SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) NOVEMBER 15, 1996
EDISTO RESOURCES CORPORATION
(Exact name as registrant as specified in its charter)
DELAWARE 1-10376 54-0883077
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
incorporation) Identification No.)
10375 RICHMOND AVENUE, SUITE 300, HOUSTON, TEXAS 77042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 782-0095
<PAGE>
ITEM 2. DISPOSITION OF ASSETS
On November 15, 1996, Edisto Resources Corporation ("Edisto") signed a
definitive agreement to sell substantially all of the assets of its gas
marketing operations to Pacific Gas Transmission Company, a subsidiary of
Pacific Gas and Electric Company (NYSE "PGE"). Edisto's gas marketing operations
are conducted through its subsidiaries, Energy Source, Inc. in the United
States, and Energy Source Canada, Inc. in Canada (collectively, "Energy
Source").
The sales price is (i) $26.0 million in cash if the effective date of the
sale is November 30, 1996, and $25.5 million if the effective date of the sale
is December 31, 1996, plus (ii) the book value at July 31, 1996 of the fixed
assets (approximately $2.6 million) and net adjusted working capital
(approximately $20.6 million) of Energy Source; provided that the sales price is
subject to adjustment after the closing by the adjusted net income or loss of
Energy Source during the period from August 1, 1996 to the effective date of the
purchase. The purchaser also will assume certain specified liabilities of Energy
Source. All of Edisto's employees, other than Michael Y. McGovern, the Chairman
and CEO of Edisto, will become employees of the purchaser.
The consummation of the sale is subject to the fulfillment of certain
conditions that are normal and customary in transactions of this nature,
including the expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvement Acts of 1976. The sale is expected to
close on December 31, 1996.
After consummation of the sale, Edisto will continue to conduct its oil and
gas operations through its 73% interest in Convest Energy Corporation, an
independent oil and gas exploration and production company listed on the
American Stock Exchange (ASE "COV"). Michael Y. McGovern, the Chairman and CEO
of both Edisto and Convest, will continue in those positions after the sale. On
a pro forma basis, Edisto will have approximately $78.0 million in cash after
consummation of the sale.
A substantial portion of the anticipated gain on the sale will not be
subject to federal income taxes due to Edisto's existing net operating loss
carryforwards ("NOLs"). After utilization of the NOLs in connection with the
sale, Edisto anticipates that its NOLs will exceed $122 million for regular tax
purposes and $81 million for alternative minimum tax purposes. These NOLs expire
from 2005 to 2008.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS
Not applicable
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements
are filed with this report:
Pro Forma Consolidated Balance Sheet as of September 30, 1996 ... F-1
Pro Forma Consolidated Statements of Operations Year Ended
December 31, 1995 ........................................... F-2
Nine Months Ended September 30, 1996 ............................ F-3
The pro forma consolidated balance sheet of Edisto as at September 30, 1996
reflects the financial position of Edisto after giving effect to the disposition
of the assets and assumption of the liabilities discussed in Item 2 and assumes
the disposition took place on September 30, 1996. The Pro Forma Consolidated
Statements of Operations for the fiscal year ended December 31, 1995 and the
nine months ended September 30, 1996 assume that the disposition occurred on
January 1, 1995 and January 1, 1996, respectively, and are based on the
operations of Edisto for the year ended December 31, 1995 and the nine months
ended September 30, 1996.
The unaudited pro forma consolidated financial statements presented herein
have been prepared by Edisto based upon assumptions deemed proper by it. The
unaudited pro forma consolidated financial statements presented herein are shown
for illustrative purposes only and are not necessarily indicative of the future
financial position or future results of operations of Edisto, or of the
financial position or results of operations of Edisto that would have actually
occurred had the transaction been in effect as of the date or for the periods
presented.
The unaudited pro forma consolidated financial statements presented herein
should be read in conjunction with the historical financial statements and
related notes of Edisto.
(c) EXHIBITS
NO. EXHIBIT
- --- -------
7.1 Asset Purchase Agreement dated November 15, 1996 by and among Pacific
Northwest Gas System, Inc., 708559 Alberta Ltd., Pacific Gas Transmission
Company, Energy Source, Inc., Energy Source Canada, Inc. and Edisto
Resources Corporation covering the purchase of specified assets of Energy
Source, Inc. and Energy Source Canada, Inc.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EDISTO RESOURCES CORPORATION
(Registrant)
By: /s/ JERRY L. MCNEILL
Jerry L. McNeill
Vice President, Controller and
Chief Accounting Officer
Date: November 22,1996
<PAGE>
EDISTO RESOURCES CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------
EDISTO ENERGY
(HISTORICAL) SOURCE(a) OTHER PRO FORMA
--------- --------- ------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 47,755(b) $ 30,642 $ -- $ 78,397(b)
Assets from risk management activities ................ 13,815 (12,998) 817
Accounts receivable:
Oil & gas production ............................... 3,262 -- 2,540(c) 5,802
Gas marketing ...................................... 96,321 (95,352) 969
Other .............................................. 782 (458) -- 324
Storage inventory ..................................... 4,212 (2,085) -- 2,127
Other current assets .................................. 2,813 (654) -- 2,159
--------- --------- ------- --------
Total current assets .............................. 168,960 (80,905) 2,540 90,595
PROPERTY AND EQUIPMENT, NET ............................... 58,106 (1,513) -- 56,593
OTHER ASSETS .............................................. 3,567 (1,135) -- 2,432
TOTAL ASSETS .............................................. $ 230,633 $ (83,553) $ 2,540 $149,620
========= ========= ======= ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt .................. $ 308 $ (308) $ -- $ --
Accounts payable:
Oil & gas production ............................... 10,140 -- -- 10,140
Gas marketing ...................................... 99,749 (102,289) 2,540(c)
Affiliate ......................................... (569) (569)
Accrued liabilities & other ........................... 12,825 (5,454) 900(d) 8,271
Liabilities from risk management activites ............ 1,095 (1,095) -- --
Deferred revenue ...................................... 2,120 2,120
--------- --------- ------- --------
Total current liabilities ........................... 126,237 (109,715) 3,440 19,962
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities .......... 8,530 (27) -- 8,503
Minority interest .................................. 9,339 -- 9,339
Other non-current liabilities ...................... 8,956 (61) -- 8,895
--------- --------- ------- --------
Total non-current liabilities: ..................... 26,825 (88) -- 26,737
--------- --------- ------- --------
STOCKHOLDERS' EQUITY ...................................... 77,571 26,250 (900)(d) 102,921
TOTAL LIABILITIES AND EQUITY .............................. $ 230,633 $ (83,553) $ 2,540 $149,620
========= ========= ======= ========
</TABLE>
(a) To eliminate the assets and liabilites of Energy Source as of September 30,
1996, and record the proceeds of the sale of Energy Source at such date.
(b) Includes $4.6 million in cash at Convest Energy Corporation at such date.
(c) To reverse intercompany elimination entry.
(d) To record transaction costs related to the sale.
F-1
<PAGE>
EDISTO RESOURCES CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------
EDISTO ENERGY
(HISTORICAL) SOURCE(a) PRO FORMA
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
Oil and gas production .................................... $ 51,211 $ -- $ 51,211
Gas marketing ............................................. 382,849 (382,849)
Energy Trading ............................................ (86) 86 --
--------- --------- --------
433,974 (382,763) 51,211
Costs and expenses:
Lease operating and production taxes ...................... 18,456 -- 18,456
Gas purchases ............................................. 381,624 (381,624) --
Abandonment and exploration costs ......................... 2,871 -- 2,871
Depreciation, depletion & amortization .................... 20,740 (367) 20,373
Impairment of oil and gas properties ...................... 5,911 -- 5,911
General and administrative ................................ 15,395 (6,884) 8,511
--------- --------- --------
444,997 (388,875) 56,122
--------- --------- --------
Operating income (loss) .................................. (11,023) 6,112 (4,911)
--------- --------- --------
Other income (expense):
Interest income ........................................... 3,525 (2,252) 1,273
Interest expense .......................................... (2,129) 267 (1,862)
Gain (loss) on sale of assets ............................. (652) (9) (661)
Minority interest ......................................... 726 -- 726
Equity in earnings (loss) of affiliates ................... 326 (326) --
Other, net ................................................ (4,284) 5,805 1,521
--------- --------- --------
(2,488) 3,485 997
--------- --------- --------
Income (loss) before income taxes .............................. (13,511) 9,597 (3,914)
--------- --------- --------
Preacquisition loss of subsidiary .............................. 1,478 -- 1,478
Income taxes ................................................... (945) 339 (606)
--------- --------- --------
Income (loss) from continuing operations ....................... $ (12,978) $ 9,936 $ (3,042)
========= ========= ========
Net income (loss) per common share:
Continuing operations ..................................... $ (1.00) $ -- $ (0.23)
========= ========= ========
Weighted average common shares
outstanding ............................................. 12,954 -- 12,954
========= ========= ========
</TABLE>
(a) To eliminate the profit and loss of Energy Source for the entire period.
F-2
<PAGE>
EDISTO RESOURCES CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------
EDISTO ENERGY
(HISTORICAL) SOURCE(a) PRO FORMA
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
Oil and gas production .................................... $ 33,634 $ -- $ 33,634
Gas marketing ............................................. 541,510 (541,510) --
--------- --------- --------
575,144 (541,510) 33,634
Costs and expenses:
Lease operating and production taxes ...................... 12,064 12,064
Gas purchases ............................................. 535,349 (535,349) --
Abandonment and exploration costs ......................... 1,724 -- 1,724
Depreciation, depletion & amortization .................... 12,966 (531) 12,435
Impairment of oil and gas properties ...................... 1,120 -- 1,120
General and administrative ................................ 11,990 (8,101) 3,889
--------- --------- --------
575,213 (543,981) 31,232
--------- --------- --------
Operating income (loss) .................................. (69) 2,471 2,402
--------- --------- --------
Other income (expense):
Interest income ........................................... 1,718 (891) 827
Interest expense .......................................... (962) 75 (887)
Gain on sale of assets .................................... 1,167 (3) 1,164
Minority interest ......................................... (679) -- (679)
Equity in earnings (loss) of affiliates ................... 372 (372) --
Other, net ................................................ 71 127 198
--------- --------- --------
1,687 (1,064) 623
--------- --------- --------
Income (loss) before income taxes .............................. 1,618 1,407 3,025
--------- --------- --------
Income taxes ................................................... (381) 78 (303)
--------- --------- --------
Income (loss) from continuing operations ....................... $ 1,237 $ 1,485 $ 2,722
========= ========= ========
Net income (loss) per common share:
Continuing operations ..................................... $ 0.09 $ -- $ 0.20
========= ========= ========
Weighted average common shares
outstanding ............................................. 13,408 -- 13,408
========= ========= ========
</TABLE>
(a) To eliminate the profit and loss of Energy Source for the entire period.
F-3
EXHIBIT 7.1
ASSET PURCHASE AGREEMENT
DATED NOVEMBER 15, 1996
BY AND AMONG
PACIFIC NORTHWEST GAS SYSTEM, INC.,
708559 ALBERTA LTD.,
PACIFIC GAS TRANSMISSION COMPANY,
ENERGY SOURCE, INC.,
ENERGY SOURCE CANADA, INC.
AND
EDISTO RESOURCES CORPORATION
COVERING THE PURCHASE
OF SPECIFIED ASSETS OF
ENERGY SOURCE, INC.
AND
ENERGY SOURCE CANADA, INC.
<PAGE>
TABLE OF CONTENTS
1. GENERAL DEFINITIONS.................................................. 2
1.1 AFFILIATE...................................................... 2
1.2 CODE........................................................... 2
1.3 COMMERCIALLY REASONABLE EFFORTS................................ 2
1.4 CONSISTENT WITH PAST PRACTICE.................................. 2
1.5 CONTROL........................................................ 3
1.6 DAMAGES........................................................ 3
1.7 DISCLOSURE LETTER.............................................. 3
1.8 EFFECTIVE DATE................................................. 3
1.9 ERISA.......................................................... 3
1.10 EXCLUDED ASSETS................................................ 3
1.11 GAAP........................................................... 3
1.12 GOVERNMENTAL AUTHORITY......................................... 3
1.13 GOVERNMENTAL REQUIREMENT....................................... 4
1.14 HSR ACT........................................................ 4
1.15 KNOWLEDGE...................................................... 4
1.16 ORDINARY COURSE OF BUSINESS.................................... 4
1.17 PERSON......................................................... 4
1.18 TAXES.......................................................... 5
2. PURCHASE AND SALE OF THE ASSETS; CLOSING DATE........................ 5
2.1 PURCHASE AND SALE; EFFECTIVE DATE.............................. 5
2.2 DELIVERY OF ASSETS AND TRANSFER DOCUMENTS...................... 5
2.3 CLOSING; CLOSING DATE.......................................... 6
3. PURCHASE PRICE....................................................... 6
3.1 PRICE AND PAYMENT.............................................. 6
3.2 ADDITIONAL PAYMENT FOR ADJUSTED WORKING CAPITAL AND
FIXED ASSETS AT JULY 31, 1996.................................. 7
3.3 POST-CLOSING PAYMENT FOR INTERIM ADJUSTED CONSOLIDATED
NET INCOME..................................................... 8
3.4 ASSUMED LIABILITIES............................................ 9
3.5 CHANGE OF NAMES OF SELLERS..................................... 12
3.6 ALLOCATION OF PURCHASE PRICE; OTHER TAX AGREEMENTS............. 12
3.7 ACCESS TO RECORDS.............................................. 13
3.8 AVAILABILITY OF PURCHASER'S EMPLOYEES FOR LITIGATION........... 13
4. REPRESENTATIONS AND WARRANTIES OF SELLERS AND
STOCKHOLDER.......................................................... 14
4.1 INCORPORATION.................................................. 14
4.2 SHARE CAPITAL.................................................. 14
4.3 FINANCIAL STATEMENTS........................................... 15
4.4 NO UNDISCLOSED LIABILITIES..................................... 16
i
<PAGE>
4.5 EVENTS SINCE THE BALANCE SHEET DATE............................ 16
4.6 EMPLOYEE MATTERS............................................... 17
4.7 CONTRACTS AND AGREEMENTS....................................... 19
4.8 EFFECT OF AGREEMENT............................................ 21
4.9 PROPERTIES, ASSETS AND LEASEHOLD ESTATES....................... 22
4.10 INTANGIBLE PROPERTY............................................ 23
4.11 SUITS, ACTIONS AND CLAIMS...................................... 24
4.12 LICENSES AND PERMITS; COMPLIANCE WITH GOVERNMENTAL
REQUIREMENTS................................................... 24
4.13 AUTHORIZATION.................................................. 25
4.14 NO UNTRUE STATEMENTS........................................... 25
4.15 RECORDS........................................................ 26
4.16 ACCOUNTS RECEIVABLE............................................ 26
4.17 BROKERS AND FINDERS............................................ 27
4.18 TELEPHONE NUMBERS.............................................. 27
4.19 NO ROYALTIES................................................... 27
4.20 INVENTORY...................................................... 27
4.21 CEG ENERGY OPTIONS INC.; ENERGY SOURCE POWER, INC.............. 27
4.22 TAXES AND GOVERNMENTAL RETURNS................................. 29
4.23 CASH ACCOUNTS.................................................. 30
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND
PGT.................................................................. 31
5.1 INCORPORATION.................................................. 31
5.2 AUTHORIZATION.................................................. 31
5.3 EFFECT OF AGREEMENT............................................ 31
5.4 BROKERS AND FINDERS............................................ 32
6. CONTRACTS PRIOR TO THE CLOSING DATE.................................. 32
7. PROCEDURE REGARDING ASSIGNMENT OF CONTRACTS.......................... 34
8. COVENANTS OF SELLERS AND STOCKHOLDER PRIOR TO
CLOSING DATE......................................................... 35
8.1 ACCESS TO INFORMATION.......................................... 36
8.2 GENERAL AFFIRMATIVE COVENANTS.................................. 36
8.3 GENERAL NEGATIVE COVENANTS..................................... 37
8.4 DISCLOSURE OF MISREPRESENTATIONS AND BREACHES.................. 37
8.5 GOVERNMENT FILINGS............................................. 38
8.6 COVENANTS REGARDING CASH ACCOUNTS.............................. 38
8.7 NO SOLICITATIONS............................................... 39
8.8 DAMAGE TO FURNITURE, FIXTURES AND EQUIPMENT.................... 40
9. COVENANTS REGARDING THE CLOSING...................................... 40
9.1 COVENANTS OF SELLERS AND STOCKHOLDER........................... 40
ii
<PAGE>
9.2 COVENANTS OF PURCHASER......................................... 41
9.3 COVENANTS REGARDING HSR ACT.................................... 41
9.4 NONDISCLOSURE/NO HIRE AGREEMENTS............................... 42
9.5 REPAYMENT OF SUBORDINATED DEBT................................. 42
10. CONDITIONS TO OBLIGATIONS OF PURCHASER............................... 42
10.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND
FULFILLMENT OF COVENANTS....................................... 42
10.2 OPINION OF COUNSEL............................................. 43
10.3 NO GOVERNMENTAL ACTIONS........................................ 43
10.4 NO MATERIAL ADVERSE CHANGE OR DAMAGE OR DESTRUCTION............ 43
10.5 CONSENTS OF LENDERS/LIENS RELEASED............................. 44
10.6 EMPLOYMENT ARRANGEMENTS AND NONDISCLOSURE/NO HIRE
AGREEMENTS..................................................... 44
10.7 CORPORATE APPROVAL............................................. 44
10.8 ASSIGNMENT AND OTHER DOCUMENTS................................. 44
10.9 BOARD OF DIRECTORS APPROVAL.................................... 45
10.10 MANAGEMENT INFORMATION SYSTEMS OPERATION....................... 45
10.11 DELIVERY OF REPORTS............................................ 45
10.12 CEG WAIVER/RIGHT OF FIRST REFUSAL.............................. 46
10.13 COMFORT LETTER................................................. 46
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS
AND STOCKHOLDER...................................................... 46
11.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND
FULFILLMENT OF COVENANTS....................................... 47
11.2 DELIVERY OF PURCHASE PRICE..................................... 47
11.3 OPINION OF COUNSEL............................................. 47
11.4 NO GOVERNMENTAL ACTIONS........................................ 47
11.5 ACTIONS WITH LENDERS........................................... 48
11.6 ASSUMPTION AND OTHER DOCUMENTS................................. 48
11.7 BOARD OF DIRECTORS APPROVAL.................................... 48
12. SPECIAL COVENANTS REGARDING EMPLOYEES, EMPLOYEE
BENEFIT PLANS AND TRANSFER TAXES..................................... 48
12.1 TRANSFER OF WORK FORCE......................................... 48
12.2 SELLERS' 401(k) PLAN........................................... 49
12.3 EMPLOYEE BENEFIT PROVISIONS.................................... 50
12.4. TRANSFER TAXES................................................. 55
13. NATURE OF STATEMENTS AND SURVIVAL OF COVENANTS,
AGREEMENTS, REPRESENTATIONS AND WARRANTIES OF
THE PARTIES.......................................................... 55
14. INDEMNITY BY SELLERS AND STOCKHOLDER................................. 56
iii
<PAGE>
14.1 INDEMNITY BY SELLERS AND STOCKHOLDER........................... 56
14.2 INDEMNITY BY PURCHASER AND PGT. .............................. 57
14.3 LIMITATIONS ON INDEMNIFICATION BY SELLERS AND
STOCKHOLDER................................................... 58
14.4 LIMITATIONS ON INDEMNIFICATION BY PURCHASER AND PGT. ......... 59
14.5 PROCEDURE. ................................................... 59
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............................ 61
16. EXPENSES............................................................. 62
17. FURTHER ACTIONS...................................................... 62
18. NOTICES.............................................................. 63
19. TERMINATION.......................................................... 64
19.1 MUTUAL CONSENT................................................. 64
19.2 FAILURE OF CONDITIONS.......................................... 64
19.3 FAILURE TO AGREE ON JULY A/R RESERVE OR ALLOWANCE
PERCENTAGE..................................................... 64
19.4 FAILURE TO APPROVE NONCONFORMING CONTRACT...................... 64
19.5 FAILURE TO CLOSE............................................... 65
19.6 ACQUISITION PROPOSAL........................................... 65
20. GENERAL PROVISIONS................................................... 65
20.1 GOVERNING LAW; INTERPRETATION; SECTION HEADINGS................ 65
20.2 SEVERABILITY................................................... 66
20.3 ENTIRE AGREEMENT............................................... 66
20.4 BINDING EFFECT................................................. 67
20.5 ASSIGNMENT..................................................... 67
20.6 AMENDMENT; WAIVER.............................................. 68
20.7 GENDER; NUMBERS................................................ 68
20.8 COUNTERPARTS................................................... 68
20.9 TELECOPY EXECUTION AND DELIVERY................................ 68
20.10 PUBLIC ANNOUNCEMENTS........................................... 69
20.11 DISPUTE RESOLUTION; VENUE...................................... 69
20.12 COVENANT REGARDING MIDWEST STORAGE RECORDS..................... 70
21. GUARANTIES........................................................... 70
21.1 STOCKHOLDER GUARANTY........................................... 70
21.2 PGT GUARANTY................................................... 71
iv
<PAGE>
SCHEDULES
SCHEDULE 2.1A ASSETS TO BE TRANSFERRED TO PURCHASER
SCHEDULE 2.1B EXCLUDED ASSETS
SCHEDULE 3.2A CALCULATION OF ADJUSTED WORKING CAPITAL AND
FIXED ASSETS
SCHEDULE 3.2B INITIAL ESTIMATED ADJUSTED WORKING CAPITAL AND
FIXED ASSETS
SCHEDULE 3.3 INTERIM ADJUSTED NET INCOME CALCULATION
SCHEDULE 6 APPROVAL MATRIX FOR CONFORMING CONTRACTS
SCHEDULE 10.7 EMPLOYEES WITH EMPLOYMENT ARRANGEMENTS
v
<PAGE>
EXHIBITS
EXHIBIT I FORM OF GENERAL WARRANTY BILL OF SALE,
ASSIGNMENT OF CONTRACT RIGHTS AND ASSUMPTION
AGREEMENT
EXHIBIT II FORM OF OPINION OF SELLERS' COUNSEL
EXHIBIT III FORM OF OPINION OF PURCHASER'S COUNSEL
EXHIBIT IV FORM OF NONDISCLOSURE/NO HIRE AGREEMENT
vi
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
this 15th day of November, 1996, by and among (i) ENERGY SOURCE CANADA, INC., an
Alberta, Canada corporation ("ES Canada"), (ii) ENERGY SOURCE, INC. ("ESI" and,
along with ES Canada, the "Sellers"), a Texas corporation and owner of all of
the capital stock of ES Canada and Energy Source Power, Inc., (iii) EDISTO
RESOURCES CORPORATION, a Delaware corporation and owner of all of the capital
stock of ESI (the "Stockholder"), (iv) PACIFIC NORTHWEST GAS SYSTEM, INC., a
California corporation ("Pacific Northwest"), 708559 Alberta Ltd., an Alberta,
Canada corporation ("708559 Alberta" and, collectively with Pacific Northwest,
the "Purchaser"), and PACIFIC GAS TRANSMISSION COMPANY, a California corporation
("PGT").
W I T N E S S E T H :
WHEREAS, Sellers are the owners of all right, title and interest in and to
the assets described on SCHEDULE 2.1A hereto (the "Assets"), with such Assets
being all of the assets currently used in or necessary for the conduct of the
natural gas marketing business and various related businesses operated by the
Sellers (collectively, the "Business");
WHEREAS, Sellers desire to sell the Assets to Purchaser, and Purchaser
desires to acquire the Assets from Sellers, all pursuant to this Agreement as
hereinafter provided; and
1
<PAGE>
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
execution and delivery of this Agreement, and to set forth certain additional
agreements related to the transactions contemplated hereby;
NOW, THEREFORE, for and in consideration of the premises, the mutual
representations, warranties and covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. GENERAL DEFINITIONS. For purposes of this Agreement, the
following terms shall have the respective meanings set forth below:
1.1 AFFILIATE. "Affiliate" of any Person shall mean any Person
Controlling, Controlled by or under common Control with such Person; provided,
however, that whenever the term "Affiliate" is used with respect to Stockholder,
it shall not refer to any stockholder of Stockholder (other than Trust Company
of the West and any of its affiliates which hold shares of Common Stock of
Stockholder, and any transferees of such shares).
1.2 CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.3 COMMERCIALLY REASONABLE EFFORTS. "Commercially Reasonable Efforts"
shall mean all reasonable efforts, but shall not be construed to include efforts
that require the performing party to make any capital contribution or to expend
any funds other than reasonable out-of-pocket expenses incurred in satisfying
its obligations
2
<PAGE>
hereunder, including without limitation, the fees, expenses and disbursements of
its accountants, counsel and other professionals.
1.4 CONSISTENT WITH PAST PRACTICE. "Consistent With Past Practice", when
used to describe the operation of the Business, shall mean consistent with the
manner in which the Business was operated during the period from January 1, 1996
through July 31, 1996.
1.5 CONTROL. "Control" and all derivations thereof shall mean the ability
to either (i) vote (or direct the vote of) 50% or more of the voting interests
in any Person or (ii) direct the affairs of another, whether through voting
power, contract or otherwise.
1.6 DAMAGES. "Damages" is defined in SECTION 14.1 herein.
1.7 DISCLOSURE LETTER. "Disclosure Letter" shall mean the disclosure
letter delivered by Sellers to Purchaser concurrently with the execution and
delivery of this Agreement.
1.8 EFFECTIVE DATE. "Effective Date" shall mean the Closing Date if the
Closing occurs at the end of a calendar month; provided that, if the parties
agree to have the Closing on a date other than at the end of a calendar month as
provided in SECTION 2.3, then the Effective Date shall mean the last day of the
calendar month immediately prior to the Closing Date or the month end
immediately after the Closing Date, as agreed to by the parties.
1.9 ERISA. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
3
<PAGE>
1.10 EXCLUDED ASSETS. "Excluded Assets" shall mean those assets of Sellers
set forth on SCHEDULE 2.1B attached hereto which shall not be included in the
Assets to be purchased by Purchaser pursuant to this Agreement.
1.11 GAAP. "GAAP" shall mean (i) with respect to any financial statements
of ESI, generally accepted United States accounting principles, and (ii) with
respect to any financial statements of ES Canada, generally accepted Canadian
accounting principles.
1.12 GOVERNMENTAL AUTHORITY. "Governmental Authority" shall mean any and
all foreign, federal, state or local governments, governmental institutions,
public authorities and governmental entities of any nature whatsoever, and any
subdivisions or instrumentalities thereof, including, but not limited to,
departments, boards, bureaus, commissions, agencies, courts, administrations and
panels, and any divisions or instrumentalities thereof.
1.13 GOVERNMENTAL REQUIREMENT "Governmental Requirement" shall mean any
and all laws (including, but not limited to, applicable common law principles),
statutes, ordinances, codes, rules, regulations, interpretations, guidelines,
directions, orders, judgments, writs, injunctions, decrees, decisions or similar
items or pronouncements, promulgated, issued, passed or set forth in published
form or otherwise generally made available to the public by any Governmental
Authority.
1.14 HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
1.15 KNOWLEDGE. An individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other
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matter. When used with respect to either of the Sellers or Stockholder, the term
"Knowledge" shall include only those matters that are known to Michael Y.
McGovern, David J. Tudor, Jerry L. McNeill, Lisa D. Holliday, David Guebert,
Grant Farris and Jeff Young.
1.16 ORDINARY COURSE OF BUSINESS. "Ordinary Course of Business" shall
mean Consistent With Past Practice and in the ordinary course of the day-to-day
operations of the Business.
1.17 PERSON. "Person" shall mean any natural person, any Governmental
Authority and any entity the separate existence of which is recognized by any
Governmental Authority or Governmental Requirement, including, but not limited
to, corporations, partnerships, joint ventures, joint stock companies, trusts,
estates, companies and associations, whether organized for profit or otherwise.
1.18 TAXES. "Tax" and "Taxes" shall mean any and all income, sales,
excise, franchise or other taxes imposed or collected by any Governmental
Authority or pursuant to any Governmental Requirement, and shall also include
any and all penalties, interest, deficiencies, assessments and other charges
with respect thereto.
2. PURCHASE AND SALE OF THE ASSETS; CLOSING DATE.
2.1 PURCHASE AND SALE; EFFECTIVE DATE. Subject to the terms and
conditions herein contained, Sellers agree to sell, assign, transfer and deliver
to Purchaser at the Closing (as hereinafter defined), and Purchaser agrees to
purchase from the Sellers, effective as of the Effective Date, the Assets (as
more fully described on SCHEDULE 2.1A), but excluding the Excluded Assets (as
more fully described on SCHEDULE 2.1B), free and clear of any liens or
encumbrances of any nature whatsoever
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(except for liens, encumbrances or obligations, if any, expressly assumed by
Purchaser hereunder), in consideration for the Purchase Price (as hereinafter
defined) payable as set forth in SECTION 3. If the Closing Date and the
Effective Date are different, the parties intend that the effective time of the
transfer of the benefits and liabilities of the Assets and the Business shall be
as of 11:59 p.m. on the Effective Date, regardless of the actual Closing Date.
2.2 DELIVERY OF ASSETS AND TRANSFER DOCUMENTS. At the Closing, Sellers and
Stockholder shall take all steps necessary to put Purchaser in possession of the
Assets, free and clear of any liens or encumbrances of any nature whatsoever
(except for liens, encumbrances or obligations, if any, expressly assumed by
Purchaser hereunder), and shall deliver to Purchaser (i) a duly executed general
warranty bill of sale covering the Assets, in the form of and containing
substantially the same terms and provisions as the General Warranty Bill of
Sale, Assignment of Contract Rights and Assumption Agreement attached as EXHIBIT
I, (ii) duly executed assignments for all patents, trademarks, trade names,
copyrights and similar intangible property included in the Assets, in form and
substance reasonably acceptable to Purchaser and in recordable form as
appropriate, and (iii) such other duly executed transfer and release documents
as Purchaser shall reasonably request to evidence the transfer of the Assets to
Purchaser free and clear of any liens or encumbrances of any nature whatsoever
(except for liens, encumbrances or obligations, if any, expressly assumed by
Purchaser hereunder). The Assets shall be divided between and transferred to
Pacific Northwest and 708559 Alberta as such parties shall in writing instruct
the Sellers prior to the Closing.
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2.3 CLOSING; CLOSING DATE. Subject to the terms and conditions herein
contained, the consummation of the transactions referenced above shall take
place (the "Closing") at the end of the calendar month during which the required
waiting period under the HSR Act shall have ended or been earlier terminated and
the conditions to each party's obligation to close have been satisfied or
waived, at 10:00 a.m., local time, at the offices of Stockholder at 10375
Richmond Avenue, Suite 300, Houston, Texas, or at such other time, date and
place as Purchaser and Sellers shall in writing designate; provided that, by
mutual agreement of the parties, the Closing can be moved to a date other than
the end of a calendar month. The date of the Closing is referred to herein as
the "Closing Date".
3. PURCHASE PRICE.
3.1 PRICE AND PAYMENT. Subject to SECTIONS 3.2, 3.3 AND 4.21, the
aggregate consideration for the Assets is TWENTY-SIX MILLION AND NO/100 DOLLARS
($26,000,000.00) if the Effective Date is November 30, 1996, and TWENTY-FIVE
MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($25,500,000.00) if the
Effective Date is December 31, 1996 (the "Purchase Price"), payable by wire
transfer to Sellers at the Closing in accordance with written instructions to be
provided by Sellers.
3.2 ADDITIONAL PAYMENT FOR ADJUSTED WORKING CAPITAL AND FIXED
ASSETS AT JULY 31, 1996.
(a) ADJUSTED WORKING CAPITAL AND FIXED ASSETS PAYMENT. At the
Closing, in addition to the Purchase Price, Purchaser shall also pay to
Sellers an amount equal to the sum of the Adjusted Working Capital and the
Fixed Assets of Sellers as of July 31, 1996, which are defined and shall
be calculated as set forth on SCHEDULE 3.2A. For the purposes of
illustrating how the Adjusted Working Capital and the Fixed Assets will be
calculated, the parties have
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estimated the Adjusted Working Capital and the Fixed Assets as of July 31,
1996 to be $21,823,000 and $2,587,000, respectively (as more fully
described on SCHEDULE 3.2B), without any deduction for a reserve for
doubtful accounts with respect to the Accounts Receivable of Sellers as of
July 31, 1996 (the "July Receivables").
(b) DETERMINATION OF ADJUSTED WORKING CAPITAL AND FIXED ASSETS
PAYMENT. Between the date hereof and Closing, the parties shall use good
faith efforts to agree on an appropriate and reasonable reserve for
doubtful accounts with respect to the July Receivables (the "July A/R
Reserve") for purposes of calculating the Adjusted Working Capital as of
July 31, 1996, as well as all other components of Adjusted Working Capital
and Fixed Assets of Sellers as of July 31, 1996. To facilitate this
process, Sellers shall deliver to Purchaser five business days prior to
the Closing Date a report showing all uncollected July Receivables as of
five business days prior to such date (the "Uncollected July Accounts").
If the parties cannot agree within five business days after delivery of
such report on the amount of the July A/R Reserve or on any component of
the Adjusted Working Capital or Fixed Assets as of July 31, 1996, the
parties shall have a meeting in Houston, Texas as soon as practicable
after such time at which they shall use good faith efforts to reach
agreement on any disputed amount. If after such meeting the parties still
cannot agree on the amount of the July A/R Reserve or on any other
component of Adjusted Working Capital or Fixed Assets at July 31, 1996,
either Sellers or Purchaser shall have the right to terminate this
Agreement.
(c) PROCEDURES. In order to facilitate the determination of the
Adjusted Working Capital and the Fixed Assets as of July 31, 1996, Sellers
and Purchaser shall establish and implement after the date hereof
reasonable procedures for Purchaser to review and/or audit the components
of Adjusted Working Capital and Fixed Assets as of July 31, 1996. After
the date hereof, Sellers shall provide to Purchaser and its
representatives reasonable access to Sellers' facilities and books and
records, and shall reasonably cooperate with Purchaser and its
representatives, for the purpose of allowing Purchaser to review and/or
audit the components of Adjusted Working Capital and Fixed Assets.
3.3 POST-CLOSING PAYMENT FOR INTERIM ADJUSTED CONSOLIDATED NET
INCOME.
(a) PAYMENT FOR INTERIM ADJUSTED CONSOLIDATED NET INCOME. In
accordance with the procedures set forth below, Purchaser shall determine
the Interim Adjusted Consolidated Net Income of Sellers (as defined and to
be calculated as set forth in SCHEDULE 3.3 in accordance with GAAP) during
the period from August 1, 1996 to the Effective Date (the "Interim
Period"). In addition to the payments set forth in SECTION 3.1 and SECTION
3.2, if the Interim
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Adjusted Consolidated Net Income of Sellers for the Interim Period is
positive, Purchaser shall pay to Sellers in cash the amount of such
positive Interim Adjusted Consolidated Net Income pursuant to the
procedures set forth below. If the Interim Adjusted Consolidated Net
Income for the Interim Period is negative, Sellers, jointly and severally,
shall pay to Purchaser in cash the amount of such negative Interim
Adjusted Consolidated Net Income pursuant to the procedures set forth
below. For the purposes of the Closing, the parties agree that the Interim
Adjusted Consolidated Net Income shall be assumed to be zero.
(b) DETERMINATION OF INTERIM ADJUSTED CONSOLIDATED NET INCOME.
Between the date hereof and Closing, the parties shall use good faith
efforts to agree on an appropriate and reasonable allowance percentage to
be used to calculate the increase in allowance for doubtful accounts for
purposes of SCHEDULE 3.3 (the "Allowance Percentage"). To facilitate this
process, Sellers shall deliver to Purchaser five business days prior to
the Closing Date a report showing all uncollected accounts receivable as
of the most recent practicable date. If the parties cannot agree on the
Allowance Percentage on or prior to the Closing Date, either Sellers or
Purchaser shall have the right to terminate this Agreement. As soon as
reasonably practicable after Closing, but not later than 60 days after the
Closing Date, Purchaser shall prepare and deliver to Sellers (i) the
unaudited consolidated balance sheet of Sellers as of the Effective Date
(the "Effective Date Balance Sheet"), and the unaudited consolidated
income statement and unaudited consolidated statement of cash flows of
Sellers for the year-to-date period then ended (prepared in accordance
with GAAP, including all accruals required by this Agreement whether or
not previously made by the Sellers), and (ii) the calculation of Interim
Adjusted Consolidated Net Income pursuant to SCHEDULE 3.3. The parties and
their representatives shall have a period of sixty (60) days after the
date that such financial statements are available (the "Financial
Statement Availability Date"), to review and/or audit the calculation of
the Interim Adjusted Consolidated Net Income (and will cooperate with each
other with respect to such review and/or audit). The parties will in good
faith attempt to agree on a final amount for the Interim Adjusted
Consolidated Net Income.
(c) DISPUTE RESOLUTION; ARBITRATION. If the parties cannot reach
agreement regarding the final Interim Adjusted Consolidated Net Income on
or before seventy-five (75) days after the Financial Statement
Availability Date, any party may require any unresolved matters with
respect to the Interim Adjusted Consolidated Net Income to be promptly
submitted to binding arbitration in Houston, Texas by one arbitrator
pursuant to the then prevailing Commercial Arbitration Rules of the
American Arbitration Association (with the exception that the arbitrator
shall be a person with accounting or business experience in the natural
gas industry, unless otherwise agreed to by the parties, who shall be
required to issue a written decision setting forth his or her
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conclusions and reasoning with respect to the accounting, legal or
business issues involved). Upon submission of a matter to arbitration, the
parties agree to expedite the process, to the maximum extent practicable,
so as to conclude the arbitration proceeding within 120 days after such
submission. The parties agree to fully cooperate with, and to abide by,
all decisions of the arbitrator, whose decision shall be final and binding
on all parties. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction. In the event of such
arbitration, each party shall pay half of the costs and expenses of the
arbitrator.
Promptly after determination of the final Interim Adjusted
Consolidated Net Income (whether by agreement or by arbitration),
Purchaser shall, if the final Interim Adjusted Consolidated Net Income is
positive, pay to Sellers the amount by which the final Interim Adjusted
Consolidated Net Income is greater than zero, and Sellers shall, if the
final Interim Adjusted Consolidated Net Income is negative, pay to
Purchaser the amount by which the final Interim Adjusted Consolidated Net
Income is less than zero.
(d) PROCEDURES. In order to facilitate the determination of the
Interim Adjusted Consolidated Net Income, commencing on the date hereof,
Sellers and Purchaser shall establish and implement reasonable procedures
to monitor and audit the determination of the Interim Adjusted
Consolidated Net Income. During the period from the date hereof through
the Closing Date, each Seller shall provide to Purchaser and its
representatives reasonable access to its facilities and books and records,
and shall reasonably cooperate with Purchaser and its representatives, for
the purpose of monitoring and auditing the determination of Interim
Adjusted Consolidated Net Income. After the Closing Date, Purchaser shall
provide each Seller and its representatives reasonable access to its
facilities and books and records, and shall reasonably cooperate with
Sellers and their representatives, for the purpose of monitoring and
auditing the determination of final Interim Adjusted Consolidated Net
Income.
3.4 ASSUMED LIABILITIES. Effective as of the Effective Date, as additional
consideration for the Assets, Purchaser shall assume and agree to pay, perform
or discharge when due the following obligations and liabilities of Sellers
(collectively, the "Assumed Liabilities"):
(i) the executory contracts and agreements transferred by Sellers to
Purchaser under this Agreement that are (x) listed and described in PART
4.7 OF THE DISCLOSURE LETTER and are noted thereon as items to be assumed
by
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Purchaser, or (y) approved by Purchaser pursuant to the provisions of
SECTION 6; provided that Purchaser specifically does not assume any
liabilities of Sellers (A) for any material breaches by Sellers of such
contracts or agreements occurring on or before the Effective Date, except
to the extent of any accruals made on the Effective Date Balance Sheet
with respect to any such breaches or (B) for any Taxes relating to such
contracts or agreements for periods ending prior to the Effective Date,
except to the extent of sales and severance Taxes accrued on the Effective
Date Balance Sheet, or (C) for any damages to third parties under such
contracts or agreements resulting from acts, events or omissions occurring
on or before the Effective Date, except to the extent of any accruals made
on the Effective Date Balance Sheet with respect to any such damages, or
(D) for any actions of Sellers under such contracts or agreements during
the period from the Effective Date to the Closing Date which constitute
gross negligence or willful misconduct;
(ii) any liabilities resulting from the actualization of volumes of
gas purchased, sold or transported in transactions completed prior to the
Effective Date, whether or not occurring pursuant to the contracts listed
in PART 4.7 OF THE DISCLOSURE LETTER;
(iii) all liabilities or obligations of Sellers for severance and
sales Taxes to the extent accrued on the Effective Date Balance Sheet;
(iv) all liabilities included as liabilities on the Effective Date
Balance Sheet in the amounts set forth thereon, other than for any
liabilities for income
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or franchise Taxes or general contingency reserves reflected thereon, and
except as provided in Section 3.4(vi) below;
(v) all liabilities or obligations relating to or arising out of the
operation of the Business or the ownership or use of any of the Assets
after the Effective Date, subject to the limitations described in clause
(i) above (relating to which contractual obligations Purchaser shall
assume) and the provisions of SECTION 4.6(c) of this Agreement (relating
to any carryover liability relating to employee benefit plans); provided
that Purchaser specifically does not assume any liabilities relating to or
arising out of the operation of the Business or the ownership or use of
any of the Assets after the Effective Date but before the Closing Date to
the extent such liabilities result from the gross negligence or willful
misconduct of Sellers;
(vi) the obligations under the Loan Facility of ESI with Bank One
Texas, N.A. and the obligations under the Credit Facility of ES Canada
with National Bank of Canada, but only if Purchaser does not provide
substitute letters of credit or other credit support necessary to obtain
the release of any outstanding letters of credit on the Closing Date, as
provided for in Section 11.5; and
(vii) all liabilities or obligations of Sellers expressly assumed by
Purchaser in SECTION 12 relating to employees and employee benefit plans
of Sellers.
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Except as specifically set forth in this SECTION 3.4, Purchaser shall not
assume, and shall not be treated as having assumed, any liability or obligation
of Sellers of any nature whatsoever.
3.5 CHANGE OF NAMES OF SELLERS. Immediately after the Closing, Sellers
shall cease using the names, "Energy Source, Inc.", "Energy Source Canada,
Inc.", "Energy Source", "Energy Source Power" and "EnerSource" and all
derivations thereof (collectively, the "Energy Source Names"), and as soon as
possible after the Closing, Sellers will take all actions necessary to change
their corporate names to names other than the Energy Source Names or a
derivation thereof. Sellers and Stockholder covenant and agree that after the
Closing they will not, directly or indirectly, use the Energy Source Names or
any derivation thereof in connection with any business enterprise.
3.6 ALLOCATION OF PURCHASE PRICE; OTHER TAX AGREEMENTS. The total
consideration for the Assets (including the Assumed Liabilities) shall be
allocated among the Assets by the parties hereto in accordance with applicable
regulations of the Internal Revenue Service and Revenue Canada prior to the
Closing. The parties hereto agree to file a Form 8594 with the Internal Revenue
Service, and any comparable form required to be filed with Revenue Canada, and
to file their respective tax returns consistent with the allocations as so
agreed to by the parties.
The parties hereto agree that ES Canada and a designated subsidiary or
Affiliate of Purchaser shall (i) be registrants under the Canadian Goods and
Services Tax (GST) system prior to the Effective Date, and (ii) make a joint
election under ss.167(1) of the Canadian Excise Tax Act to have no GST payable
with respect to the
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acquisition of the Assets of ES Canada described in Schedule 2.1A. The parties
hereto also agree that the purchase of the Assets qualifies as an occasional
sale under ss.151.304 of the Texas Tax Code and is exempt from sales and use tax
imposed by the State of Texas with respect to the acquisition of the Assets of
ESI described in Schedule 2.1A.
3.7 ACCESS TO RECORDS. Purchaser agrees, for a period of three (3) years
after the Closing Date, or such longer period if mandatory or prudent in
accordance with the record retention practices of similarly situated businesses,
to use Commercially Reasonable Efforts to preserve and protect, or, in the event
Purchaser wishes to destroy or discard such items, offer to surrender to
Sellers, all books and records of Sellers for the three years prior to the
Effective Date, and provide to the officers, employees and authorized
representatives of Sellers, reasonably free and full access to such books and
records for legitimate business purposes, including the preparation of
Stockholder's financial statements for periods prior to the Effective Date, the
completion by Stockholder's independent auditors of their audit of such
financial statements, and the preparation and completion of tax returns for all
periods prior to the Effective Date. Purchaser further agrees that such
officers, employees and authorized representatives of Sellers shall be free to
make copies of and to take notes from such books and records at Sellers'
expense.
3.8 AVAILABILITY OF PURCHASER'S EMPLOYEES FOR LITIGATION. Purchaser will,
after the Closing Date, (i) cooperate fully in providing to Sellers or its
authorized representatives information reasonably deemed necessary to prosecute
or defend any third-party litigation, claim or governmental investigation or
proceeding relating to the
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operation of the Business by Sellers prior to the Effective Date, and (ii)
provide and make available, on a reasonable basis the services of employees and
agents of Purchaser to participate in the preparation and prosecution or defense
of such litigation, claim or governmental investigation or proceeding (for
purposes such as document production, answers to discovery requests, depositions
and testimony at trial or other proceeding); provided that nothing herein will
obligate Purchaser to take actions that would unreasonably disrupt the normal
operations of the Business. Sellers agree to pay Purchaser promptly upon request
(i) for all direct, reasonable out-of-pocket expenses incurred by Purchaser in
providing such assistance under this SECTION 3.8 and (ii) to the extent that any
employees of Purchaser provide assistance under clause (ii) above, a per hour
charge for the time expended by such employees (to be computed as 150% of the
base salary, on an hourly basis, of the employees involved).
4. REPRESENTATIONS AND WARRANTIES OF SELLERS AND
STOCKHOLDER. Sellers and Stockholder, jointly and severally, represent and
warrant to Purchaser and PGT as follows:
4.1 INCORPORATION. ESI, ES Canada and Stockholder are corporations duly
organized, validly existing and in good standing under the laws of the State of
Texas, the Province of Alberta, Canada, and the State of Delaware, respectively,
and each has full corporate power and authority to conduct its business as it is
now being conducted and to own or use the Assets presently owned or used by it.
PART 4.1 OF THE DISCLOSURE LETTER sets forth a complete list of all
jurisdictions in which each Seller is qualified as a foreign corporation, and
each Seller is in good standing in each of such jurisdictions. There has not
been any claim by any other jurisdiction to the effect that either Seller
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is required to qualify or otherwise be authorized to do business as a foreign
corporation therein in order to carry on the Business as now conducted or to
own, lease or operate the Assets.
4.2 SHARE CAPITAL. Stockholder owns all of the outstanding capital stock
of ESI, and there are no options, rights or other grants currently outstanding
for the acquisition or purchase of any shares of the capital stock of ESI. ESI
owns all of the outstanding capital stock of ES Canada, and there are no
options, rights or other grants currently outstanding for the acquisition or
purchase of any shares of the capital stock of ES Canada.
4.3 FINANCIAL STATEMENTS. Sellers have delivered to Purchaser copies of
the following financial statements for Sellers, all of which are included in
PART 4.3 OF THE DISCLOSURE LETTER:
(a) Unaudited Balance Sheet of each Seller (the "Reference Balance
Sheets") as of July 31, 1996 (the "Balance Sheet Date"), and Unaudited
Income Statement and Unaudited Statement of Cash Flows of each Seller for
the seven-month period ended on the Balance Sheet Date; and
(b) Unaudited Balance Sheet of each Seller as of June 30, 1996, and
Unaudited Income Statement and Unaudited Statement of Cash Flows of each
Seller for the six-month period ended on June 30, 1996; and
(c) Unaudited Balance Sheet of each Seller as of August 31, 1996,
and Unaudited Income Statement and Unaudited Statement of Cash Flows of
each Seller for the eight-month period ended on August 31, 1996; and
(d) Unaudited Balance Sheet of each Seller as of September 30, 1996,
and Unaudited Income Statement and Unaudited Statement of Cash Flows of
each Seller for the nine-month period ended on September 30, 1996; and
(e) Audited Balance Sheet of each Seller as of December 31, 1995,
and the Audited Income Statement and Audited Statement of Cash Flows of
each Seller for the year ended December 31, 1995, together with the notes
to such statements.
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Such financial statements (and those subsequently supplied to Purchaser pursuant
to SECTION 8.2(J)), (i) present and will present fairly the financial condition,
results of operations and cash flows of Sellers as of the dates and for the
periods indicated thereon, and (ii) have been and will be prepared in accordance
with GAAP (subject, in the case of interim financial statements, to normal
recurring year-end adjustments, the effect of which will not, individually or in
the aggregate, be material, and the absence of notes that, if presented, would
not differ materially from those set forth in the audited financial statements
of Sellers as of December 31, 1995). The Sellers have disclosed to Purchaser
that while ESI and ES Canada use the accrual method of accounting for financial
instruments, Energy Trading, Inc., which was merged into ESI effective March 1,
1996, used the mark to market method of accounting for financial instruments.
4.4 NO UNDISCLOSED LIABILITIES. Except as set forth in PART 4.4 OF THE
DISCLOSURE LETTER, the Reference Balance Sheets reflect, and the balance sheets
subsequently supplied to Purchaser pursuant to SECTION 8.2(J) will reflect, all
liabilities, debts and obligations of any nature of each respective Seller
(whether accrued, absolute, contingent or otherwise), including, but not limited
to, liabilities, debts or obligations on account of Taxes, to the extent such
items are required to be reflected on such balance sheets under GAAP, except for
current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof.
4.5 EVENTS SINCE THE BALANCE SHEET DATE. Except as set forth in PART 4.5
OF THE DISCLOSURE LETTER, since the Balance Sheet Date, there has not been:
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(a) any material adverse change in the condition (financial or
otherwise) or in the properties, assets, liabilities, business or
prospects of the Business, except normal and usual changes in the Ordinary
Course of Business, none of which has been materially adverse and all of
which in the aggregate have not been materially adverse, and except for
any losses reflected on any income statement of Sellers listed in clauses
(a) through (e) of Section 4.3;
(b) any labor trouble, strike or any other similar occurrence, event
or condition affecting the employees of either Seller that materially and
adversely affects the condition (financial or otherwise) of the Assets or
the Business;
(c) any material breach or default by either Seller or, to the
Knowledge of Sellers and Stockholder, by any other party, under any
agreement or obligation included in the Assets or by which any of the
Assets are bound;
(d) any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the furniture, fixtures and
equipment (including records and computer systems) of Sellers, taken as a
whole;
(e) to the Knowledge of Sellers and Stockholder, any legislative or
regulatory enactment, order, decision or other pronouncement that
materially and adversely affects the Assets or the Business;
(f) except for any losses reflected on any income statement of
Sellers listed in clauses (a) through (e) of Section 4.3, any material
adverse change in the sales, revenue or net income of the Business;
(g) any transaction related to or materially affecting the Assets or
the Business other than transactions in the Ordinary Course of Business;
or
(h) any other occurrence, event or condition that has had (or can
reasonably be expected to have) a material and adverse effect on the
Assets or the Business.
4.6 EMPLOYEE MATTERS. PART 4.6A OF THE DISCLOSURE LETTER contains a true
and complete list of each employee of each Seller utilized in connection with
the operation of the Business and the current annual base salary or base wages,
incentive payments, and all other compensation paid by each Seller to each such
employee:
(a) IDENTIFICATION OF PLANS. PART 4.6B OF THE DISCLOSURE LETTER
contains a complete and accurate list of (1) all employee benefit plans as
defined
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in Section 3(3) of ERISA and (2) all other employee benefit agreements or
arrangements, including, but not limited to, deferred compensation plans,
incentive plans, bonus plans or arrangements, stock option plans, stock
purchase plans, golden parachute agreements, severance pay plans,
dependent care plans, cafeteria plans, employee assistance programs,
scholarship programs, employment contracts, vacation policies and other
similar plans, agreements and arrangements that are currently in effect,
or have been approved before this date but are not yet effective, for the
benefit of directors, officers, employees, or former employees (or
beneficiaries of them) of each Seller.
As to each plan, agreement or arrangement listed in PART 4.6B TO THE
DISCLOSURE LETTER, Sellers and Stockholder have delivered to Purchaser, as
applicable, a complete and accurate copy of (1) the plan, agreement or
arrangement, (2) the trust, group annuity contract or other contract
pursuant to which benefits are funded or paid, (3) the most recent annual
Form 5500, 990 and 1041 reports, (4) the most recent actuarial report or
valuation statement, if any, (5) the most current summary plan
description, booklet, or other descriptive written materials, and each
summary of material modifications prepared after the last summary plan
description, (6) the most recent Internal Revenue Service determination
letter and all rulings or determinations requested from the Internal
Revenue Service after the date of that determination letter, and (7) all
other correspondence from the Internal Revenue Service or the Department
of Labor with respect to any matter, audit or inquiry that is still
pending.
(b) EDISTO RESOURCES CORPORATION PROFIT SHARING PLAN & TRUST. The
Edisto Resources Corporation Profit Sharing Plan & Trust (the "Sellers'
401(k) Plan") amendment and restatement that was adopted on December 5,
1995, has been filed with the appropriate Key District Office of the
Internal Revenue Service in a Form 5307 determination request application
within the remedial amendment period applicable to the amendment and
restatement. There are no pending, or to the Stockholder's or Seller's
Knowledge, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against the Sellers' 401(k) Plan or its
related trust. Except as set forth in PART 4.6B OF THE DISCLOSURE LETTER,
no facts have occurred that if known by the Internal Revenue Service could
cause disqualification of the Sellers' 401(k) Plan. Within the three year
period ending on the Closing Date, no employee of any entity that has not
specifically adopted the Sellers' 401(k) Plan, including, but not limited
to Energy Source Canada, Inc., Edisto Tunisia, Ltd., Mint Holding Company,
Convest Energy Corporation or CEG Energy Options, Inc. has had, or under
the terms of the Sellers' 401(k) Plan has been entitled to have,
allocations made on his behalf while he was employed by such entity.
(c) NO CARRYOVER LIABILITY. Except to the extent Purchaser has
expressly assumed liabilities or obligations of Sellers pursuant to
SECTIONS 12.2
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OR 12.3(c), (d), (e) AND (G), the consummation of this Agreement (and the
employment by the Purchaser of former employees of each Seller) will not
result in any carryover liability to the Purchaser for taxes, penalties,
interest or any other claims resulting from any employee pension benefit
plan, employee welfare benefit plan, or other employee benefit agreement
or arrangement listed in PART 4.6B OF THE DISCLOSURE LETTER, provided that
this subsection (c) shall not affect Purchaser's obligation to pay those
liabilities described in SECTION 3.4 of this Agreement.
(d) ABSENCE OF CERTAIN LIABILITIES. None of the Stockholder, either
Seller, or any entity (whether or not incorporated) that was at any time
during the six years before the Closing Date treated as a single employer
together with the Stockholder or either Seller under Section 414 of the
Code has ever maintained, had any obligation to contribute to or incurred
any liability with respect to a pension plan that is or was subject to the
provisions of Title IV of ERISA or Section 412 of the Code. None of the
Stockholder, either Seller, or any entity (whether or not incorporated)
that was at any time during the six years before the date of this
Agreement treated as a single employer together with the Stockholder or
either Seller under Section 414 of the Code has ever maintained, had an
obligation to contribute to, or incurred any liability with respect to a
multiemployer pension plan as defined in Section 3(37) of ERISA. During
the last six years, neither of the Sellers has maintained, had an
obligation to contribute to or incurred any liability with respect to a
voluntary employees beneficiary association that is or was intended to
satisfy the requirements of Section 501(c)(9) of the Code. All group
health plans listed in Part 4.6B of the Disclosure Letter maintained by
either or both of the Sellers have been operated in material compliance
with Section 4980B(f) of the Code. With respect to any entity (whether or
not incorporated) that is both treated as a single employer together with
either of the Sellers under Section 414 of the Code and located outside of
the United States, any benefit plans maintained by it for the benefit of
its directors, officers, employees or former employees (or any of their
beneficiaries) are in compliance with applicable laws pertaining to such
plans in the jurisdiction of such entity, except where such failure to be
in compliance would not, either individually or in the aggregate, have a
material adverse effect on either of the Sellers.
(e) NO RETIREE MEDICAL OBLIGATIONS. Except as required under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, none
of the plans or arrangements listed in PART 4.6B OF THE DISCLOSURE LETTER
to this Agreement provides for the continuation of medical benefits for
any participant, or dependent of a participant, after the severance of the
employment relationship between the participant and either of the Sellers.
(f) CONTRACTS RELATING TO SELLERS' EMPLOYEE BENEFIT PLANS. PART
4.6C OF THE DISCLOSURE LETTER contains a complete and accurate list of all
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insurance contracts, recordkeeping agreements and administrative
agreements that are currently in effect with respect to the plans and
arrangements listed in PART 4.6B OF THE DISCLOSURE LETTER. Sellers and
Stockholder have delivered to Purchaser a complete copy of each instrument
listed in PART 4.6C TO THE DISCLOSURE LETTER.
4.7 CONTRACTS AND AGREEMENTS. PART 4.7 OF THE DISCLOSURE LETTER sets
forth, as of five business days prior to the date hereof, a true and complete
list of and briefly describes (including termination date) all of the following
contracts, agreements, leases, licenses, plans, arrangements or commitments,
written or oral, that relate to the Assets or the Business (including all
amendments, supplements and modifications thereto):
(a) all contracts, agreements or commitments in respect of the sale,
purchase or transport of natural gas, except those entered into in the
Ordinary Course of Business involving payments or receipts by ESI of less
than $250,000, and payments or receipts by ES Canada of less than
$200,000;
(b) all sales, agency or distributorship agreements or franchises or
legally enforceable commitments or obligations with respect thereto;
(c) all collective bargaining agreements, union agreements,
employment agreements, consulting agreements or agreements providing for
the services of an independent contractor;
(d) all loan or credit agreements, indentures, guarantees (other
than endorsements made for collection), mortgages, pledges, conditional
sales or other title retention agreements, and all equipment financing
obligations, lease and lease-purchase agreements relating to or affecting
the Assets or the Business;
(e) all leases, licenses and similar agreements related to the
Assets or the Business;
(f) all performance bonds, bid bonds, surety bonds and the like, all
contracts and bids covered by such bonds, and all letters of credit and
guaranties;
(g) all consent decrees and other judgments, decrees or orders,
settlement agreements and agreements relating to competitive activities,
requiring or prohibiting any future action;
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(h) all contracts or agreements of any nature with Stockholder, or
any Affiliate of Stockholder;
(i) all contracts, commitments and agreements entered into outside
the Ordinary Course of Business; and
(j) all other contracts, agreements or legally enforceable
commitments relating to or affecting the Assets or the Business involving
payments or receipts by ESI in excess of $50,000, or payments or receipts
by ES Canada in excess of $25,000.
All of such contracts, agreements, leases, licenses, plans, arrangements, and
commitments (and all other such items included in the Assets but not
specifically described above) (collectively, the "Contracts") are valid, binding
and in full force and effect in accordance with their terms and conditions and,
except as set forth in PART 4.7 OF THE DISCLOSURE LETTER, there is no existing
material default thereunder or material breach thereof by either Seller, or, to
the Knowledge of Sellers and Stockholder, by any other party to the Contracts,
or any conditions which, with the passage of time or the giving of notice or
both, might constitute such a material default by either Seller, or, to the
Knowledge of Sellers and Stockholder, by any other party to the Contracts;
provided that differences of volumes between nominations and actual volumes
either purchased or sold within industry norms shall not be considered to be
material breaches. Substantially all of the Contracts require the consent of, or
notice to, the other contracting party to be able to assign the Contracts to the
Purchaser. To the Knowledge of Sellers and Stockholder, the Contracts can be
fulfilled or performed by Purchaser with the Assets on time without undue or
unusual expenditure of money or effort. Copies of all of the documents (or in
the case of oral commitments, descriptions of the material terms thereof)
relevant to the Contracts listed in PART 4.7 OF THE
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DISCLOSURE LETTER are available for inspection and copying by the Purchaser at
the respective offices of ESI and ES Canada, and such copies and descriptions
are true, complete and accurate and include all amendments, supplements or
modifications thereto. Sellers have delivered to Purchaser (i) true and correct
copies of all standard forms of contracts used for the sale or purchase of
natural gas, (ii) the mark-to-market position report of Sellers as of a date not
more than two business days prior to the date hereof, and (iii) the draft
Trading Policies & Procedures Manual, dated November 7, 1996, of Sellers (the
"Trading Manual"). Such mark-to-market position report accurately sets forth, as
of such date, the open positions of the financial and physical contracts of
Sellers marked to current market prices. The terms of all outstanding offers and
tenders by either Seller for the sale, purchase or transport of natural gas
that, with either the passage of time or the acceptance by the other party,
could be converted into an obligation of Sellers, are within the limitations of
the Approval Matrix set forth in SCHEDULE 6.
4.8 EFFECT OF AGREEMENT. Except for those matters listed in PART 4.8 OF
THE DISCLOSURE LETTER and requirements to obtain consents from (or give notice
to) third parties for the assignment of certain Contracts, and subject to the
fulfillment of the requirements of the HSR Act, the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby will
not (i) result in any breach of any of the terms or conditions of, or constitute
a default under, the Articles or Certificate of Incorporation or other charter
documents or bylaws of Sellers or Stockholder, or any commitment, mortgage,
note, bond, debenture, deed of trust, contract, agreement, license or other
instrument or obligation to which either Seller
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or Stockholder is now a party or by which either Seller or Stockholder or any of
their properties or assets may be bound or affected; (ii) result in any
violation of any Governmental Requirement applicable to ESI, ES Canada,
Stockholder, the Assets or the Business; (iii) cause Purchaser to lose the
benefit of any right or privilege included in the Assets (other than as
disclosed in SECTION 4.21(a)); (iv) relieve any Person of any obligation
(whether contractual or otherwise) or enable any Person to terminate any such
obligation or any right or benefit enjoyed by either Seller or to exercise any
right under any agreement in respect of the Assets or the Business; or (v)
require notice to or the consent, authorization, approval or order of any
Person.
4.9 PROPERTIES, ASSETS AND LEASEHOLD ESTATES. Each Seller owns or has the
right to use (pursuant to a valid lease or license disclosed in PART 4.7 OF THE
DISCLOSURE LETTER) all operating assets and properties necessary for such Seller
to conduct the Business in the manner presently conducted by such Seller, and,
except for the Excluded Assets, all of such operating assets and properties (or,
in the case of leased or licensed assets, the leases and licenses covering such
assets) are included in the Assets. PART 4.9 OF THE DISCLOSURE LETTER sets forth
a list of the furniture, fixtures and equipment of the Sellers on the date
hereof. Except as disclosed in PART 4.9 OF THE DISCLOSURE LETTER, each Seller
has good and marketable title to its respective Assets, free and clear of all
mortgages, liens, pledges, conditional sales agreements, charges, easements,
covenants, assessments, options, restrictions and encumbrances of any nature
whatsoever. The equipment and other tangible properties included in the Assets
and the tangible property leased by either Seller under leases included in the
Assets are in good operating condition and repair, normal wear and tear
excepted,
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except for ordinary, routine maintenance and repairs that are not material in
nature or cost, and are sufficient for the continued conduct of the Business as
now conducted. The Assets include all existing warranties and service contracts
with respect to any of the Assets to the extent the same are capable of being
assigned to Purchaser. During the past two years, there has not been any
significant interruption of the Business due to the breakdown or inadequate
maintenance of any of the Assets. All equipment and other tangible properties
included in the Assets, and the present use of all such items, conform in all
material respects to all applicable Governmental Requirements, and no notice of
any violation of any such Governmental Requirements relating to the Assets or
their use has been received by either Seller.
4.10 INTANGIBLE PROPERTY. Except as set forth on PART 4.10 OF THE
DISCLOSURE LETTER, the operation of the Business as now conducted by Sellers
does not require the use of or consist of any rights under any patents,
inventions, trademarks, trade names, brand names, service marks or copyrights.
Each Seller owns, or holds a valid license for the use of (pursuant to a license
described on PART 4.7 OF THE DISCLOSURE LETTER) and, except as disclosed in PART
4.10 OF THE DISCLOSURE LETTER, has the full and exclusive right to use, in the
United States and globally, in connection with the Business, all of the items
listed on PART 4.10 OF THE DISCLOSURE LETTER, which items are in full force and
effect except as disclosed thereon. Neither Seller has transferred, encumbered
or licensed to any Person any rights to own or use any portion of the items
listed in PART 4.10 OF THE DISCLOSURE LETTER or any other intangible property
included in the Assets. None of (i) the items listed in PART 4.10 OF THE
DISCLOSURE LETTER, (ii) any other intangible property included in the Assets, or
(iii) the operation of the Business as
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presently conducted, violates or infringes upon any patents, inventions,
trademarks, trade names, brand names, service marks or copyrights owned by
others. To the Knowledge of Sellers and Stockholder, none of the items listed in
PART 4.10 OF THE DISCLOSURE LETTER or any other intangible property included in
the Assets is being infringed upon by any Person.
4.11 SUITS, ACTIONS AND CLAIMS. Except as set forth in PART 4.11 OF THE
DISCLOSURE LETTER, (i) there are no suits, actions, claims, proceedings or
investigations pending or, to the Knowledge of Sellers or Stockholder,
threatened, by or against or affecting either of the Sellers or any of the
Assets or the Business, or which question the validity or legality of the
transactions contemplated hereby, before or by any court or any Governmental
Authority, nor, to the Knowledge of Sellers or Stockholder, is there any basis
or grounds for any of the foregoing, and (ii) there is no outstanding order,
writ, judgment, award, injunction or decree of any Governmental Authority or
arbitrator against or affecting either of the Sellers or any of the Assets or
Business.
4.12 LICENSES AND PERMITS; COMPLIANCE WITH GOVERNMENTAL
REQUIREMENTS. PART 4.12 OF THE DISCLOSURE LETTER sets forth a true and complete
list of all licenses, certificates and permits issued by a Governmental
Authority to either of the Sellers that are necessary for the conduct of the
Business. Except as disclosed in PART 4.12 OF THE DISCLOSURE LETTER, such
licenses, certificates and permits are validly issued to the applicable Seller
in such Seller's name, and are in full force and effect and included in the
Assets. True and correct copies of all such licenses, certificates and permits
have been delivered to the Purchaser. No violations are or have been recorded in
respect of such licenses or permits and no proceeding is pending or, to the
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Knowledge of Sellers and Stockholder, threatened seeking the revocation or
limitation of any of such licenses, certificates or permits. Each Seller has
complied in all material respects with all Governmental Requirements applicable
to its respective business, and all Governmental Requirements with respect to
the distribution and sale of products and services by it.
4.13 AUTHORIZATION. Each of the Sellers and Stockholder has full legal
right, power, and authority to enter into and deliver this Agreement and to
consummate the transactions set forth herein and to perform all the terms and
conditions hereof to be performed by them. The execution and delivery of this
Agreement by Sellers and Stockholder and the performance by each of them of the
transactions contemplated herein have been duly and validly authorized by all
requisite corporate action of each Seller and Stockholder, and this Agreement
has been duly and validly executed and delivered by each Seller and Stockholder
and is the legal, valid and binding obligation of each of them, enforceable
against each of them in accordance with its terms, except as limited by
applicable bankruptcy, moratorium, insolvency or other similar laws affecting
generally the rights of creditors or by principles of equity; provided that as
specifically set forth herein, the obligation of Sellers to consummate the
transactions contemplated hereby is (among other conditions) subject to approval
of this Agreement and the transactions contemplated hereby by Stockholder's
board of directors.
4.14 NO UNTRUE STATEMENTS. The representations and warranties of Sellers
and Stockholder set forth in this Agreement and the Disclosure Letter, or in any
certificates or other documents delivered pursuant hereto, do not and will not
include any untrue statement of a material fact or omit to state any material
fact necessary to
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make the representations and warranties made herein and in the Disclosure
Letter, or in any certificates or other documents delivered pursuant hereto, not
misleading. To the Knowledge of Sellers and Stockholder, there is no fact that
has specific application to the Sellers (other than general economic or industry
conditions) that is not disclosed to Purchaser in this Agreement or the
Disclosure Letter that materially and adversely affects or, so far as each
Seller or Stockholder can now reasonably foresee, materially and adversely
threatens, the Assets or the Business, taken as a whole, the financial condition
of Sellers, or the ability of Sellers or Stockholder to perform their
obligations under this Agreement.
4.15 RECORDS. The books, records and minutes kept by each Seller with
respect to the Assets and the Business, including, but not limited to, all
customer files, purchase agreements, sale agreements, licenses, permits, leases,
correspondence and historic accounting and financial data of each Seller, are
complete and correct in all material respects and have been maintained in
accordance with sound business practices, and (except for the specific records
listed on SCHEDULE 2.1B as Excluded Assets) are included in the Assets. Sellers
have made the corporate minute books of Sellers available to Purchaser for
inspection.
4.16 ACCOUNTS RECEIVABLE. All notes and accounts receivable of Sellers
that are reflected on the Reference Balance Sheets, or that will be reflected on
the balance sheets of Sellers as of the Effective Date ("Accounts Receivable")
have arisen, or will have arisen, in the Ordinary Course of Business. Neither
Seller has factored or discounted or agreed to factor or discount any Accounts
Receivable. The reserve on the Reference Balance Sheets has been established,
and the reserve on the balance sheets
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of Sellers as of the Effective Date will be established, in accordance with
GAAP. PART 4.16 OF THE DISCLOSURE LETTER sets forth a true, correct and complete
list of all Accounts Receivable written off by either of the Sellers, in whole
or in part, as uncollectible since January 1, 1995. PART 4.16 OF THE DISCLOSURE
LETTER also sets forth a true, correct and complete list and aging of the
Accounts Receivable of each respective Seller (which includes only such Accounts
Receivable for which invoices have been issued), as reflected on the most recent
balance sheet delivered as of the date hereof and reduced by cash receipts
received and posted since such balance sheet date.
4.17 BROKERS AND FINDERS. Except for Petrie Parkman & Co., Inc., the fees
and commissions of which are solely the responsibility of the Sellers and
Stockholder, no broker or finder has acted for either of the Sellers or
Stockholder in connection with this Agreement or the transactions contemplated
by this Agreement and no broker or finder is entitled to any brokerage or
finder's fee or to any commission in respect thereof based in any way on
agreements, arrangements or understandings made by or on behalf of either of the
Sellers or Stockholder.
4.18 TELEPHONE NUMBERS. All telephone numbers used by either of the
Sellers in connection with the Business are included in the Assets and are fully
transferable to Purchaser.
4.19 NO ROYALTIES. No royalty or similar item or amount is being paid or
is owing by either of the Sellers, nor is any such item accruing, with respect
to the operation, ownership or use of the Business or the Assets.
4.20 INVENTORY. Except as disclosed in PART 4.20 OF THE DISCLOSURE LETTER,
each Seller has good and marketable title to all of its respective inventories
of natural gas,
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including, without limitation, gas located in storage facilities, arising by
virtue of imbalances or otherwise, and all of such inventory is of a grade,
quality and deliverability as to be merchantable in the Ordinary Course of
Business. The aggregate amount of natural gas inventory owned by Sellers as of
July 31, 1996 (excluding any gas of Sellers stored in the storage facility
operated by Midwest Storage, Inc.) is located at the locations and in the
amounts set forth in PART 4.20 OF THE DISCLOSURE LETTER.
4.21 CEG ENERGY OPTIONS INC.; ENERGY SOURCE POWER, INC.
(a) ES Canada owns 49% of the outstanding capital stock of CEG Energy
Options Inc., a Saskatchewan corporation ("CEG"). To the Knowledge of Sellers
and Stockholder, no facts or circumstances exist that materially and adversely
affect the condition (financial or otherwise) or the properties, assets,
liabilities, business or prospects of CEG, except normal and usual changes in
the Ordinary Course of Business and general economic and industry conditions.
CEG Energy Products Ltd. ("CEG Products") owns 51% of the outstanding capital
stock of CEG. Upon the occurrence of certain events, including a change of
control of ES Canada, CEG Products has an option to purchase the capital stock
of CEG held by ES Canada as more fully set forth in that certain Unanimous
Shareholders Agreement, dated June 8, 1994, a true and correct copy of which,
including all amendments thereto, has been delivered to Purchaser. If such
option is exercised, the funds payable by CEG Products for the CEG stock will be
paid to Stockholder, and the Purchase Price will be reduced by the amount
received by Stockholder from CEG Products. There are no outstanding options,
rights or other grants for any Person to acquire any capital stock of CEG. To
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the Knowledge of Sellers and Stockholder, the financial statements of CEG at
December 31, 1995 and June 30, 1996 that are attached to PART 4.21A OF THE
DISCLOSURE LETTER have been prepared in accordance with GAAP, and present fairly
the financial condition and results and operations of CEG as of the dates and
for the periods indicated thereon.
(b) ESI owns all of the outstanding capital stock of Energy Source Power,
Inc. ("ESP"), a corporation duly organized, validly existing and in good
standing under the laws of the State of Oklahoma, and there are no outstanding
options, rights or other grants for any Person to acquire any capital stock of
ESP. ESP has not had, and does not currently have, any ongoing business
operations, nor does it have any outstanding contractual obligations. ESP has
full corporate power and authority to conduct its business as it is now being
conducted and to own or use the Assets presently owned or used by it. ESP is not
qualified as a foreign corporation in any state. There has not been any claim by
any other jurisdiction to the effect that ESP is required to qualify or
otherwise be authorized to do business as a foreign corporation therein in order
to carry on its business as now conducted or to own, lease or operate its
assets. ESP has no liabilities other than those reflected on the latest balance
sheet included in PART 4.21B OF THE DISCLOSURE LETTER. ESP holds a valid license
issued by the Federal Energy Regulatory Commission for the sale of electrical
power, as such license is more fully described in PART 4.21C OF THE DISCLOSURE
LETTER hereto.
4.22 TAXES AND GOVERNMENTAL RETURNS. As of the date hereof, the Sellers
have filed or caused to be filed all Tax returns, information returns and
governmental reports (collectively, "Tax Returns") that are or were required to
be filed with or
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submitted to any Governmental Authority in connection with the determination,
assessment, collection, or payment of any Taxes. The Sellers have paid, or made
provision for the payment of, all Taxes shown to be due and payable on such Tax
Returns, or on any assessments received by the Sellers, except such Taxes, if
any, that are listed in PART 4.22 OF THE DISCLOSURE LETTER, are being contested
in good faith and as to which adequate reserves have been provided on the
Sellers' books. All such Tax Returns have been properly and accurately compiled
and completed, and reflect all Tax liabilities of each of the Sellers for the
periods covered by such Tax Returns. The charges, accruals, and reserves with
respect to Taxes on the Reference Balance Sheets are adequate (as determined in
accordance with GAAP) and are at least equal to the Sellers' liability for
Taxes. Except as disclosed in PART 4.22 OF THE DISCLOSURE LETTER, the Tax
Returns of either of the Sellers or that include either Seller have not been
audited since January 1, 1995, and are not now under audit by any Governmental
Authority. There are no agreements, waivers or other arrangements providing for
an extension of time with respect to the assessment of any Taxes of any nature
against either Seller or with respect to any Tax Return filed by either of the
Sellers or that include either Seller, or any suits or other actions,
proceedings, investigations or claims now pending or, to the Knowledge of
Sellers or Stockholder, threatened against either Seller with respect to any
Taxes or any matters under discussion with any Governmental Authority relating
to any Taxes, or any claims for additional Taxes asserted by any Governmental
Authority. Neither of the Sellers nor ESP is a party to any allocation or
sharing agreement regarding Taxes or amounts in lieu of Taxes. Any agreement to
which the Sellers or ESP are a party regarding allocation or payment of
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Taxes or amounts in lieu of Taxes shall be deemed terminated at and as of the
Closing Date.
4.23 CASH ACCOUNTS. PART 4.23A OF THE DISCLOSURE LETTER sets forth a list
of all financial accounts in which Sellers maintain balances of cash or cash
equivalents, including, but not limited to, all bank accounts, brokerage
accounts and margin accounts (the "Cash Accounts"), and the name of each person
who has disbursement authority with respect to each Cash Account. As of July 31,
1996, all cash and cash equivalent amounts reflected on the Reference Balance
Sheets of Sellers as of July 31, 1996 were held in the Cash Accounts, other than
any checks on hand, that had just been received, or any amounts that may have
been in transit. All receipts by Sellers with respect to the Business from the
period beginning August 1, 1996 through the date hereof have been deposited in
the Cash Accounts. Except for payments made pursuant to obligations, liabilities
or commitments disclosed in PART 4.23B OF THE DISCLOSURE LETTER, during the
period from August 1, 1996 through the date hereof, (i) all disbursements made
from the Cash Accounts relate to expenditures incurred in the Ordinary Course of
Business, (ii) no dividends have been either declared or paid by Sellers or ESP,
and (iii) no disbursements have been made by Sellers or ESP to any Affiliates of
Sellers or ESP other than for services provided or goods purchased in the
Ordinary Course of Business.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PGT. Purchaser and PGT,
jointly and severally, represent and warrant to Sellers and Stockholder as
follows:
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5.1 INCORPORATION. Pacific Northwest and PGT are corporations duly
organized, validly existing and in good standing under the laws of the State of
California, and 708559 Alberta is a corporation duly organized, validly existing
and in good standing under the laws of the Province of Alberta, Canada.
5.2 AUTHORIZATION. Each of Purchaser and PGT has full legal right and
corporate power to enter into and deliver this Agreement and to consummate the
transactions set forth herein and to perform all the terms and conditions hereof
to be performed by each of them. This Agreement has been duly executed and
delivered by each of Purchaser and PGT and is a legal, valid and binding
obligation of each of them, enforceable in accordance with its terms, except as
limited by applicable bankruptcy, moratorium, insolvency or other laws affecting
generally the rights of creditors or by principles of equity; provided that, as
specifically set forth herein, the obligations of Purchaser and PGT to
consummate the transactions contemplated hereby are (among other conditions)
subject to approval of this Agreement and the transactions contemplated hereby
by the boards of directors of PGT and Pacific Gas and Electric Company.
5.3 EFFECT OF AGREEMENT. Subject to the fulfillment of the requirements of
the HSR Act, the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not (i) result in any breach of any
of the terms or conditions of, or constitute a default under, the Certificate of
Incorporation or other charter documents or bylaws of Purchaser or PGT, or any
commitment, mortgage, note, bond, debenture, deed of trust, contract, agreement,
license or other instrument or obligation to which either Purchaser or PGT is
now a party or by which
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either Purchaser or PGT or any of their properties or assets may be bound or
affected; (ii) result in any violation of any Governmental Requirement
applicable to Purchaser or PGT; or (iii) require notice to or the consent,
authorization, approval or order of any Person, except for approval of this
Agreement and the transactions contemplated hereby by the boards of directors of
PGT and Pacific Gas and Electric Company.
5.4 BROKERS AND FINDERS. No broker or finder has acted for Purchaser or
PGT in connection with this Agreement or the transactions contemplated by this
Agreement and no broker or finder is entitled to any brokerage or finder's fee
or to any commission in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of Purchaser or PGT.
6. CONTRACTS PRIOR TO THE CLOSING DATE. During the period commencing five
business days prior to the date of this Agreement and ending on the Closing,
each Seller may enter into such contracts (or amend contracts existing as of
such date) as it, in its sole discretion, shall deem appropriate; however,
Purchaser shall not be required to assume any contracts entered into or amended
by either of the Sellers on or after the date that is five business days prior
to the date of this Agreement unless (i) such contracts are listed in PART 4.7
OF THE DISCLOSURE LETTER or (ii) such contracts are approved or deemed approved
pursuant to the following provisions of this SECTION 6:
(a) All contracts entered into by Sellers with respect to the
Business during the period commencing five business days prior to the date
of this Agreement and ending on the Closing that are within the Approval
Matrix set forth in SCHEDULE 6 ("Conforming Contracts") shall be deemed to
be automatically approved by Purchaser, and, subject to the provisions of
SECTION 7, shall be included in the Assets to be transferred to, and the
Contracts to be assumed by, Purchaser hereunder. Two days prior to
Closing, each Seller shall
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deliver to Purchaser a list of all its Conforming Contracts entered into
through five business days prior to such date, and at the Closing, each
Seller shall deliver to Purchaser an updated list of all its Conforming
Contracts entered into through five business days prior to the Closing
Date, and such list of Conforming Contracts shall be an update of PART 4.7
OF THE DISCLOSURE LETTER; provided that such lag time periods for
providing the lists of Conforming Contracts set forth above shall be
subject to reasonable extension (but no more than two business days) if
the Closing Date is within three business days of ESI's bid week or a
national U.S. holiday (such as Thanksgiving).
(b) With respect to all contracts entered into by Sellers with
respect to the Business during the period commencing five business days
prior to the date of this Agreement and ending on the Closing that do not
meet the requirements set forth in SCHEDULE 6 ("Nonconforming Contracts"),
ESI or ES Canada, as the case may be, shall promptly notify in writing a
representative of Purchaser designated in writing of all material details
of each Nonconforming Contract, and upon the request of such
representative, shall deliver to Purchaser a copy of each Nonconforming
Contract. Purchaser shall promptly notify such Seller in writing of its
approval or disapproval of each Nonconforming Contract presented to
Purchaser as set forth above. Purchaser shall not unreasonably withhold or
delay approval of any Nonconforming Contract entered into by either Seller
in the Ordinary Course of Business. Each Nonconforming Contract approved
in writing by Purchaser (whether such approval is obtained before or after
such Seller enters into the contract) shall be included, subject to the
provisions of SECTION 7, in the Assets to be transferred to, and the
Contracts to be assumed by, Purchaser hereunder. If a Nonconforming
Contract is not approved by Purchaser after submission in accordance with
the procedures set forth above, Sellers and Stockholder shall have the
right to terminate this Agreement. Each Nonconforming Contract that is not
approved in writing by Purchaser shall not be included in the Assets,
shall not be assumed by Purchaser, and shall remain the sole obligation of
such Seller.
(c) Purchaser shall reasonably cooperate with Sellers in
implementing the approval process described in SECTION 6(b) to minimize
any disruption in Sellers' business, including, but not limited to,
providing at reasonable and appropriate times a representative on site at
ESI's business premises in Houston, Texas for the purpose of approving and
disapproving Nonconforming Contracts. Two days prior to the Closing, each
Seller will deliver to Purchaser a list of all Nonconforming Contracts
entered into by such Seller through the prior day, and at Closing each
Seller shall deliver to Purchaser an updated list of all approved
Nonconforming Contracts of such Seller, and the Nonconforming Contracts
that have been approved by Purchaser shall be incorporated by reference
into PART 4.7 OF THE DISCLOSURE LETTER. For purposes of SECTION 6(b), each
(i) amendment to a Conforming Contract that would cause such contract
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to be a Nonconforming Contract and (ii) amendment to a Nonconforming
Contract, shall be treated as a new Nonconforming Contract.
7. PROCEDURE REGARDING ASSIGNMENT OF CONTRACTS. On or prior to the date
hereof, Purchaser has identified in writing to Sellers a list of contracts for
which Purchaser desires for Sellers to obtain consents to assignment prior to
Closing, and Sellers covenant and agree to use Commercially Reasonable Efforts
to obtain such consents prior to Closing. Notwithstanding any other provision of
this Agreement, nothing in this Agreement or any related document shall be
construed as an attempt to assign any contract or agreement which, as a matter
of law or by its terms, is nonassignable without the consent of the other
parties thereto unless such consent has been given. Each contract or agreement
that would, but for the preceding sentence, be included in the Assets and
assigned to Purchaser at Closing but is not, as a result of the preceding
sentence, assigned to Purchaser at Closing is referred to herein as a "Delayed
Contract". Sellers shall deliver to Purchaser at Closing a complete listing of
all Delayed Contracts. With respect to each Delayed Contract, Seller and
Purchaser shall follow the procedures set forth below:
(a) So long as Purchaser is in compliance with the provisions of
this SECTION 7 with respect to such Delayed Contract, Sellers shall take
such reasonable actions, at Purchaser's request and expense, as are
required to maintain the Delayed Contract in full force and effect until
the earlier of (i) assignment of the Delayed Contract to Purchaser
pursuant to this SECTION 7 (the "Assignment Date") and (ii) the end of the
stated term of the Delayed Contract.
(b) Purchaser agrees, as an independent subcontractor to Sellers and
at Purchaser's sole cost and expense, to fulfill all of Sellers'
performance obligations under each Delayed Contract for the period
beginning on the Closing Date and ending on the earlier of (i) the
Assignment Date and (ii) the end of the stated term of the Delayed
Contract (the "Delay Period"). Each Seller hereby grants to Purchaser the
sole authority to administer, and to make all decisions
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and give and receive all notices and communications with respect to, the
Delayed Contracts and the performance thereof, and the collection of
moneys with respect thereto, for the Delay Period. Each Seller agrees that
Purchaser shall be entitled to the benefits of each Delayed Contract for
the Delay Period, and agrees to take all reasonable actions, at
Purchaser's expense, to provide such benefits to Purchaser.
(c) Purchaser and PGT shall indemnify and hold harmless Sellers,
Stockholders and their officers, directors, employees and Affiliates from
and against any loss, damage, cost or expenses (including reasonable costs
of defense and attorney's fees) arising out of the Delayed Contracts as a
result of acts or omissions occurring on or after the Effective Date, or
any failure by Purchaser to fulfill its obligations set forth in clause
(b) above.
(d) Each Seller shall pay to Purchaser, immediately upon receipt,
all amounts paid to such Seller under or with respect to the Delayed
Contracts with respect to periods on or after the Effective Date. In order
to facilitate this payment process, Seller shall direct all receipts of
amounts under the Delayed Contracts to post boxes or banking accounts
controlled by Purchaser and shall immediately remit to Purchaser all
amounts that are received by Sellers and are payable to Purchaser under
this clause (d). Each Seller hereby appoints Purchaser as its
attorney-in-fact, with full power of substitution, to endorse for payment
to Purchaser all checks and other instruments that represent amounts that
are to be paid to Purchaser pursuant to this clause (d).
(e) With respect to any Delayed Contract that contains automatic
renewal provisions, unless otherwise requested by Purchaser, Sellers will
not take any actions to prohibit the renewal of the contract. With respect
to any such Delayed Contract, at Purchaser's request Sellers shall provide
notice of termination of (or intention not to renew) the Delayed Contract
pursuant to the terms thereof, and each Seller hereby grants to Purchaser
the authority to give such notices. With respect to any Delayed Contract
that includes a renewal option on behalf of Sellers, Sellers shall
exercise or not exercise the renewal option pursuant to the instructions
of Purchaser, and each Seller hereby grants to Purchaser the authority to
exercise or not exercise such renewal options and to give notices with
respect thereto.
(f) Each Seller shall immediately deliver to Purchaser all notices
and other communications received by Seller with respect to any Delayed
Contract.
(g) Purchaser and Sellers shall use Commercially Reasonable Efforts,
at Purchaser's expense, to obtain all required consents to the assignment
of each Delayed Contract to Purchaser. Upon receipt of all required
consents to such assignment for a Delayed Contract, the Delayed Contract
shall promptly be
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assigned to Purchaser and shall be included in the Assets and in the
Contracts assumed by Purchaser.
(h) Purchaser and Sellers each shall reasonably cooperate, at
Purchaser's cost and expense, to implement and administer the procedures
set forth in this SECTION 7.
8. COVENANTS OF SELLERS AND STOCKHOLDER PRIOR TO
CLOSING DATE. Sellers and Stockholder hereby covenant and agree that between
the date of this Agreement and the Closing Date:
8.1 ACCESS TO INFORMATION. Sellers shall afford to the officers and
authorized representatives of Purchaser access to the facilities and properties
of Sellers and access to, and the opportunity to make copies of, the books and
records of Sellers, including, without limitation, the minute books of Sellers.
Sellers shall furnish Purchaser with such financial and operating data and other
information regarding the Assets and the Business as Purchaser may from time to
time reasonably request. Without limiting the foregoing, Purchaser and its
representatives shall have access to complete copies of all of the contracts
listed in PART 4.7 OF THE DISCLOSURE LETTER, and may inspect such copies at
Sellers' business premises during normal business hours.
8.2 GENERAL AFFIRMATIVE COVENANTS. Sellers shall, and Stockholder shall
cause Sellers to:
(a) operate the Business only in the Ordinary Course of Business;
(b) maintain their respective Assets in good working order and
condition, ordinary wear and tear excepted;
(c) perform in all material respects all their respective
obligations under agreements relating to or affecting the Assets or the
Business;
(d) keep in full force and effect adequate insurance coverage on
their respective Assets and business operations;
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(e) use Commercially Reasonable Efforts to (i) maintain and preserve
the Business, and (ii) retain their respective present employees,
customers, suppliers and others having business relations with them;
(f) duly and timely file all reports or returns required to be filed
with any Governmental Authority, and promptly pay all Taxes levied or
assessed upon them or their respective properties or upon any part
thereof, other than those being contested in good faith and as to which
adequate reserves have been provided in the Sellers' books;
(g) duly observe and conform in all material respects to all
Governmental Requirements relating to the Assets or the Business;
(h) on or prior to the Closing Date, remove and have released, by
payment or otherwise, all liens and encumbrances of any nature whatsoever
on the Assets (other than liens and encumbrances, if any, expressly
assumed by Purchaser hereunder);
(i) duly and timely take all actions necessary to carry out the
transactions contemplated hereby;
(j) deliver to Purchaser as soon as practicable but not later than
45 days after the end of such month unaudited monthly balance sheets,
statements of income and statements of cash flows of the Sellers for the
month of October 1996 and subsequent months;
(k) use Commercially Reasonable Efforts to preserve and maintain the
goodwill of the Business;
(l) use Commercially Reasonable Efforts to cooperate in effecting
the assignment to Purchaser of any contract listed on PART 4.7 OF THE
DISCLOSURE LETTER to this Agreement; and
(m) pay all premiums and fees with respect to coverage and services
provided under the instruments listed on PART 4.6C OF THE DISCLOSURE
LETTER to this Agreement through the Closing Date.
8.3 GENERAL NEGATIVE COVENANTS. Neither Seller shall take, and Stockholder
will prohibit either Seller from taking, any of the following actions without
the prior written consent of Purchaser:
(a) entering into or assuming any mortgage, pledge, conditional sale
or other title retention agreement, lien, encumbrance or charge of any
kind upon
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any of the Assets, or selling, leasing, abandoning or otherwise disposing
of any of the Assets, including, but not limited to, real property,
machinery, equipment or other operating properties (other than sales of
natural gas in the Ordinary Course of Business);
(b) engaging in any activities or transactions that would materially
and adversely affect the Assets or the Business;
(c) changing any accounting principles, practices or methods; or
(d) increasing the compensation of any officer or employee of either
Seller, except for normally scheduled increases Consistent With Past
Practice for which Purchaser has been notified.
8.4 DISCLOSURE OF MISREPRESENTATIONS AND BREACHES. If Sellers or
Stockholder acquire Knowledge that any of the representations or warranties made
hereunder were incorrect when made, or have become incorrect as of any date
subsequent to the date hereof, or that Sellers or Stockholder have not complied
or will be unable to comply with any covenants contained in this Agreement, then
Sellers and Stockholder shall promptly notify Purchaser to such effect (provided
that such notice shall in no way limit any of the rights or remedies of
Purchaser hereunder). Purchaser and PGT agree to promptly notify Sellers and
Stockholder if they acquire Knowledge of any such misrepresentations or breaches
hereunder by Sellers or Stockholder (provided that such notice shall in no way
limit any of the rights or remedies of Purchaser and PGT hereunder, and the
failure to give such notice shall not give rise to any remedies on the part of
Sellers or Stockholder or otherwise limit their obligations hereunder).
8.5 GOVERNMENT FILINGS. Sellers and Stockholder shall cooperate with
Purchaser and its representatives in the preparation and filing of any documents
or other material that may be required by any Governmental Authority in
connection
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with the Assets or the Business or the transactions contemplated hereby,
including, but not limited to, filings under the HSR Act.
8.6 COVENANTS REGARDING CASH ACCOUNTS. Sellers hereby covenant and agree
that all receipts by Sellers with respect to the Business from the date hereof
through the Closing Date shall be deposited in the Cash Accounts, and that no
disbursements shall be made from the Cash Accounts other than (i) payment for
expenditures incurred in the Ordinary Course of Business, (ii) payment of
obligations, liabilities and commitments disclosed in PART 4.23B OF THE
DISCLOSURE LETTER, and (iii) repayment of loans as provided in Section 9.5.
Sellers further covenant and agree that from the date hereof through the Closing
Date, (i) no dividends will be declared or paid by Sellers or ESP, and (ii) no
disbursements shall be made by Sellers or ESP to any Affiliates of Sellers or
ESP other than for services provided or goods purchased in the Ordinary Course
of Business, and except as provided in Section 9.5. At the Closing, Sellers
shall take all actions necessary to vest in Purchaser and its designated
representatives sole and absolute control over all of the Cash Accounts and all
postal boxes and other depositories utilized by Sellers for collection of
receipts in connection with the Business.
8.7 NO SOLICITATIONS. Immediately after the execution and delivery of this
Agreement, Sellers and Stockholder shall cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to the sale of the Assets and the Business (whether by
sale of stock, assets or otherwise); provided that following such termination,
such parties shall then be treated by Sellers and Stockholder as any other third
party for purposes of this SECTION
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8.7. Sellers and Stockholder shall not and shall use their best efforts to
ensure that none of its Affiliates, officers, directors, representatives or
agents shall, directly or indirectly, solicit, initiate or encourage (including
by way of furnishing information) any Person (other than Purchaser and PGT)
concerning any sale of the Assets and the Business (whether by sale of stock,
assets or otherwise), other than the transactions contemplated by this
Agreement; provided that nothing in this Agreement shall prevent (i) Stockholder
from soliciting, initiating, or encouraging any Person concerning a merger, sale
or other transaction involving Stockholder that assumes that the transactions
contemplated by this Agreement are consummated, or (ii) Stockholder's Board of
Directors (or any committee thereof), in the exercise of their fiduciary duties
to the shareholders of Stockholder and after consulting with Stockholder's legal
counsel regarding such fiduciary duties, from considering, negotiating, and
approving any unsolicited tender offer for Stockholder's common stock or
unsolicited proposal for a transaction involving a merger to which Stockholder
(or a wholly owned subsidiary of Stockholder other than either Seller) is a
merger party or the sale of substantially all of Stockholder's assets and which
such merger, tender offer or sale of assets are conditioned on the transactions
contemplated by this Agreement not being consummated (an "Acquisition
Proposal"), which Stockholder's Board of Directors determines in good faith,
after consultation with its financial advisors, may result in a transaction more
favorable to Stockholder's shareholders from a financial point of view than the
transactions contemplated by this Agreement. Sellers and Stockholder will
promptly communicate to Purchaser and PGT the terms of any proposal or inquiry,
oral or written, which it may receive in respect of any such
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Acquisition Proposal, and will inform Purchaser and PGT prior to the time that
it furnishes any information to, or engages in negotiations or discussions with,
any third party with respect to a potential Acquisition Proposal.
8.8 DAMAGE TO FURNITURE, FIXTURES AND EQUIPMENT. If, on or before the
Closing Date, a material casualty occurs with respect to the furniture, fixtures
and equipment (including computer systems and records) of Sellers, then Sellers
will promptly notify Purchaser of such damage or destruction.
9. COVENANTS REGARDING THE CLOSING.
9.1 COVENANTS OF SELLERS AND STOCKHOLDER. Sellers and Stockholder hereby
covenant and agree that each of them shall (i) use Commercially Reasonable
Efforts to cause all of their representations and warranties set forth in this
Agreement to be true on and as of the Closing Date, (ii) use Commercially
Reasonable Efforts to cause all of their obligations that are to be fulfilled on
or prior to the Closing Date to be so fulfilled, (iii) use Commercially
Reasonable Efforts to cause all conditions to the Closing set forth in this
Agreement to be satisfied on or prior to the Closing Date, and (iv) deliver to
Purchaser at the Closing the certificates, updated Disclosure Letter, opinion of
counsel and other documents contemplated by SECTION 10, provided that any
additions or exceptions in the updated Disclosure Letter shall in no way limit
the rights and remedies of Purchaser hereunder.
9.2 COVENANTS OF PURCHASER. Purchaser and PGT hereby covenant and agree
that each of them shall (i) use Commercially Reasonable Efforts to cause all of
their representations and warranties set forth in this Agreement to be true on
and as of the Closing Date, (ii) use Commercially Reasonable Efforts to cause
all of their
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obligations that are to be fulfilled on or prior to the Closing Date to be so
fulfilled, (iii) use Commercially Reasonable Efforts to cause all conditions to
the Closing set forth in this Agreement to be satisfied on or prior to the
Closing Date (provided that neither (A) failure of the board of directors of PGT
or Pacific Gas and Electric Company to approve this Agreement within two weeks
after the date hereof nor (B) failure of the Purchaser to comply with a second
request for information under the HSR Act or to comply with any requested
divestiture of assets or to enter into any consent or similar order or
agreement, shall constitute a failure of Purchaser to use Commercially
Reasonable Efforts), and (iv) deliver to Sellers at the Closing the
certificates, opinion of counsel and other documents contemplated by SECTION 11.
9.3 COVENANTS REGARDING HSR ACT. The parties will prepare and file the
notification required to be filed by them under the HSR Act with respect to the
transactions contemplated by this Agreement, will request early termination
prior to the Closing Date of the statutory waiting period prescribed by the HSR
Act, and will respond to any inquiry made by the Federal Trade Commission or the
Antitrust Division of the Department of Justice regarding such notification;
provided that each party shall only be obligated to use Commercially Reasonable
Efforts to comply with any second request for information.
9.4 NONDISCLOSURE/NO HIRE AGREEMENTS. On the Closing Date, each of the
Sellers and Stockholder shall, and shall cause Michael Y. McGovern to, execute
and deliver to Purchaser a Nondisclosure/No Hire Agreement in the form of and
containing the same terms and provisions as the Nondisclosure/No Hire Agreement
attached as EXHIBIT IV.
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9.5 REPAYMENT OF SUBORDINATED DEBT. Prior to the Closing Date, Sellers
shall repay to Stockholder all principal and accrued but unpaid interest on the
subordinated loans aggregating $6.5 million in original principal amount made by
Stockholder to Sellers during early November 1996, and any subsequent
subordinated loans made by Stockholder to Sellers prior to the Closing Date.
10. CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of Purchaser
and PGT hereunder are, at the option of Purchaser and PGT, subject to the
satisfaction, on or prior to the Closing Date, of the following conditions (any
of which may be waived by Purchaser and PGT, in their sole discretion):
10.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND FULFILLMENT OF
COVENANTS. The representations and warranties of Sellers and Stockholder
contained in this Agreement shall be true and correct in all material respects
(unless the representation or warranty was itself qualified by materiality, in
which case it must be true in all respects) on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of such date, except for those expressly made as of a particular date and
except as contemplated or permitted by this Agreement. Each and all of the
agreements and covenants of Sellers and Stockholder to be performed on or before
the Closing Date pursuant to the terms hereof shall have been performed in all
material respects, unless the agreement or covenant was itself qualified by
materiality, in which case it shall have been performed in all respects. Sellers
and Stockholder shall have delivered to Purchaser a certificate dated the
Closing Date and executed by Sellers and Stockholder to all such effects.
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10.2 OPINION OF COUNSEL. Purchaser will have received opinions from Snell
& Smith, P.C., counsel to ESI and Stockholder, Wagar & Company, counsel to ES
Canada, and Richards, Layton & Finger, P.A., special counsel to Stockholder,
each dated the Closing Date, in form and substance reasonably satisfactory to
Purchaser, covering the matters set forth in EXHIBIT II and such other matters
as Purchaser shall reasonably request.
10.3 NO GOVERNMENTAL ACTIONS. No action or proceeding before any
Governmental Authority shall have been instituted or threatened (with reasonable
likelihood that such threatened action will be taken by the party involved) to
restrain or prohibit the transactions contemplated by this Agreement, and
Sellers and Stockholder shall have delivered to Purchaser a certificate dated
the Closing Date and executed by Sellers and Stockholder stating they have no
Knowledge of any such items. Without limiting the foregoing, all filings under
the HSR Act shall have been made and any required waiting period under the HSR
Act (including any extensions thereof obtained by request or other action of any
Governmental Authority) applicable to the transactions contemplated hereby shall
have expired or been earlier terminated.
10.4 NO MATERIAL ADVERSE CHANGE OR DAMAGE OR DESTRUCTION. During the
period from July 31, 1996 to the Closing, both (i) there shall have been no
change in the Assets or the operations of the Business which would have a
material adverse effect on the value of the Assets or the Business taken as a
whole, and (ii) there shall not have occurred any material casualty to any
furniture, fixtures or equipment owned or leased by the Sellers, which casualty
shall have (x) interfered in any material respect with the continued conduct of
the Business or (y) resulted in a loss of furniture,
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fixtures or equipment having a book value of $50,000 or more, unless such
casualty shall have been substantially covered by insurance, the proceeds of
which shall have been either received by Sellers or assigned to Purchaser, and
Sellers shall have delivered to Purchaser a certificate dated the Closing Date
and executed by Sellers and Stockholder to such effects.
10.5 CONSENTS OF LENDERS/LIENS RELEASED. If Purchaser desires to assume
the obligations for the outstanding letters of credit issued by Bank One Texas,
N.A. and National Bank of Canada, then all necessary consents to such assumption
shall have been obtained. Each and every lien or encumbrance of any nature
relating to the Assets shall have been terminated and released and proof thereof
delivered to the Purchaser (except for liens and encumbrances, if any,
specifically assumed by Purchaser pursuant to this Agreement).
10.6 EMPLOYMENT ARRANGEMENTS AND NONDISCLOSURE/NO HIRE AGREEMENTS. Each of
the employees of Sellers listed on SCHEDULE 10.7 hereto shall have entered into
employment arrangements with Purchaser as contemplated by SECTION 12.1, and each
of the Sellers, Stockholder and Michael Y. McGovern shall have delivered fully
executed Nondisclosure/No Hire Agreements as contemplated by SECTION 9.4.
10.7 CORPORATE APPROVAL. Each of the Sellers and Stockholder shall have
taken or caused to be taken all necessary actions and corporate proceedings
(whether by directors, shareholders or otherwise) to approve and authorize the
execution and delivery of this Agreement and the transfer by Sellers of the
Business and the Assets to Purchaser.
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10.8 ASSIGNMENT AND OTHER DOCUMENTS. Sellers shall have delivered to
Purchaser all documents reasonably necessary or required to effectively transfer
and assign the Business and the Assets to Purchaser (including the assignment by
Stockholder to Purchaser, for no additional consideration, of the office lease
covering the office space in Houston, Texas, presently used by ESI), such
transfers and assignments to convey good and marketable title to the Assets to
Purchaser, free and clear of all liens and encumbrances whatsoever (except for
liens, encumbrances and obligations, if any, specifically assumed by Purchaser
pursuant to this Agreement), and to be in form and substance reasonably
satisfactory to Purchaser. In addition, Sellers and Stockholder shall have
delivered or caused to be delivered such other documents, agreements,
resolutions or certificates as are reasonably necessary or required to
consummate the transactions contemplated by this Agreement.
10.9 BOARD OF DIRECTORS APPROVAL. Within two weeks after the date hereof,
the board of directors of PGT and Pacific Gas and Electric Company, each in
their sole discretion, shall have approved the consummation by Purchaser of the
transactions contemplated hereby.
10.10 MANAGEMENT INFORMATION SYSTEMS OPERATION. The ALTRA, Avitar and the
mark-to-market position management information systems shall be fully
operational on the Closing Date, except for repairs or maintenance thereto the
cost of which shall not (i) exceed $50,000, or (ii) require more than 24 hours
to complete.
10.11 DELIVERY OF REPORTS. On or within two business days prior to
Closing, Sellers shall have delivered to Purchaser (i) the mark-to-market
position report of Sellers as of a date not more than two business days prior to
the Closing Date, which
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shall accurately set forth, as of such date, the open positions of the financial
and physical contracts of Sellers marked to current market prices, and (ii) a
true, correct and complete list and aging of the Accounts Receivable of each
Seller, as reflected on the most recent balance sheet delivered as of the
Closing Date and reduced by cash receipts received and posted since such balance
sheet date.
10.12 CEG WAIVER/RIGHT OF FIRST REFUSAL. One of the following shall have
occurred:
(a) Sellers shall have delivered to Purchaser documentation, in form
and substance reasonably satisfactory to Purchaser, from CEG Products
waiving CEG Products' right of first refusal and purchase rights under the
Unanimous Shareholders Agreement, dated June 8, 1994, by and among CEG
Products, Enex Gas Limited (now Energy Source Canada, Inc.) and CEG (the
"CEG Agreement") with respect to the transactions contemplated by this
Agreement, or
(b) On or prior to November 30, 1996, Sellers and Purchaser shall
have agreed on the portion of the Purchase Price allocated to the CEG
stock to be purchased by Purchaser under this Agreement (the "CEG Stock")
and Sellers shall have duly delivered to CEG Products all written notices
required by the CEG Agreement with respect to all rights of CEG to
purchase the CEG Stock as a result of the transactions contemplated by
this Agreement (and Sellers shall have promptly thereafter provided to
Purchaser reasonable evidence of the delivery of such notices).
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10.13 COMFORT LETTER. Purchaser shall have received a comfort letter
executed by shareholders of the Stockholder having a right to vote a majority of
the outstanding voting securities of Stockholder in form and substance
reasonably satisfactory to Purchaser.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS AND STOCKHOLDER. The
obligations of Sellers and Stockholder hereunder are, at their option, subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions (any of which may be waived by Sellers and Stockholder, in their sole
discretion):
11.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND FULFILLMENT OF
COVENANTS. The representations and warranties of Purchaser contained in this
Agreement shall be true and correct in all material respects (unless the
representation or warranty was itself qualified by materiality, in which case it
must be true in all respects) on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date. Each of the agreements and covenants of Purchaser to be performed on or
before the Closing Date shall have been performed in all material respects,
unless the agreement or covenant was itself qualified by materiality, in which
case it shall have been performed in all respects. Purchaser shall have
delivered to Sellers a certificate dated the Closing Date and executed by
Purchaser to all such effects.
11.2 DELIVERY OF PURCHASE PRICE. Purchaser shall have paid to Sellers the
Purchase Price specified in SECTION 3.1 and the additional payment for the
Adjusted Working Capital and Fixed Assets as set forth in SECTION 3.2.
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11.3 OPINION OF COUNSEL. Purchaser will have received an opinion from
Fulbright & Jaworski L.L.P., counsel to Purchaser and PGT, Frank R. Lindh,
General Counsel to PGT and Canadian counsel to Purchaser and PGT, dated the
Closing Date, in form and substance reasonably satisfactory to Sellers, covering
the matters set forth in EXHIBIT III and such other matters as Sellers shall
reasonably request.
11.4 NO GOVERNMENTAL ACTIONS. No action or proceeding before any
Governmental Authority shall have been instituted or threatened (with reasonable
likelihood that such threatened action will be taken by the party involved) to
restrain or prohibit the transactions contemplated by this Agreement. Without
limiting the foregoing, all filings under the HSR Act shall have been made and
any required waiting period under the HSR Act (including any extensions thereof
obtained by request or other action of any Governmental Authority) applicable to
the transactions contemplated hereby shall have expired or been earlier
terminated.
11.5 ACTIONS WITH LENDERS. Purchaser and PGT shall have either (i) taken
all actions reasonably necessary (including providing reasonable guarantees or
providing other suitable credit assurances) to Bank One Texas, N.A. and National
Bank of Canada for the purpose of allowing Purchaser to assume the obligations
of Sellers under the credit facilities with such lenders, or (ii) provided
substitute letters of credit or other credit support in form and substance
reasonably satisfactory to Sellers to replace all letters of credit issued by
Sellers that are outstanding on the Closing Date.
11.6 ASSUMPTION AND OTHER DOCUMENTS. Purchaser shall have delivered to
Sellers all documents reasonably necessary or required to effectively assume the
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Assumed Liabilities which shall be in form and substance reasonably satisfactory
to Sellers. Purchasers and PGT shall have delivered or caused to be delivered
such other documents, agreements, resolutions or certificates as are reasonably
necessary or required to consummate the transactions contemplated by this
Agreement.
11.7 BOARD OF DIRECTORS APPROVAL. Within two weeks after the date hereof,
the board of directors of Stockholder shall have approved the consummation by
Stockholder and Sellers of the transactions contemplated hereby.
12. SPECIAL COVENANTS REGARDING EMPLOYEES, EMPLOYEE BENEFIT PLANS AND
TRANSFER TAXES.
12.1 TRANSFER OF WORK FORCE. On the Closing Date, and effective as of and
conditioned on the occurrence of the Closing, Purchaser shall make an offer of
employment at will to each person listed on PART 4.6A OF THE DISCLOSURE LETTER,
other than those officers and key employees of Sellers who are also listed on
SCHEDULE 10.7 to this Agreement, and, upon acceptance by any such person, enter
into an employer-employee relationship with such person. The annual base salary
or base wages contained in each offer referred to in this SECTION 12.1 will be
the same as the annual base salary or base wages in effect with respect to the
individual immediately prior to the Closing Date. Purchaser shall use
Commercially Reasonable Efforts to enter into employment arrangements on or
before the Closing Date with each of the employees of Sellers listed on SCHEDULE
10.7 hereto whereby such persons shall provide services to Purchaser in
connection with the Business. Prior to the Closing Date, Purchaser shall be
allowed to review the employee records of Sellers' employees on a confidential
basis (other than those which are not permitted under the confidentiality
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requirements of the Americans With Disabilities Act), and to meet with such
employees.
12.2 SELLERS' 401(k) PLAN. Effective as of the Closing Date, the
Stockholder and the Sellers shall take such actions as are necessary to cause
each individual who is employed by either of the Sellers immediately prior to
the Closing Date to have a fully vested, nonforfeitable interest in his accrued
benefit under the Sellers' 401(k) Plan. As soon as reasonably practicable after
the Closing Date, the Stockholder, the Sellers and Purchaser shall take such
actions as are necessary to effect a trustee-to-trustee transfer described in
Section 414(l) of the Code, to a defined contribution plan maintained by
Purchaser, of the entire account balances, including outstanding loans, of all
persons with account balances under the Sellers' 401(k) Plan who are hired by
Purchaser in connection with the transactions contemplated in this Agreement;
provided that PGT shall not assume any responsibilities with respect to Sellers'
401(k) Plan for any liabilities arising from acts or omissions that occur prior
to the date of the trustee-to-trustee transfer, which liabilities shall remain
the obligation of the Sellers.
12.3 EMPLOYEE BENEFIT PROVISIONS. Purchaser agrees that, with respect to
any employees of either of the Sellers who are hired as new employees of
Purchaser in connection with the transactions contemplated in this Agreement
(the "New Employees"):
(a) WELFARE BENEFIT COVERAGE. After the Closing Date, Purchaser
shall maintain for the benefit of the New Employees, welfare benefit
programs, including medical and dental benefits, long term disability
insurance, life
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insurance and a severance plan, which are substantially comparable to
those marked by an asterisk on PART 4.6B OF THE DISCLOSURE LETTER to this
Agreement to the extent that such coverages may be obtained by Purchaser
on reasonable commercial terms ("Mirror Programs"). Except as provided in
SECTION 12.3(b) below, if Purchaser does not obtain such coverages on
reasonable commercial terms, to the extent that Purchaser or any of its
Affiliates maintains a welfare benefit program of the same type for its
employees( generally a "Replacement Program"), Purchaser shall take all
actions necessary or appropriate to permit the New Employees who were
participating in Sellers' welfare benefit program immediately prior to the
Closing Date to immediately thereafter participate in the Replacement
Program effective as of the Closing Date. Nothing in this Agreement shall
be construed to require Purchaser or any of its Affiliates to provide any
specific type of benefits for any person under any Replacement Program
that is not available to PGT's employees generally. If Purchaser
discontinues any Mirror Program, to the extent that Purchaser or any of
its Affiliates maintains a Replacement Program of the same type, Purchaser
shall take all actions necessary or appropriate to permit New Employees
who were participating in the Mirror Program to immediately thereafter
participate in the Replacement Program. Such Mirror Programs or
Replacement Programs will (i) provide coverage to each New Employee
effective on the Closing Date, (ii) credit, for the year in which the
Closing Date occurs, any duplicative deductible payments incurred by such
New Employee during such year under a group health plan, and (iii) waive
any preexisting condition restrictions for
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such New Employee to the extent that the preexisting condition
restrictions were waived under Sellers' welfare benefit programs. Each of
the Sellers and Purchaser agree that (i) benefit claims by New Employees
for obligations or expenses incurred on or prior to the Closing Date shall
be the responsibility of the Sellers (except to the extent Purchaser is
required to pay certain liabilities as described in SECTION 3.4 of this
Agreement), and (ii) benefit claims by New Employees for obligations or
expenses incurred after the Closing Date shall be the responsibility of,
and shall be paid by, Purchaser or its insurer.
(b) SPECIAL PROVISIONS RELATING TO GROUP HEALTH COVERAGE. If
Purchaser is unable to establish a Mirror Program that is a group health
plan on reasonable commercial terms, Purchaser shall permit each New
Employee who participated in a Sellers' group health plan immediately
prior to Closing and his or her eligible dependents to be covered under a
Replacement Program that is a group health plan as modified to the extent
necessary to (i) provide medical and dental benefits to each such New
Employee and such eligible dependents effective on the Closing Date, (ii)
credit to such New Employee, for the year in which the Closing Date
occurs, with any duplicative deductible payments incurred during such year
under group health plan, and (iii) waive any preexisting condition
restrictions to the extent that the preexisting condition restrictions
were waived under Sellers' group health plan on the Closing Date. If
Purchaser discontinues a Mirror Program that is a group health plan,
Purchaser shall permit each New Employee who participated in the Mirror
Program immediately prior to its discontinuance and his or her eligible
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dependents to be covered under a Replacement Program that is a group
health plan as modified to the extent necessary to (i) provide medical and
dental benefits to each such New Employee and such eligible dependents
effective immediately upon the cessation of coverage of such individuals
under such Mirror Program, (ii) credit to such New Employee, for the year
during which such coverage under such Replacement Program begins, with any
duplicative deductible payments incurred during such year under such group
health plan, and (iii) waive any preexisting condition restrictions to the
extent that the preexisting condition restrictions were waived under such
Mirror Program on its discontinuance.
(c) DEFINED CONTRIBUTION PLAN. Effective as of the Closing Date,
Purchaser shall maintain a defined contribution retirement plan with
substantially the same provisions as the Sellers' Section 401(k) Plan
(other than investment options) for the benefit of New Employees who were
participants in the Sellers' 401(k) Plan. The New Employees shall be
granted credit for service for Sellers for vesting and eligibility
purposes under Purchaser's defined contribution plan. As soon as
reasonably practicable after the Closing Date, Purchaser will take such
actions as are necessary to cause a defined contribution retirement plan
maintained by Purchaser to accept a transfer of the Sellers' 401(k) Plan
assets, including outstanding loans to participants, described in SECTION
4.6(b) of this Agreement in a direct trustee-to-trustee transfer that is
subject to the requirements of Section 414(l) of the Code. Each of the
Sellers and Purchaser agree that (i) employer contributions incurred for
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periods before the Closing Date shall be the responsibility of Sellers
(except to the extent Purchaser is required to pay certain liabilities as
described in SECTION 3.4 of this Agreement), and (ii) employer
contributions for periods beginning after the Closing Date shall be the
responsibility of, and shall be paid by, Purchaser.
(d) TIME OFF PROGRAMS. Purchaser will establish for the benefit of
New Employees vacation policies, sick time policies and other time off
programs that are substantially identical to the vacation and sick time
policies of Sellers. The New Employees will be granted credit for service
with the Sellers for purposes of Purchaser's vacation and sick time
policies that are maintained for the benefit of New Employees. Each of the
Sellers and Purchaser agree that (i) past service liabilities incurred up
to the Effective Date shall be the responsibility of the Sellers, and
shall be accrued as of the Effective Date (up to three weeks) and (ii)
service liabilities incurred on or after the Effective Date shall be the
responsibility of, and shall be incurred by Purchaser. Vacation
entitlement accrued by New Employees as of the Closing Date under the
Sellers' vacation policy as in effect on the Closing Date shall be
recognized by the Purchaser following the Closing, up to a maximum of
three weeks vacation, and Purchaser assumes the liabilities and
obligations of Seller with respect to such vacation entitlement. On or
before the Closing Date, Sellers shall pay the New Employees who have
unused accrued vacation in an amount in excess of three weeks as of the
Closing Date an amount equal to the value of such unused vacation in
excess of three weeks.
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(e) ASSUMPTION OF ANNUAL INCENTIVE PROGRAM. Purchaser will assume
Sellers' obligations applicable to New Employees under the 1996 Cash Bonus
Program for Energy Source, Inc. (the "Incentive Program"). Purchaser will
modify the Incentive Program to provide that (i) any New Employee will be
eligible to participate in the Incentive Program for the fiscal year
commencing on January 1, 1996 and ending on December 31, 1996, and (ii)
Purchaser will guarantee a minimum benefit under the Incentive Program in
an amount equal to 50 percent of the target 13 percent payout on return on
capital goals for the fiscal year commencing on January 1, 1996, and
ending on December 31, 1996.
(f) NO ASSUMPTION OF SELLERS' PLANS. Except as specified in SECTIONS
12.2 AND 12.3(c), (d), (e) AND (g), and except with respect to Purchaser's
obligation to pay those liabilities described in SECTION 3.4 of this
Agreement, Purchaser shall not assume sponsorship of, adopt, or assume any
liability with respect to, any plan or arrangement listed in PART 4.6B OF
THE DISCLOSURE LETTER.
(g) WORKERS' COMPENSATION BENEFITS. Claims for workers' compensation
benefits for New Employees under applicable state laws incurred prior to
the Closing shall be the responsibility of Sellers. Claims for workers
compensation benefits for New Employees under applicable state laws
incurred subsequent to the Closing Date shall be the responsibility of
Purchaser.
(h) PURCHASER'S PLANS. Purchaser shall furnish Sellers copies of all
of its plans referred to in this Section 12 as soon as practicable, but no
later than 90 days after the later of the date the plan is executed or the
date a former employee of Sellers is covered under the plan.
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(i) COBRA OBLIGATIONS. After the Closing, Purchaser agrees that for
the individuals listed in PART 12.3 OF THE DISCLOSURE LETTER as being
persons for whom Sellers or Stockholders are providing medical coverage
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, or other obligations described in PART 12.3 OF THE DISCLOSURE
LETTER, Purchaser shall provide, or arrange for one of Purchaser's
Affiliates to provide, medical coverage to such persons for the periods
set forth in PART 12.3 OF THE DISCLOSURE LETTER. Such medical coverage
shall be generally comparable to the medical coverage presently provided
to such persons and shall cost such persons approximately the same amount
as they are presently paying. Purchaser shall waive any preexisting
condition restrictions to the extent that the preexisting condition
restrictions were waived under Sellers' group health plan on the Closing
Date.
(j) NO THIRD PARTY BENEFICIARY. Nothing herein shall be deemed or
construed to give rise to any rights, claims, benefits or causes of action
to any New Employee or any other Person, except the Sellers and
Stockholder.
12.4. TRANSFER TAXES. Purchaser shall be responsible for paying any Taxes
with respect to the transfer of the Assets, including, without limitation, any
Goods and Services Taxes payable to Revenue Canada with respect to the transfer
of the Assets by ES Canada.
13. NATURE OF STATEMENTS AND SURVIVAL OF COVENANTS,
AGREEMENTS, REPRESENTATIONS AND WARRANTIES OF THE PARTIES.
All statements of fact contained in this Agreement, the Disclosure Letter or in
any agreement, certificate, schedule or exhibit delivered by or on behalf of
Sellers,
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Stockholder, Purchaser or PGT pursuant to this Agreement shall be deemed
representations and warranties hereunder of Sellers, Stockholder, Purchaser or
PGT, as the case may be. Except as set forth in the following sentence of this
SECTION 13, all representations and warranties, covenants and agreements made by
Sellers, Stockholder, Purchaser and PGT hereunder or pursuant hereto or in
connection with the transactions contemplated hereby shall survive the Closing
until May 1, 1998, at which time they shall terminate, regardless of any
investigation at any time made by or on behalf of Purchaser; provided that if
written notice of a claim of a breach of a representation, warranty, covenant or
agreement is provided prior to May 1, 1998, then such representation or warranty
shall survive with respect to such claim until any dispute regarding the claim
is resolved, and any Damages (as defined in SECTION 14.1) with respect thereto
are paid in full. Notwithstanding, the preceding sentence, the provisions set
forth in SECTIONS 14.1(III), (V), (VI) AND (VII), SECTIONS 14.2(III), (IV) AND
(V), 15, 20 AND 21 of this Agreement shall survive the Closing until the second
anniversary of the Closing Date, at which time they shall terminate; provided
that if written notice of a claim of a breach of such provisions is provided
prior to the second anniversary of the Closing Date, then such provision shall
survive with respect to such claim until any dispute regarding the claim is
resolved, and any Damages (as defined in SECTION 14.1) with respect thereto are
paid in full. Notwithstanding, the second preceding sentence, the provisions set
forth in SECTIONS 14.1(IV) AND (VIII) of this Agreement shall survive without
time limitation. Unless commenced prior to expiration, if any, upon the
expiration of such survival period, any suit, claim or action relating to any
representation, warranty, covenant or agreement hereunder shall be forever
barred.
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14. INDEMNITY BY SELLERS AND STOCKHOLDER.
14.1 INDEMNITY BY SELLERS AND STOCKHOLDER. Sellers and Stockholder shall,
and hereby do, jointly and severally indemnify, hold harmless and defend
Purchaser, Pacific Gas Transmission Company, Pacific Gas and Electric Company
and their respective officers, directors, employees, agents, consultants,
representatives and Affiliates (collectively, the "Sellers' Indemnified
Parties") at all times from and after the date of this Agreement, from and
against any and all losses, liabilities, claims, damages or expenses (including
costs of investigation and defense and reasonable attorneys' fees)
(collectively, "Damages"), which are paid, incurred or suffered by or asserted
against the Sellers' Indemnified Parties by any Person resulting or arising from
or incurred in connection with any one or more of the following:
(i) any breach or default in the performance by Sellers or
Stockholder of any covenant or agreement of Sellers or Stockholder
contained in this Agreement;
(ii) any breach of warranty or inaccurate or erroneous
representation made by Sellers or Stockholder in this Agreement, the
Disclosure Letter or in any certificate or schedule delivered to Purchaser
and PGT pursuant hereto;
(iii) other than the Assumed Liabilities, any and all debts,
liabilities and obligations of Sellers or Stockholder;
(iv) the lawsuit against Midwest Storage, et. al., described in
Paragraph No. 2 on SCHEDULE 2.1B;
(v) all actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including costs of court and reasonable
attorneys' fees) incident to any of the foregoing, including, without
limitation, the costs, expenses and legal liability for environmental
investigations, monitoring, abatement, repair, clean-up, restoration,
remedial work, penalties and fines, disbursements and other response
costs;
(vi) any liability or claim for liability relating to any plan or
arrangement listed on PART 4.6B ON THE DISCLOSURE LETTER, except to the
extent
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that Purchaser has expressly assumed liabilities or obligations of Sellers
pursuant to SECTIONS 12.2 OR 12.3(c), (d) AND (e) of this Agreement; and
(vii) any violation or alleged violation of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended with respect to events
occurring on or prior to the Closing Date relating to any employee of
either Seller or any spouse or dependent of such an employee.
14.2 INDEMNITY BY PURCHASER AND PGT. Purchaser and PGT, jointly and
severally, shall indemnify, hold harmless and defend Sellers, Stockholder and
their respective officers, directors, employees, agents, consultants,
representatives and Affiliates (collectively, the "Purchaser Indemnified
Parties") at all times from and after the date of this Agreement, from and
against any and all Damages which are paid, incurred or suffered by or asserted
against the Purchaser Indemnified Parties by any Person resulting or arising
from or incurred in connection with any one or more of the following:
(i) any breach or default in the performance by Purchaser or PGT of
any covenant or agreement of Purchaser or PGT contained in this Agreement;
(ii) any breach of warranty or inaccurate or erroneous
representation made by Purchaser or PGT in this Agreement or in any
certificate or schedule delivered to Sellers and Stockholder pursuant
hereto;
(iii) the Assumed Liabilities;
(iv) the operation of the Business by Purchaser and the ownership
and use of the Assets after the Effective Date; and
(v) all actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including costs of court and reasonable
attorneys' fees) incident to any of the foregoing.
14.3 LIMITATIONS ON INDEMNIFICATION BY SELLERS AND STOCKHOLDER.
Notwithstanding the provisions of SECTION 14.1, Sellers and Stockholder shall
have no liability for Damages under SECTION 14.1: (i) for any failure of
Purchaser to collect any
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of the July Uncollected Accounts; (ii) for a matter which is an expense or is
accrued but not paid during the Interim Period (and accordingly is used to
calculate the Interim Adjusted Consolidated Net Income pursuant to SECTION 3.3),
except to the extent that the Damages arising from such matter shall have
exceeded the amount of the expense or accrual for such matter; and (iii) until
the total of all Damages under SECTION 14.1 (determined after giving effect to
the foregoing clauses (i) and (ii) and including any Damages resulting from or
incurred in connection with any acts, omissions or occurrences specified in
Section 14.1(i) or (ii) without regard to any materiality qualification under
the representations, warranties, covenants or agreements contained in this
Agreement) exceeds $500,000, and then only for the amount by which such Damages
exceed $500,000. The provisions of clause (iii) of this SECTION 14.3, however,
will not apply to any breach of any of Sellers' or Stockholder's representations
and warranties of which either Seller or Stockholder had Knowledge at any time
prior to the date on which such representation or warranty was made, or any
intentional breach by either Seller or Stockholder of any covenant or agreement
contained herein.
14.4 LIMITATIONS ON INDEMNIFICATION BY PURCHASER AND PGT. Notwithstanding
the provisions of SECTION 14.2, Purchaser and PGT shall have no liability under
SECTION 14.2 until the total of all Damages under SECTION 14.2 (and including
any Damages resulting from or incurred in connection with any acts, omissions or
occurrences specified in Section 14.2(i) or (ii) without regard to any
materiality qualification under the representations, warranties, covenants or
agreements contained in this Agreement) exceeds $500,000, and then only for the
amount by which such Damages exceed $500,000. However, this SECTION 14.4 will
not
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apply to any breach of any of Purchaser's or PGT's representations and
warranties of which either Purchaser or PGT had Knowledge at any time prior to
the date on which such representation or warranty was made, or any intentional
breach by either Purchaser or PGT of any covenant or agreement contained herein.
14.5 PROCEDURE. All claims for indemnification by a party under this
Section 14 (the party claiming indemnification and the party against whom such
claims are asserted being hereinafter called the "Indemnified Party" and the
"Indemnifying Party," respectively) shall be asserted and resolved as follows:
(a) If any claim or demand for which an Indemnifying Party would be
liable to an Indemnified Party hereunder is asserted against or sought to
be collected from such Indemnified Party by a third party, such
Indemnified Party shall with reasonable promptness give notice (the "Claim
Notice") to the Indemnifying Party of such claim or demand, specifying the
nature of and specific basis for 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 and demand). If
the Indemnified Party fails to notify the Indemnifying Party thereof in
accordance with the provisions of this Agreement, the Indemnifying Party
shall not be obligated to indemnify the Indemnified Party under this
Agreement with respect to any such claim or demand to the extent the
Indemnifying Party is materially harmed by such failure. The Indemnifying
Party shall have ten days after the Claim Notice is delivered pursuant to
the provisions of SECTION 18 (the "Notice Period") to notify the
Indemnified Party as to:
(i) whether or not it disputes the liability of the
Indemnifying Party to the Indemnified Party hereunder with respect
to such claim or demand; and
(ii) whether or not it desires, at the cost and expense of the
Indemnifying Party, to defend the Indemnified Party against such
claim or demand; provided that any Indemnified Party is hereunder
authorized, but is not obligated, prior to and during the Notice
Period, to file any motion, answer or other pleading that it shall
deem necessary or appropriate to protect its interests or those of
the Indemnifying Party.
(b) If the Indemnifying Party notifies the Indemnified Party within
the Notice Period that it desires to defend the Indemnified Party against
such claim
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or demand, the Indemnifying Party shall, subject to SECTIONS 14.5(a)(II),
(c) and (d), have the right to control the defense against the claim by
all appropriate proceedings and any settlement negotiations. If the
Indemnified Party desires to participate in, but not control, any such
defense or settlement, it may do so at its sole cost and expense and shall
not have the right to reimbursement of such cost and expense from the
Indemnifying Party. Purchaser shall have the right to release Sellers and
Stockholder from any specific indemnification obligation with respect to a
third party claim for which Sellers and/or Stockholder have undertaken to
defend, and upon such release, Purchaser shall thereafter take over the
control of such defense of such third party claim.
(c) If the Indemnifying Party fails to respond to the Indemnified
Party within the Notice Period, elects not to defend the Indemnified
Party, or after electing to defend fails to commence or reasonably pursue
such defense, then the Indemnified Party shall have the right, but not the
obligation, to undertake or continue the defense of and to compromise or
settle (exercising reasonable business judgment), the claim or other
matter all on behalf, for the account and at the risk of the Indemnifying
Party.
(d) Notwithstanding the foregoing, (i) if the basis of the
proceedings relates to a condition or operations which existed or were
conducted both prior to and after the Effective Date or (ii) if the rights
to indemnify are contested or disputed hereunder, each party shall have
the same right to participate at its own expense and at its own risk in
the proceeding without either party having the right of control; provided
that if indemnity is being contested or disputed hereunder, each party
shall bear its own costs and expenses, including, without limitation,
attorney's fees.
(e) If requested by the Indemnifying Party, the Indemnified Party
agrees, at the Indemnifying Party's expense, to cooperate with the
Indemnifying Party and its counsel in contesting any claim or demand which
the Indemnified Party elects to contest, or, if appropriate and related to
the claim in question, in making any counterclaim against the person
asserting the third party claim or demand, or any cross-complaint against
any person.
(f) If any Indemnified Party should have a claim against the
Indemnifying Party hereunder which does not involve a claim or demand
being asserted against or sought to be collected from it by a third party,
the Indemnified Party shall send a Claim Notice with respect to such claim
to the Indemnifying Party. If the Indemnifying Party disputes or contests
its obligations to indemnify for such claim, the parties will attempt to
amicably resolve the dispute. If the parties are unable to amicably
resolve such dispute within sixty (60) days after delivery of the Claim
Notice, either party shall have the right to submit such dispute to the
dispute resolution procedures described in SECTION 20.11.
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(g) To the extent that an Indemnifying Party assumes the defense of
a claim and the relevant threshold amount of Damages set forth in SECTIONS
14.3(III) or 14.4, as the case may be ("Threshold Amount"), has not been
exceeded, the Indemnified Party shall promptly reimburse such Damages.
Once the Threshold Amount has been exceeded as to an Indemnified Party,
the Indemnifying Party shall reimburse any amounts for actual damages for
claims indemnified hereunder previously paid or incurred by the
Indemnified Party.
(h) Each party shall have reasonable access to all such records and
information available to the other party reasonably necessary or
appropriate for each of them to defend a third party claim, to assess a
proposal to compromise or settle a third party claim or to otherwise
respond to a request for indemnification on any other matter.
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Sellers and Stockholder
recognize and acknowledge that they have and will have access to certain
confidential information of Sellers that is included in the Assets (including,
but not limited to, lists of customers, suppliers, contracts, procedures,
internal control matters, nonpublic financial information, business plans and
strategies, methods of operation, trade secrets and other proprietary
information, and costs) that after the consummation of the transactions
contemplated hereby will be valuable, special and unique property of Purchaser.
Sellers and Stockholder agree that they will not disclose, and they will use
their best efforts to prevent disclosure by any other Person of, any such
confidential information to any Person for any purpose or reason whatsoever,
except to authorized representatives of Purchaser. For the purposes of this
SECTION 15, confidential information shall not include information which (i) was
or becomes generally available to the public other than as a result of a
disclosure by Sellers, Stockholder, or their agents, representatives or
employees, or (ii) becomes available on a non-confidential basis from a source
other than Sellers, Stockholders, or their agents, representatives or employees,
provided that the source is not bound by
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a Confidentiality Agreement or otherwise prohibited from transmitting the
information by a contractual, legal or fiduciary obligation. Sellers and
Stockholder recognize and agree that violation of any of the agreements
contained in this SECTION 15 will cause irreparable damage or injury to
Purchaser, the exact amount of which may be impossible to ascertain, and that,
for such reason, among others, in the event of an actual or threatened
disclosure by the Sellers, the Stockholder, or their respective agents,
employees or contractors, of any of the confidential information identified
herein, Purchaser shall be entitled to an injunction, without the necessity of
posting bond therefor, restraining any further violation of such agreements.
Such rights to any injunction shall be in addition to, and not in limitation of,
any other rights and remedies Purchaser may have against Sellers or Stockholder.
16. EXPENSES. Whether or not the transactions contemplated hereby are
consummated, each of the parties will pay all costs and expenses of its
performance of and compliance with this Agreement.
17. FURTHER ACTIONS. From time to time, at the request of any party
hereto, the other parties hereto shall execute and deliver such instruments and
take such action as may be reasonably requested to evidence the transactions
contemplated hereby. In addition, all receipts by Sellers of amounts in payment
of or under accounts receivable or Contracts transferred or assigned to
Purchaser hereunder shall be promptly paid by Sellers to Purchaser.
18. NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, given by prepaid telex
or telegram or
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by facsimile or other similar instantaneous electronic transmission device or
mailed first class, postage prepaid, certified United States mail, return
receipt requested, as follows:
(a) If to Purchaser, at:
Pacific Gas Transmission Company
2100 S.W. River Parkway
Portland, Oregon 97201
Attention: Stephen P. Reynolds, President and CEO
With a copy to: Frank R. Lindh, General Counsel
Facsimile No.: (503) 402-4004
With a copy to:
Fulbright & Jaworski L.L.P.
2200 Ross Avenue, Suite 2800
Dallas, Texas 75201
Attention: Kenneth L. Stewart
Facsimile No.: (214) 855-8200
(b) If to ESI, ES Canada or Stockholder, at:
Edisto Resources Corporation
10375 Richmond Ave., Suite 300
Houston, Texas 77042
Attention: Michael Y. McGovern
Facsimile No.: (713) 917-1597
With a copy to:
Paul E. Pryzant
Snell & Smith, P.C.
1000 Louisiana, Suite 3650
Houston, Texas 77002
Facsimile No.: (713) 651-8010
provided that any party may change its address for notice by giving to the other
party written notice of such change. Any notice given under this SECTION 18
shall be effective
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upon receipt at the address for notice of the party to receive such notice as
determined above.
19. TERMINATION. This Agreement may be terminated without further
obligation of the parties, as follows:
19.1 MUTUAL CONSENT. This Agreement may be terminated at any time prior
to Closing by mutual written consent of the parties hereto.
19.2 FAILURE OF CONDITIONS. This Agreement may be terminated in writing by
any party hereto if the conditions, as set forth in this Agreement, to such
party's obligations under this Agreement are not fulfilled on or prior to the
Closing Date; provided that any such termination shall not limit the remedies
otherwise available to such party as a result of misrepresentations of or
breaches by the other party.
19.3 FAILURE TO AGREE ON JULY A/R RESERVE OR ALLOWANCE PERCENTAGE. If the
parties cannot agree on the amount of the July A/R Reserve or the Adjusted
Working Capital or Fixed Assets of Sellers at July 31, 1996 after following the
procedures set forth in SECTION 3.2(b), either of the parties shall have the
right to terminate the Agreement. If the parties cannot agree on the amount of
the Allowance Percentage after following the procedures set forth in SECTION
3.3(b), either of the parties shall have the right to terminate the Agreement.
[Insert Rider 19.3] No party will be liable in damages to any other party as a
result of termination pursuant to this SECTION 19.3. [Rider 19.3: If the parties
cannot agree on how to handle the PanEnergy matter pursuant to the procedures
set forth on Item II of Schedule 4.11 to the Disclosure Letter, either of the
parties shall have the right to terminate this Agreement.]
70
<PAGE>
19.4 FAILURE TO APPROVE NONCONFORMING CONTRACT. If a Nonconforming
Contract is not approved by Purchaser after submission to Purchaser in
accordance with the procedures set forth in SECTION 6(b), Sellers and
Stockholder shall have the right to terminate this Agreement. No party will be
liable in damages to any other party as a result of termination pursuant to this
SECTION 19.4.
19.5 FAILURE TO CLOSE. This Agreement will automatically terminate on
December 31, 1996, if the Closing shall not have occurred on or before such
date, unless the parties shall have otherwise agreed in writing prior to such
date. No party will be liable in damages to any other party as a result of
termination pursuant to this SECTION 19.5 unless the failure of the Closing was
due to the failure of such party to comply with the terms of this Agreement.
19.6 ACQUISITION PROPOSAL. This Agreement may be terminated by Stockholder
if, prior to the Closing, (i) Stockholder or its shareholders receive an
Acquisition Proposal (as such term is defined in SECTION 8.7 herein) from any
Person other than Purchaser and PGT and (ii) the Board of Directors of
Stockholder determines, after consultation with its financial advisors and legal
counsel, that such proposal is likely to result in a transaction more favorable
to Stockholder's shareholders from a financial point of view than the
transactions contemplated by this Agreement. If Stockholder terminates the
Agreement pursuant to this SECTION 19.6, Stockholder shall promptly pay to
Purchaser the amount of $1,500,000, and upon such payment, Stockholder and
Sellers shall have no other liability or obligation to Purchaser or PGT
hereunder.
71
<PAGE>
20. GENERAL PROVISIONS.
20.1 GOVERNING LAW; INTERPRETATION; SECTION HEADINGS. This Agreement shall
be governed by and construed and enforced in accordance with the laws of the
State of Texas, without regard to conflict-of-laws rules as applied in Texas.
The section headings contained herein are for purposes of convenience only, and
shall not be deemed to constitute a part of this Agreement or to affect the
meaning or interpretation of this Agreement in any way.
20.2 SEVERABILITY. Should any provision of this Agreement be held
unenforceable or invalid under the laws of the United States of America or the
State of Texas, or under any other applicable laws of any other jurisdiction,
then the parties hereto agree that such provision shall be deemed modified for
purposes of performance of this Agreement in such jurisdiction to the extent
necessary to render it lawful and enforceable, or if such a modification is not
possible without materially altering the intention of the parties hereto, then
such provision shall be severed herefrom for purposes of performance of this
Agreement in such jurisdiction. The validity of the remaining provisions of this
Agreement shall not be affected by any such modification or severance, except
that if any severance materially alters the intentions of the parties hereto as
expressed herein (a modification being permitted only if there is no material
alteration), then the parties hereto shall use Commercially Reasonable Efforts
to agree to appropriate equitable amendments to this Agreement in light of such
severance, and if no such agreement can be reached within a reasonable time, any
party hereto may initiate the dispute resolution procedures set forth in SECTION
20.11.
72
<PAGE>
20.3 ENTIRE AGREEMENT. This Agreement, the schedules, the Disclosure
Letter and the documents and agreements referenced herein set forth the entire
agreement and understanding of the parties hereto with respect to the
transactions contemplated hereby, and supersede all prior agreements,
arrangements and understandings related to the subject matter hereof. No
representation, warranty, promise, inducement or statement of intention has been
made by any party hereto which is not embodied or referenced in this Agreement,
the schedules or the documents or agreements referenced herein, and no party
hereto shall be bound by or liable for any alleged representation, warranty,
promise, inducement or statement of intention not so set forth. In particular,
Sellers and Stockholder make no representation or warranty to Purchaser and PGT
with respect to any financial projections or forecasts relating to Sellers which
have been or are provided to Purchaser and PGT or which Purchaser or PGT may
acquire in the course of their due diligence investigation of Sellers. With
respect to any such projection or forecast, Purchaser and PGT acknowledge that
(i) there are uncertainties inherent in attempting to make such projections or
forecasts, (ii) Purchaser and PGT are familiar with such uncertainties, (iii)
Purchaser and PGT are taking full responsibility for making their own evaluation
of the adequacy and accuracy of all such projections and forecasts so furnished
to it, and (iv) Purchaser and PGT shall have no claim against Sellers with
respect thereto. Sellers' representations and warranties are limited to what is
stated herein, and no representation or warranty is to be implied or inferred
from any information obtained by Purchaser or PGT in the course of their due
diligence examination of Sellers,
73
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whether through examination of records, conversations with any of Sellers'
employees or representatives or otherwise.
20.4 BINDING EFFECT. All the terms, provisions, covenants and conditions
of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns.
20.5 ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereto shall not be assigned or delegated by any party hereto without
the prior written consent of the other parties hereto. Notwithstanding the
foregoing, no assignment of this Agreement or any of the rights, interests or
obligations of any party hereto shall relieve such party of its obligations
under this Agreement. In connection with any sale or other disposition or series
of sales or dispositions of all or substantially all of a party's assets or any
merger or liquidation of such party, the acquiring Person, surviving entity (if
such party is not the surviving entity), or other recipient of substantially all
of such party's assets, as the case may be, shall assume the obligations of such
party under this Agreement. Such obligation shall apply to successive sales,
dispositions, mergers and liquidations.
20.6 AMENDMENT; WAIVER. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, provisions, representations,
warranties, covenants or conditions hereof may be waived, only by a written
instrument executed by all parties hereto, or, in the case of a waiver, by the
party waiving compliance. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
to enforce the same. No waiver by any party of any condition contained in this
Agreement, or of the breach of any term, provision,
74
<PAGE>
representation, warranty or covenant contained in this Agreement, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such condition or breach, or as a waiver of any other condition or
of the breach of any other term, provision, representation, warranty or
covenant.
20.7 GENDER; NUMBERS. All references in this Agreement to the masculine,
feminine or neuter genders shall, where appropriate, be deemed to include all
other genders. All plurals used in this Agreement shall, where appropriate, be
deemed to be singular, and VICE VERSA.
20.8 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement shall be
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of the parties reflected hereon as signatories.
20.9 TELECOPY EXECUTION AND DELIVERY. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more parties
hereto by facsimile or similar electronic transmission device pursuant to which
the signature of or on behalf of such party can be seen, and such execution and
delivery shall be considered valid, binding and effective for all purposes. At
the request of any party hereto, all parties hereto agree to execute an original
of this Agreement as well as any facsimile, telecopy or other reproduction
hereof.
20.10 PUBLIC ANNOUNCEMENTS. From and after the date hereof until the
Closing, Sellers and Stockholder, on one hand, and the Purchaser, on the other
hand,
75
<PAGE>
will consult with the other before it or any of its Affiliates issues any press
releases or otherwise makes any public statements with respect to this Agreement
and the transactions contemplated hereby, and neither Sellers and Stockholder,
on one hand, nor Purchaser, on the other hand, nor any of their respective
Affiliates shall issue any such press release or make any such public statement
without the consent of the other, which consent shall not be unreasonably
withheld; PROVIDED, HOWEVER, that if legal counsel for any of the parties is of
the opinion that a statement or announcement is required by law or regulation or
by the rules of any stock exchange on which its securities are traded, then such
party may issue a statement or announcement limited solely to that information
which legal counsel for such party advises is required under law or such rules.
A party making any statement or announcement shall provide a copy thereof to the
other parties to the extent possible prior to issuing such statement or
announcement.
20.11 DISPUTE RESOLUTION; VENUE. Except as may otherwise be set forth
expressly herein, all disputes arising under this Agreement shall be resolved as
follows:
The Parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiations
between a Vice President of Purchaser or PGT, on one hand, or his or her
designated representative, and an executive of similar authority of
Sellers or Stockholder, on the other hand. Either Party may give the other
Party written notice of any dispute. Within twenty (20) days after
delivery of said notice, the designated executives shall meet at a
mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary to exchange information and to attempt to
resolve the dispute. If the matter has not been resolved within thirty
(30) days of the first meeting, either Party may initiate a mediation of
the controversy. The mediation shall be facilitated by a mediator that is
acceptable to both Parties and shall conclude within sixty (60) days of
its commencement, unless the Parties agree to extend said mediation
process beyond this deadline.
76
<PAGE>
Upon agreeing on a mediator, the Parties shall enter into a written
agreement for the mediation services. Each party shall pay an equal share
of the costs and expenses of the mediator.
All negotiations and any mediation conducted pursuant to this
Section shall be confidential and shall be treated as compromise and
settlement negotiations, to which Rule 408 of the Texas Rules of Civil
Evidence shall apply, which rule is incorporated herein by reference.
Notwithstanding the foregoing provisions, a Party may seek a
preliminary injunction or other provisional judicial remedy if in its
judgment such action is necessary to avoid irreparable damage or to
preserve the status quo.
If the Parties have not been able to resolve any such dispute after
such mediation process has concluded, either Party may then file a lawsuit
to resolve such dispute. The Parties hereto agree that venue for any
action at law or at equity with respect to any controversy, claim or
dispute arising out of or relating to this Agreement shall be in Harris
County, Texas.
Each Party is required to continue its obligations under this
Agreement pending final resolution of any dispute arising out of or
relating to this Agreement.
20.12 COVENANT REGARDING MIDWEST STORAGE RECORDS. Sellers agree that
within 120 days after the Closing they shall remove from Purchaser's premises
the records and documents included in item 2 of SCHEDULE 2.1B (Excluded Assets),
provided that Sellers shall thereafter upon request by Purchaser provide
Purchaser with copies of any of such records and documents as are reasonably
needed by Purchaser for Purchaser's operation of the Business.
21. GUARANTIES.
21.1 STOCKHOLDER GUARANTY. Stockholder hereby (i) unconditionally
guarantees the prompt performance and payment of the obligations and liabilities
of each of the Sellers under this Agreement, (ii) waives any requirements of
notice, protest, demand or grace with respect thereto and (iii) agrees that
Purchaser shall not be required to exhaust its remedies against any other person
or party (including, but not limited to, Sellers) before enforcing the
provisions of this guarantee. Stockholder
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<PAGE>
recognizes and acknowledges that Purchaser is relying on this guarantee in
entering into and consummating the transactions contemplated by this Agreement,
and that but for this guarantee Purchaser would not enter into this Agreement or
consummate the transactions contemplated hereby.
21.2 PGT GUARANTY. PGT hereby (i) unconditionally guarantees the prompt
performance and payment of the obligations and liabilities of Purchaser under
this Agreement, (ii) waives any requirements of notice, protest, demand or grace
with respect thereto and (iii) agrees that Sellers and Stockholder shall not be
required to exhaust their remedies against any other person or party (including,
but not limited to, Purchaser) before enforcing the provisions of this
guarantee. PGT recognizes and acknowledges that Sellers and Stockholders are
relying on this guarantee in entering into and consummating the transactions
contemplated by this Agreement, and that but for this guarantee, Sellers and
Stockholders would not enter into this Agreement or consummate the transactions
contemplated hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PURCHASER:
PACIFIC NORTHWEST GAS SYSTEM, INC.
By: /s/ STEPHEN P. REYNOLDS
Name: STEPHEN P. REYNOLDS
Title: CHAIRMAN
78
<PAGE>
708559 ALBERTA LTD.
By: /s/ STEPHEN P. REYNOLDS
Name: STEPHEN P. REYNOLDS
Title: AUTHORIZED REPRESENTATIVE
PGT:
PACIFIC GAS TRANSMISSION COMPANY
By: /s/ STEPHEN P. REYNOLDS
Name: STEPHEN P. REYNOLDS
Title: PRESIDENT & CEO
SELLERS:
ENERGY SOURCE, INC.
By: /s/ DAVID J. TUDOR
Name: DAVID J. TUDOR
Title: CHAIRMAN
ENERGY SOURCE CANADA, INC.
By: /s/ DAVID J. TUDOR
Name: DAVID J. TUDOR
Title: CHAIRMAN
79
<PAGE>
STOCKHOLDER:
EDISTO RESOURCES CORPORATION
By: /s/ MICHAEL Y. MCGOVERN
Name: MICHAEL Y. MCGOVERN
Title: CHAIRMAN
80
<PAGE>
SCHEDULE 2.1A
ASSETS TO BE TRANSFERRED TO PURCHASER
(All defined terms used herein that are not otherwise defined in this Schedule
are as defined in the Agreement.)
A. CASH ACCOUNTS. All Cash Accounts listed in PART 4.23 OF THE DISCLOSURE
LETTER and all balances of cash and cash equivalents on hand, on deposit
or in transit, including cash on deposit as margin with brokerage firms
and counterparties.
B. FURNITURE, FIXTURES AND EQUIPMENT. All equipment, furniture, fixtures,
leasehold improvements and other tangible personal property utilized in,
necessary for or related to the Business, including, but not limited to,
those items set forth in PART 4.9 OF THE DISCLOSURE LETTER.
C. LICENSES AND PERMITS. All transferrable operating authorities, licenses or
permits utilized in, necessary for or related to the Business.
D. INVENTORY. All inventory (including, but not limited to, natural gas in
storage and pipeline imbalances) and supplies utilized in, or held for use
or sale in connection with, the Business, but excluding the natural gas
stored in the storage facility operated by Midwest Storage, Inc. in the
Carbon Field in Indiana.
E. CONTRACTS. All of the rights of Sellers under all contracts, agreements,
and commitments that (a) (i) are listed in PART 4.7 OF THE DISCLOSURE
LETTER and are designated as contracts, agreements or commitments being
assumed by Purchaser or (ii) would be listed in PART 4.7 OF THE DISCLOSURE
LETTER but for the fact they do not satisfy the dollar thresholds set
forth in SECTION 4.7 (a) AND (j), or (b) are Conforming Contracts or
Non-Conforming Contracts approved by Purchaser pursuant to SECTION 6
herein. Also included are all rights to credits resulting from the
actualization of volumes of gas purchased, sold or transported in
transactions completed prior to the Effective Date, whether or not
occurring pursuant to contracts listed in PART 4.7 OF THE DISCLOSURE
LETTER.
F. INTANGIBLES. All of the intangible assets (other than the Excluded Assets)
utilized in, necessary for or related to the conduct of the Business,
including but not limited to the intangible assets listed in PART 4.10 OF
THE DISCLOSURE LETTER and the rights to use the names "Energy Source",
"Energy Source, Inc.", "Energy Source Canada, Inc.", "Energy Source" and
"EnerSource" and derivations thereof.
G. GOODWILL. The goodwill and going concern value of the Business.
H. RECORDS. All books and records related to the Business, including, but not
limited to, all service agreements, quotations, correspondence, accounting
records and customer lists, but excluding the minute books and stock
records of Sellers.
<PAGE>
I. PREPAID EXPENSES AND CURRENT ASSETS. All assets in existence on the
Effective Date that are of the type, or are included in the categories, of
assets that are included in the calculation of Adjusted Working Capital
(as defined in SCHEDULE 3.2A) as of the Effective Date.
J. INSURANCE PROCEEDS, ETC. All rights and amounts due under insurance
policies and insurance claims of Sellers relating to all or any part of
the Assets and, to the extent transferrable, the benefit of and the right
to enforce the covenants and warranties, if any, that Sellers are entitled
to enforce with respect to the Assets against the Sellers' vendors and
predecessors in title to the Assets.
K. WARRANTIES. All express or implied warranties from third parties related
to the Assets.
L. OTHER ASSETS. All other assets and properties, tangible or intangible,
utilized in, necessary for or related to the Business except for the
Excluded Assets.
M. STOCK OF CEG. All capital stock of CEG Energy Options, Inc. owned by
Sellers.
N. SYSTEMS. All systems, including but not limited to, gas management
(ALTRA), general accounting (Avitar), risk management (spreadsheet, or any
other proprietary system acquired by ESI), and all internal gas management
and risk management related forms and procedures.
<PAGE>
SCHEDULE 2.1B
EXCLUDED ASSETS
1. The natural gas stored in the storage facility operated by Midwest
Storage, Inc. in the Carbon Field in Indiana.
2. All claims against Midwest Storage, Inc., Midwest Services, Inc., Midwest
Energy Holding Corporation and other parties with any interest in such
entities (whether as a lender, shareholder or otherwise), including those
set forth in Cause No. 96-CH-08176 filed on August 7, 1996 in the Circuit
Court of Cook County, Illinois, Illinois County Department, Chancery
Division, and all records or documents relating to such claims.
3. The minute books, stock books and corporate seals of each of Sellers and
other corporate records relating solely to the incorporation or
capitalization of Sellers.
4. The Sellers' rights under this Agreement.
5. Any Tax receivables and claims for Tax refunds relating to transactions
prior to the Effective Date, other than those for Taxes which are being
assumed by Purchaser pursuant to SECTION 3.4(III).
6. Any prepaid Taxes of any Seller, other than those for Taxes which are
being assumed by Purchaser pursuant to SECTION 3.4(III).
7. Any refund of insurance premiums or dividends with respect to an insurance
policy pertaining to any policy year ending after the Closing Date.
8. All rights relating to any of the liabilities retained by Sellers.
9. Artesia A Series software (oil and gas accounting software used by
Stockholder and Convest Energy Corporation).
10. Any gas gathering systems owned by any predecessor entities (by merger or
dissolution) to ESI.
11. All capital stock of Energy Source Power, Inc.
12. All rights to refunds from Panhandle Eastern Pipe Line Company in
connection with the matter described in Item 5 of PART 4.5 OF THE
DISCLOSURE LETTER.
<PAGE>
SCHEDULE 3.2A
CALCULATION OF ADJUSTED WORKING CAPITAL AND FIXED ASSETS
I. "ADJUSTED WORKING CAPITAL" shall mean the amount calculated as follows from
the consolidated balance sheet of ESI dated as of July 31, 1996 (prepared in
accordance with GAAP):
JULY 31, 1996
---------------
(IN THOUSANDS)
ASSETS
CASH AND TEMPORARY CASH INVESTMENTS $
MARGIN ON DEPOSIT
ACCOUNTS RECEIVABLE
OTHER CURRENT ASSETS
Investment in Homestake Royalty Corporation -- Tulsa
Panhandle Eastern Deposit
Panhandle Eastern Capacity Release
Prepayment of Swaps to Williams Energy
Tauber Receivable
Interest Income Accrual
Prepaid Rent and Insurance
Other
ESI Canada Prepaids
-------------
TOTAL ASSETS $
-------------
LIABILITIES
Current Maturities of Debt $
Accounts Payable - Gas Marketing
Target Bonus Accrual
Additional 5% 401(k) Accrual
Laclede Cap Accrual
Short-term Tulsa Rent Liability
Long-term Tulsa Rent Liability
Long-term debt
Pipeline Refunds Not Remitted to Customers
Accounts Payable-- Affiliate
Liability from Risk Management Activities
-------------
TOTAL LIABILITIES $
-------------
<PAGE>
ADJUSTED WORKING CAPITAL BEFORE REDUCTION FOR
RESERVE FOR DOUBTFUL ACCOUNTS (TOTAL ASSETS LESS TOTAL
LIABILITIES) $
-------------
RESERVE FOR DOUBTFUL ACCOUNTS -- FOR ACCOUNTS
RECEIVABLE AS OF JULY 31, 1996 (TO BE NEGOTIATED)
-------------
ADJUSTED WORKING CAPITAL (TOTAL ASSETS LESS TOTAL
LIABILITIES AND RESERVE FOR DOUBTFUL ACCOUNTS) $
-------------
II. "FIXED ASSETS" shall mean the amount calculated as follows from the
consolidated balance sheet of ESI dated as of July 31, 1996 prepared in
accordance with GAAP):
JULY 31, 1996
--------------
(IN THOUSANDS)
STORAGE INVENTORY (EXCLUDING MIDWEST STORAGE
INVENTORY) $
-------------
FURNITURE, FIXTURES & EQUIPMENT $
-------------
TOTAL FIXED ASSETS $
-------------
-2-
<PAGE>
SCHEDULE 3.2B
INITIAL ESTIMATED ADJUSTED WORKING CAPITAL
AND FIXED ASSETS
I. ADJUSTED WORKING CAPITAL JULY 31, 1996
---------------
(IN THOUSANDS)
ASSETS
CASH AND TEMPORARY CASH INVESTMENTS $ 8,070
MARGIN ON DEPOSIT 9,959
ACCOUNTS RECEIVABLE 108,619
OTHER CURRENT ASSETS
Investment in Homestake Royalty Corporation-- Tulsa 36
Panhandle Eastern Deposit 100
Panhandle Eastern Capacity Release 184
Prepayment of Swaps to Williams Energy 250
Tauber Receivable 20
Interest Income Accrual 48
Prepaid Rent and Insurance 29
Other 15
ESI Canada Prepaids 36
-------------
TOTAL ASSETS $ 127,366
-------------
LIABILITIES
Current Maturities of Debt $ 88
Accounts Payable - Gas Marketing 100,416
Target Bonus Accrual 331
Additional 5% 401(k) Accrual 25
Laclede Cap Accrual 2,000
Short-term Tulsa Rent Liability 485
Long-term Tulsa Rent Liability 769
Long-term debt 46
Pipeline Refunds Not Remitted to Customers 374
Accounts Payable-- Affiliate 311
Liability from Risk Management Activities 698
-------------
TOTAL LIABILITIES $ 105,543
-------------
<PAGE>
ADJUSTED WORKING CAPITAL BEFORE REDUCTION FOR
RESERVE FOR DOUBTFUL ACCOUNTS (TOTAL ASSETS LESS TOTAL
LIABILITIES) $ 21,823
-------------
JULY 31, 1996)
---------------
II. FIXED ASSETS (IN THOUSANDS
STORAGE INVENTORY (EXCLUDING MIDWEST STORAGE $
INVENTORY) 1,139
-------------
$
FURNITURE, FIXTURES & EQUIPMENT (NET) 1,448
-------------
$
TOTAL FIXED ASSETS 2,587
-------------
-2-
<PAGE>
SCHEDULE 3.3
INTERIM ADJUSTED CONSOLIDATED NET INCOME CALCULATION
Interim Adjusted Consolidated Net Income shall mean the amount calculated as
follows:
Begin with: Consolidated Net Income of Sellers for
period from January 1, 1996 through the Effective
Date(1) $
----------
Subtract: Consolidated Net Income of Sellers for the
seven-month period ended July 31, 1996(1)
----------
Equals: Consolidated Net Income of Sellers for the
period August 1, 1996 through the Effective Date
Reverse all adjustments to reserve for doubtful
accounts, general contingency accruals, and accruals for
income and franchise Taxes during the period from August
1, 1996 through the Effective Date
Reverse all income booked after July 31, 1996, with
respect to the Panhandle Eastern refund matter described
in Item 5 of PART 4.5 OF THE DISCLOSURE LETTER
Reverse bonus accrued on the Effective Date for period
from January 1, 1996 through the Effective Date
Add: Depreciation and amortization for the period od
from August 1, 1996 through the Effective Date
Subtract: Deemed increase in allowance for doubtfu
accounts of an amount equal to the Allowance Percentage
(determined in accordance with SECTION 3.3(b)) times gas
revenues during the period August l 1996 through the
Effective Date $
----------
Interim Adjusted Consolidated Net Income
- ---------------
(1) Calculated in accordance with GAAP.
<PAGE>
SCHEDULE 6
APPROVAL MATRIX FOR CONFORMING CONTRACTS
I. CONTRACTS FOR THE SALE, PURCHASE OR TRANSMISSION OF
NATURAL GAS
PART 1 OF THIS SCHEDULE AND THE TERMS USED THEREIN SHALL BE INTERPRETED IN
ACCORDANCE WITH THE TRADING MANUAL (DRAFT DATED NOVEMBER 13, 1996).
TOTAL OPEN POSITION
<TABLE>
<CAPTION>
FLAT PRICE1 BASIS FIXED PRICE INDEX PRICE
(CONTRACTS) (CONTRACTS) SPOT UP TO 24 MONTHS
- ------------------------------- ------------ ------------------ ------------------
<S> <C> <C> <C> <C>
UNITED STATES 1,000 4,380 60,000 MMBtu/day x 150,000 MMBtu/day
days remaining in x days remaining in
period period
- ------------------------------- ------------ ------------------ ------------------
West Coast Gulf 1,095
East Coast Gulf 1,095
Mid-Continent 1,095
City Gates 1,095
- ------------------------------- ------------ ------------------ ------------------
CANADA 1,000 2,190 30,000 MMBtu/day x 50,000 MMBtu/day x
days remaining in days remaining in
period period
- ------------------------------- ------------ ------------------ ------------------
Aeco 1,095
Empress 1,095
- ------------------------------- ------------ ------------------ ------------------
</TABLE>
PHYSICAL TRANSACTION LIMITS2
IB LONG TERM
UP TO 24 INDEX LONG TERM
MONTHS BUY SELL
Net
Margin/MMBtu (.10) .05 (.05)
- ------------------ --------------- ------------ ------------
INDEX SHORT TERM
IB SHORT
TERM BUY SELL
Net
Margin/MMBtu (.10) .10 (.10)
- ------------------ --------------- ------------ ------------
MAXIMUM VOLUME
PER TRANSACTION 75,000 MMBtu/day Up to 24 months
- --------
1 Flat price means futures, option deltas and fixed price physical gas
stated in terms of NYMEX contract equivalents.
2 To close out positions.
<PAGE>
GROSS MARGIN CAP
PER TRANSACTION ($50,000) per Month
II. CONTRACTS FOR OTHER THAN THE SALE, PURCHASE OR TRANS MISSION OF NATURAL
GAS
Any contracts, agreements or commitments in the Ordinary Course of
Business, for other than the sale, purchase or transmission of natural
gas, for which both payments and receipts by ESI are less than $50,000 and
both payments and receipts by ES Canada are less than $25,000.
<PAGE>
SCHEDULE 10.7
EMPLOYEES WITH EMPLOYMENT ARRANGEMENTS
David Tudor
Grant Farris
Jeff Young
Bryan Frey
Dave Guebert
Keith Bohn
Lisa Holliday
Mike DeLaval
Gordon Oliphant
<PAGE>
EXHIBIT I
FORM OF GENERAL WARRANTY BILL OF SALE,
ASSIGNMENT OF CONTRACT RIGHTS AND ASSUMPTION AGREEMENT
<PAGE>
GENERAL WARRANTY BILL OF SALE,
ASSIGNMENT OF CONTRACT RIGHTS AND ASSUMPTION AGREEMENT
This General Warranty Bill of Sale, Assignment of Contract Rights and
Assumption Agreement (this "Bill of Sale") executed on , 1996, and effective at
11:59 p.m. central time on , 1996 (the "Effective Time"), is by and among
[ENERGY SOURCE, INC., a Texas corporation,] [ENERGY SOURCE CANADA, INC., an
Alberta, Canada corporation] ("the Assignor"), and [Pacific Northwest Gas
System, Inc., a California corporation] [708559 Alberta Ltd., an Alberta, Canada
corporation] (the "Assignee").
This Bill of Sale is given in connection with Assignee's acquisition of
substantially all of the assets, and its assumption of certain liabilities, of
Assignor pursuant to that certain Asset Purchase Agreement dated as of November
, 1996, among Energy Source, Inc., a Texas corporation, Energy Source Canada,
Inc., an Alberta, Canada corporation, Pacific Northwest Gas System, Inc., a
California corporation, 708559 Alberta Ltd., an Alberta, Canada corporation,
Pacific Gas Transmission Company, a California corporation, and Edisto Resources
Corporation, a Delaware corporation (as it may be amended from time to time, the
"Asset Purchase Agreement").
Terms used in this Bill of Sale that are defined in the Asset Purchase
Agreement shall have the same meanings in this Bill of Sale as they have in the
Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the receipt of Ten and No/100 Dollars
($10.00) and other good and valuable consideration paid by Assignee to Assignor
(including those matters described in the Asset Purchase Agreement), the receipt
and sufficiency of which are hereby acknowledged and confessed by Assignor,
Assignor does hereby ASSIGN, TRANSFER, CONVEY, SET OVER, and DELIVER to
Assignee, its successors and assigns, those Assets designated by Purchaser to be
conveyed to Assignee in accordance with Section 2.2 of the Asset Purchase
Agreement (the "Conveyed Assets").
TO HAVE AND TO HOLD the Conveyed Assets unto Assignee, its successors and
assigns, forever, and Assignor does hereby bind itself and its successors to
WARRANT AND FOREVER DEFEND, all and singular, title to the Conveyed Assets unto
Assignee, its successors and assigns, against every person whomsoever lawfully
claiming or to claim the same, or any part thereof.
Furthermore, Assignee hereby assumes and agrees to pay, perform or
discharge when due the Assumed Liabilities of Assignor.
Nothing in this Bill of Sale shall impair or expand the rights of
indemnity or enforcement of Assignor or Assignee against each other pursuant to
any provision of the Asset Purchase Agreement.
Without limiting the foregoing, the Assignor from time to time hereafter
and without further consideration, upon request of the Assignee or its
successors or assigns, covenants and agrees to execute and deliver to the
Assignee all such other and additional instruments and other documents, and to
take all other actions, as may be reasonably necessary to more fully assure to
the Assignee or its successors or assigns the assignment of all of the Conveyed
Assets herein and hereby granted or intended
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so to be, including, without limitation, executing separate assignments of
individual items which are included in the Conveyed Assets and which are
reasonably necessary or desirable to facilitate the recognition of the
Assignee's ownership of the Conveyed Assets by all third parties and applicable
governmental entities. Such separate assignments (i) shall evidence the
conveyance and assignment of the applicable Conveyed Assets herein made and
shall not constitute an additional conveyance or assignment of the applicable
Conveyed Assets, (ii) are not intended to modify, and shall not modify, any of
the terms, covenants and conditions herein set forth, and (iii) shall be deemed
to contain all of the terms and provisions hereof, as fully and to all intents
and purposes as though the same were set forth at length in the separate
assignments.
Without limiting the foregoing, the Assignee from time to time hereafter
and without further consideration, upon request of the Assignor or its successor
or assigns, covenants and agrees to execute and deliver to the Assignor all such
other and additional instruments and other documents, and to take all other
actions, as may be reasonably necessary to more fully assure to the Assignor or
its successors or assigns, the assumption of the Assumed Liabilities herein and
hereby assumed or intended so to be, and which are reasonably necessary or
desirable to facilitate the recognition of the Assignee's assumption of such
Assumed Liabilities by all third parties and applicable governmental entities.
Such separate instruments or other documents (i) shall evidence the assumption
of the Assumed Liabilities herein made and shall not constitute an additional
assumption of such Assumed Liabilities, (ii) are not intended to modify, and
shall not modify, any of the terms, covenants and conditions herein set forth,
and (iii) shall be deemed to contain all of the terms and provisions hereof, as
fully and to all intents and purposes as though the same were set forth at
length in the separate instruments or other documents.
This Bill of Sale is entered into pursuant to the Asset Purchase Agreement
and is subject to the terms of the Asset Purchase Agreement, including, without
limitation, Sections 2.1, 3.4, 3.6, 7, 10.8 and 11.6 thereof.
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EXECUTED on the date set forth above and to be effective in accordance
with, and subject to, the provisions of the Asset Purchase Agreement as of the
Effective Time.
ASSIGNOR:
[ENERGY SOURCE, INC.,
a Texas corporation]
By:
Name:
Title:
[ENERGY SOURCE CANADA, INC.,
an Alberta, Canada corporation]
By:
Name:
Title:
ASSIGNEE:
[PACIFIC NORTHWEST GAS SYSTEM,
INC., a California corporation]
By:
Name:
Title:
[708559 ALBERTA LTD., an Albert, Canada
corporation]
By:
Name:
Title:
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EXHIBIT II
FORM OF OPINION OF SELLERS' COUNSEL
(i) Each of ESI, ES Canada and Stockholder has been duly organized and is
validly existing and in good standing under the laws of its
jurisdiction of incorporation.
(ii) ESI is duly qualified to do business as a foreign corporation and is in
good standing in the States of Louisiana, Mississippi, Missouri,
Oklahoma, Pennsylvania, New York and New Jersey.
(iii) Stockholder is the owner of record of all of the outstanding capital
stock of ESI, ESI is the owner of record of all of the outstanding
capital stock of ES Canada and ESP, and ES Canada is the owner of
record of 49% of the outstanding capital stock of CEG.
(iv) Each of ESI, ES Canada and Stockholder has the requisite corporate
power and authority to enter into the Agreement, the General Warranty
Bill of Sale, Assignment of Contract Rights and Assumption Agreement
and the Non-Disclosure/No Hire Agreement and to consummate the
transactions contemplated thereby. Each of the Agreement, the General
Warranty Bill of Sale, Assignment of Contract Rights and Assumption
Agreement and the Non-Disclosure/No Hire Agreement (a) has been duly
authorized by all necessary corporate action on the part of each of
ESI, ES Canada and Stockholder, (b) has been duly executed and
delivered by each of ESI, ES Canada and Stockholder, and (c) subject to
due execution by Purchaser and PGT (as applicable), constitutes a valid
and binding agreement of each of them, enforceable in accordance with
its respective terms, except as limited by bankruptcy, moratorium,
insolvency or other similar laws affecting generally the rights of
creditors or by principles of equity. The Non- Disclosure/No Hire
Agreement has been duly executed and delivered by Michael Y. McGovern
and, subject to due execution by Purchaser, constitutes a valid and
binding agreement of Mr. McGovern, enforceable in accordance with its
terms, except as limited by bankruptcy, moratorium, insolvency or other
similar laws affecting generally the rights of creditors or by
principles of equity.
(v) To the actual knowledge of such counsel, there are no claims, actions,
suits or proceedings pending or overtly threatened in writing against
or affecting either of the Sellers before or by any court or any
federal, state, municipal, foreign or other governmental department,
commission, board, bureau, agency or instrumentality wherever located,
except as set forth in Part 4.11 of the Disclosure Letter.
(vi) No notice or consent, authorization, approval or order of any court or
governmental agency or body is required under the statutes or
regulations of Texas, Alberta, United States or Canada, or the General
Corporation Law of the State of Delaware in connection with the
execution and delivery of the Agreement, the General Warranty Bill of
Sale, Assignment of Contract Rights and Assumption Agreement or the
Non-Disclosure/No Hire
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Agreement or the performance by Sellers and Stockholder of the
transactions contemplated thereby to be performed by them, except for
the filing required to be made by Sellers and Stockholder under the HSR
Act.
(vii) The execution and delivery of the Agreement, the General Warranty Bill
of Sale, Assignment of Contract Rights and Assumption Agreement and the
Non-Disclosure/No Hire Agreement, and the performance of the
obligations thereunder, by ESI, ES Canada and Stockholder (as
applicable) will not violate or result in a breach of or constitute a
default under (a) any of the terms or provisions of the Articles of
Incorporation or other charter documents or the bylaws of ESI, ES
Canada or Stockholder, (b) any statute or regulation of Texas, Alberta,
United States or Canada, or the General Corporation Law of the State of
Delaware, or (c) any court or administrative orders, writs, judgments
and decrees disclosed in Part 4.11 of the Disclosure Letter.
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EXHIBIT III
FORM OF OPINION OF PURCHASER'S COUNSEL
(i) Each Purchaser and PGT has been duly organized and is validly existing
and in good standing under the laws of its jurisdiction of
incorporation.
(ii) Each Purchaser and PGT has the requisite corporate power and authority
to enter into the Agreement, the General Warranty Bill of Sale and
Assignment of Contract Rights and the Non-Disclosure/No Hire Agreement
(to the extent it is a party thereto) and to consummate the
transactions contemplated thereby. Each of the Agreement, the General
Warranty Bill of Sale and Assignment of Contract Rights and the
Non-Disclosure/No Hire Agreement (a) has been duly authorized by all
necessary corporate action on the part of each Purchaser and PGT, (b)
has been duly executed and delivered by each Purchaser and PGT (to the
extent it is a party thereto), and (c) subject to due execution by ESI,
ESI Canada and Stockholder (as applicable), constitutes a valid and
binding agreement of each of them (to the extent it is a party
thereto), enforceable in accordance with its respective terms, except
as limited by bankruptcy, moratorium, insolvency or other similar laws
affecting generally the rights of creditors or by principles of equity.
(iii) The execution and delivery of the Agreement, the General Warranty Bill
of Sale, Assignment of Contract Rights and Assumption Agreement and the
Non-Disclosure/No Hire Agreement, and the performance of the
obligations thereunder by each Purchaser and PGT (as applicable), will
not violate or result in a breach of or constitute a default under (a)
any of the terms or provisions of the Articles of Incorporation or
other charter documents or the bylaws of Purchaser or PGT or (b) any
statute or regulation of Texas, Alberta, California, the United States
or Canada.
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EXHIBIT IV
FORM OF NONDISCLOSURE/
NO HIRE AGREEMENT
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EXHIBIT IV
TO ASSET PURCHASE AGREEMENT
NONDISCLOSURE / NO HIRE AGREEMENT
THIS NONDISCLOSURE/NO HIRE AGREEMENT (the "Agreement") is entered into
and effective November ____, 1996, by and among Pacific Northwest Gas System,
Inc., a California corporation ("Pacific Northwest"), 708559 Alberta Ltd., an
Alberta, Canada corporation ("708559 Alberta" and, along with Pacific Northwest,
the "Purchasers"), Energy Source, Inc., a Texas corporation ("ESI"), Energy
Source Canada, Inc., an Alberta, Canada, corporation ("ES Canada"), Edisto
Resources Corporation, a Delaware corporation ("ERC"), and Michael Y. McGovern,
in his individual capacity and not as an officer or director of any other party
to this Agreement ("McGovern" and, along with ESI, 708559 Alberta and ERC, the
"Promisors").
W I T N E S S E T H :
WHEREAS, the Purchasers, ESI, ES Canada and ERC have entered into an
asset purchase agreement dated November ____, 1996 (the "Asset Purchase
Agreement"), under which the Purchasers have agreed to purchase substantially
all of the assets of ESI and ES Canada (terms not otherwise defined herein
having the meanings ascribed to them in the Asset Purchase Agreement); and
WHEREAS, to induce the Purchasers to consummate the transactions
contemplated by the Asset Purchase Agreement, the Promisors wish to make certain
covenants to the Purchasers regarding the confidentiality of certain information
and the non-hiring of former employees of ESI and ES Canada, all as more
specifically provided in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained in this Agreement and in the Asset Purchase Agreement,
the parties to this Agreement agree as follows:
1. NO DISCLOSURE OF CONFIDENTIAL INFORMATION. The Promisors recognize
and acknowledge that they have and will have access to certain confidential
information of the Promisors relating to the assets and business to be acquired
pursuant to the Asset Purchase Agreement (including, but not limited to,
information relating to customers, suppliers, employees, contracts, procedures,
internal control matters, nonpublic financial information, business plans and
strategies, methods of operation, trade secrets and other proprietary
information) (collectively, the "Confidential Information") that after the
consummation of the transactions contemplated by the Asset Purchase Agreement
will be valuable, special and unique property of the Purchasers. For purposes of
this Agreement, the term "Confidential Information" shall not include: (i)
information in the public domain or generally known in the trade at the time of
disclosure or (ii) information that, after disclosure, becomes part of the
public domain or generally known in the trade without the breach by any Promisor
of a confidentiality obligation. Commencing on the Closing Date and for a period
of one year after the Closing Date, the Promisors agree that they will not
disclose, and they will use their best efforts to prevent disclosure by their
employees, contractors and agents or by any other person of, any Confidential
Information to any person except to authorized representatives of the
Purchasers; provided, however, that if a Promisor is required by law, court or
governmental or administrative order to disclose Confidential Information, the
Promisor shall (i) give the Purchasers prompt written notice of the requirement
so that the Purchasers may seek a protective order
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or other appropriate remedy before disclosure is made and (ii) provide full and
complete cooperation to the Purchasers in seeking the order or remedy.
2. NO HIRING OF EMPLOYEES.
(a) Commencing on the Closing Date and for a period of one year after
the Closing Date, the Promisors shall not, directly or indirectly, for their own
account or for the account of any other person or entity, employ or solicit for
employment any person who was employed by ESI or ESI Canada within two months
before the Closing Date and has become an employee of either of the Purchasers
or any of their affiliates ("Former ESI Employees"), engage in discussions
regarding employment with any Former ESI Employee, induce any Former ESI
Employee to leave his employment with the Purchasers or any of their affiliates,
or in any other way interfere with the relations of the Purchasers or any of
their affiliates, on the one hand, and any Former ESI Employee, on the other
hand.
(b) Notwithstanding the foregoing, Section 2(a) shall not apply to ERC,
ESI and ES Canada if (i) ERC is acquired by or merged with any other entity, and
(ii) McGovern is not in a control position with ERC or any successor corporation
or other entity to ERC.
(c) Commencing on the Closing Date and for a period of one year after
the Closing Date, if McGovern is in a control position with any corporation or
other entity, McGovern shall use his best efforts to prevent such corporation or
other entity, directly or indirectly, for its own account or for the account of
any other person or entity, from employing or soliciting for employment any
Former ESI Employees, from engaging in discussions regarding employment with any
Former ESI Employee, inducing any Former ESI Employee to leave his employment
with the Purchasers or any of their affiliates, or in any other way interfering
with the relations of the Purchasers or any of their affiliates, on the one
hand, and any Former ESI Employee, on the other hand.
As used herein, the term "control position" with respect to any
corporation or other entity shall mean service as an executive officer in such
corporation, service in a similar position in any other entity, or being a
general partner of a partnership, but shall not include serving only as a
director of a corporation.
3. REMEDIES. The Promisors recognize and agree that violation of any of
the provisions contained in Sections 1 and 2 of this Agreement will cause
irreparable damage or injury to the Purchasers, the exact amount of which may be
impossible to ascertain, and that, for such reason, among others, in the event
of an actual or threatened disclosure by the Promisors, or their agents,
employees or contractors, of any of the Confidential Information, the Purchasers
shall be entitled to an injunction, without the necessity of posting bond
therefor, restraining any further violation of those provisions. The parties to
this Agreement acknowledge that damages would be an incomplete remedy for any
breach of the provisions of this Agreement and agree that the obligations of the
parties under this Agreement shall be specifically enforceable, and no party
will take any action to impede another party to this Agreement in seeking to
enforce such rights or specific performance. The above recited remedies do not
limit any other remedies available at law or in equity for a breach of this
Agreement.
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4. SUCCESSORS AND ASSIGNS; INTEGRATION; ASSIGNMENT. This Agreement
shall be binding on, inure to the benefit of and be enforceable by the parties
to this Agreement and their legal representatives, successors and assigns. This
Agreement and the rights and obligations of the parties to this Agreement shall
not be assigned or delegated by any party without the prior written consent of
the other parties to this Agreement; provided, however, that the Purchasers may
assign their rights under this Agreement to any of their affiliates without the
necessity of any consent from the other parties to this Agreement.
Notwithstanding the foregoing, no assignment of this Agreement or any of the
rights, interests or obligations of any party under this Agreement shall relieve
a party of its obligations under this Agreement. In connection with any sale or
any other disposition or series of sales or other dispositions of all or
substantially all of a corporate party's assets or any merger or liquidation of
a corporate party, the acquiring person, surviving entity (if the party is not
the surviving entity) or other recipient of substantially all of that party's
assets, as the case may be, shall assume the obligations of that party under
this Agreement, and the effectiveness of any such transaction shall be subject
to the acquiring person's written assumption of those obligations. The
obligations pursuant to this Section 4 shall apply to successive sales,
dispositions, mergers and liquidations.
5. GOVERNING LAW; INTERPRETATION; SECTION HEADINGS. This Agreement
shall be governed by and construed and enforced in accordance with the laws of
the State of Texas, without regard to conflict-of-laws rules as applied in
Texas. The section headings contained in this Agreement are for purposes of
convenience only and shall not be deemed to constitute a part of this Agreement
or to affect the meaning or interpretation of this Agreement.
6. AMENDMENT AND WAIVER. This Agreement may be amended, modified,
superseded or canceled, and any of the provisions contained in this Agreement
may be waived, only by a written instrument executed by all parties to this
Agreement or, in the case of a waiver, by the party waiving compliance. The
failure of any party at any time to require performance of a provision under
this Agreement shall not affect the right to enforce that provision. No waiver
of a provision of this Agreement shall be deemed to be a continuing waiver of
that provision or an additional waiver of another provision of this Agreement.
7. NOTICES. All notices, requests, demands and other communications
required or permitted to be given under this Agreement shall be deemed to have
been duly given if delivered personally, given by prepaid telex or telegram or
by facsimile or other similar instantaneous electronic transmission device or
mailed first class, postage prepaid, certified United States mail, return
receipt requested, as follows:
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(a) If to the Purchasers, at:
Pacific Northwest Gas System, Inc.
c/o Pacific Gas Transmission Company
2100 S.W. River Parkway
Portland, Oregon 97201
Attention: Stephen P. Reynolds,
President and Chief Executive Officer
with a copy to:
Frank R. Lindh, General Counsel
Facsimile No.: (503) 402-4004
with a copy to:
Fulbright & Jaworski L.L.P.
2200 Ross Avenue, Suite 2800
Dallas, Texas 75201
Attention: Kenneth L. Stewart
Facsimile No.: (214) 855-8200
(b) If to ESI, ES Canada or ERC, at:
Edisto Resources Corporation
10375 Richmond Avenue, Suite 300
Houston, Texas 77042
Attention: Michael Y. McGovern
Facsimile No.: (713) 917-1597
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with a copy to:
Paul E. Pryzant
Snell & Smith, P.C.
1000 Louisiana, Suite 3650
Houston, Texas 77002
Facsimile No.: (713) 651-8010
(c) If to Michael Y. McGovern, at:
Michael Y. McGovern
20114 Anson Falls Court
Katy, Texas 77450
with a copy to:
Paul E. Pryzant
Snell & Smith, P.C.
1000 Louisiana, Suite 3650
Houston, Texas 77002
Facsimile No.: (713) 651-8010
Any party may change its address for notice by giving to the other party written
notice of such change. Any notice given under this Section 7 shall be effective
on receipt at the address or facsimile number for notice of the party to receive
such notice as determined above.
8. SEVERABILITY. Should any provision of this Agreement be held
unenforceable or invalid under the laws of the United States of America or the
State of Texas, or under any other applicable laws of any other jurisdiction,
then such provision shall be deemed modified for purposes of performance of this
Agreement in the applicable jurisdiction to the extent necessary to render it
lawful and enforceable, or if modification is not possible without materially
altering the intention of the parties to this Agreement, the provision shall be
severed from this Agreement for purposes of performance of this Agreement in
that jurisdiction. The validity of the remaining
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provisions of this Agreement shall not be affected by any such modification or
severance.
9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if the signatures on all counterparts taken
together were on one instrument.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
on the date and year first above written.
PACIFIC NORTHWEST GAS SYSTEM, INC.
By:
Name:
Title:
708559 ALBERTA LTD.
By:
Name:
Title:
ENERGY SOURCE, INC.
By:
Name:
Title:
ENERGY SOURCE CANADA, INC.
By:
Name:
Title:
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EDISTO RESOURCES CORPORATION
By:
Name:
Title:
MICHAEL Y. MCGOVERN
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