SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
March 15, 2000
PHILLIPS PETROLEUM COMPANY
(Exact name of registrant as specified in its charter)
Delaware 1-720 73-0400345
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
Phillips Building, Bartlesville, Oklahoma 74004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 661-6600
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ITEM 5. OTHER EVENTS.
Phillips Petroleum Company, a Delaware corporation (Phillips),
Atlantic Richfield Company, a Delaware corporation (ARCO), CH-Twenty, Inc., a
Delaware corporation and a wholly owned subsidiary of ARCO (CH-Twenty), and BP
Amoco p.l.c., an English public limited company (BP Amoco), entered into a
Master Purchase and Sale Agreement, dated as of March 15, 2000 (the
Agreement), pursuant to which Phillips will purchase all of ARCO's Alaskan
businesses. On April 6, 2000, Phillips, ARCO, CH-Twenty and BP Amoco entered
into an amended Master Purchase and Sale Agreement (the Amended Agreement),
pursuant to which Phillips will purchase all of ARCO's Alaskan businesses.
The foregoing summary of the Agreement, the Amended Agreement, and
the transactions contemplated thereby is qualified in its entirety by reference
to the Amended Agreement which is attached hereto as Exhibit 2 and incorporated
herein by reference. Schedules to the Agreement and the Amended Agreement are
not included with this filing but will be furnished supplementally to the
Securities and Exchange Commission upon request of the Commission.
The press release issued by Phillips in connection with the
execution of the Agreement is attached hereto as Exhibit 99.1 and is
incorporated herein by reference.
The audited financial statements in Exhibit 99.2 include the
historical financial position, results of operations and cash flows of all ARCO
businesses being purchased by Phillips. These financial statements do not
reflect any purchase accounting adjustments related to the proposed acquisition
by Phillips. Certain marine items reported in the financial statements will not
be purchased by Phillips. Under the terms of the Amended Agreement, prior to
closing with Phillips, the long-term debt owed to ARCO by its Alaskan
subsidiaries ($300 million at December 31, 1999) will be forgiven, and the
capital construction fund assets ($395 million at December 31, 1999) will be
retained by ARCO and not purchased by Phillips. As a result, interest expense on
the ARCO long-term debt and interest income on the capital construction fund
will not continue once Phillips acquires the business (see Note 10 for
information on these interest amounts). In addition, the ARCO Prudhoe Bay tanker
(scheduled to be retired in 2001) will be retained by ARCO and not purchased by
Phillips.
On March 24, 2000, Exxon Mobil Corporation, a New Jersey corporation
(Exxon Mobil), filed an action for declaratory and injunctive relief and
specific performance in California Superior Court against ARCO, ARCO Alaska,
Inc., a Delaware corporation and a wholly owned subsidiary of ARCO (ARCO
Alaska), BP Amoco and Phillips. The complaint alleged that Exxon Mobil had a
preferential right to purchase certain of the interests in North Slope oil
properties held by ARCO Alaska under a 1964 agreement between predecessors of
Exxon Mobil and ARCO.
On April 13, 2000, the Federal Trade Commission (FTC) accepted for
public comment a consent agreement relating to the proposed merger of
BP Amoco and ARCO. The consent agreement, among other things, provides for the
acquisition of ARCO's Alaskan businesses by Phillips pursuant to the Amended
Agreement and permits the completion of the merger between BP Amoco and ARCO.
Also on April 13, 2000, Phillips, BP Amoco, ARCO and Exxon Mobil
entered into agreements (the Alignment Agreements) to align the ownership and
operation of the Prudhoe Bay Unit and the Point Thomson Unit in Alaska. The
Alignment Agreements that relate to Phillips will become effective upon the
latest to occur of (1) the completion of the merger between BP Amoco and ARCO,
(2) the satisfactory completion of the FTC's consideration of the Alignment
Agreement relating to Prudhoe Bay, and (3) the acquisition of ARCO Alaska by
Phillips. Exxon Mobil has agreed to stay the pending legal action described
above and to dismiss the lawsuit, with prejudice, upon satisfactory completion
of the FTC's consideration of the Alignment Agreement relating to Prudhoe Bay.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Audited financial statements for ARCO Alaska Combined Operations
for the three years ended December 31, 1999, 1998 and 1997 and
filed herewith as Exhibit 99.2 and are incorporated herein by
reference.
(b) Exhibits.
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2 Master Purchase and Sale Agreement dated as of
March 15, 2000, as amended as of April 6, 2000, among
Atlantic Richfield Company, CH-Twenty, Inc., BP Amoco
p.l.c and Phillips Petroleum Company.
23 Consent of PricewaterhouseCoopers LLP
99.1 Press Release, dated March 15, 2000.
99.2 Audited financial statements for ARCO Alaska Combined
Operations for the three years ended December 31, 1999,
1998 and 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHILLIPS PETROLEUM COMPANY
Date: April 18, 2000 By: /s/ Rand C. Berney
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Name: Rand C. Berney
Title: Vice President and Controller
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2 Master Purchase and Sale Agreement dated as of
March 15, 2000, as amended as of April 6, 2000, among
Atlantic Richfield Company, CH-Twenty, Inc., BP Amoco p.l.c
and Phillips Petroleum Company.
23 Consent of PricewaterhouseCoopers LLP
99.1 Press Release, dated March 15, 2000.
99.2 Audited financial statements for ARCO Alaska Combined
Operations for the three years ended December 31, 1999,
1998 and 1997.
Exhibit 2
MASTER PURCHASE AND SALE AGREEMENT
by and among
ATLANTIC RICHFIELD COMPANY,
CH-TWENTY, INC.,
BP AMOCO P.L.C.
and
PHILLIPS PETROLEUM COMPANY
--------------------------
Dated as of March 15, 2000
As Amended as of April 6, 2000
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TABLE OF CONTENTS
PAGE
Article I DEFINITIONS AND TERMS...........................................2
Section 1.1 Specific Definitions.........................................2
Section 1.2 Other Terms.................................................17
Section 1.3 Other Definitional Provisions...............................17
Article II PURCHASE AND SALE OF THE SHARES AND CONVEYED PROPERTIES........17
Section 2.1 Purchase and Sale...........................................17
Section 2.2 First Closing; Producing and Marine Assets Delivery and
Payment...................................................18
Section 2.3 Adjustments to the Initial Producing and Marine Assets
Purchase Price............................................19
Section 2.4 Second Closing; Pipeline Assets Delivery and Payment........25
Section 2.5 Adjustments to the Pipeline Assets Purchase Price...........26
Section 2.6 Actions Prior to First Closing..............................28
Section 2.7 Preferential Rights.........................................30
Section 2.8 Contingent Payments.........................................30
Article III REPRESENTATIONS AND WARRANTIES OF SELLERS.....................31
Section 3.1 Organization and Authority..................................32
Section 3.2 Binding Effect..............................................32
Section 3.3 Organization, Qualification and Authority of the Companies..32
Section 3.4 Ownership of Shares and LLC Interests.......................32
Section 3.5 Consents and Approvals......................................33
Section 3.6 Non-Contravention...........................................33
Section 3.7 Financial Statements........................................34
Section 3.8 Litigation and Claims.......................................34
Section 3.9 Taxes.......................................................35
Section 3.10 Compliance with Laws........................................35
Section 3.11 Contracts...................................................35
Section 3.12 Properties..................................................36
Section 3.13 Absence of Changes..........................................36
Section 3.14 Finders' Fees...............................................36
Section 3.15 Indebtedness................................................36
Section 3.16 Employee Benefits...........................................36
Section 3.17 No Other Representations or Warranties......................37
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Article IV REPRESENTATIONS AND WARRANTIES OF PURCHASER....................37
Section 4.1 Organization and Authority..................................37
Section 4.2 Binding Effect..............................................37
Section 4.3 Consents and Approvals......................................37
Section 4.4 Non-Contravention...........................................37
Section 4.5 Finders' Fees...............................................38
Section 4.6 Financial Capability........................................38
Section 4.7 Investigation by Purchaser..................................38
Section 4.8 Purchaser Impediments.......................................38
Section 4.9 Securities Act..............................................39
Section 4.10 No Other Representations or Warranties......................39
Article V COVENANTS........................................................39
Section 5.1 Access......................................................39
Section 5.2 Retention of Records........................................40
Section 5.3 Conduct of Business.........................................41
Section 5.4 Filings; Other Actions; Notifications.......................42
Section 5.5 Tax Matters.................................................44
Section 5.6 Employees and Employee Benefits.............................50
Section 5.7 Indebtedness................................................50
Section 5.8 Further Assurances..........................................51
Section 5.9 Certain Transactions........................................51
Section 5.10 Charter Obligations.........................................51
Section 5.11 Sellers' Trade Names, Etc...................................53
Section 5.12 Guarantee...................................................53
Section 5.13 Insurance Matters...........................................53
Section 5.14 Long-Term Supply Contracts..................................55
Section 5.15 Certain Intellectual Property...............................55
Section 5.16 Substitution of Guarantor...................................57
Section 5.17 Transitional Services.......................................58
Section 5.18 Designation of Transferee...................................58
Section 5.19 Preparation of Financial Statements.........................58
Section 5.20 Order to Hold Separate and Maintain Assets..................58
Section 5.21 ARCO Directors and Officers.................................58
Section 5.22 Marine......................................................59
Article VI CONDITIONS TO CLOSING .........................................61
Section 6.1 Conditions to the Obligations of Purchaser and Sellers With
Respect to the First Closing..............................61
Section 6.2 Conditions to the Obligations of Purchaser With Respect
to the First Closing......................................62
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Section 6.3 Conditions to the Obligations of Sellers With Respect to the
First Closing.............................................63
Section 6.4 Conditions to the Obligations of Purchaser and Sellers With
Respect to the Second Closing..............................64
Article VII CERTAIN ENVIRONMENTAL MATTERS.................................65
Section 7.1 Acknowledgments.............................................65
Section 7.2 Assumption of Obligations...................................65
Section 7.3 Retention of Obligations....................................66
Article VIII SURVIVAL; INDEMNIFICATION; TITLE AND INSPECTION MATTERS......66
Section 8.1 Survival....................................................66
Section 8.2 Indemnification by Purchaser................................67
Section 8.3 Indemnification by ARCO.....................................68
Section 8.4 Indemnification Procedures..................................69
Section 8.5 Characterization of Indemnification Payments................71
Section 8.6 Limitations on Liability....................................71
Section 8.7 Indemnification as Sole Remedy..............................72
Section 8.8 Tax Indemnification.........................................72
Section 8.9 Title Matters...............................................72
Section 8.10 Inspection of AMI Conveyed Properties owned by AMI..........75
Article IX TERMINATION....................................................76
Section 9.1 Termination of Agreement....................................76
Section 9.2 Effect of Termination.......................................77
Section 9.3 Termination of Certain Obligations..........................77
Article X MISCELLANEOUS..................................................77
Section 10.1 Notices.....................................................79
Section 10.2 Amendment; Waiver...........................................79
Section 10.3 Assignment..................................................79
Section 10.4 Entire Agreement............................................79
Section 10.5 Fulfillment of Obligations..................................80
Section 10.6 Parties in Interest.........................................80
Section 10.7 Public Disclosure...........................................80
Section 10.8 Expenses....................................................80
Section 10.9 Schedules...................................................80
Section 10.10 GOVERNING LAW; SUBMISSION TO JURISDICTION;
SELECTION OF FORUM........................................80
Section 10.11 Counterparts................................................81
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Section 10.12 Headings....................................................81
Section 10.13 Severability................................................81
Section 10.14 Extension of Performance....................................81
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This MASTER PURCHASE AND SALE AGREEMENT, dated as of March 15, 2000, as
amended as of April 6, 2000, by and among Atlantic Richfield Company, a Delaware
corporation ("ARCO"), CH-Twenty, Inc., a Delaware corporation ("CH-20", each of
ARCO and CH-20 being referred to herein as a "SELLER" and, together, the
"SELLERS"), BP Amoco p.l.c., an English public limited company ("BP AMOCO") and
a party to this Agreement solely in respect of Section 5.12, and Phillips
Petroleum Company, a Delaware corporation ("PURCHASER").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, ARCO is the owner of: (i) all of the issued and outstanding shares
of (A) common stock, par value $10,000 per share ("ARCO ALASKA SHARES"), of ARCO
Alaska, Inc., a Delaware corporation ("ARCO ALASKA"), (B) common stock, par
value $10,000 per share ("ATAI SHARES"), of ARCO Transportation Alaska, Inc., a
Delaware corporation ("ATAI"), (C) common stock, par value $1,000 per share
("KUPARUK SHARES"), of Kuparuk Pipeline Company, a Delaware corporation
("KUPARUK"), (D) common stock, par value $100 per share ("OLIKTOK SHARES"), of
Oliktok Pipeline Company, a Delaware corporation ("OLIKTOK"), (E) common stock,
par value $100 per share ("ALPINE SHARES"), of Alpine Pipeline Company, a
Delaware corporation ("ALPINE"), (F) common stock, par value $10 per share
("ARCO MARINE SHARES"), of ARCO Marine, Inc., a Delaware corporation ("ARCO
MARINE") and (G) common stock, par value $.01 per share ("UTP HOLDINGS SHARES"),
of Union Texas Petroleum Holdings, Inc., a Delaware corporation ("UTP HOLDINGS")
and the indirect owner of all of the limited liability company interests ("UTA
INTERESTS") in Union Texas Alaska, LLC, a Delaware limited liability company
("UTA"), (ii) 8,000 of the issued and outstanding shares of common stock, par
value $100 per share ("CIPC SHARES"), of Cook Inlet Pipeline Company, a Delaware
corporation ("CIPC") and (iii) the Product Inventory;
WHEREAS, CH-20 is the owner of all of the issued and outstanding shares of
common stock, par value $1 per share ("ARCO BELUGA SHARES"), of ARCO Beluga,
Inc., a Delaware corporation ("ARCO BELUGA"; each of ARCO Alaska, ATAI, Kuparuk,
Oliktok, Alpine, ARCO Marine, UTP Holdings, UTA and ARCO Beluga being referred
to herein as a "COMPANY" and, collectively, the "COMPANIES"; and the ARCO Alaska
Shares, ATAI Shares, Kuparuk Shares, Oliktok Shares, Alpine Shares, ARCO Marine
Shares, UTP Holdings Shares, CIPC Shares and ARCO Beluga Shares collectively
being referred to herein as the "SHARES");
WHEREAS, BP Amoco, ARCO and Prairie Holdings, Inc. ("PRAIRIE") have
executed that certain Agreement and Plan of Merger, dated March 31, 1999, as
amended (the "MERGER AGREEMENT"), wherein the parties agreed, subject to certain
terms and conditions, to merge Prairie with and into ARCO (the "BP AMOCO/ARCO
MERGER");
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WHEREAS, in order to facilitate the fulfillment of certain conditions to
the BP Amoco/ARCO Merger, ARCO and CH-20 desire to sell and transfer to
Purchaser the respective Shares owned by them, and Purchaser desires to purchase
the Shares on the terms and subject to the conditions set forth herein, and the
parties desire to engage in the other transactions contemplated herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and on the terms and subject to
the conditions set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the
following terms have the meanings set forth or as referenced below:
"ADVERSE CHANGE" has the meaning set forth in Schedule 5.6, Section 5.
"AFFILIATE" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, such other
Person at the time at which the determination of affiliation is made. The term
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as applied to any Person, means the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities or other ownership interests, by contract or otherwise.
"AFFILIATE TRANSACTION" means any transaction between a Seller and/or any
Affiliate of Seller (other than any Company), on the one hand, and any Company,
on the other hand, excluding any transaction to which a third Person is also a
party.
"AGREEMENT" means this Master Purchase and Sale Agreement and all Schedules
hereto, as the same may be amended or supplemented from time to time in
accordance with the terms hereof.
"ALASKA BUSINESS" has the meaning set forth in Section 3.12.
"ALIGNMENT AGREEMENT" means the ARCO Alaska/BP Exploration/Unocal Alignment
Agreement, Greater Kuparuk Area, dated January 1, 1997.
"ALPINE" has the meaning set forth in the Recitals.
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"ALPINE CERTIFICATE" has the meaning set forth in Section 2.6(a)(iii).
"ALPINE RIGHTS-OF-WAY" means the two right-of-way leases by and between
the State of Alaska and ARCO for the Alpine crude oil pipeline (ADL-415701) and
the Alpine diesel line (ADL-415932) and, in the event that the Alpine Utility
Right-of-Way is transferred from ARCO Alaska to ARCO prior to the First Closing
in accordance with Section 2.6(b)(ii), the Alpine Utility Right-of-Way.
"ALPINE SHARES" has the meaning set forth in the Recitals.
"ALPINE UTILITY RIGHT-OF-WAY" means the right-of-way grant by and between
the State of Alaska and ARCO Alaska for the Alpine utility pipeline
(ADL-415857).
"AMI" means AMI Leasing Inc., a Delaware corporation.
"AMI CONVEYED CONTRACT" means the contract more specifically identified on
Schedule 1.1(A).
"AMI CONVEYED PROPERTIES" means the tankers more specifically identified on
Schedule 1.1(B).
"ARCO" has the meaning set forth in the Preamble.
"ARCO ALASKA" has the meaning set forth in the Recitals.
"ARCO ALASKA BUSINESSES" means the business of (a) acquiring any right or
option (whether or not contingent) to bid for or to explore for, to develop or
to produce hydrocarbons in Alaska, (b) exploring for, developing or producing
hydrocarbons in Alaska or transporting or shipping hydrocarbons within or from
Alaska, (c) providing any product or service, directly or indirectly, with or
without compensation, to any person engaged in any of the activities in (a) or
(b) where such product or service is primarily used in or related to such
person's activities in Alaska or (d) supporting ARCO in any of the activities
referred to in clauses (a), (b) or (c) as those activities were conducted by
ARCO on March 15, 2000.
"ARCO ALASKA COMPANY" means each of ARCO Alaska, ATAI, Kuparuk, Oliktok,
Alpine, ARCO Marine, ARCO Marine Spill Response Company, a Delaware corporation
and a wholly owned subsidiary of ARCO Marine, UTP Holdings and UTA.
"ARCO ALASKA INTELLECTUAL PROPERTY" has the meaning set forth in Section
5.15(a)(i).
"ARCO ALASKA SHARES" has the meaning set forth in the Recitals.
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"ARCO BELUGA" has the meaning set forth in the Recitals.
"ARCO BELUGA SHARES" has the meaning set forth in the Recitals.
"ARCO DIRECTORS AND OFFICERS" has the meaning set forth in Section 5.21(b).
"ARCO GEOSCIENCE AND RESERVOIR INTELLECTUAL PROPERTY" has the meaning set
forth in Section 5.15(c).
"ARCO INTELLECTUAL PROPERTY" has the meaning set forth in Section 5.15(b).
"ARCO MARINE" has the meaning set forth in the Recitals.
"ARCO MARINE SHARES" has the meaning set forth in the Recitals.
"ARCO MARINE TRANSFER DATE" means the date on which the ARCO Marine Shares
are delivered to Purchaser in accordance with Section 2.6(b)(vi).
"ARCO OIL AND GAS LEASE" means each of the 17 lease agreements relating to
the Producing Properties that is identified on Schedule 1.1(C).
"ARCO PATENTS" has the meaning set forth in Section 5.15(a)(ii).
"ARCO PRODUCTS TIME CHARTERS" has the meaning set forth in Section 5.22(c).
"ARCO PROPRIETARY IP" has the meaning set forth in Section 5.15(a).
"ARCO SEISMIC DATA" has the meaning set forth in Section 5.15(a)(iii).
"ARCO SEVERANCE PLANS" has the meaning set forth in Schedule 5.6, Section
7.
"ARCO TRADER" means the tanker more specifically identified on Schedule
1.1(D).
"AREA PARTICIPATION PERCENTAGE" means, with respect to each Field, the sum
of the percentages obtained by multiplying the percentage of the working
interest owned by Seller and its Subsidiaries in each tract included within the
Field by the tract participation of such tract for the Field.
"ASO" has the meaning set forth in Section 5.13.
"ATAI" has the meaning set forth in the Recitals.
"ATAI SHARES" has the meaning set forth in the Recitals.
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"ATC" has the meaning set forth in Section 5.22(b)(i).
"BANKRUPTCY AND EQUITY EXCEPTION" has the meaning set forth in Section 3.2.
"BAREBOAT CHARTERS" has the meaning set forth in Section 5.22(b)(i).
"BONDS" has the meaning set forth in Section 5.7(b).
"BOOKS AND RECORDS" means all books, ledgers, files, reports, customer
lists, plans and operating records of, or maintained by, or pertaining to, any
of the Companies in whatever form stored or retained.
"BP AMOCO" has the meaning set forth in the Preamble.
"BP AMOCO/ARCO MERGER" has the meaning set forth in the Recitals.
"BP EXPLORATION" means BP Exploration (Alaska), Inc., a Delaware
corporation.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which banks in the State of New York are authorized or obligated by law or
executive order to close.
"CHARTER" means the Charter for Development of the Alaskan North Slope
entered into as of December 2, 1999, among the State of Alaska, ARCO Alaska, BP
Exploration and BP Amoco, providing for, among other things, the divestiture of
certain oil and gas properties and other related interests on the North Slope of
Alaska, as supplemented by the Addendum to the Charter for the Development of
the Alaskan North Slope, dated March 15, 1999.
"CHOSEN COURTS" has the meaning set forth in Section 10.10.
"CH-20" has the meaning set forth in the Preamble.
"CIPC" has the meaning set forth in the Recitals.
"CIPC SHARES" has the meaning set forth in the Recitals.
"CLAIM NOTICE" has the meaning set forth in Section 8.4.
"CLOSING" has the meaning set forth in Section 2.4(a).
"CLOSING DATE" means either the First Closing Date, the Second Closing Date
or the ARCO Marine Transfer Date, as the context requires.
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"CLOSING MARINE FINANCIAL STATEMENTS" has the meaning set forth in Section
2.3(a).
"CLOSING MARINE SCHEDULE OF SETTLEMENTS" has the meaning set forth in
Section 2.3(a).
"CLOSING PIPELINE FINANCIAL STATEMENTS" has the meaning set forth in
Section 2.5(a).
"CLOSING PIPELINE SCHEDULE OF SETTLEMENTS" has the meaning set forth in
Section 2.5(a).
"CLOSING PRODUCING FINANCIAL STATEMENTS" has the meaning set forth in
Section 2.3(a).
"CLOSING PRODUCING SCHEDULE OF SETTLEMENTS" has the meaning set forth in
Section 2.3(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" and "COMPANIES" have the meanings set forth in the Recitals.
"COMPETITION LAWS" means any Law designed or intended to prohibit, restrict
or regulate actions or states of affairs having the purpose or effect of
monopolization, restraint or distortion of competition.
"CONFIDENTIAL INFORMATION" has the meaning set forth in Section 5.1(b).
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement, executed
in November 1999, by and between ARCO et al. and Purchaser (or its Affiliate),
as amended.
"CONSENT AGREEMENT" means the Agreement Containing Consent Orders by and
among BP Amoco, ARCO and counsel for the FTC that includes the Provisional
Consent Order.
"CONTRACTS" means any agreements, contracts, leases, purchase orders,
arrangements, commitments or licenses.
"CONVEYED PROPERTIES" means the Alpine Rights-of-Way, the AMI Conveyed
Properties and the AMI Conveyed Contract.
"CPA FIRM" has the meaning set forth in Section 2.3(c).
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"CUTOFF DATE" has the meaning set forth in Section 2.8(e).
"DEDUCTIBLE" has the meaning set forth in Section 8.6(a).
"DISCLOSURE SCHEDULE" has the meaning set forth in Article III.
"EFFECTIVE DATE" means January 1, 2000.
"EFFECTIVE TIME" means January 1, 2000 at 12:01 a.m. Anchorage time.
"EMPLOYEE PLANS" has the meaning set forth in Section 3.16.
"ENCUMBRANCE" means any lien, charge, pledge, security interest,
restriction or other encumbrance of any kind.
"ENVIRONMENTAL LAW" means any Law relating to the protection of the
environment or the use, storage, recycling, treatment, handling, release or
disposal of Hazardous Substances.
"ERISA" has the meaning set forth in Section 3.16.
"ESTIMATED PRODUCT INVENTORY PURCHASE PRICE" means $170,213,643.
"EXCHANGE ACT" means the United States Securities Exchange Act of 1934, as
amended.
"EXPLORATION LEASES" mean the oil and gas leases located, as of the date of
this Agreement, in the land department files of ARCO Alaska wherein ARCO Alaska
is named as an original lessee or assignee of such oil and gas leases, PROVIDED,
HOWEVER, that the term "Exploration Leases" shall not include (a) oil and gas
leases which are included (wholly or partially) in a producing unit or the
Greater Kuparuk Area as such term is defined in Greater Kuparuk Joint Operating
Agreement, Pre-Development, dated March 1, 1997, as amended, (b) oil and gas
leases that expire, lapse or terminate or have expired, lapsed or terminated
under their own terms, or (c) oil and gas leases which were released by ARCO
Alaska prior to the Effective Time.
"FIELD" means each participating area or accumulation described in Schedule
8.9 of the Disclosure Schedules.
"FINAL CLOSING MARINE SCHEDULE OF SETTLEMENTS" has the meaning set forth in
Section 2.3(d).
"FINAL CLOSING PIPELINE SCHEDULE OF SETTLEMENTS" has the meaning set forth
in Section 2.5(b).
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"FINAL CLOSING PRODUCING SCHEDULE OF SETTLEMENTS" has the meaning set forth
in Section 2.3(d).
"FINAL PRODUCT INVENTORY PURCHASE PRICE" means the sum of Kuparuk Line Fill
(in barrels) multiplied by (Kuparuk Royalty Price plus $0.10) plus TAPS Line
Fill (in barrels) multiplied by (TAPS Royalty Price plus $1.44) plus Tanker
Cargo (in barrels) multiplied by (TAPS Royalty Price plus $3.525).
"FIRST CLOSING" has the meaning set forth in Section 2.2(a).
"FIRST CLOSING DATE" has the meaning set forth in Section 2.2(a).
"FIRST CLOSING SCHEDULE OF SETTLEMENTS" has the meaning set forth in
Section 2.3(a).
"FIRST CLOSING FINANCIAL STATEMENTS" has the meaning set forth in Section
2.3(a).
"FTC" means the Federal Trade Commission.
"GAAP" means United States generally accepted accounting principles.
"GOVERNMENTAL AUTHORIZATIONS" means all licenses, permits, certificates and
other authorizations and approvals of or issued by any Governmental Entity
required (i) with respect to any party hereto, to perform their respective
obligations hereunder and (ii) with respect to any of the Companies, to carry on
its business substantially as currently conducted under applicable Law.
"GOVERNMENTAL ENTITY" means any foreign, federal, state, local, municipal,
county, borough, or other governmental, quasi-governmental, administrative or
regulatory authority, body, agency, court, tribunal, commission or other similar
entity (including any branch, department or official thereof).
"GUARANTEES" has the meaning set forth in Section 5.7(b).
"GOVERNMENT ANTITRUST ENTITY" has the meaning set forth in Section 5.4(d).
"HAZARDOUS SUBSTANCES" means any substance listed, defined, designated or
classified as hazardous, toxic or radioactive under any applicable Environmental
Law, including petroleum and any derivative or by-product thereof.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"INDEMNIFIED PARTIES" has the meaning set forth in Section 8.3.
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"INDEMNIFYING PARTY" has the meaning set forth in Section 8.4.
"INITIAL PIPELINE ASSETS PURCHASE PRICE" has the meaning set forth in
Section 2.1.
"INITIAL PRODUCING AND MARINE ASSETS PURCHASE PRICE" has the meaning set
forth in Section 2.1.
"KEY PERSONNEL" has the meaning set forth in Schedule 5.6, Section 8.
"KNOWLEDGE OF SELLERS" or "SELLERS' KNOWLEDGE" means the actual knowledge
of those persons set forth on Schedule 1.1(E) of the Disclosure Schedule.
"KUPARUK" has the meaning set forth in the Recitals.
"KUPARUK LINE FILL" means the barrels of Alaska North Slope oil and natural
gas liquids owned by ARCO, determined as of 11:59 P.M. (Alaska Time) on the
First Closing Date, that are contained between the inlet of Kuparuk's pipeline
system and the inlet of TAPS Pump Station No. 1.
"KUPARUK ROYALTY PRICE" means the weighted average royalty price per barrel
paid by ARCO Alaska for production attributable to the Kuparuk River Unit for
the production month in which the First Closing occurs, as initially published
in the Monthly Royalty Report by the State of Alaska.
"KUPARUK SHARES" has the meaning set forth in the Recitals.
"LAW" means any foreign, federal, state or local law, statute, ordinance,
directive, rule, regulation, order, judgment, decree, injunction or other
legally binding obligation imposed by a Governmental Entity.
"LONG-TERM SUPPLY CONTRACT" has the meaning set forth in Section 5.14.
"LOSSES" has the meaning set forth in Section 8.2.
"MARINE COMPANIES" means, collectively, AMI and ARCO Marine.
"MARINE EMPLOYEES" shall mean current and former employees of ARCO Marine
for whom Sellers retain any liability pursuant to Schedule 5.6, Section 13.
"MARINE FINANCIAL STATEMENTS" has the meaning set forth in Section 3.7.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
financial condition, business, assets or results of operations of the Companies
taken as a whole, but shall exclude any effect resulting from any change after
the date of this Agreement (i) in Law or interpretations thereof, (ii) in
economic or business conditions generally, (iii) in
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the oil and gas industry generally or (iv) arising out of the announcement of
this Agreement or the consummation of the transactions contemplated hereby.
"MATERIAL CONTRACT" means any Contract to which any Company is a party that
would be considered a "Material Contract" of the Companies under Item 601(b) of
Regulation S-K promulgated under the Securities Act and the Exchange Act if all
of the Companies, taken together, constituted a reporting company under the
Exchange Act.
"MERGER AGREEMENT" has the meaning set forth in the Recitals.
"NECESSARY CONSENT" has the meaning set forth in Section 2.4(c).
"NET REVENUE INTEREST BARRELS" has the meaning set forth in Section 2.8(c).
"NON-UNIT RESERVE PITS" means the reserve pit sites associated with the
Producing Properties other than the Unit Reserve Pits.
"NORM" means naturally occurring radioactive materials.
"NOTICE PERIOD" has the meaning set forth in Section 8.4.
"OLIKTOK" has the meaning set forth in the Recitals.
"OLIKTOK SHARES" has the meaning set forth in the Recitals.
"ORDER" has the meaning set forth in Section 5.4(d).
"PERMITTED ENCUMBRANCES" means any and all of the following:
(a) the obligations of ARCO Alaska under the Alignment Agreement;
(b) any consents to assignment required under Contracts set forth on
Schedule 3.6;
(c) preferential rights to purchase affecting any of the Shares or
the Conveyed Properties described in Section 2.7;
(d) rights to consent by, required notices to, and filings with any
Governmental Entity associated with the conveyance of the Shares or Conveyed
Properties;
(e) rights reserved to or vested by Law in a Governmental Entity having
jurisdiction to control or regulate any of the Companies or Properties in any
manner whatsoever, and all Laws of such Governmental Entities;
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(f) obligations and restrictions to which any Company or its Properties are
subject under the Charter, the Provisional Consent Order or the State Consent
Order;
(g) the terms and conditions of the unitizations, communitizations,
poolings, agreements, instruments, licenses and permits affecting the
Properties;
(h) liens for taxes or assessments not yet delinquent or, if delinquent,
are being contested by a Seller or a Company in good faith in the ordinary
course of business;
(i) liens of operators relating to obligations not yet delinquent or, if
delinquent, are being contested by a Seller or a Company in good faith in the
ordinary course of business; and
(j) the matters referenced on Schedule 3.8(a) and Schedule 3.8(b).
"PERSON" means an individual, a corporation, a partnership, an association,
a limited liability company, a trust or other entity or organization, including
any Governmental Entity.
"PERSONNEL" has the meaning set forth in Schedule 5.6, Section 1.
"PIPELINE ADJUSTMENT PAYMENT" has the meaning set forth in Section 2.5(c).
"PIPELINE ASSETS" means, collectively, the ATAI Shares, the Kuparuk Shares,
the Oliktok Shares, the Alpine Shares, the CIPC Shares, the AMI Conveyed
Contract and the Alpine Rights-of-Way.
"PIPELINE ASSETS PURCHASE PRICE" has the meaning set forth in Section 2.1.
"PIPELINE COMPANIES" means, collectively, ATAI, Kuparuk, Oliktok, Alpine
and CIPC.
"PIPELINE ESTIMATED ADJUSTMENT" has the meaning set forth in Section
2.4(b)(iii).
"PIPELINE FINANCIAL STATEMENTS" has the meaning set forth in Section 3.7.
"POST-CLOSING PERIOD" means (i) with respect to the Producing Companies,
UTP Holdings, the Product Inventory and the AMI Conveyed Properties, each
taxable period that starts after the First Closing Date and, in the case of a
taxable period beginning before and ending after the First Closing Date, the
portion of such period beginning after the First Closing Date, (ii) with respect
to ARCO Marine, each taxable period that starts after the ARCO Marine Transfer
Date and, in the case of a taxable period beginning before and ending after the
ARCO Marine Transfer Date, the portion of such period beginning after the ARCO
Marine Transfer Date, (iii) with respect to the Pipeline
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Companies, CIPC and the Alpine Rights-of-Way, each taxable period that starts
after the Second Closing Date and, in the case of a taxable period beginning
before and ending after the Second Closing Date, the portion of such period
beginning after the Second Closing Date and (iv) with respect to the AMI
Conveyed Contract, each taxable period that starts after the applicable Closing
Date, and, in the case of a taxable period beginning before and ending after
such Closing Date, the portion of such period beginning after such Closing Date.
"POST-EFFECTIVE TIME PERIOD" means each taxable period that begins after
December 31, 1999 and, in the case of a taxable period beginning before and
ending after December 31, 1999, the portion of such period beginning after
December 31, 1999.
"PRAIRIE" has the meaning set forth in the Recitals.
"PRE-CLOSING PERIOD" means (i) with respect to the Producing Companies, UTP
Holdings, ARCO Marine, the Product Inventory and the AMI Conveyed Properties,
each taxable period that ends on or before the First Closing Date and, in the
case of a taxable period beginning before and ending after the First Closing
Date, the portion of such period through the end of the First Closing Date, (ii)
with respect to ARCO Marine, each taxable period that ends on or before the ARCO
Marine Transfer Date and, in the case of a taxable period beginning before and
ending after the ARCO Marine Transfer Date, the portion of such period through
the end of ARCO Marine Transfer Date, (iii) with respect to the Pipeline
Companies, CIPC and the Alpine Rights-of-Way, each taxable period that ends on
or before the Second Closing Date and, in the case of a taxable period beginning
before and ending after the Second Closing Date, the portion of such period
through the end of the Second Closing Date and (iv) with respect to the AMI
Conveyed Contract, each taxable period that ends on or before the applicable
Closing Date, and, in the case of a taxable period beginning before and ending
after such Closing Date, the portion of such period through the end of such
Closing Date.
"PRE-EFFECTIVE TIME PERIOD" means each taxable period that ends on or
before December 31, 1999 and, in the case of a taxable period beginning before
and ending after December 31, 1999, the portion of such period through the end
of December 31, 1999.
"PREFERENTIAL RIGHT" has the meaning set forth in Section 2.7.
"PROCESS SAFETY MANAGEMENT" means all processes and activities required to
comply with Process Safety Management of Highly Hazardous Chemicals; Explosives
and Blasting Agents (29 U.S. Code of Federal Regulations ss. 1910), as amended
from time to time.
"PRODUCING AND MARINE ADJUSTMENT PAYMENT" has the meaning set forth in
Section 2.3(e).
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"PRODUCING AND MARINE ASSETS" means, collectively, the ARCO Alaska Shares,
the UTP Holdings Shares, the ARCO Beluga Shares, the ARCO Marine Shares, the AMI
Conveyed Properties and the Product Inventory.
"PRODUCING AND MARINE ASSETS PURCHASE PRICE" has the meaning set forth in
Section 2.1.
"PRODUCING AND MARINE ESTIMATED ADJUSTMENT" has the meaning set forth in
Section 2.2(b)(vi).
"PRODUCING COMPANIES" means, collectively, ARCO Alaska, UTA and ARCO
Beluga.
"PRODUCING FINANCIAL STATEMENTS" has the meaning set forth in Section 3.7.
"PRODUCING PROPERTIES" means, with respect to ARCO Alaska, UTA and ARCO
Beluga, all oil and gas leasehold interests constituting part of the Properties
of such Company and all property (whether real, personal or mixed) relating to,
situated upon, used or held for use by such Company in connection with the
ownership, operation, maintenance or repair of such leasehold interests.
"PRODUCT INVENTORY" means the Kuparuk Line Fill, the TAPS Line Fill and the
Tanker Cargo.
"PRODUCT INVENTORY PURCHASE PRICE ADJUSTMENT" means the Final Product
Inventory Purchase Price minus the Estimated Product Inventory Purchase Price.
"PROPERTIES" means (i) with respect to each Company, all rights and
interests of any kind held by such Company in and to any property, whether real,
personal, mixed, contractual or otherwise, (ii) with respect to ARCO, all rights
and interests of any kind held by ARCO in and to the Alpine Rights-of-Way; (iii)
with respect to AMI, all rights and interests of any kind held by AMI in and to
the AMI Conveyed Properties and the AMI Conveyed Contract; and (iv) with respect
to ARCO, all rights and interests of ARCO in and to the Product Inventory.
"PROVISIONAL CONSENT ORDER" means the Decree and Order of the FTC in the
matter of BP Amoco and ARCO prior to the entry of a final order in respect
thereof.
"PURCHASE PRICE" has the meaning set forth in Section 2.1.
"PURCHASER" has the meaning set forth in the Preamble.
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"PURCHASER DEFINED CONTRIBUTION PLAN" has the meaning set forth in Schedule
5.6, Section 3.
"PURCHASER INDEMNIFIED PARTIES" has the meaning set forth in Section 8.3.
"PURCHASER PENSION PLANS" has the meaning set forth in Schedule 5.6,
Section 2.
"PURCHASER SAVINGS PLAN" has the meaning set forth in Schedule 5.6, Section
4.
"PURCHASER'S OBJECTION" has the meaning set forth in Section 2.3(b).
"PURCHASER TAX INDEMNITEE" means the Purchaser and its Subsidiaries and
Affiliates (including each Company after the Closing Date applicable to such
Company).
"RCA" has the meaning set forth in Section 2.6(a)(iii).
"REQUIRED GOVERNMENTAL CONSENTS" means the reports, filings, registrations,
notices, consents, approvals, waivers, and authorizations referred to in Section
3.5 (including Schedule 3.5 of the Disclosure Schedule) and Section 4.3.
"SECOND CLOSING" has the meaning set forth in Section 2.4(a).
"SECOND CLOSING DATE" has the meaning set forth in Section 2.4(a).
"SECTION 338(H)(10) ELECTION" has the meaning set forth in Section
5.5(f)(i).
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended.
"SELLER" and "SELLERS" have the meaning set forth in the Preamble.
"SELLER INDEMNIFIED PARTIES" has the meaning set forth in Section 8.2.
"SELLER TAX INDEMNITEE" means Sellers and their Subsidiaries and
Affiliates, other than the Companies.
"SETTLEMENTS" has the meaning set forth in Section 2.3(a).
"SHARES" has the meaning set forth in the Recitals.
"SSP" has the meaning set forth in Section 2.8(a).
"STATE CONSENT ORDER" means the Consent Decree and Final Judgment in the
matter of STATE OF CALIFORNIA, STATE OF OREGON AND STATE OF WASHINGTON v.
ATLANTIC RICHFIELD COMPANY AND BP AMOCO P.L.C.
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"SUBSIDIARY" means with respect to any Person, any corporation or other
entity of which such Person has, directly or indirectly, ownership of securities
or other interests having the power to elect a majority of such corporation's
Board of Directors (or similar governing body), or otherwise having the power to
direct the business and policies of that corporation.
"TANKER CARGO" means the barrels of Alaska North Slope oil and natural gas
liquids owned by ARCO, determined as of 11:59 P.M. (Alaska Time) on the First
Closing Date, that are contained on board any tanker that on-loaded its cargo at
Valdez and has not begun off-loading such cargo.
"TAPS" means the Trans Alaska Pipeline System.
"TAPS LINE FILL" means the barrels of Alaska North Slope oil and natural
gas liquids owned by ARCO, determined as of the 11:59 P.M. (Alaska Time) on the
First Closing Date based upon the Alyeska Pipeline Service Company Owner Data
Reporting System Inventory By Carrier/Owner RPT NO. ODR - 1 and provided by the
applicable carriers, that are contained between the inlet of TAPS Pump Station
No. 1 and the outlet of the Valdez terminal.
"TAPS ROYALTY PRICE" means the weighted average royalty price per barrel,
calculated excluding gas products and natural gas liquids injected at Kuparuk
River Unit paid by ARCO Alaska for the production month in which the First
Closing occurs, as initially published in the Monthly Royalty Report by the
State of Alaska.
"TAXES" shall mean all federal, state, local or foreign income, gross
receipts, windfall profits, value added, severance, property, production, sales,
use, license, excise, franchise, employment, withholding or similar taxes
together with any interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties.
"TAX INDEMNITEE" means either a Purchaser Tax Indemnitee or a Seller Tax
Indemnitee.
"TAX PACKAGE" has the meaning set forth in Section 5.5(c).
"TAX PROCEEDING" has the meaning set forth in Section 5.5(a)(viii).
"TAX RESERVES" means amounts payable, accrued liabilities or other amounts
owing in respect of Taxes attributable to the operations of any Company.
"TAX RETURNS" means all reports and returns required to be filed with
respect to Taxes.
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"THIRD PARTY CLAIM NOTICE" has the meaning set forth in Section 8.4.
"THIRD PARTY CLAIMS" means any and all claims, demands, suits, causes of
action, losses, damages, liabilities, fines, penalties and costs (including,
without limitation, attorneys' fees and costs of litigation), whether known or
unknown, that are brought by or owed to a "third party". For the purpose of this
definition, the term "THIRD PARTY" shall mean any Person other than the parties
hereto; PROVIDED that a claim, demand, suit or cause of action by an officer,
director, employee or Affiliate of a party against that Party shall not be a
claim, demand, suit or cause of action brought by or owed to a "third party".
"THIRD PARTY INTELLECTUAL PROPERTY" has the meaning set forth in Section
5.15(e).
"TRANSITION DATE" has the meaning set forth in Schedule 5.6, Section 12.
"UNISTAR" means Unistar, Inc., a Delaware corporation.
"UNIT RESERVE PITS" means the reserve pit sites associated with the
Producing Properties that are subject to that certain Stipulation And Final
Consent Judgment, dated May 3, 1993, entered in NATURAL RESOURCES DEFENSE
COUNCIL INC. v. ARCO ALASKA, INC., No. A88-287 CIV (D. Alaska), as amended, and
other reserve pits associated with currently active oil and gas production units
in which any Company has a unit interest.
"UTA" has the meaning set forth in the Recitals.
"UTA INTERESTS" has the meaning set forth in the Recitals.
"UTP ENERGY" means Union Texas Petroleum Energy Corporation, a Delaware
corporation.
"UTP HOLDINGS" has the meaning set forth in the Recitals.
"UTP HOLDINGS SHARES" has the meaning set forth in the Recitals.
"VALUE" means, with respect to each Field, the specified amount allocated
in Schedule 8.9 of the Disclosure Schedule to the Area Participation Percentage
in such Field.
"WARN OBLIGATIONS" has the meaning set forth in Schedule 5.6, Section 9.
"WTI PRICE" has the meaning set forth in Section 2.8(c).
"YEAR-END FINANCIAL STATEMENTS" has the meaning set forth in Section 3.7.
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Section 1.2 OTHER TERMS. Other terms may be defined elsewhere in the
text of this Agreement or the Schedules hereto and, unless otherwise indicated,
have such meanings throughout this Agreement.
Section 1.3 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof",
"herein", and "hereunder" and words of similar import, when used in this
Agreement, refer to this Agreement as a whole and not to any particular
provision of this Agreement.
(b) Terms defined in the singular have a comparable meaning when used
in the plural, and vice versa.
(c) Wherever the word "include," "includes," or "including" is used in
this Agreement, it shall be deemed to be followed by the words "without
limitation."
(d) This Agreement shall be deemed to have been drafted by each party
hereto and shall not be construed against any party as the principal
draftsperson hereof.
ARTICLE II
PURCHASE AND SALE OF THE SHARES AND CONVEYED PROPERTIES
Section 2.1 PURCHASE AND SALE. On the terms and subject to the
conditions set forth herein:
(a) ARCO agrees to sell, transfer, assign, convey and deliver to
Purchaser the ARCO Alaska Shares, the ATAI Shares, the Kuparuk Shares, the
Oliktok Shares, the Alpine Shares, the ARCO Marine Shares, the UTP Holdings
Shares, the CIPC Shares and the Alpine Rights-of-Way;
(b) CH-20 agrees to sell, transfer, assign, convey and deliver to
Purchaser the ARCO Beluga Shares;
(c) ARCO agrees to cause AMI to sell, transfer, assign, convey and
deliver to Purchaser the AMI Conveyed Properties and the AMI Conveyed Contract;
and
(d) ARCO agrees to sell, transfer, assign, convey and deliver to
Purchaser the Product Inventory;
and Purchaser agrees to purchase and accept from Sellers and AMI, all of such
Shares, Conveyed Properties and Product Inventory, for an aggregate purchase
price (the "PURCHASE PRICE") consisting of (i) for the Producing and Marine
Assets, $5,724,213,643 (the "INITIAL PRODUCING AND MARINE ASSETS PURCHASE
PRICE"), subject to adjustment as provided in Sections 2.3 and 2.8(e) (as so
adjusted, the "PRODUCING AND MARINE ASSETS PURCHASE PRICE"), plus, as additional
consideration for ARCO Alaska and UTP Holdings,
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such SSPs as are payable in respect of production occurring after the Cutoff
Date pursuant to Section 2.8 and (ii) for the Pipeline Assets, $921,000,000,
less the aggregate principal amount of Bonds outstanding as of the close of
business on the day prior to the Second Closing Date (the "INITIAL PIPELINE
ASSETS PURCHASE PRICE"), less any reduction required pursuant to Section 2.7 and
subject to adjustment as provided in Section 2.5 (as so reduced or adjusted, the
"PIPELINE ASSETS PURCHASE PRICE").
Section 2.2 FIRST CLOSING; PRODUCING AND MARINE ASSETS DELIVERY AND
PAYMENT.
(a) The consummation of the purchase and sale of the Producing and
Marine Assets other than the ARCO Marine Shares (the delivery of which to
Purchaser shall be effected in accordance with Section 2.6(b)(vi)) (the "FIRST
CLOSING") shall take place at the offices of Sullivan & Cromwell, 125 Broad
Street, New York, New York at 10:00 A.M., New York City time, on the later of
(i) the third Business Day following satisfaction or waiver of the conditions
set forth in Sections 6.1, 6.2 and 6.3 of this Agreement (other than those
conditions that by their terms are to be satisfied at the First Closing, but
subject to the satisfaction or waiver at or prior to the First Closing of all
such conditions) and (ii) the tenth calendar day following the consummation of
the BP Amoco/ARCO Merger, or at such other time and place as the parties hereto
may mutually agree, but in no event shall occur before April 3, 2000. The date
and time at which the First Closing occurs is sometimes referred to herein as
the "FIRST CLOSING DATE".
(b) At the First Closing:
(i) ARCO shall deliver to Purchaser certificates evidencing the ARCO
Alaska Shares and the UTP Holdings Shares, each duly endorsed in blank or
accompanied by stock powers duly executed in blank, in proper form for
transfer and with any requisite stock transfer tax stamps properly affixed
thereto;
(ii) CH-20 shall deliver to Purchaser a certificate or certificates
evidencing the ARCO Beluga Shares, duly endorsed in blank or accompanied by
stock powers duly executed in blank, in proper form for transfer and with
any requisite stock transfer tax stamps properly affixed thereto;
(iii) ARCO shall cause AMI to deliver to Purchaser an instrument of
sale and assignment, in a form reasonably acceptable to Purchaser, for the
AMI Conveyed Properties, the deliveries of which to Purchaser shall be
subject to the timing for such deliveries agreed between the parties, as
specified in such instrument;
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(iv) ARCO shall deliver or cause its Subsidiaries to deliver to
Purchaser a bill of sale, in a form reasonably acceptable to Purchaser, for
the Product Inventory;
(v) ARCO shall deliver or cause to be delivered to Purchaser (A) all
documents or other media constituting ARCO Seismic Data and (B) an
instrument of sale and assignment, in a form reasonably acceptable to
Purchaser, for the ARCO Patents, in each case to be transferred to
Purchaser in accordance with Section 5.15; and
(vi) Purchaser shall pay to Sellers an amount equal to the sum of (A)
the Initial Producing and Marine Assets Purchase Price (B) an estimate
(expressed as a positive or a negative amount), prepared by Sellers and
delivered to Purchaser at least three Business Days prior to the First
Closing Date, of any adjustment to the Initial Producing and Marine Assets
Purchase Price that will be required in accordance with Section 2.3 (a)
through (e) (the "PRODUCING AND MARINE ESTIMATED ADJUSTMENT") and (C) such
SSPs as are payable in respect of production occurring from the Effective
Time to and including the Cutoff Date pursuant to Section 2.8(e), by wire
transfer of immediately available funds to an account or accounts
designated in writing not less than two Business Days prior to the First
Closing by Sellers to Purchaser. The Initial Producing and Marine Assets
Purchase Price shall be allocated among ARCO, CH-20 and AMI as set forth on
Schedule 2.2(b) of the Disclosure Schedule, subject to such adjustments
thereto as may be required by any adjustments to the Initial Producing and
Marine Assets Purchase Price in accordance with Section 2.3, which
adjustments shall be allocated among ARCO, CH-20 and AMI in the manner
agreed by Sellers and Purchaser. The parties agree that the foregoing
allocation and those set forth in Section 2.8(f) shall be binding on the
Sellers and Purchaser and their respective Affiliates and shall be used by
them for all Tax reporting.
Section 2.3 ADJUSTMENTS TO THE INITIAL PRODUCING AND MARINE ASSETS
PURCHASE PRICE.
(a) Within 120 days following the First Closing Date, Sellers shall
prepare and deliver to Purchaser a schedule of Settlements and special purpose
audited financial statements (including a balance sheet, income statement and
statement of cash flows) for the Producing Companies for the period beginning as
of the Effective Date and ending at the close of business on the First Closing
Date or, in the case of such balance sheet, as at the close of business on the
First Closing Date (a "CLOSING PRODUCING SCHEDULE OF SETTLEMENTS" and "CLOSING
PRODUCING FINANCIAL STATEMENTS," respectively) and a schedule of Settlements and
special purpose audited financial statements (including a balance sheet, income
statement and statement of cash flows) for the Marine Companies for the same
period and as at the same date, except that with respect to ARCO Marine,
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the operations, activities, transactions and accounts will be included only
through the ARCO Marine Transfer Date (a "CLOSING MARINE SCHEDULE OF
SETTLEMENTS" and "CLOSING MARINE FINANCIAL STATEMENTS," respectively). The
Closing Producing Schedule of Settlements and the Closing Marine Schedule of
Settlements are referred to herein as the "FIRST CLOSING SCHEDULES OF
SETTLEMENTS" and the Closing Producing Financial Statements and the Closing
Marine Financial Statements are referred to herein as the "FIRST CLOSING
FINANCIAL STATEMENTS". Each of the Closing Producing Financial Statements and
the Closing Marine Financial Statements will be prepared in accordance with
GAAP, applied in a manner consistent with the accounting principles and
methodology used in preparation of the Producing Financial Statements and the
Marine Financial Statements, respectively. Each First Closing Schedule of
Settlements shall include a line item for "Settlements" for the period covered
thereby, and shall be prepared in accordance with the procedures set forth in
this Section 2.3(a). Each First Closing Schedule of Settlements shall be
accompanied by a report thereon of Ernst & Young LLP that the Settlements have
been determined in accordance with this Section 2.3(a). Purchaser shall provide
Sellers and their accountants full access to the books and records, any other
information, including working papers of its accountants, and to any employees,
to the extent necessary for Sellers to prepare the First Closing Schedules of
Settlements and the First Closing Financial Statements to be delivered by
Sellers. For purposes of this Article II, the term "SETTLEMENTS" means, with
respect to the applicable period, the net cash withdrawn from or contributed to
the Producing Companies, the Marine Companies or the Pipeline Companies, as
applicable, by (i) ARCO, (ii) any Affiliate of ARCO that is not a Company or
(iii) UTP Holdings, including provision for payment of any receivables or
payables with ARCO or any Affiliate of ARCO in accordance with past practice.
Generally consistent, except as modified by clauses (2), (3), (4), (6) and (9)
below, with the "Settlements with ARCO" line on the cash flow statements
included in the Year-End Financial Statements described in Section 3.7,
Settlements will be determined by the following methodology, which shall
constitute a First Closing Schedule of Settlements, or, as applied pursuant to
Section 2.5(a), the Closing Pipeline Schedule of Settlements:
(1) The base amount shall be net income (loss) before income taxes*;
(2) Add back any charges* from (A) ARCO, (B) any Affiliate of ARCO
that is not a Company or (C) UTP Holdings for employee benefit costs or
corporate services included in (1) above;
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* The Schedule of Settlements items set forth in clauses (1), (2), (5), (7),
(8) and (9) will be determined from the applicable First Closing Financial
Statements or the Closing Pipeline Financial Statements, as the case may be.
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(3) Subtract employee benefit costs for benefits provided by (A) ARCO,
(B) any Affiliate of ARCO that is not a Company or (C) UTP Holdings at the
rate of 28% of salaries and wages expense, and charges of $1,200,000 for
the Producing Companies, $500,000 for the Pipeline Companies, and $250,000
for the Marine Companies, per month, for corporate services, pro-rated for
any partial month periods;
(4) Adjust by an amount determined as the product of a specified tax
rate of 38.5% and net income (loss) before income taxes, as adjusted for
(2) and (3) above, but without regard to any income or loss relating to any
Taxes set forth in Section 5.5(a)(i)(D), (E), (G) or (H), and without
regard to any income or loss relating to any extraordinary transaction
occurring before the Effective Date;
(5) Adjust to remove non-cash amounts in (1) above, which will
include, but not necessarily be limited to, (A) adjustments to remove the
effects of changes in non-cash working capital but not including any
income taxes payable or refundable, (B) depreciation, depletion and
amortization charges, including non-cash charges for future dismantlement,
restoration and abandonment and (C) non-cash dry hole expense*;
(6) Plus the amount of taxes (other than income taxes) included in the
accrued liabilities at December 31, 1999, as shown in the audited Year-End
Financial Statements referenced in Section 3.7;
(7) Plus or minus cash flows from investing activities*;
(8) Plus or minus cash flows from financing activities* other than
activities with (A) ARCO, (B) any Affiliate of ARCO that is not a Company
or (C) UTP Holdings;
(9) (A) Plus any cash investment into or minus any cash withdrawal
from the capital construction fund of AMI and (B) plus the amount of any
payments (net of any refunds) made by AMI under the AMI Conveyed Contract*;
and
(10) The amount of Settlements shall be computed by subtracting the
amount computed in items (1) through (9) from any net change during the
period,
- ----------------------
* The Schedule of Settlements items set forth in clauses (1), (2), (5), (7),
(8) and (9) will be determined from the applicable First Closing Financial
Statements or the Closing Pipeline Financial Statements, as the case may be.
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expressed as a positive (if an increase) or negative (if a decrease)
amount, in cash retained in the applicable Company.
(b) Purchaser shall, within 60 days after the delivery by Sellers of
the First Closing Schedules of Settlements, complete its review of Settlements
as reflected on each First Closing Schedule of Settlements. Each First Closing
Schedule of Settlements shall be binding and conclusive upon, and deemed
accepted by, Purchaser unless Purchaser shall have notified Sellers in writing
within 60 days after delivery of the First Closing Schedules of Settlements of
any good faith objection (a "PURCHASER'S OBJECTION") to any item on such First
Closing Schedule of Settlements, PROVIDED that no such objection may be based on
(i) the accounting principles and methodology used in preparation of such First
Closing Schedule of Settlements or the related First Closing Financial
Statements if such accounting principles and methodology are consistent with the
accounting principles and methodology used in preparation of the Producing
Financial Statements or the Marine Financial Statements, as the case may be, and
the provisions of this Agreement or (ii) the pricing of goods, services, costs
and charges between any Company and ARCO or any Affiliate of ARCO to the extent
such pricing is consistent with past practice prior to the Effective Date,
except as expressly provided in clause (3) of Section 2.3(a). A Purchaser's
Objection shall set forth a specific description of the basis of Purchaser's
objection and the adjustments to Settlements reflected on each First Closing
Statement of Settlements which Purchaser believes should be made. Any items not
disputed during the aforementioned 60-day period shall be deemed to have been
accepted by Purchaser.
(c) If Sellers and Purchaser are unable to resolve all of their
disputes with respect to either First Closing Schedule of Settlements within 15
days following Sellers' receipt of Purchaser's Objection pursuant to Section
2.3(b), they shall refer their remaining differences to Deloitte & Touche or
another internationally recognized firm of independent public accountants as to
which Sellers and Purchaser mutually agree (the "CPA FIRM") for decision as to
whether, insofar as it relates to the unresolved elements of the Purchaser's
Objection, the First Closing Schedule of Settlements that is the subject of the
Purchaser's Objection was prepared in accordance with the procedure set forth in
Section 2.3(a), or whether the relevant First Closing Financial Statements on
which such First Closing Schedule of Settlements was based present fairly in
accordance with GAAP, applied in a manner consistent with the accounting
principles and methodology used in preparation of the Producing Financial
Statements or Marine Financial Statements, as the case may be, the financial
position, results of operations and cash flows of the entities included therein
for the periods presented, which decision shall be final and binding on the
parties. Any unresolved element of Purchaser's Objection shall be submitted to
the CPA Firm only if such element individually would have an effect on the
Producing and Marine Adjustment Payment exceeding $250,000 if resolved in
Purchaser's favor, and then only if the total effect on the Producing and Marine
Adjustment Payment of all unresolved elements of Purchaser's Objection taken
together would exceed $2,000,000 if
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all such elements were resolved in Purchaser's favor. Otherwise, each
First Closing Schedule of Settlements, as adjusted pursuant to any
agreement between the parties, shall be deemed accepted by Purchaser.
The procedure and schedule under which any dispute shall be submitted
to the CPA Firm shall be as follows:
(i) Within 15 days following a Purchaser's Objection under Section
2.3(b), Purchaser shall submit any unresolved elements of its objection to
the CPA Firm in writing, supported by any documents and/or affidavits upon
which it relies. Failure to do so shall constitute a withdrawal by
Purchaser of Purchaser's Objection with respect to any unresolved element
to which such failure relates.
(ii) Within 15 days following Purchaser's submission of the unresolved
elements of Purchaser's Objection as specified in clause (i) above, Sellers
shall submit their response to the CPA Firm in writing, supported by any
documents and/or affidavits upon which it relies.
(iii) The CPA Firm shall deliver its written opinion within 20 days
following its receipt of the information provided for in clauses (i) and
(ii) above, or such longer period of time as the CPA Firm determines is
necessary. Sellers and Purchaser shall make readily available to the CPA
Firm all relevant books and records and any work papers (including those of
the parties' respective accountants) relating to the applicable First
Closing Schedules of Settlements and all other items reasonably requested
by the CPA Firm.
Each party shall deliver to the other a copy of all material submitted to the
CPA Firm within one Business Day after such material is so submitted. Any
expenses relating to the engagement of the CPA Firm shall be shared equally by
Sellers and Purchaser. Sellers and Purchaser shall each bear the fees of their
respective accountants incurred in connection with the review and determination
contemplated by this Section 2.3(c).
(d) Each of the Closing Producing Schedule of Settlements and the
Closing Marine Schedule of Settlements shall become final and binding on the
parties upon the earliest of (i) if no Purchaser's Objection has been given with
respect to such First Closing Schedule of Settlements, the expiration of the
period within which Purchaser must make its objection pursuant to Section
2.3(b), (ii) agreement in writing by Sellers and Purchaser that such First
Closing Schedules of Settlements, together with any modifications thereto agreed
by Sellers and Purchaser, shall be final and binding, (iii) the deemed
withdrawal of the last unresolved element of Purchaser's Objection in accordance
with Section 2.3(c)(i), and (iv) the date on which the CPA Firm shall issue its
written determination with respect to any dispute relating to such First Closing
Schedules of Settlements. Each of the Closing Producing Schedule of Settlements
and the Closing Marine Schedule of Settlements, in each case as submitted by
Sellers if no timely
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Purchaser's Objection has been given or as adjusted pursuant to any agreement
between the parties or as determined pursuant to the decision of the CPA Firm,
when final and binding on all parties, is herein referred to as the "FINAL
CLOSING PRODUCING SCHEDULE OF SETTLEMENTS" and the "FINAL CLOSING MARINE
SCHEDULE OF SETTLEMENTS," respectively.
(e) Within 10 Business Days following issuance of the Final Closing
Producing Schedule of Settlements and the Final Closing Marine Schedule of
Settlements, respectively, the net adjustment payment payable pursuant to this
Section 2.3(e) (the "PRODUCING AND MARINE ADJUSTMENT PAYMENT") shall be paid by
wire transfer of immediately available funds to a bank account designated by
Sellers or Purchaser, as the case may be. The Producing and Marine Adjustment
Payment shall be equal to (i) the sum of the amounts (whether positive or
negative) shown as Settlements on the Final Closing Producing Schedule of
Settlements and the Final Closing Marine Schedule of Settlements, respectively,
minus (ii) the Producing and Marine Estimated Adjustment, in the case of each of
(i) and (ii), expressed as a positive or negative amount. The Producing and
Marine Adjustment Payment shall be payable by Purchaser to Sellers, if positive,
and by Sellers to Purchaser, if negative.
(f) As soon as reasonably practicable, but in no event later than 90
days after the First Closing Date, ARCO will deliver to Purchaser a statement
that sets forth ARCO's determination of the Product Inventory Purchase Price
Adjustment. ARCO will provide Purchaser access during ARCO's regular business
hours to records necessary for Purchaser to conduct a review of such statement.
As soon as reasonably practicable, but in no event later than 30 days after
Purchaser receives such statement, Purchaser may deliver to ARCO a written
report containing the changes that Purchaser proposes to be made to the
statement. If Purchaser fails to timely deliver the written report to ARCO
containing changes Purchaser proposes to be made to such statement, such
statement as delivered by ARCO will be deemed to be correct and will be final
and binding on the parties and not subject to further review, audit or
adjustment. As soon as practicable, but in no event later than 30 days after
ARCO receives Purchaser's written report, the parties shall meet and undertake
to agree on the final adjustments to the statement. If the parties fail to agree
on the final adjustments to the statement within the 30-day period, either party
may submit the dispute to the CPA Firm for resolution. If neither party submits
the dispute to the CPA Firm for resolution within such 30-day period, the
statement delivered by ARCO will be deemed to be correct and will be final and
binding on the parties and not subject to further review, audit or adjustment.
In resolving any dispute, the CPA Firm shall limit its review to verifying the
Kuparuk Royalty Price, TAPS Royalty Price, Kuparuk Line Fill (in barrels), TAPS
Line Fill (in barrels), Tanker Cargo (in barrels), and Final Product Inventory
Purchase Price. The parties shall direct the CPA Firm to resolve the disputes
within 60 days after having the relevant materials submitted for review. The
decision of the CPA Firm shall be binding on and non-appealable by the parties.
If the Product Inventory Purchase Price Adjustment is negative, then ARCO shall
pay Purchaser an amount equal to the Product Inventory Purchase Price
Adjustment, and if
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the Product Inventory Purchase Price Adjustment is positive, then Purchaser
shall pay ARCO an amount equal to the Product Inventory Purchase Price
Adjustment. Any amounts owed by one party to the other as a result of the review
process will be paid by wire transfer of immediately available funds to a bank
account designated by ARCO or Purchaser, as the case may be, within 30 days
after the date when the statement delivered by ARCO to Purchaser becomes final
and binding on the parties, final adjustments to the statement are agreed upon
by ARCO and Purchaser or they receive the decision of the CPA Firm.
Section 2.4 SECOND CLOSING; PIPELINE ASSETS DELIVERY AND PAYMENT.
(a) The consummation of the purchase and sale of the Pipeline Assets
(the "SECOND CLOSING"; each of the First Closing and the Second Closing being
referred to herein as a "CLOSING") shall take place at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York at 10:00 A.M., New York City
time, on the third Business Day following satisfaction or waiver of the
conditions set forth in Section 6.4 of this Agreement (other than those
conditions that by their terms are to be satisfied at the Second Closing, but
subject to the satisfaction or waiver at or prior to the Second Closing of all
such conditions), or at such other time and place as the parties hereto may
mutually agree. The date and time at which the Second Closing occurs is
sometimes referred to herein as the "SECOND CLOSING DATE".
(b) At the Second Closing, subject to the provisions of Section
2.4(c):
(i) ARCO shall deliver to Purchaser (A) certificates evidencing the
ATAI Shares, the Kuparuk Shares, the Oliktok Shares, the Alpine Shares and
the CIPC Shares, each duly endorsed in blank or accompanied by stock powers
duly executed in blank, in proper form for transfer and with any requisite
stock transfer tax stamps properly affixed thereto, and (B) an instrument
or instruments of transfer, assignment and conveyance, in a form to be
reasonably acceptable to Purchaser, sufficient to transfer, assign and
convey to Purchaser the Alpine Rights-of-Way;
(ii) ARCO shall cause AMI to execute and deliver to Purchaser, and
Purchaser shall execute and deliver to AMI, an instrument of assignment and
assumption, in a form reasonably acceptable to ARCO and Purchaser, for the
AMI Conveyed Contract; and
(iii) Purchaser shall pay to Sellers an amount equal to the sum of (A)
the Initial Pipeline Assets Purchase Price, less any reduction required
pursuant to Section 2.7, and (B) an estimate (expressed as a positive or a
negative amount), prepared by Sellers and delivered to Purchaser at least
three Business Days prior to the Second Closing Date, of any adjustment to
the Initial Pipeline Assets
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Purchase Price as of the Second Closing Date that will be required in
accordance with Section 2.5 (the "PIPELINE ESTIMATED ADJUSTMENT"), by wire
transfer of immediately available funds to an account or accounts
designated in writing not less than two Business Days prior to the Second
Closing by Sellers to Purchaser. The Initial Pipeline Assets Purchase Price
shall be allocated among the Pipeline Assets as set forth on Schedule
2.4(b) of the Disclosure Schedule, subject to such adjustments thereto as
may be required by any adjustments to the Initial Pipeline Assets Purchase
Price in accordance with Section 2.5, which adjustments shall be allocated
among the Pipeline Assets in the manner agreed by Sellers and Purchaser.
The parties agree that the foregoing allocation shall be binding on the
Sellers and Purchaser and their respective Affiliates and shall be used by
them for all Tax reporting.
(c) In the event that all Required Governmental Consents and any other
consent or waiver of any third party necessary for the sale, transfer,
assignment, conveyance and delivery of the Pipeline Assets (each, a "NECESSARY
CONSENT") shall have been obtained except that a Preferential Right shall have
been exercised in respect of the ATAI Shares (or the underlying Properties) or
the CIPC Shares, the sale, transfer, assignment, conveyance and delivery of all
Pipeline Assets other than the Shares in respect of which, or in respect of the
underlying Properties of which, a Preferential Right was exercised shall proceed
in accordance with Section 2.4(b), PROVIDED that (i) the Shares in respect of
which, or in respect of the underlying Properties of which, the Preferential
Right was exercised will not be sold, transferred, assigned, conveyed or
delivered to Purchaser and the parties shall have no further obligation to each
other with respect to the same except as provided in Section 2.7, (ii) the
Initial Pipeline Assets Purchase Price shall be reduced as provided in Section
2.7 and (iii) the Pipeline Estimated Adjustment shall exclude any estimated
Settlements with respect to such Shares.
Section 2.5 ADJUSTMENTS TO THE PIPELINE ASSETS PURCHASE PRICE.
(a) Within 120 days following the Second Closing Date, Sellers shall
prepare and deliver to Purchaser a schedule of Settlements and audited special
purpose financial statements (including a balance sheet, income statement and
statement of cash flows) for the Pipeline Companies for the period beginning as
of the Effective Date and ending at the close of business on the Second Closing
Date or, in the case of such balance sheet, as at the close of business on the
Second Closing Date (a "CLOSING PIPELINE SCHEDULE OF SETTLEMENTS" and "CLOSING
PIPELINE FINANCIAL STATEMENTS," respectively). The Closing Pipeline Financial
Statements will be prepared in accordance with GAAP, applied in a manner
consistent with the accounting principles and methodology used in preparation of
the Pipeline Financial Statements. The Closing Pipeline Schedule of Settlements
shall include a line item for Settlements for the period covered thereby and
shall be prepared in accordance with the procedures set forth in Section 2.3(a)
to the extent applicable to the Pipeline Companies. The Closing Pipeline
Schedule of
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Settlements shall be accompanied by a report thereon of Ernst & Young LLP that
the Settlements have been determined in accordance with Section 2.3(a) to the
extent applicable to the Pipeline Companies. Purchaser shall provide ARCO and
its accountants full access to the books and records, any other information,
including working papers of its accountants, and to any employees, to the extent
necessary for ARCO to prepare the Closing Pipeline Schedule of Settlements and
the Closing Pipeline Financial Statement delivered by Sellers. "Settlements" has
the meaning described in Section 2.3(a).
(b) Purchaser shall, within 60 days after the delivery by ARCO of the
Closing Pipeline Schedule of Settlements, complete its review of Settlements as
reflected on the Closing Pipeline Schedule of Settlements. The Closing Pipeline
Schedule of Settlements shall be binding and conclusive upon, and deemed
accepted by, Purchaser unless Purchaser shall have notified ARCO in writing
within 60 days after delivery of the Closing Pipeline Schedule of Settlements of
any good faith objection to any item on such Closing Pipeline Schedule of
Settlements, PROVIDED that no such objection may be based on (i) the accounting
principles and methodology used in preparation of such Closing Pipeline Schedule
of Settlements or the related Closing Pipeline Financial Statements if such
accounting principles and methodology are consistent with the accounting
principles and methodology used in preparation of the Pipeline Financial
Statements and the provisions of this Agreement or (ii) the pricing of goods,
services, costs and charges between any Pipeline Company and ARCO (or any
Affiliate of ARCO that is not a Company) to the extent such pricing is
consistent with past practice prior to the Effective Date, except as expressly
provided in clause (3) of Section 2.3(a). The procedures for the resolution of
any such good faith objection (which shall constitute a "Purchaser's Objection")
shall be the procedures applicable to a Purchaser's Objection pursuant to
Sections 2.3(b), (c) and (d); PROVIDED that any unresolved element of
Purchaser's Objection shall be submitted to the CPA Firm only if such element
individually would have an effect on the Pipeline Adjustment Payment exceeding
$250,000 if resolved in Purchaser's favor, and then only if the total effect on
the Pipeline Adjustment Payment of all unresolved elements of Purchaser's
Objection taken together would exceed $2,000,000 if all such elements were
resolved in Purchaser's favor. Otherwise, each of the Closing Pipeline Schedule
of Settlements, as adjusted pursuant to any agreement between the Parties, shall
be deemed accepted by Purchaser. The Closing Pipeline Schedule of Settlements,
as submitted by ARCO if no timely Purchaser's Objection has been given or as
adjusted pursuant to any agreement between the parties or as determined pursuant
to the decision of the CPA Firm, when final and binding on all parties, is
herein referred to as the "FINAL CLOSING PIPELINE SCHEDULE OF SETTLEMENTS."
(c) Within 10 Business Days following issuance of the Final Closing
Pipeline Schedule of Settlements, the net adjustment payment payable pursuant to
this Section 2.5(c) (the "PIPELINE ADJUSTMENT PAYMENT") shall be paid by wire
transfer of immediately available funds to a bank account designated by ARCO or
Purchaser, as the case may be. The Pipeline Adjustment Payment shall be equal to
(i) the amount shown as
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Settlements on the Final Closing Pipeline Schedule of Settlements, minus (ii)
the Pipeline Estimated Adjustment, in the case of each of (i) and (ii),
expressed as a positive or negative amount, plus (iii) the amount of any
payments (net of any refunds) made by AMI under the AMI Conveyed Contract during
the period beginning on the Effective Date and ending on the Second Closing
Date. The Pipeline Adjustment Payment shall be payable by Purchaser to ARCO, if
positive, and by ARCO to Purchaser, if negative.
(d) In the event that the provisions of Section 2.4(c) shall apply in
connection with the Second Closing with respect to any of the Pipeline Assets,
the provisions of this Section 2.5 shall remain in effect, PROVIDED that the
Closing Pipeline Settlement Schedule shall exclude any items attributable to any
Pipeline Company the Shares of which will not be sold, transferred, assigned,
conveyed or delivered to Purchaser in accordance with Section 2.4(c) and 2.7.
Section 2.6 ACTIONS PRIOR TO FIRST CLOSING.
(a) Prior to the date hereof:
(i) ARCO has filed applications with the Alaska Department of Natural
Resources for approval of the assignments of the ARCO Oil and Gas Leases to
ARCO Alaska. Upon approval of such assignments, whether before or after the
First Closing Date, the effective date for each such assignment will be
February 1, 2000;
(ii) ARCO Alaska has filed an application with the State of Alaska for
approval of the transfer of the Alpine Utility Right-of-Way to ARCO; and
(iii) ARCO Alaska has applied to the Regulatory Commission of Alaska
("RCA") for approval of the transfer of the Certificate of Public
Convenience and Necessity relating to the Alpine crude oil pipeline (the
"ALPINE CERTIFICATE") to Alpine.
(b) The parties agree and acknowledge that prior to the First
Closing:
(i) ARCO shall transfer, assign, convey and deliver to ARCO Alaska:
(A) ARCO's real property interest in the office complex in Anchorage,
Alaska more particularly described on Schedule 2.6 of the Disclosure
Schedule, (B) the aircraft leases described on Schedule 2.6 of the
Disclosure Schedule; and (C) subject to the approval referred to in Section
2.6(a)(i), the ARCO Oil and Gas Leases;
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(ii) Subject to the approval referred to in Section 2.6(a)(ii), ARCO
Alaska shall transfer, assign, convey and deliver to ARCO the Alpine
Utility Right-of-Way;
(iii) Subject to the approval referred to in Section 2.6(a)(iii)
above, ARCO Alaska shall transfer, assign, convey and deliver to Alpine the
Alpine Certificate;
(iv) ARCO shall cause a restructuring of the holdings of UTP Holdings
such that (A) UTP Energy will be liquidated and will distribute all of the
capital stock of each of its Subsidiaries to UTP Holdings, after which
transactions UTP Holdings will hold directly all of the outstanding UTA
Interests; and (B) UTP Holdings will distribute all of its assets
(including all of the outstanding shares of common stock of Unistar and the
former Subsidiaries of UTP Energy) other than the UTA Interests to ARCO,
such that the only asset of UTP Holdings shall be the UTA Interests;
(v) In conjunction with the restructuring referred to in clause (iv)
above, ARCO shall assume the obligations of UTP Holdings under the
indentures set forth on Schedule 3.15 and UTP Holdings shall be relieved of
all obligations and covenants under the same;
(vi) Immediately prior to the consummation of the BP Amoco/ARCO
Merger, ARCO shall transfer, assign, convey and deliver to Purchaser the
ARCO Marine Shares, duly endorsed in blank or accompanied by stock powers
duly executed in blank, in proper form for transfer and with any requisite
stock transfer stamps properly affixed thereto;
(vii) Purchaser shall deliver to ARCO an affidavit of citizenship
dated as of the ARCO Marine Transfer Date and as of the First Closing Date
and signed on behalf of Purchaser by an executive officer of Purchaser in
such form as has been accepted by the Maritime Administration,
demonstrating that Purchaser is a citizen of the United States within the
meaning of Section 2 of the Shipping Act of 1916, as amended, and is
qualified under Section 27 of the Merchant Marine Act of 1920, as amended,
to engage in United States coastwide trade; and
(viii) The parties shall take all actions required to be taken prior
to the First Closing Date in accordance with Sections 5.21(a) and 5.22 and
Schedule 5.6, Section 13, of the Disclosure Schedule.
(c) Immediately prior to the First Closing, ARCO Alaska shall
transfer, assign, convey and deliver to ARCO the 150 shares of common stock, par
value $1 per share, of CH-20 held by ARCO Alaska. For U.S. federal income tax
purposes, such transfer, assignment, conveyance and delivery in conjunction with
the subsequent sale of
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the ARCO Alaska Shares to Purchaser (for which an election under Section
338(h)(10) of the Code will be made by ARCO and Purchaser in accordance with
Section 5.5(f)(i)), is intended to be treated as a sale by ARCO Alaska of all
its assets (excluding the shares of CH-20 actually distributed to ARCO as
described above), followed by a distribution by ARCO Alaska to ARCO of all its
assets (including the aforementioned shares of CH-20) in a complete liquidation
to which Section 332 of the Code applies.
Section 2.7 PREFERENTIAL RIGHTS. ARCO will deliver or cause to be
delivered any notices to holders of preferential purchase rights that are
required in connection with the sale of the ATAI Shares and CIPC Shares (each, a
"PREFERENTIAL RIGHT") (including any notices required due to the reactivation of
Preferential Rights that may have previously lapsed), using as the relevant
purchase price the portion of the Initial Pipeline Assets Purchase Price
allocated to such Shares on Schedule 2.4(b) of the Disclosure Schedule (in the
case of the ATAI Shares without regard to any adjustment for the Bonds). If,
prior to the Second Closing, a holder of a Preferential Right notifies ARCO that
it elects to exercise its rights with respect to the Shares (or underlying
Properties of the issuer of such Shares) to which its Preferential Right relates
(in accordance with and determined by the agreement creating the Preferential
Right), the Shares, the sale of which is subject to such Preferential Right,
shall not be sold, transferred, assigned, conveyed or delivered to Purchaser and
the Initial Pipeline Assets Purchase Price shall be reduced by the amount
allocated to such Shares on Schedule 2.4(b); PROVIDED that, if the Second
Closing shall have already occurred in accordance with Section 2.4(c) and
thereafter for any reason the purchase and sale of the Shares (or underlying
Properties of the issuer of such Shares) subject to the Preferential Right is
not or cannot be consummated with the holder of the Preferential Right, ARCO
will promptly notify Purchaser and, within ten Business Days after Purchaser's
receipt of such notice, subject to receipt of any Necessary Consents, ARCO will
sell, transfer, assign, convey and deliver to Purchaser, and Purchaser will
purchase and accept from ARCO, such Shares in exchange for the amount allocated
to such Shares on Schedule 2.4(b). Such purchase price shall be subject to
adjustment based on the application of the methodology set forth in Section 2.5
to such Shares for the period beginning as of the Effective Date and ending at
the close of business on the day of the delivery and acceptance of such Shares,
or on such other basis as the parties may agree.
Section 2.8 CONTINGENT PAYMENTS.
(a) As additional consideration for ARCO Alaska and UTP Holdings,
Purchaser shall pay to ARCO, on a monthly basis, Sliding Scale Payments (each,
an "SSP") for production from the Producing Properties from the Effective Time
through December 31, 2004; PROVIDED, HOWEVER, that Purchaser's total obligation
to pay SSPs to Seller shall in no event exceed a total of $500,000,000.00.
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(b) Each SSP shall equal the product of (i) WTI Price minus $25.00 and
(ii) Net Revenue Interest Barrels; provided, however, if the SSP for any given
month is a negative number or is zero, no SSP shall be payable for that month.
(c) For purposes of this Section 2.8: (i) "WTI PRICE" shall mean the
average, rounded to four decimal places, of the mid-point Cushing second line as
quoted in Platt's for WTI for each business day during the relevant month; IT
BEING UNDERSTOOD that (A) the mid-point Cushing second line for any business day
shall be equal to the average of the high and the low Cushing second line as
quoted in Platt's for WTI for such business day and (B) for purposes of this
definition only, the term "business day" shall mean any day on which a Cushing
second line is quoted in Platt's for WTI, and (ii) "NET REVENUE INTEREST
BARRELS" shall mean total barrels of hydrocarbon liquids produced from the
Producing Properties delivered into TAPS Pump Station No. 1 during the relevant
month, as reported in the relevant unit operator's off-take reports filed with
the State of Alaska, but not including any barrels attributable to royalty
obligations except for any royalty obligations which the owner of the Producing
Properties may voluntarily incur subsequent to the First Closing. For the
avoidance of doubt, any transfer of any Producing Property or part thereof by
Purchaser to any Person after the First Closing shall not affect the
calculations to be made under this Section 2.8.
(d) Each SSP shall be calculated on a calendar monthly basis and,
except as provided in Section 2.8(e), shall be paid within 10 Business Days
following the last day of the relevant month.
(e) Any SSP obligation for production occurring from the Effective
Time to and including the most recent calendar month-end preceding the First
Closing Date by at least 10 Business Days (the "CUTOFF DATE") shall be treated
as a positive adjustment to the Initial Producing and Marine Assets Purchase
Price (in addition to any adjustments calculated in accordance with the terms of
Section 2.3) for ARCO Alaska and UTP Holdings and shall be credited against the
$500,000,000 maximum amount referred to in Section 2.8(a).
(f) The SSPs provided by this Section 2.8 shall be allocated to ARCO
Alaska and UTP Holdings as agreed by ARCO and Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as otherwise set forth in the disclosure schedule delivered by
Sellers to Purchaser on the date of execution of this Agreement, as amended as
of April 6, 2000 (the "DISCLOSURE SCHEDULE"), Sellers make the following
representations and warranties to Purchaser (it being understood that any
representation and warranty made with respect to UTP Holdings, UTA or their
respective Properties is not made with respect to any
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Properties of UTP Holdings that will not be Properties of UTP Holdings after
giving effect to the restructuring contemplated by Section 2.6(a)(iv)):
Section 3.1 ORGANIZATION AND AUTHORITY. Each Seller is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware. Each Seller has all requisite corporate power and authority
and has taken all corporate action necessary in order to execute, deliver and
perform its obligations under this Agreement and to consummate the transactions
contemplated by this Agreement.
Section 3.2 BINDING EFFECT. This Agreement has been duly authorized,
executed and delivered by each Seller and constitutes a valid and binding
obligation of such Seller, enforceable against such Seller in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles (the "BANKRUPTCY
AND EQUITY EXCEPTION").
Section 3.3 ORGANIZATION, QUALIFICATION AND AUTHORITY OF THE
COMPANIES. Each Company other than UTA is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
UTA is a limited liability company duly formed, validly existing and in good
standing under the laws of the State of Delaware. Each Company (a) has all
requisite corporate or other power and authority to own, lease or otherwise hold
its assets and to carry on its business as currently conducted and (b) is duly
qualified to do business and is in good standing as a foreign corporation or
limited liability company, as the case may be, in each jurisdiction where the
ownership or operation of its assets or the conduct of its business requires
such qualification, except where any failures to have such power and authority
or to be so qualified or in good standing, as the case may be, individually or
in the aggregate, would not be reasonably likely to have a Material Adverse
Effect.
Section 3.4 OWNERSHIP OF SHARES AND LLC INTERESTS. ARCO owns all of
the Shares other than the ARCO Beluga Shares, of record and beneficially (in the
case of the ARCO Marine Shares, only prior to the delivery contemplated by
Section 2.6(b)(vi)), and CH-20 owns all of the ARCO Beluga Shares, of record and
beneficially, in each case free and clear of all Encumbrances other than
Permitted Encumbrances. With respect to each Company, the Shares or, with
respect to UTA, the UTA Interests are, as of the date hereof and as of the
applicable Closing Date with respect to such Company, the only shares of capital
stock or limited liability company interests, as the case may be, of or in such
Company issued and outstanding except that, as of the date hereof, UTP Holdings
has 100,000 shares of Series A Cumulative Preferred Stock issued and
outstanding. All of the Shares have been duly authorized and validly issued and
are fully paid and non-assessable. The UTA Interests have been duly authorized
and validly issued and are fully paid. As of the date hereof and as of the
applicable Closing Date with respect to each Company, (i) except for this
Agreement and the Preferential Rights referred to in Section
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2.7, there are no preemptive or other outstanding rights, options, warrants,
conversion rights or agreements or commitments of any character relating to the
authorized and issued, unissued or treasury shares of capital stock or limited
liability company interests, as the case may be, of any of the Companies and no
such securities or obligations evidencing any such rights are outstanding and
(ii) none of the Companies has any outstanding debt or other securities which
are convertible into or exchangeable for, or that give any Person a right to
subscribe for or acquire, capital stock or limited liability company interests
of any of the Companies. At the applicable Closing, Purchaser will obtain good
and marketable title to the Shares delivered at such Closing, free and clear of
all Encumbrances other than Permitted Encumbrances.
Section 3.5 CONSENTS AND APPROVALS. Except for (a) the issuance by the
FTC of the Provisional Consent Order, (b) the issuance of the State Consent
Order, (c) the termination of the applicable waiting period under the HSR Act,
(d) reports, registrations, filings and/or notices to comply with Environmental
Laws and (e) consents, approvals, waivers or authorizations that may be
obtained, or reports, registrations, filings or notices that may be made, after
the transfer of any Shares or Conveyed Properties, and except as set forth in
Schedule 3.5 of the Disclosure Schedule, no consent, approval, waiver or
authorization is required to be obtained by a Seller or any Company from, and no
report, registration, filing or notice is required to be given by a Seller or
any Company to, or made by a Seller or any Company with, any Governmental Entity
in connection with the execution, delivery and performance by Sellers of this
Agreement, other than where any failures to obtain such consent, approval,
waiver or authorization, or to give or make such report, registration, filing or
notice, individually or in the aggregate, would not be reasonably likely to have
a Material Adverse Effect or materially impair or delay a Seller's ability to
perform its obligations hereunder.
Section 3.6 NON-CONTRAVENTION. The execution, delivery and performance
by each Seller of this Agreement, and the consummation by each Seller of the
transactions contemplated hereby, do not and will not (a) violate any provision
of the certificate of incorporation or bylaws (or equivalent constituent
documents) of either Seller or any Company, (b) subject to obtaining or making
the consents, approvals, waivers, authorizations, reports, registrations,
filings and notices referred to in Section 3.5 and obtaining the consents set
forth in Schedule 3.6 of the Disclosure Schedule, conflict with, or result in
the breach of, or constitute a default under, or result in the termination,
cancellation or acceleration (whether after the giving of notice or the lapse of
time or both) of any material right or obligation of any Company under, or to a
loss of any material benefit to which any Company is entitled under, any
Contract to which any Company is a party or, except for any Encumbrance arising
under this Agreement, result in the creation of any Encumbrance upon any Shares
or Conveyed Properties to be sold, transferred, assigned, conveyed and delivered
pursuant to this Agreement or the Properties of any Company, or (c) assuming
compliance with the matters set forth in Sections 3.5 and 4.3, to the Knowledge
of Sellers, violate or result in a breach of or
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constitute a default under any Law to which either Seller or any Company is
subject, including any Governmental Authorization, other than, in the case of
clauses (b) and (c), any conflict, breach, default, termination, cancellation,
acceleration, loss, Encumbrance or violation which, individually or in the
aggregate, would not be reasonably likely to have a Material Adverse Effect or
materially impair or delay either Seller's ability to perform its obligations
hereunder.
Section 3.7 FINANCIAL STATEMENTS. Schedule 3.7 of the Disclosure
Schedule contains a copy of the following financial statements: (a) a special
purpose unaudited combined balance sheet for the Producing Companies as of
December 31, 1999 and 1998, and the related special purpose unaudited combined
statements of income and statements of cash flows for each of the years then
ended (collectively, the "PRODUCING FINANCIAL STATEMENTS"), (b) a special
purpose unaudited combined balance sheet for the Marine Companies as of December
31, 1999 and 1998, and the related special purpose unaudited combined statements
of income and statements of cash flows for each of the years then ended
(collectively, the "MARINE FINANCIAL STATEMENTS") and (c) a special purpose
unaudited combined balance sheet for the Pipeline Companies as of December 31,
1999 and 1998, and the related special purpose unaudited combined statements of
income and statements of cash flows for each of the years then ended
(collectively, the "PIPELINE FINANCIAL STATEMENTS" and, together with the
Producing Financial Statements and the Marine Financial Statements, the
"YEAR-END FINANCIAL STATEMENTS"). Each of the Year-End Financial Statements has
been prepared in accordance with GAAP and presents fairly, in all material
respects, the combined financial position, results of operations and cash flows
of the Producing Companies (in the case of the Producing Financial Statements),
the Marine Companies (in the case of the Marine Financial Statements) and the
Pipeline Companies (in the case of the Pipeline Financial Statements) as of
their respective dates and for the respective periods then ended, except in each
case as may be noted on such Year-End Financial Statements or in the notes
thereto and subject, in each case, to such audit adjustments as may be required
that will not be material in amount or effect. As soon as available to ARCO
after the date hereof, ARCO shall deliver to Purchaser Year-End Financial
Statements which have been audited, together with the report thereon of
PricewaterhouseCoopers LLP.
Section 3.8 LITIGATION AND CLAIMS.
(a) Except as set forth in Schedule 3.8(a) of the Disclosure Schedule,
as of the date hereof there is no civil, criminal or administrative action,
suit, hearing, proceeding or investigation pending or, to the Knowledge of
Sellers, threatened, against any Company or any of its Properties other than
those that, individually or in the aggregate, would not be reasonably likely to
have a Material Adverse Effect.
(b) Except as set forth in Schedule 3.8(b) of the Disclosure Schedule,
as of the date hereof no Company is a party or subject to any order, writ,
judgment, award or
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injunction of any Governmental Entity applicable to such Company or any of its
Properties other than those that, individually or in the aggregate, would not be
reasonably likely to have a Material Adverse Effect.
Section 3.9 TAXES. Except for any failure to file or timely pay,
adjustment, action, proceeding, waiver, audit, or examination that, individually
or in the aggregate, would not be reasonably likely to have a Material Adverse
Effect, (a) all Tax Returns that are required to be filed (taking into account
applicable extensions) by or with respect to the Companies have been duly and
timely filed; (b) all Taxes shown to be due on the Tax Returns referred to in
clause (a) and all Taxes for periods ending on or before the date of this
Agreement for which Tax Returns have not yet been filed have been timely paid or
recorded as Tax Reserves or current liabilities in the Books and Records; (c) no
adjustments relating to the Tax Returns referred to in clause (a) have been
proposed by the appropriate Governmental Entity; (d) there are no pending or, to
the Knowledge of Sellers, threatened actions or proceedings for the assessment
or collection of Taxes against the Companies; (e) there are no outstanding
waivers or agreements extending the applicable statute of limitations for any
period with respect to any Taxes of the Companies; (f) to the Knowledge of
Sellers no taxing authorities are presently conducting any audits or other
examinations of any Tax Returns referred to in clause (a).
Section 3.10 COMPLIANCE WITH LAWS. Except as set forth in Schedule
3.10 of the Disclosure Schedule and except for such matters that, individually
or in the aggregate, would not be reasonably likely to have a Material Adverse
Effect: (a) each Company is conducting its business in compliance with all
applicable Laws, (b) each Company has or is entitled to the benefits of all
Governmental Authorizations necessary for the conduct of its business as
currently conducted and (c) there are no proceedings pending or, to the
Knowledge of Seller, threatened, which would be reasonably likely to result in
the revocation, cancellation or suspension of any such Governmental
Authorization.
Section 3.11 CONTRACTS. Schedule 3.11 of the Disclosure Schedule sets
forth each Material Contract. Except as set forth on Schedule 3.11 of the
Disclosure Schedule, as of the date hereof each Material Contract is a valid and
binding agreement of the Seller or the Company party thereto and is in full
force and effect in accordance with its terms, subject to the Bankruptcy and
Equity Exception. Except as set forth on Schedule 3.11 of the Disclosure
Schedule, there exists no default under any Material Contract by either Seller
or the applicable Company or, to the Knowledge of Sellers, any other party
thereto, which default has not been cured or waived, other than such defaults
that, individually or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect.
Section 3.12 PROPERTIES. The Properties of the Companies and the
Conveyed Properties (after giving effect to the transactions contemplated by
Section 2.6)
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to be sold, transferred, assigned, conveyed and delivered pursuant to this
Agreement (a) constitute all of the assets and properties, tangible and
intangible, of ARCO and its Subsidiaries located in the State of Alaska that are
used in, associated with or connected to the business of exploration for and
production and transportation of oil, natural gas and other liquid and gaseous
hydrocarbons and other minerals conducted by ARCO and its Subsidiaries in the
State of Alaska (the "ALASKA BUSINESS") and (b) considered together with the
Books and Records, the license and other arrangements contemplated by Section
5.15 and the transitional services to be provided pursuant to Section 5.17,
constitute all of the assets and properties, tangible and intangible, including
all geological and geophysical data and interpretations and lease bids, wherever
located, that are primarily used in, associated with or connected to the Alaska
Business.
Section 3.13 ABSENCE OF CHANGES. Except (x) to the extent arising out
of or relating to the transactions contemplated by this Agreement, (y) as set
forth on Schedule 3.13 of the Disclosure Schedule or (z) to the extent arising
out of or relating to the Charter or, after the Provisional Consent Order has
been issued by the FTC, the Provisional Consent Order or, after the State
Consent Order has been issued, the State Consent Order, since December 31, 1999,
(i) the respective businesses of each of the Companies has been operated in the
ordinary course consistent with past practice, (ii) there has not been any
change in the Companies which, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect and (iii) no Company has
settled, compromised, waived, released or assigned any material rights or claims
it has under or in respect of any Material Contract to which such Company is a
party.
Section 3.14 FINDERS' FEES. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of either Seller or any of the Companies who is entitled to any fee or
commission that is or will be an obligation of any Company in connection with
the purchase and sale of the Shares and the Conveyed Properties pursuant to this
Agreement.
Section 3.15 INDEBTEDNESS. As of the Closing Date applicable to such
Company, no Company shall have any loans, borrowings or other indebtedness in
the nature of borrowings outstanding, in each case where monies are due from any
Company, except as reflected in the Financial Statements or as set forth on
Schedule 3.15 of the Disclosure Schedule.
Section 3.16 EMPLOYEE BENEFITS. No Personnel currently participate in
any employee benefit plan that is a multiemployer plan as defined in Section
3(37) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or that is otherwise required to be provided to such Personnel
pursuant to the terms of any collective bargaining agreement. No severance pay
or benefits, pay in lieu of notice, or similar pay or benefits will be owed to
any Personnel solely by reason of the consummation of the transactions
contemplated hereby. Except as set forth in
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Schedule 5.3 of the Disclosure Schedule and Exhibit B of Schedule 5.6 of the
Disclosure Schedule, none of the Companies, CIPC or any of their respective
Subsidiaries sponsors any employee benefit plan within the meaning of Section
3(3) of ERISA or any other employee benefit plan, program, policy, practices, or
other arrangement (collectively, "EMPLOYEE PLANS") providing incentive
compensation or benefits to any Personnel.
Section 3.17 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Article III and Section 5.5,
none of Seller, the Companies or any other Person makes any other express or
implied representation or warranty on behalf of Seller, the Companies or
otherwise in respect of the Shares or the Conveyed Properties.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser makes the following representations and warranties to
Sellers:
Section 4.1 ORGANIZATION AND AUTHORITY. Purchaser is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware. Purchaser has all requisite corporate power and authority and
has taken all corporate action necessary in order to execute, deliver and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby.
Section 4.2 BINDING EFFECT. This Agreement has been duly authorized,
executed and delivered by Purchaser and constitutes a valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms, subject to the Bankruptcy and Equity Exception.
Section 4.3 CONSENTS AND APPROVALS. Other than (a) the approval of the
Maritime Administration in connection with Purchaser's acquisition of the ARCO
Marine Shares and (b) the termination of the applicable waiting period under the
HSR Act, no consent, approval, waiver or authorization is required to be
obtained by Purchaser or any of its Affiliates from, and no report,
registration, filing or notice is required to be given by Purchaser or any of
its Affiliates to or made by Purchaser or any of its Affiliates with, any
Governmental Entity in connection with the execution, delivery and performance
by Purchaser of this Agreement.
Section 4.4 NON-CONTRAVENTION. The execution, delivery and performance
by Purchaser of this Agreement, and the consummation by Purchaser of the
transactions contemplated hereby, do not and will not (a) violate any provision
of the certificate of incorporation or by-laws of Purchaser, (b) conflict with,
or result in the breach of, or constitute a default under, or result in the
termination, cancellation or acceleration (whether after the giving of notice or
the lapse of time or both) of any
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material right or obligation of Purchaser under, or to a loss of any material
benefit to which Purchaser is entitled under, any Contract to which Purchaser or
any of its Affiliates is a party, or (c) assuming compliance with the matters
set forth in Sections 3.5 and 4.3, to the knowledge of Purchaser, violate or
result in a breach of or constitute a default under any Law to which Purchaser
is subject, including any Governmental Authorization, other than in the cases of
clauses (b) and (c), any conflict, breach, default, termination, cancellation,
acceleration, loss or violation which, individually or in the aggregate, would
not be reasonably likely to have a material adverse effect on Purchaser or
materially impair or delay Purchaser's ability to perform its obligations
hereunder.
Section 4.5 FINDERS' FEES. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Purchaser who is entitled to any fee or commission in connection
with the purchase and sale of the Shares and the Conveyed Properties pursuant to
this Agreement.
Section 4.6 FINANCIAL CAPABILITY. On each Closing Date, Purchaser will
have available sufficient funds to purchase the Shares and any Conveyed
Properties to be sold, transferred, assigned, conveyed and delivered on such
Closing Date on the terms and subject to the conditions set forth in this
Agreement and to consummate the transactions contemplated for the applicable
Closing hereunder. The obligations of Purchaser hereunder are not subject to any
conditions regarding the ability of Purchaser to obtain financing for the
consummation of the transactions contemplated herein.
Section 4.7 INVESTIGATION BY PURCHASER. Purchaser acknowledges that it
is a sophisticated purchaser of businesses and has been given sufficient access
to all information with respect to the Companies and the Conveyed Properties
requested by Purchaser and, in entering into this Agreement, has not relied upon
anything other than the representations and warranties of Sellers set forth in
Article III and Section 5.5. Purchaser acknowledges that neither Seller nor any
other Person shall have any liability with respect to any information with
respect to the Companies and the Conveyed Properties made available to Purchaser
prior to the date hereof. Purchaser has no knowledge that any representation or
warranty of Sellers is inaccurate in any respect.
Section 4.8 PURCHASER IMPEDIMENTS. There is no civil, criminal or
administrative action, suit, hearing, proceeding or investigation pending or, to
the knowledge of Purchaser, threatened, or outstanding, order, writ, judgment,
award or injunction of any Governmental Entity, against Purchaser or any of its
Affiliates that, individually or in the aggregate, would be reasonably likely to
impair or delay the ability of Purchaser to obtain the consents, approvals,
waivers or authorizations described in Section 4.3 or impair or delay the
ability of the parties hereto to consummate the transactions contemplated
hereby.
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Section 4.9 SECURITIES ACT. Purchaser is acquiring the Shares for its
own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act in any manner that would be in violation of
the Securities Act. Purchaser has not, directly or indirectly, offered the
Shares to anyone or solicited any offer to buy the Shares from anyone, so as to
bring such offer and sale of the Shares by Purchaser within the registration
requirements of the Securities Act. Purchaser will not sell, convey, transfer or
offer for sale any of the Shares except upon compliance with the Securities Act
and any applicable state securities laws or pursuant to any exemption therefrom.
Section 4.10 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Article IV, neither Purchaser
nor any other Person makes any express or implied representation or warranty on
behalf of Purchaser.
ARTICLE V
COVENANTS
Section 5.1 ACCESS.
(a) Prior to the each Closing, Sellers shall permit Purchaser and its
representatives to have access, during regular business hours and upon
reasonable advance notice, to the personnel and properties of Sellers and the
Companies, subject to reasonable rules and regulations of Sellers, and shall,
subject to applicable Laws regarding the exchange of information, furnish, or
cause to be furnished, to Purchaser such financial and operating data and other
information, in each case relating to the Companies and the Conveyed Properties
that are the subject of such Closing, as are available and as Purchaser shall
from time to time reasonably request, PROVIDED, that the foregoing shall not
require Sellers or any Company to permit any inspection, or to disclose any
information, that in the reasonable judgment of Sellers or such Company, would
(i) result in the disclosure of any trade secrets of third parties or the loss
of any applicable attorney-client privilege or (ii) violate any of its
obligations with respect to confidentiality if Sellers or the Company, as the
case may be, shall have used reasonable efforts to obtain the consent of such
third party to such inspection or disclosure, PROVIDED, FURTHER, that Purchaser
and its representatives shall not conduct any on-site tests or sampling or any
boring, digging, drilling or other physical intrusion on or into the properties
of the Companies. All requests for information made pursuant to this Section
shall be directed to an executive officer of ARCO, or such Person as may be
designated by such executive officer. All such information shall be governed by
the terms of the Confidentiality Agreement.
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(b) All information that relates to Sellers or any of their Affiliates
(other than the Companies) that is provided, conveyed, obtained or furnished to
Purchaser or Purchaser's representatives or that Purchaser or Purchaser's
representatives otherwise obtain in the course of Purchaser's investigation of
the Companies, together with any reports, analyses, compilations, memoranda,
notes and any other writings prepared by Purchaser or Purchaser's
representatives which contain, reflect or are based upon any such information
("CONFIDENTIAL INFORMATION"), shall be kept strictly confidential by Purchaser
and Purchaser's representatives after the Closings. Purchaser agrees that, in
the event it or any its representatives are required to disclose any
Confidential Information (i) in connection with any judicial or administrative
proceedings (by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process) or (ii) in
order, in the opinion of Purchaser's outside counsel, to avoid violating the
federal securities laws, Purchaser will in advance of such disclosure provide
Sellers with prompt notice of such requirement(s). Purchaser also agrees, to the
extent legally permissible, to provide Sellers, in advance of any such
disclosure, with copies of any such information Purchaser intends to disclose
(and, if applicable, the text of the disclosure language itself) and to
cooperate with Sellers to the extent Sellers may seek to limit such disclosure.
If, in the absence of a protective order or receipt of a waiver from Sellers
after a request in writing therefor is made by Purchaser (such request to be
made as soon as practicable to allow Sellers a reasonable amount of time to
respond thereto), Purchaser or its representatives are legally required to
disclose such information to any tribunal or in order to comply with the federal
securities laws, Purchaser or its representatives may disclose such portion of
such information which Purchaser, in the opinion of Purchaser's outside counsel,
is legally required to disclose so long as Purchaser exercises its best efforts
to obtain assurances that the information so disclosed will be kept confidential
by any recipient(s).
(c) In the event of termination of this Agreement, Purchaser shall
promptly deliver to Sellers, or certify to Sellers that it has destroyed, all
documents, work papers and other material obtained by Purchaser or on its behalf
from Sellers, the Companies or any of their respective agents, employees or
representatives as a result hereof or in connection herewith, whether so
obtained before or after the execution hereof.
Section 5.2 RETENTION OF RECORDS. Purchaser shall retain, and cause
its Affiliates to retain, all Books and Records relating to the conduct of the
businesses of the Companies and the operation of the Properties prior to the
applicable Closing Date with respect to such Companies or Properties for a
period of at least six years from the date hereof. Upon reasonable notice to
Purchaser and with Purchaser's prior consent, which consent Purchaser will not
withhold or delay unreasonably, Sellers may inspect and make copies of any such
records for any reasonable purpose during business hours; PROVIDED that Sellers
shall have no right to inspect or copy any competitively sensitive information
unless Sellers shall demonstrate to the reasonable satisfaction of Purchaser
that
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Reasonable safeguards designed to prevent the disclosure of such sensitive
information have been established. No such Books and Records shall be destroyed
by Purchaser without first advising Sellers in writing and giving Sellers a
reasonable opportunity to obtain possession thereof.
Section 5.3 CONDUCT OF BUSINESS. During the period from the date
hereof to the applicable Closing in respect of each Company, except as otherwise
contemplated by this Agreement, as required by Law or as Purchaser shall
otherwise consent to in writing (which consent shall not be unreasonably
withheld or delayed), each Seller covenants and agrees that it shall cause each
such Company to operate its respective business in the ordinary course
consistent with past practice and to preserve intact the business and
relationships of such Company with third parties; PROVIDED that no action
permitted by the next succeeding sentence shall be deemed to violate this
provision. During the period from the date hereof to the applicable Closing in
respect of each Company, except (a) as otherwise contemplated by this Agreement
or the capital budget of ARCO Alaska for the fiscal year 2000 previously made
available to Purchaser and any capital budget for the fiscal year 2001 (which
shall not provide for capital expenditures in excess of 10% in excess of the
amounts set forth in the fiscal year 2000 capital budget), (b) as required by
Law (including the Provisional Consent Order, any final order of the FTC in
respect thereof and the State Consent Order) or the Charter or (c) as Purchaser
shall otherwise consent, each Seller covenants and agrees that it shall use its
reasonable best efforts to cause each such Company not to:
(i) approve any new capital expenditures in excess of 10% over the
amount budgeted for such expenditures in the capital budgets hereinabove
referenced;
(ii) (x) incur, create or assume any material Encumbrance on any
Property other than Permitted Encumbrances, or (y) dispose of any capital
assets if the greater of the book value and the fair market value of such
capital assets exceeds $15,000,000 in the aggregate;
(iii) incur or assume any material indebtedness for money borrowed or
guarantee any such obligations other than (A) any loans from such Seller or
an Affiliate of such Seller or (B) indebtedness under existing lines of
credit in amounts consistent with past practice;
(iv) enter into any material transaction other than as disclosed on
Schedule 5.3 of the Disclosure Schedule or in the ordinary course of
business consistent with past practice;
(v) other than as disclosed on Schedule 5.3 of the Disclosure
Schedule, as required by Law or existing agreements or as is consistent
with the conduct of
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its normal business, grant any salary or wage increases that in the
aggregate would be material to the Companies, or modify or amend any
benefit plan in any way that materially increases the amount of the
liability attributable to such Company in respect of such plan or grant any
benefit to Personnel that would become payable as a result of the
transactions contemplated hereby;
(vi) amend its certificate of incorporation or by-laws or equivalent
constituent documents;
(vii) issue or sell any Shares, limited liability company interests or
other equity securities to anyone other than such Seller, or issue or sell
any securities convertible into, or options with respect to, or warrants to
purchase or rights to subscribe for, any Shares, limited liability company
interests or other equity securities, or enter into any agreement
obligating it to do any of the foregoing;
(viii) declare or set aside for payment any dividends to be paid after
the applicable Closing; and
(ix) enter into any Affiliate Transaction other than as disclosed on
Schedule 5.3 of the Disclosure Schedule or in the ordinary course of
business.
Section 5.4 FILINGS; OTHER ACTIONS; NOTIFICATIONS.
(a) Sellers and Purchaser shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective reasonable
best efforts to take or cause to be taken all actions, and do or cause to be
done all things, necessary, proper or advisable on its part under this Agreement
and applicable Laws to consummate and make effective the transactions
contemplated hereby as soon as practicable, including preparing and filing as
soon as practicable all documentation to effect or obtain as soon as practicable
all consents, approvals, waivers, authorizations, reports, registrations,
filings and notices necessary or advisable to be obtained from any third party
and/or any Governmental Entity in order to consummate the transactions
contemplated hereby.
(b) Subject to applicable Laws relating to the exchange of information
and the preservation of any applicable attorney-client privilege, Sellers and
Purchaser shall have the right to review in advance, and to the extent
practicable each will consult the other on, all the information relating to
Sellers or Purchaser, as the case may be, and any of their respective
Affiliates, that appear in any statement, filing, notice or application made
with, or written materials submitted to, any third party and/or any Governmental
Entity in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of Sellers and Purchaser shall act
reasonably and as promptly as practicable.
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(c) Subject to applicable Laws and the preservation of any applicable
attorney-client privilege, the Sellers and Purchaser each shall, upon request by
the other, furnish the other with all information concerning itself, its
Subsidiaries, directors, officers and stockholders and such other matters as may
be reasonably necessary or advisable in connection with the Provisional Consent
Order, any final order of the FTC in respect thereof, the State Consent Order,
the Charter and any statement, filing, notice or application made by or on
behalf of Sellers, the Companies or Purchaser or any of their respective
Subsidiaries to any third party and/or any Governmental Entity in connection
with the transactions contemplated by this Agreement.
(d) Without limiting the generality of the undertakings pursuant to
this Section 5.4, each Seller and Purchaser agrees to take or cause to be taken
the following actions: (i) provide promptly to any Governmental Entity with
jurisdiction over enforcement of any applicable Competition Laws ("GOVERNMENT
ANTITRUST ENTITY") information and documents requested by any Government
Antitrust Entity or necessary, proper or advisable to permit consummation of the
transactions contemplated by this Agreement, (ii) contest and resist any action
seeking to have imposed any order, decree, judgment, injunction, ruling or other
order (whether temporary, preliminary or permanent) other than the Provisional
Consent Order, any final order of the FTC in respect thereof and the State
Consent Order (an "ORDER"), that would materially delay, restrain, enjoin or
otherwise prohibit consummation of the transactions contemplated hereby; it
being understood that in the event that any such temporary or preliminary Order
is entered in any proceeding that would make consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement unlawful or
that would prevent or materially delay consummation of the transactions
contemplated by this Agreement, each Seller and Purchaser agrees to use its
reasonable best efforts to take promptly any and all steps (including the appeal
thereof, the posting of a bond or the taking of the steps contemplated by clause
(i) of this paragraph) necessary to vacate, modify or suspend such Order so as
to permit such consummation and (iii) use its reasonable best efforts to take
all action necessary or reasonably required in order for ARCO and BP Amoco to
obtain and to comply with the Provisional Consent Order, any final order of the
FTC in respect thereof, the State Consent Order and the Charter and to
consummate the transactions contemplated hereby in a manner consistent with the
Provisional Consent Order, any final order of the FTC in respect thereof, the
State Consent Order and the Charter, PROVIDED, that no party shall be required
to take any such action if the result of such action would be to affect
materially and adversely the economic benefits reasonably expected to be derived
by such party from the consummation of the transactions contemplated hereby
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Section 5.5 TAX MATTERS.
(a) LIABILITY FOR TAXES AND RELATED MATTERS.
(i) LIABILITY FOR TAXES. Sellers shall pay or cause to be paid, and
shall indemnify each Purchaser Tax Indemnitee and fully protect, save and
hold each Purchaser Tax Indemnitee harmless from and against the following:
(A) any Tax imposed upon or relating to the Sellers (other than in respect
of the Companies, the AMI Conveyed Properties, the AMI Conveyed Contract,
the Alpine Rights-of-Way, the Product Inventory or CIPC) for any period
(whether before or after any Closing Date), including any such Tax for
which the Purchaser or a Company may be liable under Section 1.1502-6 of
the Treasury Regulations (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract or otherwise; (B)
any consolidated, combined or unitary Taxes (other than in respect of the
Companies, the AMI Conveyed Properties, the AMI Conveyed Contract, the
Alpine Rights-of-Way, the Product Inventory or CIPC) of any group of which
any of the Sellers, BP Amoco or any of their respective Affiliates is a
member or is the common parent; (C) any consolidated, combined or unitary
Taxes imposed upon or relating to any of the Companies, the AMI Conveyed
Properties, the AMI Conveyed Contract, the Alpine Rights-of-Way, the
Product Inventory or CIPC for any Pre-Closing Period; (D) any Taxes
resulting from or arising out of any transaction set forth in Section 2.6
of this Agreement or otherwise contemplated hereunder or any other
transaction undertaken in any Pre-Closing Period by any of the Sellers or
the Companies or any of their Affiliates outside of the ordinary course of
business; (E) any Taxes imposed upon or relating to UTP Energy, Unistar or
any Subsidiary, entity, Property or asset held directly or indirectly by
UTP Holdings prior to the restructuring set forth in Section 2.6(b)(iv)
that will not be so held after such restructuring; (F) any Taxes imposed
upon or relating to any of the Companies, the AMI Conveyed Properties, the
AMI Conveyed Contract, the Alpine Rights-of-Way or CIPC for the
Pre-Effective Time Period (regardless of when such Taxes are paid) and any
Taxes imposed upon or relating to the Product Inventory for the Pre-Closing
Period (regardless of when such Taxes are paid); (G) any Taxes resulting
from or arising out of any Section 338(h)(10) Election; (H) any Tax (and
any interest pursuant to Code Section 7518(g)(3)(C)(ii)) arising from or
relating to the "capital construction fund" of ARCO or any of its
Affiliates; (I) any Losses arising from a deemed termination, if any, under
Section 708(b)(1)(B) of the Code, of any tax partnership resulting from the
transactions contemplated hereby to the extent such Losses are asserted by
a third party partner in such tax partnership; (J) any Taxes resulting from
any breach of any representation or warranty of Sellers contained in
Section 5.5(j) of this Agreement; (K) royalty claims and severance Taxes
for production through and including December 31, 1999 (regardless of when
such amounts are paid); (L) any Tax imposed on any Purchaser Tax Indemnitee
as a result of
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structuring any transaction as a like-kind exchange pursuant to Section
5.5(g); and (M) any Taxes resulting from or arising out of Section 5.22(d)
or any of the transactions set forth therein. Sellers shall be entitled to
any refund of Taxes to the extent that such refund relates to a Tax
liability paid by the Sellers under this Section 5.5(a)(i);
(ii) Purchaser shall, except to the extent that such Taxes or other
amounts are the responsibility of Sellers under Section 5.5(a)(i) or
otherwise hereunder, pay or cause to be paid, and shall indemnify each
Seller Tax Indemnitee and fully protect, save and hold each Seller Tax
Indemnitee harmless from and against all Taxes imposed upon or relating to
the Companies, the AMI Conveyed Properties, the AMI Conveyed Contract, the
Alpine Rights-of-Way, the Product Inventory or CIPC. Purchaser shall be
entitled to any refund relating to the Companies, the AMI Conveyed
Properties, the AMI Conveyed Contract, the Alpine Rights-of-Way, the
Product Inventory or CIPC, except to the extent Sellers are entitled to
such refund under Section 5.5(a)(i).
(iii) In the case of any indemnified Tax which a Tax Indemnitee is
required to pay a Governmental Entity, the indemnitor shall pay the Tax
Indemnitee the amount for which the indemnitor is responsible pursuant to
Section 5.5(a)(i) or (ii) in immediately available funds no later than
three days prior to the date such Tax is due to the relevant Governmental
Entity (PROVIDED that, without duplication of any amount taken into account
pursuant to clause (6) of the definition of "Settlements", in the case of
any Tax (other than any consolidated, combined or unitary Tax) for which
Sellers are responsible under Section 5.5(a)(i)(F) or (K) that is paid on
or after January 1, 2000 and on or prior to the applicable Closing Date,
Sellers shall pay Purchaser the amount for which Sellers are responsible
under Section 5.5(a)(i)(F) or (K) on the applicable Closing Date).
(iv) Notwithstanding the foregoing clauses (i) and (ii), the
liabilities, obligations and entitlements pursuant to such clauses of CH-20
shall be with respect to ARCO Beluga only.
(v) TAXES FOR SHORT TAXABLE YEAR. For purposes of paragraphs (a)(i)
and (a)(ii), whenever it is necessary to determine the liability for Taxes
of a Company (including any such liability arising from partnership income
or loss) or with respect to any of the AMI Conveyed Properties, the AMI
Conveyed Contract, the Alpine Rights-of-Way, the Product Inventory or CIPC
for a portion of a taxable year or period that begins before and ends after
the applicable Closing Date (or December 31, 1999), the determination of
the Taxes of such Company (or with respect to any of the AMI Conveyed
Properties, the AMI Conveyed Contract, the Alpine Rights-of-Way, the
Product Inventory or CIPC) for the portion of the year
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or period ending on, and the portion of the year or period beginning after,
the applicable Closing Date (or December 31, 1999) shall be determined by
assuming a taxable year or period for such Company (or partnership) or with
respect to any of the AMI Conveyed Properties, the AMI Conveyed Contract,
the Alpine Rights-of Way, the Product Inventory or CIPC which ended at the
applicable Closing Date (or December 31, 1999), except that exemptions,
allowances or deductions that are calculated on an annual basis, such as
the deduction for depreciation, shall be apportioned on a time basis.
(vi) ADJUSTMENT TO PURCHASE PRICE. Any payment by Sellers to
Purchaser pursuant to Section 5.5(a)(i) will
be treated as an adjustment to the Purchase Price.
(vii) TAX RETURNS. Sellers shall file or cause to be filed when due
all Tax Returns that are required to be filed by or with respect to the
Companies for taxable years or periods ending on or before the applicable
Closing Date (which Tax Returns shall be filed in a manner consistent with
past practice) and shall pay any Taxes due in respect of such Tax Returns,
and Purchaser shall file or cause to be filed when due all Tax Returns that
are required to be filed by or with respect to the Companies for taxable
years or periods ending after the applicable Closing Date and shall pay any
Taxes due in respect of such Tax Returns. Purchaser shall not amend, or
cause to be amended, any Tax Returns required to be filed by Sellers.
Sellers shall pay Purchaser the Taxes for which Sellers are liable pursuant
to Section 5.5(a)(i) but which are payable with Tax Returns to be filed by
Purchaser pursuant to the previous sentence within 10 days prior to the due
date for payment of such Tax.
(viii) CONTEST PROVISIONS. Purchaser shall promptly notify Sellers in
writing upon receipt by Purchaser, any of its Affiliates or any Company of
notice of any pending or threatened Tax audits or assessments which may
affect the Tax liabilities of any Company for which Sellers would be
required to indemnify Purchaser pursuant to Section 5.5(a)(i). Sellers
shall have the sole right to represent any Company's interest in any Tax
audit or administrative or court proceedings (a "TAX PROCEEDING") relating
solely to Taxes which may be the subject of indemnification by Sellers
under Section 5.5(a)(i) and to employ counsel of its choice at its expense.
Purchaser shall have the sole right to represent any Company's interest in
any Tax Proceeding relating solely to Taxes which may be the subject of
indemnification by Purchaser under Section 5.5(a)(ii) and to employ counsel
of its choice at its expense. With respect to any Tax Proceeding relating
to Taxes, a portion of which is the subject of indemnification by Sellers
under Section 5.5(a)(i) and a portion of which is the subject of
indemnification by Purchaser under Section 5.5(a)(ii), Sellers shall have
the right to participate in such Tax Proceeding; provided, however, that
with the written
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consent of Purchaser and at their own expense, Sellers may assume the
entire defense of such Tax Proceeding.
(ix) TERMINATION OF TAX ALLOCATION AGREEMENTS. Any tax allocation or
sharing agreement or arrangement, whether or not written, that may have
been entered into by Sellers and any Company (or CIPC) shall be terminated
as to such Company (or CIPC) as of the applicable Closing Date, or, with
respect to ARCO Marine, as of the ARCO Marine Transfer Date, and no
payments which would be owed by or to such Company (or CIPC) pursuant
thereto shall be made thereunder.
(b) TRANSFER TAXES. Notwithstanding Sections 5.5(a)(i) and (ii),
Purchaser, on the one hand, and Sellers, on the other hand, shall share equally
all transfer, sales, excise and similar Taxes, if any, arising from the purchase
and sale of the Shares, the AMI Conveyed Properties, the AMI Conveyed Contract,
the Alpine Rights-of-Way or the Product Inventory.
(c) INFORMATION TO BE PROVIDED BY PURCHASER. With respect to the
taxable year of Sellers ending December 31, 1999 and all relevant taxable
periods in 2000 prior to the applicable Closing Date, Purchaser shall cause each
Company to prepare and provide to Sellers a package of tax information materials
(the "TAX PACKAGE"), which shall be completed in accordance with past practice
including past practice as to providing the information, schedules and work
papers and as to the method of computation of separate taxable income or other
relevant measure of income of such Company. Purchaser shall cause to be
delivered to Sellers the Tax Package for the taxable period ending on December
31, 1999 by August 1, 2000 and for the taxable period ending on the applicable
Closing Date by June 30, 2001.
(d) ASSISTANCE AND COOPERATION. After the applicable Closing Date,
each of Sellers and Purchaser shall:
(i) assist (and cause their respective Affiliates to assist) the other
party in preparing any Tax Returns or reports which such other party is
responsible for preparing and filing in accordance with this Section 5.5;
(ii) cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding, any Tax Returns of any Company;
(iii) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating
to Taxes of any Company;
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(iv) provide timely notice to the other in writing of any pending or
threatened tax audits or assessments of any Company for taxable periods for
which the other may have a liability under this Section 5.5; and
(v) furnish the other with copies of all correspondence received from
any taxing authority in connection with any tax audit or information
request with respect to any such taxable period.
(e) SURVIVAL OF OBLIGATIONS. The obligations, representations and
covenants of the parties set forth in this Section 5.5 shall be
unconditional and absolute and shall remain in effect without limitation as
to time.
(f) SECTION 338(H)(10).
(i) ELECTION. Sellers shall make a joint election with Purchaser under
Section 338(h)(10) of the Code and under any similar provisions of state or
foreign law (each a "SECTION 338(H)(10) ELECTION") with respect to each of
the Companies (and any Subsidiary of any of them that is treated as a
corporation under the Code) other than UTP Holdings. Sellers represent that
the sales of such Companies are eligible for, and Purchaser represents that
it is qualified to make, such elections. Sellers and Purchaser shall
exchange complete and executed copies of Internal Revenue Service Form
8023, required schedules thereto, and any similar state and foreign forms.
If any changes are required in these forms as a result of information which
is first available after the applicable Closing Date, the parties will
promptly agree on such changes. Notwithstanding anything to the contrary in
this Agreement, Sellers and Purchaser agree that no election under Section
338(h)(10) of the Code and under any similar state law shall be made with
respect to UTP Holdings.
(ii) ALLOCATION OF PURCHASE PRICE. Sellers and Purchaser will agree to
an allocation of the purchase price (in accordance with relative fair
market values and consistent with Schedules 2.2(b) and 2.4(b) and Section
2.8(f)) among the assets of the Companies that are deemed to have been
acquired pursuant to Section 338(h)(10) of the Code or any state or foreign
law equivalent and among the UTP Holdings Shares, the CIPC Shares, the
Conveyed Properties and the Product Inventory (the Final Product Inventory
Purchase Price being allocated to the Product Inventory). Purchaser will
prepare the initial draft of such purchase price allocation. Purchaser and
Sellers shall use the asset values determined from such agreed-upon
allocation for purposes of all reports and returns with respect to Taxes,
including Internal Revenue Service Form 8594 or any equivalent statement.
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(g) POSSIBLE EXCHANGE. The parties may elect to structure one or more
of these transactions as a like-kind exchange pursuant to Section 1031 of the
Code. If Sellers are entitled to receive cash pursuant to this Agreement (or
pursuant to the exercise by any third party of any preferential purchase rights
to purchase where such right becomes exercisable by reason of this Agreement),
Sellers may assign their rights under this Agreement to a qualified
intermediary, and have Purchaser transfer the cash directly to the qualified
intermediary, to the extent necessary to enable the Sellers to consummate a
deferred like-kind exchange by directing the qualified intermediary to reinvest
the cash in like-kind property. The parties agree to execute all documents,
conveyances or other instruments reasonably necessary to effectuate such a
deferred like-kind exchange.
(h) CONSOLIDATED TAX RETURNS. Notwithstanding any other provision of
this Agreement, (i) Sellers and their Affiliates shall not be required to
provide any Person with any consolidated, combined or unitary Tax Return or copy
thereof that includes any of Sellers and their Affiliates (other than any entity
transferred directly or indirectly to Purchaser by any of Sellers and their
Affiliates hereunder) and (ii) Purchaser and its Affiliates shall not be
required to provide any Person with any consolidated, combined or unitary Tax
Return or copy thereof that includes Purchaser or any of its Affiliates;
PROVIDED, HOWEVER, that to the extent that such Tax Returns would be required to
be delivered but for this Section 5.5(h), the Person that would be required to
deliver such Tax Returns shall instead deliver pro formas relating solely to the
Companies, the AMI Conveyed Properties, the AMI Conveyed Contract, the Alpine
Rights-of-Way, the Product Inventory or CIPC, as the case may be.
(i) CONSOLIDATED TAX PROCEEDINGS. Notwithstanding any other provision
of this Agreement, (i) Sellers and their Affiliates shall be entitled to
control, and Purchaser shall not be entitled to participate in, any Tax
Proceeding with respect to any consolidated, combined or unitary Tax Return that
includes any of Sellers and their Affiliates (other than any entity transferred
directly or indirectly to Purchaser by any of Sellers and their Affiliates
hereunder) and (ii) Purchaser and its Affiliates shall be entitled to control,
and Sellers and their Affiliates shall not be entitled to participate in, any
Tax Proceeding with respect to any consolidated, combined or unitary Tax Return
that includes Purchaser or any of its Affiliates (other than any entity
transferred directly or indirectly to Purchaser by any of Sellers and their
Affiliates hereunder).
(j) TAX BASIS AND SECTION 754 ELECTION REPRESENTATION. Sellers make
the following representations and warranties to Purchaser: (i) Schedule 5.5(j)
hereto sets forth the tax basis under the Code of UTP Holdings (or its
Subsidiary), as of December 31, 1999, in its partnership interest in Colville
River Unit and the corresponding share of UTP Holdings (or its Subsidiary) in
Colville River Unit's basis in Colville River Unit's assets; and (ii) in the
case of each transfer hereunder that is, for purposes of the Code, a transfer of
an interest that is, or has been treated as, a partnership interest under the
Code, each relevant partnership (other than any partnership interest in
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the Colville River Unit and any partnership interest to which no value is
allocated by the parties pursuant to Section 5.5(f)(ii)) has made (or will make)
a valid election under Section 754 of the Code that will apply to such transfer.
(k) In the case of any Subsidiary of a Company that is treated as a
corporation under the Code, the principles of this Section 5.5 shall apply as if
such Subsidiary were a Company. The principles of this Section 5.5 shall also
apply to any intellectual property sold to Purchaser pursuant to Section 5.15
hereof.
Section 5.6 EMPLOYEES AND EMPLOYEE BENEFITS. The parties hereby agree
to all of the provisions set forth in Schedule 5.6 of the Disclosure Schedule,
as amended as of April 6, 2000, with respect to Personnel and employee
compensation and benefits.
Section 5.7 INDEBTEDNESS.
(a) Except as set forth in Section 5.7(b), Sellers shall cause each
Company to repay all existing indebtedness of each Company for borrowed money
prior to the applicable Closing with respect to such Company. Sellers shall
cause the Contracts solely between ARCO or any Affiliate of ARCO that is not a
Company, on the one hand, and any Company, on the other hand, other than the
Contracts identified on Schedule 5.7(a) of the Disclosure Schedule and except as
provided by Section 5.15, to be terminated as of the applicable Closing Date
with respect to such Company.
(b) Notwithstanding Section 5.7(a), Sellers shall have no obligation
prior to the Second Closing to cause the repayment of the $265,000,000 principal
amount of City of Valdez, Alaska Marine Terminal Revenue Refunding Bonds, Series
A, B & C 1994, due 2031 (the "BONDS") for which ATAI is the primary obligor and
ARCO has guaranteed payment. No later than eighteen months from the Second
Closing Date, Purchaser shall cause the Bonds then outstanding, together with
all interest and other amounts then due and payable thereunder, to be paid in
full, or provision for payment thereof to be made, so that the existing
guarantees delivered by ARCO in respect of such Bonds (the "GUARANTEES") shall
terminate and ARCO, as guarantor, shall cease to have any continuing liability
or obligation with respect to any Bonds, or any refunding thereof, and the
Guarantees shall be delivered to ARCO by the trustee for the Bonds marked
cancelled. Purchaser's ability to refund or reissue the Bonds shall not be a
condition to Purchaser's obligations with respect to repayment of the Bonds
within the foregoing period. Purchaser shall forever indemnify and hold harmless
the Seller Indemnified Parties for any demand for payment, loss, claim,
liability, damages, costs or expenses asserted against, or incurred by, ARCO as
Guarantor of the Bonds or of ATAI's obligations, or any of ARCO's Affiliates, in
respect of any failure to pay principal or interest under the Bonds or any other
default with respect to the Bonds, or any reissue or refunding thereof, arising
after the Second Closing Date. ARCO shall procure that, prior
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to the Second Closing, (i) for Bonds issued in the Variable Rate Mode (as
defined in the applicable Indenture), ATAI shall not cause any of the Bonds to
be converted to any interest rate mode such that the Bonds bear interest at a
Quarterly, Semiannual, Term or Fixed Rate (as defined in the applicable
Indenture), and (ii) for Bonds issued in the Flexible Rate Mode (as defined in
the applicable Indenture), ATAI shall request the Remarketing Agent (as defined
in the applicable Indenture) to use commercially reasonable efforts to market
the Bonds for Flexible Rate Periods (as defined in the applicable Indenture) not
exceeding 90 days and (iii) ATAI shall not issue Bonds in the Fixed Rate Mode
(as defined in the applicable Indenture). The time period referred to in the
second sentence of this Section 5.7(b) may be extended by mutual agreement of
ARCO and Purchaser but shall not extend for more than two years in total.
Section 5.8 FURTHER ASSURANCES. At any time after a Closing Date,
Sellers and Purchaser shall, and Purchaser shall cause each Company that after
such Closing Date is a Subsidiary of Purchaser to, promptly execute, acknowledge
and deliver any other assurances or documents reasonably requested by Sellers or
Purchaser, as the case may be, and necessary for Sellers or Purchaser, as the
case may be, to satisfy its respective obligations hereunder or under the
Provisional Consent Order or any final order of the FTC in respect thereof or
obtain the benefits contemplated hereby.
Section 5.9 CERTAIN TRANSACTIONS. Purchaser agrees that it shall not,
and shall not permit any of its Affiliates to (i) acquire or agree to acquire
any assets, (ii) acquire or agree to acquire, whether by merger, consolidation,
by purchasing a substantial portion of the assets of or equity in, or by any
other manner, any Person or division thereof, if the entering into of a
definitive agreement relating to or the consummation of such acquisition, merger
or consolidation could reasonably be expected to (A) impose any material delay
in the expiration or termination of any applicable waiting period or impose any
material delay in the obtaining of, or significantly increase the risk of not
obtaining, any Governmental Authorization, including the Provisional Consent
Order, any final order of the FTC in respect thereof, the State Consent Order
and the Charter, (B) significantly increase the risk of any Governmental Entity
entering an order prohibiting the consummation of the transactions contemplated
hereby, (C) significantly increase the risk of not being able to remove any such
order on appeal or otherwise or (D) materially delay or impede the consummation
of the transactions contemplated hereby, or (iii) take any action that could
reasonably be expected to result in any modification to the Provisional Consent
Order by the FTC that would be adverse to Sellers or would require any
indemnification by ARCO pursuant to Section 8.3(f) or the withdrawal of the
Provisional Consent Order by the FTC.
Section 5.10 CHARTER OBLIGATIONS.
(a) Purchaser acknowledges that ARCO Alaska and BP Exploration are
each parties to the Charter and that the Charter requires both and each of ARCO
Alaska
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and BP Exploration to undertake certain commitments, some of which are
associated with the ownership or operation of the Properties of the Companies,
some of which are associated with the ownership or operation of properties owned
by BP Exploration and some of which are general in nature.
(b) Notwithstanding anything in this Agreement to the contrary, as
between ARCO and Purchaser, Purchaser shall assume all obligations of ARCO
Alaska for complying with the Charter commitments to the extent such commitments
are associated with the ownership or operation of the Properties of the
Companies or the Conveyed Properties, ARCO shall be responsible for complying
with the Charter commitments to the extent such commitments are associated with
the ownership or operation of the properties retained by BP Exploration, and
ARCO and Purchaser shall each be separately responsible, and Purchaser shall
assume such responsibility, for all other Charter commitments in equal measure,
subject only to the following clarifications and exceptions:
(i) The commitment of BP Exploration and ARCO Alaska with respect to
purchasing crude oil under Charter paragraph I.G. shall be allocated
entirely to ARCO.
(ii) The commitment of BP Exploration and ARCO Alaska with respect to
natural gas volume under Charter paragraph I.J. shall be allocated between
ARCO and Purchaser based upon BP Exploration's and ARCO Alaska's
then-allocated share of gas reserves of the Prudhoe Bay (Permo-Triassic)
Reservoir.
(iii) The commitment of BP Exploration and ARCO Alaska with respect to
orphan sites under Charter paragraph II.A.1. shall be allocated entirely to
ARCO.
(iv) The commitment of BP Exploration and ARCO Alaska with respect to
clean up of sites and reserve pits under Charter paragraphs II.A.3 and
II.A.4. shall be allocated between ARCO and Purchaser based upon the
specific party designations in Charter Exhibits D.2., D.3.A. and D.3.B.
(v) The commitment of BP Exploration and ARCO Alaska with respect to
unspent funds under Charter paragraph II.A.8. shall be allocated between
ARCO and Purchaser in the same proportion as in the allocations previously
established for the relevant provisions of Charter paragraph II.A to which
paragraph II.A.8 refers.
(vi) The commitment of BP Exploration and ARCO Alaska with respect to
establishing and funding a charitable entity under Charter paragraph II.D.
shall be allocated between ARCO and Purchaser in proportion to their
respective share
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of Alaska liquids production and based upon the assumption that each will
establish a separate entity.
(vii) The commitment of BP Exploration and ARCO Alaska with respect to
annual reporting under Charter paragraph II.E. shall be accomplished by
separate reporting by each of ARCO and Purchaser concerning their
respective allocated shares of the Charter commitments.
(viii) The commitment of BP Exploration and ARCO Alaska to pay
Alaska's attorneys' fees under Charter paragraph V.G. shall be allocated
entirely to ARCO.
In fulfilling its obligations hereunder, Sellers and Purchaser shall each comply
with applicable laws.
Section 5.11 SELLERS' TRADE NAMES, ETC. Effective as of the applicable
Closing Date with respect to each Company, any license agreement pursuant to
which Sellers or any Affiliate of Sellers have granted to any Company the right
to use trademarks, trade names or logos that include the word "ARCO" shall be
terminated. As promptly as is practicable after the applicable Closing,
Purchaser shall cause each such Company to eliminate the word "ARCO" and every
word or expression derived therefrom from (a) its certificate of incorporation
and other organizational documents and (b) the names under which it does
business. Within 90 days after the applicable Closing, Purchaser shall cause
each Company to remove any such trademarks, trade names and logos from its
respective properties, stationery and literature, and thereafter neither
Purchaser nor any Company shall use any such trademarks, trade names or logos.
Section 5.12 GUARANTEE. Effective upon the consummation of the BP
Amoco/ARCO Merger as provided in the Merger Agreement, BP Amoco hereby
unconditionally guarantees to Purchaser the prompt, faithful and full
performance of all of the covenants and obligations of each Seller under this
Agreement.
Section 5.13 INSURANCE MATTERS. ARCO shall maintain insurance coverage
with respect to each Company and the Conveyed Properties generally in a manner
consistent with its past practice and overall insurance program for ARCO until
the applicable Closing Date with respect to such Company or Conveyed Properties.
From the ARCO Marine Transfer Date until the First Closing, ARCO agrees to
maintain the ARCO excess general liability insurance program, insuring ARCO, its
subsidiaries and divisions, in a manner consistent with ARCO's past practice.
Purchaser acknowledges that upon the ARCO Marine Transfer Date, the excess
comprehensive general liability insurance including tanker vessel pollution
coverage maintained as part of the insurance coverage for ARCO and its
subsidiaries may no longer be available with respect to the operations of ARCO
Marine. Commencing on the ARCO Marine Transfer Date until the
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First Closing, Purchaser shall maintain insurance coverage for the AMI Conveyed
Properties and the ARCO Trader, and for risks with respect to the operations of
ARCO Marine, with an insurer which is a member of the International Group of
Protection and Indemnity Associations, at the same or better level of coverage
as ARCO maintained with the American Steamship Owners Mutual Protection and
Indemnity Association, Inc. ("ASO") for the ARCO Trader, AMI Conveyed Properties
and ARCO Marine immediately prior to the ARCO Marine Transfer Date. If Purchaser
uses an insurer other than ASO, Purchaser will reimburse ARCO for 50% of any
termination penalty, release call or other calls related to termination made
against ARCO by ASO, subject to a maximum reimbursement by Purchaser of $1
million, and ARCO will reimburse Purchaser for 50% of any termination penalty,
release call or other calls related to termination made against ARCO Marine by
ASO. Sellers and Purchaser acknowledge that as and when insurance policies
expire or are renewed, it may not be possible to maintain the same insurance
coverage either in kind or amount as may be in place as of the date of this
Agreement. From and after the applicable Closing Date with respect to the Shares
of each Company and the Conveyed Properties, Purchaser shall solely be
responsible for providing such insurance coverage as it may in its sole judgment
determine to be appropriate which respect to occurrences and claims arising
after such Closing Date with respect to each Company and the Conveyed
Properties, as the case may be. With respect to claims arising after the
applicable Closing Date, including claims made after such Closing Date for
Losses occurring prior to the relevant Closing Date but insured on a "claims
made" basis, Purchaser shall have no separate or independent claim against or
interest in insurance policies of ARCO and ARCO's Subsidiaries (without
prejudice to the Sellers' submission of claims in conformity with the provisions
of this Section) with respect to losses or claims related to occurrences prior
to the applicable Closing Date. Schedule 5.13 lists insurance policies that
provide occurrence coverage to ARCO which may be available to Purchaser to
respond to claims arising out of occurrences prior to the applicable Closing
Date. Sellers acknowledge that there may be additional policies which may
provide some coverage with respect to losses or claims related to occurrences
prior to the applicable Closing Date. Sellers agree to cooperate on a reasonable
basis with Purchaser, at Purchaser's expense, with respect to identifying any
such policies and will, as appropriate, tender, submit or present claims with
respect to such policies, provided that Sellers may in their sole discretion
decline to tender, submit or present any such claim if acceptance or processing
of any such claim by the relevant insurance carrier or provider would result in
any economic cost or charge to Sellers or any Subsidiary or Affiliate of Sellers
(including as a result of policies written by or agreements by Subsidiaries or
Affiliates of the Sellers or policies that are experience rated, fronted or
otherwise recapture all or a portion of any recovery from the insured or policy
holder through subsequent premium adjustments or charges), provided Sellers
shall submit or present any such claim should Purchaser agree to hold Sellers
harmless from any such economic cost or charge unless, in the reasonable
judgment of Sellers, any such agreement of Purchaser would be insufficient to
prevent an adverse effect on a
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Seller. Sellers do not represent or warrant that coverage under such policies
would be available to cover a loss sustained by Purchaser in any particular
instance or generally. Any coverage under any such policy would be subject to
the terms and conditions of such policies and rules of the relevant underwriter.
Section 5.14 LONG-TERM SUPPLY CONTRACTS. Simultaneous with the
execution and delivery of this Agreement, Purchaser has entered into an
agreement with BP Oil Supply Company providing for the assignment of the rights
and obligations of BP Oil Supply Company under each of the crude oil supply
agreements identified on Schedule 5.14 of the Disclosure Schedule (each, a
"LONG-TERM SUPPLY CONTRACT") to Purchaser subject to the terms and conditions
stated in such agreement.
Section 5.15 CERTAIN INTELLECTUAL PROPERTY.
(a) On or prior to the time of the applicable Closing Date, ARCO
agrees to convey to Purchaser:
(i) by means of the sale, transfer, assignment, conveyance and
delivery to Purchaser of the ARCO Alaska Shares, the ATAI Shares, the
Kuparuk Shares, the Oliktok Shares, the Alpine Shares, the ARCO Marine
Shares and the UTP Holdings Shares, the intellectual property, inventions,
technology, trademarks, trade names, trade secrets, copyrights, know-how,
research material, technical information, seismic data, geological data,
geophysical data, management information systems, software and software
specifications, designs, drawings, plans (whether proposed or tentative,
whether adopted, pending or implemented), specifications, processes and
quality control data that, as of the date that the Consent Agreement is
signed, are owned, in whole or in part (but only to the extent of such
part), by or has been assigned to any ARCO Alaska Company, including any
special analyses, interpretations and other derivatives from proprietary
seismic, geological and geophysical data owned by ARCO Alaska relating to
any hydrocarbons in Alaska or the geology of Alaska (the "ARCO ALASKA
INTELLECTUAL PROPERTY"), PROVIDED, HOWEVER, that ARCO Alaska Intellectual
Property shall not include the ARCO Patents or any proprietary trade names
or trademarks of ARCO;
(ii) all patents, patent applications and inventions that, as of the
date the Consent Agreement is signed, are owned, in whole or in part (but
only to the extent of such part), by ARCO and primarily related to ARCO
Alaska Businesses or otherwise primarily used by, for or in connection with
an ARCO Alaska Company, in each case subject to any licenses to or other
agreements with third parties in effect as of the date the Consent
Agreement is signed (the "ARCO Patents"); and
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(iii) all proprietary seismic, geological and geophysical data that,
as of the date that the Consent Agreement is signed, are owned, in whole or
in part (but only to the extent of such part), by ARCO or its Subsidiaries
relating to any hydrocarbons in Alaska or the geology of Alaska (the "ARCO
SEISMIC DATA").
(b) On or prior to the First Closing Date, ARCO and Purchaser shall
enter into a license agreement for the ARCO Intellectual Property pursuant to
which ARCO will grant to Purchaser a fully paid up, irrevocable non-exclusive
license, for use of the ARCO Intellectual Property in connection with the
operation in any manner by Purchaser of the ARCO Alaska Businesses (excluding
for this purpose clause (d) of the definition of ARCO Alaska Businesses) as
existing as of the date the Consent Agreement is signed and reasonably
foreseeable extensions thereof, subject to any restrictions on the transfer or
license of any such ARCO Intellectual Property arising under any agreement with
a third party. ARCO shall cooperate with Purchaser and use reasonable best
efforts to assist Purchaser in obtaining a waiver, consent or license, as
applicable, for any such restricted ARCO Intellectual Property (or the benefits
equivalent thereto), the expense of any such license or equivalent benefits to
be borne by Purchaser. For the purposes of this Agreement, "ARCO INTELLECTUAL
PROPERTY" means intellectual property, inventions, technology, trademarks, trade
names, trade secrets, patents, copyrights, know-how, research material,
technical information, management information systems, software and software
specifications, designs, drawings, plans (whether proposed or tentative, whether
adopted, pending or implemented), specifications, processes and quality control
data that, as of the date the Consent Agreement is signed, are owned, in whole
or in part (but only to the extent of such part), by ARCO or its Subsidiaries
(excluding each ARCO Alaska Company), and either are licensed by ARCO or such a
Subsidiary to an ARCO Alaska Company or are otherwise primarily used in, for or
connected with the ARCO Alaska Businesses as of the date the Consent Agreement
is signed, including, without limitation, all information, technology, know-how,
research and other intangible assets and expertise used in connection with the
ARCO Alaska Businesses related to miscible injection for enhanced oil recovery
and technology related to unconsolidated sands, PROVIDED, HOWEVER, that "ARCO
Intellectual Property" shall not include ARCO Patents, ARCO Seismic Data, ARCO
Geoscience and Reservoir Intellectual Property or any proprietary trade names or
trademarks of ARCO.
(c) On or prior to the First Closing Date, ARCO and Purchaser shall
enter into a license agreement for the ARCO Geoscience and Reservoir
Intellectual Property pursuant to which ARCO will grant to Purchaser a fully
paid-up, irrevocable non-exclusive license, for use of the ARCO Geoscience and
Reservoir Intellectual Property in connection with the operation in any manner
by Purchaser of the ARCO Alaska Businesses (excluding for this purpose clause
(d) of the definition of ARCO Alaska Businesses) as existing as of the date the
Consent Agreement is signed and reasonably foreseeable extensions thereof,
subject to any restrictions on the transfer or license of any such ARCO
Geoscience and Reservoir Intellectual Property arising under
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any agreement with a third party and subject to the rights of any third parties
under licenses previously granted by ARCO. ARCO shall cooperate with Purchaser
and use reasonable best efforts to assist Purchaser in obtaining a waiver,
consent or license, as applicable, for any such restricted ARCO Geoscience and
Reservoir Intellectual Property (or the benefits equivalent thereto), the
expense of any such license or equivalent benefits to be borne by Purchaser. For
the purposes of this Agreement, "ARCO GEOSCIENCE AND RESERVOIR INTELLECTUAL
PROPERTY" means all technical information, patents, computer programs and code,
including all supporting manuals and documentation that, as of the date the
Consent Agreement is signed, are owned, in whole or in part (but only to the
extent of such part), by ARCO or its Subsidiaries (excluding each ARCO Alaska
Company) and used in or connected with the ARCO Alaska Businesses and related to
(1) modeling and simulation of subsurface hydrocarbon reservoirs, (2)
interpreting seismic, geological and geophysical data and reservoir data, (3)
optimizing facilities, and (4) drilling and producing hydrocarbons. Such ARCO
Geoscience and Reservoir Intellectual Property includes, but is not limited to:
(a) geophysical techniques employing elastic impedance seismic inversion
technology; (b) reservoir simulation computer models (known as "ACRES"); (c)
enhanced oil recovery and fluid characterization technology; (d) geomechanical
modeling; (e) fluid flow ("ARCO90") relative permeability technology; and (e)
analytical reservoir measurement techniques.
(d) On or prior to the First Closing Date, ARCO and Purchaser shall
enter into a license agreement pursuant to which Purchaser will grant to ARCO a
fully paid up, irrevocable non-exclusive license for use of the ARCO Patents
worldwide. Such license will permit sublicenses to third parties.
(e) ARCO shall cooperate with Purchaser and use reasonable best
efforts to assist Purchaser in obtaining a license for any Third Party
Intellectual Property (or the benefits equivalent thereto), the expense of any
such license or equivalent benefits to be borne by Purchaser. For the purposes
of this Agreement, "THIRD PARTY INTELLECTUAL PROPERTY" means intellectual
property, inventions, technology, trademarks, trade names, trade secrets,
patents, copyrights, know-how, research material, technical information,
management information systems, software and software specifications, designs,
drawings, plans (whether proposed or tentative, whether adopted, pending or
implemented), specifications, processes and quality control data that, as of the
date the Consent Agreement is signed, are owned by a party other than ARCO or
any of its Subsidiaries but are licensed to ARCO or its Subsidiaries (excluding
for this purpose each ARCO Alaska Company) and are primarily used in, for or
connected with the ARCO Alaska Businesses (excluding for this purpose clause (d)
of the definition of ARCO Alaska Businesses).
Section 5.16 SUBSTITUTION OF GUARANTOR. Purchaser agrees that in
connection with and at the time of the applicable Closing, Purchaser will be
substituted for ARCO or any Subsidiary of ARCO as the guarantor (or other party
providing support
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or assurances for the obligations of any Company) with respect to all operating
and performance guarantees, sureties, support and similar obligations
theretofore assumed by ARCO or such Subsidiary with respect to a Company or, in
the event that any required consent or approval for such substitution is not
obtained, will indemnify ARCO and its Affiliates in respect of any liabilities
incurred by them in respect of such obligations.
Section 5.17 TRANSITIONAL SERVICES. After the execution of this
Agreement, ARCO and Purchaser will negotiate in good faith to conclude, and
prior to Closing shall enter into, agreements, in forms to be agreed upon by the
parties, for the provision of transitional services with respect to the
Companies and the AMI Conveyed Properties. Such agreements shall provide that
Purchaser will pay ARCO fees for such services (a) at the rate or rates
currently charged or allocated by ARCO to ARCO Alaska for internal accounting
purposes or in the most recent budget for ARCO Alaska or (b) in the case of
services for which there is no historical charge or allocation, at a rate or
rates, to be mutually agreed by ARCO and Purchaser in good faith, reflecting the
cost to ARCO of providing such services.
Section 5.18 DESIGNATION OF TRANSFEREE. In its sole discretion,
Purchaser shall be permitted to direct that any of the Shares the Conveyed
Properties or the Product Inventory that Purchaser is entitled to receive
hereunder be delivered directly to any Affiliate of Purchaser; PROVIDED that
such direction shall be given to Sellers prior to the filing by Sellers of any
application with any Governmental Entity for approval of the transfer of the
Shares or the Conveyed Properties in question to Purchaser, but in any event
Purchaser shall not be required to give such direction to Sellers prior to the
third Business Day after the date of the first public announcement of this
Agreement; and PROVIDED, FURTHER, that any such direction shall not affect the
obligations of Purchaser hereunder.
Section 5.19 PREPARATION OF FINANCIAL STATEMENTS. Prior to and
subsequent to the Closing, Sellers will cooperate with Purchaser to prepare such
audited financial statements for the Companies on a combined basis as the
Securities and Exchange Commission may require.
Section 5.20 ORDER TO HOLD SEPARATE AND MAINTAIN ASSETS.
Notwithstanding anything to the contrary contained in this Agreement, Sellers
shall not be required to perform any covenant or agreement herein, and the
failure to perform any such covenant or agreement shall not constitute a breach
of this Agreement by Sellers, if the performance of such covenant or agreement
would violate, or the performance of such covenant or agreement shall not be
within the control of Sellers as a result of, any order to hold separate and
maintain assets issued by the FTC.
Section 5.21 ARCO DIRECTORS AND OFFICERS.
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(a) On or prior to the ARCO Marine Transfer Date, in the case of ARCO
Marine, on or prior to the First Closing Date, in the case of ARCO Alaska, UTP
Holdings and ARCO Beluga, and on or prior to the Second Closing Date, in the
case of ATAI, Kuparuk, Oliktok, Alpine and CIPC, Sellers shall deliver or cause
to be delivered to Purchaser letters of resignation from each director and
officer of such Company and any wholly owned Subsidiary of such Company and, in
the case of CIPC, from any director of CIPC who was nominated to such position
by ARCO, such resignations to be effective on the Closing Date applicable to
each such Company.
(b) From and after the Closing Date applicable to each Company,
Purchaser shall not take any action that would eliminate, reduce, limit or
otherwise modify the indemnification available to any present or former director
or officer of such Company or any of its Subsidiaries, if applicable, determined
as of the relevant Closing (collectively, the "ARCO DIRECTORS AND OFFICERS"),
whether such indemnification is provided pursuant to such Company's certificate
of incorporation, by-laws or other organizational document, indemnification
agreements, or otherwise.
(c) If Purchaser or any of its successors or assigns (i) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation or entity of such consolidation or merger or (ii) shall
transfer all or substantially all of its properties and assets to any Person,
then, and in each such case, proper provisions shall be made so that the
successors and assigns of Purchaser shall assume all of the obligations set
forth in this Section 5.21.
(d) The provisions of this Section 5.21 are intended to be for the
benefit of, and shall be enforceable by, each of the ARCO Directors and
Officers, their heirs and their representatives.
Section 5.22 MARINE.
(a) AMI CONVEYED CONTRACT. Purchaser acknowledges that certain ARCO
Marine employees are currently responsible for the management and oversight of
the AMI Conveyed Contract and the construction program implemented pursuant
thereto. Purchaser agrees that during the period beginning on the ARCO Marine
Transfer Date and ending on the Second Closing Date, Purchaser shall, and shall
cause ARCO Marine (i) to continue to manage and maintain oversight of the AMI
Conveyed Contract and the construction program implemented pursuant thereto in a
manner consistent with the practices of ARCO Marine prior to such delivery of
the ARCO Marine Shares and (ii) not to amend the engineering design,
construction process or any terms of the AMI Conveyed Contract without the prior
written consent of AMI.
(b) BAREBOAT CHARTERS.
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(i) During the period beginning on the ARCO Marine Transfer Date and
ending on the First Closing Date, Purchaser shall not permit ARCO Marine to
terminate, and shall cause ARCO Marine to perform its obligations under,
(A) each of the bareboat charters between AMI and ARCO Marine then in
effect for each of the AMI Conveyed Properties (collectively, the "BAREBOAT
CHARTERS") and (B) the bareboat charter between Attransco, Inc. and ARCO
Marine then in effect for the ARCO Trader.
(ii) In connection with the First Closing, ARCO shall cause AMI to
terminate each of the Bareboat Charters when the relevant AMI Conveyed
Property is delivered, at a time mutually agreed upon as provided in
Section 2.2(b)(iii). Should the parties be unable to agree on a mutually
acceptable time, then such delivery of the relevant AMI Conveyed Property
and termination of the applicable Bareboat Charter shall be at the time of
the First Closing as provided in Section 2.2(a). Purchaser acknowledges and
agrees that ARCO Marine has as of the date hereof waived any requirement of
notice of such termination under any Bareboat Charter and further agrees
that upon and after the delivery of the ARCO Marine Shares to Purchaser in
accordance with Section 2.6(b)(vi) such waiver shall remain in effect.
(c) TIME CHARTERS.
(i) During the period beginning on the ARCO Marine Transfer Date and
ending on the First Closing Date, Purchaser shall not permit ARCO Marine to
terminate, and shall cause ARCO Marine to perform its obligations under,
each of the time charters between ARCO Marine and ARCO Products Company
then in effect for each of the AMI Conveyed Properties and the ARCO Trader
(the "ARCO PRODUCTS TIME CHARTERS").
(ii) ARCO shall cause the termination of each of the ARCO Products
Time Charters, effective simultaneously with the termination of the
Bareboat Charters in accordance with Section 5.22(b).
(d) RECONVEYANCE. In the event that the ARCO Marine Shares shall have
been delivered to Purchaser in accordance with Section 2.6(b)(vi) and thereafter
this Agreement shall be terminated prior to the First Closing, then upon the
demand(s) of and at the time(s) designated by ARCO (which time(s) shall be as
promptly as practicable after obtaining the relevant approval(s) of the Maritime
Administration, the application(s) for which shall be made by ARCO no later than
five business days after such termination of this Agreement), (i) Purchaser
shall cause ARCO Marine to assign, for no consideration, all of the rights and
obligations of ARCO Marine under each of the Bareboat Charters and the bareboat
charter for the ARCO Trader to ARCO's designee(s), (ii) Purchaser shall deliver
possession of the AMI Conveyed Properties and the ARCO
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Trader to ARCO's designee(s), (iii) Purchaser and ARCO shall cause termination
without penalty of each of the ARCO Products Time Charters, (iv) Purchaser shall
transfer, assign, convey and deliver to ARCO or, at ARCO's option, ARCO's
designee, for no consideration, the ARCO Marine Shares, duly endorsed in blank
or accompanied by stock powers duly executed in blank, in proper form for
transfer and with any requisite stock transfer stamps properly affixed thereto,
and (v) if such assignments, deliveries and terminations contemplated by clauses
(i), (ii), (iii) and (iv) have been made, ARCO will indemnify, defend and hold
harmless the Purchaser Indemnified Parties from, against and in respect of any
(x) Losses imposed on, sustained, incurred or suffered by or asserted against
any of the Purchaser Indemnified Parties, to the extent arising out of the
operation of ARCO Marine prior to delivery of the ARCO Marine Shares to
Purchaser, and (y) Losses (including those related to personal injuries,
property damage, or any actual or threatened discharge of oil), relating to or
arising out of any of the AMI Conveyed Properties or the ARCO Trader, or
Purchaser's bareboat chartering or operating any such vessel after the ARCO
Marine Transfer Date to the extent that such Losses exceed the coverage which
Purchaser is required to maintain pursuant to Section 5.13; PROVIDED, HOWEVER,
that this clause (y) shall not apply to any Losses arising out of or related to
the gross negligence or willful misconduct of any Purchaser Indemnified Party.
Notwithstanding anything in this Agreement to the contrary, this Section 5.22(d)
shall survive indefinitely.
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND SELLERS
WITH RESPECT TO THE FIRST CLOSING. The obligations of the parties hereto to
effect the First Closing are subject to the satisfaction (or waiver by Purchaser
and Sellers) prior to the First Closing of the following conditions:
(a) GOVERNMENTAL CONSENTS. (i) The Provisional Consent Order shall
have been issued by the FTC, (ii) the State Consent Order shall have been
issued, (iii) any applicable waiting period under the HSR Act shall have been
terminated and (iv) all Required Governmental Consents (other than any Required
Governmental Consent that relates only to the sale, transfer, assignment and
conveyance of the Pipeline Assets) shall have been obtained or made.
(b) LITIGATION. No court or other Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law or Order that is in effect and enjoins or otherwise prohibits consummation
of the transactions contemplated by Sections 2.2(a) and 2.2(b).
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(c) BP AMOCO/ARCO MERGER. The BP Amoco/ARCO Merger shall have been
consummated; PROVIDED, HOWEVER, that Purchaser acknowledges and agrees that,
notwithstanding anything to the contrary contained in this Agreement, neither
ARCO nor BP Amoco shall have any obligation to Purchaser under the terms of this
Agreement or otherwise to (i) complete the BP Amoco/ARCO Merger or (ii) take any
action or refrain from taking any action to consummate the BP Amoco/ARCO Merger.
(d) ARCO shall have caused AMI to terminate the Bareboat Charters
pursuant to Section 5.22(b)(ii).
(e) ARCO shall have caused the termination of the ARCO Products Time
Charters in accordance with Section 5.22(c).
Section 6.2 CONDITIONS TO THE OBLIGATIONS OF PURCHASER WITH RESPECT TO
THE FIRST CLOSING. The obligation of Purchaser to effect the First Closing is
subject to the satisfaction (or waiver by Purchaser) prior to the First Closing
of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Sellers set forth in this Agreement shall be true and correct (without giving
effect to any qualifications as to "Material Adverse Effect," "material" or
similar qualifications except for any reference to "Material Contracts" and the
references to "material" in Section 3.7) as of the date of this Agreement and on
and as of the First Closing as though made on and as of the First Closing
(except to the extent any such representation or warranty expressly speaks as of
an earlier or different date, and except for changes contemplated or permitted
by the terms hereof) except, in either case, where the failure of such
representations and warranties to be so true and correct (without giving effect
to any qualifications as to "Material Adverse Effect," "material" or similar
qualifications except for any references to "Material Contracts" and the
references to "material" in Section 3.7), individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect, and each
Seller shall have delivered to Purchaser a certificate dated as of the First
Closing Date and signed on behalf of such Seller by an executive officer of such
Seller to such effect.
(b) COVENANTS. The covenants and agreements of Sellers to be performed
on or prior to the First Closing shall have been duly performed in all material
respects, and each Seller shall have delivered to Purchaser a certificate dated
as of the First Closing Date and signed on behalf of such Seller by an executive
officer of such Seller to such effect; PROVIDED that any failure to satisfy the
foregoing condition with respect to any covenant or agreement of Sellers (other
than the agreements set forth in Article II) shall be disregarded and may not be
asserted by Purchaser if and to the extent that (i) ARCO shall agree to
indemnify the Purchaser Indemnified Parties and hold them harmless against any
and all Losses that may arise out of or relate to the failure of Sellers
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to duly perform such covenant or agreement in all material respects and (ii) all
of such failures, taken together, do not materially and adversely affect the
economic benefits reasonably expected to be derived by Purchaser from the
consummation of the transactions contemplated hereby.
(c) DELIVERIES. Purchaser shall have received from Sellers the
certificates and other instruments of transfer, assignment and conveyance
required to be delivered pursuant to Section 2.2(b) hereof.
(d) ARCO shall have delivered to Purchaser, at least five Business
Days prior to the First Closing Date, the audited Year-End Financial Statements
referenced in Section 3.7.
(e) ALPINE PIPELINE. ARCO Alaska and UTA shall have transferred
to Alpine all of the assets, tangible and intangible, which are reflected in the
book value for the alpine pipeline common carrier crude oil pipeline on the
accounting records of ARCO Alaska and UTA, at the date of such asset transfer.
Such transfer at book value is already reflected in the $165 million allocation
in Schedule 5.5(j).
Section 6.3 CONDITIONS TO THE OBLIGATIONS OF SELLERS WITH RESPECT TO
THE FIRST CLOSING. The obligations of Sellers to effect the First Closing are
subject to the satisfaction (or waiver by Sellers) prior to the First Closing of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Purchaser set forth in this Agreement shall be true and correct (without
giving effect to any qualifications as to "Material Adverse Effect," "material"
or similar qualifications) as of the date of this agreement and on and as of the
First Closing as though made on and as of the First Closing (except to the
extent any such representation or warranty expressly speaks as of an earlier or
different date, and except for changes contemplated or permitted by the terms
hereof) except, in either case, where the failure of such representations and
warranties to be so true and correct (without giving effect to any
qualifications as to "material adverse effect," "material" or similar
qualifications), individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on Purchaser or materially impair or
delay Purchaser's ability to perform its obligations hereunder, and Purchaser
shall have delivered to Sellers a certificate dated as of the First Closing Date
and signed on behalf of Purchaser by an executive officer of Purchaser to such
effect.
(b) COVENANTS. The covenants and agreements of Purchaser to be
performed on or prior to the First Closing shall have been duly performed in all
material respects, and Purchaser shall have delivered to Sellers a certificate
dated as of the First Closing Date and signed on behalf of Purchaser by an
executive officer of Purchaser to such effect.
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(c) RECEIPT OF PURCHASE PRICE. Sellers shall have received from
Purchaser the payment required to be made at the First Closing pursuant to
Section 2.2(b) hereof.
(d) INSTRUMENTS. Purchaser shall have executed all instruments
of transfer, assignment, assumption or conveyance required in connection with
the First Closing.
Section 6.4 CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND SELLERS
WITH RESPECT TO THE SECOND CLOSING.
(a) The obligations of the parties hereto to effect the Second Closing
are subject to the satisfaction (or waiver by Purchaser and Sellers) prior to
the Second Closing of the following conditions:
(i) Subject to the provisions of Section 2.4(c), all Required
Governmental Consents and all other Necessary Consents relating to the
Pipeline Assets shall have been obtained or made.
(ii) No court or other Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any Law or
Order that is in effect and enjoins or otherwise prohibits consummation of
the transactions contemplated by Sections 2.4(a) and 2.4(b).
(b) The obligation of Purchaser to effect the Second Closing is
subject to the satisfaction (or waiver by Purchaser) prior to the Second Closing
of the condition that Purchaser shall have received from Sellers the
certificates and other instruments of transfer, assignment and conveyance
required to be delivered pursuant to Section 2.4(b).
(c) The obligations of Sellers to effect the Second Closing are
subject to the satisfaction (or waiver by Sellers) prior to the Second Closing
of the following conditions:
(i) Sellers shall have received from Purchaser the payment required to
be made at the Second Closing pursuant to Section 2.4(b); and
(ii) Purchaser shall have executed all instruments of transfer,
assignment, assumption or conveyance required in connection with the Second
Closing.
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ARTICLE VII
CERTAIN ENVIRONMENTAL MATTERS
Section 7.1 ACKNOWLEDGMENTS. Purchaser acknowledges that:
(a) the Properties may currently contain or have in the past contained
asbestos and NORM and that special procedures associated with the assessment,
remediation, removal, transportation or disposal of such asbestos and NORM may
be necessary;
(b) the Properties include wells, pipelines, facilities, gravel pads
and roads that may have been temporarily or permanently abandoned;
(c) the Producing Properties contain reserve pits; and
(d) Process Safety Management associated with the Properties is an
ongoing process.
Section 7.2 ASSUMPTION OF OBLIGATIONS. At and after the applicable
Closing, Purchaser shall have sole responsibility for, agrees to pay any and all
costs and expenses associated with, and on behalf of itself, its Affiliates and
its and their successors and assigns irrevocably waives any and all claims any
of them may have against any Seller Indemnified Party associated with:
(a) the assessment, remediation, removal, transportation or disposal
of asbestos and NORM associated with any of the Properties, irrespective of when
such costs and expense or claims, as the case may be, may be incurred or may
arise;
(b) the plugging, abandonment or remediation of all wells, pipelines,
pipeline rights-of-way, facilities and gravel pads and roads associated with any
of the Properties, irrespective of when such costs and expense or claims, as the
case may be, may be incurred or may arise;
(c) the abandonment or remediation of the Non-Unit Reserve Pits to the
extent that such costs and expenses or claims, as the case may be, relate to the
ownership or operation of the Producing Properties on and after the Effective
Time;
(d) the abandonment or remediation of the Unit Reserve Pits,
irrespective of when such costs and expense or claims, as the case may be, may
be incurred or may arise; and
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(e) Process Safety Management associated with the Properties
(including, without limitation, identification, evaluation and remediation),
irrespective of when such costs and expense or claims, as the case may be, may
be incurred or may arise.
In fulfilling its obligations under this Section, Purchaser shall comply with
applicable Laws.
Section 7.3 RETENTION OF OBLIGATIONS. At and after the applicable
Closing, Sellers shall have sole responsibility for, agree to pay any and all
costs and expenses associated with, and on behalf of themselves, their
Affiliates and their successors and assigns irrevocably waive any and all claims
any of them may have against any Purchaser Indemnified Party associated with,
the abandonment and remediation of the Non-Unit Reserve Pits to the extent that
such costs and expenses or claims, as the case may be, relate to the ownership
or operation of the Producing Properties prior to the Effective Time. In
fulfilling their obligations under this Section, Sellers shall comply with
applicable Laws.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION; TITLE AND INSPECTION MATTERS
Section 8.1 SURVIVAL
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Sellers and Purchaser contained in this Agreement and all
claims and causes of action with respect thereto shall terminate on the date
that is twenty-four months from the First Closing Date; except that (i) any
representation and warranty that expressly relates to a Company or its
Properties, any Shares or any Conveyed Properties that are transferred,
assigned, conveyed and delivered in the Second Closing, and all claims and
causes of action with respect thereto shall survive for a period of twenty-four
months from the Second Closing Date and (ii) the representations and warranties
in Sections 3.1, 3.2, 3.3, 3.4, 3.14, 3.16, 4.1, 4.2, 4.5, 4.7, 4.9, 4.10 and
5.5 shall survive indefinitely.
(b) SURVIVAL OF COVENANTS AND AGREEMENTS. Each covenant and agreement
of Sellers or Purchaser contained in this Agreement that shall require any part
of its performance after a Closing (excluding the covenants and agreements of
indemnification set forth in Sections 8.2 through 8.7, the survival of which
shall be governed by Section 8.1(c)) shall survive in accordance with the terms
of such covenant or agreement.
(c) SURVIVAL OF INDEMNIFICATION. The indemnification obligations
provided in Sections 8.2 through 8.7:
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(i) with respect to each representation or warranty referenced in
Sections 8.2(a) and 8.3(a), shall survive indefinitely unless the
applicable representation or warranty shall have terminated pursuant to
Section 8.1(a);
(ii) with respect to each matter referenced in Sections 8.2(b),
8.2(c), 8.3(b), 8.3(d) and 8.3(e), shall survive indefinitely;
(iii) with respect to each matter referenced in Section 8.3(c), shall
survive for a period of twenty-four months from the First Closing Date;
PROVIDED that where such matter expressly relates to a Company or its
Properties, any Shares or any Conveyed Properties that are transferred,
assigned, conveyed and delivered in the Second Closing, indemnification by
ARCO with respect to any such matter shall survive for a period of
twenty-four months from the Second Closing Date;
(iv) with respect to each matter referenced in Section 8.3(f),
shall survive for a period of twelve months from the First Closing Date;
PROVIDED, that such obligations to indemnify the Seller Indemnified Parties or
the Purchaser Indemnified Parties shall not terminate with respect to a
particular item as to which, before the expiration of the applicable survival
period, the party seeking indemnification has made a claim by delivering a
notice of such claim (in accordance with the terms of this Article VIII) to the
party or parties from which indemnification is sought.
Section 8.2 INDEMNIFICATION BY PURCHASER. Purchaser hereby agrees
that, subject to the limitations set forth in Sections 8.1 and 8.6, it shall,
and shall cause the Companies (from and after the date that any Company becomes
a Subsidiary of Purchaser) to, indemnify, defend and hold harmless Sellers,
their Affiliates, and, if applicable, their respective directors, officers,
shareholders, partners, attorneys, accountants, agents and employees (the
"SELLER INDEMNIFIED PARTIES") from, against and in respect of any damages,
claims, losses, charges, actions, suits, proceedings, deficiencies, interest,
penalties, and reasonable costs and expenses (including, without limitation,
reasonable attorneys' fees, removal costs, remediation costs, closure costs,
fines, penalties and expenses of investigation and ongoing monitoring), net of
any insurance recovery (collectively, "LOSSES") imposed on, sustained, incurred
or suffered by or asserted against any of the Seller Indemnified Parties, to the
extent arising from:
(a) any breach of any representation or warranty (without giving
effect to any qualifications as to "Material Adverse Effect," "material" or
similar qualifications therein) made by Purchaser contained in Article IV;
(b) any breach of any covenant or agreement of Purchaser, including
any obligation of Purchaser to assure performance of its Subsidiaries, contained
in this
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Agreement, including the obligations and commitments of Purchaser set forth in
Sections 5.7(b), 5.10 and 7.2, in each case whether the matter to which such
covenant or agreement relates arose before or after the Effective Time; and
(c) any Third Party Claims relating to, arising out of or connected
with, directly or indirectly,
(i) the ownership or operation of any of the Companies, CIPC, their
respective Properties, the Conveyed Properties or the Product Inventory or
any part thereof, on and after the Effective Time; and
(ii) the ownership or operation of any of the Companies, CIPC, their
respective Properties, the Conveyed Properties or the Product Inventory, or
any part thereof, no matter when asserted and whether pertaining to such
ownership or operation before or after the Effective Time, for which ARCO's
indemnity obligations shall have terminated (in accordance with Section 8.1
or otherwise) or for which ARCO has no indemnity obligation hereunder.
The indemnity and defense obligation set forth in this Section 8.2
shall apply regardless of cause or of any negligent acts or omissions of a
Seller Indemnified Party (including, without limitation, the sole negligence,
concurrent negligence or strict liability of any Seller Indemnified Party).
Section 8.3 INDEMNIFICATION BY ARCO. ARCO hereby agrees that, subject
to the limitations set forth in Sections 8.1 and 8.6, it shall indemnify, defend
and hold harmless Purchaser, its Affiliates and, if applicable, their respective
directors, officers, shareholders, partners, attorneys, accountants, agents and
employees (the "PURCHASER INDEMNIFIED PARTIES" and, collectively with the Seller
Indemnified Parties, the "INDEMNIFIED PARTIES") from, against and in respect of
any Losses imposed on, sustained, incurred or suffered by or asserted against
any of the Purchaser Indemnified Parties, to the extent arising from:
(a) any breach of any representation or warranty (without giving
effect to any qualifications as to "Material Adverse Effect," "material" or
similar qualifications therein except for any references to "Material Contracts"
and the references to "material" in Section 3.7) made by a Seller contained in
Article III;
(b) any breach of any covenant or agreement of a Seller contained in
this Agreement, whether the matter to which such covenant or agreement relates
arose before or after the Effective Time;
(c) any Third Party Claims relating to, arising out of or connected
with, directly or indirectly, the ownership or operation of any Company, CIPC,
their respective
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Properties, the Conveyed Properties or the Product Inventory, or any part
thereof, prior to the Effective Time;
(d) any assets, liabilities or operations of UTP Holdings and each of
its Subsidiaries prior to the Effective Time other than (i) the assets,
liabilities and operations of UTA at any time and (ii) UTP Holdings' interest in
the income, gains, losses and liabilities of UTA at any time (it being
understood that the foregoing clauses (i) and (ii) shall not limit in any
respect any right of the Purchaser Indemnified Parties to be indemnified with
respect to Losses under any other subsection of this Section 8.3); PROVIDED,
that ARCO shall not indemnify, defend or hold harmless the Purchaser Indemnified
Parties from, against and in respect of any Losses for which Purchaser is
required to indemnify the Seller Indemnified Parties pursuant to this Agreement;
(e) "quality bank" adjustments and oil and gas overlifts, underlifts
and imbalances for production through and including December 31, 1999,
notwithstanding any disclosure of such matters in the Disclosure Schedule; and
(f) the withdrawal of the Provisional Consent Order or any
modification to the terms of the Provisional Consent Order made in any final
order of the FTC in respect thereof.
The indemnity and defense obligation set forth in this Section 8.3 shall apply
regardless of cause or of any negligent acts or omissions of any Purchaser
Indemnified Party (including, without limitation, the sole negligence,
concurrent negligence or strict liability of any Purchaser Indemnified Party).
Section 8.4 INDEMNIFICATION PROCEDURES. With respect to Third Party
Claims other than those relating to Taxes, all claims for indemnification by any
Indemnified Party hereunder shall be asserted and resolved as set forth in this
Section 8.4. In the event that any written claim or demand for which ARCO or
Purchaser, as the case may be (an "INDEMNIFYING PARTY"), may be liable to any
Indemnified Party hereunder is asserted against or sought to be collected from
any Indemnified Party by a third party, such Indemnified Party shall promptly,
but in no event later than 20 days following such Indemnified Party's receipt of
such claim or demand, notify the Indemnifying Party of such claim or demand and
the amount or the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such claim or demand)
(the "THIRD PARTY CLAIM NOTICE") and in the event that an Indemnified Party
shall assert a claim for indemnity under this Article VIII or Section 5.22(d),
not including any Third Party Claim, the Indemnified Party shall notify the
Indemnifying Party promptly following its discovery of the facts or
circumstances giving rise thereto (together with a Third Party Claim Notice, a
"CLAIM NOTICE"). The Indemnifying Party shall have no liability with respect to
any expenses incurred by the Indemnified Party prior to the time the Claim
Notice is delivered to the Indemnifying Party. The
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Indemnifying Party shall have 30 days from the personal delivery or mailing of
the Claim Notice (the "NOTICE PERIOD") to notify the Indemnified Party whether
or not it desires to defend the Indemnified Party against such claim or demand.
All costs and expenses incurred by an Indemnified Party in defending such claim
or demand after the Claim Notice is delivered to the Indemnifying Party shall be
considered Losses of the Indemnified Party for purposes of Sections 8.2 and 8.3
of this Agreement. Except as hereinafter provided, in the event that the
Indemnifying Party notifies the Indemnified Party within the Notice Period that
it desires to defend the Indemnified Party against such claim or demand, the
Indemnifying Party shall have the right to defend the Indemnified Party by
appropriate proceedings and shall have the sole power to direct and control such
defense. If the Indemnifying Party so elects to assume the defense of such
claim, the Indemnifying Party shall not be liable to the Indemnified Party for
any legal expenses subsequently incurred by the Indemnified Party. If any
Indemnified Party desires to participate in, but not control, any such defense
it may do so at its sole cost and expense. An Indemnified Party shall not
settle, compromise or discharge a claim or demand for which it has the right to
claim indemnification from the Indemnifying Party hereunder or admit to any
liability with respect to such claim or demand without the prior written consent
of the Indemnifying Party (which may be withheld in the sole discretion of the
Indemnifying Party). The Indemnifying Party shall not, without the prior written
consent of the Indemnified Party (which may be withheld in the sole discretion
of the Indemnified Party) settle, compromise or discharge or offer to settle,
compromise or discharge any such claim or demand on a basis which (x) does not
include a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect to the Third Party Claim or
(y) imposes any obligation on the Indemnified Party or any Subsidiary or
Affiliate thereof other than the payment to be made by the Indemnifying Party.
If the Indemnifying Party elects not to defend the Indemnified Party, then the
Indemnified Party shall have the right to defend the claim or demand by
appropriate proceedings and shall have the sole power to direct and control such
defense. If the Indemnifying Party elects not to defend the Indemnified Party
against such claim or demand, then the amount of any such claim or demand, or,
if the same be contested by the Indemnified Party, then that portion of any such
claim or demand as to which such defense is unsuccessful (and all reasonable
costs of expenses pertaining to such defense) shall be the liability of the
Indemnifying Party hereunder, subject to the limitations set forth in Section
8.6 hereof. In any event, the Indemnifying Party shall (at its own expense) have
the right to participate in the defense or settlement of any Third Party Claim
for which the Indemnifying Party may be liable hereunder. To the extent the
Indemnifying Party shall direct, control or participate in the defense or
settlement of any Third Party Claim, the Indemnified Party will provide the
Indemnifying Party and its counsel access to all relevant business records and
other documents, and shall use its best efforts to assist, and to cause the
employees and counsel of the Indemnified Party to assist, in defense of such
claim.
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Section 8.5 CHARACTERIZATION OF INDEMNIFICATION PAYMENTS. Any amounts
paid by ARCO or Purchaser pursuant to this Article VIII shall be treated for all
Tax purposes as adjustments to the Purchase Price.
Section 8.6 LIMITATIONS ON LIABILITY.
(a) Purchaser shall not be liable to any Seller Indemnified Party and
Sellers shall not be liable to any Purchaser Indemnified Party in respect of any
claim for indemnification arising under Section 8.2(a), 8.3(a) or 8.3(c), unless
and until the aggregate amount of Losses arising out of all such claims of
indemnification by the Seller Indemnified Parties or the Purchaser Indemnified
Parties, as applicable, exceeds in the aggregate $85,000,000 (the "DEDUCTIBLE"),
and then, only to the extent of any Losses exceeding such Deductible.
(b) Purchaser shall have no liability to any Seller Indemnified Party,
and Sellers shall have no liability to any Purchaser Indemnified Party, in
respect of any individual claim for indemnification (or groups of related claims
or claims of the same Person having substantially similar factual and legal
bases) under Section 8.2(a) or 8.3(a) or the Losses arising from such claim
unless and until the Losses arising therefrom exceed $1,000,000. Any Losses
arising out of any claim or claims of a Purchaser Indemnified Party excluded
from indemnification pursuant to this Section 8.6(b) shall not count against the
Deductible.
(c) For purposes of this Article VIII and Section 5.22(d), (i) Losses
shall not include any Losses (A) that would result from a change in GAAP or a
change in Law after the Effective Time having retroactive effect, (B) to the
extent there are reserves reflected in the Year-End Financial Statements in
respect of the matter giving rise to such Losses (except that this clause (B)
shall not apply to the indemnification provided in Section 5.22(d)) or (C) to
the extent the Indemnified Party or any of its Affiliates receives or has the
uncontested right to receive insurance proceeds from a third party (not
including any proceeds from an insurance policy that is claims rated or is
otherwise the economic equivalent of self-insurance unless Purchaser shall be
entitled to assert claims against such insurance and shall have indemnified
Sellers with respect thereto in accordance with Section 5.13) in respect of such
Losses and (ii) the amount of any Losses for which indemnification is provided
under this Article VIII or Section 5.22(d) shall be reduced by the present value
of any Tax benefits actually realized by the Indemnified Party arising from the
incurrence or payment of any such Losses and increased by the present value of
any Tax cost actually incurred by the Indemnified Party as a result of any
indemnification payment under this Article VIII or Section 5.22(d).
(d) Notwithstanding any other provision of this Agreement, neither
party shall be entitled to receive from the other party, and no indemnification
shall be provided under Sections 5.22(d), 8.2 or 8.3 in respect of, any special,
indirect, incidental,
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punitive or consequential damages (except to the extent assessed against the
Indemnified Party by a Governmental Entity of competent jurisdiction).
(e) Unless and until the BP Amoco/ARCO Merger is consummated, Sellers
and BP Amoco shall not have any liability under this Agreement to Purchaser
(whether for indemnification under this Article VIII or otherwise) or any other
liability to Purchaser (other than any remedy that may be expressly provided by
Article IX) arising out of or in connection with any breach by either Seller of
any of its representations, warranties, covenants and agreements in this
Agreement.
Section 8.7 INDEMNIFICATION AS SOLE REMEDY. After the First Closing
occurs, unless this Agreement expressly provides other remedies, the indemnity
provided herein as it relates to this Agreement and the transactions
contemplated by this Agreement shall be the sole and exclusive remedy of the
Seller Indemnified Parties and the Purchaser Indemnified Parties (without
limitation of any rights of Sellers or Purchaser under Section 6.4 in respect of
the Second Closing, under Article IX or Section 5.5) with respect to any and all
claims for Losses sustained, incurred or suffered, directly or indirectly,
relating to or arising out of this Agreement and the transactions contemplated
hereby, including, without limitation, any such claims arising under or based
upon any Laws, and Purchaser on behalf of the Purchaser Indemnified Parties and
ARCO on behalf of the Seller Indemnified Parties waive, to the fullest extent
permitted under applicable Laws, any and all rights, claims and causes of
action, legal or equitable, to pursue any other remedies.
Section 8.8 TAX INDEMNIFICATION. Claims for indemnification with
respect to Taxes shall be governed by Section 5.5 rather than by this Article
VIII (except to the extent set forth in Section 8.6(c)(ii)).
Section 8.9 TITLE MATTERS.
(a) TITLE DUE DILIGENCE. After execution and delivery of this
Agreement, ARCO Alaska will make available during ARCO Alaska's regular business
hours, for Purchaser's review, records in ARCO Alaska's possession relating to
the title to the individual Fields and Exploration Leases. As soon as reasonably
practicable (and on an ongoing basis), but in no event later than 120 days after
the First Closing, Purchaser may notify Sellers in writing of any (a) title
defect which results in a reduction in Area Participation Percentage as set
forth in Schedule 8.9 of the Disclosure Schedule for the Field in question, and
(b) any failure of title in and to an Exploration Lease. Such notice shall
include a description and reasonably detailed explanation (including any and all
supporting documentation associated therewith) of each title defect or title
failure being claimed. The parties shall meet from time to time as necessary in
an attempt to agree on a resolution with respect to any title defects or title
failures raised by Purchaser.
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(b) AREA PARTICIPATION PERCENTAGE. The parties agree that (i) any and
all monetary adjustments resulting from a title defect associated with the
Fields claimed by Purchaser shall be calculated by multiplying the actual
percentage decrease in the Area Participation Percentage of the Field in
question as set forth in Schedule 8.9 of the Disclosure Schedule by the Value
allocated to the Area Participation Percentage of the Field in question, and
(ii) no monetary adjustment associated with a title defect may exceed the Value
allocated to the Area Participation Percentage of the Field in question. If the
parties are unable to agree on a resolution with respect to one or more of the
title defects claimed by Purchaser, Purchaser may, within 180 days after the
Closing, initiate binding arbitration in accordance with the provisions set
forth in Section 8.9(d) to resolve the dispute over the title defect. If
Purchaser fails to submit such dispute to binding arbitration for resolution
within such 180-day period, Purchaser's right to a monetary adjustment resulting
from such title defect or defects shall terminate, and Purchaser irrevocably
waives any and all claims it may have against Sellers and their Affiliates
associated with the same.
(c) EXPLORATION LEASES. The parties agree that any and all monetary
adjustments resulting from a title failure associated with the Exploration
Leases claimed by Purchaser shall be calculated by multiplying ARCO Alaska's
purported working interest in the Exploration Lease in question (as reflected in
the land department files of ARCO Alaska) by the amount of the original lease
bonus paid to the applicable lessor; PROVIDED, HOWEVER, that Purchaser shall not
be entitled to a monetary adjustment resulting from a title failure associated
with the Exploration Leases unless and until the aggregate amount of the actual
monetary adjustments determined in accordance with this Section 8.9(c) exceeds
in the aggregate $2,187,500, and then, only to the extent that any monetary
adjustment exceeds such deductible amount. If the parties are unable to agree on
a resolution with respect to one or more of the title failures claimed by
Purchaser, Purchaser may, within 180 days after the First Closing, initiate
binding arbitration in accordance with the provisions set forth in Section
8.9(d) to resolve the dispute over the title failure. If Purchaser fails to
submit the dispute over the title failure to binding arbitration for resolution
within such 180-day period, Purchaser's right to a monetary adjustment resulting
from such title failure or failures shall terminate, and Purchaser irrevocably
waives any and all claims it may have against Sellers and their Affiliates
associated with the same.
(d) ARBITRATION. Any and all disputes arising under Sections 8.9(b)
and 8.9(c) shall be resolved through the use of binding arbitration using three
arbitrators, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, as supplemented by the Federal Arbitration Act (Title 9
of the United States Code) to the extent necessary to determine any procedural
appeal questions. If there is any inconsistency between this Section 8.9 and the
Commercial Arbitration Rules or the Federal Arbitration Act, the terms of this
Section 8.9 will control the rights and obligations of the parties. Arbitration
must be initiated within the applicable time limits
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set forth in Section 8.9(b) or 8.9(c), as applicable, and not thereafter.
Arbitration may be initiated by Purchaser by serving written notice on Sellers
that Purchaser elects to refer the dispute to binding arbitration. Purchaser's
notice initiating binding arbitration must identify the arbitrator Purchaser has
appointed. Sellers shall respond to Purchaser within 60 days after receipt of
Purchaser's notice, identifying the arbitrator Sellers have appointed. If
Sellers fail for any reason to name an arbitrator within the 60-day period,
Purchaser will name the arbitrator for Sellers' account. The two arbitrators so
chosen shall select a third arbitrator within 30 days after the second
arbitrator has been appointed. Sellers will pay the compensation and expenses of
the arbitrator named by or for it, and Purchaser will pay the compensation and
expenses of the arbitrator named by it. Sellers and Purchaser will each pay
one-half of the compensation and expenses of the third arbitrator. All
arbitrators must be neutral parties who have never been officers, directors or
employees of the parties or any of their Affiliates, and must have not less than
seven years of title examination legal experience in the oil and gas industry.
The hearing will be conducted in Anchorage, Alaska and commence within 60 days
after the selection of the third arbitrator. The parties and the arbitrators
should proceed diligently and in good faith in order that the award may be made
as promptly as possible. The award of damages, if any, by the arbitrators shall
be limited as follows: (i) with respect to title defects asserted in accordance
with the provisions of Section 8.9(b), damages (A) shall be calculated by
multiplying the actual percentage decrease in the Area Participation Percentage
of the Field in question as set forth in Schedule 8.9 of the Disclosure Schedule
by the Value allocated to the Area Participation Percentage of the Field in
question, and (B) shall not exceed the Value allocated to the Area Participation
Percentage of the Field in question, and (ii) with respect to title failures
asserted in accordance with the provisions of Section 8.9(c), damages (A) shall
be calculated by multiplying ARCO Alaska's purported working interest in the
Exploration Lease in question (as reflected in the land department files of ARCO
Alaska) by the amount of the original lease bonus paid to the applicable lessor,
and (B) Purchaser shall not be entitled to a monetary adjustment resulting from
a title failure associated with the Exploration Leases unless and until the
aggregate amount of the actual monetary adjustments determined in accordance
with Section 8.9(c) exceeds in the aggregate $2,187,500, and then, only to the
extent that any monetary adjustment exceeds such deductible amount. The
arbitrators shall additionally have no right to grant or award any special,
indirect, punitive or consequential damages of any kind. Except as provided in
the Federal Arbitration Act, the decision of the arbitrators will be binding on
and non-appealable by the parties.
(e) SOLE REMEDY. The provisions of this Section 8.9 set forth the sole
and exclusive remedy of Purchaser and its Affiliates with respect to any and all
defects or deficiencies in title to the Properties, other than AMI Conveyed
Properties, and Purchaser, on behalf of itself and the Purchaser Indemnified
Parties, waives, to the fullest extent permitted under applicable Law, any and
all rights, claims and causes of action, legal or equitable, to pursue any other
remedies.
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Section 8.10 INSPECTION OF AMI CONVEYED PROPERTIES OWNED BY AMI.
(a) INSPECTION. After execution and delivery of this Agreement and
within 60 days of the date hereof, ARCO will cause AMI to provide Purchaser with
an opportunity to conduct a class inspection of each tanker listed on Schedule
1.1(B) that is owned by AMI and an opportunity to review each tanker's
classification certificate so that the Purchaser may confirm that each such
tanker has been assigned by the classification society, American Bureau of
Shipping, Inc., the class set forth on Schedule 1.1(B) for such tanker and is
suitable for the carriage of crude oil in the trade in which it is currently
engaged on behalf of AMI.
(b) NOTIFICATION OF ANY DEFICIENCY. As soon as reasonably practicable
(and on an ongoing basis), but in no event later than 10 days after the end of
the 60-day period referred to in Section 8.10(a), Purchaser may notify ARCO in
writing of any deficiency which results, as of the First Closing Date, in a
failure of any tanker to be in such class or additional conditions or
recommendations being made with respect to such class, in each case not arising
out of the operation of such tanker by Purchaser after the ARCO Marine Transfer
Date. Such notice must include a description and reasonably detailed explanation
(including any and all supporting documentation associated therewith) of each
deficiency being claimed and the value Purchaser in good faith attributes to the
same. The parties shall consult and/or meet from time to time as necessary in an
attempt to agree on a resolution with respect to the deficiency claimed by
Purchaser. Promptly upon (i) any such agreement between the parties on the
resolution of any deficiency claimed by Purchaser or (ii) a final arbitration
award with respect to such deficiency in accordance with Section 8.10(c), ARCO
shall pay to Purchaser the reasonable costs of correcting any such deficiency in
accordance with the applicable resolution.
(c) ARBITRATION. Any and all disputes arising under this Section 8.10
must be resolved through the use of binding arbitration using three arbitrators,
in accordance with the Rules of the Society of Maritime Arbitrators (New York),
Inc., as supplemented by the Federal Arbitration Act (Title 9 of the United
States Code) to the extent necessary to determine any procedural appeal
questions. If there is any inconsistency between this Section 8.10 and the Rules
of the Society of Maritime Arbitrators (New York), Inc., the terms of this
Section 8.10 will control the rights and obligations of the parties. Arbitration
must be initiated within the applicable time limits set forth in Section 8.10(b)
and not thereafter. Arbitration may be initiated by Purchaser serving written
notice on ARCO that Purchaser elects to refer the dispute to binding
arbitration. Purchaser's notice initiating binding arbitration must identify the
arbitrator Purchaser has appointed from the list of arbitrators maintained by
the Society of Maritime Arbitrators (New York), Inc. ARCO shall respond to
Purchaser within 60 days after receipt of Purchaser's notice, identifying the
arbitrator ARCO has appointed from the list of arbitrators maintained by the
Society of Maritime Arbitrators (New York), Inc. If
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ARCO fails for any reason to name an arbitrator within the 60 day period,
Purchaser will name the arbitrator for ARCO's account. The two arbitrators so
chosen shall select a third arbitrator within 30 days after the second
arbitrator has been appointed. ARCO will pay the compensation and expenses of
the arbitrator named by or for it, and Purchaser will pay the compensation and
expenses of the arbitrator named by it. The parties will each pay one-half of
the compensation and expenses of the third arbitrator. The hearing will be
conducted in the City of New York and commence within 60 days after the
selection of the third arbitrator. The parties and the arbitrators should
proceed diligently and in good faith in order that the award may be made as
promptly as possible. The award of damages by the arbitrators, if any, shall be
the reasonable cost required to restore the tanker to the classification set
forth on Schedule 1.1(B) for such tanker. The arbitrators shall additionally
have no right to grant or award any special, indirect, punitive or consequential
damages of any kind. Except as provided in the Federal Arbitration Act, the
decision of the arbitrators will be binding on and non-appealable by the
parties.
ARTICLE IX
TERMINATION
Section 9.1 TERMINATION OF AGREEMENT. This Agreement may be
terminated at any time prior to the First Closing:
(a) by written agreement of Purchaser and Sellers;
(b) by either Purchaser or Sellers, if there shall be in effect any
Law that prohibits the consummation of the First Closing or if consummation of
the First Closing would violate an Order which has become final and
non-appealable;
(c) by either Sellers or Purchaser if the Merger Agreement is
terminated for any reason whatsoever other than by consummation of the BP
Amoco/ARCO Merger;
(d) by Purchaser (provided that Purchaser is not in material breach of
any representation, warranty, covenant or agreement contained herein) in the
event that Sellers shall have materially breached this Agreement and such breach
would result in the failure of a condition to the First Closing set forth in
Section 6.1 or 6.2 and such breach is not capable of being cured prior to the
First Closing;
(e) by Sellers (provided that Sellers are not in material breach of
any representation, warranty, covenant or agreement contained herein) in the
event that Purchaser shall have materially breached this Agreement and such
breach would result in the failure of a condition to the First Closing set forth
in Section 6.1 or 6.3 and such breach is not capable of being cured prior to the
First Closing;
76
<PAGE>
(f) by Sellers, if (i) the First Closing shall not have occurred as a
result of any action or inaction by Purchaser on or prior to the fifth Business
Day following the first day on which the First Closing could occur in accordance
with Section 2.2(a), (ii) the Provisional Consent Order or the State Consent
Order shall not have been issued within 10 Business Days of the date hereof or
(iii) the State of Alaska notifies ARCO Alaska and BP Exploration that it
objects to the proposed sale of the Shares and the Conveyed Properties to
Purchaser pursuant to Section V.E.2. of the Charter; or
(g) by Purchaser, if the First Closing shall not have occurred as a
result of any action or inaction by Sellers on or prior to the fifth Business
Day following the first day on which the First Closing could occur in accordance
with Section 2.2(a).
Section 9.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement in accordance with Section 9.1 hereof, this Agreement shall
thereafter become void and have no effect, and no party hereto shall have any
liability to any other party hereto or its Affiliates, directors, officers,
shareholders, partners, attorneys, accountants, agents or employees in
connection with this Agreement; PROVIDED, HOWEVER, that the obligations of the
parties hereto contained in the Confidentiality Agreement and in this Section
9.2 and in Sections 5.22(d), 10.1, 10.2, 10.4, 10.6, 10.7, 10.8 and 10.10 hereof
shall survive, and nothing herein will relieve any party from liability for any
material breach of this Agreement prior to such termination.
Section 9.3 TERMINATION OF CERTAIN OBLIGATIONS. In the event that the
Second Closing shall not have occurred on or prior to June 30, 2001, the
obligations, covenants and agreements of the parties under (a) Sections 2.4,
2.5, 2.7 and 6.4 and (b) Article V and Article VIII, but only with respect to
the Second Closing and any Shares, Companies and Conveyed Properties that are
the subject of the Second Closing, shall terminate and no party hereto shall
have any liability to any other party hereto or its Affiliates, directors,
officers, shareholders, partners, attorneys, accountants, agents or employees in
connection with the aforementioned obligations, covenants and agreements.
ARTICLE X
MISCELLANEOUS
Section 10.1 NOTICES. All notices or other communications hereunder
shall be deemed to have been duly given and made if in writing and if served by
personal delivery upon the party for whom it is intended, if delivered by
registered or certified mail, return receipt requested, or by a national courier
service, or if sent by facsimile; PROVIDED that the facsimile is promptly
confirmed by telephone confirmation thereof, to the person at the address set
forth below, or such other address as may be designated in writing hereafter, in
the same manner, by such person:
77
<PAGE>
To Purchaser:
Phillips Petroleum Company
Phillips Building
Bartlesville, Oklahoma 74004
Telephone: (918) 661-5634
Facsimile: (918) 662-1617
Attn: J. Bryan Whitworth
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
Attn: Andrew R. Brownstein, Esq.
Elliott V. Stein, Esq.
To Sellers:
Atlantic Richfield Company
333 South Hope Street
Los Angeles, CA 90071
Telephone: (213) 486-1774
Facsimile: (213) 486-3354
Attn: Bruce G. Whitmore
And
CH-Twenty, Inc.
444 South Flower Street, 32nd Floor
Los Angeles, CA 90071
Telephone: (213) 486-3640
Facsimile: (213) 486-2063
Attn: Steven R. Porter
With a copy to:
78
<PAGE>
BP Amoco p.l.c.
Britannic House
1 Finsbury Circus
London EC2M 7BA
England
Telephone: (011-44-171) 496-4013
Fax: (011-44-171) 496-4592
Attn: Peter B.P. Bevan
And
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004
Telephone: (212) 558-4000
Facsimile: (212) 558-3588
Attn: Benjamin F. Stapleton, III
Section 10.2 AMENDMENT; WAIVER. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Sellers and Purchaser, or in the case of
a waiver, by the party against whom the waiver is to be effective. No failure or
delay by any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
Section 10.3 ASSIGNMENT. No party to this Agreement may assign any of
its rights or obligations under this Agreement without the prior written consent
of the other parties hereto; PROVIDED, HOWEVER, that, subject to the provisions
of Section 5.18, Purchaser may assign its rights to purchase the Shares, any of
the Conveyed Properties or any of the Product Inventory to a wholly owned
Subsidiary of Purchaser without, however, in any respect limiting Purchaser's
obligations pursuant to this Agreement. Any assignment in contravention of this
provision shall be null and void.
Section 10.4 ENTIRE AGREEMENT. This Agreement (including the
Disclosure Schedule) contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior agreements
and understandings, oral or written, with respect to such matters, except for
the Confidentiality Agreement, which will remain in full force and effect until
the Second Closing.
79
<PAGE>
Section 10.5 FULFILLMENT OF OBLIGATIONS. Any obligation of any party
to any other party under this Agreement, which obligation is performed,
satisfied or fulfilled by an Affiliate of such party, shall be deemed to have
been performed, satisfied or fulfilled by such party.
Section 10.6 PARTIES IN INTEREST. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than Sellers or Purchaser or their
successors or permitted assigns any rights or remedies under or by reason of
this Agreement; PROVIDED, HOWEVER, that Purchaser's obligations under Sections
5.6 and 5.21 are intended for the benefit of the employees of the Companies and
the ARCO Directors and Officers, respectively.
Section 10.7 PUBLIC DISCLOSURE. Notwithstanding anything herein to the
contrary, each of the parties to this Agreement hereby agrees with the other
parties hereto that no press release or similar public announcement or
communication shall, prior to the First Closing, be made or caused to be made
concerning the execution or performance of this Agreement without prior
consultation with the other parties hereto.
Section 10.8 EXPENSES. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be borne by the party incurring
such expenses.
Section 10.9 SCHEDULES. The disclosure of any matter in any schedule
to this Agreement shall be deemed to be a disclosure for all purposes of this
Agreement to which such matter could reasonably be likely to be pertinent, but
shall expressly not be deemed to constitute an admission by Seller, or to
otherwise imply, that any such matter is material for the purposes of this
Agreement.
Section 10.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF
FORUM. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS TO BE WHOLLY PERFORMED IN SUCH STATE. EACH PARTY HERETO
AGREES THAT IT SHALL BRING ANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTAINED IN OR
CONTEMPLATED BY THIS AGREEMENT, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN
EQUITY, EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK OR THE SUPREME COURT OF THE STATE OF NEW YORK FOR THE
COUNTY OF NEW YORK (THE "CHOSEN COURTS") AND (I) IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE CHOSEN COURTS, (II) WAIVES ANY OBJECTION TO
80
<PAGE>
LAYING VENUE IN ANY SUCH ACTION OR PROCEEDING IN THE CHOSEN COURTS, (III) WAIVES
ANY OBJECTION THAT THE CHOSEN COURTS ARE AN INCONVENIENT FORUM OR DO NOT HAVE
JURISDICTION OVER ANY PARTY HERETO AND (IV) AGREES THAT SERVICE OF PROCESS UPON
SUCH PARTY IN ANY SUCH ACTION OR PROCEEDING SHALL BE EFFECTIVE IF NOTICE IS
GIVEN IN ACCORDANCE WITH SECTION 10.1 OF THIS AGREEMENT OR IN ANY OTHER MANNER
PERMITTED BY LAW.
Section 10.11 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
Section 10.12 HEADINGS. The heading references herein and the table of
contents hereto are for convenience purposes only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
Section 10.13 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision, and (b) the remainder of this Agreement and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
Section 10.14 EXTENSION OF PERFORMANCE. Whenever under the terms of
this Agreement the time for performance of a covenant or condition falls upon a
day that is not a Business Day, such time for performance shall be extended to
the next Business Day.
81
<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused this Agreement
to be executed as of the date first written above.
ATLANTIC RICHFIELD COMPANY
By: /S/ MIKE R. BOWLIN
-------------------------
Name: Mike R. Bowlin
Title: Chairman and
Chief Executive Officer
CH-TWENTY, INC.
By: /S/ TERRY G. DALLAS
-------------------------
Name: Terry G. Dallas
Title: Vice-President
PHILLIPS PETROLEUM COMPANY
By: /S/ J.J. MULVA
-------------------------
Name: J.J. Mulva
Title: Chairman and
Chief Executive Officer
SOLELY FOR PURPOSES OF SECTION 5.12 HEREOF:
BP AMOCO P.L.C.
By: /S/ G.R. BRADLEY
-------------------------
Name: G.R. Bradley
Title: Attorney-in Fact
Exhibit 23
[PRICEWATERHOUSECOOPERS LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-34336), (No. 333-81589), (No. 333-53519) and
(No. 033-54987) of Phillips Petroleum Company of our report dated March 22,
2000 relating to the combined financial statements of ARCO Alaska Combined
Operations, which appears in the Current Report on Form 8-K of Phillips
Petroleum Company dated March 15, 2000.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Los Angeles, California
April 11, 2000
Exhibit 99.1
03/15/00
[PHILLIPS NEWSROOM LOGO]
- --------------------------------------------------------------------------------
[PHILLIPS 66 LOGO]
PHILLIPS TO ACQUIRE ALL OF
ARCO'S ALASKAN ASSETS FOR $7 BILLION
Purchase of 1.9 billion BOE will nearly double company's reserves,
Significantly increase earnings and cash flow in 2000
BARTLESVILLE, Okla., March 15, 2000 --- Phillips Petroleum Company [NYSE: P] has
signed a definitive agreement for the purchase of all of ARCO's Alaskan assets.
Phillips will pay $6.5 billion in cash upon closing and up to an additional $500
million based on a formula tied to the price of crude oil. The transaction,
which is expected to close early in the second quarter and will be effective
retroactive to Jan. 1, 2000, is subject to approval of the Federal Trade
Commission (FTC). The parties are working with the FTC and the states of Alaska,
California, Oregon and Washington to obtain such approval.
Based on an early April closing, Phillips expects the transaction to be
accretive to earnings and cash flow in 2000 by $1.28 and $2.94 per share,
respectively. The company expects that its ROCE for this acquisition will be
about 12 percent for 2000 and will remain above the cost of capital going
forward.
Debt financing for the acquisition has been arranged by Bank of America N.A.,
the Chase Manhattan Bank, J.P. Morgan & Co. and Merrill Lynch & Co. Phillips is
confident it will maintain an investment grade credit rating. Phillips
anticipates the cash flow from the acquisition, after exploration and
development capital spending, to average $500 million per year. The company will
use this net cash flow, along with the approximately $2 billion in proceeds from
its previously announced joint ventures, to reduce debt. Phillips expects its
year-end net debt-to-capital ratio to be in the range of 60 percent. This
acquisition will not impact the current capital spending plans of either
Phillips or ARCO in Alaska, and will not require any asset sales or further
cost-reduction programs.
"The acquisition of ARCO's Alaskan assets represents a significant step in our
strategy of growing our exploration and production business," said Jim Mulva,
chairman and chief executive officer. "We gain a substantial position in the two
largest fields in North America, immediately form a new production center and
become a major merchant supplier of crude oil to the West Coast. We look forward
to working with BP Amoco, our other partners and the State of Alaska to
responsibly and efficiently develop Alaska's natural resources. Further,
Phillips will join BP Amoco in supporting the Alaska Charter commitments."
"The North Slope of Alaska is a rich petroleum region with significant
exploitation and exploration potential. Our goal is to combine Phillips' and
ARCO's plans to grow production by aggressively pursuing exploration and
development opportunities in the same environmentally responsible manner that
has characterized our Alaskan operations for the last 50 years," Mulva added.
"We are pleased that ARCO's Alaska employees and other support personnel will be
joining Phillips. They have an impressive record of growing production while
operating efficiently. We are looking forward to the opportunity to combine and
leverage our joint skills worldwide."
<PAGE>
Phillips will book reserves of 1.9 billion barrels-of-oil-equivalent (BOE) in
2000 from this transaction, immediately increasing the company's reserves base
from 2.2 billion BOE to 4.1 billion BOE. Excluding the Trans Alaska Pipeline
System (TAPS), tankers and other non-exploration and production assets, the
acquisition cost is approximately $3.00 per BOE. Average production from these
assets is expected to be 348,000 BOE per day in 2000, increasing by about 8
percent to 377,000 BOE per day in 2001.
Phillips will acquire all of ARCO's Alaskan assets. In Prudhoe Bay, Phillips
will obtain a 42.6 percent interest in the gas cap and a 21.9 percent interest
in the oil rim, as well as a range of interests in related fields. The company
will acquire a 55 percent interest in the greater Kuparuk area and a 78 percent
interest in the Alpine field. The sale package also includes 1.1 million net
exploration acres, a 21.3 percent interest in TAPS, and the assets of ARCO
Marine.
Phillips will combine its technical expertise with that of ARCO to develop the
Alpine field; continue development of the Kuparuk field and its satellites; and
develop the Prudhoe Bay satellites, in addition to implementing enhanced oil
recovery at related fields. These projects provide about 700 million barrels of
upside reserve potential. The company also intends to work closely with its
partners in developing projects for the more than 25 trillion cubic feet of gas
in the Prudhoe Bay gas cap. In the National Petroleum Reserve Area (NPRA),
Phillips will hold almost a half million net acres, increasing the company's
exposure to additional reserve potential. Discoveries on this acreage can
leverage existing infrastructure, leading to cost-effective development.
Phillips' current Alaskan operations include a 70 percent interest in the Kenai
LNG plant that has exported LNG to Japan for 30 years; a 100 percent interest in
the North Cook Inlet field; a less than 2 percent interest in the Prudhoe Bay
Unit; a 10 percent interest in the Point Thomson field; interests in several of
the Prudhoe Bay satellites; a small interest in TAPS; and exploration acreage in
NPRA and elsewhere.
All calculations in this news release are based on West Texas Intermediate (WTI)
forward curve crude oil prices as reflected on the current futures market.
Goldman Sachs & Co. is acting as financial advisor to Phillips in this
transaction.
Phillips Petroleum is an integrated petroleum company engaged in oil and gas
exploration and production worldwide; gas gathering, processing and marketing in
the United States; refining, marketing and transportation operations primarily
in the United States; chemicals and plastics manufacturing and sales around the
globe; and technology development. Founded in Bartlesville, Okla., in 1917, the
company had 15,900 employees and $15 billion of assets at the end of 1999, and
$14 billion of revenues for the year.
- # # # -
Additional information about the transaction can be found at
www.phillips66.com/newsroom/images&charts/alaskasummary.htm
CONTACT Kristi DesJarlais
<PAGE>
Cautionary Statement for the Purposes of the "Safe Harbor" Provisions
Of the Private Securities Litigation Reform Act of 1995
This press release contains forward-looking statements about Phillips'
exploration and production business, and the acquisition of all of ARCO's Alaska
operations, the impact on Phillips' reserves, production, earnings and cash
flow. Where in any forward-looking statement, Phillips has expressed an
estimate, potential expectation or belief as the future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis. However there can be no assurance that the statement of
expectation or belief will result or be achieved. The actual results may be
affected by a variety of risks, which could cause the stated expectation or
belief to differ materially. Some of the important risk factors, but not
necessarily all such factors that may cause expectations or results to differ,
particularly as to reserves, production, earning and cash flow are: consummation
of the acquisition of the ARCO assets; state and federal government and
third-party approvals; the price of oil; interest rates on financing; production
results; environmental laws and the cost of compliance with such laws;
legislative, tax and regulatory development; and the integration of ARCO
personnel, business systems and operations with those of the company. Additional
information concerning factors that could cause actual results to differ
materially are contained in Phillips' reports with the Securities and Exchange
Commission ("SEC"). Copies of the company's SEC filings are available by calling
Phillips at 918-661-3700. These reports are also available through Phillips'
site on the World Wide Web at http://www.phillips66.com. Phillips undertakes
no obligation to update the information in this release.
Copyright 2000 Phillips Petroleum Company. All rights reserved.
Exhibit 99.2
ARCO ALASKA COMBINED OPERATIONS
REPORT ON AUDITS OF COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<PAGE>
Independent Accountants' Report
To the Board of Directors and Shareholders
of Atlantic Richfield Company:
In our opinion, based on our audits and the report of other auditors, the
combined financial statements present fairly, in all material respects, the
financial position of ARCO Alaska Combined Operations (AACO) at December 31,
1999 and 1998 and the results of its operations and its cash flows for each of
the three years then ended in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements of Alyeska Pipeline Service Company, a proportionately consolidated
subsidiary, which statements reflected total assets of $673 million and $720
million as of December 31, 1999 and 1998, respectively, and total expenses of
$104 million, $103 million and $111 million for each of the three years in the
period ended December 31, 1999. Those statements were audited by other auditors
whose report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Alyeska Pipeline Service
Company, is based solely on the report of the other auditors. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for our
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Los Angeles, CA
March 22, 2000
<PAGE>
ARCO ALASKA Combined Operations
COMBINED STATEMENT OF INCOME
For The Years Ended December 31
(Millions) 1999 1998 1997
- --------------------------------------------------------------------------------
REVENUES
- --------
Sales and other operating revenues:
Related parties $ 1,713 $ 1,334 $ 2,337
Unrelated parties 109 204 222
------ ------- ------
Total 1,822 1,538 2,559
Income from equity investments 1 1 1
Interest 19 17 14
Other revenues 39 39 38
------ ------ ------
Total revenues 1,881 1,595 2,612
------ ------ ------
EXPENSES
- --------
Trade purchases 18 8 7
Related party purchases 2 2 2
Operating expenses 298 358 372
Selling, general and administrative expenses 54 57 54
Exploration expenses (including undeveloped
leasehold amortization) 50 46 71
Depreciation, depletion and amortization 363 352 372
Taxes other than income taxes 239 211 342
Restructuring costs - 22 -
Interest expense 9 10 10
------ ------- ------
Total expenses 1,033 1,066 1,230
------ ------ ------
Income before income taxes 848 529 1,382
Income tax provision 293 194 529
------ ------ ------
Net income 555 335 853
Other comprehensive income, net of tax:
Unrealized gains on securities - 2 1
------ ------ ------
Comprehensive income $ 555 $ 337 $ 854
====== ====== ======
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
ARCO ALASKA Combined Operations
COMBINED BALANCE SHEET
December 31
(Millions) 1999 1998
- ----------------------------------------------------------------------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 7 $ 3
Accounts receivable 57 52
Inventories 70 71
Prepaid expenses and other current assets 6 1
----- -----
Total current assets 140 127
----- -----
Investments accounted for on the equity method 2 1
Capital Construction Fund 395 316
Net property, plant and equipment 4,838 4,498
Deferred charges and other assets 11 28
----- -----
Total assets $5,386 $4,970
===== =====
- --------------------------------------------------------------------------------
LIABILITIES AND EQUITY
- ----------------------
Current liabilities:
Accounts payable $ 90 $ 164
Tariff adjustment reserve 4 22
Other current liabilities 80 50
----- -----
Total current liabilities 174 236
----- -----
Long-term debt 565 424
Dismantling reserve 780 726
Deferred liabilities and credits 34 66
Unrealized gains on investments - 2
Commitments and contingencies
ARCO's equity investment 3,833 3,516
----- -----
Total liabilities and equity $5,386 $4,970
===== =====
- --------------------------------------------------------------------------------
The Company follows the successful efforts method of accounting for oil and gas
producing activities.
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
ARCO Alaska Combined Operations
COMBINED STATEMENT OF CASH FLOWS
For The Years Ended December 31
(Millions) 1999 1998 1997
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income $ 555 $ 335 $ 853
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 363 352 372
Dry hole expense 23 21 42
(Gain) loss on asset sales 1 1 -
Earnings from equity investments (1) (1) (1)
Dividends from equity investments - 1 -
Noncash provisions (greater) less than
cash payments (17) 12 (10)
Net change in working capital accounts (58) 65 15
Other (4) 2 4
---- ---- -----
Net cash provided by operating activities 862 788 1,275
---- ---- -----
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to fixed assets, including dry
hole costs (699) (714) (296)
Union Texas Petroleum acquisition - (265) -
Contributions to Capital Construction Fund (83) (84) (66)
Proceeds from asset sales 6 3 5
Other 15 (5) 4
----- ----- -----
Net cash used by investing activities (761) (1,065) (353)
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Issuance of long-term debt 141 137 22
Settlements with ARCO (238) 140 (944)
----- ----- -----
Net cash provided (used) by financing
activities (97) 277 (922)
----- ----- -----
Net increase in cash 4 - -
Cash at beginning of year 3 3 3
----- ----- -----
Cash at end of year $ 7 $ 3 $ 3
===== ===== =====
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation and Combination
-------------------------------------
The combined financial statements include the accounts of ARCO Alaska (AAK)
and ARCO Alaska Pipelines (AAP), which are divisions of Atlantic Richfield
Company (ARCO), as well as ARCO Marine, (AMR), a division of ARCO
Products, which is a division of ARCO, and the accounts of the following
subsidiaries of ARCO:
ARCO Alaska, Inc.
Union Texas Alaska, LLC
ARCO Beluga, Inc.
Alpine Pipeline Company
ARCO Transportation Alaska, Inc. (ATAI)
Kuparuk Pipeline Company
Oliktok Pipeline Company
ARCO Marine, Inc.
AMI Leasing, Inc.
ARCO Marine Spill Response Company
The combined entity as described above is referred to as "ARCO Alaska
Combined Operations" (AACO) in the accompanying combined financial
statements. All significant transactions between these combined entities
have been eliminated.
The combined financial statements do not include an allocation from ARCO of
general corporate overhead items. Charges for services specifically
attributable to ARCO Alaska Combined Operations, such as information
technology (IT), exploration and production technical support, tax and
legal, have been directly billed. Employee benefit costs and payroll-related
items have been allocated as a percentage of payroll.
ATAI's undivided interest in the Alyeska Pipeline Service Company has been
proportionately consolidated. ARCO Alaska Combined Operation's interest in
the following entities is included in the accompanying combined financial
statements and accounted for on the equity method:
Cook Inlet Pipeline Company, 20% owned
Kuparuk Transportation Company, 57% owned
Prince William Sound Oil Spill Response Corp., 32% owned
ARCO Alaska is engaged in onshore and offshore exploration, development,
production, and marketing of ARCO's oil and gas in the state of Alaska. ARCO
Alaska Pipelines is engaged in the transportation of crude oil in the state
of Alaska. ARCO Marine is engaged in tanker transportation of ARCO's
petroleum liquids from the state of Alaska to ARCO refineries on the West
Coast and the tanker transportation of light petroleum products on the West
Coast and Gulf Coast.
5
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
2. Summary of Significant Accounting Policies
------------------------------------------
Accounting Policy
-----------------
ARCO Alaska Combined Operations' accounting policies conform to accounting
principles generally accepted in the United States, including the
"successful efforts" method of accounting for oil and gas producing
activities.
Revenue Recognition
-------------------
For ARCO Alaska revenues are generally recognized upon the passage of title,
net of royalties, if applicable. Revenue is normally recognized from jointly
owned properties as oil and gas is produced and sold for ARCO Alaska's
account. An over-lift (i.e., when ARCO Alaska sells gas in excess of its
entitlement) is recorded as a liability if it is significant in quantity
and the remaining underground reserves are not sufficient to satisfy the
deficiency. Underlifts (i.e., when ARCO Alaska sells less gas than its
entitlement) are recorded only when contracts specify that lifting
imbalances be settled in cash. Overlifts and underlifts to be settled in
cash are recorded as adjustments to revenue.
For ARCO Alaska Pipelines revenues are recognized in the period the
transportation service is performed.
For ARCO Marine revenues are generally recognized when earned and ARCO
Marine has satisfied all obligations related to a sales contract.
Cash Equivalents
----------------
Cash equivalents consist of highly liquid investments, such as time
deposits, certificates of deposit and marketable securities other than
equity securities, maturing within three months of purchase. Cash
equivalents are stated at cost, which approximates fair value.
Oil and Gas Unproved Property Costs
-----------------------------------
Unproved property costs are initially capitalized. Significant unproved
properties are not amortized but are periodically assessed for impairment.
Other unproved properties are amortized on a composite basis, considering
past success experience and average property life. In general, costs of
properties surrendered or otherwise disposed of are charged to accumulated
amortization. Costs of successful properties are transferred to proved
properties.
6
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
2. Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
Oil and Gas Unproved Property Costs, Continued
----------------------------------------------
Exploratory wells that find oil and gas reserves which cannot be classified
as proved within one year of discovery and do not continue to qualify as
capitalized costs are charged to expense as dry-hole costs.
Fixed Assets
------------
Fixed assets are recorded at cost and written off on either a
units-of-production (i.e., depletion) or straight-line method (i.e.,
depreciation). Rates for assets that are depreciated on the straight-line
method are based upon the expected lives of individual assets or groups of
assets.
Upon disposal of fixed assets that are depreciated on an individual item
basis, residual cost less salvage value is included in current income. Upon
disposal of assets depreciated on a group basis, unless unusual in nature or
amount, residual cost less salvage value is charged against accumulated
depreciation, depletion and amortization.
Dismantlement, Restoration and Reclamation Costs
------------------------------------------------
The estimated costs, net of salvage value, of dismantling facilities or
projects with limited lives or facilities that are required to be dismantled
by contract, regulation or law, and the estimated costs of restoration and
reclamation associated with oil and gas production and transportation
operations are accrued during operations and classified as a long-term
liability. Such costs are taken into account in determining depreciation,
depletion and amortization.
Income Taxes
------------
ARCO Alaska Combined Operations is included with ARCO and its domestic
subsidiaries in a consolidated U.S. federal income tax return. There is no
contractual tax sharing agreement between ARCO Alaska Combined Operations
and ARCO. For financial statement purposed, federal income taxes are
recorded at statutory rates less allowable credits. State tax expense is
computed using an allocation of ARCO's effective tax rate for unitary
filings.
7
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
2. Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Estimates with regard to these
financial statements include the estimate of proved oil and gas reserve
volumes and the estimated future development, dismantlement and abandonment
costs used in determining amortization provisions. Actual results could
differ from those estimates.
Reclassifications
-----------------
Certain previously reported amounts have been restated to conform to
classifications that have been adopted for the presentation of these
combined financial statements.
8
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
3. Changes in ARCO's Equity Investment, Allocations and Related Party
Transactions
------------------------------------------------------------------
ARCO's equity investment reflects the historical activity between ARCO and
ARCO Alaska Combined Operations. Transactions with ARCO are settled
immediately through ARCO's equity investment and there are no amounts due to
or from ARCO at the end of any period. An analysis of the changes in ARCO's
equity investment is as follows:
(Millions) 1999 1998 1997
--------------------------------------------------------------------------
Beginning ARCO's equity investment $3,516 $3,041 $3,132
----- ----- -----
Net income 555 335 853
----- ----- -----
Settlements with ARCO:
Purchases from ARCO (a) 2 2 2
Sales to ARCO (b) (1,713) (1,334) (2,337)
Tax settlements (c) 293 194 529
Cash transactions (d) 1,180 1,278 862
----- ----- -----
Total settlements with ARCO (238) 140 (944)
----- ----- -----
Ending ARCO's equity investment $3,833 $3,516 $3,041
===== ===== =====
(a) ARCO Alaska Combined Operations purchases products at agreed-upon prices
approximating current market values.
(b) ARCO Alaska Combined Operations sells petroleum liquids at agreed-upon
prices approximating current market values and transports crude oil at
regulated tariff rates.
(c) Federal and state income taxes settled with ARCO.
(d) ARCO uses a centralized cash transfer system (noninterest bearing) for
its domestic operating divisions, under which cash receipts of ARCO
Alaska Combined Operations are submitted to ARCO and cash disbursements
are funded by ARCO. Includes directly billed overhead charges of $26
million, $38 million and $40 million for the years ended December 31,
1999, 1998 and 1997, respectively. Also includes allocated and
capitalized interest of $31 million, $8 million and $1 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
9
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
4. Restructuring Costs
-------------------
During 1998, ARCO Alaska recorded pre-tax charges of $22 million (net of
estimated co-owner recovery) for the costs of eliminating approximately 90
positions related to the downsizing of its operations, primarily technical
support and headquarters staff.
The following table summarizes the liabilities related to the 1998
restructuring program.
(Millions)
Funded Unfunded
Long-term Long-term Short-term Estimated
Benefits(a) Benefits(b) Benefits(c) Recovery Total
----------- ----------- ----------- --------- -----
$ 13 $5 $13 $(9) $22
(a) Net increase in pension benefits to be paid from assets of qualified
ARCO plans.
(b) Net increase in non-qualified pension benefits and other postretirement
benefits to be paid by ARCO.
(c) Severance payments and ancillary benefits such as relocation and
outplacement.
As of December 31, 1999 approximately 80 people have been terminated and the
remaining reserve for short-term benefits is $2 million.
5. Inventories
-----------
Inventories consist of materials and supplies and are recorded when
purchased or produced and are stated at the lower of cost or market as
determined on an average cost basis.
The excess of the current cost of inventories over book value was
approximately $5 million and $2 million at December 31, 1999 and 1998,
respectively.
10
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
6. Capital Construction Fund
-------------------------
The Capital Construction Fund (CCF) statute was established to encourage the
building and maintenance of maritime vessels at U. S. shipyards. Subject to
certain limitations, CCF deposits are fully deductible from taxable income.
Earnings on CCF deposits are deemed to be tax exempt. In return for these
tax advantages, use of CCF funds lowers the tax basis on the vessel in
question. The use of CCF accelerates the tax depreciation on the vessel into
the year of the CCF deposit.
Deposits into the CCF are invested in various fixed-income securities
consistent with the Maritime Administration regulations regarding eligible
CCF investments. Investments typically held by ARCO Marine's CCF includes:
U.S. government treasury bills and notes, commercial paper, investment-grade
corporate bonds, and various asset-backed securities.
At December 31, 1999, the CCF was fully invested in notes receivable from
ARCO. These notes receivable are collateralized by ARCO's third-party
accounts receivable. Interest accrues at a quarterly-adjusted variable rate
based on the Federal Reserve commercial paper rate plus 50 basis points.
Accrued interest is capitalized to principal quarterly. The weighted average
interest rate during 1999 was 5.51% and maturities vary from 2018 through
2032.
The following summarizes the CCF at December 31:
(Millions) 1999 1998
------------------------------------------------------------
Aggregate fair value $ 391 $ 310
Gross unrealized holding losses - -
Gross unrealized holding gains - (4)
---- ----
Amortized cost $ 391 $ 306
==== ====
The CCF investment activity for the years ended December 31 was as follows:
(Millions) 1999 1998
------------------------------------------------------------
Gross purchases $ 663 $ 332
Gross sales 578 250
Gross maturities - -
Gross realized gains and losses were insignificant and were determined by
the specific identification method.
11
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
7. Fixed Assets
------------
Property, plant and equipment, at cost, and related accumulated
depreciation, depletion and amortization were as follows at December 31:
(Millions) 1999 1998
-------------------------------------------------------------------
Proved properties $ 8,471 $ 7,795
Unproved properties 150 316
Pipeline construction 1,461 1,461
Delivery facilities 382 382
Other station equipment 176 173
Other 179 171
Maritime vessels 457 468
Vessels under construction:
Hull 2497 175 112
Hull 2498 103 37
Hull 2499 22 8
General plant 643 634
------ ------
Total fixed assets 12,219 11,557
Less accumulated depreciation,
depletion and amortization 7,381 7,059
------ ------
Net $ 4,838 $ 4,498
====== ======
Expenses for maintenance and repairs were $88 million, $110 million and $108
million for the years ended December 31, 1999, 1998 and 1997, respectively.
In 1990, Congress passed the Oil Pollution Act, which requires all tankers
trading in U.S. waters to be double-hulled by 2010. The law has a phase-out
schedule for existing single-hulled tankers based upon the year they were
put into service. All of ARCO Marine's existing tankers are single-hulled
and are being depreciated in accordance with the legislated phase-out
schedule. ARCO Marine's tanker retirement schedule is as follows:
Tanker Retirement Year
----- ---------------
ARCO Independence 2000
ARCO Spirit 2000
ARCO Prudhoe Bay 2001
ARCO Texas 2004
ARCO Alaska 2007
ARCO California 2008
12
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
8. Accrued Liabilities
-------------------
(Millions) 1999 1998
---------------------------------------------------
Accrued payroll $ 34 $ 11
Taxes payable 22 7
Accrued vacation 12 12
Other 12 20
--- ---
Total $ 80 $ 50
=== ===
9. Long-term Debt
--------------
At December 31, 1999, $300 million of long-term debt represents debt owed to
Atlantic Richfield Company for the construction of three maritime vessels.
Repayment of debt is due on the last business day before the second
anniversary of the delivery date of the last vessel. The weighted-average
interest rate in 1999 was 5.4%.
The remaining $265 million of long-term debt at December 31, 1999, consists
of variable-rate City of Valdez bonds due in 2031. The bonds carried a
weighted-average interest rate of 3.57% in 1999
10. Interest
--------
Interest for the years ended December 31 comprised the following:
(Millions) 1999 1998 1997
------------------------------------------------------------------------
Long-term debt $ 21 $ 14 $ 10
Capitalized interest (12) (4) -
--- --- ---
Total interest expense $ 9 $ 10 $ 10
=== === ===
Total interest paid in cash $ 21 $ 13 $ 10
=== === ===
Interest income $ 19 $ 17 $ 14
=== === ===
The capitalized interest is associated with the debt owed by ARCO Marine to
ARCO for the construction of maritime vessels.
Interest income relates to the Capital Construction Fund and is not
available for use (without penalty) other than for the construction of new
vessels (see Note 6).
13
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
11. Taxes
-----
Taxes other than income taxes for the years ended December 31 comprised the
following:
(Millions) 1999 1998 1997
-------------------------------------------------------------------------
Production/severance $ 171 $ 133 $ 262
Property 68 71 74
Other - 7 6
---- ---- ----
Total $ 239 $ 211 $ 342
==== ==== ====
12. Commitments and Contingencies
-----------------------------
ARCO Alaska Combined Operations has commitments, including those related to
the acquisition, construction and development of facilities, all made in the
normal course of business.
Following the March 1989 EXXON VALDEZ oil spill, numerous federal, state and
private plaintiff lawsuits were brought against Exxon, Alyeska Pipeline
Service Company (Alyeska) and Alyeska's owner companies, including ARCO,
which owns approximately 22%. While all of the federal, state and private
plaintiff lawsuits have been settled, certain issues relating to liabilities
for the spill remain unresolved between Exxon and Alyeska (including its
owner companies).
The operations and financial position of ARCO Alaska Combined Operations
continue to be affected from time to time in varying degrees by domestic and
foreign political developments as well as legislation, regulations and
litigation pertaining to restrictions on production, imports and exports,
natural gas regulation, tax increases, environmental regulations, shipping
operations and cancellation of contract rights. Both the likelihood of such
occurrences and their overall effect on ARCO Alaska Combined Operations vary
greatly and are not predictable.
These uncertainties are part of a number of items that ARCO Alaska Combined
Operations has taken and will continue to take into account in periodically
establishing accounting reserves.
14
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
13. Leases
------
At December 31, 1999, future minimum rental payments for operating leases
with noncancelable lease terms in excess of one year were as follows:
Year (Millions)
----------------------------------------------------------
2000 $ 19
2001 10
2002 3
2003 2
2004 2
Later years 7
---
Total minimum lease payments $ 43
===
Minimum future rental income under noncancelable leases at December 31, 1999
amounted to $8 million.
(Millions) 1999 1998 1997
---------------------------------------------------------------
Minimum rentals $ 15 $ 9 $ 5
Contingent rentals - - -
Sublease rental income (1) (2) -
-- -- --
Net rental expense $ 14 $ 7 $ 5
== == ==
No restrictions on additional debt or lease financing exist under ARCO
Alaska Combined Operations' lease commitments. Under certain conditions,
options exist to purchase certain leased properties.
As of December 31, 1999, ARCO Marine leases one refined products tanker. The
lease term is nine years, but is renewed on a year-to-year basis. At
December 31, 1999, the lease had been committed to through May 3, 2001. If
the lease is terminated by ARCO Marine at any time prior to May 3, 2008,
ARCO Marine is required to pay an additional $1 million settlement fee to
the lessee.
14. Earnings Per Share
------------------
Earnings per share has been omitted from the combined statements of income
because ARCO Alaska Combined Operations was not a separate entity with its
own capital structure during the periods presented.
15
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
15. Postretirement Benefits Plans
-----------------------------
Essentially all employees are covered by postretirement benefit plans
sponsored by ARCO. Defined benefit pension plans (Pension) provide to
substantially all employees pension benefits based on years of service and
the employee's compensation, primarily during the last three years of
service. Defined postretirement benefit plans (Other) provide health care
and life insurance benefits to substantially all employees who retire with
ARCO having rendered the required years of service, and to their spouses and
eligible dependents. ARCO pays for the cost of a benchmark health
maintenance organization with employees responsible for the differential
cost, if any, of their selected option. Life insurance benefits are
partially paid for by retiree contributions, which vary based upon coverage
chosen by the retiree. ARCO has the right to terminate or modify the plans
at any time.
The following table sets forth the funded status of ARCO postretirement
benefit plans in which ARCO Alaska Combined Operations has an unallocated
interest at December 31:
1999 1998
---------------- -----------------
(Millions) Pension Other Pension Other
----------------------------------------------------------------------------
Plan obligations
Benefit obligation at January 1 $(2,822) $(616) $(2,498) $(588)
Service cost (51) (7) (53) (7)
Interest cost (179) (41) (173) (39)
Actuarial gain (loss) 349 45 (96) (4)
Benefits paid 429 45 311 51
Special termination benefits - - (128) (19)
Acquisition - - (185) (24)
Divestiture 11 - - 14
-----------------------------------
Benefit obligation at December 31 $(2,263) $(574) $ 2,822 $(616)
===================================
16
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
15. Postretirement Benefits Plans, Continued
----------------------------------------
1999 1998
---------------- ---------------
(Millions) Pension Other Pension Other
--------------------------------------------------------------------------
Plan assets
Fair value of assets at January 1 $2,886 $ - $2,710 $ -
Actual return on assets 392 - 264 -
Company contributions 64 - 69 -
Benefits paid (429) - (311) -
Acquisition - - 154 -
Divestiture (10) - - -
---------------------------------
Fair value of assets at December 31 $2,903 $ - $2,886 $ -
=================================
Funded status
Assets greater (less)
than obligations $ 640 $(574) $ 64 $(616)
Unrecognized actuarial (gain) loss (164) 8 300 53
Unrecognized prior service
cost (benefit) 125 (191) 133 (206)
Unrecognized transition obligation (173) - (200) -
---------------------------------
Total recognized $ 428 $(757) $ 297 $(769)
=================================
Balance sheet recognition
Prepaid benefits $ 564 $ - $ 459 $ -
Accrued liabilities (205) (757) (257) (769)
Intangible asset 18 - 20 -
Accumulated other comprehensive income 51 - 75 -
---------------------------------
Total recognized $ 428 $(757) $ 297 $(769)
================================
The projected benefit obligation, accumulated benefit obligation (ABO), and
fair value of plan assets for pension plans with ABO in excess of plan
assets were (in millions) $252, $200 and $1, respectively, at December 31,
1999, and $285, $247 and $0, respectively, at December 31, 1998.
Plan obligations and plan assets of funded plans have not been allocated to
ARCO Alaska Combined Operations.
The assumptions used in determining the pension costs and pension liability
shown above were as follows at December 31:
1999 1998
---------------- ---------------
(Percent) Pension Other Pension Other
--------------------------------------------------------------------------
Discount rate 7.75 7.75 6.75 6.75
Expected return on plan assets 10.5 n/a 10.5 n/a
Rate of salary progression 4.0 4.0 4.0 4.0
17
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
15. Postretirement Benefits Plans, Continued
----------------------------------------
For measurement purposes, a 7% annual rate of increase in the per capita
cost of health care benefits was assumed for 1997 to 2001, after which the
rate was assumed to decrease to 5% and remain at that level thereafter.
A one-percentage-point change in assumed health care cost trend rates would
have the following effects:
1999
(Millions) Increase Decrease
------------------------------------------------------------------
Total of service and interest cost $ 4.7 $ (3.9)
Postretirement benefit obligation $ 47.2 $(39.5)
Total costs of ARCO-sponsored plans were as follows:
(Millions) 1999 1998 1997
---------------------------------------------------------------------------
Components of net benefit cost
Pension benefits:
Service cost $ 51 $ 53 $ 53
Interest cost 179 173 174
Expected return on plan assets (289) (281) (256)
Amortization of transition asset (27) (27) (27)
Amortization of prior service cost 8 7 8
Recognized actuarial (gain) loss 9 10 10
---- ---- ----
Net benefit (income) cost $ (69) $ (65) $ (38)
==== ==== ====
Other postretirement benefits:
Service cost $ 7 $ 7 $ 7
Interest cost 41 39 40
Amortization of prior service
cost (benefit) (15) (15) (15)
Recognized actuarial (gain) loss 1 - -
---- --- ----
Net benefit (income) cost $ 34 $ 31 $ 32
==== ==== ====
18
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
15. Postretirement Benefits Plans, Continued
----------------------------------------
The amount of postretirement benefit cost (income) of ARCO-sponsored plans
allocated to ARCO Alaska Combined Operations on the basis of payroll was
$(12) million, $(10) million and $(3) million for the years ended December
31, 1999, 1998 and 1997, respectively.
16. Employee Benefit Plans - Alyeska
--------------------------------
Employees of Alyeska are covered by postretirement benefit plans sponsored
by Alyeska.
A description of those plans follows:
(a) Defined Benefit Plan
Alyeska has a noncontributory defined benefit pension plan (plan)
covering all permanent full-time employees after one year of
service. The benefits are based on years of service and highest
average earnings during a specified period. Alyeska's funding policy
is to contribute annually the amount that can be deducted for
federal income tax purposes. Contributions are intended to provide
not only for benefits attributed to service to date but also for
those expected to be earned in the future. Because of the funding
status of the plan and restrictions by the Internal Revenue Service,
contributions to the plan were $1.3 million in 1999 and $5.6 million
in 1998.
Alyeska uses September 30 as the annual measurement date for the
defined benefit pension plan. The following table sets forth the
plan's funded status recognized in Alyeska's accounting to Owners at
December 31, 1999 and 1998:
19
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
16. Employee Benefit Plans - Alyeska, Continued
-------------------------------------------
(Thousands) 1999 1998
-------- -------
Change in benefit obligation
Benefit obligation at
beginning of year $ 94,172 $ 88,982
Service cost 5,325 4,560
Interest cost 6,337 6,146
Actuarial (gain) loss (13,409) 11,313
Benefits paid (9,410) (16,829)
-------- --------
Benefit obligation at end
of year 83,015 94,172
-------- ------
Change in plan assets:
Fair value of plan assets
at beginning of year 105,143 110,814
Actual return on plan assets 13,301 5,594
Employer contributions 1,282 5,564
Benefits paid (9,410) (16,829)
-------- -------
Fair value of plan assets
at end of year 110,316 105,143
-------- -------
Funded status 27,301 10,971
Unrecognized net actuarial (gain) loss (11,937) 6,928
Unrecognized prior service cost 2,817 3,162
Unrecognized transition asset (1,662) (3,325)
-------- --------
Prepaid benefit cost $ 16,519 $ 17,736
======== ========
20
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
16. Employee Benefit Plans - Alyeska, Continued
-------------------------------------------
The following table sets forth the plan's weighted-average assumptions
recognized in Alyeska's accounting to Owners at December 31, 1999, 1998 and
1997:
1999 1998 1997
---- ---- ----
Discount rate 7.5% 6.75% 7.25%
Expected return on plan assets 9.25% 9.25% 9.25%
Rate of compensation increase 4.5% 4.5% 4.5%
Components of the 1999, 1998 and 1997 net pension cost are as follows:
(Thousands) 1999 1998 1997
------- ------- -------
Service cost $ 5,325 $ 4,560 $ 5,499
Interest cost 6,338 6,146 6,590
Expected return on plan assets (8,404) (8,228) (7,922)
Amortization of prior service cost 345 345 436
Amortization of unrecognized
transition asset (1,662) (1,959) (2,230)
Recognized net actuarial loss 558 99 -
Curtailment/settlement loss (gain) - 644 (1,284)
----- ------ ------
Net periodic benefit cost $ 2,500 $ 1,607 $ 1,089
====== ====== ======
During 1998, Alyeska recognized a settlement loss of $.6 million. During
1997, Alyeska recognized a curtailment loss of $.3 million and a settlement
gain of $1.6 million. These gains and losses are primarily due to the
reduction of the projected benefit obligation associated with severed
employees' pension benefits offset by the recognition of the prior service
cost related to those employees as a direct result of workforce reductions.
The Alyeska Pipeline Service Company Retirement Restoration Plan
(Restoration Plan) was established effective January 1, 1996, retroactive to
January 1, 1994. The purpose of the Restoration Plan is to supplement the
benefits of highly compensated employees of Alyeska under the qualified
Pension Plan and the Savings and Investment Plan to the extent their
benefits are reduced by the limitation of the Internal Revenue Code. Alyeska
recorded Restoration Plan benefits of $.1 and $0 million in 1999 and 1998,
respectively.
21
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
16. Employee Benefit Plans - Alyeska, Continued
-------------------------------------------
(b) Defined Contribution Plan
All full-time employees with one month of service are eligible for
participation in a contributory trusteed savings plan. All full-time
employees with more than one year of service are eligible for
employer contributions. Contributions from eligible employees are
matched up to 6% of eligible salary. Employer contributions to the
plan were $3.9 million in 1999 and $3.9 million in 1998.
(c) Postretirement Benefits Other Than Pension
During 1993, Alyeska established a Voluntary Employee Group Health
Benefit Association. The association is funded by employer
contributions, which range from 50% to 78% of total premiums and
employee contributions which range from 50% to 22% of total
premiums. The association is created pursuant to Internal Revenue
Code Section 501(c)(9). Contributions, made to the association on an
as-needed basis, are expensed when made. Contributions made by
Alyeska were $2.7 million in 1999 and $2.7 million in 1998.
Alyeska accounts for postretirement health care and other insurance
benefits by accruing these benefits over the period in which active
employees become eligible for such postretirement benefits. Alyeska
uses September 30 as the annual measurement date for the
postretirement health care and other insurance benefit plans.
22
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
16. Employee Benefit Plans - Alyeska, Continued
-------------------------------------------
The following table sets forth the funded status of the
postretirement benefit cost recognized in Alyeska's accounting to
Owners as of December 30, 1999 and 1998:
(Thousands) 1999 1998
--------- --------
Change in benefit obligation
Benefit obligation at
beginning of year $ 24,229 $ 24,289
Service cost 1,244 1,226
Interest cost 1,692 1,821
Actuarial (gain) loss (1,004) (1,744)
Curtailment gain - (459)
Benefits paid (1,226) (904)
-------- -------
Benefit obligation at
end of year 24,935 24,229
--------- --------
Funded status (24,935) (24,229)
Unamortized prior service cost (3,871) (4,507)
Unrecognized net actuarial gain (9,767) (9,344)
-------- --------
Accrued benefit cost (38,573) (38,080)
Fourth quarter disbursements 109 86
------- --------
Accrued benefit cost $ (38,464) $ (37,994)
========= ========
The components of 1999, 1998 and 1997 net periodic cost for these
postretirement benefits are as follows:
(Thousands) 1999 1998 1997
------- ------- ------
Service cost $ 1,244 $ 1,226 $ 1,281
Interest cost 1,692 1,821 1,831
Recognized prior service cost (636) (673) (807)
Recognized net gain (580) (436) (513)
Recognized curtailment gains - (657) (2,821)
----- ------ ------
Net periodic cost
(income) $ 1,720 $ 1,281 $ (1,029)
====== ====== ========
23
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
16. Employee Benefit Plans - Alyeska, Continued
-------------------------------------------
Cash payments approximated $.4 million for these benefits in both 1999 and
1998. Alyeska recognized a curtailment gain of $.7 million and $2.8 million
in 1998 and 1997, respectively, resulting from workforce reductions. This
gain is primarily due to the reduction of the accumulated postretirement
medical benefit obligation associated with severed employees' postretirement
health care benefits offset by recognition of prior service cost related to
those employees.
For measuring the 1999 expected postretirement benefit obligation, an 8%
annual rate of increase in the per capita claims cost was utilized. This
rate was assumed to decrease over a three-year period to an ultimate rate of
5%.
For measuring the 1998 expected postretirement benefit obligation, a 9%
annual rate of increase in the per capita claims cost was utilized for
participants under 65 years of age. This rate was assumed to decrease over a
four-year period to an ultimate rate of 5%. For participants over 65 years
of age, an 8% annual rate of increase in the per capita claims cost was
utilized. This rate was assumed to decrease over a three-year period to 6%
and then decrease .5% per year for two years to an ultimate rate of 5%.
24
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
16. Employee Benefit Plans - Alyeska, Continued
-------------------------------------------
Assumed healthcare cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
1999 1998
---------------------------------------------------------
One One One One
percentage percentage percentage percentage
(Thousands) point point point point
increase decrease increase decrease
---------------------------------------------------------
Effect on total
service and
interest cost $ 489 $ (393) $ 491 $ (367)
components
Effect on
postretirement
benefit obligation $3,209 $(2,627) $3,293 $(2,600)
(d) Postemployement Benefits Other Than Pension
Alyeska accrues the costs of postemployment benefits other than
pension and postretirement health care benefits provided to former
or inactive employees either during the years that the employee
renders the necessary service or at the date of the event giving
rise to the benefit, depending upon whether certain conditions are
met. Alyeska had severance costs of $.5 and $3.1 million accrued as
of December 31, 1999 and 1998, respectively.
25
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
SUPPLEMENTAL INFORMATION
OIL & GAS PRODUCING ACTIVITIES
(Unaudited)
The Securities and Exchange Commission (SEC) defines proved oil and gas reserves
as those estimated quantities of crude oil, natural gas, and natural gas liquids
which geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed oil and gas reserves are reserves that
can be expected to be recovered through existing wells with existing equipment
and operating methods.
Petroleum reserves are estimated by ARCO engineers. Reserves attributable to
certain oil and gas discoveries were not considered proved as of December 31,
1999 due to geological technical or economic uncertainties. In particular
natural gas from the North Slope of Alaska, other than that used in providing
fuel in North Slope operations or sold to others on the North Slope, is not
presently economically marketable. Proved reserves do not include amounts that
may result from extensions of currently proved areas or from application of
enhanced recovery processes not yet determined to be commercial in specific
reservoirs.
Estimated quantities of proved oil and gas reserves of AACO were as follows:
Crude Natural
and Gas Natural
Condensate Liquids Gas
(million (million (billion
barrels) barrels) cubic feet)
---------- -------- -----------
January 1, 1997
Proved reserves 1,311 199 2,025
Proved developed reserves 1,106 199 1,997
December 31, 1997
Proved reserves 1,313 197 2,029
Proved developed reserves 1,142 188 1,980
December 31, 1998
Proved reserves 1,345 186 1,959
Proved developed reserves 999 177 1,903
December 31, 1999
Proved reserves 1,415 175 1,905
Proved developed reserves 989 175 1,823
26
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
The changes in proved reserves for the three years ended December 31, 1999, were
as follows:
Crude Natural
and Gas Natural
Condensate Liquids Gas
(million (million (billion
barrels) barrels) cubic feet)
-------- -------- -----------
Reserves at
January 1, 1997 1,311 199 2,025
Revisions of estimates 71 9 85
Improved recovery 3 - -
Purchases of minerals-in-place - - -
Extension and discoveries 54 1 2
Production (126) (12) (12)
Consumed in production - - (71)
Sales of minerals-in-place - - -
----- --- -----
Reserves at
December 31, 1997 1,313 197 2,029
Revisions of estimates 52 - (2)
Improved recovery 29 - -
Purchases of minerals-in-place 30 - 14
Extensions and discoveries 36 - -
Production (115) (11) (12)
Consumed in production - - (70)
Sales of minerals-in-place - - -
----- --- -----
Reserves at
December 31, 1998 1,345 186 1,959
Revisions of estimates 84 - 17
Improved recovery 50 - -
Purchases of minerals-in-place - - -
Extensions and discoveries 42 - 13
Production (106) (11) (14)
Consumed in production - - (70)
Sales of minerals-in-place - - -
----- --- -----
Reserves at
December 31, 1999 1,415 175 1,905
===== === =====
27
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
ARCO reports reserve estimates to various federal government agencies and
commissions. These estimates may cover various regions of crude oil and natural
gas classifications within the United States and may be subject to mandated
definitions. There have been no reports of total ARCO reserve estimates
furnished to federal government agencies or commissions which vary from those
reported to the SEC since the beginning of the last fiscal year.
Costs, both capitalized and expensed, incurred in oil and gas producing
activities during the years ended December 31 are set forth below. Property
acquisition costs represent costs incurred to purchase or lease oil and gas
properties. Exploration costs include costs of geological and geophysical
activity and drilling exploratory wells. Development costs include costs of
drilling and equipping development wells and construction of production
facilities to extract, treat and store oil and gas.
(Millions) 1999 1998 1997
- -----------------------------------------------------------------------
Property acquisition costs:
Proved $ 56 $ 202 $ 4
Unproved - 19 1
Exploration costs 47 53 69
Development costs 461 514 206
28
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
Results of operations for oil and gas producing activities (including operating
overhead) were as follows for the years ended December 31:
(Millions) 1999 1998 1997
- ------------------------------------------------------------------------
REVENUES
- --------
Sales $ 28 $ 35 $ 39
Transfers 1,379 1,077 2,074
Other 11 4 -
----- ----- -----
Total revenue 1,418 1,116 2,113
EXPENSES
- --------
Production costs 131 167 163
Production taxes 223 187 318
Exploration expenses 50 46 71
Depreciation, depletion
and amortization 256 243 266
Other 57 60 51
----- ----- -----
Income before income taxes 701 413 1,244
Provision for income taxes 237 149 479
----- ----- -----
Results of operations for
oil and gas producing
activities $ 464 $ 264 $ 765
===== ===== =====
The difference between the above results of operations and the amounts reported
in the Combined Statements of Income is primarily attributable to restructuring
charges for personnel reductions settlements and gains or losses on asset
disposals.
29
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
The standardized measure of discounted estimated future net cash flows and
changes therein, related to proved oil and gas reserves are as follows:
(Billions) 1999 1998 1997
- -------------------------------------------------------------------------------
Future cash inflows $ 33.4 $ 10.5 $ 21.4
Future development and production
costs 8.9 7.3 7.6
Future income tax expense 9.1 1.0 5.3
----- ----- -----
Future net cash flows 15.4 2.2 8.5
10% annual discount 8.2 1.0 4.3
----- ----- -----
Standardized measure of discounted
future net cash flows $ 7.2 $ 1.2 $ 4.2
===== ===== =====
Primary changes in the standardized measure of discounted estimated future net
cash flows are as follows:
(Billions) 1999 1998 1997
- -------------------------------------------------------------------------------
Sales of oil and gas net of
production costs $(1.1) $(0.8) $(1.6)
Extensions, discoveries and improved
recovery, less related costs 0.6 0.1 0.2
Purchases/Sales - 0.2 -
Revisions of estimates of
reserves proved in prior years:
Quantity estimates 0.5 0.1 0.3
Net changes in price and
production costs 9.2 (5.7) (3.1)
Other (0.2) (0.4) (0.1)
Accretion of discount 0.2 0.7 1.0
Development costs incurred
during the period 0.5 0.5 0.2
Net change in income taxes (3.7) 2.3 1.0
---- ---- ----
Net change $ 6.0 $(3.0) $(2.1)
==== ==== ====
30
<PAGE>
ARCO ALASKA COMBINED OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS,CONTINUED
Estimated future cash inflows are computed by applying year-end prices of oil
and gas to year-end quantities of proved reserves. Future price changes are
considered only to the extent provided by contractual arrangements. Estimated
future development and production costs are determined by estimating the
expenditures to be incurred in developing and producing the proved oil and gas
reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions.
Estimated future income tax expenses are calculated by applying year-end
statutory tax rates (adjusted for permanent differences and tax credits) to
estimated future pretax net cash flows related to proved oil and gas reserves,
less the tax basis of the properties involved.
These estimates are furnished and calculated in accordance with requirements of
the Financial Accounting Standards Board and the SEC. Because of unpredictable
variances in expenses and capital forecasts, crude oil and natural gas price
changes, largely influenced and controlled by U.S. and foreign governmental
actions, and the fact that the bases for such estimates vary significantly,
management believes the usefulness of these projections is limited. Estimates of
future net cash flows presented do not represent management's assessment of
future profitability or future cash flow to AACO. Management's investment and
operating decisions are based upon reserve estimates that include proved
reserves prescribed by the SEC as well as probable reserves, and upon different
price and cost assumptions from those used here.
It should be recognized that applying current costs and prices and a 10 percent
standard discount rate does not convey absolute value. The discounted amounts
arrived at are only one measure of the value of proved reserves.
