations $ 2,096,000 $ 2,848,000 $ 1,034,000 $ 391,000
Terminal operations 1,119,000 1,817,000 1,121,000 722,000
Products supply and
distributions operations (1,902,000) (2,077,000) (483,000) (701,000)
</TABLE>
<TABLE>
<CAPTION>
April 30
October 31, ----------------------------------
1996 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 67,221,310 $ 55,651,839 $ 37,989,205 $ 11,554,715
Total assets 161,052,487 120,962,976 104,220,346 75,470,266
Long-term debt, excluding 37,684,067 28,948,867 36,945,610 37,671,329
current maturities
Stockholders' equity 71,671,884 57,819,191 28,470,702 2,480,835
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
September 30
----------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Balance Sheet Data:
Working capital $ 11,470,225 $ 20,685,446 $ 16,601,819
Total assets 86,334,703 76,336,971 69,240,513
Long-term debt, excluding 33,953,590 35,256,698 25,476,695
current maturities
Stockholders' equity 5,334,500 9,825,060 14,026,063
</TABLE>
(1) EBITDA is earnings (loss) before income taxes plus interest expense and
other financing costs and depreciation and amortization. TransMontaigne
believes that, in addition to cash flow from operations and net earnings
(loss), EBITDA is a useful financial performance measurement for assessing
operating performance as it provides investors with an additional basis to
evaluate the ability of TransMontaigne to incur and service debt and to
fund capital expenditures. In evaluating EBITDA, TransMontaigne believes
that investors should consider, among other things, the amount by which
EBITDA exceeds interest costs for the period, how EBITDA compares to
principal repayments on debt for the period and how EBITDA compares to
capital expenditures for the period. To evaluate EBITDA, the components of
EBITDA such as revenue and operating expenses and the variability of such
components over time, should also be considered. Investors should be
cautioned, however, that EBITDA should not be construed as an alternative
to operating income (loss) (as determined in accordance with GAAP) as an
indicator of TransMontaigne's operating performance or to cash flows from
operating activities (as determined in accordance with GAAP) as a measure
of liquidity. See TransMontaigne's consolidated financial statements
incorporated by reference or included herein. TransMontaigne's method of
calculating EBITDA may differ from methods used by other companies, and as
a result, EBITDA measures disclosed herein may not be comparable to other
similarly titled measures used by other companies.
(2) Pipeline volumes are expressed in barrels (42 gallons per barrel), and
terminal and products supply and distribution volumes are expressed in
gallons.
(3) Net operating margin represents revenues less direct operating expenses for
pipeline and terminal operations, and revenues less cost of refined
petroleum products purchased for products supply and distribution
operations.
-16-
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
In December 1996, TransMontaigne acquired the Grasslands Facilities for
approximately $71,000,000 in cash. The acquisition will be accounted for as a
purchase.
The selected pro forma consolidated financial data has been derived from the pro
forma consolidated financial statements appearing elsewhere herein and should be
read in conjunction with those statements and the notes thereto. This pro forma
data is not necessarily indicative of the results to be expected after the
acquisition of the Grasslands Facilities. The unaudited pro forma consolidated
balance sheet at October 31, 1996 gives effect to the acquisition as if it had
occurred at that date. The unaudited pro forma consolidated statements of
operations data for the six months ended October 31, 1996 and the year ended
April 30, 1996 give effect to the acquisition as if it had occurred on May 1,
1995.
<TABLE>
<CAPTION>
Six months Year ended
ended October 31, April 30,
1996 1996
---- ----
<S> <C> <C>
Pro Forma Statement of
Operations Data:
Revenue $ 494,471,136 $ 578,573,825
Costs and expenses:
Product costs and direct operating expenses 479,455,680 555,589,509
General and administrative 3,428,305 5,538,771
Depreciation and amortization 2,705,028 4,669,541
------------- -------------
485,564,013 565,747,821
------------- -------------
Operating income 8,882,123 12,826,004
Other income (expense):
Interest income 893,051 520,900
Equity in earnings of affiliates, net 274,102 604,963
Interest expense and other financial costs (4,170,028) (8,464,100)
Other, net 340,076 --
------------- -------------
(2,663,051) (7,338,237)
------------- -------------
Earnings before income taxes 6,179,072 5,357,767
Income taxes - current (270,000) (192,747)
------------- -------------
Net earnings $ 5,909,072 $ 5,165,020
============= =============
Earnings per common share $ 0.28 $ 0.34
===== =====
<CAPTION>
October 31, 1996
-----------------
Pro forma
Pro forma as adjusted (1)
------------- -------------
<S> <C> <C>
Pro Forma Balance Sheet Data:
Working capital $ 67,221,310
Total assets 232,052,487
Long-term debt, excluding current maturities 108,684,067
Stockholders' equity 71,671,884
</TABLE>
(1) As adjusted to give effect to the sale of the 4,000,000 shares of Common
Stock offered hereby by TransMontaigne and the application of the net
proceeds therefrom. See "Use of Proceeds" and "Capitalization".
-17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
TransMontaigne provides a broad range of integrated transportation,
terminaling, supply, distribution, gathering, processing and marketing
services to producers, refiners, distributors, marketers and end-users of
petroleum products, natural gas and crude oil in the downstream sector of the
petroleum industry. TransMontaigne is a holding company which conducts its
operations through its subsidiaries primarily in the mid-continent and Rocky
Mountain regions of the United States. TransMontaigne does not explore for,
or produce, crude oil or natural gas, and it owns no crude oil or natural gas
reserves.
The principal predecessor of TransMontaigne was formed in 1977 under the
name of Continental Ozark Corporation. In April 1995, the present management
and certain of the institutional stockholders of TransMontaigne assumed
control of Continental Ozark Corporation through a merger in which the name of
the corporation was changed to TransMontaigne Oil Company. In June 1996,
TransMontaigne and a publicly held corporation merged, with the stockholders
of TransMontaigne acquiring approximately 93% of the stock of the publicly
held corporation.
TransMontaigne owns and operates refined petroleum product, crude oil and
natural gas assets. TransMontaigne's refined petroleum product and crude oil
assets consist primarily of 747 miles of pipeline and ten storage and terminal
facilities in seven states with a combined tank storage capacity of
approximately 4,820,000 barrels. Its natural gas gathering and processing
assets consist of four gathering and processing systems in two states with
combined throughput capacity of approximately 85 million cubic feet per day
and over 2,700 miles of pipelines. The use of these facilities and an
extensive network of additional common carrier pipelines and terminal
facilities owned by others allows TransMontaigne to significantly expand its
geographic service area and the types of services it provides.
In December 1996 TransMontaigne acquired the Grasslands natural gas
gathering, processing, treating, and fractionation facilities for
approximately $71,000,000 in cash. The Grasslands Facilities will complement
TransMontaigne's existing natural gas gathering and processing facilities in
the Williston Basin of the Rocky Mountain region, and will enable
TransMontaigne to improve service to oil and gas producers as well as to end-
users of NGLs and natural gas. The Grasslands system is one of the largest
natural gas gathering and processing facilities in the Williston Basin which
is currently among the most active areas of domestic oil and gas drilling.
With the acquisition of the Grasslands Facilities, natural gas gathering and
processing becomes a significant and integral component of TransMontaigne's
business.
In addition to the ownership of its four natural gas systems,
TransMontaigne manages 15 small natural gas gathering systems for a major
interstate pipeline company. TransMontaigne earns a fee for the management of
these systems and is compensated for any additional volumes which it connects
to them. In addition, a 65% owned subsidiary of TransMontaigne owns 27.75% of
the stock of Lion Oil Company ("Lion") which owns and operates a modern 65,000
barrel per day refinery in El Dorado, Arkansas, a crude oil transportation
pipeline, a crude oil gathering system and two refined petroleum products
terminals.
From October 1, 1992 through April 30, 1995 (when the present management
of TransMontaigne assumed control), TransMontaigne incurred net losses,
primarily due to the underutilization of its facilities, realization of small
or negative margins from bulk product sales and wholesale marketing activities
and a lack of adequate equity capital. The underutilization of facilities
prior to April 1995 was primarily the result of the inability to finance
capital improvements and the inventory required to more fully utilize these
facilities. Net operating margins were insufficient to cover general and
administrative expenses, depreciation and amortization, and interest and other
financing costs which were incurred to support and finance its activities.
Volatile market prices of refined petroleum products during these periods
frequently resulted in sales of products at prices lower than cost and caused
losses from inventory write-downs.
-18-
<PAGE>
Present management of TransMontaigne has established new inventory
management information systems, policies, procedures and operating controls,
and added managerial personnel to supervise the products supply and
distribution operations in an effort to control inventory levels and related
carrying costs, and more effectively manage inventory price risks.
TransMontaigne's Risk and Product Management Committee reviews the total
inventory on a weekly basis in order to ensure compliance with
TransMontaigne's inventory management policies. TransMontaigne has adopted
policies whereby its net inventory position subject to price risk requires the
prior approval of the Risk and Product Management Committee.
TransMontaigne realized a $7,836,000 improvement in net earnings over the
prior year to $4,618,000 for the year ended April 30, 1996, primarily due to
significantly improved pipeline, terminal and products supply and distribution
net operating margins and related increases in volumes of product transported,
handled and sold at its principal operating locations, while reducing interest
charges and effectively controlling general and administrative expenses during
a period of expansion and management restructuring.
As of April 30, 1996, TransMontaigne had approximately $14,900,000 of net
operating loss carryforwards for federal income tax purposes which are
available to offset taxable income through 2009. Due to changes in ownership
occurring through April 30, 1996, the use of these net operating loss
carryforwards to offset taxable income is limited to approximately $4,300,000
annually. As a result of a merger in June 1996, TransMontaigne has additional
net operating loss carryforwards which were estimated to be approximately
$6,600,000 as of October 31, 1996. These net operating loss carryforwards are
available to offset taxable income through 2010, limited to approximately
$1,300,000 annually. The tax benefit of the utilization of such carryforwards
was recorded as a reduction of goodwill and other intangible assets recorded
in the merger.
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<PAGE>
<TABLE>
<CAPTION>
Results of Operations
Six Seven
months ended Years ended months ended Year ended
October 31, April 30, April 30, September30,
------------------ ----------------- ------------ -------------
1996 1995 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(in thousands, except margin per gallon data)
<S> <C> <C> <C> <C> <C> <C>
Pipeline Operations
Volume(1) 9,765 10,044 18,902 13,721 8,654 12,245
Revenues $ 6,061 $ 4,165 $ 9,577 $ 5,827 $ 3,989 $ 6,167
Net Operating $ 3,380 $ 2,041 $ 4,454 $ 2,678 $ 2,096 $ 2,848
Margins(2)
Margin per Gallon $ 0.0082 $ 0.0048 $ 0.0056 $ 0.0046 $ 0.0058 $ 0.0055
Terminal Operations
Volume(1) 352,000 285,000 587,000 547,000 321,100 433,200
Revenues $ 2,375 $ 1,617 $ 3,346 $ 3,145 $ 1,773 $ 2,476
Net Operating $ 1,748 $ 1,209 $ 2,434 $ 2,340 $ 1,119 $ 1,817
Margins (2)
Margin per Gallon $ 0.0050 $ 0.0042 $ 0.0041 $ 0.0043 $ 0.0035 $ 0.0057
Products Supply &
Distribution Operations
Volume(1) 746,000 445,000 958,000 620,000 645,000 941,000
Revenues $462,387 $236,233 $520,184 $315,619 $290,325 $499,294
Net Operating $ 3,598 $ 2,993 $ 5,829 $ 761 $ (1,902) $ (2,077)
Margins (2)
Margin per Gallon $ 0.0048 $ 0.0067 $ 0.0061 $ 0.0012 $(0.0029) $(0.0022)
Total Operations
Revenues $470,823 $242,015 $533,107 $324,591 $296,087 $507,937
Net Operating $ 8,726 $ 6,243 $ 12,717 $ 5,779 $ 1,313 $ 2,588
Margins (2)
</TABLE>
(1) Pipeline volumes are expressed in barrels (42 gallons per barrel), and
terminal and products supply and distribution sales volumes are expressed in
gallons.
(2) Net operating margin represents revenues less direct operating expenses for
pipeline and terminal operations, and revenues less cost of refined
petroleum products purchased for products supply and distribution
operations.
Prior to the acquisition of the Grasslands Facilities,
TransMontaigne's revenues were derived primarily from three activities:
transporting refined petroleum products and crude oil in pipelines; storing
and terminaling refined petroleum products; and refined petroleum products
supply and distribution.
Pipeline revenues are based on the volume of refined petroleum
products or crude oil transported and the distance from the origin point to
the delivery point. TransMontaigne's interstate pipeline systems transport
refined petroleum products and their tariffs are regulated by the Federal
Energy Regulatory Commission (the "FERC"). TransMontaigne's intrastate
pipeline transports crude oil and its tariffs are not regulated by the FERC
but are regulated by the Texas Railroad Commission.
Terminal revenues are based on the volume of refined petroleum
products handled, generally at a standard per gallon rate. Terminal fees are
not regulated. Storage fees are generally based on a per gallon rate, which
varies with the duration of the storage arrangement, the refined petroleum
product stored and special handling requirements. The operating costs of the
pipeline and terminal businesses include wages and employee benefits,
utilities, communications, maintenance and repairs, property taxes, rent,
insurance, vehicle expenses, environmental protection costs, materials and
supplies.
The products supply and distribution business includes bulk sales
of refined petroleum products and the wholesale distribution of refined
petroleum products from terminals. Bulk
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<PAGE>
purchase and sale transactions in quantities of 25,000 barrels to 50,000
barrels are common and are generally made at small margins. Wholesale
distribution of refined petroleum products from proprietary and
nonproprietary terminal truck loading rack locations is primarily
represented by truck load sales of 8,000 gallons.
The acquisition of the Grasslands Facilities will have a significant
impact on future results of operations. See "Selected Pro Forma Consolidated
Financial Data."
-21-
<PAGE>
Six Months Ended October 31, 1996 Compared to Six Months Ended October 31,
1995
The net operating margin from pipeline operations of $3,380,000
increased 66%, or $1,339,000, in the current year six month period. This
increase resulted primarily from a net increase in the volumes of higher
tariff pipeline shipments, notwithstanding a 2.8% decrease in total volumes
shipped, together with increases in joint tariff participation and tankage
rental income. These increases resulted in a 46% increase in revenues of
$1,896,000 in the current year six month period. The increase in revenues
was partially offset by a 26% increase in operating costs of $557,000,
primarily due to incremental power costs from additional long haul shipment
volumes and increased field personnel costs, repairs and maintenance and
property tax assessments.
The net operating margin from terminal operations of $1,748,000
increased 45%, or $539,000, in the current year six month period. This
increase resulted from a 24% increase in volumes handled, primarily at the
Little Rock, Arkansas terminal, offset in part by an increase in terminal
operating costs of 54% attributable to a new terminal lease, additional
freight charges, field personnel expenses and property tax assessments.
The net operating margin from product sales of $3,598,000 increased
20%, or $605,000, in the current year six month period, while net revenues
increased $226,154,000 on additional volume of 301,000,000 gallons sold. The
$.0048 net operating margin per gallon realized in the current year six
month period decreased $.0019 from the $.0067 per gallon realized during the
prior year six month period, primarily due to higher than normal product
margins realized during the first half of the prior year six month period
caused by strong market conditions during that period.
During the current year six month period, general and administrative
expenses increased approximately $902,000, a 40% increase over the prior
year six month period, primarily due to additional personnel costs and
increased employee relocation, information systems and communication
expenses.
Other income includes equity in earnings of affiliates and interest
income. Equity in earnings of affiliates is essentially represented by
TransMontaigne's share of Lion's earnings. During the current year six month
period TransMontaigne's share of Lion's earnings (net of related minority
interests) was approximately $291,000 compared to $257,000 for the prior
year six month period, primarily due to Lion realizing slightly improved
refinery "crack spreads" (the price difference between product output and
crude oil costs).
Interest income during the current year six month period increased
to $893,000 from $259,000 primarily due to an approximate $15,000,000
increase in average interest bearing cash balances held for future
investments.
Interest expense represents interest on the revolving bank line of
credit which was used primarily to finance inventory and accounts receivable
and interest on TransMontaigne's senior subordinated debentures. Interest
expense during the current year six month period decreased $34,000, a 2.4%
reduction from the prior year six month period. Lower interest rates in the
current year six month period offset the effect of a $6,000,000 increase in
the average loan balance outstanding. Interest expense includes other
financing costs, including fees paid for letters of credit issued to product
suppliers and loan commitment fees paid in connection with TransMontaigne's
prior revolving credit facility.
Net earnings before income taxes for the current year six month
period were $4,750,000, an 86.9% increase of $2,208,000 over the $2,542,000
for the prior year six month period, primarily as a result of the increases
in pipeline and terminal and products supply and distribution net operating
margins, together with additional interest income and increased earnings
from Lion, which increases were partially offset by increased general and
administrative expenses. The provision for income taxes of $270,000 for the
current year six month period primarily represents estimated state income
taxes. Net after tax earnings
-22-
<PAGE>
for the current year six month period were $4,480,000, an 81% increase of
$2,011,000 from the $2,469,000 reported for the prior year six month period.
-23-
<PAGE>
Year Ended April 30, 1996 Compared to Year Ended April 30, 1995
The net operating margin from pipeline operations increased 66%,
or $1,776,000, to $4,454,000 during the year ended April 30, 1996 as
compared to $2,678,000 during the prior year ended April 30, 1995. This
increase primarily was due to a 38% increase in volumes shipped and
increased utilization. These increases resulted in a 64% increase in
revenues of $3,750,000 during the period. The increase in revenues was
partially offset by a 63% increase in operating costs of $1,974,000,
primarily due to incremental power costs due to increased volumes,
additional personnel costs and reductions in the reimbursement of certain
costs previously paid by third parties.
The net operating margin from terminal operations increased 4%, or
$94,000, to $2,434,000 during the year ended April 30, 1996. This increase
resulted from a 7% increase in volumes, primarily from the Little Rock,
Arkansas terminal, offset in part by an increase in terminal operating costs
of 13%.
The net operating margin from product sales increased 666%, or
$5,068,000, during the year ended April 30, 1996 compared to the prior year,
while net revenues increased $204,565,000 on additional volume of
338,000,000 gallons sold. The improved net margins were primarily due to
increased bulk and rack product sales volumes, and higher market prices for
products sold in the peak seasonal period of gasoline demand occurring in
TransMontaigne's fiscal quarter ended April 30, 1996, during which period
gasoline prices reached a five year high of over $.70 per gallon. The
$.0061 net operating margin per gallon realized in the year ended April 30,
1996 increased $.0049 from the $.0012 per gallon realized during the prior
year, primarily due to slightly higher than normal product margins realized
during the 1996 year and significantly lower margins realized during the
prior year.
During the year ended April 30, 1996, general and administrative
expenses increased approximately 18% over the prior year, primarily due to
increases in salaries and related employee benefits costs associated with
the hiring of additional personnel.
Other income includes equity in earnings of affiliates and interest
income. During the year ended April 30, 1996, equity in earnings of
affiliates (net of the related minority interests) increased to
approximately $605,000 from approximately $295,000 for the prior year,
primarily due to improved crack spreads at Lion.
Interest income during the year ended April 30, 1996, was attributable
to the investment in interest bearing securities of approximately
$10,000,000 of cash held for future investments during the period .
Interest expense represents interest on the revolving bank line of
credit used to finance inventory and accounts receivable and interest on
TransMontaigne's senior subordinated debentures. Interest expense decreased
$588,074, or 19%, primarily as a result of lower average balances
outstanding under the line of credit. Other financing costs include fees
paid for letters of credit issued to product suppliers and loan commitment
fees paid in connection with the revolving loan facility.
As a result of the increases in pipeline, terminal and products
supply and distribution net operating margins, reduction in interest
expense and increase in interest income, discussed above, net earnings for
the year ended April 30, 1996 increased $7,836,000 to $4,618,000 from a loss
of $3,218,000 for the prior year.
Year Ended April 30, 1995 Compared to the Seven Months Ended April 30, 1994
and the Year Ended September 30, 1993.
Net operating margins from pipeline operations were $2,678,000 for
the year ended April 30, 1995, $2,096,000 for the seven months ended April
30, 1994 and $2,848,000 for the year ended September 30, 1993. The increase
in margins during these periods was
-24-
<PAGE>
primarily a result of TransMontaigne's acquisition of the NORCO pipeline in
November, 1992 which contributed additional volumes of approximately
9,850,000 barrels per year. Operating costs for the periods subsequent to
the acquisition of the NORCO pipeline through the year ended April 30, 1995
were relatively constant.
Terminal operations generated net operating margins of $2,340,000
for the year ended April 30, 1995, $1,119,000 for the seven months ended
April 30, 1994 and $1,817,000 for the year ended September 30, 1993. This
increase in net operating margins during these periods was due primarily to
the increased volumes and revenues attributable to the acquisition of the
Little Rock south terminal in May 1993 and the increased utilization of
TransMontaigne's Rogers, Arkansas terminal. As a result, terminal volumes
handled increased to 547,000,000 gallons for the year April 30, 1995 from
433,200,000 gallons for the twelve months ended September 30, 1993 and
revenues increased to $3,145,000 from $2,476,000 for the comparable periods.
Although terminal volumes increased significantly during these periods,
terminal operating expenses remained relatively constant, resulting in
increased net operating margins during these periods.
Net operating margins (losses) on product sales were $761,000 for
the year ended April 30, 1995, $(1,902,000) for the seven months ended April
30, 1994 and $(2,077,000) for the year ended September 30, 1993. During
these periods, there were significant fluctuations in product purchase and
sale prices reflecting the volatility in the world-wide energy markets. In
many cases this resulted in reduced or negative margins on sales of products
and an inventory write-down. During the seven months ended April 30, 1994,
TransMontaigne recorded a write-down of approximately $3,640,000 to reduce
inventories to the lower of cost or market calculated as of December 31,
1993. The write-down was a result of a steep decline in refined petroleum
product prices in the latter part of 1993 which reached $.40 per gallon in
December of 1993.
Revenues from product sales declined subsequent to April 30, 1994
as a result of discontinuing the business of a limited partnership in which
TransMontaigne owned a one-third interest and was the managing general
partner. The partnership conducted trading operations primarily in the cash
market by purchasing and selling refined petroleum products and crude oil.
While significant revenues were generated during the seven months ended
April 30, 1994 and the year ended September 30, 1993, the effect on net
earnings (losses) during these periods was not significant.
General and administrative expenses also increased approximately
15% annually from the year ended September 30, 1993 through the year ended
April 30, 1995 as a result of TransMontaigne's acquisitions of the NORCO and
CETEX pipelines, the growth of the Razorback pipeline/Rogers terminal
operations, the acquisition of the Little Rock south terminal, and the
expansion of product supply and distribution activities, all of which
increased personnel costs and related supporting administrative expenses.
Depreciation and amortization increased in subsequent periods from
the amount recorded in 1993, primarily due to the acquisitions of the NORCO
and CETEX pipelines in 1992 and the Little Rock south terminal in 1993.
Other income includes equity in earnings of affiliates and
interest income. Equity in earnings (losses) of affiliates, net of the
related minority interest, was $295,000 in the year ended April 30, 1995,
$479,000 in the seven months ended April 30, 1994, and $(59,000) in the year
ended September 30, 1993. During these periods, the operating results of
Lion fluctuated widely as a result of volatile crude oil and refined
products prices and crack spreads. During periods of fluctuating prices,
Lion experiences reductions in crack spreads when market prices of refined
products do not change in correlation to changes in crude oil prices.
Interest expense during the periods from 1993 through 1995
fluctuated with changes in the average outstanding loan balances and with
changes in the interest rates on the loans,
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<PAGE>
which ranged from 7% to 9% during these periods. The average outstanding
loan balance increased from approximately $34,500,000 for the year ended
September 30, 1993 to approximately $37,100,000 for the seven months ended
April 30, 1994 and to approximately $35,700,000 for the year ended April 30,
1995. Interest expense also includes interest on outstanding senior
subordinated debentures during these periods.
The loss on cancellation of an aircraft lease of $287,000 recorded
in the fourth quarter of the year ended April 30, 1995 was a nonrecurring
expense.
TransMontaigne incurred net losses for the year ended April 30,
1995, the seven months ended April 30, 1994, and the year ended September
30, 1993, of $3,218,000, $2,854,000 and $4,490,000, respectively, primarily
as a result of the underutilization of its pipelines and terminals, a lack
of adequate capital and the fluctuations in the net operating margins,
discussed above.
-26-
<PAGE>
Liquidity and Capital Resources
TransMontaigne endeavors to secure sources of long-term capital
prior to committing to new projects. Since April 1995, TransMontaigne's
present management has raised $55,000,000 in common equity through private
placements to institutional investors and established the Credit Facility.
The net cash used by operating activities during the six months
ended October 31, 1996 was $10,383,000, a $1,728,000 increase over the cash
used by operating activities during the prior year six month period. This
increase was primarily a result of increased inventory levels and increased
trade receivables resulting from increased business, partially offset by
increased trade payables to suppliers of inventory.
Capital expenditures were $4,120,000, $750,000, $460,000 and
$4,700,000 for the years ended April 30, 1996 and 1995, the seven months
ended April 30, 1994 and the year ended September 30, 1993, respectively.
Capital expenditures for the six months ended October 31, 1996 were
$5,837,000.
TransMontaigne anticipates capital expenditures of approximately
$114,000,000 for the two fiscal years ended April 30, 1998. These capital
expenditures include approximately $71,000,000 for the Grasslands facilities
in December 1996 and approximately $11,000,000 expended during the eight
months ended December 31, 1996. The remainder of approximately $32,000,000
is anticipated to be expended during the balance of the two fiscal years
ended April 30, 1998, for planned pipeline, terminal and natural gas
gathering and processing facilities and assets to support these facilities.
TransMontaigne expects to identify additional acquisitions and expansion
projects in the future. Actual future capital expenditures will depend on
numerous factors, including the availability of appropriate acquisitions;
the demand for transportation, supply, distribution and marketing services;
local, state and federal governmental regulations; environmental compliance
requirements; and the availability of financing on acceptable terms.
The Credit Facility consists of a five year $45,000,000 working
capital revolving credit facility and an $85,000,000 acquisition revolving
credit facility. The acquisition revolving credit facility was used to
finance the acquisition of the Grasslands Facilities. On December 31, 1999,
the acquisition revolving credit facility will convert to a term loan and 5%
of the amount outstanding on December 31, 2000 will be due each quarter
beginning March 31, 2000, with the balance due December 31, 2001. The first
$45,000,000 of proceeds of any public or private debt or equity issuance
(including the Offerings) are required to be applied to the repayment of the
amounts outstanding under the acquisition revolving credit facility. After
repayment of $45,000,000 of the acquisition revolving credit facility, and
if TransMontaigne then has consolidated tangible net worth (as defined in
the Credit Agreement) of $100,000,000, the balance of the Credit Facility
will convert into the $85,000,000 Successor Facility due December 31, 2001.
The amount available under the Successor Facility will be reduced by
$3,125,000 each quarter beginning March 31, 2000. Borrowings under the
Credit Facility generally bear interest at a rate per year equal to the
lender's announced Base Rate, subject to a Eurodollar pricing option at
TransMontaigne's election. The weighted average interest rate on amounts
outstanding under the Credit Facility as of December 20, 1996 was 7.11%.
TransMontaigne had working capital of $67,221,000 at October 31,
1996. Management believes TransMontaigne's current working capital position,
future cash provided by operating activities, borrowing capacity under its
Credit Facility and its relations with institutional lenders and equity
investors should enable it to meet its future capital requirements, although
there can be no assurance that TransMontaigne will be able to obtain
additional capital when needed on acceptable terms.
Accounting Standards
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<PAGE>
Statement of Financial Accounting Standards No. 121, "Accounting
for Impairment of Long-Lived Assets to be Disposed Of" ("SFAS 121") was
issued in March 1995, by the Financial Accounting Standards Board. It
requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS 121 is required to be adopted for fiscal years
beginning after December 15, 1995. The adoption of this statement by
TransMontaigne in the first quarter of the fiscal year ending April 30, 1997
had no effect on TransMontaigne's financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") was issued by the Financial
Accounting Standards Board in October 1995. This standard addresses the
timing and measurement of stock-based compensation expense. Entities
electing to continue to follow Accounting Principles Board Opinion No. 25
("APB 25") must make pro forma disclosures of net income and earnings per
share, as if the fair value based method of accounting defined by SFAS 123
had been applied. SFAS 123 is applicable to fiscal years beginning after
December 15, 1995. TransMontaigne has elected to retain the approach of APB
25 (the intrinsic value method) for recognizing stock-based compensation in
the consolidated financial statements. TransMontaigne will include the
disclosures required by SFAS 123 in future annual consolidated financial
statements.
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<PAGE>
BUSINESS
Overview
TransMontaigne provides a broad range of integrated
transportation, terminaling, supply, distribution, gathering, processing and
marketing services to producers, refiners, distributors, marketers and end-
users of petroleum products, natural gas and crude oil in the downstream
sector of the petroleum industry. TransMontaigne is a holding company which
conducts its operations through its subsidiaries primarily in the mid-
continent and Rocky Mountain regions of the United States. TransMontaigne
does not explore for, or produce, crude oil or natural gas, and it owns no
crude oil or natural gas reserves.
The principal predecessor of TransMontaigne was formed in 1977
under the name of Continental Ozark Corporation. In April 1995, the present
management and certain of the institutional stockholders of TransMontaigne
acquired control of Continental Ozark Corporation through a merger in which
the name of the corporation was changed to TransMontaigne Oil Company. In
June 1996, TransMontaigne and a publicly held corporation merged, with the
stockholders of TransMontaigne acquiring approximately 93% of the stock of
the publicly held corporation.
TransMontaigne owns and operates refined petroleum product, crude
oil and natural gas assets. TransMontaigne's refined petroleum product and
crude oil assets consist primarily of 747 miles of pipeline and ten storage
and terminal facilities in seven states with a combined tank storage
capacity of approximately 4,820,000 barrels. Its natural gas gathering and
processing assets consist of four gathering and processing systems in two
states with combined throughput capacity of approximately 85 million cubic
feet per day and over 2,700 miles of pipelines. The use of these facilities
and an extensive network of additional common carrier pipelines and terminal
facilities owned by others allows TransMontaigne to significantly expand its
geographic service area and the types of services it provides.
TransMontaigne believes that fundamental structural changes and
outsourcing in the petroleum industry are creating opportunities for its
continued growth. Major oil companies and independents are undertaking
reorganization, rationalization and cost-saving measures in an effort to
improve operating and financial performance. In many instances this results
in the disposition of domestic non-strategic, non-core businesses and
downstream assets and facilities, and in the outsourcing of procurement,
maintenance, transportation, supply, distribution, gathering, processing,
marketing and administrative functions.
TransMontaigne believes that this disposition of downstream assets
and facilities provides opportunities for it to purchase pipeline, storage,
terminaling, processing and gathering assets, and to apply focused
management and more cost effective utilization of these facilities while
providing value-added service at competitive prices to its customers, often
including the former owners of the assets. TransMontaigne has acquired,
designed and developed its physical assets and its operating, risk
management and information systems in order to take advantage of these
opportunities.
During the first fiscal year after assuming control of Continental
Ozark Corporation in April 1995, TransMontaigne increased net operating
margins to $12,700,000 from $5,800,000 for the prior fiscal year by
improving the performance of its facilities through selective capital
improvements; restructured operating and administrative functions; and
expanded marketing of services. TransMontaigne's management has implemented
an operating plan and financial management systems which provide the
foundation for its current operations and future growth.
The acquisition of the Grasslands Facilities in December 1996
represents for TransMontaigne the opportunity to enhance its earnings
performance by capitalizing on the
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<PAGE>
industry's divestiture trend and applying its management expertise in the
downstream sector. The facilities will complement TransMontaigne's existing
natural gas gathering and processing facilities in the Williston Basin of
the Rocky Mountain region, and will enable TransMontaigne to improve service
to oil and gas producers as well as to end-users of NGLs and natural gas.
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<PAGE>
Operating Strategy
TransMontaigne intends to achieve its primary objective of growth
in cash flow and earnings by:
. Increasing throughput volumes and utilization of existing assets
through system improvements, competitive pricing, identification
of and response to market needs and quality service.
. Using advanced management information and financial systems to
timely supply petroleum products to market areas with the most
favorable profit margins and to effectively manage inventory
levels and product costs.
. Expanding existing assets and identifying the need for and
constructing new facilities in order to satisfy market demand.
. Capitalizing on the industry's divestiture and outsourcing trends
through the acquisition of businesses and assets which offer
potential for continued improvement in operating results.
. Employing management's experience, business relationships and
reputation for directing the growth of companies providing
services to the downstream sector of the petroleum industry.
. Maintaining a balance sheet that allows financial flexibility
providing ready access to sources of capital required for
expansion and growth.
Transportation Services
TransMontaigne provides refined petroleum product and crude oil
transportation, storage and terminaling services to over 500 customers,
including most major oil companies and independent refiners in the United
States. TransMontaigne employs its 747 miles of pipeline and ten storage and
terminal facilities in seven states with a combined tank storage capacity of
approximately 4,820,000 barrels in conjunction with the major mid-continent
pipeline and terminal systems owned by others to transport products to market
destinations and to conduct exchange transactions with major and independent
petroleum companies. The combined utilization of TransMontaigne-owned and
non-owned assets allows it to significantly expand its geographic service area
and the types of services it provides.
Pipelines
TransMontaigne owns and operates a 457-mile refined petroleum products
pipeline from Ft. Madison, Iowa through Chicago to Toledo, Ohio (the "NORCO
pipeline") and associated storage facilities located at Hartsdale, Indiana;
East Chicago, Indiana; and Toledo, Ohio. The NORCO pipeline system is
interconnected to all major mid-continent common carriers. TransMontaigne also
owns a 60% interest in a 67-mile refined petroleum products pipeline operating
from Mt. Vernon, Missouri to Rogers, Arkansas (the "Razorback pipeline") and
an associated storage facility at Mt. Vernon. The Razorback pipeline is the
only refined petroleum products pipeline providing transportation services to
northwest Arkansas. TransMontaigne also owns and operates a 220-mile crude
oil gathering pipeline system, with 807,500 barrels of tank storage capacity,
located in east Texas (the "CETEX pipeline").
In general, a shipper owns the refined petroleum products or crude oil
and transfers custody of the products to the NORCO or Razorback pipelines or
the crude oil to the CETEX pipeline for shipment to a delivery location at
which point custody again transfers. Tariffs for the transportation service
are regulated and are charged by TransMontaigne to shippers based upon the
origination point on the pipelines to the point of product delivery. These
tariffs do not include fees for the storage of products at the NORCO and
Razorback pipeline storage facilities
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<PAGE>
or crude oil at the CETEX pipeline storage facilities, or for the terminaling
and storage of products at TransMontaigne terminals, the fees for which are
separately charged if those facilities are utilized.
TransMontaigne's pipeline business depends in large part on the level of
demand for refined petroleum products in the markets served by the pipelines,
together with the ability and willingness of refiners and marketers having
access to the pipelines to supply that demand by shipments through these
pipelines. Competition is based primarily on pipeline operational
dependability, quality of customer service provided and proximity to end-
users, although product pricing at either the origin or terminal destination
on a pipeline may outweigh transportation cost considerations. TransMontaigne
believes that high capital costs, tariff regulation, environmental
considerations, problems in acquiring rights-of-way and TransMontaigne's
available capacity make it unlikely that additional competing pipeline systems
comparable in size to the NORCO and Razorback pipelines will be built in the
near term.
Terminals
The TransMontaigne-owned and operated terminals and storage facilities
connect with product transportation systems and product distribution
locations. These facilities are located in Rogers, Arkansas; Little Rock,
Arkansas; East Chicago, Indiana; Indianapolis, Indiana; South Bend, Indiana;
Bryan, Ohio; and Mt. Vernon, Missouri.
The original South Bend terminal, inactive since its purchase in 1992,
was demolished and rebuilt during 1996. This modern facility which opened in
December 1996 has storage capacity of 210,000 barrels and is capable of
delivering volumes in excess of 15,000 barrels per day. The East Chicago,
Indiana facility, purchased in December 1996, has approximately 1,186,000
barrels of storage capacity, including specialized storage for aviation and
jet fuel, and strategic connections to additional pipelines and facilities in
the Chicago, Illinois and Whiting, Indiana areas. These terminal and storage
facilities are expected to enhance terminaling revenue and improve utilization
and pipeline revenues on the NORCO pipeline system.
Terminal revenues are based on the volume of products handled, generally
at a standard industry fee. Terminal fees are not regulated. The terminals
receive petroleum products in bulk quantities from connecting pipeline
systems. Products are stored in bulk at the terminals and made available to
wholesale, shipment and exchange customers which transport the products by
truck to commercial and retail destinations and then to the end-user.
TransMontaigne markets refined petroleum products over truck loading racks at
owned terminals, as well as through exchanges with numerous companies at other
non-owned terminals located throughout the TransMontaigne distribution area.
TransMontaigne believes that based on location, pipeline connections and
quality of service, its terminals offer advantages over competing terminals.
Major and independent petroleum companies own terminal and storage
facilities which often have similar capabilities to those owned by independent
operators such as TransMontaigne, but generally do not provide terminaling and
storage services to third parties. In many instances, these companies are also
significant customers of TransMontaigne and frequently provide strong demand
for its terminals, particularly when TransMontaigne's terminals and storage
facilities have more cost effective locations near key transportation
connections. These companies also utilize TransMontaigne for terminaling and
storage services when their proprietary facilities are inadequate, either
because of size constraints, the nature of the products stored or specialized
handling requirements.
Storage of refined petroleum products at TransMontaigne-owned terminals
pending delivery is considered to be an integral but separate segment of its
refined petroleum product handling service. Storage fees are generally based
on a per gallon rate, which varies with the duration of the storage
arrangement, the product stored and special handling requirements. Ancillary
services, including injection of shipper-furnished or TransMontaigne-furnished
additives, are also available for a fee at the TransMontaigne terminals.
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<PAGE>
Product Services
TransMontaigne's product services consist of the bulk purchase and sale
of substantial volumes of refined petroleum products and the wholesale
marketing of products at terminal truck loading rack locations, both of which
are high volume, low margin activities. These product supply and distribution
efforts are enhanced by TransMontaigne's ownership and operation of product
pipelines and terminals, a constant supply of NGLs from its gathering and
processing operations, and by its inventory positions in third-party common
carrier pipeline systems. TransMontaigne employs these assets to arbitrage
regional product price differentials and transportation costs; to buy bulk
volumes of products at the wholesale level and remarket them over truck
loading racks; and to take advantage of opportunities presented by changing
market conditions and seasonal variations.
TransMontaigne enters into product exchange transactions in order to
enhance operating margins in connection with its marketing activities.
Exchanges are arranged through agreements under which TransMontaigne agrees to
buy and sell products that differ in terms of geographic location, type of
product or delivery schedule. Through such exchanges, which are continuously
monitored by TransMontaigne's management information and risk management
systems, TransMontaigne seeks to increase its operating margins by maximizing
transportation, terminaling and product sales revenues from each barrel of
product sold while also minimizing related storage and shipping costs.
Exchange agreements are generally for 30 days and month-to-month thereafter
until terminated by either party. TransMontaigne believes these short-term
contracts minimize the effect of volatile market prices and regional economic
aberrations and considers them essential in order to retain the flexibility to
respond to local demands and to changing market prices, conditions and
seasonal variations. However, termination of short-term contracts could
result in a reduction of pipeline and terminal volumes.
Generally, when TransMontaigne purchases refined petroleum products, it
also simultaneously enters into corresponding sale or exchange transactions
involving physical deliveries of the refined petroleum product to a third
party, or corresponding sales of futures contracts on the NYMEX. This
procedure gives TransMontaigne a stable and reliable refined petroleum product
supply which can be sold at prevailing market prices to customers having
recurring and spot purchase requirements.
TransMontaigne can hedge by entering into a future physical delivery
obligation to a third party or purchasing a futures contract on the NYMEX in
order to maintain a substantially balanced position between product purchases
and future product sales or delivery obligations and to minimize exposure to
the risk of price volatility of oil and gas products. TransMontaigne
selectively hedges a limited portion of its inventory through the purchase and
sale of futures and options contracts which are intended to offset the effects
of price fluctuations.
TransMontaigne generally does not hedge the price risk on certain
portions of its inventory, consisting of pipeline fill, tank bottoms and a
minimum product supply required to satisfy exchange obligations; this product
is not held for sale since it is required in order to maintain a "wet system."
A pipeline must be full of product, or "wet," at all times in order to accept
product volume at one end and deliver the same volume at the other end, and
minimum storage tank bottoms of approximately two feet of product are required
in order to assure that no vapor enters the piping system.
TransMontaigne's Risk and Product Management Committee reviews the total
inventory on a weekly basis in order to ensure compliance with
TransMontaigne's inventory management policies. TransMontaigne's operating
policy imposes dollar limits on the purchase of refined petroleum products and
futures contracts or other derivative products for the purpose of price change
trading.
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<PAGE>
Natural Gas Gathering and Processing
In December 1996 TransMontaigne acquired the Grasslands Facilities. The
Grasslands Facilities will complement TransMontaigne's existing natural gas
gathering and processing facilities in the Williston Basin of the Rocky
Mountain region, and will enable TransMontaigne to improve service to oil and
gas producers as well as to end-users of NGLs and natural gas. The Grasslands
system is one of the largest natural gas gathering and processing facilities
in the Williston Basin which is currently among the most active areas of
domestic oil and gas drilling. With the acquisition of the Grasslands
Facilities, natural gas gathering and processing becomes a significant and
integral component of TransMontaigne's business.
The Grasslands natural gas processing plant, located in McKenzie County,
North Dakota, was built in 1980. Although the plant is designed for
approximately 65 million cubic feet per day inlet capacity, it has operated at
approximately 75 million cubic feet per day for extended periods and, in
addition, has approximately 180 long tons per day capacity for sulfur
recovery. The designed product recoveries are 88% propane, 99% butane and
100% gasoline.
Current throughput is approximately 45 million cubic feet per day from
over 1,200 active leases, which is gathered through approximately 2,500 miles
of low and high pressure gathering lines. The natural gas gathering lines
cover the Williston Basin areas of western North Dakota and eastern Montana.
A 20 mile high pressure pipeline with a designed capacity in excess of 25
million cubic feet per day has been recently completed into the area of active
Lodgepole geologic formation drilling near Dickinson, North Dakota.
Additional oil and gas wells can be connected to this entire system if
successful drilling continues.
After natural gas has been processed at the Grasslands plant, the
resulting products are marketed by TransMontaigne. Residue natural gas is
delivered to and marketed through connections with interstate pipelines. This
delivery is automated, allowing it to be monitored and adjusted via computer
by operators at the plant or by a dispatcher at another location. NGLs are
transported from the Grasslands plant by truck or pipeline to TransMontaigne's
Riverview, Montana storage facility, from which it is transported to market by
truck or rail.
The Grasslands Facilities are strategically located between
TransMontaigne's Marmarth facility in southwestern North Dakota, its Baker
facility in eastern Montana and its 50% owned Lignite facility in northern
North Dakota. With the Grasslands Facilities, TransMontaigne has natural gas
gathering facilities covering the eastern corridor of Montana and the western
quarter of North Dakota, from the Canadian border to the South Dakota border
which will significantly enhance TransMontaigne's ability to provide complete
service to North Dakota and Montana producers as well as to end-users of NGLs
and natural gas.
The Marmarth system is an approximately 4 million cubic feet per day
capacity natural gas gathering, processing, and treating facility which
gathers natural gas at low pressure in southwestern North Dakota through
approximately 15 miles of gathering pipelines. NGLs are currently sold
locally by truck after being fractionated at the Baker facility.
The Baker system located in eastern Montana is an approximately 4 million
cubic feet per day capacity natural gas processing plant connected to a 15
mile gathering pipeline presently under construction. Baker also fractionates
the Marmarth system NGLs and provides processing for a major oil company.
The Lignite system is an approximately 12 million cubic feet per day
capacity natural gas processing and treating facility located in northern
North Dakota connected to approximately 250 miles of gathering pipelines.
TransMontaigne contracts with producers to gather natural gas from
individual wells located in proximity to its facilities. After a contract has
been executed, TransMontaigne connects these wells to its gathering system
through which the natural gas is delivered to its processing facility. At its
processing plants, the natural gas is compressed, fractionated NGLs
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<PAGE>
are extracted and the remaining residue natural gas is treated to meet
pipeline quality specifications. Three of TransMontaigne's four processing
plants can further separate, or fractionate, the mixed NGL stream into ethane,
propane, butane and natural gasoline to obtain a higher value for the NGLs,
and all four of its plants are able to process and treat natural gas
containing hydrogen sulfide or other impurities which require removal prior to
delivery for resale.
TransMontaigne continually seeks additional dedicated natural gas
supplies to maintain or increase throughput levels to offset natural
production declines in dedicated volumes. Such natural gas supplies are
obtained by purchasing existing systems from third parties or by connecting
additional wells. The opportunity to connect new wells to existing facilities
is primarily affected by levels of drilling activity near TransMontaigne's
natural gas gathering systems.
Substantially all natural gas flowing through TransMontaigne's facilities
is supplied under long-term contracts providing for the purchase, treating or
processing of such natural gas for periods ranging from five to twenty years.
On a pro forma basis, approximately 40% of TransMontaigne's natural gas
throughput for the six months ended October 31, 1996 was purchased under
percentage-of-proceeds agreements in which TransMontaigne is typically
responsible for arranging for the transportation and marketing of the NGLs and
residual natural gas. The price paid to producers is a specified percentage
of the net proceeds received from their sale. Under this type of contract,
TransMontaigne and the producers share proportionally in price changes. On a
pro forma basis, approximately 60% of TransMontaigne's natural gas throughput
for the six months ended October 31, 1996 was gathered under contracts that
are primarily fee-based in which TransMontaigne receives a set fee for each
thousand cubic feet of natural gas gathered and processed. This type of
contract provides TransMontaigne with a steady revenue stream that is not
dependent on commodity prices, except to the extent that low prices may cause
a producer to curtail production or that high prices may curtail demand.
The gathering, processing and marketing sector of the natural gas
industry is currently in a consolidation phase. As this consolidation takes
place, it may become more difficult for many companies to earn acceptable
returns on smaller systems. Many oil and gas producers that have previously
operated their own natural gas gathering and processing facilities may realize
they lack the operational and management skills necessary to maximize the
return on these investments and choose to sell these assets. TransMontaigne
intends to take advantage of the opportunities presented by this
consolidation.
In addition to the ownership of its four natural gas systems,
TransMontaigne manages 15 small natural gas gathering systems for a major
interstate pipeline company. TransMontaigne earns a fee for the management of
these systems and is compensated for any additional volumes which it connects
to them.
Lion Oil Company Investment
In 1985, a 65% owned subsidiary of TransMontaigne purchased 27.75% of the
stock of Lion, which owns a modern 65,000 barrel per day refinery in El
Dorado, Arkansas; a 188-mile crude oil transportation pipeline in east Texas;
a 1,100-mile crude oil gathering system in south Arkansas and north Louisiana;
and two refined petroleum products terminals. Lion is operated under a
management contract with a company which owns 48.6% of Lion. The remaining
23.65% of Lion is owned by various south Arkansas oil and gas producers.
TransMontaigne has two representatives on the board of directors of Lion.
TransMontaigne's interest in Lion is reported for financial statement purposes
using the equity method of accounting.
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<PAGE>
Environmental Regulation
General
The operations of TransMontaigne are subject to federal, state and local
laws and regulations relating to protection of the environment. Future
regulation may impose additional requirements. Although TransMontaigne
believes that its operations are in material compliance with applicable
environmental laws and regulations, and TransMontaigne has not budgeted any
material amounts for environmental compliance for the current fiscal year,
risks of substantial costs and liabilities are inherent in pipeline, terminal
and processing operations, and there can be no assurance that significant
costs and liabilities will not be incurred.
Water
Terminal and pipeline facilities are extensively regulated by the Federal
Water Pollution Control Act of 1972, as amended ("FWPCA"), the Oil Pollution
Act of 1990, as amended ("OPA"), and other laws relating to prevention of and
response to oil spills, and the discharge of pollutants into navigable waters.
In addition, certain of the natural gas and liquid pipelines are subject to
regulations governing construction, operation and safety standards and
reporting requirements for certain spills and other accidents. The FWPCA and
OPA subject owners and operators of certain facilities to potentially severe
civil liability for removal costs and damages, including injury to and loss of
use of natural resources, and potential substantial penalties and criminal
liability resulting from oil spills into navigable waters, or adjoining
shorelines or into the exclusive economic zone. In addition, liability may
also be imposed for damages for injury to, or economic losses resulting from
destruction of, real or personal property. States in which TransMontaigne
operates have also enacted laws which may require monitoring and clean up of
contaminated surface and groundwater at certain facilities.
Some of TransMontaigne's pipelines cross navigable rivers and streams.
Certain of TransMontaigne's facilities are also located near bodies of water
and environmentally sensitive areas, such as wetlands. Contamination
resulting from spills or releases of refined petroleum products are not
unusual within the petroleum pipeline industry. Several of TransMontaigne's
facilities have soil and groundwater contamination. TransMontaigne is
indemnified by previous owners for most of the known contamination identified
within specified time periods; however, there can be no assurance that the
previous owners will not dispute coverage and refuse to accept responsibility
for any discovered contamination. Presently, there are no disputed claims
involving any material costs. Contamination for which TransMontaigne is not
indemnified has been handled in the normal course of business and is not
expected to have a material adverse effect on TransMontaigne, although there
can be no assurance that a material adverse effect will not occur.
Regulation of Aboveground Storage Tanks
The states in which TransMontaigne operates facilities regulate
aboveground storage tanks containing liquid substances. If federal
legislation is enacted in the future, it could impact the design,
construction, maintenance and operation of aboveground storage tanks.
However, TransMontaigne does not believe such future requirements would have a
material adverse effect on TransMontaigne.
Air Emissions
The operations of TransMontaigne are subject to the Federal Clean Air Act
and comparable state and local statutes. Certain of TransMontaigne's
facilities must have permits and meet emission limitations. In addition, many
of the bulk product facilities are required to have vapor recovery or
combustion units.
To the extent that any terminals are nearing volume limitations, permit
modifications could be required. Amendments to the Federal Clean Air Act
enacted in 1990 will require most
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<PAGE>
industrial operations in the United States to incur future capital
expenditures in order to meet the air emission control standards that are to
be developed and implemented by the EPA and state environmental agencies
during the next decade. Pursuant to these Clean Air Act Amendments, permits
need to be obtained for certain facilities which could result in stricter
limitations. Those facilities that emit volatile organic compounds ("VOC") or
nitrogen oxides and are located in non-attainment areas (areas that do not
meet national air quality standards) will be subject to increasingly stringent
regulations, including requirements that certain sources install reasonably
available control technology. Several gasoline facilities may also be subject
to new source performance standards. The EPA is also required to promulgate
new regulations governing the emissions of hazardous air pollutants. Some of
TransMontaigne's facilities are included within the categories of hazardous
air pollutant sources that may be affected by these regulations. In order to
comply with applicable air pollution laws, TransMontaigne may have to install
additional control equipment as necessary to comply with the regulations.
Waste
TransMontaigne's terminal and pipeline operations are also subject to the
federal Resource Conservation and Recovery Act, as amended ("RCRA"), which
governs the generation, storage, treatment and disposal of solid and liquid
wastes, including hazardous wastes. In 1990, the EPA expanded RCRA's scope
over hazardous wastes. These changes increase the costs of handling certain
wastes generated. Additional changes in the regulations or interpretation of
these regulations may result in increased capital expenditures or operating
expenses. In addition, hydrocarbon contamination at natural gas operating,
transmission and processing facilities may require clean up pursuant to the
requirements of state oil and gas divisions and state health departments.
Environmental Assessment or Impact Statements
The National Environmental Policy Act of 1969 ("NEPA") applies to certain
extensions or additions to pipeline systems. Under NEPA, projects that might
significantly affect the quality of the environment, which require certain
federal permits or approvals, also require preparation of a detailed
environmental assessment or impact statement. The effect of NEPA might be to
delay or prevent construction of new facilities or to alter their location,
design or method of construction, and increase their costs.
Grasslands
Prior to purchasing the Grasslands Facilities, TransMontaigne identified
various environmental problems at those facilities, including failure to have
air permits for certain compressors, a penalty for violating permitted sulfur
dioxide emissions and soil and groundwater contamination. The seller of the
Grasslands Facilities has agreed to be responsible for certain environmental
problems and pay the penalties and costs to come into compliance with air
requirements. TransMontaigne has assumed responsibility for the remaining
environmental problems, the costs of which TransMontaigne believes will not be
material.
Tariff Regulation
Interstate Regulation
The interstate petroleum product pipeline operations of TransMontaigne
are subject to regulation by the FERC under the Interstate Commerce Act (the
"ICA") which requires, among other things, that the rates set by the pipeline
transportation tariffs be just and reasonable and not unduly discriminatory.
New and changed tariffs must be filed with the FERC, which may investigate
their lawfulness on shipper protest or its own motion. The FERC may suspend
the effectiveness of such tariffs and require the pipeline to refund to
shippers, with interest, any difference between the level the FERC determines
to be lawful and the filed tariffs under investigation; the tariffs may also
be challenged by litigation.
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<PAGE>
In general, petroleum product pipeline tariffs are required to be cost-
based to be deemed just and reasonable. Cost-based tariffs are permitted to
generate operating revenues, based on projected shipment volumes, not greater
than the total of the following components: (i) operating expenses, (ii)
depreciation and amortization, (iii) normalized federal and state income taxes
and (iv) an overall allowed rate of return on the pipeline's rate base.
Generally, rate base is a measurement of the investment in, or value of, the
pipeline's assets.
The Energy Policy Act of 1992 (the "EP Act") mandated simplified
procedures for FERC tariff regulation under the ICA. In response to the EP
Act, the FERC has adopted indexation as a simplified rate making methodology
for pipeline tariff changes. Current indexation is based on the annual change
in the Producer Price Index less one percent. Just and reasonable pipeline
tariffs in effect on December 31, 1994 are the base rates for indexation. A
pipeline may increase its tariffs to the ceiling rate calculated by indexing
without filing a formal cost-based justification and with limited shipper
rights to protest. A rate decrease may be required if the index lowers the
ceiling. Shippers are still permitted to protest tariffs, even if the rate
change does not exceed the index ceiling, if the shipper can demonstrate that
the increase is so substantially in excess of the actual cost increases
incurred by the pipeline that the proposed rate would be unjust and
unreasonable.
The indexing mechanism does not set initial tariffs for a pipeline, which
still generally must be cost-based. However, a pipeline can file an initial
tariff based upon the agreement of at least one non-affiliated shipper,
without filing full cost-of-service justification for the tariffs. If this
negotiated tariff is protested by another shipper, the pipeline will be
required to justify the initial tariffs on a cost-of-service basis. The
initial tariff rate that is established by a pipeline then becomes the
pipeline's base rate for indexation. Because of the complexity of rate making
the lawfulness of any tariff is never assured.
TransMontaigne's natural gas gathering activities, including fees, are
not regulated by the FERC and no state in which TransMontaigne operates
currently regulates such fees. Consequently, the fees charged for gathering
natural gas by TransMontaigne are unregulated. Although TransMontaigne is not
aware that any state in which it operates a natural gas gathering system is
likely to begin regulation of TransMontaigne's natural gas gathering
activities and fees, new or increased state regulation has been adopted or
proposed in other natural gas-producing states and there can be no assurance
that such regulation will not be proposed or adopted in states where
TransMontaigne conducts natural gas-related activities or that TransMontaigne
will not expand into or acquire operations in a state where such regulations
could be imposed.
Intrastate Regulation
The intrastate petroleum pipeline operations of TransMontaigne are
subject to regulation by the Texas Railroad Commission. Like interstate
regulation, the Texas regulation requires that intrastate tariffs be filed
with the Railroad Commission and allows shippers to challenge such tariffs.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the names, ages and titles of the members
of the Board of Directors and the executive officers of TransMontaigne:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- --- ------------------------
<S> <C> <C>
Cortlandt S. Dietler(1) 75 Chairman, Chief
Executive Officer
and Director
Richard E. Gathright(1) 42 President, Chief
Operating Officer
and Director
Harold R. Logan, Jr.(1) 52 Executive Vice
President/Finance,
Treasurer and
Director
W. A. Sikora 59 Executive Vice President
Frederick W. Boutin 41 Senior Vice President
Rodney S. Pless 35 Vice President and
Chief Accounting Officer
John A. Hill(2) 54 Director
Bryan H. Lawrence(2) 54 Director
William E. Macaulay 51 Director
Edwin H. Morgens(2) 55 Director
</TABLE>
- -------------------------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
Cortlandt S. Dietler has been the Chairman and Chief Executive
Officer of TransMontaigne since April 1995. He was the founder, Chairman, and
Chief Executive Officer of Associated Natural Gas Corporation prior to its
1994 merger with Panhandle Eastern Corporation (now PanEnergy Corporation), on
whose Board he serves as an Advisory Director. He also serves as a Director of
Hallador Petroleum Company, Key Production Company, Inc., Forest Oil
Corporation and Grease Monkey International, Inc. Industry affiliations
include: Member, National Petroleum Council; Director, American Petroleum
Institute; past Director, Independent Petroleum Association of America;
Director, past President and Life Member, Rocky Mountain Oil & Gas
Association.
Richard E. Gathright has been the President of TransMontaigne since
September 1996 and a Director since April 1995. From April 1995 until
September 1996 he was Executive Vice President of TransMontaigne. He joined
Continental Ozark Corporation in December 1993 and is currently President and
Chief Executive Officer of a subsidiary of TransMontaigne. From 1988 to 1993
he served as President and Director of North American Operations in Denver,
Colorado for Aberdeen Petroleum PLC, a London-based public company engaged in
international oil and gas operations, of which he was also a member of its
Board of Directors. Prior to joining Aberdeen Petroleum PLC, he held a number
of positions in the energy industry
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<PAGE>
in the areas of procurement, operations and management of oil and gas assets.
Mr. Gathright is also a Director of Lion.
Harold R. Logan, Jr. has been Executive Vice President/Finance and a
Director of TransMontaigne since April 1995. Previously, from 1985 to 1994,
Mr. Logan was Senior Vice President/Finance and a Director of Associated
Natural Gas Corporation. Prior to joining Associated Natural Gas Corporation,
Mr. Logan was with Dillon, Read & Co. Inc. and Rothschild, Inc. In addition,
Mr. Logan is a Director of Suburban Propane Partners, L.P.
W. A. Sikora became Executive Vice President of TransMontaigne in
September 1996 and has been Senior Vice President and Chief Financial Officer
of a subsidiary of TransMontaigne since May 1995. From November 1993 until
April 1995, he was a consultant to the subsidiary. Prior to that time he
provided financial advisory services to the executive management of publicly-
owned and privately-held companies, with particular emphasis in the energy
industry. He was previously a partner with Peat Marwick Mitchell & Co. (a
predecessor to KPMG Peat Marwick LLP) and Touche Ross & Co. (a predecessor to
Deloitte & Touche). In April 1996 Mr. Sikora filed a petition under Chapter 7
of the United States Bankruptcy Code which was discharged in October 1996.
Frederick W. Boutin has been the Senior Vice President of
TransMontaigne since April 1995. Prior to his employment with
TransMontaigne, Mr. Boutin was a Vice President of Associated Natural Gas
Corporation. Prior to joining Associated Natural Gas Corporation in 1985, Mr.
Boutin was with KPMG Peat Marwick LLP.
Rodney S. Pless became Vice President and Chief Accounting Officer
of TransMontaigne in December 1996 and has been Vice President-Controller and
Treasurer of a subsidiary of TransMontaigne since April 1994. He joined
TransMontaigne in 1987 and has been Credit and Tax Manager, Accounting Manager
and Controller. Prior to joining TransMontaigne, Mr. Pless was with Arthur
Young & Co. (a predecessor to Ernst & Young) for three years.
John A. Hill has been a Director of TransMontaigne since April 1995.
Mr. Hill has been Chairman of the Board of First Reserve Corporation since
1983. Mr. Hill is a trustee of the Putnam Funds and is a director of
Weatherford Enterra, Inc., Snyder Oil Corporation and Maverick Tube
Corporation.
Bryan H. Lawrence has been a Director of TransMontaigne since April
1991. He has been employed by Dillon, Read & Co. Inc., a New York-based
investment banking firm, since January 1966 and is a Managing Director. Mr.
Lawrence also serves as a Director of Vintage Petroleum, Inc., D&K Wholesale
Drug, Inc., Hallador Petroleum Company and Willbros Group, Inc. (each a United
States public company), Benson Petroleum Ltd. and Cavell Energy Corporation
(each a Canadian public company), and certain non-public companies in which
affiliates of Dillon, Read & Co. Inc. hold equity interests including Meenan
Oil Co., L.P., Fintube Limited Partnership, Interenergy Corporation,
PetroSantander Inc., Strega Energy Inc. and Savoy Energy, L.P.
William E. Macaulay has been a Director of TransMontaigne since
April 1995. Mr. Macaulay has been President and Chief Executive Officer of
First Reserve Corporation since 1983. Mr. Macaulay is a director of
Weatherford Enterra, Inc., Maverick Tube Corporation and Hugoton Energy
Corporation.
Edwin H. Morgens was appointed a director of TransMontaigne in June
1996. Mr. Morgens has been Chairman of Morgens, Waterfall, Vintiadis & Co.,
Inc., a financial services firm, since 1970. Mr. Morgens is also a general
partner of Morgens Waterfall Income Partners, L.P., a New York investment
limited partnership, and serves as president of Prime, Inc., the corporate
general partner of a Delaware investment partnership, and as managing member
of MW Management, L.L.C., a Delaware investment limited liability corporation.
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<PAGE>
The By-laws of TransMontaigne provide that the number of directors
shall be fixed by the Board of Directors. The number of directors is
presently fixed at seven, and there are no vacancies. First Reserve
Corporation has the right to appoint two directors to the Board of Directors
pursuant to an agreement between affiliates of First Reserve Corporation and
TransMontaigne dated April 17, 1996. Mr. Hill and Mr. Macaulay are the
directors appointed by First Reserve Corporation.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table indicates the beneficial ownership of the Common
Stock as of December 20, 1996, by each director and executive officer of
TransMontaigne and by each person who was known to TransMontaigne to own more
than 5% of the outstanding shares of the Common Stock. Except as otherwise
indicated below, the ownership reflects sole voting and investment power by
the beneficial owner. The information set forth below is based solely upon
information furnished by such individuals or contained in filings made by such
beneficial owners with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Percent of
Common
Amount and Percent of Stock
Nature of Common Stock Owned
Name and Address of Beneficial Owned Before After
Beneficial Owner Ownership Offerings Offerings
- ------------------- ---------- --------- ---------
(1)(2)
------
<S> <C> <C> <C>
Cortlandt S. Dietler 1,900,540 9.1% 7.6%
Richard E. Gathright (4) 533,000 2.5% 2.1%
Harold R. Logan, Jr. 343,056 1.6% 1.4%
Frederick W. Boutin 237,500 1.1% 1.0%
W. A. Sikora 213,889 1.0% (3)
Rodney S. Pless 11,500 (3) (3)
TransMontaigne Oil Company
370 Seventeenth Street,
Suite 900
Denver, Colorado 80202
First Reserve Fund VI, Limited 6,582,830 31.6% 26.4%
Partnership and other
partnerships managed by First
Reserve Corporation (5)
475 Steamboat Road
Greenwich, Connecticut 06830
Yorktown Energy Partners, L.P. 3,154,961 15.2% 12.6%
and other venture capital funds
managed by, and shares
owned by officers of Dillon,
Read & Co. Inc.
(6)
535 Madison Avenue
New York, New York 10022
Waterwagon & Co.(7) 3,117,000 15.0% 14.9%
c/o Merrill Lynch Growth
Fund
800 Scudders Mill Road
Plainsborough, New Jersey 08536
Massachusetts Mutual Life 1,296,277 6.2% 5.2%
Insurance Company and funds
managed by Massachusetts
Mutual Life Insurance Co.
1295 State Street
Springfield, Massachusetts 01111
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
John A. Hill (5) 6,582,830 31.6% 26.4%
475 Steamboat Road
Greenwich, Connecticut 06830
Bryan H. Lawrence (6) 3,154,961 15.2% 12.6%
535 Madison Avenue
New York, New York 10022
William E. Macaulay (5) 6,582,830 31.6% 26.4%
475 Steamboat Road
Greenwich, Connecticut 06830
Edwin H. Morgens 46,144 (3) (3)
10 East 50th Street
New York, New York 10022
All Directors and Executive 13,011,920 61.5% 52.1%
Officers as a Group (9 Persons) (8)
</TABLE>
- -------------------
(1) All shares are owned both of record and beneficially unless otherwise
specified by footnote to this table. Based solely upon information
furnished by such individuals or contained in filings made by such
beneficial owners with the Securities and Exchange Commission.
(2) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule 13d-
3(d), shares not outstanding that are subject to options, warrants,
rights, or conversion privileges exercisable within sixty days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but not deemed outstanding for the purpose of
calculating the percentage owned by any other person.
(3) Less than one percent.
(4) Includes 18,300 shares held by The Richard E. Gathright IRA Rollover
Account.
(5) First Reserve Corporation is an affiliate of John A. Hill and William E.
Macaulay, directors of TransMontaigne. Messrs. Hill and Macaulay disclaim
beneficial ownership of these shares.
(6) Yorktown Energy Partners, L.P. and Dillon, Read & Co. Inc. are affiliates
of Bryan H. Lawrence, a director of TransMontaigne. Mr. Lawrence owns
44,923 shares individually and disclaims beneficial ownership of the
remaining shares.
(7) TransMontaigne has granted to Merrill Lynch the right to maintain its 15%
ownership of Common Stock if TransMontaigne issues stock in the future.
Merrill Lynch is being offered the right to purchase 600,000 shares in
satisfaction of such right in the Concurrent Offering and has indicated
that it intends to purchase such shares. Merrill Lynch has indicated that
it will not exercise certain of its antidilution rights with respect to
shares of Common Stock issuable upon exercise of the Underwriters' over-
allotment option. See "Description of Capital Stock" and "Underwriting."
(8) Includes 9,692,868 shares held by affiliates, beneficial ownership of
which is disclaimed by the officers and directors.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the Selling
Stockholders and the shares of Common Stock offered by the Selling
Stockholders pursuant to this Prospectus. The trustee of each Selling
Stockholder is Edwin G. Bradberry, who retired in April 1995 as chairman of
the board of directors of a predecessor of TransMontaigne.
<TABLE>
<CAPTION>
Name of Shares Number Shares to be
Selling Beneficially Owned of Shares Beneficially Owned on
Stockholder Prior to the Offerings Being Offered Completion of the Offerings
- ----------------------------- --------------------------- ------------- ----------------------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Bradberry Family Trust(1) 440,000 2.1% 250,000 190,000 0.8%
Karlee Bradberry Trust(1) 500,000 2.4% 100,000 400,000 1.6%
------- --- ------- ------- ---
</TABLE>
- ----------------
(1) The Bradberry Family Trust and the Karlee Bradberry Trust, together with
Edwin G. Bradberry and other trusts of which he is trustee, beneficially own
1,004,082 shares of Common Stock (4.8%) and upon completion of the Offerings
will beneficially own 654,082 shares of Common Stock (2.6%).
(2) If the Underwriters' over-allotment option is exercised in full, the
percentage of the outstanding shares of Common Stock owned by the Bradberry
Family Trust and the Karlee Bradberry Trust would be 0.7% and 1.5%,
respectively.
-43-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of TransMontaigne consists of 40,000,000
shares of common stock, $.01 par value per share, of which 20,963,107 shares
were outstanding as of December 20, 1996, and 2,000,000 shares of preferred
stock, $.01 par value per share, of which no shares were outstanding.
Merrill Lynch has the right to maintain its 15% ownership of Common Stock
if TransMontaigne issues stock in the future, pursuant to an agreement between
Merrill Lynch and TransMontaigne. Merrill Lynch is being offered the right to
purchase 600,000 shares in satisfaction of such right in the Concurrent Offering
and has indicated that it intends to purchase such shares. Merrill Lynch has
indicated that it will not exercise its antidilution rights with respect to
shares of Common Stock it has the right to purchase in the Offerings in the
event of any exercise of the Underwriters' over-allotment option, but has
retained its right to purchase additional shares of Common Stock in subsequent
issuances by TransMontaigne to compensate for such election.
The description set forth below of the Common Stock constitutes a brief
summary of certain provisions of TransMontaigne's Charter and By-Laws, all of
which are filed as exhibits to the Registration Statement of which this
Prospectus is a part. Such summary does not purport to be complete and is
qualified by reference to such documents.
Common Stock
Each share of Common Stock has one vote on all matters on which
stockholders are entitled or permitted to vote, including the election or
removal of directors. Holders of the Common Stock have no redemption or
conversion rights, participate ratably in any distribution of assets to
stockholders in liquidation, and have no preemptive or other subscription
rights. Cumulative voting is not permitted in the election of directors. Holders
of the Common Stock are entitled to receive such dividends as may be declared by
the Board of Directors of TransMontaigne out of funds legally available
therefor. All outstanding shares of Common Stock are, and the shares of Common
Stock to be issued by TransMontaigne in the Offerings will be, fully paid and
nonassessable. Key Corporation Shareholder Services is the Transfer Agent and
Registrar for the Common Stock.
Preferred Stock
The Board of Directors of TransMontaigne, without further action by the
stockholders, is authorized to issue shares of preferred stock in one or more
series and, with certain limitations, to determine preferences as to dividends
and in liquidation, and voting, conversion, redemption and other rights of each
series. The Board could issue a series or series of preferred stock with rights
more favorable with respect to dividends and liquidation than those held by the
holders of Common Stock. In certain instances the issuance of preferred stock
could serve to delay or prevent a change of control of TransMontaigne.
Section 203 of the Delaware General Corporation Law
TransMontaigne is subject to Section 203 of the Delaware General
Corporation Law, which generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to such date the Board of
Directors of the corporation approved either the business combination or the
transaction in which the person became an interested stockholder, (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by officers or directors of the corporation
and by certain employee stock plans, or (iii) on or after such date the business
combination is approved by the Board of Directors of the corporation and by the
affirmative vote of at least 66-2/3% of the
-44-
<PAGE>
outstanding voting stock of the corporation that is not owned by the interested
stockholder. A "business combination" generally includes mergers, asset sales
and similar transactions between the corporation and the interested stockholder,
and other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of the corporation's voting stock or who is an
affiliate or associate of the corporation and, together with his affiliates and
associates, has owned 15% or more of the corporation's voting stock within three
years.
Registration Rights
TransMontaigne has a registration rights agreement with certain principal
stockholders who own in the aggregate approximately 68% of the Common Stock that
will be outstanding after the Offerings, granting them the right to require
TransMontaigne to register their shares at TransMontaigne's expense under the
Securities Act, provided that each may request or participate in a request for
up to four registrations, and no more than one registration may be required in
any 12 month period. In addition, they have the right to have any or all of such
Common Stock included, at their pro rata expense, in any registration statement
relating to the Common Stock filed by TransMontaigne, subject to the right of
the underwriter of that offering to limit the number of shares of such Common
Stock to be included in that registration. All of such stockholders have waived
their rights to have their Common Stock included in the Offerings.
-45-
<PAGE>
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
in the Underwritten Offering and the aggregate number of shares which each has
severally agreed to purchase from TransMontaigne and the Selling Stockholders
(subject to the terms and conditions specified in the Underwriting Agreement)
are as follows:
Underwriters Number of Shares
------------ ----------------
Dillon, Read & Co. Inc............................
A.G. Edwards & Sons, Inc .........................
Petrie Parkman & Co., Inc. .......................
---------
Total............................................. 3,750,000
=========
The Managing Underwriters are Dillon, Read & Co. Inc., A.G. Edwards & Sons,
Inc. and Petrie Parkman & Co., Inc. As of December 20, 1996, (i) certain private
investment partnerships managed by Dillon, Read & Co. Inc. and persons related
to Dillon, Read & Co. Inc. owned approximately 3,155,000 shares of Common Stock
and (ii) Petrie Parkman & Co., Inc. and persons related to Petrie Parkman & Co.,
Inc. owned approximately 145,000 shares of Common Stock. Bryan H. Lawrence, a
Managing Director of Dillon, Read & Co. Inc., has been a member of the Board of
Directors of TransMontaigne since April 1991. Petrie Parkman & Co., Inc. has
received customary compensation in connection with financial advisory services
provided by it to a predecessor of TransMontaigne during the past twelve months
in connection with the merger of two predecessors of TransMontaigne, which
included shares of common stock granted in June 1996.
If any shares of Common Stock offered hereby in the Underwritten Offering
are purchased by the Underwriters, all such shares will be so purchased. The
Underwriting Agreement contains certain provisions whereby if any Underwriter
defaults in its obligation to purchase such shares and if the aggregate
obligations of the Underwriters so defaulting do not exceed 10% of the shares
hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The shares of Common Stock offered hereby in the Underwritten Offering
initially are being offered severally by the Underwriters for sale at the price
set forth on the cover page of this Prospectus, or at such price less a
concession not to exceed $ per share on sales to certain dealers. The
Underwriters may allow, and such dealers may reallow, a concession not to exceed
$ per share on sales to certain dealers. The offering of the shares of
Common Stock in the Underwritten Offering is made for delivery when, as, and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares. After the
shares are released for sale to the public, the public offering price and such
concessions may be changed by the Managing Underwriters.
TransMontaigne has granted to the Underwriters an over-allotment option to
purchase up to an additional 562,500 shares of Common Stock on the same terms
per share. If the Underwriters exercise such option, each of the Underwriters
will be obligated, subject to certain conditions, to purchase approximately the
same proportion of the aggregate shares so purchased as the number of shares to
be purchased by it shown in the above table bears to the total number of shares
in such table. The Underwriters may exercise such option on or before the
thirtieth day from the date of the public offering of the shares offered hereby
and only to cover overallotments made of the shares in connection with the
Offerings.
TransMontaigne has agreed that it will not, without the prior written
consent of Dillon, Read & Co. Inc., sell, contract to sell, grant any option to
sell, transfer or otherwise dispose of, directly or indirectly, any shares of
the Common Stock, or any securities convertible into, or
-46-
<PAGE>
exercisable or exchangeable for, Commmon Stock or warrants or other rights to
purchase Common Stock, or permit the registration of any shares of Common Stock,
for a period of 180 days after the date of this Prospectus, except (i) shares of
Common Stock issued pursuant to the exercise of outstanding options, (ii)
options granted to its employees, officers and directors under its existing
employee stock option plans so long as none of such options become exercisable
during said 180 day period and (iii) shares of Common Stock which may be issued
by TransMontaigne in connection with any future acquisitions so long as the
recipients of such shares are subject to a lock-up expiring no earlier than the
end of said 180 day period. TransMontaigne's officers and directors and certain
stockholders who will hold in the aggregate 16,728,920 shares of Common Stock
after the Offerings and who hold certain options to purchase Common Stock have
agreed that they will not, without the prior written consent of Dillon, Read &
Co. Inc., sell, contract to sell, grant any option to sell, transfer or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
securities convertible into, or exercisable or exchangeable for, Common Stock or
warrants or other rights to purchase Common Stock, or permit the registration of
any shares of Common Stock, for a period of 180 days after the date of this
Prospectus.
TransMontaigne and the Selling Stockholders have agreed in the Underwriting
Agreement to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters may be required to make in respect thereof.
The 600,000 shares of Common Stock offered in the Concurrent Offering will
be offered directly by TransMontaigne to Merrill Lynch at the price paid by the
Underwriters. Each of the Underwritten Offering and the Concurrent Offering is
contingent upon the simultaneous consummation of the other.
LEGAL MATTERS
The legality of the securities offered hereby will be passed on for
TransMontaigne by Holme Roberts & Owen LLP, Denver, Colorado. Certain legal
matters in connection with the sale of such securities will be passed on for the
Underwriters by Cahill Gordon & Reindel, a partnership including a professional
corporation, New York, New York.
EXPERTS
The consolidated financial statements of TransMontaigne Oil Company as of
April 30, 1996 and 1995 and for the years ended April 30, 1996 and 1995, the
seven months ended April 30, 1994 and the year ended September 30, 1993 have
been incorporated by reference and included herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference and included herein, and upon the authority of such firm as experts
in accounting and auditing.
The consolidated financial statements of Lion Oil Company and Subsidiary as
of April 30, 1996 and 1995, and the related consolidated statements of earnings,
stockholders' equity and cash flow for each of the years in the three-year
period ended April 30, 1996 included in TransMontaigne Oil Company's annual
report on Form 10-K for the year ended April 30, 1996, have been incorporated by
reference herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP refers to a change in the method of accounting
for income taxes effective May 1, 1993.
The historical summaries of revenue and direct operating expenses of the
Grasslands Facilities for the nine months ended September 30, 1996 and the years
ended December 31, 1995 and 1994 have been included herein in reliance upon the
report of KPMG Peak Marwick LLP, independent certified public accountants,
included herein, and upon the authority of such firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
-47-
<PAGE>
TransMontaigne has filed with the Commission a registration statement on
Form S-2 (the "Registration Statement," which term encompasses all amendments,
exhibits, annexes and schedules thereto) under the Securities Act with respect
to the Common Stock offered hereby. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all the information set forth in
the Registration Statement, to which reference is hereby made. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement and the exhibits thereto, reference is hereby made to the exhibit for
a more complete description of the matter involved, and each statement made
herein shall be deemed qualified in its entirety by such reference.
TransMontaigne is subject to the informational requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy and information
statements and other information with the Commission. The Registration Statement
filed by TransMontaigne with the Commission, as well as such reports, proxy and
information statements and other information filed by TransMontaigne with the
Commission, are available at the web site that the Commission maintains at
http://www.sec.gov and can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048, and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material, when filed, may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Common Stock is listed on the American Stock
Exchange and such reports, proxy and information statements and other
information concerning TransMontaigne are available at the offices of the
American Stock Exchange, 86 Trinity Place, New York, NY 10006.
-48-
<PAGE>
Index to Financial Statements
TRANSMONTAIGNE OIL COMPANY
Condensed Pro Forma Financial Information Page
----
Introduction............................................................. F-2
Condensed Pro Forma Balance Sheet, October 31, 1996 (Unaudited).......... F-3
Condensed Pro Forma Statement of Operations, six months
ended October 31, 1996 (Unaudited)..................................... F-4
Condensed Pro Forma Statement of Operations,
year ended April 30, 1996 (Unaudited).................................. F-5
Notes to Condensed Pro Forma Financial Statements (Unaudited)............ F-6
Interim Consolidated Financial Statements
Consolidated Balance Sheets, October 31, 1996 and April 30, 1996
(Unaudited)............................................................ F-8
Consolidated Statements of Operations, six months ended
October 31, 1996 and 1995 (Unaudited).................................. F-9
Consolidated Statements of Stockholders' Equity, six months ended
October 31, 1996 and year ended April 30, 1996 (Unaudited)............. F-10
Consolidated Statements of Cash Flows, six months ended
October 31, 1996 and 1995 (Unaudited).................................. F-11
Notes to Consolidated Financial Statements (Unaudited)................... F-12
Annual Consolidated Financial Statements
Independent Auditors' Report............................................. F-14
Consolidated Balance Sheets, April 30, 1996 and 1995..................... F-15
Consolidated Statements of Operations, years ended April 30, 1996
and 1995, seven months ended April 30, 1994 and year ended
September 30, 1993..................................................... F-16
Consolidated Statements of Stockholders' Equity, years ended
April 30, 1996 and 1995, seven months ended April 30, 1994 and
year ended September 30, 1993.......................................... F-17
Consolidated Statements of Cash Flows, years ended April 30, 1996 and
1995, seven months ended April 30, 1994 and year ended
September 30, 1993..................................................... F-18
Notes to Consolidated Financial Statements............................... F-19
THE GRASSLANDS FACILITIES
Independent Auditors' Report............................................. F-33
Historical Summaries of Revenue and Direct Operating Expenses, nine
months ended September 30, 1996 nine months ended September 30,
1995 (unaudited) and years ended December 31, 1995 and 1994............ F-34
Notes to Historical Summaries of Revenue and Direct Operating Expenses... F-35
F-1
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
Condensed Pro Forma Financial Information
- --------------------------------------------------------------------------------
On December 20, 1996, TransMontaigne Oil Company (TransMontaigne) acquired a
natural gas gathering, processing, treating and fractionation system located in
western North Dakota and northeastern Montana (the Grasslands Facilities) for
approximately $71,000,000 from Koch Hydrocarbon Company, a division of Koch
Industries, Inc. The acquisition will be accounted for as a purchase.
The following unaudited condensed pro forma balance sheet as of October 31, 1996
assumes that the acquisition of the Grasslands Facilities occurred on
October 31, 1996 and reflects the historical consolidated balance sheet of
TransMontaigne at that date giving pro forma effect to the acquisition of the
Grasslands Facilities.
The following unaudited condensed pro forma statements of operations for the six
months ended October 31, 1996 and the year ended April 30, 1996 assumes that
the acquisition of the Grasslands Facilities occurred as of May 1, 1995 and
combines the historical results of TransMontaigne for the six months ended
October 31, 1996 and the year ended April 30, 1996 with the historical results
of operation of the Grasslands Facilities for the six months ended September 30,
1996 and the twelve months ended March 31, 1996, respectively.
The pro forma results of operations are not necessarily indicative of the
results of operations that would actually have been attained if the transaction
had occurred as of the beginning of the periods presented. These unaudited
condensed pro forma financial statements should be read in conjunction with the
historical statements and related notes of TransMontaigne.
F-2
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Condensed Pro Forma Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
TransMontaigne
historical Pro forma adjustments Pro forma
October 31, --------------------- combined
Assets 1996 Debit Credit TransMontaigne
- ------ ---- ----- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 33,001,504 71,000,000 (1) 71,000,000 (2) 33,001,504
Trade accounts receivable 41,250,480 - - 41,250,480
Notes receivable - current 900,000 - - 900,000
Inventories 36,951,892 - - 36,951,892
Prepaid expenses and other 1,211,958 - - 1,211,958
------------ ----------- ---------- -----------
113,315,834 71,000,000 71,000,000 113,315,834
------------ ----------- ---------- -----------
Property, plant and equipment:
Land 1,072,798 1,000,000 (2) - 2,072,798
Plant and equipment 32,982,365 70,000,000 (2) - 102,982,365
Accumulated depreciation (7,218,868) - - (7,218,868)
------------ ----------- ---------- -----------
26,836,295 71,000,000 - 97,836,295
------------ ----------- ---------- -----------
Investments and other assets:
Investments 16,004,257 - - 16,004,257
Notes receivable - noncurrent 1,328,313 - - 1,328,313
Other assets, net 3,567,788 - - 3,567,788
------------ ----------- ---------- -----------
20,900,358 - - 20,900,358
------------ ----------- ---------- -----------
$161,052,487 142,000,000 71,000,000 232,052,487
============ =========== ========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Trade accounts payable $ 28,239,991 - - 28,239,991
Inventory due under
exchange agreements 8,063,830 - - 8,063,830
Taxes payable 7,216,662 - - 7,216,662
Other accrued liabilities 2,574,041 - - 2,574,041
------------ ----------- ---------- -----------
46,094,524 - - 46,094,524
------------ ----------- ---------- -----------
Long-term debt, less current portion 37,684,067 - 71,000,000 (1) 108,684,067
Minority interests 5,602,012 - - 5,602,012
Stockholders' equity:
Common stock 209,830 - - 209,830
Capital in excess of par value 72,283,793 - - 72,283,793
Accumulated deficit (821,739) - - (821,739)
------------ ----------- ---------- -----------
71,671,884 - - 71,671,884
------------ ----------- ---------- -----------
$161,052,487 - 71,000,000 232,052,487
============ =========== ========== ===========
</TABLE>
See accompanying notes to condensed pro forma financial statements.
F-3
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Condensed Pro Forma Statement of Operations
Six Months Ended October 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TransMontaigne Grasslands Facilities
historical six historical six
months ended months ended Pro forma
October 31, September 30, Pro forma combined
1996 1996 adjustments TransMontaigne
---- ---- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenue:
Product sales, pipeline tariffs and
terminaling fees $470,822,944 23,648,192 - 494,471,136
Costs and expenses:
Product costs and direct
operating expenses 462,096,897 17,358,783 - 479,455,680
General and administrative 3,158,305 - 270,000 (3) 3,428,305
Depreciation and amortization 955,028 - 1,750,000 (4) 2,705,028
------------ ---------- ---------- -----------
466,210,230 17,358,783 2,020,000 485,589,013
------------ ---------- ---------- -----------
Operating income 4,612,714 6,289,409 (2,020,000) 8,882,123
Other income (expense):
Interest income 893,051 - - 893,051
Equity in earnings of affiliates 423,151 - - 423,151
Minority interests (149,049) - - (149,049)
Interest expense and other
financing costs (1,370,280) - (2,840,000) (5) (4,170,280)
Other, net 340,076 - - 340,076
------------ ---------- ---------- -----------
136,949 - (2,840,000) (2,703,051)
------------ ---------- ---------- -----------
Earnings before income taxes 4,749,663 6,289,409 (4,860,000) 6,179,072
Income taxes (270,000) - - (6) (270,000)
------------ ---------- ---------- -----------
Net earnings $ 4,479,663 6,289,409 (4,860,000) 5,909,072
============ ========== =========== ===========
Weighted average common
shares outstanding 21,290,302 21,290,302
============ ===========
Earnings per common share $ 0.21 .28
============ ===========
</TABLE>
See accompanying notes to condensed pro forma financial statements.
F-4
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Condensed Pro Forma Statement of Operations
Year Ended April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TransMontaigne Grasslands Facilities
historical historical
year ended year ended Pro forma
April 30, March 31, Pro forma combined
1996 1996 adjustments TransMontaigne
---- ---- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenue:
Product sales, pipeline tariffs and
terminaling fees $533,106,747 45,467,078 - 578,573,825
Costs and expenses:
Product costs and direct
operating expenses 520,389, 35,200,027 - 555,589,509
General and administrative 4,998,77 - 540,000 (3) 5,538,771
Depreciation and amortization 1,169,541 - 3,500,000 (4) 4,669,541
------------ ---------- ----------
526,557,794 35,200,027 (4,040,000) 565,797,821
------------ ---------- ----------
Operating income 6,548,953 10,267,051 (4,040,000) 12,776,004
Other income (expense):
Interest income 520,900 - - 520,900
Equity in earnings of affiliates 942,216 - - 942,216
Minority interests (337,253) - - (337,253)
Interest expense and other
financing costs (2,864,100) - (5,680,000) (5) (8,464,100)
------------ ---------- ----------
(1,738,237) - (5,680,000) (7,418,237)
------------ ---------- ---------- -----------
Earnings before income taxes 4,810,716 10,267,051 (9,720,000) 5,357,767
Income taxes (192,74 - - (6) (192,747)
------------ ---------- ---------- -----------
Net earnings $ 4,617,969 10,267,051 (9,720,000) 5,165,020
============ ========== =========== ===========
Weighted average common
shares outstanding 15,129,637 15,129,637
============ ===========
Earnings per common share $0.31 .34
============ ===
</TABLE>
See accompanying notes to condensed pro forma financial statements.
F-5
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
Notes to Condensed Pro Forma Combined Financial Information
- --------------------------------------------------------------------------------
(1) Basis of Presentation
On December 20, 1996, TransMontaigne Oil Company (TransMontaigne) acquired
a natural gas gathering, processing, treating and fractionation system
located in western North Dakota and northeastern Montana (the Grasslands
Facilities) for approximately $71,000,000 from Koch Hydrocarbon Company, a
division of Koch Industries, Inc. The acquisition will be accounted for as
a purchase. The acquisition was financed with TransMontaigne's acquisition
revolving credit facility. This credit facility is available through a
credit agreement entered into by TransMontaigne in December 1996 and
generally bears interest at a rate per year equal to the lender's announced
Base Rate, subject to a Eurodollar pricing option at TransMontaigne's
election. The first $45 million of proceeds of any public or private debt
or equity issuance are required to be applied to the repayment of the
amounts outstanding under the acquisition revolving credit facility.
The accompanying condensed pro forma balance sheet includes pro forma
adjustments to give effect to the acquisition of the Grasslands Facilities
as of October 31, 1996. The condensed pro forma statements of operations
include the historical revenue and direct operating expenses of the
Grasslands Facilities for the respective periods presented and adjustments
for the pro forma effects of the acquisition.
(2) Pro Forma Adjustments
The following pro forma adjustments have been made to the balance sheet of
TransMontaigne at October 31, 1996 and to the statements of operations for
the six months ended October 31, 1996 and for the year ended April 30,
1996:
(1) To reflect the proceeds from borrowings under the acquisition
revolving credit facility.
(2) To reflect the acquisition of the Grasslands Facilities by
TransMontaigne.
(3) To adjust general and administrative expense for the estimated
additional general and administrative expenses expected to be
incurred as a result of the purchase of the Grasslands Facilities.
(4) To record depreciation expense relating to the cost of the
property, plant and equipment of the Grasslands Facilities.
(5) To adjust interest expense recorded by TransMontaigne to reflect
the additional long-term debt incurred to fund the acquisition of
the Grasslands Facilities at an assumed interest rate of 8%. If the
actual rate varied from the assumed rate by 1/8%, the interest
expense amounts for the six months ended October 31, 1996 and the
year ended April 30, 1996 would have differed by $44,375 and
$88,750, respectively.
F-6
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
Notes to Condensed Pro Forma Combined Financial Information
- --------------------------------------------------------------------------------
(6) On a pro forma basis, no income tax expense was reflected for the
six months ended October 31, 1996 and year ended April 30, 1996
since the pro forma provision for income taxes would have been
offset by a decrease in the valuation allowance for net deferred
tax assets.
On a pro forma basis, no adjustment to interest expense or earnings per
common share was reflected to give effect to issuance of 4,000,000 shares
of common stock offered hereby by TransMontaigne and the application of the
net proceeds therefrom to reduce long-term debt.
F-7
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1996 and April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31, April 30,
Assets 1996 1996
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33,001,504 38,403,234
Trade accounts receivable 41,250,480 20,905,812
Notes receivable - current 900,000 -
Inventories 36,951,892 23,609,136
Prepaid expenses and other 1,211,958 1,475,612
------------- -----------
113,315,834 84,393,794
------------- -----------
Property, plant and equipment:
Land 1,072,798 1,072,798
Plant and equipment 32,982,365 24,926,309
Accumulated depreciation (7,218,868) (6,461,244)
------------- -----------
26,836,295 19,537,863
------------- -----------
Investments and other assets:
Investments 16,004,257 15,830,006
Notes receivable - noncurrent 1,328,313 -
Other assets, net 3,567,788 1,201,313
------------- -----------
20,900,358 17,031,319
------------- -----------
$ 161,052,487 120,962,976
============= ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Trade accounts payable $ 28,239,991 10,698,199
Inventory due under exchange agreements 8,063,830 8,874,645
Taxes payable 7,216,662 6,483,756
Other accrued liabilities 2,574,041 2,685,355
------------- -----------
46,094,524 28,741,955
------------- -----------
Long-term debt, less current portion 37,684,067 28,948,867
Minority interests 5,602,012 5,452,963
Stockholders' equity:
Preferred stock, par value $.01; authorized 2,000,000
shares, none issued - -
Common stock, par value $.01 per share; authorized
40,000,000 shares, issued and outstanding 20,982,960
shares at October 31, 1996; par value $.10 per share;
authorized 27,000,000 shares, issued and outstanding
19,331,171 shares at April 30, 1996 209,830 1,933,117
Capital in excess of par value 72,283,793 61,187,476
Accumulated deficit (821,739) (5,301,402)
------------- -----------
71,671,884 57,819,191
------------- -----------
$ 161,052,487 120,962,976
============= ===========
See accompanying notes to consolidated financial statements.
</TABLE>
F-8
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Consolidated Statements of Operations
Six Months Ended October 31, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Revenue:
Product sales, pipeline tariffs and terminaling fees $ 470,822,944 242,015,171
Costs and expenses:
Product costs and direct operating expenses 462,096,897 235,772,166
General and administrative 3,158,305 2,256,778
Depreciation and amortization 955,028 560,348
------------ -----------
466,210 ,230 238,589,292
------------ -----------
Operating income 4,612,714 3,425,879
Other income (expense):
Interest income 893,051 258,693
Equity in earnings of affiliates 423,151 392,184
Minority interests (149,049) (131,100)
Interest expense and other financing costs (1,370,280) (1,403,938)
Other, net 340,076 -
------------ -----------
136,949 (884,161)
------------ -----------
Earnings before income taxes 4,749,663 2,541,718
Income taxes - current (270,000) (73,002)
------------ -----------
Net earnings $ 4,479,663 2,468,716
============ ===========
Weighted average common shares outstanding 21,290,302 14,902,347
============ ===========
Earnings per common share $ 0.21 0.17
==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Six Months Ended October 31, 1996 and Year Ended April 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Capital in
Common excess of Accumulated
stock par value deficit Total
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at April 30, 1995 $ 1,478,071 36,912,002 (9,919,371) 28,470,702
Common stock issued for cash 455,046 24,558,462 - 25,013,508
Costs related to issuance of
common stock - (282,988) - (282,988)
Net earnings - - 4,617,969 4,617,969
---------- ---------- --------- ----------
Balance at April 30, 1996 1,933,117 61,187,476 (5,301,402) 57,819,191
Change in par value of common
stock from $.10 to $.01 in
connection with merger
(note 2) (1,739,805) 1,739,805 - -
Common stock issued in merger (note 2) 14,744 8,093,785 - 8,108,529
Common stock issued for
options exercised 774 288,727 - 289,501
Common stock issued for
minority interest
in subsidiary 1,000 974,000 - 975,000
Net earnings - - 4,479,663 4,479,663
---------- ---------- --------- ----------
Balance at October 31, 1996 $ 209,830 72,283,793 (821,739) 71,671,884
========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended October 31, 1996 and 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,479,663 2,468,716
Adjustments to reconcile net earnings to net cash used by operating activities:
Depreciation and amortization 955,028 560,348
Equity in earnings of affiliates (423,151) (392,184)
Minority interests 149,049 131,100
Changes in operating assets and liabilities, net of effect of acquisitions:
Trade accounts receivable (20,130,189) (7,364,424)
Inventories (13,342,756) 3,368,733
Prepaid expenses and other 444,441 75,563
Trade accounts payable 17,495,194 (7,851,238)
Inventory due under exchange agreements (810,815) (1,435,295)
Accrued liabilities 800,889 1,784,213
---------- ----------
Net cash used by operating activities (10,382,647) (8,654,468)
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (5,837,277) (1,522,392)
Proceeds from sale of assets 13,523 6,625
Cash received in connection with acquisition 2,315,527 --
Costs related to acquisition (399,234) --
Merger related costs -- (262,179)
Cash balance of subsidiary sold (111,341) --
Change in other assets (24,982) 61,176
---------- ----------
Net cash used by investing activities (4,043,784) (1,716,770)
---------- ----------
Cash flows from financing activities:
Borrowings (repayments) of long-term debt, net 8,735,200 (11,040,768)
Common stock issued for cash 289,501 --
Stock subscription received in cash -- 30,000,002
---------- ----------
Net cash provided by financing activities 9,024,701 18,959,234
---------- ----------
Increase (decrease) in cash and cash equivalents (5,401,730) 8,587,996
---------- ----------
Cash and cash equivalents at beginning of period 38,403,234 1,801,828
---------- ----------
Cash and cash equivalents at end of period $ 33,001,504 10,389,824
Supplemental disclosures of cash flow information:
Acquisition of Sheffield Exploration Company
(Note 2):
Fair value of assets acquired $ 8,739,247 --
Fair value of liabilities assumed 231,484 --
---------- ----------
8,507,763 --
Costs related to acquisition 399,234 --
---------- ----------
Fair value of stock issued $ 8,108,529 --
========== ==========
Cash received in connection with acquisition included in assets acquired $ 2,315,527 --
=========== ===========
Sale of Sheffield Operating Company (Note 3):
Fair value of assets sold $ 1,991,403 --
Fair value of liabilities assumed by purchaser 245,451 --
---------- ----------
Fair value of consideration received 2,236,854 --
=========== ===========
Cash distributed in connection with sale $ 111,341 --
included in assets sold =========== ===========
</TABLE>
Acquistion of minority interest in Bear Paw Energy, Inc.
The Company acquired the remaining 10% interest in Bear Paw Energy, Inc. in
exchange for 100,000 shares of the Company's common stock which was recorded in
Other Assets on the Consolidated Balance Sheet at October 31, 1996.
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1996
- --------------------------------------------------------------------------------
(1) Basis of Presentation
The consolidated balance sheets at October 31, 1996 and April 30, 1996, the
consolidated statements of operations for the three months and six months
ended October 31, 1996 and 1995, the consolidated statement of
stockholders' equity for the six months ended October 31, 1996 and the year
ended April 30, 1996 and the consolidated statements of cash flows for the
six months ended October 31, 1996 and 1995 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods presented.
These consolidated financial statements should be read in conjuction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1996. The results of operations for the three
months and the six months ended October 31, 1996 are not necessarily
indicative of the reuslts for the entire fiscal year ending April 30, 1997.
(2) Merger
The Company is the surviving corporation of a merger (the Merger) between
TransMontaigne Oil Company and Sheffield Exploration Company, Inc.
(Sheffield) effective June 4, 1996. The Merger constituted a reverse
acquisition of Sheffield, in that Sheffield survived the Merger, but is
owned approximately 93% by the former stockholders of TransMontaigne Oil
Company. The par value of the common stock of the company surviving the
Merger is $.01 per share. As a result of the Merger, (i) the name of
Sheffield was changed to TransMontaigne Oil Company, (ii) the number of
share of authorized common stock was increased to 40,000,000, and (iii) the
stock options which Sheffield had outstanding prior to the Merger became
options to purchase 79,338 shares of the Company's common stock at $3.65
per share. These options were exercised prior to their September 2, 1996
expiration date.
(3) Sale of Subsidiary
On October 31, 1996, the Company sold a wholly owned subsidiary for
approximately $2,237,000. The Company received as consideration a note
receivable for approximately $2,067,000 payable over five years, a
receivable for $100,000 and shares of common stock representing an
approximate 18% interest in the acquiring company's common stock. On
November 4, 1996 the Company received a $700,000 cash payment on the note
and the $100,000 receivable was collected.
F-12
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(4) Subsequent Event
The Company's wholly owned subsidiary, Bear Paw Energy, Inc. ("Bear Paw"),
entered into a definitive agreement on November 1, 1996 to acquire for
approximately $75,000,000 the Grasslands natural gas gathering, processing,
treating and fractionating system located in western North Dakota and
northeastern Montana. The Grasslands gas processing plant, located in
McKenzie County, North Dakota, was built in 1980. Natural gas is gathered
from over 1,200 active leases through approximately 2,500 miles of
gathering lines.
F-13
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
TransMontaigne Oil Company:
We have audited the accompanying consolidated balance sheets of TransMontaigne
Oil Company and subsidiaries as of April 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended April 30, 1996 and 1995, the seven months ended April 30, 1994
and the year ended September 30, 1993. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TransMontaigne Oil
Company and subsidiaries as of April 30, 1996 and 1995, and the results of their
operations and their cash flows for the years ended April 30, 1996 and 1995, the
seven months ended April 30, 1994 and the year ended September 30, 1993, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
June 20, 1996
F-14
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1996 1995
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 38,403,234 1,801,828
Trade accounts receivable 20,905,812 17,608,564
Amounts receivable under stock purchase agreements - 30,000,002
Inventories 23,609,136 21,361,341
Prepaid expenses and other 1,475,612 905,794
------------ -----------
84,393,794 71,677,529
------------ -----------
Property, plant and equipment:
Land 1,072,798 1,047,324
Plant and equipment 24,926,309 20,915,921
Accumulated depreciation (6,461,244) (5,360,082)
------------ -----------
19,537,863 16,603,163
------------ -----------
Investments and other assets:
Investments 15,830,006 14,798,228
Other assets 814,713 994,598
Deferred debt issuance costs, net 386,600 146,828
------------ -----------
17,031,319 15,939,654
------------ -----------
$120,962,976 104,220,346
============ ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ - 1,103,826
Trade accounts payable 10,698,199 22,365,444
Inventory due under exchange agreements 8,874,645 3,895,830
Excise taxes payable 6,483,756 4,649,599
Other accrued liabilities 2,685,355 1,673,625
------------ -----------
28,741,955 33,688,324
------------ -----------
Long-term debt, less current portion 28,948,867 36,945,610
Minority interests 5,452,963 5,115,710
Stockholders' equity:
Preferred stock, par value $.10; authorized
3,000,000 shares, none issued - -
Common stock, par value $.10 per share; authorized
27,000,000 shares, issued and outstanding 19,331,171 1,933,117 1,478,071
shares at April 30, 1996 and 14,780,715 shares
at April 30, 1995
Capital in excess of par value 61,187,476 36,912,002
Accumulated deficit (5,301,402) (9,919,371)
------------ -----------
57,819,191 28,470,702
------------ -----------
$120,962,976 104,220,346
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended April 30, 1996 and 1995, Seven Months Ended April 30, 1994
and Year Ended September 30, 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Product sales, pipeline tariffs
and terminaling fees $533,106,747 324,591,409 296,086,981 507,936,810
Costs and expenses:
Product costs and direct operating
expenses 520,389,482 318,811,953 294,773,790 505,348,576
General and administrative 4,998,771 4,226,123 2,156,817 3,199,223
Depreciation and amortization 1,169,541 1,147,291 665,955 1,099,253
------------ ----------- ----------- -----------
526,557,794 324,185,367 297,596,562 509,647,052
------------ ----------- ----------- -----------
Operating income (loss) 6,548,953 406,042 (1,509,581) (1,710,242)
Other income (expenses):
Interest income 520,900 -- -- --
Equity in earnings (losses)
of affiliates 942,216 407,208 710,626 (136,511)
Minority interests (337,253) (112,555) (231,156) 77,802
Interest expense (2,530,945) (3,119,019) (1,524,473) (2,319,180)
Other financing costs (333,155) (393,031) (228,468) (354,195)
Cancellation of aircraft lease -- (286,735) -- --
------------ ----------- ----------- -----------
(1,738,237) (3,504,132) (1,273,471) (2,732,084)
------------ ----------- ----------- -----------
Earnings (loss) before
income taxes 4,810,716 (3,098,090) (2,783,052) (4,442,326)
Income taxes -- current (192,747) (119,545) (70,557) (48,142)
------------ ----------- ----------- -----------
Net earnings (loss) $ 4,617,969 (3,217,635) (2,853,609) (4,490,468)
============ =========== =========== ===========
Weighted average
common shares outstanding 15,129,637 2,860,390 2,694,830 2,694,830
============ =========== =========== ===========
Earnings (loss) per common share $0.31 (1.32) (1.15) (1.85)
==== ==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended April 30, 1996 and 1995, Seven Months Ended April 30, 1994
and Year Ended September 30, 1993
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Redeemable Capital in
preferred Common excess of Accumulated
stock stock par value deficit Total
------------ --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 $ 6,678,007 269,483 941,095 1,936,475 9,825,060
Preferred stock dividends (70,034 shares) 490,238 - - (490,330) (92)
Net loss - - - (4,490,468) (4,490,468)
----------- --------- ---------- ---------- ----------
Balance at September 30, 1993 7,168,245 269,483 941,095 (3,044,323) 5,334,500
Preferred stock dividends (36,921 shares) 258,447 - - (258,503) (56)
Net loss - - - (2,853,609) (2,853,609)
----------- --------- ---------- ---------- ----------
Balance at April 30, 1994 7,426,692 269,483 941,095 (6,156,435) 2,480,835
Preferred stock dividends (78,515 shares) 545,195 - - (545,301) (106)
Common stock issued in connection with
conversion of preferred stock (7,971,887) 295,255 7,676,632 - -
Common stock issued in connection with
stock purchase agreements - 833,333 29,166,669 - 30,000,002
Common stock issued in connection with
a merger - 80,000 120,000 - 200,000
Costs related to conversion of preferred stock
and issuance of common stock - - (992,394) - (992,394)
Net loss - - - (3,217,635) (3,217,635)
----------- --------- ---------- ---------- ----------
Balance at April 30, 1995 - 1,478,071 36,912,002 (9,919,371) 28,470,702
Common stock issued for cash - 455,046 24,558,462 - 25,013,508
Costs related to issuance of common stock - - (282,988) - (282,988)
Net earnings - - - 4,617,969 4,617,969
----------- --------- ---------- ---------- ----------
Balance at April 30, 1996 $ - 1,933,117 61,187,476 (5,301,402) 57,819,191
=========== ========= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended April 30, 1996 and 1995, Seven Months Ended April 30, 1994
and Year Ended September 30, 1993
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,617,969 (3,217,635) (2,853,609) (4,490,468)
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 1,169,541 1,147,291 665,955 1,099,253
Equity in (earnings) losses of affiliates (942,216) (407,208) (710,626) 136,511
Minority interests 337,253 112,555 231,156 (77,802)
Dividends received from affiliates - 125,000 75,000 40,000
Loss on cancellation of aircraft lease - 286,735 - -
Write-off of noncurrent receivable - 190,000 - -
Loss (gain) on disposition of assets 167,459 (127,645) - (4,623)
Changes in operating assets and liabilities,
net of noncash activities:
Trade accounts receivable (3,297,248) 1,283,422 (10,201,357) 1,239,836
Inventories (2,247,795) (1,591,906) 23,107,751 (8,756,709)
Prepaid expenses and other (569,818) 169,196 (567,652) (63,513)
Trade accounts payable (10,979,599) (641,400) (12,845,989) 11,540,616
Inventory due under exchange
agreements 4,978,815 2,726,995 (1,801,431) 2,038,399
Excise taxes payable and other
accrued liabilities 2,845,886 (291,980) 2,713,551 2,302,687
------------ ---------- ----------- -----------
Net cash provided (used)
by operating activities (3,919,753) (236,580) (2,187,251) 5,004,187
------------ ---------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (4,124,264) (747,774) (461,888) (4,730,726)
Proceeds from sale of assets 320,210 260,585 - 8,245
Decrease (increase) in other assets (377,323) 253,627 (579,181) 107,589
------------ ---------- ----------- -----------
Net cash used by investing
activities (4,181,377) (233,562) (1,041,069) (4,614,892)
------------ ---------- ----------- -----------
Cash flows from financing activities:
Borrowings (repayments) of long-term debt, net (9,100,568) 166,397 3,691,941 (1,315,608)
Deferred debt issuance costs (239,772) - - -
Cash dividends paid on preferred stock - (106) (56) (92)
Cash received in connection with merger - 200,000 - -
Common stock issued for cash 25,013,508 - - -
Stock subscription received in cash 30,000,002 - - -
Costs paid relating to conversion of preferred
stock and issuance of common stock (970,634) (304,748) - -
------------ ---------- ----------- -----------
Net cash provided (used) by
financing activities 44,702,536 61,543 3,691,885 (1,315,700)
------------ ---------- ----------- -----------
Increase (decrease) in cash
and cash equivalents 36,601,406 (408,599) 463,565 (926,405)
Cash and cash equivalents at beginning of period 1,801,828 2,210,427 1,746,862 2,673,267
------------ ---------- ----------- -----------
Cash and cash equivalents at end of period $ 38,403,234 1,801,828 2,210,427 1,746,862
============ ========== =========== ===========
Supplemental disclosure of cash flow information -
Noncash investing and financing activities -
Costs accrued relating to conversion of
preferred stock and issuance of common stock $ - 687,646 - -
============ ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
April 30, 1996 and 1995
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
(a) Nature of Business and Basis of Presentation
TransMontaigne Oil Company (the Company) is a holding company which
pursues, through its subsidiaries, business opportunities in the
downstream sector of the petroleum industry. The Company's principal
operating subsidiary is engaged in the business of pipelining,
terminaling, storing and selling refined petroleum products principally
in the Mid-Continent region of the United States.
Management makes various estimates and assumptions in determining the
reported amounts of assets, liabilities, revenues and expenses for each
period presented, and in the disclosures of commitments and
contingencies. Changes in these estimates and assumptions will occur as
a result of the passage of time and the occurrence of future events,
and actual results will differ from those estimates. The Company
provides short-term credit to its customers which, with the exception
of related parties, are generally all wholesale distributors of these
products. The Company requires collateral, such as letters of credit,
liens on products, and guarantees on a customer by customer basis. The
Company maintains allowances for potential uncollectible accounts
receivable, which historically have been minimal.
(b) Principles of Consolidation
The accompanying consolidated financial statements include,
collectively, the Company and its wholly owned subsidiary, Continental
Ozark, Inc. (COZ), and COZ's wholly owned subsidiaries and COZ's 65%
owned subsidiary, Continental Ozark Holding, Inc. (COH). All
significant intercompany accounts and transactions have been eliminated
in consolidation.
(c) Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of
three months or less when acquired to be cash equivalents.
(d) Inventories
Inventories of refined products are stated at the lower of last-in,
first-out (LIFO) cost or market. Refined products due from third
parties under exchange agreements are included in inventory and
recorded at current replacement cost. Refined products due to third
parties under exchange agreements are recorded at current replacement
cost. Adjustments resulting from changes in current replacement cost
for refined products due to or from third parties under exchange
agreements are reflected in cost of products sold. The exchange
agreements are generally for a term of 30 days and are generally
settled by delivering product to or receiving product from the party to
the exchange.
F-19
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
(e) Property, Plant and Equipment
Depreciation of equipment is provided by the straight-line and double-
declining balance methods. Depreciation of all other assets is provided
by the straight-line method. Estimated useful lives are 25 years for
plant, which includes buildings, storage tanks and pipelines and 3 to
20 years for equipment. All items of property, plant and equipment are
carried at cost.
(f) Investment in Lion Oil Company
The Company's investment in Lion Oil Company (Lion) is accounted for
using the equity method. Under this method, the investment, originally
recorded at cost, is adjusted to recognize the Company's share of the
net earnings or losses of Lion as incurred rather than as dividends or
other distributions are received.
(g) Recognition of Revenue
Revenue from the sale of refined petroleum products is recorded at the
time title and risk of ownership pass. Transfers of products to or from
third parties under exchange agreements do not culminate the earnings
process and are recorded as inventory and liability transactions with
no effect on income.
(h) Deferred Debt Issuance Costs
Deferred debt issuance costs related to senior subordinated debentures
and the long-term credit agreements are amortized on the interest
method over the term of the underlying debt instrument. Accumulated
amortization was $164,970 and $101,332 at April 30, 1996 and 1995,
respectively.
(i) Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes, as prescribed by Statement of Financial Accounting
Standards No. 109 (SFAS 109). Under this method, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply in the years in which these temporary
differences are expected to be recovered or settled. Changes in tax
rates are recognized in income in the period that includes the
enactment date.
F-20
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies (continued)
(j) Minority Interests
Minority interests consist of ownership interests in COH attributable
to shareholders other than the Company.
(k) Inventory Management
The Company manages the risk associated with fluctuations in the price
of refined petroleum products inventory and purchase and sales
commitments, and may selectively enter into futures contracts which are
designated as hedges of the products purchased or sold. Hedging gains
and losses are recorded in inventory and are recognized when the
inventory is sold. Since February 1996, the Company has also engaged in
the trading of futures contracts. Gains and losses from these trading
activities are recognized as they occur.
The Company's Risk and Product Management Committee reviews the total
inventory position on a weekly basis in order to ensure compliance with
the Company's inventory management policies, including all hedging and
trading activities. The Company has adopted policies whereby its net
inventory position subject to price risk requires the prior approval of
the Risk and Product Management Committee.
At April 30, 1996, the Company had no net open futures contracts
designated as hedges, and there were no deferred hedging gains or
losses.
In connection with its trading activities, the Company had outstanding
contracts to sell 50,000 barrels of products and contracts to purchase
50,000 barrels of product at April 30, 1996. The unrealized loss
relating to such contracts of approximately $267,000 has been charged
to operations for the year ended April 30, 1996. The net trading loss
on futures contracts of approximately $40,000 for the period from the
commencement of trading activities to April 30, 1996 has been included
in product costs and direct operating expenses in the accompanying
statements of operations.
Product futures contracts are traded on the New York Merchantile
Exchange (NYMEX). The change in market value of NYMEX-traded futures
contracts requires daily cash settlements in margin accounts with
brokers. NYMEX future contracts are guaranteed by the NYMEX and have
nominal credit risk. The Company is exposed to credit risk in the event
the counterparties to other third party agreements are not able to
perform their contractual obligations.
F-21
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(l) Earnings (Loss) Per Common Share
Earnings (loss) per common share has been computed by application of
the treasury stock method, calculated based on the weighted average
number of common shares outstanding during the period after giving
effect to preferred stock dividends. The assumed conversion of the
outstanding shares of convertible preferred stock was anti-dilutive for
all periods presented prior to the conversion of all outstanding shares
of preferred stock into common stock effective April 26, 1995.
(m) Reclassifications
Certain amounts in the accompanying consolidated financial statements
for prior periods have been reclassified to conform to the
classifications used in 1996.
(2) Inventories
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Refined petroleum products $12,387,371 12,929,837
Refined petroleum products due from
third parties under exchange agreements 11,208,859 8,421,611
Other 12,906 9,893
----------- ----------
$23,609,136 21,361,341
=========== ==========
</TABLE>
During the seven months ended April 30, 1994, the Company recorded an
adjustment of approximately $3,640,000 to reduce inventories to the
lower of cost or market, calculated as of December 31, 1993.
If the lower of average or replacement cost method of accounting had
been used instead of the LIFO method for valuing refined petroleum
products, inventories would have been $5,779,000 and $5,996,000 greater
than reported at April 30, 1996 and 1995, respectively.
During the year ended April 30, 1995 and the seven months ended April
30, 1994 inventory quantities were reduced, which resulted in a
liquidation of LIFO inventory layers carried at costs which prevailed
in prior years. The effect of the liquidations was to decrease product
costs and decrease the net loss for the year ended April 30, 1995 by
approximately $863,000 and increase product costs and the net loss for
seven months ended April 30, 1994 by approximately $904,000.
The Company's refined petroleum products inventory consists primarily
of gasoline and distillates. A significant portion of this inventory
represents line fill and tank bottoms. This portion of the inventory is
required for operating balances in the conduct of the Company's daily
distribution activities and is maintained both in tanks and pipelines
owned by the Company and pipelines owned by third parties.
F-22
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(3) Property, Plant and Equipment
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Land $ 1,072,798 1,047,324
Terminals and equipment 6,230,696 5,764,874
Pipelines, rights of way and equipment 17,182,135 13,960,421
Other plant and equipment 1,513,478 1,190,626
----------- ----------
25,999,107 21,963,245
Less accumulated depreciation 6,461,244 5,360,082
----------- ----------
$19,537,863 16,603,163
=========== ==========
</TABLE>
(4) Investment in Lion
The Company, through its 65% ownership of COH, effectively owns 18% of the
common stock of Lion. At April 30, 1996 and 1995, the Company's investment
in Lion was approximately $15,494,000 and $14,497,000, respectively, and
the minority interests were approximately $5,453,000 and $5,116,000,
respectively.
Summarized balance sheet information for Lion as of April 30, 1996 and 1995
is as follows:
<TABLE>
<CAPTION>
1996 1995
--------- -------
<S> <C> <C>
(in thousands)
Assets:
Current assets $ 94,403 95,610
Property, plant and equipment, net 68,436 71,186
Other assets 4,948 1,926
-------- -------
$167,787 168,722
======== =======
Liabilities and stockholders' equity:
Current liabilities $ 40,454 37,273
Long-term debt 62,140 71,239
Deferred income taxes 9,353 7,962
Stockholders' equity 55,840 52,248
-------- -------
$167,787 168,722
======== =======
</TABLE>
F-23
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
Summarized statement of operations information for Lion for the years ended
April 30, 1996, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Net sales $566,812 525,037 477,573 493,244
Cost of sales 549,210 511,655 462,491 484,020
-------- ------- ------- -------
Gross profit 17,602 13,382 15,082 9,224
Selling, general and
administrative expenses 5,996 5,763 5,224 4,968
Management fees 1,467 532 1,166 55
-------- ------- ------- -------
Operating income 10,139 7,087 8,692 4,201
Interest expense and other
(income), net 4,260 4,939 4,002 3,944
-------- ------- ------- -------
Earnings before
income tax 5,879 2,148 4,690 257
Income tax expense 2,288 892 1,831 129
-------- ------- ------- -------
Net earnings $ 3,591 1,256 2,859 128
======== ======= ======= =======
</TABLE>
The Company has $2,600,000 of letters of credit outstanding to a bank to
assist Lion in obtaining financing. No outstanding obligations exist under
these letters of credit as of April 30, 1996.
(5) Long-term Debt
Long-term debt at April 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
12 3/4% senior subordinated debentures net
of discount (face amount $4,000,000) $ 3,948,867 3,938,468
Line of credit with a bank 25,000,000 33,000,000
Note payable to a bank at its prime rate plus
1/2% repaid in May 1995 - 1,100,000
Other - 10,968
----------- ----------
28,948,867 38,049,436
Less current portion - (1,103,826)
----------- ----------
$28,948,867 36,945,610
=========== ==========
</TABLE>
F-24
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(5) Long-term Debt (continued)
In March 1991, the Company issued 12 3/4% senior subordinated debentures
which are guaranteed by certain subsidiaries and are due December 15, 2000,
with interest payable semi-annually on June 15 and December 15. The
debentures are subject to a required redemption of $2,000,000 on December
15, 1999 and December 15, 2000. The debentures may be prepaid prior to
maturity at a premium, under certain circumstances. In conjunction with the
issuance of these debentures, the Company issued warrants to purchase
248,686 shares of the Company's common stock. The warrant exercise price
was reduced effective April 26, 1995 from $6.10 per share to $3.60 per
share, through December 15, 2000.
On December 7, 1995 the Company entered into a revolving line of credit
with a major bank (the Credit Agreement). The aggregate commitment for
outstanding letters of credit and revolving note advances is up to
$45,000,000 through November 30, 1999. The funds advanced under this line
are used principally to fund working capital requirements of the Company
and to issue letters of credit to persons with whom the Company and its
subsidiaries do business. Borrowings under the Credit Agreement bear
interest at a rate per year equal to the bank's announced base rate, or at
the Company's election, a Eurodollar interest rate option. The interest
rate at April 30, 1996 was 6.875%.
As of April 30, 1996, the Company had $25,000,000 outstanding under the
Credit Agreement and its subsidiary, COZ, had outstanding standby letters
of credit to product suppliers and a bank (see note 4) totaling
approximately $3,200,000 at April 30, 1996. Actual obligations to such
suppliers at April 30, 1996 are included in trade accounts payable.
The Credit Agreement contains a negative pledge covenant by the Company and
its subsidiaries and is secured by the stock of the subsidiaries. The
Credit Agreement contains financial ratio tests relating to consolidated
income from operations, consolidated funded debt, liquidity and
consolidated tangible net worth, working capital and tangible net worth. As
of April, 1996, the Company was in compliance with all of such tests.
Maturities of long-term debt for fiscal years subsequent to 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ -
1998 -
1999 -
2000 27,000,000
2001 1,948,867
-----------
$28,948,867
===========
</TABLE>
Cash payments for interest were approximately $2,994,000, $2,478,000,
$1,741,000 and $2,230,000 for the years ended April 30, 1996 and 1995, the
seven months ended April 30, 1994 and the year ended September 30, 1993,
respectively.
F-25
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(6) Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each of on and off-balance sheet financial instruments, along with the
methods and assumptions used to estimate such fair values at April 30,
1996:
Cash and Cash Equivalents, Trade Receivables and Trade Accounts Payable
The carrying amount approximates fair value because of the short term
maturity of these instruments.
Long-term Debt
The carrying value of the line of credit approximates its fair value, as
the line bears interest at a variable rate.
The carrying value of the 12 3/4% senior subordinated debentures
approximates the estimated fair value of the debentures, as the effective
interest rate of the debentures approximates the current market rate for
similar debt instruments.
Futures Contracts
The carrying value and fair value of the futures contracts entered into for
trading purposes was a liability of approximately $267,000, based on the
quoted market price of the related futures contracts at April 30, 1996.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
(7) Redeemable Convertible Preferred Stock
In March 1991, the Company issued 857,143 shares of voting redeemable
Series A cumulative convertible preferred stock at $7.00 per share which
had a liquidation and mandatory redemption price of the same amount. This
preferred stock had one vote per share. Dividends on the preferred stock
were payable quarterly, at 7.15% per annum of the liquidation value
outstanding, in additional shares of preferred stock or, at the Company's
option, in cash.
Effective as of April 26, 1995 all outstanding shares of preferred stock
were converted into common stock.
F-26
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(8) Shareholders' Equity
(a) Common Stock
Effective as of April 26, 1995, the Company (then Continental Ozark
Corporation) and TransMontaigne Oil Company, (TransMontaigne) entered
into a Merger Agreement pursuant to which all of the outstanding
shares of common stock of TransMontaigne were converted into 800,000
shares of common stock of Continental Ozark Corporation. Upon
consummation of the merger, the Company received $200,000 in cash and
changed its name to TransMontaigne Oil Company. The merger was
accounted for as an acquisition of TransMontaigne by the Company using
the purchase method of accounting. TransMontaigne had no operations
prior to April 26, 1995. Concurrently, the Company entered into a
series of Stock Purchase Agreements and other related transactions,
with certain institutional and individual investors pursuant to which
the Company issued 8,333,334 shares of the Company's common stock for
$30,000,002.
Effective as of April 26, 1995, the Company and the holders of its
redeemable convertible preferred stock entered into a Conversion
Agreement pursuant to which all of the outstanding shares of preferred
stock of the Company were converted into 2,952,551 shares of common
stock of the Company.
Effective as of April 17, 1996 the Company completed a private
placement of 4,545,456 shares of common stock at $5.50 per share for
proceeds of $25,000,008.
(b) Stock Options
The Company has adopted two stock option plans, (the "1991 Plan" and
the "1995 Plan") under which stock options may be granted to key
employees of the Company. Under the 1991 Plan, the Company may grant
options for up to 300,000 shares of common stock at prices and for
terms as determined by the Administrative Committee of the 1991 Plan.
The Company has reserved 1,000,000 shares of common stock for options
that may be granted under the 1995 Plan. Options granted under the
1995 Plan are exercisable at prices determined by the Incentive Plan
Committee, however, in no event shall the price be less than the fair
market value of the stock on the date of grant. Options under the 1995
Plan expire at such time as the Incentive Plan Committee determines,
but no later than seven years from the date of grant.
F-27
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(8) Shareholders' Equity (continued)
Changes in stock options outstanding for the year ended April 30, 1996
and 1995, the seven months ended April 30, 1994 and the year ended
September 30, 1993 are as follows:
<TABLE>
<CAPTION>
1991 Plan 1995 Plan
------------------------ -----------------------
Option Option
price per price per
Shares share Shares share
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding at
September 30, 1992
and 1993 220,254 $3.50 - 6.10 - $ -
Forfeited (124,500) 6.10 - -
Granted - - 124,500 2.70
-------- ------------ ------- ------------
Outstanding at
April 30, 1994 95,754 3.50 - 6.10 124,500 2.70
Granted - - 358,000 2.70
-------- ------------ ------- ------------
Outstanding at
April 30, 1995 95,754 3.50 - 6.10 482,500 2.70
Granted - - 421,746 3.60 - 5.50
Exercised - - (5,000) 2.70
-------- ------------ ------- ------------
Outstanding at
April 30, 1996 95,754 $3.50 - 6.10 899,246 $2.70 - 5.50
======== ============ ======= ============
Exercisable at
April 30, 1996 95,754 $3.50 - 6.10 718,373 $2.70 - 5.50
======== ============ ======= ============
</TABLE>
F-28
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(9) Income Taxes
Income tax expense, consisting solely of state income taxes, was $192,747,
$119,545, $70,557 and $48,142 for the years ended April 30, 1996 and 1995,
the seven months ended April 30, 1994 and the year ended September 30,
1993, respectively. Income tax expense differs from the amount computed by
applying the U.S. federal corporate income tax rate of 34% to pretax
earnings (loss) as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computed "expected" $ 1,636,000 (1,053,000) (946,000) (1,510,000)
tax expense
Increase (reduction) in income
taxes resulting from:
Increase (decrease) in the
valuation allowance for
deferred tax assets
allocated to income tax
expense (1,785,000) 1,174,000 1,032,000 1,617,000
State income taxes, net of
federal income
tax benefit 127,000 79,000 47,000 40,571
Other, net 214,747 (80,455) (62,443) (99,429)
----------- ---------- --------- ----------
Income tax expense $ 192,747 119,545 70,557 48,142
=========== ========== ========= ==========
</TABLE>
F-29
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(9) Income Taxes (continued)
The tax effects of temporary differences which give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
April 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Inventories, principally due to difference
in costing method used for tax purposes $ 2,196,000 2,278,000
Unrealized commodity futures contract
losses 102,000 426,000
Future deductible amounts for income tax
purposes resulting from a change in the
method of accounting for inventories - 1,038,000
Net operating loss carryforwards 5,670,000 5,560,000
Alternative minimum tax credit
carryforwards 24,000 24,000
----------- ----------
Total gross deferred tax assets 7,992,000 9,326,000
Less valuation allowance (4,474,000) (6,259,000)
Net deferred tax assets 3,518,000 3,067,000
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation methods (2,994,000) (2,778,000)
Investments in affiliated company,
principally due to undistributed earnings (524,000) (289,000)
----------- ----------
Net deferred taxes $ - -
=========== ==========
</TABLE>
The Company changed its year-end for income tax purposes from December 31
to April 30, effective in 1995. The Company also changed its method of
accounting for inventories for income tax purposes effective January 1,
1994. The effect of this change was approximately $8,200,000 at January 1,
1994, and, under the provisions of the Internal Revenue Code, this amount
is deductible over a 3-year period.
At April 30, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $14,923,000 which are
available to offset future federal taxable income, if any, through 2009. In
addition, the Company has alternative minimum tax credit carryforwards of
approximately $24,000 available to reduce future federal regular income
taxes, if any, which can be carried forward indefinitely.
F-30
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
Under SFAS 109, the Company provides for deferred income taxes on the
undistributed net earnings of Lion. Under the transition rules in SFAS 109,
the Company is not required to recognize a deferred tax liability of
approximately $6,100,000 for the undistributed net earnings of Lion which
arose prior to the adoption of SFAS 109 because the Company currently does
not expect those undistributed earnings to become taxable to the Company in
the foreseeable future. A deferred tax liability will be recognized on
these undistributed earnings when the Company expects that it will recover
those undistributed earnings in a taxable manner, such as through the
receipt of dividends or the sale of the investment.
The Company paid state income taxes of approximately $106,000, $138,000,
and $45,000 for the years ended April 30, 1996 and 1995 and the seven
months ended April 30, 1994, respectively.
(10) Related Party Transactions
The Company had sales of $3,380,000, $884,000, $6,698,000 and $7,691,000
and purchases of $33,879,000, $28,997,000, $15,710,000 and $52,050,000 for
the years ended April 30, 1996 and 1995, the seven months ended April 30,
1994 and the year ended September 30, 1993, respectively, to companies
affiliated by common ownership.
Related party balances at April 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accounts receivable $ 90,498 45,549
Accounts payable 84,034 1,270,335
</TABLE>
(11) New Accounting Standards
Statement of Financial Accounting Standards No. 121, Accounting for
Impairment of Long-Lived Assets to be Disposed of (SFAS 121) was issued in
March, 1995, by the Financial Accounting Standards Board. It requires that
long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is required to be adopted for fiscal years beginning
after December 15, 1995. The adoption of this statement by the Company is
not expected to have a significant effect on the financial statements.
F-31
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS 123) was issued by the Financial Accounting
Standards Board in October 1995. This standard addresses the timing and
measurement of stock-based compensation expense. Entities electing to
continue to follow Accounting Principles Board Opinion No. 25 Accounting
for Stock Issued to Employees, (APB 25) must make pro forma disclosures of
net income and earnings per share, as if the fair value based method of
accounting defined by SFAS 123 had been applied. SFAS 123 is applicable to
fiscal years beginning after December 15, 1995. The Company has elected to
retain the measurement approach of APB 25, (the intrinsic value method) for
recognizing stock-based compensation in the consolidated financial
statements. The Company will include the disclosures required by SFAS 123
in future financial statements.
(12) Subsequent Event
On June 4, 1996 the Company merged (the Merger) with Sheffield Exploration
Company, Inc., a Delaware corporation (Old Sheffield), pursuant to the
Restated Agreement and Plan of Merger dated as of February 6, 1996 between
the Company and Old Sheffield (the Merger Agreement).
As a result of the Merger, the Company merged into Old Sheffield, which
became the surviving corporation of the Merger, and (i) each share of
common stock of the Company issued and outstanding immediately prior to the
closing of the Merger was converted at the closing into the right to
receive one share of common stock of the surviving corporation (New Common
Stock), (ii) each 2.432599 shares of Old Sheffield common stock issued and
outstanding immediately prior to the closing of the Merger became one share
of New Common Stock, (iii) the name of Old Sheffield was changed to
TransMontaigne Oil Company and (iv) the number of authorized shares of New
Common Stock was increased to 40,000,000.
The Merger constituted a reverse acquisition of Old Sheffield by the
Company, in that Old Sheffield survived the Merger, but is owned
approximately 93% by the former stockholders of the Company.
Pro forma results of the Company, assuming the Merger had occurred at the
beginning of fiscal 1996 or 1995, would not be materially different from
the results reported.
F-32
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
TransMontaigne Oil Company:
We have audited the accompanying historical summaries of revenue and direct
operating expenses of a natural gas gathering, processing, treating and
fractionation system (the Grasslands Facilities) of Koch Industries, Inc. (Koch)
to be acquired by TransMontaigne Oil Company for the nine months ended September
30, 1996 and the years ended December 31, 1995 and 1994 (the Historical
Summaries). These Historical Summaries are the responsibility of Koch's
management. Our responsibility is to express an opinion on the Historical
Summaries based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the Historical Summaries are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summaries. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Historical Summaries. We believe that our audits provide a reasonable basis for
our opinion.
The accompanying Historical Summaries were prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in the registration statement on Form S-2 of TransMontaigne Oil
Company) as described in Note 1 and are not intended to be a complete
presentation of the Grasslands Facilities's revenue and expenses.
In our opinion, the Historical Summaries referred to above present fairly, in
all material respects, the revenue and direct operating expenses of the
Grasslands Facilities as described in Note 1 for the nine months ended September
30, 1996 and the years ended December 31, 1995 and 1994.
KPMG Peat Marwick LLP
Denver, Colorado
December 4, 1996
F-33
<PAGE>
GRASSLANDS FACILITIES
Historical Summaries of Revenue and Direct Operating Expenses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months Nine months
ended ended Years ended
September 30, September 30, December 31,
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Unaudited)
Revenue $35,656,103 32,816,461 44,721,318 52,079,226
Direct operating expenses:
Cost of products sold 18,744,140 16,178,180 22,309,739 25,619,962
Operating and maintenance 7,701,298 9,028,290 11,910,620 12,719,034
----------- ---------- ---------- ----------
26,445,438 25,206,470 34,220,359 38,338,996
----------- ---------- ---------- ----------
Revenue in excess of
direct operating expenses $ 9,210,665 7,609,991 10,500,959 13,740,230
=========== ========== ========== ==========
</TABLE>
See accompanying notes to the Historical Summaries.
F-34
<PAGE>
GRASSLANDS FACILITIES
Notes to Historical Summaries of Revenue and Direct Operating Expenses
- --------------------------------------------------------------------------------
(1) Purchase of Gas Gathering and Processing Facilities and Basis Presentation
On October 31, 1996, TransMontaigne entered into an agreement with Koch
Industries, Inc. (Koch) for the acquisition by TransMontaigne of a natural
gas gathering, processing, treating and fractionation system located in
western North Dakota and northeastern Montana (the Grasslands Facilities)
for approximately $75,000,000, subject to adjustment pursuant to certain
provisions of the agreement.
The accompanying Historical Summaries are included to provide historical
information on the revenue and direct operating expenses of the facilities
acquired by TransMontaigne and may not be representative of future
operations. The Historical Summaries were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and are not intended to be a complete presentation of the
Grasslands Facilities's revenue and expenses. A provision for depreciation
has not been included since the Company's basis in the assets will be
different from Koch's basis. General and administrative expenses have not
been included because it is impractical to allocate the historical expenses
incurred by Koch to these facilities, and such expenses may not be
comparable to amounts expected to be incurred by TransMontaigne. The
Historical Summaries also do not include federal and state income taxes or
interest expense, as it is impractical to allocate such amounts to the
individual facilities of Koch.
F-35
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation in connection with the Offerings other
than those contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by
TransMontaigne, any Selling Stockholder or any Underwriter. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, shares of
Common Stock in any jurisdiction to any person to whom it is not lawful to make
any such offer or solicitation in such jurisdiction or in which the person
making such offer or solicitation is not qualified to do so. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of TransMontaigne since the date hereof.
TABLE OF CONTENTS
PAGE
Incorporation of Certain Documents by Reference.................. 3
Prospectus Summary............................................... 4
Cautionary Statement Regarding Forward-Looking
Statements...................................................... 9
Risk Factors..................................................... 9
Use of Proceeds..................................................12
Price Range of Common Stock and Dividend Policy..................13
Capitalization...................................................14
Selected Consolidated Financial and Operating Data...............15
Selected Pro Forma Consolidated Financial Data...................17
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................18
Business.........................................................29
Management.......................................................39
Security Ownership of Certain Beneficial Owners and
Management......................................................42
Selling Stockholders.............................................43
Description of Capital Stock.....................................44
Underwriting.....................................................46
Legal Matters....................................................47
Experts..........................................................47
Available Information............................................47
Index to Consolidated Financial Statements.................... F-1
TRANSMONTAIGNE OIL COMPANY
--------------------
4,350,000 Shares
Common Stock
PROSPECTUS
, 1997
--------------------
Dillon, Read & Co. Inc.
A.G. Edwards & Sons, Inc.
Petrie Parkman & Co.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriters' discounts and commissions, and other than the Underwriters' non-
accountable expense allowance equal to ____% of the purchase price of the
Underwritten Shares, payable by TransMontaigne in connection with the sale of
Common Stock being registered (all amounts are estimated except the SEC
Registration Fee and the NASD Filing Fee).
SEC Registration Fee........................................... $21,027
National Association of Securities Dealers, Inc. Fee........... $7,439
AMEX Listing Fee............................................... $17,500
Blue Sky Qualification Fees and Expenses (including legal fees) $______
Printing....................................................... $______
Legal Fees and Expenses........................................ $______
Auditors' Fees and Expenses.................................... $______
Transfer Agent and Registrar Fees.............................. $______
Miscellaneous Expenses......................................... $______
Total.................................................... $______
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL"), a Delaware corporation has the power, under specified
circumstances, to indemnify its directors, officers, employees and agents in
connection with threatened, pending or completed actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in right of the corporation), brought against them by
reason of the fact that they were or are such directors, officers, employees
or agents, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in any such action, suit or proceeding.
Article IX of TransMontaigne's Charter and Article 6 of TransMontaigne's
Bylaws provide for indemnification of each person who is or was or is
threatened to be made a party to any threatened, pending or completed civil,
administrative, criminal or investigative action, suit or proceeding (other
than an action by or in right of the corporation) because such person is or
was a director or officer of TransMontaigne or, while a director or officer of
TransMontaigne, is or was serving at the request of TransMontaigne as a
director, officer, partner, trustee, agent or employee of another corporation
or of a partnership, joint venture, trust association, partnership or other
enterprise, against expenses (including attorney's fees), judgments, fines,
and amounts paid in settlement, incurred by the person in connection with such
action, suit or proceeding, if the person acted in good faith and in a manner
that such person reasonably believed to be in or not opposed to the best
interest of TransMontaigne, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
TransMontaigne also maintains policies of directors and officers
liability insurance.
Section 102(b)(7) of the DGCL provides that a certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision does not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL (relating to liability for unauthorized acquisitions or
redemptions of, or dividends on, capital stock) or (iv) for any transaction
from which the director derived an improper personal benefit. Article VIII of
TransMontaigne's Charter contains such a provision.
Section 10 of the Underwriting Agreement (filed as Exhibit 1.1 hereto)
provides that the Underwriters will indemnify and hold harmless TransMontaigne
and each director, officer or
II-1
<PAGE>
controlling person of TransMontaigne from and against any liability caused by
any statement or omission in the Registration Statement or Prospectus based on
certain information furnished to TransMontaigne by the Underwriters for use in
the preparation thereof.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
--------- --------------------
1.1 Form of Underwriting Agreement between TransMontaigne and the
Underwriters. FILED HEREWITH
3.1 Restated Articles of Incorporation and Certificate of Merger.
Incorporated by reference to TransMontaigne Oil Company Form
10-K (Securities and Exchange Commission File No. 1-11763) for
the year ended April 30, 1996
3.2 By-Laws. Incorporated by reference to Sheffield Exploration
Company, Inc. Registration Statement on Form S-4 (Securities
and Exchange Commission File No. 0-13201) dated January 22,
1991
5.1 Form of opinion of Holme Roberts & Owen LLP regarding the
legality of the securities. FILED HEREWITH
10.1 The TransMontaigne Oil Company Amended and Restated 1995 Stock
Option Plan. Incorporated by reference to TransMontaigne Oil
Company Form 10-K (Securities and Exchange Commission File No.
1-11763) for the year ended April 30, 1996
10.2 Partnership agreement between TransMontaigne's wholly-owned
subsidiary, Sheffield Gas Processors, Inc., and Interenergy.
Incorporated by reference to Sheffield Exploration Company,
Inc. Form 8-K (Securities and Exchange Commission File No. 0-
13201) dated September 26, 1991.
10.3 Stock Purchase Agreement effective April 17, 1996 between
TransMontaigne Oil Company and the investors named therein.
Incorporated by reference to TransMontaigne Oil Company Form
10-K (Securities and Exchange Commission File No. 1-11763) for
the year ended April 30, 1996
10.4 Anti-dilution Rights Agreement dated as of April 17, 1996
between TransMontaigne Oil Company and Waterwagon & Co.,
nominee for Merrill Lynch Growth Fund for Investment and
Retirement. Incorporated by reference to TransMontaigne Oil
Company Form 10-K (Securities and Exchange Commission File No.
1-11763) for the year ended April 30, 1996
10.5 Agreement to Elect Directors dated as of April 17, 1996 between
TransMontaigne Oil Company and the First Reserve Investors
named therein. Incorporated by reference to TransMontaigne Oil
Company Form 10-K (Securities and Exchange Commission File No.
1-11763) for the year ended April 30, 1996
10.6 Registration Rights Agreement dated as of April 17, 1996
between TransMontaigne Oil Company and the entities named
therein. Incorporated by reference to TransMontaigne Oil
Company Form 10-K (Securities and Exchange Commission File No.
1-11763) for the year ended April 30, 1996
10.7 Agreement for Sale of McKenzie Gas Processing Plant and
Grasslands Gas Gathering System dated as of October 31, 1996
between Bear Paw Energy, Inc. and Koch Hydrocarbon Company.
FILED HEREWITH
II-3
<PAGE>
10.8 Credit Agreement between TransMontaigne Oil Company and The
First National Bank of Boston, Agent, dated December 18, 1996.
FILED HEREWITH
21 Schedule of TransMontaigne's Subsidiaries. Incorporated by
reference to TransMontaigne Oil Company Form 10-K (Securities
and Exchange Commission File No. 1-11763) for the year ended
April 30, 1996
23.1 Consent of KPMG Peat Marwick LLP. FILED HEREWITH
23.2 Consent of KPMG Peat Marwick LLP. FILED HEREWITH
23.3 Consent of KPMG Peat Marwick LLP. FILED HEREWITH
24 Powers of Attorney. See the signature page hereof.
27 Financial Data Schedule. FILED HEREWITH
(b) Financial Statement Schedules
All schedules are not required under the related instructions or the
information required is included in the notes to the financial statements.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City and County of Denver, State of
Colorado, on this 23rd day of December 1996.
TRANSMONTAIGNE OIL COMPANY
By: /s/ RICHARD E. GATHRIGHT
-------------------------
Richard E. Gathright
President
Each person whose signature appears below does hereby make, constitute
and appoint each of Richard E. Gathright, Harold R. Logan, Jr. and W. A.
Sikora as such person's true and lawful attorney-in-fact and agent, with full
power of substitution, resubstitution and revocation to execute, deliver and
file with the Securities and Exchange Commission, for and on such person's
behalf, and in any and all capacities, this Registration Statement on Form
S-2, any and all amendments (including post-effective amendments) thereto and
any abbreviated registration statement in connection with this Registration
Statement pursuant to Rule 462(b) under the Securities Act of 1933, with all
exhibits thereto and other documents in connection therewith, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or such
persons's substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated on December 23, 1996.
Name and Signature Title
------------------ -----
/s/ CORTLANDT S. DIETLER Chairman and Chief Executive Officer
------------------------ (Principal executive officer)
Cortlandt S. Dietler
/s/ RICHARD E. GATHRIGHT President and Director
------------------------ (Principal operating officer)
Richard E. Gathright
/s/ HAROLD R. LOGAN, JR. Executive Vice President/Finance, Treasurer
------------------------ and Director (Principal financial officer)
Harold R. Logan, Jr.
/s/ RODNEY S. PLESS Vice President
------------------- (Principal accounting officer)
Rodney S. Pless
/s/ JOHN A. HILL Director
----------------
John A. Hill
/s/ BRYAN H. LAWRENCE Director
---------------------
Bryan H. Lawrence
/s/ WILLIAM E. MACAULAY Director
-----------------------
William E. Macaulay
/s/ EDWIN H. MORGENS Director
--------------------
Edwin H. Morgens
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- -------------------------------------
1.1 Form of Underwriting Agreement between TransMontaigne and the
Underwriters. FILED HEREWITH
3.1 Restated Articles of Incorporation and Certificate of Merger.
Incorporated by reference to TransMontaigne Oil Company Form
10-K (Securities and Exchange Commission File No. 1-11763) for
the year ended April 30, 1996
3.2 By-Laws. Incorporated by reference to Sheffield Exploration
Company, Inc. Registration Statement on Form S-4 (Securities
and Exchange Commission File No. 0-13201) dated January 22,
1991
5.1 Form of opinion of Holme Roberts & Owen LLP regarding the
legality of the securities. FILED HEREWITH
10.1 The TransMontaigne Oil Company Amended and Restated 1995 Stock
Option Plan. Incorporated by reference to TransMontaigne Oil
Company Form 10-K (Securities and Exchange Commission File No.
1-11763) for the year ended April 30, 1996
10.2 Partnership agreement between TransMontaigne's wholly-owned
subsidiary, Sheffield Gas Processors, Inc., and Interenergy.
Incorporated by reference to Sheffield Exploration Company,
Inc. Form 8-K (Securities and Exchange Commission File No.
0-13201) dated September 26, 1991.
10.3 Stock Purchase Agreement effective April 17, 1996 between
TransMontaigne Oil Company and the investors named therein.
Incorporated by reference to TransMontaigne Oil Company Form
10-K (Securities and Exchange Commission File No. 1-11763) for
the year ended April 30, 1996
10.4 Anti-dilution Rights Agreement dated as of April 17, 1996
between TransMontaigne Oil Company and Waterwagon & Co.,
nominee for Merrill Lynch Growth Fund for Investment and
Retirement. Incorporated by reference to TransMontaigne Oil
Company Form 10-K (Securities and Exchange Commission File No.
1-11763) for the year ended April 30, 1996
10.5 Agreement to Elect Directors dated as of April 17, 1996 between
TransMontaigne Oil Company and the First Reserve Investors
named therein. Incorporated by reference to TransMontaigne Oil
Company Form 10-K (Securities and Exchange Commission File No.
1-11763) for the year ended April 30, 1996
10.6 Registration Rights Agreement dated as of April 17, 1996
between TransMontaigne Oil Company and the entities named
therein. Incorporated by reference to TransMontaigne Oil
Company Form 10-K (Securities and Exchange Commission File No.
1-11763) for the year ended April 30, 1996
10.7 Agreement for Sale of McKenzie Gas Processing Plant and
Grasslands Gas Gathering System dated as of October 31, 1996
between Bear Paw Energy, Inc. and Koch Hydrocarbon Company.
FILED HEREWITH
<PAGE>
10.8 Credit Agreement between TransMontaigne Oil Company and The
First National Bank of Boston, Agent, dated December 18, 1996.
FILED HEREWITH
21 Schedule of TransMontaigne's Subsidiaries. Incorporated by
reference to TransMontaigne Oil Company Form 10-K (Securities
and Exchange Commission File No. 1-11763) for the year ended
April 30, 1996
23.1 Consent of KPMG Peat Marwick LLP. FILED HEREWITH
23.2 Consent of KPMG Peat Marwick LLP. FILED HEREWITH
23.3 Consent of KPMG Peat Marwick LLP. FILED HEREWITH
24 Powers of Attorney. See the signature page hereof.
27 Financial Data Schedule. FILED HEREWITH
<PAGE>
EXHIBIT 1.1
TRANSMONTAIGNE OIL COMPANY
COMMON STOCK
($.01 Par Value)
UNDERWRITING AGREEMENT
____________, 1997
1
<PAGE>
UNDERWRITING AGREEMENT
____________, 1997
Dillon, Read & Co. Inc.
535 Madison Avenue
New York, New York 10022
A.G. Edwards & Sons, Inc.
ONE NORTH JEFFERSON AVENUE
ST. LOUIS, MISSOURI 63103
Petrie Parkman & Co.
457 17th Street
SUITE 1100
DENVER, COLORADO 80202
as Managing UnderwriterS
Ladies and Gentlemen:
TRANSMONTAIGNE OIL COMPANY, a Delaware corporation (the "Company"),
proposes to issue and sell and the persons named in Schedule B (the "Selling
Shareholders") propose to sell to the underwriters named in Schedule A (the
"Underwriters") an aggregate of ___________ shares (the "Firm Shares") of Common
Stock, par value $0.01 per share (the "Common Stock"), of the Company, of which
___________ shares are to be issued and sold by the Company and AN AGGREGATE OF
____________ shares are to be sold by the Selling Shareholders IN THE RESPECTIVE
AMOUNTS SET FORTH OPPOSITE THEIR NAMES IN SCHEDULE B. In addition, solely for
the purpose of covering overallotments, the Company proposes to issue and sell,
at the Underwriters' option, up to ____________ additional shares of the Common
Stock (the "Additional Shares"). The Additional Shares and the Firm Shares are
collectively referred to as the "Shares". The Shares are described in the
Prospectus which is referred to below.
The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively, the "Act"), with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-2, including a prospectus,
relating to the Shares, which incorporates by reference documents that the
Company has filed in accordance with the provisions of the Securities Exchange
Act of 1934, as amended, and the rules
<PAGE>
and regulations thereunder (collectively, the "Exchange Act"). The Company has
furnished to you, for use by the Underwriters and by dealers, copies of one or
more preliminary prospectuses and all documents incorporated by reference
therein (collectively, the "Preliminary Prospectus") relating to the Shares.
Except where the context otherwise requires, the registration statement as in
effect at the time of execution of this Agreement or, if the registration
statement is not yet effective, as amended when it becomes effective, including
all documents filed as a part thereof or incorporated by reference therein, and
including any registration statement filed pursuant to Rule 462(b) under the Act
increasing the size of the offering registered under the Act and any information
contained in a prospectus subsequently filed with the Commission pursuant to
Rule 424(b) under the Act and deemed to be part of the registration statement at
the time of effectiveness pursuant to Rule 430A under the Act, is herein called
the "Registration Statement", and the prospectus, including all documents
incorporated therein by reference, in the form filed by the Company with the
Commission pursuant to Rule 424(b) under the Act or, if no such filing is
required, in the form of final prospectus included in the Registration Statement
at the time it became effective, is herein called the "Prospectus".
The Company, the Selling Shareholders and the Underwriters agree as
follows:
1. Sale and Purchase. On the basis of the representations and
-----------------
warranties and the other terms and conditions herein set forth, the Company and
each Selling Shareholder, severally and not jointly, agrees to sell to the
respective Underwriters and each of the Underwriters, severally and not jointly,
agrees to purchase from the Company and each Selling Shareholder the respective
number of Firm Shares (subject to such adjustment as you may determine to avoid
fractional shares) which bears the same proportion to the number of Firm Shares
to be sold by the Company or by that Selling Shareholder, as the case may be, as
the number of Firm Shares set forth opposite the name of such Underwriter on
Schedule A bears to the total number of Firm Shares to be sold by the Company
and the Selling Shareholders, in each case at a purchase price of $____ per
Share. You may release the Firm Shares for public sale promptly after this
Agreement becomes effective. You may from time to time increase or decrease the
public offering price after the initial public offering to such extent as you
may determine.
2
<PAGE>
In addition, on the basis of the representations and warranties and
the other terms and conditions herein set forth, the Company hereby grants to
the several Underwriters an option to purchase, and the Underwriters shall have
the right to purchase, severally and not jointly, from the Company all or a
portion of the Additional Shares as may be necessary to cover overallotments
made in connection with the offering of the Firm Shares, at the same purchase
price per share to be paid by the several Underwriters to the Company and the
Selling Shareholders for the Firm Shares. This option may be exercised in whole
or in part from time to time on or before the thirtieth day following the date
hereof, by written notice to the Company. Any such notice shall set forth the
aggregate number of Additional Shares as to which the option is being exercised,
and the date and time when the Additional Shares are to be delivered (any such
date and time being herein referred to as an "additional time of purchase");
provided, however, that no additional time of purchase shall occur earlier than
the time of purchase (as defined below) nor earlier than the second business
day after the date on which the option shall have been exercised nor later than
the eighth business day after the date on which the option shall have been
exercised. The number of Additional Shares to be sold to each Underwriter at an
additional time of purchase shall be the number which bears the same proportion
to the aggregate number of Additional Shares being purchased at such additional
time of purchase as the number of Firm Shares set forth opposite the name of
such Underwriter on Schedule A bears to the total number of Firm Shares
(subject, in each case, to such adjustment as you may determine to eliminate
fractional shares).
2. Payment and Delivery. Payment of the purchase price for the
--------------------
Firm Shares shall be made to the Company and to the Attorney-in Fact referred to
in Section 4(d) on behalf of the Selling Shareholders by certified or official
bank checks, in immediately available funds, at the office of Dillon, Read & Co.
Inc. in New York City, against delivery of the certificates for the Firm Shares
to you for the respective accounts of the Underwriters. Such
_______________________
As used herein, "business day" shall mean a day on which the New York Stock
Exchange is open for trading.
3
<PAGE>
payment and delivery shall be made at 9:30 A.M., New York City time, on
____________, 1997 (unless another time shall be agreed to by you, the Company
and the Selling Shareholders or unless postponed in accordance with the
provisions of Section 10). The time at which such payment and delivery are
actually made is called the "time of purchase". Certificates for the Firm Shares
shall be delivered to you in definitive form in such names and in such
denominations as you shall specify on the second business day preceding the time
of purchase. For the purpose of expediting the checking of the certificates for
the Firm Shares by you, the Company and the Selling Shareholders agree to make
such certificates available to you for such purpose at least one full business
day preceding the time of purchase.
Payment of the purchase price for the Additional Shares shall be made
at the additional time of purchase in the same manner and at the same office as
the payment for the Firm Shares. Certificates for the Additional Shares shall be
delivered to you in definitive form in such names and in such denominations as
you shall specify on the second business day preceding the additional time of
purchase. For the purpose of expediting the checking of the certificates for the
Additional Shares by you, the Company and the Selling Shareholders agree to make
such certificates available to you for such purpose at least one full business
day preceding the additional time of purchase.
3. Representations and Warranties of the Company and the Selling
-------------------------------------------------------------
Shareholders. The Company and each of the Selling Shareholders, jointly and
- ------------
severally, represent and warrant to each of the Underwriters that:
(a) Each Preliminary Prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act; when the Registration Statement becomes or became
effective and at all times subsequent thereto up to the time of purchase and the
additional time of purchase, the Registration Statement and the Prospectus, and
any supplements or amendments thereto, complied and will comply in all material
respects with the provisions of the Act; and the Registration Statement at all
such times did not and will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Prospectus at all such times
did not and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
4
<PAGE>
provided, however, that the Company and the Selling Shareholders make no
representation or warranty with respect to any statement contained in the
Registration Statement or the Prospectus in reliance upon and in conformity with
information concerning the Underwriters and furnished in writing by or on behalf
of any Underwriter through you with respect to you to the Company expressly for
use in the Registration Statement or the Prospectus and set forth in the section
of the Registration Statement and the Prospectus entitled "Underwriting"; the
documents incorporated by reference in the Prospectus, at the time they were
filed with the Commission, complied in all material respects with the
requirements of the Exchange Act, and do not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) As of the date of this Agreement, the Company has an authorized
capitalization as set forth under the column entitled "At October 31, 1996
Actual" in the section of the Registration Statement and the Prospectus entitled
"Capitalization" and, as of the time of purchase, the capitalization of the
Company will be as set forth under the column entitled "At October 31, 1996 As
Adjusted" in the section of the Registration Statement and the Prospectus
entitled "Capitalization"; all of the issued and outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable and are free of statutory and contractual preemptive
rights except as set forth in the Registration Statement with respect to the
capital stock owned by Merrill Lynch Growth Fund for Investment and Retirement
(the "Merrill Lynch Preemptive Right").
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware with full
power and authority to (i) own its properties and conduct its business as
described in the Registration Statement and the Prospectus and (ii) execute and
deliver this Agreement and to issue, sell and deliver the Shares as herein
contemplated.
(d) All of the issued and outstanding shares of capital stock of each
of the subsidiaries of the Company and of Lion Oil Company (collectively, the
"Subsidiaries") are owned directly by the Company (other than Continental Ozark
Holdings, Inc. ("Continental Ozark") as to which the Company owns 65% of the
voting capital stock and other than Lion Oil Company as to which Continental
owns [a 27.75% interest]); all of such shares have been duly authorized and
validly issued and are fully paid and nonassessable and, except as described in
the Prospectus, are owned free and clear of any pledge, lien, encumbrance,
security interest or other claim; there are no outstanding
5
<PAGE>
rights, subscriptions, warrants, calls, preemptive rights, options or other
agreements of any kind with respect to the capital stock of any of the
Subsidiaries.
(e) Each of the Subsidiaries has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its respective
jurisdiction of incorporation, with full corporate power and authority to own
its respective properties and to conduct its respective businesses; except as
set forth in the Registration Statement and the Prospectus, the Company does not
own, directly or indirectly, shares of capital stock or other equity interest in
any corporation or entity other than the Subsidiaries.
(f) Each of the Company and each of the Subsidiaries is duly qualified
or licensed by and is in good standing in each jurisdiction in which it owns or
leases property or conducts its business and in each other jurisdiction in which
the failure, individually or in the aggregate, to be so qualified or licensed
could have a material adverse effect on the properties, assets, operations,
business, business prospects or condition (financial or other) of the Company
and the Subsidiaries taken as a whole; each of the Company and each of the
Subsidiaries is in compliance in all material respects with the laws, orders,
rules, regulations and directives issued or administered by each such
jurisdiction.
(g) Neither the Company nor any of the Subsidiaries is in breach of,
or in default under (nor has any event occurred which with notice, lapse of time
or both would constitute a breach of, or default under), its charter or bylaws,
or in the performance or observance of any obligation, agreement, covenant or
condition contained in any license, indenture, lease, mortgage, deed of trust,
bank loan or credit agreement, material supply agreement or other agreement or
instrument to which the Company or any of the Subsidiaries is a party or by
which any of them may be bound or affected. The execution, delivery and
performance of this Agreement, the issuance and sale of the Shares, the
application of the net proceeds thereof as described in the Prospectus and the
consummation of the transactions contemplated hereby will not conflict with, or
result in any breach of or constitute a default under (nor constitute any event
which with notice, lapse of time or both would constitute a breach of, or
default under), the charter or bylaws of the Company or any of the Subsidiaries
or under any provision of any license, indenture, lease, mortgage, deed of
trust, bank loan or credit agreement, material supply agreement or other
agreement or instrument to which the Company or any of the Subsidiaries is a
party or by which any of them or their properties may be bound or affected, or
under any federal, state, local or
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<PAGE>
foreign law, regulation or rule or any decree, judgment or order applicable to
the Company or any of the Subsidiaries.
(h) The Firm Shares and the Additional Shares, when issued and
delivered to and paid for by the Underwriters as contemplated hereby, will be
duly authorized and validly issued and fully paid and nonassessable, free and
clear of any pledge, lien, encumbrance, security interest, preemptive right or
other claim other than the Merrill Lynch Preemptive Right.
(i) This Agreement has been duly authorized, executed and delivered by
the Company and is a legal, valid and binding agreement of the Company
enforceable in accordance with its terms; the Board of Directors of the Company
or a committee thereof duly authorized by the Board of Directors of the Company
has duly adopted resolutions authorizing the issuance and sale of the Shares by
the Company.
(j) The capital stock of the Company, including the Shares, conforms
in all material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the certificates for the Shares
are in due and proper form and the holders of the Shares after making payment
therefor will not be subject to personal liability by reason of being such
holders.
(k) No approval, authorization, consent or order of or filing with any
federal, state, local or foreign governmental or regulatory commission, board,
body, authority or agency is required in connection with the issuance and sale
of the Shares as contemplated hereby, other than registration of the Shares
under the Act, clearance of the offering of the Shares with the National
Association of Securities Dealers, Inc. (the "NASD") and any necessary
qualification under the securities or blue sky laws of the various jurisdictions
in which the Shares are being offered by the Underwriters.
(l) No person has the right, contractual or otherwise, to cause the
Company to issue to it, or register pursuant to the Act, any securities of the
Company in consequence of the issue and sale of the Shares to the Underwriters
hereunder other than with respect to the Merrill Lynch Preemptive Right. Each
person who has the right, contractual or otherwise, to cause the Company to
register pursuant to the Act any securities of the Company in consequence of the
issue and sale of the Shares to the Underwriters hereunder either included such
securities in the Registration Statement or duly waived such right and each
person who has the right, contractual or otherwise, to cause the Company to
issue to it any securities of the Company in consequence of the issue and sale
of the Shares to the Underwriters hereunder has duly waived such right.
(m) KPMG Peat Marwick LLP, whose report on the consolidated financial
statements of the Company and the Subsidiaries and report on the
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<PAGE>
historical summaries of revenue and direct operating expenses of Grasslands
System (as defined in such report) are included or incorporated by reference in
the Registration Statement and the Prospectus, are independent public
accountants with respect to the Company as required by the Act and the
applicable published rules and regulations thereunder.
(n) All legal or governmental proceedings, contracts or documents of a
character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement have been
so described or filed as required; neither the Company nor any of its
Subsidiaries is a party to any litigation, and there is no such litigation
pending or (to the best knowledge of the Company or any of its Subsidiaries),
threatened or contemplated, which seeks to enjoin or restrain the execution,
delivery and performance of this Agreement, the incurrence of the obligations
set forth herein or the consummation of the transactions contemplated hereby.
(o) There is no action, suit or proceeding pending or threatened
against the Company or any of the Subsidiaries or any of their properties, at
law or in equity, or before or by any federal, state, local or foreign
governmental or regulatory commission, board, body, authority or agency that
could result in a judgment, decree or order having a material adverse effect on
the properties, assets, operations, business, business prospects or condition
(financial or other) of the Company and the Subsidiaries taken as a whole.
(p) The audited and unaudited financial statements included in the
Registration Statement and the Prospectus present fairly the consolidated
financial condition of the Company and the Subsidiaries and of Grasslands System
as of the dates indicated and the consolidated results of operations and cash
flows of the Company and the Subsidiaries and of Grasslands System for the
periods specified; such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
during the periods involved; the pro forma financial information (including the
notes thereto) included in the Registration Statement and the Prospectus (A)
have been prepared in all material respects in accordance with applicable
requirements of Rule 11-02 of Regulation S-X promulgated under the Exchange Act,
and (B) have been properly computed on the bases described therein and the
assumptions used in the preparation of the pro forma financial information
included in the Registration Statement and the Prospectus are reasonably and in
good faith believed by the Company to be reasonable and the adjustments used
therein are reasonably and in good faith believed by the Company to be
appropriate to give effect to the transactions or circumstances referred to
therein.
8
<PAGE>
(q) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as may be
otherwise stated in the Registration Statement or the Prospectus, there has not
been: (A) any material adverse change in the properties, assets, operations,
business, business prospects or condition (financial or other), present or
prospective, of the Company and the Subsidiaries taken as a whole; (B) any
transaction, that is material to the Company and the Subsidiaries taken as a
whole, contemplated or entered into by the Company or any of the Subsidiaries;
or (C) any obligation, contingent or otherwise, directly or indirectly incurred
by the Company or any of the Subsidiaries that is material to the Company and
the Subsidiaries taken as a whole.
(r) The Company has obtained the agreement of the shareholders listed
on Schedule C not to sell, contract to sell, grant any option to sell, transfer
or otherwise dispose of, directly or indirectly, any shares of Common Stock, or
securities convertible into or exchangeable for Common Stock or warrants or
other rights to purchase Common Stock for a period of 180 days from the date of
the Prospectus without the prior written consent of Dillon, Read & Co. Inc.
(s) Neither the Company nor any of the Subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), the Interstate
Commerce Act or the Energy Policy Act of 1992 or any regulation promulgated by
the Texas Railroad Commission, or any federal or state law relating to
discrimination in the hiring, promotion or pay of employees nor any applicable
federal or state wages and hours laws, or any provisions of the Employee
Retirement Income Security Act or the rules and regulations promulgated
thereunder, which in each case might result in any material adverse effect on
the properties, assets, operations, business, business prospects or condition
(financial or other) of the Company and the Subsidiaries taken as a whole.
(t) The Company and each of the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including without limitation under any applicable
Environmental Laws, the Interstate Commerce Act or the Energy Policy Act of 1992
or under any regulations promulgated by the Texas Railroad Commission, as are
necessary to own, lease and operate its respective properties and to conduct its
business; the Company and each of the Subsidiaries has fulfilled and performed
all of its material obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would
9
<PAGE>
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit; and, except as
described in the Prospectus, such permits contain no restrictions that are
materially burdensome to the Company or any of the Subsidiaries.
(u) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business, operations
and properties of the Company and the Subsidiaries, in the course of which it
identifies and evaluates associated costs and liabilities (including without
limitation any capital or operating expenditure required for clean-up, closure
of properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review, the Company
reasonably has concluded that such associated costs and liabilities, singly or
in the aggregate, would not have a material adverse effect on the properties,
assets, operations, business, business prospects or condition (financial or
other) of the Company and the Subsidiaries taken as a whole.
(v) Neither the Company nor any of the Subsidiaries, nor any employee
of the Company or any of the Subsidiaries, has made any payment of funds of the
Company or any of the Subsidiaries prohibited by law, and no funds of the
Company or any of the Subsidiaries have been set aside to be used for any
payment prohibited by law.
(w) The Company and the Subsidiaries have filed all federal or state
income or franchise tax returns required to be filed and have paid all taxes
shown thereon as due, and there is no material tax deficiency which has been or
might be asserted against the Company or any of the Subsidiaries; all material
tax liabilities are adequately provided for on the books of the Company and the
Subsidiaries.
(x) The Company has not incurred any liability for any finder's fees
or similar payments in connection with the transactions herein contemplated.
(y) The Company and the Subsidiaries have good title to all properties
and assets owned or leased by them, in each case free and clear of all liens,
security interests, pledges, charges, encumbrances, mortgages and defects
(except such as are described or referred to in the Prospectus and the financial
statements and the notes thereto contained therein or such as do not interfere
with the use made and proposed to be made of such property by the Company and
the Subsidiaries).
(z) Neither the Company nor any of the Subsidiaries is an "investment
company" within the meaning of the Investment Company Act of 1940,
10
<PAGE>
as amended, or is subject to regulation under such Act.
4. Further Representations and Warranties of the Selling Shareholders. Each
--------------------------------------------- --------------------
Selling Shareholder, severally and not jointly, further represents and warrants
to each Underwriter that:
(a) Such Selling Shareholder is and at the time of delivery of the
Shares to be sold by such Selling Shareholder will be the lawful owner of the
number of Shares [or securities convertible into or warrants exercisable for the
number of Shares] to be sold by such Selling Shareholder pursuant to this
Agreement and, at the time of delivery thereof, will have valid and marketable
title to such Shares, and upon delivery of and payment for such Shares the
Underwriters will acquire valid and marketable title to such Shares free and
clear of any claim, lien, encumbrance, security interest, community property
right, restriction on transfer or other defect in title, assuming each of the
Underwriters has purchased the Shares purchased by it in good faith and without
notice of any adverse claim.
(b) Such Selling Shareholder has and at the time of delivery of such
Shares will have full legal right, power and capacity, and any approval required
by law to sell, assign, transfer and deliver such Shares in the manner provided
in this Agreement.
(c) This Agreement has been duly authorized, executed and delivered by
such Selling Shareholder. The Power of Attorney executed by the Sellings
Shareholders (the "Power of Attorney") and the Custody Agreement among the
Selling Shareholders and [Name of Custodian] (the "Custody Agreement") have been
duly executed and delivered by such Selling Shareholder and are legal, valid and
binding agreements of such Selling Shareholder, enforceable in accordance with
their terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and general principles of equity.
(d) Such Selling Shareholder has duly and irrevocably authorized the
Attorney-in-Fact (as defined in the Power of Attorney), on behalf of such
Selling Shareholder, to execute and deliver this Agreement and any other
document necessary or desirable in connection with the transactions contemplated
hereby and to deliver the Shares to be sold by such Selling Shareholder and
receive payment therefor pursuant hereto.
(e) The sale of the Shares by such Selling Shareholder pursuant hereto
is not prompted by any material adverse information concerning the Company; and
all information furnished in writing by or on behalf of such Selling Shareholder
specifically for use in the Registration Statement and the Prospectus, and any
supplement or amendment thereto, is and will be when the
11
<PAGE>
Registration Statement became effective and at all times subsequent thereto up
to the time of purchase and the additional time of purchase, true and correct
and complete and at all such times did not and will not contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(f) The consummation of the transactions contemplated hereby and by
the Power of Attorney and by the Custody Agreement and the fulfillment of the
terms hereof and thereof will not constitute a breach or violation of or default
under any trust, indenture, agreement or other instrument to which any such
Selling Shareholder is a party or by which any such Selling Shareholder is
bound.
5. Certain Covenants of the Company. The Company hereby agrees:
--------------------------------
(a) to furnish such information as may be required and otherwise to
cooperate in qualifying the Shares for offering and sale under the securities or
blue sky laws of such states as you may designate and to maintain such
qualifications in effect as long as required for the distribution of the Shares,
provided that the Company shall not be required to qualify as a foreign
corporation or to consent to the service of process under the laws of any such
state (except service of process with respect to the offering and sale of the
Shares); promptly to advise you of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Shares
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; and to use its best efforts to obtain the withdrawal of any
order of suspension at the earliest practicable moment;
(b) to make available to you in New York City, as soon as practicable
after the Registration Statement becomes effective, and thereafter from time to
time to furnish to the Underwriters, as many copies of the Prospectus (or of the
Prospectus as amended or supplemented if the Company shall have made any
amendment or supplement thereto after the effective date of the Registration
Statement) as the Underwriters may request for the purposes contemplated by the
Act;
(c) to advise you promptly and if requested by you to confirm such
advice in writing, (i) when the Registration Statement has become effective and
when any post-effective amendment thereto becomes effective and (ii) when the
Prospectus is filed with the Commission pursuant to Rule 424(b) under the Act,
if required under the Act (which the Company agrees to file in a timely manner
under such Rule);
(d) to advise you promptly, confirming such advice in writing, of
12
<PAGE>
any request by the Commission for amendments or supplements to the Registration
Statement or the Prospectus or for additional information with respect thereto,
or of notice of institution of proceedings for or the entry of a stop order
suspending the effectiveness of the Registration Statement and, if the
Commission should enter a stop order suspending the effectiveness of the
Registration Statement, to use its best efforts to obtain the lifting or removal
of such order as soon as possible; to advise you promptly of any proposal to
amend or supplement the Registration Statement or the Prospectus, including by
filing any document that would be incorporated therein by reference, and to file
no such amendment or supplement to which you shall object in writing;
(e) to furnish to you and, upon request to each of the other
Underwriters, for a period of five years from the date of this Agreement (i)
copies of all reports or other communications that the Company shall send to its
shareholders or from time to time shall publish or publicly disseminate and (ii)
copies of all annual, quarterly and current reports filed with the Commission on
Forms 10-K, 10-Q and 8-K, or such other similar form as may be designated by the
Commission, and any other document filed by the Company pursuant to Section 12,
13, 14 or 15(d) of the Exchange Act;
(f) to advise the Underwriters promptly of the happening of any event
known to the Company within the time during which a prospectus relating to the
Shares is required to be delivered under the Act that, in the reasonable
judgment of the Company, would require the making of any change in the
Prospectus then being used, or in the information incorporated therein by
reference, so that the Prospectus, as then supplemented, would not include an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they are made, not misleading and, during such time, promptly to prepare and
furnish, at the Company's expense, to the Underwriters such amendments or
supplements to such Prospectus as may be necessary to reflect any such change in
such quantities as requested by the Underwriters, and to furnish to you a copy
of such proposed amendment or supplement before filing any such amendment or
supplement with the Commission;
(g) to make generally available to its security holders, and to
deliver to you, an earnings statement of the Company (which need not be audited
and which will satisfy the provisions of Section 11(a) of the Act including, at
the option of the Company, Rule 158) covering a period of 12 months beginning
after the effective date of the Registration Statement but ending not later than
15 months after the date of the Registration Statement, as soon as is reasonably
practicable after the termination of such 12-month
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<PAGE>
period;
(h) to furnish to you four signed copies of the Registration
Statement, as initially filed with the Commission, and of all amendments thereto
(including all exhibits thereto and documents incorporated by reference therein)
and sufficient conformed copies of the foregoing (other than exhibits) for
distribution of a copy to each of the other Underwriters;
(i) to furnish to you as early as practicable prior to the time of
purchase and the additional time of purchase, as the case may be, but not later
than two business days prior thereto, a copy of the latest available unaudited
interim consolidated financial statements, if any, of the Company and the
Subsidiaries that have been read by the Company's independent certified public
accountants as stated in their letter to be furnished pursuant to Section 8(c);
(j) to apply the net proceeds from the sale of the Shares sold by the
Company in the manner set forth under the caption "Use of Proceeds" in the
Registration Statement and the Prospectus;
(k) to cause the Shares to be listed on the American Stock Exchange;
(l) whether or not the transactions contemplated in this Agreement are
consummated or this Agreement otherwise becomes effective or is terminated, to
pay all expenses, fees and taxes (other than (x) any transfer taxes and (y) fees
and disbursements of your counsel except as set forth under Section 5 and
clauses (iii) and (iv) below) in connection with (i) the preparation and filing
of the Registration Statement, each Preliminary Prospectus, the Prospectus and
any amendment or supplement thereto, and the printing and furnishing of copies
of each thereof to you and to dealers (including costs of mailing and shipment),
(ii) the issuance, sale and delivery of the Shares, (iii) the word processing or
printing of this Agreement and any dealer agreements, and the reproduction or
printing and furnishing of copies of each thereof to you and to dealers
(including costs of mailing and shipment), (iv) the qualification of the Shares
for offering and sale under state laws as aforesaid (including legal fees and
filing fees and other disbursements of your counsel) and the printing and
furnishing of copies of any blue sky surveys to you and to dealers, (v) the
listing of the Shares on the American Stock Exchange and any registration
thereof under the Exchange Act, (vi) any filing for review of the public
offering of the Shares by the NASD and (viii) the performance of the Company's
and the Selling Shareholders' other obligations hereunder;
(m) not to sell, contract to sell, grant any option to sell, transfer
or otherwise dispose of, directly or indirectly, any shares of Common
14
<PAGE>
Stock or securities convertible into or exchangeable for Common Stock or
warrants or other rights to purchase Common Stock or permit the registration
under the Act of any shares of Common Stock, except for the registration of the
Shares and the sales to you pursuant to this Agreement for a period commencing
on the date hereof and continuing for 180 days after the date of the Prospectus,
without the prior written consent of Dillon, Read & Co. Inc.; and
(n) to refrain from investing the proceeds from the sale of the Shares
in a manner to cause the Company or any of the Subsidiaries to become an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
6. Certain Covenants of the Selling Shareholders. Each Selling
---------------------------------------------
Shareholder agrees with each Underwriter that such Selling Shareholder will not
sell, contract to sell, grant any option to sell, transfer or otherwise dispose
of, directly or indirectly, any shares of Common Stock or securities convertible
into or exchangeable for Common Stock or warrants or other rights to purchase
Common Stock, except for the sales to you pursuant to this Agreement, for a
period commencing on the date hereof and continuing for 180 days after the date
of the Prospectus, without the prior written consent of Dillon, Read & Co. Inc.
7. Reimbursement of Underwriters' Expenses. If the Firm Shares or
---------------------------------------
the Additional Shares are not delivered for any reason, other than the failure
of the Underwriters to purchase the Firm Shares or the Additional Shares as
provided herein (unless such failure is permitted under the provisions of
Section 8 or Section 9(b) of this Agreement), the Company will reimburse the
Underwriters for all of their out-of-pocket expenses, including the fees and
disbursements of their counsel.
8. Conditions of Underwriters' Obligations. The several obligations
---------------------------------------
of the Underwriters hereunder are subject to the accuracy of the representations
and warranties on the part of the Company and the Selling Shareholders on the
date hereof and at the time of purchase (and the several obligations of the
Underwriters at any additional time of purchase are subject to the accuracy of
the representations and warranties on the part of the Company and the Selling
Shareholders on the date hereof and at the time of purchase and at such
additional time of purchase, as the case may be), the performance by each of the
Company and the Selling Shareholders of their obligations hereunder and to the
following conditions:
(a) The Company shall furnish to you at the time of purchase and at
such additional time of purchase, as the case may be, an opinion of Holme
Roberts & Owen, LLP, counsel for the Company, addressed to the Underwriters
15
<PAGE>
and dated the time of purchase or such additional time of purchase, as the case
may be, with reproduced copies for each of the other Underwriters and in form
satisfactory to Cahill Gordon & Reindel, counsel for the Underwriters, stating
that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with full corporate power and authority (A) to own its
properties and conduct its business as described in the Registration
Statement and the Prospectus and (B) to execute and deliver this
Agreement and to issue, sell and deliver the Shares as herein
contemplated;
(ii) each of the Subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws
of the state in which such Subsidiary is incorporated, with full
corporate power and authority to own its properties and to conduct its
business as described in the Registration Statement and the
Prospectus;
(iii) each of the Company and each of the Subsidiaries is
duly qualified or licensed to do business by and is in good standing
as a foreign corporation in each jurisdiction in which it conducts
business or owns property and in which the failure, individually or in
the aggregate, to be so licensed or qualified could have a material
adverse effect on the properties, assets, operations, business,
business prospects or condition (financial or other) of the Company
and the Subsidiaries taken as a whole;
(iv) all of the issued and outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued
and are fully paid and nonassessable and, except for Continental Ozark
as to which the Company owns 65% of the voting capital stock and Lion
Oil Company as to which Continental Ozark owns [a 27.75% interest],
are owned, directly or indirectly, by the Company free and clear of
any pledge, lien, encumbrance, security interest, preemptive right or
other claim, and there are no rights, warrants, options or other
agreements to acquire or instruments convertible into or exchangeable
for any shares of capital stock or other equity interest of any
Subsidiary, except as set forth in the Prospectus;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
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<PAGE>
(vi) (a) the Shares, when delivered to and paid for by the
Underwriters, will be duly authorized, validly issued, fully paid and
nonassessable, and will be free of any pledge, lien, encumbrance,
claim or preemptive right other than the Merrill Lynch Preemptive
Right; and (b) the certificates for the Shares are in due and proper
form and the holders of the Shares will not be subject to personal
liability by reason of being such holders;
(vii) (a) the Company has an authorized capitalization as
set forth under the heading "Capitalization" in the Registration
Statement and the Prospectus, and (b) the outstanding shares of
capital stock of the Company have been duly authorized and validly
issued and are fully paid, nonassessable and free of statutory and
contractual preemptive rights other than the Merrill Lynch Preemptive
Right;
(viii) the capital stock of the Company, including the
Shares, conforms in all material respects to the description thereof
contained in the Registration Statement and the Prospectus;
(ix) the Registration Statement and the Prospectus (except
as to the financial statements and schedules contained or incorporated
by reference therein as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of
the Act;
(x) the Registration Statement has become effective under
the Act and, to the best of such counsel's knowledge, no stop order
proceedings with respect thereto are pending or threatened under the
Act;
(xi) no approval, authorization, consent or order of or
filing with any federal, state, local or foreign governmental or
regulatory commission, board, body, authority or agency is required in
connection with the issuance or sale of the Shares as contemplated
hereby other than registration of the Shares under the Act (except
such counsel need express no opinion as to any necessary qualification
under the state securities or blue sky laws of the various
jurisdictions in which the Shares are being offered by the
Underwriters);
(xii) the execution, delivery and performance of this
Agreement by the Company, the issuance and sale of the Shares, the
application of the net proceeds thereof as
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<PAGE>
described in the Prospectus and the consummation by the Company of the
transactions contemplated hereby do not and will not conflict with, or
result in any breach of, or constitute a default under (nor constitute
any event which with notice, lapse of time or both would constitute a
breach of or default under), the charter or bylaws of the Company or
any of the Subsidiaries, or any provision of any license, indenture,
lease, mortgage, deed of trust, bank loan or credit agreement or other
agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries or their properties are bound or affected, or under any
federal, state, local or foreign law, regulation or rule or any
decree, judgment or order applicable to the Company or any of the
Subsidiaries;
(xiii) to the best of such counsel's knowledge, neither the
Company nor any of the Subsidiaries is in breach of or in default
under (nor has any event occurred which with notice, lapse of time or
both would constitute a breach of or default under) any license,
indenture, lease, mortgage, deed of trust, bank loan or credit
agreement or any other agreement or instrument to which the Company or
any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries or their properties are bound or affected or under
any law, regulation or rule or any decree, judgment or order
applicable to the Company or any of the Subsidiaries, except for such
matters as could not, individually or in the aggregate, have a
material adverse effect on the properties, assets, operations,
business, business prospects or condition (financial or other) of the
Company and the Subsidiaries taken as a whole;
(xiv) to the best of such counsel's knowledge, after due inquiry,
neither the Company nor any of the Subsidiaries has violated any
Environmental Laws, the Interstate Commerce Act or the Energy Policy
Act of 1992 or any regulation promulgated by the Texas Railroad
Commission, or any federal or state law relating to discrimination in
the hiring, promotion or pay of employees or any applicable federal or
state wages and hours laws, nor any provisions of the Employee
Retirement Income Security Act or the rules and regulations
promulgated thereunder, which in each case might result in any
material adverse effect on the properties, assets, operations,
business, business prospects or condition (financial or other) of the
Company and the
18
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Subsidiaries taken as a whole;
(xv) the Company and each of the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including without limitation under any
applicable Environmental Laws, the Interstate Commerce Act, the Energy
Policy Act of 1992 or under any regulation promulgated by the Texas
Railroad Commission, as are necessary to own, lease and operate its
respective properties and to conduct its business in the manner
described in the Prospectus; to the best of such counsel's knowledge,
after due inquiry, the Company and each of the Subsidiaries has
fulfilled and performed all of its material obligations with respect
to such permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof
or results in any other material impairment of the rights of the
holder of any such permit, subject in each case to such qualification
as may be set forth in the Prospectus; and, except as described in the
Prospectus, such permits contain no restrictions that are materially
burdensome to the Company or any of the Subsidiaries;
(xvi) all contracts or documents of a character required to be
described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement have been so
described or filed;
(xvii) except as described in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings of which such
counsel has knowledge pending or threatened against the Company or any
of the Subsidiaries, or any of their respective properties, at law or
in equity, or before or by any federal, state, local or foreign
governmental or regulatory commission, board, body, authority or
agency that individually or in the aggregate could result in a
judgment, decree or order having a material adverse effect on the
properties, assets, operations, business, business prospects or
condition (financial or other) of the Company and the Subsidiaries
taken as a whole;
(xviii) the documents incorporated by reference in the
Registration Statement and Prospectus, when they were filed (or, if an
amendment with respect to any such document was filed, when such
amendment was filed), complied as to form in
19
<PAGE>
all material respects with the Exchange Act (except as to the
financial statements and schedules and other financial and statistical
data contained or incorporated by reference therein, as to which such
counsel need express no opinion);
(xix) to the best of such counsel's knowledge, no person has the
right, contractual or otherwise, to cause the Company to issue to it,
or register pursuant to the Act, any securities of the Company in
consequence of the issue and sale of the Shares to the Underwriters
hereunder other than with respect to the Merrill Lynch Preemptive
Right; to the best of such counsel's knowledge, each person who has
the right, contractual or otherwise, to cause the Company to register
pursuant to the Act any securities of the Company in consequence of
the issue and sale of the Shares to the Underwriters hereunder either
included such securities in the Registration Statement or duly waived
such right and each person who has the right, contractual or
otherwise, to cause the Company to issue to it any securities of the
Company in consequence of the issue and sale of the Shares to the
Underwriters hereunder has duly waived such right;
(xx) the statements in the Registration Statement and the
Prospectus under the captions "Business -- Environmental Regulation --
Rate Regulation", "Description of Capital Stock", "Long-Term
Indebtedness" and "Shares Eligible For Future Sale", insofar as they
are descriptions of laws, regulations and rules, of legal and
governmental proceedings or of contracts, agreements, leases and other
legal documents, or refer to statements of law or legal conclusions,
have been reviewed by such counsel and are accurate in all material
respects;
(xxi) neither the Company nor any of the Subsidiaries is an
"investment company" or a person "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended; and
(xxii) nothing has come to the attention of such counsel that
causes them to believe that the Registration Statement or any
amendment thereto at the time such Registration Statement or amendment
became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus or any supplement thereto at the date of such Prospectus or
such supplement, and at
20
<PAGE>
all times up to and including the time of purchase contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no
opinion with respect to the financial statements and schedules
included in the Registration Statement or Prospectus).
(b) The Selling Shareholders shall furnish to you at the time of
purchase and at such additional time of purchase, as the case may be, an opinion
of __________, counsel for the Selling Shareholders, addressed to the
Underwriters and dated the time of purchase or such additional time of purchase,
as the case may be, with reproduced copies for each of the other Underwriters
and in form satisfactory to Cahill Gordon & Reindel, counsel for the
Underwriters, stating that:
(i) this Agreement, the Power of Attorney and the Custody
Agreement have been duly executed and delivered by each of the Selling
Shareholders; the Power of Attorney and the Custody Agreement are
legal, valid and binding agreements of each of the Selling
Shareholders enforceable in accordance with their respective terms,
except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and general principles of equity;
(ii) each of the Selling Shareholders has full legal right and
power, and has obtained any authorization or approval required by law
(other than those imposed by the Act and the securities or blue sky
laws of certain jurisdictions), to sell, assign, transfer and deliver
the Shares to be sold by such Selling Shareholder in the manner
provided in this Agreement;
(iii) delivery of certificates for the Shares to be sold by the
Selling Shareholders pursuant hereto will pass title thereto to the
Underwriters severally, free and clear of any claim, lien,
encumbrance, security interest, community property right, restriction
on transfer or other defect in title assuming that the several
Underwriters are good faith purchasers and without notice of any
adverse claim;
(iv) to the best of such counsel's knowledge, the consummation of
the transactions contemplated hereby and by the Power of Attorney and
the Custody Agreement
21
<PAGE>
and the fulfillment of the terms hereof and thereof will not
constitute a breach or violation of or default under any trust,
indenture, agreement or other instrument to which any of the Selling
Shareholders is a party or by which any of the Selling Shareholders is
bound;
(v) the Attorney-in-Fact has been duly authorized by each Selling
Shareholder to execute and deliver on behalf of each Selling
Shareholder this Agreement and any other document necessary or
desirable in connection with the transactions contemplated hereby and
to deliver the Shares to be sold by the Selling Shareholders and
receive payment therefor pursuant hereto;
(vi) no approval, authorization, consent or order of or filing
with any federal, state, local or foreign governmental or regulatory
commission, board, body, authority or agency is required in connection
with the sale of the Shares to be sold by the Selling Shareholders as
contemplated hereby other than registration of the Shares under the
Act (except such counsel need express no opinion as to any necessary
qualification under the state securities or blue sky laws of the
various jurisdictions in which the Shares are being offered by the
Underwriters); and
(vii) nothing has come to the attention of such counsel that
causes them to believe that the Registration Statement or any
amendment thereto at the time such Registration Statement or amendment
became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus or any supplement thereto at the date of such Prospectus or
such supplement, and at all times up to and including the time of
purchase contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading (it being understood that such counsel
need express no opinion with respect to the financial statements and
schedules included in the Registration Statement or Prospectus).
(c) You shall have received from KPMG Peat Marwick LLP letters dated,
respectively, the date of this Agreement and the time of purchase and additional
time of purchase, as the case may be, and addressed to the
22
<PAGE>
Underwriters (with reproduced copies for each of the Underwriters) in form and
substance satisfactory to you.
(d) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, opinions from Cahill Gordon &
Reindel in form and substance satisfactory to you.
(e) No amendment or supplement to the Registration Statement or the
Prospectus, including documents deemed to be incorporated by reference therein,
shall be filed prior to the time the Registration Statement becomes effective to
which you shall have objected in writing.
(f) The Registration Statement shall become effective at or before
5:00 P.M., New York City time, on the date of this Agreement and, if Rule 430A
under the Act is used, the Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) under the Act at or before 5:00 P.M., New York City
time, on the second full business day after the date of this Agreement;
provided, however, that the Company, the Selling Shareholders and you and any
group of Underwriters, including you, who have agreed hereunder to purchase in
the aggregate at least 50% of the Firm Shares from time to time may agree in
writing or by telephone, confirmed in writing, on a later date.
(g) Prior to the time of purchase or the additional time of purchase,
as the case may be: (i) no stop order with respect to the effectiveness of the
Registration Statement shall have been issued under the Act or proceedings
initiated under Section 8(d) or 8(e) of the Act; (ii) the Registration Statement
and all amendments thereto, or modifications thereof, if any, shall not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and (iii) the Prospectus and all amendments or supplements thereto, or
modifications thereof, if any, shall not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(h) Between the time of execution of this Agreement and the time of
purchase or the additional time of purchase, as the case may be, there has not
been: (i) any material and adverse change, present or prospective, in the
properties, assets, operations, business, business prospects or condition
(financial or other) of the Company and the Subsidiaries taken as a whole, other
than as described in the Registration Statement and the Prospectus; (ii) any
transaction that is material to the Company and the Subsidiaries taken as a
whole contemplated or entered into by the Company or any of the Subsidiaries,
other than as described in the Registration Statement and the Prospectus; or
(iii) any obligation, contingent or otherwise, directly or
23
<PAGE>
indirectly, incurred by the Company or any of the Subsidiaries that is material
to the Company and the Subsidiaries taken as a whole, other than as described in
the Registration Statement and the Prospectus.
(i) The Company, at the time of purchase or additional time of
purchase, as the case may be, will deliver to you a certificate of two of its
executive officers to the effect that the representations and warranties of the
Company as set forth in this Agreement are true and correct as of each such date
and the conditions set forth in Section 8(g) and Section 8(h) have been met.
(j) You shall have received a signed letter, dated the date of this
Agreement, from each of the shareholders listed in Schedule C to the effect that
such persons shall not sell, contract to sell, grant any option to sell,
transfer or otherwise dispose of, directly or indirectly, any shares of Common
Stock or securities convertible into or exchangeable for Common Stock or
warrants or other rights to purchase Common Stock for a period of 180 days from
the date of the Prospectus without the prior written consent of Dillon, Read &
Co. Inc.
(k) The Company and the Selling Shareholders shall have furnished to
you such other documents and certificates as to the accuracy and completeness of
any statement in the Registration Statement or the Prospectus as of the time of
purchase and the additional time of purchase, as the case may be, as you
reasonably may request.
(l) The Company and the Selling Shareholders shall have performed such
of their respective obligations under this Agreement as are to be performed by
the terms hereof at or before the time of purchase and at or before the
additional time of purchase, as the case may be.
(m) The Shares shall have been approved for listing on the American
Stock Exchange.
(n) The Attorney-in-Fact, at the time of purchase or additional time
of purchase, as the case may be, shall have delivered to you a certificate to
the effect that the Attorney-in-Fact is not aware that any of the
representations and warranties of the Selling Shareholders as set forth in this
Agreement are not true and correct as of such date.
(o) On or prior to the date hereof, the NASD shall have approved the
Underwriters' participation in the distribution of the Shares to be sold by the
Selling Shareholders.
9. Effective Date of Agreement; Termination.
----------------------------------------
(a) This Agreement shall become effective (i) if Rule 430A under the
Act is not used, when you shall have received notification of the effectiveness
of the Registration Statement, or (ii) if Rule 430A under the
24
<PAGE>
Act is used, when the parties hereto have executed and delivered this Agreement.
(b) The obligations of the several Underwriters hereunder shall be
subject to termination in the absolute discretion of you or any group of
Underwriters (which may include you) which has agreed to purchase in the
aggregate at least 50% of the Firm Shares if, at any time prior to the time of
purchase or, with respect to the purchase of any Additional Shares, the
additional time of purchase, as the case may be, trading in securities on the
New York [or American] Stock Exchange shall have been suspended or minimum
prices shall have been established on the New York [or American] Stock Exchange
or if a banking moratorium shall have been declared either by the United States
or New York State authorities, or if the United States shall have declared war
in accordance with its constitutional processes or there shall have occurred any
material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in your
judgment or in the judgment of such group of Underwriters, makes it
impracticable to market the Shares. If you or any group of Underwriters elect to
terminate this Agreement as provided in this Section 9(b), the Company and each
other Underwriter shall be notified promptly by letter or telegram.
(c) If any Underwriter shall default in its obligation to take up and
pay for the Firm Shares to be purchased by it hereunder and if the number of
Firm Shares which all Underwriters so defaulting shall have agreed but failed to
take up and pay for does not exceed 10% of the total number of Firm Shares, the
non-defaulting Underwriters shall take up and pay for (in addition to the
aggregate principal amount of Firm Shares they are obligated to purchase
pursuant to Section 1) the number of Firm Shares agreed to be purchased by all
such defaulting Underwriters as hereinafter provided. Such Shares shall be taken
up and paid for by such non-defaulting Underwriter or Underwriters in such
amount or amounts as you may designate with the consent of each Underwriter so
designated or, in the event no such designation is made, such Shares shall be
taken up and paid for by all non-defaulting Underwriters pro rata in proportion
to the aggregate number of Firm Shares set opposite the names of such non-
defaulting Underwriters in Schedule A.
(d) If any Underwriter shall default in its obligation to take up and
pay for the Firm Shares to be purchased by it hereunder and if the number of
Firm Shares which all Underwriters so defaulting shall have agreed but failed to
take up and pay for exceeds 10% of the total number of Firm Shares, and
arrangements satisfactory to you and the Company are not made
25
<PAGE>
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter.
(e) Without relieving any defaulting Underwriter from its obligations
hereunder, the Company agrees with the non-defaulting Underwriters that it will
not sell any Firm Shares hereunder unless all of the Firm Shares are purchased
by the Underwriters (or by substituted underwriters selected by you with the
approval of the Company or selected by the Company with your approval pursuant
to Section 9(d)). If a new Underwriter or Underwriters are substituted for a
defaulting Underwriter or Underwriters in accordance with Section 9(d), the
Company or you shall have the right to postpone the time of purchase for a
period not exceeding five business days in order that any necessary change in
the Registration Statement and the Prospectus and other documents may be
effected. The term Underwriter as used in this Agreement shall refer to and
include any Underwriter substituted under this Section 9 with like effect as if
such substituted Underwriter had originally been named in Schedule A.
(f) If the purchase of the Shares by the Underwriters, as contemplated
by this Agreement, is not consummated for any reason permitted under this
Agreement or if such purchase is not consummated because the Company shall be
unable to comply with any of the terms of this Agreement, the Company shall not
be under any obligation or liability under this Agreement (except to the extent
provided in Sections 5(l), 7 and 10), and the Underwriters shall be under no
obligation or liability to the Company under this Agreement (except to the
extent provided in Section 10) .
10. Indemnity by the Company, the Selling Shareholders and the
----------------------------------------------------------
Underwriters.
- ------------
(a) The Company and the Selling Shareholders, jointly and severally,
agree to indemnify, defend and hold harmless each Underwriter, each person that
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, and each Underwriter's agents, employees, officers and
directors and the agents, employees, officers and directors of any such
controlling person (collectively, the "Underwriter indemnified parties") from
and against any and all losses, claims, damages, judgments, liabilities and
expenses (including the fees and expenses of counsel and other expenses in
connection with investigating, defending or settling any such action or claim)
which, jointly or severally, any Underwriter indemnified party may incur as they
are incurred (and regardless of whether such Underwriter indemnified party is a
party to the litigation, if any) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement relating
26
<PAGE>
to the Shares or the Prospectus or any Preliminary Prospectus, or arising out of
or based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, judgments,
liabilities or expenses arise out of, or are based upon, any such untrue
statement or omission or alleged untrue statement or omission based upon and in
conformity with information with respect to any Underwriter furnished in writing
by any Underwriter through you to the Company expressly for use therein with
reference to such Underwriter; provided, however, that no Selling Shareholder
shall be liable under this Section 10 in an amount exceeding the total price at
which the Shares sold by such Selling Shareholder were offered to the public.
This indemnity agreement will be in addition to any liability the Company or the
Selling Shareholders otherwise may have.
(b) If any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
Underwriter indemnified party, with respect to which indemnity may be sought
against the Company or A Selling Shareholder pursuant to this Section 10, such
Underwriter indemnified party shall promptly notify the Company and each Selling
Shareholder in writing, and the Company and the Selling Shareholders shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to the Underwriter indemnified party and payment of all fees and
expenses; provided that the omission so to notify the Company and the Selling
Shareholders shall not relieve them from any liability that they may have to any
Underwriter indemnified party. An Underwriter indemnified party shall have the
right to employ separate counsel in any such action or proceeding and to assume
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Underwriter indemnified party unless (i) the employment of such
counsel has been authorized in writing by the Company or the Selling
Shareholders, (ii) the Company and the Selling Shareholders have failed promptly
to assume the defense and employ counsel satisfactory to the Underwriter
indemnified party or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both the Underwriter indemnified party
and the Company or the Selling Shareholders and such Underwriter indemnified
party shall have reasonably concluded that there may be one or more legal
defenses available to it that are different from or additional to those
available to the Company and the Selling Shareholders (in which case the Company
and the Selling Shareholders shall not have the right to assume the defense of
such action on behalf of such Underwriter indemnified party), in any of which
events such fees and expenses shall be borne by the Company and the Selling
27
<PAGE>
Shareholders and reimbursed as they are incurred. It is understood, however,
that the Company and the Selling Shareholders shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) at any time for all such Underwriter
indemnified parties, which firm shall be designated in writing by Dillon, Read &
Co. Inc., and that all such fees and expenses shall be reimbursed as they are
incurred. The Company and the Selling Shareholders shall not be liable for any
settlement of any such action effected without the written consent of the
Company or the Selling Shareholders (which consent shall not be unreasonably
withheld or delayed), but if settled with the written consent of the Company or
the Selling Shareholders, or if there is a final judgment with respect thereto,
the Company and the Selling Shareholders agree to indemnify and hold harmless
each Underwriter indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(c) Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, its officers who sign the Registration Statement,
and any person that controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act (collectively, the "Company indemnified
parties") and each Selling Shareholder to the same extent as the foregoing
indemnity from the Company and the Selling Shareholders to the Underwriter
indemnified parties, but only with respect to information concerning such
Underwriter furnished in writing by or on behalf of such Underwriter through you
to the Company expressly for use with respect to such Underwriter in the
Registration Statement, any Preliminary Prospectus or the Prospectus. In case
any action shall be brought against any Company indemnified party or any Selling
Shareholder based on the Registration Statement, any Preliminary Prospectus or
the Prospectus and in respect of which indemnity may be sought against any
Underwriter pursuant to this Section 10(c), such Underwriter shall have the
rights and duties given to the Company and the Selling Shareholders by Section
10(b) (except that if the Company and the Selling Shareholders shall have
assumed the defense thereof such Underwriter shall not be required to do so, but
may employ separate counsel therein and participate in the defense thereof,
provided that the fees and expenses of such separate counsel shall be at the
expense of such Underwriter), and the Company indemnified parties and the
Selling Shareholders shall have the rights and duties given to the Underwriter
indemnified parties by Section 10(b).
(d) If the indemnification provided for in this Section 10 is
28
<PAGE>
unavailable to or insufficient to hold harmless any Underwriter indemnified
party or any Company indemnified party or any Selling Shareholder, then the
party required to indemnify such indemnified party under this Section 10, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, judgments, liabilities and expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other hand from
the offering of the Shares, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Shareholders on the one
hand and the Underwriters on the other hand in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other hand shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and the Selling Shareholders bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault of the Company and the
Selling Shareholders on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue
statement or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, by the Selling Shareholders or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, judgments, liabilities and expenses
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any claim or action.
The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section
10(d) were determined by pro rata allocation or by any other method of
allocation (even if the Underwriters were treated as one entity for such
purpose) which does not take account of the equitable considerations
29
<PAGE>
referred to in this Section 10(d). Notwithstanding the provisions of this
Section 10(d), no Underwriter indemnified party shall be required to contribute
any amount in excess of the amount by which the total price at which the Shares
underwritten by such Underwriter indemnified party and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter indemnified party otherwise has been required to pay by reason of
such untrue statement or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 10 are several in proportion
to their respective underwriting commitments and are not joint.
The statements under the caption "Underwriting" in the Prospectus (to
the extent such statements relate to an Underwriter) constitute the only
information furnished to the Company in writing by such Underwriter expressly
for use in the Registration Statement, any Preliminary Prospectus or the
Prospectus.
(e) The indemnity and contribution agreements contained in this
Section 10 and the representations, warranties and covenants of the Company and
the Selling Shareholders contained in this Agreement shall remain in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter indemnified party or by or on behalf of any Company indemnified
party or any Selling Shareholder, and shall survive any termination of this
Agreement or the issuance and delivery of the Shares. Subject to the provisions
of Section 10(b) and Section 10(c), the Company, each Selling Shareholder and
each Underwriter agree promptly to notify the other of the commencement of any
litigation or proceeding against it in connection with the issuance and sale of
the Shares or in connection with the Registration Statement or the Prospectus.
11. Notices. Except as otherwise herein provided, all statements,
-------
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered or sent to
Dillon, Read & Co. Inc., 535 Madison Avenue, New York, New York 10022,
Attention: Syndicate Department; if to the Company, shall be sufficient in all
respects if delivered or sent to the Company at the offices of the Company at
2750 Republic Plaza, 370 Seventeenth Street, Suite 2750,
30
<PAGE>
Denver, Colorado 80202, Attention: Harold R. Logan, Jr.; and if to the Selling
Shareholders, shall be sufficient in all respects, if delivered or sent to
____________.
12. Construction. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
------------
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. THE SECTION HEADINGS IN THIS AGREEMENT HAVE BEEN
INSERTED AS A MATTER OF CONVENIENCE OF REFERENCE AND ARE NOT A PART OF THIS
AGREEMENT.
13. Parties at Interest. The Agreement herein set forth has been
-------------------
and is made solely for the benefit of the Underwriters, the Company, the Selling
Shareholders, the Underwriter indemnified parties and the Company indemnified
parties, and their respective successors, assigns, executors and administrators.
No other person, partnership, association or corporation (including a purchaser,
as such purchaser, from any of the Underwriters) shall acquire or have any right
under or by virtue of this Agreement.
14. Counterparts. This Agreement may be signed by the parties in
------------
counterparts which together shall constitute one and the same agreement among
the parties.
31
<PAGE>
If the foregoing correctly sets forth the understanding among the Company, the
Selling Shareholders and the Underwriters, please so indicate in the space
provided below for such purpose, whereupon this letter and your acceptance shall
constitute a binding agreement among the Company, the Selling Shareholders and
the Underwriters, severally.
Very truly yours,
TRANSMONTAIGNE OIL COMPANY
By: __________________________
Name:
Title:
THE SELLING SHAREHOLDERS NAMED
IN SCHEDULE B ATTACHED HERETO
By: __________________________
[ATTORNEY-IN-FACT]
Accepted and agreed to as of
the date first above written,
on behalf of themselves,
A.G. Edwards & Sons, Inc.
and Petrie Parkman & Co.
and the other several
Underwriters named in
Schedule A
DILLON, READ & CO. INC., as
Managing Underwriter
By: ___________________________
Name:
Title:
32
<PAGE>
SCHEDULE A
Number of
Underwriter Firm Shares
- ----------- -----------
Dillon, Read & Co. Inc. . . . . . . . . . . .
A.G. Edwards & sons, Inc. . . . . . . . . . .
Petrie Parkman & Co. . . . . . . . . . . . .
-----
Total
=====
<PAGE>
SCHEDULE B
Number of Firm
Name Shares to be Sold
- ---- -----------------
<PAGE>
SCHEDULE C
SHAREHOLDERS WHO HAVE EXECUTED LOCK-UP AGREEMENTS
<PAGE>
EXHIBIT 5.1
December __, 1996
TransMontaigne Oil Company
370 17th Street, Suite 2750
Denver, CO 80202
Re: Form S-2 Registration Statement
Gentlemen:
This firm has acted as counsel to TransMontaigne Oil Company (the "Company")
in connection with the preparation and filing of its registration statement on
Form S-2 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), covering the sale of TransMontaigne's common
stock, $.01 par value (the "Common Stock").
We have examined the Company's Restated Articles of Incorporation and Bylaws
and the record of its corporate proceedings with respect to the Registration
Statement and have made such other investigations as we have deemed necessary
in order to express the following opinion.
Based upon the foregoing, we are of the opinion that up to _____ shares of the
Common Stock, when sold and delivered as contemplated by the Registration
Statement, will be legally issued, fully paid and nonassessable.
We hereby consent to all references to this firm in the Registration
Statement, in all amendments to the Registration Statement and in any
abbreviated registration statement in connection with the Registration
Statement pursuant to Rule 462(b) under the Securities Act. We further
consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
HOLME ROBERTS & OWEN LLP
By
-------------------
Nick Nimmo, Partner
<PAGE>
EXHIBIT 10.7
AGREEMENT FOR SALE
MCKENZIE GAS PROCESSING PLANT
AND GRASSLANDS GAS GATHERING SYSTEM
THIS AGREEMENT is made and entered into this ___ day of October, 1996, by
and between KOCH HYDROCARBON COMPANY, a division of KOCH INDUSTRIES, INC., a
Kansas corporation ("Seller") and TransMontaigne Oil Company, by and through its
subsidiary Bear Paw Energy, Inc., a Colorado corporation ("Buyer").
WHEREAS, Seller owns a natural gas processing plant located in McKenzie
County, North Dakota (hereinafter the "McKenzie Plant"), and related gathering
system and compression facilities located in Divide, Williams, McKenzie,
Mountrail, Dunn, Golden Valley, Billings, Ward and Stark Counties, North Dakota,
and in Sheridan, Roosevelt, and Richland Counties, Montana, as more particularly
described on the maps constituting SCHEDULE 1.1 (a) which includes, without
limitation, the "Grasslands Gas Gathering System" and the "Teddy Roosevelt Gas
Gathering System" (the McKenzie Plant, Grasslands Gas Gathering System, Teddy
Roosevelt Gas Gathering System, and related compression facilities are
collectively hereinafter referred to as the "McKenzie System");
WHEREAS, pursuant to the terms of this Agreement, Seller desires to sell
and Buyer desires to purchase the McKenzie System, along with all appurtenances,
interests in real property, and contracts related thereto that are referenced
herein:
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
ARTICLE I
SALE OF GAS GATHERING AND PROCESSING ASSETS
-------------------------------------------
1.1 Sale of Assets. Subject to the terms and conditions of this
--------------
Agreement, Seller agrees to sell and Buyer agrees to purchase all of Seller's
right, title and interest (including that of any of Seller's affiliates) in the
processing plant, lines of pipe used for natural gas, generally commencing at
the inlet to the custody transfer meter, compression facilities and related
equipment comprising the McKenzie System, together with all personal property
and inventory-on-hand or on location, rights-of-way, easements and interests in
real property associated therewith, and contracts as more completely described
in the schedules referenced immediately below ("Assets"), including:
(a) the McKenzie Plant (including the Riverview terminal),
compression facilities, and the gas gathering pipelines which include the
Grasslands Gas Gathering System and Teddy Roosevelt Gas Gathering System,
comprising approximately 2500 miles
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of pipelines ranging in diameter from 2" to 16" as depicted on the maps
attached hereto as SCHEDULE 1.1(a);
(b) the McKenzie System equipment, including but not limited to the
compressor units, scrubbers, dehydration units, tanks, traps, cathodic
protection equipment, gas processing facilities, office equipment, that
portion of the telemetry system utilized to measure (but not monitor) the
McKenzie System, all computer software programs utilized to operate
Seller's spreadsheet allocation system (not including any mainframe or
payment distribution systems) subject to transferability of licenses and
agreements which such transfers do not incur a charge or reporting
requirement to or by Seller and/or if developed by Seller, are not deemed
by Seller to be proprietary to it (except that Seller shall provide at no
cost to Buyer a license (nontransferable except to an affiliate of Buyer)
to utilize for its own benefit up to 5 copies of any software developed by
Seller utilized to operate Seller's spreadsheet allocation system), and
other personal property listed on SCHEDULE 1.1(b) and incorporated herein
by this reference;
(c) the real property interests, together with buildings and
structures located thereon, including fee interests, surface leases,
easements, rights-of-way and prescriptive rights relating to the McKenzie
System real property interests ("Real Property Interests"), whether or not
listed on the attached SCHEDULE 1.1(c);
(d) the vehicles and heavy motorized equipment, and personal
property and equipment located on such vehicles, trailers and like
equipment listed on the attached SCHEDULE 1.1(d);
(e) the gas purchase and processing agreements and gas gathering
agreements, products marketing agreements, together with the third party
contractor or supplier agreements, all as listed on SCHEDULE 1.1(e) (the
"Contracts");
(f) any and all other facilities or equipment located at the
McKenzie Plant or attached or appurtenant to the McKenzie System gathering
lines, whether in use or non-use, whether specifically described in the
schedules above, except:
(i) those items, property interests, vehicles, and facilities
listed on SCHEDULE 1.1(f), which are specifically excluded from the
sale, and further excepting;
(ii) those facilities and equipment located at the McKenzie
Plant or attached or appurtenant to the McKenzie System gathering
lines which
(aa) are used solely by either Koch Oil Company; Koch
Pipeline Company, L.P., or Koch Exploration Company, or
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(bb) if used jointly by Seller and one of its
affiliates, Seller and Buyer shall cooperate with each other to
segregate the use of such facilities and equipment as soon as
immediately practical, or if not immediately practical without
significant expense, Buyer shall be granted such rights to
access, use, and enjoyment of the benefits of such facilities and
equipment as are currently enjoyed by Seller;
Seller and Buyer shall use good faith efforts to identify facilities and
equipment falling into 1.1(f)(ii) prior to Closing so that arrangements, if
necessary, can be made for their segregation or such continued joint use without
interruption or conflict; and
(g) any inventory of natural gas, liquid hydrocarbon mix, sulfur
and fractionated products in storage at the McKenzie Plant or line pack for
the account of Seller located in the McKenzie System.
1.2 Assignment of Realty, Agreements, Permits and Authorizations. Seller
------------------------------------------------------------
shall transfer to Buyer, to the extent legally transferable or assignable, all
of its right, title and interest in all Real Property Interests, Contracts,
agreements and permits owned or held by Seller in connection with ownership and
operation of the Assets pursuant to assignments and bills of sale, substantially
in the forms attached hereto as EXHIBIT "A", and deeds substantially in the form
attached hereto as EXHIBIT "B".
1.3 Environmental and Operating Permits. A list of environmental and
-----------------------------------
operating permits associated with the McKenzie System which shall be transferred
to Buyer at Closing, to the extent legally transferable, is set forth as
SCHEDULE 1.3 hereto. Buyer shall be responsible for undertaking any
applications or notices for facilitating the assignment and receipt of such
permits, and Seller covenants to undertake such acts as may be helpful to Buyer
to obtain transfer of the benefits of such permits, including joint submissions,
to the extent such undertakings incur no cost or continuing obligation to Seller
other than the incurrence of ordinary general and administrative expenses
related to the preparation of any applications or transfer documents. Buyer
shall be responsible for any transfer fees.
1.4 Assignment of other Permits and Authorizations. Seller shall transfer
----------------------------------------------
or cause to be transferred to Buyer, to the extent legally transferable or
assignable, all of its right, title and interest in all non-environmental
related permits and licenses owned or held by Seller in connection with
ownership and operation of the Assets. Buyer shall be responsible for
undertaking any applications or notices for facilitating the assignment and
receipt of such permits, and Seller covenants to undertake such acts as may be
helpful to Buyer to obtain transfer of the benefits of such permits, including
joint submissions to the extent such undertakings incur no cost or continuing
obligation to Seller other
3
<PAGE>
than the incurrence of ordinary general and administrative expenses related to
the preparation of any applications or transfer documents. Buyer shall be
responsible for any transfer fees.
ARTICLE II
PURCHASE PRICE AND CLOSING
--------------------------
2.1 Purchase Price. Subject to the terms and conditions of this
--------------
Agreement, and in full payment for conveyance of the Assets, Buyer shall pay
Seller at Closing (as such term is defined hereinafter), by wire transfer, the
sum of $81,127,000, as may be adjusted pursuant to the provisions of this
Agreement (the "Purchase Price") as evidenced by the Preliminary Settlement
Statement described in 7.5(b). In addition, Buyer shall pay the cost of
recording the assignments and bills of sale, deeds and other instruments, and
the cost of any transfer tax, documentary stamps, mortgage tax, sales tax, use
tax or similar tax due as a result of the sale of the Assets. Should the Seller
be required by statute to collect any such taxes from Buyer at Closing. Seller
shall notify Buyer as soon as possible after execution of this Agreement if it
intends to collect such taxes so that Buyer may address such taxes with the
taxing authority. Such amounts as determined by the taxing authority will be
added to the Purchase Price and be wired directly to the Seller at the time of
Closing.
2.2 Adjustments to the Purchase Price. The Purchase Price shall be
---------------------------------
adjusted at Closing by the following adjustments ("Purchase Price Adjustments").
(a) Upward Adjustments. The Purchase Price shall be adjusted
------------------
upward by the following:
(i) The amount of expenses, costs, taxes, charges incurred or
paid by Seller that are directly attributable to the ownership and
operation of the Assets on or after the Effective Date, including but
not limited to:
(A) the normal course of operation and maintenance of the
Assets;
(B) any capital expenditures pursuant to AFE's approved
after the Effective Date through the Closing provided such
capital expenditures are incurred with the written consent of
Buyer;
(C) any capital expenditures due to replacement caused by
an emergency, act of God, or other circumstance requiring an
expenditure to keep the McKenzie System or component thereof in
operation; and
(D) actual administrative and general expenses not to
exceed $40,000 per month as currently allocated by Seller to the
ownership
4
<PAGE>
or operation of Assets based upon past practice for the period
of time between the Effective Date and Closing;
(ii) the cost of any transfer tax, documentary stamps, mortgage
tax, sales tax, use tax or similar tax due as a result of the sale of
the Assets, should the Seller be required by statute, to collect any
such taxes from Buyer at Closing; and
(iii) any other amounts agreed upon by Seller and Buyer.
(b) Downward Adjustments. The Purchase Price shall be adjusted
--------------------
downward by the following:
(i) the amount of all income, revenues and proceeds received
by Seller that are attributable to the ownership and operation of the
Assets on or after the Effective Date including, but not limited to:
(A) income, revenues and proceeds for payment of gas,
natural gas liquids and other plant products saved and sold;
(B) income, revenues and proceeds from other sources and
attributable to the ownership and operation of the Assets for
periods on or after the Effective Date; and
(C) ad valorem, property, general real estate and other
taxes that are allocated to the Seller pursuant to Section 2.3;
(ii) the amount of any Casualty loss pursuant to Section 7.1
which occurs prior to Closing;
(iii) the amount assigned to any pre-Closing Defective
Interests in accord with Section 6.2 and the amount assigned to any
pre-Closing Identified Liabilities in accord with Section 6.3, and any
amounts agreed upon due to imbalances in accord with Section 4.1(s),
provided such amounts in the aggregate do not exceed five million
dollars ($5,000,000), unless Seller expressly waives in writing to
Buyer prior to Closing, Seller's right to terminate this Agreement
pursuant to Section 15.6(e);
(iv) an adjustment, if any, pursuant to Section 7.12 related
to the agreement between the parties with respect to the Burlington
Resources (Meridian Oil) agreement No. MCK-1873; and
5
<PAGE>
(v) any other amounts agreed upon by Seller and Buyer.
2.3 Property Tax Proration. Real estate and personal property taxes for
----------------------
the calendar year January 1, 1996, through December 31, 1996, shall be prorated
to the Effective Date (as hereinafter defined) based upon the most recent
property tax assessments and most recent certified tax rates. Such tax proration
shall be settled at Closing by an adjustment to the Purchase Price. Buyer will
assume responsibility for the actual payment to applicable government
authorities of any unpaid property taxes not yet due.
2.4 Effective Date. The purchase and sale of the Assets shall be
--------------
effective as of October 1, 1996, at 7:00 A.M., Central Daylight Time (herein
called the "Effective Date"). For purposes of allocation of natural gas and
product inventory between Buyer and Seller, chart readings taken October 1, 1996
for the month of September production shall be utilized by the parties for
allocation of the ownership of natural gas and product inventory.
2.5 Deposit. Buyer shall, upon the execution of this Agreement by both
-------
parties, pay by means of a wire transfer to the account of Seller (pursuant to
the same wire instructions set forth in Section 8.3 for payment of the Purchase
Price at Closing) the sum of Three Million Dollars ($3,000,000) as a deposit to
be credited towards the Purchase Price upon Closing. Such sum shall be refunded
to Buyer, without interest, in the event of termination of this Agreement
without Closing because of:
(a) a Hart-Scott-Rodino ruling which is unsatisfactory in a
material part to either party;
(b) Seller's failure to close its purchase of the Teddy Roosevelt
Gathering System on or before January 31, 1997;
(c) Seller's exercise of Seller's option to terminate this
Agreement in the event Purchase Price adjustments under Section 2.2(b)(iii)
exceed $5,000,000;
(d) Seller or Buyer, pursuant to Section 6.2(e), elects to
terminate because Defective Interests exceed 25% of the Purchase Price;
(e) Buyer exercises its right not to Close pursuant to Section 8.2,
except for Section 8.2(f), which such subsection, if being the basis for
Buyer not to Close pursuant to Section 8.2, shall not preclude Seller from
retaining the deposit made by Buyer pursuant to this provision; or
(f) Seller exercises its right to terminate this Agreement pursuant
to Section 15.6(d) because the sum of all Purchase Price Adjustments of any
kind, any nature, exceeded 25%.
6
<PAGE>
In the event Buyer fails to timely close the transaction contemplated
herein for any reason other than those listed immediately above, then
Seller shall retain such $3,000,000 sum as liquidated damages (and not as a
penalty) for all losses or claims Seller may have against Buyer.
7
<PAGE>
ARTICLE III
ASSIGNMENT AND ASSUMPTION OF CONTRACTS
--------------------------------------
3.1 Gas Purchase and Processing Contracts. To the extent legally
-------------------------------------
assignable, Seller agrees to assign to Buyer, and Buyer agrees to assume all
rights and obligations of Seller under the Contracts for matters related to such
Contracts on or after the Effective Date, together with all amendments and
ratifications pertaining to them. Nothing provided herein shall be construed to
require Buyer to assume the claims or proceedings listed on SCHEDULES 4.1(d),
(g), (h), or (i). (Buyer agrees, however, to assume the rights and obligations
of those contracts listed on SCHEDULES 4.1(d), (g), and (h) which may be pending
but unexecuted or are terminated by Seller pursuant to their terms provided the
other party to any such unexecuted Contract or terminated Contract has not
brought a claim or proceeding, which Seller has separately listed, which such
claim or proceeding Seller agrees to retain).
3.2 Performance Prior to Closing. Subject to the provisions of Section
----------------------------
10.7, Buyer shall assume responsibility for operation of the Assets and for
performance of the Contracts as of the Closing Date. Seller shall be entitled to
receive payment for all gas, natural gas liquids and other plant products saved
and sold prior to the Closing Date, provided that Seller shall make payment for
all such gas to the producers, natural gas liquids and other plant products
pursuant to the Contracts, with the allocation of the plant, marketing and
transportation fees taken into account, such payments being adjustments under
Section 2.2(b)(i). Except as otherwise provided herein, Buyer agrees to assume
all rights and obligations of the Seller under the Contracts to be assigned as
of the Closing Date. The parties recognize that Seller will be managing the
Contracts on behalf of Buyer during the period of time between the Effective
Date and the Closing. During this period of time, Buyer agrees to defend,
indemnify and hold Seller harmless from any and all costs, expenses and
liabilities under such Contracts accruing on and after the Effective Date,
provided Seller fulfills the obligations set forth under the Contracts as a
reasonably prudent operator of natural gas facilities. This indemnity shall not
apply to any acts of Seller which are grossly negligent or which involve willful
or wanton misconduct respecting such Contracts. Seller shall defend, indemnify
and hold Buyer harmless from any and all costs, expenses and liabilities
directly attributable to the gross negligence, willful or wanton misconduct in
the administration or performance under such Contracts, but not otherwise,
occurring between the Effective Date and Closing.
ARTICLE IV
REPRESENTATION AND WARRANTIES OF SELLER
---------------------------------------
Seller hereby represents and warrants to Buyer as follows:
4.1 Seller. Seller represents and warrants to Buyer that:
------
8
<PAGE>
(a) Organization and Standing. Seller is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the
State of Kansas, and registered and in good standing as a foreign
corporation in North Dakota and Montana and has all requisite power to own,
lease and operate the Assets and to carry on its business as now being
conducted.
(b) Authority. Seller has the power and authority to enter into
---------
and perform this Agreement and to carry out the transactions contemplated
herein. Seller has all the requisite legal authority to own the Assets and
to carry on its business as now conducted in regard to the Assets. The
execution and delivery of this Agreement and the consummation by Seller of
the transactions contemplated herein have been duly and validly authorized
by all necessary action of the Board of Directors of Seller, and this
Agreement constitutes a valid and binding obligation of the Seller
enforceable in accordance with its terms. To the best knowledge of the
Seller, the making and performance of this Agreement by Seller will not
violate any provisions of any federal, state or local laws or the Articles
of Incorporation or Bylaws of Seller, and will not result in the breach or
violation of, constitute a default under, or result in the creation of any
lien, charge or encumbrance upon any of the Assets, under any contractual
agreement.
(c) Validity of Agreement. The Agreement is a legal, valid and
---------------------
binding obligation of Seller enforceable against Seller in accordance with
the terms of this Agreement, except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general. The enforceability of Seller's obligations
under this Agreement is subject to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or
at law). Neither the execution of this Agreement nor the consummation of
the transactions contemplated herein will constitute a violation of, or
conflict with, or default under, any order, judgment, decree, or any
contract, commitment, agreement, understanding, arrangement or restriction
of any kind to which Seller is a party or by which Seller is bound, other
than as disclosed in the exhibits and schedules to this Agreement or as may
be otherwise provided for herein.
(d) No Claims. Except as disclosed in SCHEDULE 4.1(d), Seller
---------
represents and warrants to its knowledge that there are no governmental or
other legal actions, claims, suits or proceedings pending or threatened,
and Seller is unaware of any facts which would result in an action, claim,
suit or proceeding to which Seller is or would be a party, to which any of
the Assets are or may be subject or that, if adversely determined, may
prevent or interfere with the consummation of the transactions contemplated
by this Agreement. Seller has not received any notices of claims from any
person purporting to act in an official capacity as a representative of any
federal, state or local governmental agency, bureau, department or
authority asserting a claim that Seller is in violation of any applicable
law, order or regulation
9
<PAGE>
of a nature which governs the operations of the Assets and remains uncured,
or the enforcement of which in the event of a violation would "adversely
affect" any significant portion of the Assets or significantly impair the
ability to operate the Assets as they are operated today.
(e) Compliance with Applicable Laws. Except as set forth in
-------------------------------
SCHEDULE 4.1(e), to the knowledge of Seller, Seller is in compliance with
applicable laws, orders, rules, regulations, judgments or decrees affecting
the ownership, operation or use of the Assets, including "Environmental
Laws" as defined hereafter, of Governmental Authorities with jurisdiction
over the Assets, except for those non-compliance matters, which based upon
past practice generally or based upon the experience of Seller or Buyer,
would not subject the owner or holder of the Assets to any fine,
imprisonment, or denial of the benefits of the use and ownership of such
Assets.
(f) Indebtedness. The Assets are not subject to any lien,
------------
encumbrance, charge, instrument or agreement evidencing or related to
indebtedness for borrowed money, whether directly or indirectly; or any
agreement, other than those involving the processing or purchase of gas.
(g) Contracts. Except as disclosed in SCHEDULE 4.1(g), all
---------
Contracts are to Seller's knowledge in full force and effect and constitute
valid and legally binding obligations of the parties thereto and are
enforceable in accordance with their respective terms. Seller has no
knowledge of any circumstances except as disclosed on SCHEDULE 4.1(g) which
exist which more likely than not would rise to a material claim against
Seller respecting the performance, breach or compliance with the terms and
conditions of any such Contracts. All such Contracts are assignable to
Buyer in accordance with their terms.
(h) Contract Breach. Except as disclosed on SCHEDULE 4.1(h),
---------------
Seller is not in breach or default with respect to any of its obligations
pursuant to any Contracts, which if breached or in default, would provide
reasonable cause for the other party to any such Contract to bring an
action for damages. Seller has no knowledge of any circumstances except as
disclosed on SCHEDULE 4.1(h) which exist which more likely than not would
rise to a material claim against Seller respecting the performance, breach
or compliance with the terms and conditions of any such Contracts. Seller
has accounted for distribution of proceeds and allocation of proceeds of
production in accord with the terms and conditions of those Contracts with
producers relating to the purchase, processing or gathering of natural gas.
(i) Termination. Except as provided on SCHEDULE 4.1(i), to Seller's
-----------
knowledge, no party to any Contract has given notice of any action to
terminate, cancel, rescind, or procure a judicial reformation of their
contract or any material provision thereof.
10
<PAGE>
(j) Exchange of Equipment. Except as set forth in SCHEDULE 4.1(j),
---------------------
since August 1, 1996, with respect to each of the Assets,
(i) Seller has not exchanged any of the Assets for an asset
of lesser value; and
(ii) Seller has not removed any idle equipment or inventory
from the Assets other than in the ordinary course of business.
(k) No Consents Required. Except for that certain Hart-Scott-
--------------------
Rodino ("HSR") filing to be made, no consents are required from any
Governmental Authorities, no preferential purchase rights, consents, calls
upon, options to purchase, approvals or other action by, or filing with any
person or governmental body is required in connection with the execution,
delivery and performance by Seller of this Agreement other than those to
reflect a change of ownership and operatorship of the McKenzie Plant, the
McKenzie System, and its component parts, jointly or individually. All
board of director approvals for the execution of this Agreement and the
consummation of the transaction(s) set forth herein have been obtained.
Except as provided in SCHEDULE 4.1(k), no consents are required to the
transfer of Contracts, easements, rights-of-way or surface leases
underlying or affecting the McKenzie System or McKenzie Plant.
(l) Conduct of Business. Except as set forth on SCHEDULE 4.1(l),
-------------------
since August 1, 1996, the Assets have not been operated other than in the
ordinary course of business in accordance with standard processing plant
and gathering practices.
(m) Permits. Except as would not prevent Buyer from enjoying the
-------
benefits of ownership or operation of any of the Assets, Seller to the best
of its knowledge: has the permits necessary for the ownership and
operation of the Assets as currently conducted, including, without limit,
operating, environmental and special use permits; each such permit is in
full force and effect; and Seller is in compliance with all its obligations
with respect thereto, and no event has occurred which permits, or upon the
giving of notice or the passage of time or both would allow, the revocation
or termination of any such permit.
(n) Assets and Title to Assets. Seller has Defensible Title (as
--------------------------
defined below), free and clear of all liens and encumbrances, other than
Permitted Encumbrances, to those Assets for which an indicia of title
commonly recorded in county or state records, such as a deed for real
property or a certificate of title issued by a state with respect to
personal property, such as vehicles and trailers, or in the case of leased
Real Property Interests, the valid right to possession of the same pursuant
to valid leases or other agreements exist. As used herein, "Defensible
Title" shall mean title that is held in the name of Seller or an
arrangement that
11
<PAGE>
otherwise grants Seller the right to use such Asset and is presently
uncontested, but which, if contested, may require Seller to obtain and
record appropriate curative instruments or, in the alternative, institute
an action to quiet title or other judicial action in order to render the
same marketable taking the Permitted Encumbrances into account.
For purposes of this Agreement, the term "Permitted Encumbrances" shall
mean:
(1) Preferential rights to purchase and required third
party consents to assignments and similar agreements with respect to
which (i) waivers or consents are obtained prior to Closing from the
appropriate parties; (ii) the appropriate time period for asserting
such rights has expired without an exercise of such rights; (iii) such
consents (other than those which by the express terms of the
underlying agreement may arbitrarily be withheld), which if not
obtained prior to Closing, would not reasonably preclude Buyer from
substantially enjoying the benefits of the assignment of the Real
Property Interests; or (iv) Buyer has otherwise agreed to treat such
rights or consents as Permitted Encumbrances;
(2) Materialman's, mechanic's, repairman's, contractor's,
operator's, tax and other similar liens or charges arising in the
ordinary course of business: (i) if they have not been filed pursuant
to law or if they are liens or mortgages to be released at Closing;
(ii) if filed, payment is being withheld as provided by law; (iii)
if they are against a Property in which Seller owns only an undivided
interest and they arise pursuant to operations governed by any
agreement which disclaims the existence of joint and several
liability, then in such a proportion as such lien or charge encumbers
interests other than the undivided interest of Seller; (iv) if their
validity is being contested in good faith by appropriate action, and
Seller agrees to indemnify Buyer from all costs and expenses relating
to such lien or charge and the related action;
(3) All rights to consent by, required notices to, filings
with, or other actions by governmental entities in connection with the
sale or conveyance of oil and gas easements and rights of way therein
if ordinarily given upon proper notice, application, and/or payment of
a fee by Buyer or Seller, as may be appropriate;
(4) Easements, rights-of-way, servitudes, permits, surface
leases and other like rights in respect of surface and subsurface
operations;
(5) Such title defects as Buyer has waived or released or
is deemed to have waived pursuant to the terms of this Agreement; or
12
<PAGE>
(6) Minor or technical imperfections of title, the
existence of which would not reasonably be expected to affect the use
or operation of the property subject thereto, consistent with past
practice of the industry.
(o) Public Utility Holding Company Act. Seller is not a "holding
----------------------------------
company," or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
(p) Environmental Compliance. Except as disclosed on SCHEDULE
------------------------
4.1(p), to the knowledge of Seller:
(i) the Assets are in compliance with applicable
Environmental Laws, except where the failure to comply has not and
would not, individually or in the aggregate, have an adverse effect on
the Assets or any significant part thereof. As used herein,
Environmental Laws shall mean the local, state and federal laws, rules
and regulations in effect as of the Effective Date directly relating
to pollution or protection of the environment (including ambient air,
surface water, ground water, land surface or subsurface strata),
including without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Resources Conservation and Recovery Act of 1976, as
------
amended ("RCRA"), the Toxic Substances Control Act ("TSCA"); the Clean
---- ----
Air Act, and the Clean Water Act, or polychlorinated biphenyls
("PCBs"), if not included within any of the Acts stated above;
----
(ii) there are no locations or premises that are or have been
a part of the McKenzie Plant or McKenzie System where polluting
substances have entered on, under or into the soil, air, surface
waters, or into groundwater in violation of applicable Environmental
Laws, except for such violations as have been reported, remediated or
brought to closure with the appropriate Government Agency, and/or have
not and would not, individually have a "Material Adverse Effect" on
the Assets. As used herein, Material Adverse Effect shall mean any
circumstance, change, development or event which has had or is
reasonably expected to have a material adverse effect on the McKenzie
Plant, McKenzie System, the Assets or the operations, earnings or
prospects with respect thereto which individually, would exceed
$25,000, provided that the term "Material Adverse Effect" shall not
include Identified Liabilities, which shall be governed solely by
Article VI which such Article VI shall not be subject to the $25,000
threshold;
(iii) Seller has not received any written notice from any third
party or any Governmental Authority of any non-compliance (or any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans
13
<PAGE>
which will interfere with or prevent continued substantial compliance)
with the terms and conditions of any permits which remain uncured or
unresolved with respect to the McKenzie Plant or McKenzie System or
the Assets where any such non-compliance, individually or in the
aggregate, results in a Material Adverse Effect on the Assets.
Governmental Authority as used in this Agreement shall mean any
federal, state, or local, administrative authority or agency;
(iv) Seller has not received any notice of any civil, criminal
or administrative proceeding which remains open or unresolved
involving the McKenzie Plant or McKenzie System or the Assets relating
in any way to applicable Environmental Laws where any such proceeding,
individually or in the aggregate, result in a Material Adverse Effect
on the Assets.
(q) Employee Relations. Seller is not a party to any collective
------------------
bargaining agreement covering or relating to any employees at the McKenzie
Plant or McKenzie System and has not recognized any collective bargaining
representative. Seller is not a party to any Contract with any employee
which is not terminable at will. Seller shall remain fully responsible for
any obligations to its employees regarding severance pay and all other
benefits due for any of Seller's employees employed at the site of the
McKenzie System not hired by Buyer. Buyer shall retain the option until 10
days prior to Closing to notify Seller whether it wishes to retain any of
Seller's McKenzie System employees who wish to be transferred to Buyer.
Prior to November 15, 1996, Seller will furnish to Buyer a list of such
employees, a description of their duties and their salary as of October 1,
1996. To the extent applicable, Seller has or shall fully comply with the
provisions of the Federal Worker Adjustment and Retraining and Notification
Act.
(r) Taxes. To the best of the knowledge of Seller, all property,
-----
severance, ad valorem, excise and similar taxes and assessments based on or
measured by the ownership of Assets or the receipt of proceeds therefrom on
the Assets that have become due and payable through the Closing Date have
been or will be paid by Seller prior to Closing.
(s) Imbalances. All imbalances which exist or relate to the
----------
McKenzie System or McKenzie Plant as of the Effective Date, shall remain
the responsibility of Seller and shall be resolved prior to Closing in a
manner satisfactory to Buyer. Should imbalances need to be remedied after
the Effective Date, the Purchase Price shall be adjusted either upward or
downward to account for the resolution of such imbalances.
(t) Access to Records. To the best of its knowledge, Seller has
-----------------
granted, or will grant sufficiently before Closing, access to Buyer or its
duly authorized representatives to files and records in its possession or
control which a prospective purchaser of the Assets would reasonably expect
to have access to in order to conduct due diligence. To Seller's knowledge,
no such files or records have been removed by Seller except those that may,
in
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<PAGE>
the ordinary course of business and pursuant to past practice, have been
destroyed, except that, certain such files and records may have had certain
correspondence, studies, analyses, and notes deleted or removed due to
Seller's concerns of confidentiality and consideration of the proprietary
status of such information to Seller or Seller's affiliates, or to maintain
the assertion of the attorney-client privilege. To the knowledge and belief
of Seller, none of such materials deleted or removed, if any, would affect
a Seller's decision to purchase the Assets, in all or any significant part,
if such materials had not been deleted or removed and would have been made
available for Purchaser's review. No materials were removed for the purpose
of misrepresenting a fact or matter to Buyer. To the best of Seller's
knowledge, all contract files contain complete copies of the Contracts,
amendments, and modifications thereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES BY BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller as follows:
5.1 Buyer. Buyer represents and warrants to Seller that:
-----
(a) Organization and Standing. Buyer is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the
State of Colorado, and will be in good standing and authorized to do
business in North Dakota and Montana at the time of Closing.
(b) Authority. Buyer has the power and authority to enter into and
---------
perform this Agreement and to carry out the transactions contemplated
herein. Buyer has all the requisite legal authority to own the Assets and
to carry on its business as now conducted and after it acquires the Assets.
The execution and delivery of this Agreement and the consummation by Buyer
of the transactions contemplated herein have been duly and validly
authorized by all necessary action of the Board of Directors of the Buyer,
and this Agreement constitutes a valid and binding obligation of Buyer
enforceable in accordance with its terms. To the best knowledge of Buyer,
the making and performance of this Agreement by Buyer will not violate any
provisions of any federal, state or local laws or the articles of
incorporation or bylaws of Buyer.
(c) Validity of Agreement. The Agreement is a legal, valid and
---------------------
binding obligation of Buyer enforceable against Buyer in accordance with
the terms of this Agreement, except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general. The enforceability of Buyer's obligations
under this Agreement is subject to general principles of equity (regardless
of
15
<PAGE>
whether enforceability is considered in a proceeding in equity or at law).
Neither the execution of this Agreement nor the consummation of the
transactions contemplated herein will constitute a violation of, or
conflict with, or default under, any order, judgment, decree, or any
contract, commitment, agreement, understanding, arrangement or restriction
of any kind to which Buyer is a party or by which Buyer is bound. Buyer
represents and warrants to its knowledge that there are no governmental or
other legal actions, claims, suits or proceedings pending or threatened, to
which Buyer is or would be a party, that would prevent or interfere with
the consummation of the transactions contemplated by this Agreement.
(d) No Consents Required. Except for that certain HSR filing to be
--------------------
made, no consents, approvals or other action by, or filing with any person
or governmental body is required in connection with the execution, delivery
and performance by Buyer of this Agreement other than those to reflect a
change of ownership and operatorship of the McKenzie Plant, the McKenzie
System, and its component parts, jointly or individually. All board of
director approvals for the execution of this Agreement and the consummation
of the transaction(s) will be obtained prior to Closing.
(e) Securities Representation. Buyer is an experienced and
-------------------------
knowledgeable investor and operator in the oil, gas and processing business
and is acquiring the Assets for Buyers own account and not with a view to,
or for offer of resale in connection with, a distribution thereof, within
the meaning of the Securities Act of 1933.
(f) Knowledge of Non-Compliance. Buyer has no knowledge of any facts
---------------------------
or circumstances not disclosed to Seller in writing which gives rise or
would give rise to Seller being in breach of any of the representations and
warranties provided by Seller in Section 4.1.
ARTICLE VI
TITLE/ENVIRONMENTAL
-------------------
6.1 Special Warranty of Title. EXCEPT AS MAY OTHERWISE BE SET FORTH IN ANY
-------------------------
DEEDS WHICH MAY EXPRESSLY GRANT A GENERAL WARRANTY, SELLER WARRANTS AND FOREVER
DEFENDS TITLE TO THE ASSETS UNTO BUYER, AGAINST EVERY PERSON WHOMSOEVER LAWFULLY
CLAIMING THE SAME OR ANY PART THEREOF BY THROUGH AND UNDER SELLER, BUT NOT
OTHERWISE. SELLER MAKES NO OTHER WARRANTY OR REPRESENTATION OF ANY KIND,
EXPRESSED OR IMPLIED, RELATIVE TO THE ASSETS SOLD HEREUNDER OR THEIR FITNESS FOR
ANY PURPOSE OTHER THAN THOSE REPRESENTATIONS AND WARRANTIES WHICH ARE EXPRESSLY
STATED ELSEWHERE IN THIS AGREEMENT OR AS SET FORTH IN THE ASSIGNMENTS AND
CONVEYANCES. ALL PERSONAL PROPERTY WHICH IS PART OF
16
<PAGE>
THE ASSETS SOLD TO BUYER UNDER THIS AGREEMENT IS SOLD AS IS, WHERE IS, AND IN
ITS CURRENT CONDITION.
6.2 Defective Interests: Title Defects in Real Property Interests.
---------------------------------------------------------------
(a) "Defective Interests" shall mean that portion of the Real
Property Interests affected by a title defect precluding Buyer from
receiving Defensible Title from Seller and of which Seller has been given
notice by Buyer on or before ten (10) days prior to Closing or that Buyer
is otherwise entitled under this Article VI to treat as Defective
Interests. Permitted Encumbrances shall not be title defects. Such notice
shall be in writing and shall include (i) the legal description of each
Defective Interest; (ii) the basis for the defect that Buyer believes
causes each such Real Property Interest to be treated as a Defective
Interest; and (iii) the amount by which Buyer reasonably believes the fair
market value of each Defective Interest has been reduced.
(b) Any title defect in a Real Property Interest designated by Buyer
as a Defective Interest discovered prior to ten (10) days prior to Closing
shall be resolved prior to Closing as follows:
(i) Seller may cure, resolve, or otherwise remove the title
defect creating the Defective Interest so that Seller conveys and
Buyer obtains the Real Property Interest without such impediment at
Closing;
(ii) Buyer may agree in writing to waive the title defect
creating the Defective Interest so that Seller conveys and Buyer
obtains the Real Property Interest at Closing notwithstanding the
title defect;
(iii) provided that Buyer, in its discretion, agrees to accept
such indemnification, Seller may agree to cure, resolve, or otherwise
remove after Closing the title defect creating the Defective Interest,
and Seller agrees to indemnify and hold Buyer harmless against all
losses, costs, expenses and liabilities, but limited to the fair
market value of the asset with respect to such Defective Interest
(such indemnification to be in lieu of any indemnification set forth
in Section 9.2), so that at Closing Buyer withholds a portion of the
Purchase Price not greater than the fair market value of the
individual Real Property Interest(s) affected by the curative work
required, and Seller conveys and Buyer obtains the Real Property
Interest at Closing, or within a reasonable time after Closing upon
completion of such curative work, whereupon which, Buyer shall make
payment to Seller of the Purchase Price amount so withheld (the
parties contemplating that such payment may be made in partial
payments as curative work is completed in stages, if feasible), all as
the parties may
17
<PAGE>
agree to such amount to be withheld, payments, and timing of the
conveyance, given the nature of the title defect; or
(iv) Buyer and Seller mutually agree to an amount by which the
value of the Real Property Interest has been reduced due to a defect,
and the parties agree to reduce the Purchase Price by such amount in
accordance with Section 2.2(b)(iii) so that Seller conveys and Buyer
obtains the Real Property Interest at Closing.
If agreement on the resolution of the title defect creating a Defective
Interest in an individual Real Property Interest cannot be reached by one
of the means above prior to Closing, then the Real Property Interest so
affected may be excluded from the Assets to be purchased by Buyer hereunder
at Closing and the Purchase Price shall be reduced pursuant to Section
2.2(b)(iii) in accordance with an amount agreed upon by the parties, such
amount not to exceed the fair market value of the individual Real Property
Interest so affected.
Any such matter identified as a Defective Interest, including the
exclusion of the interest from the Assets as set forth in the paragraph
immediately above, shall be resolved pursuant to this Section 6.2, subject
to Seller's rights under Section 15.6(e), and Buyer shall be precluded
from seeking indemnification for such Defective Interest from Seller under
Section 9.2.
(c) In the event the parties cannot agree as to the fair market value
of the Real Property Interests affected by a title defect for purposes of a
Purchase Price reduction, then the issue shall be resolved by submission to
a qualified independent landman, mutually agreeable to the parties, having
experience in oil and gas and in commercial transactions, who shall
estimate the fair market value. If the parties cannot agree upon such an
individual, each party shall designate a landman located either in North
Dakota, or in the Denver, Colorado area, which such two landmen will
designate a third like landman, the three of whom make the determination of
the fair market value of the Real Property Interests affected by a title
defect for purposes of a Purchase Price reduction. If the three landmen
cannot agree upon such fair market value jointly, then such fair market
value will be determined by the agreement of just two of the landmen so
selected. If two landmen cannot agree upon such a determination, then the
average of the three values rendered by the three landmen shall be used for
such purpose.
(d) In determining that an Asset is a Defective Interest, it is the
intent of the parties to include, when possible, only that portion of the
Assets actually affected by the defect for purposes of valuation and
exclusion.
(e) If Seller fails to cure or Buyer and Seller otherwise fail to
resolve Defective Interests so that there remains prior to two (2) days
prior Closing Defective Interests having an aggregate "value reduction"
exceeding twenty-five percent (25%) of the Purchase Price,
18
<PAGE>
either Buyer or Seller will have the right to terminate this Agreement by
providing written notice prior to the Closing Date of such termination to
the other party without liability to the other party. As used herein,
"value reduction" shall mean the lesser of: (i) the actual cost or expense
to cure the Defective Interests or (ii) the fair market value of the Real
Property Interests affected.
(f) If, prior to Closing, Buyer becomes aware of any proceeding, that
might reasonably be expected to result in loss or imminent risk of loss, or
impairment of Seller's title to any portion of the Real Property Interests,
Buyer may elect to provide notice of such proceeding to Seller, and then
treat that portion of the Real Property Interests affected thereby as a
Defective Interest by giving Seller notice thereof in accordance with
Section 6.2(a).
6.3 Pre-Closing Identified Liabilities: Identification of Additional
----------------------------------------------------------------
Matters for which Seller shall provide a Purchase Price Adjustment.
- ------------------------------------------------------------------
(a) If, prior to Closing, (i) Seller has received notice of
noncompliance with any law or order, injunction, decree, judgment,
stipulation or writ of any Environmental Governmental Authority having
jurisdiction over the Real Property Interests or equipment that Seller is
in noncompliance with an Environmental Law pursuant to which corrective
action or remediation must be undertaken of a Real Property Interest or
equipment located thereon, or (ii) if Buyer should discover a matter in
violation of an Environmental Law which would cause a breach of Seller's
representation in Section 4.1(p) (disregarding Sellers' knowledge qualifier
in such representation), then such party shall give the other party written
notice thereof no later than ten days prior to Closing (either such item
(i) or (ii) being defined as an "Identified Liability"). Such notice of an
Identified Liability shall be in writing and shall include (i) a
description of each Real Property Interest or equipment item so affected;
(ii) the basis for asserting that the Real Property Interest or equipment
so affected should be treated as an Identified Liability; and (iii) the
amount by which Buyer reasonably believes remediation will cost.
(b) Any Real Property Interest or equipment designated as an
Identified Liability under Section 6.3(a) discovered prior to ten (10) days
prior to Closing shall be resolved as follows:
(i) Seller may cure, resolve, remediate or otherwise remove the
basis for treating such Real Property Interest or equipment as an
Identified Liability so that Seller conveys and Buyer obtains the Real
Property Interest or equipment without such impediment at Closing;
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<PAGE>
(ii) Buyer may agree in writing to waive the matter as an
Identified Liability so that Seller conveys and Buyer obtains the Real
Property Interest or equipment at Closing notwithstanding the
noncompliance;
(iii) provided that the parties agree to enter into the Access
Agreement described in subsection (c) immediately below, Seller may
cure, resolve, remediate or otherwise remove the basis for treating
such Real Property Interest or equipment as an Identified Liability
after Closing, so that at Closing Buyer withholds a mutually agreed
upon amount of the Purchase Price, not to exceed the reasonable
estimate of such cost of remediation, and Seller conveys and Buyer
obtains the Real Property Interest or equipment either at Closing
prior to completion of the remediation, or within a reasonable time
after Closing upon completion of the remediation, whereupon after such
completion of the remediation, Buyer shall make payment of such amount
of the Purchase Price withheld to Seller (the parties further
contemplating that such payment may be made in partial payments as
remediation is completed in stages "Progress Payments"), all as the
parties may agree to such amount to be withheld, Progress Payments,
and timing of the conveyance, given the nature of the environmental
matter being resolved; or
(iv) Buyer and Seller may mutually agree to an amount by which
the value of the Real Property Interest or equipment has been reduced
by Identified Liability, reducing the Purchase Price by such amount in
accordance with Section 2.2(b)(iii) so that Seller conveys and Buyer
obtains the Real Property Interest or equipment at Closing, or in the
event the estimated remediation costs exceed the value of the Real
Property Interest or equipment affected, Buyer shall have the election
to exclude the Real Property Interest or equipment affected, with
Buyer receiving a downward Purchase Price adjustment equal to its fair
market value.
If mutual agreement on the resolution of the Real Property Interest or
equipment designated as an Identified Liability cannot be reached on one of
the means above, then the issue shall be resolved by submission to a
mutually agreed qualified independent environmental engineering firm
("Engineering Firm") having experience in oil and gas and in commercial
transactions, who shall determine the extent of the remediation required to
be immediately performed pursuant to Environmental Law, the procedures or
manner in which such work is to be performed, and the estimated the cost of
such work. If the matter goes to an Engineering Firm prior to Closing, but
cannot be determined by the Engineering Firm until after Closing, at
Closing Buyer shall withhold a portion of the Purchase Price related to the
remediation required equal to the amount of Seller's estimate to remediate
the matter, and upon such determination after Closing by the Engineering
Firm, Seller and Buyer shall utilize the procedures set forth in Section
6.3(b)(iii) whereby Seller remediates pursuant to the Engineering Firm's
determinations. With respect to any such remediation work to be
20
<PAGE>
performed by Seller post-Closing or the deferral of a dispute to an
Engineering Firm, the parties shall utilize the procedures set forth in
Section 6.5 (c), (d), and (e).
Any matter identified as an Identified Liability shall be resolved as
a pre-Closing matter pursuant to this Section 6.3, subject to Seller's
rights under Section 15.6(e), precluding Buyer from seeking indemnification
for such Identified Liability from Seller under Section 9.2 (except for
Seller's failure to perform such remediation) for any such matter.
6.4 Title Insurance. With respect to any Real Property Interest which
---------------
comprises a portion of the Real Property Interests which Seller owns in fee,
Buyer may obtain a current commitment for title insurance at Buyer's expense.
Any defects noted on the title commitment, other than those falling within the
definition of Permitted Encumbrances, will be addressed pursuant to Section
6.2(b). Seller shall in good faith attempt to identify any title insurance
policies it may have on the Assets and disclose them to Buyer within 10 days of
the execution of this Agreement so that Buyer could have the benefit of
providing such policies to its insurer.
6.5 Post Closing Environmental Matters
----------------------------------
(a) Buyer shall have a two (2) year period from the date of Closing
to assert an Environmental Claim pursuant to the indemnity provision in
Section 9.2(d) against Seller with respect to the environmental condition
of the Assets as such condition exists prior to Closing. As used herein, an
Environmental Claim shall mean any claim asserted by Buyer in writing prior
to the expiration of the two (2) year period from the date of Closing,
relating to a violation caused by Seller or its predecessors of soil, air,
surface waters, or groundwater standards set forth under an Environmental
Law administered by the state or federal agency having lead jurisdiction
over such matter ("Environmental Governmental Authority"), which such
violation requires immediate remediation of a site pursuant to
Environmental Law. After such two (2) year period, Buyer shall assume full
responsibility for the environmental condition of all Assets purchased
under this Agreement.
(b) Environmental Claims shall be addressed by one of the following:
(i) Seller shall remediate such environmental claims to the reasonable
satisfaction of the Environmental Governmental Authority pursuant to a
Remedial Action Work Plan prepared by Seller ("RAWP"); or (ii) if both
parties are agreeable, the parties may otherwise enter into a mutually
acceptable agreement resolving such defects ("Environmental Agreement").
Nothing herein shall preclude Seller prior to Closing or Buyer after
Closing, as the case may be, from notifying the Environmental or
Governmental Authority if required under applicable law. Seller shall
expeditiously undertake to remediate such violations of Environmental Law
specified in the RAWP or any amendments thereto which such violations
require immediate
21
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remediation of the soil, air, surface waters, or groundwater of a site
(collectively, the "Work") in the manner set forth in Section 6.5(d), or if
the parties agreed to another method to resolve the matter through an
Environmental Agreement, pursuant to such terms of such Environmental
Agreement.
(c) Buyer agrees to permit such access to the McKenzie Plant and
McKenzie System as Seller and/or Seller's employees, agents and contractors
may require in order to conduct the Work or such matters under an
alternative Environmental Agreement to be implemented by Seller or Seller's
contractor as contemplated under this Agreement; provided, however, that
Seller and Buyer enter into an appropriate access agreement. The access
granted to Seller under such "Access Agreement" shall include the right to
excavate, remove, dispose of and/or treat the soil and/or groundwater, and
undertake such other activities as are necessary to conduct the Work,
subject to the reasonable approval of Buyer for reasons of safety; further
provided, however, that Seller shall conduct all such remediation in a
manner that will not unreasonably disrupt the operations of Buyer on the
McKenzie Plant or McKenzie System and Seller shall indemnify Buyer for any
damage caused by Seller in conducting its remediation. The form of the
Access Agreement which will be entered into by the parties is attached
hereto as EXHIBIT "C".
(d) Prior to undertaking any Work under Section 6.3 or 6.5(b), Seller
shall prepare a RAWP, or if remediation is performed pursuant to an
Environmental Agreement, Seller shall prepare such pre-work documentation
or plan as the parties agreed to in the Environmental Agreement. Prior to
undertaking the Work under a RAWP or obligations under an Environmental
Agreement, Seller shall provide a copy of the RAWP, or such other
documentation or plan as the parties may have agreed that Seller shall
prepare, to Buyer for review, comment, and recommendation, which such
comments and recommendations Seller shall incorporate if practical and
feasible, provided however, Seller shall not be obligated to accept such
recommendations or undertake remediation work in excess of what is
minimally acceptable to the Environmental Governmental Authority, at which
point, if Buyer insists on such work in excess of what is minimally
acceptable to an Environmental Governmental Authority, Buyer will assume
responsibility of the Work or remediation as it may wish to undertake, at
its own expense. Seller and Buyer shall promptly provide copies to each
other of all correspondence between them and any Environmental Governmental
Authorities or Engineering Firm relating to the RAWP or such other
documentation or plan as the parties agreed. Seller shall expeditiously
proceed with and perform, or cause to be performed, the Work in the manner
provided in the RAWP or such other remediation in the Environmental
Agreement as the parties agreed. Such Work or other remediation as agreed
to in the Environmental Agreement shall be completed to the reasonable
standards of the Environmental Governmental Authorities, at Seller's sole
cost, risk and expense, provided however, Seller shall not be obligated to
complete such Work or other remediation at its cost, risk and expense in
excess of its indemnification obligations set forth in Section 9.2 under
this Agreement if such work is performed pursuant to post-closing claims,
or in excess of the
22
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$5,000,000 amount referenced in Section 15.6(e) with respect to pre-closing
matters set forth in Sections 6.2 and 6.3, at which point Buyer would
assume such cost, risk and expense. Any contractor or subcontractor
retained by Seller in connection with the Work or other remediation as
agreed in the Environmental Agreement shall be reasonably acceptable to
Buyer.
(e) All disputes between Seller and Buyer with respect to a RAWP or
such other documentation or plan pursuant to the Environmental Agreement,
and its implementation shall be resolved at the earliest practicable date,
by referral to the Engineering Firm for resoultion (or if the parties are
otherwise agreeable, to the Environmental Governmental Authority first for
resolution, and then to the Environmental Governmental Authority as may be
required by applicable law. Any decision by the Environmental Governmental
Authority or Engineering Firm, as the case may be, shall be final and
binding upon the parties. The Engineering Firm shall be provided with all
data or results of any environmental audit and investigations and
statements as to the positions of the parties relating to the matters in
dispute. A visual site inspection may be undertaken by the Engineering
Firm, if needed. Within twenty (20) days after such submissions, the
Engineering Firm shall issue a letter report outlining the remediation to
be performed. Upon receipt, the parties shall have five (5) business days
to review and submit written comments to the Engineering Firm and other
Party if one or the other, or both, are in disagreement. The Engineering
Firm shall then have ten (10) business days to review such submission and
issue a final report of the remediation it believes needs to be done to
satisfy the minimum Environmental Governmental Authority requirements. This
final letter decision (or the initial letter report if not timely appealed
with written comments from either Party) shall be final and binding on the
parties, yet shall be subject to the pre-Closing limitation of $5,000,000
and post-Closing limitation contained in Section 9.2 as described in
subsection (d) immediately above. Any fees and expenses of the Engineering
Firm shall be shared equally by the parties. Each party shall bear the
other fees and expenses incurred by it in resolving any such disputes. The
fees and expenses of the Engineering Firm, as well as the other fees and
expenses incurred by either Party in resolving any such disputes shall not
be amounts falling within the indemnification provisions of this Agreement,
but rather shall be borne, by each Party without recourse to any remedy,
indemnification, or reimbursement.
ARTICLE VII
COVENANTS
---------
7.1 Casualty Loss. The risk of casualty loss relating to the Assets shall
-------------
pass to Buyer as of the Closing Date. If, prior to the Closing, all or any
portion of the Assets have been or are destroyed by fire, flood, storm or other
casualty of a similar nature or shall be taken by condemnation or under the
right of eminent domain (all of which are herein called "Casualty Loss"), Seller
shall bear the risk
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<PAGE>
of loss and shall retain all sums paid to Seller by persons or Governmental
Authorities by reason of the destruction or taking of such Asset. Buyer shall
obtain an adjustment to the Purchase Price pursuant to Section 2.2(b)(ii) to the
extent of the fair market value of the individual Asset so destroyed or
otherwise lost. If such Asset is not totally destroyed, damaged or lost, and
continues to have use to Buyer, then the adjustment to the Purchase Price shall
not exceed the lesser of the actual cost to repair and restore the Asset or its
fair market value.
7.2 Conduct of Business Prior to Closing.
------------------------------------
(a) Prior to Closing, Seller shall:
(i) maintain and operate the Assets in the ordinary course
of business in accordance with standard processing plant and gathering
practices historically employed with respect to the Assets; and
(ii) continue the marketing of gas, natural gas liquids and
other plant products consistent with past practice.
(b) Without the consent of Buyer (which shall be provided as
reasonably far in advance of the deadline for responses to third persons as
will provide Seller with reasonable time to respond, or shall be deemed to
be denied), prior to Closing Seller shall not:
(i) waive, compromise or settle any right or claims in
excess of Ten Thousand Dollars ($10,000) for which Buyer will have
liability hereunder:
(ii) incur obligations with respect to or undertake any
transactions relating to the Assets other than transactions (1) in the
normal, usual and customary manner, (2) of a nature and in an amount
consistent with prior practice, and (3) in the ordinary course of
business of owning and operating the Assets;
(iii) enter into any new material agreements or commitments
with respect to the Assets other than those capital expenditures set
forth in Section 2.2(a)(i)(B) and (C);
(iv) modify any material Contracts other than as the
parties agree; or
(v) encumber, sell or otherwise dispose of any of the
Assets, other than property which is replaced by equivalent property
or which is used, consumed or abandoned in the normal operations of
Seller's business.
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7.3 Notice of Claims. Seller shall promptly notify Buyer, if, between
----------------
the date hereof and the Closing Date, Seller receives actual notice of any
claim, suit, action or other proceeding having a potential adverse impact on the
Assets or their operation in excess of $25,000.
7.4 Compliance with Conditions Precedent. Each respective party shall use
------------------------------------
its best efforts to cause the conditions precedent set forth in Sections 8.2 and
8.3, applicable to such party, to be fulfilled and satisfied as soon as
practicable but in any event prior to Closing.
7.5 Preparation of Closing Documents.
--------------------------------
(a) Forms of Assignments. Seller shall commence the preparation
--------------------
of all forms of assignments, bills of sale, deeds, and other
conveyances and transfers pursuant to this Agreement, forms of which
are attached as EXHIBITS "A" and "B" as provided in Section 1.2, along
with all applicable schedules and exhibits to such forms of
assignments, deeds and other conveyances and shall begin delivering
such draft forms to Buyer reasonably promptly so that Buyer can review
and agree to such documents between the time of execution of this
Agreement and Closing.
(b) Preliminary Settlement Statement. No later than three (3)
--------------------------------
days prior to Closing, Seller shall prepare a proposed preliminary
settlement statement ("Preliminary Settlement Statement") showing the
calculation of the Purchase Price, as adjusted, ("Closing Amount").
7.6 Press Release. Prior to Closing and for a period of thirty (30)
-------------
days following Closing, neither party shall make any press release or other
announcement in connection with this Agreement without first consulting with the
other party and accommodating all reasonable requests of the other party
regarding postponement of such press release or announcement or the statements
made in such press release or announcement. Following such consultation and good
faith attempt to make reasonable accommodations, either party may make any
announcement or press release that it believes is either required by applicable
law or the rules of any stock exchange, or is advisable in connection with such
party's obligation to provide public disclosure regarding its activities. This
provision shall not apply to any filing with any governmental body or stock
exchange required by law, rule or regulation.
7.7 Hart-Scott-Rodino Filing. Buyer and Seller shall promptly make all
------------------------
required filings under the Hart-Scott-Rodino ("HSR") Act. Each party shall
pay their respective expenses, including any filing fees for each party's
respective filing.
7.8 Monitoring Agreement. Buyer and Seller shall enter into that certain
--------------------
Automated Monitoring Equipment Agreement attached hereto as EXHIBIT "D".
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7.9 Non-Foreign Affidavit. Seller shall provide a non-foreign affidavit to
---------------------
Buyer in the form set forth in EXHIBIT "E".
7.10 Closure of Teddy Roosevelt Acquisition. With respect to the Teddy
--------------------------------------
Roosevelt Gas Gathering System, Seller shall have completed its transaction with
Western Gas Processors for the acquisition of those assets which are included in
this transaction. Should Seller not complete such transaction by December 15,
1996 and transfer and assign such assets to Buyer, then Seller shall continue to
be obligated to diligently pursue completion of the transaction with Western Gas
Processors for the acquisition of the Teddy Roosevelt Gas Gathering System with
all due dispatch, and shall transfer such system to Buyer upon its completion of
that transaction, or if not completed by January 31, 1997, shall have the right
to exercise termination of the Agreement, as does Buyer, pursuant to Section
15.6(f).
7.11 Subleases. At Closing, the parties will enter into those certain
---------
lease agreements, conveyances, or other form of agreements as may be appropriate
set forth as EXHIBITS "F, "G, or "H, whereby (i) Seller or Seller's affiliates
are leased space at their current location at the McKenzie Plant for their
automated monitoring equipment operations (EXHIBIT "F"); (ii) whereby Buyer or
Buyer's affiliates are sold a building and the fee interest or lease, as the
case may prove to be based upon Seller's affiliate's ownership rights, for
$25,000 at Seller's Belfield location for use in Buyer's operation of the
McKenzie System (EXHIBIT "G"), and (iii) whereby the usage, assignment of a sub-
easement, or other instrument granting use of right-of-way and/or easements by
Seller or Seller's affiliates having oil pipeline operations in a right-of-way
or easement common to both an oil pipeline and a gas gathering line are extended
to Seller, Seller's affiliates, and/or Buyer, as the case may be, not owning the
right-of-way or easement for the asset it holds, or in the case of Buyer, will
hold,, through a usage agreement, sub-conveyance, or partial assignment from
Seller to Seller's affiliate, if held by Seller, or from Seller's affiliate to
Seller, then to Buyer, if first held by an affiliate of Seller (EXHIBIT "H").
7.12 Burlington Resources Agreement.
------------------------------
(a) If Seller should not be able to resolve its contract issues with
Burlington Resources by Closing with regard to Contract No. MCK-1873 at the
full $0.29 per MMBtu value Seller recently has sought to increase its
revenues over its prior arrangement with respect to charges, fees,
proceeds, fuel reimbursement and other revenue and expense components of
the arrangement to take and process gas and liquids from Burlington
Resources' production by means of a contract for a term of at least five
(5) years, then Seller shall adjust the Purchase Price downward by an
amount proportionate to the $4,250,000 value Buyer places on such $0.29 per
MMBtu increase it negotiates, up to, but not to exceed, the $4,250,000
amount. (Example: Should Seller only obtain a $0.145 increase, then the
Purchase Price shall be reduced by such proportion such increase bears to
$0.29--i.e. 50%., or $2,125,000).
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(b) If Seller does not enter into such a new agreement with
Burlington Resources prior to Closing for a term of at least five (5)
years, but instead should Buyer prior to ninety (90) days after Closing
enter into an agreement with Burlington Resources resulting in an increase
in revenues similar to that described in subparagraph (a) above, then Buyer
shall pay 50% of such revenue increase proportionate to the Purchase Price
adjustment made pursuant to subparagraph (a), up to, but not to exceed
$2,125,000. (Example: Should Buyer obtain within ninety (90) days after
Closing, a $0.145 increase, then Seller shall obtain an immediate payment
of $1,062,500 from Buyer).
ARTICLE VIII
CLOSING
-------
8.1 Time and Place. The Closing of the transaction contemplated by this
--------------
Agreement shall take place at the offices of Seller in Wichita, Kansas, at the
later of (i) 10:30 a.m. local time December 16, 1996; (ii) such other location,
date and time as mutually agreed by the parties; (iii) the acquisition by Seller
of the Teddy Roosevelt Gas Gathering System; or (iv) or after such time as the
requisite approval from the Federal Trade Commission has been received for the
HSR filing. In no event shall either party be required to close this
transaction after January 31, 1997.
8.2 Conditions to Buyer's Obligations. The obligation of Buyer to close
---------------------------------
is, at the option of Buyer to waive any or all requirements, subject to each of
the conditions set forth below.
(a) The representations and warranties made by Seller in this
Agreement shall be true and accurate in all material respects on and as of
the Closing with the same effect as though such representations and
warranties have been given on and as of the Closing. Seller shall also have
performed or complied with, in all material respects, all of its
obligations under this Agreement which are to be performed or complied with
by it as of the Closing.
(b) Buyer shall have received the assignments, bills of sale and
deeds described in Section 1.2.
(c) Buyer shall have received from corporate counsel for Seller a
written opinion dated as of the Closing, addressed to Buyer and
satisfactory in form and substance to counsel for Buyer, that:
(i) Seller is duly organized, existing in good standing under
the laws of Kansas, and has the corporate power and authority to carry
on its business in that state and the States of North Dakota and
Montana.
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(ii) Seller has the power and authority to enter into and to
perform this Agreement, such other agreements and all documents and
actions required by it hereunder, and that any and all necessary
stockholder approvals and/or Board approvals, necessary for the
execution and performance of this Agreement and the assignments and
bills of sale, deeds, and other agreements contemplated herein have
been delivered and that this Agreement, the assignments and bills of
sale, deeds and other agreements when duly executed and delivered
shall constitute the valid and binding obligations of the Seller
enforceable in accordance with their terms.
(iii) The making and performance of this Agreement by Seller
does not violate any provisions of any federal, state or local laws
known to counsel for Seller or to Seller's respective Articles of
Incorporation or Bylaws and does not result in the breach or violation
of, constitute a default under, or result in the creation of any lien,
charge or encumbrance upon any of the Assets under any contractual
agreement known to counsel after making a reasonable inquiry
concerning such matters.
(iv) No actions, suits, or proceedings are pending or, to the
best of counsel's knowledge, are threatened against Seller which, if
adversely resolved, would materially affect the overall operations of
the Assets or Seller's abilities to consummate this Agreement.
In rendering such opinions, counsel may rely on the opinions of local
counsel and certificates of officers of Seller and of public officials.
(d) There shall not be on the Closing (i) any order, decree or ruling
by any court or Governmental Authority, (ii) any threat thereof by any
governmental agency, which is evidenced by a writing by the threatening
agency, or (iii) any lawsuit which might prohibit, render illegal or
otherwise preclude, postpone, or prevent this transaction.
(e) Buyer and Seller shall have received a favorable ruling
respecting the HSR filing without any significant adverse conditions
relating to the purchase and sale contemplated hereby.
(f) Seller shall have obtained all material third party consents or
waivers necessary to consummate the transactions contemplated by this
Agreement in a form and substance reasonably satisfactory to Buyer.
(g) Seller shall have completed the acquisition of the Teddy
Roosevelt Gas Gathering System pursuant to its agreement with Western Gas
Resources such that it shall comprise part of the Assets to be conveyed to
Buyer through the assignment documents.
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(h) Seller shall have executed the Automated Monitoring Agreement
attached hereto as EXHIBIT "D".
(i) Seller shall have delivered and executed the non-foreign
affidavit in the form of EXHIBIT "E".
(j) Seller shall have executed the Accounting Services Agreement
attached hereto as EXHIBIT "I".
(k) Seller shall have executed the various property Agreements
attached hereto as EXHIBITS "F", "G" and "H" described in Section 7.11.
8.3 Conditions to Seller's Obligations. The obligation of Seller to close
----------------------------------
is, at the option of Seller to waive any or all requirements, subject to each of
the conditions set forth below:
(a) The representations and warranties made by Buyer in this
Agreement shall be true and accurate in all material respects on and as of
the Closing with the same effect as though such representations and
warranties had been given on and as of the Closing. Buyer shall also have
performed or complied in all material respects with all of its obligations
under this Agreement which are to be performed or complied with by it prior
to or on the Closing.
(b) Seller shall have received the payment of the Purchase Price set
forth in the Preliminary Settlement Statement, and Buyer shall have wired
full payment of the Purchase Price as adjusted herein, less the deposit in
Section 2.5 made by Buyer, in immediately available same day funds for
credit to Seller's account, pursuant to the wire transfer instructions
provided by Seller to Buyer immediately prior to Closing.
(c) Seller shall have received from corporate counsel for Buyer a
written opinion dated as of the Closing, addressed to Seller and
satisfactory in form and substance to counsel for Seller that:
(i) Buyer is a corporation duly organized, existing in good
standing under the laws of Colorado and has the legal authority to
carry on its business in that state and as a foreign corporation in
the States of Montana and North Dakota.
(ii) Buyer has the power and authority to enter into and to
perform this Agreement, such other agreements and all documents and
actions required by it hereunder and that all corporate proceedings,
including any and all necessary stockholder approvals and/or Board
approvals, necessary for the execution and
29
<PAGE>
performance of this Agreement and the assignments and bills of sale,
deeds, and other agreements have occurred; and that this Agreement,
and other agreements when duly executed and delivered shall constitute
the valid and binding obligations of the Buyer enforceable in
accordance with their terms.
(iii) The making and performance of this Agreement by Buyer does
not violate any provision of any federal, state or local laws known to
counsel for Buyer or to Buyer's Articles of Incorporation or Bylaws.
(iv) No actions, suits, or proceedings are pending or, to the
best of counsel's knowledge, are threatened against Buyer which, if
adversely resolved, would materially affect Buyer's abilities to
consummate this Agreement.
In rendering such opinions, counsel may rely on the opinions of local
counsel and certificates of officers of Buyer and of public officials.
(d) All agreements, documents, and instruments contemplated under
this Agreement to be executed by Buyer shall have been duly executed by
Buyer and be ready for delivery concurrently with the consummation of the
transactions contemplated by this Agreement.
(e) Buyer and Seller shall have received a favorable ruling
respecting the HSR filing without any significant adverse conditions
relating to the purchase and sale contemplated hereby.
(f) Buyer shall have executed the Automated Monitoring Agreement
attached hereto as EXHIBIT "D".
(g) Buyer shall have received the non-foreign affidavit in the form
set forth on EXHIBIT "E".
(h) Buyer shall have executed the Accounting Services Agreement
attached hereto as EXHIBIT "I".
(i) Buyer shall have executed the various property Agreements
attached hereto as EXHIBITS "F", "G" and "H" described in Section 7.11.
ARTICLE IX
INDEMNIFICATION
---------------
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9.1 Survival of Representations. The representations and warranties of
---------------------------
Seller and Buyer contained in this Agreement shall survive the Closing for a two
(2) year period after which time they shall expire and be of no further force
and effect. During such time period, if no bona fide claim in writing, as set
forth below, has been brought by the party to whom such respective
representations and warranties have been made, then such party shall be forever
barred from bringing any claim or action for a breach thereof, notwithstanding
any longer period of limitation of actions which may otherwise be available to
such party by statute or law.
9.2 Indemnification by Seller. As provided immediately below, Seller
-------------------------
agrees for two (2) years to indemnify and defend and hold harmless Buyer from
and against all liabilities, losses, claims, costs or damages, whatsoever
arising out of or from or based upon:
(a) the inaccuracy of any representation or warranty contained in
Section 4.1 made by Seller; or
(b) the non-performance by Seller of any covenant, agreement or
obligation to be performed by Seller hereunder;
(c) any and all matters arising from or in connection with or related
to the ownership, use or operation of the Assets prior to the Closing Date not
covered by the indemnities given in Section 9.2(a), (b), or (d) including the
indemnification for losses, claims, and expenses attributed to consents which
are otherwise Permitted Encumbrances under Section 4.1(n) (1) and (3); or
(d) all liabilities, losses, claims, costs or damages, whatsoever
arising out of or from or based upon Environmental Claims asserted by Seller
pursuant to Section 6.5.
The foregoing indemnification obligations of Seller shall only apply if a claim
for such indemnification is provided to Seller in writing at the address set
forth in Section 15.10 setting forth in detail the particular facts and
circumstances which give rise to the claim; and further provided, that any such
claim must be submitted within two (2) years of Closing. Under no circumstance
shall Seller be obligated to make payment or incur liability under this
indemnification provision for the first $125,000 in the aggregate of such
liabilities, losses, claims, costs or damages asserted pursuant to Sections
9.2(a),(b) and (c), nor shall Seller be obligated to make payment or incur
liability under this indemnification provision for the first $125,000 in the
aggregate of such liabilities, losses, claims, costs or damages asserted
pursuant to Section 9.2(d). Seller's obligation to make payment or incur
liability under these indemnification provisions or any other indemnity herein
is further limited in that Seller's liabilities, payments, costs and expenses
for all indemnified claims contained in Sections 9.2(a), (b), and (c) shall not
exceed $4,000,000, and that Seller's liabilities, payments, costs and expenses
for all indemnified claims contained in 9.2(d) or elsewhere for any
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Environmental Claims asserted after Closing, or other environmental matters
falling within this section for indemnification in all or part, shall not exceed
a separate amount of $4,000,000.
9.3 Indemnification by Buyer.
------------------------
(a) Buyer agrees for two (2) years from the date of Closing to
indemnify and defend and hold harmless Seller from and against all
liabilities, losses, claims, costs or damages, whatsoever arising out of or
from or based upon:
(i) the inaccuracy of any representation or warranty
contained herein made by Buyer; or
(ii) the non-performance by Buyer of any covenant,
agreement or obligation to be performed by Buyer hereunder; and
(b) for any and all matters arising from or in connection with
or related to the ownership, use, or operation of the Assets on or after
Closing, including all environmental matters and violation of Environmental
Laws, and arising from any cause whatsoever, whether prior to or after
Closing, beginning (i) two (2) years after Closing, (ii) or sooner with
respect to environmental matters at such time as Seller has incurred
$4,000,000 in costs and expenses with respect to its indemnification of
Buyer under Section 9.2(d), (iii) or sooner, with respect to non-
environmental matters at such time as Seller has incurred $4,000,000 in
costs and expenses with respect to its indemnification of Buyer under
Section 9.2(a), (b) and/or (c).
9.4 Conditions of Indemnification
-----------------------------
(a) Whenever any claims are made with respect to any matter to
which the indemnifications contained in this Article IX relate, the
indemnified party (the "Indemnitee") shall notify the indemnifying party
(the "Indemnitor") in writing as soon as practical after the Indemnitee
becomes aware of such claim or after such claim or series of claims exceed
the thresholds set forth in Section 9.2, (such notice without exception
shall be given within thirty (30) days of the Indemnitee becoming aware of
any claim or within thirty (30) days after such thresholds have been
exceeded), but in no event more than thirty (30) days thereafter (a "Notice
of Claim") to the Indemnitor. The Notice of Claim shall specify all facts
known to the Indemnitee giving rise to such indemnification claim and the
amount or an estimate of the amount of the liability arising therefrom. To
the extent any claims are of an immaterial nature on an individual basis
(i.e., less than $25,000), the Indemnitee shall be entitled to accumulate
such claims and present the Notice of Claim to the Indemnitor on a
quarterly basis. For purposes of 9.4(b), each claim identified in a Notice
of Claim shall be treated as a separate claim.
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<PAGE>
(b) Each Notice of Claim will be deemed disapproved by the
Indemnitor, unless the Indemnitor gives the Indemnitee written notice of
approval within thirty (30) days of receipt of the Notice of Claim. The
parties shall undertake, in good faith, to resolve any dispute with respect
to the validity of any such claim which is disapproved and resolve the
obligation of the Indemnitor to indemnify the Indemnitee. If the parties
are unable to agree on such resolution within thirty (30) days after either
the Indemnitee receives express notice of disapproval, or the lapse of the
30 day period for Indemnitor to give written notice of approval or
disapproval, the respective rights of the parties as to the validity of
such claim and responsibility of the Indemnitor to indemnify the Indemnitee
shall be determined by arbitration, in which case, each party shall select
an arbitrator experienced in arbitration and acknowledged by a state bar
association or the American Bar Association within fifteen (15) days from
the expiration of the thirty (30) day period during which the parties were
to agree to a resolution. Such two (2) arbitrators shall select and agree
among themselves upon a third arbitrator within fifteen (15) days
thereafter. Failure by one party to select an arbitrator shall entitle the
other party to petition the courts for such appointment, with attorneys
fees and costs for such petition to be borne by the party who failed to
make such timely appointment. The arbitrators shall resolve the validity of
such claim and the obligation of the Indemnitor to indemnify the Indemnitee
thereof within sixty (60) days of their appointment. Any such arbitration
shall be held in Denver, Colorado, unless the parties agree otherwise.
(c) If the facts giving rise to any such indemnification shall
involve any actual, threatened or possible claim or demand by any person
against the Indemnitee, the Indemnitor shall be entitled to contest or
defend such claim at its expense and through counsel of its own choosing if
its gives written notice of its intention to assume the contest and defense
of such claim to the Indemnitee within thirty (30) days after receipt of
the Notice of Claim. If the Indemnitor shall exercise such option, it shall
have control over such contest and defense and over the payment, settlement
or compromise of such claim, and the Indemnitee agrees to cooperate fully
with the Indemnitor and its attorneys with respect to such contest and
defense. If the Indemnitor shall not exercise such option, the Indemnitee
may, but shall not be obligated to, assume the contest and defense of such
claim. Any payment or settlement resulting from such contest, together with
the total expenses thereof, including but not limited to attorneys' fees,
shall be binding upon the Indemnitor and Indemnitee.
ARTICLE X
POST-CLOSING AGREEMENTS
-----------------------
10.1 Post-Closing Access. Within ninety (90) days after Closing, Buyer
-------------------
shall be entitled to obtain the originals of all records relating to the Assets.
Seller may retain copies if it so
33
<PAGE>
desires. Buyer and Seller shall cooperate and afford each other access to the
books and records relating to the Assets prior to or after the Effective Date as
may be reasonably needed by either party, including without limit, access for
the purposes set forth in Section 10.8.
10.2 Final Settlement Statement; Subsequent Audits and Settlements. With
-------------------------------------------------------------
respect to final recapitulation and audits:
(a) Within ninety (90) days after the Closing, Seller shall provide
to Buyer, for Buyer's review, a proposed final settlement statement (the
"Final Settlement Statement") to account for all adjustments to the
Purchase Price pursuant to Section 2.2 (the "Final Settlement"). Buyer
shall have the right, within thirty (30) days after receipt of the Final
Settlement Statement, to audit the Final Settlement Statement. If Buyer
disagrees with the Final Settlement Statement, Buyer and Seller shall use
best efforts to reach agreement within thirty (30) days following Buyer's
audit of the Final Settlement Statement.
(b) Should the parties be unable to resolve any disagreements, such
disagreement shall, at the earliest practicable date, be referred, by
either or both of the parties, to an independent accounting firm mutually
agreeable to each party (the "Accounting Firm"), along with all audit
reports, work papers, schedules and calculations related to the matter in
dispute. Within thirty (30) days after such submission, the Accounting Firm
shall issue a letter report determining the Final Settlement, which shall
be final and binding. Any fees and expenses incurred in resolving disputes
shall be borne equally by the parties.
(c) Payment of any amounts owed under the Final Settlement is due
thirty (30) days from the date Seller and Buyer agree on the Final
Settlement Statement, or ten (10) days from the determination of the Final
Settlement by the Accounting Firm, whichever is later.
10.3 Recording. Buyer shall be solely responsible for promptly recording
---------
the assignments, deeds, and any other instruments related to the conveyance of
the Assets, and shall promptly furnish Seller with the recording information.
Buyer shall be responsible for all filings with state and federal agencies for
change of owner or operator, and shall promptly provide Seller with the copies
of all such filings when made and confirmation thereof when received. All
recording and filing fees shall be paid by Buyer and where paid by Seller,
reimbursed by Buyer promptly after receipt of an invoice.
10.4 Contracts Requiring Consents. If Seller and Buyer should be unable to
----------------------------
obtain any consent required for the transfer of any Contract, surface lease,
right of way, easement or other document to be assigned to Buyer, if Buyer so
elects, the Contract shall be held by Seller for the benefit of Buyer after
Closing for its term and Seller shall provide Buyer with the economic benefits
thereof until or unless such consent is received or said Contract is terminated.
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10.5 Further Assurances. Each party shall, from time to time at the
------------------
request of the other, and without further consideration, execute and deliver
such other instruments of sale, transfer, conveyance, assignment, clarification
and termination and take such other action as the party making the request may
require to effectuate the intentions of the parties, including those required to
sell, transfer, convey and assign to, and vest in Buyer, and to place Buyer in
possession of the Assets and to transfer, assign or convey the excluded assets
to Seller. Seller intends to convey the Assets at Closing; however, in the event
it is determined after Closing that: (i) any part of the Assets was not in fact
conveyed to Buyer, and that the title to any part of the Assets is incorrectly
in the name of Seller; or that (ii) any excluded asset is conveyed to Buyer and
that the title to such excluded asset is incorrectly in the name of Buyer; then
each party shall take all such action necessary to correctly convey any part of
the Assets to Buyer, or any part of the excluded assets to Seller.
10.6 Suspense Account Funds. Seller acknowledges that certain funds
----------------------
otherwise payable to operators, working interest owners, overriding royalty
interest owners and/or royalty interest owners in wells connected to the
McKenzie System or processed through the McKenzie Plant pursuant to certain of
the Contracts have been placed in suspense (the "Seller Suspense Account Funds")
-------------------------------
pending resolution of questions of title, execution of division or transfer
orders, or for similar reasons. Upon request by Buyer, but no later than ninety
(90) days after the Closing Date, Seller shall transfer to Buyer all Seller
Suspense Account Funds, together with all accounting records, well files,
division orders, correspondence and other documents in any way relating thereto
so as to permit Buyer to assume such obligations. Thereafter, Buyer shall be
responsible for the administration and payment of the Seller Suspense Account
Funds transferred to Buyer and shall fully indemnify Seller with respect
thereto; provided, however, that Seller shall discharge all obligations and
liabilities which exceed the amount of each suspense account transferred to
Buyer which have accrued prior to the Closing Date with respect to such Seller
Suspense Account Funds.
10.7 Post-Closing Accounting Support. After Closing, Seller agrees to
-------------------------------
continue to perform certain accounting services respecting the McKenzie Plant
and McKenzie System to facilitate an orderly transition of these functions to
Buyer's personnel for a period of three (3) months after Closing. Seller also
agrees to provide advice on a consultation basis for a period not to exceed two
(2) months following the expiration of the three (3) month period, all as set
forth in EXHIBIT "I". Buyer shall reimburse Seller for these services in
amounts as agreed upon by the parties set forth in EXHIBIT "F" and shall
indemnify Seller for any claims. Buyer shall indemnify Seller, notwithstanding
any other provision to the contrary in this agreement, including any limitation
on the amount payable to Seller, for any and all losses, claims, personal
injuries, or damages to property of Seller or Seller's employees in the course
of the fulfillment of this provision of accounting services pursuant to this
provision as such services are more fully set forth in EXHIBIT "I".
10.8 Prior and Current Financial Statements and Records. In order for
--------------------------------------------------
Buyer to properly restate its financial statements in accord with Section 305 of
the Rules and Regulations of
35
<PAGE>
the Securities and Exchange Commission, recognizing the purchase of the Assets,
immediately after execution of this Agreement, Seller agrees to provide Buyer
and its accountants with such access to its financial statements, records and
knowledgeable personnel as they relate to the Assets for up to the past three
(3) years and the current year-to-date as may be required for Seller to satisfy
the above SEC requirements. Access to such financial records shall be granted in
Seller's offices for purposes of such audit. Such records shall not be used by
Buyer for any other purpose except to fulfill its obligations with the SEC. If
any matter is disclosed in the course of such SEC compliance audit which
indicates that Seller is in breach of a representation or warranty granted in
this Agreement, Buyer shall not be entitled to pursue its remedies under this
Agreement against Seller with respect to such breach. Any disclosure by Seller
to Buyer shall be treated with the utmost confidence and shall not be disclosed
to Buyer's employees, accountants, attorneys and agents except those that need
to know and have access to such information for purposes of complying with the
SEC obligations under Section 305 of the Rules and Regulations of the SEC, nor
shall any information disclosed to Buyer pursuant to the provision be disclosed
to any third party.
10.9 Non-Compete. For a period of two (2) years from the Effective Date,
-----------
Seller agrees not to compete with Buyer, either directly or indirectly, in the
gathering and processing of natural gas within the counties of Roosevelt,
Richland, Sheridan, Daniels, Dawson, Wibaux and Fallon, located in Montana, and
within the counties of Divide, Burke, Williams, McKenzie, Golden Valley,
Billings, Slope, Bowman, Montrail, Ward, McClean, Dunn, Mercer, Stark, Morton,
Grant, or Hettinger located in North Dakota, provided, however, nothing shall
prevent Seller from participating in its remaining businesses and expansion
thereof within such counties, for the gathering, treatment, monitoring and
production from oil and gas producing properties in which Seller has a working
interest or of which Seller is the operator, and the gathering and
transportation of crude oil production, natural gas liquids, and products
through Seller's affiliated companies' pipeline systems and other transportation
systems, including trucking. This clause shall be narrowly construed to extend
protection to Buyer only for the gathering and processing of natural gas, and
not for any other activity that Seller may undertake in the geographical area
described herein. Nor shall Seller be precluded from participating in such
activities by virtue of having the opportunity to purchase or otherwise acquire
a gathering or processing facility in such geographic area, provided that Seller
first offers such a bona fide opportunity to Buyer on the same terms and
conditions that Seller is being provided by a third party, or should Buyer not
exercise such option to so acquire such facilities within thirty (30) days of
Seller's notice to Buyer, it may, within such same thirty (30) day period elect
to operate such facility on behalf of Seller, should Seller have such right to
operate, notwithstanding Buyer's election not to purchase. Seller agrees that
these restrictions are reasonable as to both time and geographic area and that
this non-compete clause is not a penalty but a reasonable covenant delivered to
Buyer in exchange for Buyer's payment to Seller of the Purchase Price.
10.10 Signs. Buyer agrees within ninety (90) days to replace all signage
-----
and other indications of ownership of the Assets by Seller or its affiliates
with signage and/or such replacement indications demonstrating Buyer now owns
and operates the Assets.
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<PAGE>
ARTICLE XI
AS IS - WHERE IS SALE; DISCLAIMER
---------------------------------
11.1 General. EXCEPT AS OTHERWISE EXPRESSLY REPRESENTED AND WARRANTED OR
-------
TO THE LIMITED EXTENT INDEMNIFIED IN THIS AGREEMENT: (i) IT IS EXPRESSLY
UNDERSTOOD BY THE PARTIES HERETO THAT THE ASSETS ARE TO BE SOLD BY SELLER AND
PURCHASED BY BUYER AS IS, WHERE IS, WITHOUT WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, EITHER EXPRESS OR IMPLIED, AND THAT BUYER
ACKNOWLEDGES IT HAS HAD OR WILL HAVE HAD A REASONABLE OPPORTUNITY TO INSPECT AND
EXAMINE THE CONDITION OF EACH AND EVERY ITEM THEREOF INCLUDING THE ENVIRONMENTAL
CONDITION OF THE ASSETS, PRIOR TO CLOSING, AND BUYER IS AWARE OF AND ACCEPTS
SUCH PHYSICAL CONDITION AND ENVIRONMENTAL CONDITION; (ii) ALTHOUGH SELLER HAS
MADE, AND UNTIL CLOSING WILL MAKE, ALL OF ITS FILES AND RECORDS AVAILABLE TO
BUYER, EXCEPT AS SPECIFICALLY STATED IN THIS AGREEMENT, SELLER MAKES NO WARRANTY
OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY
OR COMPLETENESS OF ANY ORAL OR WRITTEN STATEMENT, DESCRIPTION, TITLE OPINION,
DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR
HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT
INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE ASSETS ANY PRICING
ASSUMPTIONS, ENVIRONMENTAL CONDITION OF THE ASSETS, OR ANY OTHER MATTERS
CONTAINED IN THE PROPRIETARY DATA OR ANY OTHER MATERIALS FURNISHED OR MADE
AVAILABLE TO BUYER BY SELLER OR BY SELLER'S AGENTS OR REPRESENTATIVES. IN
ENTERING INTO AND PERFORMING THIS AGREEMENT, BUYER HAS RELIED AND WILL RELY
SOLELY UPON ITS INDEPENDENT INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE
ASSETS AND THEIR VALUE.
11. 2 CONSUMER LAW. TO THE MAXIMUM EXTENT PERMITTED BY LAW, BUYER EXPRESSLY
------------
WAIVES THE PROVISIONS OF CHAPTER 50, SECTIONS 50-601 TO 50-692, UNFAIR TRADE AND
CONSUMER PROTECTION, KANSAS STATUTES ANNOTATED, AND ANY RELATED AND LIKE
STATUTES, REGULATIONS OR RULES OF THE FEDERAL GOVERNMENT AND ANY STATE,
INCLUDING WITHOUT LIMITATION, COLORADO AND NORTH DAKOTA, DEALING WITH DECEPTIVE
TRADE PRACTICES OR ANY CONSUMER PROTECTION ACT.
ARTICLE XII
37
<PAGE>
INSPECTION AND RECORDS
----------------------
12.1 Prior to Closing and thereafter as provided in Section 10.8 or
otherwise, at any reasonable time and from time to time, Seller shall permit the
representatives of Buyer to inspect the Assets and observe the operating and
maintenance personnel therein employed, and further to observe any and all
activities related to the maintenance, operation, contracting and administration
thereof. As provided in Section 10.1, Seller shall promptly after Closing
furnish Buyer with the Contracts and files and all records pertaining to the
Assets for the purpose of achieving an efficient transfer of administration of
the Assets.
ARTICLE XIII
EMPLOYEE MATTERS
----------------
13.1 Employment of Personnel.
-----------------------
(a) As soon as requested by Buyer after execution of this Agreement,
Seller shall make available to Buyer for interviewing by Buyer those employees
Seller then has employed in connection with the McKenzie System and McKenzie
Plant listed on SCHEDULE 13.1(a) which Seller shall make available for
interview (those employees available for interviewing hereinafter referred to
as "Employees").
(b) At least ten (10) days prior to Closing, Buyer shall provide
Seller with a list of those Employees set forth on SCHEDULE 13.1(b) with the
McKenzie System whom Buyer intends to offer employment with Buyer after
Closing.
(c) With respect to any of the Employees to whom Buyer offers
employment and who accept such offer of employment as of the Closing
(collectively, the "Transferring Employees"), Buyer agrees that it will not
treat the Transferring Employees any less favorably than other similarly
situated employees of Buyer.
(d) Seller shall (i) terminate the relationship of Transferring
Employees with Seller effective as of the Closing and shall be responsible for
(ii) the payment of all wages and other remuneration due to Transferring
Employees with respect to their services as employees of Seller prior to
Closing, (iii) the provision of health plan continuation coverage in
accordance with the requirement of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and Section 601 through 609 of ERISA
("COBRA") and (iii) be responsible for handling relationships with and
liabilities to causes, demands, suits, proceedings or the like arising prior
to Closing, provided that such indemnification will not apply to claims,
expenses, loss, and liabilities arising from Buyer's employment related
decisions.
38
<PAGE>
13.2 Transferring Employee Benefits.
------------------------------
(a) Seller will terminate coverage under all employee benefits
including pension, medical, dental, long term disability benefits and medical,
dental, accident and sickness, disability and life insurance coverages of the
Transferred Employees as of the Closing other than as required by 13.1(d)
above and Buyer will assume liability for any such benefits to the extent any
such plans may be in place for Buyer employees arising at Closing (subject to
the fact that such plans may be amended from time to time after Closing with
lesser or better benefits) or as provided in Buyer's offers of employment to
such Transferring Employees.
(b) Buyer agrees that all Transferring Employees shall be provided
all health and welfare, group insurance and disability benefits available to
similarly situated employees covered by such plans of Buyer, giving full
credit to Transferring Employees for years of service previously credited to
such Transferring Employees, individually, by Seller to the extent permitted
by law. To the extent permitted by law, Transferring Employees shall not be
subject to any exclusions for pre-existing conditions (unless subject to some
under Seller's plan for such existing condition), qualification for plan
participation or satisfaction of applicable deductibles or be required to
begin again any waiting period because of change in plan participation. Seller
shall retain all assets under any employee health, welfare, group insurance,
or other employee benefit plans of Seller in which the Transferring Employee
may have participated prior to Closing.
(c) Employee Retirement and Pension Plans:
(i) All assets and liabilities of any pension and savings
and investment plan of any Transferring Employee prior to Closing shall
be retained or distributed by Seller as provided in such plans. Seller
shall be solely responsible for the administration of such plans and the
payment of all benefits of those employees who have retired or become
disabled prior to Closing and to vested terminated employees as such
become due and payable as fixed by the amount and formula of the plan as
of the Closing.
(ii) Buyer agrees that all Transferring Employees shall be
provided eligibility, vesting and benefit service in any pension and
savings program to the extent such programs may be maintained by Buyer,
equal to similarly situated new employees covered by such plans of Buyer.
Buyer covenants to provide the Transferring Employees the benefits of any
pension and savings and investment plan of Buyer on the same terms and
conditions applicable to similarly situated employees of Buyer or its
affiliated companies.
39
<PAGE>
(d) If Buyer offers retiree life and medical benefits to its present
employees, Buyer agrees to provide retiree life and medical benefits under its
own plans (if any) to the Transferring Employees who retire subsequent to
Closing on the same terms and conditions as those benefits are provided to
other similarly situated employees retiring at such times under the then
existing terms and conditions of Buyer's plans in accordance with 13.2 above.
Nothing in this provision requires Buyer to provide such benefits to
Transferring Employees, presently or in the future, if no such benefits are
currently offered by Buyer to its own employees.
(e) The parties expressly acknowledge that this Agreement is not
intended to create a contract between Buyer or Seller and any employee of the
Seller nor may any employee rely on this Agreement as the basis for any breach
of contract claim against Buyer or Seller. Seller shall not in any manner be
responsible or liable for administration or the payment of any benefit due
under any plans maintained by Buyer after the Closing.
(f) All Transferring Employees shall be subject to Buyer's vacation
policy, being given credit for the years of service they were credited with by
Seller. Any accrued vacation of a Transferred Employee shall be cashed out and
paid to such Transferred Employee by Seller, or with Buyer's consent any
accrued vacation carried forward being funded by Seller by payment to Buyer as
an adjustment to Purchase Price at Closing. Any such accrued vacation carried
forward shall be required to be used or taken by such Transferring Employees
subject to Buyer's existing vacation policy, including forfeiture if not used
or taken. Buyer shall not change its existing vacation policies in a manner as
to cause forfeiture of such accrued vacation prior to June 30, 1997. Seller
shall provide at or prior to Closing a list of all vacation accrued but not
taken as of the Closing as SCHEDULE 13.2(f).
13.3 Federal Worker Adjustment and Retraining Notification Act.
---------------------------------------------------------
(a) Buyer shall be responsible for and shall pay any amounts
(including benefit payments) required to be paid by applicable law or the
present severance policies of general application to the Transferring
Employees who shall be terminated or laid off after the Closing for any reason
enumerated in such laws or regulations. It is the intent of the parties that
Seller will not be responsible for, and that Buyer will assume liability for,
any amounts required by law or regulations of general application, including,
but not limited to the Federal Worker Adjustment and Retraining Notification
Act, to be paid as a result of termination or layoff of any Transferring
Employee after the Closing.
(b) Seller shall be responsible for and shall pay any amounts
(including benefit payments) required to be paid by applicable law to
Employees who are deemed under applicable law to have been laid off on or
before the Closing.
40
<PAGE>
13.4 Non-Transferring Employees. Seller shall remain solely liable for
--------------------------
all of its non-Transferring Employee salaries, benefits and obligations and
shall hold Buyer harmless from any and all liability therefore.
ARTICLE XIV
TAXES
-----
14.1 Tax Proceedings. Notwithstanding anything to the contrary herein,
---------------
Seller shall be responsible for all income, franchise, and processing taxes
attributable to periods of ownership prior to the Effective Date, and Buyer
shall be responsible for all income, franchise, and processing taxes
attributable to periods of ownership on and after the Effective Date. In the
event Buyer or any of Buyer's affiliates receives notice of any examination,
claim, adjustment or other proceeding relating to the liability for taxes of or
with respect to Seller for any period prior to the Effective Date, Buyer shall
notify Seller in writing within ten (10) days of receiving notice thereof. As to
any such taxes for which Seller is or may be liable, Seller shall at Seller's
expense control or settle the contest of such examination, claim, adjustment or
other proceeding, and shall indemnify Buyer against all losses in connection
therewith. The parties shall cooperate with each other and with their respective
affiliates in the negotiations and settlement of any proceeding described in
this Section 14.1.
14.2 Like - Kind Exchange. Notwithstanding anything contained in this
--------------------
Agreement to the contrary, Seller and Buyer hereby acknowledge and agree that:
(a) Seller desires to complete the sale of all or part of the Assets
to effect a qualified like-kind exchange for other property ("Exchange
Property") in a transaction that qualifies as a deferred exchange in
accordance with section 1031 of the Internal Revenue Code and regulations
thereunder.
(b) At the direction of Seller at Closing, Buyer shall deposit all or
a part of the Purchase Price as may be directed three (3) days before Closing
with a mutually-agreed upon qualified escrow agent, who shall hold the same in
accordance with the terms of the Escrow Agreement entered into by Seller,
Buyer and the mutually agreed-upon escrow agent ("Escrow Agent"). The purpose
of the escrow is to provide for the acquisition of Exchange Property to
complete a qualified deferred exchange.
(c) Buyer agrees to reasonably cooperate with Seller in effecting a
qualified like-kind exchange, including the execution of reasonable documents
deemed necessary to qualify the transaction as a deferred exchange. However,
it is specifically agreed that Buyer shall be an accommodating party only and
Seller shall indemnify and hold Buyer harmless
41
<PAGE>
from any additional liability or expense as a result of such qualified
deferred exchange. It shall be the sole responsibility of Seller to locate and
identify the Exchange Property.
ARTICLE XV
MISCELLANEOUS PROVISIONS
------------------------
15.1 Commission. Each of the parties hereto represents and warrants that
----------
there are no claims for brokerage commission or finders' fees in connection with
the transaction contemplated by this Agreement, and Seller and Buyer will
respectively pay or discharge, and will indemnify the other for, brokerage
commissions or finders' fees incurred by reason of any action taken by such
indemnifying party.
15.2 Assignment. The terms, provisions and conditions of this Agreement
----------
shall extend to, be binding upon and inure to the benefit of the parties hereto,
their respective successors, assigns and legal representatives, provided
however, no party will make an assignment without the advance written consent of
the other, which such consent may be withheld, except for an assignment to a
wholly owned subsidiary or a wholly owned affiliate of a parent corporation,
provided that such assignor or parent corporation, as the case may be,
guarantees the performance of the obligations herein.
15.3 Entire Agreement; Amendments. This Agreement and the exhibits and
----------------------------
schedules attached hereto and incorporated by reference herein contain the
entire understanding of the parties with respect to its subject matter. There
are no restrictions, agreements, promises, warranties, covenants or undertakings
other than those expressly set forth herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter, except for that certain Confidentiality Agreement between the
parties which shall remain in full force and effect pursuant to its terms. This
Agreement may be amended only by a written instrument duly executed by the
parties. Any condition to a party's obligations hereunder may be waived in
writing by such party. No waiver by any party of any one or more defaults by
the other in performance of any of the provisions of this Agreement shall
operate or be construed as a waiver of any future default or defaults, whether
of a like or different character.
15.4 Severability. Each portion of this Agreement is intended to be
------------
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity of the
remainder of this Agreement.
15.5 Actions. Seller and Buyer, singularly and plurally, warrant and agree
-------
that each shall use its best efforts to take or cause to be taken all such
action as may be necessary to consummate and make effective the transaction as
set forth in this Agreement and to assure that it will not be under any material
corporate, legal or contractual restriction that would prohibit or delay the
timely consummation of such transaction.
42
<PAGE>
15.6 Termination. This Agreement may be terminated at any time on or
-----------
prior to the Closing:
(a) by mutual written consent of Seller and Buyer;
(b) by Seller on the Closing if the conditions set forth in Section
8.3 have not been satisfied in all material respects by Buyer or not waived by
Seller in writing by the Closing;
(c) by Buyer on the Closing if the conditions set forth in Section
8.2 have not been satisfied in all material respects by Seller or waived by
Buyer, as appropriate, in writing by the Closing;
(d) by Seller if, as a result of all purchase price adjustments, the
Purchase Price has been reduced by an amount greater than 25 % of the amount
stated in Section 2.2;
(e) by Seller if, certain pre-Closing Purchase Price Adjustments
pursuant to Sections 6.2 and 6.3 or any other provision in this Agreement,
except as set forth below, exceed $5,000,000. In determining such $5,000,000
amount, Seller shall not take into account the following expenses or
liabilities:
(i) those Purchase Price Adjustments set forth in Section
2.2(b)(i), or Section 2.2(b)(ii);
(ii) SCHEDULE 4.1(d)--"Pending Claims", which such items
shall not be Purchase Price Adjustments, but rather matters retained by
Seller;
(iii) the contract with Meridian Oil, Inc., Contract No. MCK-
1873, which is terminated with respect to certain, but not all gas wells,
and which has not yet been renegotiated by Seller, as such matter is
discussed and disclosed in Section 2.2(b)(v) and Section 7.12;
(iv) claims listed on SCHEDULES 4.1(g)(h) or (i)), other
than the notation that certain Contracts have audit rights not yet
undertaken by producers, which could incur a liability prospectively,
which such matter shall not be a pre-Closing Purchase Price Adjustment,
but rather a matter to be indemnified by Seller pursuant to Section
9.2(a), (b), or (c);
43
<PAGE>
(v) the fair market value for matters listed on SCHEDULE
4.1(j)--Equipment Removed since the Effective Date;
(vi) the value of matters set forth on SCHEDULE 4.1(k),
Agreements Requiring consents to Assign, none of which shall be a pre-
Closing Purchase Price Adjustment, but rather a matter to be indemnified
by Seller pursuant to Section 9.2(a),(b) or (c); or
(vii) matters listed on SCHEDULE 4.1(p)--Governmental
Compliance;
(f) by Buyer or Seller if, after good faith efforts, Seller has been
unable to complete the acquisition of the Teddy Roosevelt Gas Gathering System
by January 31, 1997;
(g) by either Buyer or Seller if Closing is not able to take place by
January 31, 1997 due to a provision or circumstance not the fault of or
attributable to the party seeking termination or attributable to a condition
or obligation such party seeking termination had to fulfill pursuant to this
Agreement; or
(h) by Buyer should it not be able to obtain financing by Closing.
If a non-defaulting party elects to treat this Agreement as being in full force
and effect, the non-defaulting party shall have, in addition to any other
available remedy at law or equity, the right to an action for specific
performance and/or damages, except to the extent Seller is entitled to obtain
its relief through Section 2.5 to the exclusion of this provision.
15.7 Counterparts. This Agreement may be executed simultaneously in any
------------
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
15.8 Governing law, etc. This Agreement shall be governed by, enforced in
-------------------
accordance with, and interpreted under, the laws of the State of Kansas, without
giving effect to the conflict of laws rules thereof. Seller and Buyer hereby
irrevocably submit venue to the jurisdiction of the Federal District Court of
the United States of America, District of Kansas, located in Kansas, with
preference for venue being in Kansas City, Kansas, rather than Wichita, Kansas.
The parties hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that this Agreement or any of such document
may not be enforced in or by said courts, and the parties irrevocably agree that
all claims with respect to such action or proceeding shall be heard and
determined in such Federal District Court of Kansas. Seller and Buyer hereby
consent to and grant any such court jurisdiction over the person of such parties
hereto and over the
44
<PAGE>
subject matter of any such dispute and agree that service of process or other
papers in connection with any such action or proceeding in the manner provided
by the federal rules of civil procedure shall be valid and sufficient service
thereof.
15.9 Preparation of Agreement. This Agreement was prepared jointly by the
------------------------
parties hereto and not by either to the exclusion of the other.
15.10 Notices and Addresses. Any notice, request, instruction, waiver or
---------------------
other communication to be given hereunder by any party shall be in writing and
shall be considered duly delivered if personally delivered, facsimile, mailed by
certified mail with postage prepaid or sent by telegraph to the addresses or
facsimile of the parties as follows
Seller: Koch Hydrocarbon Company
P. O. Box 2256
Wichita, Kansas 67201
Attention: Legal Department
Facsimile: (316) 828-5803
Buyer: Bear Paw Energy, Inc.
370 Seventeenth Street, Suite 2750
Denver, Colorado 80202
Attn: President
Facsimile: (303) 626-8299
or at such other address as either party may designate by written notice.
15.11 Time is of the Essence. Time is of the essence for any provision in
----------------------
this Agreement unless the parties, in writing, mutually agree otherwise with
respect to a certain matter identified in such writing.
45
<PAGE>
IN WITNESS WHEREOF, the parties have hereto set their hands by their duly
authorized officials as of the date set forth above.
"BUYER"
BEAR PAW ENERGY, INC.
ATTEST:
/s/
____________________ By:______________________________
Title: ____________________________
"SELLER"
KOCH HYDROCARBON COMPANY
A Division of
KOCH INDUSTRIES, INC.
ATTEST:
/s/
____________________ By:________________________________
Asst. Secretary Title: ____________________________
46
<PAGE>
Exhibit 10.8
Execution Copy
--------------
================================================================================
TRANSMONTAIGNE OIL COMPANY
CREDIT AGREEMENT
DATED AS OF DECEMBER 18, 1996
THE FIRST NATIONAL BANK OF BOSTON, AGENT
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C> <C>
1. Definitions; Certain Rules of Construction....................................... 1
2. The Credits...................................................................... 22
2.1. Working Capital Revolving Credit........................................... 22
2.1.1. Working Capital Revolving Loan..................................... 22
2.1.2. Maximum Amount of Working Capital Revolving Credit................. 22
2.1.3. Borrowing Requests................................................. 23
2.1.4. Working Capital Revolving Loan Account; Working Capital Revolving
Notes............................................................................ 23
2.2. Acquisition Credit......................................................... 23
2.2.1. Acquisition Revolving Loan......................................... 23
2.2.2. Maximum Amount of Acquisition Credit............................... 24
2.2.3. Borrowing Requests................................................. 24
2.2.4. Acquisition Revolving Loan Account; Acquisition Revolving Notes.... 24
2.2.5. Acquisition Term Loan.............................................. 25
2.3. Reducing Revolving Credit.................................................. 25
2.3.1. Reducing Revolving Loan............................................ 25
2.3.2. Maximum Amount of Reducing Revolving Credit........................ 26
2.3.3. Borrowing Requests................................................. 26
2.3.4. Reducing Revolving Loan Account; Reducing Revolving Notes.......... 26
2.4. Letters of Credit.......................................................... 27
2.4.1. Issuance of Letters of Credit...................................... 27
2.4.2. Requests for Letters of Credit..................................... 27
2.4.3. Form and Expiration of Letters of Credit........................... 28
2.4.4. Lenders' Participation in Letters of Credit........................ 28
2.4.5. Presentation....................................................... 28
2.4.6. Payment of Drafts.................................................. 28
2.4.7. Uniform Customs and Practice....................................... 29
2.4.8. Subrogation........................................................ 30
2.4.9. Modification, Consent, etc......................................... 30
2.5. Application of Proceeds.................................................... 31
2.5.1. Working Capital Revolving Loan..................................... 31
2.5.3. Acquisition Term Loan.............................................. 31
2.5.4. Reducing Revolving Loan............................................ 31
2.5.5. Letters of Credit.................................................. 31
2.5.6. Specifically Prohibited Applications............................... 31
2.6. Nature of Obligations of Lenders to Make Extensions of Credit.............. 31
3. Interest; Eurodollar Pricing Options; Fees....................................... 32
3.1. Interest................................................................... 32
3.2. Eurodollar Pricing Options................................................. 32
-i-
<PAGE>
</TABLE>
<TABLE>
<S> <C> <C>
3.2.1. Election of Eurodollar Pricing Options............................. 32
3.2.2. Notice to Lenders and Company...................................... 33
3.2.3. Selection of Eurodollar Interest Periods........................... 33
3.2.4. Additional Interest................................................ 34
3.2.5. Violation of Legal Requirements.................................... 35
3.2.6. Funding Procedure.................................................. 35
3.3. Commitment Fees............................................................ 35
3.4. Letter of Credit Fees...................................................... 36
3.5. Reserve Requirements, etc.................................................. 36
3.6. Taxes...................................................................... 37
3.7. Capital Adequacy........................................................... 37
3.8. Regulatory Changes......................................................... 38
3.9. Computations of Interest and Fees.......................................... 38
4. Payment.......................................................................... 38
4.1. Payment at Maturity........................................................ 38
4.2. Contingent Required Prepayments............................................ 38
4.2.1. Excess Credit Exposure............................................. 39
4.2.2. Letter of Credit Exposure.......................................... 39
4.2.3. Proceeds of Capital Market Transactions............................ 39
4.3. Scheduled Required Prepayments of Acquisition Term Loan.................... 39
4.4. Payment on Facility Conversion Date........................................ 39
4.5. Voluntary Prepayments...................................................... 40
4.6. Letters of Credit.......................................................... 40
4.7. Reborrowing; Application of Payments, etc.................................. 40
4.7.1. Reborrowing........................................................ 40
4.7.2. Order of Application............................................... 40
4.7.3. Payment with Accrued Interest, etc................................. 41
4.7.4. Payments for Lenders............................................... 41
5. Conditions to Extending Credit................................................... 41
5.1. Conditions on Initial Closing Date......................................... 41
5.1.1. Revolving Notes.................................................... 41
5.1.2. Perfection of Security............................................. 41
5.1.3. Payment of Fees.................................................... 41
5.1.4. Legal Opinions..................................................... 42
5.1.5. Letter of Credit Agreements........................................ 42
5.1.6. Acquisition........................................................ 42
5.1.7. Termination of Existing Credit Agreement........................... 42
5.1.8. Pro Forma Balance Sheet............................................ 43
5.2. Conditions to Initial Closing Date and Each Extension of Credit............ 43
5.2.1. Officer's Certificate.............................................. 43
5.2.2. Proper Proceedings................................................. 43
5.2.3. Legality, etc...................................................... 43
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C> <C>
5.2.4. General............................................................ 44
6. General Covenants................................................................ 44
6.1. Taxes and Other Charges; Accounts Payable.................................. 44
6.1.1. Taxes and Other Charges............................................ 44
6.1.2. Accounts Payable................................................... 44
6.2. Conduct of Business, etc................................................... 44
6.2.1. Types of Business.................................................. 45
6.2.2. Maintenance of Properties.......................................... 45
6.2.3. Statutory Compliance............................................... 45
6.2.4. Compliance with Material Agreements................................ 45
6.2.5. Trading Policy..................................................... 45
6.2.6. Subordinated Debentures............................................ 46
6.2.7. Inventory Accounting............................................... 46
6.2.8. Inactive Subsidiaries.............................................. 46
6.3. Insurance.................................................................. 46
6.3.1. Property Insurance................................................. 46
6.3.2. Liability Insurance................................................ 46
6.4. Financial Statements and Reports........................................... 46
6.4.1. Annual Reports..................................................... 47
6.4.2. Quarterly Reports.................................................. 48
6.4.3. Monthly Reports.................................................... 49
6.4.4. Other Reports...................................................... 49
6.4.5. Notice of Litigation............................................... 49
6.4.6. Notice of Defaults................................................. 50
6.4.7. ERISA Reports...................................................... 50
6.4.8. Other Information; Audit........................................... 50
6.5. Certain Financial Tests.................................................... 51
6.5.1. Fixed Charges Coverage............................................. 51
6.5.2. Leverage........................................................... 51
6.5.3. Consolidated Tangible Net Worth.................................... 51
6.6. Indebtedness............................................................... 52
6.7. Guarantees; Letters of Credit.............................................. 53
6.8. Liens...................................................................... 54
6.9. Investments and Acquisitions............................................... 55
6.10. Distributions.............................................................. 56
6.11. Merger, Consolidation and Dispositions of Assets........................... 56
6.12. Lease Obligations.......................................................... 57
6.13. Issuance of Stock by Subsidiaries; Subsidiary Distributions................ 57
6.13.1. Issuance of Stock by Subsidiaries................................. 57
6.13.2. No Restrictions on Subsidiary Distributions....................... 57
6.14. [Reserved]................................................................. 57
6.15. Derivative Contracts....................................................... 57
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
6.16. Negative Pledge Clauses.................................................... 58
6.17. ERISA, etc................................................................. 58
6.18. Transactions with Affiliates............................................... 58
6.19. Open Positions............................................................. 58
6.20. Environmental Laws......................................................... 58
6.20.1. Compliance with Law and Permits................................... 59
6.20.2. Notice of Claims, etc............................................. 59
7. Representations and Warranties................................................... 59
7.1. Organization and Business.................................................. 59
7.1.1. The Company........................................................ 59
7.1.2. Subsidiaries....................................................... 59
7.1.3. Qualification...................................................... 60
7.1.4. Capitalization..................................................... 60
7.2. Financial Statements and Other Information; Material Agreements............ 60
7.2.1. Financial Statements and Other Information......................... 60
7.2.2. Material Agreements................................................ 61
7.3. Agreements Relating to Financing Debt, Investments, etc.................... 62
7.4. Changes in Condition....................................................... 62
7.5. Title to Assets............................................................ 62
7.6. Operations in Conformity with Law, etc..................................... 62
7.7. Litigation................................................................. 62
7.8. Authorization and Enforceability........................................... 63
7.9. No Legal Obstacle to Agreements............................................ 63
7.10. Defaults................................................................... 64
7.11. Licenses, etc.............................................................. 64
7.12. Tax Returns................................................................ 64
7.13. Certain Business Representations........................................... 64
7.13.1. Labor Relations................................................... 64
7.13.2. Antitrust......................................................... 65
7.13.3. Consumer Protection............................................... 65
7.13.4. Burdensome Obligations............................................ 65
7.13.5. Future Expenditures............................................... 65
7.14. Environmental Regulations.................................................. 65
7.14.1. Environmental Compliance.......................................... 65
7.14.2. Environmental Litigation.......................................... 66
7.14.3. Hazardous Material................................................ 66
7.14.4. Environmental Condition of Properties............................. 67
7.15. Pension Plans.............................................................. 67
7.16. [Reserved]................................................................. 67
7.17. Foreign Trade Regulations; Government Regulation; Margin Stock............. 67
7.17.1. Foreign Trade Regulations......................................... 67
7.17.2. Government Regulation............................................. 67
7.17.3. Margin Stock...................................................... 68
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
7.18. Disclosure................................................................. 68
8. Defaults.......................................................................... 68
8.1. Events of Default.......................................................... 68
8.1.1. Payment............................................................ 68
8.1.2. Specified Covenants................................................ 68
8.1.3. Other Covenants.................................................... 68
8.1.4. Representations and Warranties..................................... 68
8.1.5. Cross Default, etc................................................. 69
8.1.6. Ownership; Liquidation; etc........................................ 69
8.1.7. Enforceability, etc................................................ 70
8.1.8. Judgments.......................................................... 70
8.1.9. ERISA.............................................................. 70
8.1.10. Bankruptcy, etc.................................................... 70
8.1.11. Subordinated Debentures........................................... 71
8.2. Certain Actions Following an Event of Default.............................. 71
8.2.1. Terminate Obligation to Extend Credit.............................. 71
8.2.2. Specific Performance; Exercise of Rights........................... 71
8.2.3. Acceleration....................................................... 72
8.2.4. Enforcement of Payment; Credit Security; Setoff.................... 72
8.2.5. Cumulative Remedies................................................ 72
8.3. Annulment of Defaults...................................................... 72
8.4. Waivers.................................................................... 73
9. Guarantees....................................................................... 73
9.1. Guarantees of Credit Obligations........................................... 73
9.2. Continuing Obligation...................................................... 73
9.3. Waivers with Respect to Credit Obligations................................. 74
9.4. Lenders' Power to Waive, etc............................................... 76
9.5. Information Regarding the Company, etc..................................... 76
9.6. Certain Guarantor Representations.......................................... 77
9.7. Subrogation................................................................ 78
9.8. Subordination.............................................................. 78
9.9. Future Subsidiaries; Further Assurances.................................... 78
10. Security......................................................................... 78
10.1. Credit Security............................................................ 78
10.1.1. Pledged Stock..................................................... 78
10.1.2. Pledged Rights.................................................... 79
10.1.3. Pledged Indebtedness.............................................. 79
10.1.4. Proceeds and Products............................................. 79
10.1.5. Excluded Property................................................. 79
10.3. Representations, Warranties and Covenants with Respect to Credit Security.. 79
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
10.3.1. Pledged Stock..................................................... 79
10.3.2. Pledged Indebtedness.............................................. 80
10.3.3. [Reserved]........................................................ 80
10.3.4. No Liens or Restrictions on Transfer or Change of Control......... 80
10.3.5. [Reserved]........................................................ 80
10.3.6. Trade Names....................................................... 80
10.3.7. [Reserved]........................................................ 81
10.3.8. Modifications to Credit Security.................................. 81
10.3.9. Delivery of Documents............................................. 81
10.3.10. Perfection of Credit Security..................................... 81
10.4. Administration of Credit Security.......................................... 81
10.4.1. Use of Credit Security............................................ 81
10.4.2. [Reserved]........................................................ 81
10.4.3. Pledged Securities................................................ 81
10.5. Right to Realize upon Credit Security...................................... 82
10.5.1. Assembly of Credit Security; Receiver............................. 82
10.5.2. General Authority................................................. 83
10.5.3. Marshaling, etc................................................... 83
10.5.4. Sales of Credit Security.......................................... 84
10.5.5. Sale Without Registration......................................... 85
10.5.6. Application of Proceeds........................................... 85
10.6. Custody of Credit Security................................................. 86
11. Expenses; Indemnity.............................................................. 86
11.1. Expenses................................................................... 86
11.2. General Indemnity.......................................................... 87
11.3. Indemnity With Respect to Letters of Credit................................ 87
12. Operations; Agent................................................................ 87
12.1. Interests in Credits....................................................... 87
12.2. Agent's Authority to Act, etc.............................................. 88
12.3. Company to Pay Agent, etc.................................................. 88
12.4. Lender Operations for Advances, Letters of Credit, etc..................... 88
12.4.1. Advances.......................................................... 88
12.4.2. Letters of Credit................................................. 88
12.4.3. Agent to Allocate Payments, etc................................... 89
12.4.4. Delinquent Lenders; Nonperforming Lenders......................... 89
12.5. Sharing of Payments, etc................................................... 90
12.6. Amendments, Consents, Waivers, etc......................................... 90
12.7. Agent's Resignation........................................................ 91
12.8. Concerning the Agent....................................................... 92
12.8.1. Action in Good Faith, etc......................................... 92
12.8.2. No Implied Duties, etc............................................ 92
12.8.3. Validity, etc..................................................... 92
</TABLE>
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<TABLE>
<S> <C> <C> <C>
12.8.4. Compliance........................................................ 93
12.8.5. Employment of Agents and Counsel.................................. 93
12.8.6. Reliance on Documents and Counsel................................. 93
12.8.7. Agent's Reimbursement............................................. 93
12.8.8. Agent's Fees...................................................... 94
12.9. Rights as a Lender......................................................... 94
12.10. Independent Credit Decision................................................ 94
12.11. Indemnification............................................................ 94
13. Successors and Assigns; Lender Assignments and Participations.................... 95
13.1. Assignments by Lenders..................................................... 95
13.1.1. Assignees and Assignment Procedures............................... 95
13.1.2. Terms of Assignment and Acceptance................................ 96
13.1.3. Register.......................................................... 97
13.1.4. Acceptance of Assignment and Assumption........................... 97
13.1.5. Federal Reserve Bank.............................................. 97
13.1.6. Further Assurances................................................ 98
13.2. Credit Participants........................................................ 98
13.3. Replacement of Lender...................................................... 99
14. Confidentiality..................................................................100
15. Foreign Lenders..................................................................100
16. Notices..........................................................................101
17. Course of Dealing; Amendments and Waivers........................................101
18. Defeasance.......................................................................102
19. Venue; Service of Process........................................................102
20. WAIVER OF JURY TRIAL.............................................................102
21. General..........................................................................103
</TABLE>
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<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
2.1.4 - Form of Working Capital Revolving Note
2.2.4 - Form of Acquisition Revolving Note
2.2.5(a) - Form of Acquisition Term Loan Borrowing Request
2.2.5(b) - Form of Acquisition Term Note
2.3.4 - Form of Reducing Revolving Note
5.2.1 - Form of Officer's Certificate
6.25. - Risk and Product Management Policy Statement dated December 1996 of
Continental Ozark, Inc.
6.4.1 - Form of Covenant Compliance Certificate
6.4.3 - Monthly Report of Operations
6.4.3(a) - Monthly Report of Petroleum Inventory Position
7 - Disclosure Schedule
7.1 - Company and its Subsidiaries
7.2.2 - Material Agreements
7.3 - Financing Debt, Certain Investments, etc.
7.14 - Hazardous Material Sites
7.15 - Multi-employer and Defined Benefit Plans
12.1 - Percentage Interests
13.1.1 - Form of Assignment and Acceptance
</TABLE>
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<PAGE>
TRANSMONTAIGNE OIL COMPANY
CREDIT AGREEMENT
This Agreement, dated as of December 18, 1996, is among TransMontaigne Oil
Company, a Delaware corporation, the Subsidiaries of TransMontaigne Oil Company
from time to time party hereto, the Lenders from time to time party hereto and
The First National Bank of Boston, both in its capacity as a Lender and in its
capacity as agent for itself and the other Lenders. The parties agree as
follows:
1. Definitions; Certain Rules of Construction. Certain capitalized terms
------------------------------------------
are used in this Agreement and in the other Credit Documents with the specific
meanings defined below in this Section 1. Except as otherwise explicitly
specified to the contrary or unless the context clearly requires otherwise, (a)
the capitalized term "Section" refers to sections of this Agreement, (b) the
capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references
to a particular Section include all subsections thereof, (d) the word
"including" shall be construed as "including without limitation", (e) accounting
terms not otherwise defined herein have the meaning provided under GAAP, (f)
terms defined in the UCC and not otherwise defined herein have the meaning
provided under the UCC, (g) references to a particular statute or regulation
include all rules and regulations thereunder and any successor statute,
regulation or rules, in each case as from time to time in effect and (h)
references to a particular Person include such Person's successors and assigns
to the extent not prohibited by this Agreement and the other Credit Documents.
References to "the date hereof" mean the date first set forth above.
1.1. "Accumulated Benefit Obligations" means the actuarial present value
-------------------------------
of the accumulated benefit obligations under any Plan, calculated in accordance
with Statement No. 87 of the Financial Accounting Standards Board.
1.2. "Acquisition Agreement" means the Agreement for Sale McKenzie Gas
---------------------
Processing Plant and Grasslands Gas Gathering System dated as of October 31,
1996 between Koch Hydrocarbon Company, a division of Koch Industries, Inc., a
Kansas corporation, and Bear Paw Energy, Inc., a Colorado corporation.
1.3. "Acquisition Loan Conversion Date" means December 31, 1999. If the
--------------------------------
Facility Conversion Date shall occur on or prior to December 31, 1999, then the
Acquisition Loan Conversion Date shall not occur.
1.4. "Acquisition Revolving Loan" is defined in Section 2.2.4.
--------------------------
1.5. "Acquisition Revolving Loan Account" is defined in Section 2.2.4.
----------------------------------
1.6. "Acquisition Revolving Notes" is defined in Section 2.2.4.
---------------------------
1.7. "Acquisition Term Loan" is defined in Section 2.2.5.
---------------------
<PAGE>
1.8. "Acquisition Term Notes" is defined in Section 2.2.5.
----------------------
1.9. "Affected Lender" is defined in Section 13.3.
---------------
1.10. "Affiliate" means, with respect to the Company (or any other
---------
specified Person), any other Person directly or indirectly controlling,
controlled by or under direct or indirect common control with the Company, and
shall include (a) any executive officer or director or general partner of the
Company and (b) any Person of which the Company or any Affiliate (as defined in
clause (a) above) of the Company shall, directly or indirectly, beneficially own
either (i) at least 25% of the outstanding equity securities having the general
power to vote or (ii) at least 25% of all equity interests; provided, however,
that Lion Oil Company, an Arkansas corporation, shall not be deemed to be an
Affiliate of the Company or of any Subsidiary of the Company under clause (b) of
this definition, unless the Company or such Subsidiary shall, directly or
indirectly, beneficially own either (x) at least 30% of the outstanding equity
securities having the general power to vote of Lion Oil Company or (y) at least
30% of all equity interests in Lion Oil Company.
1.11. "Agent" means Bank of Boston in its capacity as agent for the Lenders
-----
hereunder, as well as its successors and assigns in such capacity pursuant to
Section 12.7.
1.12. "Applicable Margin" means:
-----------------
(a) with respect to any portion of the Loan subject to a Eurodollar
Pricing Option:
(i) on any date on which the Leverage Ratio is less than 25%,
three-quarters of one percent (3/4%);
(ii) on any date on which the Leverage Ratio is equal to or
greater than 25% and less than 35%, seven-eighths of one percent
(7/8%);
(iii) on any date on which the Leverage Ratio is equal to or
greater than 35% and less than 45%, one and one-eighth percent (1
1/8%);
(iv) on any date on which the Leverage Ratio is equal to or
greater than 45% and less than 55%, one and three-eighths percent (1
3/8%); and
(v) on any date on which the Leverage Ratio is equal to or
greater than 55%, one and five-eighths percent (1 5/8%); and
(b) with respect to any other portion of the Loan:
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(i) on any date on which the Leverage Ratio is less than 55%,
zero; and
(ii) on any date on which the Leverage Ratio is equal to or
greater than 55%, one-quarter of one percent (1/4%).
For purposes of calculating the Applicable Margin, (i) the Leverage Ratio
shall be determined as at the end of the most recent January, April, July or
October for which financial statements have been furnished (or are required to
have been furnished) by the Company to the Lenders pursuant to Section 6.4.1,
6.4.2 or 7.2.1(c) and (ii) any adjustment in the Applicable Margin shall be
prospective and shall take effect on the fifth Business Day following the date
upon which the financial statements referred to in the foregoing clause (i) are
furnished (or are required to be furnished) by the Company to the Lenders
pursuant to Section 6.4.1 or 6.4.2.
1.13. "Applicable Rate" means, at any date, the sum of:
---------------
(a) (i) with respect to each portion of the Loan subject to
a Eurodollar Pricing Option, the sum of the Applicable Margin plus
----
the Eurodollar Rate with respect to such Eurodollar Pricing Option;
or
(ii) with respect to each other portion of the Loan, the
sum of the Applicable Margin plus the Base Rate;
----
plus (b) an additional 2% effective on the day the Agent notifies
----
the Company that the interest rates hereunder are increasing as a
result of the occurrence and continuance of an Event of Default until
the earlier of such time as (i) such Event of Default is no longer
continuing or (ii) such Event of Default is deemed no longer to
exist, in each case pursuant to Section 8.3.
1.14. "Assignee" is defined in Section 13.1.1.
--------
1.15. "Assignment and Acceptance" is defined in Section 13.1.1.
-------------------------
1.16. "Bank of Boston" means The First National Bank of Boston.
--------------
1.17. "Bank of Boston Fee Letter" is defined in Section 5.1.3.
-------------------------
1.18. "Banking Day" means any day other than Saturday, Sunday or a day on
-----------
which banks in Boston, Massachusetts are authorized or required by law or other
governmental action to close and, if such term is used with reference to a
Eurodollar Pricing Option, any day on which dealings are effected in the
Eurodollars in question by first-class banks in the inter-bank Eurodollar
markets in New York, New York.
1.19. "Bankruptcy Code" means Title 11 of the United States Code.
---------------
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1.20. "Bankruptcy Default" means an Event of Default referred to in Section
------------------
8.1.10.
1.21. "Base Rate" means, on any day, the greater of (a) the rate of
---------
interest announced by Bank of Boston at the Boston Office as its Base Rate or
(b) the sum of 1/2% plus the Federal Funds Rate.
----
1.22. "Boston Office" means the principal banking office of Bank of Boston
-------------
in Boston, Massachusetts.
1.23. "By-laws" means all written by-laws, rules, regulations and all
-------
other documents relating to the governance of any Person other than an
individual, or interpretive of the Charter of such Person, all as from time to
time in effect.
1.24. "Capital Market Transaction" means the issuance by the Company
--------------------------
through public or private sale of (a) equity securities or (b) Indebtedness
permitted under Section 6.6.11 or 6.6.12.
1.25. "Capitalized Lease" means any lease which is required to be
-----------------
capitalized on the balance sheet of the lessee in accordance with GAAP,
including Statement Nos. 13 and 98 of the Financial Accounting Standards Board.
1.26. "Capitalized Lease Obligations" means the amount of the liability
-----------------------------
reflecting the aggregate discounted amount of future payments under all
Capitalized Leases calculated in accordance with GAAP, including Statement Nos.
13 and 98 of the Financial Accounting Standards Board.
1.27. "Cash Equivalents" means:
----------------
(a) negotiable certificates of deposit, time deposits (including
sweep accounts), demand deposits and bankers' acceptances having a maturity of
nine months or less and issued by any United States financial institution having
capital and surplus and undivided profits aggregating at least $100,000,000 and
rated at least Prime-1 by Moody's Investors Service, Inc. or A-1 by Standard &
Poor's Ratings Service or issued by any Lender;
(b) corporate obligations having a maturity of nine months or less
and rated at least Prime-1 by Moody's Investors Service, Inc. or A-1 by Standard
& Poor's Ratings Service or issued by any Lender;
(c) any direct obligation of the United States of America or any
agency or instrumentality thereof, or of any state or municipality thereof, (i)
which has a remaining maturity at the time of purchase of not more than one year
or which is
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<PAGE>
subject to a repurchase agreement with any Lender (or any other financial
institution referred to in clause (a) above) exercisable within one year from
the time of purchase and (ii) which, in the case of obligations of any state or
municipality, is rated at least Aa by Moody's Investors Service, Inc. or AA by
Standard & Poor's Ratings Service; and
(d) any mutual fund or other pooled investment vehicle rated at least
Aa by Moody's Investors Service, Inc. or AA by Standard & Poor's Ratings Service
which invests principally in obligations described above.
1.28. "CERCLA" means the federal Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980.
1.29. "CERCLIS" means the federal Comprehensive Environmental Response
-------
Compensation Liability Information System List (or any successor document)
promulgated under CERCLA.
1.30. "Charter" means the articles of organization, certificate of
-------
incorporation, statute, constitution, joint venture agreement, partnership
agreement, trust indenture, limited liability company agreement or other charter
document of any Person other than an individual, each as from time to time in
effect.
1.31. "Closing Date" means the Initial Closing Date and each other date on
------------
which any extension of credit is made pursuant to Section 2.1, 2.2, 2.3 or 2.4.
1.32. "Code" means the federal Internal Revenue Code of 1986, as amended.
----
1.33. "Commitment" means, with respect to any Lender, such Lender's
----------
obligations to extend the credits contemplated by the Credit Documents. The
original Commitments are set forth in Exhibit 12.1 and the current Commitments
are recorded from time to time in the Register.
1.34. "Commitment Fee Rate" means:
-------------------
(a) on any date on which the Leverage Ratio is less than 35%, one-
quarter of one percent (1/4%);
(b) on any date on which the Leverage Ratio is equal to or greater
than 35% and less than 45%, three-tenths of one percent (3/10%);
(c) on any date on which the Leverage Ratio is equal to or greater
than 45% and less than 55%, three-eighths of one percent (3/8%); and
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<PAGE>
(d) on any date on which the Leverage Ratio is equal to or greater
than 55%, one-half of one percent (1/2%).
For purposes of calculating the Commitment Fee Rate, (i) the Leverage Ratio
shall be determined as at the end of the most recent January, April, July or
October for which financial statements have been furnished (or are required to
have been furnished) by the Company to the Lenders pursuant to Section 6.4.1,
6.4.2 or 7.2.1(c) and (ii) any adjustment in the Commitment Fee Rate shall be
prospective and shall take effect on the fifth Business Day following the date
upon which the financial statements referred to in the foregoing clause (i) are
furnished (or are required to be furnished) by the Company to the Lenders
pursuant to Section 6.4.1 or 6.4.2.
1.35. "Company" means TransMontaigne Oil Company, a Delaware corporation.
-------
1.36. "Computation Covenants" means Sections 6.5, 6.6.7, 6.6.14, 6.9.5,
---------------------
6.9.7, 6.10.2, 6.11.1, 6.12.2 and 6.19.
1.37. "Consolidated" and "Consolidating", when used with reference to any
------------ -------------
term, mean that term as applied to the accounts of the Company (or other
specified Person) and all of its Subsidiaries (or other specified group of
Persons), or such of its Subsidiaries as may be specified, consolidated (or
combined) or consolidating (or combining), as the case may be, in accordance
with GAAP and with appropriate deductions for minority interests in
Subsidiaries.
1.38. "Consolidated Current Assets" means, at any date, all amounts carried
---------------------------
as current assets on the balance sheet of the Company and its Subsidiaries
determined in accordance with GAAP on a Consolidated basis; provided, however,
that for the purposes of Section 6.5.4. all inventory of the Company and its
Subsidiaries shall be valued at its then existing market value (determined by
the Company on a consistent basis) by its type and class of petroleum product
for the purpose of calculating Consolidated Current Assets; and, provided,
further, that loans and advances to and other Investments in Affiliates of the
Company and its Subsidiaries will not be included in current assets for the
purpose of calculating Consolidated Current Assets.
1.39. "Consolidated Current Liabilities" means, at any date, all amounts
--------------------------------
that are or should be carried as current liabilities on the balance sheet of the
Company and its Subsidiaries determined in accordance with GAAP on a
Consolidated basis, including the current portion of all Funded Debt.
1.40. "Consolidated Income from Operations" means, for any period, gross
-----------------------------------
revenues of the Company and its Subsidiaries, determined in accordance with GAAP
on a Consolidated basis, minus the sum of (a) the cost of operations of the
-----
Company and its Subsidiaries for such period, determined in accordance with GAAP
on a Consolidated basis, and (b) the selling, general and administrative
expenses of the Company and its Subsidiaries for such period, determined in
accordance with GAAP on a Consolidated basis.
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<PAGE>
1.41. "Consolidated Net Income" means, for any period, the net income (or
-----------------------
loss) of the Company and its Subsidiaries, determined in accordance with GAAP on
a Consolidated basis; provided, however, that Consolidated Net Income shall not
-------- -------
include:
(a) the income (or loss) of any Person accrued prior to the date such
Person becomes a Subsidiary or is merged into or consolidated with the
Company or any of its Subsidiaries;
(b) the income (or loss) of any Person (other than a Subsidiary) in
which the Company or any of its Subsidiaries has an ownership interest;
provided, however, that (i) Consolidated Net Income shall include amounts
-------- -------
in respect of the income of such Person when actually received in cash by
the Company or such Subsidiary in the form of dividends or similar
Distributions and (ii) Consolidated Net Income shall be reduced by the
aggregate amount of all Investments, regardless of the form thereof, made
by the Company or any of its Subsidiaries in such Person for the purpose of
funding any deficit or loss of such Person;
(c) all amounts included in computing such net income (or loss) in
respect of the write-up of any asset or the retirement of any Indebtedness
or equity at less than face value after April 30, 1996;
(d) extraordinary and nonrecurring gains;
(e) the income of any Subsidiary to the extent the payment of such
income in the form of a Distribution or repayment of Indebtedness to the
Company or a Wholly Owned Subsidiary is not permitted, whether on account of
any Charter or By-law restriction, any agreement, instrument, deed or lease
or any law, statute, judgment, decree or governmental order, rule or
regulation applicable to such Subsidiary; and
(f) any after-tax gains or losses attributable to returned surplus
assets of any Plan.
1.42. "Consolidated Net Tangible Assets" means at any date the total of:
--------------------------------
(a) the total assets of the Company and its Subsidiaries determined
in accordance with GAAP on a Consolidated basis;
minus (b) Consolidated Current Liabilities;
-----
minus (c) all other liabilities of the Company and its Subsidiaries
-----
determined in accordance with GAAP on a Consolidated basis other than
liabilities for Funded Debt;
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<PAGE>
minus (d) the amount of intangible assets carried on the balance sheet of
-----
the Company and its Subsidiaries determined in accordance with GAAP on a
Consolidated basis, including goodwill, patents, patent applications,
copyrights, trademarks, tradenames, research and development expense,
organizational expense, annualized debt discount and expense, deferred
financing charges and debt acquisition costs;
minus (e) the amount at which any minority interest in a Subsidiary appears
-----
as a liability on the Consolidated balance sheet of the Company and its
Subsidiaries.
1.43. "Consolidated Tangible Net Worth" means, at any date, the total of:
-------------------------------
(a) stockholders' equity of the Company and its Subsidiaries
determined in accordance with GAAP on a Consolidated basis, excluding the
effect of any foreign currency translation adjustments;
minus (b) the amount by which such stockholders' equity has been increased
-----
after April 30, 1996 by the items described in clauses (a) through (f) of
the definition of Consolidated Net Income;
minus (c) to the extent not already deducted from the amount in clause (a)
-----
above, (i) treasury stock, (ii) receivables due from an employee stock
ownership plan and (iii) Guarantees of Indebtedness incurred by an employee
stock ownership plan;
minus (d) the amount of intangible assets carried on the balance sheet of
-----
the Company and its Subsidiaries determined in accordance with GAAP on a
Consolidated basis, including goodwill, patents, patent applications,
copyrights, trademarks, tradenames, research and development expense,
organizational expense, unamortized debt discount and expense, deferred
financing charges and debt acquisition costs.
1.44. "Credit Documents" means:
----------------
(a) this Agreement, the Notes, each Letter of Credit, each draft
presented or accepted under a Letter of Credit, the Bank of Boston Fee
Letter and each Interest Rate Protection Agreement provided by a Lender (or
an Affiliate of a Lender) to the Company or any of its Subsidiaries, each
as from time to time in effect;
(b) all financial statements, reports, notices, mortgages,
assignments, UCC financing statements or certificates delivered to the
Agent or any of the Lenders by the Company, any of its Subsidiaries or any
other Obligor in connection herewith or therewith; and
(c) any other present or future agreement or instrument from time to
time entered into among the Company, any of its Subsidiaries or any other
Obligor, on one hand, and the Agent, any Letter of Credit Issuer or all the
Lenders, on the other hand,
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<PAGE>
relating to, amending or modifying this Agreement or any other Credit
Document referred to above or which is stated to be a Credit Document, each
as from time to time in effect.
1.45. "Credit Obligations" means all present and future liabilities,
------------------
obligations and Indebtedness of the Company, any of its Subsidiaries or any
other Obligor owing to the Agent or any Lender under or in connection with this
Agreement or any other Credit Document, including without limitation obligations
in respect of principal, interest, reimbursement obligations under Letters of
Credit and Interest Rate Protection Agreements provided by a Lender (or an
Affiliate of a Lender), commitment fees, Letter of Credit fees, amounts provided
for in Sections 3.2.4, 3.5, 3.6, 3.7, 3.8 and 11, amounts payable under the Bank
of Boston Fee Letter and other fees, charges, indemnities and expenses from time
to time owing hereunder or under any other Credit Document (whether accruing
before or after a Bankruptcy Default).
1.46. "Credit Participant" is defined in Section 13.2.
------------------
1.47. "Credit Security" means all assets now or from time to time hereafter
---------------
subjected to a security interest, mortgage or charge (or intended or required so
to be subjected pursuant to this Agreement or any other Credit Document) to
secure the payment or performance of any of the Credit Obligations, including
the assets described in Section 10.1.
1.48. "Default" means any Event of Default and any event or condition
-------
which with the passage of time or giving of notice, or both, would become an
Event of Default and the filing against the Company, any of its Subsidiaries or
any other Obligor of a petition commencing an involuntary case under the
Bankruptcy Code.
1.49. "Delinquency Period" is defined in Section 12.4.4.
------------------
1.50. "Delinquent Lender" is defined in Section 12.4.4.
-----------------
1.51. "Delinquent Payment" is defined in Section 12.4.4.
------------------
1.52. "Distribution" means, with respect to the Company (or other specified
------------
Person):
(a) the declaration or payment of any dividend or distribution,
including dividends payable in shares of capital stock of or other equity
interests in the Company (or such specified Person), on or in respect of
any shares of any class of capital stock of or other equity interests in
the Company (or such specified Person);
(b) the purchase, redemption or other retirement of any shares of any
class of capital stock of or other equity interest in the Company (or such
specified Person) or
-9-
<PAGE>
of options, warrants or other rights for the purchase of such shares,
directly, indirectly through a Subsidiary or otherwise;
(c) any other distribution on or in respect of any shares of any
class of capital stock of or equity or other beneficial interest in the
Company (or such specified Person);
(d) any payment of principal or interest with respect to, or any
purchase, redemption or defeasance of, any Indebtedness of the Company (or
such specified Person) which by its terms or the terms of any agreement is
subordinated to the payment of the Credit Obligations; and
(e) any loan or advance by the Company (or such specified Person) to,
or any other Investment by the Company (or such specified Person) in, the
holder of any shares of any class of capital stock of or equity interest in
the Company (or such specified Person), or any Affiliate of such holder;
provided, however, that the term "Distribution" shall not include (i) dividends
- -------- -------
payable in perpetual common stock of or other similar equity interests in the
Company (or such specified Person), (ii) payments in the ordinary course of
business in respect of (A) reasonable compensation paid to employees, officers
and directors or (B) advances to employees for travel expenses, drawing accounts
and similar expenditures, (iii) any loan or advance by the Company to any
Guarantor or (iv) any other loan or advance by the Company which constitutes an
Investment permitted under Section 6.9.5, 6.9.6 or 6.9.7.
1.53. "Environmental Laws" means all applicable federal, state or local
------------------
statutes, laws, ordinances, codes, rules, regulations and guidelines (including
consent decrees and administrative orders) relating to public health and safety
and protection of the environment, including OSHA.
1.54. "ERISA" means the federal Employee Retirement Income Security Act of
-----
1974.
1.55. "ERISA Group Person" means the Company, any Subsidiary of the Company
------------------
and any Person which is a member of the controlled group or under common control
with the Company or any Subsidiary within the meaning of section 414 of the Code
or section 4001(a)(14) of ERISA.
1.56. "Eurodollars" means, with respect to any Lender, deposits of United
-----------
States Funds in a non-United States office or an international banking facility
of such Lender.
1.57. "Eurodollar Basic Rate" means, for any Eurodollar Interest Period,
---------------------
the sum of the Eurodollar Basic Reference Rates furnished by the Reference
Lenders to the Agent divided by the number of such Reference Lenders.
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<PAGE>
1.58. "Eurodollar Basic Reference Rate" means, for any Eurodollar Interest
-------------------------------
Period and any Reference Lender, the rate of interest at which Eurodollar
deposits in an amount comparable to the Percentage Interest of such Reference
Lender in the portion of the Loan as to which a Eurodollar Pricing Option has
been elected and which have a term corresponding to such Eurodollar Interest
Period are offered to such Reference Lender by first class banks in the inter-
bank Eurodollar market for delivery in immediately available funds at a
Eurodollar Office on the first day of such Eurodollar Interest Period as
determined by such Reference Lender at approximately 10:00 a.m. (Boston time)
two Banking Days prior to the date upon which such Eurodollar Interest Period is
to commence (which determination by such Reference Lender shall, in the absence
of demonstrable error, be conclusive) and as furnished promptly thereafter by
such Reference Lender to the Agent.
1.59. "Eurodollar Interest Period" means any period, selected as provided in
--------------------------
Section 3.2.1, of one, two, three or six months, commencing on any Banking Day
and ending on the corresponding date in the subsequent calendar month so
indicated (or, if such subsequent calendar month has no corresponding date, on
the last day of such subsequent calendar month); provided, however, that subject
-------- -------
to Section 3.2.3, if any Eurodollar Interest Period so selected would otherwise
begin or end on a date which is not a Banking Day, such Eurodollar Interest
Period shall instead begin or end, as the case may be, on the immediately
preceding or succeeding Banking Day as determined by the Agent in accordance
with the then current banking practice in the inter-bank Eurodollar market with
respect to Eurodollar deposits at the applicable Eurodollar Office, which
determination by the Agent shall, in the absence of demonstrable error, be
conclusive.
1.60. "Eurodollar Office" means such non-United States office or
-----------------
international banking facility of any Lender as the Lender may from time to time
select.
1.61. "Eurodollar Pricing Options" means the options granted pursuant to
--------------------------
Section 3.2.1 to have the interest on any portion of the Loan computed on the
basis of a Eurodollar Rate.
1.62. "Eurodollar Rate" for any Eurodollar Interest Period means the rate,
---------------
rounded upward to the nearest 1/100%, obtained by dividing (a) the Eurodollar
Basic Rate for such Eurodollar Interest Period by (b) an amount equal to 1 minus
-----
the Eurodollar Reserve Rate; provided, however, that if at any time during such
-------- -------
Eurodollar Interest Period the Eurodollar Reserve Rate applicable to any
outstanding Eurodollar Pricing Option changes, the Eurodollar
Rate for such Eurodollar Interest Period shall automatically be adjusted to
reflect such change, effective as of the date of such change.
1.63. "Eurodollar Reserve Rate" means the stated maximum rate (expressed as a
-----------------------
decimal) of all reserves (including any basic, supplemental, marginal or
emergency reserve or any reserve asset), if any, as from time to time in effect,
required by any Legal Requirement to be maintained by any Lender against (a)
"Eurocurrency liabilities" as specified in
-11-
<PAGE>
Regulation D of the Board of Governors of the Federal Reserve System applicable
to Eurodollar Pricing Options, (b) any other category of liabilities that
includes Eurodollar deposits by reference to which the interest rate on portions
of the Loan subject to Eurodollar Pricing Options is determined, (c) the
principal amount of or interest on any portion of the Loan subject to a
Eurodollar Pricing Option or (d) any other category of extensions of credit, or
other assets, that includes loans subject to a Eurodollar Pricing Option by a
non-United States office of any of the Lenders to United States residents.
1.64. "Event of Default" is defined in Section 8.1.
----------------
1.65. "Exchange Act" means the federal Securities Exchange Act of 1934.
------------
1.66. "FACA" means the Federal Assignment of Claims Act as set forth in 31
----
U.S.C. (S) 3727 and 41 U.S.C. (S) 15.
1.67. "Facility Conversion Date" means the date, if any, designated as the
------------------------
Facility Conversion Date by not less than three days' written notice from the
Company to the Agent, which shall be a date on or before December 31, 1999 on or
before which (a) the Maximum Amount of Acquisition Credit shall have been
reduced to $40,000,000 or less by application of the proceeds of one or more
Capital Market Transactions and (b) on or within 180 days following the date on
which the condition described in clause (a) shall have been satisfied, the
Consolidated Tangible Net Worth of the Company and its Subsidiaries as shown in
a certificate of the Company in the form of Exhibit 6.4.1 furnished to the
Lenders under Section 6.4.1(d) or 6.4.2(c) shall have equalled or exceeded
$100,000,000.
1.68. "Federal Funds Rate" means, for any day, the rate equal to the weighted
------------------
average (rounded upward to the nearest 1/8%) of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
federal funds brokers, (a) as such weighted average is published for such day
(or, if such day is not a Banking Day, for the immediately preceding Banking
Day) by the Federal Reserve Bank of New York or (b) if such rate is not so
published for such Banking Day, as determined by the Agent using any reasonable
means of determination. Each determination by the Agent of the Federal Funds
Rate shall, in the absence of demonstrable error, be conclusive.
1.69. "Final Maturity Date" means December 31, 2001.
-------------------
1.70. "Financial Officer" of the Company (or other specified Person) means
-----------------
its chief executive officer, chief financial officer, chief operating officer,
chairman, president, treasurer or any of its vice presidents whose primary
responsibility is for its financial affairs, all of whose incumbency and
signatures have been certified to the Agent by the secretary or other
appropriate attesting officer of the Company (or such specified Person).
1.71. "Financing Debt" means each of the items described in clauses (a)
--------------
through (f) of the definition of the term "Indebtedness".
-12-
<PAGE>
1.72. "Foreign Trade Regulations" means (a) any act that prohibits or
-------------------------
restricts, or empowers the President or any executive agency of the United
States of America to prohibit or restrict, exports to or financial transactions
with any foreign country or foreign national, (b) the regulations with respect
to certain prohibited foreign trade transactions set forth at 22 C.F.R. Parts
120-130 and 31 C.F.R. Part 500 and (c) any order, regulation, ruling,
interpretation, direction, instruction or notice relating to any of the
foregoing.
1.73. "Funded Debt" means all Indebtedness of the Company or other specified
-----------
Person which is payable more than one year from the date of creation thereof and
shall include (a) current maturities of such Indebtedness and (b) all
Indebtedness consisting of reimbursement obligations with respect to letters of
credit other than letters of credit issued to finance inventory purchases or to
secure other debt appearing on the balance sheet of the obligor.
1.74. "Funding Liability" means (a) any Eurodollar deposit which was used (or
-----------------
deemed by Section 3.2.6 to have been used) to fund any portion of the Loan
subject to a Eurodollar Pricing Option, and (b) any portion of the Loan subject
to a Eurodollar Pricing Option funded (or deemed by Section 3.2.6 to have been
funded) with the proceeds of any such Eurodollar deposit.
1.75. "GAAP" means generally accepted accounting principles as from time to
----
time in effect, including the statements and interpretations of the United
States Financial Accounting Standards Board and any predecessor or successor
entity.
1.76. "Guarantee" means, with respect to the Company (or other specified
---------
Person):
(a) any guarantee by the Company (or such specified Person), of the
payment or performance of, or any contingent obligation by the Company (or
such specified Person), in respect of, any Indebtedness or other obligation of
any primary obligor;
(b) any other arrangement whereby credit is extended to a primary
obligor on the basis of any promise or undertaking of the Company (or such
specified Person), including any binding "comfort letter" or "keep well
agreement" written by the Company (or such specified Person), to a creditor
or prospective creditor of such primary obligor, to (i) pay the Indebtedness
of such primary obligor, (ii) purchase an obligation owed by such primary
obligor, (iii) pay for the purchase or lease of assets or services regardless
of the actual delivery thereof or (iv) maintain the capital, working capital,
solvency or general financial condition of such primary obligor;
(c) any liability of the Company (or such specified Person), as a
general partner of a partnership in respect of Indebtedness or other
obligations of such partnership;
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<PAGE>
(d) any liability of the Company (or such specified Person) as a
joint venturer of a joint venture in respect of Indebtedness or other
obligations of such joint venture; and
(e) reimbursement obligations of the Company (or such specified
Person) with respect to letters of credit, bankers acceptances, surety bonds,
other financial guarantees and Interest Rate Protection Agreements,
whether or not any of the foregoing are reflected on the balance sheet of the
Company (or such specified Person) or in a footnote thereto; provided, however,
-------- -------
that the term "Guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any Guarantee and the
amount of Indebtedness resulting from such Guarantee shall be the maximum amount
that the guarantor may become obligated to pay in respect of the obligations
(whether or not such obligations are outstanding at the time of computation).
1.77. "Guarantor" means each Subsidiary listed on the signature page hereto
---------
or which subsequently becomes party to this Agreement as a Guarantor.
1.78. "Hazardous Material" means any pollutant, toxic or hazardous material
------------------
or waste, including any "hazardous substance" or "pollutant" or "contaminant" as
defined in section 101(14) of CERCLA or any other Environmental Law or regulated
as toxic or hazardous under RCRA or any other Environmental Law.
1.79. "Indebtedness" means all obligations, contingent or otherwise, which in
------------
accordance with GAAP are required to be classified upon the balance sheet of the
Company (or other specified Person) as liabilities, but in any event including
(without duplication):
(a) borrowed money;
(b) indebtedness evidenced by notes, debentures or similar
instruments;
(c) Capitalized Lease Obligations;
(d) the deferred purchase price of assets or securities, including
related noncompetition, consulting and stock repurchase obligations (other
than ordinary trade accounts payable within six months after the incurrence
thereof in the ordinary course of business);
(e) mandatory redemption or dividend obligations on capital stock (or
other equity);
-14-
<PAGE>
(f) reimbursement obligations with respect to letters of credit,
bankers acceptances, surety bonds, other financial guarantees and Interest
Rate Protection Agreements;
(g) unfunded pension liabilities;
(h) obligations that are immediately and directly due and payable out
of the proceeds of or production from property;
(i) liabilities secured by any Lien existing on property owned or
acquired by the Company (or such specified Person), whether or not the
liability secured thereby shall have been assumed; and
(j) all Guarantees in respect of Indebtedness of others.
1.80. "Indemnified Party" is defined in Section 11.2.
-----------------
1.81. "Initial Closing Date" means December 20, 1996 or such other date prior
--------------------
to January 31, 1997 agreed to by the Company and the Agent as the first Closing
Date hereunder.
1.82. "Interest Rate Protection Agreement" means any interest rate swap,
----------------------------------
interest rate cap, interest rate hedge or other contractual arrangement that
converts variable interest rates into fixed interest rates, fixed interest rates
into variable interest rates or other similar arrangements.
1.83. "Investment" means, with respect to the Company (or other specified
----------
Person):
(a) any share of capital stock, partnership or other equity interest,
evidence of Indebtedness or other security issued by any other Person to the
Company (or such other specified Person);
(b) any loan, advance or extension of credit to, or contribution to
the capital of, any other Person;
(c) any Guarantee of the Indebtedness of any other Person;
(d) any acquisition of all or any part of the business of any other
Person or the assets comprising such business or part thereof; and
(e) any other similar investment.
The investments described in the foregoing clauses (a) through (e) shall be
included in the term "Investment" whether they are made or acquired by purchase,
exchange, issuance of
-15-
<PAGE>
stock or other securities, merger, reorganization or any other method; provided,
--------
however, that the term "Investment" shall not include (i) current trade and
- -------
customer accounts receivable for property leased, goods furnished or services
rendered in the ordinary course of business and payable in accordance with
customary trade terms, (ii) advances and prepayments to suppliers for property
leased, goods furnished and services rendered in the ordinary course of
business, (iii) advances to employees for travel expenses, drawing accounts and
similar expenditures, (iv) stock or other securities acquired in connection with
the satisfaction or enforcement of Indebtedness or claims due to the Company (or
such specified Person) or as security for any such Indebtedness or claim or (v)
demand deposits in banks or similar financial institutions.
In determining the amount of outstanding Investments:
(A) the amount of any Investment shall be the cost thereof minus any
-----
returns of capital in cash on such Investment (determined in accordance with
GAAP without regard to amounts realized as income on such Investment);
(B) the amount of any Investment in respect of a purchase described in
clause (d) above shall be increased by the amount of any Indebtedness assumed in
connection with such purchase or secured by any asset acquired in such purchase
(whether or not any Indebtedness is assumed) or for which any Person that
becomes a Subsidiary is liable on the date on which the securities of such
Person are acquired; and
(C) no Investment shall be increased as the result of an increase in
the undistributed retained earnings of the Person in which the Investment was
made or decreased as a result of an equity interest in the losses of such
Person.
1.84. "Legal Requirement" means any present or future requirement imposed
-----------------
upon any of the Lenders or the Company and its Subsidiaries by any law, statute,
rule, regulation, directive, order, decree, guideline (or any interpretation
thereof by courts or of administrative bodies) of the United States of America,
or any jurisdiction in which any Eurodollar Office is located or any state or
political subdivision of any of the foregoing, or by any board, governmental or
administrative agency, central bank or monetary authority of the United States
of America, any jurisdiction in which any Eurodollar Office is located, or any
political subdivision of any of the foregoing. Any such requirement imposed on
any of the Lenders not having the force of law shall be deemed to be a Legal
Requirement if such Lender reasonably believes that compliance therewith is in
the best interest of such Lender.
1.85. "Lender" means each of the Persons listed as lenders on the signature
------
page hereto, including Bank of Boston in its capacity as a Lender and such other
Persons who may from time to time own a Percentage Interest in the Credit
Obligations, but the term "Lender" shall not include any Credit Participant.
-16-
<PAGE>
1.86. "Lending Officer" means such individuals whom the Agent may designate
---------------
by notice to the Company from time to time as an officer who may receive
telephone requests for borrowings under Sections 2.1.3, 2.2.3 and 2.3.3.
1.87. "Letter of Credit" is defined in Section 2.4.1.
----------------
1.88. "Letter of Credit Exposure" means, at any date, the sum of (a) the
-------------------------
aggregate face amount of all drafts that may then or thereafter be presented by
beneficiaries under all Letters of Credit then outstanding, plus (b) the
----
aggregate face amount of all drafts that the Letter of Credit Issuer has
previously accepted under Letters of Credit but has not paid.
1.89. "Letter of Credit Fee Rate" means:
-------------------------
(a) on any date on which the Leverage Ratio is less than 25%, three-
quarters of one percent (3/4%);
(b) on any date on which the Leverage Ratio is equal to or greater
than 25% and less than 35%, seven-eighths of one percent (7/8%);
(c) on any date on which the Leverage Ratio is equal to or greater
than 35% and less than 45%, one and one-eighth percent (1 1/8%);
(d) on any date on which the Leverage Ratio is equal to or greater
than 45% and less than 55%, one and three-eighths percent (1 3/8%); and
(e) on any date on which the Leverage Ratio is equal to or greater
than 55%, one and five-eighths percent (1 5/8%).
For purposes of calculating the Letter of Credit Fee Rate, (i) the Leverage
Ratio shall be determined as at the end of the most recent January, April, July
or October for which financial statements have been furnished (or are required
to have been furnished) by the Company to the Lenders pursuant to Section 6.4.1,
6.4.2 or 7.2.1(c) and (ii) any adjustment in the Letter of Credit Fee Rate shall
be prospective and shall take effect on the fifth Business Day following the
date upon which the financial statements referred to in the foregoing clause
(i) are furnished (or are required to be furnished) by the Company to the
Lenders pursuant to Section 6.4.1 or 6.4.2.
1.90. "Letter of Credit Issuer" means, for any Letter of Credit, Bank of
-----------------------
Boston or, in the event Bank of Boston does not for any reason issue a requested
Letter of Credit, another Lender designated by the Agent to issue such Letter of
Credit in accordance with Section 2.4.
1.91. "Leverage Ratio" means on any date the quotient, expressed as a
--------------
percentage, equal to the Consolidated Funded Debt of the Company and its
Subsidiaries divided by the Consolidated Net Tangible Assets of the Company and
its Subsidiaries.
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<PAGE>
1.92. "Lien" means, with respect to the Company (or any other specified
----
Person):
(a) Any lien, encumbrance, mortgage, pledge, charge or security
interest of any kind upon any property or assets of the Company (or such
specified Person), whether now owned or hereafter acquired, or upon the income
or profits therefrom;
(b) The acquisition of, or the agreement to acquire, any property or
asset upon conditional sale or subject to any other title retention agreement,
device or arrangement (including a Capitalized Lease);
(c) The sale, assignment, pledge or transfer for security of any
accounts, general intangibles or chattel paper of the Company (or such
specified Person), with or without recourse;
(d) The transfer of any tangible property or assets for the purpose
of subjecting such items to the payment of previously outstanding Indebtedness
in priority to payment of the general creditors of the Company (or such
specified Person); and
(e) The existence for a period of more than 120 consecutive days of
any Indebtedness against the Company (or such specified Person) which if
unpaid would by law or upon a Bankruptcy Default be given any priority over
general creditors.
1.93. "Loan" means the aggregate outstanding amount of the Working Capital
----
Revolving Loan, the Acquisition Revolving Loan and the Reducing Revolving Loan,
as applicable.
1.94. "Loan Account" means each Working Capital Revolving Loan Account,
------------
Acquisition Revolving Loan Account and Reducing Revolving Loan Account, as
applicable.
1.95. "Margin Stock" means "margin stock" within the meaning of Regulations
------------
G, T, U or X of the Board of Governors of the Federal Reserve System.
1.96. "Material Adverse Change" means, since any specified date or from the
-----------------------
circumstances existing immediately prior to the happening of any specified
event, a material adverse change in the business, assets, financial condition or
income of the Company and its Subsidiaries on a Consolidated basis, whether as a
result of (a) general economic conditions affecting the petroleum industry, (b)
difficulties in obtaining supplies and raw materials, (c) fire, flood or other
natural calamities, (d) environmental pollution, (e) regulatory changes,
judicial decisions, war or other governmental action or (f) any other event or
development, whether or not related to those enumerated above.
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<PAGE>
1.97. "Material Adverse Effect" means a material adverse effect on the
-----------------------
business, assets, financial condition or income of the Company and its
Subsidiaries on a Consolidated basis.
1.98. "Material Agreements" is defined in Section 7.2.2.
-------------------
1.99. "Maximum Amount of Acquisition Credit" is defined in Section 2.2.2.
------------------------------------
1.100. "Maximum Amount of Credit" means (a) prior to the Facility Conversion
------------------------
Date the sum of the Maximum Amount of Acquisition Credit and the Maximum Amount
of Working Capital Revolving Credit and (b) on and after the Facility Conversion
Date the Maximum Amount of Reducing Revolving Credit.
1.101. "Maximum Amount of Reducing Revolving Credit" is defined in Section
-------------------------------------------
2.3.2.
1.102. "Maximum Amount of Working Capital Revolving Credit" is defined in
--------------------------------------------------
Section 2.1.2.
1.103. "Multiemployer Plan" means any Plan that is a "multiemployer plan" as
------------------
defined in section 4001(a)(3) of ERISA.
1.104. "Nonperforming Lender" is defined in Section 12.4.4.
--------------------
1.105. "Notes" means the Working Capital Revolving Notes, the Acquisition
-----
Revolving Notes, the Acquisition Term Notes and the Reducing Revolving Notes, as
applicable.
1.106. "Obligor" means the Company, each Guarantor and each Person
-------
guaranteeing, providing collateral for or subordinating obligations to, the
Credit Obligations.
1.107. "Open Position" means any difference (whether positive or negative)
-------------
between (a) the number of barrels of petroleum product the Company and its
Subsidiaries hold in inventory or have contracted to buy and (b) the number of
barrels of petroleum product the Company and its Subsidiaries have contracted to
sell.
1.108. "OSHA" means the federal Occupational Health and Safety Act.
----
1.109. "Overdue Rate" is defined in Section 3.1.
------------
1.110. "Payment Date" means the last Banking Day of each calendar month
------------
occurring after the Initial Closing Date.
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<PAGE>
1.111. "PBGC" means the Pension Benefit Guaranty Corporation or any
----
successor entity.
1.112. "Percentage Interest" means (a) at all times when no Event of Default
-------------------
under Section 8.1.1 and no Bankruptcy Defaults exists, the ratio that the
respective Commitments of the Lenders bear to the total Commitments of all
Lenders as from time to time in effect and reflected in the Register, and (b) at
all other times, the ratio that the respective amounts of the outstanding Credit
Obligations owing to the Lenders in respect of extensions of credit under
Section 2 to the total outstanding Credit Obligations owing to all Lenders.
1.113. "Performing Lender" is defined in Section 12.4.4.
-----------------
1.114. "Person" means any present or future natural person or any
------
corporation, association, partnership, joint venture, limited liability, joint
stock or other company, business trust, trust, organization, business or
government or any governmental agency or political subdivision thereof.
1.115. "Plan" means, at any date, any pension benefit plan subject to Title
----
IV of ERISA maintained, or to which contributions have been made or are required
to be made, by any ERISA Group Person within six years prior to such date.
1.116. "Pledged Indebtedness" is defined in Section 10.1.3.
--------------------
1.117. "Pledged Rights" is defined in Section 10.1.2.
--------------
1.118. "Pledged Securities" means the Pledged Stock, the Pledged Rights and
------------------
the Pledged Indebtedness, collectively.
1.119. "Pledged Stock" is defined in Section 10.1.1.
-------------
1.120. "RCRA" means the federal Resource Conservation and Recovery Act, 42
----
U.S.C. (S) 690, et seq.
-- ---
1.121. "Reducing Revolving Loan" is defined in Section 2.3.4.
-----------------------
1.122. "Reducing Revolving Loan Account" is defined in Section 2.3.4.
-------------------------------
1.123. "Reducing Revolving Notes" is defined in Section 2.3.4.
------------------------
1.124. "Reference Lender" means Bank of Boston.
----------------
1.125. "Register" is defined in Section 13.1.3.
--------
1.126. "Replacement Lender" is defined in Section 13.3.
------------------
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1.127. "Required Lenders" means, with respect to any approval, consent,
----------------
modification, waiver or other action to be taken by the Agent or the Lenders
under the Credit Documents which require action by the Required Lenders, such
Lenders as own at least 51% of the Percentage Interests; provided, however, that
-------- -------
with respect to any matters referred to in the proviso to Section 12.6, Required
Lenders means such Lenders as own at least the respective portions of the
Percentage Interests required by Section 12.6.
1.128. "Securities Act" means the federal Securities Act of 1933.
--------------
1.129. "Subordinated Debentures" is defined in Section 6.6.10.
-----------------------
1.130. "Subordinated Debentures Agreement" is defined in Section 7.2.2.
---------------------------------
1.131. "Subordinated Debentures Guarantee" is defined in Section 6.7.5.
---------------------------------
1.132. "Subsidiary" means any Person of which the Company (or other
----------
specified Person) shall at the time, directly or indirectly through one or more
of its Subsidiaries, (a) own more than 50% of the outstanding capital stock (or
other shares of beneficial interest) entitled to vote generally or (b) hold more
than 50% of the partnership, joint venture or similar interests.
1.133. "Tax" means any present or future tax, levy, duty, impost, deduction,
---
withholding or other charges of whatever nature at any time required by any
Legal Requirement (a) to be paid by any Lender or (b) to be withheld or deducted
from any payment otherwise required hereby to be made to any Lender, in each
case on or with respect to its obligations hereunder, the Loan, any payment in
respect of the Credit Obligations or any Funding Liability not included in the
foregoing; provided, however, that the term "Tax" shall not include any
-------- -------
franchise tax or taxes imposed upon or measured by the gross or net income of
such Lender (or withholding taxes with respect to such taxes).
1.134. "UCC" means the Uniform Commercial Code as in effect in Massachusetts
---
on the date hereof; provided, however, that with respect to the perfection of
-------- -------
the Agent's Lien in the Credit Security and the effect of nonperfection thereof,
the term "UCC" means the Uniform Commercial Code as in effect in any
jurisdiction the laws of which are made applicable by Section 9-103 of the
Uniform Commercial Code as in effect in Massachusetts.
1.135. "Uniform Customs and Practice" is defined in Section 2.4.7.
----------------------------
1.136. "United States Funds" means such coin or currency of the United
-------------------
States of America as at the time shall be legal tender therein for the payment
of public and private debts.
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1.137. "Wholly Owned Subsidiary" means any Subsidiary of which all of the
-----------------------
outstanding capital stock (or other shares of beneficial interest) entitled to
vote generally (other than directors' qualifying shares) is owned by the Company
(or other specified Person) directly, or indirectly through one or more Wholly
Owned Subsidiaries.
1.138. "Working Capital Revolving Loan" is defined in Section 2.1.4.
------------------------------
1.139. "Working Capital Revolving Loan Account" is defined in Section 2.1.4.
--------------------------------------
1.140. "Working Capital Revolving Notes" is defined in Section 2.1.4.
-------------------------------
2. The Credits.
-----------
2.1. Working Capital Revolving Credit.
--------------------------------
2.1.1. Working Capital Revolving Loan. Subject to all the terms and
------------------------------
conditions of this Agreement and so long as no Default exists, from time to time
on and after the Initial Closing Date and prior to the earlier to occur of (i)
the Facility Conversion Date and (ii) the Final Maturity Date the Lenders will,
severally in accordance with their respective Percentage Interests, make loans
to the Company in such amounts as may be requested by the Company in accordance
with Section 2.1.3. The sum of the aggregate principal amount of loans made
under this Section 2.1.1 at any one time outstanding plus the Letter of Credit
----
Exposure shall in no event exceed the Maximum Amount of Working Capital
Revolving Credit. In no event will the principal amount of loans at any one
time outstanding made by any Lender pursuant to this Section 2.1 exceed such
Lender's Commitment.
2.1.2. Maximum Amount of Working Capital Revolving Credit. The term
--------------------------------------------------
"Maximum Amount of Working Capital Revolving Credit" means the lesser of (a)
- ---------------------------------------------------
$45,000,000 or (b) the amount (in an integral multiple of $1,000,000 equal to or
greater than $5,000,000) to which the then applicable amount set forth in clause
(a) shall have been irrevocably reduced from time to time by notice from the
Company to the Agent; provided, however, that on and after the Facility
Conversion Date the Maximum Amount of Working Capital Revolving Credit shall be
zero.
2.1.3. Borrowing Requests. The Company may from time to time request a
------------------
loan under Section 2.1.1 by providing to the Agent a notice (which may be given
by a telephone call received by a Lending Officer if promptly confirmed in
writing). Such notice must be not later than 2:00 p.m. (Boston time) on the same
Banking Day as the requested Closing Date for such loan (third Banking Day prior
to the requested Closing Date of such loan if any portion of such loan will be
subject to a Eurodollar Pricing Option on the requested Closing Date). The
notice must specify (a) the amount of the requested loan (which shall be not
less than $500,000 and an integral multiple of $100,000) and (b) the requested
Closing Date therefor (which shall be a Banking Day).
-22-
<PAGE>
Upon receipt of such notice, the Agent will promptly inform each other
Lender (by telephone or otherwise). Each such loan will be made at the
Boston Office by depositing the amount thereof to the general account of the
Company with the Agent. In connection with each such loan, the Company shall
furnish to the Agent a certificate in substantially the form of Exhibit
5.2.1.
2.1.4. Working Capital Revolving Loan Account; Working Capital
-------------------------------------------------------
Revolving Notes. The Agent will establish on its books a loan account for
---------------
the Company (the "Working Capital Revolving Loan Account") which the Agent
--------------------------------------
shall administer as follows: (a) the Agent shall add to the Working Capital
Revolving Loan Account, and the Working Capital Revolving Loan Account shall
evidence, the principal amount of all loans from time to time made by the
Lenders to the Company pursuant to Section 2.1.1 and (b) the Agent shall
reduce the Working Capital Revolving Loan Account by the amount of all
payments made on account of the Indebtedness evidenced by the Working
Capital Revolving Loan Account. The aggregate principal amount of the
Indebtedness evidenced by the Working Capital Revolving Loan Account is
referred to as the "Working Capital Revolving Loan". The Working Capital
------------------------------
Revolving Loan shall be deemed owed to each Lender severally in accordance
with such Lender's Percentage Interest, and all payments credited to the
Working Capital Revolving Loan Account shall be for the account of each
Lender in accordance with its Percentage Interest. The Company's obligations
to pay each Lender's Percentage Interest in the Working Capital Revolving
Loan shall be evidenced by a separate note of the Company in substantially
the form of Exhibit 2.1.4 (the "Working Capital Revolving Notes"), payable
-------------------------------
to each Lender in maximum principal amount equal to such Lender's Percentage
Interest in the Working Capital Revolving Loan.
2.2. Acquisition Credit.
------------------
2.2.1. Acquisition Revolving Loan. Subject to all the terms and
--------------------------
conditions of this Agreement and so long as no Default exists, from time to
time on and after the Initial Closing Date and prior to the earlier to occur
of (i) the Facility Conversion Date and (ii) the Acquisition Loan Conversion
Date the Lenders will, severally in accordance with their respective
Percentage Interests, make loans to the Company in such amounts as may be
requested by the Company in accordance with Section 2.2.3. The sum of the
aggregate principal amount of loans made under this Section 2.2.1 at any one
time outstanding shall in no event exceed the Maximum Amount of Acquisition
Credit. In no event will the principal amount of loans at any one time
outstanding made by any Lender pursuant to this Section 2.2 exceed such
Lender's Commitment.
2.2.2. Maximum Amount of Acquisition Credit. The term "Maximum Amount
------------------------------------ --------------
of Acquisition Credit" means the lesser of (a) $85,000,000 or (b) the amount
---------------------
(in an integral multiple of $1,000,000 equal to or greater than $5,000,000)
to which the
-23-
<PAGE>
then applicable amount set forth in clause (a) shall have been irrevocably
reduced from time to time by notice from the Company to the Agent; provided,
however, that on the date of any Capital Market Transaction the Maximum
Amount of Acquisition Credit shall be reduced by an amount equal to proceeds
(net of costs of issuance) realized by the Company from such Capital Markets
Transaction, but in no event greater than $45,000,00; and provided, further,
that on and after the Facility Conversion Date the Maximum Amount of
Acquisition Credit shall be zero and that on and after the Acquisition Loan
Conversion Date the Maximum Amount of Acquisition Credit shall be the then-
outstanding principal amount of the Acquisition Term Loan.
2.2.3. Borrowing Requests. The Company may from time to time request a
------------------
loan under Section 2.2.1 by providing to the Agent a notice (which may be
given by a telephone call received by a Lending Officer if promptly
confirmed in writing). Such notice must be not later than noon (Boston time)
on the first Banking Day (third Banking Day if any portion of such loan will
be subject to a Eurodollar Pricing Option on the requested Closing Date)
prior to the requested Closing Date for such loan. The notice must specify
(a) the amount of the requested loan (which shall be not less than $500,000
and an integral multiple of $100,000) and (b) the requested Closing Date
therefor (which shall be a Banking Day). Upon receipt of such notice, the
Agent will promptly inform each other Lender (by telephone or otherwise).
Each such loan will be made at the Boston Office by depositing the amount
thereof to the general account of the Company with the Agent. In connection
with each such loan, the Company shall furnish to the Agent a certificate in
substantially the form of Exhibit 5.2.1.
2.2.4. Acquisition Revolving Loan Account; Acquisition Revolving
---------------------------------------------------------
Notes. The Agent will establish on its books a loan account for the Company
-----
(the "Acquisition Revolving Loan Account") which the Agent shall administer
----------------------------------
as follows: (a) the Agent shall add to the Acquisition Revolving Loan
Account, and the Acquisition Revolving Loan Account shall evidence, the
principal amount of all loans from time to time made by the Lenders to the
Company pursuant to Section 2.2.1 and (b) the Agent shall reduce the
Acquisition Revolving Loan Account by the amount of all payments made on
account of the Indebtedness evidenced by the Acquisition Revolving Loan
Account. The aggregate principal amount of the Indebtedness evidenced by the
Acquisition Revolving Loan Account is referred to as the "Acquisition
-----------
Revolving Loan". The Acquisition Revolving Loan shall be deemed owed to each
--------------
Lender severally in accordance with such Lender's Percentage Interest, and
all payments credited to the Acquisition Revolving Loan Account shall be for
the account of each Lender in accordance with its Percentage Interest. The
Company's obligations to pay each Lender's Percentage Interest in the
Acquisition Revolving Loan shall be evidenced by a separate note of the
Company in substantially the form of Exhibit 2.2.4 (the "Acquisition
-----------
Revolving Notes"),payable to each Lender in maximum principal amount equal
---------------
to such Lender's Percentage Interest in the Acquisition Revolving Loan.
-24-
<PAGE>
2.2.5. Acquisition Term Loan. Subject to all the terms and conditions
---------------------
of this Agreement and so long as no Default exists, on the Acquisition Loan
Conversion Date the Lenders will, in accordance with their respective
Percentage Interests, severally lend to the Company as a term loan, such
aggregate amount (not in excess of the principal amount of the Acquisition
Revolving Loan outstanding on such date) as the Company may request by not
less than four Banking Days prior written notice to the Agent. The aggregate
principal amount of the loans made pursuant to this Section 2.2.5 at any one
time outstanding is referred to as the "Acquisition Term Loan". In
---------------------
connection with the Acquisition Term Loan, the Company shall furnish to the
Agent a certificate in substantially the form of Exhibit 2.2.5(a). The
Acquisition Term Loan shall be made at the Boston Office by crediting the
amount of such loan to the Acquisition Revolving Loan Account against
delivery to the Agent of the separate term notes of the Company (the
"Acquisition Term Notes") payable to the respective Lenders. The Acquisition
----------------------
Term Note issued to each Lender shall be in a principal amount equal to such
Lender's Percentage Interest in the Acquisition Term Loan, and shall be in
substantially the form of Exhibit 2.2.5(b).
2.3. Reducing Revolving Credit.
-------------------------
2.3.1. Reducing Revolving Loan. Subject to all the terms and
-----------------------
conditions of this Agreement and so long as no Default exists, from time to
time on and after the Facility Conversion Date and prior to the Final
Maturity Date the Lenders will, severally in accordance with their
respective Percentage Interests, make loans to the Company in such amounts
as may be requested by the Company in accordance with Section 2.3.3. The sum
of the aggregate principal amount of loans made under this Section 2.3.1 at
any one time outstanding plus the Letter of Credit Exposure shall in no
----
event exceed the Maximum Amount of Reducing Revolving Credit. In no event
will the principal amount of loans at any one time outstanding made by any
Lender pursuant to this Section 2.1 exceed such Lender's Commitment.
2.3.2. Maximum Amount of Reducing Revolving Credit. The term "Maximum
------------------------------------------- -------
Amount of Reducing Revolving Credit" means the lesser of (a) $85,000,000 or
-----------------------------------
(b) the amount (in an integral multiple of $1,000,000 equal to or greater
than $5,000,000) to which the then applicable amount set forth in clause (a)
shall have been irrevocably reduced from time to time by notice from the
Company to the Agent; provided, however, that on March 31, 2000 and on the
last day of each June, September, December and March thereafter the Maximum
Amount of Reducing Revolving Credit shall be reduced to the amount provided
below next to each such date:
-25-
<PAGE>
<TABLE>
<CAPTION>
Maximum Amount
of Reducing
Date Revolving Credit
---- ----------------
<S> <C>
March 31, 2000 $81,875,000
June 30, 2000 $78,750,000
September 30, 2000 $75,625,000
December 31, 2000 $72,500,000
March 31, 2001 $69,375,000
June 30, 2001 $66,250,000
September 30, 2001 $63,125,000
December 31, 2001 -0-
</TABLE>
2.3.3. Borrowing Requests. The Company may from time to time request
------------------
a loan under Section 2.3.1 by providing to the Agent a notice (which may be
given by a telephone call received by a Lending Officer if promptly
confirmed in writing). Such notice must be not later than 2:00 p.m. (Boston
time) on the same Banking Day as the requested Closing Date for such loan
(third Banking Day prior to the requested Closing Date if any portion of
such loan will be subject to a Eurodollar Pricing Option on the requested
Closing Date). The notice must specify (a) the amount of the requested loan
(which shall be not less than $500,000 and an integral multiple of $100,000)
and (b) the requested Closing Date therefor (which shall be a Banking Day).
Upon receipt of such notice, the Agent will promptly inform each other
Lender (by telephone or otherwise). Each such loan will be made at the
Boston Office by depositing the amount thereof to the general account of the
Company with the Agent. In connection with each such loan, the Company shall
furnish to the Agent a certificate in substantially the form of Exhibit
5.2.1.
2.3.4. Reducing Revolving Loan Account; Reducing Revolving Notes. The
---------------------------------------------------------
Agent will establish on its books a loan account for the Company (the
"Reducing Revolving Loan Account") which the Agent shall administer as
-------------------------------
follows: (a) the Agent shall add to the Reducing Revolving Loan Account, and
the Reducing Revolving Loan Account shall evidence, the principal amount of
all loans from time to time made by the Lenders to the Company pursuant to
Section 2.3.1 and (b) the Agent shall reduce the Reducing Revolving Loan
Account by the amount of all payments made on account of the Indebtedness
evidenced by the Reducing Revolving Loan Account. The aggregate principal
amount of the Indebtedness evidenced by the Reducing Revolving Loan Account
is referred to as the "Reducing Revolving Loan". The Reducing Revolving Loan
-----------------------
shall be deemed owed to each Lender severally in accordance with such
Lender's Percentage Interest, and all payments credited to the Reducing
Revolving Loan Account shall be for the account of each Lender in accordance
with its Percentage Interest. The Company's obligations to pay each Lender's
Percentage Interest in the Reducing Revolving Loan shall be evidenced by a
separate note of the Company in substantially the form of Exhibit 2.3.4 (the
"Reducing Revolving Notes"), payable to each Lender in maximum principal
------------------------
amount equal to such Lender's Percentage Interest in the Reducing Revolving
Loan, which shall be delivered to the Agent on or prior to the Facility
Conversion Date.
-26-
<PAGE>
2.4. Letters of Credit.
-----------------
2.4.1. Issuance of Letters of Credit. Subject to all the terms and
-----------------------------
conditions of this Agreement and so long as no Default exists, from time to
time on and after the Initial Closing Date and prior to the Final Maturity
Date, the Letter of Credit Issuer will issue for the account of the Company
or, if the Company shall so direct, for the account of any Guarantor one or
more irrevocable documentary or standby letters of credit (the "Letters of
----------
Credit"); provided, that the sum of the Letter of Credit Exposure plus the
------
Working Capital Revolving Loan shall in no event exceed the Maximum Amount
of Working Capital Revolving Credit and that the sum of the Letter of Credit
Exposure plus the Reducing Revolving Loan shall in no event exceed the
Maximum Amount of Reducing Revolving Credit; and provided, further that from
and after the Facility Conversion Date the Letter of Credit Exposure at no
time shall exceed $45,000,000.
2.4.2. Requests for Letters of Credit. The Company may from time to
------------------------------
time request a Letter of Credit to be issued by providing to the Letter of
Credit Issuer (and the Agent if the Letter of Credit Issuer is not the
Agent) a notice which is actually received not less than two Banking Days
prior to the requested Closing Date for such Letter of Credit specifying (a)
the amount of the requested Letter of Credit, (b) the beneficiary thereof,
(c) the requested Closing Date and (d) the principal terms of the text for
such Letter of Credit. Each Letter of Credit will be issued by forwarding it
to the Company or to such other Person as directed in writing by the
Company, with a copy to the Company. In connection with the issuance of any
Letter of Credit, the Company shall furnish to the Letter of Credit Issuer
(and the Agent if the Letter of Credit Issuer is not the Agent) a
certificate in substantially the form of Exhibit 5.2.1 and any customary
application forms required by the Letter of Credit Issuer.
2.4.3. Form and Expiration of Letters of Credit. Each Letter of Credit
----------------------------------------
issued under this Section 2.4 and each draft accepted or paid under such a
Letter of Credit shall be issued, accepted or paid, as the case may be, by
the Letter of Credit Issuer at its principal office. No Letter of Credit
shall provide for the payment of drafts drawn thereunder, and no draft shall
be payable, at a date which is later than the earlier of (a) the date twelve
months after the date of issuance or (b) the Final Maturity Date. Each
Letter of Credit and each draft accepted under a Letter of Credit shall be
in such form as is generally acceptable in the petroleum industry, shall be
in such amount as the Letter of Credit Issuer and the Company may agree upon
at the time such Letter of Credit is issued and shall include a requirement
of not less than three Banking Days after presentation of a draft before
payment must be made thereunder.
2.4.4. Lenders' Participation in Letters of Credit. Upon the issuance
-------------------------------------------
of any Letter of Credit, a participation therein, in an amount equal to each
Lender's Percentage Interest, shall automatically be deemed granted by the
Letter of Credit Issuer to each Lender on the date of such issuance and the
Lenders shall automatically
-27-
<PAGE>
be obligated, as set forth in Section 12.4, to reimburse the Letter of
Credit Issuer to the extent of their respective Percentage Interests for all
obligations incurred by the Letter of Credit Issuer to third parties in
respect of such Letter of Credit not reimbursed by the Company. The Letter
of Credit Issuer will send to each Lender (and the Agent if the Letter of
Credit Issuer is not the Agent) a confirmation regarding the participations
in Letters of Credit outstanding during such month.
2.4.5. Presentation. The Letter of Credit Issuer may accept or pay
------------
any draft presented to it, regardless of when drawn and whether or not
negotiated, if such draft, the other required documents and any transmittal
advice are presented to the Letter of Credit Issuer and dated on or before
the expiration date of the Letter of Credit under which such draft is drawn.
Except insofar as instructions actually received may be given by the Company
in writing expressly to the contrary with regard to, and prior to, the
Letter of Credit Issuer's issuance of any Letter of Credit for the account
of the Company and such contrary instructions are reflected in such Letter
of Credit, the Letter of Credit Issuer may honor as complying with the terms
of the Letter of Credit and with this Agreement any drafts or other
documents otherwise in order signed or issued by an administrator, executor,
conservator, trustee in bankruptcy, debtor in possession, assignee for
benefit of creditors, liquidator, receiver or other legal representative of
the party authorized under such Letter of Credit to draw or issue such
drafts or other documents. Within two Banking Days following the
presentation of a draft under any Letter of Credit, the Letter of Credit
Issuer shall give notice thereof to the Company, which notice shall be
accompanied by copies of the draft and all documents presented therewith.
2.4.6. Payment of Drafts. At such time as a Letter of Credit Issuer
-----------------
makes any payment on a draft presented or accepted under a Letter of Credit,
the Company will on demand pay to such Letter of Credit Issuer in
immediately available funds the amount of such payment. Unless the Company
shall otherwise pay to the Letter of Credit Issuer the amount required by
the foregoing sentence, (a) any such amount paid prior to the Facility
Conversion Date and the Final Maturity Date shall be considered a loan under
Section 2.1.1 and part of the Working Capital Revolving Loan and (b) any
such amount paid on or after the Facility Conversion Date and prior to the
Final Maturity Date shall be considered a loan under Section 2.3.1 and part
of the Reducing Revolving Loan. So long as no Default shall exist or be
created thereby, the addition of such amount to the Working Capital
Revolving Loan or the Reducing Revolving Loan, as the case may be, pursuant
to the preceding sentence shall constitute payment for the purposes of this
Section 2.4.6.
2.4.7. Uniform Customs and Practice. The Uniform Customs and
----------------------------
Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500, and any subsequent revisions thereof approved
by a Congress of the International Chamber of Commerce and adhered to by the
Letter of Credit Issuer (the "Uniform Customs and Practice"), shall be
----------------------------
binding on the Company and the Letter
-28-
<PAGE>
of Credit Issuer except to the extent otherwise provided herein, in any
Letter of Credit or in any other Credit Document. Anything in the Uniform
Customs and Practice to the contrary notwithstanding:
(a) Neither the Company nor any beneficiary of any Letter of Credit
shall be deemed an agent of any Letter of Credit Issuer.
(b) With respect to each Letter of Credit, neither the Letter of
Credit Issuer nor its correspondents shall be responsible for or shall have
any duty to ascertain:
(i) the genuineness of any signature;
(ii) the validity, form, sufficiency, accuracy, genuineness or
legal effect of any endorsements;
(iii) delay in giving, or failure to give, notice of arrival,
notice of refusal of documents or of discrepancies in respect of
which any Letter of Credit Issuer refuses the documents or any other
notice, demand or protest;
(iv) the performance by any beneficiary under any Letter of
Credit of such beneficiary's obligations to the Company;
(v) inaccuracy in any notice received by the Letter of Credit
Issuer;
(vi) the validity, form, sufficiency, accuracy, genuineness or
legal effect of any instrument, draft, certificate or other document
required by such Letter of Credit to be presented before payment of a
draft, or the office held by or the authority of any Person signing
any of the same; or
(vii) failure of any instrument to bear any reference or adequate
reference to such Letter of Credit, or failure of any Person to note
the amount of any instrument on the reverse of such Letter of Credit
or to surrender such Letter of Credit or to forward documents in the
manner required by such Letter of Credit.
(c) The occurrence of any of the events referred to in the Uniform
Customs and Practice or in the preceding clauses of this Section 2.4.7 shall
not affect or prevent the vesting of any of the Letter of Credit Issuer's
rights or powers hereunder or the Company's obligation to make reimbursement
of amounts paid under any Letter of Credit or any draft accepted thereunder.
(d) Upon receipt, the Company will promptly examine (i) each Letter
of Credit (and any amendments thereof) sent to it by the Letter of Credit
Issuer and (ii) all instruments and documents delivered to it from time to
time by the Letter of Credit
-29-
<PAGE>
Issuer. The Company will notify the Letter of Credit Issuer of any claim of
noncompliance by notice actually received within 36 hours (excluding hours
included in non-Banking Days) after receipt of any of the foregoing
documents, the Company being conclusively deemed to have waived any such
claim against such Letter of Credit Issuer and its correspondents unless
such notice is given.
(e) In the event of any conflict between the provisions of this
Agreement and the Uniform Customs and Practice, the provisions of this
Agreement shall govern.
2.4.8. Subrogation. Upon any payment by a Letter of Credit Issuer
-----------
under any Letter of Credit and until the reimbursement of such Letter of
Credit Issuer by the Company with respect to such payment as provided in
Section 2.4.6, the Letter of Credit Issuer shall be entitled to be
subrogated to, and to acquire and retain, the rights which the Person to
whom such payment is made may have against the Company, all for the benefit
of the Lenders. The Company will take such action as the Letter of Credit
Issuer may reasonably request, including requesting the beneficiary of any
Letter of Credit to execute such documents as the Letter of Credit Issuer
may reasonably request, to assure and confirm to the Letter of Credit Issuer
such subrogation and such rights, including the rights, if any, of the
beneficiary to whom such payment is made in accounts receivable, inventory
and other properties and assets of any Obligor.
2.4.9. Modification, Consent, etc. If the Company requests or
--------------------------
consents in writing to any modification or extension of any Letter of
Credit, or waives in writing any failure of any draft, certificate or other
document to comply with the terms of such Letter of Credit, and if the
Letter of Credit Issuer consents thereto, the Letter of Credit Issuer shall
be entitled to rely on such request, consent or waiver. This Agreement shall
be binding upon the Company with respect to such Letter of Credit as so
modified or extended, and with respect to any action taken or omitted by
such Letter of Credit Issuer pursuant to any such request, consent or
waiver.
2.5. Application of Proceeds.
-----------------------
2.5.1. Working Capital Revolving Loan. Subject to Section 2.5.6, the
------------------------------
Company will apply the proceeds of the Working Capital Revolving Loan for
working capital and other lawful corporate purposes of the Company and its
Subsidiaries.
2.5.2. Acquisition Revolving Loan. Subject to Section 2.5.6, the
--------------------------
Company will apply the proceeds of the Acquisition Revolving Loan for the
purpose of funding the purchase on the Initial Closing Date of the Assets
(as defined therein) under the Acquisition Agreement and for other
acquisitions permitted under Sections 6.9.1, 6.9.5 and 6.9.7 and for capital
expenditures incurred on any date commencing six months prior to the Initial
Closing Date pursuant to the Company's then-current capital expenditure plan
furnished to the Lenders under Section 6.4.4(a) or 7.2.1(d).
-30-
<PAGE>
2.5.3. Acquisition Term Loan. The Company will apply the proceeds of
---------------------
the Acquisition Term Loan solely to pay principal of the Acquisition
Revolving Loan outstanding on the Acquisition Loan Conversion Date.
2.5.4. Reducing Revolving Loan. Subject to Section 2.5.6, the
-----------------------
Company will apply the proceeds of the Reducing Revolving Loan to pay
principal of and interest on the Working Capital Revolving Loan and/or the
Acquisition Revolving Loan outstanding on the Facility Conversion Date and
for working capital and other lawful corporate purposes of the Company and
its Subsidiaries.
2.5.5. Letters of Credit. Letters of Credit shall be issued only for
-----------------
such lawful corporate purposes as the Company has requested in writing.
2.5.6. Specifically Prohibited Applications. The Company will not,
------------------------------------
directly or indirectly, apply any part of the proceeds of any extension of
credit made pursuant to the Credit Documents to purchase or to carry Margin
Stock or to any transaction prohibited by the Foreign Trade Regulations, by
other Legal Requirements applicable to the Lenders or by the Credit
Documents.
2.6. Nature of Obligations of Lenders to Make Extensions of Credit. The
-------------------------------------------------------------
Lenders' obligations to extend credit under this Agreement are several and are
not joint or joint and several. If on any Closing Date any Lender shall fail to
perform its obligations under this Agreement, the aggregate amount of
Commitments to make the extensions of credit under this Agreement shall be
reduced by the amount of unborrowed Commitment of the Lender so failing to
perform and the Percentage Interests shall be appropriately adjusted. Lenders
that have not failed to perform their obligations to make the extensions of
credit contemplated by Section 2 may, if any such Lender so desires, assume, in
such proportions as such Lenders may agree, the obligations of any Lender who
has so failed and the Percentage Interests shall be appropriately adjusted. The
provisions of this Section 2.6 shall not affect the rights of the Company
against any Lender failing to perform its obligations hereunder.
3. Interest; Eurodollar Pricing Options; Fees.
------------------------------------------
3.1. Interest. The Loan shall accrue and bear interest at a rate per annum
--------
which shall at all times equal the Applicable Rate. Prior to any stated or
accelerated maturity of the Loan, the Company will, on each Payment Date, pay
the accrued and unpaid interest on the portion of the Loan which was not subject
to a Eurodollar Pricing Option. On the last day of each Eurodollar Interest
Period or on any earlier termination of any Eurodollar Pricing Option, the
Company will pay the accrued and unpaid interest on the portion of the Loan
which was subject to the Eurodollar Pricing Option which expired or terminated
on such date. In the case of any Eurodollar Interest Period longer than three
months, the Company will also pay the accrued and unpaid interest on the portion
of the Loan subject to the Eurodollar Pricing Option having such Eurodollar
Interest Period at three-month intervals, the first such
-31-
<PAGE>
payment to be made on the last Banking Day of the three-month period which
begins on the first day of such Eurodollar Interest Period. On the stated or any
accelerated maturity of the Loan, the Company will pay all accrued and unpaid
interest on the Loan, including any accrued and unpaid interest on any portion
of the Loan which is subject to a Eurodollar Pricing Option. In addition, the
Company will on demand pay interest on any overdue installments of principal
and, to the extent not prohibited by applicable law, on any overdue installments
of interest, fees and any other overdue amounts owed under any Credit Document a
rate per annum equal to the sum of 2% plus the highest Applicable Rate then in
----
effect (the "Overdue Rate"). All payments of interest hereunder shall be made to
------------
the Agent for the account of each Lender in accordance with such Lender's
Percentage Interest.
3.2. Eurodollar Pricing Options.
--------------------------
3.2.1. Election of Eurodollar Pricing Options. Subject to all of the
--------------------------------------
terms and conditions hereof and so long as no Default exists, the Company may
from time to time, by irrevocable notice to the Agent actually received not
less than three Banking Days prior to the commencement of the Eurodollar
Interest Period selected in such notice, elect to have such portion of the Loan
as the Company may specify in such notice accrue and bear interest during the
Eurodollar Interest Period so selected at the Applicable Rate computed on the
basis of the Eurodollar Rate. No such election shall become effective:
(a) if, prior to the commencement of any such Eurodollar Interest
Period, the Agent determines that (i) the electing or granting of the
Eurodollar Pricing Option in question would violate a Legal Requirement, (ii)
Eurodollar deposits in an amount comparable to the principal amount of the Loan
as to which such Eurodollar Pricing Option has been elected and which have a
term corresponding to the proposed Eurodollar Interest Period are not readily
available in the inter-bank Eurodollar market, or (iii) by reason of
circumstances affecting the inter-bank Eurodollar market, adequate and
reasonable methods do not exist for ascertaining the interest rate applicable
to such deposits for the proposed Eurodollar Interest Period; or
(b) if any Lender shall have advised the Agent by telephone or
otherwise at or prior to noon (Boston time) on the second Banking Day prior to
the commencement of such proposed Eurodollar Interest Period (and shall have
subsequently confirmed in writing) that, after reasonable efforts to determine
the availability of such Eurodollar deposits, such Lender reasonably
anticipates that Eurodollar deposits in an amount equal to the Percentage
Interest of such Lender in the portion of the Loan as to which such Eurodollar
Pricing Option has been elected and which have a term corresponding to the
Eurodollar Interest Period in question will not be offered in the Eurodollar
market to such Lender.
3.2.2. Notice to Lenders and Company. The Agent will promptly inform
-----------------------------
each Lender (by telephone or otherwise) of each notice received by it from the
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Company pursuant to Section 3.2.1 and of the Eurodollar Interest Period
specified in such notice. Upon determination by the Agent of the Eurodollar
Rate for such Eurodollar Interest Period or in the event such election shall
not become effective, the Agent will promptly notify the Company and each
Lender (by telephone or otherwise) of the Eurodollar Rate so determined or why
such election did not become effective, as the case may be.
3.2.3. Selection of Eurodollar Interest Periods. Eurodollar Interest
----------------------------------------
Periods shall be selected so that:
(a) the minimum portion of the Loan subject to any Eurodollar Pricing
Option shall be $1,000,000 and an integral multiple of $500,000;
(b) no more than ten Eurodollar Pricing Options shall be outstanding at
any one time;
(c) a portion of each of the Reducing Revolving Loan and the
Acquisition Term Loan at least equal to the amount required to be prepaid as a
result of the scheduled reductions of the Maximum Amount Reducing Revolving
Credit pursuant to Section 2.3.2 or the scheduled mandatory prepayments of the
Acquisition Term Loan pursuant to Section 4.3 shall not be subject to a
Eurodollar Pricing Option on the date such mandatory prepayment is required to
be made;
(d) no Eurodollar Interest Period with respect to any part of the Loan
subject to a Eurodollar Pricing Option shall expire later than the Final
Maturity Date; and
(e) no Eurodollar Pricing Options longer than 30 days (except
Eurodollar Pricing Options continued from the existing credit agreement
referred to in Section 5.1.7) will be initiated prior to January 31, 1997.
If on the Facility Conversion Date all or any portion of the Working Capital
Revolving Loan or the Acquisition Revolving Loan is subject to one or more
effective Eurodollar Pricing Options, then each such Eurodollar Pricing Option
shall apply to an equal amount of the Reducing Revolving Loan until the
expiration of the Eurodollar Interest Period for such Eurodollar Pricing
Option; provided, that if the aggregate principal amount of the Working Capital
Revolving Loan and the Acquisition Revolving Loan subject to Eurodollar Pricing
Options extending past the Facility Conversion Date exceeds the initial
principal amount of the Reducing Revolving Loan, then the Eurodollar Pricing
Options selected to be continued shall be selected by the Company in inverse
order of the expiration dates of their Eurodollar Interest Periods. If on the
Acquisition Loan Conversion Date all or any portion of the Acquisition
Revolving Loan is subject to one or more effective Eurodollar Pricing Option,
then each such Eurodollar Pricing Option shall apply to an equal amount of the
Acquisition Term Loan
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<PAGE>
until the expiration of the Eurodollar Interest Period for such Eurodollar
Pricing Option.
3.2.4. Additional Interest. If any portion of the Loan subject to a
-------------------
Eurodollar Pricing Option is repaid, or any Eurodollar Pricing Option is
terminated for any reason (including acceleration of maturity), on a date which
is prior to the last Banking Day of the Eurodollar Interest Period applicable
to such Eurodollar Pricing Option, the Company will pay to the Agent for the
account of each Lender in accordance with such Lender's Percentage Interest, in
addition to any amounts of interest otherwise payable hereunder, an amount
equal to the present value (calculated in accordance with this Section 3.2.4)
of interest for the unexpired portion of such Eurodollar Interest Period on the
portion of the Loan so repaid, or as to which a Eurodollar Pricing Option was
so terminated, at a per annum rate equal to the excess, if any, of (a) the rate
applicable to such Eurodollar Pricing Option minus (b) the lowest rate of
-----
interest obtainable by the Agent upon the purchase of debt securities
customarily issued by the Treasury of the United States of America which have a
maturity date approximating the last Banking Day of such Eurodollar Interest
Period. The present value of such additional interest shall be calculated by
discounting the amount of such interest for each day in the unexpired portion
of such Eurodollar Interest Period from such day to the date of such repayment
or termination at a per annum interest rate equal to the interest rate
determined pursuant to clause (b) of the preceding sentence, and by adding all
such amounts for all such days during such period. The determination by the
Agent of such amount of interest shall, in the absence of demonstrable error,
be conclusive. For purposes of this Section 3.2.4, if any portion of the Loan
which was to have been subject to a Eurodollar Pricing Option is not
outstanding on the first day of the Eurodollar Interest Period applicable to
such Eurodollar Pricing Option other than for reasons described in Section
3.2.1, the Company shall be deemed to have terminated such Eurodollar Pricing
Option.
3.2.5. Violation of Legal Requirements. If any Legal Requirement shall
-------------------------------
prevent any Lender from funding or maintaining through the purchase of deposits
in the interbank Eurodollar market any portion of the Loan subject to a
Eurodollar Pricing Option or otherwise from giving effect to such Lender's
obligations as contemplated by Section 3.2, (a) the Agent may by notice to the
Company describing such Legal Requirement terminate all of the affected
Eurodollar Pricing Options, (b) the portion of the Loan subject to such
terminated Eurodollar Pricing Options shall immediately bear interest
thereafter at the Applicable Rate computed on the basis of the Base Rate and
(c) the Company shall make any payment required by Section 3.2.4.
3.2.6. Funding Procedure. The Lenders may fund any portion of the Loan
-----------------
subject to a Eurodollar Pricing Option out of any funds available to the
Lenders. Regardless of the source of the funds actually used by any of the
Lenders to fund any portion of the Loan subject to a Eurodollar Pricing Option,
however, all amounts payable hereunder, including the interest rate applicable
to any such portion of the
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<PAGE>
Loan and the amounts payable under Sections 3.2.4, 3.5, 3.6, 3.7 and 3.8, shall
be computed as if each Lender had actually funded such Lender's Percentage
Interest in such portion of the Loan through the purchase of deposits in such
amount of the type by which the Eurodollar Basic Rate was determined with a
maturity the same as the applicable Eurodollar Interest Period relating thereto
and through the transfer of such deposits from an office of the Lender having
the same location as the applicable Eurodollar Office to one of such Lender's
offices in the United States of America.
3.3. Commitment Fees. In consideration of the Lenders' commitments to make
---------------
the extensions of credit provided for in Section 2, while such commitments are
outstanding, the Company will pay to the Agent for the account of the Lenders in
accordance with the Lenders' respective Percentage Interests, on each Payment
Date and on the Final Maturity Date, an amount equal to interest computed at a
rate per annum equal to the Commitment Fee Rate on the amount by which (a) the
average daily Maximum Amount of Credit during the one-month period or portion
thereof ending on such Payment Date or, as the case may be, the Final Maturity
Date exceeded (b) the sum of (i) the average daily Loan during such period or
portion thereof plus (ii) the average daily Letter of Credit Exposure during
----
such period or portion thereof; provided, however, that the first such payment
-------- -------
shall be for the period beginning on the Initial Closing Date and ending on the
first Payment Date.
3.4. Letter of Credit Fees. The Company will pay to the Agent for the account
---------------------
of each of the Lenders, in accordance with the Lenders' respective Percentage
Interests, on each Payment Date and on the Final Maturity Date, a Letter of
Credit fee equal to interest at a rate per annum equal to the Letter of Credit
Fee Rate on the average daily Letter of Credit Exposure during the one-month
period or portion thereof ending on such Payment Date or, as the case may be,
the Final Maturity Date; provided, that if any Letter of Credit or any extension
of a Letter of Credit would produce a fee hereunder that is less than $250
during the term of such Letter of Credit or extension, the fee owing to the
Lenders hereunder with respect to such Letter of Credit or extension shall be
$250. The Company also will pay to the Letter of Credit Issuer (i) on the date
of issuance of each Letter of Credit an issuance fee of $150 with respect to
such Letter of Credit, (ii) on each Payment Date and on the Final Maturity Date,
an additional Letter of Credit fee equal to interest at the rate of one-eighth
of one percent (1/8%) per annum on the average daily Letter of Credit Exposure
during the one-month period or portion thereof ending on such Payment Date or,
as the case may be, the Final Maturity Date and (iii) as invoiced, other
customary service charges and expenses for the services of the Letter of Credit
Issuer in connection with the Letters of Credit at the times and in the amounts
from time to time in effect in accordance with its general rate structure,
including fees and expenses relating to issuance, amendment, negotiation,
cancellation and similar operations.
3.5. Reserve Requirements, etc. If any Legal Requirement shall (a) impose,
-------------------------
modify, increase or deem applicable any insurance assessment, reserve, special
deposit or similar requirement against any Funding Liability or the Letters of
Credit, (b) impose, modify, increase or deem applicable any other requirement or
condition with respect to any Funding
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<PAGE>
Liability or the Letters of Credit, or (c) change the basis of taxation of
Funding Liabilities or payments in respect of any Letter of Credit (other than
changes in the rate of taxes measured by the overall net income of such Lender)
and the effect of any of the foregoing shall be to increase the cost to any
Lender of issuing, making, funding or maintaining its respective Percentage
Interest in any portion of the Loan subject to a Eurodollar Pricing Option or
any Letter of Credit, to reduce the amounts received or receivable by such
Lender under this Agreement or to require such Lender to make any payment or
forego any amounts otherwise payable to such Lender under this Agreement, then,
within 15 days after the receipt by the Company of a certificate from such
Lender setting forth why it is claiming compensation under this Section 3.5 and
computations (in reasonable detail) of the amount thereof, the Company shall pay
to the Agent for the account of such Lender such additional amounts as are
specified by such Lender in such certificate as sufficient to compensate such
Lender for such increased cost or such reduction, together with interest at the
Overdue Rate on such amount from the 15th day after receipt of such certificate
until payment in full thereof; provided, however, that the foregoing provisions
-------- -------
shall not apply to any Tax or to any reserves which are included in computing
the Eurodollar Reserve Rate. The determination by such Lender of the amount of
such costs shall, in the absence of demonstrable error, be conclusive. The
Company shall be entitled to replace any such Lender in accordance with Section
13.3.
3.6. Taxes. All payments of the Credit Obligations shall be made without set-
-----
off or counterclaim and free and clear of any deductions, including deductions
for Taxes, unless the Company is required by law to make such deductions. If
(a) any Lender shall be subject to any Tax with respect to any payment of the
Credit Obligations or its obligations hereunder or (b) the Company shall be
required to withhold or deduct any Tax on any payment on the Credit Obligations,
within 15 days after the receipt by the Company of a certificate from such
Lender setting forth why it is claiming compensation under this Section 3.6 and
computations (in reasonable detail) of the amount thereof, the Company shall pay
to the Agent for such Lender's account such additional amount as is necessary to
enable such Lender to receive the amount of Tax so imposed on the Lender's
obligations hereunder or the full amount of all payments which it would have
received on the Credit Obligations (including amounts required to be paid under
Sections 3.5, 3.7, 3.8 and this Section 3.6) in the absence of such Tax, as the
case may be, together with interest at the Overdue Rate on such amount from the
15th day after receipt of such certificate until payment in full thereof.
Whenever Taxes must be withheld by the Company with respect to any payments of
the Credit Obligations, the Company shall promptly furnish to the Agent for the
account of the applicable Lender official receipts (to the extent that the
relevant governmental authority delivers such receipts) evidencing payment of
any such Taxes so withheld. If the Company fails to pay any such Taxes when due
or fails to remit to the Agent for the account of the applicable Lender the
required receipts evidencing payment of any such Taxes so withheld or deducted,
the Company shall indemnify the affected Lender for any incremental Taxes and
interest or penalties that may become payable by such Lender as a result of any
such failure. The determination by such Lender of the amount of such Tax and
the basis therefor shall, in the absence of demonstrable error, be conclusive.
The Company shall be entitled to replace any such Lender in accordance with
Section 13.3.
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<PAGE>
3.7. Capital Adequacy. If any Lender shall determine that compliance by such
----------------
Lender with any Legal Requirement regarding capital adequacy of banks or bank
holding companies has or would have the effect of reducing the rate of return on
such Lender's capital as a consequence of such Lender's commitment to make the
extensions of credit contemplated hereby, or such Lender's maintenance of the
extensions of credit contemplated hereby, to a level below that which such
Lender could have achieved but for such compliance (taking into consideration
such Lender's policies with respect to capital adequacy immediately before such
compliance and assuming that such Lender's capital was fully utilized prior to
such compliance) by an amount deemed by such Lender to be material, then, within
15 days after the receipt by the Company of a certificate from such Lender
setting forth why it is claiming compensation under this Section 3.7 and
computations (in reasonable detail) of the amount thereof, the Company shall
pay to the Agent for the account of such Lender such additional amounts as shall
be sufficient to compensate such Lender for such reduced return, together with
interest at the Overdue Rate on each such amount from the 15th day after receipt
of such certificate until payment in full thereof. The determination by such
Lender of the amount to be paid to it and the basis for computation thereof
shall, in the absence of demonstrable error, be conclusive. In determining such
amount, such Lender may use any reasonable averaging, allocation and attribution
methods. The Company shall be entitled to replace any such Lender in accordance
with Section 13.3.
3.8. Regulatory Changes. If any Lender shall determine that (a) any change in
------------------
any Legal Requirement (including any new Legal Requirement) after the date
hereof shall directly or indirectly (i) reduce the amount of any sum received or
receivable by such Lender with respect to the Loan or the Letters of Credit or
the return to be earned by such Lender on the Loan or the Letters of Credit,
(ii) impose a cost on such Lender or any Affiliate of such Lender that is
attributable to the making or maintaining of, or such Lender's commitment to
make, its portion of the Loan or the Letters of Credit, or (iii) require such
Lender or any Affiliate of such Lender to make any payment on, or calculated by
reference to, the gross amount of any amount received by such Lender under any
Credit Document, and (b) such reduction, increased cost or payment shall not be
fully compensated for by an adjustment in the Applicable Rate or the Letter of
Credit fees, then, within 15 days after the receipt by the Company of a
certificate from such Lender setting forth why it is claiming compensation under
this Section 3.8 and computations (in reasonable detail) of the amount thereof,
the Company shall pay to such Lender such additional amounts as such Lender
determines will, together with any adjustment in the Applicable Rate, fully
compensate for such reduction, increased cost or payment, together with interest
on such amount from the 15th day after receipt of such certificate until payment
in full thereof at the Overdue Rate. The determination by such Lender of the
amount to be paid to it and the basis for computation thereof hereunder shall,
in the absence of demonstrable error, be conclusive. In determining such
amount, such Lender may use any reasonable averaging and attribution methods.
The Company shall be entitled to replace any such Lender in accordance with
Section 13.3.
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<PAGE>
3.9. Computations of Interest and Fees. For purposes of this Agreement,
---------------------------------
interest, commitment fees and Letter of Credit fees (and any other amount
expressed as interest or such fees) shall be computed on the basis of a 360-day
year for actual days elapsed. If any payment required by this Agreement becomes
due on any day that is not a Banking Day, such payment shall, except as
otherwise provided in the Eurodollar Interest Period, be made on the next
succeeding Banking Day. If the due date for any payment of principal is
extended as a result of the immediately preceding sentence, interest shall be
payable for the time during which payment is extended at the Applicable Rate.
4. Payment.
-------
4.1. Payment at Maturity. On the Final Maturity Date or any accelerated
-------------------
maturity of the Loan, the Company will pay to the Agent for the account of the
Lenders an amount equal to the Loan then due, together with all accrued and
unpaid interest thereon and all other Credit Obligations then outstanding.
4.2. Contingent Required Prepayments.
-------------------------------
4.2.1. Excess Credit Exposure. If at any time the Working Capital
----------------------
Revolving Loan exceeds the Maximum Amount of Working Capital Revolving
Credit, the Company will within three Banking Days pay the amount of such
excess to the Agent for the account of the Lenders. If at any time the
Acquisition Revolving Loan exceeds the Maximum Amount of Acquisition
Credit, the Company will within three Banking Days pay the amount of such
excess to the Agent for the account of the Lenders. If at any time the
Reducing Revolving Loan exceeds the Maximum Amount of Reducing Revolving
Credit, the Company will within three Banking Days pay the amount of such
excess to the Agent for the account of the Lenders.
4.2.2. Letter of Credit Exposure. If at any time the Letter of
-------------------------
Credit Exposure exceeds the limits set forth in Section 2.4, the Company
will promptly pay the amount of such excess to the Agent for the account
of the Lenders to be applied as provided in Section 4.6.
4.2.3. Proceeds of Capital Market Transactions. Until the Facility
---------------------------------------
Conversion Date, upon receipt of proceeds (net of costs of issuance) of
any Capital Market Transaction, the Company shall within three Banking
Days pay to the Agent as a prepayment of the Acquisition Revolving Loan or
the Acquisition Term Loan, as the case may be, an amount equal to the
lesser of (a) the amount of such proceeds and (b) the aggregate
outstanding principal amount of the Acquisition Revolving Loan or the
Acquisition Term Loan, as the case may be, plus accrued and unpaid
interest thereon, but in no event greater than $45,000,000.
4.3. Scheduled Required Prepayments of Acquisition Term Loan. If the
-------------------------------------------------------
Acquisition Loan Conversion Date shall have occurred, then on the Payment Date
in March 2000 and
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<PAGE>
on the Payment Date in each June, September, December and March thereafter,
ending September, 2001, the Company will pay to the Agent for the account of the
Lenders as a prepayment of the Acquisition Term Loan the lesser of (a) 5% of the
principal amount of the Acquisition Term Loan outstanding on the Acquisition
Loan Conversion Date or (b) the principal amount of the Acquisition Term Loan
then outstanding.
4.4. Payment on Facility Conversion Date. On the Facility Conversion Date
-----------------------------------
the Company will pay to the Agent for the account of the Lenders an amount equal
to the sum of the outstanding principal amount of the Working Capital Revolving
Loan and the outstanding principal amount of the Acquisition Revolving Loan,
together with all accrued and unpaid interest thereon (and any amount due and
payable with respect thereto under Section 3.2.4); provided, that to the extent
that such principal is repaid from the proceeds of a borrowing on the Facility
Conversion Date of the Reducing Revolving Loan pursuant to Section 2.3, such
interest shall be payable on the next Payment Date or, in the case of portions
of the Loan subject to Eurodollar Pricing Options, on the dates provided
therefor in Section 3.1.
4.5. Voluntary Prepayments. In addition to the prepayments required by
---------------------
Sections 4.2, 4.3 and 4.4 the Company may from time to time prepay all or any
portion of the Loan (in a minimum amount of $5,000,000 and an integral multiple
of $100,000), without premium or penalty of any type (except as provided in
Section 3.2.4 with respect to the early termination of Eurodollar Pricing
Options). The Company shall give the Agent at least one Banking Day prior
notice of its intention to prepay, specifying the date of payment, the total
amount of the Loan to be paid on such date and the amount of interest to be paid
with such prepayment.
4.6. Letters of Credit. If on the stated or any accelerated maturity of
-----------------
the Credit Obligations the Lenders shall be obligated in respect of a Letter of
Credit or a draft accepted under a Letter of Credit, the Company will either:
(a) prepay such obligation by depositing with the Agent an amount
of cash, or
(b) deliver to the Agent a standby letter of credit (designating
the Agent as beneficiary and issued by a bank and on terms reasonably
acceptable to the Agent),
in each case in an amount equal to the portion of the then Letter of Credit
Exposure issued for the account of the Company. Any such cash so deposited and
the cash proceeds of any draw under any standby letter of credit so furnished,
including any interest thereon, shall be returned by the Agent to the Company
only when, and to the extent that, the amount of such cash held by the Agent
exceeds the Letter of Credit Exposure at a time when no Default exists;
provided, however, that if an Event of Default occurs and the Credit Obligations
- -------- -------
become or are declared immediately due and payable, the Agent may apply such
cash, including any interest thereon, to the payment of any of the Credit
Obligations as provided in Section 10.5.6.
4.7. Reborrowing; Application of Payments, etc.
------------------------------------------
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<PAGE>
4.7.1. Reborrowing. The amounts of the Working Capital Revolving
-----------
Loan prepaid pursuant to Section 4.2.1 or 4.5 may be reborrowed from time to
time prior to the earlier of the Facility Conversion Date and Final Maturity
Date in accordance with Section 2.1, subject to the limits set forth therein.
The amounts of the Acquisition Revolving Loan prepaid pursuant to Section 4.2.1
or 4.5 may be reborrowed from time to time prior to the earlier of the Facility
Conversion Date and the Acquisition Loan Conversion Date in accordance with
Section 2.2, subject to the limits set forth herein. The amounts of the Reducing
Revolving Loan prepaid pursuant to Section 4.2.1 or 4.5 may be reborrowed from
time to time prior to the Final Maturity Date in accordance with Section 2.3,
subject to the limits set forth therein. No portion of the Acquisition Term Loan
prepaid hereunder may be reborrowed.
4.7.2. Order of Application. Any prepayment of the Working
--------------------
Capital Revolving Loan, the Acquisition Revolving Loan, the Acquisition Term
Loan or the Reducing Revolving Loan shall be applied first to the portion
thereof not then subject to Eurodollar Pricing Options, then the balance of any
such prepayment shall be applied to the portion thereof then subject to
Eurodollar Pricing Options, in the chronological order of the respective
maturities thereof, together with any payments required by Section 3.2.4. Each
prepayment of the Acquisition Term Loan made pursuant to Section 4.2.3 shall be
applied first to the principal amount thereof due and payable on the Final
Maturity Date and then to the installments of principal required to be paid
under Section 4.3 in the inverse chronological order of maturity; and each
prepayment of the Acquisition Term Loan made pursuant to Section 4.5 shall be
applied ratably to the principal amounts due and payable on the Final Maturity
Date and to the installments of principal required to be paid under Section 4.3,
with the effect that such prepayment shall not extend or reduce the weighted
averaged life of the Acquisition Term Loan.
4.7.3. Payment with Accrued Interest, etc. Notice of prepayment
----------------------------------
having been given in accordance with Section 4.5, and whether or not notice is
given of prepayments pursuant to Section 4.2, 4.3 and 4.4 the amount specified
to be prepaid shall become due and payable on the date specified for prepayment.
4.7.4. Payments for Lenders. All payments of principal hereunder
--------------------
shall be made to the Agent for the account of the Lenders in accordance with the
Lenders' respective Percentage Interests.
5. Conditions to Extending Credit.
------------------------------
5.1. Conditions on Initial Closing Date. The obligations of the Lenders
----------------------------------
to make any extension of credit pursuant to Section 2 shall be subject to the
satisfaction, on or before the Initial Closing Date, of the conditions set forth
in this Section 5.1 as well as the further conditions in Section 5.2. If the
conditions set forth in this Section 5.1 are not met on or prior
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<PAGE>
to the Initial Closing Date, the Lenders shall have no obligation to make any
extensions of credit hereunder.
5.1.1. Revolving Notes. The Company shall have duly executed and
---------------
delivered to the Agent a Working Capital Revolving Note and an Acquisition
Revolving Note for each Lender.
5.1.2. Perfection of Security. Each Obligor shall have duly
----------------------
authorized, executed, acknowledged, delivered, filed, registered and
recorded such security agreements, notices, financing statements and other
instruments as the Agent may have requested in order to perfect the Liens
purported or required pursuant to the Credit Documents to be created in
the Credit Security.
5.1.3. Payment of Fees. The Company shall have paid to the Agent
---------------
for the account of Bank of Boston all fees required to be paid on or prior
to the Initial Closing Date pursuant to the separate agreement dated
December 18, 1996 between the Company and the Agent (the "Bank of Boston
Fee Letter") and the fees and disbursements of the Agent's special counsel
and other costs and expenses of the Agent for which statements have been
rendered on or prior to the Initial Closing Date.
5.1.4. Legal Opinions. On the Initial Closing Date, the Lenders
--------------
shall have received from the following counsel their respective opinions
with respect to the transactions contemplated by the Credit Documents,
which opinions shall be in form and substance satisfactory to the Required
Lenders:
(a) Holme Roberts & Owen LLP, special counsel for the Company.
(b) Clanahan Tanner Downing and Knowlton, general counsel for Bear
Paw Energy, Inc.
(c) Jim H. Boyd, general counsel of Continental Ozark, Inc.
(d) Ropes & Gray, special counsel for the Agent.
Each of the Company, Bear Paw Energy, Inc. and Continental Ozark,
Inc. authorizes and directs its counsel to furnish the foregoing opinions.
5.1.5. Letter of Credit Agreements. The Company shall have
executed and delivered to Bank of Boston a Master Standby Letter of Credit
Reimbursement and Security Agreement and a Trade Key (R) Services
Agreement, each in the form previously supplied by Bank of Boston to the
Company.
5.1.6. Acquisition. The transactions contemplated by the
Acquisition Agreement shall have been consummated and none of the closing
conditions in the
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<PAGE>
Acquisition Agreement to be complied with or performed by the Seller (as
defined therein) shall have been waived to any material extent without the
consent of the Agent.
5.1.7. Termination of Existing Credit Agreement. The Company
----------------------------------------
shall have paid in full all principal, interest and other accrued and
outstanding amounts under the Credit Agreement dated as of December 7,
1995 among the Company, the Subsidiaries of the Company party thereto and
Bank of Boston, all commitments to extend further credit under said Credit
Agreement shall have been terminated, all Liens securing amounts owing
under said Credit Agreement shall have been released or assigned to the
Agent to become part of the Credit Security and said Credit Agreement
shall have become terminated and of no further force or effect (except for
indemnity and similar provisions, if any, that by their terms survive the
termination of said Credit Agreement).
5.1.8. Pro Forma Balance Sheet. The Company shall have furnished
-----------------------
to the Agent the internally prepared pro forma Consolidated balance sheet
of the Company and its Subsidiaries as of October 31, 1996 and
computations by the Company in the form set forth in Exhibit 6.4.1 hereto,
demonstrating as of such date, compliance with the Computation Covenants,
certified by a Financial Officer.
5.2. Conditions to Initial Closing Date and Each Extension of Credit. The
---------------------------------------------------------------
obligations of the Lenders to make any extension of credit pursuant to Section 2
(which, for the avoidance of any doubt, shall not include any pricing election
under Section 3.2.2 with respect to any portion of the Loan that is already
outstanding) shall be subject to the satisfaction, on or before the Initial
Closing Date and on or before the Closing Date for such extension of credit, of
the following conditions:
5.2.1. Officer's Certificate. The representations and warranties
---------------------
contained in Sections 7 and 10.3 shall be true and correct on and as of
such Closing Date with the same force and effect as though made on and as
of such date (except as to any representation or warranty which refers to
a specific earlier date); provided, that the information contained in
Exhibits 7.1, 7.3 and 7.15 shall be correct as most recently supplemented,
including any supplements thereto noted in the certificate provided under
this Section 5.2.1; no Default shall exist on such Closing Date prior to
or immediately after giving effect to the requested extension of credit;
no Material Adverse Change shall have occurred and be continuing since
April 30, 1996; and the Company shall have furnished to the Agent in
connection with the requested extension of credit a certificate to these
effects, in substantially the form of Exhibit 5.2.1, signed by a Financial
Officer.
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5.2.2. Proper Proceedings. This Agreement, each other Credit
------------------
Document and the transactions contemplated hereby and thereby shall have
been authorized by all necessary corporate or other proceedings. All
necessary consents, approvals and authorizations of any governmental or
administrative agency or any other Person of any of the transactions
contemplated hereby or by any other Credit Document shall have been
obtained and shall be in full force and effect.
5.2.3. Legality, etc. The making of the requested extension of
-------------
credit shall not (a) subject any Lender to any penalty or special tax
(other than a Tax for which the Company is required to reimburse the
Lenders under Section 3.6), (b) be prohibited by any Legal Requirement or
(c) violate any credit restraint program of the executive branch of the
government of the United States of America, the Board of Governors of the
Federal Reserve System or any other governmental or administrative agency
so long as any Lender reasonably believes that compliance therewith is in
the best interests of such Lender.
5.2.4. General. All legal and corporate proceedings in connection
-------
with transactions contemplated by this Agreement shall be satisfactory in
form and substance to the Agent and the Agent shall have received copies
of all documents, including certified copies of the Charter and By-Laws of
the Company and the other Obligors, records of corporate proceedings,
certificates as to signatures and incumbency of officers and opinions of
counsel, which the Agent may have reasonably requested in connection
therewith, such documents where appropriate to be certified by proper
corporate or governmental authorities.
6. General Covenants. Each of the Company and the Guarantors covenants
-----------------
that, until all of the Credit Obligations shall have been paid in full and until
the Lenders' commitments to extend credit under this Agreement and any other
Credit Document shall have been irrevocably terminated, the Company and its
Subsidiaries will comply with the following provisions:
6.1. Taxes and Other Charges; Accounts Payable.
-----------------------------------------
6.1.1. Taxes and Other Charges. Each of the Company and its
-----------------------
Subsidiaries shall duly pay and discharge, or cause to be paid and
discharged, before the same becomes in arrears, all material taxes,
assessments and other governmental charges imposed upon such Person and
its properties, sales or activities, or upon the income or profits
therefrom, as well as all claims for labor, materials or supplies which if
unpaid might by law become a Lien upon any of its property; provided,
--------
however, that any such tax, assessment, charge or claim need not be paid
-------
if the validity or amount thereof shall at the time be contested in good
faith by appropriate proceedings and if such Person shall have set aside
on its books adequate reserves with respect thereto to the extent required
by GAAP; and provided, further, that each of the Company and its
-------- -------
Subsidiaries shall pay or bond, or cause to be paid or bonded, all such
taxes,
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assessments, charges or other governmental claims immediately upon
the commencement of proceedings to foreclose any Lien which may have
attached as security therefor (except to the extent such proceedings have
been dismissed or stayed).
6.1.2. Accounts Payable. Each of the Company and its Subsidiaries
----------------
shall promptly pay when due, or in conformity with customary trade terms,
all other material Indebtedness incident to the operations of such Person
not referred to in Section 6.1.1; provided, however, that any such
-------- -------
Indebtedness need not be paid if the validity or amount thereof shall at
the time be contested in good faith and if such Person shall have set
aside on its books adequate reserves with respect thereto to the extent
required by GAAP.
6.2. Conduct of Business, etc.
------------------------
6.2.1. Types of Business. The Company and its Subsidiaries shall
-----------------
engage principally in the business of (a) providing transportation,
terminaling and storage services for petroleum products and the
distribution, purchase and/or sale of petroleum products, (b) natural gas
gathering, processing, transmission and marketing and (c) other activities
related thereto. The Company and its Subsidiaries may engage in businesses
other than those described in the preceding sentence, provided that the
gross revenues of such other businesses in any fiscal year of the Company
shall not exceed 10% of the Consolidated gross revenues of the Company and
its Subsidiaries.
6.2.2. Maintenance of Properties. Each of the Company and its
-------------------------
Subsidiaries:
(a) shall keep its properties in such repair, working order and
condition, and shall from time to time make such repairs, replacements,
additions and improvements thereto as are necessary for the efficient
operation of its businesses and shall comply at all times in all material
respects with all material franchises, licenses and leases to which it is
party so as to prevent any loss or forfeiture thereof or thereunder,
except where failure to comply with such provisions has not resulted, and
does not create a material risk of resulting, in the aggregate in any
Material Adverse Change; and
(b) shall do all things necessary to preserve, renew and keep in
full force and effect and in good standing its legal existence and
authority necessary to continue its business; provided, however, that this
Section 6.2.2(b) shall not prevent the merger, consolidation or
liquidation of Subsidiaries permitted by Section 6.11.
6.2.3. Statutory Compliance. Each of the Company and its
--------------------
Subsidiaries shall comply in all material respects with all valid and
applicable statutes, laws, ordinances, zoning and building codes and other
rules and regulations of the United States of America, of the states and
territories thereof and their counties, municipalities and other
subdivisions and of any foreign country or other jurisdictions applicable
to such Person, except where failure so to comply with such provisions has
not resulted, and
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does not create a material risk of resulting, in the aggregate in any Material
Adverse Change.
6.2.4. Compliance with Material Agreements. Each of the Company and
-----------------------------------
its Subsidiaries shall comply in all material respects with the Material
Agreements (to the extent not in violation of the other provisions of this
Agreement or any other Credit Document). Without the prior written consent of
the Required Lenders, no Material Agreement shall be amended, modified, waived
or terminated in any manner that would have in any material respect an adverse
effect on the interests of the Lenders.
6.2.5. Trading Policy. The Company and its Subsidiaries will maintain
--------------
and follow a policy of managing petroleum inventory risk with the objective of
minimizing potentially adverse impacts on earnings arising from volatility in
refined petroleum product prices. The Lenders acknowledge that the policy
described in the Risk and Product Management Policy Statement dated December
1996 of Continental Ozark, Inc., a copy of which is attached to this Credit
Agreement as Exhibit 6.2.5, represents such a policy.
6.2.6. Subordinated Debentures. The Company shall do all things
-----------------------
necessary to assure that the Loan and all of the Credit Obligations be and
remain "Superior Indebtedness" within the meaning of Section 10 of the
Subordinated Debentures Agreement.
6.2.7. Inventory Accounting. The Company and its Subsidiaries shall
--------------------
account for their inventory on the basis of the "LIFO" method of accounting;
provided, that they may change to the "FIFO" method of inventory accounting, if
such method is then permitted by GAAP and if the provisions of Section 6.5 are
amended in such manner as the Required Lenders shall consider necessary in the
reasonable judgment to maintain the same standards of creditworthiness.
6.2.8. Inactive Subsidiaries. The Company and its Subsidiaries shall
---------------------
not make any Investment in or transfer any assets to each of K123 Corporation, a
Colorado corporation, and Republic Natural Gas Company, a Kansas corporation,
each of which is a Wholly Owned Subsidiary of the Company.
6.3. Insurance.
---------
6.3.1. Property Insurance. Each of the Company and its Subsidiaries
------------------
shall keep its assets which are of an insurable character insured by financially
sound and reputable insurers against theft and fraud and against loss or damage
by fire, explosion and hazards insured against by extended coverage to the
extent, in amounts and with deductibles at least as favorable as those generally
maintained by businesses of similar size engaged in similar activities.
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6.3.2. Liability Insurance. Each of the Company and its Subsidiaries
-------------------
shall maintain with financially sound and reputable insurers insurance against
liability for hazards, risks and liability to persons and property to the
extent, in amounts and with deductibles at least as favorable as those generally
maintained by businesses of similar size engaged in similar activities;
provided, however, that it may effect workers' compensation insurance or similar
- -------- -------
coverage with respect to operations in any particular state or other
jurisdiction through an insurance fund operated by such state or jurisdiction or
by meeting the self-insurance requirements of such state or jurisdiction.
6.4. Financial Statements and Reports. Each of the Company and its
--------------------------------
Subsidiaries shall maintain a system of accounting in accordance with generally
accepted accounting practices. The fiscal year of the Company and its
Subsidiaries shall end on April 30 in each year and the fiscal quarters of the
Company and its Subsidiaries shall end on July 31, October 31, January 31 and
April 30 in each year.
6.4.1. Annual Reports. The Company shall furnish to the Lenders as
--------------
soon as available, and in any event within 95 days after the end of each fiscal
year, the Consolidated balance sheet of the Company and its Subsidiaries as at
the end of such fiscal year, the Consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its Subsidiaries for such
fiscal year (all in reasonable detail) and together with Consolidating schedules
as of such date and for such period and, in the case of Consolidated financial
statements, comparative figures for the immediately preceding fiscal year, all
accompanied by:
(a) Unqualified reports of KPMG Peat Marwick LLP (or, if they cease to be
auditors of the Company and its Subsidiaries, other independent certified public
accountants of recognized national standing reasonably satisfactory to the
Required Lenders), containing no material uncertainty, to the effect that they
have audited the foregoing Consolidated financial statements in accordance with
generally accepted auditing standards and that such Consolidated financial
statements present fairly, in all material respects, the financial position of
the Company and its Subsidiaries covered thereby at the dates thereof and the
results of their operations for the periods covered thereby in conformity with
GAAP.
(b) The statement of such accountants that they have caused this
Agreement to be reviewed and that in the course of their audit of the Company
and its Subsidiaries no facts have come to their attention that cause them to
believe that any Default exists and in particular that they have no knowledge of
any Default under Sections 6.5 through 6.20 or, if such is not the case,
specifying such Default and the nature thereof. This statement is furnished by
such accountants with the understanding that the examination of such accountants
cannot be relied upon to give such accountants knowledge of any such Default
except as it relates to accounting or auditing matters within the scope of their
audit.
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(c) A certificate of the Company signed by a Financial Officer to the
effect that such officer has caused this Agreement to be reviewed and has no
knowledge of any Default, or if such officer has such knowledge, specifying such
Default and the nature thereof, and what action the Company has taken, is taking
or proposes to take with respect thereto.
(d) Computations by the Company in the form set forth in Exhibit 6.4.1
hereto demonstrating, as of the end of such fiscal year, compliance with the
Computation Covenants, certified by a Financial Officer.
(e) Calculations, as at the end of such fiscal year, of (i) the
Accumulated Benefit Obligations for each Plan covered by Title IV of ERISA
(other than Multiemployer Plans) and (ii) the fair market value of the assets of
such Plan allocable to such benefits.
(f) Supplements to Exhibits 7.1, 7.3 and 7.15 showing any changes in
the information set forth in such Exhibits not previously furnished to the
Lenders in writing, as well as any changes in the Charter, Bylaws or incumbency
of officers of the Company or its Subsidiaries from those previously certified
to the Agent.
6.4.2. Quarterly Reports. The Company shall furnish to the Lenders as
-----------------
soon as available and, in any event, within 50 days after the end of each of the
first three fiscal quarters of the Company, the internally prepared Consolidated
balance sheet of the Company and its Subsidiaries as of the end of such fiscal
quarter, the Consolidated statements of income, changes in shareholders' equity
and cash flows of the Company and its Subsidiaries for such fiscal quarter and
for the portion of the fiscal year then ended (all in reasonable detail) and
together with Consolidating schedules as of such date and for such period and,
in the case of Consolidated statements, comparative figures for the same period
in the preceding fiscal year, all accompanied by:
(a) A certificate of the Company signed by a Financial Officer to the
effect that such financial statements have been prepared in accordance with GAAP
and present fairly, in all material respects, the financial position of the
Company and its Subsidiaries covered thereby at the dates thereof and the
results of their operations for the periods covered thereby, subject only to
normal year-end audit adjustments and the addition of footnotes.
(b) A certificate of the Company signed by a Financial Officer to the
effect that such officer has caused this Agreement to be reviewed and has no
knowledge of any Default, or if such officer has such knowledge, specifying such
Default and the nature thereof and what action the Company has taken, is taking
or proposes to take with respect thereto.
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(c) Computations by the Company in the form set forth in Exhibit 6.4.1
hereto demonstrating, as of the end of such quarter, compliance with the
Computation Covenants, certified by a Financial Officer.
(d) Supplements to Exhibits 7.1, 7.3 and 7.15 showing any changes in the
information set forth in such Exhibits not previously furnished to the Lenders
in writing, as well as any changes in the Charter, Bylaws or incumbency of
officers of the Company and its Subsidiaries from those previously certified to
the Agent.
6.4.3. Monthly Reports. Until the Facility Conversion Date, the
---------------
Company shall furnish to the Lenders as soon as available and, in any event,
within 30 days after the end of each month, the internally prepared reports of
operations of principal Subsidiaries (including Continental Ozark, Inc., Bear
Paw Energy, Inc. and such additional Subsidiaries as the Agent and the Company
shall agree are principal Subsidiaries) in the form set forth in Exhibit 6.4.3
hereto, all accompanied by a report of the petroleum inventory position of the
Company and its Subsidiaries as of the last day of such month in the form set
forth in Exhibit 6.4.3(a) hereto.
6.4.4. Other Reports. The Company shall promptly furnish to the
-------------
Lenders:
(a) As soon as prepared and in any event within 90 days after the
beginning of each fiscal year, an annual budget and operating projections for
such fiscal year of the Company and its Subsidiaries, prepared in a manner
consistent with the manner in which the financial projections described in
Section 7.2.1 were prepared and shall include a capital expenditure plan for
such fiscal year.
(b) Any material updates of such budget and projections.
(c) Any management letters furnished to the Company or any of its
Subsidiaries by the Company's auditors.
(d) All budgets, projections, statements of operations and other reports
furnished generally to the shareholders of the Company.
(e) Such registration statements, proxy statements and reports, including
Forms S-1, S-2, S-3, 10-K, 10-Q and 8-K, as may be filed by the Company or any
of its Subsidiaries with the Securities and Exchange Commission.
(f) Any 90-day letter or 30-day letter from the federal Internal Revenue
Service (or the equivalent notice received from state or other taxing
authorities) asserting material tax deficiencies against the Company or any of
its Subsidiaries.
(g) Notice of the issuance of any Funded Debt permitted by Section 6.6.11
or 6.6.12, together with a calculation of the proceeds thereof (net of costs of
issuance) and
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<PAGE>
copies of all evidence of Indebtedness and other documentation governing such
Funded Debt.
(h) Any revised versions of the Risk and Product Management Policy
Statement referred to in Section 6.2.5.
6.4.5. Notice of Litigation. The Company shall promptly furnish to the
--------------------
Lenders notice of any litigation or any administrative or arbitration proceeding
(a) to which the Company or any of its Subsidiaries may hereafter become a party
if the damages claimed in such proceeding exceed $1,000,000 or (b) which creates
a material risk of resulting, after giving effect to any applicable insurance,
in the payment by the Company and its Subsidiaries of more than $500,000 or (c)
which results, or creates a material risk of resulting, in a Material Adverse
Change.
6.4.6. Notice of Defaults. Promptly upon acquiring knowledge thereof,
------------------
the Company shall notify the Lenders of the existence of any Default, specifying
the nature thereof and what action the Company or any Subsidiary has taken, is
taking or proposes to take with respect thereto.
6.4.7. ERISA Reports. The Company shall furnish to the Lenders as soon
-------------
as available the following items with respect to any Plan:
(a) any request for a waiver of the funding standards or an extension of
the amortization period,
(b) any reportable event (as defined in section 4043 of ERISA), unless the
notice requirement with respect thereto has been waived by regulation,
(c) any notice received by any ERISA Group Person that the PBGC has
instituted or intends to institute proceedings to terminate any Plan, or that
any Multiemployer Plan is insolvent or in reorganization,
(d) notice of the possibility of the termination of any Plan by its
administrator pursuant to section 4041 of ERISA, and
(e) notice of the intention of any ERISA Group Person to withdraw, in whole
or in part, from any Multiemployer Plan.
6.4.8. Other Information; Audit. From time to time at reasonable
------------------------
intervals upon request of the Agent or the Required Lenders, each of the Company
and its Subsidiaries shall furnish to the Lenders such other information
regarding the business, assets, financial condition, income or prospects of the
Company and its Subsidiaries as such officer may reasonably request, including
copies of all tax returns, licenses, agreements, leases and instruments to which
any of the Company or its Subsidiaries is
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<PAGE>
party. The authorized officers and representatives of the Agent shall
have the right during normal business hours upon reasonable notice and at
reasonable intervals to examine the books and records of the Company and its
Subsidiaries, to make copies and notes therefrom for the purpose of ascertaining
compliance with or obtaining enforcement of this Agreement or any other Credit
Document. The Agent, upon reasonable advance notice, may at the expense of the
Company undertake to have the Company and its Subsidiaries reviewed by the
Agent's commercial financial examiners and fixed asset appraisers; provided,
--------
that so long as no Event of Default shall have occurred and be continuing, the
Agent shall not request such reviews more than twice in any fiscal year of the
Company.
6.5. Certain Financial Tests.
-----------------------
6.5.1. Fixed Charges Coverage. On the last day of each fiscal quarter
----------------------
of the Company, the Consolidated Income from Operations of the Company and its
Subsidiaries for the period of four consecutive fiscal quarters then ended shall
equal or exceed 225% of the Consolidated interest expense of the Company and its
Subsidiaries for such period determined in accordance with GAAP.
6.5.2. Leverage Ratio. The Leverage Ratio of the Company and its
--------------
Subsidiaries shall at no time during each period specified below equal or exceed
the percentage set forth below next to such period:
Period Percentage
------ ----------
To and including April 29, 1999 65%
From and including April 30, 1999 60%
to and including April 29, 2000
April 30, 2000 and thereafter 55%.
6.5.3. Consolidated Tangible Net Worth. Consolidated Tangible Net
-------------------------------
Worth shall not at any time be less than $60,000,000; provided, however, that on
-------- -------
January 31, 1997 and on the last day of each fiscal quarter of the Company
thereafter, the then effective dollar amount in this Section 6.5.3 shall be
increased by the sum of (a) 50% of Consolidated Net Income (if positive) for the
fiscal quarter then ended plus (b) 100% of the net proceeds realized by the
Company and its Subsidiaries, calculated on a Consolidated basis in accordance
with GAAP, from the issuance of any equity securities during the fiscal quarter
then ended.
6.5.4. Current Ratio. As of the last day of each fiscal quarter of the
-------------
Company ending prior to the Facility Conversion Date, the Consolidated Current
Assets of the Company and its Subsidiaries shall equal or exceed 120% of the sum
of (a) their
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Consolidated Current Liabilities plus (b), without duplication, the sum of
the outstanding principal amount of the Working Capital Revolving Loan and
the portion, if any, of the Letter of Credit Exposure then in effect
incurred to finance inventory purchases or to secure other debt appearing
on the balance sheet of the Company and its Subsidiaries.
6.6. Indebtedness. Neither the Company nor any of its Subsidiaries shall
------------
create, incur, assume or otherwise become or remain liable with respect to any
Indebtedness except the following:
6.6.1. Indebtedness in respect of the Credit Obligations.
6.6.2. Guarantees permitted by Section 6.7.
6.6.3. Current liabilities, other than Financing Debt, incurred in
the ordinary course of business.
6.6.4. To the extent that payment thereof shall not at the time be
required by Section 6.1, Indebtedness in respect of taxes, assessments,
governmental charges and claims for labor, materials and supplies.
6.6.5. Indebtedness secured by Liens of carriers, warehouses,
mechanics and landlords permitted by Sections 6.8.5 and 6.8.6.
6.6.6. Indebtedness in respect of judgments or awards (a) which have
been in force for less than the applicable appeal period or (b) in respect of
which the Company or any Subsidiary shall at the time in good faith be
prosecuting an appeal or proceedings for review and, in the case of each of
clauses (a) and (b), the Company or such Subsidiary shall have taken appropriate
reserves therefor in accordance with GAAP and execution of such judgment or
award shall not be levied.
6.6.7. To the extent permitted by Section 6.8.9, Indebtedness in
respect of Capitalized Lease Obligations or secured by purchase money security
interests; provided, however, that (a) the aggregate principal amount of all
-------- -------
Indebtedness permitted by this Section 6.6.7 which consists of Indebtedness in
respect of Capital Lease Obligations and other Indebtedness incurred for the
acquisition of equipment shall not exceed $1,000,000 at any one time outstanding
and (b) that the aggregate principal amount of all Indebtedness permitted by
this Section 6.6.7 which consists of Indebtedness issued to sellers of any
business or part thereof or operating assets in consideration for the
acquisition thereof by the Company or a Subsidiary shall not exceed $5,000,000
at any one time outstanding.
6.6.8. Indebtedness in respect of deferred taxes arising in the
ordinary course of business.
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6.6.9. Indebtedness in respect of inter-company loans and advances
among the Company and its Subsidiaries which are not prohibited by Section
6.9.
6.6.10. Indebtedness of the Company in respect of its 12.75% Guaranteed
Senior Subordinated Debentures due December 15, 2000 (the "Subordinated
Debentures").
6.6.11. Unsecured Funded Debt of the Company which is incurred or
issued for the purpose of financing acquisitions permitted by Section 6.9.5
or 6.9.7 and/or by the last paragraph of Section 6.9 and which is
subordinated to the Credit Obligations on terms satisfactory to the Required
Lenders.
6.6.12. Unsecured Funded Debt of the Company not exceeding $75,000,000
in aggregate outstanding principal amount which is incurred for the purpose
of, and the proceeds (net of costs of issuance) of which are applied dollar-
for-dollar to, reducing the Maximum Amount of Acquisition Credit or
prepaying the Acquisition Term Loan, to the extent required by this
Agreement; provided, that the terms and conditions of such debt, including
without limitation, financial covenants, defaults, amortization and rate of
interest shall be satisfactory to the Required Lenders.
6.6.13. Unfunded pension liabilities and obligations with respect to
Plans so long as the Company is in compliance with Section 6.17.
6.6.14. Indebtedness outstanding on the date hereof and described in
Exhibit 7.3.
6.6.15. Indebtedness of the Company (other than Financing Debt) in
addition to the foregoing; provided, however, that the aggregate amount of
-------- -------
all such Indebtedness at any one time outstanding shall not exceed
$1,000,000.
6.7. Guarantees; Letters of Credit. Neither the Company nor any of its
-----------------------------
Subsidiaries shall become or remain liable with respect to any Guarantee,
including reimbursement obligations under letters of credit or other financial
guarantees by third parties, except the following:
6.7.1. Letters of Credit and Guarantees of the Credit Obligations.
6.7.2. Guarantees by the Company or its Subsidiaries of Indebtedness
incurred by any of its Subsidiaries and permitted by Section 6.6.
6.7.3. Unsecured Guarantees by Wholly Owned Subsidiaries of the Credit
Obligations or Indebtedness of the Company permitted by Sections 6.6.10 and
6.6.11, so long as such Wholly Owned Subsidiaries are Guarantors and such
Guarantees are subordinated to such Guarantors' Guarantees of the Credit
Obligations to the same
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extent and in the same manner as the Indebtedness of the Company permitted by
Sections 6.6.10 and 6.6.11.
6.7.4. Guarantees and reimbursement obligations with respect to letters
of credit issued in support of Lion Oil Company, an Arkansas corporation,
but only so long as the Investment represented thereby is permitted under
Section 6.9.6 or 6.9.7 and, if permitted by Section 6.9.7, is counted toward
the limit provided therein.
6.7.5. The unsecured Guarantee by Continental Ozark, Inc., an Arkansas
corporation, of the Subordinated Debentures pursuant to the Senior
Subordinated Debenture Guarantee dated March 28, 1991 (the "Subordinated
Debentures Guarantee") executed by such corporations.
6.8. Liens. Neither the Company nor any of its Subsidiaries shall create,
-----
incur or enter into, or suffer to be created or incurred or to exist, any Lien,
except the following:
6.8.1. Liens on the Credit Security that secure the Credit Obligations.
6.8.2. Liens to secure taxes, assessments and other governmental
charges, to the extent that payment thereof shall not at the time be
required by Section 6.1.
6.8.3. Deposits or pledges made (a) in connection with, or to secure
payment of, workers' compensation, unemployment insurance, old age pensions
or other social security, (b) in connection with casualty insurance
maintained in accordance with Section 6.3, (c) to secure the performance of
bids, tenders, contracts (other than contracts relating to Financing Debt)
or leases, (d) to secure statutory obligations or surety or appeal bonds,
(e) to secure indemnity, performance or other similar bonds in the ordinary
course of business or (f) in connection with contested amounts to the extent
that payment thereof shall not at that time be required by Section 6.1.
6.8.4. Liens in respect of judgments or awards, to the extent that such
judgments or awards are permitted by Section 6.6.6.
6.8.5. Liens of carriers, warehouses, mechanics and similar Liens, in
each case (a) in existence less than 90 days from the date of creation
thereof or (b) being contested in good faith by the Company or any
Subsidiary in appropriate proceedings (so long as the Company or such
Subsidiary shall have set aside on its books adequate reserves with respect
thereto to the extent required by GAAP).
6.8.6. Encumbrances in the nature of (a) zoning restrictions, (b)
easements, (c) restrictions of record on the use of real property, (d)
landlords' and lessors' Liens on rented premises and (e) restrictions on
transfers or assignment of leases, which in each case do not materially
detract from the value of the encumbered property or materially impair the
use thereof in the business of the Company or any Subsidiary.
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6.8.7. Restrictions under federal and state securities laws on the
transfer of securities.
6.8.8. Restrictions under Foreign Trade Regulations on the transfer or
licensing of certain assets of the Company and its Subsidiaries.
6.8.9. Liens constituting (a) purchase money security interests
(including mortgages, conditional sales, Capitalized Leases and any other
title retention or deferred purchase devices) in real property, interests in
leases or tangible personal property (other than inventory) existing or
created on the date on which such property is acquired, and (b) the renewal,
extension or refunding of any security interest referred to in the foregoing
clause (a) in an amount not to exceed the amount thereof remaining unpaid
immediately prior to such renewal, extension or refunding; provided,
--------
however, that (i) each such security interest shall attach solely to the
-------
particular item of property so acquired, and the principal amount of
Indebtedness (including Indebtedness in respect of Capitalized Lease
Obligations) secured thereby shall not exceed the cost (including all such
Indebtedness secured thereby, whether or not assumed) of such item of
property; and (ii) the aggregate principal amount of all Indebtedness
secured by Liens permitted by this Section 6.8.9 shall not exceed the amount
permitted by Section 6.6.7.
6.9. Investments and Acquisitions. Neither the Company nor any of its
----------------------------
Subsidiaries shall have outstanding, acquire, commit itself to acquire or hold
any Investment (including any Investment consisting of the acquisition of any
business) except for the following:
6.9.1. Investments of the Company and its Subsidiaries in Wholly Owned
Subsidiaries as long as such Wholly Owned Subsidiaries are or become
Guarantors; provided, that Investments consisting of all or part of a
business or operating assets shall be permitted under this Section 6.9.1 to
the extent that such business or assets shall be acquired as assets of the
Company or of a Wholly Owned Subsidiary which is or becomes a Guarantor,
including without limitation the Investment contemplated by the Acquisition
Agreement.
6.9.2. Intercompany loans and advances from any Wholly Owned Subsidiary
to the Company or other Wholly Owned Subsidiaries but in each case only to
the extent reasonably necessary for Consolidated tax planning and working
capital management.
6.9.3. Investments in Cash Equivalents.
6.9.4. Guarantees permitted by Section 6.7.
6.9.5. Investments made after the date hereof in Subsidiaries other
than Wholly Owned Subsidiaries, provided that the aggregate outstanding
amount of loans, advances
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and other Investments in such Subsidiaries, measured in each case as of the
date of the making of such Investment, shall not at any time exceed 10% of
Consolidated Net Tangible Assets.
6.9.6. Investments outstanding on the date hereof and identified in
Exhibit 7.3, in each case as said Exhibit 7.3 is in effect on the Initial
Closing Date.
6.9.7. Other Investments made after the date hereof that are not
permitted by any of the foregoing subsections of this Section 6.9, provided
that the aggregate outstanding amount of loans, advances and other
Investments of the Company and its Subsidiaries permitted under this Section
6.9.7, measured in each case as of the date of the making of such
Investment, shall not at any time exceed 10% of Consolidated Tangible Net
Worth.
In addition, the Company covenants that the Company and its Subsidiaries
shall not acquire any operating business or assets unless it shall have been
demonstrated, in a certificate of a Financial Officer, that after giving
effect to such acquisition and the financing thereof the Company and its
Subsidiaries will not suffer any Default under any Computation Covenant or
any other provision of this Agreement.
6.10. Distributions. Neither the Company nor any of its Subsidiaries shall
-------------
make any Distribution except for the following:
6.10.1. Subsidiaries of the Company may make Distributions to the
Company or any Wholly Owned Subsidiary of the Company.
6.10.2. So long as immediately before and after giving effect thereto
no Default exists, the Company may make Distributions to its stockholders;
provided that the cumulative amount distributed after October 31, 1996 shall
not exceed the sum of (a) $5,000,000 plus (b) 50% of the cumulative
Consolidated Net Income of the Company and its Subsidiaries commencing
November 1, 1996.
6.10.3. So long as immediately before and after giving effect thereto
no Default exists, the Company may make scheduled payments of interest and
principal on the Subordinated Debentures and other Funded Debt of the
Company permitted under Section 6.6.11.
6.11. Merger, Consolidation and Dispositions of Assets. Neither the Company
------------------------------------------------
nor any of its Subsidiaries shall merge or enter into a consolidation or sell,
lease, sell and lease back, sublease or otherwise dispose of any of its assets,
except the following:
6.11.1. The Company and any of its Subsidiaries may sell or otherwise
dispose of (a) inventory in the ordinary course of business, (b) tangible
assets to be replaced in the ordinary course of business within six months
by other tangible assets of equal or
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greater value and (c) tangible assets that are no longer used or useful in
the business of the Company or such Subsidiary, the fair market value (or
book value if greater) of which shall not exceed 4% of Consolidated Net
Tangible Assets of the Company and its Subsidiaries as of the last day of
the next preceding fiscal year.
6.11.2. Any Wholly Owned Subsidiary of the Company may merge or be
liquidated into the Company or any other Wholly Owned Subsidiary of the
Company so long as after giving effect to any such merger to which the
Company is a party the Company shall be the surviving or resulting Person.
6.11.3. The Company and its Subsidiaries may enter into leases (other
than Capitalized Leases) as lessor of real and tangible personal property
and rights associated therewith in the ordinary course of business.
6.11.4. Any inactive Subsidiary other than a Guarantor may be
liquidated.
6.12. Lease Obligations. Neither the Company nor any of its Subsidiaries
-----------------
shall be or become obligated as lessee under any lease except:
6.12.1. Capitalized Leases permitted by Sections 6.6.7 and 6.8.9.
6.12.2. Leases other than Capitalized Leases; provided, however,
-------- -------
that the aggregate fixed rental obligations for any fiscal year (excluding
payments required to be made by the lessee in respect of taxes and insurance
whether or not denominated as rent) shall not exceed $4,000,000 per annum.
6.13. Issuance of Stock by Subsidiaries; Subsidiary Distributions.
-----------------------------------------------------------
6.13.1. Issuance of Stock by Subsidiaries. No Subsidiary shall issue
---------------------------------
or sell any shares of its capital stock or other evidence of beneficial
ownership to any Person other than the Company or any Wholly Owned
Subsidiary of the Company, which shares shall have been pledged to the Agent
as part of the Credit Security.
6.13.2. No Restrictions on Subsidiary Distributions. Except for this
-------------------------------------------
Agreement and the Credit Documents, neither the Company nor any Subsidiary
shall enter into or be bound by any agreement (including covenants requiring
the maintenance of specified amounts of net worth or working capital)
restricting the right of any Subsidiary to make Distributions or extensions
of credit to the Company (directly or indirectly through another
Subsidiary).
6.14. [Reserved].
6.15. Derivative Contracts. Neither the Company nor any of its
--------------------
Subsidiaries shall enter into any Interest Rate Protection Agreement, foreign
currency exchange contract or other
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financial or commodity derivative contracts except to provide hedge protection
for an underlying economic transaction in the ordinary course of business.
6.16. Negative Pledge Clauses. Neither the Company nor any of its
-----------------------
Subsidiaries shall enter into any agreement, instrument, deed or lease which
prohibits or limits the ability of the Company or any of its Subsidiaries to
create, incur, assume or suffer to exist any Lien upon any of their respective
properties, assets or revenues, whether now owned or hereafter acquired, except
the following:
6.16.1. This Agreement and the other Credit Documents.
6.16.2. Covenants in documents creating Liens permitted by Section
6.8 prohibiting further Liens on the assets encumbered thereby.
6.17. ERISA, etc. Each of the Company and its Subsidiaries shall comply,
----------
and shall cause all ERISA Group Persons to comply, in all material respects,
with the provisions of ERISA and the Code applicable to each Plan. Each of the
Company and its Subsidiaries shall meet, and shall cause all ERISA Group Persons
to meet, all minimum funding requirements applicable to them with respect to any
Plan pursuant to section 302 of ERISA or section 412 of the Code, without giving
effect to any waivers of such requirements or extensions of the related
amortization periods which may be granted. At no time shall the Accumulated
Benefit Obligations under any Plan that is not a Multiemployer Plan exceed the
fair market value of the assets of such Plan allocable to such benefits by more
than $1,000,000. The Company and its Subsidiaries shall not withdraw, and shall
cause all other ERISA Group Persons not to withdraw, in whole or in part, from
any Multiemployer Plan so as to give rise to withdrawal liability exceeding
$1,000,000 in the aggregate. At no time shall the actuarial present value of
unfunded liabilities for post-employment health care benefits, whether or not
provided under a Plan, calculated in a manner consistent with Statement No. 106
of the Financial Accounting Standards Board, exceed $1,000,000.
6.18. Transactions with Affiliates. Neither the Company nor any of its
----------------------------
Subsidiaries shall effect any transaction with any of their respective
Affiliates (except for the Company and its Subsidiaries) on a basis less
favorable to the Company and its Subsidiaries than would be the case if such
transaction had been effected with a non-Affiliate.
6.19. Open Positions. The Company and its Subsidiaries may maintain Open
--------------
Positions relating to permanent base product inventory requirements (that is,
inventory needed for line-fill and tank bottom requirements and exchange
obligations) that do not exceed the amount permitted by the Risk and Product
Management Policy Statement then in effect, so long as that policy is materially
consistent with the requirements of the first sentence of Section 6.2.5.
6.20. Environmental Laws.
------------------
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6.20.1. Compliance with Law and Permits. Each of the Company and its
-------------------------------
Subsidiaries shall use and operate all of its facilities and properties in
material compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance therewith,
and handle all Hazardous Materials in material compliance with all
applicable Environmental Laws, except where any failure to so act could not,
individually or in the aggregate, have a Material Adverse Effect.
6.20.2. Notice of Claims, etc. Each of the Company and its
----------------------
Subsidiaries shall immediately notify the Agent, and provide copies upon
receipt, of all written claims, complaints, notices or inquiries from
governmental authorities relating to the condition of its facilities and
properties or compliance with Environmental Laws which could have a Material
Adverse Effect, and shall use best efforts to promptly cure and have
dismissed with prejudice to the satisfaction of the Agent any actions and
proceedings relating to compliance with Environmental Laws.
7. Representations and Warranties. In order to induce the Lenders to extend
------------------------------
credit to the Company hereunder, each of the Company and such of its
Subsidiaries as are party hereto from time to time jointly and severally
represents and warrants that, except as disclosed in the Disclosure Schedule
attached hereto as Exhibit 7:
7.1. Organization and Business.
-------------------------
7.1.1. The Company. The Company is a duly organized and validly
-----------
existing corporation, in good standing under the laws of Delaware, with all
power and authority, corporate or otherwise, necessary to (a) enter into and
perform this Agreement and each other Credit Document to which it is party,
(b) grant the Agent for the benefit of the Lenders the security interests in
the Credit Security owned by it to secure the Credit Obligations and (c) own
its properties and carry on the business now conducted or proposed to be
conducted by it. Certified copies of the Charter and By-laws of the Company
have been previously delivered to the Agent and are correct and complete.
Exhibit 7.1, as from time to time hereafter supplemented in accordance with
Sections 6.4.1 and 6.4.2, sets forth, as of the later of the date hereof or
as of the end of the most recent fiscal quarter for which financial
statements are required to be furnished in accordance with such Sections,
(i) the jurisdiction of incorporation of the Company, (ii) the address of
the Company's principal executive office and chief place of business, (iii)
each name, including any trade name, under which the Company conducts its
business and (iv) the jurisdictions in which the Company keeps tangible
personal property.
7.1.2. Subsidiaries. Each Subsidiary of the Company is duly
------------
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized, with all power and authority,
corporate or otherwise, necessary to (a) enter into and perform this
Agreement and each other Credit Document to which it is party,
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(b) guarantee the Credit Obligations, (c) grant the Lenders the security
interest in the Credit Security owned by such Subsidiary to secure the
Credit Obligations and (d) own its properties and carry on the business now
conducted or proposed to be conducted by it. Certified copies of the Charter
and By-laws of each Subsidiary of the Company have been previously delivered
to the Agent and are correct and complete. Exhibit 7.1, as from time to time
hereafter supplemented in accordance with Sections 6.4.1 and 6.4.2, sets
forth, as of the later of the date hereof or as of the end of the most
recent fiscal quarter for which financial statements are required to be
furnished in accordance with such Sections, (i) the name and jurisdiction of
organization of each Subsidiary of the Company, (ii) the address of the
chief executive office and principal place of business of each such
Subsidiary, (iii) each name under which each such Subsidiary conducts its
business, (iv) each jurisdiction in which each such Subsidiary keeps
tangible personal property, and (v) the number of authorized and issued
shares and ownership of each such Subsidiary.
7.1.3. Qualification. Each of the Company and its Subsidiaries is
-------------
duly and legally qualified to do business as a foreign corporation or other
entity and is in good standing in each state or jurisdiction in which such
qualification is required and is duly authorized, qualified and licensed
under all laws, regulations, ordinances or orders of public authorities, or
otherwise, to carry on its business in the places and in the manner in which
it is conducted, except for failures to be so qualified, authorized or
licensed which would not in the aggregate result, or create a material risk
of resulting, in any Material Adverse Change.
7.1.4. Capitalization. No options, warrants, conversion rights,
--------------
preemptive rights or other statutory or contractual rights to purchase
shares of capital stock or other securities of any Subsidiary now exist, nor
has any Subsidiary authorized any such right, nor is any Subsidiary
obligated in any other manner to issue shares of its capital stock or other
securities.
7.2. Financial Statements and Other Information; Material Agreements.
---------------------------------------------------------------
7.2.1. Financial Statements and Other Information. The Company has
------------------------------------------
previously furnished to the Lenders copies of the following:
(a) The audited Consolidated and unaudited Consolidating balance
sheets of the Company and its Subsidiaries as at April 30, 1995 and 1996 and
the audited Consolidated statements of income, changes in shareholders'
equity and cash flows of the Company and its Subsidiaries for the fiscal
years of the Company then ended.
(b) The audited Consolidated balance sheet of the Company and its
Subsidiaries as at April 30, 1994 and the audited Consolidated statements of
income, changes in shareholders' equity and cash flows of the Company and
its Subsidiaries for the seven months then ended.
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(c) The unaudited Consolidated balance sheet of the Company and its
Subsidiaries as at October 31, 1996 and the unaudited Consolidated
statements of income, changes in shareholders' equity and cash flows of the
Company and its Subsidiaries for the portion of the fiscal year then ended.
(d) The five-year financial and operational projections and current
capital expenditures plan of the Company and its Subsidiaries dated November
15, 1996.
(e) Calculations demonstrating pro forma compliance with the
Computation Covenants as of the end of the most recent month or quarter, as
applicable, preceding the date hereof.
The audited Consolidated financial statements (including the notes
thereto) referred to in clauses (a) and (b) above were prepared in
accordance with GAAP and fairly present the financial position of the
Company and its Subsidiaries on a Consolidated basis at the respective dates
thereof and the results of their operations for the periods covered thereby.
The unaudited Consolidating financial statements referred to in clause (a)
above and the unaudited Consolidated financial statements referred to in
clause (c) above were prepared in accordance with GAAP and fairly present
the financial position of the Company and its Subsidiaries at the respective
dates thereof and the results of their operations for the periods covered
thereby, subject to normal year-end audit adjustment and the addition of
footnotes in the case of interim financial statements. Neither the Company
nor any of its Subsidiaries has any known contingent liability material to
the Company and its Subsidiaries on a Consolidated basis which is not
reflected in the balance sheets referred to in clauses (a), (b) or (c) above
(or delivered pursuant to Sections 6.4.1 or 6.4.2) or in the notes thereto.
In the Company's judgment, the financial and operational projections
referred to in clause (d) above constitute a reasonable basis as of the
Initial Closing Date for the assessment of the future performance of the
Company and its Subsidiaries during the periods indicated therein, it being
understood that any projected financial information represents an estimate,
based on various assumptions, of future results of operations, which
assumption may prove to have been incorrect and which results may not in
fact occur.
7.2.2. Material Agreements. The Company has previously furnished to
-------------------
the Lenders a correct and complete copy of the Securities Purchase Agreement
dated March 28, 1991 (the "Subordinated Debentures Agreement") between the
Company's predecessor, Continental Ozark Corporation, and Dillon, Read &
Co., Inc., as nominee, and correct and complete copies, including all
exhibits, schedules and amendments thereto, of the agreements, each as in
effect on the date hereof, listed in Exhibit 7.2.2 (together with the
Subordinated Debentures, the Subordinated Debentures
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<PAGE>
Agreements) the Subordinated Debentures Guarantee and the Acquisition
Agreement, the "Material Agreements").
-------------------
7.3. Agreements Relating to Financing Debt, Investments, etc. Exhibit 7.3,
-------------------------------------------------------
as from time to time hereafter supplemented in accordance with Sections 6.4.1
and 6.4.2, sets forth (a) the amounts (as of the dates indicated in Exhibit 7.3,
as so supplemented) of all Financing Debt of the Company and its Subsidiaries
and all agreements which relate to such Financing Debt, (b) all Liens and
Guarantees with respect to such Financing Debt, (c) all agreements which
directly or indirectly require the Company or any Subsidiary to make any
Investment and (d) all Investments permitted under Section 6.9.6. The Company
has furnished the Lenders with correct and complete copies of any agreements
described in clauses (a), (b), (c) and (d) above requested by the Required
Lenders.
7.4. Changes in Condition. Since April 30, 1996 no Material Adverse Change
--------------------
has occurred and between April 30, 1996 and the date hereof, neither the Company
nor any Subsidiary of the Company has entered into any material transaction
outside the ordinary course of business except for the transactions contemplated
by this Agreement and the Material Agreements.
7.5. Title to Assets. The Company and its Subsidiaries have defensible
---------------
title to or the right to use all material assets necessary for or used in the
operations of their business as now conducted by them and reflected in the most
recent balance sheet referred to in Section 7.2.1 (or the balance sheet most
recently furnished to the Lenders pursuant to Sections 6.4.1 or 6.4.2), and to
all assets acquired subsequent to the date of such balance sheet, subject to no
Liens except for Liens permitted by Section 6.8 and except for assets disposed
of as permitted by Section 6.11.
7.6. Operations in Conformity with Law, etc. To the best knowledge of the
--------------------------------------
Company and the Guarantors, the operations of the Company and its Subsidiaries
as now conducted or proposed to be conducted are not in violation of, nor is the
Company or its Subsidiaries in default under, any Legal Requirement presently in
effect, except for such violations and defaults as do not and will not, in the
aggregate, result, or create a material risk of resulting, in any Material
Adverse Change. The Company has received no notice of any such violation or
default and has no knowledge of any basis on which the operations of the Company
or its Subsidiaries, as now conducted and as currently proposed to be conducted
after the date hereof, would be held so as to violate or to give rise to any
such violation or default.
7.7. Litigation. No litigation, at law or in equity, or any proceeding
----------
before any court, board or other governmental or administrative agency or any
arbitrator is pending or, to the knowledge of the Company or any Guarantor,
threatened which may involve any material risk of any final judgment, order or
liability which, after giving effect to any applicable insurance, has resulted,
or creates a material risk of resulting, in any Material Adverse Change or which
seeks to enjoin the consummation, or which questions the validity, of any of
the
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transactions contemplated by this Agreement or any other Credit Document. No
judgment, decree or order of any court, board or other governmental or
administrative agency or any arbitrator has been issued against or binds the
Company or any of its Subsidiaries which has resulted, or creates a material
risk of resulting, in any Material Adverse Change.
7.8. Authorization and Enforceability. Each of the Company and each other
--------------------------------
Obligor has taken all corporate action required to execute, deliver and perform
this Agreement and each other Credit Document to which it is party. No consent
of stockholders of the Company is necessary in order to authorize the execution,
delivery or performance of this Agreement or any other Credit Document to which
the Company is party. Each of this Agreement and each other Credit Document
constitutes the legal, valid and binding obligation of each Obligor party
thereto and is enforceable against such Obligor in accordance with its terms.
7.9. No Legal Obstacle to Agreements. Neither the execution and delivery of
-------------------------------
this Agreement or any other Credit Document, nor the making of any borrowings
hereunder, nor the guaranteeing of the Credit Obligations, nor the securing of
the Credit Obligations with the Credit Security, nor the consummation of any
transaction referred to in or contemplated by this Agreement or any other Credit
Document, nor the fulfillment of the terms hereof or thereof or of any other
agreement, instrument, deed or lease contemplated by this Agreement or any other
Credit Document, has constituted or resulted in or will constitute or result in:
(a) any breach or termination of the provisions of any material
agreement, instrument, deed or lease to which the Company, any of its
Subsidiaries or any other Obligor is a party or by which it is bound, or of
the Charter or By-laws of the Company, any of its Subsidiaries or any other
Obligor;
(b) the violation of any law, statute, judgment, decree or governmental
order, rule or regulation applicable to the Company, any of its Subsidiaries
or any other Obligor;
(c) the creation under any agreement, instrument, deed or lease of any
Lien (other than Liens on the Credit Security which secure the Credit
Obligations) upon any of the assets of the Company, any of its Subsidiaries
or any other Obligor; or
(d) any redemption, retirement or other repurchase obligation of the
Company, any of its Subsidiaries or any other Obligor under any Charter, By-
law, agreement, instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company, any of its Subsidiaries or any other Obligor
in connection with the execution, delivery and performance of this Agreement,
the Notes or any other Credit Document, the transactions contemplated hereby or
thereby, the making of any borrowing
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hereunder, the guaranteeing of the Credit Obligations or the securing of the
Credit Obligations with the Credit Security.
7.10. Defaults. Neither the Company nor any of its Subsidiaries is in
--------
default under any provision of its Charter or By-laws or of this Agreement or
any other Credit Document. Neither the Company nor any of its Subsidiaries is in
default under any provision of (a) the Subordinated Debentures, the Subordinated
Debentures Agreement or the Subordinated Debentures Guarantee or (b) any other
agreement, instrument, deed or lease to which it is party or by which it or its
property is bound or has violated any law, judgment, decree or governmental
order, rule or regulation, in each case referred to in this clause (b) so as to
result, or create a material risk of resulting, in any Material Adverse Effect.
7.11. Licenses, etc. To the best knowledge of the Company and the
-------------
Guarantors, the Company and its Subsidiaries have all material patents, patent
applications, patent licenses, patent rights, trademarks, trademark rights,
trade names, trade name rights, copyrights, licenses, franchises, permits,
authorizations and other rights as are necessary for the conduct of the business
of the Company and its Subsidiaries as now conducted by them. All of the
foregoing are in full force and effect in all material respects, and each of the
Company and its Subsidiaries is in substantial compliance with the foregoing
without any known conflict with the valid rights of others which has resulted,
or creates a material risk of resulting, in any Material Adverse Effect. No
event has occurred which permits, or after notice or lapse of time or both would
permit, the revocation or termination of any such license, franchise or other
right or which affects the rights of any of the Company and its Subsidiaries
thereunder so as to result, or to create a material risk of resulting, in any
Material Adverse Effect. No litigation or other proceeding or dispute exists
with respect to the validity or, where applicable, the extension or renewal, of
any of the foregoing which has resulted, or creates a material risk of
resulting, in any Material Adverse Effect.
7.12. Tax Returns. Each of the Company and its Subsidiaries has filed all
-----------
material tax and information returns or permitted extensions which are required
to be filed by it and has paid, or made adequate provision for the payment of,
all taxes which have or may become due pursuant to such returns or to any
assessment received by it. Neither the Company nor any of its Subsidiaries knows
of any material additional assessments or any basis therefor. The Company
reasonably believes that the charges, accruals and reserves on the books of the
Company and its Subsidiaries in respect of taxes or other governmental charges
are adequate.
7.13. Certain Business Representations.
--------------------------------
7.13.1. Labor Relations. No dispute or controversy between the
---------------
Company or any of its Subsidiaries and any of their respective employees has
resulted, or is reasonably likely to result, in any Material Adverse Effect,
and neither the Company nor any of its Subsidiaries anticipates that its
relationships with its unions or employees will result, or are reasonably
likely to result, in any Material Adverse Effect. The Company and each of
its Subsidiaries is in compliance in all material respects with all
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federal and state laws with respect to (a) non-discrimination in employment
with which the failure to comply, in the aggregate, has resulted, or creates
a material risk of resulting, in a Material Adverse Effect and (b) the
payment of wages.
7.13.2. Antitrust. Each of the Company and its Subsidiaries is in
---------
compliance in all material respects with all federal and state antitrust
laws relating to its business and the geographic concentration of its
business.
7.13.3. Consumer Protection. Neither the Company nor any of its
-------------------
Subsidiaries is in violation of any rule, regulation, order, or
interpretation of any rule, regulation or order of the Federal Trade
Commission (including truth-in-lending), with which the failure to comply,
in the aggregate, has resulted, or creates a material risk of resulting, in
a Material Adverse Effect.
7.13.4. Burdensome Obligations. Neither the Company nor any of its
----------------------
Subsidiaries is party to or bound by any agreement, instrument, deed or
lease or is subject to any Charter, By-law or other restriction, commitment
or requirement which, in the opinion of the management of such Person, is so
unusual or burdensome as in the foreseeable future to result, or create a
material risk of resulting, in a Material Adverse Effect.
7.13.5. Future Expenditures. Neither the Company nor any of its
-------------------
Subsidiaries anticipate that the future expenditures, if any, by the Company
and its Subsidiaries needed to meet the provisions of any federal, state or
foreign governmental statutes, orders, rules or regulations will be so
burdensome as to result, or create a material risk of resulting, in any
Material Adverse Effect.
7.14. Environmental Regulations.
-------------------------
7.14.1. Environmental Compliance. To the best knowledge of the
------------------------
Company and the Guarantors, each of the Company and its Subsidiaries is in
compliance in all material respects with the Clean Air Act, the Federal
Water Pollution Control Act, the Marine Protection Research and Sanctuaries
Act, RCRA, CERCLA and any other Environmental Law in effect in any
jurisdiction in which any properties of the Company or any of its
Subsidiaries are located or where any of them conducts its business, and
with all applicable published rules and regulations (and applicable
standards and requirements) of the federal Environmental Protection Agency
and of any similar agencies in states or foreign countries in which the
Company or its Subsidiaries conducts its business, in each case other than
those which in the aggregate have not resulted, and do not create a material
risk of resulting, in a Material Adverse Effect.
7.14.2. Environmental Litigation. Except in instances in which such
------------------------
event has not resulted, and does not create a material risk of resulting, in
a Material Adverse Effect, no suit, claim, action or proceeding of which the
Company or any of its
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Subsidiaries has been given notice or otherwise has knowledge is now pending
before any court, governmental agency or board or other forum, or to the
Company's or any of its Subsidiaries knowledge, threatened by any Person
(nor to the Company's or any of its Subsidiaries' knowledge, does any
factual basis exist therefor) for, and neither the Company nor any of its
Subsidiaries have received written correspondence from any federal, state or
local governmental authority with respect to:
(a) noncompliance by the Company or any of its Subsidiaries with any
Environmental Law;
(b) personal injury, wrongful death or other tortious conduct
relating to materials, commodities or products used, generated, sold,
transferred or manufactured by the Company or any of its Subsidiaries
(including products made of, containing or incorporating asbestos, lead or
other hazardous materials, commodities or toxic substances); or
(c) the release into the environment by the Company or any of its
Subsidiaries of any Hazardous Material generated by the Company or any of
its Subsidiaries whether or not occurring at or on a site owned, leased or
operated by the Company or any of its Subsidiaries.
7.14.3. Hazardous Material. Exhibit 7.14 contains a list as of the
------------------
date hereof of all waste disposal or dump sites at which Hazardous Material
generated by either the Company or any of its Subsidiaries has been disposed
of directly by the Company or any of its Subsidiaries and all independent
contractors to whom the Company and its Subsidiaries have delivered
Hazardous Material, or to the Company's or any of its Subsidiaries'
knowledge, where Hazardous Material finally came to be located, and
indicates all such sites which are or have been included (including as a
potential or suspect site) in any published federal, state or local
"superfund" or other list of hazardous or toxic waste sites, except sites as
to which the involvement of the Company or any Subsidiary has not resulted,
and does not present a material risk of resulting, in a Material Adverse
Effect. Any waste disposal or dump sites at which Hazardous Material
generated by either the Company or any of its Subsidiaries has been disposed
of directly by the Company or any of its Subsidiaries and all independent
contractors to whom the Company or any of its Subsidiaries have delivered
Hazardous Material, or to the Company's or any of its Subsidiaries'
knowledge, where Hazardous Material finally came to be located, has not
resulted, and does not present a material risk of resulting, in a Material
Adverse Effect.
7.14.4. Environmental Condition of Properties. None of the
-------------------------------------
properties owned or leased by the Company or any of its Subsidiaries has
been used as a treatment, storage or disposal site, other than as disclosed
in Exhibit 7.14, except sites as to which the involvement of the Company or
any Subsidiary has not resulted, and does not present a material risk of
resulting, in a Material Adverse Effect. No Hazardous
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Material is present in any real property currently or formerly owned or
operated by the Company or any of its Subsidiaries except that which has not
resulted, and does not present a material risk of resulting, in a Material
Adverse Effect.
7.15. Pension Plans. Each Plan (other than a Multiemployer Plan) and, to
-------------
the knowledge of the Company and its Subsidiaries, each Multiemployer Plan is in
material compliance with the applicable provisions of ERISA and the Code. Each
Multiemployer Plan and each Plan that constitutes a "defined benefit plan" (as
defined in ERISA) are set forth in Exhibit 7.15. Each ERISA Group Person has met
all of the funding standards applicable to all Plans that are not Multiemployer
Plans, and no condition exists which would permit the institution of proceedings
to terminate any Plan that is not a Multiemployer Plan under section 4042 of
ERISA. To the best knowledge of the Company and each Subsidiary, no Plan that is
a Multiemployer Plan is currently insolvent or in reorganization or has been
terminated within the meaning of ERISA.
7.16. [Reserved]
--------
7.17. Foreign Trade Regulations; Government Regulation; Margin Stock.
--------------------------------------------------------------
7.17.1. Foreign Trade Regulations. Neither the execution and
-------------------------
delivery of this Agreement or any other Credit Document, nor the making by
the Company of any borrowings hereunder, nor the guaranteeing of the Credit
Obligations by any Guarantor, nor the securing of the Credit Obligations
with the Credit Security, has constituted or resulted in or will constitute
or result in the violation of any Foreign Trade Regulation.
7.17.2. Government Regulation. Neither the Company nor any of its
---------------------
Subsidiaries, nor any Person controlling the Company or any of its
Subsidiaries or under common control with the Company or any of its
Subsidiaries, is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company Act, the
Interstate Commerce Act or any statute or regulation which regulates the
incurring by the Company or any of its Subsidiaries of Financing Debt as
contemplated by this Agreement and the other Credit Documents.
7.17.3. Margin Stock. Neither the Company nor any of its
------------
Subsidiaries owns any Margin Stock.
7.18. Disclosure. To the best knowledge of the Company and the Guarantors,
----------
neither this Agreement nor any other Credit Document to be furnished to the
Lenders by or on behalf of the Company or any of its Subsidiaries in connection
with the transactions contemplated hereby or by such Credit Document contains
any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein,
considered as a whole, not misleading in light of the circumstances under which
they were made. No fact is actually known to the Company or any Guarantor which,
so far as the
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Company or any Guarantor is aware, has resulted, or in the future (so far as the
Company or any Guarantor can reasonably foresee) will result, or presents a
material risk of resulting, in any Material Adverse Change, except to the extent
that present or future general economic conditions may result in a Material
Adverse Change.
8. Defaults.
--------
8.1. Events of Default. The following events are referred to as "Events of
----------------- ---------
Default":
- -------
8.1.1. Payment. The Company shall fail to make any payment in
-------
respect of: (a) interest or any fee on or in respect of any of the Credit
Obligations owed by it as the same shall become due and payable, and such
failure shall continue for a period of three Banking Days, or (b) any Credit
Obligation with respect to payments made by any Letter of Credit Issuer
under any Letter of Credit or any draft drawn thereunder within three
Banking Days after demand therefor by such Letter of Credit Issuer or (c)
principal of any of the Credit Obligations owed by it as the same shall
become due, whether at maturity or by acceleration or otherwise.
8.1.2. Specified Covenants. The Company or any of its Subsidiaries
-------------------
shall fail to perform or observe any of the provisions of Section 6.2.5,
6.4.6, 6.5 or 6.19.
8.1.3. Other Covenants. The Company, any of its Subsidiaries or any
---------------
other Obligor shall fail to perform or observe any other covenant, agreement
or provision to be performed or observed by it under this Agreement or any
other Credit Document, and such failure shall not be rectified or cured to
the written satisfaction of the Required Lenders within 30 days after the
earlier of (a) notice thereof by the Agent to the Company or (b) a Financial
Officer shall have actual knowledge thereof.
8.1.4. Representations and Warranties. Any representation or
------------------------------
warranty of or with respect to the Company, any of its Subsidiaries or any
other Obligor made to the Lenders or the Agent in, pursuant to or in
connection with this Agreement or any other Credit Document shall be
materially false on the date as of which it was made.
8.1.5. Cross Default, etc.
------------------
(a) The Company or any of its Subsidiaries shall fail to make any
payment when due (after giving effect to any applicable grace periods) in
respect of any Financing Debt (other than the Credit Obligations)
outstanding in an aggregate amount of principal (whether or not due) and
accrued interest exceeding $1,000,000, and such failure shall continue,
without having been duly cured, waived or consented to, beyond the period of
grace, if any, specified in the agreement or instrument governing such
Financing Debt;
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(b) the Company or any of its Subsidiaries shall fail to perform or
observe the terms of any agreement or instrument relating to such Financing
Debt, and such failure shall continue, without having been duly cured,
waived or consented to, beyond the period of grace, if any, specified in
such agreement or instrument, and such failure shall permit the acceleration
of such Financing Debt;
(c) all or any part of such Financing Debt of the Company or any of
its Subsidiaries shall be accelerated or shall become due or payable prior
to its stated maturity (except with respect to voluntary prepayments
thereof) for any reason whatsoever;
(d) any Lien on any property of the Company or any of its
Subsidiaries securing any such Financing Debt shall be enforced by
foreclosure or similar action; or
(e) any holder of any such Financing Debt shall exercise any right of
rescission or put right with respect thereto.
8.1.6. Ownership; Liquidation; etc. Except as permitted by Section
---------------------------
6.11:
(a) The Company shall cease to own, directly or indirectly, all the
capital stock of any Subsidiary which is a Wholly Owned Subsidiary on the
date hereof or subsequently becomes a Wholly Owned Subsidiary;
(b) any Person, together with "affiliates" and "associates" of such
Person within the meaning of Rule 12b-2 of the Exchange Act, which is not
now a beneficial owner of equity securities of the Company shall acquire
after the date hereof beneficial ownership within the meaning of Rule 13d-3
of the Exchange Act of 50% or more of either the voting stock or total
equity capital of the Company;
(c) a majority of the board of directors shall consist of individuals
who were not on the date hereof members of such board, except to the extent
that the new members were nominated by a majority of the directors serving
on the date hereof; and
(d) The Company or any of its Subsidiaries or any other Obligor shall
initiate any action to dissolve, liquidate or otherwise terminate its
existence.
8.1.7. Enforceability, etc. Any Credit Document shall cease for any
-------------------
reason (other than the scheduled termination thereof in accordance with its
terms) to be enforceable in accordance with its terms or in full force and
effect and such enforceability shall not be restored, or other provision
therefor made, to the satisfaction of the Required Lenders within 30 days
following such cessation; or any party to any Credit Document shall so
assert in a judicial or similar proceeding; or the security interests
created by this Agreement or any other Credit Documents shall cease to be
enforceable and of the same effect and priority purported to be created
hereby.
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8.1.8. Judgments. A final judgment (a) which, with other outstanding
---------
final judgments against the Company and its Subsidiaries, exceeds an
aggregate of $1,000,000 in excess of applicable insurance coverage shall be
rendered against the Company or any of its Subsidiaries, or (b) which grants
injunctive relief that results, or creates a material risk of resulting, in
a Material Adverse Change and in either case if, (i) within 60 days after
entry thereof, such judgment shall not have been discharged or execution
thereof stayed pending appeal or (ii) within 60 days after the expiration of
any such stay, such judgment shall not have been discharged.
8.1.9. ERISA. Any "reportable event" (as defined in section 4043 of
-----
ERISA) shall have occurred that reasonably could be expected to result in
termination of a Plan or the appointment by the appropriate United States
District Court of a trustee to administer any Plan or the imposition of a
Lien in favor of a Plan; or any ERISA Group Person shall fail to pay when
due amounts aggregating in excess of $1,000,000 which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of
intent to terminate a Plan shall be filed under Title IV of ERISA by any
ERISA Group Person or administrator; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate or to cause a trustee to be appointed
to administer any Plan or a proceeding shall be instituted by a fiduciary of
any Plan against any ERISA Group Person to enforce section 515 or 4219(c)(5)
of ERISA and such proceeding shall not have been dismissed within 60 days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Plan must be terminated.
8.1.10. Bankruptcy, etc. The Company, any of its Subsidiaries or any
---------------
other Obligor shall:
(a) commence a voluntary case under the Bankruptcy Code or authorize,
by appropriate proceedings of its board of directors or other governing
body, the commencement of such a voluntary case;
(b) (i) have filed against it a petition commencing an involuntary
case under the Bankruptcy Code that shall not have been dismissed within 90
days after the date on which such petition is filed, or (ii) file an answer
or other pleading within such 90-day period admitting or failing to deny the
material allegations of such a petition or seeking, consenting to or
acquiescing in the relief therein provided, or (iii) have entered against it
an order for relief in any involuntary case commenced under the Bankruptcy
Code;
(c) seek relief as a debtor under any applicable law, other than the
Bankruptcy Code, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights
of creditors, or consent to or acquiesce in such relief;
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<PAGE>
(d) have entered against it an order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or
approving its liquidation or reorganization as a debtor or any modification
or alteration of the rights of its creditors or (iii) assuming custody of,
or appointing a receiver or other custodian for, all or a substantial
portion of its property; or
(e) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint, or consent to the appointment
of, or suffer to exist a receiver or other custodian for, all or a
substantial portion of its property.
8.1.11. Subordinated Debentures. There shall occur any "Event of
-----------------------
Default" as defined in Section 13.1 of the Subordinated Debentures
Agreement, or any of the Credit Obligations shall fail to be "Superior
Indebtedness" within the meaning of Section 10 of the Subordinated
Debentures Agreement.
8.2. Certain Actions Following an Event of Default. If any one or more
---------------------------------------------
Events of Default shall occur, then in each and every such case:
8.2.1. Terminate Obligation to Extend Credit. The Agent on behalf of
-------------------------------------
the Lenders may (and upon written request of the Required Lenders the Agent
shall) terminate the obligations of the Lenders to make any further
extensions of credit under the Credit Documents by furnishing notice of such
termination to the Company.
8.2.2. Specific Performance; Exercise of Rights. The Agent on behalf
----------------------------------------
of the Lenders may (and upon written request of the Required Lenders the
Agent shall) proceed to protect and enforce the Lenders' rights by suit in
equity, action at law and/or other appropriate proceeding, either for
specific performance of any covenant or condition contained in this
Agreement or any other Credit Document or in any instrument or assignment
delivered to the Lenders pursuant to this Agreement or any other Credit
Document, or in aid of the exercise of any power granted in this Agreement
or any other Credit Document or any such instrument or assignment.
8.2.3. Acceleration. The Agent on behalf of the Lenders may (and
------------
upon written request of the Required Lenders the Agent shall) by notice in
writing to the Company (a) declare all or any part of the unpaid balance of
the Credit Obligations then outstanding to be immediately due and payable,
and (b) require the Company immediately to deposit with the Agent in cash an
amount equal to the then Letter of Credit Exposure (which cash shall be held
and applied as provided in Section 4.5), and thereupon such unpaid balance
or part thereof and such amount equal to the Letter of Credit Exposure shall
become so due and payable without presentation, protest or further demand or
notice of any kind, all of which are hereby expressly waived; provided,
--------
however, that if a Bankruptcy Default shall have occurred, the unpaid
-------
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<PAGE>
balance of the Credit Obligations shall automatically become immediately due
and payable.
8.2.4. Enforcement of Payment; Credit Security; Setoff. The Agent on
-----------------------------------------------
behalf of the Lenders may (and upon written request of the Required Lenders
the Agent shall) proceed to enforce payment of the Credit Obligations in
such manner as it may elect, to cancel, or instruct other Letter of Credit
Issuers to cancel, any outstanding Letters of Credit which permit the
cancellation thereof and to realize upon any and all rights in the Credit
Security. The Lenders may offset and apply toward the payment of the Credit
Obligations (and/or toward the curing of any Event of Default) any
Indebtedness from the Lenders to the respective Obligors, including any
Indebtedness represented by deposits in any account maintained with the
Lenders, regardless of the adequacy of any security for the Credit
Obligations. The Lenders shall have no duty to determine the adequacy of any
such security in connection with any such offset.
8.2.5. Cumulative Remedies. To the extent not prohibited by
-------------------
applicable law which cannot be waived, all of the Lenders' rights hereunder
and under each other Credit Document shall be cumulative.
8.3. Annulment of Defaults. Once an Event of Default has occurred, such
---------------------
Event of Default shall be deemed to exist and be continuing for all purposes of
the Credit Documents until the Required Lenders or the Agent (with the consent
of the Required Lenders) shall have waived such Event of Default in writing,
stated in writing that the same has been cured to such Lenders' reasonable
satisfaction or entered into an amendment to this Agreement which by its express
terms cures such Event of Default, at which time such Event of Default shall no
longer be deemed to exist or to have continued. No such action by the Lenders or
the Agent shall extend to or affect any subsequent Event of Default or impair
any rights of the Lenders upon the occurrence thereof. The making of any
extension of credit during the existence of any Default or Event of Default
shall not constitute a waiver thereof.
8.4. Waivers. To the extent that such waiver is not prohibited by the
-------
provisions of applicable law that cannot be waived, each of the Company and the
other Obligors waives:
(a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by this Agreement or any other
Credit Document), protests, notices of protest and notices of dishonor;
(b) any requirement of diligence or promptness on the part of any
Lender in the enforcement of its rights under this Agreement, the Notes or
any other Credit Document;
(c) any and all notices of every kind and description which may be
required to be given by any statute or rule of law; and
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(d) any defense (other than indefeasible payment in full) which it
may now or hereafter have with respect to its liability under this
Agreement, the Notes or any other Credit Document or with respect to the
Credit Obligations.
9. Guarantees.
----------
9.1. Guarantees of Credit Obligations. Each Guarantor unconditionally
--------------------------------
jointly and severally guarantees that the Credit Obligations will be performed
and will be paid in full in cash when due and payable, whether at the stated or
accelerated maturity thereof or otherwise, this guarantee being a guarantee of
payment and not of collectability and being absolute and in no way conditional
or contingent. In the event any part of the Credit Obligations shall not have
been so paid in full when due and payable, each Guarantor will, immediately upon
notice by the Agent or, without notice, immediately upon the occurrence of a
Bankruptcy Default, pay or cause to be paid to the Agent for the account of each
Lender in accordance with the Lenders' respective Percentage Interests the
amount of such Credit Obligations which are then due and payable and unpaid. The
obligations of each Guarantor hereunder shall not be affected by the invalidity,
unenforceability or irrecoverability of any of the Credit Obligations as against
any other Obligor, any other guarantor thereof or any other Person. For purposes
hereof, the Credit Obligations shall be due and payable when and as the same
shall be due and payable under the terms of this Agreement or any other Credit
Document notwithstanding the fact that the collection or enforcement thereof may
be stayed or enjoined under the Bankruptcy Code or other applicable law.
9.2. Continuing Obligation. Each Guarantor acknowledges that the Lenders
---------------------
and the Agent have entered into this Agreement (and, to the extent that the
Lenders or the Agent may enter into any future Credit Document, will have
entered into such agreement) in reliance on this Section 9 being a continuing
irrevocable agreement, and such Guarantor agrees that its guarantee may not be
revoked in whole or in part. The obligations of the Guarantors hereunder shall
terminate when the commitment of the Lenders to extend credit under this
Agreement shall have terminated and all of the Credit Obligations have been
indefeasibly paid in full in cash and discharged; provided, however, that:
-------- -------
(a) if a claim is made upon the Lenders at any time for repayment
or recovery of any amounts or any property received by the Lenders from
any source on account of any of the Credit Obligations and the Lenders
repay or return any amounts or property so received (including interest
thereon to the extent required to be paid by the Lenders) or
(b) if the Lenders become liable for any part of such claim by
reason of (i) any judgment or order of any court or administrative
authority having competent jurisdiction, or (ii) any settlement or
compromise of any such claim of which the Company has notice and an
opportunity to comment,
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<PAGE>
then the Guarantors shall remain liable under this Agreement for the amounts so
repaid or property so returned or the amounts for which the Lenders become
liable (such amounts being deemed part of the Credit Obligations) to the same
extent as if such amounts or property had never been received by the Lenders,
notwithstanding any termination hereof or the cancellation of any instrument or
agreement evidencing any of the Credit Obligations. Not later than five days
after receipt of notice from the Agent, the Guarantors shall jointly and
severally pay to the Agent an amount equal to the amount of such repayment or
return for which the Lenders have so become liable. Payments hereunder by a
Guarantor may be required by the Agent on any number of occasions.
9.3. Waivers with Respect to Credit Obligations. Except to the extent
------------------------------------------
expressly required by this Agreement or any other Credit Document, each
Guarantor waives, to the fullest extent permitted by the provisions of
applicable law, all of the following (including all defenses, counterclaims and
other rights of any nature based upon any of the following):
(a) presentment, demand for payment and protest of nonpayment of any of
the Credit Obligations, and notice of protest, dishonor or nonperformance;
(b) notice of acceptance of this guarantee and notice that credit has
been extended in reliance on the Guarantor's guarantee of the Credit
Obligations;
(c) notice of any Default or of any inability to enforce performance of
the obligations of the Company or any other Person with respect to any Credit
Document, or notice of any acceleration of maturity of any Credit Obligations;
(d) demand for performance or observance of, and any enforcement of any
provision of, the Credit Obligations, this Agreement or any other Credit
Document or any pursuit or exhaustion of rights or remedies with respect to
any Credit Security or against the Company or any other Person in respect of
the Credit Obligations or any requirement of diligence or promptness on the
part of the Agent or the Lenders in connection with any of the foregoing;
(e) any act or omission on the part of the Agent or the Lenders which
may impair or prejudice the rights of the Guarantor, including rights to
obtain subrogation, exoneration, contribution, indemnification or any other
reimbursement from the Company or any other Person, or otherwise operate as a
deemed release or discharge;
(f) failure or delay to perfect or continue the perfection of any
security interest in any Credit Security or any other action which harms or
impairs the value of, or any failure to preserve or protect the value of, any
Credit Security;
(g) any statute of limitations or any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount nor
in other respects more burdensome than the obligation of the principal;
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(h) any "single action" or "anti-deficiency" law which would otherwise
prevent the Lenders from bringing any action, including any claim for a
deficiency, against the Guarantor before or after the Agent's or the Lenders'
commencement or completion of any foreclosure action, whether judicially, by
exercise of power of sale or otherwise, or any other law which would otherwise
require any election of remedies by the Agent or the Lenders;
(i) all demands and notices of every kind with respect to the
foregoing; and
(j) to the extent not referred to above, all defenses (other than
payment) which the Company may now or hereafter have to the payment of the
Credit Obligations, together with all suretyship defenses, which could
otherwise be asserted by such Guarantor.
Each Guarantor represents that it has obtained the advice of counsel as to the
extent to which suretyship and other defenses may be available to it with
respect to its obligations hereunder in the absence of the waivers contained in
this Section 9.3.
No delay or omission on the part of the Agent or the Lenders in exercising any
right under this Agreement or any other Credit Document or under any guarantee
of the Credit Obligations or with respect to the Credit Security shall operate
as a waiver or relinquishment of such right. No action which the Agent or the
Lenders or the Company may take or refrain from taking with respect to the
Credit Obligations, including any amendments thereto or modifications thereof or
waivers with respect thereto, shall affect the provisions of this Agreement or
the obligations of the Guarantor hereunder. None of the Lenders' or the Agent's
rights shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of any Obligor, or by any noncompliance by the
Company with the terms, provisions and covenants of this Agreement, regardless
of any knowledge thereof which the Agent or the Lenders may have or otherwise be
charged with.
9.4. Lenders' Power to Waive, etc. Each Guarantor grants to the Lenders full
----------------------------
power in their discretion, without notice to or consent of such Guarantor, such
notice and consent being expressly waived to the fullest extent permitted by
applicable law, and without in any way affecting the liability of the Guarantor
under its guarantee hereunder:
(a) To waive compliance with, and any Default under, and to consent to
any amendment to or modification or termination of any terms or provisions of,
or to give any waiver in respect of, this Agreement, any other Credit
Document, the Credit Security, the Credit Obligations or any guarantee thereof
(each as from time to time in effect);
(b) To grant any extensions of the Credit Obligations (for any
duration), and any other indulgence with respect thereto, and to effect any
total or partial release (by
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operation of law or otherwise), discharge, compromise or settlement with
respect to the obligations of the Obligors or any other Person in respect of
the Credit Obligations, whether or not rights against the Guarantor under this
Agreement are reserved in connection therewith;
(c) To take security in any form for the Credit Obligations, and to
consent to the addition to or the substitution, exchange, release or other
disposition of, or to deal in any other manner with, any part of any property
contained in the Credit Security whether or not the property, if any, received
upon the exercise of such power shall be of a character or value the same as
or different from the character or value of any property disposed of, and to
obtain, modify or release any present or future guarantees of the Credit
Obligations and to proceed against any of the Credit Security or such
guarantees in any order;
(d) To collect or liquidate or realize upon any of the Credit
Obligations or the Credit Security in any manner or to refrain from collecting
or liquidating or realizing upon any of the Credit Obligations or the Credit
Security; and
(e) To extend credit under this Agreement, any other Credit Document or
otherwise in such amount as the Lenders may determine, including increasing
the amount of credit and the interest rate and fees with respect thereto, even
though the condition of the Obligors (financial or otherwise on an individual
or Consolidated basis) may have deteriorated since the date hereof.
9.5. Information Regarding the Company, etc. Each Guarantor has made such
--------------------------------------
investigation as it deems desirable of the risks undertaken by it in entering
into this Agreement and is fully satisfied that it understands all such risks.
Each Guarantor waives any obligation which may now or hereafter exist on the
part of the Agent or the Lenders to inform it of the risks being undertaken by
entering into this Agreement or of any changes in such risks and, from and after
the date hereof, each Guarantor undertakes to keep itself informed of such risks
and any changes therein. Each Guarantor expressly waives any duty which may now
or hereafter exist on the part of the Agent or the Lenders to disclose to the
Guarantor any matter related to the business, operations, character, collateral,
credit, condition (financial or otherwise), income or prospects of the Company
or its Affiliates or their properties or management, whether now or hereafter
known by the Agent or the Lenders. Each Guarantor represents, warrants and
agrees that it assumes sole responsibility for obtaining from the Company all
information concerning this Agreement and all other Credit Documents and all
other information as to the Company and its Affiliates or their properties or
management as such Guarantor deems necessary or desirable.
9.6. Certain Guarantor Representations. Each Guarantor represents that:
---------------------------------
(a) it is in its best interest and in pursuit of the purposes for
which it was organized as an integral part of the business conducted and
proposed to be conducted
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<PAGE>
by the Company and its Subsidiaries, and reasonably necessary and convenient
in connection with the conduct of the business conducted and proposed to be
conducted by them, to induce the Lenders to enter into this Agreement and to
extend credit to the Company by making the Guarantees contemplated by this
Section 9,
(b) the credit available hereunder will directly or indirectly inure
to its benefit,
(c) by virtue of the foregoing it is receiving at least reasonably
equivalent value from the Lenders for its Guarantee,
(d) it will not be rendered insolvent as a result of entering into
this Agreement,
(e) after giving effect to the transactions contemplated by this
Agreement, it will have assets having a fair saleable value in excess of the
amount required to pay its probable liability on its existing debts as they
become absolute and matured,
(f) it has, and will have, access to adequate capital for the conduct
of its business,
(g) it has the ability to pay its debts from time to time incurred in
connection therewith as such debts mature, and
(h) it has been advised by the Agent that the Lenders are unwilling to
enter into this Agreement unless the Guarantees contemplated by this Section 9
are given by it.
9.7. Subrogation. Each Guarantor agrees that, until the Credit Obligations
-----------
are paid in full, it will not exercise any right of reimbursement, subrogation,
contribution, offset or other claims against the other Obligors arising by
contract or operation of law in connection with any payment made or required to
be made by such Guarantor under this Agreement. After the payment in full of the
Credit Obligations, each Guarantor shall be entitled to exercise against the
Company and the other Obligors all such rights of reimbursement, subrogation,
contribution and offset, and all such other claims, to the fullest extent
permitted by law.
9.8. Subordination. Each Guarantor covenants and agrees that, after the
-------------
occurrence of an Event of Default, all Indebtedness, claims and liabilities then
or thereafter owing by the Company or any other Obligor to such Guarantor
whether arising hereunder or otherwise are subordinated to the prior payment in
full of the Credit Obligations and are so subordinated as a claim against such
Obligor or any of its assets, whether such claim be in the ordinary course of
business or in the event of voluntary or involuntary liquidation, dissolution,
insolvency or bankruptcy, so that no payment with respect to any such
Indebtedness, claim or liability will be made or received while any Event of
Default exists.
9.9. Future Subsidiaries; Further Assurances. The Company will from time to
---------------------------------------
time cause (a) any present Wholly Owned Subsidiary that is not a Guarantor
within 30 days after
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notice from the Agent or (b) any future Wholly Owned Subsidiary within 30 days
after any such Person becomes a Wholly Owned Subsidiary, to join this Agreement
as a Guarantor pursuant to a joinder agreement in form and substance
satisfactory to the Agent. Each Guarantor will, promptly upon the request of the
Agent from time to time, execute, acknowledge and deliver, and file and record,
all such instruments, and take all such action, as the Agent deems necessary or
advisable to carry out the intent and purposes of this Section 9.
10. Security.
--------
10.1. Credit Security. As security for the payment and performance of
---------------
the Credit Obligations, each Obligor mortgages, pledges and collaterally grants
and assigns to the Agent for the benefit of the Lenders and the holders from
time to time of any Credit Obligation, and creates a security interest in favor
of the Agent for the benefit of the Lenders and such holders in, all of such
Obligor's right, title and interest in and to (but none of its obligations or
liabilities with respect to) the items and types of present and future property
described in Sections 10.1.1 through 10.1.4 (subject, however, to Section
10.1.5), whether now owned or hereafter acquired, all of which shall be included
in the term "Credit Security":
----------------
10.1.1. Pledged Stock. (a) All shares of capital stock or other
-------------
evidence of beneficial interest in any corporation, business trust or
limited liability company, including without limitation of all shares of
stock of each of Continental Ozark, Inc. and Bear Paw Energy, Inc. owned
by the Company, all shares of stock of COZ Pipeline, Inc., COZ
Terminaling, Inc., and Continental Ozark Holding, Inc. owned by
Continental Ozark, Inc. and all shares of NORCO Pipeline, Inc. owned by
COZ Pipeline, Inc., (b) all limited partnership interests in any limited
partnership, (c) all general partnership interests in any general
partnership, (d) all joint venture interests in any joint venture and (e)
all options, warrants and similar rights to acquire such capital stock or
such interests. All such capital stock, interests, options, warrants and
other rights are collectively referred to as the "Pledged Stock".
-------------
10.1.2. Pledged Rights. All rights to receive profits or surplus
--------------
of, or other Distributions (including income, return of capital and
liquidating distributions) from, any partnership or joint venture,
including any distributions by any such Person to partners or joint
venturers. All such rights are collectively referred to as the "Pledged
-------
Rights".
------
10.1.3. Pledged Indebtedness. All Indebtedness from time to time
--------------------
owing to such Obligor from any Obligor or any Subsidiary of any Obligor
(all such Indebtedness being referred to as the "Pledged Indebtedness").
10.1.4. Proceeds and Products. All proceeds, including insurance
---------------------
proceeds, and products of the items of Credit Security described or
referred to in Sections 10.1.1 through 10.1.3 and, to the extent not
included in the foregoing, all Distributions with respect to the Pledged
Securities.
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10.1.5. Excluded Property. Notwithstanding Sections 10.1.1
-----------------
through 10.1.4, the payment and performance of the Credit Obligations
shall not be secured by:
(a) any rights arising under, and any property, tangible or
intangible, acquired under, any agreement which validly prohibits the
creation by such Obligor of a security interest in such rights or
property;
(b) any rights or property to the extent that any valid and
enforceable law or regulation applicable to such rights or property
prohibits the creation of a security interest therein; or
(c) more than 66% of the outstanding stock or other equity in any
foreign Subsidiary.
10.2. [Reserved].
----------
10.3. Representations, Warranties and Covenants with Respect to Credit
----------------------------------------------------------------
Security. Each Obligor represents, warrants and covenants that:
- --------
10.3.1. Pledged Stock. All shares of capital stock, limited
-------------
partnership interests and similar securities included in the Pledged Stock
are and shall be at all times duly authorized, validly issued, fully paid
and (in the case of capital stock and limited partnership interests)
nonassessable. Each Obligor will deliver to the Agent certificates
representing any Pledged Stock represented by a certificate, accompanied
by a stock transfer power executed in blank and, if the Agent so requests,
with the signature guaranteed, all in form and manner satisfactory to the
Agent. Pledged Stock that is not evidenced by a certificate will be
registered in the Agent's name as pledgee on the issuer's records, all in
form and substance satisfactory to the Agent. At any time after the
occurrence of an Event of Default, the Agent may transfer into its name or
the name of its nominee, as pledgee, any Pledged Securities. In the event
the Pledged Stock includes any Margin Stock, the Obligors will furnish to
the Lenders Federal Reserve Form U-1 and take such other action as the
Agent may request to ensure compliance with applicable laws.
10.3.2. Pledged Indebtedness. All Pledged Indebtedness owed by
--------------------
any Affiliate of the Obligors shall be on open account and shall not be
evidenced by any note or other instrument; provided, however, that all
-------- -------
Pledged Indebtedness owed by any Obligor shall, if the Agent requests, be
evidenced by a promissory note, which note shall be delivered to the Agent
after having been endorsed in blank. Each Obligor will, immediately upon
the receipt thereof, deliver to the Agent any promissory note or similar
instrument representing any Pledged Indebtedness, after having endorsed
such promissory note or instrument in blank.
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<PAGE>
10.3.3. [Reserved].
----------
10.3.4. No Liens or Restrictions on Transfer or Change of Control. All
---------------------------------------------------------
Credit Security shall be free and clear of any Liens and restrictions on the
transfer thereof, including contractual provisions which prohibit the assignment
of rights under contracts, except for Liens permitted by Section 6.8. Without
limiting the generality of the foregoing, each Obligor will exclude from
contracts to which it becomes a party after the date hereof (other than
partnership and joint venture agreements) provisions that would prevent such
Obligor from creating a security interest in such contract or any property
acquired thereunder as contemplated hereby. None of the Pledged Stock is
subject to any option to purchase or similar rights of any Person. Except with
the written consent of the Agent, no Obligor is, and none of them will be, party
to or bound by any agreement, instrument, deed or lease that restricts the
change of control or ownership, or the creation of a security interest in the
ownership, of the Company or any of its Subsidiaries (other than a Subsidiary
which is a partnership).
10.3.5. [Reserved].
----------
10.3.6. Trade Names. No Obligor will adopt or do business under any
-----------
name other than its name or names designated in Exhibit 7.1 or any other name
specified by notice actually received by the Agent not less than ten Banking
Days prior to the conduct of business under such additional name. Since its
incorporation, no Obligor has changed its corporate name or adopted or conducted
business under any trade name other than a name specified on Exhibit 7.1.
10.3.7. [Reserved].
----------
10.3.8. Modifications to Credit Security. Except with the prior written
--------------------------------
consent of the Agent, no Obligor shall amend or modify, or waive any of its
rights under or with respect to, any Pledged Securities if the effect of such
amendment, modification or waiver would be to reduce the amount of any such
items or to extend the time of payment thereof, to waive any default by any
other party thereto, or to waive or impair any remedies of the Obligors or the
Lenders under or with respect to any Pledged Securities, in each case other than
consistent with past practice in the ordinary course of business and on an
arm's-length basis. Each Obligor will promptly give the Agent written notice
of any request by any Person for any credit or adjustment with respect to any
Pledged Securities.
10.3.9. Delivery of Documents. At the Agent's request, each Obligor
---------------------
shall deliver to the Agent, promptly upon such Obligor's receipt thereof, copies
of any agreements, instruments, documents or invoices comprising or relating to
the Credit Security. Pending such request, such Obligor shall keep such items
at its chief executive office and principal place of business, which office and
place of business shall be set forth in Exhibit 7.1, or at such other address as
such Obliger may specify
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by notice actually received by the Agent not less than ten Banking Days prior
to such change of address.
10.3.10. Perfection of Credit Security. Upon the Agent's request from
-----------------------------
time to time, the Obligors will execute and deliver, and file and record in
the proper filing and recording places, all such instruments, including
financing statements, collateral assignments of copyrights, trademarks and
patents, mortgages or deeds of trust, and notations on certificates of title
and will take all such other action, as the Agent deems advisable for
confirming to it the Credit Security or to carry out any other purposes of
this Agreement or any other Credit Document.
10.4. Administration of Credit Security. The Credit Security shall be
---------------------------------
administered as follows; and if an Event of Default shall have occurred, Section
10.5 shall also apply.
10.4.1. Use of Credit Security. Until the Agent provides written
----------------------
notice to the contrary, each Obligor may use, commingle and dispose of any
part of the Credit Security in the ordinary course of its business, all
subject to Section 6.11.
10.4.2. [Reserved].
-----------
10.4.3. Pledged Securities.
------------------
(a) Distributions.
-------------
(i) Until an Event of Default shall occur, the respective Obligors
shall be entitled to receive all Distributions on or with respect to
the Pledged Securities (other than Distributions constituting
additional Pledged Securities). All Distributions constituting
additional Pledged Securities will be retained by the Agent (or if
received by any Obligor shall be held by such Person in trust and shall
be immediately delivered by such Person to the Agent in the original
form received, endorsed in blank) and held by the Agent as part of the
Credit Security.
(ii) If an Event of Default shall have occurred, all Distributions
on or with respect to the Pledged Securities shall be retained by the
Agent (or if received by any Obligor shall be held by such Person in
trust and shall be immediately delivered by it to the Agent in the
original form received, endorsed in blank) and held by the Agent as
part of the Credit Security or applied by the Agent to the payment of
the Credit Obligations in accordance with Section 10.5.6.
(b) Voting.
------
(i) Until an Event of Default shall occur, the respective Obligors
shall be entitled to vote or consent or refrain from voting or
consenting with respect to
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<PAGE>
the Pledged Securities in any manner not inconsistent with the terms of
any Credit Document, and the Agent will, if so requested, execute
appropriate revocable proxies therefor.
(ii) If an Event of Default shall have occurred, if and to the
extent that the Agent shall so notify in writing the Obligor pledging
the Pledged Securities in question, only the Agent shall be entitled to
vote or consent or take any other action with respect to the Pledged
Securities (and any Obligor will, if so requested, execute or cause to
be executed appropriate proxies therefor).
10.5. Right to Realize upon Credit Security. Except to the extent prohibited
-------------------------------------
by applicable law that cannot be waived, this Section 10.5 shall govern the
Lenders' right to realize upon the Credit Security if any Event of Default shall
have occurred. The provisions of this Section 10.5 are in addition to any
rights and remedies available at law or in equity and in addition to the
provisions of any other Credit Document. In the case of a conflict between this
Section 10.5 and any other Credit Document, this Section 10.5 shall govern.
10.5.1. Assembly of Credit Security; Receiver. Each of the Obligors
-------------------------------------
shall, upon the Agent's request, assemble the Credit Security and otherwise
make it available to the Agent. The Agent may have a receiver appointed for
all or any portion of the Obligor's assets or business which constitutes the
Credit Security in order to manage, protect, preserve, sell and otherwise
dispose of all or any portion of the Credit Security in accordance with the
terms of the Credit Documents, to continue the operations of the Obligors and
to collect all revenues and profits therefrom to be applied to the payment of
the Credit Obligations, including the compensation and expenses of such
receiver.
10.5.2. General Authority. To the extent specified in written notice
-----------------
from the Agent to the Obligor in question, each Obligor grants the Agent full
and exclusive power and authority, subject to the other terms hereof and
applicable law, to take any of the following actions (for the sole benefit of
the Agent on behalf of the Lenders and the holders from time to time of any
Credit Obligations, but at the Obligor's expense):
(a) To ask for, demand, take, collect, sue for and receive all
payments in respect of any Pledged Securities which the Obligor could
otherwise ask for, demand, take, collect, sue for and receive for its own use.
(b) To extend the time of payment of any Pledged Securities and to
make any allowance or other adjustment with respect thereto.
(c) To settle, compromise, prosecute or defend any action or
proceeding with respect to any Pledged Securities and to enforce all rights
and remedies thereunder which the Obligor could otherwise enforce.
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(d) To enforce the payment of any Pledged Securities, either in the
name of the Obligor or in its own name, and to endorse the name of the Obligor
on all checks, drafts, money orders and other instruments tendered to or
received in payment of any Credit Security.
(e) To notify the third party payor with respect to any Pledged
Securities of the existence of the security interest created hereby and to cause
all payments in respect thereof thereafter to be made directly to the Agent;
provided, however, that whether or not the Agent shall have so notified such
- -------- -------
payor, the Obligors will at their expense render all reasonable assistance to
the Agent in collecting such items and in enforcing claims thereon.
(f) To sell, transfer, assign or otherwise deal in or with any Credit
Security or the proceeds thereof, as fully as any Obligor otherwise could do.
10.5.3. Marshaling, etc. Neither the Agent nor the Lenders shall be
---------------
required to make any demand upon, or pursue or exhaust any of their rights or
remedies against, any Obligor or any other guarantor, pledgor or any other
Person with respect to the payment of the Credit Obligations or to pursue or
exhaust any of their rights or remedies with respect to any collateral therefor
or any direct or indirect guarantee thereof. Neither the Agent nor the Lenders
shall be required to marshal the Credit Security or any guarantee of the Credit
Obligations or to resort to the Credit Security or any such guarantee in any
particular order, and all of its and their rights hereunder or under any other
Credit Document shall be cumulative. To the extent it may lawfully do so, each
of the Obligors absolutely and irrevocably waives and relinquishes the benefit
and advantage of, and covenants not to assert against the Agent or the Lenders,
any valuation, stay, appraisement, extension, redemption or similar laws now or
hereafter existing which, but for this provision, might be applicable to the
sale of any Credit Security made under the judgment, order or decree of any
court, or privately under the power of sale conferred by this Agreement, or
otherwise. Without limiting the generality of the foregoing, each of the
Obligors (a) agrees that it will not invoke or utilize any law which might
prevent, cause a delay in or otherwise impede the enforcement of the rights of
the Agent or any Lender in the Credit Security, (b) waives all such laws, and
(c) agrees that it will not invoke or raise as a defense to any enforcement by
the Agent or any Lender of any rights and remedies relating to the Credit
Security or the Credit Obligations any legal or contractual requirement with
which the Agent or any Lender may have in good faith failed to comply. In
addition, each of the Obligors waives any right to prior notice (except to the
extent expressly required by this Agreement) or judicial hearing in connection
with foreclosure on or disposition of any Credit Security, including any such
right which such Obligor would otherwise have under the Constitution of the
United States of America, any state or territory thereof or any other
jurisdiction.
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<PAGE>
10.5.4. Sales of Credit Security. All or any part of the Credit
------------------------
Security may be sold for cash or other value in any number of lots at public or
private sale, without demand, advertisement or notice; provided, however, that
-------- -------
unless the Credit Security to be sold threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Agent shall give the
Obligor granting the security interest in such Credit Security ten days' prior
written notice of the time and place of any public sale, or the time after which
a private sale may be made, which notice each of the Obligors and the Lenders
hereby agrees to be reasonable. At any sale or sales of Credit Security, any
Lender or any of its respective officers acting on its behalf, or such Lender's
assigns, may bid for and purchase all or any part of the property and rights so
sold, may use all or any portion of the Credit Obligations owed to such Lender
as payment for the property or rights so purchased, and upon compliance with the
terms of such sale may hold and dispose of such property and rights without
further accountability to the respective Obligor, except for the proceeds of
such sale or sales pursuant to Section 10.5.6. The Obligors acknowledge that
any such sale will be made by the Agent on an "as is" basis with disclaimers of
all warranties, whether express or implied. The respective Obligors will
execute and deliver or cause to be executed and delivered such instruments,
documents, assignments, waivers, certificates and affidavits, will supply or
cause to be supplied such further information and will take such further action
as the Agent shall request in connection with any such sale.
10.5.5. Sale Without Registration. If, at any time when the Agent
-------------------------
shall determine to exercise its rights hereunder to sell all or part of the
securities included in the Credit Security, the securities in question shall not
be effectively registered under the Securities Act (or other applicable law),
the Agent may, in its sole discretion, sell such securities by private or other
sale not requiring such registration in such manner and in such circumstances as
the Agent may deem necessary or advisable in order that such sale may be
effected in accordance with applicable securities laws without such registration
and the related delays, uncertainty and expense. Without limiting the generality
of the foregoing, in any event the Agent may, in its sole discretion, (a)
approach and negotiate with a single purchaser or one or more possible
purchasers to effect such sale, (b) restrict such sale to one or more purchasers
each of whom will represent and agree that such purchaser is purchasing for its
own account, for investment and not with a view to the distribution or sale of
such securities and (c) cause to be placed on certificates representing the
securities in question a legend to the effect that such securities have not been
registered under the Securities Act (or other applicable law) and may not be
disposed of in violation of the provisions thereof. Each of the Obligors agrees
that such manner of disposition is commercially reasonable, that it will upon
the Agent's request give any such purchaser access to such information regarding
the issuer of the securities in question as the Agent may reasonably request and
that the Agent and the Lenders shall not incur any responsibility for selling
all or part of the securities included in the Credit Security at any private or
other sale not requiring such registration, notwithstanding the possibility that
a substantially higher price might be realized if the sale were deferred until
after registration under the
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<PAGE>
Securities Act (or other applicable law) or until made in compliance with
certain other rules or exemptions from the registration provisions under the
Securities Act (or other applicable law). Each of the Obligors acknowledges
that no adequate remedy at law exists for breach by it of this Section 10.5.5
and that such breach would not be adequately compensable in damages and
therefore agrees that this Section 10.5.5 may be specifically enforced.
10.5.6. Application of Proceeds. The proceeds of all sales and
-----------------------
collections in respect of any Credit Security or other assets of any Obligor,
all funds collected from the Obligors and any cash contained in the Credit
Security, the application of which is not otherwise specifically provided for
herein, shall be applied as follows:
First, to the payment of the costs and expenses of such sales and
collections, the reasonable expenses of the Agent and the reasonable fees and
expenses of its special counsel;
Second, any surplus then remaining to the payment of the Credit
Obligations (other than in respect of Interest Rate Protection Agreements) in
such order and manner as the Agent may in its sole discretion determine;
provided, however, that any such payment of Credit Obligations owed to all
-------- -------
Lenders shall be pro rata in accordance with the respective Percentage
Interests of the Lenders;
Third, any surplus then remaining to the payment of the Credit
Obligations in respect of Interest Rate Protection Agreements with any Lender
in such order and manner as the Agent may in its sole discretion determine;
and
Fourth, any surplus then remaining shall be paid to the Obligors,
subject, however, to the rights of the holder of any then existing Lien of
which the Agent has actual notice.
10.6. Custody of Credit Security. Except as provided by applicable law
--------------------------
that cannot be waived, the Agent will have no duty as to the custody and
protection of the Credit Security, the collection of any part thereof or of any
income thereon or the preservation or exercise of any rights pertaining thereto,
including rights against prior parties, except for the use of reasonable care in
the custody and physical preservation of any Credit Security in its possession.
The Lenders will not be liable or responsible for any loss or damage to any
Credit Security, or for any diminution in the value thereof, by reason of the
act or omission of any agent selected by the Agent acting in good faith.
11. Expenses; Indemnity.
-------------------
11.1. Expenses. Whether or not the transactions contemplated hereby shall
--------
be consummated, the Company will pay:
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<PAGE>
(a) all reasonable expenses of the Agent (including the out-of-
pocket expenses related to forming the group of Lenders and reasonable fees
and disbursements of the counsel to the Agent) in connection with the
preparation and duplication of this Agreement, each other Credit Document,
any environmental audit or review reports, examinations by, and reports of,
the Agent's commercial financial examiners, the transactions contemplated
hereby and thereby and amendments, waivers, consents and other operations
hereunder and thereunder;
(b) all recording and filing fees and transfer and documentary
stamp and similar taxes at any time payable in respect of this Agreement,
any other Credit Document, any Credit Security or the incurrence of the
Credit Obligations; and
(c) all other reasonable expenses incurred by the Lenders or the
holder of any Credit Obligation in connection with the enforcement of any
rights hereunder or under any other Credit Document, including costs of
collection and reasonable attorneys' fees (including a reasonable allowance
for the hourly cost of attorneys employed by the Lenders on a salaried
basis) and expenses.
11.2. General Indemnity. The Company shall indemnify the Lenders and the
-----------------
Agent and hold them harmless from any liability, loss or damage resulting from
the violation by the Company of Section 2.5. In addition, the Company shall
indemnify each Lender, the Agent, each of the Lenders' or the Agent's directors,
officers and employees, and each Person, if any, who controls any Lender or the
Agent (each Lender, the Agent and each of such directors, officers, employees
and control Persons is referred to as an "Indemnified Party") and hold each of
-----------------
them harmless from and against any and all claims, damages, liabilities and
reasonable expenses (including reasonable fees and disbursements of counsel with
whom any Indemnified Party may consult in connection therewith and all
reasonable expenses of litigation or preparation therefor) which any Indemnified
Party may incur or which may be asserted against any Indemnified Party in
connection with (a) the Indemnified Party's compliance with or contest of any
subpoena or other process issued against it in any proceeding involving the
Company or any of its Subsidiaries or their Affiliates, (b) any litigation or
investigation involving the Company, any of its Subsidiaries or their
Affiliates, or any officer, director or employee thereof, (c) the existence or
exercise of any security rights with respect to the Credit Security in
accordance with the Credit Documents, or (d) this Agreement, any other Credit
Document or any transaction contemplated hereby or thereby; provided, however,
-------- -------
that the foregoing indemnity shall not apply to litigation commenced by the
Company against the Lenders or the Agent which seeks enforcement of any of the
rights of the Company hereunder or under any other Credit Document and is
determined adversely to the Lenders or the Agent in a final nonappealable
judgment or to the extent such claims, damages, liabilities and expenses result
from a Lender's or the Agent's gross negligence or willful misconduct.
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<PAGE>
11.3. Indemnity With Respect to Letters of Credit. The Company shall
-------------------------------------------
indemnify each Letter of Credit Issuer and its correspondents and hold each of
them harmless from and against any and all claims, losses, liabilities, damages
and reasonable expenses (including reasonable attorneys' fees) arising from or
in connection with any Letter of Credit, including any such claim, loss,
liability, damage or expense arising out of any transfer, sale, delivery,
surrender or endorsement of any invoice, bill of lading, warehouse receipt or
other document at any time held by the Agent, any other Letter of Credit Issuer
or held for their respective accounts by any of their correspondents, in
connection with any Letter of Credit, except to the extent such claims, losses,
liabilities, damages and expenses result from gross negligence or willful
misconduct on the part of the Agent or any other Letter of Credit Issuer.
12. Operations; Agent.
-----------------
12.1. Interests in Credits. The Percentage Interest of each Lender in
--------------------
the Loan and the Letters of Credit, and the related Commitments, shall be
computed based on the maximum principal amount for each Lender as set forth in
the Register, as from time to time in effect. The current Percentage Interests
are set forth in Exhibit 12.1, which may be updated by the Agent from time to
time to conform to the Register.
12.2. Agent's Authority to Act, etc. Each of the Lenders appoints and
-----------------------------
authorizes Bank of Boston to act for the Lenders as the Lenders' Agent in
connection with the transactions contemplated by this Agreement and the other
Credit Documents on the terms set forth herein. In acting hereunder, the Agent
is acting for the account of Bank of Boston to the extent of its Percentage
Interest and for the account of each other Lender to the extent of the Lenders'
respective Percentage Interests, and all action in connection with the
enforcement of, or the exercise of any remedies (other than the Lenders' rights
of set-off as provided in Section 8.2.4 or in any Credit Document) in respect of
the Credit Obligations and Credit Documents shall be taken by the Agent.
12.3. Company to Pay Agent, etc. The Company and each Guarantor shall be
-------------------------
fully protected in making all payments in respect of the Credit Obligations to
the Agent, in relying upon consents, modifications and amendments executed by
the Agent purportedly on the Lenders' behalf, and in dealing with the Agent as
herein provided. The Agent may charge the accounts of the Company, on the dates
when the amounts thereof become due and payable, with the amounts of the
principal of and interest on the Loan, any amounts paid by the Letter of Credit
Issuers to third parties under Letters of Credit or drafts presented thereunder,
commitment fees, Letter of Credit fees and all other fees and amounts owing
under any Credit Document.
12.4. Lender Operations for Advances, Letters of Credit, etc.
------------------------------------------------------
12.4.1. Advances. On each Closing Date, each Lender shall advance
--------
to the Agent in immediately available funds such Lender's Percentage
Interest in the portion of the Loan advanced on such Closing Date prior to
3:30 p.m. (Boston time). If such
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<PAGE>
funds are not received at such time, but all applicable conditions set forth in
Section 5 have been satisfied, each Lender authorizes and requests the Agent to
advance for the Lender's account, pursuant to the terms hereof, the Lender's
respective Percentage Interest in such portion of the Loan and agrees to
reimburse the Agent in immediately available funds for the amount thereof prior
to 4:30 p.m. (Boston time) on the day any portion of the Loan is advanced
hereunder; provided, however, that the Agent is not authorized to make any such
-------- -------
advance for the account of any Lender who has previously notified the Agent in
writing that such Lender will not be performing its obligations to make further
advances hereunder; and provided, further, that the Agent shall be under no
-------- -------
obligation to make any such advance.
12.4.2. Letters of Credit. Each of the Lenders authorizes and
-----------------
requests each Letter of Credit Issuer to issue the Letters of Credit provided
for in Section 2.3 and to grant each Lender a participation in each of such
Letters of Credit in an amount equal to its Percentage Interest in the amount of
each such Letter of Credit. Promptly upon the request of the Letter of Credit
Issuer, each Lender shall reimburse the Letter of Credit Issuer in immediately
available funds for such Lender's Percentage Interest in the amount of all
obligations to third parties incurred by the Letter of Credit Issuer in respect
of each Letter of Credit and each draft accepted under a Letter of Credit to the
extent not reimbursed by the Company. The Letter of Credit Issuer will notify
each Lender of the issuance of any Letter of Credit, the amount and date of
payment of any draft drawn or accepted under a Letter of Credit and whether in
connection with the payment of any such draft the amount thereof was added to
the Revolving Loan or was reimbursed by the Company.
12.4.3. Agent to Allocate Payments, etc. All payments of principal and
--------------------------------
interest in respect of the extensions of credit made pursuant to this Agreement,
reimbursement of amounts paid by any Letter of Credit Issuer to third parties
under Letters of Credit or drafts presented thereunder, commitment fees, Letter
of Credit fees and other fees under this Agreement shall, as a matter of
convenience, be made by the Company and the Guarantors to the Agent in
immediately available funds. The share of each Lender shall be credited to such
Lender by the Agent in immediately available funds in such manner that the
principal amount of the Credit Obligations to be paid shall be paid
proportionately in accordance with the Lenders' respective Percentage Interests
in such Credit Obligations, except as otherwise provided in this Agreement.
Under no circumstances shall any Lender be required to produce or present its
Notes as evidence of its interests in the Credit Obligations in any action or
proceeding relating to the Credit Obligations.
12.4.4. Delinquent Lenders; Nonperforming Lenders. In the event that
-----------------------------------------
any Lender fails to reimburse the Agent pursuant to Section 12.4.1 for the
Percentage Interest of such lender (a "Delinquent Lender") in any credit
-----------------
advanced by the Agent pursuant hereto, overdue amounts (the "Delinquent
----------
Payment") due from the Delinquent Lender to the Agent shall bear interest,
payable by the Delinquent Lender on demand,
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<PAGE>
at a per annum rate equal to (a) the Federal Funds Rate for the first three
days overdue and (b) the sum of 2% plus the Federal Funds Rate for any longer
----
period. Such interest shall be payable to the Agent for its own account for
the period commencing on the date of the Delinquent Payment and ending on the
date the Delinquent Lender reimburses the Agent on account of the Delinquent
Payment (to the extent not paid by the Company as provided below) and the
accrued interest thereon (the "Delinquency Period"), whether pursuant to the
------------------
assignments referred to below or otherwise. Upon notice by the Agent, the
Company will pay to the Agent the principal (but not the interest) portion of
the Delinquent Payment. During the Delinquency Period, in order to make
reimbursements for the Delinquent Payment and accrued interest thereon, the
Delinquent Lender shall be deemed to have assigned to the Agent all interest,
commitment fees and other payments made by the Company under Section 3 that
would have thereafter otherwise been payable under the Credit Documents to the
Delinquent Lender. During any other period in which any Lender is not
performing its obligations to extend credit under Section 2 (a "Nonperforming
-------------
Lender"), the Nonperforming Lender shall be deemed to have assigned to each
------
Lender that is not a Nonperforming Lender (a "Performing Lender") all
-----------------
principal and other payments made by the Company under Section 4 that would
have thereafter otherwise been payable under the Credit Documents to the
Nonperforming Lender. The Agent shall credit a portion of such payments to
each Performing Lender in an amount equal to the Percentage Interest of such
Performing Lender in an amount equal to the Percentage Interest of such
Performing Lender divided by one minus the Percentage Interest of the
-----
Nonperforming Lender until the respective portions of the Loan owed to all the
Lenders are the same as the Percentage Interests of the Lenders immediately
prior to the failure of the Nonperforming Lender to perform its obligations
under Section 2. The foregoing provisions shall be in addition to any other
remedies the Agent, the Performing Lenders or the Company may have under law
or equity against the Delinquent Lender as a result of the Delinquent Payment
or against the Nonperforming Lender as a result of its failure to perform its
obligations under Section 2.
12.5. Sharing of Payments, etc. Each Lender agrees that (a) if by exercising
-------------------------
any right of set-off or counterclaim or otherwise, it shall receive payment of
(i) a proportion of the aggregate amount due with respect to its Percentage
Interest in the Loan and Letter of Credit Exposure which is greater than (ii)
the proportion received by any other Lender in respect of the aggregate amount
due with respect to such other Lender's Percentage Interest in the Loan and
Letter of Credit Exposure and (b) if such inequality shall continue for more
than 10 days, the Lender receiving such proportionately greater payment shall
purchase participations in the Percentage Interests in the Loan and Letter of
Credit Exposure held by the other Lenders, and such other adjustments shall be
made from time to time (including rescission of such purchases of participations
in the event the unequal payment originally received is recovered from such
Lender through bankruptcy proceedings or otherwise), as may be required so that
all such payments of principal and interest with respect to the Loan and Letter
of Credit Exposure held by the Lenders shall be shared by the Lenders pro rata
in accordance with their respective Percentage Interests; provided, however,
-------- -------
that this Section 12.5 shall not impair the right of
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any Lender to exercise any right of set-off or counterclaim it may have and to
apply the amount subject to such exercise to the payment of Indebtedness of any
Obligor other than such Obligor's Indebtedness with respect to the Loan and
Letter of Credit Exposure. Each Lender that grants a participation in the Credit
Obligations to a Credit Participant shall require as a condition to the granting
of such participation that such Credit Participant agree to share payments
received in respect of the Credit Obligations as provided in this Section 12.5.
The provisions of this Section 12.5 are for the sole and exclusive benefit of
the Lenders and no failure of any Lender to comply with the terms hereof shall
be available to any Obligor as a defense to the payment of the Credit
Obligations.
12.6. Amendments, Consents, Waivers, etc. Except as otherwise set forth
----------------------------------
herein, the Agent may (and upon the written request of the Required Lenders the
Agent shall) take or refrain from taking any action under this Agreement or any
other Credit Document, including giving its written consent to any modification
of or amendment to and waiving in writing compliance with any covenant or
condition in this Agreement or any other Credit Document (other than an Interest
Rate Protection Agreement) or any Default or Event of Default, all of which
actions shall be binding upon all of the Lenders; provided, however, that:
-------- -------
(a) Except as provided below, without the written consent of the
Required Lenders, no written modification of, amendment to, consent with
respect to, waiver of compliance with or waiver of a Default under, any of
the Credit Documents (other than an Interest Rate Protection Agreement)
shall be made.
(b) Without the written consent of such Lenders as own 100% of
the Percentage Interests (other than Delinquent Lenders during the
existence of a Delinquency Period so long as such Delinquent Lender is
treated the same as the other Lenders with respect to any actions
enumerated below):
(i) No reduction shall be made in (A) the amount of principal
of the Loan or reimbursement obligations for payments made under
Letters of Credit, (B) the interest rate on the Loan or (C) the
Letter of Credit fees (except those owed solely to the Letter of
Credit Issuer, which may be reduced by agreement solely between the
Company and the Letter of Credit Issuer) or commitment fees.
(ii) No change shall be made in the stated time of payment of
all or any portion of the Loan or interest thereon or reimbursement
of payments made under Letters of Credit or fees relating to any of
the foregoing payable to all of the Lenders and no waiver shall be
made of any Default under Section 8.1.1.
(iii) No increase shall be made in the amount, or extension of
the term, of the Commitments beyond that provided for under Section
2.
(iv) No alteration shall be made of the Lenders' rights of set-
off contained in Section 8.2.4.
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(v) No release of any Credit Security or of any Guarantor
shall be made (except that the Agent may release particular items
of Credit Security or particular Guarantors in dispositions
permitted by Section 6.11 and may release all Credit Security
pursuant to Section 18 upon payment in full of the Credit
Obligations and termination of the Commitments without the written
consent of the Lenders).
(vi) No amendment to or modification of this Section 12.6(b)
shall be made.
12.7. Agent's Resignation. The Agent may resign at any time by giving at
-------------------
least 60 days' prior written notice of its intention to do so to each other of
the Lenders and the Company and upon the appointment by the Required Lenders of
a successor Agent satisfactory to the Company. If no successor Agent shall have
been so appointed and shall have accepted such appointment within 45 days after
the retiring Agent's giving of such notice of resignation, then the retiring
Agent may with the consent of the Company, which shall not be unreasonably
withheld, appoint a successor Agent which shall be a bank or a trust company
organized under the laws of the United States of America or any state thereof
and having a combined capital, surplus and undivided profit of at least
$100,000,000; provided, however, that any successor Agent appointed under this
-------- -------
sentence may be removed upon the written request of the Required Lenders, which
request shall also appoint a successor Agent satisfactory to the Company. Upon
the appointment of a new Agent hereunder, the term "Agent" shall for all
purposes of this Agreement thereafter mean such successor. After any retiring
Agent's resignation hereunder as Agent, or the removal hereunder of any
successor Agent, the provisions of this Agreement shall continue to inure to the
benefit of such Agent as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
12.8. Concerning the Agent.
--------------------
12.8.1. Action in Good Faith, etc. The Agent and its officers,
-------------------------
directors, employees and agents shall be under no liability to any of the
Lenders or to any future holder of any interest in the Credit Obligations
for any action or failure to act taken or suffered in good faith, and any
action or failure to act in accordance with an opinion of its counsel
shall conclusively be deemed to be in good faith. The Agent shall in all
cases be entitled to rely, and shall be fully protected in relying, on
instructions given to the Agent by the required holders of Credit
Obligations as provided in this Agreement.
12.8.2. No Implied Duties, etc. The Agent shall have and may
----------------------
exercise such powers as are specifically delegated to the Agent under this
Agreement or any other Credit Document together with all other powers
incidental thereto. The Agent shall have no implied duties to any Person
or any obligation to take any action under this Agreement or any other
Credit Document except for action specifically provided for in this
Agreement or any other Credit Document to be taken by the Agent. Before
taking any action under this Agreement or any other Credit Document, the
Agent may request
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an appropriate specific indemnity satisfactory to it from each Lender in
addition to the general indemnity provided for in Section 12.11. Until the
Agent has received such specific indemnity, the Agent shall not be
obligated to take (although it may in its sole discretion take) any such
action under this Agreement or any other Credit Document. Each Lender
confirms that the Agent does not have a fiduciary relationship to it under
the Credit Documents. Each of the Company and its Subsidiaries party
hereto confirms that neither the Agent nor any other Lender has a
fiduciary relationship to it under the Credit Documents.
12.8.3. Validity, etc. The Agent shall not be responsible to any
-------------
Lender or any future holder of any interest in the Credit Obligations (a)
for the legality, validity, enforceability or effectiveness of this
Agreement or any other Credit Document, (b) for any recitals, reports,
representations, warranties or statements contained in or made in
connection with this Agreement or any other Credit Document, (c) for the
existence or value of any assets included in any security for the Credit
Obligations, (d) for the effectiveness of any Lien purported to be
included in the Credit Security, (e) for the specification or failure to
specify any particular assets to be included in the Credit Security, or
(f) unless the Agent shall have failed to comply with Section 12.8.1, for
the perfection of the security interests in the Credit Security.
12.8.4. Compliance. The Agent shall not be obligated to ascertain
----------
or inquire as to the performance or observance of any of the terms of this
Agreement or any other Credit Document; and in connection with any
extension of credit under this Agreement or any other Credit Document, the
Agent shall be fully protected in relying on a certificate of the Company
as to the fulfillment by the Company of any conditions to such extension
of credit.
12.8.5. Employment of Agents and Counsel. The Agent may execute
--------------------------------
any of its duties as Agent under this Agreement or any other Credit
Document by or through employees, agents and attorneys-in-fact and shall
not be responsible to any of the Lenders, the Company or any other Obligor
for the default or misconduct of any such agents or attorneys-in-fact
selected by the Agent acting in good faith. The Agent shall be entitled to
advice of counsel concerning all matters pertaining to the agency hereby
created and its duties hereunder or under any other Credit Document.
12.8.6. Reliance on Documents and Counsel. The Agent shall be
---------------------------------
entitled to rely, and shall be fully protected in relying, upon any
affidavit, certificate, cablegram, consent, instrument, letter, notice,
order, document, statement, telecopy, telegram, telex or teletype message
or writing reasonably believed in good faith by the Agent to be genuine
and correct and to have been signed, sent or made by the Person in
question, including any telephonic or oral statement made by such Person,
and, with respect to legal matters, upon an opinion or the advice of
counsel selected by the Agent.
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12.8.7. Agent's Reimbursement. Each of the Lenders severally
---------------------
agrees to reimburse the Agent, in the amount of such Lender's Percentage
Interest, for any reasonable expenses not reimbursed by the Company or the
Guarantors (without limiting the obligation of the Company or the
Guarantors to make such reimbursement): (a) for which the Agent is
entitled to reimbursement by the Company or the Guarantors under this
Agreement or any other Credit Document, and (b) after the occurrence of a
Default, for any other reasonable expenses incurred by the Agent on the
Lenders' behalf in connection with the enforcement of the Lenders' rights
under this Agreement or any other Credit Document.
12.8.8. Agent's Fees. The Company shall pay to the Agent for its
------------
own account an agent's fee in the amounts separately agreed to from time
to time by the Company and the Agent.
12.9. Rights as a Lender. With respect to any credit extended by it
------------------
hereunder, Bank of Boston shall have the same rights, obligations and powers
hereunder as any other Lender and may exercise such rights and powers as though
it were not the Agent, and unless the context otherwise specifies, Bank of
Boston shall be treated in its individual capacity as though it were not the
Agent hereunder. Without limiting the generality of the foregoing, the
Percentage Interest of Bank of Boston shall be included in any computations of
Percentage Interests. Bank of Boston and its Affiliates may accept deposits
from, lend money to, act as trustee for and generally engage in any kind of
banking or trust business with the Company, any of its Subsidiaries or any
Affiliate of any of them and any Person who may do business with or own an
equity interest in the Company, any of its Subsidiaries or any Affiliate of any
of them, all as if Bank of Boston were not the Agent and without any duty to
account therefor to the other Lenders.
12.10. Independent Credit Decision. Each of the Lenders acknowledges
---------------------------
that it has independently and without reliance upon the Agent, based on the
financial statements and other documents referred to in Section 7.2, on the
other representations and warranties contained herein and on such other
information with respect to the Company and its Subsidiaries as such Lender
deemed appropriate, made such Lender's own credit analysis and decision to enter
into this Agreement and to make the extensions of credit provided for hereunder.
Each Lender represents to the Agent that such Lender will continue to make its
own independent credit and other decisions in taking or not taking action under
this Agreement or any other Credit Document. Each Lender expressly acknowledges
that neither the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to
such Lender, and no act by the Agent taken under this Agreement or any other
Credit Document, including any review of the affairs of the Company and its
Subsidiaries, shall be deemed to constitute any representation or warranty by
the Agent. Except for notices, reports and other documents expressly required to
be furnished to each Lender by the Agent under this Agreement or any other
Credit Document, the Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
operations, property, condition, financial or otherwise,
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or creditworthiness of the Company or any Subsidiary which may come into the
possession of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
12.11. Indemnification. The holders of the Credit Obligations shall
---------------
indemnify the Agent and its officers, directors, employees and agents (to the
extent not reimbursed by the Obligors and without limiting the obligation of any
of the Obligors to do so), pro rata in accordance with their respective
Percentage Interests, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time be imposed on,
incurred by or asserted against the Agent or such Persons relating to or arising
out of this Agreement, any other Credit Document, the transactions contemplated
hereby or thereby, or any action taken or omitted by the Agent in connection
with any of the foregoing; provided, however, that the foregoing shall not
-------- -------
extend to actions or omissions which are taken by the Agent with gross
negligence or willful misconduct.
13. Successors and Assigns; Lender Assignments and Participations. Any
-------------------------------------------------------------
reference in this Agreement to any of the parties hereto shall be deemed to
include the successors and assigns of such party, and all covenants and
agreements by or on behalf of the Company, the Guarantors, the Agent or the
Lenders that are contained in this Agreement or any other Credit Documents shall
bind and inure to the benefit of their respective successors and assigns;
provided, however, that (a) the Company and its Subsidiaries may not assign
- -------- -------
their rights or obligations under this Agreement except for mergers or
liquidations permitted by Section 6.11, and (b) the Lenders shall be not
entitled to assign their respective Percentage Interests in the Loan hereunder
except as set forth below in this Section 13.
13.1. Assignments by Lenders.
----------------------
13.1.1. Assignees and Assignment Procedures. Each Lender may (a)
-----------------------------------
without the consent of the Agent or the Company if the proposed assignee is
already a Lender hereunder or a Wholly Owned Subsidiary of the same
corporate parent of which the assigning Lender is a Subsidiary, or (b)
otherwise with the consents of the Agent and (so long as no Event of
Default exists) the Company (which consents will not be unreasonably
withheld), in compliance with applicable laws in connection with such
assignment, assign to one or more commercial banks or other financial
institutions (each, an "Assignee") all or a portion of its interests,
--------
rights and obligations under this Agreement and the other Credit Documents,
including all or a portion, which need not be pro rata between the Loan and
the Letter of Credit Exposure, of its Commitment, the portion of the Loan
and Letter of Credit Exposure at the time owing to it and the Notes held by
it, but excluding its rights and obligations as a Letter of Credit Issuer;
provided, however, that:
-------- -------
(i) the aggregate amount of the Commitment of the assigning
Lender subject to each such assignment to any Assignee other than
another Lender (determined as of the date the Assignment and
Acceptance with respect to such assignment is
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delivered to the Agent) shall be not less than $5,000,000 and in
increments of $1,000,000; and
(ii) the parties to each such assignment shall execute and
deliver to the Agent an Assignment and Acceptance (the "Assignment
----------
and Acceptance") substantially in the form of Exhibit 13.1.1,
--------------
together with the Note subject to such assignment and a processing
and recordation fee of $2,000 payable to the Agent by the assigning
Lender.
Upon acceptance and recording pursuant to Section 13.1.4, from and after the
effective date specified in each Assignment and Acceptance (which effective date
shall be at least five Banking Days after the execution thereof unless waived by
the Agent):
(1) the Assignee shall be a party hereto and, to the extent provided
in such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and
(2) the assigning Lender shall, to the extent provided in such
assignment, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement, such Lender shall
cease to be a party hereto but shall continue to be entitled to
the benefits of Sections 3.2.4, 3.5, 3.6, 3.7, 3.8 and 11, as
well as to any fees accrued for its account hereunder and not
yet paid).
13.1.2. Terms of Assignment and Acceptance. By executing and
----------------------------------
delivering an Assignment and Acceptance, the assigning Lender and Assignee shall
be deemed to confirm to and agree with each other and the other parties hereto
as follows:
(a) other than the representation and warranty that it is the legal
and beneficial owner of the interest being assigned thereby free and clear of
any adverse claim, such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement, any other Credit Document or any other instrument or document
furnished pursuant hereto;
(b) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the Company
and its Subsidiaries or the performance or observance by the Company or any of
its Subsidiaries of any of its obligations under this Agreement, any other
Credit Document or any other instrument or document furnished pursuant hereto;
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(c) such Assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 7.2 or Section 6.4 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance;
(d) such Assignee will independently and without reliance upon the
Agent, such assigning Lender or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement;
(e) such Assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Agent by the terms hereof, together with such powers as
are reasonably incidental thereto; and
(f) such Assignee agrees that it will perform in accordance with
the terms of this Agreement all the obligations which are required to be
performed by it as a Lender.
13.1.3. Register. The Agent shall maintain at the Boston Office a
--------
register (the "Register") for the recordation of (a) the names and addresses of
--------
the Lenders and the Assignees which assume rights and obligations pursuant to an
assignment under Section 13.1.1, (b) the Percentage Interest of each such Lender
as set forth in Section 12.1 and (c) the amount of the Loan and Letter of Credit
Exposure owing to each Lender from time to time. The entries in the Register
shall be conclusive, in the absence of demonstrable error, and the Company, the
Agent and the Lenders may treat each Person whose name is registered therein for
all purposes as a party to this Agreement. The Register shall be available for
inspection by the Company or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
13.1.4. Acceptance of Assignment and Assumption. Upon its receipt
---------------------------------------
of a completed Assignment and Acceptance executed by an assigning Lender and an
Assignee together with the Note subject to such assignment, and the processing
and recordation fee referred to in Section 13.1.1, the Agent shall (a) accept
such Assignment and Acceptance, (b) record the information contained therein in
the Register and (c) give prompt notice thereof to the Company. Within five
Banking Days after receipt of notice, the Company, at its own expense, shall
execute and deliver to the Agent, in exchange for the surrendered Note, a new
Note to the order of such Assignee in a principal amount equal to the applicable
Commitment and Loan assumed by it pursuant to such Assignment and Acceptance
and, if the assigning Lender has retained a Commitment and Loan, a new Note to
the order of such assigning Lender in a principal amount equal to the applicable
Commitment and Loan retained by it. Such new Note shall be in an aggregate
principal amount equal to the
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aggregate principal amount of such surrendered Note, and shall be dated
the date of the surrendered Note which it replaces.
13.1.5. Federal Reserve Bank. Notwithstanding the foregoing
--------------------
provisions of this Section 13, any Lender may at any time pledge or assign
all or any portion of such Lender's rights under this Agreement and the
other Credit Documents to a Federal Reserve Bank; provided, however, that
-------- -------
no such pledge or assignment shall release such Lender from such Lender's
obligations hereunder or under any other Credit Document.
13.1.6. Further Assurances. The Company and its Subsidiaries shall
------------------
sign such documents and take such other actions from time to time
reasonably requested by an Assignee to enable it to share in the benefits
of the rights created by the Credit Documents.
13.2 Credit Participants. Each Lender may, (a) without the consent of the
-------------------
Company or the Agent if the proposed participant is already a Lender or a Credit
Participant hereunder or a Wholly Owned Subsidiary of the same corporate parent
of which the Lender is a Subsidiary or (b) otherwise with the consents of the
Agent and (so long as no Event of Default exists) the Company (which consents
will not be unreasonably withheld), in compliance with applicable laws in
connection with such participation, sell to one or more commercial banks or
other financial institutions (each a "Credit Participant") participations in all
------------------
or a portion of its interests, rights and obligations under this Agreement and
the other Credit Documents (including all or a portion of its Commitment, the
Loan and Letter of Credit Exposure owing to it and the Note held by it);
provided, however, that:
- -------- -------
(a) such Lender's obligations under this Agreement shall remain
unchanged;
(b) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations;
(c) the Credit Participant shall be entitled to the benefit of the
cost protection provisions contained in Sections 3.2.4, 3.5, 3.6, 3.7, 3.8
and 11, but shall not be entitled to receive any greater payment thereunder
than the selling Lender would have been entitled to receive with respect to
the interest so sold if such interest had not been sold; and
(d) the Company, the Agent and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement, and such Lender shall retain
the sole right as one of the Lenders to vote with respect to the
enforcement of the obligations of the Company relating to the Loan and
Letter of Credit Exposure and the approval of any amendment, modification
or waiver of any provision of this Agreement (other than amendments,
modifications, consents or waivers described in clause (c) of the proviso
to Section 12.6).
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Each Obligor agrees, to the fullest extent permitted by applicable law, that any
Credit Participant and any Lender purchasing a participation from another Lender
pursuant to Section 12.5 may exercise all rights of payment (including the right
of set-off), with respect to its participation as fully as if such Credit
Participant or such Lender were the direct creditor of the Obligors and a Lender
hereunder in the amount of such participation.
13.3 Replacement of Lender. In the event that any Lender or, to the
---------------------
extent applicable, any Credit Participant (the "Affected Lender"):
---------------
(a) fails to perform its obligations to fund any portion of the
Loan or to issue any Letter of Credit on any Closing Date when required
to do so by the terms of the Credit Documents;
(b) demands payment under the Reserve provisions of Section 3.5,
the Tax provisions of Section 3.6, the capital adequacy provisions of
Section 3.7 or the regulatory change provisions in Section 3.8 in an
amount the Company deems materially in excess of the amounts with
respect thereto demanded by the other Lenders; or
(c) refuses to consent to a proposed amendment, modification,
waiver or other action requiring consent of the holders of 100% of the
Percentage Interests under Section 12.6(c) that is consented to by the
other Lenders;
then, so long as no Event of Default exists, the Company shall have the right to
seek a replacement lender which is reasonably satisfactory to the Agent (the
"Replacement Lender"). The Replacement Lender shall purchase the interests of
- -------------------
the Affected Lender in the Loan, Letters of Credit and its Commitment and shall
assume the obligations of the Affected Lender hereunder and under the other
Credit Documents upon execution by the Replacement Lender of an Assignment and
Acceptance and the tender by it to the Affected Lender of a purchase price
agreed between it and the Affected Lender (or, if they are unable to agree, a
purchase price in the amount of the Affected Lender's Percentage Interest in the
Loan and Letter of Credit Exposure, or appropriate credit support for contingent
amounts included therein, and all other outstanding Credit Obligations then owed
to the Affected Lender). Such assignment by the Affected Lender shall be deemed
an early termination of any Eurodollar Pricing Option to the extent of the
Affected Lender's portion thereof, and the Company will pay to the Affected
Lender any resulting amounts due under Section 3.2.4. Upon consummation of such
assignment, the Replacement Lender shall become party to this Agreement as a
signatory hereto and shall have all the rights and obligations of the Affected
Lender under this Agreement and the other Credit Documents with a Percentage
Interest equal to the Percentage Interest of the Affected Lender, the Affected
Lender shall be released from its obligations hereunder and under the other
Credit Documents, and no further consent or action by any party shall be
required. Upon the consummation of such assignment, the Company, the Agent and
the Affected Lender shall make appropriate arrangements so that a new Revolving
Note is
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issued to the Replacement Lender if it has acquired a portion of the Revolving
Loan. The Company and the Guarantors shall sign such documents and take such
other actions reasonably requested by the Replacement Lender to enable it to
share in the benefits of the rights created by the Credit Documents. Until the
consummation of an assignment in accordance with the foregoing provisions of
this Section 13.3, the Company shall continue to pay to the Affected Lender any
Credit Obligations as they become due and payable.
14. Confidentiality. Each Lender will make no disclosure of confidential
---------------
information furnished to it directly or indirectly by the Company or any of its
Subsidiaries unless such information shall have become public, except:
(a) in connection with operations under or the enforcement of this
Agreement or any other Credit Document;
(b) pursuant to any statutory or regulatory requirement or any
mandatory court order, subpoena or other legal process;
(c) to any parent or corporate Affiliate of such Lender or to any
Credit Participant, proposed Credit Participant or proposed Assignee;
provided, however, that any such Person shall agree to comply with the
-------- -------
restrictions set forth in this Section 14 with respect to such
information;
(d) to its independent counsel, auditors and other professional
advisors with an instruction to such Person to keep such information
confidential; and
(e) with the prior written consent of the Company, to any other
Person.
15. Foreign Lenders. If any Lender is not incorporated or organized under
---------------
the laws of the United States of America or a state thereof, such Lender shall
deliver to the Company and the Agent the following:
(a) Two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224 or successor form, as the case may be,
certifying in each case that such Person is entitled to receive payments
under this Agreement, the Notes and reimbursement obligations under
Letters of Credit payable to it, without deduction or withholding of any
United States federal income taxes; and
(b) A duly completed Internal Revenue Service Form W-8 or W-9 or
successor form, as the case may be, to establish an exemption from
United States backup withholding tax.
Each such Lender that delivers to the Company and the Agent a Form 1001
or 4224 and Form W-8 or W-9 pursuant to this Section 15 further undertakes to
deliver to the Company and the Agent two further copies of Form 1001 or 4224 and
Form W-8 or W-9, or successor applicable form, or other manner of certification,
as the case may be, on or before
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the date that any such form expires or becomes obsolete or after the occurrence
of any event requiring a change in the most recent form previously delivered by
it to the Company and the Agent. Such Forms 1001 or 4224 shall certify that such
Lender is entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes. The foregoing documents
need not be delivered in the event any change in treaty, law or regulation or
official interpretation thereof has occurred which renders all such forms
inapplicable or which would prevent such Lender from delivering any such form
with respect to it, or such Lender advises the Company that it is not capable of
receiving payments without any deduction or withholding of United States federal
income tax and, in the case of a Form W-8 or W-9, establishing an exemption from
United States backup withholding tax. Until such time as the Company and the
Agent have received such forms indicating that payments hereunder are not
subject to United States withholding tax or are subject to such tax at a rate
reduced by an applicable tax treaty, the Company shall withhold taxes from such
payments at the applicable statutory rate without regard to Section 3.6.
16. Notices. Except as otherwise specified in this Agreement, any notice
-------
required to be given pursuant to this Agreement shall be given in writing. Any
notice, consent, approval, demand or other communication in connection with this
Agreement shall be deemed to be given if given in writing (including telex,
telecopy or similar teletransmission) addressed as provided below (or to the
addressee at such other address as the addressee shall have specified by notice
actually received by the addressor), and if actually delivered in fully legible
form to such address (evidenced in the case of a telex, telecopy or similar
teletransmission by receipt of the correct answerback).
If to the Company or any of its Subsidiaries, to it at its address set
forth in Exhibit 7.1 (as supplemented pursuant to Sections 6.4.1 and 6.4.2), to
the attention of the chief financial officer.
If to any Lender or the Agent, to it at its address set forth on the
signature pages of this Agreement or in the Register, with a copy to the Agent.
17. Course of Dealing; Amendments and Waivers. No course of dealing between
-----------------------------------------
any Lender or the Agent, on one hand, and the Company or any other Obligor, on
the other hand, shall operate as a waiver of any of the Lenders' or the Agent's
rights under this Agreement or any other Credit Document or with respect to the
Credit Obligations. Each of the Company and the Guarantors acknowledges that if
the Lenders or the Agent, without being required to do so by this Agreement or
any other Credit Document, give any notice or information to, or obtain any
consent from, the Company or any other Obligor, the Lenders and the Agent shall
not by implication have amended, waived or modified any provision of this
Agreement or any other Credit Document, or created any duty to give any such
notice or information or to obtain any such consent on any future occasion. No
delay or omission on the part of any Lender of the Agent in exercising any right
under this Agreement or any other Credit Document or with respect to the Credit
Obligations shall operate as a waiver of such right or any other right hereunder
or thereunder. A waiver on any one occasion shall not be construed as a bar to
or
-99-
<PAGE>
waiver of any right or remedy on any future occasion. No waiver, consent or
amendment with respect to this Agreement or any other Credit Document shall be
binding unless it is in writing and signed by the Agent or the Required Lenders.
18. Defeasance. When all Credit Obligations have been paid and all Letters
----------
of Credit terminated and returned to the Letter of Credit Issuer or cash
collateralized in a manner satisfactory to the Lenders, and if at the time no
Lender continues to be committed to extend any credit to the Company hereunder
or under any other Credit Document, this Agreement shall terminate and, at the
Company's written request, accompanied by such certificates and other items as
the Agent shall reasonably deem necessary, the Credit Security shall revert to
the Obligors and the right, title and interest of the Lenders therein shall
terminate. Thereupon, on the Obligor's demand and at their cost and expense, the
Agent shall execute proper instruments, acknowledging satisfaction of and
discharging this Agreement, and shall redeliver to the Obligors any Credit
Security then in its possession; provided, however, that Sections 3.2.4, 3.5,
-------- -------
3.6, 3.7, 3.8, 11, 12.8.7, 12.11, 14, 19 and 20 shall survive the termination of
this Agreement.
19. Venue; Service of Process. Each of the Company and the other Obligors:
-------------------------
(a) Irrevocably submits to the nonexclusive jurisdiction of the
state courts of The Commonwealth of Massachusetts and to the
nonexclusive jurisdiction of the United States District Court for the
District of Massachusetts for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or any other
Credit Document or the subject matter hereof or thereof.
(b) Waives to the extent not prohibited by applicable law that
cannot be waived, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such proceeding brought in any of the
above-named courts, any claim that it is not subject personally to the
jurisdiction of such court, that its property is exempt or immune from
attachment or execution, that such proceeding is brought in an
inconvenient forum, that the venue of such proceeding is improper, or
that this Agreement or any other Credit Document, or the subject matter
hereof or thereof, may not be enforced in or by such court.
Each of the Company and the other Obligors consents to service of process in any
such proceeding in any manner at the time permitted by Chapter 223A of the
General Laws of The Commonwealth of Massachusetts and agrees that service of
process by registered or certified mail, return receipt requested, at its
address specified in or pursuant to Section 16 is reasonably calculated to give
actual notice.
20. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
--------------------
THAT CANNOT BE WAIVED, EACH OF THE COMPANY, THE OTHER OBLIGORS, THE AGENT AND
THE LENDERS WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR
-100-
<PAGE>
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT
OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY
CONNECTED WITH THE DEALINGS OF THE LENDERS, THE AGENT, THE COMPANY OR ANY OTHER
OBLIGOR IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. Each of the
Company and the other Obligors acknowledges that it has been informed by the
Agent that the provisions of this Section 20 constitute a material inducement
upon which each of the Lenders has relied and will rely in entering into this
Agreement and any other Credit Document, and that it has reviewed the provisions
of this Section 20 with its counsel. Any Lender, the Agent, the Company or any
other Obligor may file an original counterpart or a copy of this Section 20 with
any court as written evidence of the consent of the Company, the other Obligors,
the Agent and the Lenders to the waiver of their rights to trial by jury.
21. General. All covenants, agreements, representations and warranties made
-------
in this Agreement or any other Credit Document or in certificates delivered
pursuant hereto or thereto shall be deemed to have been relied on by each
Lender, notwithstanding any investigation made by any Lender on its behalf, and
shall survive the execution and delivery to the Lenders hereof and thereof. The
invalidity or unenforceability of any provision hereof shall not affect the
validity or enforceability of any other provision hereof. The headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. This Agreement and the other Credit Documents
constitute the entire understanding of the parties with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous
understandings and agreements, whether written or oral. This Agreement may be
executed in any number of counterparts which together shall constitute one
instrument. This Agreement shall be governed by and construed in accordance with
the laws (other than the conflict of laws rules) of The Commonwealth of
Massachusetts, except as may be required by the UCC with respect to matters
involving the perfection of the Agent's Lien on the Credit Security.
-101-
<PAGE>
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
TRANSMONTAIGNE OIL COMPANY
/s/
By ______________________________________
Title:
CONTINENTAL OZARK, INC.
COZ PIPELINE, INC.
COZ TERMINALING, INC.
NORCO PIPELINE, INC.
/s/
By ______________________________________
As President of each of the foregoing
corporations
BEAR PAW ENERGY, INC.
/s/
By _____________________________________
Title:
THE FIRST NATIONAL BANK OF BOSTON,
for Itself and as Agent
/s/
By ______________________________________
Authorized Officer
The First National Bank of Boston
Energy and Utilities Division
100 Federal Street
Boston, Massachusetts 02110
Telecopy: (617) 434-3652
Telex: 940581
-102-
<PAGE>
EXHIBIT 23.1
Accountants' Consent
--------------------
The Board of Directors
TransMontaigne Oil Company:
We consent to the use of our report relating to the consolidated balance
sheets of TransMontaigne Oil Company as of April 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended April 30, 1996 and 1995, the seven months ended
April 30, 1994 and the year ended September 30, 1993 incorporated by reference
and included herein and to the reference to our firm under the heading
"Experts" in the prospectus.
KPMG Peat Marwick LLP
Denver, Colorado
December 23, 1996
<PAGE>
EXHIBIT 23.2
Accountants' Consent
--------------------
The Board of Directors
Lion Oil Company:
We consent to incorporation by reference in the registration statement on Form
S-2 of TransMontaigne Oil Company of our report dated July 19, 1996 relating
to the consolidated balance sheets of Lion Oil Company as of April 30, 1996
and 1995, and the related consolidated statements of earnings, stockholders'
equity, and cash flows for each of the years in the three-year period ended
April 30, 1996, which report appears in the April 30, 1996 annual report on
Form 10-K of TransMontaigne Oil Company, and to the reference to our firm
under the heading "Experts" in the prospectus. Our report refers to a change
in the method of accounting for income taxes effective May 1, 1993.
KPMG Peat Marwick LLP
Jackson, Mississippi
December 23, 1996
<PAGE>
EXHIBIT 23.3
Accountants' Consent
--------------------
The Board of Directors
TransMontaigne Oil Company:
We consent to the use of our report relating to the historical summaries of
revenue and direct operating expenses of a natural gas gathering, processing,
treating and fractionation system (the Grasslands Facilities) of Koch
Industries, Inc. acquired by TransMontaigne Oil Company for the nine months
ended September 30, 1996 and the years ended December 31, 1995 and 1994
included herein and the reference to our firm under the heading "Experts" in
the prospectus.
KPMG Peat Marwick LLP
Denver, Colorado
December 23, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION OF A NATURAL GAS GATHERING,
PROCESSING, TREATING AND FRACTIONATION SYSTEM (THE GRASSLANDS FACILITIES) OF
KOCH INDUSTRIES, INC. ACQUIRED BY TRANSMONTAIGNE OIL COMPANY. THIS SUMMARY
FINANCIAL INFORMATION WAS EXTRACTED FROM THE DECEMBER 4, 1996 AUDITED HISTORICAL
SUMMARIES OF REVENUE AND DIRECT OPERATING EXPENSES OF THE GRASSLANDS FACILITIES
FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1996 AND THE YEARS ENDED DECEMBER 31, 1995
AND 1994, AND THE UNAUDITED HISTORICAL SUMMARY OF REVENUE AND DIRECT OPERATING
EXPENSES FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1994 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1995 DEC-31-1994 SEP-30-1996 SEP-30-1995
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<INCOME-PRETAX> 10,500,959 13,740,230 9,210,665 7,609,991
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