<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-12426
AQUILA GAS PIPELINE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 47-0731171
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 N.E. Loop 410, Suite 1000, San Antonio, Texas
78216-4754
(Address of principal executive offices)
(Zip Code)
(210) 342-0685
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding on August 1, 1996
----- -----------------------------
<S> <C>
Common stock, $.01 par value 29,400,000
</TABLE>
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
June 30,
1996 December 31,
(Unaudited) 1995
----------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ..................................................... $ 19,189 $ 8,666
Accounts receivable ........................................................... 74,621 77,203
Inventories and exchanges ..................................................... 3,775 4,394
Materials and supplies ........................................................ 5,692 6,147
--------- ---------
Total current assets ........................................................ 103,277 96,410
--------- ---------
PIPELINE, PROPERTY, PLANT AND EQUIPMENT, at cost:
Natural gas pipelines ......................................................... 414,341 400,984
Plants and processing equipment ............................................... 67,455 63,933
--------- ---------
481,796 464,917
Less-Accumulated depreciation ................................................. (85,039) (74,921)
--------- ---------
396,757 389,996
--------- ---------
INTANGIBLE ASSETS, net ........................................................... 17,680 18,916
--------- ---------
OTHER, net ....................................................................... 1,155 1,316
--------- ---------
TOTAL ASSETS ..................................................................... $ 518,869 $ 506,638
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt .......................................... $ 12,807 $ 12,796
Accounts payable .............................................................. 69,316 75,309
Accrued expenses .............................................................. 8,266 5,750
Accrued interest .............................................................. 3,592 2,754
Income taxes payable to UtiliCorp United Inc. ................................. 2,849 828
Intercompany payable due to Aquila Energy Corporation ......................... 5,192 1,557
--------- ---------
Total current liabilities .................................................... 102,022 98,994
--------- ---------
LONG-TERM DEBT ................................................................... 170,163 179,900
--------- ---------
DEFERRED INCOME TAXES ............................................................ 62,887 58,480
--------- ---------
OTHER LONG-TERM LIABILITIES ...................................................... 568 591
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized, none outstanding -- --
Common stock, $.01 par value, 50,000,000 shares authorized, 29,400,000
shares issued and outstanding ................................................ 294 294
Additional paid-in capital .................................................... 90,297 90,297
Retained earnings ............................................................. 92,638 78,082
--------- ---------
Total stockholders' equity ................................................... 183,229 168,673
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................... $ 518,869 $ 506,638
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES ....................... $ 167,122 $ 119,387 $ 332,039 $ 220,895
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales ......................... 136,126 95,615 266,957 174,074
Operating ............................. 5,629 5,495 11,484 10,564
General and administrative ............ 4,154 3,836 9,783 7,766
Depreciation and amortization ......... 5,823 5,020 11,542 10,130
----------- ----------- ----------- -----------
Total costs and expenses ............. 151,732 109,966 299,766 202,534
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS ................... 15,390 9,421 32,273 18,361
INTEREST AND DEBT EXPENSES, net .......... 3,285 3,017 7,651 5,751
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES ............... 12,105 6,404 24,622 12,610
PROVISION IN LIEU OF INCOME TAX EXPENSE .. 4,588 2,427 9,332 4,779
----------- ----------- ----------- -----------
NET INCOME ............................... $ 7,517 $ 3,977 $ 15,290 $ 7,831
=========== =========== =========== ===========
EARNINGS PER SHARE ....................... $ .26 $ .14 $ .52 $ .27
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 29,400,000 29,400,000 29,400,000 29,400,000
=========== =========== =========== ===========
CASH DIVIDENDS PER SHARE OF COMMON STOCK . $ .0125 $ .0125 $ .025 $ .025
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 15,290 $ 7,831
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................... 11,542 10,130
Deferred income taxes ....................................... 4,407 2,633
Other non-cash items ........................................ 150 180
Changes in operating assets and liabilities, net of the
effect of acquisitions:
Accounts receivable ........................................ 2,582 3,312
Inventories and exchanges .................................. 619 (2,337)
Materials and supplies ..................................... 455 1,095
Accounts payable ........................................... (5,993) (1,967)
Accrued expenses ........................................... 2,516 (318)
Accrued interest ........................................... 838 (397)
Income taxes payable to UtiliCorp United Inc. .............. 2,021 272
Intercompany payable due to Aquila Energy Corporation ...... 3,635 4,353
-------- --------
Net cash provided by operating activities ................... 38,062 24,787
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition, net of cash acquired ................... -- (13,478)
Additions to pipeline, property, plant and equipment ......... (17,056) (42,076)
-------- --------
Net cash used in investing activities ...................... (17,056) (55,554)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings under revolving credit agreements, net (9,500) 36,900
Principal payments of debt ................................... (226) (799)
Dividends .................................................... (734) (735)
Other ........................................................ (23) 368
-------- --------
Net cash (used in) provided by financing activities ........ (10,483) 35,734
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................ 10,523 4,967
CASH AND CASH EQUIVALENTS, beginning of period ................... 8,666 6,631
-------- --------
CASH AND CASH EQUIVALENTS, end of period ......................... $ 19,189 $ 11,598
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Aquila
Gas Pipeline Corporation and subsidiaries (the Company) have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. All adjustments of a normal recurring
nature have been made which the Company believes are necessary for a fair
presentation of the Company's financial position and results of operations for
such interim periods. These interim results are not necessarily indicative of
the results for a full year. Certain information and note disclosures related
to the unaudited interim periods ended June 30, 1996 and 1995, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to
such rules and regulations although the Company believes the disclosures are
adequate to make the interim period information presented herein not
misleading. Certain reclassifications have been made to the 1995 amounts to
conform to the 1996 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. No changes in accounting principles have occurred since
this date.
2. STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information for the six months ended
June 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash paid during the period
for interest, net of amount
capitalized $7,027 $5,347
Cash paid during the period
for income and franchise taxes $3,044 $1,910
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT
The Company has issued irrevocable standby letters of credit totaling
$12,309 at June 30, 1996. The standby letters of credit, which generally have
terms from one to three months, collateralize obligations to third parties for
the purchase of gas. The line of credit, securing the letters of credit, has
been amended to increase the aggregate amount to $16,000 and extend the
maturity to June 30, 1997. At June 30, 1996, the borrowing base was $16,000
with no principal outstanding.
5
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AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
In 1987, HECI Exploration, Inc. (HECI) instituted a suit in the 155th
Judicial District Court, Fayette County, Texas, against the Company alleging
various breaches of a take-or-pay contract and seeking approximately $3,000 in
damages. The Company's motion for summary judgment was granted by the lower
court. A Texas appellate court, however, has remanded the case for trial.
In the purchase and sale agreement executed in connection with the 1987
acquisition of Clajon Gas Company by a predecessor of the Company, Clayton
Williams, Jr., individually, and certain selling entities agreed to jointly
and severally indemnify the purchaser from liabilities related to the conduct
of the acquired business or arising out of any assigned contracts prior to the
closing date of the acquisition, subject to certain limitations. Thus, certain
claims and litigation, including the HECI litigation described above,
involving the acquired business and contracts assigned to the Company are
subject to these indemnification provisions. The indemnity provision limits
Mr. Williams' personal liability to $3,000 in the aggregate.
In August 1995, Mr. Charles Menke instituted suit against the Company in
the 155th Judicial District Court, Waller County, Texas, alleging the Company
has constructed and was operating a pipeline on property owned by Mr. Menke.
Mr. Menke alleges the Company is a trespasser on his property and seeks
unspecified damages for such trespass including punitive damages. Mr. Menke
additionally seeks an injunction requiring the Company to cease operation of
its pipeline and to remove such line from his property. In October 1995, the
Court denied Mr. Menke's request for a temporary injunction and set this
matter for trial in January 1996. By consent of all parties the January 1996
trial date was postponed and no new trial date has been set. The Company
believes Mr. Menke's claims for injunctive relief are without merit, and
believes it has meritorious defenses to the damage claims. The Company has
filed a denial of all claims and is actively pursuing its defense of this
litigation.
TAXES
The Internal Revenue Service (IRS) has examined and proposed adjustments
to UtiliCorp United Inc.'s (UtiliCorp) consolidated Federal income tax returns
for 1988 through 1991. The proposed adjustment affecting the Company is to
lengthen the depreciable life of certain pipeline assets owned by the Company.
At the present, no final resolution of the proposed adjustment has been
reached with the IRS. The Company intends to vigorously contest the proposed
adjustment and believes there is a reasonable possibility it will prevail. It
is expected that additional assessments for the years 1992 through the present
would be made on the same issue. Under the provisions of the tax sharing
agreement with Aquila Energy Corporation (Aquila Energy) and UtiliCorp, the
Company would be liable to UtiliCorp for additional taxes of approximately
$4,700 for the audit period and through the present plus potential interest of
approximately $483. The additional taxes would result in an adjustment to the
deferred tax liability with no effect on net earnings, while any payment of
interest would affect net earnings. The Company expects that the ultimate
resolution of this matter will not have a material adverse effect on its
financial position.
The Company is also a party to additional claims and is involved in
various other litigation and administrative proceedings arising in the normal
course of business. The Company believes it is unlikely that the final outcome
of any of the claims, litigation or proceedings discussed above to which the
Company is a party would have a material adverse effect on the
6
<PAGE> 7
AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company's financial position or results of operations. However, due to the
inherent uncertainty of litigation, there can be no assurance that the
resolution of any particular claim or proceeding would not have an adverse
effect on the Company's results of operations for the fiscal period in which
such resolution occurred.
The Company, in the normal course of business of its natural gas pipeline
operations, purchases, processes and sells natural gas pursuant to long-term
contracts. Such contracts contain terms which are customary in the industry.
The Company believes that such terms are commercially reasonable and will not
have a material adverse effect on the Company's financial position or results
of operations.
4. ACQUISITION
On July 1, 1996, the Company (through AQP Holdings LP, a 98% owned
subsidiary) completed the acquisition of 15% of the outstanding capital stock
of Oasis Pipe Line Company (Oasis) and related transportation rights from Dow
Hydrocarbons and Resources Inc. (DHRI) for a purchase price of $47,143. The
acquisition of Oasis will be accounted for using the purchase method and will
be reflected in the consolidated financial statements using the equity method.
The transportation rights related to the 15% capital stock acquisition
currently amount to approximately 120 million cubic feet per day (MMcf/d) of
firm intrastate transportation from the Waha hub to the Katy hub, plus the
opportunity to utilize excess capacity on an interruptible basis.
In addition, the Company and DHRI have entered into a long-term gas
supply agreement whereby the Company will supply DHRI with 100 million British
thermal units per day (MMBTU/d) of gas supply in the Katy, Texas area at
market rates.
7
<PAGE> 8
AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RECENT DEVELOPMENTS:
On July 1, 1996, Aquila Gas Pipeline Corporation (the Company), through a
subsidiary, acquired 15% of the outstanding capital stock of Oasis Pipe Line
Company (Oasis) and related transportation rights from Dow Hydrocarbons and
Resources Inc. (DHRI). The purchase price of $47.1 million was primarily
funded under the Company's existing revolving credit agreements. In addition,
the Company and DHRI have entered into a long-term gas supply agreement
whereby a subsidiary of the Company will supply DHRI with 100 million British
thermal units per day (MMBTU/d) of gas supply in the Katy, Texas area. The
Oasis pipeline system consists of an approximately 600-mile pipeline system
and related mainline compression which connects the Waha hub located in the
Permian Basin producing area of West Texas to the major marketing pipelines at
the Katy hub near Houston, Texas. Oasis has a nominal one (1) billion cubic
feet per day of throughput capacity to move gas from West Texas to the Katy
hub. Oasis' pipeline is in proximity of many of the Company's existing
gathering systems. The transportation rights related to the 15% capital stock
acquisition currently amount to approximately 120 million cubic feet per day
(MMcf/d) of firm intrastate transportation from the Waha hub to the Katy hub,
plus the opportunity to utilize excess capacity on an interruptible basis.
The following discussion and analysis relates to the condensed
consolidated financial position and results of operations of the Company for
the three and six months ended June 30, 1996 and 1995. Reference should be
made to the Condensed Consolidated Financial Statements and the Notes thereto.
In 1996, a full six months of operations for Tristar Gas Company (Tristar) has
been recorded while in 1995 Tristar operations have been included since its
acquisition in January 1995.
<TABLE>
<CAPTION>
Three Months Ended Period 1995 Six Months Ended Period 1995
June 30, to 1996 Change June 30, to 1996 Change
------------------- ----------------- ------------------- -------------------
1996 1995 Amount Percent 1996 1995(a) Amount Percent
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in millions, except price data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Natural gas revenues .............. $ 147.4 $ 104.4 $ 43.0 41% $ 290.6 $ 190.4 $ 100.2 53%
Natural gas liquids (NGLs) revenues 19.7 15.0 4.7 31% 41.4 30.5 10.9 36%
------- ------- ------- ------- ------- -------
Total operating revenues ....... 167.1 119.4 47.7 40% 332.0 220.9 111.1 50%
------- ------- ------- ------- ------- -------
Cost of sales ..................... 136.1 95.6 40.5 42% 266.9 174.1 92.8 53%
------- ------- ------- ------- ------- -------
Gross margin ................... 31.0 23.8 7.2 30% 65.1 46.8 18.3 39%
------- ------- ------- ------- ------- -------
Operating expenses ................ 5.6 5.4 .2 4% 11.5 10.5 1.0 10%
General and administrative expenses 4.2 3.8 .4 11% 9.8 7.8 2.0 26%
Depreciation and amortization ..... 5.8 5.0 .8 16% 11.5 10.1 1.4 14%
Interest and debt expenses, net ... 3.3 3.1 .2 6% 7.7 5.8 1.9 33%
Provision in lieu of income tax
expense ......................... 4.6 2.5 2.1 84% 9.3 4.8 4.5 94%
------- ------- ------- ------- ------- -------
Net income .................... $ 7.5 $ 4.0 $ 3.5 88% $ 15.3 $ 7.8 $ 7.5 96%
======= ======= ======= ======= ======= =======
OPERATING DATA (MMcf/d):
Natural Gas:
Throughput sold ................... 382 379 3 1% 375 370 5 1%
Throughput transported ............ 151 109 42 39% 145 99 46 46%
------- ------- ------- ------- ------- -------
Total throughput .............. 533 488 45 9% 520 469 51 11%
Marketed .......................... 366 346 20 6% 362 359 3 1%
------- ------- ------- ------- ------- -------
Total throughput and marketed .. 899 834 65 8% 882 828 54 7%
======= ======= ======= ======= ======= =======
OTHER DATA:
Gross NGLs production (MBbls/d) ... 40 30 10 33% 40 30 10 33%
Average natural gas price ($/Mcf) . $ 2.15 $ 1.56 $ .59 38% $ 2.15 $ 1.51 $ .64 42%
Average NGLs price ($/gal) ........ $ .32 $ .29 $ .03 10% $ .31 $ .30 $ .01 3%
</TABLE>
__________________________________
(a) In 1995, the volumes for Tristar have been included at their average daily
rate since its acquisition in January 1995.
8
<PAGE> 9
RESULTS OF OPERATIONS
The Company's results of operations are determined by the volume of gas
purchased, processed and resold in its gas gathering systems and processing
plants, as well as its off-system marketing activities. Fluctuations in the
price levels of natural gas and NGLs also affect results of operations since
the Company generally receives a portion of the natural gas and NGLs revenue
from natural gas throughput. Most of the Company's operating costs do not vary
directly with volume on existing systems; thus, increases or decreases in
volumes on existing systems generally have a direct effect on net income.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Total operating revenues increased 40% to $167.1 million in 1996 compared
to $119.4 million in 1995. Natural gas revenues increased 41% to $147.4
million in 1996 compared to $104.4 million in 1995. The increase in natural
gas revenues is due to a 38% increase in the average natural gas price to
$2.15 per Mcf in 1996 from $1.56 per Mcf in 1995 and a slight increase in
natural gas sold and marketed to 748 MMcf/d in 1996 from 725 MMcf/d in 1995.
Natural gas throughput increased 9% to 533 MMcf/d in 1996 from 488 MMcf/d in
1995 primarily as a result of additional wells connected to the Southeast
Texas Pipeline System (SETPS), the Company's principal gathering system.
NGLs revenues increased 31% to $19.7 million in 1996 compared to $15.0
million in 1995 as the result of a 33% increase in gross NGLs production to
40,000 barrels per day (Bbls/d) in 1996 compared to 30,000 Bbls/d in 1995 and
a 10% increase in the average NGLs price to $.32 per gallon from $.29 per
gallon. Natural gas processed at the Exxon Company U.S.A.'s natural gas
processing plant at Katy, Texas, primarily accounted for the increased NGLs
production.
Cost of sales was $136.1 million or 81% of operating revenues in 1996
compared to $95.6 million or 80% of operating revenues in 1995. Cost of sales
increased as the result of an increase in average natural gas price and
natural gas volume.
Gross margin (operating revenues less cost of sales, which includes only
the direct cost of gas sold and does not include any related operating
expenses) was $31.0 million, or 19% of operating revenues, in 1996 compared to
$23.8 million, or 20% of operating revenues, in 1995. The decrease in
percentage is due to a higher cost of gas supply for the pipeline systems. The
gross margin increased due to an increase in average natural gas and NGLs
prices of 38% and 10%, respectively, an increase in NGLs production and an
increase in the natural gas sold and marketed noted above offset, primarily,
by a reduction in NGLs content in the natural gas delivered to the Company
from the wellhead.
Operating expenses increased 4% to $5.6 million in 1996 compared to $5.4
million in 1995 primarily as a result of expanded gathering systems and plant
operations.
General and administrative expenses increased 11% to $4.2 million in 1996
compared to $3.8 million in 1995 due to increased compensation costs and
service agreement charges.
Depreciation and amortization increased 16% to $5.8 million in 1996
compared to $5.0 million in 1995 primarily as the result of new pipeline,
property, plant and equipment additions on the SETPS.
Interest and debt expenses increased 6% to $3.3 million in 1996 compared
to $3.1 million in the 1995 period primarily as a result of increased debt
balances incurred for capital expenditures and the recording of interest
associated with certain agreed-upon tax issues with the Internal Revenue
Service (IRS) resulting from the IRS examination of certain UtiliCorp United,
Inc. (UtiliCorp) Federal income tax returns.
Provision in lieu of income tax expense increased 84% to $4.6 million in
1996 compared to $2.5 million in 1995 due to an increase in income before
income taxes in 1996 compared to 1995. As a result of the agreed-upon issues
with the IRS, discussed in the previous paragraph, the Company is liable to
UtiliCorp for approximately $2.9 million, under the provisions of the tax
sharing agreement, once the IRS assesses UtiliCorp for the agreed-upon issues.
The payment of the income taxes associated with the agreed-upon issues will
have no effect on net earnings as it will be an adjustment to the deferred tax
liability, upon assessment by the IRS. Also, see Note 3 to the Condensed
Consolidated Financial Statements relating to other tax matters.
9
<PAGE> 10
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Total operating revenues increased 50% to $332.0 million in 1996 compared
to $220.9 million in 1995. Natural gas revenues increased 53% to $290.6
million in 1996 compared to $190.4 million in 1995. The increase in natural
gas revenues is due to a 42% increase in the average natural gas price to
$2.15 per Mcf in 1996 from $1.51 per Mcf in 1995, a full six months of
operations for Tristar and a slight increase in natural gas sold and marketed
to 737 MMcf/d in 1996 from 729 MMcf/d in 1995. Natural gas throughput
increased 11% to 520 MMcf in 1996 from 469 MMcf/d in 1995 primarily as a
result of additional wells connected to the SETPS.
NGLs revenues increased 36% to $41.4 million in 1996 compared to $30.5
million in 1995 as the result of a 33% increase in gross NGLs production to
40,000 Bbls/d in 1996 compared to 30,000 Bbls/d in 1995 and a 3% increase in
the average NGLs price to $.31 per gallon from $.30 per gallon. Natural gas
processed at the Exxon company U.S.A.'s gas processing plant at Katy, Texas
accounted for the increased NGLs production.
Cost of sales was $266.9 million or 80% of operating revenues in 1996
compared to $174.1 million or 79% of operating revenues in 1995. Cost of sales
increased as the result of an increase in average natural gas price, a full
six months of operations for Tristar and an increase in natural gas volume.
Gross margin (operating revenues less cost of sales, which includes only
the direct cost of gas sold and does not include any related operating
expenses) was $65.1 million, or 20% of operating revenues, in 1996 compared to
$46.8 million, or 21% of operating revenues, in 1995. The decrease in
percentage is due to a higher cost of gas supply for the pipeline systems. The
gross margin increased due to an increase in average natural gas and NGLs
prices of 42% and 3%, respectively, an increase in NGLs production, a full six
months of operations for Tristar and an increase in the natural gas sold and
marketed noted above offset, primarily, by a reduction in NGLs content in the
natural gas delivered to the Company from the wellhead.
Operating expenses increased 10% to $11.5 million in 1996 compared to
$10.5 million in 1995 primarily as a result of expanded gathering systems and
plant operations and a full six months of operations for Tristar.
General and administrative expenses increased 26% to $9.8 million in 1996
compared to $7.8 million in 1995 due to increased compensation costs and a
full six months of operations for Tristar.
Depreciation and amortization increased 14% to $11.5 million in 1996
compared to $10.1 million in 1995 primarily as the result of new pipeline,
property, plant and equipment additions on the SETPS and a full six months of
operations for Tristar.
Interest and debt expenses increased 33% to $7.7 million in 1996 compared
to $5.8 million in the 1995 period primarily as a result of increased debt
balances incurred for capital expenditures and the recording of interest
associated with certain agreed-upon tax issues with the IRS resulting from the
IRS examination of certain UtiliCorp Federal income tax returns.
Provision in lieu of income tax expense increased 94% to $9.3 million in
1996 compared to $4.8 million in 1995 due to an increase in income before
income taxes in 1996 compared to 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant cash from operations and expects such
cash and borrowing to be its primary source of liquidity. The Company's
primary uses of cash consist of capital expenditures, acquisitions, working
capital requirements, dividends and debt repayment. The Company's historical
additions to pipeline, property, plant and equipment were $17.1 million and
$76.2 million for the six months ended June 30, 1996 and the year ended
December 31, 1995, respectively. Capital expenditures are expected to be
approximately $40 million in 1996 excluding business acquisitions.
The Company maintains revolving credit agreements (the Revolvers) of
$100.0 million with Aquila Energy Corporation (Aquila Energy) to provide funds
for general corporate purposes. There was $44.5 million and $54.0 million
outstanding on the Revolvers at June 30, 1996 and December 31, 1995,
respectively. The total amount available to borrow on the
10
<PAGE> 11
Revolvers was $55.5 million at June 30, 1996. As a result of the
acquisition of Oasis, the Company has used most of the funds available under
the Revolvers.
The Company also has a Loan Agreement (the Loan) with Aquila Energy for
an amount of $50.0 million to provide funds for general corporate purposes.
The Loan requires the Company to meet and maintain certain financial covenants
as well as limits the activities of the Company in other ways. At June 30,
1996, the Company was in compliance with such covenants.
The 8.29% Senior Notes issued by Aquila Southwest Energy Corporation
(Aquila Southwest), in 1992 require principal payments of $12.5 million
annually. Such principal payments are expected to be made from cash flows from
operations and borrowings. The 8.29% Senior Note purchase agreement has
numerous covenants which affect the Company and Aquila Southwest. These
covenants limit the ability to make dividend payments and incur debt, require
maintenance of certain financial ratios and limit the activities of Aquila
Southwest in other ways. Failure to maintain the required ratios may
ultimately result in an acceleration of payments due. The Company was in
compliance with such covenants at June 30, 1996.
The Company believes that cash generated from operations and borrowings
under the Revolvers will be adequate to fund working capital requirements,
debt service payments and planned capital expenditures in addition to
borrowings made to fund the acquisition of Oasis. Future acquisitions or large
capital expenditures in excess of current plans would require additional
financing that the Company expects would be available through additional debt
facilities.
NEW ACCOUNTING STANDARD
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation". SFAS 123 is required to be adopted by the Company in 1996. SFAS
123 provides for alternative methods for recording stock-based compensation
and requires additional disclosure regardless of which method is utilized to
record stock-based compensation. The Company has determined the effect, if
any, that SFAS 123 may have on the Company's future operations to be
immaterial.
FORWARD-LOOKING INFORMATION
The Company is including the following cautionary statement to make
applicable and take advantage of the new "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statement made by, or on behalf of, the Company. The factors identified in
this cautionary statement are important factors (but not necessarily all of
the important factors) that could cause actual results to differ materially
from those expressed in any forward-looking statement made by, or on behalf
of, the Company.
Where any such forward-looking statement includes a statement of the
assumptions or basis underlying such forward-looking statement, the Company
cautions that, while it believes such assumptions or basis to be reasonable
and makes them in good faith, assumed facts or basis almost always vary from
actual results, and the differences between assumed facts or basis and actual
results can be material, depending upon the circumstances. Where, in any
forward-looking statement, the Company, or its management, expresses an
expectation or belief as to future results, such expectation or belief is
expressed in good faith and believed to have a reasonable basis, but there can
be no assurance that the statement of expectation or belief will result or be
achieved or accomplished.
Taking into account the foregoing, the following are identified as
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statement made by, or on behalf of, the
Company:
a) The ability to increase transmission, gathering, processing, and sales
volumes can be subject to the impact of price; drilling activity and
success of producers; and service competition, especially due to excess
pipeline availability. Existing volumes are subject to depletion without
addition of future developed gas supplies. The ability to contract
additional gas supplies for the existing systems also is affected by the
available number of drilling locations in proximity of these existing gas
systems and the related economic reserves of these drilling locations.
b) Growth strategies through acquisition, internal project development, and
investments in joint ventures may face legal and regulatory delays,
financing difficulties, competition from other acquirers and competitors,
and other unforeseeable obstacles beyond the Company's control.
11
<PAGE> 12
c) Future profitability will be affected by the Company's ability to compete
with the services and economic contractual terms offered by other energy
enterprises which may be larger, offer more services, and possess greater
resources. Future profitability also will be affected by the level of
prices of natural gas, natural gas liquids and competitive fuels and
feedstocks.
d) Future operating results and success of business ventures may be subject to
the effects of and changes in laws and regulations, political and
governmental changes, inflation rates, taxes, and operating conditions.
Also, future operations results are subject to unexpected items resulting
from such events as, but not limited to, litigation settlements, adverse
rulings or judgments, and unexpected environmental remediation.
e) The operations are subject to the risks incident to the gathering,
transportation, processing and storage of natural gas and NGLs, such as
explosions, product spills, leaks and fires, any of which could result in
substantial losses to the Company and curtailment or suspension of
operations at a Company facility.
12
<PAGE> 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
None. Also, see Note 3 to the Condensed Consolidated Financial Statements
for a description of legal proceedings.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
The Company held its annual meeting of stockholders on May 14, 1996.
The following items were voted upon. Charles K. Dempster and Craig F.
Strehl were elected by the stockholders to hold the office of Directors
of the Company for the term of three (3) years. Continuing directors are
Harvey J. Padewar, Gary L. Downey, Robert L. Howell and Jon L. Mosle Jr.
The vote for Mr. Dempster was 27,579,523 for, none against, 55,372
withheld, no abstentions and no broker non-votes. The vote for Mr. Strehl
was 27,579,523 for, none against, 55,372 withheld, no abstentions and no
broker non-votes.
Stockholders also approved the Aquila Gas Pipeline Corporation 1996
Non-Employee Director Stock Plan (the Plan). The vote for the approval of
the Plan was 27,518,441 for 111,754 against, none withheld, 4,700
abstentions and no broker non-votes.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits.
Incorporated herein by reference to Index to Exhibit.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three
months ended June 30, 1996.
13
<PAGE> 14
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 thereunto duly authorized.
AQUILA GAS PIPELINE CORPORATION
(Registrant)
/s/ CRAIG F. STREHL
------------------------------------
Date: August 9, 1996 By: Craig F. Strehl
President and Chief
Operating Officer
/s/ DAMON C. BUTTON
------------------------------------
Date: August 9, 1996 By: Damon C. Button
Vice President, Treasurer
and Chief Financial Officer
14
<PAGE> 15
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
Sequentially
Exhibit Number
Number Description Page
- ----- ----------
<S> <C>
10.1 Acquisition Agreement for Oasis Pipe Line Company dated June 6, 1996
between Dow Hydrocarbons and Resources Inc. and AQP Holdings LP
Management Contracts and Compensatory Plans or Arrangements:
10.2 Aquila Gas Pipeline Corporation 1996 Non-Employee Director Stock Plan
27 Financial Data Schedule
</TABLE>
15
<PAGE> 1
Aquila Gas Pipeline Corporation
File Number 1-12426
Exhibit 10.1
Acquisition Agreement for Oasis Pipe Line Company
dated June 6, 1996 between Dow Hydrocarbons
and Resources Inc. and AQP Holdings LP
<PAGE> 2
AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of June 6,
1996 by and between Dow Hydrocarbons and Resources Inc., a Delaware corporation
("Seller") and AQP Holdings LP, a Delaware limited partnership ("Buyer").
RECITALS
A. Seller owns the Interests (as hereinafter defined); and
B. Seller desires to sell the Interests, and Buyer desires to purchase
such Interests, upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the above premises, the mutual
representations, warranties, covenants, and agreements herein contained, and on
the terms and subject to the conditions herein set forth, the parties hereto
agree as follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATION
1.1 Definitions. As used in this Agreement and the Schedules
hereto, each of the following terms shall have the meaning set forth below:
(a) "Affiliate" with respect to any Person, shall mean
any other Person that controls, is controlled by or is under common control
with the first Person.
(b) "Baseline Balance Sheet" shall mean the consolidated
balance sheet of Oasis dated December 31, 1995.
(c) "Baseline Shareholders' Equity" shall mean
$27,485,000, which represents the consolidated shareholders' equity of Oasis as
of December 31, 1995.
(d) "Business," with respect to Oasis, shall mean all of
the businesses in which Oasis is presently engaged, including without
limitation, the business relating to the gathering, transportation,
compressing, treating, purchase, processing and sale of natural gas or natural
gas liquids, and, with respect to Oasis Finance, shall mean the business in
which Oasis Finance is presently engaged.
(e) "Business Day" shall mean any day which is not a
Saturday or Sunday or a day on which banks in the State of Texas are required
to close.
(f) "Capital Improvement Program" shall mean the Oasis
Capital Project Plan approved by the board of directors of Oasis for the year
1996, a copy of which is set forth in Schedule 1.1(f).
(g) "Channel" shall mean Channel Gas Marketing Company, a
Delaware corporation, successor by merger to Channel Gas Supply Company, a
Delaware corporation, formerly named Tenngasco Gas Supply Company.
(h) "Closing" shall mean the consummation of the purchase
of the Interests.
<PAGE> 3
(i) "Closing Date" shall mean (a) the first business day
of the month following the month in which all of the conditions to the
obligations of Buyer and Seller to consummate the transactions contemplated
hereunder, as set forth in Articles 7 and 8, are satisfied, or (b) such other
Business Day as Buyer and Seller shall agree in writing.
(j) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(k) "Common Stock" shall mean the common stock of Oasis.
(l) "Companies" shall mean Oasis and Oasis Finance.
(m) "Company" shall mean either Oasis or Oasis Finance.
(n) "Contracts" or "Other Agreements" shall mean all
contracts, agreements, indentures, notes, bonds, loans, instruments, leases,
mortgages, commitments or other binding arrangements.
(o) "Controlled Group" shall mean a controlled group
within the meaning of Section 412(n)(6)(B) of the Code.
(p) "Dividend" shall mean any distribution, whether in
cash or in kind, on or with respect to the Common Stock and Preference Stock.
(q) "Dow" shall mean The Dow Chemical Company, a Delaware
corporation.
(r) "Easements-Pipeline" shall mean all easements,
rights-of-way, privileges, permits, grants, franchises and consents for the
construction, laying, maintenance, use and/or operation of the facilities and
properties of Oasis in, on, under and over streets, alleys, highways, roads,
railroads, canals, rivers, waterways, public grounds or structures, privately
owned land or elsewhere, used in connection with the Business.
(s) "Employee Policies and Procedures" shall mean all
written employee manuals, policies, procedures and work-related rules that
apply to employees of Oasis.
(t) "Employment Arrangement" shall mean (i) any plan,
arrangement, program, or commitment providing for insurance coverage
(including without limitation any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits, life, health, disability or accident benefits or
for compensation or deferred compensation, profit-sharing bonuses, stock
options, stock appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (A)
is entered into, maintained, contributed to or required to be contributed to,
as the case may be, by either Company or under which either Company may incur
any Liability, and (B) covers any employee or former employee of either Company
(with respect to their relationship with such entities); and (ii) any agreement
concerning terms and conditions of employment to which Oasis is a party with
respect to any of its employees, including, without limitation, employment
agreements, deferred compensation agreements, employee leasing agreements,
employee service agreements, noncompetition agreements, severance agreements,
and severance compensation agreements.
(u) "Enron" shall mean Enron Corp., a Delaware
corporation.
(v) "Entity" shall mean any Person other than an
individual.
-2-
<PAGE> 4
(w) "Environmental Laws" shall mean (a) the following
federal laws, and their state or local counterparts, as they are in effect as
of the date of this Agreement: the Clean Air Act, the Clean Water Act (the
Federal Water Pollution Control Act), the Safe Drinking Water Act, the Rivers
and Harbors Act, the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund"), the Endangered Species Act, the Resource
Conservation and Recovery Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, the Emergency Planning and Community Right-To-Know Act, the
Occupational Safety and Health Act of 1970, the Hazardous Materials
Transportation Act, the Superfund Amendments and Reauthorization Act of 1986,
the Oil Pollution Act of 1990, and the Toxic Substances Control Act; (b) all
other Laws and licensing requirements of any Governmental or Other Regulatory
Body as are in effect as of the date of this Agreement, the purpose of which is
to conserve, preserve, or protect the environment, or natural resources; and
(c) all applicable Laws as in effect as of the date of this Agreement, the
purpose of which is to redress injuries to Persons, property or the environment
caused by negligently or willfully releasing Hazardous Substances into the
environment.
(x) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and regulations and rules issued pursuant to
that Act.
(y) "GAAP" shall mean generally accepted accounting
principles as applied in the United States. Whenever the term GAAP appears in
connection with financial statements or matters which relate thereto, it shall
be deemed to mean "GAAP, applied on a basis consistent with prior periods."
(z) "Government", "Governmental Agency" or "Other
Regulatory Body" shall mean any government or political subdivision thereof,
whether federal, state, local or foreign, or any agency or instrumentality of
any such government or political subdivision.
(aa) "Hazardous Substances" shall mean flammables,
explosives, radioactive materials, asbestos or any material containing
asbestos, polychlorinated biphenyls (PCBs), toxic substances, crude oil, oil,
petroleum, petroleum products, natural gas, geothermal resources, oil or
natural gas exploration, production, and development wastes, and other
substance in harmful quantities, toxic chemical, hazardous chemical and any
substance defined or characterized as a "pollutant," "hazardous substance,"
"hazardous material," "hazardous waste," "solid waste," "waste," "toxic
substance," "other substance," or "contaminant" under any Environmental Law.
(ab) "HPL" shall mean Houston Pipe Line Company, a Delaware
corporation.
(ac) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
(ad) "Information Requests" shall mean any written
notification requesting the addressee to provide information in connection with
an alleged obligation or duty by the addressee to investigate or remediate any
contaminated soil, groundwater or surface water or an alleged violation of any
Environmental Law.
(ae) "Intratex" shall mean Intratex Gas Company, a
Delaware corporation.
(af) "Knowledge," when applied to Seller, shall encompass
all facts and information which are within the knowledge of any of the officers
or directors of Seller and the following persons: F.P. Knopp (and his
replacement, if another person shall assume his duties related to the Companies
prior to the Closing), B.J. Sumrall, Jr. (and his replacement, if another
person shall assume his duties related to the Companies prior
-3-
<PAGE> 5
to the Closing), and J.A. Leffingwell (and his replacement, if another person
shall assume his duties related to the Companies prior to the Closing).
"Knowledge," when applied to Buyer, shall encompass all facts and information
which are within the knowledge of any of the officers or directors of Buyer and
John Shealy (and his replacement, if another person shall assume his duties
prior to the Closing), Mitchell Roper (and his replacement, if another person
shall assume his duties prior to the Closing), Damon Button (and his
replacement, if another person shall assume his duties prior to the Closing)
and Doug Westmoreland (and his replacement, if another person shall assume his
duties prior to the Closing).
(ag) "Laws" shall mean any of the following which have
been enacted, adopted, determined, promulgated, or applied by any Governmental
or Other Regulatory Body or any court or arbitrator: (i) the common law and
any other applicable statute, ordinance, code or other law, rule, regulation or
ordinance, and (ii) orders, judgments, writs, judicial decisions, injunctions,
decrees and arbitration awards to which either Company is a party or by which
either Company or its Property is bound.
(ah) "Liabilities" shall mean, with respect to any Person,
any direct or indirect indebtedness, liability, claim, loss, damage,
deficiency, obligation or responsibility, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise, of such Person or binding upon assets of such Person.
(ai) "Lien or Other Encumbrance," "Lien and Encumbrance,"
or "Lien" shall mean any lien, pledge, mortgage, security interest, claim,
charge, option, right of first refusal, preferential purchase right, easement,
proxy, transfer restriction under any stockholder or similar agreement, or
other encumbrance of any nature whatsoever.
(aj) "Line Pack Gas Agreement" means the agreement of even
date herewith providing for the disposition of certain line pack gas.
(ak) "Material Adverse Effect" shall mean an effect caused
by any given matter, event or group of events, or other facts, which is adverse
and material as to the consolidated assets, business, operations, prospects or
financial condition of the Companies. In determining whether an effect is
material and adverse, all relevant factors shall be taken into account,
including without limitation all damages, costs, liabilities and expenses, and
all payments by and other recoveries from insurers or other third parties, in
respect of such matter, event, group of events, or other facts.
(al) "Material Contract" shall mean any Contract or Other
Agreement, to which either Company is a party, or to which any Property of
either Company is subject, and to which one or more of the following applies to
such Contract or Other Agreement: (i) it involves, or may reasonably be
expected to involve, the payment or receipt of $100,000 or more (whether in
cash or in goods or services of an equivalent value) over its term (including
renewal options), or $50,000 during any one year, or (ii) it imposes material
restrictions on the conduct of the businesses of either Company, or (iii) it
materially benefits or imposes material liabilities or burdens upon, or
otherwise with respect to, the Real Property, or (iv) it is not cancelable on
notice of not longer than six months and without liability, penalty or premium,
or (v) its loss would have a Material Adverse Effect, or (vi) it is a Contract
or Other Agreement referred to in Section 3.12 or 3.13.
(am) "1989 Capital Stock Agreement" shall mean the Amended
and Restated Capital Stock Agreement, dated April 1, 1989, by and among HPL,
Enron, Dow, Tennessee, Channel, and Oasis.
(an) "Oasis" shall mean Oasis Pipe Line Company, a Delaware
corporation.
-4-
<PAGE> 6
(ao) "Oasis Finance" shall mean Oasis Pipe Line Finance
Company, a Delaware corporation.
(ap) "Organizational Documents," as to a corporation,
shall mean the corporation's Articles of Incorporation or Certificate of
Incorporation, as the case may be, and Bylaws, or similar governing documents,
and, as to a limited partnership, shall mean the partnership's Partnership
Agreement and Certificate of Limited Partnership, or similar governing
documents.
(aq) "Permits" shall mean all licenses, permits, orders,
franchises, concessions, approvals, registrations, authorizations and
qualifications (other than qualifications to do business as a foreign
corporation) issued, granted, required or filed by, with or under, as the case
may be, any Laws or Governmental or Other Regulatory Bodies.
(ar) "Permitted Liens and Encumbrances" shall mean (i)
liens for taxes not yet due and payable or which are matters contested in good
faith; (ii) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen, and other like liens imposed by law created in the
ordinary course of business for amounts not yet due or which are matters
contested in good faith; (iii) liens incurred or deposits made in the ordinary
course of business and required in connection with workers' compensation or
unemployment insurance and other types of social security; (iv) easements,
rights-of-way, zoning restrictions, restrictive covenants and other
encumbrances not interfering with the ordinary conduct of the Business; and (v)
liens outstanding and set forth on Schedule 1.1(ar).
(as) "Person" shall mean any individual, corporation,
limited liability company, partnership, limited partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated association or
organization, Governmental or Other Regulatory Body or other entity.
(at) "Pipeline" shall mean all of the pipeline facilities
and properties owned or leased, directly or indirectly, by Oasis, including,
without limitation, those properties more specifically described as follows:
all pipeline facilities shown on the map attached hereto as Schedule 1.1(at),
including without limitation, all pipes, mains, service lines, transmission
lines, metering equipment and meters, recording gauges, regulators, microwave
units, radios, telephone lines, transmitters, gathering lines, dehydration
equipment, compressors, compressor stations, separators, cathodic protection
devices, gas regulator and booster stations, storage systems, tanks, gas
holders, apparatus, tools, machinery, equipment, valves, spare parts, materials
and supplies, gas appliances and gas utilization equipment used or held for use
in connection with the Business.
(au) "Plant" shall mean all natural gas liquid processing
and extraction plants, treating facilities and compressor stations owned or
leased, directly or indirectly, by Oasis.
(av) "PRP Letter" shall mean any written notification
identifying the addressee as a potentially responsible person under any
Environmental Law, advising that the addressee is or may be liable for
remediation costs or expenses or demanding, requesting or instructing the
addressee to undertake investigation or remediation actions pursuant to any
Environmental Law or pay for the cost thereof.
(aw) "Preference Stock" shall mean the preference stock of
Oasis.
(ax) "Property" means real, personal or mixed property(s),
tangible or intangible.
-5-
<PAGE> 7
(ay) "Section 3.2 Obligations" shall mean the obligations
of Intratex, and its guarantors, under Section 3.2 of the Revised
Transportation Rights Assignment and Agreement, dated April 1, 1989, among
Oasis, Intratex, Dow and Channel.
(az) "Section 7.01 Obligations" shall mean the obligations
of HPL, and its guarantors under Section 7.01 of the Revised Reorganization
Agreement, dated April 1, 1989, among Oasis, HPL, Intratex, Dow, Tennessee,
Channel and Enron.
(ba) "Shares" shall have the meaning set forth in Section
2.1 hereof.
(bb) "Subsidiaries" or "Subsidiary" of a Person shall mean
each Entity, as to which such Person owns or has the power to vote, or to
exercise a controlling influence with respect to, fifty percent (50%) or more
of the voting interests or securities of any class of such Entity, the holders
of which are ordinarily, in the absence of contingencies, entitled to vote for
the election of directors (or Persons performing similar functions of such
Entity).
(bc) "Tennessee" shall mean Tennessee Gas Pipeline
Company, a Delaware corporation.
(bd) "Transportation Agreements" shall mean the agreements
described in Schedule 1.1(bd).
(be) "Transportation Rights" shall mean the rights
described on Schedule 1.1(be).
1.2 Index to Defined Terms. Following is a listing, for the
convenience of the parties, of each term defined in this Agreement and the
number of the section in which such definition appears.
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Adjustment Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3(d)
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introductory Paragraph
Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3(b)
Assumed Gas Gathering Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 3.14(a)
Baseline Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(b)
Baseline Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(c)
Big Six Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3(b)
binding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(d)
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(e)
Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introductory Paragraph
Buyer Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2
Capital Improvement Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(f)
Channel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(g)
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(h)
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(i)
Closing Date Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3(a)
</TABLE>
-6-
<PAGE> 8
<TABLE>
<S> <C>
Closing Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3(c)
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(j)
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(k)
Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(l)
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(m)
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(n)
Controlled Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(o)
Defaulting Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2
Disputing Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3(b)
Disputed Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3(b)
Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(p)
Dow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(q)
Easements-Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(r)
Employee Policies & Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(s)
Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(t)
enforceable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6
Enron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(u)
Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(v)
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(w)
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(x)
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1
Excluded Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4(d)
Excluded Sections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4(b)
FERC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.17(a)
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7(a)
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(y)
Gas Gathering Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.14(a)
Gas Purchase/Sales Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.13(a)
Gas Transportation Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12(a)
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(z)
Governmental Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(z)
Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(aa)
hereby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
herein . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
hereinabove . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
hereinafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
hereinbelow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
hereof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
hereunder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
HPL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ab)
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ac)
Information Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ad)
Injured Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10
Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
Intratex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ae)
Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(af)
Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ag)
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ah)
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ai)
Lien and Encumbrance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ai)
Lien or Other Encumbrance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ai)
Line Pack Gas Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(aj)
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ak)
Material Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(al)
Materiality Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(ii)
Minimum Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4(a)
Necessary Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.7
1989 Capital Stock Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(am)
Oasis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(an)
Oasis Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ao)
open . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4
Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ap)
Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(n)
Other Regulatory Body . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(z)
pending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4
Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(aq)
Permitted Liens & Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ar)
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(as)
Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(at)
Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(au)
PRP Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(av)
Preference Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(aw)
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3(a)
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ax)
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2
Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(a)
Regulatory Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.17(a)
Retained Gathering & Processing Assets Obligations . . . . . . . . . . . . . . . . . 3.25(g)
Section 3.2 Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ay)
Section 7.01 Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(az)
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introductory Paragraph
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(ba)
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(bb)
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(bb)
Superfund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(w)
Tax Matters Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5(b)
Tax Matters Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5(b)
Tax Matters Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5(b)
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(bc)
Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1(b)
total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3(c)
total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3(c)
Transportation Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(bd)
Transportation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(be)
Western . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.25(g)
Western PSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.25(g)
</TABLE>
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<PAGE> 10
1.3 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Agreement shall be defined according to GAAP.
1.4 Pending Matters. Whenever reference is made herein to a
"pending" lawsuit, claim, investigation or other matter, (i) as to a lawsuit,
claim, investigation or other matter which requires formal process or other
notice under Law, the term "pending" shall mean that such process or notice has
been served or given as required by such applicable Law on the Person affected
thereby, and that the matter remains open as of the time referred to, and (ii)
as to any other claim, investigation or other matter, the term "pending" shall
mean that written notice of such matter has been received by an officer or
director of the Person affected thereby (and in the case of such matters
affecting Seller or either Company, shall also mean that such written notice
has been received by one or more of the persons identified in the first
sentence of Section 1.1(af), and in the case of such matters affecting Buyer,
shall also mean that such written notice has been received by one or more of
the persons identified in the second sentence of Section 1.1(af)), and such
matter remains open as of the time referred to. A matter will be considered
"open" if, as of the relevant time, the Person affected thereby or such
Person's Property could reasonably be expected to become subject to a Liability
as a result of the disposition of the matter. With respect to matters involving
Environmental Laws, a matter shall not, however, be considered "open" if a
Governmental Agency with involvement in the matter has issued to the affected
Person a notice closing out an investigation or remedial action or otherwise
indicating that no further action is planned, even if such Governmental Agency
retains jurisdiction over such matter.
1.5 References. References in this Agreement to Sections or
Schedules shall be to Sections and Schedules of this Agreement, unless
expressly stated to the contrary. References in this Agreement to "hereby,"
"herein," "hereinafter," "hereinabove," "hereinbelow," "hereof," "hereunder"
and words of similar import shall be to this Agreement in its entirety and not
only to the particular Section or Schedule in which such reference appears,
unless expressly stated to the contrary.
1.6 Enforceability. Statements in this Agreement to the effect
that an agreement or other document is "enforceable" or "binding" shall be
deemed to be made subject to the laws of general application relating to
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforceability of creditors' rights and to general principles of equity
(whether applied at law or in equity).
ARTICLE 2.
PURCHASE AND SALE
2.1 Purchase and Sale. On the basis of the representations and
warranties set forth herein, and subject to the terms and conditions contained
herein, at the Closing, Seller shall sell, transfer, assign, convey, and
deliver the Interests to Buyer, which Interests shall be free and clear of all
Liens and Other Encumbrances, except as otherwise provided herein; and Buyer
shall purchase, accept, and acquire the Interests from Seller. "Interests"
means (i) 1,000 shares of Series A Common Stock, (ii) 33 shares of Series A
Preference Stock, and (iii) the Transportation Rights. (The term "Shares"
shall mean the shares of Common Stock and Preference Stock referred to in (i)
and (ii) above.) The Shares are being transferred pursuant to Section 3(d) of
the 1989 Capital Stock Agreement. Seller shall not sell, transfer or assign to
Buyer the Section 3.2 Obligations or the Section 7.01 Obligations, and Seller
shall continue to own all rights to receive the payments provided for under the
Section 3.2 Obligations and the Section 7.01 Obligations.
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<PAGE> 11
2.2 Purchase Price. Subject to the post-Closing adjustment set
forth in Section 2.3, the total purchase price for the Interests shall be
$47,143,000 (the "Purchase Price").
2.3 Post-Closing Adjustment to Purchase Price. The Purchase Price
shall be adjusted as follows:
(a) Closing Date Balance Sheet. Within 120 days after
the Closing Date, Buyer and Seller shall cause Oasis to prepare a balance sheet
for Oasis as of the close of business on the day immediately prior to the
Closing Date (the "Closing Date Balance Sheet"). The Closing Date Balance
Sheet shall be prepared in accordance with GAAP, using the same methods and
criteria employed by Oasis in connection with its preparation of the Baseline
Balance Sheet, and shall present fairly the financial position of Oasis as of
the close of business on the day immediately prior to the Closing Date. Upon
completion of the Closing Date Balance Sheet, copies thereof shall promptly be
provided to Seller and Buyer.
(b) Disputes. If either party (a "Disputing Party")
disputes any matter with respect to the Closing Date Balance Sheet, such
Disputing Party will give notice to the other party within 60 days after
receipt of the Closing Date Balance Sheet. Any such matters (the "Disputed
Matters") shall be submitted to arbitration in Houston, Texas within 30 days
after delivery of the foregoing notice of dispute from a Disputing Party unless
Buyer and Seller agree in writing to extend such 30-day period in an attempt to
negotiate or seek mediation of a settlement of the Disputed Matters. The
arbitrator (the "Arbitrator") shall be (other than Arthur Andersen LLP) any one
of the nationally recognized independent accounting firms, which is on the date
hereof among the six largest national accounting firms (a "Big Six Accounting
Firm"), mutually agreed to by Seller and Buyer. Any reference herein to a Big
Six Accounting Firm shall be deemed to include a reference to any member or
employee thereof (who is a certified public accountant) which any such firm may
designate as the Arbitrator on its behalf. If within 20 days following the
expiration of the 30-day period referred to above or any extension thereof
Seller and Buyer shall have failed to agree upon the selection of the
Arbitrator or any such Arbitrator selected by them shall not have agreed to
perform the services called for hereunder, the Arbitrator shall thereupon be
selected by reference to the Houston, Texas office of and in accordance with
the Commercial Arbitration Rules of the American Arbitration Association, with
preference being given to (other than Arthur Andersen LLP) any one of the Big
Six Accounting Firms or any member or employee thereof (who is a certified
public accountant) which or who may be willing to perform such services, other
than any such firm which is then employed by Oasis, Seller or Buyer, or any
Affiliate of any of them. The Arbitrator shall consider only the Disputed
Matters and the arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in effect
at the time the Disputed Matter is submitted to arbitration. The Arbitrator
shall act promptly, but in no event later than 30 days from the close of
hearing, to resolve all Disputed Matters and its decision with respect to all
Disputed Matters shall be final and binding upon the parties hereto and shall
not be appealable to any court. Each party shall bear its own expenses
associated with the preparation and presentation of its position, and all costs
and expenses of the Arbitrator shall be shared equally by Seller and Buyer.
(c) Closing Shareholders' Equity. The Purchase Price
shall be adjusted based on the Closing Shareholders' Equity of Oasis, but only
in the event that the difference between the Closing Shareholders' Equity and
the Baseline Shareholders' Equity exceeds Fifty Thousand Dollars ($50,000).
"Closing Shareholders' Equity" shall mean the total assets of Oasis as of the
close of business on the day immediately prior to the Closing Date minus the
total liabilities of Oasis as of the close of business on the day immediately
prior to the Closing Date. As used herein, the terms "total assets" and
"total liabilities" shall mean the aggregate amount of all assets or
liabilities, respectively, of Oasis (whether classifiable in accordance with
GAAP as current or long term) determined in accordance with GAAP. The Closing
Date Balance Sheet shall, subject to any dispute under Section 2.3(b), set
forth the Closing Shareholders' Equity.
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<PAGE> 12
(d) Adjustment of Purchase Price; Payment. The Purchase
Price shall be adjusted (positively or negatively) by the amount equal to (i)
fifteen percent (.15); multiplied by (ii) the Closing Shareholders' Equity
minus the Baseline Shareholders' Equity. The amount of such adjustment shall
be referred to as the "Adjustment Amount." Within 60 days after receipt by the
parties of the Closing Date Balance Sheet, Seller (if the Adjustment Amount is
a negative number) or Buyer (if the Adjustment Amount is a positive number), as
the case may be, shall pay to the other party by wire transfer of immediately
available funds the Adjustment Amount with interest thereon from the Closing
Date to the date of payment of the Adjustment Amount, such interest to be
calculated at a fluctuating rate per annum which at all times shall be the
30-day LIBOR rate quoted from time to time by First Chicago National Bank;
provided, however, that if there are any Disputed Matters, the Adjustment
Amount finally determined to be due either by agreement of the parties or by
arbitration shall be paid by wire transfer of immediately available funds by
the party owing the Adjustment Amount within 10 days after such determination,
with interest as aforesaid.
2.4 Closing. The Closing shall take place at the offices of Baker
& Botts located at 910 Louisiana, Suite 3400, Houston, Texas, commencing at
10:00 a.m., Houston time, on the Closing Date. At the Closing:
(a) Seller shall deliver to Buyer (i) certificates
representing the Shares, duly endorsed (or accompanied by duly executed stock
powers), (ii) an agreement concerning the assignment and assumption of the
Transportation Rights, in the form set forth in Schedule 2.4(a), and (iii) all
other documents, instruments, and agreements required to be delivered at or
before the Closing pursuant to this Agreement and all other agreements
contemplated hereby; and
(b) Buyer shall deliver to Seller (i) the Purchase Price
by wire transfer of immediately available funds to the account or accounts
specified on Schedule 2.4(b), (ii) an agreement concerning the assignment and
assumption of the Transportation Rights, in the form set forth in Schedule
2.4(a), and (iii) all other documents, instruments, and agreements required to
be delivered at or before the Closing pursuant to this Agreement and all other
agreements contemplated hereby.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 Ownership of Interests. Seller owns, beneficially and of
record, all right, title and interest in and to the Shares, which Shares are,
as of the date of this Agreement, and other than as set forth on Schedule
3.1(a), free and clear of any and all Liens and Encumbrances. At the Closing,
Seller will own, beneficially and of record, and will convey to Buyer, all
right, title and interest in and to all of the Shares, free and clear of any
and all Liens and Encumbrances except the Liens and Encumbrances set forth on
Schedule 3.1(a). Seller is the owner of all right, title and interest in and
to the Transportation Rights, which Transportation Rights are, as of the date
of this Agreement, and other than as set forth on Schedule 3.1(b), free and
clear of any and all Liens and Encumbrances. At the Closing, Seller will own,
and will transfer and assign to Buyer, all right, title and interest in and to
all of the Transportation Rights, free and clear of any and all Liens and
Encumbrances, except the Liens and Encumbrances set forth in Schedule 3.1(b).
3.2 Organization and Standing.
(a) Each Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority to own, lease and
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<PAGE> 13
operate its Property and to carry on its Business. Each Company is duly
qualified or licensed and in good standing to do business in the State of
Texas. Neither the Property owned, leased or operated by either Company, nor
the nature of such Company's Business makes such qualification necessary in any
jurisdiction other than Texas, except in such jurisdictions where the failure
to be so duly qualified or licensed and in good standing would not in the
aggregate have a Material Adverse Effect. Seller has provided to Buyer
accurate and complete copies of the Organizational Documents of the Companies,
as they are currently in effect. Oasis does not own any capital stock,
partnership interest or other equity interest in any Person other than Oasis
Finance. Oasis Finance does not own any capital stock, partnership interest or
other equity interest in any Person.
(b) Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
3.3 Capitalization.
(a) Oasis. The total number of shares of capital stock
which Oasis has the authority to issue is 305,000 shares of which (i) 250,000
shares, $.01 par value per share, are a class designated as "Preferred Stock,"
(ii) 5,000 shares, $.01 par value per share, are a class designated as
"Preference Stock," and (iii) 50,000 shares, $1.00 par value per share, are a
class designated as "Common Stock." As of the date hereof, (i) no series of
Preferred Stock is designated, (ii) Series A, Series B, Series C, Series D, and
Series E are designated as series of Preference Stock, with each such series
consisting of 500 shares, and (iii) Series A, Series B, Series C, Series D, and
Series E are designated as series of Common Stock, with each such series
consisting of 6,750 shares. As of the date hereof, there are (x) no shares of
Preferred Stock issued and outstanding, (y) 300 shares of Preference Stock
issued and outstanding, of which 100 shares are Series A, 100 shares are Series
B and 100 shares are Series C, and (z) 6,667 shares of Common Stock issued and
outstanding, of which 3,000 shares are Series A, 2,000 shares are Series B and
1,667 shares are Series C. The outstanding shares of capital stock of Oasis
are owned by the Persons, and in the amounts, set forth on Schedule 3.3.
(b) Oasis Finance. The total number of shares of capital
stock which Oasis Finance has the authority to issue is 10,000 shares of common
stock, $1.00 par value, of which 1,000 shares are issued and outstanding. All
right, title and interest in and to such shares of common stock of Oasis
Finance is owned by Oasis, beneficially and of record, free and clear of all
Liens and Encumbrances.
(c) Due Authorization, Etc. All of the shares of capital
stock of each Company have been duly authorized and validly issued, are fully
paid and nonassessable, were not issued in violation of the terms of any
Contract binding upon such Company, and were issued in compliance with all
applicable Organizational Documents of such Company and all applicable federal
and state securities or "blue sky" laws and regulations. No equity securities
of either Company, other than as described in Section 3.3(a) and (b) above, are
issued or outstanding. There are, and have been, no preemptive rights with
respect to the issuance of the shares of capital stock of either Company.
Except as set forth on Schedule 3.3(c), there are: (a) no existing Contracts,
subscriptions, options, warrants, calls, commitments or rights of any character
to purchase or otherwise acquire any shares of capital stock or other
securities of Oasis or Oasis Finance, whether or not presently issued or
outstanding, from Oasis, Oasis Finance, or Seller, or, to the Knowledge of
Seller, the other shareholders of Oasis, at any time or upon the happening of
any stated event; and (b) no Contracts, subscriptions, options, warrants,
calls, commitments or rights to purchase or otherwise acquire from Oasis, Oasis
Finance, or Seller, or, to the Knowledge of Seller, the other shareholders of
Oasis, any securities that are convertible into or exchangeable for shares of
capital stock or other securities of Oasis or Oasis Finance.
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3.4 Execution and Delivery. Seller has full corporate power and
authority to enter into this Agreement and all other agreements to be executed
and delivered by Seller hereunder, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
This Agreement has been duly executed and delivered on behalf of Seller and
constitutes a valid and binding obligation of Seller enforceable against Seller
in accordance with its terms.
3.5 No Conflicts. Except as set forth in Schedule 3.5, neither
the execution, delivery or performance of this Agreement and all other
agreements contemplated hereby nor the consummation of the transactions
contemplated hereby or thereby in accordance with the terms of this Agreement
and such other agreements nor compliance with the provisions hereof or thereof
by Seller will, with or without the passage of time or the giving of notice, or
both:
(a) (i) require any consent or approval of the stockholders,
directors or other governing body of Seller which has not already been
obtained; (ii) conflict with, constitute a breach, violation or termination of
any provision of, or constitute a default under, any Contracts and Other
Agreements to which Seller is a party or by which Seller is bound or to which
any of the Property of Seller is subject, other than conflicts, breaches,
violations, terminations and defaults which in the aggregate would not cause a
Material Adverse Effect, (iii) result in an acceleration of or increase in any
amounts due under any instrument evidencing debt of Seller, (iv) conflict with
or violate the Organizational Documents of Seller, (v) result in the creation
or imposition of any Lien or Other Encumbrance against any of the Interests, or
(vi) violate any Law applicable to Seller or any of its Property, other than
violations which in the aggregate would not cause a Material Adverse Effect,
(b) (i) require any consent or approval of the stockholders,
directors or other governing body of either Company which has not already been
obtained; (ii) conflict with, constitute a breach, violation or termination of
any provision of, or constitute a default under, any Contracts and Other
Agreements to which either Company is a party or by which either Company is
bound or to which any of the Property of either Company is subject, other than
conflicts, breaches, violations, terminations and defaults which in the
aggregate would not cause a Material Adverse Effect, (iii) result in an
acceleration of or increase in any amounts due under any instrument evidencing
debt of either Company, (iv) conflict with or violate the Organizational
Documents of either Company, (v) result in the creation or imposition of any
Lien or Other Encumbrances against either Company or any of its Property, or
(vi) violate any Law applicable to either Company or any of its Property, other
than violations which in the aggregate would not cause a Material Adverse
Effect.
3.6 Approvals, Licenses and Authorizations.
(a) Except as set forth on Schedule 3.6(a) or as may be
required by the HSR Act, (i) no order, license, consent, waiver, authorization
or approval of, or exemption by, or giving of notice to, or filing or
registration with or the taking of any other action by or in respect of, any
Person (including without limitation any Governmental or Other Regulatory
Body), and (ii) no filing, recording, publication or registration in any public
office or any other place, is required by or on behalf of Seller in order to
(x) authorize Seller's execution, delivery, and performance of this Agreement
or any other agreement, document, or instrument contemplated hereby to be
executed and delivered by Seller and the consummation by Seller of the
transactions contemplated hereby or thereby, or (y) assure the legality,
validity, binding effect, or enforceability of this Agreement or such other
agreements, documents or instruments.
(b) To the Knowledge of Seller, except as set forth on
Schedule 3.6(b), all Permits required by Laws or necessary for either Company
to carry on its Business, in all material respects, as and where presently
conducted, including, without limitation all Permits necessary, in all material
respects, to
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construct, own, operate and maintain the Pipeline, to gather, transport or sell
natural gas to customers under Gas Sales Contracts or Gas
Gathering/Transportation Contracts or to receive natural gas under Gas Purchase
Contracts or any other sales or purchases of natural gas, have been duly
obtained and are in full force and effect. There are no proceedings pending
or, to the Knowledge of Seller, threatened which are likely to result in the
revocation, cancellation or suspension or any material modification of such
Permits and, to the Knowledge of Seller, no facts exist which if publicly
disclosed reasonably could be expected to result in the revocation,
cancellation, suspension or any material modification of or to any such
Permits.
3.7 Financial Statements.
(a) Set forth as Schedule 3.7(a) are (i) the Baseline
Balance Sheet, (ii) the audited consolidated statement of income of Oasis and
its Subsidiary for the year ended December 31, 1995, (iii) the audited
consolidated statement of cash flows for the year ended December 31, 1995, and
(iv) the audited consolidated statement of changes in shareholders' equity as
of the year ended December 31, 1995. The financial statements referred to
above in this Section 3.7(a), including the notes thereto, are referred to
herein as the "Financial Statements." Seller also has provided to Buyer
accurate and complete copies of financial statements of Oasis for the periods
ended December 31, 1992, 1993 and 1994, consisting of audited consolidated
balance sheets, statements of income, statements of cash flows and statements
of changes in shareholders' equity accounts.
(b) The Financial Statements present fairly the
consolidated financial position of the Companies as of December 31, 1995, and
the consolidated results of the Companies' operations for the year ended
December 31, 1995. The Financial Statements have been prepared in conformity
with GAAP.
(c) There exist no Liabilities of either Company which
would be required to be reflected or reserved against under GAAP, other than
(i) Liabilities which are adequately reflected or reserved against in the
Baseline Balance Sheet, and (ii) Liabilities, which, taken in the aggregate,
could not reasonably be expected to have a Material Adverse Effect, and which
were incurred since December 31, 1995.
(d) To the Knowledge of Seller, each of the Companies has
duly made all material filings, returns, and reports to any Governmental or
Other Regulatory Body required by Law, except for failures to file or report
and inquiries that in the aggregate would not have a Material Adverse Effect.
To the Knowledge of Seller, from and after January 1, 1993 the auditors of
Oasis have not notified Oasis of any material issues regarding the accounting
procedures, financial controls or management procedures of the Companies.
3.8 Absence of Certain Events. Except as set forth on Schedule
3.8, to the Knowledge of Seller, or as permitted by this Agreement, since
December 31, 1995, each Company has operated only in the ordinary and normal
course of business and there has not been:
(a) any Material Adverse Effect and there has been no
occurrence, circumstance or combination thereof which, in the aggregate, could
reasonably be expected to result in a Material Adverse Effect, except for any
occurrence or circumstance of general applicability to the energy industry or
the national or Texas economy;
(b) any damage, destruction or loss (including without
limitation, damage, destruction or loss of the Property of either Company by
fire, explosion, earthquake, flood, riot, disaster, accident or other casualty,
strike or labor disturbance or governmental action or threatened action) of or
affecting the Property or Business of either Company, except for instances of
damage, destruction, and loss which in the aggregate would not have a Material
Adverse Effect;
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<PAGE> 16
(c) any change in either Company's authorized or issued
capital stock, or any purchase, redemption, retirement, or other acquisition by
either Company of any shares of any such capital stock, or any declaration or
payment of any Dividend, or any other similar distribution, directly or
indirectly, by either Company to its shareholders, except for cash Dividends on
the Common Stock and the Preference Stock which are consistent with past
practices and are in the ordinary course of operations of the Companies;
(d) any significant increase or decrease in the
compensation payable by either Company to any of its officers, key employees,
or agents, or any significant change in any insurance, pension or other benefit
plan, payment, or arrangement made to, for, or with any of such officers, key
employees or agents or any commission or bonus paid to any of such officers,
key employees, or agents;
(e) any assumption, guarantee, endorsement or other
assumption of responsibility or liability by either Company for any material
Liability of any other Person;
(f) any sale, assignment, transfer, lease or other
disposition of, or amendment, termination, release or waiver of, any material
tangible or intangible Property of either Company, or any acquisition by either
Company of any material Property not in the ordinary course of business;
(g) any discharge or satisfaction of any Lien or Other
Encumbrance on any Property of either Company, or the payment of any Liability
of either Company, other than in the ordinary course of business;
(h) any material mortgage or pledge of, or creation of
any material Lien or other Encumbrance with respect to any of the Property of
either Company;
(i) any cancellation, modification or settlement for less
than the full amount thereof of any material debt or claim by or owing to
either Company;
(j) any transfer or grant by either Company of any rights
under any material patents, patent licenses, inventions, trade names,
trademarks, service marks or copyrights, or registrations or licenses thereof
or applications therefor, or with respect to any material know-how or other
proprietary or trade rights;
(k) any termination, discontinuance, closing or disposal
of any material facility or business operation of either Company;
(l) any material transaction, contract or commitment
entered into by either Company which is not in the ordinary course of business,
or any material change in the accounting methods used by either Company;
(m) any transportation contracts or other commercial
contracts entered into, except for contracts that are on reasonable commercial
terms and are terminable without penalty by Oasis upon one month's notice or
less;
(n) any commitments by either Company for expenditures of
a capital nature in excess, individually or in the aggregate, of $50,000, other
than commitments pursuant to and consistent with the Capital Improvement
Program.
(o) any agreement, whether written or oral, by Seller or
by either Company to do, or cause to be done, any of the foregoing.
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3.9 Title to and Condition of Property.
(a) As used herein, the term "Real Property" shall mean
all of the following:
(i) All land, leasehold interests,
Easements-Pipeline, and other easements owned or leased by Oasis;
(ii) All rights and appurtenances to such property
described in subparagraph 3.9(a)(i) above.
(b) Schedule 3.9(b) hereto contains a list of certain
assets, which list includes references to all of the land owned by Oasis (but
is not intended to address Easements - Pipeline or any other type of Real
Property). To the Knowledge of Seller:
(i) The land owned by Oasis has been occupied by
Oasis since the respective dates of acquisition indicated on Schedule 3.9(b)
and there are no pending or threatened material disputes as to title in such
land (except that this Section 3.9(b)(i) does not address Easements - Pipeline
or any other type of Real Property);
(ii) There are no pending or threatened claims by
any Person which reasonably could be expected to prevent, or render more
costly, or limit or impede, the use of the Real Property as it is presently
used, which in the aggregate could have a Material Adverse Effect;
(iii) Neither Seller nor Oasis has received
written notice of any default or breach by Oasis or its predecessors in title
under any of the covenants, conditions, restrictions, rights-of-way or
easements affecting the Real Property or any portion thereof, other than
defaults or breaches which in the aggregate would not cause a Material Adverse
Effect; and, to the Knowledge of Seller, no such default or breach now exists,
or has occurred and is continuing, which with notice or the passage of time or
both could constitute a default under any such covenants, conditions,
restrictions, rights-of-way or easements, other than defaults or breaches which
in the aggregate would not cause a Material Adverse Effect;
(iv) Except for any instances which in the
aggregate could not reasonably be expected to have a Material Adverse Effect:
(A) all rights-of-way or easements currently in use and constituting Real
Property or any portion thereof are in full force and effect and such
rights-of-way or easements grant Oasis all rights conveyed thereby, subject to
the future action or inaction of Oasis to preserve such rights, and (B) no
abandonment, default, breach or other similar event now exists, or has occurred
and is continuing, which with notice or the passage of time, or both, could
result in a loss of the rights held pursuant to such rights-of-way or easements
by Oasis;
(v) None of the current Real Property is subject
to any existing Lien except for such Liens which are Permitted Liens or which
in the aggregate are not material to Oasis; and
(vi) Oasis has not received any currently
unresolved written notice from any insurance company which has issued a policy
with respect to any material portion of the Real Property or by any board of
fire underwriters or other body acting in connection with any such insurance
company that any repairs, alterations or other work in connection with such
Real Property is required in order to keep any insurance coverage in effect
with respect to such Real Property. If Oasis receives any such notice prior to
Closing, Seller will promptly advise Buyer thereof.
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<PAGE> 18
(c) Schedule 3.9(c) hereto contains a list and brief
description of all leases under which Oasis is lessor or lessee (including the
description of property and names of parties) with respect to any personal
property or land (excluding any Easements - Pipeline or any other type of Real
Property), including but not limited to, machinery, equipment, motor vehicles,
office furniture or fixtures owned by any third party, in which either (i) the
leases are not terminable by Oasis without liability, premium or penalty on six
months' (or less) notice, or (ii) the leases involve rentals payable by or to
Oasis of $50,000 or more per year in each instance. Each of such leases is in
full force and effect, in all material respects, and constitutes a legal, valid
and binding obligation of Oasis and, to the Knowledge of Seller, of the other
party or parties thereto in all material respects.
(d) Subject to Permitted Liens and Encumbrances, Oasis
owns, in all material respects, all of its tangible personal property reflected
on its books and records as being owned by it, including the Pipeline, all
furniture, furnishings, office equipment, supplies, machinery, tools and
equipment;
(e) The Real Property and other Property of Oasis
constitute all the real estate, personal property and other assets of any kind
(including all rights-of-way and easements) substantially necessary to permit
the conduct of the Business, in all material respects, as such Business is now
conducted.
(f) Oasis Finance does not own or lease any real property
or tangible personal property.
3.10 Intellectual Properties. To the Knowledge of Seller, Oasis
has, in all material respects, all rights in Intellectual Property necessary
for the operation of its Business. (For purposes of this Agreement,
"Intellectual Property" means all patents and applications therefore,
trademarks, trademark registrations and applications therefor, trade names,
service marks, copyrights, copyright registrations and applications therefor,
both foreign and domestic, trade secrets, know-how, formulae, technical
processes and confidential information, owned, possessed, used or held, by or
licensed to, Oasis). None of the Intellectual Property of Oasis is subject to
any pending or, to the Knowledge of Seller, threatened challenge or
infringement. There is no pending, or to the Knowledge of Seller threatened,
claim or action against either Company, alleging that such Company has, in any
material respect, infringed upon any Intellectual Property of any other Person.
Other than its name, Oasis Finance does not own, hold under license or use any
material Intellectual Property, and does not, in any material respect, require
any such rights in connection with its Business. Oasis does not do any
business under any name other than Oasis Pipe Line Company. Oasis Finance does
not do any business under any name other than Oasis Pipe Line Finance Company.
3.11 Contracts and Commitments.
(a) Except as shown on Schedule 3.11(a), and except with
regard to Contracts providing for Easements-Pipeline, neither Company is a
party to any existing written or, to the Knowledge of Seller, oral:
(i) contract for the sale or lease of any
material real or personal properties other than (A) contracts of the type
referred to in Sections 3.12 or 3.13, or (B) contracts which were entered into
in the ordinary course of business;
(ii) agreement or arrangement granting any
preferential rights to purchase any material Property of such Company or
requiring the consent of any party to the transfer and assignment of such
material Property of such Company;
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<PAGE> 19
(iii) agreement, contract, indenture or other
instrument relating to the borrowing of money, or the guarantee of any material
obligation, or any other agreement to be liable for the material debts of any
person (other than contracts of the type referred to in Sections 3.12 or 3.13);
(iv) joint venture or partnership;
(v) currently effective power of attorney;
(vi) contract limiting the freedom of such Company
to compete in any line of business or with any Person;
(vii) any authorization for expenditure or similar
commitments in excess of $50,000 (other than agreements entered into pursuant
to and consistent with the Capital Improvement Program);
(viii) any Material Contract not identified in (i)
through (vii) above.
(b) Except as set forth on Schedule 3.11(b), each Company
and, to the Knowledge of Seller, each other party, is not in default or alleged
to be in default in any material respect under any Contract set forth in
Section 3.11(a), and there exists no event, condition or occurrence which,
after notice or lapse of time, or both, would constitute such a default by such
Company and, to the Knowledge of Seller, any other party thereto of or under
any of the foregoing. To the Knowledge of Seller, there are no unresolved
material disputes under any of the Contracts set forth in Section 3.11(a).
(c) There have been made available to Buyer true and
complete copies of all of the contracts and agreements, and all amendments
thereto, to which reference is made in Section 3.11(a). Except as set forth in
Schedule 3.11(a) or Schedule 3.11(b), each of such contracts and agreements is,
in all material respects, in full force and effect and constitutes the legal,
valid and binding obligation of Oasis or Oasis Finance, as the case may be,
and, to the Knowledge of Seller, the other parties thereto, and is enforceable
in accordance with its terms under applicable Laws. To the Knowledge of
Seller, there are no pending redeterminations or renegotiations of any contract
or agreement set forth in Section 3.11(a), and neither Company has received or
made a request for any such renegotiation or redetermination of any such
contract or agreement.
3.12 Gas Transportation Agreements.
(a) All existing contracts having a term greater than two
months with respect to any of the following activities by Oasis: (i) the
transporting of natural gas, or undertaking such transporting for a third
party, (ii) the exchanging of natural gas, or undertaking such exchanging for a
third party, or (iii) the compressing of natural gas or undertaking such
compressing for a third party (collectively, the "Gas Transportation
Contracts"), are disclosed in Schedule 3.12(a) hereto. Seller has caused Oasis
to make available to Buyer true, correct and complete copies of all the Gas
Transportation Contracts. Except as set forth in Schedule 3.12(a)(i), all
material imbalances which existed as of December 31, 1995 are reflected in the
Baseline Balance Sheet, and Oasis has not received any material prepayments,
advance payments or loans which will require Buyer to perform services under
the Gas Transportation Contracts on or after the Closing Date without being
paid currently therefor. Except for imbalances set forth on Schedule
3.12(a)(i), there are no material imbalances. There are no unresolved material
disputes under the contracts listed on Schedule 3.12(a).
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<PAGE> 20
(b) Except as set forth in Schedule 3.12(b), Oasis
Finance is not a party to any Gas Transportation Contracts, nor are any of its
assets subject to any such contracts.
3.13 Gas Purchase/Sales Contracts.
(a) Schedule 3.13(a)(i) hereto sets forth all existing
contracts ("Gas Purchase/Sales Contracts") under which Oasis is obligated or
has the right to either (i) purchase natural gas from any Person or (ii) sell
natural gas to any Person. Except as disclosed in Schedule 3.13(a)(ii) hereto,
as to each Gas Purchase/Sales Contract, Oasis has not received any material
quantity of natural gas to be paid for thereafter other than in the normal
cycle of billing, consistent with industry practice. There are no unresolved
material disputes with parties purchasing natural gas from or selling natural
gas to Oasis other than as shown in Schedule 3.13(a)(iii). Seller has caused
Oasis to make available to Buyer true, correct and complete copies of all Gas
Purchase/Sales Contracts.
(b) Oasis Finance is not a party to any Gas
Purchase/Sales Contracts, nor are any of its assets subject to any such
contracts.
3.14 Gas Gathering Contracts.
(a) Oasis is not a party to any contracts with respect to
any of the following activities: (i) the gathering or treating of natural gas,
or undertaking such gathering or treating for a third party, (ii) the
processing of natural gas, or undertaking such processing for a third party, or
(iii) the selling or exchanging of natural gas liquid by-products, or
undertaking such selling or exchanging for a third party (collectively, the
"Gas Gathering Contracts"), other than Gas Gathering Contracts previously
assigned by Oasis to a third party for which such third party has assumed the
obligations of Oasis under such contracts (the "Assumed Gas Gathering
Contracts"). There are no unresolved material disputes under the Assumed Gas
Gathering Contracts for which Oasis could have any Liability.
(b) Oasis Finance is not a party to any Gas Gathering
Contract, nor are any of its assets subject to any such contracts.
3.15 Refunds and Advance Payments. Oasis has not received or paid
any prices for natural gas or received any fees or compensation for gathering,
transportation, treating, processing or compression services which would be
subject in the future to any material refund or create any material repayment
obligation, except for cash Dividends on the Common Stock and the Preference
Stock which are consistent with past practices and are in the ordinary course
of operations of the Companies. Oasis has not received any material advance,
"take or pay" or other similar payment under the Gas Purchase/Sales Contracts,
any advance payment agreement or any other similar Contract that entitles a
purchaser to "make-up" or otherwise receive deliveries of gas or other
hydrocarbons at any time after the Closing Date without paying at such time for
the full contract price therefore. Except as set forth in Schedule 3.15
hereto, Oasis is not obligated to make any material advances or prepayments for
natural gas or to make any material payments to fund, by loan, advance or
otherwise, directly or indirectly, any exploration, development or related
activities by any other party, whether pursuant to a Gas Purchase/Sales
Contract or any other agreement. Oasis Finance is not a party to any contracts
or obligations of the type described in this Section 3.15, nor are any of its
assets subject to any such contracts.
3.16 Insurance. A list of all policies of insurance and bonds of
any type presently in force with respect to the Business of each Company,
including, without limitation, those covering product liability claims
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and its properties, buildings, machinery, equipment, furniture, fixtures and
operations are set forth on Schedule 3.16 hereto.
3.17 Texas Railroad Commission and Other Regulatory Agencies.
(a) To the Knowledge of Seller, all currently effective
filings heretofore made by Oasis with the Texas Railroad Commission, the
Federal Energy Regulatory Commission ("FERC"), the Department of
Transportation, the Texas Natural Resources Conservation Commission, and the
Occupational Safety and Health Administration (collectively, the "Regulatory
Agencies") were made in compliance, in all material respects, with legal
requirements applicable thereto and the factual information contained therein
was true and correct in all material respects as of the respective dates of
such filings.
(b) Except as set forth on Schedule 3.17(b), the right of
Oasis to receive payment pursuant to any tariff, rate schedule or similar
instrument filed with or subject to the jurisdiction of any Regulatory Agency
has not been suspended, and is not subject to any refund and Oasis has not
received written notification questioning the validity of any such tariff, rate
schedule or similar instrument from any Regulatory Agency or customer.
(c) Oasis Finance is not subject to any requirements of
the type set forth in Sections 3.17(a) and 3.17(b), above.
3.18 Interstate Commerce. Oasis has been and is engaged in certain
interstate transactions , but because all such transactions comply with the
FERC's regulations promulgated under Section 311 of the Natural Gas Policy Act
of 1978, neither of the Companies nor the Pipeline is subject to the
jurisdiction of the Federal Energy Regulatory Commission under the Natural Gas
Act of 1938.
3.19 Regulatory Authority. Neither Company is: (a) a "holding
company," an "affiliate" of a "holding company" or a "subsidiary company" of a
"holding company" or a "public utility," as each of such terms is defined in
the Public Utility Holding Company Act of 1935 and the rules and regulations
thereunder; or (b) an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
3.20 Bank Accounts. Schedule 3.20 hereto lists all bank, trust,
checking, savings, custody and other accounts (including without limitation any
trading or other accounts maintained with any brokerage, investment banking or
commodity trading firms) and lock boxes or safe deposit boxes of each Company
in which there are or may be deposited monies or other assets of such Company,
each bank at which such Company has borrowing authority and a true, accurate
and complete list of any and all persons authorized to exercise such authority.
3.21 Tax Returns and Tax Audits.
(a) The Companies have fulfilled all applicable
requirements for the filing of tax and information returns and tax reports with
all Governmental agencies. All returns and reports of income have been
prepared on a basis consistent with previous years' returns or reports. Seller
has delivered accurate copies of all Federal income tax returns for years ended
after December 31, 1990 to Buyer. Except as disclosed in Schedule 3.21(a), all
income, profits, franchise, sales, use, occupation, property, severance,
excise, ad valorem, employment, and other taxes imposed by Federal, State,
local or foreign governments, and all interest, penalties, assessments and
deficiencies due or claimed by any taxing authority with respect
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<PAGE> 22
to the foregoing have been fully paid, or, in the case of amounts not yet due,
adequately provided for by the Companies.
(b) Except as disclosed in Schedule 3.21(b), the Baseline
Balance Sheet includes adequate accruals for the payment of all income,
profits, franchise, sales, use, occupation, property, severance, excise, ad
valorem, employment, and other taxes imposed by Federal, State, local or
foreign governments for the periods to which they relate, and the Companies do
not have any liability for any such taxes in excess of the amounts reflected on
such Baseline Balance Sheet. Neither Company is subject to any liability for
state combined income tax liabilities by reason of the affiliation between
Oasis, Oasis Finance, and Seller.
(c) Schedule 3.21(c)(i) discloses all open examinations
of the Companies for taxes for past periods by any Federal, State, local or
foreign governmental authority. Schedule 3.21(c)(ii) discloses all extensions
of any statute of limitations on the assessment or collection of any tax that
either Company has agreed to and all powers of attorney with respect to tax
matters that either Company has in effect.
(d) Except as disclosed in Schedule 3.21(d), neither
Company is a party to any pending action or proceeding relating to any tax or
other governmental charge, no written claim for assessment or collection of
taxes or any other governmental charges has been asserted against either
Company, and no action or proceeding is, to the Knowledge of Seller, threatened
against either Company by any Governmental authority for assessment or
collection of any tax or other governmental charge.
(e) Neither Company has been required to file tax returns
or pay taxes to any foreign government or to any state or local government
outside of the states of Texas or Delaware other than as a result of
affiliation with Seller.
3.22 Books and Records. With respect to the period beginning
January 1, 1996, the books, records and accounts of the Companies, in all
material respects: (i) are complete and correct, (ii) have been maintained in
accordance with good business practices, and (iii) are stated in reasonable
detail and fairly reflect the transactions and dispositions of the assets of
the Companies.
3.23 No Litigation, Adverse Events or Violations.
(a) Except as set forth on Schedule 3.23(a), there is no
action, suit, claim or legal, administrative, arbitration, condemnation or
other proceeding or governmental investigation or examination pending, or to
Seller's Knowledge threatened, against either Company or any of its Business or
Property or any Employee Arrangement, or any injunction, order, arbitration
award, or other similar matter, entered, pending or, to the Knowledge of
Seller, threatened, against either Company or any of its Business or Property
or any Employee Arrangement, at law or in equity, before or by any federal,
state, municipal or other governmental department, court, commission, board,
bureau, agency or instrumentality, or any arbitrator or arbitration tribunal,
domestic or foreign, except for any such foregoing matters which, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(b) Neither Company is currently in violation, or
currently liable for any past violation, of any applicable Laws or Permits
relating or applicable to it, its Business, any of its Property, or its
operations, except for such instances of violation and noncompliance which, in
the aggregate, would not have a Material Adverse Effect; provided that this
Section 3.23(b) does not cover any of the matters addressed by Sections 3.21 or
3.25.
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3.24 Employees and Employee Benefits.
(a) Employees. Schedule 3.24(a) sets forth the names of
all past and present employees of Oasis and the time periods during which such
employees were hired. Seller has made available to Buyer complete and accurate
employment records which set forth the names, titles and compensation (wages,
salaries, and bonuses) of all current employees of Oasis. To Seller's
knowledge, there are no promised increases in compensation of employees of
Oasis, except for increases previously budgeted by Oasis.
(b) Identification. To the Knowledge of Seller, Schedule
3.24(b) is a complete and accurate list of all written Employment Arrangements
and all written Employee Policies and Procedures. To the Knowledge of Seller,
there are no unwritten agreements or amendments, constituting or amending any
Employee Arrangement.
(c) No Default. To the Knowledge of Seller, Oasis is in
compliance, in all material respects, with the terms and conditions of each
Employment Arrangement and each Employee Policy and Procedure and there is no
material unresolved dispute relating thereto, except where failure to comply
would not have a Material Adverse Effect.
(d) Controlled Groups. Other than the Controlled Group
consisting of Oasis and Oasis Finance, neither Company has been a member of a
Controlled Group.
(e) Unions. To the Knowledge of Seller, (i) neither
Company has been a party to any agreement with any union, labor organization or
collective bargaining unit; (ii) no employees of Oasis are represented by any
union, labor organization or collective bargaining unit; (iii) none of the
employees of Oasis has threatened to organize or join a union, labor
organization or collective bargaining unit; (iv) there are no pending or
threatened labor strikes involving Oasis and its employees; and (v) there are
no pending or threatened material disputes, grievances, or controversies
involving Oasis and its employees.
(f) Compliance. Each Employment Arrangement and Employee
Policy and Procedure, and each related trust agreement, annuity contract or
other funding instrument which covers or has covered employees or former
employees of Oasis, is in compliance with applicable Law, in all material
respects, and is not presently liable, in any material respect, for any prior
violation of applicable Law, except where failure to comply would not have a
Material Adverse Effect.
3.25 Environmental Matters.
(a) Except as set forth on Schedule 3.25(a), neither
Oasis nor any of its Property (i) is in violation of any Environmental Law or
is presently liable for any prior violation of any Environmental Law, except
for such violations which in the aggregate would not cause a Material Adverse
Effect (ii) is subject to any pending or, to the Knowledge of Seller,
threatened investigation or inquiry by any Governmental or Regulatory Body
relating to any violation under any Environmental Law, or relating to any
matter that reasonably could be expected to result in a Material Adverse Effect
under any Environmental Law, (iii) is subject to any pending or, to the
Knowledge of Seller, threatened investigation or litigation by any Person
relating to any violation under any Environmental Law, or relating to any
matter that reasonably could be expected to result in a Material Adverse Effect
under any Environmental Law, (iv) has received any Information Request or
notice of violation of any Environmental Law from any Governmental or
Regulatory Body, (v) is conducting or, is subject to a current request or
order, or, to the Knowledge of Seller, is otherwise under any current
obligation to conduct any investigation, remediation or clean-up of any
Hazardous Substances, or (vi) has ever received any PRP Letter under which
Oasis has any current Liability.
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<PAGE> 24
(b) None of the Property now or formerly owned or leased
by Oasis is on any federal or state "Superfund" list or subject to any
environmentally related liens; and neither Oasis nor Seller, nor, to the
Knowledge of Seller, any officer, director, other shareholder, employee or
agent of Oasis, has been named or alleged in writing to be a potentially
responsible party in connection with any Environmental Law or investigation,
remediation or cleanup of any Hazardous Substance, relating to Oasis.
(c) Except as set forth on Schedule 3.25(c), no Hazardous
Substances have been released, discharged, spilled, deposited or abandoned from
or on any present or former Property of Oasis, except for any such release,
discharge, spill, deposit or abandonment which would not cause a Material
Adverse Effect.
(d) Except as set forth on Schedule 3.25(d), all notices
and Permits, if any, required to be filed, held or applied for in connection
with the operation of the Business or the consummation of this Agreement
relating to past or present treatment, storage, disposal or release of any
Hazardous Substance into the environment, have been duly filed, obtained or
applied for, except for such notices and Permits which if not filed, held or
applied for would not in the aggregate cause a Material Adverse Effect.
(e) Except as set forth in Schedule 3.25(e), there are no
underground storage tanks (as defined in 42 U.S.C. Section 9001 or applicable
state law) on or under any of the Property of Oasis.
(f) Except as set forth in Schedule 3.25(f), all
above-ground storage tanks comply with the standards set forth in Title 40,
Part 112 of the Code of Federal Regulations.
(g) The reserves for Environmental Matters included in
the Baseline Balance Sheet were made for potential costs and Liabilities with
respect to the sale of certain gathering and processing assets of Oasis to
Western Gas Resources - Texas, Inc. ("Western") pursuant to the Purchase and
Sale Agreement dated October 27, 1994 between Oasis and Western (the "Western
PSA"). (All costs and Liabilities of Oasis arising out of Section 3.8 and
Article XI of the Western PSA, and, to the extent related to the matters set
forth in Section 3.8 of the Western PSA, arising out of Article XII of the
Western PSA are referred to as the "Retained Gathering and Processing Assets
Obligations"). Seller believes that such reserves are sufficient to cover the
full amount of the Retained Gathering and Processing Assets Obligations.
3.26 Finder's Fees. None of the Companies nor Seller nor
Affiliates of Seller has employed or retained any broker, agent, finder or
other party, or incurred any obligation for brokerage fees, finder's fees or
commissions with respect to the transactions contemplated by this Agreement, or
otherwise dealt with anyone purporting to act in the capacity of a finder or
broker with respect thereto whereby either Company or Buyer or any Affiliate of
either of them may be obligated to pay such a fee or commission.
3.27 Transportation Rights.
(a) Schedule 1.1(bd) includes a full and complete list of
all agreements pursuant to which Seller has the right to have gas transported
on the Pipeline. Schedule 1.1(be) includes a full and complete description of
the Transportation Rights being conveyed to Buyer hereunder. Seller has taken
all actions and has all authorizations that may be necessary in order to enjoy,
in all material respects, the rights and benefits granted under the agreements
which constitute the Transportation Rights.
(b) Seller and Oasis have not failed to perform any
material obligation required to be performed by either of them, and they are
not in default or alleged to be in default in any material respect, under any
of the agreements specified on Schedule 1.1(bd), and there exists no event,
condition, or occurrence which after notice or lapse of time, or both, would
constitute such a default by either Seller or Oasis of or
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<PAGE> 25
under any of the foregoing. There are no unresolved material disputes under
any of the agreements specified on Schedule 1.1(bd).
(c) There have been made available to Buyer true and
complete copies of all of the agreements which constitute Transportation
Agreements and those which constitute the Transportation Rights, together with
all amendments thereto. Each of such agreements is in full force and effect
and constitutes the legal, valid and binding obligation of the parties to such
agreements, in all material respects. Neither Seller nor Oasis has received or
made an unresolved request or demand to redetermine or renegotiate any material
term of any of such agreements, and neither Seller nor Oasis is presently
engaged in a renegotiation or redetermination of any material term of any such
agreements.
3.28 Seller's Investigation. In connection with the
representations and warranties set forth herein, Seller has interviewed each of
the following employees of Oasis as to whether he or she is aware of any
exceptions to the representations and warranties set forth opposite his or her
name or whether anything must be added to the Schedules relevant to such
representations and warranties in order to make such representations and
warranties accurate:
<TABLE>
<CAPTION>
Name Section Numbers
---- ---------------
<S> <C>
Joe Scharnberg 3.2(a), 3.6(b), 3.7, 3.8(a), (b), (c), (d), (e), (f),
(g), (h), (i), (j), (k), (l), 3.9(b)(i), (b)(ii), (b)(v),
(b)(vi), (c), (d), (e), (f), 3.10, 3.11(a), (b), 3.12,
3.13(b), 3.15, 3.16, 3.17(a), (c), 3.20, 3.21, 3.22,
3.24(b), (c), (e), (f)
Sandra Grimes 3.3(a), (b), 3.9(c), 3.12(a), 3.13(a), 3.17(b),
3.27(a), (b)
Cliff Reed 3.6(b), 3.8(a), (b), (f), (o), 3.17(a), 3.25(a), (b),
(c), (d), (e), (f), (g)
</TABLE>
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Organization.
(a) Buyer is a limited partnership, duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Buyer has full power and authority to enter into this Agreement and all other
agreements to be executed and delivered by Buyer hereunder, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby.
(b) The execution of this Agreement and all other
agreements contemplated to be executed and delivered by Buyer have been duly
authorized by all necessary action of Buyer and its partners, which actions
have not been amended or modified or canceled and no further corporate action
is required by Buyer in connection therewith. This Agreement has been duly
executed and delivered on behalf of Buyer and constitutes a valid and binding
obligation of Buyer enforceable against Buyer in accordance with its terms.
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<PAGE> 26
(c) Except as set forth in Schedule 4.1(c), neither the
execution, delivery or performance of this Agreement and all other agreements
contemplated hereby nor the consummation of the transactions contemplated
hereby or thereby in accordance with the terms of this Agreement and such other
agreements nor compliance with the provisions hereof or thereof by Buyer will,
with or without the passage of time or the giving of notice, or both: (i)
require any consent or approval of the members or other governing body of Buyer
which has not already been obtained; (ii) conflict with, constitute a breach,
violation or termination of any provision of, or constitute a default under,
any Contracts or Other Agreements to which Buyer is a party or by which Buyer
is bound or to which any of the Property of Buyer is subject, other than
conflicts, breaches, violations, terminations and defaults which in the
aggregate are not material, (iii) result in an acceleration or increase of any
amounts due under any instrument evidencing debt of Buyer, (iv) conflict with
or violate the Organizational Documents of Buyer, or (v) violate any Law
applicable to Buyer or any of its Property, other than violations which in the
aggregate are not material.
4.2 Finder's Fee. None of Buyer nor any of Buyer's Affiliates has
employed or retained any broker, agent, finder or other party or incurred any
obligation for brokerage fees, finder's fees or commissions with respect to the
transactions contemplated by this Agreement, or otherwise dealt with anyone
purporting to act in the capacity of a finder or broker with respect thereto
whereby either of the Companies or Seller or any of their Affiliates may be
obligated to pay such a fee or a commission.
4.3 No Adverse Action. There are no actions, suits, claims or
legal administrative, arbitration or other proceedings or governmental
investigations or examinations, pending or to the Knowledge of Buyer
threatened, or injunctions or orders entered, pending or to the Knowledge of
Buyer threatened, against any of Buyer or any of its Affiliates or any of its
business or Property, at law or in equity, before or by any federal, state,
municipal or other governmental department, court, commission, board, bureau,
agency or instrumentality, or any arbitrator or arbitration tribunal, domestic
or foreign, to restrain or prohibit the consummation of the transactions
contemplated hereby or to obtain damages, which if decided adversely would
adversely affect the ability of Buyer or its permitted successors or assigns to
consummate the transactions provided for in this Agreement.
4.4 Approvals, Licenses and Authorizations. Except as set forth
on Schedule 4.4 or as may be required by the HSR Act, (i) no order, license,
consent, waiver, authorization or approval of, or exemption by, or giving of
notice to, or filing or registration with or the taking of any other action by
or in respect of, any Person (including without limitation any Governmental or
Other Regulatory Body), and (ii) no filing, recording, publication or
registration in any public office or any other place, is required by or on
behalf of Buyer in order to (x) authorize Buyer's execution, delivery, and
performance of this Agreement or any other agreement, document or instrument
contemplated hereby to be executed and delivered by Buyer and the consummation
by Buyer of the transactions contemplated hereby or thereby, or (y) to assure
the legality, validity, binding effect, or enforceability of this Agreement or
such other agreements, documents or instruments.
4.5 Investment Intent, Etc.. Buyer is purchasing the Shares for
its own account for investment and not with a view to, or for a sale in
connection with, any public distribution within the meaning of the Securities
Act of 1933, as amended. Buyer can afford to bear the economic risk of the
investment it is making hereunder for an indefinite period of time. Buyer has
received all such information and has had an opportunity to ask and has
received answers to such questions as are necessary to enable Buyer to fully
evaluate and understand the purchase of Shares contemplated hereby.
4.6 Other Acquisitions. None of Buyer, Buyer's limited partner,
AQP Acquisitions LLC, Buyer's general partner, AQP Newco Corporation, and the
members of AQP Acquisitions, LLC, Aquila Gas Pipeline
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<PAGE> 27
Corporation and Aquila Energy Corporation, are presently involved in any
negotiations, are presently obligated by any contract, for the acquisition by
any of them of any assets, which acquisition could, to the Knowledge of Buyer,
be reasonably expected to materially interfere with the ability of Buyer to
obtain the necessary clearances under the HSR Act for the consummation of the
transactions provided for hereunder.
4.7 Funding. Buyer has delivered to Seller the following
documents in relation to availability of funding of the Purchase Price: Letter
dated of even date herewith addressed to Seller from Aquila Energy Corporation
in the Form of Schedule 4.7(a); Letter dated of even date herewith addressed to
Seller from Aquila Gas Pipeline Corporation in the Form of Schedule 4.7(b); and
Letter dated of even date herewith addressed to Seller from AQP Acquisitions
LLC in the Form of Schedule 4.7(c). Each of such documents is in full force
and effect, and constitutes the valid and binding obligation of the Person
executing it, enforceable in accordance with its terms.
ARTICLE 5.
ACCESS TO INFORMATION BY BUYER
5.1 Prior to Closing.
(a) Until the Closing or the earlier termination of this
Agreement, Seller will furnish Buyer, and its officers, employees,
accountants, attorneys, representatives and agents with all financial,
operating, engineering and other data and information concerning the Shares,
the Businesses and Property of the Companies, and the Transportation Rights as
Buyer shall from time to time reasonably request, and will accord Buyer or its
authorized representatives reasonable access to the properties, books, records,
contracts and documents (including tax returns filed and those in preparation)
of the Companies, and will give such persons the opportunity to ask questions
of, and receive answers from, appropriate representatives of the Companies and
Seller.
(b) Buyer's rights to access to information as set forth
in Section 5.1(a) will be limited to such requests as are reasonably related to
this Agreement and the consummation of the transactions contemplated hereunder
and shall not unreasonably interfere with the day to day operations of the
Companies. Buyer hereby agrees to assume the risk of personal injury to its
representatives during the course of its investigation of the Companies and
Businesses, REGARDLESS OF ANY ALLEGED OR ACTUAL NEGLIGENCE ON THE PART OF THE
SELLER, EITHER COMPANY, OR THEIR RESPECTIVE AFFILIATES, OR ANY PERSON
AFFILIATED WITH ANY OF THE FOREGOING. Except as expressly contemplated or
required hereunder, neither Buyer nor its agents or representatives shall
contact any Governmental Authority prior to the Closing regarding the assets or
operations of the Companies without Seller's prior written consent.
5.2 Confidentiality. The Confidentiality Agreements, dated
November 20, 1995 and January 17, 1996, respectively between Seller and Buyer
regarding Seller's interests in Oasis, and all amendments and replacements
thereof (the "Buyer Confidentiality Agreements") shall continue in full force
and effect during the period prior to Closing, and shall survive any
termination of this Agreement pursuant to Article 12. Upon the Closing, the
Buyer Confidentiality Agreements shall be governed by the letter agreement of
even date herewith between Seller and Buyer relevant thereto.
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<PAGE> 28
ARTICLE 6.
ADDITIONAL AGREEMENTS
6.1 Actions Prior to Closing. From the date hereof to the Closing
or the earlier termination of this Agreement, except as contemplated by this
Agreement or as described on Schedule 6.1, Seller covenants and agrees that,
unless the prior written consent of Buyer is obtained, it and its Affiliates
will not take any action or agree to take any action, and will not permit or
cause either Company to take any action or agree to take any action which would
result in a violation of any of the following proscriptions:
(a) The Business of each Company will be carried on in
the usual and ordinary course of business and each Company will use all
reasonable efforts to preserve its present Business, business organization,
facilities, operations, and Property intact, keep available the services of its
present officers and employees and preserve its present relationships with
Persons having business dealings with it, and shall not make or institute any
methods of manufacture, purchase, sale, lease, management, accounting or
operation which are not reasonable and consistent with the usual and ordinary
course of business of such Company;
(b) Neither Company shall make any, or agree to make any,
distributions to its shareholders, declare or pay any Dividends or declare or
pay any similar payments, directly or indirectly, provided, that Oasis may
declare and pay cash Dividends on the Common Stock and the Preference Stock;
provided, such Dividends are consistent with past practices and are in the
ordinary course of operations of the Companies; and provided, further, that
Seller shall inform Buyer of the declaration of such Dividends as soon as
practicable.
(c) Neither Company will (i) incur any obligation or
Liability or assume, guarantee, endorse or otherwise become responsible for the
Liabilities or obligations of any other Person (whether absolute, accrued,
contingent or otherwise), except trade or business obligations incurred in the
ordinary course of business; (ii) discharge or satisfy any material Lien or
Other Encumbrance or pay any obligation or Liability (whether absolute,
accrued, contingent or otherwise), other than in the ordinary course of
business; (iii) mortgage, pledge, create or subject to a Lien or Other
Encumbrance any of its existing Property other than Permitted Liens and
Encumbrances other than in the ordinary course of business; (iv) sell, assign,
transfer, lease or otherwise dispose of any of its Property, except in the
ordinary course of business, or acquire any Property or any interest therein
except in the ordinary course of business, provided that sales or purchases on
arm's-length terms of immaterial Property of Oasis not in excess of $100,000 in
the aggregate and commitments pursuant to and consistent with the Capital
Improvement Program shall not be deemed a violation of this Section 6.1(c)(iv);
(v) amend, terminate, waive or release any material rights or claims or cancel
any material debt owing to or claimed by such Company other than in the
ordinary course of business; (vi) transfer or grant any material rights under
any inventions, trademarks, trade names, service marks or copyrights, or
registrations or licenses thereof or applications therefor, or with respect to
any know-how or other proprietary or trade rights; (vii) modify or change in
any material respect any Material Contracts other than in the ordinary course
of business; (viii) enter into any transaction, contract or commitment which by
reason of its size or otherwise is material to the Business or financial
condition of such Company; (ix) enter into any Material Contract which is not
in the ordinary course of business;
(d) Neither Company will (i) amend or terminate any of
its Organizational Documents, (ii) make any change in authorized or issued
capital stock or any purchase, redemption, retirement or other acquisition by
either Company of any such capital stock, (iii) enter into any merger or
consolidation, (iv) change the character of its business, (v) make any option,
warrant, call, right, commitment or any other agreement of any character
obligating it to issue any shares of its capital stock (including, without
limitation,
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<PAGE> 29
any grant of employee stock options),(vi) issue any securities, or (vii) sell
or otherwise dispose of all or a material portion of its assets other than in
the ordinary course of business;
(e) Neither Company will take any action or omit to take
any action, or permit any act or omission to act, which will cause a breach of
any contractual obligation which, individually or in the aggregate, would have
a Material Adverse Effect;
(f) Neither Company will permit any insurance policy
naming it as a beneficiary or a loss payable payee to be canceled, terminated
or modified or any of the coverage thereunder to lapse unless simultaneously
with such termination or cancellation, replacement policies providing
substantially the same coverage are in full force and effect;
(g) Neither Company will make any loan to, or enter into
any business transaction of any other nature with, any officer or director of
Oasis or Seller or any Affiliate thereof;
(h) The Companies will timely file all tax returns and
reports required to be filed or extensions thereof with any Governmental or
Other Regulatory Body, and pay or make adequate provision for payment of all
amounts indicated thereon to be due; or
(i) Seller will not vote its shares of capital stock of
Oasis in favor of any transaction involving the sale or other disposition of
all or substantially all of the assets of either Company or any merger,
consolidation, business combination dissolution, liquidation or similar
transaction involving either Company.
6.2 Hart-Scott-Rodino Filings. Seller and Buyer, promptly after
execution of this Agreement, will assist each other in gathering information
relevant to the notification reports required under the HSR Act and the rules
of the Federal Trade Commission thereunder in connection with the transactions
contemplated by this Agreement, will file such completed notification reports
(with Buyer paying the applicable fee in respect to its filing), will cooperate
with each other in attempting to secure early termination of the applicable
waiting periods under such Act, and, upon the request of either the Federal
Trade Commission or the United States Department of Justice, will exercise
their respective best efforts to supply such agencies with any additional
requested information as expeditiously as possible.
6.3 Information. Prior to the Closing: (i) Seller will promptly
inform Buyer in writing of any litigation commenced, or any material claim
asserted, against Seller or either Company in respect of the transactions
contemplated by this Agreement; and (ii) Buyer will promptly inform Seller in
writing of any litigation commenced, or any material claim asserted, against
Buyer in respect of the transactions contemplated by this Agreement.
6.4 Taxation. Seller and Buyer shall cooperate fully with each
other in connection with the filing of all tax returns and in connection with
any audit examination of, or tax controversy with, either of the Companies by
any governmental taxing authority. Such cooperation shall include, without
limitation, the furnishing or making available of records, books of account,
and other materials (i) necessary or helpful for the filing of such return,
(ii) for use in the audit examination, and (iii) for the defense against the
claim by any taxing authority for additional income or other tax with respect
to either of the Companies.
6.5 Further Assurances. Each party shall execute and deliver or
cause to be executed and delivered to the other party such further instruments
of transfer, assignment and conveyance as such other party may reasonably
require to more effectively carry out the transfer of the Interests and the
consummation of the transactions contemplated by this Agreement.
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6.6 Compliance. Each of Seller and Buyer agrees to:
(a) Use reasonable best efforts to cause all obligations
imposed upon it hereunder to be duly complied with, and to cause all conditions
precedent to its obligations hereunder to be satisfied prior to the Termination
Date;
(b) Use reasonable best efforts to obtain any and all
consents, waivers, amendments, modifications, approvals, authorizations,
novations and licenses necessary for the consummation of the transactions
contemplated by this Agreement (and, in this regard, Seller shall use its
reasonable best efforts to obtain any required consents or agreements from
Oasis);
(c) Promptly notify all parties to this Agreement of the
occurrence of any event or the failure of any event to occur within its
knowledge as a result of which any representation or warranty made by it in
this Agreement would cease to be true or which results in a failure by it to
comply or be able to comply with any of its covenants, conditions or agreements
contained in this Agreement; and
(d) Make appropriate filings and reports with the Texas
Railroad Commission under the Texas Gas Utility Regulatory Act.
6.7 Delivery of Corporate Documents. At the Closing, Seller shall
provide to Buyer copies of such books, records and contract files, which are in
Seller's or its Affiliates' possession and which relate to the Interests, as
Buyer shall reasonably require in connection with the ownership, administration
and operation of the Interests. Seller may retain any such books, records and
contract files as Seller shall reasonably require in connection with its
ownership or former ownership of capital stock of Oasis or transportation
rights on the Pipeline. Buyer agrees that, to the extent it can reasonably
obtain copies of materials directly from the Companies, it will do so in lieu
of requesting such copies from Seller.
6.8 Post Closing Access to Information. Following the Closing
each party shall, as reasonably requested by the other, use all reasonable
efforts to make available to the requesting party such information and
documents relating to the Interests as the requesting party requests in
connection with such party's ownership or former ownership of the Interests.
The parties shall use all reasonable efforts to make available to each other
accountants and auditors of the Companies in connection with the foregoing.
The party requesting such information, documents and availability of
accountants and auditors shall pay the costs and expenses of the other party in
connection with the foregoing. The foregoing shall not obligate a party to
make a disclosure that would cause the waiver of a legal privilege.
6.9 Limitation of Seller's Duties. Buyer and Seller agree that
nothing in this Article VI shall be interpreted as requiring Seller to take any
action or to fail to take any action or to cause either of the Companies to
take any action or to fail to take any action, if the taking of such action, or
the failure to take such action, would constitute the breach by Seller (or any
employee of Seller acting as a director or officer of either Company) of any
fiduciary or other duty owed by Seller or such employee to Oasis or any other
shareholder of Oasis.
6.10 Consent and Waiver. At or prior to the Closing, Buyer shall
deliver the Consent and Waiver in the form set forth as Schedule 6.10 to Seller
and to the HPL Beneficiaries as defined therein.
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<PAGE> 31
ARTICLE 7.
CONDITIONS TO BUYER'S OBLIGATION TO CONSUMMATE THE TRANSACTIONS
The obligation of Buyer to consummate the transactions contemplated
hereunder is subject to the satisfaction on or prior to the Closing Date of the
conditions set forth below. Notwithstanding the failure of any one or more of
such conditions, Buyer may nevertheless proceed with the Closing.
7.1 Compliance With Agreement. Seller shall, in all material
respects, have performed all of its obligations and agreements, and complied
with all covenants, warranties and conditions contained in this Agreement which
are required to be performed or complied with by it on or prior to the Closing
Date. For purposes of determining whether the conditions set forth in this
Section 7.1 have been satisfied, the provisions of Section 6.9 shall not be
taken into account; provided however that the preceding language of this
sentence shall not in any manner or under any circumstance result in or permit
any claim against Seller.
7.2 Representations and Warranties. The representations and
warranties of Seller contained in this Agreement shall be true, complete and
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made or
given on the Closing Date, except to the extent that failure to be true,
complete and correct is caused by any occurrence or circumstance of general
applicability to the energy industry or the national or Texas economy.
7.3 Certificate. Seller shall have delivered to Buyer a
certificate dated the Closing Date, in the form attached as Schedule 7.3, and
signed by one of its duly authorized officers.
7.4 Good Standing. Seller shall have delivered to Buyer
certificates issued by appropriate governmental authorities evidencing the good
standing of each of Oasis, Oasis Finance and Seller as of a date or dates not
more than ten (10) days prior to the Closing Date as a corporation of the state
in which it was organized, and, if such state of organization is different from
Texas, as a corporation qualified to do business in Texas, and a telegram from
such authorities evidencing the good standing of Oasis and Oasis Finance.
7.5 Tax certificate. Seller shall have delivered to Buyer a
certificate in accordance with the terms of Section 1445 of the Code certifying
that neither Company is a foreign corporation, foreign partnership, foreign
trust or foreign estate.
7.6 Receipt. Seller shall have duly executed and delivered to
Buyer an instrument acknowledging payment of the Purchase Price specified in
Section 2.2 above.
7.7 Waiting Periods. The filing requirements of the HSR Act
relating to the transactions contemplated by this Agreement shall have been
complied with and the waiting period related thereto terminated or expired and
there shall be no action taken or instituted by the Department of Justice or
the Federal Trade Commission or any Other Regulatory Body to delay or otherwise
enjoin the transactions contemplated hereby, which action has not been settled,
terminated or dismissed that prohibits the transactions contemplated hereby or
is unduly burdensome to any party hereto.
7.8 No Prohibition. As of the Closing Date there shall be no
writ, injunction, preliminary restraining order or other order of any nature
issued by a court of competent jurisdiction directing that the transactions
contemplated hereby not be consummated nor shall the consummation of the
transactions contemplated hereby occur if such consummation is prohibited by
any Laws.
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7.9 Proceedings Satisfactory. All proceedings, corporate or
other, to be taken in connection with the transactions contemplated by this
Agreement, and all documents incident thereto, shall have been approved as to
form and substance by legal counsel to Buyer which approval shall not
unreasonably be withheld.
7.10 Absence of Material Adverse Effect. From the date of signing
of this Agreement through the Closing, no events, conditions or other facts
shall have occurred or, to the Knowledge of Seller, shall be threatened or in
existence, which events, conditions, or other facts (individually, or in the
aggregate) shall have caused or are likely hereafter to cause a Material
Adverse Effect except for any occurrence or circumstance of general
applicability to the energy industry or the national or Texas economy.
7.11 No Claim Regarding the Interests. There must not have been
made or threatened by any Person any claim asserting that such Person (a) is
the holder or the beneficial owner of, or has the right to acquire or to obtain
beneficial ownership of, any of the Interests, or (b) is entitled to all or any
portion of the Purchase Price.
7.12 Agreement with Other Principal. Buyer shall have entered into
an agreement with the other shareholder of Oasis (other than Seller) pursuant
to Section 3(d) of the 1989 Capital Stock Agreement. The form attached as
Schedule 7.12 is hereby approved by the parties. Such other form may be used
to which the parties mutually agree, which agreement shall not be unreasonably
withheld by either party.
7.13 Assurance by Dow. Dow shall have delivered to Buyer the
letter agreement regarding assurance, in the form of Schedule 7.13. Seller
agrees to cause Dow to deliver such letter agreement at the Closing.
7.14 Consents. The consents or other actions identified on
Schedule 3.5 shall have been obtained or taken.
ARTICLE 8.
CONDITIONS TO SELLER'S OBLIGATION TO CONSUMMATE THE TRANSACTION
The obligation of Seller to consummate the transactions contemplated
hereunder is subject to the satisfaction on or prior to the Closing Date of the
conditions set forth below. Notwithstanding the failure of any one or more of
such conditions, Seller may nevertheless proceed with the Closing.
8.1 Compliance With Agreement. Buyer shall, in all material
respects, have performed all of its obligations and agreements, and complied
with all covenants, warranties and conditions contained in this Agreement which
are required to be performed or complied with by Buyer on or prior to the
Closing Date.
8.2 Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true, complete and
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made or
given on the Closing Date.
8.3 Certificate. Buyer shall have delivered to Seller a
certificate, in the form attached as Schedule 8.3, dated the Closing Date and
signed by a duly authorized officer of Buyer's general partner.
8.4 Authorization. Seller shall have received from Buyer a copy
of resolutions duly adopted by the board of directors of the general partner of
Buyer and relevant extracts of the Limited Partnership
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Agreement of Buyer, duly authorizing the execution, delivery and performance by
Buyer of this Agreement and each other agreement and instrument contemplated
hereby, together with certificates as to the incumbency and setting forth the
signatures of the officers of the general partner of Buyer authorized to
execute and deliver such documents on behalf of Buyer.
8.5 Good Standing. Buyer shall have delivered to Seller a
certificate issued by the appropriate governmental authority evidencing the
good standing of Buyer as of a date not more than ten (10) days prior to the
Closing Date as a limited partnership in the state in which it was organized
and a telegram from such authority evidencing the good standing of Buyer as of
the Closing Date.
8.6 Receipts. Buyer shall have duly executed and delivered to
Seller, an instrument acknowledging the receipt of the Interests to be
transferred and all other deliveries made pursuant hereto.
8.7 Waiting Periods. The filing requirements of the HSR Act
relating to the transactions contemplated by this Agreement shall have been
complied with and the waiting period related thereto terminated or expired and
there shall be no action taken or instituted by the Department of Justice or
the Federal Trade Commission or any Other Regulatory Body to delay or otherwise
enjoin the transactions contemplated hereby, which action has not been settled,
terminated or dismissed that prohibits the transaction contemplated hereby or
is unduly burdensome to any party hereto.
8.8 No Prohibition. As of the Closing Date there shall be no
writ, injunction, preliminary restraining order or other order of any nature
issued by a court of competent jurisdiction directing that the transactions
contemplated hereby not be consummated nor shall the consummation of the
transactions contemplated hereby occur if such consummation is prohibited by
any Laws.
8.9 Proceedings Satisfactory. All proceedings, corporate or
other, to be taken in connection with the transactions contemplated by this
Agreement, and all documents incident thereto, shall have been approved as to
form and substance by legal counsel to Seller which approval shall not
unreasonably be withheld.
8.10 No Claim Regarding the Interests. There must not have been
made or threatened by any Person any claim asserting that such Person (a) is
the holder or the beneficial owner of, or has the right to acquire or to obtain
beneficial ownership of, any of the Interests, or (b) is entitled to all or any
portion of the Purchase Price.
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8.11 Other Agreements. As to those agreements listed on Schedule
8.11(a), Seller and its Affiliates either (i) shall have been fully released
from all obligations to third parties in respect of those agreements, or (ii)
shall have received the agreement from Aquila Gas Pipeline Corporation, in the
form of Schedule 8.11(b). Buyer also shall have delivered to Texas Commerce
Bank National Association, as Trustee under a Trust Indenture dated as of
February 1, 1990, the documents required under Sections 8(ii), 8(iii), and
8(vi) of that certain Dow Consent and Agreement dated February 1, 1990 (the
"Dow Consent"), and the approval referred to in Section 8(vii) of the Dow
Consent shall have been obtained. Buyer shall pay on behalf of Seller the fees
and expenses of the Trustee and Noteholder's counsel referred to in Section 8
of the Dow Consent.
8.12 Agreement with Other Principal. Buyer shall have entered into
the agreement required pursuant to Section 7.12.
8.13 Assurance by Aquila Gas Pipeline Corporation. Aquila Gas
Pipeline Corporation shall have delivered to Seller the letter agreement
regarding assurance, in the form of Schedule 8.13. Buyer agrees to cause
Aquila Gas Pipeline Corporation to deliver such letter agreement at the
Closing.
8.14 Consent. The consents or other actions identified on Schedule
3.5 shall have been obtained or taken.
ARTICLE 9
REMEDIES
9.1 Definitions. The following shall constitute an "Event of
Default":
(i) failure to observe any covenant to be performed or
observed by a party hereunder; or
(ii) any representation or warranty made by a party in any
of this Agreement or any schedule or certificate delivered by such
party pursuant to this Agreement shall be incorrect.
For purposes of determining whether an Event of Default has occurred
for which a claim may be made under this Article 9 as a result of the
inaccuracy of a representation or warranty, any Materiality Requirement (as
defined below) in any such representation or warranty shall be deemed to have
been satisfied if the Losses (as defined below) to a party resulting from any
condition, event or state of facts to which such Materiality Requirement
applies will exceed $20,000. (In the case of Losses sustained or incurred by
Buyer with respect to losses, damages or costs to the Companies, the $20,000
amount is equivalent to losses, damages and costs to the Companies of
$133,333.33.) As used in this Article 9, a "Materiality Requirement" shall
mean any requirement in a representation or warranty that a condition, event or
state of facts be "material," correct or true in "all material respects," have
a "Material Adverse Effect," or be "significant," in order for such a
condition, event or state of facts to cause such representation or warranty to
be inaccurate. Also, for purposes of this Article 9, the phrase "Seller
believes that" shall be deemed to have been deleted from the last sentence of
Section 3.25(g).
9.2 Losses. A nondefaulting party (the "Injured Party") shall be
entitled to recover from the defaulting party (the "Defaulting Party"), and the
Defaulting Party shall pay to the Injured Party, all Losses to the Injured
Party as a result of each Event of Default. "Losses" shall mean the losses,
damages and costs (including reasonable attorney's fees) incurred or sustained
by the Injured Party; provided (i) "Losses" shall not include internal overhead
and general administrative costs of a party; and (ii) no punitive, speculative,
or
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consequential losses shall be included unless they are part of a final judgment
which has been rendered against a Company and is not subject to further appeal,
or part of a settlement of a third party claim which settlement Seller has
concurred with (which concurrence shall not be unreasonably withheld by
Seller). In the case of any inaccuracy of a representation or warranty of
Seller relating to the assets, operations, financial condition, Business or
Property of either Company, Buyer's Losses shall be equal to (x) .15 multiplied
by (y) the losses, damages and costs (including reasonable attorney's fees)
incurred or sustained by the Companies which would not have been so incurred or
sustained had the representation or warranty been accurate with respect to the
matter at issue. The fact that losses, damages and costs are incurred or
sustained by the Companies shall not cause such losses, damages and costs to be
deemed "consequential losses" to Buyer as such term is used in this Section
9.2.
9.3 Survival. No party shall be entitled to make any claim with
respect to an Event of Default unless notice of such claim is given pursuant to
Section 9.6 on or before the third anniversary of the Closing; provided,
however, such limitation shall be the fourth anniversary of the Closing in
respect of claims involving Events of Default arising with respect to the
representations and warranties set forth in Section 3.1 through and including
3.5, 3.6(a), 3.26, 4.1, 4.2, 4.4 and 4.5, and, in respect of claims involving
Events of Default arising with respect to the representations and warranties
set forth in Section 3.21, shall be the shorter of (i) the date upon which all
applicable statutes of limitations (including, to the extent consented to by
Seller (which consent shall not be unreasonably withheld by Seller), any
extensions or waivers thereof) expire as to the matter causing such an Event of
Default, or (ii) the sixth anniversary of the Closing.
9.4 Limitations on Claims.
(a) Except as provided in Section 9.4(b) Buyer shall not
make any claim in respect of any Event of Default hereunder unless the
claim involves Losses of more than $20,000 (a "Minimum Claim"); provided,
that costs of investigation shall not be included in the calculation of Losses
for purposes of this sentence except for (i) reasonable costs of investigation
incurred or sustained by the Companies, and (ii) reasonable costs of
investigation incurred or sustained by Buyer as a result of a claim by any
Person not affiliated with Buyer, which, if determined adversely to Buyer,
would result in an Event of Default due to an inaccuracy of the representations
and warranties set forth in Sections 3.1 through and including 3.5, or 3.6(a).
(b) Notwithstanding Section 9.4(a), there shall be no
minimum amount required for a claim by Buyer in respect of any Event of Default
arising with respect to the representations and warranties set forth in
Sections 3.1 through and including 3.5, 3.6(a), 3.21 and 3.26 (such Sections
being the "Excluded Sections") and Section 3.25(g).
(c) The following limits shall apply to claims by Buyer
in respect of Events of Default other than with regard to representations and
warranties set forth in the Excluded Sections and other than breaches of the
Excluded Covenants (as defined below):
(i) Buyer shall not make any claim in respect of
the first $900,000 of Losses in respect of Minimum Claims,
taken in the aggregate, arising with respect to
representations and warranties of Seller other than those set
forth in the Excluded Sections; and
(ii) Buyer shall be entitled to recover one-half
of its Losses in respect of Minimum Claims, taken in the
aggregate, and arising with respect to representations and
warranties of Seller other than those set forth in the
Excluded Sections, to the extent that such aggregate total
exceeds $900,000 and is equal to or less than $1,900,000 on a
cumulative basis.
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(d) Seller's obligations to Buyer under this Article 9
for Losses in respect of Events of Default arising in respect of Seller's
representations and warranties other than the Excluded Sections and for any
other Events of Default other than breaches of any Excluded Covenant, shall
not, in the aggregate, exceed $10,000,000. "Excluded Covenant" means any of
the covenants set forth in Sections 6.1(b), 6.1(d), 6.1(i), 6.2, 6.5 and 7.13.
Further, in no event shall Seller's obligations to Buyer under this Article 9,
in the aggregate, exceed the Purchase Price.
(e) (i) With respect to any Event of Default arising
under Article 3, Buyer shall assert its claim with respect to such Event of
Default under the section of Article 3 that most specifically describes the
condition, event or state of facts in question. (ii) Claims relating to the
matters described in any of Sections 3.1 through and including 3.5, 3.6(a),
3.21, 3.23, 3.25 and 3.26 shall be asserted by Buyer in respect of the
applicable provision or provisions of such sections. (iii) Nothing in Section
9.4(e)(i) shall require Buyer to assert any claim referred to in Section
9.4(e)(ii) under any provision of Article 3 other than the sections referred to
in Section 9.4(e)(ii). (iv) Nothing in this Agreement shall be interpreted to
permit either party to obtain a double recovery of any Losses.
9.5 Collateral Source Recoveries; Income Tax Recoveries.
(a) To the extent that any claim of a party under this
Article 9 either (i) is paid or satisfied by insurance or from recoveries from
other third parties or (ii) is covered by reserves included in the Closing Date
Balance Sheet for the matter which is the subject of such claim, the Losses
incurred or sustained by such party in respect of such claim shall be reduced
by the amount of such insurance payment, other recoveries or reserves.
(b) (i) For purposes of this Section 9.5(b): "Tax
Matters Losses" shall mean (x) .15 multiplied by (y) losses, damages or costs
sustained or incurred by the Companies in respect of matters covered by Section
3.21; "Tax Matters Recoveries" means (x) .15 multiplied by (y) the benefit to
the Companies of all refunds and credits received by or credited to the
Companies on or before the sixth anniversary of the Closing Date in respect of
matters covered by Section 3.21 for periods before the Closing Date and which
are not received before the Closing Date, and are not reflected on the Closing
Date Balance Sheet (including recoveries of amounts accrued on the Closing Date
Balance Sheet in respect of the period that includes the Closing Date); and
"Tax Matters Payments" means the amounts paid by Seller to Buyer pursuant to
this Article 9 in respect of Tax Matters Losses.
(ii) Upon each claim by Buyer for Tax Matters Losses
hereunder, Buyer shall be entitled to recover the full amount of such Tax
Matters Losses, provided that Tax Matters Losses shall first be offset against
any Tax Matters Recoveries, to the extent that such recoveries have not
previously been offset against Tax Matters Losses hereunder. Upon the sixth
anniversary of the Closing, Buyer shall refund Tax Matters Payments to Seller
to the extent that the sum of Tax Matters Payments and Tax Matters Recoveries
exceeds Tax Matters Losses (all determined on a cumulative basis); provided,
that Buyer's obligations under the foregoing shall never exceed the amount of
Tax Matters Payments previously received by Buyer.
9.6 Notice of an Event of Default. With respect to any Event of
Default, the Injured Party may, at its option, notify the Defaulting Party of
such Event of Default, which notice shall describe in reasonable detail the
facts underlying such assertion. If the Defaulting Party disputes any of the
matters set forth in such notice, the Defaulting Party shall notify the Injured
Party describing in reasonable detail the basis for such dispute. If the
dispute is not resolved within 30 days after the Defaulting Party's receipt of
notice from the Injured Party, the president of Seller and the president of
Buyer (or their appointed designees) will meet within 7 days to attempt to
resolve the dispute. If the dispute is not resolved within 45 days after the
Defaulting
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Party's receipt of such original notice from the Injured Party, either party
may cause the matter to be referred to binding arbitration pursuant to Section
9.7 hereof.
9.7 Arbitration. Except as otherwise provided in Articles 2 and
11, any dispute arising under or in connection with this Agreement or any other
agreement between the parties which is contemplated by the provisions hereof
shall be settled by arbitration in Houston, Texas, under the Commercial
Arbitration Rules of the American Arbitration Association, except as provided
herein. A panel of 3 arbitrators expert in the area of dispute shall
adjudicate the dispute. The arbitrators shall have the discretion to impose
the costs of the arbitration proceedings, including reasonable attorney's fees,
upon the losing party, or divide such costs between the parties on any terms
which may appear just. Any decision or award rendered hereunder may be made
and entered as a rule or judgment of any court having jurisdiction.
9.8 Exclusive Remedy. Except as provided in Articles 2 and 11,
hereof, each party's remedies referred to in this Article 9 are intended to be
the exclusive remedies of such party under this Agreement.
9.9 Mitigation. Following the Closing, each party shall cooperate
to the extent reasonably requested by the other, at such other party's expense,
to mitigate and reduce Losses arising under any provision hereof. Further,
each party will keep the other reasonably informed following the Closing of any
third party claims received by it that it believes may constitute or cause an
Event of Default for which a claim may be asserted under this Article 9.
Nothing in this Section 9.9 shall be interpreted to require either party to
take any action or to fail to take any action or to cause either of the
Companies to take any action or to fail to take any action, if the taking of
such action or the failure to take such action, would constitute the breach by
either party (or any employee of either party acting as a director or officer
of either Company) of any fiduciary or other duty owed by such party or such
employee to Oasis or to any other shareholder of Oasis.
9.10 Examples. For purposes of illustration of the provisions of
Article 9, the following examples are used:
(a) If Oasis were required by the IRS to pay an
additional $2,000,000 in taxes due to underpayment of Federal income tax for
1994, and interest and penalties, Buyer would recover $300,000 from Seller (the
losses sustained by Oasis multiplied by .15). Tax matters are covered by
Section 3.21, and thus are not subject to the limits set forth in Section
9.4(c). If, thereafter, Buyer sustained a Loss of $11,400,000 in respect of
Section 3.25 (equivalent to Oasis losses of $76,000,000), Buyer would be
entitled to a recovery of $10,000,000 from Seller, assuming no other Losses
subject to the limitations set forth in Section 9.4(c) had previously been
recovered from Seller. The previous recovery in respect of Section 3.21 would
not affect the amounts recoverable under Section 9.4(d) in respect of
representations and warranties which are not contained in the Excluded
Sections.
(b) With respect to Section 9.5(b), if Buyer sustains Tax
Matters Losses of $200,000 in the fourth year following the Closing, Buyer
would be entitled to recover $200,000 from Seller in respect of such Losses.
If, in the following year, there were Tax Matters Losses of $100,000, and Tax
Matters Recoveries of $200,000, Buyer would not recover any payment from Seller
because Tax Matters Recoveries had been recovered and are used to offset
Seller's liability for Tax Matters Losses. If no further Tax Matters Losses
were sustained prior to the sixth anniversary of the Closing, Buyer would pay
$100,000 to Seller. The $100,000 represents the difference between cumulative
Tax Matters Losses, netted against cumulative Tax Matters Recoveries ($300,000
minus $200,000 = $100,000) and cumulative Tax Matters Payments received by
Buyer ($200,000).
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(c) If Oasis were subjected to a $120,000 judgment for
default under a contract covered by Section 3.11, Buyer would not recover
anything with respect to such matter. The "Losses" to Buyer would be $18,000
(.15 multiplied by $120,000), and thus would not reach the Minimum Claim
requirements set forth in Section 9.4(a). If the same judgment were $200,000,
such matter would satisfy the Minimum Claim requirement because the "Losses" to
Buyer (.15 multiplied by $200,000 = $30,000) exceed $20,000. However, Buyer
would not be entitled to any recovery unless all of Buyer's "Losses" from
Events of Default covered by Section 9.4(c) exceed $900,000, and then only to
the extent of the excess. If Buyer previously had $890,000 in Losses covered
by Section 9.4(c), then the $30,000 Loss would entitle Buyer to a recovery of
$10,000 from Seller. (In the immediately preceding sentence, the first
$10,000 of such Loss would bring the total Losses covered by Section 9.4(c) to
$900,000, which is the amount for which Buyer has no claim under Section
9.4(c)(i) in regard to Events of Default covered by Section 9.4(c)(i); the
remaining $20,000 is subject to the 50% limit set forth in Section 9.4(c)(ii).)
If Buyer previously had $950,000 in Losses covered by Section 9.4(c), then the
$30,000 Loss would entitle Buyer to a recovery of $15,000 from Seller. If
Buyer previously had $1,900,000 in Losses covered by Section 9.4(c), then the
$30,000 Loss would entitle Buyer to a recovery of $30,000 from Seller.
(d) If Oasis were subjected to $150,000 in costs due to
failure of an Employment Arrangement to comply with Law, the Buyer's Losses
(.15 multiplied by $150,000 = $22,500) would meet the Materiality Requirement
set forth in Section 3.24(f) because it is in excess of $20,000, and also would
meet the requirements for a Minimum Claim (again, because it is in excess of
$20,000).
ARTICLE 10.
EXPENSES
Except as otherwise provided in this Agreement, Seller agrees to pay
without right of reimbursement from Buyer, or either Company, the costs
incurred by Seller, and Buyer agrees to pay, without right of reimbursement
from Seller or either Company, the costs incurred by it, incident to the
preparation and execution of this Agreement and performance of their respective
obligations hereunder whether or not the transactions contemplated by this
Agreement shall be consummated, including, without limitation, the fees and
disbursements of legal counsel, accountants and consultants employed by the
respective parties in connection with the transactions contemplated by this
Agreement.
ARTICLE 11.
TERMINATION
11.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual agreement of Buyer and Seller;
(b) by either Buyer or Seller if the Closing has not
taken place on or before August 15, 1996 (the "Termination Date") (and if all
closing conditions are satisfied after August 1, 1996, but prior to or on
August 15, 1996, the Closing shall take place on August 15, 1996, even though
such day is not the first business day of the month); or
(c) by Buyer or Seller, as the case may be, if any of
the conditions precedent to the performance of the obligations of the party
giving notice of termination shall not have been fulfilled and cannot be
fulfilled on or prior to the Closing and shall not have been waived in writing
by such party.
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11.2 Remedies Upon Termination.
(a) Except as provided in Section 11.2(b), there shall be
no liability on the parties hereto as a result of termination of this
Agreement. Buyer and Seller shall have the right to specific performance of
this Agreement if the Agreement is not otherwise terminated in accordance with
the terms hereof.
(b) In the event of: (i) a party wrongfully refusing to
consummate the transactions contemplated by this Agreement; or (ii) a party
failing to perform its covenants set forth in Article 6 hereof; or (iii) Seller
failing to cause the fulfillment of conditions within its control set forth in
Article 7; or (iv) Buyer failing to cause the fulfillment of the conditions
within its control set forth in Article 8; (such party refusing, failing or
breaching herein referred to the "Defaulting Party"), the non-Defaulting Party
shall be entitled, in addition to its right of termination provided in Section
11.1, to (A) seek and obtain specific performance of this Agreement or (B) seek
the remedies provided in Article 9 hereof.
11.3 Notice. Any party hereto may exercise its right of
termination of this Agreement only by delivering written notice to that effect
to the other party hereto, provided that such notice is received by the latter
party no later than two Business Days prior to the stated date of termination.
11.4 Survival. Notwithstanding any other provision in this
Agreement to the contrary, in the event that this Agreement shall be terminated
by any party in accordance with the provisions of Article 11 or otherwise, the
provisions contained in Section 5.2, and Article 10 and Article 11 shall
survive such termination indefinitely.
ARTICLE 12.
MISCELLANEOUS
12.1 Notices. Any notice, request, consent or communication under
this Agreement shall be effective only if it is in writing and personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by a nationally recognized overnight delivery service, with delivery
confirmed, or telexed or telecopied, with receipt confirmed, addressed as
follows:
If to Seller:
Name:
Dow Hydrocarbons and Resources, Inc.
400 West Sam Houston Parkway, South
Houston, Texas 77042-1299
Fax: (713)978-3690
Attention: R.W. Jewell
Vice President, Fuels and Energy
With a copy to:
Dow Hydrocarbons and Resources, Inc.
2301 North Brazosport Boulevard
A.P. Beutel Building
Freeport, Texas 77541-3257
Fax: (409)238-3587
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Attention: Kenneth R. Fitzpatrick
Senior Counsel
If to Buyer:
Name:
AQP Holdings LP,
c/o Aquila Energy Corporation
10370 Richmond Avenue, Suite 700
Houston, Texas 77042-4137
Fax: (713)268-2102
Attention: John A. Shealy
Vice President
With a copy to:
AQP Holdings LP,
c/o Aquila Gas Pipeline Company
100 North East Loop 410, Suite 1000
San Antonio, Texas 78216
Fax: (210)340-6341
Attention: Damon Button
Chief Financial Officer
and
Robin V. Foster
Blackwell Sanders Matheny Weary & Lombardi L.C.
2300 Main, Suite 1100
Kansas City, Missouri 64141
Fax: (816)274-6914
or such other persons and/or addresses as shall be furnished in writing by any
party to the other party, and shall be deemed to have been given as of the date
when so personally delivered, three (3) days after when so deposited with the
United States mail properly addressed, the next day when delivered during
business hours to such overnight delivery service properly addressed or when
receipt of a telex or telecopy is confirmed, as the case may be, unless the
sending party has actual knowledge that such notice was not received by the
intended recipient.
12.2 Parties in Interest and Assignment.
(a) This Agreement is binding upon and is for the benefit
of the parties hereto and their respective successors and assigns. Except as
expressly provided herein, nothing in this Agreement, express or implied, is
intended to confer on any person other than the parties hereto, or their
respective successors and assigns, any rights, remedies or obligations or
liabilities under or by reason of this Agreement.
(b) Neither this Agreement nor any of the rights or
duties of any party hereto may be transferred or assigned to any Person except
by a written agreement executed by Buyer and Seller.
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12.3 Modification. This Agreement may not be amended or modified
except by a writing signed by an authorized representative of the party against
whom enforcement of the change is sought. No waiver of the performance or
breach of, or default under, any condition or obligation hereof shall be deemed
to be a waiver of any other performance, or breach of, or default under, the
same or any other condition or obligation of this Agreement.
12.4 Waiver. Each party hereto may, by written notice to the other
party hereto: (a) extend the time for the performance of any of the obligations
or other actions of such other party under this Agreement; (b) waive any
inaccuracies in the representations or warranties of such other party contained
in this Agreement or in any document delivered pursuant to this Agreement; or
(c) waive compliance by such other party with any of the conditions or
covenants of the other contained in this Agreement; or (d) waive performance of
any of the obligations of such other party under this Agreement. Except as
provided in the preceding sentence, no action taken by or on behalf of any
party, including without limitation any investigation by or on behalf of such
party, shall be deemed to constitute a waiver by the party taking such action
of compliance with any representations, warranties, covenants or agreements
contained in this Agreement.
12.5 Entire Agreement. This Agreement embodies the entire
agreement between the parties hereto with respect to the subject matter hereof
and there are no agreements, representations or warranties between the parties
other than those set forth or provided herein.
12.6 Execution in Multiple Originals. This Agreement may be
executed in multiple originals, each of which shall be deemed an original but
all of which together shall constitute but one and the same instrument.
12.7 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.8 Governing Law. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
Texas applicable to agreements made and to be performed entirely within such
State, including all matters of enforcement, validity and performance, except
that any conflict of laws provisions of the laws of the State of Texas shall
not be given effect.
12.9 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions
of terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
12.10 Exhibits and Schedules. All Exhibits and Schedules called for
by this Agreement and delivered to the parties shall be considered a part
hereof with the same force and effect as if the same had been specifically set
forth in this Agreement.
12.11 Negotiated Transaction. The parties hereto represent that in
the negotiation and drafting of this Agreement they have been represented by
and have relied upon the advice of counsel of their choice. The parties affirm
that their counsel have both had a substantial role in the drafting and
negotiation of this Agreement and, therefore, this Agreement shall be deemed
drafted by all of the parties hereto and the rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any Exhibit or Schedule
attached hereto.
-40-
<PAGE> 42
12.12 Public Announcements. The parties shall consult with each
other and cooperate with respect to any public announcement or similar
publicity with respect to this Agreement or the transactions contemplated
herein. Neither of the parties hereto nor any Affiliates of the parties, shall
issue or cause the publication of any press release or other public statement
or announcement with respect to this Agreement or the transactions contemplated
hereby without consulting with the other party hereto and affording such other
party a reasonable opportunity to comment regarding the content of such
disclosure, except that each party may determine what disclosure is required by
Law or by obligations pursuant to any listing agreement with a national
securities exchange (including the Nasdaq National Market). Seller and Buyer
shall consult with each other concerning the means by which the Companies'
employees, customers, and suppliers and others having dealings with the
Companies will be informed of this Agreement and the transactions contemplated
herein, and Buyer shall have the right to consult with Seller as to the form
and contents of any such communications to other Persons.
12.13 Exclusivity of Warranties and Representations.
NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS AGREEMENT,
NEITHER SELLER NOR BUYER MAKES ANY REPRESENTATION OR WARRANTY WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESSED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, BEYOND THOSE EXPRESSLY
GIVEN IN THIS AGREEMENT. EXCEPT FOR THE WARRANTIES AND REPRESENTATIONS
EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, BUYER IS PURCHASING THE INTERESTS
"AS IS" WITH ANY AND ALL LATENT AND PATENT DEFECTS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written
DOW HYDROCARBONS AND RESOURCES INC. ("Seller")
By: /s/ R. W. JEWELL
----------------------------------------------------
Name: R. W. Jewell
Title: Vice President
AQP HOLDINGS LP
("Buyer")
By: AQP NEWCO CORPORATION
Title: General Partner
By: /s/ JOHN A. SHEALY
------------------------------------------
Name: John A. Shealy
Title: Vice President
-41-
<PAGE> 1
Aquila Gas Pipeline Corporation
File Number 1-12426
Exhibit 10.2
Aquila Gas Pipeline Corporation 1996
Non-Employee Director Stock Plan
<PAGE> 2
AQUILA GAS PIPELINE CORPORATION
1996 NON-EMPLOYEE DIRECTOR STOCK PLAN
1. Purpose and Effective Date
The purpose of this plan is to aid the Company in attracting and
retaining non-Employee Directors by encouraging and enabling the acquisition
of a financial interest in the Company by Non-Employee Directors through the
issuance of Shares with respect to his or her services as a Director of the
Company.
This plan shall become effective upon its approval by the stockholders of
the Company, but issuance of Shares shall not be made until following the
receipt of required regulatory approvals.
2. Definitions
As used in this plan:
2.1 The term "Board" means the Board of Directors of the Company.
2.2 The term "Company" means Aquila Gas Pipeline, Inc., a Delaware
Corporation.
2.3 The term "Fair Market Value Per Share" means (a) the average of the
highest and the lowest sale prices per Share as reported on the New York Stock
Exchange on the date as of which such determination is to be made, or (b) in
the absence of reported sales on that date, the average of such reported
highest and lowest sale prices per Share on the next preceding date on which
reported sales occurred.
2.4 The term "Non-Employee Director" means any person who is elected or
appointed to the board and who is not, as of the date eligibility for this
plan is determined, an employee of the Company or any of its subsidiaries.
2.5 The term "Payment Date" means March 31, June 30, September 30 and
December 31 of each Year.
2.6 The term "Plan" means this 1996 Non-Employee Director Stock Plan, as
it may be amended from time to time.
2.7 The term "Quarter" means the three (3) month period preceding a
Payment Date.
<PAGE> 3
2.8 The term "Share" means a share of common stock, $.01 per value, of
the Company.
2.9 The term "Year" means the calendar year.
3. Eligibility
Participation in this plan is limited to Non-Employee Directors.
4. Share Payment
4.1 On each Payment Date, the Company shall issue to each Non-Employee
Director that number of Shares equal to $2,000 divided by the Fair Market
Value Per Share on the Payment Date for services performed as a non-Employee
Director during the preceding Quarter ( the "Share Payment"). Any fractional
share shall be paid to the Non-Employee Director in cash.
4.2 With respect to the Year in which this Plan is approved by
stockholders of the Company, or in the event a person is elected or otherwise
become a Non-Employee Director at any time other than the first day of a
quarter, such person shall commence participation in this Plan as of the first
day of the quarter next following the date of such stockholder approval or
becoming a Non-Employee Director, as the case may be.
4.3 As soon as practicable, after a Payment Date, the Company shall cause
to be issued and delivered to each Non-Employee Director a stock certificate,
registered in the name of such Non-Employee Director, evidencing the Share
Payment pursuant to this Plan and shall deliver to such Non-Employee Director
the cash representing any fractional Share.
4.4 Non-Employee Directors shall not be deemed for any purpose to be, or
have any rights as, shareholders of the Company with respect to any Shares
awarded under this Plan except if, as and when Shares are issued and then only
from the date of the certificates therefor. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior
to the date of such stock certificate.
5. Shares Subject to the Plan
Subject to adjustment as provided below, an aggregate of 100,000 Shares
shall be available for issuance under the Plan. The Shares to be issued under
the Plan may be available from authorized but unissued Shares or Shares held
in the treasury. Any change in the number of outstanding Shares of the Company
occurring through stock splits, combination of Shares, recapitalization or
stock dividends after the adoption of the Plan shall be appropriately
reflected in an increase or decrease in the aggregate number of Shares
available for issuance under the Plan.
2
<PAGE> 4
6. Amendment and Discontinuance
6.1 The Board may, without further action by the stockholders, amend this
Plan or condition or modify Shares issued under this Plan (a) to conform this
Plan to securities or other laws, or rules, regulations or regulatory
interpretations thereof, applicable to this Plan, or (b) to comply with stock
exchange rules or requirements.
6.2 The Board may from time to time amend this Plan, or any provision
thereof, without further action of the Company's stockholders, except that:
(a) No amendment may affect a Non-Employee Director's rights under any
Shares issued under this Plan made prior to such amendment without such
Non-Employee Director's consent.
(b) No amendment may change the manner of calculation of a Share Payment
or the number of Shares available for issuance under the Plan.
(c) This Section 6.2 may not be amended.
(d) No amendment may increase the benefits available to any participant
under this plan.
6.3 The Board may suspend or discontinue this Plan in whole or in part,
but any such suspension or discontinuance shall not affect Share Payments
under this Plan prior thereto.
7. Compliance with Applicable Legal Requirements
No Share Payments shall be made unless such Share Payments comply with
all applicable legal requirements including without limitation, compliance
with the provisions of the Securities Act of 1933, as amended, the
requirements of the exchanges on which Shares any, at the time, be listed, and
any other requirements of other governmental or regulatory authorities.
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 19,189
<SECURITIES> 0
<RECEIVABLES> 74,621
<ALLOWANCES> 0
<INVENTORY> 3,775
<CURRENT-ASSETS> 103,277
<PP&E> 481,796
<DEPRECIATION> (85,039)
<TOTAL-ASSETS> 518,869
<CURRENT-LIABILITIES> 102,022
<BONDS> 170,163
<COMMON> 294
0
0
<OTHER-SE> 182,935
<TOTAL-LIABILITY-AND-EQUITY> 518,869
<SALES> 332,039
<TOTAL-REVENUES> 332,039
<CGS> 266,957
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,809
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,651
<INCOME-PRETAX> 24,622
<INCOME-TAX> 9,332
<INCOME-CONTINUING> 15,290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,290
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
