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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report July 15, 1999 (Date of earliest event reported June 30, 1999)
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1-11680 76-0396023
(State of Other Jurisdiction (Commission (I.R.S. Employer
Of Incorporation) File Number) Identification No.)
El Paso Energy Building
1001 Louisiana Street
Houston, Texas
(Address of Principal Executive
Offices)
77002
(Zip Code)
Registrant's Telephone Number, including area code: (713) 420-2131
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 30, 1999, Leviathan Gas Pipeline Partners, L.P. ("Leviathan"), through
subsidiaries, acquired from Natural Gas Pipeline Company of America ("NGPL"), a
subsidiary of KN Energy, Inc., for total consideration of approximately $51
million, (i) all of the outstanding stock of NGPL's wholly-owned subsidiaries
Natoco, Inc. ("Natoco"), which owns a 20% member interest in Western Gulf
Holdings, L.L.C. ("Western Gulf"), which in turn owns 100% of High Island
Offshore System, L.L.C. ("HIOS") and East Breaks Gathering Company, L.L.C.
("East Breaks"), and Naloco, Inc. (Del.) ("Naloco"), which owns a 33 1/3%
interest in U-T Offshore System ("UTOS"), and (ii) NGPL's ownership interest in
certain lateral pipelines located in the Gulf of Mexico (the "Gulf"). Leviathan
financed the acquisition with funds from its $375 million revolving credit
facility, as amended.
Western Gulf was formed in December 1998 by Leviathan, NGPL and ANR Pipeline
Company ("ANR") as a holding company for HIOS and East Breaks. HIOS consists of
approximately 204 miles of pipeline comprised of three supply laterals, the
West, Central and East Laterals, that connect to a 42-inch diameter mainline.
The HIOS system was placed in service in 1977, and is used to transport natural
gas received from fields located in the Galveston, Garden Banks, High Island,
West Cameron and East Breaks areas of the Gulf to a junction platform owned by
HIOS located in West Cameron Block 167. The total capacity is approximately 1.8
billion cubic feet of natural gas per day. ANR operates the HIOS system. The
East Breaks system is currently under construction, with a design capacity of
over 400 million cubic feet of natural gas per day, and will initially consist
of 85 miles of an 18 to 20-inch pipeline and related facilities connecting the
Diana/Hoover prospects developed by Exxon Company USA and BP Amoco plc in
Alaminos Canyon Block 25 in the Gulf, with the HIOS system. The majority of the
construction of the East Breaks system will occur in 1999 and the system is
anticipated to be in service in late 2000 at an estimated cost of approximately
$90.0 million. All of the natural gas to be produced from 11 blocks in the East
Breaks and Alaminos Canyon areas will be dedicated for transportation services
on the HIOS system. After giving effect to the acquisition, Leviathan owns 60%
of Western Gulf, and thus 60% of each of HIOS and East Breaks.
Prior to June 30, 1999, UTOS was owned equally by Leviathan, NGPL and ANR. The
UTOS system was placed in service in 1978, and consists of approximately 30
miles of 42-inch diameter pipeline extending from a point of interconnection
with HIOS at West Cameron Block 167 to the Johnson Bayou processing facility.
The UTOS system transports natural gas from the terminus of the HIOS system at
West Cameron Block 167 to the Johnson Bayou facility in southern Louisiana,
where it interconnects with four interstate and one intrastate pipeline systems.
UTOS also owns the Johnson Bayou facility, which provides primarily natural gas
and liquids separation and natural gas dehydration for natural gas transported
on the HIOS and UTOS systems. ANR operates the UTOS system. After giving effect
to the acquisition, Leviathan owns 66 2/3% of UTOS.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Pro forma financial statements reflecting the effect of the acquisitions and
required audited financial statements will be included by amendment.
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(c) Exhibits.
10.1 Purchase and Sale Agreement between Natural Gas Pipeline
Company of America as Seller and Leviathan Gas Pipeline
Partners, L.P. as Buyer dated as of June 30, 1999
99.1 Press Release dated June 30, 1999
99.2 Houston Chronicle Article dated July 1, 1999
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
(Registrant)
By: LEVIATHAN GAS PIPELINE COMPANY,
its General Partner
Date: July 15, 1999 By: /s/ D. MARK LELAND
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Name: D. Mark Leland
-----------------------------------
Title: Vice President and Controller
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(Principal Accounting Officer)
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Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description
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<S> <C>
10.1 Purchase and Sale Agreement between Natural Gas Pipeline
Company of America as Seller and Leviathan Gas Pipeline
Partners, L.P. as Buyer dated as of June 30, 1999
99.1 Press Release dated June 30, 1999
99.2 Houston Chronicle Article dated July 1, 1999
</TABLE>
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EXHIBIT 10.1
===============================================================================
PURCHASE AND SALE AGREEMENT
BETWEEN
NATURAL GAS PIPELINE COMPANY OF AMERICA
AS SELLER
AND
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
AS BUYER
DATED AS OF JUNE 30, 1999
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PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS............................................................................................1
1.1 Definitions.............................................................................................1
1.2 Terminology.............................................................................................7
ARTICLE II PURCHASE AND SALE.....................................................................................7
2.1 The Transactions........................................................................................7
2.2 Closing.................................................................................................7
2.3 Estimated Working Capital...............................................................................7
2.4 Actions at Closing......................................................................................8
2.5 Determination of Final Purchase Prices..................................................................8
2.6 Lateral Revenues and Expenses...........................................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER.............................................................9
3.1 Structure Representations and Warranties................................................................9
3.1.1 Organization and Good Standing........................................................................9
3.1.2 Authority of Seller...................................................................................9
3.1.3 No Violations........................................................................................10
3.1.4 Capitalization.......................................................................................10
3.1.5 Title to Purchased Shares............................................................................11
3.1.6 Subsidiaries; Investments............................................................................11
3.1.7 Financial Statements.................................................................................11
3.1.8 Contracts and Commitments............................................................................11
3.1.9 Taxes................................................................................................12
3.1.10 Litigation..........................................................................................12
3.1.11 Compliance with Law.................................................................................12
3.1.12 Permits.............................................................................................12
3.1.13 Employee Benefit Plans and Policies.................................................................12
3.1.14 Gas Regulatory Matters..............................................................................13
3.1.15 Environmental Matters...............................................................................13
3.1.16 Intercompany Obligations............................................................................13
3.2 Lateral Representations and Warranties.................................................................13
3.2.1 No Violations........................................................................................13
3.2.2 Title to Laterals....................................................................................14
3.2.3 Litigation...........................................................................................14
3.2.4 Compliance with Laws.................................................................................14
3.2.5 Permits..............................................................................................14
3.2.6 Environmental Matters................................................................................14
3.2.7 Preferential Purchase Rights.........................................................................15
3.2.8 No Brokers...........................................................................................15
3.2.9 Lateral Documents....................................................................................15
3.2.10 Condition of Laterals...............................................................................16
3.2.11 Representation of Seller............................................................................16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER..............................................................16
4.1 Organization and Good Standing.........................................................................16
4.2 Authority of Buyer.....................................................................................16
4.3 No Violations..........................................................................................17
4.4 Acquisition as Investment..............................................................................17
4.5 Brokerage or Finders Fees..............................................................................17
4.6 Knowledgeable Buyer....................................................................................17
4.7 Buyer Designee.........................................................................................17
</TABLE>
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<TABLE>
<S> <C>
ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS...................................................................18
5.1 Covenants of Seller....................................................................................18
5.1.1 Transaction Costs....................................................................................18
5.1.2 Intercompany Balances and Other......................................................................18
5.1.3 Satisfaction of Indebtedness.........................................................................18
5.2 Covenants of Buyer.....................................................................................18
5.2.1 Transaction Costs....................................................................................18
5.3 Mutual Covenants.......................................................................................18
5.3.1 Distributions........................................................................................18
5.3.2 Preparation of Tax Returns; Responsibility for Taxes.................................................18
5.3.3 Access to Information................................................................................20
5.3.4 Transfer Taxes.......................................................................................20
5.3.5 Sponsor Agreement....................................................................................20
5.3.6 Preferential Rights To Purchase......................................................................21
5.3.7 Consents to Assignment of Laterals...................................................................21
5.3.8 Assignment of Laterals...............................................................................21
5.3.9 Reasonable Efforts...................................................................................22
5.3.10 Certain Filings.....................................................................................22
5.3.11 Confidential Information............................................................................23
5.3.12 Notices of Certain Events...........................................................................23
5.3.13 Insurance Reimbursements............................................................................23
5.3.14 No Warranty and Disclaimers.........................................................................24
5.3.15 Lateral Proceeds....................................................................................24
ARTICLE VI CONDITIONS TO CLOSING................................................................................25
6.1 Buyer's Obligation to Close............................................................................25
6.1.1 Litigation...........................................................................................25
6.1.2 Compliance with Agreement............................................................................25
6.1.3 Representations and Warranties.......................................................................25
6.1.5 Stingray Agreements..................................................................................25
6.1.6 HSR..................................................................................................25
6.2 Seller's Obligation to Close...........................................................................25
6.2.1 Litigation...........................................................................................25
6.2.2 Compliance with Agreement............................................................................25
6.2.3 Representations and Warranties.......................................................................26
6.2.6 Stingray Agreements..................................................................................26
6.2.7 HSR..................................................................................................26
ARTICLE VII INDEMNIFICATION.....................................................................................26
7.1 Indemnification of Buyer...............................................................................26
7.2 Indemnification of Seller..............................................................................28
7.3 Certain Limitations on Indemnification of Buyer........................................................28
7.4 Certain Limitations on Indemnification of Seller.......................................................29
7.5 Indemnification Procedures.............................................................................30
7.6 Negligence.............................................................................................31
7.7 Limitation on Liabilities..............................................................................31
7.8 Survival...............................................................................................32
ARTICLE VIII TERMINATION RIGHTS.................................................................................32
8.1 Termination............................................................................................32
8.2 Effect of Termination..................................................................................33
ARTICLE IX DISPUTE RESOLUTION...................................................................................33
9.1 Disputes...............................................................................................33
ARTICLE X GENERAL...............................................................................................34
10.1 Exclusive Agreement; Disclosure Statement..............................................................34
10.2 Successors and Assigns.................................................................................35
10.3 Amendments.............................................................................................35
</TABLE>
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<TABLE>
<S> <C>
10.4 Records and Access......................................................................................35
10.5 Further Assurances......................................................................................36
10.6 Notices.................................................................................................36
10.7 Governing Law...........................................................................................36
10.8 Severability............................................................................................36
10.9 Counterparts............................................................................................36
10.10 Expenses................................................................................................37
</TABLE>
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Exhibits to Purchase Agreement:
<TABLE>
<S> <C>
Exhibit A Laterals
Exhibit B Form of Assignment and Assumption Agreement
Exhibit C Form of Lateral Operating Agreement
Exhibit D Calculation of Working Capital
Exhibit E Stingray LLC Agreement
Exhibit F Stingray Operating Services Agreement
Exhibit G Form of Assignment and Assumption (Sponsor Agreement)
</TABLE>
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made and
entered into as of the 30th day of June, 1999 among Natural Gas Pipeline
Company of America, a Delaware corporation ("Seller") and Leviathan Gas
Pipeline Partners, L.P. a Delaware limited partnership ("Buyer").
WHEREAS, Seller is the owner of all of the outstanding capital stock
of Naloco, Inc., a Delaware corporation ("Naloco"), all of the outstanding
capital stock of Natoco, Inc, a Delaware corporation ("Natoco"), and the
Laterals (as hereinafter defined);
WHEREAS, Naloco owns the UTOS Interest (herein defined) and Natoco
owns the Western Gulf Interest (herein defined);
WHEREAS, Seller desires to sell and Buyer desires to purchase all of
the outstanding capital stock of Naloco and Natoco (and, accordingly,
indirectly own the assets of Naloco and Natoco, which include the UTOS Interest
and the Western Gulf Interest) and the Laterals, subject to and in accordance
with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises made herein,
and subject to the conditions hereinafter set forth, the parties agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The terms set forth below shall have the meanings ascribed to
them in this Article I or in the part of this Agreement referred to below:
Affiliate: with respect to an entity, any other entity controlling,
controlled by or under common control with such entity. As used in this
definition, the term "control," including the correlative terms "controlling,"
"controlled by" and "under common control with" shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management or policies of an entity, whether through ownership of voting
securities, by contract or otherwise.
Agreement: as defined above in the preamble.
Allocated Value: with respect to each Lateral, the amount set forth
beside such Lateral in Section 2 of Exhibit A.
Assignment and Assumption Agreement: the form of Assignment and
Assumption Agreement attached hereto as Exhibit B, relating to Seller's
assignment of Laterals to the applicable Buyer's Designee on the Closing Date
and each subsequent applicable date.
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Auditor: Deloitte & Touche L.L.P. or, if such firm refuses or
otherwise fails to perform the services contemplated by Section 2.5 hereof,
such other nationally recognized firm of independent public accountants agreed
upon by Seller and Buyer.
Balance Sheets: as defined in Section 3.1.7.
Base Purchase Price: as defined in Section 2.1.
Business Day: any day other than a Saturday, a Sunday or a day on
which banks in Houston, Texas are authorized or required by law to be closed.
Buyer: as defined in the preamble to this Agreement.
Buyer Designee: Tarpon Transmission Company, a Texas corporation, with
respect to the Purchased Shares, and Green Canyon Pipe Line Company, L.L.C., a
Delaware limited liability company, with respect to the Laterals and Lateral
Documents.
Buyer Indemnified Covenant Loss: as defined in Section 7.1(f).
Buyer Indemnified Loss: all Buyer Indemnified Structure Losses, Buyer
Indemnified Non Structure Losses, Buyer Indemnified Covenant Losses and
Preclosing Lateral Losses.
Buyer Indemnified Non-Structure Loss: as defined in Section 7.1(e).
Buyer Indemnified Party: as defined in Section 7.1.
Buyer Indemnified Structure Loss: as defined in Section 7.1(d).
Claim: any demand, claim, action, investigation, cause of action,
legal proceeding or arbitration, whether or not ultimately determined to be
valid.
Claim Notice: as defined in Section 7.5.1.
Closing: as defined in Section 2.2.
Closing Date: as defined in Section 2.2.
Code: the Internal Revenue Code of 1986, as amended, or any amending
or superseding tax laws of the United States of America.
Confidentiality Agreement: as defined in Section 5.3.11.
Cost: as defined in Section 2.6.
Disclosure Statement: that certain disclosure statement delivered
herewith by Seller to Buyer on the date hereof.
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Election Period: as defined in Section 7.5.1.
Encumbrance: any lien, pledge, condemnation proceeding, claim,
restriction, security interest, mortgage, preferential right, option, defect in
title or similar encumbrance.
Environmental Laws: any and all federal, state and local laws,
statutes, regulations, rules, orders, ordinances or permits of any governmental
authority pertaining to health, the environment, wildlife or natural resources
in effect in any and all jurisdictions in which the Purchased Interests
(including the operations of the companies represented thereby, such as Natoco
and Naloco and their subsidiaries, if any) are located, including, without
limitation, the Clean Air Act, as amended, and the Federal Water Pollution
Control Act, as amended, the Rivers and Harbors Act of 1899, as amended, the
Safe Drinking Water Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery
Act, as amended, the Hazardous and Solid Waste Amendments Act of 1984, as
amended, the Toxic Substances Control Act, as amended, the Occupational Safety
and Health Act, as amended, the Oil Pollution Act, as amended, the Pipeline
Safety Act, as amended, the Natural Gas Pipeline Safety Act, as amended, the
Hazardous Liquid Pipeline Safety Act, as amended, and the Hazardous Materials
Transportation Act, as amended.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended.
FERC: the Federal Energy Regulatory Commission.
Final Purchase Price: as defined in Section 2.5.
Final Settlement Statement: as defined in Section 2.5(b).
Governmental Authority: any court, governmental department,
commission, council, board, agency or other instrumentality of the United
States of America or any state, county, municipality or local government.
Hazardous Material: any substance, material, contaminant or waste that
is regulated by any Governmental Authority and any material that is defined as
a "hazardous waste", "hazardous material", "restricted hazardous waste", "toxic
waste" or "toxic pollutant" under any Environmental Law.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
Indemnified Party: as defined in Section 7.5.1.
Indemnifying Party: as defined in Section 7.5.1.
Indemnity Notice: as defined in Section 7.5.4.
Interim Settlement Statement: as defined in Section 2.5(a).
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Knowledge, when used in the phrase "to Seller's knowledge",
"knowledge" means, and shall be limited to, with respect to Seller, the actual
knowledge of the individuals identified in Section 1.1 of the Disclosure
Statement.
Lateral Documents: all of Seller's interest in the rights-of-way and
agreements described in Exhibit A.
Lateral Operating Agreement: the form of Lateral Operating Agreement
attached hereto as Exhibit C, relating to Buyer's operation of any Laterals
that will not be assigned to Buyer on the Closing Date pursuant to the
Assignment and Assumption Agreement.
Lateral Proceeds: as defined in Section 2.6.
Laterals: all of the interests in the gas pipeline laterals described
in Exhibit A.
Legal Requirement: all applicable laws, rules, regulations, codes,
ordinances, permits, bylaws, variances, orders, conditions, and licenses of a
Governmental Authority.
Losses: as defined in Section 7.1.
Naloco: Naloco, Inc. (Del.), a Delaware corporation.
Naloco Shares: all of the outstanding shares of capital stock, no par
value, of Naloco.
Natoco: Natoco, Inc., a Delaware corporation.
Natoco Shares: all of the outstanding shares of capital stock, no par
value, of Natoco.
Natural Gas Act: the Natural Gas Act of 1938, as amended.
Notices: as defined in Section 10.6.
Parties: Seller and Buyer.
Party: Seller or Buyer.
Permitted Encumbrances: (a) Lateral Documents; (b) any (i)
undetermined or inchoate liens or charges constituting or securing the payment
of expenses that were incurred incidental to maintenance, development or
operation of the Laterals and are not more than 60 days past due, and (ii)
materialmen's, mechanics', repairmen's, employees', contractors', operators' or
other similar liens or charges for amounts arising in the ordinary course of
business securing amounts not more than 60 days past due; (c) any liens for
taxes and assessments not yet delinquent or, if delinquent, that are being
contested in good faith in the ordinary course of business; (d) any obligations
or duties affecting the Laterals to any governmental authority with respect to
any franchise, grant, license or permit, and all applicable laws, rules,
regulations and orders of any governmental authority; (e) preferential rights
to purchase or similar agreements listed on Section 3.2.6 of the Disclosure
Statement; (f) required third party consents to assignments or
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similar agreements listed on Section 3.2.1 of the Disclosure Statement (g) all
rights to consent by, required notices to, filings with or other actions by
governmental entities in connection with the sale or conveyance of the Laterals
or interests therein; and (h) all other encumbrances on and exceptions that are
not substantial in amount and that do not substantially impair or adversely
affect the use of any Lateral as it is currently used or the value of any such
Lateral.
Plans: any "employee benefit plan," as such term is defined in Section
3(3) of ERISA, including each "multiemployer plan," as such term is described
4001(a)(3) and Section 3(37) of ERISA, and any terminated employee benefit
plan.
Postclosing Lateral Loss: as defined in Section 7.2(d).
Preclosing Lateral Loss: as defined in Section 7.1(g).
Prime Rate: a rate per annum equal to the lesser of (a) a varying rate
per annum that is equal to the interest rate publicly quoted by The Chase
Manhattan Bank, New York, New York from time to time as its prime commercial or
similar reference interest rate, with adjustments in that varying rate to be
made on the same date as any change in that rate or (b) the maximum rate
permitted by applicable law.
Proposed Final Purchase Price: as defined in Section 2.3.
Purchased Interests: the Naloco Shares, the Natoco Shares, the
Laterals and all of Seller's right, title and interest in and to the Lateral
Documents.
Purchased Shares: the Naloco Shares and the Natoco Shares.
Purchase Price: as defined in Section 2.1.
Reasonable Efforts: the efforts that a prudent person or entity
desirous of achieving a result would use in similar circumstances to ensure
that such result is achieved expeditiously; provided, however, that an
obligation to use Reasonable Efforts under this Agreement does not require the
person or entity subject to that obligation to take actions that would incur
any unreasonable out-of-pocket cost or expense in connection therewith.
Seller: as defined in the preamble.
Seller Group: as defined in Section 5.3.2(a).
Seller Indemnified Loss: all Seller Indemnified Warranty Losses and
Seller Indemnified Obligation Losses.
Seller Indemnified Obligation Loss: as defined in Section 7.2(c).
Seller Indemnified Parties: as defined in Section 7.2.
Seller Indemnified Warranty Loss: as defined in Section 7.2(a).
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Sponsor Agreement: that certain Sponsor Agreement dated as of February
26, 1999 made by Seller to The Chase Manhattan Bank, as administrative agent
for the Lenders under the Credit Agreement dated February 26, 1999, and the
Lenders.
Sponsor Agreement Assignment and Assumption: the form of Assignment
and Assumption Agreement (Sponsor Agreement) attached hereto as Exhibit G.
Stingray Credit Agreement: the Term Loan Agreement dated as of
November 30, 1990, as amended and restated through December 22, 1995, and as
amended by First Amendment dated as of March 27, 1998 among Stingray Pipeline
Company, the banks and other financial institutions named therein, and The
Chase Manhattan Bank, as agent.
Stingray LLC Agreement: the form of Stingray Pipeline Company L.L.C.
Agreement attached hereto as Exhibit E.
Stingray Operating Services Agreement: the form of Operating Services
Agreement attached hereto as Exhibit F.
Stingray Pipeline Company: Stingray Pipeline Company, an ordinary
partnership under the laws of the State of Louisiana and its successors.
Stingray Purchase Agreement: that certain Purchase and Sale Agreement
of even date herewith between Seller and Stingray Pipeline Company.
Taxes: all federal, state, local or foreign taxes, assessments or
other governmental charges, together with any interest or penalties and other
assessments thereon or related thereto.
Tax Items: as defined in Section 5.3.2(a)
Tax Returns: as defined in Section 3.1.9
Third Party Claim: as defined in Section 7.5.1.
Threshold Amount: as defined in Section 7.3(e).
UTOS: U-T Offshore System, a Delaware general partnership.
UTOS Interest: a 33 1/3% general partnership interest in UTOS,
including, without limitation, the right to vote and receive distributions
proportionately.
UTOS Partnership Agreement: the U-T Offshore System General
Partnership Agreement among Transco Hydrocarbons Company, Unitex Offshore
Transmission Company and Naloco dated as of September 15, 1975 as amended and
restated as of the date of this Agreement.
Western Gulf: Western Gulf Holdings, L.L.C., a Delaware limited
liability company.
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Western Gulf Interest: a 20% membership interest in Western Gulf,
including, without limitation, the right to vote and receive distributions
proportionately.
Western Gulf LLC Agreement: the Limited Liability Company Agreement of
Western Gulf Holdings, L.L.C. dated as of December 11, 1998 among American
Natural Offshore Company, Natoco, Texam Offshore Gas Transmission, L.L.C.,
Texas Offshore Pipeline System, Inc. and Transco Offshore Pipeline Company,
L.L.C.
Working Capital: an amount computed as of the close of business on the
Closing Date as provided in Exhibit D, relating to Natoco's and Naloco's
respective proportionate share of the working capital of UTOS and Western Gulf.
1.2 Terminology. All article, section, subsection, schedule and
exhibit references used in this Agreement are to this Agreement unless
otherwise specified. All schedules and exhibits attached to this Agreement
constitute a part of this Agreement and are incorporated herein. Unless the
context of this Agreement clearly requires otherwise (a) the singular shall
include the plural and the plural shall include the singular wherever and as
often as may be appropriate, (b) the words "includes" or "including" shall mean
"including without limitation," and (c) the words "hereof," "herein,"
"hereunder," and similar terms in this Agreement shall refer to this Agreement
as a whole and not any particular section or article in which such words
appear. Currency amounts referenced herein are in United States Dollars.
References to "generally accepted accounting principles" herein shall refer to
such principles in effect in the United States of America as of the date of the
statement to which such phrase refers.
ARTICLE II
PURCHASE AND SALE
2.1 The Transactions. Subject to and in accordance with the terms and
conditions of this Agreement, Seller agrees to sell, assign, convey and
transfer to Buyer or the applicable Buyer Designee, and Buyer and the
applicable Buyer Designee agree to purchase and accept from Seller, at the
Closing the Purchased Interests for an aggregate amount equal to (i)
$50,431,191 (the "Base Purchase Price") (ii) plus the positive Working Capital
or less the negative Working Capital (such aggregate amount being the "Purchase
Price").
2.2 Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Vinson & Elkins L.L.P., 3300
First City Tower, Houston, Texas 77002 commencing at 10:00 a.m., local time, on
(i) June 30, 1999, unless the conditions set forth in Sections 6.1 and 6.2 have
not been fulfilled or waived by the applicable parties or (ii) such other date
as the Parties shall agree in writing. The date on which the Closing actually
occurs is referred to herein as the "Closing Date."
2.3 Estimated Working Capital. Buyer and Seller agree to use $697,211.00 as an
estimate of the Working Capital to be used in determining the amounts payable
at Closing pursuant to Section 2.4.
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2.4 Actions at Closing. At the Closing the following shall occur:
(a) Seller will deliver stock certificates representing all of
the Purchased Shares endorsed in blank or accompanied by duly
executed assignment documents to the appropriate Buyer
Designee,
(b) Seller and Buyer will (or will cause their respective
Affiliates that are parties to) execute and deliver the
Lateral Operating Agreement and the Performance Guaranty
relating to the Lateral Operating Agreement, and
(c) Buyer shall pay, or cause to be paid, to Seller an amount
equal to the Base Purchase Price plus the estimated Working
Capital as set forth in Section 2.3. The amount payable by
Buyer to Seller shall be payable by Buyer by wire transfer or
delivery of other immediately available funds pursuant to
Seller's instructions.
2.5 Determination of Final Purchase Prices.
(a) Following the Closing Date and continuing until December
31, 1999, Buyer and Seller shall each have the right, on a monthly
basis, to submit to the other party a statement (an "Interim
Settlement Statement"), prepared and certified by the submitting
party, containing such party's proposed calculations of the Purchase
Price adjusted as provided in Exhibit D and based on information
available to such party as of such date. Buyer and Seller agree to
promptly pay the other party such undisputed amounts necessary to
effect such proposed adjusted Purchase Price.
(b) On or before the date 30 days after receipt by Buyer of
both unaudited financial statements as of December 31, 1999 of UTOS
and Western Gulf, Buyer shall submit to Seller a settlement statement
(the "Final Settlement Statement"), prepared and certified by Buyer,
containing the final calculation of the Purchase Price (the "Proposed
Final Purchase Price"). If Seller disputes the correctness of the
Proposed Final Purchase Price, Seller shall notify Buyer of its
objection in writing within 20 days after receipt of the Final
Settlement Statement, which notice shall set forth in reasonable
detail the reasons for Seller's objections. If Seller fails to deliver
such notice within such 20-day period, Seller shall be deemed to have
accepted the Final Settlement Statement (including Buyer's
calculations therein). Seller and Buyer shall endeavor in good faith
to resolve any disputed items within 20 days after Buyer's receipt of
notice of Seller's objections. If they are unable to do so, each party
shall have the right to refer the dispute to the Auditor for
resolution and determination of the adjustments, if any, that are
necessary for the Final Settlement Statement to present fairly in all
material respects, the calculation of the Purchase Price as of the
close of business on the Closing Date on the basis of the accounting
methods described in Exhibit D. Such determination by the Auditor
shall be conclusive and binding on the parties. The fees of the
Auditor incurred in resolving any such dispute shall be shared equally
by Seller and Buyer. The Purchase Price as finally determined pursuant
to this Section 2.5 (whether by failure of Seller to deliver notice of
objection, by agreement of the parties or by determination by the
Auditor) is referred to herein as the "Final Purchase Price". If the
Final Purchase Price is greater than the amount paid at Closing
pursuant to Section 2.4 in respect of the Purchase Price plus any
additional amounts paid by Buyer pursuant to Section 2.5(a) and less
any amounts received by Buyer pursuant to Section 2.5(a), Buyer shall
pay to Seller the difference plus interest on such difference at the
Prime Rate from the Closing Date to but excluding the date of payment.
If the Final Purchase Price is less than the amount paid at Closing
pursuant to Section 2.4 in respect of the Purchase Price plus any
additional amounts paid by Buyer pursuant to Section 2.5(a) and less
any amounts
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received by Buyer pursuant to Section 2.5(a), Seller shall pay to
Buyer the difference plus interest on such difference at the Prime
Rate from the Closing Date to but excluding the date of payment. Any
payment under this Section 2.5(b) shall be made not later than two
Business Days after determination of the Final Purchase Price in
immediately available funds by wire transfer to a bank account
designated by the party (or parties) entitled to receive the payment.
2.6 Lateral Revenues and Expenses. Seller shall (i) be entitled to all
proceeds, revenues and receivables attributable to the Laterals and the Lateral
Documents (the "Lateral Proceeds") and (ii) be responsible for the payment of
and agrees to timely and fully pay and otherwise satisfy all costs, expenses
and obligations (absolute, contingent, known, unknown, accrued, vested or
otherwise) (collectively "Costs") including the payment of a proportionate
share of ad valorem, property or similar taxes or assessments attributable to
the Laterals and the Lateral Documents, in the case of (i) and (ii) above to
the extent relating to the ownership or operation of the Laterals and
attributable to the period prior to the Closing Date. Buyer shall be (i)
entitled to all Lateral Proceeds, and (ii) be responsible for the payment of
and agrees to timely and fully pay and otherwise satisfy all Costs attributable
to the Laterals and the Lateral Documents, in the case of (i) and (ii) above to
the extent relating to the ownership or operation of the Laterals and
attributable to the period from and after and including the Closing Date. If
any Party pays any Costs that are properly borne by another Party pursuant to
this Section, the Party responsible for such Costs pursuant to this Section 2.6
shall reimburse the Party who made such payment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to the Buyer that:
3.1 Structure Representations and Warranties.
3.1.1 Organization and Good Standing. Seller and each of Naloco and
Natoco is a corporation duly organized and validly existing under the laws of
the State of Delaware and is in good standing under the laws of the State of
Delaware. Seller is qualified to do business as a foreign corporation in all
other jurisdictions where failure to be so qualified would have an adverse
effect on the transactions contemplated hereby. Each of Naloco and Natoco is
qualified to do business as a foreign corporation in all other jurisdictions
where the properties now owned or leased by it or the nature of the business
now conducted by it requires it to be so qualified. Seller has delivered to
Buyer true and complete copies of the charter and bylaws of Naloco and Natoco,
each as amended to date and presently in effect. Section 3.1.1 of the
Disclosure Statement lists the directors and officers of Naloco and Natoco.
3.1.2 Authority of Seller. Seller and each of its Affiliates has all
requisite corporate power and authority to enter into this Agreement and the
other agreements contemplated herein
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or therein to which it is a party, to consummate the transactions contemplated
hereby and thereby and to perform all the terms and conditions hereof and
thereof to be performed by it. The execution, delivery and performance of this
Agreement and the other agreements contemplated herein or therein to which it
is a party by such party and the transactions contemplated hereby and thereby
to be consummated by it have been duly authorized by all requisite corporate
action by such party. This Agreement and the other agreements contemplated
herein or therein to which it is a party has been duly executed and delivered
by such party and constitutes a valid and binding agreement of such party
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency and other similar laws relating to or affecting the
enforcement of creditors' rights generally and to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law).
3.1.3 No Violations. With respect to the sale of the Purchased Shares,
and except as set forth in Section 3.1.3 of the Disclosure Statement, the
execution and delivery of this Agreement by Seller and the consummation of the
transactions contemplated hereby does not:
(a) violate any provision of the certificate of incorporation
or bylaws of Seller, Naloco or Natoco;
(b) violate any provision of or require any filing, consent,
authorization or approval under any Legal Requirement binding upon
Seller, Naloco or Natoco;
(c) result in a breach of, constitute a default under, or
require any consent, authorization or approval under (x) any mortgage,
indenture, loan or credit agreement or any other agreement or
instrument evidencing indebtedness for money borrowed, or any
financing lease to which Seller, Naloco, or Natoco is a party or by
which it is bound or to which any of its assets is subject, or (y) any
other agreement or instrument to which Naloco or Natoco is a party or
by which it is bound or to which any of their respective assets are
subject or (z) in any material respect, any other agreement or
instrument to which Seller is a party or by which it is bound or to
which any of its assets is subject; or
(d) result in the creation or imposition of any Encumbrance
on any asset of Naloco or Natoco;
3.1.4 Capitalization.
(a) The number of shares of the issued and outstanding
capital stock of each of Naloco and Natoco is set forth in Section
3.1.4 of the Disclosure Statement. The Purchased Shares have been duly
authorized, are validly issued, fully paid and nonassessable, and are
held beneficially and of record by Seller.
(b) There are no contracts, agreements, commitments or other
arrangements obligating Seller, Naloco or Natoco to issue, sell,
pledge, dispose of or encumber, nor any options, warrants or rights of
any kind to acquire, nor any securities that are convertible into or
exercisable or exchangeable for, any shares of any class of capital
stock of Naloco or Natoco. There are no contracts, agreements,
commitments or other arrangements obligating Naloco or Natoco to
redeem, purchase or acquire or offer to acquire, nor any
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<PAGE> 16
outstanding option, warrant or right to acquire, nor any securities
that are convertible into or exercisable or exchangeable for, any
shares of any class of capital stock of Naloco or Natoco. There are no
contracts, agreements, commitments or other arrangements obligating
Naloco or Natoco to make any dividend or distribution of any kind.
(c) There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights
affecting the capital stock of Naloco or Natoco. There are no voting
trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of Naloco or Natoco.
3.1.5 Title to Purchased Shares. Seller owns beneficially and of
record the Naloco Shares and the Natoco Shares, free and clear of all
Encumbrances.
3.1.6 Subsidiaries; Investments. Naloco and Natoco have no
subsidiaries. As of the Closing, Naloco has no assets other than its investment
in UTOS. Naloco owns (legally and beneficially) the UTOS Interest free and
clear of all Encumbrances other than the terms of the UTOS Partnership
Agreement. As of the Closing, Natoco has no assets other than its investment in
Western Gulf. Except as set forth in Section 3.1.6 of the Disclosure Statement,
Natoco owns (legally and beneficially) the Western Gulf Interest free and clear
of all Encumbrances other than the terms of the Western Gulf LLC Agreement.
Naloco is not, and to Seller's knowledge, no other party to the UTOS
Partnership Agreement is, in breach or violation of the UTOS Partnership
Agreement. Naloco has not waived, forfeited or otherwise impaired any of its
rights under the UTOS Partnership Agreement to the extent the same would
adversely affect any such rights after the Closing. Natoco is not, and to
Seller's knowledge, no other party to the Western Gulf LLC Agreement is, in
breach or violation of the Western Gulf LLC Agreement. Natoco has not waived,
forfeited or otherwise impaired any of its rights under the Western Gulf LLC
Agreement to the extent the same would adversely affect any such rights after
the Closing.
3.1.7 Financial Statements. Section 3.1.7 of the Disclosure Statement includes
the unaudited balance sheets as of April 30, 1999 of Naloco and Natoco (the
"Balance Sheets"). The Balance Sheets present fairly in all material respects
the financial position of Naloco and Natoco. As of April 30, 1999, Naloco and
Natoco do not have any liabilities, whether absolute, accrued or contingent,
that are not set forth in the Balance Sheets or any footnotes thereto in
accordance with generally accepted accounting principles or that are not
otherwise disclosed in Section 3.1.7 of the Disclosure Statement. Since April
30, 1999, neither Naloco nor Natoco has incurred any liability other than
liabilities incurred in the ordinary course of business or liabilities that are
disclosed on Section 3.1.7 of the Disclosure Statement. As of the Closing,
Naloco and Natoco do not have any liabilities, whether absolute, accrued or
contingent, other than any liabilities resulting solely from its status as a
partner in UTOS or a former partner in High Island Offshore System, a Delaware
general partnership. Natoco has satisfied all its, and it has no past, present
or future, obligations under the Contribution Agreement listed in Section 3.1.8
of the Disclosure Statement.
3.1.8 Contracts and Commitments.
(a) Section 3.1.8 of the Disclosure Statement includes a list
of all contracts and agreements (oral and written) to which Naloco or
Natoco is a party.
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<PAGE> 17
(b) Each such contract or agreement listed on Section 3.1.8
of the Disclosure Statement is in full force and effect and no event
has occurred which upon the giving of notice or lapse of time or both
would constitute a breach or default by Naloco or Natoco of any
obligation thereunder or which would permit another party to
terminate, receive a payment under or impair any of Natoco's or
Naloco's rights under such agreement. Neither Natoco nor Naloco has
waived, forfeited or otherwise impaired any of its rights under any
agreement included on Section 3.1.8 of the Disclosure Statement to the
extent the same would adversely affect any such rights after the
Closing. Neither Natoco nor Naloco is, and to Seller's knowledge, no
other party to any agreement included on Section 3.1.8 of the
Disclosure Statement is, in breach or violation of any agreement
included on Section 3.1.8 of the Disclosure Statement.
3.1.9 Taxes. All returns and reports of or with respect to any Taxes
which are required to be filed on or before the Closing Date by or with respect
to Naloco or Natoco ("Tax Returns") have been or will be duly and timely filed,
and all Taxes which are due by Naloco or Natoco have been or will be timely
paid in full. No assessment, deficiency or adjustment has been asserted with
respect to any Tax Return.
3.1.10 Litigation. There are no actions at law, suits in equity,
investigations, proceedings or claims pending or, to the knowledge of Seller,
threatened against or specifically affecting Naloco or Natoco or any of their
assets or operations before or by any federal, state, foreign or local court,
tribunal or other Governmental Authority; provided, however, that Seller makes
no representation or warranty regarding any actions, suits, investigations,
proceedings or claims against or affecting UTOS or Western Gulf or any of their
respective assets or operations.
3.1.11 Compliance with Law. Naloco and Natoco have complied with all
applicable Legal Requirements; provided, however, notwithstanding the
foregoing, no representation or warranty in this Section 3.1.11 is made with
respect to compliance with environmental matters which are covered exclusively
by the provisions set forth in Section 3.1.15.
3.1.12 Permits. Naloco and Natoco hold all franchises, licenses,
permits, consents, approvals and authorizations of all Governmental Authorities
("Permits") necessary for the conduct of their respective businesses. Each such
Permit is in full force and effect, and will not be affected by the
transactions contemplated herein. Each of Naloco and Natoco is in compliance
with all of their respective obligations under such respective Permits. To
Seller's knowledge, no event has occurred which permits, or upon the giving of
notice or the lapse of time or otherwise would permit, revocation or
termination of any such Permit.
3.1.13 Employee Benefit Plans and Policies.
(a) Neither Naloco nor Natoco sponsors, maintains or
contributes to or has an obligation to contribute to, and has not at
any time, sponsored, maintained or contributed to or had an obligation
to contribute to, any Plan.
(b) With respect to any Plan which is sponsored, maintained
or contributed to, or has been sponsored, maintained or contributed to
within six years prior to the Closing
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Date, by any corporation, trade, business or entity under common
control with Naloco or Natoco, within the meaning of Section 414(b),
(c) or (m) of the Code or Section 4001 of ERISA ("Commonly Controlled
Entity"), (w) no withdrawal liability, within the meaning of Section
4201 of ERISA, has been incurred, which withdrawal liability has not
been satisfied, (x) no liability to the Pension Benefit Guaranty
Corporation has been incurred by any Commonly Controlled Entity, which
liability has not been satisfied, (y) no accumulated funding
deficiency, whether or not waived, within the meaning of Section 302
of ERISA or Section 412 of the Code has been incurred, and (z) all
contributions (including installments) to such plan required by
Section 302 of ERISA and Section 412 of the Code have been timely
made.
(c) Neither Naloco nor Natoco has any employees.
3.1.14 Gas Regulatory Matters. Neither Naloco nor Natoco is a "natural
gas company" as defined in the Natural Gas Act; however, UTOS and the Laterals
are subject to regulation under the Natural Gas Act.
3.1.15 Environmental Matters. Except as set forth in Section 3.1.15 of
the Disclosure Statement:
(a) Neither Naloco nor Natoco is in violation of, or subject to any
remediation obligations or the payment of any fines, penalties or other similar
amounts pursuant to, any Environmental Laws.
(b) Neither Natoco nor Naloco is subject to any consent decree,
compliance order or administrative order issued pursuant to applicable
Environmental Laws.
(c) Neither Natoco nor Naloco has received any notice of violation,
demand letter, administrative inquiry, complaint or claim from any Governmental
Authority pursuant to applicable Environmental Laws which requires any
remediation, or the payment of any damages, fines, penalties or other similar
amounts, under Environmental Laws and Seller has not received any notice of
violation, demand letter, complaint or claim from any other person or entity
with respect to any release of Hazardous Materials which requires any
remediation, or the payment of any damages, fines, penalties or other similar
amount.
3.1.16 Intercompany Obligations. After the Closing, there will be no
intercompany payables, receivables, agreements, rights or obligations between
Natoco or Naloco and Seller or any of its Affiliates.
3.2 Lateral Representations and Warranties.
3.2.1 No Violations. With respect to the acquisition of Laterals, and
except as set forth in Section 3.2.1 of the Disclosure Statement, the execution
and delivery of this Agreement and the other documents contemplated herein and
therein by Seller and the consummation of the transactions contemplated hereby
and thereby does not:
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(a) violate any provision of or require any filing, consent,
authorization or approval under any Legal Requirement binding upon
Seller or the Laterals;
(b) result in a breach of, constitute a default under, or
require any consent, authorization or approval under (x) any mortgage,
indenture, loan or credit agreement or any other agreement or
instrument evidencing indebtedness for money borrowed, or any
financing lease to which Seller is a party or by which it is bound or
to which any of its properties is subject or (y) any other agreement
or instrument to which Seller is a party or by which it is bound or to
which any of its properties is subject; or
(c) result in the creation or imposition of any Encumbrance
on any of the Laterals, other than a Permitted Encumbrance.
3.2.2 Title to Laterals. Seller owns the Laterals free and clear of
all Encumbrances created by, through or under Seller other than the Permitted
Encumbrances. Seller (and its Affiliates) has received no written notice of any
adverse claim to any surface or subsurface rights, including, without
limitation, any permit, right-of-way, easement or lease, on or under which the
Laterals are located or which relates to the operation of the Laterals.
3.2.3 Litigation. There are no actions at law, suits in equity,
investigations, proceedings or claims pending or, to the knowledge of Seller,
threatened against or specifically affecting the Laterals before or by any
federal, state, foreign or local court, tribunal or other Governmental
Authority.
3.2.4 Compliance with Laws. To Seller's knowledge, Seller has complied
with all Legal Requirements applicable to the Laterals; provided, however,
notwithstanding the foregoing, no representation or warranty in this Section
3.2.4 is made with respect to compliance with environmental matters which are
covered exclusively by the provisions set forth in Section 3.2.6.
3.2.5 Permits. Except as set forth in Section 3.2.5 of the Disclosure
Statement, Seller, (or with respect to any Lateral operated by any third party,
to Seller's knowledge the operator of such Laterals), holds all Permits
necessary for the operation of the Laterals operated by it as they are
currently operated. Each such Permit is in full force and effect, and will not
be affected by the transactions contemplated herein or by any other agreements
or documents contemplated herein, except as expressly provided herein. To
Seller's knowledge, Seller is in compliance with all of its obligations under
each such Permit related to the Laterals operated by it. To Seller's knowledge,
no event has occurred which permits, or upon the giving of notice or the lapse
of time or otherwise would permit, revocation or termination of any such
Permit.
3.2.6 Environmental Matters. To the knowledge of Seller,
(a) None of the Laterals owned or operated by Seller are in
violation of, or subject to any remediation obligations or the payment
of any fines, penalties or other similar amounts pursuant to, any
Environmental Laws;
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<PAGE> 20
(b) Seller has in effect, or applications pending for, all
Permits required by applicable Environmental Laws for the operation
and ownership of the Laterals owned or operated by it, and, Seller is
not in violation of the terms and conditions of any such Permits;
(c) Seller is not subject to any consent decree, compliance
order or administrative order issued pursuant to applicable
Environmental Laws applicable to the Laterals;
(d) Seller has not received any notice of violation, demand
letter, administrative inquiry, complaint or claim from any
Governmental Authority pursuant to applicable Environmental Laws with
respect to the Laterals which requires any remediation, or the payment
of any damages, fines, penalties or other similar amounts, under
Environmental Laws, and Seller has not received any notice of
violation, demand letter, complaint or claim from any other person or
entity with respect to any release of Hazardous Materials from any
Lateral which requires any remediation, or the payment of any damages,
fines, penalties or other similar amount; and
(e) There have been no releases of Hazardous Material from
the Laterals owned or operated by Seller that require remediation, or
the payment of any damages, fines, penalties or other similar amounts.
3.2.7 Preferential Purchase Rights. There are no outstanding rights of
first refusal, preferential purchase rights or other rights or options to
purchase the Laterals except as set forth in Section 3.2.7 of the Disclosure
Statement.
3.2.8 No Brokers Seller has no liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
3.2.9 Lateral Documents.
(a) Except as set forth in Section 3.2.9 of the Disclosure
Statement, Exhibit A includes a list of all rights of way, contracts
and agreements (oral and written) to which Seller is a party and which
affects any Lateral.
(b) To the knowledge of Seller, each Lateral Document is in
full force and effect and no event has occurred which upon the giving
of notice or lapse of time or both would constitute a breach or default
by Seller or any of its Affiliates of any obligation thereunder or
which would permit another party thereto to terminate (other than at
the expiration of the applicable primary term or any extensions
thereof) such Lateral Document or to receive a payment (other than for
goods or services) or to impair any right of Seller under such Lateral
Document, except as set forth in Section 3.2.9 of the Disclosure
Statement. Seller and its Affiliates have not waived, forfeited or
otherwise impaired any of their rights under any Lateral Document, to
the extent the same would adversely affect any such rights after the
Closing. Seller and its Affiliates are not, and to each of their
knowledge, no other party to any Lateral Document is, in breach or
violation of any Lateral Document. Since becoming a party to any
Lateral Document, Seller has
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not sold, assigned, conveyed, transferred or otherwise disposed of any
right title or interest in any Lateral Document to the extent any such
action would reduce the interest of Seller below the interest shown on
Exhibit A. Seller has not granted, created or permitted to exist any
lien, security, interest or other encumbrance affecting any of its
right, title or interest in and to the Lateral Documents except for
Permitted Encumbrances.
3.2.10 Condition of Laterals. To Seller's knowledge, each Lateral is
currently in operation, except as set forth in Section 3.2.10 of the Disclosure
Statement. To Seller's knowledge, there are no repairs scheduled to be made to
any of the Laterals that are currently in operation other than those to be made
in the ordinary course of business.
3.2.11 Representation of Seller. Seller (a) is represented by
competent legal, tax and financial counsel in connection with the negotiation,
execution and delivery of this Agreement, (b) together with its Affiliates, has
sufficient knowledge and experience in marketing energy and owning, managing,
and operating businesses similar to the Purchased Interests, and the technical,
commercial, financial, legal, regulatory, and other risks associated with
owning the Purchased Interests, and (c) is financially capable of owning the
Purchased Interests and performing its obligations under this Agreement and all
instruments executed pursuant to or in connection herewith.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Seller:
4.1 Organization and Good Standing. Buyer is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer is qualified to do business as a foreign limited partnership in
all other jurisdictions where the properties now owned or leased by Buyer or
the nature of the business now conducted by it requires it to be so qualified.
4.2 Authority of Buyer. Buyer and each of its Affiliates has all requisite
partnership, limited liability company and corporate power and authority to
enter into this Agreement and the other agreements contemplated herein or
therein to which it is a party, to consummate the transactions contemplated
hereby and thereby and to perform all the terms and conditions hereof and
thereof to be performed by it. The execution, delivery and performance of this
Agreement and the other agreements contemplated herein or therein to which it
is a party by such party and the transactions contemplated hereby and thereby
to be consummated by such party have been duly authorized by all requisite
partnership, limited liability company and corporate action by such party. This
Agreement and the other agreements contemplated herein or therein to which it
is a party have been duly executed and delivered by such party and constitutes
a valid and binding agreement of such party enforceable against such party in
accordance with its terms subject to applicable bankruptcy, insolvency and
other similar laws relating to or affecting the enforcement of creditors'
rights generally and to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
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4.3 No Violations. The execution and delivery of this Agreement by Buyer and
its Affiliates and the consummation of the transactions contemplated hereby to
be consummated by Buyer and its Affiliates do not and will not:
(a) violate any provision of its limited partnership
agreement or certificate of incorporation, as applicable;
(b) violate any provision of or require any filing, consent,
authorization or approval under any Legal Requirement binding upon
Buyer or any of its Affiliates executing this Agreement;
(c) conflict with, result in a breach of, constitute a
default under, or require any consent, authorization or approval under
(i) any mortgage, indenture, loan or credit agreement or any other
agreement or instrument evidencing indebtedness for money borrowed, or
any financing lease to which Buyer or any of its Affiliates executing
this Agreement is a party or by which it is bound or to which any of
its properties is subject or (ii) any other agreement or instrument to
which it is a party or by which it is bound or to which any of its
properties is subject.
4.4 Acquisition as Investment. Buyer or the applicable Buyer Designee is
acquiring the Purchased Shares for its own account as an investment without the
present intent to sell, transfer or otherwise distribute the Purchased Shares
to any other person or entity.
4.5 Brokerage or Finders Fees. Buyer and its Affiliates have no liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
4.6 Knowledgeable Buyer. Buyer (a) is represented by competent legal, tax and
financial counsel in connection with the negotiation, execution and delivery of
this Agreement, (b) together with its Affiliates, has sufficient knowledge and
experience in marketing energy and owning, managing, and operating businesses
similar to the Purchased Interests, and the technical, commercial, financial,
legal, regulatory, and other risks associated with owning the Purchased
Interests and (c) is financially capable of owning the Purchased Interests and
performing its obligations under this Agreement and all instruments executed
pursuant to or in connection herewith.
4.7 Buyer Designees. Tarpon Transmission Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and is eligible to make a "qualified stock purchase" under Section 338 of
the Code and an election under Section 338(h)(10) of the Code. Green Canyon
Pipe Line Company, L.L.C. is qualified to own interests in rights of way issued
by the United States of America covering waterbottoms in the Gulf of Mexico.
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<PAGE> 23
ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS
5.1 Covenants of Seller. Seller covenants and agrees with Buyer as follows:
5.1.1 Transaction Costs. Seller shall bear and pay all of the costs,
fees and expenses incurred by or on behalf of it in connection with the
transactions contemplated by this Agreement.
5.1.2 Intercompany Balances and Other. Prior to the Closing, Seller
and its Affiliates shall (i) pay or otherwise satisfy all intercompany payables
owed to Seller or any of its Affiliates by each of Natoco and Naloco, (ii)
terminate all intercompany agreements or other arrangements between Seller and
its Affiliates and either Natoco or Naloco except for the agreements entered
into at Closing and (iii) satisfy all obligations under the Contribution
Agreement listed in Section 3.1.8 of the Disclosure Statement.
5.1.3 Satisfaction of Indebtedness. Seller shall take such actions as
may be necessary to pay or otherwise satisfy all indebtedness and payables of
each of Natoco and Naloco so that neither of Natoco and Naloco shall have any
indebtedness, payables or liabilities that under generally accepted accounting
principles are required to be recorded on the respective balance sheets of
Natoco and Naloco as of the Closing.
5.2 Covenants of Buyer. Buyer covenants and agrees with Seller as follows:
5.2.1 Transaction Costs. Buyer shall bear and pay all of the costs,
fees and expenses incurred by or on behalf of it in connection with the
transactions contemplated by this Agreement.
5.3 Mutual Covenants. Buyer and Seller each covenant and agree as follows:
5.3.1 Distributions. Notwithstanding anything to the contrary in this
Agreement, prior to the Closing, Seller shall have the right to cause Naloco
and Natoco to distribute to Seller all of Naloco's and Natoco's cash, cash
equivalents, current assets and advances to associated companies so that
together with the actions to be taken pursuant to Sections 5.1.2 and 5.1.3
Natoco and Naloco will have no working capital (surplus or deficit) as of the
Closing.
5.3.2 Preparation of Tax Returns; Responsibility for Taxes.
(a) Seller shall cause to be included in the consolidated
federal income Tax Returns (and the state income Tax Returns of any
state that permits consolidated, combined or unitary income Tax
Returns, if any) of the affiliated group of corporations filing a
consolidated federal income tax return of which Seller is a member
(the "Seller Group") for all periods ending on or before the Closing
Date, all items of income, gain, loss, deduction and credit and other
tax items ("Tax Items") of Naloco and Natoco which are required to be
included therein, shall cause such Tax Returns to be timely filed with
the appropriate taxing authorities, and shall be responsible for the
timely payment (and
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entitled to any refund) of all Taxes due with respect to the periods
covered by such Tax Returns.
(b) With respect to any Tax Return covering a taxable period
ending on or before the Closing Date that is required to be filed
after the Closing Date with respect to Naloco or Natoco that is not
described in paragraph (a) above, Seller shall cause such Tax Return
to be prepared, shall cause to be included in such Tax Return all Tax
Items required to be included therein, shall cause such Tax Return to
be filed timely with the appropriate taxing authority, and shall be
responsible for the timely payment (and entitled to any refund) of all
Taxes due with respect to the period covered by such Tax Return.
(c) With respect to any Tax Return covering a taxable period
beginning on or before the Closing Date and ending after the Closing
Date that is required to be filed after the Closing Date with respect
to the Naloco or Natoco, Buyer shall cause such Tax Return to be
prepared, shall cause to be included in such Tax Return all Tax Items
required to be included therein, shall furnish a copy of such Tax
Return to Seller, shall file timely such Tax Return with the
appropriate taxing authority and, subject to the following sentence,
shall be responsible for the timely payment (and entitled to any
refund) of all Taxes due with respect to the period covered by such
Tax Return. Seller (determined by an interim closing of the books as
of the Closing Date except for ad valorem Taxes which shall be
prorated on a daily basis) shall be responsible for the portion of the
Tax due with respect to the period covered by such Tax Return which is
attributable to the portion of such taxable period ending on the
Closing Date and shall promptly pay to Buyer such amount, but in no
event later than five days after Buyer has provided Seller with
written notice that such Tax Return has been filed.
(d) Notwithstanding anything to the contrary herein, any
franchise Tax paid or payable with respect to Naloco or Natoco shall
be allocated to the taxable period during which the right to do
business obtained by the payment of such franchise Tax relates,
regardless of whether such franchise Tax is measured by income,
operations, assets or capital relating to another taxable period. With
respect to any franchise Tax so allocated to the taxable period in
which the Closing Date occurs: (i) the amount of such franchise Tax
shall be prorated on a daily basis between the portion of such taxable
period ending on the Closing Date and the remaining portion of such
taxable period, and (ii) if the amount of such franchise Tax paid or
provided for as of the Closing Date is different than the amount so
prorated to the portion of such taxable period ending on the Closing
Date, the difference shall be remitted promptly by the applicable
party.
(e) Any Tax Return to be prepared pursuant to the provisions
of this Section 5.3.2 shall be prepared in a manner consistent with
practices followed in prior years with respect to similar Tax Returns,
except for changes required by changes in law or fact.
(f) Buyer shall not file an amended tax return for any period
ending on or prior to the Closing Date without the consent of Seller.
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(g) Seller and the applicable Buyer Designee shall make a
timely, irrevocable and effective election under section 338(h)(10) of
the Internal Revenue Code of 1986 (the "Code") and a similar election
under any applicable state income tax law with respect to the
applicable Buyer Designee's purchase of the shares of Natoco and
Naloco. At the Closing, Buyer shall cause the Applicable Buyer
Designee to execute and Seller shall execute, an Internal Revenue
Service Form 8023 and any similar forms under applicable state income
tax law, all of which have been mutually agreed to by Seller and the
applicable Buyer Designee (the "Forms") with respect to the applicable
Buyer Designee's respective purchases of the shares of Natoco and
Naloco. Buyer shall cause the Forms to be duly and timely filed as
prescribed by Treasury Regulation ss. 1.338(h)(10)-1 or the
corresponding provisions applicable state income tax law.
Notwithstanding anything to the contrary in this Agreement, Seller
shall be responsible for and shall hold Buyer, the applicable Buyer
Designee, Natoco and Naloco harmless from any and all Taxes resulting
as a consequence of such filing of the Forms.
(h) Any payment made pursuant to this Section 5.3.2 shall be
treated as a purchase price adjustment by all parties for tax
purposes.
5.3.3 Access to Information.
(a) Seller and each member of the Seller Group shall grant to
Buyer (or its designees) access at all reasonable times to all of the
information, books and records relating to Naloco, Natoco and the
Laterals within the possession of Seller or any member of the Seller
Group (including workpapers and correspondence with taxing
authorities), and shall afford Buyer (or its designees) the right (at
Buyer's expense) to take extracts therefrom and to make copies
thereof, to the extent reasonably necessary or appropriate to permit
Buyer (or its designees) to prepare Tax Returns and to conduct
negotiations with taxing authorities and otherwise conduct its
business.
(b) Buyer shall grant or cause Naloco and Natoco to grant to
Seller (or its designees) access at all reasonable times to all of the
information, books and records relating to Naloco and Natoco within
the possession of Buyer, Naloco or Natoco (including workpapers and
correspondence with taxing authorities), and shall afford Seller (or
its designees) the right (at Seller's expense) to take extracts
therefrom and to make copies thereof, to the extent reasonably
necessary or appropriate to permit Seller (or its designees) to
prepare Tax Returns and to conduct negotiations with taxing
authorities and otherwise conduct its business.
5.3.4 Transfer Taxes. Buyer and Seller shall be equally responsible
for the payment of all state and local transfer, sales, use or other similar
Taxes resulting from the transactions contemplated by this Agreement.
5.3.5 Sponsor Agreement.
(a) Without limiting Seller's rights under Sections 6.2.5 and
7.2.2, Buyer and Seller shall use their Reasonable Efforts to have
Seller and its Affiliates released from all obligations under the
Sponsor Agreement. In addition, Buyer shall provide financial
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information and offer to furnish substantially equivalent credit
support obligations to the obligees under the Sponsor Agreement to
effect such release. As soon as the consent of the lenders under the
Credit Agreement described in the Sponsor Agreement is obtained,
Seller shall assign the Sponsor Agreement to Buyer and Buyer shall
assume the obligations of Seller under the Sponsor Agreement pursuant
to the terms of the Sponsor Agreement, Assignment and Assumption or
such other form of assignment and assumption as may be approved by
such lenders. Subject to Section 5.3.5(b), Buyer shall indemnify
Seller for any and all costs, expenses and obligations which arise
under such Sponsor Agreement subsequent to the Closing. In addition,
Buyer and Seller agree to share equally any and all legal expenses and
other costs for which Buyer or Seller may be required to reimburse the
lenders or administrative agent thereunder in connection with the
assignment, assumption and release of the Sponsor Agreement.
(b) In the event that any amounts are required to be paid
under the Sponsor Agreement in excess of the distributions paid after
the Closing by Western Gulf in respect of the Western Gulf Interest,
Seller shall be responsible for payment of such excess amount.
5.3.6 Preferential Rights To Purchase. Section 5.3.8 of the Disclosure
Statement lists the outstanding preferential rights to purchase with respect to
the Laterals. Seller shall use its Reasonable Efforts to comply with all
preferential right to purchase provisions relative to any Lateral prior to the
assignment pursuant to Section 5.3.8. Seller shall notify Buyer if any
preferential purchase rights are exercised or if the requisite period has
elapsed without said rights having been exercised. If a party that has been
offered an interest in any Lateral pursuant to a preferential right to purchase
elects to purchase all or part of such Lateral pursuant to the terms of any
preferential right to purchase, the interest or part thereof so affected will
be eliminated from the Laterals to be sold hereunder and the Purchase Price
shall be reduced by the Allocated Value of such Lateral (or if the Purchase
Price has already been paid, Seller shall refund to Buyer such amount).
5.3.7 Consents to Assignment of Laterals. Seller and Buyer shall each
use Reasonable Efforts to obtain all consents required to assign the Laterals
and the related Lateral Documents to the appropriate Buyer Designee. If any
third party consent required to assign any Lateral and the related Lateral
Documents to the appropriate Buyer Designee is not obtained by the time that
all approvals and authorizations have been obtained under the Natural Gas Act
to the abandonment by Seller of the Laterals and the service provided through
the Laterals for the purposes of the Natural Gas Act, such Lateral or Laterals
and the related Lateral Documents that are subject to consent to assign
requirements that have not been satisfied will continue to be subject to the
Lateral Operating Agreement, but shall be excluded from the Assignment and
Assumption Agreement and other title transfer documents to be delivered to the
appropriate Buyer Designee with respect to the Laterals. There shall be no
adjustment to the Purchase Price as a result of failure to obtain any such
consent to assign.
5.3.8 Assignment of Laterals. At the time that all approvals and
authorizations have been obtained (and have become final and nonappealable)
under the Natural Gas Act to the abandonment by Seller of any Lateral and the
service provided through such Lateral for the purposes of the Natural Gas Act
without regard to the jurisdictional status of the Lateral for
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Natural Gas Act purposes after abandonment, and provided that no preferential
purchase right has been exercised and any required consents to assignment have
been obtained with respect to such Lateral and the related Lateral Documents,
Seller and the appropriate Buyer Designee shall promptly execute and deliver
with respect to such Lateral and the related Lateral Documents an Assignment
and Assumption Agreement and other title transfer documents appropriate to
transfer such Lateral and the related Lateral Documents to the appropriate
Buyer Designee. In this connection Seller shall prepare for approval by Buyer
the appropriate forms for filing with the Minerals Management Service ("MMS")
to obtain approval by the MMS of the transfer from Seller to the appropriate
Buyer Designee of Seller's interest in any right of way issued by the MMS
described in Exhibit A associated with each Lateral transferred to such Buyer
Designee, and such forms shall be executed and delivered by Seller and the
applicable Buyer Designee in connection with the transfer of each such Lateral.
Buyer shall file such forms with the MMS and diligently seek approval of the
transfer of each such rights of way, and Seller shall cooperate with Buyer in
connection therewith.
5.3.9 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each party will use its Reasonable Efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper, or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement, including satisfying the
conditions to closing.
5.3.10 Certain Filings.
(a) The Buyer and Seller shall cooperate with one another (i)
in determining whether any action by or in respect of, or filing with, any
Governmental Authority is required, or any actions, consents, approvals, or
waivers are required to be obtained from parties to any material agreements, in
connection with the consummation of the transactions contemplated by this
Agreement, and (ii) in taking such actions or making such filings, furnishing
information required in connection therewith and seeking timely to obtain such
actions, consents, approvals, or waivers. Among other things, Buyer agrees that,
to the extent of any legal or contractual requirement or as necessary to obtain
approval of abandonment under the Natural Gas Act of any Lateral, it will
continue to provide service to the shippers on each Lateral on rates, terms and
conditions comparable to those rates, terms and conditions to which such
shippers are subject on the date Seller requests authorization and approval for
abandonment, including, without limitation, the terms and conditions of the
agreements described or referred to in Section 5.3.10 of the Disclosure
Statement, and agrees to execute such agreements with such shippers as may be
reasonably requested by Seller setting forth such rates, terms and conditions.
(b) As soon as reasonably practicable, but in any event
within 30 days after all preferential purchase rights referred to in Section
3.2.7 of the Disclosure Statement have been satisfied or waived, Seller shall
file with the Federal Energy Regulatory Commission ("FERC") and diligently
prosecute any and all instruments and documents necessary or appropriate to
seek abandonment under Section 7 (b) of the Natural Gas Act of the Laterals and
the service provided through such Laterals and the transfer of the Laterals
from Seller to the applicable Buyer Designee as a nonregulated entity. Buyer
shall cause the Buyer Designee to cooperate in making such mutually agreeable
filings as may be appropriate by it in connection with such abandonment. Seller
will send notices of the right to exercise the preferential purchase rights
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referred to in Section 3.2.7 of the Disclosure Statement not later than 10 days
after the Closing Date.
5.3.11 Confidential Information. In the event that this Agreement is
terminated or, if not terminated, until the Closing Date, the confidentiality
of any data or information received by Buyer regarding the business and assets
of the Seller, its Affiliates, and Natoco and Naloco, shall be maintained by
Buyer and its representatives in accordance with the letter confidentiality
agreement dated March 31, 1999 executed by Buyer and Seller (the
"Confidentiality Agreement"). For a period of two years after Closing Date,
Seller agrees to maintain the confidentiality of any non-public information of
a confidential nature concerning the business or operations of Natoco, Naloco
or the Laterals, provided that this confidentiality obligation shall not apply
to any disclosures that Seller may reasonably make in connection with any legal
requirement, governmental filing, judicial, administrative or arbitration
proceeding or applicable stock exchange requirement.
5.3.12 Notices of Certain Events. Each of the Buyer and Seller shall
promptly notify the other party hereto of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any Governmental Authority
in connection with the transactions contemplated by this Agreement;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to, or involving
or otherwise affecting such party that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to any
provision of this Agreement or that relate to the consummation of the
transactions contemplated by this Agreement; and
(d) (i) the discovery by such party that any representation or
warranty contained in this Agreement is untrue or inaccurate in any material
respect, (ii) the occurrence or failure to occur of any event which occurrence
or failure to occur would be likely to cause any of the representations or
warranties in this Agreement to be untrue or incorrect in any material respect
at the Closing Date, except for representations and warranties that speak as of
a specified date, which need only be true and correct as of the specified date
and (iii) any material failure on its part to comply with or satisfy any
covenant, conditions or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.3.12 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
5.3.13 Insurance Reimbursements. To the extent Natoco or Naloco
receives prior to the Closing any funds from Western Gulf or UTOS as
reimbursement for insurance premiums relating to calendar year 1999, Seller
shall pay 50% of the amount so received to Buyer. To the extent Natoco or
Naloco receives after the Closing any funds from Western Gulf or UTOS as
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reimbursement for insurance premiums relating to calendar year 1999 Buyer shall
pay 50% of the amount so received to Seller.
5.3.14 No Warranty and Disclaimers.
BUYER ACKNOWLEDGES THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, SELLER HAS NOT MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND
NEGATES, AND BUYER HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY,
EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (a) THE
QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF HYDROCARBONS, IF ANY, THAT MAY
BE SERVICED BY THE LATERALS OR (b) THE ACCURACY, COMPLETENESS OR MATERIALITY OF
ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) NOW, HERETOFORE OR
HEREAFTER FURNISHED TO BUYER BY OR ON BEHALF OF SELLER. NOTWITHSTANDING
ANYTHING TO THE CONTRARY IN THIS AGREEMENT, BUT IN NO WAY IN CONTRAVENTION OF
ARTICLE VII, SELLER EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY WAIVES,
AS TO PERSONAL PROPERTY, EQUIPMENT AND FIXTURES CONSTITUTING A PART OF THE
LATERALS (i) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (ii) ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iii) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,
(iv) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION, (v) ANY CLAIMS BY BUYER FOR DAMAGES BECAUSE OF ANY LATENT OR
PATENT DEFECTS OR OTHER DEFECTS, WHETHER KNOWN OR UNKNOWN, AND (vi) ANY AND ALL
IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW; IT BEING THE EXPRESS
INTENTION OF BOTH BUYER AND SELLER THAT THE PERSONAL PROPERTY, EQUIPMENT AND
FIXTURES INCLUDED WITHIN THE LATERALS ARE HEREBY CONVEYED TO BUYER IN THEIR
PRESENT CONDITION AND STATE OF REPAIR, "AS IS" AND "WHERE IS" WITH ALL FAULTS,
AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BUYER DEEMS
APPROPRIATE. SELLER AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE
LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS
SECTION ARE "CONSPICUOUS" DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LAW,
RULE OR ORDER.
5.3.15 Lateral Proceeds. To the extent that Buyer receives any Lateral
Proceeds to which Seller is entitled under the provisions of Section 2.6
hereof, Buyer shall promptly deliver such Lateral Proceeds to Seller. To the
extent that Seller receives any Lateral Proceeds to which Buyer is entitled
under the provisions of Section 2.6 hereof, Seller shall promptly deliver such
Lateral Proceeds to Buyer.
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ARTICLE VI
CONDITIONS TO CLOSING
6.1 Buyer's Obligation to Close. Buyer's obligation to close under this
Agreement is subject to the fulfillment, on the Closing Date, of each of the
following conditions (except to the extent that Buyer shall have hereafter
agreed in writing to waive one or more of such conditions):
6.1.1 Litigation. There shall not be pending any litigation or
proceeding (filed by a person or entity other than Buyer or its Affiliates) to
restrain or prohibit any material portion of the transactions contemplated by
this Agreement or to obtain material damages or other material relief in
connection with the consummation of such transactions.
6.1.2 Compliance with Agreement. Seller shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed or complied with by Seller on or prior to the Closing.
6.1.3 Representations and Warranties. The representations and
warranties of Seller contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date, except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date.
6.1.4 Stingray Agreements. Prior to or simultaneously with the Closing
hereunder, the lenders under the Stingray Credit Agreement shall have consented
to the Stingray LLC Agreement, the Reorganization as defined in the Stingray
LLC Agreement, and Stingray Operating Services Agreement and such agreements
shall have been entered into by the parties thereto and be in full force and
effect. In addition the transactions contemplated to occur at the closing under
the Stingray Purchase Agreement shall have occurred prior to or simultaneously
with the Closing hereunder.
6.1.5 HSR. Buyer and Seller have made filings under the HSR Act with
respect to the consummation of the transactions contemplated by this Agreement
and have received early termination of the waiting period under the HSR Act
with respect thereto.
6.2 Seller's Obligation to Close. The obligation of Seller to close under this
Agreement is subject to the fulfillment on the Closing Date of each of the
following conditions (except to the extent that Seller shall have hereafter
agreed in writing to waive one or more of such conditions):
6.2.1 Litigation. There shall not be pending any litigation or
proceeding (filed by a person or entity other than Seller or its Affiliates) to
restrain or prohibit any material portion of the transactions contemplated by
this Agreement or to obtain material damages or other material relief in
connection with the consummation of such transactions.
6.2.2 Compliance with Agreement. Buyer shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed or complied with by Buyer on or prior to the Closing.
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6.2.3 Representations and Warranties. 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, except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date.
6.2.4 Stingray Agreements. Prior to or simultaneously with the Closing
hereunder, the lenders under the Stingray Credit Agreement shall have consented
to the Stingray LLC Agreement, the Reorganization as defined in the Stingray
LLC Agreement, and the Stingray Operating Services Agreement and such
agreements shall have been entered into by the parties thereto and be in full
force and effect. In addition the transactions contemplated to occur at the
closing under the Stingray Purchase Agreement shall have occurred prior to or
simultaneously with the Closing hereunder.
6.2.5 HSR. Buyer and Seller have made filings under the HSR Act with
respect to the consummation of the transactions contemplated by this Agreement
and have received early termination of the waiting period under the HSR Act
with respect thereto.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification of Buyer. Subject to Sections 7.3 and 7.7, Seller shall
indemnify and defend Buyer, its Affiliates (including the Buyer Designees and
Naloco and Natoco if the Closing occurs) and their directors, officers,
employees, contractors, agents and other representatives ("Buyer Indemnified
Parties") against, and hold each Buyer Indemnified Party harmless from, any
loss, damage, cost, liability or expense (including reasonable costs of defense
and investigations, settlements, and reasonable attorneys' fees) or penalties
or fines (collectively "Losses") that such Buyer Indemnified Party incurs to
the extent arising out of or resulting from any of the following:
(a) the failure of any of the representations and warranties of Seller
contained in Section 3.1 of this Agreement to be true and correct as of the
date made or the inaccuracy of any such representation or warranty as of the
date made,
(b) by reason of the liability of Naloco and Natoco pursuant to
Treasury Regulations 1.1502-6 or any analogous state or local law or regulation
by reason of Naloco or Natoco having been a member of any consolidated,
combined or unitary group on or prior to the Closing Date or any other Taxes
for which Seller is responsible under this Agreement,
(c) Naloco or Natoco ceasing to be a member of the Seller Group;
(d) (i) (x) any business, operation or activity that Natoco may have
engaged in or conducted prior to the Closing other than acquiring and owning
(including exercising its rights and performing its obligations relating to)
(A) the Western Gulf Interest, (B) its partnership interest in High Island
Offshore System, a Delaware partnership and (C) its membership interest in High
Island Offshore System, L.L.C., a Delaware limited liability company, or, (y)
any obligation of Naloco under any contract (oral or written) entered into
prior to Closing other
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than obligations under the constitutive documents of Western Gulf or HIOS or
the instruments listed in Section 3.1.8 of the Disclosure Statement, or (ii)
(x) any business, operation or activity that Naloco may have engaged in or
conducted prior to Closing other than acquiring and owning (including
exercising its rights and performing its obligations relating to) the UTOS
Interest or (y) any obligation of Natoco under any contract (oral or written)
entered into prior to the Closing other than obligations under the constitutive
documents of UTOS or the instruments listed in Section 3.1.8 of the Disclosure
Statement (any Loss described in Section 7.1 (a), (b), (c) or (d) being
referred to herein as a "Buyer Indemnified Structure Loss");
(e) the failure of any of the representations and warranties of Seller
contained in Section 3.2 of this Agreement to be true and correct as of the
date made or the inaccuracy of any such representation or warranty as of the
date made (any Loss described in this Section 7.1 (e) being referred to herein
as a "Buyer Indemnified Non-Structure Loss");
(f) Seller's breach or the failure of Seller to perform or satisfy in
any material respect any covenant (other than the covenants in Section 2.6)
made by, or other obligation of, Seller herein (any Loss described in this
Section 7.1 (f) being referred to herein as a "Buyer Indemnified Covenant
Loss"); or
(g) any obligation of Seller under Section 2.6, including, without
limitation, any violation of Environmental Laws as in effect on the date hereof
(but not with respect to any subsequent changes in Environmental Laws after the
Closing Date) relating to the operation of the Laterals and attributable to the
period prior to the Closing Date, but excluding all obligations to physically
abandon (including without limitation any further or additional abandonment
requirements in the case of Laterals that have already been abandoned necessary
to comply with any change in Environmental Laws or other applicable laws, rules
or regulations occurring after the Closing Date) all pipelines and other
facilities now or hereafter part of the Laterals in accordance with the
requirements of all applicable Governmental Authorities and the terms of all
applicable Lateral Documents (any Loss described in this Section 7.1 (g) being
referred to herein as a "Preclosing Lateral Loss").
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7.2 Indemnification of Seller. Subject to Sections 7.4 and 7.7, Buyer shall
indemnify and defend Seller and its Affiliates (including Naloco and Natoco if
the Closing does not occur) and their directors, officers, employees,
contractors, agents and other representatives ("Seller Indemnified Parties")
against, and hold each Seller Indemnified Party harmless from any Loss that
such Seller Indemnified Party incurs, to the extent arising out of or resulting
from any of the following:
(a) the failure of any of the representations and warranties contained
in Article IV of this Agreement to be true and correct as of the date made or
the inaccuracy of any such representation or warranty as of the date made (any
Loss described in this Section 7.2(a) being referred to herein as a "Seller
Indemnified Warranty Loss");
(b) Buyer's breach or the failure of Buyer to perform or satisfy in
any material respect any covenant made by, or other obligation of, Buyer
herein;
(c) any obligation to be paid or performed from and after the Closing
under the Sponsor Agreement other than the obligations retained by Seller
pursuant to Section 5.3.5(b) (any Loss described in Section 7.2(b) or (c) being
referred to herein as a "Seller Indemnified Obligation Loss"); or
(d) any obligation of Buyer under Section 2.6 including, without
limitation, all obligations to physically abandon (including without limitation
any further or additional abandonment requirements in the case of Laterals that
have already been abandoned necessary to comply with any change in
Environmental Laws or other applicable laws, rules or regulations occurring
after the Closing Date) all pipelines and other facilities now or hereafter
part of the Laterals in accordance with the requirements of all applicable
Governmental Authorities and the terms of all applicable Lateral Documents and
any violation of Environmental Laws relating to the operation of the Laterals
and attributable to the period on and after and including the Closing Date (any
Loss described in this Section 7.2(d) being referred to herein as a
"Postclosing Lateral Loss").
7.3 Certain Limitations on Indemnification of Buyer. Notwithstanding anything to
the contrary in this Agreement, in no event shall any amounts be recovered from
Seller
(a) for any Buyer Indemnified Structure Loss (other than those arising
out of the failure of any of the representations in Sections 3.1.9 or 3.1.13 or
under Sections 7.1(b), (c) or (d)) for which a Claim Notice or Indemnity Notice
is not delivered to Seller prior to the close of business on the day four years
and six months following the Closing Date;
(b) for any Buyer Indemnified Structure Loss arising out of the
inaccuracy or failure of any of the representations in Section 3.1.9 or 3.1.13
or under Sections 7.1(b), (c) or (d) for which a Claim Notice or Indemnity
Notice is not delivered to Seller prior to close of business on the day six
months following the expiration of the statute of limitations applicable to
such indemnified matters;
(c) for any Buyer Indemnified Non-Structure Loss (other than those
arising out of the inaccuracy or failure of the representation in Section
3.2.9(a)) or any Preclosing Lateral Loss for
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which a Claim Notice or Indemnity Notice is not delivered to Seller prior to
the close of business on the day two years and one month after the Closing
Date;
(d) for any Buyer Indemnified Non-Structure Loss arising out of the
inaccuracy or failure of the representation in Section 3.2.9(a) for which a
Claim Notice or Indemnity Notice is not delivered to Seller prior to the close
of business on the day four years and six months after the Closing Date;
(e) for any Buyer Indemnified Structure Losses, unless and until the
aggregate of all Buyer Indemnified Losses exceeds on a cumulative basis a
threshold (a "Threshold Amount") of $100,000 at which time this Section 7.3(f)
shall not limit the assertion or recovery of any Losses, including any
applicable Threshold Amount;
(f) for any Buyer Indemnified Non-Structure Losses or Preclosing
Lateral Losses, unless and until the aggregate of all Buyer Indemnified Losses
exceeds on a cumulative basis a Threshold Amount of $500,000 at which time this
Section 7.3(g) shall not limit the assertion of or recovery of any Losses,
including any applicable Threshold Amount;
(g) for any Buyer Indemnified Structure Losses arising out of the
inaccuracy or failure of any of the representations under Sections 3.1.1
through 3.1.7 and 3.1.8(b) in an aggregate amount in excess of $48,500,000;
(h) for any Buyer Indemnified Structure Losses arising out of the
inaccuracy or failure of the representations under Section 3.1.5 to the extent
applicable to Natoco or under the fifth sentence of Section 3.1.6 in an
aggregate amount in excess of $41,500,000;
(i) for any Buyer Indemnified Structure Losses arising out of the
inaccuracy or failure of the representations under Section 3.1.5 to the extent
applicable to Naloco or under the third sentence of Section 3.1.6 in an
aggregate amount in excess of $7,000,000; or
(j) for any Buyer Indemnified Non-Structure Losses or Preclosing
Lateral Losses in an aggregate amount in excess of $4,500,000.
7.4 Certain Limitations on Indemnification of Seller. Notwithstanding anything
to the contrary in this Agreement, in no event shall any amounts be recovered
from Buyer
(a) for any Seller Indemnified Warranty Loss for which a Claim Notice
or Indemnity Notice is not delivered to Buyer prior to the close of business on
the day four years and six months following the Closing Date;
(b) for any Seller Indemnified Warranty Loss unless and until the
aggregate of all Seller Indemnified Losses exceeds on a cumulative basis a
threshold of $100,000 at which time this Section 7.4(b) shall not limit the
assertion or recovery of any Losses, including the applicable Threshold Amount;
or
(c) for any Seller Indemnified Warranty Losses in an aggregate amount
in excess of $50,400,000.
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7.5 Indemnification Procedures. All claims for indemnification under this
Agreement shall be asserted and resolved as follows:
7.5.1 A party claiming indemnification under this Agreement (an
"Indemnified Party") with respect to any third-party Claim or Claims asserted
against the Indemnified Party ("Third Party Claim") that could give rise to a
right of indemnification under this Agreement shall promptly (a) notify the
party from whom indemnification is sought (the "Indemnifying Party") of the
Third Party Claim and (b) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such Third Party Claim (if
any), the Indemnified Party's best 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. Subject to Section 7.5.2,
failure to provide such Claim Notice shall not affect the right of the
Indemnified Party's indemnification hereunder except to the extent the
Indemnifying Party is prejudiced thereby. Within 30 days after receipt of any
Claim Notice (the "Election Period"), the Indemnifying Party shall notify the
Indemnified Party (x) whether the Indemnifying Party disputes its potential
liability to the Indemnified Party under this Article VII with respect to such
Third Party Claim and (y) whether the Indemnifying Party desires to defend the
Indemnified Party against such Third Party Claim; provided that if the
Indemnifying Party fails to so notify the Indemnified Party during the Election
Period, the Indemnifying Party shall be deemed to have elected to dispute such
liability.
7.5.2 If the Indemnifying Party notifies the Indemnified Party within
the Election Period that the Indemnifying Party does not dispute its potential
liability to the Indemnified Party under this Article VII and that the
Indemnifying Party elects to assume the defense of the Third Party Claim, then
the Indemnifying Party shall have the right to defend, at its sole cost and
expense, such Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying Party in accordance
with this Section 7.5.2. The Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided that the Indemnifying Party shall not enter into any settlement
agreement providing for a finding of responsibility or liability on the part of
the Indemnified Party or providing any material sanction or material
restriction upon the conduct of any business by the Indemnified Party without
the Indemnified Party's consent, which consent shall not unreasonably be
withheld. The Indemnified Party is hereby authorized, at the sole cost and
expense of the Indemnifying Party (but only if the Indemnified Party is
actually entitled to indemnification hereunder), to file, during the Election
Period, any motion, answer or other pleadings which the Indemnified Party shall
deem necessary or appropriate to protect its interests or those of the
Indemnifying Party and not prejudicial to the Indemnifying Party (it being
understood and agreed that if an Indemnified Party takes any such action, the
Indemnifying Party shall be relieved of its obligations hereunder with respect
to such Third Party Claim to the extent that such action prejudiced the
Indemnifying Party). If requested by the Indemnifying Party, the Indemnified
Party agrees, at the sole cost and expense of the Indemnifying Party, to
cooperate with the Indemnifying Party and its counsel in contesting any Third
Party Claim which the Indemnifying Party elects to contest, including the
making of any related counterclaim against the person or entity asserting the
Third Party Claim or any cross-complaint against any person or entity. The
Indemnified Party may participate in, but not control, any defense or
settlement or
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any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 7.5, and the Indemnified Party shall bear its own costs and expenses
with respect to such participation.
7.5.3 If the Indemnifying Party fails to notify the Indemnified Party
within the Election Period that the Indemnifying Party elects to defend the
Indemnified Party pursuant to Section 7.5.2, or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 7.5.2 but fails to
diligently prosecute or settle the Third Party Claim, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is actually entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings; provided, however,
that the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified Party pursuant
to this Section 7.5.3, and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation.
7.5.4 In the event any Indemnified Party should have a claim against
any Indemnifying Party hereunder which does not involve a Third Party Claim,
the Indemnified Party shall promptly transmit to the Indemnifying Party a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, the Indemnified Party's best estimate of the amount of
damages attributable to such claim and the basis of the Indemnified Party's
request for indemnification under this Agreement. If the Indemnifying Party
does not notify the Indemnified Party within 60 days from its receipt of the
Indemnity Notice that the Indemnifying Party disputes such claim, the
Indemnifying Party shall be deemed to have disputed such claim. If the
Indemnifying Party has disputed (or is deemed to have disputed) such claim,
such dispute shall be resolved by arbitration in accordance with Section 9.1.
7.6 Negligence. SUBJECT TO SECTION 7.7, AN INDEMNIFIED PARTY SHALL BE ENTITLED
TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF
WHETHER THE LOSS OR CLAIM GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE
RESULT OF THE SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT
LIABILITY OR VIOLATION OF ANY LAW OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES
AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
7.7 Limitation on Liabilities. (a) BUYER AND SELLER (I) AGREE THAT ONLY ACTUAL
DAMAGES SHALL BE RECOVERABLE UNDER THIS AGREEMENT AND (II) HEREBY WAIVE ANY
RIGHT TO RECOVER, AND AGREE THAT THE TERM LOSSES SHALL NOT COVER, SPECIAL,
PUNITIVE, CONSEQUENTIAL, INCIDENTAL OR EXEMPLARY DAMAGES (WHETHER BASED ON
STATUTE, CONTRACT, TORT OR OTHERWISE, AND WHETHER OR NOT ARISING FROM THE
INDEMNIFYING PARTY'S SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR
OTHER FAULT) EXCEPT TO THE EXTENT ANY SUCH PARTY SUFFERS SUCH DAMAGES TO AN
UNAFFILIATED THIRD-PARTY IN CONNECTION WITH A THIRD-PARTY CLAIM, IN WHICH EVENT
SUCH DAMAGES SHALL BE RECOVERABLE.
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(b) In the event that any Claim Notice or Indemnity Notice is
delivered to Seller with respect to title to any Lateral, Seller shall have the
right to repurchase such Lateral for the Allocated Value thereof. In the event
that Seller elects to exercise such right, then upon the payment of such amount
and the assumption by Seller of all obligations relating to such Lateral, Buyer
shall cause the applicable Buyer Designee to assign such Lateral and all
related Lateral Documents to Seller "as is, where is, with all defects" and
without warranty, express or implied, except with respect to title matters
arising by, through or under such Buyer Designee and release Seller from any
title Claims, except Third Party Claims described in any Claims Notice, with
respect to such Lateral.
7.8 Survival. The representations and warranties in Section 3.1 shall survive
the Closing solely for purposes of this Article VII and shall terminate four
years and six months after the Closing Date, except for the representations and
warranties in Sections 3.1.9 and 3.1.13 which shall survive for six months
after the applicable statute of limitations. The representations and warranties
in Section 3.2 shall survive the Closing solely for purposes of this Article
VII and shall terminate two years and one month after the Closing Date, except
for the representation and warranty in Section 3.2.9(a) which shall terminate
four years and six months after the Closing Date. The representations and
warranties in Article IV shall survive the Closing solely for purposes of this
Article VII and shall terminate four years and six months after the Closing
Date. No Claim can be brought with respect to any inaccuracy or failure of any
representation and warranty under this Agreement unless a Claim Notice or
Indemnity Notice specifying the inaccuracy or failure of the representation or
warranty forming the basis of such Claim has been delivered to the party making
such representation or warranty prior to the termination date of such
representation or warranty as described in this Section 7.8. Notwithstanding
anything to the contrary in this Agreement, the indemnification provisions of
this Agreement shall be the exclusive remedies for any Claim based upon this
Agreement or the transactions described herein following Closing. In
furtherance of the foregoing, all other remedies available at law or in equity,
in tort, contract or otherwise are hereby waived, released and discharged by
Seller and Buyer.
ARTICLE VIII
TERMINATION RIGHTS
8.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned as follows:
(a) By the mutual written consent of Buyer and Seller at any time
prior to the Closing;
(b) By Buyer or Seller if an order to restrain, enjoin or otherwise
prevent the consummation of the transactions contemplated hereby shall have
been entered;
(c) By Seller at any time prior to the Closing if the Closing shall
not have occurred on or before June 30, 1999 by reason of a failure of any
condition precedent under Section 6.2 unless the failure results primarily from
the breach by Seller of any representation, warranty or covenant contained in
this Agreement; or
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(d) By Buyer at any time prior to the Closing if the Closing shall not
have occurred on or before June 30, 1999 by reason of a failure of any
condition precedent under Section 6.1, unless the failure results primarily
from Buyer itself breaching any representation, warranty or covenant contained
in this Agreement.
8.2 Effect of Termination. In the event of any termination of this Agreement
pursuant to Section 8.1, (a) Seller and Buyer shall have no obligation or
liability to each other except that the confidentiality provisions of Section
5.3.11 and the provisions of Article VII shall survive any such termination,
and (b) nothing herein and no termination pursuant hereto will relieve any
party from liability for any breach of this Agreement prior to such termination
or, with respect to those provisions that survive such termination, prior to or
following termination.
ARTICLE IX
ARBITRATION
9.1 Arbitration.
(a) Any and all claims, counterclaims, demands, cause of
action, disputes, controversies, and other matters in question arising
out of or relating to this Agreement, any provision hereof, the
alleged breach of any such provision, or in any way relating to the
subject matter of this Agreement or the relationship between the
parties created by this Agreement, involving the parties and/or their
respective representatives (all of which are referred to herein as
"Claims"), even though some or all of such Claims allegedly are
extra-contractual in nature, whether such Claims sound in contract,
tort, or otherwise, at law or in equity, under State or federal law,
whether provided by statute or the common law, for damages or any
other relief, shall be resolved by binding arbitration in accordance
with this Section 9.1.
(b) It is the intention of the parties that the arbitration
shall be conducted pursuant to the Federal Arbitration Act, as such
Act is modified by this Agreement. The validity, construction, and
interpretation of this Section 9.1, and all procedural aspects of the
arbitration conducted pursuant to this Section 9.1, including but not
limited to, the determination of the issues that are subject to
arbitration (i.e., arbitrability), the scope of the arbitrable issues,
allegations of "fraud in the inducement" to enter into this Agreement,
or this arbitration provision, allegations of waiver, laches, delay or
other defenses to arbitrability, and the rules governing the conduct
of the arbitration (including the time for filing an answer, the time
for the filing of counterclaims, the times for amending the pleadings,
the specificity of the pleadings, the extent and scope of discovery,
the issuance of subpoenas, the times for the designation of experts,
whether the arbitration is to be stayed pending resolution of related
litigation involved third parties not bound by this Agreement, the
receipt of evidence, and the like), shall be decided by the
arbitrators. The arbitration shall be administered by the American
Arbitration Association (the "AAA"), and shall be conducted pursuant
to the Commercial Arbitration Rules of the AAA, as modified by the
Agreement. In deciding the substance of the parties' Claims, the
arbitrators shall refer to the substantive laws of the State of
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Texas for guidance (excluding Texas choice-of-law principles that
might call for the application of some other State's law).
Notwithstanding any other provision in this Section 9.1 to the
contrary, the parties expressly agree that the arbitrators shall have
absolutely no authority to award incidental, special, treble,
exemplary or punitive damages of any type under any circumstances
regardless of whether such damages may be available under Texas law,
the law of any other State, or federal law, or under the Federal
Arbitration Act, or under the Commercial Arbitration Rules of the AAA,
the parties hereby waiving their right, if any, to recover incidental,
special, treble, exemplary or punitive damages in connection with any
such Claims.
(c) The arbitration proceeding shall be conducted in Houston,
Texas before a panel of three arbitrators appointed in accordance with
the Commercial Arbitration Rules of the AAA consisting of persons from
any of the following categories: (i) attorneys having practiced in the
area of natural gas transportation law for at least ten (10) years,
(ii) engineers with at least ten (10) years of experience in the
natural gas transportation industry, or (iii) accountants with at
least ten (10) years of experience in the natural gas transportation
industry. The arbitrators shall conduct a hearing as soon as
reasonably practicable after appointment of the third arbitrator, and
a final decision completely disposing of all Claims that are the
subject of the arbitration proceedings shall be rendered by the
arbitrators as soon as reasonably practicable after the hearing. There
shall be no transcript of the hearing before the arbitrators. The
arbitrators' ultimate decision after final hearing shall be in
writing, but shall be as brief as possible, and the arbitrators shall
not assign reasons for their ultimate decision. In case the
arbitrators award monetary damages to either Party, the arbitrators
shall certify in their award that they have not included any
incidental, special, treble, exemplary or punitive damages.
(d) The fees and expenses of the arbitrators shall be borne
equally by the Parties, but the decision of the arbitrators may
include such award of the arbitrators' fees and expenses and of other
costs and attorneys' fees as the arbitrators determine appropriate.
(e) To the fullest extent permitted by law, the arbitration
proceeding and the arbitrators' award shall be maintained in
confidence by the Parties.
(f) The award of the arbitrators shall be binding upon the
parties and final and nonappealable to the maximum extent permitted by
law, and judgment thereon may be entered in a court of competent
jurisdiction and enforced by any Party as a final judgment of such
court.
ARTICLE X
GENERAL
10.1 Exclusive Agreement; Disclosure Statement. This Agreement and the attached
exhibits and Disclosure Statement, the agreements and documents to be executed
pursuant to Section 6.2.4 and the Confidentiality Agreement set forth the
entire agreement and understanding of the parties in respect of the
transactions contemplated hereby and supersede all prior agreements,
arrangements and undertakings (oral or written) relating to the subject matter
hereof, including
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without limitation the non-binding letter of intent (including any extensions
or amendments thereto) dated April 7, 1999 between Seller and Buyer.
Information disclosed in any section of the Disclosure Statement shall only
constitute a disclosure with respect to the specific section of this Agreement
in which such section of the Disclosure Statement is referenced. In addition,
matters reflected in the Disclosure Statement are not necessarily limited to
matters required by this Agreement to be reflected in the Disclosure Statement.
Such additional matters are set forth for information purposes only and do not
necessarily include other matters of a similar nature. No representation,
promise, inducement or statement of intention has been made by any party which
is not embodied in or superseded by this Agreement or the Confidentiality
Agreement or in the agreements and documents to be executed pursuant hereto,
and no party shall be bound by or liable for any alleged representation,
promise, inducement or statement of intention not so set forth.
10.2 Successors and Assigns. All of the terms, covenants, representations,
warranties and conditions of this Agreement shall be binding upon, and inure to
the benefit of, and be enforceable by, the parties hereto and their respective
permitted successors and assigns (and in the case of indemnities to the benefit
of all persons indemnified). This Agreement and the rights and obligations
hereunder shall not be assigned by any party hereto without the prior written
consent of the other party.
10.3 Amendments. This Agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties hereto, or, in the case of a waiver, by or on behalf of the party
waiving compliance. The failure of any party at any time or times to require
performance of any provisions hereof shall in no manner affect the right at a
later time to enforce the same. No waiver by any party of any condition, or of
any breach of any term, covenant, representation or warranty contained in this
Agreement, in any one or more instances, shall be deemed to be or construed as
a further or continuing waiver of any such condition or breach or a waiver of
any other condition or of any breach of any other term, covenant,
representation or warranty.
10.4 Records and Access.
(a) After the Closing, Seller shall deliver all files and records in
its possession that are normally maintained by or on behalf of Naloco and
Natoco and the Laterals to Buyer as soon as practicable, Seller may make and
keep copies of such files and records.
(b) From and after the Closing, Buyer shall maintain copies of all
books, records and other information (including books, records and information
relating to financial information, taxes and litigation) relating to Naloco,
Natoco and the Laterals and shall not destroy any of same without first
allowing Seller, at Seller's expense, the opportunity to make copies of same
for a period of not less than five years (or if longer, the applicable statute
of limitations period). During such period, Buyer shall give Seller and its
representatives reasonable cooperation, access and staff assistance, during
normal business hours and upon reasonable notice, with respect to such books,
records and information, as may be necessary for general business purposes,
including for the preparation of tax returns and financial statements and the
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management and handling of tax audits and litigation; provided that such
requested cooperation, access and assistance shall not unreasonably interfere
with the normal operations of Buyer.
10.5 Further Assurances. Each party agrees to execute such further instruments
or documents as any other party may from time to time reasonably request in
order to confirm or carry out the transactions contemplated in this Agreement;
provided that no such instrument or document shall expand a party's liability
beyond that contemplated in this Agreement.
10.6 Notices. All notices, requests, demands and other communications
(collectively, "Notices") required or permitted to be given hereunder shall be
in writing and delivered personally, or by facsimile transmission or mailed
first class, postage prepaid, registered or certified mail, as follows:
If to Buyer, to:
Leviathan Gas Pipeline Partners, L.P.
El Paso Energy Building
1001 Louisiana
Houston, Texas 77002
Attention: President
Facsimile Number: (713) 420-5472
If to Seller, to:
Natural Gas Pipeline Company
P. O. Box 283
Houston, Texas 77001-0283
Attention: Ronald L. Brown
Facsimile Number: (713) 369-9365
All Notices shall be effective upon receipt. Any party may change its Notice
address by giving written Notice to the other in the manner specified above.
10.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO
CONFLICT OF LAW PRINCIPLES.
10.8 Severability. In the event any of the provisions hereof are held to be
invalid or unenforceable under any Legal Requirement, the remaining provisions
hereof shall not be affected thereby. In such event, the parties hereto agree
and consent that such provisions and this Agreement shall be modified and
reformed so as to effect the original intent of the parties as closely as
possible with respect to those provisions which were held to be invalid or
unenforceable.
10.9 Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one agreement.
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10.10 Expenses. Except as expressly provided in this Agreement, whether or not
the transactions contemplated hereby are consummated, each party shall pay its
own expenses incident to the preparation of the Agreement and for consummating
the transaction.
IN WITNESS WHEREOF, the parties have duly executed this instrument the day and
year first above written.
SELLER:
NATURAL GAS PIPELINE COMPANY OF AMERICA
By:
------------------------------------
Name: Don Opersteny
Title: Senior Vice President
BUYER:
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
By:
------------------------------------
Name: T. Darty Smith
Title: Vice President
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EXHIBIT D
Calculation of Working Capital
Working Capital means the sum of the Western Gulf Working Capital and the UTOS
Working Capital. The Western Gulf Working Capital shall be computed by
subtracting 20% of the Current Liabilities of Western Gulf from 20% of the
Current Assets of Western Gulf, in each case, as of the Closing Date. The UTOS
Working Capital shall be determined by subtracting 33-1/3% of the Current
Liabilities of UTOS from 33-1/3% of the Current Assets of UTOS, in each case,
as of the Closing Date. For the purposes of this Exhibit D, subject to the
exceptions listed below:
(a) Current Assets means current assets of the entity as
of the Closing Date as determined and calculated in
accordance with generally accepted accounting
principles consistently applied; and
(b) Current Liabilities means current liabilities of the
entity as of the Closing Date as determined and
calculated in accordance with generally accepted
accounting principles consistently applied.
Without limiting the generality of the foregoing and subject to the
exceptions listed below, Current Liabilities shall include the following, which
the parties acknowledge are in accordance with generally accepted accounting
principles consistently applied:
1. Current Liabilities shall include intercompany amounts payable by
Western Gulf and UTOS to Seller or its Affiliates for reimbursement of
payroll and allocated charges.
2. Current Liabilities shall include an amount for subsequent
disbursements by Western Gulf and UTOS for operating and capital
expenditures incurred for services rendered or goods delivered prior
to the Closing Date.
Notwithstanding anything to the contrary, Working Capital shall not include the
following:
A. Current Liabilities shall not include any amounts for federal
and state income taxes for taxable periods ending on or
before the Closing Date.
B. Current Assets and Current Liabilities of East Breaks
Gathering Company L.L.C. or otherwise associated with the East
Breaks Construction Project (Diana Project) shall be excluded
from the calculation of the Western Gulf Working Capital,
including any cash or cash equivalents constituting proceeds
from any loan.
In the event the full amounts attributable to gas imbalances occurring prior to
the Closing Date and which UTOS is attempting to collect from Noble Gas
Marketing in the amount of $899,309.72 and from Southern Company, as successor
to Vastar Resources Inc., in the amount of $956,904.43 (collectively, the
"Imbalance Amounts") have not been collected by UTOS prior
EXHIBIT D
Page 1
<PAGE> 44
to December 31, 2000, then within 30 days after notice in writing from Buyer
(which notice shall be given not later than January 31, 2001) together with
supporting documentation reasonably satisfactory to Seller, Seller agrees to
and promptly will pay to Buyer the lesser of (i) $700,000 and (ii) 33 1/3% of
(x) the Imbalance Amounts minus (y) amounts actually collected with respect to
such Imbalance Amounts minus (z) the amount of such Imbalance Amounts Buyer
reasonably believes UTOS will collect. In determining the UTOS Working Capital,
the Imbalance Amounts carried as a Current Asset of UTOS shall continue to be
considered as a Current Asset of UTOS.
EXHIBIT D
Page 2
<PAGE> 1
EXHIBIT 99.1
[LEVIATHAN LOGO] NEWS
- --------------------------------------------------------------------------------
LEVIATHAN GAS PIPELINE PARTNERS, L.P. CONTACT: KEITH B. FORMAN
P.O. BOX 2511 CHIEF FINANCIAL OFFICER
HOUSTON, TEXAS 77252-2511 OFFICE: (713) 420-5218
FAX: (713) 420-5602
FOR IMMEDIATE RELEASE
LEVIATHAN GAS PIPELINE INCREASES OWNERSHIP IN THREE
OFFSHORE PIPELINE SYSTEMS
Houston, Texas, June 30, 1999 -- Leviathan Gas Pipeline Partners, L.P.
(NYSE:LEV) announced today that it has closed on the purchase of several
companies which hold ownership interests in the High Island Offshore System
(HIOS), U-T Offshore System (UTOS), East Breaks Gathering Company (East Breaks)
and a number of smaller offshore pipeline laterals owned by Natural Gas
Pipeline Company of America (NGPL), a subsidiary of KN Energy, Inc. (NYSE:KNE),
for total consideration of approximately $51 million. As a result of this
transaction, Leviathan will increase its ownership from 40 percent to 60 percent
in both HIOS and East Breaks and from approximately 33 percent to 67 percent of
UTOS. Additionally, Stingray Pipeline Company, which is 50 percent owned by
Leviathan and NPGL, has agreed to purchase from NGPL certain offshore laterals
that connect to Stingray for total consideration of approximately $5 million.
After a transition period, Leviathan will assume NGPL's role as operator of
Stringray Pipeline, the Stingray Onshore Separation Facility and the West
Cameron Dehydration Facility.
The 200-mile HIOS pipeline is located in the Gulf of Mexico off the
eastern coast of Texas and has a total capacity of approximately 1.8 billion
cubic feet of natural gas per day. The system accesses natural gas reserves
from the High Island area as well as the Garden Banks, East Breaks and Alaminos
Canyon areas of the flextrend and deepwater regions of the Gulf of Mexico. The
UTOS pipeline transports gas from the terminus of the HIOS system to multiple
onshore processing facilities in southern Louisiana with access to four
Interstate and one Intrastate pipelines. East Breaks Gathering Company was
formed earlier this year to own and operate the gas gathering pipeline for
Exxon and BP Amoco's development of the Diana/Hoover field. The new 85-mile
East Breaks pipeline will have a design capacity of over 400 million cubic feet
of natural gas per day and gather deepwater production from Alaminos
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2 of 3
LEVIATHAN INCREASES OWNERSHIP
IN THREE OFFSHORE PIPELINES
PAGE 2
Canyon Block 25 and surrounding blocks for redelivery into the HIOS pipeline.
These new pipeline facilities should be ready for service during the second
quarter of 2000.
"With its existing capacity and access to multiple processing options and
downstream transportation systems, we believe HIOS is the most competitive and
commercially attractive gathering system for producers active in the western
Gulf of Mexico," said Grant E. Sims, chief executive officer of Leviathan. "We
are excited to have the opportunity to expand our ownership interest in these
strategically located assets and expect to see increased activity in the
deepwater areas served by these systems over the next several years."
Leviathan Gas Pipeline Partners, L.P., a publicly owned master limited
partnership, operates or has interests in eight natural gas pipeline systems
located offshore Louisiana and Texas, which currently gather over three billion
cubic feet of natural gas per day. In addition, Leviathan owns working
interests in five offshore fields and a 36 percent interest in Poseidon Oil
Pipeline, a crude oil system designed to serve new developments in the subsalt
and deepwater areas of the Gulf of Mexico. El Paso Energy Corporation
(NYSE:EPG) is the general partner of and owns an effective 34.5 percent
economic interest in Leviathan.
With over $10 billion in assets, El Paso Energy Corporation provides
energy solutions through five business units: Tennessee Gas Pipeline Company,
El Paso Natural Gas Company, El Paso Field Services Company, El Paso Energy
Marketing Company, and El Paso Energy International Company. The company owns
the nation's only integrated coast-to-coast natural gas pipeline system and has
operations in natural gas transmission, gas gathering and processing, energy
marketing, power generation and international energy infrastructure
development. On June 10, the stockholders of both El Paso Energy and Sonat,
Inc. overwhelmingly voted in favor of merging the two organizations. The merger
is expected to close in the third or fourth quarter of this year, concurrent
with the completion of regulatory reviews. Visit El Paso Energy's web site at
www.epenergy.com
FORWARD-LOOKING STATEMENT
This release may contain forward-looking statements or projections, made in
reliance on
-more-
<PAGE> 3
3 of 3
LEVIATHAN INCREASES OWNERSHIP
IN THREE OFFSHORE PIPELINES
PAGE 3
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Leviathan has made every reasonable effort to ensure that the information
and assumptions on which these statements and projections are based are current,
reasonable, and complete. However, a variety of factors could cause actual
results to differ materially from the projections, anticipated results or other
expectations expressed in this release, including, without limitation, oil and
natural gas prices, continued drilling, exploration and production activity in
the areas of the Gulf of Mexico served by these pipelines; successful
negotiation of transportation contracts on these pipelines; general economic and
weather conditions in geographic regions or markets served by these pipelines;
and competition. While Leviathan makes these statements and projections in good
faith, neither Leviathan nor its management can guarantee that the anticipated
future results will be achieved. Reference should be made to leviathan's (and
its affiliates') Securities and Exchange Commission filings for additional
important factors that may affect actual results.
###
CONTACTS:
Media Relations Paula Delaney (713) 420-6685
Mel Scott (713) 420-3039
Investor Relations Bridget McEvoy (713) 420-5597
<PAGE> 1
EXHIBIT 99.2
Houston Chronicle Thursday, July 1, 1999
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BUSINESS BRIEFS
LEVIATHAN STAKE RISES IN OFFSHORE PIPELINES
Leviathan Gas Pipeline Partners said Wednesday it has purchased several
companies that hold interests in several offshore pipeline systems for $51
million.
The systems involved in the deal include the High Island Offshore
System, U-T Offshore System, the East Breaks Gathering Co. system and a number
of smaller offshore pipeline lateral lines owned by the Natural Gas Pipeline
Company of America, a subsidiary of KN Energy.
As a result of this deal, Leviathan will increase its ownership from
40 percent to 60 percent in both High Island and East Breaks and from 33
percent to 67 percent of U-T.
