SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) DECEMBER 10, 1996
EDISTO RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
1-10376
(Commission File No.)
DELAWARE 54-0883077
(State or other jurisdiction (I.R.S. Employer
incorporation) Identification No.)
2401 FOUNTAIN VIEW DRIVE, SUITE 700, HOUSTON, TEXAS 77057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 782-0095
10375 RICHMOND AVENUE, SUITE 300, HOUSTON, TEXAS 77042
(Former Address if Changed Since Last Report)
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<PAGE>
ITEM 2. DISPOSITION OF ASSETS
On December 10, 1996, Edisto Resources Corporation ("Edisto") closed the
previously announced sale of substantially all of the assets of its gas
marketing operations to subsidiaries of Pacific Gas Transmission Company
("PGT"), a subsidiary of Pacific Gas and Electric Company (NYSE "PGE"). Edisto's
gas marketing operations were conducted through its subsidiaries, Energy Source,
Inc. in the United States and Energy Source Canada, Inc. in Canada
(collectively, "Energy Source").
The sales price was $23.3 million in cash, plus the working capital of
Energy Source at July 31, 1996 (approximately $20 million); provided that the
sales price is subject to adjustment after the closing by the adjusted
consolidated net income or loss of Energy Source from August 1, 1996 to November
30, 1996. Under the Purchase Agreement, while the PGT subsidiaries also assumed
specified liabilities of Energy Source, Edisto retained certain assets and
liabilities of Energy Source which are explained in more detail below.
The sales price was reduced by approximately $5.3 million from the
previously announced sales price when two of Energy Source Canada's gas trading
partners, NESI Energy Marketing Canada, Ltd. (formerly Chandler Energy Company)
("NESI") and Tarpon Gas Marketing ("Tarpon"), sought protection from creditors
under Canadian bankruptcy law. When these trading partners defaulted on their
gas purchase and supply contracts, Energy Source Canada was forced to replace
such contracts with new contracts with other suppliers at the then higher market
prices. Since the losses on these contracts were approximately $5.3 million,
Edisto agreed to reduce the sales price by this amount. Of this price reduction,
$4.5 million related to the contracts with NESI and $.8 million related to the
contracts with Tarpon.
In connection with the sale, Edisto retained the contracts with NESI and
Tarpon, together with all related rights and liabilities. On December 20, 1996,
Edisto filed a lawsuit in Calgary against certain affiliates of NESI, NIPSCO
Industries, Inc., NIPSCO Energy Services Inc. and NIPSCO Energy Services Canada
Inc., claiming that, among other things, these affiliates induced Energy Source
Canada to extend credit to NESI on an unsecured basis without requiring margin
deposits. The lawsuit seeks to recover the losses incurred by Energy Source
Canada on the NESI contracts. Edisto also plans to pursue all legal remedies
against Tarpon and any other responsible parties to recover its losses on the
Tarpon contracts.
Edisto retained the contracts of Energy Source Canada with MultiEnergies,
Inc., another gas trading partner of Energy Source Canada that went bankrupt in
October 1996, together with all related rights and liabilities. Edisto has a net
receivable from MultiEnergies of approximately $165,000 and is pursuing its
claims in the MultiEnergies bankruptcy proceeding.
Edisto also retained certain liabilities and counterclaims against
PanEnergy Corporation that are the subject of two lawsuits recently filed by
each company against the other in the District Court of Harris County, Texas
which are expected to be consolidated with one another. The lawsuits relate to
(i) a contract dispute involving approximately $1.5 million in disputed Annual
Revenue Amount and other charges which PanEnergy claims are owed by Energy
Source under two gas transportation agreements between the companies, (ii) a
claim by Energy Source that Panhandle overbilled Energy Source by approximately
$1 million for services under such
-2-
<PAGE>
transportation contracts which Panhandle has refused to refund, (iii) $216,000
in gas balancing penalties paid by Energy Source under protest for which Edisto
is seeking a refund, (iv) a claim by Energy Source under Texas antitrust laws
that PanEnergy exerted unlawful monopoly power over one portion of PanEnergy's
pipeline to the detriment of Energy Source, and (v) a claim by Energy Source
that PanEnergy tortiously interfered with the contractual relationship of Energy
Source with its largest customer at that time. Edisto believes that it has
meritorious defenses to PanEnergy's claims and plans to vigorously assert such
defenses and its counterclaims against PanEnergy in the lawsuit.
Separate from the lawsuits with PanEnergy, Edisto retained as an asset all
rights to receive a refund from PanEnergy of approximately $1 million under a
proposed settlement of certain rate cases pending before the Federal Energy
Regulatory Commission. This settlement relates to rates that Energy Source was
charged for transportation during 1991 and 1992 by PanEnergy. If the settlement
proceeds as presently scheduled, the refund would be paid to Edisto in the first
or second quarter of 1997.
Edisto also retained as an asset approximately 1.2 Billion Cubic Feet of
gas stored by Energy Source in a storage facility operated by Midwest Storage,
Inc. in the Carbon Field in Indiana. Edisto filed suit in August 1996 against
Midwest Storage and other affiliates in the Circuit Court of Cook County,
Illinois to recover the gas and other damages sustained by Energy Source when
Midwest Storage failed to deliver the gas under the agreements with Energy
Source. This lawsuit is in the very preliminary stages of discovery.
In connection with the sale, all employees of Edisto, Energy Source and
Energy Source Canada became employees of the purchaser, other than Michael Y.
McGovern, the Chairman and CEO of Edisto. Also, upon closing, Edisto vested in
full approximately 453,000 stock options outstanding to the Energy Source
employees who became employees of the purchaser. Under the terms of the stock
option plan, the former employees will have one year to exercise their stock
options.
Edisto will continue to conduct its oil and gas operations through its 73%
interest in Convest Energy Corporation ("Convest"), an independent oil and gas
exploration and production company listed on the American Stock Exchange (ASE
"COV"). Mr. McGovern, the Chairman and CEO of both Edisto and Convest, is
continuing in these positions after the sale. On a pro forma basis, Edisto has
approximately $73 million in cash after receiving the sale proceeds.
The sales process for the gas marketing operations took much longer than
originally expected when Edisto first hired an investment banking firm on March
8, 1996. This in turn has delayed any decisions on the future strategic
direction for Edisto and Convest, and especially management's plans to
aggressively explore merger possibilities to try to maximize the value of
Edisto's remaining assets, namely cash and a 73% investment in Convest. The
management of Edisto and Convest continue to believe that Convest's oil and gas
reserve base is small relative to other industry participants and that Convest
needs a larger asset base to more effectively compete in today's environment.
The options for Edisto and Convest include (i) merging with another oil and gas
company, (ii) acquiring additional oil and gas reserves by purchasing either
properties or another company, or (iii) substantially increasing Convest's
drilling activities to explore for additional oil and gas reserves. During early
1997, the management of Edisto and Convest plan to review all available options
to determine the future strategic direction of Edisto and Convest.
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS
Not applicable
(B) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements of
Edisto are filed with this report, and update the unaudited pro forma
consolidated financial statements in the Form 8-K Report dated November
15, 1996 filed with the Commission:
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 of 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 financial statements presented herein have been
prepared by Edisto based upon assumptions deemed proper by it and include
adjustments as explained in the notes included therewith. Such unaudited pro
forma financial statements 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 dates 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 Letter Amendment dated November 9, 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 amending the Asset Purchase Agreement dated November 15, 1996.
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<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/ MICHAEL Y. MCGOVERN
Michael Y. McGovern
Chairman and Chief Executive
Officer
Date: December 24, 1996
-5-
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
-------- --------- ------- ---------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ............ $ 47,755(b) $ 25,525 $ -- $ 73,280(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 (86,022) 2,540 85,478
Property and equipment, net .......... 58,106 (1,513) -- 56,593
Other assets ......................... 3,567 (1,135) -- 2,432
TOTAL ASSETS ......................... $230,633 $ (88,670) $ 2,540 $ 144,503
======== ========= ======= =========
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 act . 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 ma .... 8,530 -- -- 8,503
Minority interest .................... 9,339 -- -- 9,339
Other non-current liabilities ........ 8,956 -- -- 8,895
Total non-current liabilities: ....... 26,825 -- -- 26,737
Stockholders' equity ................. 77,571 21,133 (900)(d) 97,804
TOTAL LIABILITIES AND EQUITY ......... $230,633 $ (88,670) $ 2,540 $ 144,503
</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
EDISTO RESOURCES CORPORATION
Pro forma Consolidated Statement of Operations
For the year ended December 31, 1995
Unaudited
(In thousands, except per share data)
Pro Forma
Adjustments
-----------
Edisto Energy
(Historical) Source (a) Pro Forma
--------- --------- --------
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 produc ............... 18,456 -- 18,456
Gas purchases ............................ 381,624 (381,624)
Abandonment and exploratio ............... 2,871 -- 2,871
Depreciation, depletion & ................ 20,740 (367) 20,373
Impairment of oil and gas ................ 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 ass ............... (652) (9) (661)
Minority interest ........................ 726 -- 726
Equity in earnings (loss) ................ 326 (326) --
Other, net ............................... (4,284) 5,805 1,521
--------- --------- --------
(2,488) 3,485 997
--------- --------- --------
Income (loss) before income tax .......... (13,511) 9,597 (3,914)
--------- --------- --------
Preacquisition loss of subsidia .......... 1,478 -- 1,478
Income taxes ............................. (945) 339 (606)
--------- --------- --------
Income (loss) from continuing$ ........... (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
========= ========= ========
(a) To eliminate the profit and loss of Energy Source for the entire period.
F-2
EDISTO RESOURCES CORPORATION
Pro forma Consolidated Statement of Operations
For the nine months ended September 30, 1996
Unaudited
(In thousands, except per share data)
Pro Forma
Adjustments
----------
Edisto Energy
(Historical) Source (a) Pro Forma
--------- --------- --------
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 produc ............... 12,064 -- 12,064
Gas purchases ............................ 535,349 (535,349) --
Abandonment and exploratio ............... 1,724 -- 1,724
Depreciation, depletion & ................ 12,966 (531) 12,435
Impairment of oil and gas ................ 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) ................ 372 (372) --
Other, net ............................... 71 127 198
--------- --------- --------
1,687 (1,064) 623
--------- --------- --------
Income (loss) before income tax .......... 1,618 1,407 3,025
--------- --------- --------
Income taxes ............................. (381) 78 (303)
--------- --------- --------
Income (loss) from continuing$ ........... 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
========= ========= ========
(a) To eliminate the profit and loss of Energy Source for the entire period.
F-3
EXHIBIT 7.1
PACIFIC GAS TRANSMISSION COMPANY
PACIFIC NORTHWEST GAS SYSTEM, INC.
708559 ALBERTA LTD.
2100 S.W. River Parkway
Portland, Oregon 97201
December 9, 1996
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
10375 Richmond, Suite 300
Houston, Texas 77042
Gentlemen:
Your acceptance of this letter will confirm our understanding and
agreement regarding certain matters in connection with that certain Asset
Purchase Agreement, dated November 15, 1996, by and among Edisto Resources
Corporation, a Delaware corporation, Energy Source, Inc., a Texas corporation,
Energy Source Canada, Inc., an Alberta, Canada corporation, Pacific Gas
Transmission Company, a California corporation, Pacific Northwest Gas System,
Inc., a California corporation, and 708559 Alberta Ltd., an Alberta, Canada
corporation (the "Asset Purchase Agreement"). Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Asset Purchase
Agreement.
1. Pursuant to Section 2.3 of the Asset Purchase Agreement, the Closing
Date shall be December 10, 1996; pursuant to Sections 1.8 and 2.3 of
the Asset Purchase Agreement, the Effective Date shall be November
30, 1996.
2. Section 3.1 of the Asset Purchase Agreement is hereby amended to
provide that, subject to Sections 3.2 and 3.3 of the Asset Purchase
Agreement, the aggregate consideration for the Assets is TWENTY
MILLION SIX HUNDRED EIGHTY THREE THOUSAND FORTY AND NO/100 DOLLARS
($20,683,040).
3. Pursuant to Section 3.2(b) of the Asset Purchase Agreement, the
parties agree and acknowledge that the July A/R Reserve shall be
$1,800,000, and the other
<PAGE>
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
December 9, 1996
Page 2
components of Adjusted Working Capital and Fixed Assets of Sellers
as of July 31, 1996, are as set forth on Schedule 3.2B to the Asset
Purchase Agreement.
4. Pursuant to Section 3.3(b) of the Asset Purchase Agreement, the
parties agree and acknowledge that the Allowance Percentage shall be
zero percent.
5. With respect to the PanEnergy dispute and the Panhandle Eastern
balancing penalty dispute described in Item II and number 5 of Item
IV of Schedule 4.11 to the Disclosure Letter, as amended to date,
and any other disputes with PanEnergy relating to the production
months prior to November 1, 1996 (the "PanEnergy Matter"), the
parties agree and acknowledge that all rights and obligations of
Sellers in and to the PanEnergy Matter, including, without
limitation, any rights in tort, in contract or otherwise, shall be
retained by Sellers, and Schedule 2.1B of the Asset Purchase
Agreement is hereby amended to include the PanEnergy Matter as an
Excluded Asset. The PanEnergy Matter shall not be an Assumed
Liability, and Purchaser does not assume, and shall not be treated
as having assumed, any liability or obligation with respect to the
PanEnergy Matter. Without regard to any limitations on indemnity set
forth in the Asset Purchase Agreement, Sellers and Stockholder
shall, and hereby do, jointly and severally indemnify, hold harmless
and defend the Sellers' Indemnified Parties at all times from and
after the date hereof, from and against any and all 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 the PanEnergy Matter.
6. Purchaser agrees to assume at Closing certain intercompany loans
from Stockholder to Sellers in the amount (including accrued but
unpaid interest through December 9, 1996) of $16,934,544 plus per
diem interest of $4,257 from (but not including) December 9, 1996
through and including the Closing Date, such per diem interest
accruing after December 9, 1996 being payable by Purchaser to
Stockholder within two days after Closing (the "Stockholder Loans"),
and Pacific Northwest further agrees to repay the Stockholder Loans
at Closing. To reflect such assumption and repayment of the
Stockholder Loans, the Asset Purchase Agreement is hereby amended as
follows:
(a) Section 3.4(viii) is added, to read as follows:
<PAGE>
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
December 9, 1996
Page 3
and (viii) the obligations of Sellers to repay to Stockholder
all principal and accrued but unpaid interest on the
subordinated loans made by Stockholder to Sellers during
November 1996, and any subsequent subordinated loans made by
Stockholder to Sellers prior to the Closing Date, not to
exceed a total payment, including accrued but unpaid interest
through December 9, 1996, of $16,934,544 plus per diem
interest of $4,257 from (but not including) December 9, 1996
through and including the Closing Date, (the "Stockholder
Loans")."
(b) Section 9.5 is amended to provide in its entirety as follows:
"9.5 REPAYMENT OF SUBORDINATED DEBT. On or prior to the
Closing Date, Sellers shall repay to Stockholder all principal
and accrued but unpaid interest on the subordinated loans from
Stockholder to Sellers in excess of the amounts assumed by
Purchaser pursuant to Section 3.4(viii).
(c) Section 11.8 is added to provide as follows:
"11.8 REPAYMENT OF STOCKHOLDER LOANS. Purchaser shall have
repaid the principal and accrued but unpaid interest through
December 9, 1996 on the Stockholder Loans in an amount not to
exceed $16,934,544."
7. Pursuant to Section 3.6 of the Asset Purchase Agreement, the parties
agree and acknowledge that the total consideration for the Assets
(including the Assumed Liabilities) shall be allocated among the
Assets as set forth on Exhibit A hereto.
8. With respect to all of the Contracts between Chandler Energy Inc.
(or NESI Energy Marketing Canada Ltd., which is the new name of
Chandler Energy Inc., referred to herein as "Chandler") and ES
Canada (the "Chandler/NESI Contracts"), the parties agree and
acknowledge that all rights and obligations of Sellers in and to the
Chandler/NESI Contracts, including but not limited to accounts
receivable related thereto and all rights in tort, contract or
otherwise, shall be retained by Sellers, and Schedule 2.1B of the
Asset Purchase Agreement is hereby amended to include the
Chandler/NESI Contracts and related accounts receivable and other
rights as Excluded Assets. The Chandler/NESI Contracts and all
matters related thereto or arising therefrom shall not be Assumed
Liabilities, and Purchaser does not assume,
<PAGE>
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
December 9, 1996
Page 4
and shall not be treated as having assumed, any liability or
obligation related to or arising out of the Chandler/NESI Contracts.
The Sellers and Stockholder represent and warrant that Exhibit B
attached hereto contains a true, correct and complete list of all of
the Chandler/NESI Contracts. The Sellers and Stockholder represent
and warrant that Exhibit C attached hereto contains a true, correct
and complete list of all of Contracts between Chandler and ESI,
which Contracts are being assigned to Purchaser pursuant to the
Asset Purchase Agreement. Without regard to any limitations on
indemnity set forth in the Asset Purchase Agreement, Sellers and
Stockholder shall, and hereby do, jointly and severally indemnify,
hold harmless and defend the Sellers' Indemnified Parties at all
times from and after the date hereof, from and against any and all
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 the Chandler/NESI Contracts.
9. With respect to all of the Contracts between Tarpon Gas Marketing
Ltd. ("Tarpon") and ES Canada (the "Tarpon Contracts"), the parties
agree and acknowledge that all rights and obligations of Sellers in
and to the Tarpon Contracts, including but not limited to all rights
in tort, contract or otherwise, shall be retained by Sellers, and
Schedule 2.1B of the Asset Purchase Agreement is hereby amended to
include the Tarpon Contracts and related accounts receivable as
Excluded Assets. The Tarpon Contracts and all matters related
thereto or arising therefrom shall not be Assumed Liabilities, and
Purchaser does not assume, and shall not be treated as having
assumed, any liability or obligation related to or arising out of
the Tarpon Contracts. The Sellers and Stockholder represent and
warrant that (i) Exhibit D attached hereto contains a true, correct
and complete list of all of the Tarpon Contracts and (ii) ESI is not
a party to any contracts or agreements with Tarpon and no such
contracts or agreements shall be Assumed Liabilities. Without regard
to any limitations on indemnity set forth in the Asset Purchase
Agreement, Sellers and Stockholder shall, and hereby do, jointly and
severally indemnify, hold harmless and defend the Sellers'
Indemnified Parties at all times from and after the date hereof,
from and against any and all 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
the Tarpon Contracts.
10. With respect to all of the Contracts between MultiEnergies, Inc.
("MultiEnergies") and ES Canada (the "MultiEnergies Contracts"), the
parties agree
<PAGE>
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
December 9, 1996
Page 5
and acknowledge that all rights and obligations of Sellers in and to
the MultiEnergies Contracts, including but not limited to accounts
receivable related thereto and all rights in tort, contract or
otherwise, shall be retained by Sellers, and Schedule 2.1B of the
Asset Purchase Agreement is hereby amended to include the
MultiEnergies Contracts and related accounts receivable as Excluded
Assets. The MultiEnergies Contracts and all matters related thereto
or arising therefrom shall not be Assumed Liabilities, and Purchaser
does not assume, and shall not be treated as having assumed, any
liability or obligation related to or arising out of the
MultiEnergies Contracts or any transactions engaged in by Sellers
with respect thereto or the receivables thereunder. The Sellers and
Stockholder represent and warrant that (i) Exhibit E attached hereto
contains a true, correct and complete list of all of the
MultiEnergies Contracts and (ii) ESI is not a party to any contracts
or agreements with MultiEnergies and no such contracts or agreements
shall be Assumed Liabilities. Without regard to any limitations on
indemnity set forth in the Asset Purchase Agreement, Sellers and
Stockholder shall, and hereby do, jointly and severally indemnify,
hold harmless and defend the Sellers' Indemnified Parties at all
times from and after the date hereof, from and against any and all
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 the MultiEnergies Contracts or
any transactions engaged in by Sellers with respect thereto or the
receivables thereunder.
11. Terms used in this paragraph 11 that are not otherwise defined
herein or in the Asset Purchase Agreement shall have the meaning set
forth below. If, with respect to any customer listed on Exhibit F
hereto from which ES Canada has Effective Date Receivables, such
customer files for protection from creditors within 60 days after
the Effective Date under any state, federal or foreign bankruptcy,
moratorium, insolvency or other similar laws affecting generally the
rights of creditors (such customer being referred to herein as a
"Bankrupt Customer" and the date of such filing being referred to
herein as the "Bankruptcy Date"), then Sellers shall pay to
Purchaser the Bankrupt Customer Reimbursement Amount for such
Bankrupt Customer. Such payment shall be made in cash by check or
wire transfer within sixty (60) days after delivery by Purchaser to
Sellers of a written calculation of the Bankrupt Customer
Reimbursement Amount for such Bankrupt Customer. If at any time, and
from time to time, thereafter it is determined that (i) the amount
of the Effective Date Offset Payables that are allowed as an offset
against the Effective
<PAGE>
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
December 9, 1996
Page 6
Date Bankrupt Customer Receivables is different from the amount
thereof used in calculating the Bankrupt Customer Reimbursement
Amount, (ii) Purchaser is required to fulfill all or any part of one
or more of the contracts (or uncompleted portions thereof) with a
Bankrupt Customer that were treated as being canceled for purposes
of calculating the Bankrupt Customer Reimbursement Amount, or (iii)
errors were made in calculating the Bankrupt Customer Reimbursement
Amount in accordance with the provisions hereof, then the Bankrupt
Customer Reimbursement Amount shall be recalculated based on the
amount of Effective Date Offset Payables then allowed as offsets,
the Mark to Market Gain with respect to contracts then cancelable
and the elimination of any errors in calculation, and any
underpayment shall be promptly paid by Sellers to Purchaser and any
overpayment shall promptly be paid by Purchaser to Sellers.
Purchaser shall use commercially reasonable efforts to mitigate
damages resulting from the filing for protection from creditors by
any Bankrupt Customer. For purposes of this paragraph 11, the
following terms shall have the meanings as set forth below:
(a) "Bankrupt Customer Effective Date Receivables" shall mean the
Effective Date Receivables that are still owed and unpaid by
the Bankrupt Customers as of the Bankruptcy Date for the
Bankrupt Customer.
(b) "Bankrupt Customer Reimbursement Amount" with respect to a
Bankrupt Customer shall mean the amount (if positive) of the
Bankrupt Customer Effective Date Receivables for the Bankrupt
Customer minus the Effective Date Offset Payables for the
Bankrupt Customer minus the Mark to Market Offset for the
Bankrupt Customer.
(c) "Effective Date Offset Payables" shall mean the amount of any
payables owed by Sellers to a Bankrupt Customer with respect
to transactions occurring on or prior to the Effective Date
that are subject to offset against the Bankrupt Customer
Effective Date Receivables.
(d) "Effective Date Receivables" shall mean all unpaid accounts
receivable owed by a customer to Sellers with respect to
transactions occurring on or prior to the Effective Date.
<PAGE>
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
December 9, 1996
Page 7
(e) "Mark to Market Gain" means the amount of the net gain, if
any, that would have been realized by Purchaser if, on the
Bankruptcy Date, the Purchaser had canceled all uncompleted
portions of all contracts with the Bankrupt Customer and
replaced such uncompleted portions of contracts with new
contracts at then existing market prices.
(f) "Mark to Market Offset" means an amount equal to the Mark to
Market Gain, if any, multiplied by a fraction the numerator of
which is the amount of the Bankrupt Customer Effective Date
Receivables and denominator of which is the total of all
receivables owing by the Bankrupt Customer to Purchaser as of
the Bankruptcy Date (including, but not limited to, the
Bankrupt Customer Effective Date Receivables).
12. Stockholder has transferred to the payroll account of ESI (which is
an account being transferred to Purchaser) the amount of $371,764.20
to fund stay bonuses and over three week vacation payments payable
by ESI to ESI employees in the same aggregate amount and has
executed checks payable to such ESI employees for such amounts which
will be delivered after the Closing. Purchaser further agrees to
prepare or cause to be prepared consolidated Forms W-2 with respect
to payroll amounts paid to Sellers' transferred employees by Sellers
and Purchaser during 1996.
13. The Effective Date of the Asset Purchase Agreement is prior to the
Closing Date. The Asset Purchase Agreement, as amended hereby,
provides that, subject to specified limitations, the benefits and
liabilities of the Assets and Business pass to Purchaser as of 11:59
p.m. on the Effective Date. The parties acknowledge that such
provisions in the Asset Purchase Agreement and any other provisions
requiring assumption of items by Purchaser as of the Effective Date
shall not in any way limit, restrict or otherwise change the
obligations and liabilities of Sellers and Stockholder to indemnify
Purchaser with respect to any breaches of (i) covenants of Sellers
or Stockholder set forth herein or in the Asset Purchase Agreement,
as amended hereby, or (ii) representations or warranties made by
Sellers or Stockholder herein or in the Asset Purchase Agreement or
as of the Closing Date as a result of the certificate delivered to
Purchasers in accordance with Section 10.1 of the Asset Purchase
Agreement. Thus, Purchaser shall not be responsible for or assume,
and Sellers and Stockholder shall jointly and severally indemnify
the Sellers' Indemnified Parties (pursuant to and subject to the
limitations of Section 14 of the Asset Purchase
<PAGE>
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
December 9, 1996
Page 8
Agreement) for, any breaches of covenants set forth herein or in the
Asset Purchase Agreement, as amended hereby, and any breaches of
representations and warranties that are made by Sellers or
Stockholder herein or in the Asset Purchase Agreement or as of the
Closing Date as a result of the certificate delivered to Purchasers
in accordance with Section 10.1 of the Asset Purchase Agreement,
even if the events that give rise to such breaches occur after the
Effective Date.
14. The Asset Purchase Agreement is hereby amended in the following
respects:
(a) Section 2.1 is amended to add the following to the end of the
last sentence of such Section:
"; provided that Purchaser specifically does not assume any
liabilities relating to or arising out of (a) 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, or (b) matters that constitute
a breach of any representation, warranty or covenant of
Sellers or Stockholder set forth herein or made as of the
Closing Date pursuant to the provisions of Section 10.1."
(b) Section 3.4(i) is amended to add the following to the end of
such provision:
"or (E) for matters that constitute a breach of any
representation, warranty or covenant of Sellers or Stockholder
set forth herein or made as of the Closing Date pursuant to
the provisions of Section 10.1."
(c) The proviso beginning in line six of Section 3.4(v) is amended
in its entirety to provide as follows:
"provided that Purchaser specifically does not assume any
liabilities relating to or arising out of (a) 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, or (b) matters that constitute
a breach of any representation, warranty or covenant of
Sellers or Stockholder set forth herein or made as of the
Closing Date pursuant to the provisions of Section 10.1."
<PAGE>
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
December 9, 1996
Page 9
(d) Section 7(c) is amended to add the following to the end of
such Section:
"(except for matters that result from or arise out of (i)
actions of Sellers or Stockholder that constitute gross
negligence or willful misconduct or (ii) breaches of covenants
of Sellers or Stockholder set forth herein or breaches of
representations or warranties made by Sellers or Stockholder
herein (including, but not limited to, those made as of the
Closing Date pursuant to the provisions of Section 10.1))."
(e) Section 14.2(iv) is amended in its entirety to provide as
follows:
"(iv) the operation of the Business by Purchaser and the
ownership and use of the Assets after the Effective Date,
except for (a) matters resulting from or arising out of
actions of Sellers or Stockholder that constitute gross
negligence or willful misconduct and (b) matters that
constitute a breach of any covenant, representation or
warranty of Sellers or Stockholder set forth herein or made as
of the Closing Date pursuant to the provisions of Section
10.1; and"
(f) Item I of Schedule 2.1A is amended in its entirety to provide
as follows:
"I. PREPAID EXPENSES AND CURRENT ASSETS. All assets in
existence on the Closing Date that are of the type, or are
included in the categories, of assets that are included in the
calculation of Adjusted Working Capital."
15. The parties agree that the officers and key employees of Sellers who
are listed on Schedule 10.7 of the Asset Purchase Agreement shall be
given credit for their respective periods of employment with Sellers
in accordance with Section 8(c)(ii) of each such officer's or key
employee's employment agreement with Purchaser.
16. Without regard to any limitations on indemnity set forth in the
Asset Purchase Agreement, Purchaser shall indemnify, hold harmless
and defend the Purchaser Indemnified Parties at all times from and
after the date hereof, 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
<PAGE>
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
December 9, 1996
Page 10
connection with the guaranty of Canadian dollars $147,000 by ES
Canada with respect to debt of CEG owed to Toronto Dominion Bank.
Purchaser agrees to use commercially reasonable efforts to arrange
for the release of such guaranty, such release to be obtained within
60 days after the date hereof.
17. Stockholder acknowledges and agrees that its guarantee obligations
set forth in Section 21.1 of the Asset Purchase Agreement shall
cover and include the amendments to the Asset Purchase Agreement set
forth in this letter as well as the obligations of Sellers described
in this letter. PGT acknowledges and agrees that its guarantee
obligations set forth in Section 21.2 of the Asset Purchase
Agreement shall cover and include the amendments to the Asset
Purchase Agreement set forth in this letter as well as the
obligations of Purchaser described in this letter.
If the foregoing represents your understanding of our mutual agreement
regarding the matters set forth herein, please execute this letter where
indicated below.
Sincerely,
PACIFIC NORTHWEST GAS SYSTEM, INC.
By: /S/ STEPHEN P. REYNOLDS
Name: Stephen P. Reynolds
Title: President & CEO
708559 ALBERTA LTD.
By: /S/ STEPHEN P. REYNOLDS
Name: Stephen P. Reynolds
Title: Authorized Representative
<PAGE>
Edisto Resources Corporation
Energy Source, Inc.
Energy Source Canada, Inc.
December 9, 1996
Page 11
PACIFIC GAS TRANSMISSION COMPANY
By: /S/ STEPHEN P. REYNOLDS
Name: Stephen P. Reynolds
Title: President and Chief Executive Officer
ACCEPTED AND AGREED TO:
EDISTO RESOURCES CORPORATION
By: /S/ MICHAEL Y. MCGOVERN
Name: Michael Y. McGovern
Title: Chairman
ENERGY SOURCE, INC.
By: /S/ DAVID J. TUDOR
Name: David J. Tudor
Title: Chairman and President
ENERGY SOURCE CANADA, INC.
By: /S/ DAVID J. TUDOR
Name: David J. Tudor
Title: Chairman
