<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
COMMISSION FILE NO. 1-10403
TEPPCO PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0291058
(STATE OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NUMBER)
2929 ALLEN PARKWAY
P.O. BOX 2521
HOUSTON, TEXAS 77252-2521
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 759-3636
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether each registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEPPCO PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 45,045 $ 32,593
Short-term investments ....................................... 1,475 1,475
Accounts receivable, trade ................................... 243,273 205,766
Inventories .................................................. 12,029 16,766
Other ........................................................ 6,997 6,409
------------ ------------
Total current assets ...................................... 308,819 263,009
------------ ------------
Property, plant and equipment, at cost (Net of accumulated
depreciation and amortization of $227,985 and $220,467) ...... 731,164 720,919
Investments .................................................... 5,241 5,242
Intangible assets .............................................. 34,448 34,926
Other assets ................................................... 17,078 17,277
------------ ------------
Total assets .............................................. $ 1,096,750 $ 1,041,373
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities ..................... $ 241,964 $ 201,660
Accounts payable, general partner ............................ 4,398 4,741
Accrued interest ............................................. 6,735 13,297
Other accrued taxes .......................................... 7,920 8,822
Other ........................................................ 12,331 14,972
------------ ------------
Total current liabilities ................................. 273,348 243,492
------------ ------------
Senior Notes ................................................... 389,761 389,753
Other long-term debt ........................................... 86,000 66,000
Other liabilities and deferred credits ......................... 2,914 3,073
Minority interest .............................................. 3,488 3,429
Redeemable Class B Units held by related party ................. 106,367 105,859
Partners' capital:
General partner's interest ................................... 2,152 657
Limited partners' interests .................................. 232,720 229,110
------------ ------------
Total partners' capital ................................... 234,872 229,767
------------ ------------
Total liabilities and partners' capital ................... $ 1,096,750 $ 1,041,373
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 3
TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
Operating revenues:
Sales of crude oil and petroleum products ........................ $ 682,785 $ 222,374
Transportation - Refined products ................................ 28,030 25,596
Transportation - LPGs ............................................ 23,117 26,595
Transportation - Crude oil and NGLs .............................. 4,129 2,566
Mont Belvieu operations .......................................... 4,471 2,897
Other - net ..................................................... 8,160 6,062
------------ ------------
Total operating revenues ....................................... 750,692 286,090
------------ ------------
Costs and expenses:
Purchases of crude oil and petroleum products .................... 677,413 216,697
Operating, general and administrative ............................ 24,234 21,213
Operating fuel and power ......................................... 7,513 6,893
Depreciation and amortization .................................... 8,247 8,139
Taxes - other than income taxes .................................. 2,518 2,679
------------ ------------
Total costs and expenses ....................................... 719,925 255,621
------------ ------------
Operating income .............................................. 30,767 30,469
Interest expense ................................................... (8,434) (7,542)
Interest costs capitalized ......................................... 1,010 142
Other income - net ................................................. 782 541
------------ ------------
Income before minority interest .................................... 24,125 23,610
Minority interest .................................................. (244) (238)
------------ ------------
Net income .................................................... $ 23,881 $ 23,372
============ ============
Net income allocated to Limited Partner Unitholders ................ $ 17,533 $ 18,496
Net income allocated to Class B Unitholder ......................... 2,368 2,497
Net income allocated to General Partner ............................ 3,980 2,379
------------ ------------
Total net income allocated .................................... $ 23,881 $ 23,372
============ ============
Basic and diluted net income per Limited Partner and Class B Unit .. $ 0.60 $ 0.64
============ ============
Weighted average Limited Partner and Class B Units outstanding ..... 32,917 32,917
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 23,881 $ 23,372
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization ................................... 8,247 8,139
Equity in loss (income) of affiliate ............................ (78) 74
Decrease (increase) in accounts receivable, trade ............... (37,507) 24,068
Decrease (increase) in inventories .............................. 4,737 (1,577)
Decrease (increase) in other current assets ..................... (588) 1,232
Increase (decrease) in accounts payable and accrued expenses .... 29,856 (43,786)
Other ........................................................... 222 (715)
------------ ------------
Net cash provided by operating activities .................. 28,770 10,807
------------ ------------
Cash flows from investing activities:
Proceeds from cash investments ..................................... -- 3,000
Purchases of cash investments ...................................... -- (1,235)
Purchase of crude oil system ....................................... -- (2,250)
Capital expenditures ............................................... (18,013) (11,851)
------------ ------------
Net cash used in investing activities ...................... (18,013) (12,336)
------------ ------------
Cash flows from financing activities:
Proceeds from term loan ............................................ 20,000 --
Distributions ...................................................... (18,305) (15,991)
------------ ------------
Net cash provided by (used in) financing activities ........ 1,695 (15,991)
------------ ------------
Net increase (decrease) in cash and cash equivalents ................. 12,452 (17,520)
Cash and cash equivalents at beginning of period ..................... 32,593 47,423
------------ ------------
Cash and cash equivalents at end of period ........................... $ 45,045 $ 29,903
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Interest paid during the period (net of capitalized interest) ........ $ 13,835 $ 14,182
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
TEPPCO Partners, L.P. (the "Partnership"), a Delaware limited
partnership, was formed in March 1990. The Partnership operates through TE
Products Pipeline Company, Limited Partnership (the "Products OLP") and TCTM,
L.P. (the "Crude Oil OLP"). Collectively the Products OLP and the Crude Oil OLP
are referred to as "the Operating Partnerships." The Partnership owns a 99%
interest as the sole limited partner interest in both the Products OLP and the
Crude Oil OLP.
On March 31, 2000, Texas Eastern Products Pipeline Company, a Delaware
corporation and general partner of the Partnership and the Operating
Partnerships, was reorganized into Texas Eastern Products Pipeline Company, LLC
(the "Company" or "General Partner"), a Delaware limited liability company.
Additionally on March 31, 2000, Duke Energy Corporation ("Duke Energy"),
contributed its ownership of the General Partner to Duke Energy Field Services,
LLC ("DEFS"). DEFS is a joint venture between Duke Energy and Phillips Petroleum
Company. Duke Energy holds a majority interest in DEFS.
The Company owns a 1% general partner interest in the Partnership and
1% general partner interest in each Operating Partnership. The Company, as
general partner, performs all management and operating functions required for
the Partnership pursuant to the Agreements of Limited Partnership of TEPPCO
Partners, L.P., TE Products Pipeline Company, Limited Partnership and TCTM, L.P.
(the "Partnership Agreements"). The General Partner is reimbursed by the
Partnership for all reasonable direct and indirect expenses incurred in managing
the Partnership.
The accompanying unaudited consolidated financial statements reflect
all adjustments, which are, in the opinion of management, of a normal and
recurring nature and necessary for a fair statement of the financial position of
the Partnership as of March 31, 2000, and the results of operations and cash
flows for the periods presented. The results of operations for the three months
ended March 31, 2000, are not necessarily indicative of results of operations
for the full year 2000. The interim financial statements should be read in
conjunction with the Partnership's consolidated financial statements and notes
thereto presented in the TEPPCO Partners, L.P. Annual Report on Form 10-K for
the year ended December 31, 1999. Certain amounts from the prior year have been
reclassified to conform to current presentation.
The Partnership operates in two industry segments: refined products and
liquefied petroleum gases ("LPGs") transportation, and crude oil and natural gas
liquids ("NGLs") transportation and marketing. The Partnership's reportable
segments offer different products and services and are managed separately
because each requires different business strategies. The Partnership's
interstate transportation operations, including rates charged to customers, are
subject to regulations prescribed by the Federal Energy Regulatory Commission
("FERC"). Refined products, LPGs, crude oil and NGLs are referred to herein,
collectively, as "petroleum products" or "products."
Basic net income per Unit is computed by dividing net income, after
deduction of the general partner's interest, by the weighted average number of
Limited Partner and Class B Units outstanding (a total of 32,916,547 Units as of
March 31, 2000 and 1999). The General Partner's percentage interest in net
income is based on its percentage of cash distributions from Available Cash for
each period (see Note 6. Cash Distributions). The General Partner was allocated
$4.0 million (representing 16.67%) and $2.4 million (representing 10.18%) of net
income for the three months ended March 31, 2000, and 1999, respectively.
5
<PAGE> 6
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Diluted net income per Unit is similar to the computation of basic net
income per Unit above, except that the denominator was increased to include the
dilutive effect of outstanding Unit options by application of the treasury stock
method. For the quarters ended March 31, 2000 and 1999, the denominator was
increased by 19,457 Units and 28,572 Units, respectively.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes standards for and disclosures of derivative
instruments and hedging activities. In July 1999, the FASB issued SFAS No. 137
to delay the effective date of SFAS No. 133 until fiscal years beginning after
June 15, 2000. The Partnership expects to adopt this standard effective January
1, 2001. The Partnership has not determined the impact of this statement on its
financial condition and results of operations.
NOTE 3. INVESTMENTS
SHORT-TERM INVESTMENTS
The Partnership routinely invests cash in liquid short-term investments
as part of its cash management program. Investments with maturities at date of
purchase of 90 days or less are considered cash equivalents. At March 31, 2000,
short-term investments included $1.5 million of investment-grade corporate
notes, which mature within one year. All short-term investments are classified
as held-to-maturity securities and are stated at amortized cost. The aggregate
fair value of such securities approximates amortized cost at March 31, 2000.
LONG-TERM INVESTMENTS
At March 31, 2000, the Partnership had $5.2 million invested in
investment-grade corporate notes, which have varying maturities through 2004.
These securities are classified as held-to-maturity securities and are stated at
amortized cost. The aggregate fair value of such securities approximates
amortized cost at March 31, 2000.
NOTE 4. INVENTORIES
Inventories are carried at the lower of cost (based on weighted average
cost method) or market. The major components of inventories were as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Gasolines ........................................ $ 1,532 $ 3,270
Propane .......................................... 168 223
Butanes .......................................... 58 605
Fuel oil ......................................... 200 386
Crude oil ........................................ 4,528 6,627
Other products ................................... 2,075 2,301
Materials and supplies ........................... 3,468 3,354
------------ ------------
Total .................................. $ 12,029 $ 16,766
============ ============
</TABLE>
The costs of inventories were lower than market at March 31, 2000, and
December 31, 1999.
6
<PAGE> 7
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 5. LONG TERM DEBT
SENIOR NOTES
On January 27, 1998, the Products OLP completed the issuance of $180
million principal amount of 6.45% Senior Notes due 2008, and $210 million
principal amount of 7.51% Senior Notes due 2028 (collectively the "Senior
Notes"). The 6.45% Senior Notes due 2008 are not subject to redemption prior to
January 15, 2008. The 7.51% Senior Notes due 2028 may be redeemed at any time
after January 15, 2008, at the option of the Products OLP, in whole or in part,
at a premium.
The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year. The Senior Notes are unsecured obligations of the Products OLP and
will rank on a parity with all other unsecured and unsubordinated indebtedness
of the Products OLP. The indenture governing the Senior Notes contains
covenants, including, but not limited to, covenants limiting (i) the creation of
liens securing indebtedness and (ii) sale and leaseback transactions. However,
the indenture does not limit the Partnership's ability to incur additional
indebtedness.
OTHER LONG TERM DEBT
In connection with the purchase of fractionation assets from DEFS as of
March 31, 1998, TEPPCO Colorado received a $38 million bank loan from SunTrust
Bank ("SunTrust"). The SunTrust loan bears interest at a rate of 6.53%, which is
payable quarterly. The principal balance of the loan is payable in full on April
21, 2001. The Products OLP is guarantor on the loan.
On May 17, 1999, the Products OLP entered into a $75 million term loan
agreement to finance construction of three new pipelines between the
Partnership's terminal in Mont Belvieu, Texas and Port Arthur, Texas. The loan
agreement has a term of five years. SunTrust is the administrator of the loan.
At March 31, 2000, $45 million was outstanding under the term loan agreement.
Principal will be paid quarterly as follows, with the remaining principal
balance payable on May 17, 2004.
<TABLE>
<CAPTION>
QUARTERLY PERIODS ENDING PAYMENT AMOUNT
------------------------ --------------
<S> <C>
June 2001 through March 2002 $2.50 million
June 2002 through March 2003 $3.75 million
June 2003 through March 2004 $5.00 million
</TABLE>
The interest rate for the $75 million term loan is based on the
borrower's option of either SunTrust's prime rate, the federal funds rate or
LIBOR rate in effect at the time of the borrowings and is adjusted monthly,
bimonthly, quarterly or semi-annually. Interest is payable quarterly from the
time of borrowing. The weighted average interest rate for amounts outstanding
under the term loan at March 31, 2000 was 7.36%.
Both the $38 million term loan and the $75 million term loan with
SunTrust contain restrictive financial covenants that require the Products OLP
to maintain a minimum level of partners' capital as well as debt-to-earnings,
interest coverage and capital expenditure coverage ratios. At March 31, 2000,
the Products OLP was in compliance with all financial covenants related to these
loan agreements.
7
<PAGE> 8
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
WORKING CAPITAL FACILITIES
On May 17, 1999, the Products OLP entered into a $25 million revolving
credit agreement and TEPPCO Crude Oil, LLC ("TCO") entered into a $30 million
revolving credit agreement. SunTrust is the administrative agent on both
revolving credit agreements. The $25 million revolving credit agreement has a
five year term and the $30 million revolving credit agreement has a three year
term. The interest rate on both agreements is based on the borrower's option of
either SunTrust's prime rate, the federal funds rate or LIBOR rate in effect at
the time of the borrowings and is payable quarterly. Interest rates are adjusted
monthly, bimonthly, quarterly or semi-annually. The Products OLP has not made
any borrowings under this revolving credit facility. TCO had $3 million
principal amount outstanding under its revolving credit agreement as of March
31, 2000.
The revolving credit agreements with SunTrust contain restrictive
financial covenants that require the Products OLP and the Crude Oil OLP to
maintain a minimum level of partners' capital as well as debt-to-earnings,
interest coverage and capital expenditure coverage ratios. At March 31, 2000,
the Operating Partnerships were in compliance with all financial covenants
related to these loan agreements.
NOTE 6. CASH DISTRIBUTIONS
The Partnership makes quarterly cash distributions of all of its
Available Cash, generally defined as consolidated cash receipts less
consolidated cash disbursements and cash reserves established by the General
Partner in its sole discretion. Pursuant to the Partnership Agreement, the
Company receives incremental incentive cash distributions on the portion that
cash distributions on a per Unit basis exceed certain target thresholds as
follows:
<TABLE>
<CAPTION>
GENERAL
UNITHOLDERS PARTNER
----------- -------
<S> <C> <C>
Quarterly Cash Distribution per Unit:
Up to Minimum Quarterly Distribution ($0.275 per Unit) ................. 98% 2%
First Target - $0.276 per Unit up to $0.325 per Unit ................... 85% 15%
Second Target - $0.326 per Unit up to $0.45 per Unit ................... 75% 25%
Over Second Target - Cash distributions greater than $0.45 per Unit .... 50% 50%
</TABLE>
The following table reflects the allocation of total distributions paid
for the quarters ended March 31, 2000 and 1999 (in thousands, except per Unit
amounts).
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Limited Partner Units ..................................................... $ 13,775 $ 13,050
1% General Partner Interest ............................................... 158 144
General Partner Incentive ................................................. 2,327 1,467
---------- ----------
Total Partners' Capital Cash Distributions .......................... 16,260 14,661
Class B Units ............................................................. 1,860 1,169
Minority Interest ......................................................... 185 161
---------- ----------
Total Cash Distributions Paid ....................................... $ 18,305 $ 15,991
========== ==========
Total Cash Distributions Paid Per Unit .................................... $ 0.475 $ 0.450
========== ==========
</TABLE>
8
<PAGE> 9
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The above table includes the fourth quarter 1998 pro rata cash
distribution paid on February 5, 1999, to the Class B Limited Partner Units for
the 61-day period from the issuance on November 1, 1998. On April 14, 2000, the
Partnership declared a cash distribution of $0.50 per Limited Partner Unit and
Class B Unit for the quarter ended March 31, 2000. The distribution was paid on
May 5, 2000, to Unitholders of record on April 28, 2000. The distribution
increase to $0.50 per Unit increases the quarterly distribution payment to
approximately $20.0 million, which includes the General Partner incentive
distribution.
NOTE 7. SEGMENT DATA
The Partnership operates in two industry segments: refined products and
LPGs transportation, which operates through the Products OLP; and crude oil and
NGLs transportation and marketing, which operates through the Crude Oil OLP.
Operations of the Products OLP consist of interstate transportation,
storage and terminaling of petroleum products; short-haul shuttle transportation
of LPGs at the Mont Belvieu, Texas complex; sale of product inventory;
fractionation of natural gas liquids and other ancillary services. The Products
OLP is one of the largest pipeline common carriers of refined petroleum products
and LPGs in the United States. The Partnership owns and operates an approximate
4,300-mile pipeline system extending from southeast Texas through the central
and midwestern United States to the northeastern United States.
The Crude Oil OLP gathers, stores, transports and markets crude oil
principally in Oklahoma, Texas and the Rocky Mountain region; operates two
trunkline NGL pipelines in South Texas; and distributes lube oils and specialty
chemicals to industrial and commercial accounts. The Crude Oil OLP's gathering,
transportation and storage assets include approximately 2,400 miles of pipeline
and 1.6 million barrels of storage.
The below table includes interim financial information by business
segment as of and for the quarters ended March 31, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
PRODUCTS CRUDE OIL
2000 OLP OLP CONSOLIDATED
- ---- ------------ ------------ ------------
<S> <C> <C> <C>
Unaffiliated revenues ....................... $ 63,778 $ 686,914 $ 750,692
Operating expenses, including power ......... 28,657 683,021 711,678
Depreciation and amortization expense ....... 6,783 1,464 8,247
------------ ------------ ------------
Operating income ...................... 28,338 2,429 30,767
Interest expense, net ....................... (7,310) (114) (7,424)
Other income, net ........................... 393 145 538
------------ ------------ ------------
Net income ............................ $ 21,421 $ 2,460 $ 23,881
============ ============ ============
Identifiable assets ......................... $ 737,111 $ 359,639 $ 1,096,750
Accounts receivable, trade .................. 15,949 227,324 243,273
Accounts payable and accrued liabilities .... $ 7,188 $ 234,776 $ 241,964
</TABLE>
9
<PAGE> 10
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
PRODUCTS CRUDE OIL
1999 OLP OLP CONSOLIDATED
- ---- ------------ ------------ ------------
<S> <C> <C> <C>
Unaffiliated revenues ....................... $ 61,150 $ 224,940 $ 286,090
Operating expenses, including power ......... 26,189 221,293 247,482
Depreciation and amortization expense ....... 6,763 1,376 8,139
------------ ------------ ------------
Operating income ...................... 28,198 2,271 30,469
Interest expense, net ....................... (7,394) (6) (7,400)
Other income, net ........................... 187 116 303
------------ ------------ ------------
Net income ............................ $ 20,991 $ 2,381 $ 23,372
============ ============ ============
Identifiable assets ......................... $ 690,819 $ 187,616 $ 878,435
Accounts receivable, trade .................. 18,686 70,787 89,473
Accounts payable and accrued liabilities .... $ 5,702 $ 76,750 $ 82,452
</TABLE>
NOTE 8. CONTINGENCIES
In the fall of 1999, the Company and the Partnership became involved in
a lawsuit in Jackson County Circuit Court, Jackson County, Indiana. In Ryan E.
McCleery and Marcia S. McCleery, et al. v. Texas Eastern Corporation, et al.
(including the Company and Partnership), plaintiffs contend, among other things,
that the Company and other defendants stored and disposed of toxic and hazardous
substances and hazardous wastes in a manner that caused the materials to be
released into the air, soil and water. They further contend that the release
caused damages to the plaintiffs. In their Complaint, the plaintiffs allege
strict liability for both personal injury and property damage together with
gross negligence, continuing nuisance, trespass, criminal mischief and loss of
consortium. Furthermore, the plaintiffs are seeking compensatory, punitive and
treble damages. The Company has filed an Answer to the Complaint, denying the
allegations, as well as various other motions. This case is in the early stages
of discovery and is not covered by insurance. The Company is defending itself
vigorously against this lawsuit. The Partnership cannot estimate the loss, if
any, associated with this pending lawsuit.
The Partnership is involved in various other claims and legal
proceedings incidental to its business. In the opinion of management, these
claims and legal proceedings will not have a material adverse effect on the
Partnership's consolidated financial position, results of operations or cash
flows.
The operations of the Partnership are subject to federal, state and
local laws and regulations relating to protection of the environment. Although
the Partnership believes its operations are in material compliance with
applicable environmental regulations, risks of significant costs and liabilities
are inherent in pipeline operations, and there can be no assurance that
significant costs and liabilities will not be incurred. Moreover, it is possible
that other developments, such as increasingly strict environmental laws and
regulations and enforcement policies thereunder, and claims for damages to
property or persons resulting from the operations of the pipeline system, could
result in substantial costs and liabilities to the Partnership. The Partnership
does not anticipate that changes in environmental laws and regulations will have
a material adverse effect on its financial position, operations or cash flows in
the near term.
The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM is expected to issue a Record of
Decision formally approving the remediation program. After the Record of
Decision has been
10
<PAGE> 11
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
issued, the Partnership will enter into an Agreed Order for the continued
operation and maintenance of the program. The Partnership has accrued $1.2
million at March 31, 2000 for future costs of the remediation program for the
Seymour terminal. In the opinion of the Company, the completion of the
remediation program will not have a material adverse impact on the Partnership's
financial condition, results of operations or liquidity.
Tariff rates of interstate oil pipeline companies are currently
regulated by the FERC, primarily through an index methodology, whereby a
pipeline company is allowed to change its rates based on the change from year to
year in the Producer Price Index for finished goods less 1% ("PPI Index"). In
the alternative, interstate oil pipeline companies may elect to support rate
filings by using a cost-of-service methodology, competitive market showings
("Market Based Rates") or agreements between shippers and the oil pipeline
company that the rate is acceptable ("Settlement Rates").
In May 1999, the Products OLP filed an application with the FERC to
charge Market Based Rates for substantially all refined products transportation
tariffs. Such application is currently under review by the FERC. The FERC
approved a request of the Products OLP waiving the requirement to adjust refined
products transportation tariffs pursuant to the PPI Index while its Market Based
Rates application is under review. Under the PPI Index, refined products
transportation rates in effect on June 30, 1999 would have been reduced by
approximately 1.83% effective July 1, 1999. If any portion of the Market Based
Rates application is denied by the FERC, the Products OLP has agreed to refund,
with interest, amounts collected after June 30, 1999, under the tariff rates in
excess of the PPI Index. As a result of the refund obligation potential, the
Partnership has deferred all revenue recognition of rates charged in excess of
the PPI Index. At March 31, 2000, the amount deferred for possible rate refunds,
including interest, totaled approximately $1.2 million.
In July 1999, certain shippers filed protests with the FERC on the
Products OLP's application for Market Based Rates in four destination markets.
The Partnership believes it will prevail in a competitive market determination
in those destination markets under protest.
Substantially all of the petroleum products transported and stored by
the Partnership are owned by the Partnership's customers. At March 31, 2000, the
Partnership had approximately 10.4 million barrels of products in its custody
owned by customers. The Partnership is obligated for the transportation, storage
and delivery of such products on behalf of its customers. The Partnership
maintains insurance adequate to cover product losses through circumstances
beyond its control.
NOTE 9. CURRENT DEVELOPMENTS
In March 2000, the Partnership, CMS Energy Corporation and Marathon
Ashland Petroleum LLC announced an agreement to form a limited liability company
that will own and operate an interstate refined petroleum products pipeline
extending from the upper Texas Gulf Coast to Illinois. Each of the companies
will own a one-third interest in the limited liability company. The
Partnership's participation in this joint venture is in lieu of its previously
announced expansion plan to construct a new pipeline from Beaumont, Texas, to
Little Rock, Arkansas. The Partnership recognized $0.9 million of expense in
March 2000 to write-off project evaluation costs related to the abandoned
construction plan.
The limited liability company will build a 70-mile, 24-inch diameter
pipeline connecting the Partnership's facility in Beaumont, Texas, with the
start of an existing 720-mile, 26-inch diameter pipeline extending from
Longville, Louisiana, to Bourbon, Illinois. The pipeline, which has been named
Centennial Pipeline, will pass through portions of Texas, Louisiana, Arkansas,
Mississippi, Tennessee, Kentucky and Illinois. CMS Panhandle Pipe Line
Companies, which owns the existing 720-mile pipeline, has made a filing with the
FERC to take the line
11
<PAGE> 12
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
out of natural gas service as part of the regulatory process. Conversion of the
pipeline to refined products service is expected to be completed by the end of
2001. The Centennial Pipeline will intersect the Partnership's existing mainline
near Lick Creek, Illinois, where a new two million barrel refined petroleum
products storage terminal will be built.
In May 2000, the Company signed a definitive agreement to acquire
certain assets of ARCO Pipe Line Company ("ARCO"), a wholly owned subsidiary of
Atlantic Richfield Company, for $318.5 million. The purchase includes ARCO's
interest in a crude oil transportation pipeline from the Texas Gulf Coast to
Cushing, Oklahoma, Mid-continent crude distribution services, and crude oil
terminal facilities. This purchase agreement replaced a previously announced
definitive agreement signed in March 2000 to acquire the stock of ARCO for $355
million, which included ARCO's interest in a refined products transportation
pipeline from the Texas Gulf Coast to Cushing. The transaction is expected to
be accounted for under the purchase method for accounting purposes. The
purchase is expected to close during the second quarter of 2000, however, it is
contingent upon the satisfaction of regulatory requirements. The Company is
currently evaluating financing alternatives of the purchase, including external
borrowing and the issuance of additional limited partner Units.
Under the proposed transaction, the Company will acquire ARCO's
50-percent ownership interest in Seaway Pipeline Company's ("Seaway") 500-mile,
30-inch diameter pipeline that carries mostly imported crude oil from a marine
terminal at Freeport, Texas, to Cushing. The line has a capacity of 350,000
barrels per day. The Partnership will assume ARCO's role as operator of Seaway.
The Company will also acquire: (i) ARCO's crude oil terminal facilities in
Cushing and Midland, Texas, including the line transfer and pumpover business
at each location; (ii) an undivided ownership interest in both the Rancho
Pipeline, a 400-mile, 24-inch diameter, crude oil pipeline from West Texas to
Houston, and the Basin Pipeline, a 416-mile, crude oil pipeline running from
Jal, New Mexico, through Midland to Cushing, both of which will be operated by
another joint owner; and (iii) the receipt and delivery pipelines known as the
West Texas Trunk System, which is located around the Midland terminal.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following information is provided to facilitate increased
understanding of the 2000 and 1999 interim consolidated financial statements and
accompanying notes presented in Item 1. Material period-to-period variances in
the consolidated statements of income are discussed under "Results of
Operations." The "Financial Condition and Liquidity" section analyzes cash flows
and financial position. Discussion included in "Other Matters" addresses key
trends, future plans and contingencies. Throughout these discussions, management
addresses items that are reasonably likely to materially affect future liquidity
or earnings.
Through its ownership of the Products OLP and the Crude Oil OLP, the
Partnership operates in two industry segments: refined products and LPGs
transportation, and crude oil and NGLs transportation and marketing. The
Partnership's reportable segments offer different products and services and are
managed separately because each requires different business strategies.
The Products OLP segment is involved in the transportation, storage and
terminaling of petroleum products and the fractionation of NGLs. Revenues are
derived from the transportation of refined products and LPGs, the storage and
short-haul shuttle transportation of LPGs at the Mont Belvieu, Texas, complex,
sale of product inventory and other ancillary services. Labor and electric power
costs comprise the two largest operating expense items of the Products OLP.
Operations are somewhat seasonal with higher revenues generally realized during
the first and fourth quarters of each year. Refined products volumes are
generally higher during the second and third quarters because of greater demand
for gasolines during the spring and summer driving seasons. LPGs volumes are
generally higher from November through March due to higher demand in the
Northeast for propane, a major fuel for residential heating.
The Crude Oil OLP segment is involved in the transportation,
aggregation and marketing of crude oil, NGLs, lube oils and specialty chemicals.
Revenues are earned from the gathering, storage, transportation and marketing of
crude oil, NGLs, lube oils and specialty chemicals principally in Oklahoma,
Texas and the Rocky Mountain region. Marketing operations consist primarily of
purchasing and aggregating crude oil along its and third party gathering and
pipeline systems and arranging the necessary logistics for the ultimate sale of
crude oil to local refineries, marketers or other end users.
RESULTS OF OPERATIONS
Summarized below is financial data by business segment (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Operating revenues:
Refined Products and LPGs Transportation .......... $ 63,778 $ 61,150
Crude Oil and NGLs Transportation and Marketing ... 686,914 224,940
------------ ------------
Total operating revenues ....................... 750,692 286,090
------------ ------------
Operating income:
Refined Products and LPGs Transportation ........... 28,338 28,198
Crude Oil and NGLs Transportation and Marketing .... 2,429 2,271
------------ ------------
Total operating income ......................... 30,767 30,469
------------ ------------
Net income:
Refined Products and LPGs Transportation .......... 21,421 20,991
Crude Oil and NGLs Transportation and Marketing ... 2,460 2,381
------------ ------------
Total net income ................................ $ 23,881 $ 23,372
------------ ------------
</TABLE>
13
<PAGE> 14
RESULTS OF OPERATIONS - (CONTINUED)
For the quarter ended March 31, 2000, the Partnership reported net
income of $23.9 million, compared with net income of $23.4 million for the first
quarter of 1999. The $0.5 million increase in net income resulted primarily from
a $2.6 million increase in operating revenues of the refined products and LPGs
transportation segment and a $1.3 million increase in margin contributed by the
crude oil and NGLs transportation and marketing segment. These increases were
partially offset by a $3.0 million increase in operating, general and
administrative expenses and a $0.6 million increase in operating fuel and power
expense. See discussion below of factors affecting net income for the
comparative periods by business segment.
REFINED PRODUCTS AND LPGS TRANSPORTATION SEGMENT
Volume and average tariff information for 2000 and 1999 is presented below:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, PERCENTAGE
-------------------------------- INCREASE
2000 1999 (DECREASE)
------------ ------------ ------------
<S> <C> <C> <C>
VOLUMES DELIVERED
(in thousands of barrels)
Refined products 29,613 28,155 5%
LPGs 11,693 13,172 (11%)
Mont Belvieu operations 7,072 6,885 3%
------------ ------------ ------------
Total 48,378 48,212 --
============ ============ ============
AVERAGE TARIFF PER BARREL
Refined products $ 0.95(a) $ 0.91 4%
LPGs 1.98 2.02 (2%)
Mont Belvieu operations 0.16 0.16 --
Average system tariff per barrel $ 1.08 $ 1.11 (3%)
============ ============ ============
</TABLE>
(a) Net of amounts deferred related to potential refund obligation.
Refined products transportation revenues increased $2.4 million for the
quarter ended March 31, 2000, compared with the prior-year quarter, as a result
of a 5% increase in volumes delivered and a 4% increase in the refined products
average tariff per barrel. The increase in volumes delivered was primarily
attributable to increased deliveries of motor fuel in the upper Midwest due to
favorable Gulf Coast differentials and lower production at competing Midwest
refineries. Additionally, jet fuel volumes delivered increased as a result of
continued strong demand for air travel in the Midwest. The increase in the
refined products average tariff per barrel was primarily attributable to a
higher percentage of longer-haul volumes delivered in the upper Midwest market
areas, partially offset by the 1.83% general tariff reduction pursuant to the
Producer Price Index for finished goods less 1% ("PPI Index"), effective July 1,
1999. The Partnership deferred recognition of approximately $0.4 million of
revenue during the first quarter of 2000 with respect to potential refund
obligations for rates charged in excess of the PPI Index. See further discussion
regarding Market Based Rates included in "Other Matters."
LPGs transportation revenues decreased $3.5 million for the quarter
ended March 31, 2000, compared with the first quarter of 1999, due primarily to
lower propane volumes delivered. Propane deliveries in Midwest and Northeast
market areas decreased 26% and 10%, respectively, from the prior year as a
result of warmer winter weather during the first quarter of 2000. These
decreases were partially offset by a 12% increase in propane deliveries along
the upper Texas Gulf Coast as a result of increased petrochemical demand. The
decrease in the LPGs average tariff per barrel reflects the decreased percentage
of longer-haul transportation volumes delivered during the first quarter of
2000.
Revenues generated from Mont Belvieu operations increased $1.6 million
during the quarter ended March 31, 2000, compared with the first quarter of
1999, as a result of increased contract storage revenue. Other operating
14
<PAGE> 15
RESULTS OF OPERATIONS - (CONTINUED)
revenues increased $2.1 million during the quarter ended March 31, 2000,
compared with the prior year quarter, due primarily to higher gains on the sale
of product inventory.
Costs and expenses increased $2.5 million for the quarter ended March
31, 2000, compared with the first quarter of 1999, due primarily to a $2.0
million increase in operating, general and administrative expenses and a $0.7
million increase in operating fuel and power expense, partially offset by a $0.2
million decrease in taxes - other than income taxes. The increase in operating,
general and administrative expenses was due primarily to $0.9 million of expense
to write-off project evaluation costs; a $0.4 million accrual related to
environmental remediation at the Partnership's Seymour, Indiana, terminal;
increased labor and benefits expenses; and increased contract labor and
consulting services. The write-off of project evaluation costs resulted from the
announcement in March 2000 of the Partnership's abandonment of its plan to
construct a pipeline from Beaumont, Texas, to Little Rock, Arkansas, in favor of
participation in the Centennial Pipeline ("Centennial") joint venture with CMS
Energy Corporation and Marathon Ashland Petroleum LLC. Each partner in the
Centennial joint venture will own a one-third interest in a 790-mile pipeline
system from the Texas Gulf Cost to the Midwest. The increase in operating fuel
and power expense resulted from increased refined products transportation
volumes delivered, which generally require more power to transport than LPGs
volumes. The decrease in taxes - other than income resulted from revisions to
previous years' estimated property tax accruals.
Interest expense increased $0.8 million during the first quarter of
2000, compared with the first quarter of 1999, due to interest expense on the
term loan to finance construction of the pipelines between Mont Belvieu and Port
Arthur, Texas. At March 31, 2000, $45 million has been borrowed on the term
loan. Capitalized interest increased $0.9 million during the first quarter 2000,
compared with the first quarter of 1999, as a result of higher balances
associated with construction-in-progress of the new pipelines between Mont
Belvieu and Port Arthur.
CRUDE OIL AND NGLS TRANSPORTATION AND MARKETING SEGMENT
Margin and volume information for the three months ended March 31, 2000
and 1999 is presented below:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, PERCENTAGE
----------------------------- INCREASE
2000 1999 (DECREASE)
------------ ------------ ------------
<S> <C> <C> <C>
Margins (dollars in thousands):
Crude oil transportation .......... $ 4,866 $ 4,297 13%
Crude oil marketing ............... 2,250 1,997 13%
NGL transportation ................ 1,759 1,406 25%
Lubrication oil sales ............. 626 543 15%
------------ ------------ ------------
Total margin ....................... $ 9,501 $ 8,243 15%
============ ============ ============
Barrels per day:
Crude oil transportation .......... 95,897 90,535 6%
Crude oil marketing ............... 269,678 239,174 13%
NGL transportation ................ 13,344 10,779 24%
Lubrication oil volume (total gallons): .... 2,303,340 1,958,916 18%
Margin per barrel:
Crude oil transportation .......... $ 0.558 $ 0.527 6%
Crude oil marketing ............... $ 0.092 $ 0.093 (1%)
NGL transportation ................ $ 1.449 $ 1.449 --
Lubrication oil margin (per gallon): ....... $ 0.272 $ 0.277 (2%)
</TABLE>
15
<PAGE> 16
RESULTS OF OPERATIONS - (CONTINUED)
Net income attributable to the crude oil transportation and marketing
segment totaled $2.5 million for the quarter ended March 31, 2000, compared with
net income of $2.4 million for the first quarter of 1999. The increase in net
income was primarily attributable to a $1.3 million increase in margin, largely
offset by a $1.0 million increase in operating, general and administrative
expenses and a $0.1 million increase in charges for depreciation and
amortization. Margin is a more meaningful measure of financial performance than
operating revenues and operating expenses due to the significant fluctuations in
revenues and expense caused by the level of marketing activity. Margin is
calculated as revenues generated from crude oil and lube oil sales and crude oil
and NGLs transportation less the cost of crude oil and lube oil purchases.
The $1.3 million increase in margin during the first quarter of 2000,
compared with the first quarter of 1999, was comprised of a $0.6 million
increase in crude oil transportation, a $0.4 million increase in NGL
transportation and a $0.3 million increase in crude oil marketing activity. The
increase in crude oil transportation margin was primarily attributable to
increased volumes on the South Texas system coupled with higher transportation
rates. The increase in the NGL transportation margin was primarily due to
measurement gains on the Dean Pipeline. The increase in crude oil marketing
margin resulted from higher volumes marketed and increased prices received on
prompt sales at the Cushing, Oklahoma crude oil hub.
Operating, general and administrative expenses increased $1.0 million
during the first quarter of 2000, compared with the first quarter of 1999, due
primarily to increased contract labor and consulting costs for general and
administrative purposes, increased labor and benefits costs, and higher
maintenance costs on the NGL pipelines.
FINANCIAL CONDITION AND LIQUIDITY
Net cash from operations for the quarter ended March 31, 2000, totaled
$28.8 million, comprised of $32.1 million of income before charges for
depreciation and amortization, partially offset by $3.3 million of cash used for
working capital changes. This compares with cash flows from operations of $10.8
million for the first quarter of 1999, which was comprised of $31.5 million of
income before charges for depreciation and amortization, partially offset by
$20.7 million of cash used for working capital changes. The decrease in cash
used for working capital changes during the first quarter of 2000, as compared
with the first quarter of 1999, resulted primarily from timing of payments
related to crude oil marketing activity and lower inventory balances at March
31, 2000. Net cash from operations for the quarters ended March 31, 2000 and
1999, included interest payments related to the Senior Notes and term loans of
$14.8 million and $14.3 million, respectively.
Cash flows used in investing activities during the first quarter of
2000 was comprised of $18.0 million of capital expenditures. Cash flows used in
investing activities during the first quarter of 1999 included $11.9 million of
capital expenditures, $2.3 million for the purchase of a 125-mile crude oil
system in Southeast Texas, and $1.2 million of additional cash investments.
These decreases of cash were partially offset by $3.0 million of proceeds from
maturities of cash investments. During the first quarter of 2000 and 1999,
capital expenditures included $10.4 million and $7.1 million, respectively, for
construction of three new pipelines between the Partnership's terminal in Mont
Belvieu, Texas and Port Arthur, Texas. The project includes three 12-inch
diameter common-carrier pipelines and associated facilities. Each pipeline will
be approximately 70 miles in length. Upon completion, the new pipelines will
transport ethylene, propylene and natural gasoline. The anticipated completion
date is the fourth quarter of 2000. The Partnership has entered into an
agreement for turnkey construction of the pipelines and related facilities and
has separately entered into agreements for guaranteed throughput commitments.
The cost of this project is expected to total approximately $74.5 million.
The Partnership estimates that capital expenditures for 2000 will total
approximately $82 million (which includes $4 million of capitalized interest).
Approximately $31 million is expected to be used to complete construction of the
three new pipelines between Mont Belvieu and Port Arthur and approximately $10
million will be used to replace seven pipelines under the Houston Ship Channel
as required by the United States Army Corp of Engineers for the deepening of the
channel. Approximately $14 million of the remaining amount is expected to be
16
<PAGE> 17
FINANCIAL CONDITION AND LIQUIDITY - (CONTINUED)
used for the Products OLP and $23 million is expected to be used for the Crude
Oil OLP. Substantially all remaining expenditures related to the Products OLP
are expected to be used for life-cycle replacements and upgrading current
facilities. Approximately $17 million of planned expenditures of the Crude Oil
OLP are expected to be used in revenue-generating projects, with the remaining
$6 million being used for life-cycle replacements and upgrading current
facilities.
The Partnership paid the fourth quarter 1999 cash distribution of $18.3
million ($0.475 per Limited Partner Unit and Class B Unit) on February 4, 2000.
Additionally, on April 14, 2000, the Partnership declared a cash distribution of
$0.50 per Limited Partner Unit and Class B Unit for the three months ended March
31, 2000, which increased the annualized distribution to $2.00 per Unit. The
distribution was paid on May 5, 2000 to Unitholders of record on April 28, 2000.
The distribution increase will raise the quarterly distribution payment to
approximately $20.0 million, which includes the General Partner incentive
distribution (see Note 6).
OTHER MATTERS
The operations of the Partnership are subject to federal, state and
local laws and regulations relating to protection of the environment. Although
the Partnership believes the operations of the Pipeline System are in material
compliance with applicable environmental regulations, risks of significant costs
and liabilities are inherent in pipeline operations, and there can be no
assurance that significant costs and liabilities will not be incurred. Moreover,
it is possible that other developments, such as increasingly strict
environmental laws and regulations and enforcement policies thereunder, and
claims for damages to property or persons resulting from the operations of the
Pipeline System, could result in substantial costs and liabilities to the
Partnership. The Partnership does not anticipate that changes in environmental
laws and regulations will have a material adverse effect on its financial
position, operations or cash flows in the near term.
The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM is expected to issue a Record of
Decision formally approving the remediation program. After the Record of
Decision has been issued, the Partnership will enter into an Agreed Order for
the continued operation and maintenance of the program. The Partnership has
accrued $1.2 million at March 31, 2000 for future costs of the remediation
program for the Seymour terminal. In the opinion of the Company, the completion
of the remediation program will not have a material adverse impact on the
Partnership's financial condition, results of operations or liquidity.
Tariff rates of interstate oil pipeline companies are currently
regulated by the FERC, primarily through an index methodology, whereby a
pipeline company is allowed to change its rates based on the change from year to
year in the Producer Price Index for finished goods less 1% ("PPI Index"). In
the alternative, interstate oil pipeline companies may elect to support rate
filings by using a cost-of-service methodology, competitive market showings
("Market Based Rates") or agreements between shippers and the oil pipeline
company that the rate is acceptable ("Settlement Rates").
In May 1999, the Products OLP filed an application with the FERC to
charge Market Based Rates for substantially all refined products transportation
tariffs. Such application is currently under review by the FERC. The FERC
approved a request of the Products OLP waiving the requirement to adjust refined
products transportation tariffs pursuant to the PPI Index while its Market Based
Rates application is under review. Under the PPI Index, refined products
transportation rates in effect on June 30, 1999 would have been reduced by
approximately 1.83% effective July 1, 1999. If any portion of the Market Based
Rates application is denied by the FERC, the Products OLP has agreed to refund,
with interest, amounts collected after June 30, 1999, under the tariff rates in
excess of the PPI Index. As a result of the refund obligation potential, the
Partnership has deferred all
17
<PAGE> 18
OTHER MATTERS - (CONTINUED)
revenue recognition of rates charged in excess of the PPI Index. At March 31,
2000, the amount deferred for possible rate refunds, including interest, totaled
approximately $1.2 million.
In July 1999, certain shippers filed protests with the FERC on the
Products OLP's application for Market Based Rates in four destination markets.
The Partnership believes it will prevail in a competitive market determination
in those destination markets under protest.
Effective July 1, 1999, the Products OLP established Settlement Rates
with certain shippers of LPGs under which the rates in effect on June 30, 1999,
would not be adjusted for a period of either two or three years. Other LPGs
transportation tariff rates were reduced pursuant to the PPI Index
(approximately 1.83%), effective July 1, 1999. Effective July 1, 1999, the
Products OLP canceled its tariff for deliveries of MTBE into the Chicago market
area reflecting reduced demand for transportation of MTBE into such area. The
MTBE tariffs were canceled with the consent of MTBE shippers and resulted in
increased pipeline capacity and tankage available for other products.
In February 2000, the Partnership and Louis Dreyfus Plastics
Corporation ("Louis Dreyfus") announced a joint development alliance whereby the
Partnership's Mont Belvieu petroleum liquids storage and transportation shuttle
system services will be marketed by Louis Dreyfus. The alliance will expand
services to the upper Texas Gulf Coast energy marketplace. The alliance is a
service-oriented, fee-based venture with no commodity trading.
In March 2000, the Partnership, CMS Energy Corporation and Marathon
Ashland Petroleum LLC announced an agreement to form a limited liability company
that will own and operate an interstate refined petroleum products pipeline
extending from the upper Texas Gulf Coast to Illinois. Each of the companies
will own a one-third interest in the limited liability company. The
Partnership's participation in this joint venture is in lieu of its previously
announced expansion plan to construct a new pipeline from Beaumont, Texas, to
Little Rock, Arkansas. The Partnership recognized $0.9 million of expense in
March 2000 to write-off project evaluation costs related to the abandoned
construction plan.
The limited liability company will build a 70-mile, 24-inch diameter
pipeline connecting the Partnership's facility in Beaumont, Texas, with the
start of an existing 720-mile, 26-inch diameter pipeline extending from
Longville, Louisiana, to Bourbon, Illinois. The pipeline, which has been named
Centennial Pipeline, will pass through portions of Texas, Louisiana, Arkansas,
Mississippi, Tennessee, Kentucky and Illinois. CMS Panhandle Pipe Line
Companies, which owns the existing 720-mile pipeline, has made a filing with the
FERC to take the line out of natural gas service as part of the regulatory
process. Conversion of the pipeline to refined products service is expected to
be completed by the end of 2001. The Centennial Pipeline will intersect the
Partnership's existing mainline near Lick Creek, Illinois, where a new two
million barrel refined petroleum products storage terminal will be built.
In May 2000, the Company signed a definitive agreement to acquire
certain assets of ARCO Pipe Line Company ("ARCO"), a wholly owned subsidiary of
Atlantic Richfield Company, for $318.5 million. The purchase includes ARCO's
interest in a crude oil transportation pipeline from the Texas Gulf Coast to
Cushing, Oklahoma, Mid-continent crude distribution services, and crude oil
terminal facilities. This purchase agreement replaced a previously announced
definitive agreement signed in March 2000 to acquire the stock of ARCO for $355
million, which included ARCO's interest in a refined products transportation
pipeline from the Texas Gulf Coast to Cushing. The transaction is expected to be
accounted for under the purchase method for accounting purposes. The purchase is
expected to close during the second quarter of 2000, however, it is contingent
upon the satisfaction of regulatory requirements. The Company is currently
evaluating financing alternatives of the purchase, including external borrowing
and the issuance of additional limited partner Units.
Under the proposed transaction, the Company will acquire ARCO's
50-percent ownership interest in Seaway Pipeline Company's ("Seaway") 500-mile,
30-inch diameter pipeline that carries mostly imported crude oil from a marine
terminal at Freeport, Texas, to Cushing. The line has a capacity of 350,000
barrels per day. The
18
<PAGE> 19
OTHER MATTERS - (CONTINUED)
Partnership will assume ARCO's role as operator of Seaway. The Company will also
acquire: (i) ARCO's crude oil terminal facilities in Cushing and Midland, Texas,
including the line transfer and pumpover business at each location; (ii) an
undivided ownership interest in both the Rancho Pipeline, a 400-mile, 24-inch
diameter, crude oil pipeline from West Texas to Houston, and the Basin Pipeline,
a 416-mile, crude oil pipeline running from Jal, New Mexico, through Midland to
Cushing, both of which will be operated by another joint owner; and (iii) the
receipt and delivery pipelines known as the West Texas Trunk System, which is
located around the Midland terminal.
The matters discussed herein include "forward-looking statements"
within the meaning of various provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included in this document that address activities, events or
developments that the Partnership expects or anticipates will or may occur in
the future, including such things as estimated future capital expenditures
(including the amount and nature thereof), business strategy and measures to
implement strategy, competitive strengths, goals, expansion and growth of the
Partnership's business and operations, plans, references to future success,
references to intentions as to future matters and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Partnership in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate under the
circumstances. However, whether actual results and developments will conform
with the Partnership's expectations and predictions is subject to a number of
risks and uncertainties, including general economic, market or business
conditions, the opportunities (or lack thereof) that may be presented to and
pursued by the Partnership, competitive actions by other pipeline companies,
changes in laws or regulations, and other factors, many of which are beyond the
control of the Partnership. Consequently, all of the forward-looking statements
made in this document are qualified by these cautionary statements and there can
be no assurance that actual results or developments anticipated by the
Partnership will be realized or, even if substantially realized, that they will
have the expected consequences to or effect on the Partnership or its business
or operations. For additional discussion of such risks and uncertainties, see
TEPPCO Partners, L.P.'s 1999 Annual Report on Form 10-K.
19
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership may be exposed to market risk through changes in
commodity prices and interest rates as discussed below. The Partnership has no
foreign exchange risks.
The Partnership mitigates exposure to commodity price fluctuations by
maintaining a balanced position between crude oil purchases and sales. As a
hedging strategy to manage crude oil price fluctuations, the Partnership enters
into futures contracts on the New York Mercantile Exchange, and makes limited
use of other derivative instruments. It is the Partnership's general policy not
to acquire crude oil futures contracts or other derivative products for the
purpose of speculating on price changes, however, the Partnership may take
limited speculative positions to capitalize on crude oil price fluctuations. Any
contracts held for trading purposes or speculative positions are accounted for
using the mark-to-market method. Under this methodology, contracts are adjusted
to market value, and the gains and losses are recognized in current period
income. Risk management policies have been established by the Risk Management
Committee to monitor and control these market risks. The Risk Management
Committee is comprised of senior executives of the Partnership. Market risks
associated with commodity derivatives were not material at March 31, 2000.
At March 31, 2000, the Products OLP had outstanding $180 million
principal amount of 6.45% Senior Notes due 2008, and $210 million principal
amount of 7.51% Senior Notes due 2028 (collectively the "Senior Notes").
Additionally, the Products OLP had a $38 million bank loan outstanding from
SunTrust Bank. The SunTrust loan bears interest at a fixed rate of 6.53% and is
payable in full in April 2001. At March 31, 2000, the estimated fair value of
the Senior Notes and the SunTrust loan was approximately $338.5 million and
$37.5 million, respectively.
At March 31, 2000, the Products OLP had $45 million outstanding under a
variable interest rate term loan and the Crude Oil OLP had $3 million
outstanding under its revolving credit agreement. The interest rates for these
credit facilities are based on the borrower's option of either SunTrust Bank's
prime rate, the federal funds rate or LIBOR rate in effect at the time of the
borrowings and is adjusted monthly, bimonthly, quarterly or semi-annually.
Utilizing the balances of variable interest rate debt outstanding at March 31,
2000, and assuming market interest rates increase 100 basis points, the
potential annual increase in interest expense is approximately $0.5 million.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit
Number Description
*2.1 Amended and Restated Purchase Agreement by and
between Atlantic Richfield Company and Texas Eastern
Products Pipeline Company, LLC with respect to the
sale of ARCO Pipe Line Company dated as of May 10,
2000.
3.1 Certificate of Limited Partnership of the Partnership
(Filed as Exhibit 3.2 to the Registration Statement
of TEPPCO Partners, L.P. (Commission File No.
33-32203) and incorporated herein by reference).
3.2 Certificate of Formation of TEPPCO Colorado, LLC
(Filed as Exhibit 3.2 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1998 and incorporated herein
by reference).
3.3 Second Amended and Restated Agreement of Limited
Partnership of TEPPCO Partners, L.P., dated November
30, 1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1998 and incorporated herein
by reference).
3.4 Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership,
effective July 21, 1998 (Filed as Exhibit 3.2 to Form
8-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) dated July 21, 1998 and incorporated herein
by reference).
3.5 Agreement of Limited Partnership of TCTM, L.P., dated
November 30, 1998 (Filed as Exhibit 3.3 to Form 10-K
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 1998 and
incorporated herein by reference).
4.1 Form of Certificate representing Limited Partner
Units (Filed as Exhibit 4.1 to the Registration
Statement of TEPPCO Partners, L.P. (Commission File
No. 33-32203) and incorporated herein by reference).
4.2 Form of Indenture between TE Products Pipeline
Company, Limited Partnership and The Bank of New
York, as Trustee, dated as of January 27, 1998 (Filed
as Exhibit 4.3 to TE Products Pipeline Company,
Limited Partnership's Registration Statement on Form
S-3 (Commission File No. 333-38473) and incorporated
herein by reference).
4.3 Form of Certificate representing Class B Units (Filed
as Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended
December 31, 1998 and incorporated herein by
reference).
10.1 Assignment and Assumption Agreement, dated March 24,
1988, between Texas Eastern Transmission Corporation
and the Company (Filed as Exhibit 10.8 to the
Registration Statement of TEPPCO Partners, L.P.
(Commission File No. 33-32203) and incorporated
herein by reference).
10.2 Texas Eastern Products Pipeline Company 1997 Employee
Incentive Compensation Plan executed on July 14, 1997
(Filed as Exhibit 10 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter
ended September 30, 1997 and incorporated herein by
reference).
10.3 Agreement Regarding Environmental Indemnities and
Certain Assets (Filed as Exhibit 10.5 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the year ended December 31, 1990 and incorporated
herein by reference).
10.4 Texas Eastern Products Pipeline Company Management
Incentive Compensation Plan executed on January 30,
1992 (Filed as Exhibit 10 to Form 10-Q of TEPPCO
Partners,
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
L.P. (Commission File No. 1-10403) for the quarter
ended March 31, 1992 and incorporated herein by
reference).
10.5 Texas Eastern Products Pipeline Company Long-Term
Incentive Compensation Plan executed on October 31,
1990 (Filed as Exhibit 10.9 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1990 and incorporated herein
by reference).
10.6 Form of Amendment to Texas Eastern Products Pipeline
Company Long-Term Incentive Compensation Plan (Filed
as Exhibit 10.7 to the Partnership's Form 10-K
(Commission File No. 1-10403) for the year ended
December 31, 1995 and incorporated herein by
reference).
10.7 Duke Energy Corporation Executive Savings Plan (Filed
as Exhibit 10.7 to the Partnership's Form 10-K
(Commission File No. 1-10403) for the year ended
December 31, 1999 and incorporated herein by
reference).
10.8 Duke Energy Corporation Executive Cash Balance Plan
(Filed as Exhibit 10.8 to the Partnership's Form 10-K
(Commission File No. 1-10403) for the year ended
December 31, 1999 and incorporated herein by
reference).
10.9 Duke Energy Corporation Retirement Benefit
Equalization Plan (Filed as Exhibit 10.9 to the
Partnership's Form 10-K (Commission File No. 1-10403)
for the year ended December 31, 1999 and incorporated
herein by reference).
10.10 Employment Agreement with William L. Thacker, Jr.
(Filed as Exhibit 10 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter
ended September 30, 1992 and incorporated herein by
reference).
10.11 Texas Eastern Products Pipeline Company 1994 Long
Term Incentive Plan executed on March 8, 1994 (Filed
as Exhibit 10.1 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
March 31, 1994 and incorporated herein by reference).
10.12 Texas Eastern Products Pipeline Company 1994 Long
Term Incentive Plan, Amendment 1, effective January
16, 1995 (Filed as Exhibit 10.12 to Form 10-Q of
TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 1999 and incorporated
herein by reference).
10.13 Asset Purchase Agreement between Duke Energy Field
Services, Inc. and TEPPCO Colorado, LLC, dated March
31, 1998 (Filed as Exhibit 10.14 to Form 10-Q of
TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 1998 and incorporated
herein by reference).
10.14 Credit Agreement between TEPPCO Colorado, LLC,
SunTrust Bank, Atlanta, and Certain Lenders, dated
April 21, 1998 (Filed as Exhibit 10.15 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 1998 and
incorporated herein by reference).
10.15 First Amendment to Credit Agreement between TEPPCO
Colorado, LLC, SunTrust Bank, Atlanta, and Certain
Lenders, effective June 29, 1998 (Filed as Exhibit
10.15 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
June 30, 1998 and incorporated herein by reference).
10.16 Contribution Agreement between Duke Energy Transport
and Trading Company and TEPPCO Partners, L.P., dated
October 15, 1998 (Filed as Exhibit 3.3 to Form 10-K
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 1998 and
incorporated herein by reference).
10.17 Guaranty Agreement by Duke Energy Natural Gas
Corporation for the benefit of TEPPCO Partners, L.P.,
dated November 30, 1998, effective November 1, 1998
(Filed as
22
<PAGE> 23
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended
December 31, 1998 and incorporated herein by
reference).
10.18 Letter Agreement regarding Payment Guarantees of
Certain Obligations of TCTM, L.P. between Duke
Capital Corporation and TCTM, L.P., dated November
30, 1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1998 and incorporated herein
by reference).
10.19 Form of Employment Agreement between the Company and
Ernest P. Hagan, Thomas R. Harper, David L. Langley,
Charles H. Leonard and James C. Ruth, dated December
1, 1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1998 and incorporated herein
by reference).
10.20 Agreement Between Owner and Contractor between TE
Products Pipeline Company, Limited Partnership and
Eagleton Engineering Company, dated February 4, 1999
(Filed as Exhibit 10.21 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein
by reference).
10.21 Services and Transportation Agreement between TE
Products Pipeline Company, Limited Partnership and
Fina Oil and Chemical Company, BASF Corporation and
BASF Fina Petrochemical Limited Partnership, dated
February 9, 1999 (Filed as Exhibit 10.22 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 1999 and
incorporated herein by reference).
10.22 Call Option Agreement, dated February 9, 1999 (Filed
as Exhibit 10.23 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter
ended March 31, 1999 and incorporated herein by
reference).
10.23 Texas Eastern Products Pipeline Company Retention
Incentive Compensation Plan, effective January 1,
1999 (Filed as Exhibit 10.24 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein
by reference).
10.24 Credit Agreement between TE Products Pipeline
Company, Limited Partnership, SunTrust Bank, Atlanta,
and Certain Lenders, dated May 17, 1999 (Filed as
Exhibit 10.26 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
June 30, 1999 and incorporated herein by reference).
10.25 Credit Agreement between TEPPCO Crude Oil, LLC,
SunTrust Bank, Atlanta, and Certain Lenders, dated
May 17, 1999 (Filed as Exhibit 10.27 to Form 10-Q of
TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 1999 and incorporated
herein by reference).
10.26 Second Amendment to Credit Agreement between TEPPCO
Colorado, LLC, SunTrust Bank, Atlanta, and Certain
Lenders, effective May 17, 1999 (Filed as Exhibit
10.28 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
June 30, 1999 and incorporated herein by reference).
10.27 Form of Employment and Non-Compete Agreement between
the Company and Samuel N. Brown, J. Michael Cockrell,
William S. Dickey, and Sharon S. Stratton effective
January 1, 1999 (Filed as Exhibit 10.29 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and
incorporated herein by reference).
10.28 Texas Eastern Products Pipeline Company Non-employee
Directors Unit Accumulation Plan, effective April 1,
1999 (Filed as Exhibit 10.30 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 1999 and incorporated
herein by reference).
23
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
10.29 Texas Eastern Products Pipeline Company Non-employee
Directors Deferred Compensation Plan, effective
November 1, 1999 (Filed as Exhibit 10.31 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and
incorporated herein by reference).
10.30 Texas Eastern Products Pipeline Company Phantom Unit
Retention Plan, effective August 25, 1999 (Filed as
Exhibit 10.32 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
September 30, 1999 and incorporated herein by
reference).
22.1 Subsidiaries of the Partnership (Filed as Exhibit
22.1 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and
incorporated herein by reference).
*27 Financial Data Schedule as of and for the three
months ended March 31, 2000.
--------------------
* Filed herewith.
(b) Reports on Form 8-K filed during the quarter ended March 31,
2000: None.
Items 1, 2, 3, 4 and 5 of Part II were not applicable and have been omitted.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrants have duly caused this report to be signed on its behalf by the
undersigned duly authorized officer and principal financial officer.
TEPPCO Partners, L.P.
(Registrant)
By: Texas Eastern Products Pipeline Company,
General Partner
/s/ CHARLES H. LEONARD
----------------------------------------------
Charles H. Leonard
Senior Vice President, Chief Financial Officer
and Treasurer
Date: May 15, 2000
24
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
*2.1 Amended and Restated Purchase Agreement by and
between Atlantic Richfield Company and Texas Eastern
Products Pipeline Company, LLC with respect to the
sale of ARCO Pipe Line Company dated as of May 10,
2000.
3.1 Certificate of Limited Partnership of the Partnership
(Filed as Exhibit 3.2 to the Registration Statement
of TEPPCO Partners, L.P. (Commission File No.
33-32203) and incorporated herein by reference).
3.2 Certificate of Formation of TEPPCO Colorado, LLC
(Filed as Exhibit 3.2 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1998 and incorporated herein
by reference).
3.3 Second Amended and Restated Agreement of Limited
Partnership of TEPPCO Partners, L.P., dated November
30, 1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1998 and incorporated herein
by reference).
3.4 Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership,
effective July 21, 1998 (Filed as Exhibit 3.2 to Form
8-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) dated July 21, 1998 and incorporated herein
by reference).
3.5 Agreement of Limited Partnership of TCTM, L.P., dated
November 30, 1998 (Filed as Exhibit 3.3 to Form 10-K
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 1998 and
incorporated herein by reference).
4.1 Form of Certificate representing Limited Partner
Units (Filed as Exhibit 4.1 to the Registration
Statement of TEPPCO Partners, L.P. (Commission File
No. 33-32203) and incorporated herein by reference).
4.2 Form of Indenture between TE Products Pipeline
Company, Limited Partnership and The Bank of New
York, as Trustee, dated as of January 27, 1998 (Filed
as Exhibit 4.3 to TE Products Pipeline Company,
Limited Partnership's Registration Statement on Form
S-3 (Commission File No. 333-38473) and incorporated
herein by reference).
4.3 Form of Certificate representing Class B Units (Filed
as Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended
December 31, 1998 and incorporated herein by
reference).
10.1 Assignment and Assumption Agreement, dated March 24,
1988, between Texas Eastern Transmission Corporation
and the Company (Filed as Exhibit 10.8 to the
Registration Statement of TEPPCO Partners, L.P.
(Commission File No. 33-32203) and incorporated
herein by reference).
10.2 Texas Eastern Products Pipeline Company 1997 Employee
Incentive Compensation Plan executed on July 14, 1997
(Filed as Exhibit 10 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter
ended September 30, 1997 and incorporated herein by
reference).
10.3 Agreement Regarding Environmental Indemnities and
Certain Assets (Filed as Exhibit 10.5 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the year ended December 31, 1990 and incorporated
herein by reference).
10.4 Texas Eastern Products Pipeline Company Management
Incentive Compensation Plan executed on January 30,
1992 (Filed as Exhibit 10 to Form 10-Q of TEPPCO
Partners,
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
L.P. (Commission File No. 1-10403) for the quarter
ended March 31, 1992 and incorporated herein by
reference).
10.5 Texas Eastern Products Pipeline Company Long-Term
Incentive Compensation Plan executed on October 31,
1990 (Filed as Exhibit 10.9 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1990 and incorporated herein
by reference).
10.6 Form of Amendment to Texas Eastern Products Pipeline
Company Long-Term Incentive Compensation Plan (Filed
as Exhibit 10.7 to the Partnership's Form 10-K
(Commission File No. 1-10403) for the year ended
December 31, 1995 and incorporated herein by
reference).
10.7 Duke Energy Corporation Executive Savings Plan (Filed
as Exhibit 10.7 to the Partnership's Form 10-K
(Commission File No. 1-10403) for the year ended
December 31, 1999 and incorporated herein by
reference).
10.8 Duke Energy Corporation Executive Cash Balance Plan
(Filed as Exhibit 10.8 to the Partnership's Form 10-K
(Commission File No. 1-10403) for the year ended
December 31, 1999 and incorporated herein by
reference).
10.9 Duke Energy Corporation Retirement Benefit
Equalization Plan (Filed as Exhibit 10.9 to the
Partnership's Form 10-K (Commission File No. 1-10403)
for the year ended December 31, 1999 and incorporated
herein by reference).
10.10 Employment Agreement with William L. Thacker, Jr.
(Filed as Exhibit 10 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter
ended September 30, 1992 and incorporated herein by
reference).
10.11 Texas Eastern Products Pipeline Company 1994 Long
Term Incentive Plan executed on March 8, 1994 (Filed
as Exhibit 10.1 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
March 31, 1994 and incorporated herein by reference).
10.12 Texas Eastern Products Pipeline Company 1994 Long
Term Incentive Plan, Amendment 1, effective January
16, 1995 (Filed as Exhibit 10.12 to Form 10-Q of
TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 1999 and incorporated
herein by reference).
10.13 Asset Purchase Agreement between Duke Energy Field
Services, Inc. and TEPPCO Colorado, LLC, dated March
31, 1998 (Filed as Exhibit 10.14 to Form 10-Q of
TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 1998 and incorporated
herein by reference).
10.14 Credit Agreement between TEPPCO Colorado, LLC,
SunTrust Bank, Atlanta, and Certain Lenders, dated
April 21, 1998 (Filed as Exhibit 10.15 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 1998 and
incorporated herein by reference).
10.15 First Amendment to Credit Agreement between TEPPCO
Colorado, LLC, SunTrust Bank, Atlanta, and Certain
Lenders, effective June 29, 1998 (Filed as Exhibit
10.15 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
June 30, 1998 and incorporated herein by reference).
10.16 Contribution Agreement between Duke Energy Transport
and Trading Company and TEPPCO Partners, L.P., dated
October 15, 1998 (Filed as Exhibit 3.3 to Form 10-K
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 1998 and
incorporated herein by reference).
10.17 Guaranty Agreement by Duke Energy Natural Gas
Corporation for the benefit of TEPPCO Partners, L.P.,
dated November 30, 1998, effective November 1, 1998
(Filed as
</TABLE>
<PAGE> 27
<TABLE>
<S> <C>
Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended
December 31, 1998 and incorporated herein by
reference).
10.18 Letter Agreement regarding Payment Guarantees of
Certain Obligations of TCTM, L.P. between Duke
Capital Corporation and TCTM, L.P., dated November
30, 1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1998 and incorporated herein
by reference).
10.19 Form of Employment Agreement between the Company and
Ernest P. Hagan, Thomas R. Harper, David L. Langley,
Charles H. Leonard and James C. Ruth, dated December
1, 1998 (Filed as Exhibit 3.3 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1998 and incorporated herein
by reference).
10.20 Agreement Between Owner and Contractor between TE
Products Pipeline Company, Limited Partnership and
Eagleton Engineering Company, dated February 4, 1999
(Filed as Exhibit 10.21 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein
by reference).
10.21 Services and Transportation Agreement between TE
Products Pipeline Company, Limited Partnership and
Fina Oil and Chemical Company, BASF Corporation and
BASF Fina Petrochemical Limited Partnership, dated
February 9, 1999 (Filed as Exhibit 10.22 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 1999 and
incorporated herein by reference).
10.22 Call Option Agreement, dated February 9, 1999 (Filed
as Exhibit 10.23 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter
ended March 31, 1999 and incorporated herein by
reference).
10.23 Texas Eastern Products Pipeline Company Retention
Incentive Compensation Plan, effective January 1,
1999 (Filed as Exhibit 10.24 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein
by reference).
10.24 Credit Agreement between TE Products Pipeline
Company, Limited Partnership, SunTrust Bank, Atlanta,
and Certain Lenders, dated May 17, 1999 (Filed as
Exhibit 10.26 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
June 30, 1999 and incorporated herein by reference).
10.25 Credit Agreement between TEPPCO Crude Oil, LLC,
SunTrust Bank, Atlanta, and Certain Lenders, dated
May 17, 1999 (Filed as Exhibit 10.27 to Form 10-Q of
TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 1999 and incorporated
herein by reference).
10.26 Second Amendment to Credit Agreement between TEPPCO
Colorado, LLC, SunTrust Bank, Atlanta, and Certain
Lenders, effective May 17, 1999 (Filed as Exhibit
10.28 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
June 30, 1999 and incorporated herein by reference).
10.27 Form of Employment and Non-Compete Agreement between
the Company and Samuel N. Brown, J. Michael Cockrell,
William S. Dickey, and Sharon S. Stratton effective
January 1, 1999 (Filed as Exhibit 10.29 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and
incorporated herein by reference).
10.28 Texas Eastern Products Pipeline Company Non-employee
Directors Unit Accumulation Plan, effective April 1,
1999 (Filed as Exhibit 10.30 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 1999 and incorporated
herein by reference).
</TABLE>
<PAGE> 28
<TABLE>
<S> <C>
10.29 Texas Eastern Products Pipeline Company Non-employee
Directors Deferred Compensation Plan, effective
November 1, 1999 (Filed as Exhibit 10.31 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and
incorporated herein by reference).
10.30 Texas Eastern Products Pipeline Company Phantom Unit
Retention Plan, effective August 25, 1999 (Filed as
Exhibit 10.32 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
September 30, 1999 and incorporated herein by
reference).
22.1 Subsidiaries of the Partnership (Filed as Exhibit
22.1 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and
incorporated herein by reference).
*27 Financial Data Schedule as of and for the three
months ended March 31, 2000.
</TABLE>
--------------------
* Filed herewith.
<PAGE> 1
EXHIBIT 2.1
AMENDED AND RESTATED
PURCHASE AGREEMENT
BY AND BETWEEN
ATLANTIC RICHFIELD COMPANY
AND
TEXAS EASTERN PRODUCTS PIPELINE COMPANY, LLC
WITH RESPECT TO THE SALE OF
ARCO PIPE LINE COMPANY
DATED AS OF MAY 10, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
ARTICLE 1 DEFINITIONS....................................................................................2
1.1 Definitions..............................................................................2
1.2 Cross References, Interpretation........................................................11
ARTICLE 2 PURCHASE AND SALE OF SHARES...................................................................12
2.1 Purchase and Sale of Shares.............................................................12
2.2 Payment of Purchase Price...............................................................12
2.3 Post-Closing Stockholder's Equity Adjustment............................................12
2.4 Post-Closing EBITDA Adjustment..........................................................13
ARTICLE 3 CLOSING.......................................................................................14
3.1 Other Transactions......................................................................14
3.2 Closing Date............................................................................15
3.3 Seller's Deliveries.....................................................................15
3.4 Buyer's Deliveries......................................................................16
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER......................................................17
4.1 Organization and Good Standing of Seller................................................17
4.2 Authority...............................................................................17
4.3 Organization, Good Standing and Qualification of APL and the APL Subsidiaries...........17
4.4 Corporate Records.......................................................................18
4.5 No Violations...........................................................................18
4.6 Approvals, Consents and Other Actions...................................................18
4.7 Title to the Shares.....................................................................18
4.8 Capitalization..........................................................................18
4.9 Financial Statements....................................................................18
4.10 Absence of Undisclosed Liabilities......................................................19
4.11 No Material Changes.....................................................................19
4.12 Tax Matters.............................................................................20
4.13 Material Contracts......................................................................21
4.14 Employee Benefit Plans..................................................................21
4.15 Labor Matters...........................................................................22
4.16 Real Property and Assets................................................................22
4.17 Bank Accounts...........................................................................23
4.18 Insurance Policies......................................................................23
4.19 Legal Proceedings.......................................................................23
4.20 Compliance with Laws....................................................................23
4.21 Environmental Matters...................................................................23
4.22 Governmental Approvals..................................................................24
4.23 Broker Liability........................................................................24
4.24 Disclaimer of Certain Representations and Warranties....................................24
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER.......................................................25
5.1 Organization and Good Standing..........................................................25
5.2 Authority...............................................................................25
5.3 No Violations...........................................................................25
5.4 Approvals and Consents..................................................................26
5.5 Financial Capability....................................................................26
5.6 Accredited Investor.....................................................................26
5.7 Investment Intent.......................................................................26
5.8 Buyer's Inquiry.........................................................................26
5.9 Broker Liability........................................................................26
ARTICLE 6 COVENANTS AND AGREEMENTS OF THE PARTIES.......................................................27
6.1 Access to Information...................................................................27
6.2 Conduct of the Business Pending the Closing.............................................28
6.3 Notification............................................................................29
6.4 Antitrust Notification..................................................................29
6.5 Fees and Expenses.......................................................................30
6.6 Publicity...............................................................................30
6.7 Post-Closing Assistance.................................................................30
6.8 Surety Bonds............................................................................30
6.9 Guarantees..............................................................................30
6.10 Name Changes............................................................................31
6.11 Litigation Support......................................................................31
6.12 Insurance...............................................................................31
6.13 Commercially Reasonable Efforts.........................................................31
6.14 Disclosure Schedule.....................................................................32
6.15 Audited Financial Statements............................................................32
6.16 SEC Required Financial Statements.......................................................32
6.17 Industrial Development Bonds............................................................32
6.18 Certain Intellectual Property...........................................................32
6.19 Restriction Regarding Seaway Products...................................................33
6.20 Transition Assistance...................................................................33
ARTICLE 7 EMPLOYEES AND EMPLOYEE BENEFITS...............................................................34
7.1 Employees...............................................................................34
ARTICLE 8 TAXES.........................................................................................37
8.1 Characterization of Purchase of Shares..................................................37
8.2 Liability for Taxes.....................................................................38
8.3 Tax Proceedings.........................................................................39
8.4 Payment of Taxes........................................................................40
8.5 Tax Returns.............................................................................40
8.6 Tax Allocation Arrangements.............................................................40
8.7 Cooperation and Exchange of Information.................................................40
8.8 Indemnity with Respect to Phillips......................................................41
8.9 Like-Kind Exchange......................................................................41
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
8.10 Survival of Obligations.................................................................42
8.11 Conflict................................................................................42
ARTICLE 9 INDEMNIFICATION...............................................................................42
9.1 Seller's Indemnification................................................................42
9.2 Buyer's Indemnification.................................................................42
9.3 Monetary Limitation.....................................................................43
9.4 Nature and Survival; Time Limits........................................................43
9.5 COMPLIANCE WITH EXPRESS NEGLIGENCE RULE.................................................44
9.6 Limitation on Remedies; Mitigation......................................................44
9.7 General Provisions......................................................................44
9.8 Tax Treatment...........................................................................46
ARTICLE 10 CONDITIONS TO CLOSING........................................................................47
10.1 Conditions Precedent to Obligations of Buyer............................................47
10.2 Conditions Precedent to Obligations of Seller...........................................48
ARTICLE 11 TERMINATION OF AGREEMENT.....................................................................49
11.1 Termination Before Closing..............................................................49
11.2 Effect of Termination...................................................................49
ARTICLE 12 MISCELLANEOUS................................................................................49
12.1 Entire Agreement........................................................................49
12.2 Construction............................................................................49
12.3 Governing Law...........................................................................50
12.4 Notices.................................................................................50
12.5 Waiver..................................................................................50
12.6 Binding Effect; Assignment..............................................................50
12.7 Amendment...............................................................................50
12.8 Counterparts............................................................................51
12.9 No Third Party Beneficiaries............................................................51
12.10 Jurisdiction; Service of Process........................................................51
12.11 Schedules...............................................................................52
12.12 Arbitration.............................................................................52
12.13 Severability............................................................................53
12.14 Approval of Buyer Board of Directors....................................................53
</TABLE>
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<PAGE> 5
APPENDICES
<TABLE>
<S> <C>
Appendix A List of Persons Who Constitute Seller's Knowledge
Appendix B Certain Excluded Assets and Liabilities to be
Transferred Pre-Closing
Appendix C Form of Opinion of Seller's Counsel
Appendix D Form of Opinion of Buyer's Counsel
Appendix E Agent for Service of Process
Appendix F Transitional Operating Agreement
Appendix G Services Agreement
Appendix H Recent Date Balance Sheet
Appendix I Restructuring Agreement
DISCLOSURE SCHEDULE
Section
1.1 Permitted Liens
4.5 No Violations
4.6 Approvals, Consents and Other Actions
4.8 Capitalization
4.10 Absence of Undisclosed Liabilities
4.11 No Material Changes
4.12 Taxes
4.13 Material Contracts
4.14 Employee Benefit Plans
4.15 Labor Matters
4.16 Real Property
4.17 Bank Accounts
4.18 Insurance Policies
4.19 Legal Proceedings
4.20 Compliance with Laws
4.21 Environmental Matters
4.22 Governmental Approvals
6.8 Surety Bonds
6.9 Guarantees
</TABLE>
iv
<PAGE> 6
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Affiliate 1.1
Agent 12.10(b)
Agreement Introduction
Antitrust Division 1.1
APL 1.1
APL Conversion Introduction
APL Financial Information 4.9
APL Proprietary IP 6.18
APL Subsidiaries 1.1
APL Third Party Software 6.18
APL's Business or APL Business 1.1
Applicable Law 1.1
Arbitrable Dispute 1.1
ARCO CAP 7.1
ARCO SERP 7.1
ARCO Severance Plans 7.1
ARRP 7.1
ASI 1.1
ASI Conversion Introduction
Assumption Agreement 3.1
Audited Financial Statements 1.1
BP America Group 4.12(f)
BP Amoco 8.8
Buyer Introduction
Buyer Defined Contribution Plan 7.1
Buyer Indemnitees 9.1
Buyer Notice 8.3
Buyer Pension Plans 7.1
Buyer Savings Plan 7.1
Casualty or Condemnation Loss 1.1
CERCLA 1.1
Claim 1.1
Claimant 12.12
Closing 3.2
Closing Date 3.2
Closing Date Balance Sheet 1.1
Closing Date Stockholder's Equity 1.1
Code 1.1
Confidentiality Agreement 1.1
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
Conveyance Agreement 3.1
Disagreement Notice 2.3
Disclosure Schedule 1.1
Effective Date 1.1
Employees 4.14
Environmental Laws 1.1
Environmental Losses 1.1
ERISA 1.1
Excluded Assets 3.1
Excluded Liabilities 1.1
Final Adjusted EBITDA 1.1
FTC 1.1
GAAP 1.1
Governmental Approval 1.1
Governmental Authority 1.1
Group 8.2
Hazardous Substances 1.1
HSR Act 1.1
Indemnified Party 9.7(b)
Indemnifying Party 9.7(b)
IRS 1.1
Liabilities 1.1
Lien 1.1
Loss 1.1
Material Adverse Effect 1.1
Merger 1.1
Merger Agreement 1.1
Order 10.2(d)
Performance Bonds 6.8
Permitted Liens 1.1
Person 1.1
Phillips 8.8
Phillips Payment 8.8
Post-Closing Surety Bond(s) 6.8
Pre-Closing Period 8.2
Present Value Benefit 1.1
Proceeding Notice 8.3
Properties 4.16
Purchase Price 2.2
Purchased Assets 8.1
Recent Date Balance Sheet 1.1
Recent Date Stockholder's Equity 1.1
Respondent 12.12
Scheduled Environmental Claim 1.1
Scheduled Environmental Loss 1.1
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C>
Seaway 1.1
Seaway Crude Introduction
Seaway Partnership Agreement 1.1
Seaway Products Introduction
Seaway Restructuring Introduction
Seaway Restructuring Agreement 1.1
SEC Financial Statements 1.1
Seconded Employees 7.1
Seconding Period 7.1
Securities Act 1.1
Services Agreement 1.1
Seller Introduction
Seller Indemnitees 9.2
Seller Notice 8.8
Seller Proprietary IP 6.18
Seller Third Party Software 6.18
Seller's Knowledge 1.1
Seller's Threshold 9.3(a)(i)
Shares 1.1
Subsidiary 1.1
Substitute Surety Bond(s) 6.8
Surety Bond(s) 6.8
Tax 1.1
Tax Return 1.1
Third Party Claim 1.1
Transferred Employees 7.1
Transitional Operating Agreement 1.1
Unadjusted Purchase Price 2.2
Unscheduled Environmental Claim 1.1
Unscheduled Environmental Loss 1.1
WARN Act 1.1
WARN Obligations 7.1
</TABLE>
vii
<PAGE> 9
AMENDED AND RESTATED PURCHASE AGREEMENT
THIS AMENDED AND RESTATED PURCHASE AGREEMENT (this "Agreement") is made
and entered into as of May 10, 2000, by and between Atlantic Richfield Company,
a Delaware corporation ("Seller"), and Texas Eastern Products Pipeline Company,
LLC, a Delaware limited liability company ("Buyer").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, on March 15, 2000, Seller and Buyer entered into a stock
purchase agreement, providing for the terms of the sale of all of the
outstanding capital stock of ARCO Pipeline Company by Seller to Buyer;
WHEREAS, subsequent to March 15, 2000, Buyer converted from a Delaware
corporation to a Delaware limited liability company;
WHEREAS, ARCO Pipe Line Company owns all of the capital stock of ARCO
Seaway, Inc., a partner in Seaway Pipeline Company;
WHEREAS, Seaway Pipeline Company owns a crude oil pipeline and related
assets and a refined products pipeline and related assets;
WHEREAS, prior to the Closing, ARCO Seaway, Inc. will be converted (the
"ASI Conversion") into a Delaware limited liability company pursuant to Section
266 of the Delaware General Corporation Law and Section 18-214 of the Delaware
Limited Liability Company Act;
WHEREAS, prior to the Closing and immediately following the ASI
Conversion, ARCO Pipe Line Company will be converted (the "APL Conversion") into
a Delaware limited liability company pursuant to Section 266 of the Delaware
General Corporation Law and Section 18-214 of the Delaware Limited Liability
Company Act;
WHEREAS, immediately prior to the Closing, Seaway Pipeline Company will
be restructured by a merger into Seaway Crude Pipeline Company, a Texas general
partnership ("Seaway Crude"), which will own the crude oil pipeline and related
assets of Seaway Pipeline Company, and Seaway Products Pipeline Company, a Texas
general partnership ("Seaway Products"), which will own the refined products
pipeline and related assets of Seaway Pipeline Company (the "Seaway
Restructuring");
WHEREAS, the Merger has closed pursuant to the Merger Agreement, and
ARCO is now an indirect subsidiary of BP Amoco p.l.c.; and
WHEREAS, Seller and Buyer, in accordance with Section 12.7 to the
original stock purchase agreement, desire to amend and restate the terms of the
original stock purchase agreement to reflect the Seaway Restructuring and the
ASI Conversion and APL Conversion;
<PAGE> 10
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements stated herein, and upon
the terms and subject to the conditions hereinafter set forth, the parties
hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used herein, the following terms shall have the
meanings set forth below:
"Affiliate" of any specified Person shall mean any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, such specified Person, and the
term "affiliated with" shall have a correlative meaning. For the purposes of
this definition, "control" (including with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Agent" shall have the meaning set forth in Section 12.10(b).
"Agreement" shall have the meaning set forth in the introduction to
this Agreement.
"Antitrust Division" shall mean the Antitrust Division of the U.S.
Department of Justice.
"APL" shall mean, prior to the APL Conversion, ARCO Pipe Line Company,
a Delaware corporation, and, after the APL Conversion, the Delaware limited
liability company into which ARCO Pipe Line Company is converted.
"APL Conversion" shall have the meaning set forth in the introduction
to this Agreement.
"APL Financial Information" shall have the meaning set forth in
Section 4.9.
"APL Proprietary IP" shall have the meaning set forth in Section 6.18.
"APL Subsidiaries" shall mean ASI.
"APL Third Party Software" shall have the meaning set forth in
Section 6.18.
"APL's Business" or the "APL Business" shall mean the business
conducted by APL and the APL Subsidiaries assuming consummation of the
divestiture of assets and businesses and other transactions, including the
Seaway Restructuring, contemplated by Section 3.1.
"Applicable Law" shall mean any applicable statute, law, regulation,
ordinance, rule, judgment, rule of law, order, decree, permit, approval,
concession, grant, franchise, license, agreement, requirement or other
governmental restriction or any similar form of decision of, or
2
<PAGE> 11
any provision or condition of any permit, license or other operating
authorization issued under any of the foregoing by, or any determination by any
Governmental Authority having or asserting jurisdiction over the matter or
matters in question, whether now or hereafter in effect and in each case as
amended (including all of the terms and provisions of the common law of such
Governmental Authority), as interpreted and enforced at the time in question.
"Arbitrable Dispute" means, except as set forth below, any and all
disputes, Claims, counterclaims, demands, causes of action, controversies and
other matters in question between Seller and Buyer arising out of or relating to
this Agreement or the alleged breach hereof, or in any way relating to the
subject matter of this Agreement or the relationship between the parties created
by this Agreement, regardless of whether (a) allegedly extra-contractual in
nature, (b) sounding in contract, tort or otherwise, (c) provided for by
Applicable Law or otherwise or (d) seeking damages or any other relief, whether
at law, in equity or otherwise; provided, however, the term "Arbitrable Dispute"
shall not include disputes under the terms of this Agreement relating to the
Closing Date Stockholder's Equity.
"ARCO CAP" shall have the meaning set forth in Section 7.1.
"ARCO SERP" shall have the meaning set forth in Section 7.1.
"ARCO Severance Plans" shall have the meaning set forth in Section 7.1.
"ARRP" shall have the meaning set forth in Section 7.1.
"ASI" shall mean, prior to the ASI Conversion, ARCO Seaway, Inc., a
Delaware corporation, and, after the ASI Conversion, the Delaware limited
liability company into which ARCO Seaway, Inc. is converted.
"ASI Conversion" shall have the meaning set forth in the introduction
to this Agreement.
"Assumption Agreement" shall have the meaning set forth in Section 3.1.
"Audited Financial Statements" shall mean (a) the audited, pro forma
balance sheet of APL's Business as of December 31, 1999 prepared in accordance
with GAAP, and the related pro forma statements of income and cash flows for the
year ended December 31, 1999 prepared in accordance with GAAP, in each case
giving pro forma effect to the transactions contemplated by Section 3.1,
together with the related notes thereto and the audit opinion thereon of the
independent auditors of APL and (b) the audited balance sheet of Seaway as of
December 31, 1999 prepared in accordance with GAAP, and the related statements
of income and cash flows for the year ended December 31, 1999 prepared in
accordance with GAAP, in each case giving pro forma effect to the transactions
contemplated by Section 3.1, together with the related notes thereto and the
audit opinion thereon of the independent auditors of Seaway.
"BP America Group" shall have the meaning set forth in Section 4.12(f).
"BP Amoco" shall have the meaning set forth in Section 8.8.
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<PAGE> 12
"Buyer" shall have the meaning set forth in the introduction to this
Agreement.
"Buyer Defined Contribution Plan" shall have the meaning set forth in
Section 7.1.
"Buyer Indemnitees" shall have the meaning set forth in Section 9.1.
"Buyer Notice" shall have the meaning set forth in Section 8.3.
"Buyer Pension Plans" shall have the meaning set forth in Section 7.1.
"Buyer Savings Plan" shall have the meaning set forth in Section 7.1.
"Casualty or Condemnation Loss" shall mean, with respect to APL's
Business, (i) a Loss, whether or not insured, as a result of any fire, flood,
accident, explosion, strike, labor disturbance, riot, act of God or public enemy
or other calamity or casualty, unless either such Loss shall have been
substantially cured, repaired or restored by APL prior to the Closing Date or
APL shall have otherwise substantially been compensated for such Loss or (ii)
that proceedings have been instituted or threatened seeking the condemnation or
other taking of a portion of APL's Business in the future.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Claim" shall mean any existing or threatened future claim, demand,
suit, action, investigation, proceeding, governmental action or cause of action
of any kind or character (in each case, whether civil, criminal, investigative
or administrative), known or unknown, under any theory, including those based on
theories of contract, tort, statutory liability, strict liability, employer
liability, premises liability, products liability, breach of warranty or
malpractice that is brought by or owed to a third party.
"Claimant" shall have the meaning set forth in Section 12.12.
"Closing" shall have the meaning set forth in Section 3.2.
"Closing Date" shall have the meaning set forth in Section 3.2.
"Closing Date Balance Sheet" shall mean the unaudited, pro forma
balance sheet of APL's Business prepared in accordance with GAAP, as of the
close of business on the Closing Date, which shall be derived from and
consistent with the audited balance sheet of APL's Business as of December 31,
1999 included as part of the Audited Financial Statements.
"Closing Date Stockholder's Equity" shall mean the total stockholder's
equity as reflected on the Closing Date Balance Sheet.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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<PAGE> 13
"Confidentiality Agreement" shall mean the Confidentiality Agreement
dated February 16, 2000 among Seller, Buyer and APL.
"Conveyance Agreement" shall have the meaning set forth in Section 3.1.
"Disagreement Notice" shall have the meaning set forth in Section 2.3.
"Disclosure Schedule" shall mean the Disclosure Schedule attached to
this Agreement and incorporated herein for all purposes.
"Effective Date" shall mean March 15, 2000.
"Employees" shall have the meaning set forth in Section 4.14.
"Environmental Laws" shall mean all Applicable Laws aimed at abatement
of pollution; protection or restoration of the environment; ensuring public
safety from environmental hazards; management, storage or control of Hazardous
Substances; releases or threatened releases of Hazardous Substances into the
environment, including ambient air, surface water and groundwater; and all other
Applicable Laws relating to the manufacturing, processing, distribution, use,
treatment, storage, disposal, handling or transportation of Hazardous
Substances, including CERCLA, the Clean Air Act, the Clean Water Act, the Solid
Wastes Disposal Act (as amended by the Resource Conservation and Recovery Act),
the Toxic Substances Control Act, the Emergency Planning and Community Right to
Know Act, the Safe Drinking Water Act, the Hazardous Materials Transportation
Act, the Oil Pollution Act, and any regulations issued under each of such
statutes, and any state, tribal or local counterparts.
"Environmental Losses" shall mean any and all Losses (including study,
testing or investigatory costs, cleanup costs, response costs, removal costs,
remediation costs, containment costs, restoration or replacement costs,
corrective action costs, natural resource damages or business Losses) arising
out of, based on, resulting from or alleging (i) the presence, release,
threatened release, discharge or emission into the environment of any Hazardous
Substances existing or arising on, beneath or above any property, including
Claims with respect to other properties based upon Claims relating to migration
or emanation (or threatened migration or emanation) of Hazardous Substances from
the property to such other properties, whether or not immediately adjacent to
the property, (ii) the violation, prior to or as of the Closing Date, of any
Environmental Laws involving any property, including Claims with respect to
other properties based upon Claims relating to migration or emanation (or
threatened migration or emanation) of Hazardous Substances from the property to
such other properties, whether or not immediately adjacent to the property, and
(iii) natural resources damages, penalties or fines, property damages or
personal injuries (including damages and injuries from exposure to Hazardous
Substances) claimed by third parties.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Excluded Assets" shall have the meaning set forth in Section 3.1.
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<PAGE> 14
"Excluded Liabilities" shall mean all Liabilities to the extent related
to, or incurred in connection with, (i) any assets of Seller and its Affiliates
(other than APL, the APL Subsidiaries or Seaway Crude) related to the pipeline
industry, either for the transportation of crude oil or petroleum products, (ii)
any assets previously owned or controlled by APL or any of its present or former
Subsidiaries that were divested or abandoned by APL or any such Subsidiaries or
their predecessors prior to Closing, including the Excluded Assets, or (iii) any
transactions, businesses, activities, operations, ventures and enterprises
related to, or conducted in respect of, the assets described in the foregoing
(i) and (ii).
"Final Adjusted EBITDA" shall mean the earnings of APL's Business for
the year ended December 31, 1999 before (i) income tax, (ii) net interest,
including APL's share of Seaway Crude's net interest allocated in accordance
with the Seaway Partnership Agreement, (iii) depreciation, depletion and
amortization, including APL's share of Seaway Crude's depreciation, depletion
and amortization allocated in accordance with the Seaway Partnership Agreement,
(iv) allocated general and administrative expenses of $10.6 million (as such
amount may be adjusted as a result of the audit of the Audited Financial
Statements) and (v) non-recurring items of the type eliminated in the
calculation of EBITDA reflected in the APL Financial Information, all as derived
from the Audited Financial Statements.
"FTC" shall mean the Federal Trade Commission.
"GAAP" shall mean generally accepted accounting principles in effect in
the United States from time to time.
"Governmental Approval" shall mean any permit, license, franchise,
approval, consent, waiver, certification, qualification or other authorization
issued, granted, given or otherwise made available by or under the authority of
any Governmental Authority or pursuant to any Applicable Law.
"Governmental Authority" shall mean any federal, tribal, state, local
or foreign government or any provincial, departmental or other political
subdivision thereof, or any entity, body or authority exercising executive,
legislative, judicial, regulatory, administrative or other governmental
functions or any court, department, commission, board, bureau, agency,
instrumentality or administrative body of any of the foregoing.
"Group" shall have the meaning set forth in Section 8.2.
"Hazardous Substances" shall mean, collectively, any substance which is
identified and regulated (or the cleanup of which can be required), or exposure
to which is regulated, under any Environmental Law as of the Closing Date.
Without limiting the generality of the foregoing, Hazardous Substances shall
include (a) "hazardous wastes," "hazardous substances," "toxic substances,"
"pollutants," or "contaminants" or other similar identified designations in, or
otherwise subject to regulation under, any Environmental Law and (b) petroleum,
refined petroleum products and fractions or byproducts thereof, in each case
whether in their virgin, used or waste state.
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<PAGE> 15
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Indemnified Party" shall have the meaning set forth in Section 9.7(b).
"Indemnifying Party" shall have the meaning set forth in
Section 9.7(b).
"IRS" shall mean the Internal Revenue Service.
"Liabilities" shall mean obligations, responsibilities and liabilities
(whether based in common law or statute or arising under written contract or
otherwise, known or unknown, fixed or contingent, real or potential, tangible or
intangible, now existing or hereafter arising).
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset and
(c) in the case of securities, any purchase option, call or similar right of a
third party with respect to such securities.
"Loss" shall mean any loss, cost, Liability or expense, settlement,
damage of any kind, judgment, charge, fee, fine, penalty, court cost and/or
attorneys' and administrative fee or disbursement, but excluding a party's
indirect corporate and administrative overhead costs.
"Material Adverse Effect" shall mean a material adverse effect on the
business, operations, assets, liabilities, results of operations, cash flows or
financial condition of APL's Business; provided, however, that Material Adverse
Effect shall exclude any change or effect due to (i) changes in the
international, national, regional or local wholesale or retail markets for
petroleum or petroleum byproducts, (ii) changes in the North American, national,
regional or local interstate petroleum or petroleum byproducts pipeline or
distribution system markets, (iii) rules, regulations or decisions of a
Governmental Authority affecting the interstate petroleum or petroleum
byproducts transmission industry as a whole, (iv) changes in Applicable Laws or
in the amount or structure of rates or tariffs applicable to APL's Business, (v)
changes in weather conditions affecting APL's Business, (vi) changes in
economic, regulatory or political conditions generally, (vii) any continuation
of an adverse trend or condition disclosed to or otherwise known to Buyer on or
prior to the date hereof, (viii) any condition described in the Disclosure
Schedule furnished, without amendment or supplement, at the Effective Date, (ix)
the public announcement of the transactions contemplated by this Agreement or
the consummation of the transactions contemplated hereby and (x) the obligations
of the Buyer pursuant to Section 6.13.
"Merger" shall mean the merger of a subsidiary of BP Amoco p.l.c. into
Seller pursuant to the Merger Agreement.
"Merger Agreement" shall mean that certain Agreement and Plan of
Merger, dated as of March 31, 1999, as amended, pursuant to which a subsidiary
of BP Amoco p.l.c. was merged into Seller.
7
<PAGE> 16
"Order" shall have the meaning set forth in Section 10.2(d).
"Performance Bonds" shall have the meaning set forth in Section 6.8.
"Permitted Liens" shall mean:
(a) Liens for Taxes not yet due and payable, or that may hereafter
be paid without penalty, or that are being contested in good
faith by appropriate proceedings;
(b) Liens that are listed or described in Section 1.1 of the
Disclosure Schedule;
(c) Liens in favor of operators, vendors, carriers, warehousemen,
repairmen, mechanics, workmen and materialmen and construction
or similar liens arising by operation of law or in the
ordinary course of business in respect of obligations that are
not yet due or that are being contested in good faith by
appropriate proceedings;
(d) workers' or unemployment compensation Liens arising in the
ordinary course of business;
(e) rights of third parties pursuant to easements, rights-of-way,
servitudes, surface leases, sub-surface leases, grazing
rights, logging rights, ponds, lakes, waterways, canals,
ditches, reservoirs, equipment, pipelines, utility lines,
railways, streets, roads and structures relating to APL's
Business;
(f) conditions in any permit, license, or order issued by a
Governmental Authority for the ownership and operation of
assets used in APL's Business that do not materially impair
the ownership or operation of APL's Business; and
(g) other minor defects and irregularities in title or Liens that
are not substantial or material in character, amount or
extent.
"Person" shall mean and include any individual, partnership, joint
venture, corporation, limited liability company, trust, estate, joint-stock
company, unincorporated entity or association, organization, Governmental
Authority or other legal entity.
"Phillips" shall have the meaning set forth in Section 8.8.
"Phillips Payment" shall have the meaning set forth in Section 8.8.
"Post-Closing Surety Bond" shall have the meaning set forth in
Section 6.8.
"Pre-Closing Period" shall have the meaning set forth in Section 8.2.
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<PAGE> 17
"Present Value Benefit" shall mean the present value (based on a
discount rate equal to the short-term applicable federal rate as determined
under Section 1274(d) of the Code at the time of determination, and assuming
that the Indemnified Party will be liable for income taxes at all relevant times
at the maximum marginal rates) of any income tax benefit.
"Proceeding Notice" shall have the meaning set forth in Section 8.3.
"Properties" shall have the meaning set forth in Section 4.16.
"Purchase Price" shall have the meaning set forth in Section 2.2.
"Purchased Assets" shall have the meaning set forth in Section 8.1.
"Recent Date Balance Sheet" shall mean the unaudited, pro forma balance
sheet of APL's Business as of December 31, 1999, including descriptive
definitions forming a part thereof, attached as Appendix H to this Agreement.
"Recent Date Stockholder's Equity" shall mean the total stockholder's
equity as reflected on the Recent Date Balance Sheet.
"Respondent" shall have the meaning set forth in Section 12.12.
"Scheduled Environmental Claim" shall mean any Claim alleging an
Environmental Loss arising out of any of the matters or conditions described in
Section 4.21 of the Disclosure Schedule.
"Scheduled Environmental Loss" shall mean an Environmental Loss arising
from a Scheduled Environmental Claim.
"Seaway" means, unless otherwise specified, at all times prior to the
Seaway Restructuring, Seaway Pipeline Company, a Texas general partnership, and
at all times following the Seaway Restructuring, Seaway Crude.
"Seaway Crude" shall have the meaning set forth in the introduction to
this Agreement.
"Seaway Partnership Agreement" shall mean, unless otherwise specified,
the Agreement of General Partnership of Seaway Pipeline Company dated March 13,
1995 by and among ASI, Phillips Gas Pipeline Company and Seagas Pipeline
Company, as amended.
"Seaway Products" shall have the meaning set forth in the introduction
to this Agreement.
"Seaway Restructuring" shall have the meaning set forth in the
introduction to this Agreement.
"Seaway Restructuring Agreement" shall mean that Restructuring
Agreement of Seaway Pipeline
9
<PAGE> 18
Company dated the date hereof by and among BP Amoco Seaway Products Pipeline
Company, ASI, Phillips Gas Pipeline Company and Seagas Pipeline Company
providing for a merger of Seaway Pipeline Company pursuant to which the crude
oil pipeline and related assets of Seaway will be allocated to and vested in
Seaway Crude and the refined products pipeline and related assets of Seaway will
be allocated to and vested in Seaway Products, a copy of which is attached as
Appendix I to this Agreement.
"SEC Financial Statements" shall mean the audited financial statements
of APL's Business in such form and covering such periods as may be required by
Applicable Law to be filed with the Securities and Exchange Commission by TEPPCO
Partners, L.P. or any other Affiliate of Buyer with such filing obligations.
"Seconded Employees" shall have the meaning set forth in Section 7.1.
"Seconding Period" shall have the meaning set forth in Section 7.1.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning set forth in the introduction to this
Agreement.
"Seller Indemnitees" shall have the meaning set forth in Section 9.2.
"Seller Notice" shall have the meaning set forth in Section 8.8.
"Seller's Knowledge" shall mean the actual knowledge of the individuals
identified on Appendix A, after reasonable inquiry.
"Seller's Threshold" shall have the meaning set forth in
Section 9.3(a)(i).
"Services Agreement" shall mean the Services Agreement between Seller
and Buyer in substantially the form attached as Appendix G to the Agreement.
"Shares" shall mean, prior to the APL Conversion, all of the
outstanding capital stock of APL and, after the APL Conversion, all of the
limited liability company interests of APL.
"Subsidiary" or "subsidiary" shall mean, with respect to any person
(herein referred to as the "parent"), any corporation, partnership, limited
liability company, association or other business entity (a) of which securities
or other ownership interests representing more than 50% of the equity or more
than 50% of the ordinary voting power or more than 50% of the general partner
interests are, at the time any determination is being made, owned, controlled or
held, or (b) that is, at the time any determination is made, otherwise
controlled, by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent.
"Substitute Surety Bond(s)" shall have the meaning set forth in
Section 6.8.
"Surety Bond(s)" shall have the meaning set forth in Section 6.8.
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"Tax" shall mean (i) any tax, similar charge, fee, impost, levy,
custom, duty or other assessment (including income, gross receipts, occupation,
profits, unemployment, severance, excise, sales, franchise, real estate,
transfer, transfer gain, value-added, use, ad valorem, withholding, payroll,
windfall profit, property, production, license, net worth, stamp, documentary,
alternative or minimum tax), together with any related Liabilities, penalties,
fines, additions to tax or interest imposed by the United States or any
Governmental Authority, (ii) all Liability for the payment of any consolidated
or combined item of the type described in clause (i) of this definition
(including any United States federal consolidated income tax Liability) that is
payable as a result of being a member of, and which may be imposed upon, the BP
America Group or any other affiliated group (as defined in Section 1504(a) of
the Code or other Applicable Law) of which APL is a member under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract, or otherwise and (iii) all
Liability as a result of any obligation under any tax sharing or tax indemnity
agreement or arrangement.
"Tax Returns" shall mean all returns, reports, estimates and
information statements relating to, or required to be filed in connection with,
any Taxes pursuant to the Applicable Laws of any Governmental Authority.
"Third Party Claim" shall mean a Claim that is not a Claim by a Buyer
Indemnitee or Seller Indemnitee for its own Losses.
"Transferred Employees" shall have the meaning set forth in
Section 7.1.
"Transitional Operating Agreement" shall mean the Transitional
Operating Agreement between APL and Seller or its designee in substantially the
form attached as Appendix F to this Agreement.
"Unadjusted Purchase Price" shall have the meaning set forth in
Section 2.2.
"Unscheduled Environmental Claim" shall mean any Claim alleging an
Environmental Loss not listed in Section 4.21 of the Disclosure Schedule.
"Unscheduled Environmental Loss" shall mean an Environmental Loss
arising from an Unscheduled Environmental Claim.
"WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. Section 2101 et seq., or under any similar provision of any
federal, state, regional, foreign, or local law, rule, or regulation.
"WARN Obligations" shall have the meaning set forth in Section 7.1.
1.2 Cross References, Interpretation. References to "Articles" refer to
Articles of this Agreement. References to "Sections" refer to Sections and
subsections of this Agreement. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the plural
and vice versa, and the masculine gender shall include the feminine
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and neuter genders and vice versa. Whenever the word "including" is used in this
Agreement it shall be read to mean "including without limitation." The headings
in this Agreement are inserted for convenience only and are not intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
ARTICLE 2
PURCHASE AND SALE OF SHARES
2.1 Purchase and Sale of Shares. At the Closing, Seller shall sell,
convey, assign transfer and deliver to Buyer, and Buyer shall purchase from
Seller, the Shares, upon the terms and subject to the conditions set forth
herein.
2.2 Payment of Purchase Price. At the Closing, Buyer shall pay to
Seller, in immediately available funds, by wire transfer, three hundred eighteen
million and five hundred thousand U.S. Dollars (U.S.$318,500,000) (the
"Unadjusted Purchase Price"), which shall be subject to the adjustment set forth
in Section 2.3 and Section 2.4 (as adjusted, the "Purchase Price"). Seller shall
designate the account or accounts to Buyer for such wire transfer at least two
business days prior to the Closing Date.
2.3 Post-Closing Stockholder's Equity Adjustment.
(a) Preparation of the Closing Date Balance Sheet. As soon as
practicable after the Closing, and in any event within ninety (90) days
following the Closing Date, Seller shall prepare the Closing Date Balance Sheet
setting forth the Closing Date Stockholder's Equity.
(b) Review of Closing Date Balance Sheet. Seller shall submit the
Closing Date Balance Sheet, when prepared, to Buyer, along with a certificate
signed by an officer of Seller stating that the Closing Date Stockholder's
Equity shown on the Closing Date Balance Sheet was calculated in accordance with
the terms of this Agreement and GAAP, and consistent with the Recent Date
Stockholder's Equity. Buyer shall have the right, with its representatives and
accountants, to review the work papers of Seller and its independent accountants
used in preparing the Closing Date Balance Sheet and shall have reasonable
access to the books, records and personnel of Seller for purposes of verifying
the accuracy and fairness of presentation of the Closing Date Balance Sheet.
(c) Objections to Closing Date Balance Sheet. If Buyer disagrees with
the calculation of the Closing Date Stockholder's Equity, it shall, within 30
days after receipt of the Closing Date Balance Sheet, deliver a notice to Seller
(the "Disagreement Notice"), setting forth its calculation of the Closing Date
Stockholder's Equity and specifying, in reasonable detail, those items or
amounts in the Closing Date Balance Sheet and/or Closing Date Stockholder's
Equity as to which Buyer disagrees and the reasons for such disagreement. Buyer
shall be deemed to have agreed with all items and amounts contained in the
Closing Date Balance Sheet and the Closing Date Stockholder's Equity other than
those specified in a timely Disagreement Notice. If Buyer does not deliver a
Disagreement Notice to Seller within such 30-day period, Buyer shall be deemed
to have accepted the Closing Date Balance Sheet and the Closing Date
Stockholder's
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Equity, whereupon the Closing Date Balance Sheet and the Closing Date
Stockholder's Equity shall become final and binding.
(d) Resolution of Closing Date Balance Sheet Disputes. If a
Disagreement Notice is timely delivered to Seller pursuant to this Section 2.3,
the parties shall use their good faith efforts to reach agreement on the
disputed items or amounts in order to determine the adjustment to the Purchase
Price. If the parties do not resolve all disputed items or amounts within thirty
(30) days after delivery of the Disagreement Notice, then the disputed items and
amounts will be submitted for determination to a nationally recognized
independent accounting firm mutually selected by Buyer and Seller or, if Buyer
and Seller cannot agree, as recommended by the independent accountants regularly
employed to audit Seller's and Buyer's financial statements. Seller and Buyer
may submit to such accounting firm any facts which they deem relevant to the
determination. The written report of such accounting firm shall be delivered to
Seller and Buyer within thirty (30) days after such disputed items and amounts
are submitted to such accounting firm for determination. The determination of
such accounting firm shall be final and binding upon Seller and Buyer for all
purposes and shall not be subject to challenge before any court of law or
arbitration tribunal. Seller and Buyer agree that judgment may be entered upon
the determination of such accounting firm in any court having jurisdiction over
the party against which such determination is to be enforced. The fees and
expenses of such accounting firm shall be borne equally by Seller and Buyer. Any
fees and expenses of Seller's and Buyer's own independent public accountants
incurred in connection with their review of the Closing Date Balance Sheet shall
be borne by the party retaining such independent public accountants.
(e) Settlement of Closing Date Stockholder's Equity. If the Closing
Date Stockholder's Equity, as finally determined pursuant to this Section 2.3,
is less than the Recent Date Stockholder's Equity, then Seller will pay to
Buyer, within two business days, by wire transfer of immediately available
funds, the amount of such shortfall. If the Closing Date Stockholder's Equity,
as finally determined pursuant to this Section 2.3, is greater than the Recent
Date Stockholder's Equity, then Buyer will pay to Seller, within two business
days, by wire transfer of immediately available funds, the amount of such
excess. Such payment shall be deemed an adjustment of the purchase price in
Section 2.2. For purposes of preparing the Closing Date Balance Sheet, the
change in total stockholder's equity will include the net change in intercompany
accounts. During the period from December 31, 1999 through the Closing Date,
intercompany accounts will, in part, (i) increase by contributions of cash and
capital by Seller and (ii) decrease by cash or other distributions to Seller. In
determining the difference, if any, between the Closing Date Stockholder's
Equity and the Recent Date Stockholder's Equity, any change in tax liability
from that reflected on the Recent Date Balance Sheet, except for provisions made
in the ordinary course related to income earned since the date of the Recent
Date Balance Sheet, shall be ignored.
2.4 Post-Closing EBITDA Adjustment. If the Final Adjusted EBITDA is
less than $47.3 million, then Seller will pay to Buyer, by wire transfer of
immediately available funds, an amount equal to the product of (i) five (5) and
(ii) the amount of such shortfall. Payment shall be made on the date that the
settlement of the Closing Date Stockholder's Equity occurs, or if no such
settlement is to be made, within two business days of the final determination
pursuant to
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Section 2.3 of the Closing Date Stockholder's Equity. The financial items
derived from the Audited Financial Statements and used in the calculation of the
Final Adjusted EBITDA (other than any changes in the items described in clause
(v) of the definition of Final Adjusted EBITDA from the amount of such items in
the APL Financial Information) shall be final and binding on both parties,
absent manifest error in the treatment in the Audited Financial Statements of
the transfer of the Excluded Assets to Seller or its designee and the
consummation of the other transactions contemplated by Section 3.1. Any
disagreements involving changes in the items described in clause (v) shall be
resolved in the same manner as provided in Section 2.3 for disagreements
concerning the calculation of the Closing Date Stockholder's Equity.
ARTICLE 3
CLOSING
3.1 Other Transactions. Immediately prior to the Closing, (a) APL shall
assign, transfer and deliver to Seller or its designee the assets and
liabilities listed on Appendix B held by APL (subject to the prior sale or
transfer of such assets as permitted by Section 6.2(b)) and (b) the Seaway
Restructuring will be effected pursuant to the Seaway Restructuring Agreement.
The assets assumed, transferred and delivered to Seller or its designee pursuant
to clause (a) above and the assets allocated to and vested in Seaway Products in
the Seaway Restructuring are collectively referred to herein as the "Excluded
Assets." For U.S. federal income tax purposes, the actual and deemed transfers
made pursuant to the preceding sentence, including the Seaway Restructuring and
the ASI Conversion and the APL Conversion, are intended to constitute
distributions of assets in complete liquidation of ASI and APL to which Section
332 of the Code applies. The transfers of assets pursuant to clause (a) above
shall be made pursuant to a Conveyance and Assignment Agreement in form
reasonably satisfactory to Buyer (the "Conveyance Agreement") in which APL shall
transfer all of its right, title and interest in such assets to Seller or its
designee. Seller shall execute an Assumption Agreement in form reasonably
satisfactory to Buyer (the "Assumption Agreement") pursuant to which Seller
shall (i) expressly assume, or guarantee the assumption by its designee of, and
agree to pay, perform and otherwise discharge in full each of the Excluded
Liabilities, and (ii) to the extent dischargeable by Seller or any of its
Affiliates, fully and unconditionally release APL from each of such Excluded
Liabilities.
3.2 Closing Date. The closing ("Closing") of the transactions
contemplated herein, including the purchase and sale of the Shares, shall take
place at the offices of Baker Botts L.L.P. located at 910 Louisiana, Houston,
Texas 77002 at 10:00 A.M., local time, on the later to occur of (a) the third
business day following the satisfaction or waiver of all conditions to Closing
set forth in Section 10.1 and Section 10.2 (other than those conditions that by
their terms are to be satisfied at the Closing, but subject to the satisfaction
or waiver at or prior to the Closing of all such conditions) and (b) the tenth
calendar day following the consummation of the Merger, or at such other place or
time as the parties may mutually agree. The date upon which the Closing occurs
is referred to in this Agreement as the "Closing Date."
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3.3 Seller's Deliveries. Seller shall deliver, or cause to be
delivered, to Buyer at the Closing the following:
(a) the limited liability company interests in APL and ASI;
(b) all minute books and other organizational books and records of APL
and the APL Subsidiaries;
(c) a copy, certified as of the Closing Date, by Seller's Secretary or
Assistant Secretary, as the case may be, of the resolutions duly adopted by the
Board of Directors of Seller, authorizing the transactions contemplated by this
Agreement;
(d) a copy, certified as of the Closing Date, by APL's Secretary or
Assistant Secretary, as the case may be, of the resolutions duly adopted by the
Board of Directors of APL, authorizing the transactions contemplated by this
Agreement, including the transactions referred to in Article 3;
(e) certificates of good standing for Seller, APL and the APL
Subsidiaries in the State of Delaware, and certificates of good standing in each
foreign jurisdiction in which APL and the APL Subsidiaries are qualified to do
business, as certified as of a recent date by the Secretary of State of the
State of Delaware or other appropriate authority of such foreign jurisdictions,
as the case may be;
(f) the opinion of counsel to Seller required by Section 10.1(d);
(g) a copy of the certificate of incorporation for Seller and copies of
the certificate of conversion of APL and the APL Subsidiaries, all as certified
as of a recent date by the Secretary of State of the State of Delaware;
(h) copies of the bylaws of Seller and the limited liability company
agreements of APL and the APL Subsidiaries, as in effect on the Closing Date,
certified by the Secretary or the Assistant Secretary of Seller, APL and the APL
Subsidiaries, as the case may be;
(i) certificates of the Secretary or Assistant Secretary of Seller, as
the case may be, certifying as of the Closing Date as to the incumbency and
signatures of the officer(s) of Seller authorized to sign this Agreement and the
other documents to be delivered hereunder, together with evidence of the
incumbency of each such Secretary or Assistant Secretary;
(j) certificates dated the Closing Date of officers of Seller stating
that the representations and warranties of Seller set forth herein remain true
and correct in all respects on and as of the Closing Date as if made on and as
of such date (except for representations and warranties made as of a specific
date which shall be true and correct in all respects as of such date), except
for any breach or breaches of such representations and warranties that would not
individually or in the aggregate have a Material Adverse Effect, and that all
covenants and obligations to be complied with and performed by Seller on or
prior to the Closing Date have been substantially complied with or performed,
except for any breach or breaches of such
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covenants and obligations that would not individually or in the aggregate have a
Material Adverse Effect;
(k) the written resignations of all directors of APL and the APL
Subsidiaries unless Buyer and any director agree to such director's remaining in
office;
(l) an executed counterpart of the Transitional Operating Agreement;
(m) an executed counterpart of the Services Agreement; and
(n) executed copies of the Seaway Restructuring Agreement and the
exhibits thereto.
3.4 Buyer's Deliveries. Buyer shall deliver, or cause to be delivered,
to Seller at the Closing the following:
(a) the Unadjusted Purchase Price in the manner and amount specified in
Section 2.2;
(b) a copy, certified as of the Closing Date by Buyer's Secretary or
Assistant Secretary, as the case may be, of the resolutions duly adopted by the
Board of Directors of Buyer, authorizing the transactions contemplated by this
Agreement;
(c) a certificate of good standing for Buyer in its jurisdiction of
incorporation, as certified as of a recent date by the Secretary of State or
other appropriate authority of such jurisdiction;
(d) the opinion of counsel to Buyer required by Section 10.2(f);
(e) a copy of the certificate of conversion of Buyer, as certified as
of a recent date by the Secretary of State or other appropriate authority of its
jurisdiction of incorporation;
(f) a copy of the regulations or bylaws of Buyer as in effect on the
Closing Date, certified as of the Closing Date by the Secretary or Assistant
Secretary of Buyer;
(g) a certificate of the Secretary or Assistant Secretary of Buyer, as
the case may be, certifying as of the Closing Date as to the incumbency and
signatures of the officer(s) or representatives of Buyer authorized to sign this
Agreement and the other documents to be delivered hereunder, together with
evidence of the incumbency of each such Secretary or Assistant Secretary;
(h) certificates dated the Closing Date of an officer of Buyer stating
that the representations and warranties of Buyer set forth herein remain true
and correct in all material respects at and as of the Closing Date with the same
effect as though made on and as of such date (except for representations and
warranties made as of a specified date, which shall be true and correct in all
material respects as of such date) and that all obligations and covenants
required by this Agreement to be complied with or performed by Buyer prior to or
at the Closing have been complied with or performed in all material respects;
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(i) an executed counterpart of the Transitional Operating Agreement;
and
(j) an executed counterpart of the Services Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
4.1 Organization and Good Standing of Seller. Seller is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware.
4.2 Authority. Seller has full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder. This Agreement has
been duly executed and delivered by Seller and constitutes a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
subject to applicable laws of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and to general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
4.3 Organization, Good Standing and Qualification of APL and the APL
Subsidiaries. At the date hereof, each of APL and the APL Subsidiaries is a
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation. Following the ASI Conversion and the
APL Conversion, each of ASI and APL will be a limited liability company, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. At the date hereof, each of APL and the APL
Subsidiaries is duly authorized, qualified or licensed to do business as a
foreign corporation, and following the ASI Conversion and the APL Conversion,
each of APL and the APL Subsidiaries will be duly authorized, qualified or
licensed to do business as a foreign limited liability company, in each case in
good standing in each of the jurisdictions in which its right, title or interest
in or to any of the assets held by it or the business conducted by it requires
such authorization, qualification or licensing, except in such jurisdictions
where the failure to be so authorized, qualified, licensed or in good standing
would not have and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
4.4 Corporate Records. The copies of the certificate of incorporation
and bylaws or other organizational documents of Seller, APL and the APL
Subsidiaries that have been delivered to Buyer or that will be delivered to
Buyer prior to Closing are complete and correct as of the date hereof.
4.5 No Violations. Except as set forth in Section 4.5 of the Disclosure
Schedule, the execution and delivery of this Agreement by Seller does not, and
the consummation of the transactions contemplated hereby will not, (i) violate
any provisions of the certificate or articles of incorporation or bylaws or
similar organizational documents of Seller, APL or the APL Subsidiaries; (ii)
result in the breach or termination of, or otherwise give any other Person the
right to terminate or accelerate the performance required by, or constitute a
default under
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(whether with notice or lapse of time or both), any mortgage, indenture, deed of
trust, lease, license, commitment or other agreement or instrument or any order,
judgment or decree to which Seller, APL or an APL Subsidiary is a party or by
which any of their respective properties or assets are bound; (iii) violate any
Applicable Law applicable to Seller, APL or an APL Subsidiary or their
respective properties or assets; (iv) result in any third party having the right
to exercise a preferential right of purchase or right to purchase upon a change
of control under any contract referenced in Section 4.13(e) or (f); or (v)
result in the creation of any Lien upon any assets of APL or an APL Subsidiary,
except in each such case for such violations, breaches, terminations and
defaults which would not have and would not reasonably be expected to have a
Material Adverse Effect.
4.6 Approvals, Consents and Other Actions. Except (i) with respect to
any filings required under the HSR Act, (ii) as contemplated by this Agreement,
(iii) the FTC's final approval of any applicable consent order providing for
Seller's divestiture of APL in connection with the Merger or (iv) as set forth
in Section 4.6 of the Disclosure Schedule, no Governmental Approval or consent
of any third party is required to be made or obtained by or with respect to
Seller in connection with the execution, delivery and performance of this
Agreement by Seller except for such Governmental Approvals or consents of any
third party the failure of which to obtain would not have and would not
reasonably be expected to have a Material Adverse Effect.
4.7 Title to the Shares. Seller holds of record and owns beneficially,
and will transfer or cause to be transferred to Buyer on the Closing Date, the
Shares, and, upon delivery to Buyer at the Closing of assignment documents in
accordance with Section 3.3(a), registration of the transfer of the Shares on
the books of APL and payment of the Unadjusted Purchase Price therefor, Seller
will transfer to Buyer valid title to the Shares, free and clear of any Liens.
4.8 Capitalization. As of the date hereof, the capitalization of APL
and the APL Subsidiaries is set forth in Section 4.8 of the Disclosure Schedule.
At the Closing, all of the outstanding limited liability company interests of
APL and the APL Subsidiaries will have been duly authorized for issuance and
will be validly issued, fully paid and nonassessable and none of such limited
liability company interests will be held in treasury. There are no outstanding
subscriptions, options, warrants, calls or rights of any kind to acquire any
shares of any class of securities or any securities convertible into any shares
of any class of securities of APL or the APL Subsidiaries, nor are there any
obligations to issue any such options, warrants, calls, rights or securities.
There are no restrictions of any kind on the transfer of the Shares, except as
may be imposed by Applicable Law. Except as set forth in Section 4.8 of the
Disclosure Schedule and after giving effect to the transactions contemplated by
Section 3.1, none of APL or the APL Subsidiaries owns any capital stock or other
interest in any other Person nor are APL or any of the APL Subsidiaries subject
to any obligations to make any investment in any other Person. APL owns all of
the capital stock of ASI, free and clear of all Liens, except Permitted Liens
and, at the Closing, APL will own all of the limited liability company interests
of ASI, free and clear of all Liens, except Permitted Liens
4.9 Financial Statements. The Audited Financial Statements to be
delivered in accordance with Section 6.15 shall be prepared in accordance with
GAAP, consistently applied
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during the periods involved. The Recent Date Balance Sheet (including the notes
thereto) fairly presents the financial position of APL's Business as of December
31, 1999, and each consolidated statement of income and of cash flows included
among the Audited Financial Statements (including the notes thereto) will fairly
present the results of operations and cash flows of APL's Business for the year
ended December 31, 1999. The financial income statement and cash flow data of
APL attributable to the APL Business (prior to the effects of the Seaway
Restructuring) furnished by Seller to Buyer on schedules dated February 29,
2000, as amended March 2, 2000, and the financial income statement data of APL
attributable to the APL Business furnished by Seller to Buyer on schedules dated
May 9, 2000, in each case for the year ended December 31, 1999 (collectively,
the "APL Financial Information") (i) are accurately derived, in all material
respects, from financial statements of APL covering such periods prepared in
accordance with GAAP consistently applied during the periods and (ii) accurately
correspond, in all material respects, with financial data of the APL Business
that would be derived from financial statements of the APL Business covering
such periods prepared in accordance with GAAP consistently applied during the
periods involved, had such financial statements been prepared for the APL
Business on a division basis. The year 2000 budget financial data contained in
the APL Financial Information and the year 2000 budget financial data for Seaway
Crude and Seaway Products prepared on May 8, 2000 were based upon the
application of reasonable assumptions of management of APL. The unaudited
financial statements of Seaway Crude as of and for the year ended December 31,
1999, an accurate copy of which was delivered to Buyer, were prepared in
accordance with GAAP consistently applied during such period.
4.10 Absence of Undisclosed Liabilities. Except as set forth in Section
4.10 of the Disclosure Schedule, neither APL nor any of the APL Subsidiaries has
any Liabilities relating to or arising out of the operation or conduct of APL's
Business prior to Closing that is of a nature required under GAAP to be
disclosed, reflected or reserved against in the Audited Financial Statements,
other than (i) Liabilities disclosed, reflected or reserved against on the
Audited Financial Statements, including the notes thereto, (ii) Liabilities
incurred since December 31, 1999 in the ordinary course of business consistent
with past practice of APL's Business and not in violation of this Agreement,
(iii) Excluded Liabilities and (iv) Liabilities that would not have and would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
4.11 No Material Changes. Except as set forth in Section 4.11 of the
Disclosure Schedule, since December 31, 1999, there has not occurred with
respect to APL's Business (a) any Casualty or Condemnation Loss which has had or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect or (b) any other event, occurrence or development which
in any such case has had or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect. Except as set forth in Section
4.11 of the Disclosure Schedule, since December 31, 1999, APL has conducted its
business in the ordinary course consistent with its past practice and Seller has
not taken any action that, if taken after the date of this Agreement, would
constitute a breach of any of the covenants set forth in Section 6.2.
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4.12 Tax Matters. Except as set forth in Section 4.12 of the Disclosure
Schedule and except as would not have, individually or in the aggregate, a
Material Adverse Effect:
(a) Seller, APL, Seaway and the APL Subsidiaries have (or will have by
the Closing Date) caused to be correctly and completely prepared and timely
filed (taking into account any extensions) with the appropriate Governmental
Authorities all Tax Returns, information returns or statements and reports
required to be filed on or before the Closing Date by or with respect to APL,
Seaway or any APL Subsidiary.
(b) All Taxes due on each Tax Return filed on or before the Closing
Date by or with respect to APL, Seaway or any APL Subsidiary have been or will
be timely paid in full.
(c) Seller has not received and does not have any knowledge of any
notice of deficiency or assessment or proposed deficiency or assessment with
respect to APL, Seaway, any APL Subsidiary or any properties of APL, Seaway or
any APL Subsidiary from any Tax authority.
(d) There is no pending action, suit, claim, proceeding or
investigation, and, to Seller's Knowledge, no action, suit, claim, proceeding or
investigation has been threatened by, any Governmental Authority for the
assessment or collection of Taxes with respect to APL, Seaway or any APL
Subsidiary and no basis exists therefor.
(e) There are no outstanding agreements or waivers by or with respect
to APL, Seaway or any APL Subsidiary that extend the statutory period of
limitations applicable to any Tax Returns or the payment of, or assessment of
any Tax for any period.
(f) APL and the APL Subsidiaries are (i) members of the "affiliated
group" (within the meaning of Section 1504(a) of the Code) of which BP America
Inc. is the "common parent" and (ii) included in the consolidated federal income
tax return filed by BP America Inc. with respect to such affiliated group (the
"BP America Group").
(g) Neither APL nor any APL Subsidiary is a party to, is bound by or
has any obligation under any Tax sharing, indemnity or allocation agreement or
similar agreement or arrangement.
(h) Seller is not a foreign person within the meaning of Section 1445
of the Code.
(i) All monies required to be withheld by APL, Seaway and any APL
Subsidiary from employees for income Taxes and social security and other payroll
Taxes have been collected or withheld, and either paid to the respective Taxing
authorities, set aside in accounts for such purpose, or accrued, received
against and entered on the books of Seller.
(j) Each of APL and the APL Subsidiaries was from the date of inception
and prior to the APL Conversion and ASI Conversion properly treated as a
corporation pursuant to Section 7701(a)(3) of the Code and any corresponding
provision of state and local law and, following the
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APL Conversion and the ASI Conversion, and will be treated as a disregarded
entity for Tax purposes pursuant to Treasury regulation Section 301.7701-3(a) at
the Closing Date.
4.13 Material Contracts. Section 4.13 of the Disclosure Schedule lists
all material contracts and agreements and all documents evidencing rights of or
commitments by APL and the APL Subsidiaries to which APL or an APL Subsidiary is
a party or its property or assets are bound as of the Closing Date that relate
to APL's Business.
For purposes of this Agreement, the following constitutes a material
contract, agreement, or document:
(a) any indenture, note, loan or credit agreement relating to the
borrowing of at least $1 million or to the direct or indirect guaranty or
assumption of the obligation of any other Person of more than $1 million;
(b) any contract involving the payment or receipt during the twelve
months ended December 31, 1999 of an amount in excess of $1 million or that is
expected to involve the payment or receipt during the twelve months ended
December 31, 2000 of an amount in excess of $1 million;
(c) any lease of personal property having a fair market value in excess
of $1 million;
(d) any joint venture, partnership or similar organizational contract
involving a sharing of profits or losses relating to all or any portion of APL's
Business;
(e) any contract granting a third party a preferential right of
purchase of an asset of APL's Business having a fair market value in excess of
$1 million; or
(f) any contract giving a third party rights to buy from or sell to APL
or an Affiliate of APL assets or stock with a fair market value in excess of $1
million upon a change of control or a change in ownership of APL.
Except as set forth in Section 4.13 of the Disclosure Schedule, each such
contract, agreement and document is in full force and effect according to the
terms of each respective instrument, and APL has complied in all respects with
all requirements in connection therewith, except such requirements as would not
have a Material Adverse Effect, and there is not under any such contract,
agreement or document, any existing breach or default (or event that, with
notice, lapse of time or both, would constitute a breach or default) by APL or
an APL Subsidiary, except such events as would not have a Material Adverse
Effect.
4.14 Employee Benefit Plans. Section 4.14 of the Disclosure Schedule
sets forth a list of all "employee benefit plans" as defined in Section 3 of
ERISA, and any other pension or retirement, savings, profit sharing, deferred
compensation, stock option (including restricted or performance units),
severance, vacation, medical, vision, dental, long-term disability, life
insurance, group accident, occupational death, business travel, long-term care,
educational assistance, floating holiday, personal business, gainshare, bonus,
financial counseling, welfare or
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sick leave or other employee benefit plan, procedure, policy or practice of any
nature, as well as any employment, consulting, engagement or retention agreement
or agreements, and any trust or funding mechanism for each plan or arrangement
described above covering employees of APL and the APL Subsidiaries and any
employees of Seller whose employment is related primarily to one or more of the
businesses of APL (collectively, the "Employees"). Eligible Employees
participate in employee benefit plans, as defined by Section 3 of ERISA,
maintained by Seller. APL does not maintain any such employee benefit plans.
4.15 Labor Matters. Except as set forth in Section 4.15 of the
Disclosure Schedule, (a) neither APL nor any APL Subsidiary is a party to or
bound by the terms of any collective bargaining agreement with any labor union
or association, (b) there are no formal negotiations, demands or proposals that
are pending or have been recently conducted or made with or by any labor union
or association, and (c) there are no pending strikes, work stoppages or material
labor disputes involving APL or any APL Subsidiary.
4.16 Real Property and Assets.
(a) Section 4.16 of the Disclosure Schedule sets forth a list of all
real property, leaseholds and other interests in real property that will be held
by APL and the APL Subsidiaries at the Closing Date (other than easements,
licenses or rights-of-way involving annual payments of less than $10,000 each),
except those real properties, leaseholds and other interests in real property
where the failure to hold would not, individually or in the aggregate, have a
Material Adverse Effect (the "Properties"). Except as set forth in Section 4.16
of the Disclosure Schedule, APL and the APL Subsidiaries will hold, as of the
Closing Date, an interest in the real property described in Section 4.16 of the
Disclosure Schedule sufficient to permit APL and the APL Subsidiaries to operate
their businesses in the ordinary course and consistent with past practices,
according to the terms of the instrument, conveyance or document creating such
interest, free and clear of all Liens, except Permitted Liens, and APL and the
APL Subsidiaries have good and indefeasible title to each of the Properties,
except for Permitted Liens.
(b) Except as set forth in Section 4.16 of the Disclosure Schedule,
each of the leases, subleases, easements, licenses and agreements described in
Section 4.16 of the Disclosure Schedule is in full force and effect according to
the terms of each respective instrument, except where such failure to be in full
force and effect would not have a Material Adverse Effect, and to Seller's
Knowledge, each holder of such leases, subleases, easements, licenses and
agreements has complied with all requirements in connection therewith, except
where such noncompliance would not have a Material Adverse Effect, and there is
not under any such lease, sublease, easement, license or agreement, any existing
breach or default (or event that, with notice, lapse of time or both, would
constitute a breach or default) by APL or the APL Subsidiaries, except for such
breaches or defaults that would not have a Material Adverse Effect.
(c) The tangible assets owned or leased by APL immediately prior to the
Closing and after the consummation of the transactions contemplated by Section
3.1 constitute all the tangible assets used in or necessary to conduct the APL
Business and such tangible assets will continue to be owned or leased by APL
immediately after the Closing. The tangible assets of APL that are
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currently in service and operated in connection with the APL Business are in
reasonable condition for age and service, except for (i) ordinary wear and tear,
(ii) assets scheduled for sale, obsolescence or abandonment or (iii) matters or
conditions that would not have, individually or in the aggregate, a Material
Adverse Effect.
4.17 Bank Accounts. Section 4.17 of the Disclosure Schedule sets forth
the name of each bank, savings and loan or other financial institution in which
APL and the APL Subsidiaries have any account or safe deposit box.
4.18 Insurance Policies. Section 4.18 of the Disclosure Schedule lists
all currently effective policies of insurance issued by third-party insurers,
including amounts of coverage thereof, that are maintained by Seller for the
benefit of APL and the APL Subsidiaries or by APL for which APL is named as an
insured party, in each case as of the Closing Date. Except as set forth in
Section 4.18 of the Disclosure Schedule, such policies are in full force and
effect and all premiums due have been paid.
4.19 Legal Proceedings. Except as set forth in Section 4.19 of the
Disclosure Schedule, there are no Claims pending or, to Seller's Knowledge,
threatened in writing against APL or the APL Subsidiaries before any
Governmental Authority (i) seeking to prevent or delay the Closing or (ii) which
would have or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
4.20 Compliance with Laws. To Seller's Knowledge, APL's Business is
being operated in compliance with all Applicable Laws, except for such
non-compliance which would not have and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. Except as set
forth in Section 4.20 of the Disclosure Schedule, neither APL nor any of the APL
Subsidiaries has received any notice from any Governmental Authority that the
operations of APL's Business are being conducted in violation of any Applicable
Law, which violation would have or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. To Seller's
Knowledge, there are no investigations or reviews pending or threatened by any
Governmental Authority relating to any alleged violation arising out of the
operation of APL's Business, which violation would have or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
Except as set forth in Section 4.20 of the Disclosure Schedule, there is no
outstanding order, writ, judgment, stipulation, injunction, decree,
determination, award or other order of any Governmental Authority against APL or
an APL Subsidiary that relates to APL's Business that has had, or is reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect.
4.21 Environmental Matters. Except as listed in Section 4.21 of the
Disclosure Schedule, to the best of Seller's Knowledge and except as would not,
individually or in the aggregate, have a Material Adverse Effect, (i) APL and
the APL Subsidiaries are conducting APL's Business in compliance with all
Environmental Laws; (ii) with respect to APL's Business, neither APL nor the APL
Subsidiaries has filed, and neither APL nor the APL Subsidiaries has received
notice that any other Person has filed, any notice under Applicable Law
indicating that APL or any of the APL Subsidiaries is responsible for the
release into the environment or the
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improper storage of any amount of any Hazardous Substance or that any such
Hazardous Substance has been released or is improperly stored upon any property
of either APL or any of the APL Subsidiaries; (iii) with respect to APL's
Business, neither APL nor the APL Subsidiaries otherwise has any Liability in
connection with any violation of Environmental Laws or in connection with the
release or threatened release into the environment or the improper storage of
any Hazardous Substance (including offsite disposal and releases); (iv) all
notices, permits, licenses or similar authorizations, if any, required to be
obtained or filed in connection with the operations of APL's Business (including
the business of any predecessor to APL and the APL Subsidiaries), including
present or past treatment, storage, disposal or release of a Hazardous Substance
into the environment, have been duly obtained or filed, and each of APL and the
APL Subsidiaries is in compliance with the terms and conditions of all such
notices, permits, licenses and similar authorizations; (v) with respect to APL's
Business, no Claims are pending or threatened by third parties, including
employees, against APL or the APL Subsidiaries alleging liability for exposure
to Hazardous Substances; and (vi) none of the Properties is listed on the
National Priority List pursuant to CERCLA or on any similar list pursuant to any
state Environmental Laws.
4.22 Governmental Approvals. Section 4.22 of the Disclosure Schedule
lists all material Governmental Approvals issued or granted, as of the Closing
Date, to APL and the APL Subsidiaries by Governmental Authorities in connection
with the operation of APL's Business. Except as set forth in Section 4.22 of the
Disclosure Schedule, each of the Governmental Approvals listed in Section 4.22
of the Disclosure Schedule is in full force and effect according to the material
terms of each instrument, each holder of such Governmental Approvals has
complied with all material requirements in connection therewith, and there is
not under any such Governmental Approvals any existing material breach or
default (or event that, with notice, lapse of time or both, would constitute a
material breach or default) by APL or an APL Subsidiary.
4.23 Broker Liability. With respect to any broker, finder or similar
consultant, retained by, or acting on behalf of Seller or its Affiliates in
connection with this Agreement or the transactions contemplated hereby, Seller
shall be solely responsible and liable for any brokerage, finder's or similar
consultant's fee or other commission in respect of such broker, finder or
similar consultant.
4.24 Disclaimer of Certain Representations and Warranties. EXCEPT AS
EXPRESSLY PROVIDED IN THIS AGREEMENT (INCLUDING THE APPENDICES HERETO, THE
DISCLOSURE SCHEDULE AND ANY CERTIFICATE FURNISHED IN CONNECTION WITH THIS
AGREEMENT), SELLER MAKES NO OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, INCLUDING ANY REPRESENTATIONS OR WARRANTIES RELATING
TO (A) THE TITLE TO ANY PROPERTIES, (B) THE VALUE OF APL'S BUSINESS OR ANY OF
THE ASSETS OF APL, THE APL SUBSIDIARIES AND SEAWAY, (C) THE MAINTENANCE, REPAIR,
CONDITION, DESIGN, PERFORMANCE OR MARKETABILITY OF ANY ASSETS OF APL, THE APL
SUBSIDIARIES AND SEAWAY, INCLUDING MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, (D) THE PRESENCE OR ABSENCE OF ANY HAZARDOUS SUBSTANCES IN, UNDER OR
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ON, OR DISPOSED OF OR DISCHARGED FROM, THE ASSETS OF APL, THE APL SUBSIDIARIES
OR SEAWAY, OR (E) ANY INFRINGEMENTS BY SELLER OF ANY PATENT OR PROPRIETARY RIGHT
OF ANY THIRD PARTY. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT
(INCLUDING THE APPENDICES HERETO, THE DISCLOSURE SCHEDULE AND ANY CERTIFICATE
FURNISHED IN CONNECTION WITH THIS AGREEMENT), SELLER DISCLAIMS ALL LIABILITY AND
RESPONSIBILITY FOR ANY REPRESENTATION OR WARRANTY OTHERWISE MADE OR COMMUNICATED
(ORALLY OR IN WRITING) (INCLUDING ANY OPINION, INFORMATION OR ADVICE THAT MAY
HAVE BEEN PROVIDED TO BUYER HERETO BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT,
CONSULTANT OR REPRESENTATIVE OF SELLER AND ANY INFORMATION, DOCUMENTS OR
MATERIALS MADE AVAILABLE TO BUYER HERETO OR BUYER'S DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR ADVISORS IN CERTAIN "DATA ROOMS," MANAGEMENT PRESENTATIONS
OR IN ANY OTHER FORM IN EXPECTATION OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT).
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1 Organization and Good Standing. Buyer is a limited liability
company duly formed, validly existing and in good standing under the laws of its
jurisdiction of incorporation.
5.2 Authority. Buyer has full company power and authority to enter into
this Agreement and to perform its obligations hereunder. This Agreement has been
duly executed and delivered by Buyer and constitutes a valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
subject to applicable laws of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and to general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
5.3 No Violations. The execution and delivery of this Agreement by
Buyer does not, and the consummation of the transactions contemplated hereby
will not, (i) violate any of the provisions of the certificate of conversion,
limited liability company agreement, regulations or bylaws or similar
organizational documents of Buyer; (ii) result in the breach or termination of,
or otherwise give any other Person the right to terminate or accelerate the
performance required by, or constitute a default under (whether with notice or
lapse of time or both), any mortgage, indenture, deed of trust, lease, license,
commitment or agreement or instrument or any order, judgment or decree to which
Buyer is a party or by which any of its properties or assets are bound; (iii)
violate any Applicable Law applicable to Buyer or its properties or assets; or
(iv) result in the creation of any Lien upon any assets of Buyer except for such
violations, breaches, terminations and defaults which would not have and would
not reasonably be expected to have a material adverse effect on the business,
operations, assets, liabilities, results of operations, cash flows or financial
condition of Buyer's business.
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5.4 Approvals and Consents. Except with respect to any filings required
under the HSR Act, no Governmental Approval or any consent by a third party is
required to be made or obtained by or with respect to Buyer in connection with
the execution, delivery and performance of this Agreement by Buyer.
5.5 Financial Capability. Buyer has the financial capability to perform
all of its obligations under this Agreement, and Buyer has available all funds
necessary to pay the Purchase Price and any other amounts contemplated by this
Agreement.
5.6 Accredited Investor. Buyer is an "accredited investor" within the
meaning of Rule 501(a)(1), (2), (3) or (7) of the Securities Act.
5.7 Investment Intent. Buyer is acquiring the Shares for its own
account for the purpose of investment and not with a view to, or for sale in
connection with, any distribution thereof in any transaction that would be in
violation of the securities laws of the United States or any state thereof.
Buyer acknowledges that the Shares have not been registered or qualified under,
and are sold in reliance upon an exemption from the registration requirements
of, the Securities Act and any applicable state securities or "Blue Sky" laws,
and may not be offered, sold, transferred, pledged, hypothecated or otherwise
assigned unless they are registered under the Securities Act and any applicable
securities or "Blue Sky" laws of any state or an exemption from such
registration is available.
5.8 Buyer's Inquiry. Buyer and its representatives have reviewed or
received copies of, or had the opportunity to review, including in a data room
maintained by Seller, such information from Seller and APL as they have
requested, and have had the opportunity to make such inquiry of representatives
of Seller and APL as they deem appropriate. Buyer acknowledges that prior to the
Effective Date, Seller has caused APL to give Buyer and its authorized
representatives reasonable access to the employees, offices, properties and a
data room containing certain books and records of APL and the APL Subsidiaries,
has permitted Buyer to make inspections of and tour APL's facilities and has
furnished Buyer with certain financial and operating data and other information
with respect to the business, assets, properties, operations, liabilities and
obligations of APL and the APL Subsidiaries. In entering into this Agreement,
Buyer has relied on its ability to make an independent investigation of and
judgment with respect to APL's Business and the advice of its own legal, tax,
economic, environmental, engineering and financial advisors and not on any
comments or statements of any representatives of, or consultants or advisors
engaged by Seller or APL.
5.9 Broker Liability. With respect to any broker, finder or similar
consultant, retained by, or acting on behalf of Buyer, in connection with this
Agreement or the transactions contemplated hereby, Buyer shall be solely
responsible and liable for any brokerage, finder's or similar consultant's fee
or other commission in respect of such broker, finder or similar consultant.
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ARTICLE 6
COVENANTS AND AGREEMENTS OF THE PARTIES
6.1 Access to Information.
(a) Between the Effective Date and Closing, Seller shall give, and
shall cause its Affiliates to give, Buyer full access at reasonable times to the
premises, books, records, contracts, assets and accounts of APL and the APL
Subsidiaries related to APL's Business and will make reasonably available to
Buyer at a reasonable place and time, the officers and employees and independent
accountants of APL for interviews to verify all information furnished to it and
to otherwise become familiar with APL's Business; provided that in no event
shall APL be required to disclose (i) any information regarding its business
model, strategies or customers (except customer contracts) that would materially
compromise its ability to compete if this Agreement is terminated for any reason
or (ii) any shipper information (including shipper information contained in
customer contracts) protected from disclosure by the Interstate Commerce Act.
Notwithstanding anything to the contrary in the Confidentiality Agreement, each
party will continue to be bound by its obligations in the Confidentiality
Agreement, and nothing in this Agreement shall be construed as impairing or
otherwise limiting the obligations assumed by the parties therein. The parties
shall, to the extent reasonably possible, minimize disruption of the normal
day-to-day business routine of any office or facility within APL's Business.
(b) After the Closing, Buyer shall, at its own expense or at the
expense of APL, cause APL to preserve and keep, or transport to a storage site
of its own selection where it shall preserve and keep, the books and records of
APL and the APL Subsidiaries obtained by Buyer or retained by APL, including
financial or business transaction records, books of original entry, tax records
and supporting documents, for a period of seven years from the Closing Date or
such longer period if required under Applicable Laws. Within 60 days after the
Closing, Seller shall provide Buyer with a list or inventory of the document
types and inclusive dates of the records transmitted to Buyer or retained by
APL. Buyer shall make or shall cause APL to make such acquired or retained
records as are dated up to the Closing Date and included in the inventory
provided by Seller, including the general ledger, available to Seller as may be
reasonably requested by Seller in connection with, among other things, any of
Seller's financial reporting or Tax filing obligations, for a period of seven
years from the Closing Date or such longer period if required under Applicable
Laws. For a period of 10 years after the Closing Date, Buyer shall notify Seller
in writing, on an annual basis, of the document types and, if applicable,
inclusive dates of any such retained records, that it or APL intend to destroy
during the following one-year period. If Seller desires access to such records
for a period of time longer than specified in Buyer's annual notice, Seller
shall notify Buyer in writing, not more than 60 days following Seller's receipt
of Buyer's annual notice, of its desire to retain such records, and Buyer shall
deliver, or cause APL to deliver, such records to Seller. If Seller does not
notify Buyer of its desire to retain records within such 60-day period, Buyer or
APL may dispose of such records according to prudent records management
practices in the ordinary course of business.
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(c) The parties hereby acknowledge that any in-house counsel of APL or
Seller who are Employees and who participated in the preparation, negotiation or
consummation of this Agreement or the transactions contemplated hereby were
providing legal representation for Seller and, notwithstanding any other
provision of this Agreement, neither APL or Seller nor such counsel shall be
required to disclose under any circumstance any information or documents covered
by the attorney-client privilege or the work-product doctrine as such
information or documents were developed in the course of such representation.
All such information and documents shall remain the sole and exclusive property
of Seller.
6.2 Conduct of the Business Pending the Closing.
(a) Except as expressly provided otherwise in this Agreement, Seller
shall cause APL and the APL Subsidiaries to (i) conduct APL's Business in the
ordinary course consistent with its past practice and (ii) use their
commercially reasonable best efforts to maintain the assets of APL's Business in
substantially the same condition (except normal wear and tear) existing on the
Effective Date and to maintain the services of, and with respect to APL's
Business, good relations with, APL's customers and suppliers.
(b) Except as expressly provided otherwise in this Agreement, including
the transactions contemplated by Section 3.1 and the ASI Conversion and APL
Conversion, Seller shall cause APL and the APL Subsidiaries not to take any of
the following actions:
(i) incur, assume or guarantee any indebtedness or make any
loans, advances or capital contributions to or investments in any other
Person, in each case other than in the ordinary course of business
consistent with its past practice;
(ii) sell, transfer, pledge or otherwise dispose of any
property that is used or held for use in APL's Business, except for
sales of inventory (unless otherwise agreed by Buyer in writing) and
the sale, transfer or other disposition of uneconomic or obsolete
equipment in the ordinary course of business consistent with its past
practice;
(iii) except for transfers of cash in the ordinary course of
business under Seller's cash management program, including daily sweeps
of substantially all cash to Seller, or as otherwise provided by this
Agreement, split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividends or other distributions
in respect of its capital stock or redeem, purchase or otherwise
acquire any of its capital stock;
(iv) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any capital stock of any class or any other
securities or equity equivalents or amend any of the terms of any such
securities or agreements;
(v) cancel or compromise any indebtedness owed to it or waive
any claims or rights except in the ordinary course of business
consistent with its past practice;
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(vi) make any capital expenditure or commitment in excess of
$5 million individually or $25 million in the aggregate, except as
required by Applicable Law;
(vii) make any change in any method of accounting or keeping
of books of account or accounting practices or principles, except as
required by Applicable Law;
(viii) except as set forth in Section 4.13 of the Disclosure
Schedule and except in the ordinary course of business consistent with
its past practice, enter into, materially modify, amend or terminate,
or waive any material rights under, any contract listed on Section 4.13
of the Disclosure Schedule;
(ix) close any facilities which are material to the financial
condition, results of operations or business of APL's Business;
(x) amend the charter documents or other governing instruments
of, or cause the liquidation or dissolution of, or fail to preserve the
existence of, APL or any of the APL Subsidiaries; or
(xi) mortgage, pledge or subject to any Lien any assets
included in APL's Business, except for Permitted Liens.
For the avoidance of doubt, none of the covenants set forth in this Section 6.2
are intended to or shall impose any restriction on the operations of APL or its
Affiliates' activities that are not related to APL's Business; specifically, APL
may sell or transfer any Excluded Assets prior to Closing and any cash or other
proceeds from such sale or transfer shall constitute Excluded Assets.
6.3 Notification. Between the Effective Date and the Closing Date,
Seller and Buyer will each, promptly upon becoming aware thereof, notify the
other in writing of any fact or condition that causes or constitutes a breach of
any of the other party's representations and warranties made as of the Effective
Date or that impairs the party's ability to perform its obligations under this
Agreement or of any default in the other party's performance of its covenants
and agreements herein.
6.4 Antitrust Notification. If such filings are required, Seller and
Buyer shall, as promptly as practicable, but in no event later than ten business
days after the Effective Date, file with the FTC and the Antitrust Division the
notification and report form required for the transactions contemplated by this
Agreement pursuant to the HSR Act. Seller and Buyer shall furnish to each other
such necessary information and reasonable assistance as may be requested in
connection with the preparation of any filing required to be made under the HSR
Act. Seller and Buyer shall use commercially reasonable efforts to respond as
promptly as practicable to all inquiries received from the FTC or the Antitrust
Division for additional information or documentation and to obtain as promptly
as practicable any clearance required under the HSR Act for the purchase and
sale of the Shares. Any filing fees relating to filings under the HSR Act shall
be borne by Buyer.
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6.5 Fees and Expenses. Except as otherwise specifically provided in
this Agreement, Seller and Buyer shall bear their own fees and expenses incurred
in connection with this Agreement (including fees and expenses of their
respective investment bankers) and in connection with all obligations required
to be performed by each of them under this Agreement.
6.6 Publicity. The parties hereto agree to consult with one another
prior to the issuance of any press release or public statement relating to or
concerning this Agreement or the matters contained herein. Such consultation
shall include prior notification of a party's intent to issue a press release
accompanied by a copy of the proposed language of such press release or public
statement. If Buyer or Seller is required to issue a press release by law or a
securities exchange, it shall use its best efforts to inform the other party
hereto prior to such issuance.
6.7 Post-Closing Assistance. From and after the Closing Date, upon the
request of either Buyer or Seller, the parties hereto shall do, execute,
acknowledge and deliver all such further acts, assurances, deeds, assignments,
transfers, conveyances and other instruments and papers as may be reasonably
required or appropriate to carry out the transactions contemplated by this
Agreement.
6.8 Surety Bonds. Buyer will use commercially reasonable efforts to
submit surety bonds (collectively, "Substitute Surety Bonds" and individually, a
"Substitute Surety Bond"), effective as of the Closing, in substitution for
Seller's surety bonds listed in Section 6.8 of the Disclosure Schedule
(collectively, "Surety Bonds" and individually, a "Surety Bond"). If all the
Substitute Surety Bonds are not effective 90 days after the Closing Date, Buyer
shall be required to pay Seller, in consideration of Seller keeping in effect
those Surety Bonds for which a Substitute Surety Bond is not then effective
(collectively, the "Post-Closing Surety Bonds" and individually, a "Post-Closing
Surety Bond"), an amount equal to one-half of one percent of the face value of
the Post-Closing Surety Bonds per month (or pro rata portion thereof) until such
time as Substitute Surety Bonds are effective, it being agreed that the
aggregate face value of the Post-Closing Surety Bonds shall be reduced
dollar-for-dollar by the face value of Substitute Surety Bonds as such
Substitute Surety Bonds become effective after the Closing Date without regard
to whether any of the Post-Closing Surety Bonds are released. In the event
Substitute Surety Bonds in substitution for all the Post-Closing Surety Bonds
are not effective within 180 days after the Closing Date, in lieu of Buyer's
payment obligation under the preceding sentence, Buyer shall obtain, for the
benefit of Seller, performance bonds or other assurances, from such surety
providers and with such terms and conditions reasonably acceptable to Seller
(the "Performance Bonds") in an aggregate face value equal to the aggregate face
value of the Post-Closing Surety Bonds on and after such 180th day, it being
agreed that the aggregate face value of the Performance Bonds shall be reduced
dollar-for-dollar by the face value of Substitute Surety Bonds as such
Substitute Surety Bonds thereafter become effective without regard to whether
any of the Post-Closing Surety Bonds secured by the Performance Bonds are
released. Without limiting the foregoing, Buyer shall indemnify and hold
harmless Seller with respect to all Losses arising under the Surety Bonds.
6.9 Guarantees. Seller has provided certain guarantees, indemnities and
similar obligations with respect to APL's Business, which guarantees,
indemnities and obligations are
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set forth in Section 6.9 of the Disclosure Schedule. Buyer agrees to cooperate
with Seller and use its best efforts to cause the release of each such
guarantee, indemnity and obligation, including the substitution of Buyer and/or
an Affiliate of Buyer as the guarantor, indemnitor or responsible party
thereunder and the release of Seller, on or as soon as practicable after the
Closing. Without limiting the foregoing, Buyer hereby undertakes, assumes and
agrees to perform, pay and discharge all such guarantees, indemnities and
obligations, and Buyer shall indemnify and hold harmless Seller, including any
officers, directors or Affiliates of Seller, with respect to all Liabilities
arising out of or relating to any such guarantee, indemnity or obligation.
6.10 Name Changes. No later than 30 days following the Closing Date,
Buyer shall amend the certificates of incorporation of APL and ASI to remove the
word "ARCO" or any similarity or reference thereto. The new corporate names of
APL and ASI adopted by Buyer shall not contain any word or words confusingly
similar to "ARCO" or the "Atlantic Richfield Company." Neither Seller nor its
Affiliates, or any of their successors or assigns, shall use the word "ARCO" or
any similarity or reference thereto in connection with providing NYMEX delivery
or in-line transfer services at Cushing, Oklahoma and Midland, Texas, for a
period of three years following the Closing Date. No later than one year
following the Closing Date, Buyer shall remove the marks and names "ARCO," "ARCO
PIPE LINE" and "ATLANTIC RICHFIELD" and any other words, names or symbols
proprietary to Seller, from all tangible and intangible properties, real and
personal, acquired by Buyer hereunder.
6.11 Litigation Support. If and for so long as Seller is defending or
contesting any action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand in connection with (i) any transaction contemplated
under this Agreement or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act or transaction involving APL, Buyer shall cooperate and shall
cause APL to cooperate (on and after the Closing Date) with Seller and its
counsel and agents in such defense or contest, make available its personnel and
provide such testimony and access to its and their books and records as shall be
necessary in connection with such defense or contest, all at Buyer's cost.
6.12 Insurance. Buyer has reviewed the schedule of insurance policies
set forth in Section 4.18 of the Disclosure Schedule. Seller agrees that all
such insurance policies shall remain in full force and effect until the Closing.
All coverage and benefits under such insurance policies and any other insurance
policies of Seller or its Affiliates (subject to the terms thereof) shall cease
at the Closing. On and after the Closing Date, Buyer shall be solely responsible
for obtaining and maintaining any and all insurance coverage and protection
relating to the respective business, assets, properties, operations, liabilities
and obligations of APL.
6.13 Commercially Reasonable Efforts. Subject to Seller's rights under
Section 10.2(d) and Section 10.2(e), each of Seller and Buyer will use
commercially reasonable efforts to take all actions and do all things necessary
in order to consummate and make effective the transactions contemplated by this
Agreement (including the satisfaction, but not the waiver, of the closing
conditions set forth in Section 10.1 and Section 10.2). Notwithstanding the
foregoing or Section 6.4, Buyer shall be obligated promptly to enter into any
hold separate, asset
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maintenance, divestiture or other consent agreement or settlement covering APL's
Business or any assets of APL's Business that is requested by the FTC or the
Antitrust Division in order to obtain its approval of the transactions
contemplated by this Agreement; provided, however, that Buyer shall not be
obligated to enter into any such agreement or settlement that requires
divestiture or imposes a material restriction on (i) the business or assets held
by ASI or (ii) any business or assets of Buyer held by Buyer prior to the
Closing.
6.14 Disclosure Schedule. Seller shall have fourteen (14) days after
the Effective Date to revise the Disclosure Schedule delivered hereunder by
written notice to the Buyer; provided, however, that (i) no such revision shall
materially alter the nature or effect of the specific item or the Disclosure
Schedule so modified, or alone or in the aggregate have a Material Adverse
Effect and (ii) for purposes of determining whether the conditions set forth in
Section 10.1(a) or Section 10.2(a) have been fulfilled, the Disclosure Schedules
shall be deemed to include only that information contained therein on the date
hereof and shall be deemed to exclude all information contained in any
supplement or amendment thereto. The revised Disclosure Schedule shall become
the Disclosure Schedule to the Agreement as if initially attached hereto.
6.15 Audited Financial Statements. Seller shall deliver to Buyer as
soon as available, but in no event later than 30 days after the Closing Date,
the Audited Financial Statements.
6.16 SEC Required Financial Statements. Seller shall cause the SEC
Financial Statements to be prepared, and to cause the independent auditors of
APL to audit and issue their report on the audited SEC Financial Statements,
which financial statements shall be delivered to Buyer within 75 days (if the
required financial statements are for the prior two years) or 90 days (if the
required financial statements are for the prior three years), in each case from
the Closing Date. Seller and Buyer shall use their best efforts to secure
appropriate consents of the independent auditor in respect of such financial
statements. Buyer shall pay all reasonable costs and expenses of the independent
auditors of APL incurred in the preparation of the SEC Financial Statements.
6.17 Industrial Development Bonds. Buyer will not knowingly take any
action, permit any action to be taken or omit to take any action, which act or
omission would adversely affect the exemption from federal income taxation of
interest paid on the City of Texas City Industrial Development Corporation's
Marine Terminal Refunding Revenue Bonds, Series 1990 (ARCO Pipe Line Company
Project). In the event Buyer unknowingly takes any such action or omits to take
any such action, Buyer will, upon receiving notice of such action or omission,
promptly take such reasonable actions as may be necessary to rescind or
otherwise remedy the effect of such action or omission.
6.18 Certain Intellectual Property.
(a) Seller owns various intellectual property, including software,
patents, and trade secrets, which it has provided to APL for use by APL in its
operations ("Seller Proprietary IP"). If requested by Buyer at the Closing,
Seller shall enter into a license agreement with Buyer granting a non-exclusive
license to Buyer or its designee to use Seller Proprietary IP currently
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used by APL. Such license shall be limited to use in the existing operations
being kept with APL and reasonably foreseeable extensions thereof. To the extent
that Seller is restricted by agreements with third parties, licenses will not be
granted in any Seller Proprietary IP in conflict with such restrictions.
However, if payment to a third party is a condition of granting a license, Buyer
shall be given the option of making the required payment and receiving the
license.
(b) Seller may have transferred or sublicensed to APL various software
owned by third parties and licensed to Seller under terms which allow use by
affiliates of Seller ("Seller Third Party Software"). Prior to the Closing Date,
Seller shall use reasonable efforts to obtain for Buyer all consents to
assignment, waivers or other authorizations required to provide Buyer or its
designee with sublicenses or other rights to continue use of Seller Third Party
Software being used in the operations being kept with APL. Buyer shall have the
sole responsibility for all license fees, costs, etc. associated with all
consents to assignment, waivers or other authorizations required to provide
Buyer or its designee any sublicense or other rights to Seller Third Party
Software.
(c) APL owns various intellectual property, including software and
trade secrets, which has been used in its operations ("APL Proprietary IP"). If
requested by Seller, APL shall enter into a license agreement with Seller
granting a non-exclusive license to Seller or its designee to use APL
Proprietary IP currently used by APL. Such license shall be limited to use in
connection with the Excluded Assets and reasonably foreseeable extensions
thereof. To the extent that APL is restricted by agreements with third parties,
licenses will not be granted in any APL Proprietary IP in conflict with such
restrictions. However, if payment to a third party is a condition of granting a
license, Seller shall be given the option of making the required payment and
receiving the license.
(d) APL may own licenses or sub-licenses to various software owned by
third parties ("APL Third Party Software"). At the request of Seller, APL shall
use reasonable efforts to obtain for Seller all consents to assignment, waivers
or other authorizations required to provide Seller or its designee with
sub-licenses or other rights to continue use of APL Third Party Software being
used in the operations being transferred to Seller or its designee (the Excluded
Assets). Seller shall have the sole responsibility for all license fees, costs,
etc. associated with all consents to assignment, waivers or other authorizations
required to provide Seller or its designee any sublicense or other rights to APL
Third Party Software.
6.19 Restriction Regarding Seaway Products. Until the earlier of (a)
the date that neither Seller nor any of its Affiliates own an interest in Seaway
Products or the main pipeline system of Seaway Products or (b) the tenth
anniversary of Closing, Seller agrees that it shall not, and it shall use
reasonable efforts to cause its Affiliates or Seaway Products not to, propose,
promote, support or approve the conversion of service of the main pipeline
system of Seaway Products for the transportation of crude oil.
6.20 Transition Assistance. Recognizing that Seller has historically
relied on APL as its pipeline operator, Buyer agrees to use commercially
reasonable efforts to cooperate with and assist Seller following the Closing in
respect of Seller's continued ownership and operation of
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the Excluded Assets. Such cooperation and assistance will include allowing
access to those records, data, information, systems, outside service providers
and personnel as may be necessary to continue Seller's commercial operation of
such assets and to facilitate Seller's transition from using APL to providing
such services for itself or through others, as Seller may elect.
ARTICLE 7
EMPLOYEES AND EMPLOYEE BENEFITS
7.1 Employees.
(a) Prior to the Closing Date, Seller will make available to Buyer a
list of all Employees. Seller agrees to enter into the Services Agreement
whereby Seller will agree to permit Buyer, for a period not to exceed twelve
(12) months from the Closing Date (the "Seconding Period"), to use the full-time
services of those Employees designated by Buyer prior to the Closing Date and
Buyer agrees to reimburse Seller for the cost of the services performed for the
Buyer by such Employees ("Seconded Employees"). During the Seconding Period,
Buyer, for any reason in its sole discretion, may request Seller to remove any
Seconded Employee from the Services Agreement, at which time such Employee will
cease to be a Seconded Employee. All Employees, other than Seconded Employees
(including those who cease to be Seconded Employees pursuant to the immediately
preceding sentence), will have their employment terminated or will be retained
by Seller, in Seller's sole discretion.
(b) From and after the termination of the Seconding Period, Buyer will
continue the employment of those Seconded Employees who are providing services
to Buyer on the last day of the Seconding Period ("Transferred Employees"). For
a period of twelve (12) months following the end of the Seconding Period, all
Transferred Employees who continue employment with Buyer following the end of
the Seconding Period shall be compensated by Buyer at the same or better
salaries or wages, including incentive compensation, they receive from Seller as
of the end of the Seconding Period, and except as provided herein, under
comparable employee benefit plans and policies as provided to such Transferred
Employees by Seller; provided, however, that with respect to Transferred
Employees subject to collective bargaining, if any, all employee benefit plans
and policies shall be provided in accordance with the applicable collective
bargaining or other labor agreement. All such plans and policies are listed in
Section 4.15 of the Disclosure Schedule. If during the one-year period following
the end of the Seconding Period, Buyer fails to satisfy the requirements of this
Section 7.1(b), each Transferred Employee shall, at that time, be entitled to
receive from Buyer the enhanced retirement and severance benefits described in
Section 7.1(h). Buyer agrees to provide the Transferred Employees with employee
benefit plans and policies which are no less favorable than those employee
benefit plans and policies it provides to its similarly situated employees.
(c) Pension Plans. Buyer agrees it will include the Transferred
Employees in all of its qualified and non-qualified defined benefit pension
plans, as defined under Sections 3(35) and 3(36) of ERISA (the "Buyer Pension
Plans"). The Buyer Pension Plans will provide that (i) the Transferred Employees
will be eligible to participate in the Buyer Pension Plans as of the first day
following the end of the Seconding Period, (ii) the Transferred Employees will
be given
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service credit for eligibility purposes, including eligibility for early
retirement, equal to the number of years of service such Transferred Employees
have under the Atlantic Richfield Retirement Plan ("ARRP") or Atlantic Richfield
Company Supplementary Executive Retirement Plan ("ARCO SERP") as may be
applicable to Transferred Employees, and (iii) all Transferred Employees vested
in the ARRP or the ARCO SERP shall vest in the Buyer Pension Plans upon hire
regardless of years of service. The Buyer Pension Plans will also grant service
for benefit accrual service equal to the number of years of benefits accrual
service for the Transferred Employees who have an accrued benefit in the ARRP or
ARCO SERP and may provide that the age 65 single life annuity payable under its
terms to Transferred Employees may be offset by the amount of the age 65 accrued
benefit payable to such Transferred Employees under the ARRP or ARCO SERP. In no
event will the age 65 single life benefit accrued under the Buyer Pension Plans
for Transferred Employees be less than the benefit such Transferred Employees
would receive if only service with Buyer were recognized under the Buyer Pension
Plans. The Buyer Pension Plans may include such other terms and provisions as
determined by Buyer in its sole discretion to the extent not inconsistent with
this Section 7.1. Seller will furnish such information with regard to benefits
payable to Transferred Employees under the ARRP and ARCO SERP, and such other
information as Buyer may reasonably request for purposes of complying with this
Article.
(d) Defined Contribution Plan. Effective not later than as of the date
that Seconded Employees become Transferred Employees, Buyer will amend its
qualified defined contribution plan, as defined under Section 3(34) of ERISA
(the "Buyer Defined Contribution Plan"), to provide that (i) Transferred
Employees are eligible to participate in the Buyer Defined Contribution Plan as
of the end of the Seconding Period on the same terms as other employees of
Buyer, (ii) Transferred Employees' service recognized under the ARCO Capital
Accumulation Plan ("ARCO CAP") will be recognized in the Buyer Defined
Contribution Plan for the purposes of eligibility, and (iii) all Transferred
Employees vested in the ARCO CAP shall vest in the Buyer Defined Contribution
Plan upon hire regardless of years of service. Seller will provide Buyer with
information for Transferred Employees verifying the service recognized under the
ARCO CAP.
(e) Savings Plan. Buyer will allow the Transferred Employees to
participate immediately in Buyer's savings plan or other similar plans
established pursuant to Section 401(k) of the Code (the "Buyer Savings Plan").
Buyer will credit Transferred Employees' prior service with Seller and its
Affiliates for all purposes under the Buyer Savings Plan, including any matching
schedules, and all Transferred Employees vested in the ARCO CAP shall vest in
the Buyer's Savings Plan upon hire regardless of years of service. Buyer will
permit each of the Transferred Employees at his or her option to transfer his or
her ARCO CAP accounts as provided under Section 414(l) of the Code to the Buyer
Savings Plan pursuant to a trust-to-trust transfer as soon as administratively
possible after the end of the Seconding Period, and to transfer any outstanding
loan balances to the Buyer Savings Plan under terms and conditions established
by the Buyer Savings Plan. With respect to accounts transferred to the Buyer
Savings Plan, Buyer represents and warrants that the Buyer Savings Plan will
provide that (i) Transferred Employees shall be precluded from receiving a
distribution from the account transferred except for reasons defined as
distributable events under Section 401(k) of the Code
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and (ii) protected benefits of the ARCO CAP will be preserved with respect to
the accounts transferred.
(f) Other Employee Benefits. Buyer will recognize the prior service of
Transferred Employees with Seller and its Affiliates for all purposes, including
eligibility, vesting, and benefit determination and accrual, in connection with
other employee benefits and policies such as vacations, bonuses, sickness and
disability leave and all other employee benefits and policies. Buyer agrees to
provide change of control benefits under its medical, dental and life insurance
plans that are comparable or better than the change of control benefits provided
in the comparable Seller plans, to Transferred Employees whose employment is
terminated by Buyer or who terminate employment following an offer of a position
with Buyer that requires either a geographic relocation, a reduction in base pay
and target bonus or a demotion during the period of twenty-four (24) months
after the Merger under circumstances that would make such Transferred Employees
eligible for the change of control benefits provided in the Seller plans. For
purposes of the immediately preceding sentence, change of control provisions are
those provisions that provide for continued plan coverage following termination
of employment, which coverage and employee cost are no less favorable than as in
effect immediately prior to a change of control. Transferred Employees and their
eligible dependents who are enrolled in medical, dental, life insurance and
long-term disability plans available to such Transferred Employees as a result
of their employment with Seller and its Affiliates will immediately be eligible
to enroll in any plan or plans established by Buyer that provide similar
benefits to its employees. If Transferred Employees enroll in such plans, no
physical examination or other proof of insurability will be required. Also, all
coverage exclusions and limitations relating to waiting periods or pre-existing
conditions with respect to such Transferred Employees or their dependents will
be waived. Buyer will be responsible for perpetuating the group health plan
continuation coverage pursuant to Section 4980B of the Code, and Sections 601
through 609 of ERISA for all Transferred Employees and their eligible dependents
and will cover such Transferred Employees under Buyer's own group health plan to
accommodate this requirement. BUYER RELEASES SELLER INDEMNITEES FROM AND SHALL
FULLY PROTECT, DEFEND, INDEMNIFY AND HOLD SELLER INDEMNITEES HARMLESS FROM AND
AGAINST ANY AND ALL CLAIMS SELLER INDEMNITEES INCUR ON AND AFTER THE END OF THE
SECONDING PERIOD UNDER THE PROVISIONS OF SECTION 4980B OF THE CODE OR SECTIONS
601 THROUGH 609 OF ERISA WITH RESPECT TO ANY TRANSFERRED EMPLOYEES, OR DEPENDENT
OR SPOUSE OF SUCH TRANSFERRED EMPLOYEES, WHO HAD OR HAS A "QUALIFYING EVENT"
(WITHIN THE MEANING OF SECTION 4980B(f)(3) OF THE CODE) AFTER THE LAST DAY OF
THE SECONDING PERIOD. ANY EXPENSES INCURRED PRIOR TO AND INCLUDING THE LAST DAY
OF THE SECONDING PERIOD THAT ARE USED TO SATISFY DEDUCTIBLES OR CO-PAY AMOUNTS
FOR CALENDAR YEAR 2000 UNDER THE WELFARE BENEFIT PLANS (AS DEFINED UNDER SECTION
3(1) OF ERISA) THAT TRANSFERRED EMPLOYEES OR THEIR DEPENDENTS PARTICIPATED IN AS
A RESULT OF THEIR EMPLOYMENT WITH SELLER AND ITS AFFILIATES IMMEDIATELY PRIOR TO
THE END OF THE SECONDING PERIOD MAY BE USED TO SATISFY ANY DEDUCTIBLES AND
CO-PAY AMOUNTS FOR BUYER'S CURRENT PLAN YEAR UNDER THE CORRESPONDING PLANS OF
BUYER.
(g) Accrued and Unused Vacation. From the Closing Date until the end of
the calendar year in which the Closing occurs, Buyer will permit the Transferred
Employees to take at least the same number of days of vacation as they would
have been eligible to take under the
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vacation policy of Seller, based upon the original hire date of such Transferred
Employees by Seller or its Affiliates.
(h) Severance. Buyer agrees to provide enhanced retirement (which shall
include service with Buyer to the termination of employment date) and severance
benefits that are comparable to or better than the enhanced retirement and
severance benefits under the terms and conditions set forth in the ARRP, ARCO
SERP and Atlantic Richfield Retirement Special Termination Allowance Plan ("ARCO
Severance Plans"), as applicable upon a Change of Control (as defined in such
plans) (including an equivalent enhanced retirement option, a severance
allowance, active and retiree medical benefits, dental benefits, life insurance,
and educational assistance) to Transferred Employees whose employment is
terminated by Buyer or who terminate employment following an offer of a position
with Buyer that requires either a geographical relocation, a reduction of base
pay and target bonus or a demotion during the period of twenty-four (24) months
after the Merger under circumstances that would make such Transferred Employees
eligible for the severance benefits described in the applicable ARCO Severance
Plans. During this same twenty-four (24) month period, Buyer also agrees to
provide out-placement benefits, relocation benefits and financial counseling to
the Transferred Employees, with the level of out-placement benefits, relocation
benefits and financial counseling actually provided being commensurate with the
level of benefits provided by Seller. For purposes of calculating the severance
allowance described in the ARCO Severance Plans, "credited service" will include
service recognized under Seller's severance programs. Buyer also agrees to
include Seller and its Affiliates as third party beneficiaries in any release
executed by Transferred Employees in order to receive the severance benefits
(i) WARN Act. Buyer represents and warrants that there will be no major
employment losses as a consequence of the transactions contemplated by the
Agreement that might trigger obligations under the WARN Act (referred to
collectively as "WARN Obligations"). Moreover, to the extent that any WARN
Obligations might arise as a consequence of the transactions contemplated by the
Agreement, it is agreed that Seller is responsible for any WARN Obligations
arising as a result of any employment losses occurring prior to the end of the
Seconding Period, and Buyer is responsible for any WARN Obligations arising as a
result of any employment losses occurring on and after the end of the Seconding
Period. Furthermore, for the first 90 days following the end of the Seconding
Period, Buyer will not engage in any mass layoff, plant closing or other action
that might trigger obligations of Seller under the WARN Act or under any similar
provision of any federal, state, regional, foreign, or local law, rule, or
regulation.
ARTICLE 8
TAXES
8.1 Characterization of Purchase of Shares. For U.S. federal income tax
purposes, the parties agree that APL and ASI shall be disregarded as entities
separate from Seller and the sale of the Shares shall constitute a sale by
Seller of the assets held by APL and ASI at the time of the sale, including the
interest in Seaway Crude (the "Purchased Assets"). The parties shall consult
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with one another in the preparation of their respective IRS Forms 8594 filed
with respect to the sale of the Shares.
8.2 Liability for Taxes.
(a) Except to the extent such Taxes are accrued as a liability on the
Closing Date Balance Sheet or described in Section 8.2(b)(ii), Seller shall be
liable for, and shall indemnify and hold Buyer, APL, the APL Subsidiaries and
their Affiliates harmless from, (i) any Taxes caused by or resulting from the
sale of the Shares (including all Taxes arising from the sale or distribution of
any Excluded Assets), (ii) any Taxes imposed on or incurred by APL or any APL
Subsidiary arising out of the inclusion of APL or any APL Subsidiary in the BP
America Group, any predecessor group or any combined, consolidated, unitary or
similar group (a "Group") prior to the Closing Date, (iii) any Taxes imposed on
or incurred by APL or any APL Subsidiary (or any Group with respect to the
taxable items of APL or any APL Subsidiary) for any taxable period ending on or
before the Closing Date (or the portion, determined as described in paragraph
(c) of this Section 8.2, of any such Taxes for any taxable period beginning on
or before and ending after the Closing Date which is allocable to the portion of
such period occurring on or before the Closing Date (the "Pre-Closing Period"))
except for Taxes arising from transactions by APL or an APL Subsidiary outside
the ordinary course of business after the Closing, (iv) any Taxes resulting from
the income, business, property or operations of the Excluded Assets, (v) any
Taxes imposed on or incurred by APL or an APL Subsidiary with respect to the
taxable items of Seaway allocable to the Pre-Closing Period except for Taxes
arising from transactions by APL, an APL Subsidiary or Seaway outside the
ordinary course of business after the Closing, and (vi) any attorneys' fees or
other costs incurred by Buyer, APL, the APL Subsidiaries, or any Affiliate
thereof in connection with any payment from Seller under this Section 8.2(a);
provided that no indemnity shall be provided for Taxes arising from the APL
Conversion or the ASI Conversion or from the Seaway Restructuring.
(b) Buyer shall be liable for, and shall indemnify and hold Seller and
its Affiliates harmless from, (i) any Taxes imposed on or incurred by or with
respect to APL or any APL Subsidiary for which Seller is not liable under
Section 8.2(a), (ii) any sales, use, value added, transfer, real property
transfer or gain, gross receipts, excise, stamp, documentary or similar Taxes
arising from the transactions contemplated in this Agreement and (iii) any
attorneys' fees or other costs incurred by Seller or any Affiliate thereof in
connection with any payment from Buyer under this Section 8.2(b). Seller shall
have delivered any applicable clearance or exemption certificate or similar
document(s) which may be required by any state taxing authority in order to
relieve Buyer of any obligation to withhold any portion of the Purchase Price.
(c) Whenever it is necessary for purposes of Section 8.2(a) or Section
8.2(b) to determine the portion of any Taxes imposed on or incurred by APL or
any APL Subsidiary (or any Group) for a taxable period beginning on or before
and ending after the Closing Date which is allocable to the Pre-Closing Period,
the determination shall be made, in the case of property, ad valorem or similar
Taxes (which are not measured by, or based upon, production) or franchise or
capital Taxes (which are not measured by, or based upon, net income, including
the taxable capital component of the Texas franchise Tax), on a per diem basis,
except any consequences of
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the sale of the Shares shall be excluded, and, in the case of other Taxes,
including the earned surplus component of the Texas franchise Tax, by assuming
that the Pre-Closing Period constitutes a separate taxable period of APL or the
APL Subsidiary and by taking into account the actual taxable events occurring
during such period (except that exemptions, allowances and deductions for a
taxable period beginning on or before and ending after the Closing Date that are
calculated on an annual or periodic basis, such as the deduction for
depreciation, shall be apportioned to the Pre-Closing Period ratably on a per
diem basis and any consequences of the sale of the Shares shall be excluded).
(d) Seller and Buyer will, to the extent permitted by Applicable Law,
close all taxable periods of APL or any APL Subsidiary as of the close of
business on the Closing Date.
(e) Buyer agrees to pay to Seller any refund received after the Closing
Date by Buyer or its Affiliates, including APL or any APL Subsidiary, in respect
of any Taxes for which Seller is liable under Section 8.2(a), except to the
extent such refund is shown as an asset on the Closing Date Balance Sheet.
Seller agrees to pay to Buyer any refund received by Seller or its Affiliates in
respect of any Taxes for which Buyer is liable under Section 8.2(b). The parties
shall cooperate in order to take all necessary steps to claim any such refund.
Any such refund received by a party or its Affiliate for the account of the
other party shall be paid to such other party within thirty (30) days after such
refund is received.
8.3 Tax Proceedings. In the event Buyer, APL, the APL Subsidiaries or
any of their Affiliates receive notice (the "Proceeding Notice") of any
examination, claim, adjustment or other proceeding with respect to the liability
of APL or any APL Subsidiary for Taxes for any period for which Seller is or may
be liable under Section 8.2(a), Buyer shall notify Seller in writing thereof
(the "Buyer Notice") no later than the earlier of (a) thirty (30) days after the
receipt by Buyer, APL, the APL Subsidiaries or any of their Affiliates of the
Proceeding Notice, or (b) ten (10) days prior to the deadline for responding to
the Proceeding Notice. As to any such Taxes for which Seller is or may be liable
under Section 8.2(a), Seller shall be entitled at its expense to control or
settle the contest of such examination, claim, adjustment or other proceeding,
provided Seller notifies Buyer in writing that it desires to do so no later than
the earlier of (i) thirty (30) days after receipt of the Buyer Notice, or (ii)
five (5) days prior to the deadline for responding to the Proceeding Notice. The
parties shall cooperate with each other and with their respective Affiliates,
and will consult with each other, in the negotiation and settlement of any
proceeding described in this Section 8.3. If one or more adjustments are made to
the Tax liability of the BP America Group, Seller, APL or an APL Subsidiary that
(i) produce a net Tax benefit to the BP America Group, Seller, APL or an APL
Subsidiary as to Taxes for which Seller is liable under Section 8.2(a) and (ii)
increase the net Tax liability of Buyer, APL or an APL Subsidiary for Taxes for
which Buyer is liable under Section 8.2(b), then Seller shall pay to Buyer the
amount of the net Tax liability promptly after Buyer incurs such liability. If
Buyer takes one or more positions, in original Tax Returns or as a result of
adjustments, that (i) produce a net Tax benefit to Buyer or its affiliates as to
Taxes for which Buyer is liable under Section 8.2(b) and (ii) increase the net
Tax liability of the BP America Group, Seller, APL or an APL Subsidiary for
Taxes for which Seller is liable under Section 8.2(a), then Buyer shall pay to
Seller the amount of the net Tax liability promptly after Seller incurs such
liability. For this
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purpose "adjustment" means an adjustment to any Tax Return as a result of or in
settlement of any audit or other proceeding or as a result of the filing of an
amended Tax Return.
8.4 Payment of Taxes. All Taxes with respect to APL or the APL
Subsidiaries shall be paid by the party that is legally responsible therefor.
Except as otherwise provided in this Article 8, any amount to which a party is
entitled under this Article 8 shall be promptly paid to such party by the party
obligated to make such payment following written notice to the party so
obligated stating that the Taxes to which such amount relates are due and
providing details supporting the calculation of such amount.
8.5 Tax Returns. All Tax Returns which relate to any Taxes of APL or
the APL Subsidiaries shall be prepared and filed by the party that is legally
responsible therefor. All taxable items of APL for the period beginning on
January 1 of the calendar year in which the Closing occurs and extending through
the Closing (and, to the extent required in the applicable regulations, through
the close of business on the Closing Date, but in no event including items
arising from transactions by APL or an APL Subsidiary outside the ordinary
course of business after the Closing) will be included in the consolidated
United States federal income Tax Return of the BP America Group and will be
reported on a basis consistent with previously filed Tax Returns. Buyer and its
Affiliates, including APL and the APL Subsidiaries, shall cooperate with Seller
and shall make available all necessary records and timely take all action
necessary to allow Seller and its Affiliates to prepare and file the Tax Returns
which they are responsible for preparing and filing under this Section 8.5.
8.6 Tax Allocation Arrangements. Effective as of the Closing, all
liabilities and obligations between APL or any APL Subsidiary, on one hand, and
Seller and any Affiliates thereof, on the other hand, under any Tax indemnity,
sharing, allocation or similar agreement or arrangement in effect prior to the
Closing shall be extinguished in full, and any liabilities or rights existing
under any such agreement or arrangement shall cease to exist and shall no longer
be enforceable. Seller and its Affiliates shall execute any documents necessary
to effectuate the provisions of this Section 8.6.
8.7 Cooperation and Exchange of Information. Each party will provide,
or cause to be provided, to the other party copies of all correspondence
received from any Governmental Authority by such party or any of its Affiliates
in connection with the liability of APL or the APL Subsidiaries for Taxes for
any period for which such other party is or may be liable under Section 8.2(a)
or Section 8.2(b). The parties will provide each other with such cooperation and
information as they may reasonably request of each other in preparing or filing
any Tax Return or claim for refund, in determining a liability or a right of
refund or in conducting any audit or other proceeding in respect of Taxes
imposed on the parties or their respective Affiliates. The parties and their
Affiliates will preserve and retain all Tax Returns, schedules, work papers and
all material records or other documents relating to any such Tax Returns,
claims, audits or other proceedings until the expiration of the statutory period
of limitations (including extensions) of taxable periods to which such documents
relate and until the final determination of any payments which may be required
with respect to such periods under this Agreement and shall make such documents
available to the other party or any Affiliate thereof, and their respective
officers,
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employees and agents, upon reasonable notice and at reasonable times, it being
understood that such representatives shall be entitled to make copies of any
such books and records relating to APL or the APL Subsidiaries as they shall
deem necessary. Any information obtained pursuant to this Section 8.7 shall be
kept confidential, except as may be otherwise necessary in connection with the
filing of Tax Returns or claims for refund or in conducting any audit or other
proceeding. Each party shall provide the cooperation and information required by
this Section 8.7 at its own expense.
8.8 Indemnity with Respect to Phillips.
(a) Amount of Phillips Indemnity. Buyer shall indemnify Seller for any
payment (a "Phillips Payment") BP Amoco Seaway Products Pipeline Company ("BP
Amoco") or its Affiliates (such term as used in this Section 8.8 shall have the
meaning ascribed to such term in the Restructuring Agreement) is required to
make to Phillips Gas Pipeline Company, Seagas Pipeline Company or any of their
affiliates (any one of them, "Phillips") pursuant to Section 7.2 of the
Restructuring Agreement; provided, however, that no indemnity shall be paid
hereunder to Seller as to the portion of any Phillips Payment that is for Taxes
(as defined in the Restructuring Agreement) arising from the effect upon the
assets to be held by Seaway Products of any termination of Seaway Pipeline
Company or Seaway Products under Section 708(b)(1)(B) of the Code that occurs on
or before the Closing Date. The amount of any indemnity payable under this
Section 8.8 shall be (i) increased to take account of any net Tax cost actually
incurred by BP Amoco and its Affiliates arising from the receipt of indemnity
payments hereunder (grossed up for such increase) and (ii) reduced to take
account of any net Tax benefit realized by BP Amoco and its Affiliates arising
from the incurrence or payment of any Phillips Payment for which indemnity is
provided under this Section 8.8.
(b) Phillips Tax Proceedings. In the event Seller or any of its
Affiliates (including BP Amoco) receives a Phillips Notice (as defined in the
Restructuring Agreement), the party receiving the notice shall notify Buyer in
writing thereof (the "Seller Notice") no later than 20 days after the receipt by
Seller, BP Amoco or any of their Affiliates of the Phillips Notice. Buyer shall
be entitled at its expense to assume all of BP Amoco's rights to control or
settle the contest of any examination, claim, adjustment or other proceeding
involving the Tax (as defined in the Restructuring Agreement) liability of
Phillips (except to the extent it relates to any portion of the actual or
potential Phillips Payment for which Buyer is not required to indemnify Seller
and its Affiliates (including BP Amoco) under Section 8.8(a)), provided Buyer
notifies the party that provides the Seller Notice in writing that it desires to
do so no later than 20 days after receipt of the Seller Notice. The parties
shall cooperate with each other and with their respective Affiliates, and will
consult with each other, in the negotiation and settlement of any proceeding
described in this Section 8.8.
8.9 Like-Kind Exchange. Either party hereto may elect to structure this
transaction as a like-kind exchange pursuant to Section 1031 of the Code. If
Seller is entitled to receive cash pursuant to this Agreement (or pursuant to
the exercise by any third party of any preferential rights to purchase where
such right becomes exercisable by reason of this Agreement), Seller may assign
its rights under this Agreement to a qualified intermediary, and have Buyer
transfer
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the cash directly to the qualified intermediary, to the extent necessary to
enable Seller to consummate a deferred like-kind exchange by directing the
qualified intermediary to reinvest the cash in like-kind property. The parties
agree to execute all documents, conveyances or other instruments reasonably
necessary to effectuate such a deferred like-kind exchange.
8.10 Survival of Obligations. The obligations of the parties set forth
in this Article 8 shall be unconditional and absolute and shall remain in effect
without limitation as to time.
8.11 Conflict. In the event of a conflict between the provisions of
this Article 8 and any other provisions of this Agreement, the provisions of
this Article 8 shall control.
ARTICLE 9
INDEMNIFICATION
9.1 Seller's Indemnification. Subject to any applicable limitations set
forth in this Article 9, Seller shall indemnify and hold harmless Buyer and its
respective officers, directors, employees, agents and Affiliates, including
after the Closing, APL and its officers, directors, employees, agents and
Affiliates (collectively, the "Buyer Indemnitees"), from and against any and all
Losses to which they or any of them may become subject to the extent such Losses
arise out of any one or more of the following circumstances:
(a) any breach or default in the performance by Seller of any covenant,
obligation or agreement of Seller contained in this Agreement;
(b) any breach of any representation or warranty made by Seller in this
Agreement or in any certificate, instrument or other document delivered by or on
behalf of Seller at the Closing;
(c) any Scheduled Environmental Losses;
(d) any Unscheduled Environmental Losses to the extent arising out of,
based on or occurring in connection with APL's Business or assets used therein
prior to the Closing Date;
(e) any Claims made in respect of the legal proceedings or other
matters set forth in Section 4.19 of the Disclosure Schedule; or
(f) any failure by Seller to duly pay, perform or discharge any
Excluded Liability.
9.2 Buyer's Indemnification. Subject to any applicable limitations set
forth in this Article 9, Buyer shall indemnify and hold harmless Seller and its
officers, directors, employees, agents and Affiliates, other than APL
(collectively, the "Seller Indemnitees"), from and against any and all Losses to
which they or any of them may become subject to the extent such Losses arise out
of any one or more of the following circumstances:
(a) any breach or default in the performance by Buyer of any covenant,
obligation or agreement of Buyer contained in this Agreement;
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(b) any breach of any representation or warranty made by Buyer in this
Agreement or in any certificate, instrument or other document delivered by or on
behalf of Buyer at the Closing;
(c) any Environmental Losses to the extent arising out of, based on or
occurring in connection with APL's Business on or after the Closing Date; or
(d) any Unscheduled Environmental Losses to the extent arising out of,
based on or occurring in connection with, APL's Business prior to the Closing
Date for which Seller does not have an indemnification obligation as the result
of the application of Section 9.3(b) or Section 9.4.
9.3 Monetary Limitation.
(a) (i) Seller shall not be obligated to indemnify Buyer
Indemnitees for any individual Loss under Section 9.1(a) or
Section 9.1(b) of less than $250,000 (it being understood that
all Losses arising from the same event, condition or set of
related circumstances shall be considered as an individual
Loss for purposes of such calculation)("Seller's Threshold").
(ii) Seller shall not be obligated to indemnify Buyer
Indemnitees for any Losses under Section 9.1(a) or Section
9.1(b) until the aggregate of all such Losses above the
Seller's Threshold exceeds 3% of the Purchase Price, in which
event Seller shall be obligated to indemnify Buyer Indemnitees
for all such Losses above Seller's Threshold.
(iii) Seller shall not be obligated to indemnify Buyer
Indemnitees for Losses under Section 9.1(a) and Section 9.1(b)
that in the aggregate exceed an amount equal to (A) 15% of the
Purchase Price less (B) any amount paid by Seller pursuant to
Section 2.4.
(b) (i) Seller shall not be obligated to indemnify Buyer
Indemnitees for any individual Unscheduled Environmental Loss
under Section 9.1(d) of less than $250,000 (it being
understood that all Environmental Losses arising from the same
event, condition or set of related circumstances shall be
considered as an individual Loss for purposes of such
calculation).
(ii) Seller shall not be obligated to indemnify Buyer
Indemnitees for Unscheduled Environmental Losses under Section
9.1(d) that in the aggregate exceed $30 million.
(c) Buyer is solely responsible for any Losses not indemnified by
Seller as a result of Sections 9.3(a) and/or 9.3(b) and not
assumed by Seller as Excluded Liabilities.
9.4 Nature and Survival; Time Limits. All representations and
warranties set forth in Articles 4 and 5 shall survive the Closing and continue
in effect until the first anniversary of the
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Closing Date, at which time any and all liability arising out of or relating to
such representations and warranties shall terminate, notwithstanding any
investigation at any time made by or on behalf of Buyer or Seller, as the case
may be; provided that Seller's representations and warranties under Section 4.7
and Section 4.8 shall survive the Closing without limitation; provided further,
that all such representations and warranties shall survive beyond the applicable
dates specified above with respect to any Claim hereunder for indemnification
based on any misrepresentation or breach of warranty that is asserted in
reasonable detail on or prior to such date. Any Claim against any party hereto
for indemnification pursuant to this Agreement as a result of any breach of
representation or warranty made by such party must be made promptly, and in all
events within the period of time during which such representation or warranty
survives the Closing pursuant to this Section 9.4, if any. Any Claim by a Buyer
Indemnitee against Seller pursuant to Section 9.1(d) for Unscheduled
Environmental Claims must be made within four years after the Closing Date.
Buyer is solely responsible for any Environmental Losses arising from
Unscheduled Environmental Claims not raised within such four-year period. The
indemnification obligations of Seller pursuant to Section 9.1(d) shall not apply
to any Unscheduled Environmental Losses in the event that Buyer or any of its
Affiliates takes any action to cause such Unscheduled Environmental Claim to be
brought, including an invasive environmental site investigation of APL's
Business undertaken after the Closing Date, except that Buyer or any of its
Affiliates may, without affecting the indemnity obligations of Seller, take such
action reasonably necessary to (i) comply with Applicable Law, (ii) use assets
of APL or ASI in the ordinary course of business, (iii) comply with requirements
imposed by lenders, underwriters or other parties to financing transactions,
(iv) prepare properties or assets for sale or convey such properties or assets
as a result of such sale or (v) conduct periodic environmental health and safety
reviews and asset integrity inspections with such frequency and in such scope as
are generally accepted in the pipeline industry as meeting minimum standards of
operator prudence.
9.5 COMPLIANCE WITH EXPRESS NEGLIGENCE RULE. ALL RELEASES, DISCLAIMERS,
LIMITATIONS ON LIABILITY, AND INDEMNITIES IN THIS AGREEMENT, INCLUDING THOSE IN
THIS ARTICLE 9, SHALL APPLY EVEN IN THE EVENT OF THE SOLE, JOINT, AND/OR
CONCURRENT NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF THE PARTY WHOSE
LIABILITY IS RELEASED, DISCLAIMED, LIMITED, OR INDEMNIFIED.
9.6 Limitation on Remedies; Mitigation. The indemnification provided in
this Agreement, subject to any applicable limitations thereto set forth in this
Agreement, shall be the sole and exclusive remedy available to a party for any
breach, default or violation of this Agreement by the other party. The
Indemnified Party shall use all reasonable efforts to mitigate any Losses.
9.7 General Provisions. In the case of any Claim for indemnification
brought pursuant to this Agreement:
(a) Any Buyer Indemnitee or Seller Indemnitee seeking indemnification
under Article 9 with respect to a Claim that is not a Third Party Claim shall
commence and resolve such Claim solely in accordance with the dispute resolution
procedures set forth in Section 12.12.
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(b) If any Third Party Claim is asserted against a Buyer Indemnitee or
Seller Indemnitee seeking indemnification hereunder (the "Indemnified Party"),
then such Indemnified Party shall promptly notify the party obligated to provide
indemnification (the "Indemnifying Party") upon (i) receipt of notice of the
commencement of the Third Party Claim for which indemnification is sought
pursuant to this Agreement and (ii) the occurrence of any material event or
change with respect to any ongoing Claim, in writing and in reasonable detail,
and within any applicable time limits specified in this Agreement and shall
provide the Indemnifying Party with all papers served with respect to such Third
Party Claim. Such notice shall describe in reasonable detail the nature of the
Third Party Claim, an estimate of the amount of damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. The failure of the Indemnified Party to so
notify the Indemnifying Party of the Third Party Claim shall not relieve the
Indemnifying Party from any duty to indemnify hereunder unless and to the extent
that the Indemnifying Party demonstrates that the failure of the Indemnified
Party to promptly notify it of such Third Party Claim prejudiced its ability to
defend such Third Party Claim.
(c) In case any such Third Party Claim is brought against any
Indemnified Party, and it notifies the Indemnifying Party of the commencement
thereof, or in respect of any ongoing action, the Indemnifying Party will be
entitled to participate therein and, to the extent it may wish, jointly with any
other Indemnifying Party similarly notified, to assume the defense thereof.
After notice from the Indemnifying Party to the Indemnified Party of its
election to assume the defense of such Third Party Claim, the Indemnified Party
shall have the right to participate in the defense of the Third Party Claim
using counsel of its choice, but the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof unless there shall
be available one or more defenses or one or more counterclaims available to the
Indemnified Party which conflicts with one or more defenses or one or more
claims or counterclaims available to the Indemnifying Party. In no event,
however, shall the Indemnifying Party be liable for the fees and expenses of
more than one separate counsel of the Indemnified Party. In all cases in which
the Indemnifying Party assumes the defense of such Third Party Claim, the
Indemnifying Party shall control such defense, and shall not admit any liability
with respect to, or settle, compromise or discharge, such Third Party Claim
without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld, conditioned or delayed, unless such settlement,
compromise or discharge includes an unconditional release of the Indemnified
Party from all liabilities and obligations arising out of such Third Party
Claim. Whether or not the Indemnifying Party shall have assumed the defense of a
claim for which the Indemnified Party is entitled to be indemnified, the
Indemnified Party shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the prior written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld, conditioned or delayed. The Indemnified Party will, at the expense of
the Indemnifying Party, cooperate and consult with the Indemnifying Party in the
defense of any such action and shall furnish any documents and endeavor to make
available any witnesses under its control.
(d) Any indemnification payment shall be (i) limited to the Losses
actually incurred (after giving effect to the Present Value Benefit, realized or
realizable by the Indemnified Party
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in connection with or as a result of the incurrence of the Liabilities for which
the indemnity payment is to be made) and, except as otherwise provided in this
Agreement, shall not include punitive damages, indirect damages or consequential
damages (including lost profits) incurred by the Indemnified Party, (ii) net of
insurance proceeds received by the Indemnified Party (and the amount of
indemnification payable under this Agreement shall not include the amount of any
insurance proceeds actually recovered by the Indemnified Party with respect to a
Liability) and (iii) in the case of Buyer Indemnitees, net of any reserves of
APL reflected on the Recent Date Balance Sheet. The foregoing limitations shall
apply before application of the monetary limitations specified in Section 9.3.
If the amount to be netted hereunder from any payment by the Indemnifying Party
is determined after the Indemnifying Party has already paid any amount required
to be paid pursuant to this Agreement, the Indemnified Party shall repay to the
Indemnifying Party, promptly after such determination, any amount that the
Indemnifying Party would not have had to pay pursuant to this Agreement had such
determination been made at the time of such payment.
(e) To the extent of any indemnity payment by an Indemnifying Party
under this Agreement, such Indemnifying Party shall be subrogated to all rights
which the Indemnified Party may have against any other Person, and the
Indemnified Party shall provide reasonable cooperation to the Indemnifying Party
in exercising any such rights.
(f) To the extent necessary to be able to comply with its
indemnification obligations hereunder, after the Closing, (i) Seller shall have
the right to review all environmental reports and records related to APL's
Business and to have access to the property of APL from time to time and (ii)
Seller shall have the right to direct and control (x) any remediation activities
that are consistent with Environmental Laws in effect as of the Closing Date,
including determining the scope, extent, duration and cost of such remediation
activities, and (y) all discussions, negotiations and proceedings with
Governmental Authorities and third parties in connection therewith. Prior to
undertaking significant, nonemergency remediation activities, Seller shall
consult with the Buyer concerning their scope, extent, duration and cost. In
addition, Seller shall (x) schedule nonemergency activities in advance to
provide reasonable notice to Buyer and APL and (y) promptly provide Buyer and
APL with copies of any reports, tests or studies, notices or filings regarding
the environmental contamination or condition in question.
9.8 Tax Treatment. Any indemnity payment by Buyer under this Agreement
or any payment with respect to Taxes pursuant to Section 8.2 or Section 8.3
shall be treated as an increase in the Purchase Price for tax purposes, and any
indemnity payment by Seller under this Agreement shall be treated as a decrease
in the Purchase Price for tax purposes unless otherwise required by Applicable
Laws, in which case such payment shall be made in an amount sufficient to
indemnify the party on a net after-tax basis taking into account any tax
deduction allowed the indemnified party with respect to the indemnified event.
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ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions Precedent to Obligations of Buyer. The obligation of
Buyer to purchase and pay for the Shares is subject to the satisfaction (or
waiver by Buyer), prior to or on the Closing Date, of each of the following
conditions:
(a) The representations and warranties of Seller contained in this
Agreement shall be true and correct on and as of the Closing Date, with the same
effect as though made on and as of the Closing Date (except for representations
and warranties made as of a specific date, which shall be true and correct in
all respects as of such date), except for any breach or breaches of such
representations and warranties that would not individually or in the aggregate
have a Material Adverse Effect; provided, however, for purposes of Section
3.3(j) and this Section 10.1(a), a breach of a representation or warranty will
be deemed not to have a Material Adverse Effect if (i) Buyer is barred from
bringing a Claim for breach of such representation or warranty because of the
applicability of the provisions of Section 9.3(a) or (ii) Seller executes an
indemnity in favor of Buyer undertaking to compensate Buyer for all damages
incurred by Buyer (subject to the limitations of Section 9.3) attributable to
the failure of such representation and warranty to be true and correct.
(b) Seller shall have substantially complied with and performed all
obligations and covenants required by this Agreement to be complied with or
performed by Seller on or prior to the Closing Date, including delivery of the
documents required by Section 3.3, except for any breach or breaches of such
covenants and obligations that would not individually or in the aggregate have a
Material Adverse Effect.
(c) The waiting period, if applicable, under the HSR Act for the
transactions contemplated by this Agreement shall have expired or been
terminated.
(d) Buyer shall have received an opinion, dated the Closing Date, of
internal counsel employed by Seller, substantially the form of Appendix C.
(e) There shall be no (i) injunction or restraining order of any nature
issued by any Governmental Authority which directs, or which has the effect of
directing, that the Closing shall not be consummated as herein provided or (ii)
investigation, action or other proceeding that shall have been commenced or
brought by any Governmental Authority and be pending on the Closing Date, in any
such case against Buyer or Seller in connection with the consummation of the
transactions contemplated by this Agreement which is reasonably likely to result
in an injunction or restraining order which directs, or which has the effect of
directing, that the Closing shall not be consummated as herein provided.
(f) Seller shall have executed the Conveyance Agreement and the
Assumption Agreement in forms reasonably satisfactory to Buyer.
(g) The ASI Conversion and the APL Conversion shall have occurred.
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(h) The transactions contemplated by the Seaway Restructuring Agreement
shall have been completed.
10.2 Conditions Precedent to Obligations of Seller. The obligation of
Seller to sell and deliver the Shares to Buyer is subject to the satisfaction
(or waiver by Seller), prior to or on the Closing Date, of each of the following
conditions:
(a) The representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date, with the same effect as though made on and as of the Closing Date
(except for representations and warranties made as of a specific date, which
shall be true and correct in all material respects as of such date).
(b) Buyer shall have complied with or performed in all material
respects all obligations and covenants required by this Agreement to be complied
with or performed by Buyer on or prior to the Closing Date, including delivery
of the documents required by Section 3.4.
(c) The waiting period, if applicable, under the HSR Act for the
transactions contemplated by this Agreement shall have expired or been
terminated.
(d) The consummation of the transactions contemplated by this Agreement
will not (i) violate or conflict with any term or provision of any judgment,
order or decree of any Governmental Authority (including any such judgment,
order or decree entered pursuant to agreement in settlement or otherwise between
Seller and/or BP Amoco p.l.c. and any Governmental Authority) applicable to or
arising out of the Merger ("Order") or (ii) prevent or materially impede the
ability of Seller or BP Amoco p.l.c. or any Affiliate of Seller or of BP Amoco
p.l.c. to comply fully and on a timely basis with the terms of such Order (it
being understood and agreed that Seller shall have absolute discretion in
entering into, accepting or not contesting any such Order and shall be under no
duty to Buyer to resist, oppose or not consent to the entry of any Order, even
if such Order would cause Seller to be unable to fulfill this condition).
(e) The Merger shall have occurred; provided, however, that Buyer
acknowledges and agrees that Seller shall be under no obligation whatsoever to
Buyer under the terms of this Agreement or otherwise to (i) complete the Merger
or (ii) to take any action or refrain from taking any action to consummate the
Merger.
(f) Seller shall have received an opinion, dated the Closing Date, of
internal counsel for Buyer, in substantially the form of Appendix D.
(g) There shall be no (i) injunction or restraining order of any nature
issued by any Governmental Authority which directs, or which has the effect of
directing, that the Closing shall not be consummated as herein provided or (ii)
investigation, action or other proceeding that shall have been commenced or
brought by any Governmental Authority and be pending on the Closing Date, in any
such case against Buyer or Seller in connection with the consummation of the
transactions contemplated by this Agreement which is reasonably likely to result
in an
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injunction or restraining order which directs, or which has the effect of
directing, that the Closing shall not be consummated as herein provided.
(h) The ASI Conversion and APL Conversion shall have occurred.
(i) The transactions contemplated by the Seaway Restructuring Agreement
shall have been completed.
ARTICLE 11
TERMINATION OF AGREEMENT
11.1 Termination Before Closing. This Agreement may be terminated at
any time before Closing:
(a) by the mutual consent of Seller and Buyer in writing;
(b) by Seller if an Order has been issued that would cause Seller to be
unable to fulfill the condition in Section 10.2(d);
(c) by Seller if the Merger Agreement is terminated for any reason
whatsoever other than by consummation of the Merger contemplated under the
Merger Agreement;
(d) by Buyer if the Closing has not occurred on or prior to 180 days
after the Effective Date other than primarily as a result of Buyer's breach or
default of this Agreement; or
(e) by Seller if the Closing has not occurred on or prior to 180 days
after the Effective Date other than primarily as a result of Seller's breach or
default of this Agreement.
11.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 11.1, all further obligations of the parties under this Agreement will
terminate and there shall be no liability on the part of any party to this
Agreement, except for material willful breaches of and intentional misstatements
in or pursuant to this Agreement prior to the time of such termination;
provided, however, that the obligations in Sections 6.1(c), 6.5, 6.6, 11.2, 12.3
and 12.10 shall survive the termination of this Agreement.
ARTICLE 12
MISCELLANEOUS
12.1 Entire Agreement. This Agreement, including the Appendices and the
Disclosure Schedule, set forth the entire agreement and understanding of the
parties in respect of the transactions contemplated herein and supersedes any
previous agreements and understandings between the parties with respect thereto.
12.2 Construction. This Agreement is the result of arms-length
negotiations between, and has been prepared and reviewed by, each party hereto
and its respective counsel. Accordingly, this Agreement shall be deemed to be
the product of each party hereto.
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12.3 Governing Law. The validity of this Agreement, the construction of
its terms and the interpretation of the rights and duties of the parties hereto
shall be governed by the substantive laws of the State of Delaware without
regard to the principles of conflict of laws of the State of Delaware or any
other jurisdiction (except those that cannot be waived) that would call for the
application of the substantive law of any jurisdiction other than the State of
Delaware.
12.4 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing, by facsimile, by
overnight courier or by registered or certified mail, postage prepaid and return
receipt requested, and shall be deemed to have been duly given or made upon (i)
delivery by hand, (ii) one business day after being sent by overnight courier,
(iii) four business days after being deposited in the United States mail,
postage prepaid, or (iv) in the case of transmission by facsimile, when
confirmation of receipt is obtained. Such communications shall be addressed and
directed to the parties listed below as follows:
If to Seller: Atlantic Richfield Company
200 East Randolph
Chicago, Illinois 60202
Facsimile: 312-856-4091 (Associate General Counsel)
Attention: Associate General Counsel
If to Buyer: Texas Eastern Products Pipeline Company, LLC
2929 Allen Parkway
P.O. Box 2521
Houston, Texas 77252-2521
Attention: Chief Executive Officer
Attention: Chief Financial Officer
Facsimile: 713-759-3957
12.5 Waiver. Waivers of or consents to departures from the provisions
hereof may be given; provided, however, that the same shall be in writing and be
signed by each of the parties hereto. No such waiver or consent shall be
construed as a waiver of or consent to any other departure from any such
provisions or any other provisions hereof.
12.6 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. No assignment of this Agreement or of any rights or
obligations hereunder may be made, in whole or in part, by any party (by
operation of law or otherwise) without the prior written consent of the other
party hereto, and any purported assignment without consent shall be void
provided, however, that Buyer shall be entitled to transfer all or a portion of
its rights and obligations under this Agreement to any Affiliate of Buyer
provided that Buyer shall remain liable for all obligations under this
Agreement.
12.7 Amendment. This Agreement may not be amended, modified or
supplemented unless the same shall be in writing and signed by each of the
parties hereto.
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<PAGE> 59
12.8 Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same document.
12.9 No Third Party Beneficiaries. The terms, agreements and provisions
of the parties set forth in this Agreement are not intended for, nor shall they
be for the benefit of or enforceable by, any Person not a party hereto,
including APL and the APL Subsidiaries.
12.10 Jurisdiction; Service of Process.
(a) Each party to this Agreement hereby irrevocably submits itself to
the non-exclusive jurisdiction of the Supreme Court for the State of Delaware or
the United States District Court for Delaware, (i) for the purposes of any suit,
action or other proceeding brought by any other party, or its respective
successors or assigns arising out of this Agreement or transactions contemplated
by this Agreement, (ii) to enforce a resolution, settlement, order or award made
pursuant thereto, or any obligation for the payment of money contained herein.
To the extent permitted by Applicable Law, each party to the Agreement hereby
waives, and agrees not to assert, by way of motion, as a defense, or otherwise,
in any such suit, action or proceeding, any claim that (a) it is not personally
subject to the jurisdiction of the above-named courts, (b) the suit, action or
proceeding is brought in an inconvenient forum, (c) the venue of the suit,
action or proceeding is improper, or (d) a resolution, settlement or order made
pursuant thereto, or such an obligation for the payment of money, may not be
enforced in or by such court. Nothing contained herein shall be deemed to waive
the right of a party to seek removal of a matter from state court to federal
court if such removal is otherwise permissible.
(b) Each party to this Agreement hereby consents to service of process
on it at the office for service of process set forth below as its office for
service of process and additionally irrevocably designates and appoints the
person named in Appendix E as its "Agent" and attorney-in-fact to receive
service of process in any action, suit or proceeding with respect to any matter
as to which it submits to jurisdiction as set forth above, it being agreed that
service upon such Agent shall constitute valid service upon the party or its
successors or assigns. Each party agrees that (x) the sole responsibilities of
the Agent shall be (i) to receive such process, (ii) to send a copy of any such
process so received to such party, by registered airmail, return receipt
requested, at the address for it set forth in Section 12.4, or at the last
address filled in writing by it with the Agent, and (iii) to give prompt
telecopied notice of receipt thereof to it at such address, (y) the Agent shall
have no responsibility for the receipt or nonreceipt by the respective party of
such process, nor for any performance or nonperformance by the respective party
or its respective successors or assigns, and (z) failure of the Agent to send a
copy of any such process or otherwise to give notice thereof to the respective
party shall not affect the validity of such service or any judgment in any
action, suit or proceeding based thereon. If service of process cannot be
effected in the foregoing manner, each party further irrevocably consents to the
service of process in any action, suit or proceeding by the mailing of copies
thereof by registered or certified airmail, postage prepaid, return receipt
requested, to it at its address set forth in Section 12.4 hereof. The foregoing,
however, shall not limit the right of the party to serve process in any other
manner permitted by law. Any judgment against a party in any suit for which such
party has no further right of appeal shall be conclusive, and may be enforced in
other
51
<PAGE> 60
jurisdictions by suit on the judgment, a certified or true copy of which shall
be conclusive evidence of the fact and of the amount of any indebtedness or
liability of such party therein described; provided, however, that the plaintiff
may at its option bring suit, or institute other judicial proceedings, against
such party or any of its assets in the courts of any country or place where such
party or such assets may be found. Each party further covenants and agrees that
for three years following the Closing Date, it shall maintain a duly appointed
agent for the service of summonses and other legal processes in Delaware.
(c) For purposes of this Section 12.10, the Agent and offices for
service of process for each of the parties shall be as set forth on Appendix E
or such other person or offices as shall be designated in writing by any party
to the other party.
12.11 Schedules. No representation or warranty hereunder shall be
deemed to be inaccurate if the actual situation is disclosed pursuant to another
representation or warranty herein or in a section of the Disclosure Schedule or
in any other document relating to the transactions contemplated by this
Agreement or any exhibit, schedule or appendix thereto, whether or not an
explicit cross-reference appears. Neither the specification of any dollar amount
in any representation, warranty or covenant contained in this Agreement nor the
inclusion of any specific item in a section of the Disclosure Schedule is
intended to imply that such amount, or higher or lower amounts, or the item so
included or other items, are or are not material, and neither party shall use
the fact of the setting forth of any such amount or the inclusion of any such
item in any dispute or controversy involving the parties as to whether any
obligation, item or matter not described herein or included in a section of the
Disclosure Schedule is or is not material for purposes of this Agreement.
12.12 Arbitration. Any and all Arbitrable Disputes must be resolved
through the use of binding arbitration using three arbitrators, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
as supplemented to the extent necessary to determine any procedural appeal
questions by the Federal Arbitration Act (Title 9 of the United States Code). If
there is any inconsistency between this Section and the Commercial Arbitration
Rules or the Federal Arbitration Act, the terms of this Section will control the
rights and obligations of the parties. Arbitration must be initiated within the
applicable time limits set forth in this Agreement and not thereafter or if no
time limit is given, within the time period allowed by the applicable statute of
limitations. Arbitration may be initiated by a party ("Claimant") serving
written notice on the other party ("Respondent") that the Claimant elects to
refer the Arbitrable Dispute to binding arbitration. Claimant's notice
initiating binding arbitration must identify the arbitrator Claimant has
appointed. The Respondent shall respond to Claimant within 60 days after receipt
of Claimant's notice, identifying the arbitrator Respondent has appointed. If
the Respondent fails for any reason to name an arbitrator within the 60 day
period, Claimant will name the arbitrator for Respondent's account. The two
arbitrators so chosen shall select a third arbitrator within 30 days after the
second arbitrator has been appointed. Seller will pay the compensation and
expenses of the arbitrator named by or for it, and Buyer will pay the
compensation and expenses of the arbitrator named by or for it. The parties will
each pay one-half of the compensation and expenses of the third arbitrator. All
arbitrators must (a) be neutral parties who have never been officers, directors
or employees of the parties or any of their
52
<PAGE> 61
Affiliates and (b) have not less than seven years experience in the oil and gas
industry. The hearing will be conducted in Houston, Texas and commence within 60
days after the selection of the third arbitrator. The parties and the
arbitrators should proceed diligently and in good faith in order that the award
may be made as promptly as possible. Except as provided in the Federal
Arbitration Act, the decision of the arbitrators will be binding on and
non-appealable by the parties. The arbitrators shall have no right to grant or
award indirect, consequential, punitive or exemplary damages of any kind.
12.13 Severability. If any provision of this Agreement is held invalid,
the remainder of the Agreement shall not be affected thereby unless the effect
thereof would be to materially alter the burdens or benefits intended by the
parties hereto by the express language of the Agreement.
12.14 Approval of Buyer Board of Directors. The effectiveness of this
Amended and Restated Agreement is conditioned upon the approval thereof by the
board of directors of Buyer. Buyer shall submit this Amended and Restated
Agreement to its board of directors for approval on or prior to May 17, 2000.
Buyer shall promptly deliver notice pursuant to Section 12.4 to Seller of the
actions taken by its board of directors with respect to this Amended and
Restated Agreement, which notice, in the event of such approval, shall
conclusively evidence the board of directors' approval thereof. In the event the
board of directors of Buyer does not approve this Amended and Restated Agreement
within five Business Days, the amendment and restatement of this Agreement shall
have no force and effect and the original Stock Purchase Agreement dated March
15, 2000, by and between Seller and Buyer shall remain in full force and effect
in accordance with its original terms.
53
<PAGE> 62
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement as of the date first written above.
ATLANTIC RICHFIELD COMPANY
/s/ Daniel B. Pinkert
------------------------------
By: Daniel B. Pinkert
Title: Secretary
TEXAS EASTERN PRODUCTS
PIPELINE COMPANY, LLC
/s/ W. L. Thacker
--------------------------
By: W.L. Thacker
Title: President and Chief Executive Officer
<PAGE> 63
APPENDIX A
LIST OF PERSONS WHO CONSTITUTE SELLER'S KNOWLEDGE
NAME TITLE
---- -----
Thomas J. Collins Vice President-Business Development & Marketing
Bryan L. Gossman Manager-Performance, Planning & Evaluation
Steven A. Fisher Vice President & Chief Counsel
Paul I. Kent Manager-Accounting, IT & Procurement
Larry M. Shakley President
Larry M. Shelton Manager-Environmental, Health & Safety Risk Management
A-1
<PAGE> 64
APPENDIX B
CERTAIN EXCLUDED ASSETS AND LIABILITIES TO BE TRANSFERRED PRE-CLOSING
1. Assets Conveyed to and Liabilities Assumed by ARCO Midcon LLC.
DESCRIPTION OF APL PETROCHEMICAL ASSETS
22 different petrochemicals are transported through over 500 miles of pipe and
meter facilities in the upper Texas Gulf Coast area, primarily in the greater
Houston area as well as Port Arthur/Orange, Tx and Point Comfort, Tx. A more
detailed description follows:
EQUISTAR LEASED LINES - Leased lines include the Ethylene System, Chemical and
Polymer Grade Propylene Systems, and the 8-inch Flex System (Ethane, Propane,
Butane and Natural Gasoline).
LYONDELL CHEMICAL LEASED LINES - Includes 6-inch Ethylene and 6-inch Propylene
lines that run between Deer Park and Lyondell Chemical's Channelview, Tx
chemical complex.
LYONDELL CHEMICAL OPERATED LINES - (SERVICE AGREEMENT, NO ASSET OWNERSHIP) -
Transport Benzene, MTBE/Methanol and Propylene Oxide between Deer Park and
Lyondell's Channelview, Tx chemical complex.
COMMON CARRIER LINES -
8-inch MTBE/Alkylate System between Channelview and Pasadena, Tx
6-inch Propane System between Pasadena and Channelview, Tx
6-inch and 8-inch Isobutane System between Mont Belvieu and Bayport, Tx
6-inch Ethane System between Mont Belvieu and Pasadena, Tx
4-inch N-Butane and Cat-BB System within the LCRC Refinery in Pasadena, Tx
6-inch Tertiary Butyl Alcohol System from Bayport to Pasadena, to
Channelview, Tx
6-inch Flex Line between Mont Belvieu and Channelview, Tx
8-inch Ethylene from Mont Belvieu to Port Arthur, Tx
HOUSTON SHIP CHANNEL TUNNEL PIPELINES - Twenty-nine pipeline segments traversing
the Houston Ship Channel in Pasadena, Tx (near the LCRC Refinery). Lines and the
tunnel through which they cross are included.
BAYER PIPELINES - The lines run between Bayer's Bayport facility and Deer Park.
The products currently transported on these two pipelines are Anhydrous Hydrogen
Chloride (18-inch) and Ammonia (4-inch).
MISCELLANEOUS
6-inch Propane System from LCRC Refinery to Exxon-Mobil Chemical Plant in
Pasadena, Tx (leased to Mobil)
APL OWNED FEE PROPERTY AT GALENA PARK -
<TABLE>
<CAPTION>
Real Property Recording
File Number Facility Name Vol. / Pg County State Acres Location
- ----------- ------------- --------- ------ ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
F22 H13 Houston- ###-##-#### Harris TX 36.9551 Ezekiel Thomas Svy A-73
Galena Park
</TABLE>
CUSHING TO MANUEL STATION -
The 12" Cushing to Manuel Station (Drumright) line owned by APL, including the
scraper trap at Cushing to the scraper trap at Manuel.
B-1
<PAGE> 65
CUSHING-CHICAGO
The Cushing-Chicago Pipeline is a 700-mile, 24-inch pipeline from Cushing,
Oklahoma, to East Chicago. It was constructed in the early 1950's. Total
capacity of the system is 300 MBD. The system is well connected at ARCO's
Cushing Station. The Cushing-Chicago system transports domestic crudes from West
Texas and Oklahoma and waterborne foreign crudes from the U.S. Gulf Coast. The
system is owned by ARCO (46%), BP Amoco (24%) and Unocal (30%). BP Amoco is
currently the operator. ARCO operated the system until 1992; however, cost
structure issues and economies of scale drove the decision to give up the
operatorship to BP Amoco, which has other proprietary pipelines in the same
corridor serving their refinery at Whiting, Indiana. As an undivided interest
pipeline system, each owner markets and schedules their ownership space, and has
established tariffs accordingly.
ANETH
Remnant of Four Corners P/L purchase includes approximately 30 miles of active
and 80 miles of idle/inactive. This system consist of 4",6",8", and 16" lines
located in Utah, New Mexico, and Colorado. The small active gathering system in
Utah moves about 11MB/D. Volumes are pumped via Tex NewMex P/L to Giant
Refinery.
LINE 1
130 mile 10" crude oil pipeline idled after earthquake in 1994. This line is
located in California from San Joaquin Valley to LA Basin. Have held a number of
discussions with prospective buyers to utilize line for fiber optic.
OFFSHORE PIPELINE SYSTEM
South Pass 60 is approximately 12 miles of 10" pipeline system located offshore
Louisiana, which transports approximately 14-16 MB/D of crude from Platform A to
Shell Platform 69. ARCO also owns a 12.5% interest in Eugene Island 361.
WEST COAST IDLE AND ABANDONED LINES
There are a number of idle and abandoned lines remaining on the West Coast that
remain with ARCO.
STOCK OF CUYAMA PIPELINE COMPANY
STOCK OF CASITAS PIPELINE COMPANY
LLC MEMBER INTEREST IN PACIFIC PIPELINE COMPANY
ANY OTHER PIPELINES OR INTERESTS THEREIN LOCATED IN STATES OTHER THAN TEXAS,
OKLAHOMA AND NEW MEXICO TITLED IN THE NAME OF ARCO PIPE LINE COMPANY, INCLUDING
ALL SUCH PIPELINES AND RELATED FACILITIES THAT HAVE BEEN ABANDONED.
B-2
<PAGE> 66
CITY OF TEXAS CITY INDUSTRIAL DEVELOPMENT CORPORATION'S MARINE TERMINAL
REFUNDING REVENUE BONDS, SERIES 1990 (ARCO PIPE LINE COMPANY PROJECT).
LITIGATION
o ARCO Pipe Line Company v. Rogers & Phillips, Inc.; in the State District
Court of Harris County, Texas, 270th Judicial District (including any
recovery and responsibility for any contingent Liability).
o ARCO Pipe Line Company v. Hunt Valve Company, Inc. d/b/a Hunt-Cornerstone
Valve and K.P.C. Corporation; in the State District Court of Harris County,
Texas, in the 151st Judicial District.
2. Assets and Liabilities Allocated to and Vested in Seaway Products Pipeline
Company.
Exhibit B to Plan of Merger of Seaway Pipeline Company into Seaway Crude
Pipeline Company and Seaway Products Pipeline Company is hereby
incorporated by reference and made a part hereof.
3. As of the date hereof, the parties are executing a memorandum of
understanding relating to the parcelization or other treatment of certain
properties among APL, Seaway Crude and Seaway Products.
B-3
<PAGE> 67
APPENDIX C
FORM OF OPINION OF SELLER'S COUNSEL
1. Seller is duly incorporated, validly existing and in good standing under
the laws of the State of Delaware.
2. Seller has all necessary corporate power and authority to enter into the
Agreement and to perform its obligations thereunder.
3. The Agreement has been duly executed and delivered by Seller and
constitutes a valid and binding obligation of Seller, enforceable against Seller
in accordance with its terms.
4. Each of APL and the APL Subsidiaries is a limited liability company,
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each of APL and the APL Subsidiaries is duly authorized,
qualified or licensed to do business as a foreign limited liability company in
good standing in each of the jurisdictions in which its right, title or interest
in or to any of the assets held by it or the business conducted by it requires
such authorization, qualification or licensing, except in such jurisdictions
where the failure to be so authorized, qualified, licensed or in good standing
would not have and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
5. Except as set forth in Section 4.5 of the Disclosure Schedule, the
execution and delivery of the Agreement by Seller does not, and the consummation
of the transactions contemplated by the Agreement will not, (i) violate any
provisions of the certificate or articles of incorporation, certificate of
conversion, bylaws, limited liability company agreement or similar
organizational documents, as the case may be, of Seller, APL or the APL
Subsidiaries; (ii) to my knowledge, result in the breach or termination of, or
otherwise give any other Person the right to terminate or accelerate the
performance required by, or constitute a default under (whether with notice or
lapse of time or both), any mortgage, indenture, deed of trust, lease, license,
commitment or other agreement or instrument or any order, judgment or decree to
which Seller, APL or an APL Subsidiary is a party or by which any of their
respective properties or assets are bound; (iii) to my knowledge, violate any
Applicable Law applicable to Seller, APL or an APL Subsidiary or their
respective properties or assets; or (iv) to my knowledge, result in the creation
of any Lien upon any assets of APL or an APL Subsidiary, except for such
violations, breaches, terminations and defaults which would not have and would
not reasonably be expected to have a Material Adverse Effect.
6. Except (i) with respect to any filings required under the HSR Act, (ii)
as contemplated by the Agreement, (iii) the Federal Trade Commission's final
approval of any applicable consent order providing for Seller's divestiture of
APL in connection with the Merger or (iv) as set forth in Section 4.6 of the
Disclosure Schedule, no Governmental Approval or consent of any third party is
required to be made or obtained by or with respect to Seller in connection with
the execution, delivery and performance of the Agreement by Seller except for
such Governmental Approvals or consents of any third party the failure of which
to obtain would not have and would not reasonably be expected to have,
individually, a Material Adverse Effect.
C-1
<PAGE> 68
7. All of the outstanding limited liability company interests of APL and
the APL Subsidiaries have been duly authorized for issuance and are validly
issued, fully paid and nonassessable. To my knowledge, there are no outstanding
subscriptions, options, warrants, calls or rights of any kind to acquire any
shares of any class of securities or limited liability company interests or any
securities convertible into any shares of any class of securities or limited
liability company interests of APL or the APL Subsidiaries, nor are there any
obligations to issue any such options, warrants, calls, rights or securities.
The opinion in paragraph 3 is qualified by the following:
(a) enforcement may be limited by applicable laws of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and
to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law;
(b) my opinion is subject to the limitations on the enforceability of any
rights to indemnification or related provisions in the Agreement which
violate the public policy underlying any law, rule or regulation
(including any federal or state securities law or regulation);
(c) my opinion regarding the enforceability of the Agreement is also
subject to the effect of certain laws and judicial decisions which may
limit the enforceability of the Agreement, although such limitations
do not, in my judgment, make the remedies provided for in the
Agreement inadequate for the practical realization of the benefits
afforded thereby; and
(d) I do not express any opinion as to the enforceability of the choice of
law provisions in the Agreement.
C-2
<PAGE> 69
APPENDIX D
FORM OF OPINION OF BUYER'S COUNSEL
1. Buyer is duly formed, validly existing and in good standing as a limited
liability company under the laws of its jurisdiction of incorporation.
2. Buyer has all necessary company power and authority to enter into the
Agreement and to perform its obligations thereunder.
3. The Agreement has been duly executed and delivered by Buyer and
constitutes a valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms.
4. The execution and delivery of the Agreement by Buyer does not, and the
consummation of the transactions contemplated by the Agreement will not, (i)
violate any provisions of the certificate of conversion, agreement of limited
liability company, regulations or bylaws or similar organizational documents of
Buyer; (ii) to my knowledge, result in the breach or termination of, or
otherwise give any other Person the right to terminate or accelerate the
performance required by, or constitute a default under (whether with notice or
lapse of time or both), any mortgage, indenture, deed of trust, lease, license,
commitment or other agreement or instrument or any order, judgment or decree to
which Buyer is a party or by which any of its respective properties or assets
are bound; (iii) to my knowledge, violate any Applicable Law applicable to Buyer
or its respective properties or assets; or (iv) to my knowledge, result in the
creation of any Lien upon any assets of Buyer, except for such violations,
breaches, terminations and defaults which would not have and would not
reasonably be expected to have a material adverse effect on the business,
operations, assets, liabilities, results of operations, cash flows or condition
(financial or otherwise) of Buyer's business.
5. Except with respect to any filings required under the HSR Act, no
Governmental Approval or consent by a third party is required to be made or
obtained with respect to Buyer in connection with the execution, delivery and
performance of the Agreement by Buyer.
The opinion in paragraph 3 is qualified by the following:
(a) enforcement may be limited by applicable laws of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and
to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law;
(b) my opinion is subject to the limitations on the enforceability of any
rights to indemnification or related provisions in the Agreement which
violate the public policy underlying any law, rule or regulation
(including any federal or state securities law or regulation);
D-1
<PAGE> 70
(c) my opinion regarding the enforceability of the Agreement is also
subject to the effect of certain laws and judicial decisions which may
limit the enforceability of the Agreement, although such limitations
do not, in my judgment, make the remedies provided for in the
Agreement inadequate for the practical realization of the benefits
afforded thereby; and
(d) I do not express any opinion as to the enforceability of the choice of
law provisions in the Agreement.
D-2
<PAGE> 71
APPENDIX E
AGENT FOR SERVICE OF PROCESS
For Seller:
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
For Buyer:
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
E-1
<PAGE> 72
APPENDIX F
TRANSITIONAL OPERATING AGREEMENT
F-1
<PAGE> 73
APPENDIX G
SERVICES AGREEMENT
Atlantic Richfield Company ("ARCO") and Texas Eastern Products Pipeline
Company, LLC ("Buyer") have agreed to enter into this Services Agreement in
conjunction with the Amended and Restated Purchase Agreement between ARCO and
Buyer dated as of ___________, 2000 (the "Agreement"). Terms defined in the
Agreement shall have the same meanings herein.
Under the Agreement, ARCO has agreed to permit Buyer, for a period not
to exceed twelve (12) months from the Closing Date, to use the full-time
services of Employees. During this twelve (12) month period, Employees shall not
transfer to Buyer but will be retained in the employ of ARCO. As of the Closing
Date, Buyer shall provide ARCO with a list of those Employees whose services it
wishes to use ("Seconded Employees"). Following the Closing Date, Buyer may
terminate the services of any Seconded Employee by providing ARCO with written
notice of such decision.
Seconded Employees shall remain on ARCO's payroll for all purposes,
including but not limited to, payment of salary and other compensation,
reimbursement of expenses, payment of any special allowances (including, without
limitation, sick leave and other leaves of absence), and coverage under employee
benefit plans maintained by ARCO. However, Seconded Employees shall be under the
general direction of Buyer or an Affiliate thereof and shall be responsible to
such party for the performance of assigned duties and responsibilities in the
same manner as employees of Buyer who hold similar positions.
Buyer shall reimburse ARCO for the costs of the services of the
Seconded Employees. Such reimbursement shall be on the basis of bi-weekly
statements or invoices submitted by ARCO to Buyer, and shall be paid within 10
days after submission of such statements or invoices. The items to be included
on the statements or invoices shall be as follows with respect to each Seconded
Employee who is subject to this Agreement:
(a) The gross salary, wages, bonuses and other cash compensation,
including incentive compensation if any, paid or to be paid to
the Seconded Employees.
(b) An amount equal to twenty-one (21) percent of the burden
related payroll base.
(c) All business expenses incurred by the Seconded Employees and
reimbursed by ARCO.
(d) A charge of one hundred twenty five dollars ($125) per month
for each Transferred Employee for expenses relating to
personnel record keeping, payroll processing, tax and employee
benefit administration, accounting, etc.
This Agreement may be amended or terminated by the written agreement of
ARCO and Buyer.
G-1
<PAGE> 74
Executed this ______day of __________, 2000.
ATLANTIC RICHFIELD COMPANY TEXAS EASTERN PRODUCTS PIPELINE
COMPANY, LLC
__________________________ _______________________________
By: By:
Title: Title:
G-2
<PAGE> 75
APPENDIX H
ARCO PIPE LINE COMPANY
UNAUDITED BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
ACCOUNTS RECEIVABLE 4,914,206.58
INVENTORIES
CRUDE OIL 241,131.10
MATERIALS AND SUPPLIES 439,192.74
ADVANCE TO OPERATORS 1,385,603.87
PREPAID EXPENSES AND OTHER CURRENT ASSETS 391.08
-------------------
TOTAL CURRENT ASSETS 6,980,525.37
-------------------
INVESTMENTS:
INVESTMENT IN SEAWAY (EXCLUDING
PRODUCTS BUSINESS) 246,111,406.40
-------------------
NET PROPERTY, PLANT AND EQUIPMENT:
CONSTRUCTION WORK IN PROGRESS 7,365,341.93
PROP, PLANT, & EQUIPMENT 64,543,394.89
LESS: ACCUMULATED DEPRECIATION (19,129,831.98)
-------------------
TOTAL PROPERTY, PLANT AND EQUIPMENT 52,778,904.84
-------------------
DEFERRED CHARGES AND OTHER ASSETS 49,602.72
-------------------
TOTAL ASSETS 305,920,439.33
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE 2,771,461.81
ADVANCE FROM SEAWAY 2,336,705.84
OTHER ACCRUED LIABILITIES 1,843,071.55
REVENUE RECEIVED IN ADVANCE 354,330.00
ENVIRONMENTAL RESERVES- CURRENT 257,298.48
ACCRUED TAXES PAYABLE:
INCOME TAXES 7,532,000.00
PROPERTY TAXES 679,974.66
SALES & USE TAXES (639.41)
-------------------
TOTAL CURRENT LIABILITIES 15,774,202.93
-------------------
LONG TERM LIABILITIES:
DEFERRED INCOME TAXES 32,040,000.00
ENVIRONMENTAL RESERVES - LONG TERM 250,116.95
-------------------
32,290,319.88 1
TOTAL LIABILITIES 48,064,319.88
-------------------
STOCKHOLDERS' EQUITY:
COMMON STOCK 2,200,000.00
APIC 195,729,395.94
RETAINED EARNINGS 59,926,723.51
-------------------
TOTAL STOCKHOLDERS' EQUITY 257,856,119.45
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 305,920,439.33
===================
</TABLE>
Note:
1 Responsibility for long term liabilities is addressed in the
purchase and sale agreement.
H-1
<PAGE> 76
SEAWAY PIPELINE COMPANY
(EXCLUDING PRODUCTS BUSINESS)
UNAUDITED BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
CASH 12,145,543.57
ACCOUNTS RECEIVABLE 5,403,071.79
CRUDE OIL 1,307,529.10
ADVANCE TO OPERATOR 2,020,004.44
PREPAID EXPENSES 214,000.00
-------------------
TOTAL CURRENT ASSETS 21,090,148.90
-------------------
NET PROPERTY, PLANT AND EQUIPMENT:
CONSTRUCTION WORK IN PROGRESS 36,380,396.31
PROP, PLANT, & EQUIPMENT 372,684,799.40
LESS: ACCUMULATED DEPRECIATION (121,337,493.06)
-------------------
TOTAL PROPERTY, PLANT AND EQUIPMENT 287,727,702.65
-------------------
DEFERRED CHARGES AND OTHER ASSETS 790,019.05
-------------------
TOTAL ASSETS 309,607,870.60
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE 8,192,734.45
OTHER ACCRUED LIABILITIES 222,805.96
PROPERTY TAXES 1,851,574.38
SALES & USE TAXES (807.12)
-------------------
TOTAL CURRENT LIABILITIES 10,266,307.67
-------------------
LONG TERM LIABILITIES:
REVENUE RECEIVED IN ADVANCE 658,539.18
-------------------
658,539.18
TOTAL LIABILITIES 10,924,846.85
-------------------
PARTNERS' EQUITY 298,683,023.75
-------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY 309,607,870.60
===================
0.00
</TABLE>
H-2
<PAGE> 77
SUMMARY OF METHODOLOGY USED TO DETERMINE CRUDE AND PRODUCTS EXPENSES
The products related expenses that were excluded from Seaway Pipeline Company
were determined by their accounting unit in the accounting system and also by
allocation methods. There are approximately 63 accounting units in Seaway.
o There were approximately seven accounting units that held 100% direct crude
expenses.
o There were three accounting units that held 100% direct products expenses.
o In addition to these accounting units there were three accounting units
that held direct expenses for both products and crude. A separate
percentage was determined for two of these accounting units based on the
percentage of crude assets versus products assets in each accounting unit.
This percentage was then used to determine the amount of expenses in these
two accounting units that needed to be allocated to crude expense versus
products expense. It was determined that an allocation method could not
appropriately determine the split for the third accounting unit, therefore
the expenses were reviewed and analyzed and categorized into products
versus crude expenses.
o Any expenses that could be identified as 100% crude or products expenses in
any of the accounting units, were eliminated from the expenses before any
percentage allocation was determined.
o The sum of all these direct crude expenses and direct products expenses, in
addition to the depreciation and property tax expense determined for crude
and products, was used to determine a percentage of direct crude versus
direct products expenses. This percentage was then applied to the expenses
in the overhead accounting units (approximately 50) to determine the crude
and products overhead expense breakdown.
SEAWAY CRUDE
FINANCIALS - based on defined assets (30" versus 20") rather than asset service
(crude versus products).
CASH B/S - $5MM will be reflected on the balance sheet of Seaway Products in
order to meet its expected working capital needs over the next 18 months.
ASI B/S - the additional consideration of $52MM (originally $59MM ) is included
on the balance sheet of APL.
VEHICLES B/S - all vehicles were assigned to Seaway Crude.
PP&E B/S - by specific identification of assets made consistent with Appendix B
to the Stock Purchase Agreement.
ACCOUNTS RECEIVABLE B/S - by customer.
1
<PAGE> 78
ADVANCE TO OPERATOR B/S - payment to APL as operator.
o Management Fee: allocated based on direct expenses for 1999.
o Salaries and Wages: allocated based on historical estimated allocation.
PAYABLES B/S - by specific review of purchases or services provided.
PROPERTY TAX B/S - based on actual tax bills and property tax payments by asset
GAIN/LOSS OF FIXED ASSET I/S - to Seaway Crude because all was gain on sale of
long-term crude inventory.
REVENUE I/S - based on specific Products accounts.
INTEREST INCOME I/S - all to Seaway Crude.
MANAGEMENT FEE I/S - allocated based on direct expenses for 1999.
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 45,045
<SECURITIES> 1,475
<RECEIVABLES> 243,273
<ALLOWANCES> 0
<INVENTORY> 12,029
<CURRENT-ASSETS> 308,819
<PP&E> 959,149
<DEPRECIATION> 227,985
<TOTAL-ASSETS> 1,096,750
<CURRENT-LIABILITIES> 273,348
<BONDS> 389,761
0
106,367
<COMMON> 0
<OTHER-SE> 234,872
<TOTAL-LIABILITY-AND-EQUITY> 1,096,750
<SALES> 682,785
<TOTAL-REVENUES> 750,692
<CGS> 677,413
<TOTAL-COSTS> 719,925
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,434
<INCOME-PRETAX> 24,125
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,881
<EPS-BASIC> 0
<EPS-DILUTED> 0.60
</TABLE>
