<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 September 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.
Class Outstanding on November 1, 1996
----- -------------------------------
Common stock, $.01 par value 29,400,000
<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>
September 30, December 31,
1996 1995
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 28,457 $ 8,666
Accounts receivable ................................................. 81,543 77,203
Inventories and exchanges ........................................... 4,245 4,394
Materials and supplies .............................................. 5,328 6,147
-------- --------
Total current assets ............................................. 119,573 96,410
-------- --------
INVESTMENT IN AFFILIATE ............................................... 39,240 --
-------- --------
PIPELINE, PROPERTY, PLANT AND EQUIPMENT, at cost:
Natural gas pipelines ............................................. 419,464 400,984
Plants and processing equipment ................................... 67,746 63,933
-------- --------
487,210 464,917
Less - Accumulated depreciation ................................... (90,294) (74,921)
-------- --------
396,916 389,996
-------- --------
INTANGIBLE ASSETS, net ................................................ 25,467 18,916
-------- --------
OTHER, net ............................................................ 1,177 1,316
-------- --------
TOTAL ASSETS .......................................................... $582,373 $506,638
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt .............................. $ 12,802 $ 12,796
Accounts payable .................................................. 80,154 75,309
Accrued expenses .................................................. 10,067 5,750
Accrued interest .................................................. 3,097 2,754
Income taxes payable to UtiliCorp United Inc. ..................... 2,408 828
Intercompany payable due to Aquila Energy Corporation ............. 7,232 1,557
-------- --------
Total current liabilities ..................................... 115,760 98,994
-------- --------
LONG-TERM DEBT ........................................................ 209,578 179,900
-------- --------
DEFERRED INCOME TAXES ................................................. 66,072 58,480
-------- --------
OTHER LONG-TERM LIABILITIES ........................................... 557 591
-------- --------
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 ................................................. 99,815 78,082
-------- --------
Total stockholders' equity .................................... 190,406 168,673
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................ $582,373 $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 Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
1996 1995 1996 1995
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . $ 202,548 $ 119,435 $ 534,587 $ 340,330
----------- ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . . . . . . 170,663 95,322 437,620 269,396
Operating . . . . . . . . . . . . . . . . . . . . 5,932 5,297 17,416 15,808
General and administrative . . . . . . . . . . . . 4,106 3,918 13,889 11,684
Depreciation and amortization . . . . . . . . . . 5,990 5,342 17,532 15,472
----------- ------------ ------------ ------------
Total costs and expenses . . . . . . . . . . 186,691 109,879 486,457 312,360
----------- ------------ ------------ ------------
INCOME FROM OPERATIONS . . . . . . . . . . . . . . . 15,857 9,556 48,130 27,970
INTEREST AND DEBT EXPENSES, net . . . . . . . . . . 3,636 2,791 11,287 8,595
EQUITY IN NET LOSS OF AFFILIATE . . . . . . . . . . 35 -- 35 --
----------- ------------ ------------ ------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . 12,186 6,765 36,808 19,375
PROVISION IN LIEU OF INCOME TAX INTEREST . . . . . . 4,642 2,494 13,974 7,273
----------- ------------ ------------ ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . $ 7,544 $ 4,271 $ 22,834 $ 12,102
=========== =========== =========== ===========
EARNINGS PER SHARE . . . . . . . . . . . . . . . . . $ .26 $ .15 $ .78 $ .41
=========== =========== =========== ===========
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 $ .0375 $ .0375
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income......................................................................... $ 22,834 $ 12,102
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 17,532 15,472
Deferred income taxes............................................................ 7,592 3,843
Dividend from affiliate.......................................................... 300 --
Equity in net loss of affiliate.................................................. 35 --
Other non-cash items............................................................. 206 266
Changes in operating assets and liabilities, net of the effect of acquisitions:
Accounts receivable............................................................ (4,340) (6,558)
Inventories and exchanges...................................................... 598 (519)
Materials and supplies......................................................... 819 1,145
Accounts payable............................................................... 4,645 (5,527)
Accrued expenses............................................................... 4,317 772
Accrued interest............................................................... 343 (2,470)
Income taxes payable to UtiliCorp United Inc. ................................. 1,580 650
Intercompany payable due to Aquila Energy Corporation.......................... 5,675 6,473
--------- ---------
Net cash provided by operating activities.................................. 62,136 25,649
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired...................................... (48,329) (16,278)
Additions to pipeline, property, plant and equipment............................. (22,465) (57,823)
--------- ---------
Net cash used in investing activities...................................... (70,794) (74,101)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreements, net................................ 42,443 12,400
Borrowings under loan agreements................................................. -- 50,000
Principal payments of debt....................................................... (12,759) (13,287)
Dividends........................................................................ (1,101) (1,102)
Other............................................................................ (134) 283
--------- ---------
Net cash provided by financing activities.................................. 28,449 48,294
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. 19,791 (158)
CASH AND CASH EQUIVALENTS, beginning of period....................................... 8,666 6,631
--------- ---------
CASH AND CASH EQUIVALENTS, end of period............................................. $ 28,457 $ 6,473
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<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 September 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 nine months ended
September 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 $ 11,319 $ 10,257
Cash paid during the period
for income and franchise taxes $ 4,987 $ 2,826
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
Letters of Credit
The Company has issued irrevocable standby letters of credit totaling
$17,170 at September 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 standby letters of credit are issued pursuant to a
line of credit maintained by the Company.
5
<PAGE> 6
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 pipeline 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 $5,100 for the audit period and through the
present plus potential interest of approximately $813. 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 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.
6
<PAGE> 7
AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. ACQUISITIONS
On July 1, 1996 and November 1, 1996, the Company (through AQP Holdings
L.P., a 98% owned subsidiary) completed the acquisition of 15% and 25%,
respectively, 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 and $84,000, respectively (in each
case subject to certain adjustments). The transportation rights related to the
15% and 25% capital stock acquisitions of Oasis currently amount to
approximately 120 and 200 million cubic feet per day (MMcf/d), respectively, of
firm intrastate transportation between the Waha, Texas hub and the Katy, Texas
hub, plus the opportunity to utilize excess capacity on an interruptible basis.
Both acquisitions will be accounted for using the purchase method and will be
reflected in the consolidated financial statements using the equity method of
accounting.
In connection with the November 1, 1996 acquisition of 25% of the capital
stock of Oasis, AQP Holdings L.P. entered into certain option arrangements with
El Paso Natural Gas Company and a subsidiary of Tenneco Energy (Tenneco). The
option arrangements provide that, under certain circumstances, AQP Holdings
L.P. may be required to sell to a wholly-owned subsidiary of Tenneco one-fifth
of the Oasis capital stock acquired by AQP Holdings L.P. on November 1, 1996
(or 5% of all Oasis capital stock), including one-fifth of the related
transportation rights. If the option is exercised, the closing of the sale to
the subsidiary of Tenneco will be on April 1, 1997. The purchase price would
be approximately $16,800, subject to certain adjustments.
In addition, on July 1, 1996 the Company and DHRI have entered into a
long-term gas supply agreement whereby a subsidiary of the Company will supply
DHRI with a 100 MMcf/d of gas in the Katy, Texas area at market rates.
5. DEBT
Revolving Credit Agreements
Subsequent to September 30, 1996, the Company amended its revolving credit
facilities with Aquila Energy to increase the available borrowings to $165,000
from $100,000 and amended the maturity dates to mature in the fourth quarter of
1998.
On July 1, 1996, the Company (through AQP Holdings L.P.) entered into a
$3,000 revolving note agreement with Aquila Energy. The note bears interest at
a bank prime rate (8.25% at September 30, 1996) and matures in December 1999.
Line Of Credit
The Company amended its line of credit, which secures standby letters of
credit (see Note 3), to increase the availability to $18,000. The line of
credit matures June 30, 1997. At September 30, 1996, the borrowing base was
$18,000 with no principal outstanding.
6. BENEFIT PLANS
In 1996, the stockholders approved the 1996 Non-Employee Director Stock Plan
(Stock Plan). The Stock Plan authorizes the issuance of a maximum of 100,000
shares of the Company's common stock based on the fair market value of the
Company's common stock on the date of issuance. Each non-employee director is
to receive common stock of the Company equal to $2 on a quarterly basis for
services performed in the preceding quarter.
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 and November 1, 1996, the Company (through AQP Holdings
L.P., a 98% owned subsidiary) completed the acquisition of 15% and 25%,
respectively, 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 $47.1 and $84.0, respectively (hereinafter
referred to as the "Oasis Acquisition). Also, see Note 4 to Condensed
Consolidated Financial Statements. The acquired transportation rights are
utilized by the Company (through AQP Holdings L.P.) to conduct additional
natural gas marketing activities not otherwise available to the Company
(hereinafter referred to as "Oasis Marketing"). The Company primarily funded
the Oasis Acquisition utilizing its existing revolving credit agreements, as
amended.
The Oasis pipeline system consists of an approximately 600-mile pipeline
system and related mainline compression which connects the Waha, Texas hub
located in the Permian Basin producing area of West Texas to major marketing
pipelines at the Katy, Texas hub near Houston, Texas. Oasis has a nominal one
(1) billion cubic feet per day of throughput capacity to move gas between West
Texas and the Katy, Texas hub. Oasis' pipeline is in proximity to many of the
Company's existing gathering systems.
The following discussion and analysis relates to the condensed consolidated
financial position and results of operations of the Company for the three and
nine months ended September 30, 1996 and 1995. Reference should be made to the
Condensed Consolidated Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
Three Months Ended Period 1995 Nine Months Ended Period 1995
September 30, to 1996 Change September 30, to 1996 Change
------------------- ------------------- ------------------- ------------------
1996(a) 1995 Amount Percent 1996(a) 1995 Amount Percent
--------- -------- -------- -------- ----------- ------- --------- -------
(Dollars in millions, except price data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Natural gas revenues $ 177.8 $ 101.6 $ 76.2 75 % $ 468.4 $ 292.0 $ 176.4 60%
Natural gas liquids (NGLs) revenues 24.8 17.8 7.0 39 % 66.2 48.3 17.9 37%
------- ------- ------- ------- ------- -------
Total operating revenues 202.6 119.4 83.2 70 % 534.6 340.3 194.3 57%
------- ------- ------- ------- ------- -------
Cost of sales 170.7 95.3 75.4 79 % 437.6 269.4 168.2 62%
------- ------- ------- ------- ------- -------
Gross margin 31.9 24.1 7.8 32 % 97.0 70.9 26.1 37%
------- ------- ------- ------- ------- -------
Operating expenses 5.9 5.3 .6 11 % 17.4 15.8 1.6 10%
General and administrative expenses 4.1 3.9 .2 5 % 13.9 11.7 2.2 19%
Depreciation and amortization 6.0 5.4 .6 11 % 17.5 15.5 2.0 13%
Interest and debt expenses, net 3.6 2.8 .8 29 % 11.3 8.6 2.7 31%
Provision in lieu of income tax
expense 4.8 2.4 2.4 100 % 14.1 7.2 6.9 96%
------- ------- ------- ------- ------- -------
Net income $ 7.5 $ 4.3 $ 3.2 74 % $ 22.8 $ 12.1 $ 10.7 88 %
======= ======= ======= ======= ======= =======
OPERATING DATA:
Natural gas (MMcf/d):
Throughput sold 327 393 (66) (17)% 359 374 (15) (4)%
Throughput transported 138 128 10 8 % 141 105 36 34 %
------- ------- ------- ------- ------- -------
Total throughput 465 521 (56) (11)% 500 479 21 4 %
------- ------- ------- ------- ------- -------
Marketed excluding Oasis 391 367 24 7 % 372 316 56 18 %
Marketed-Oasis 176 -- 176 100 % 59 -- 59 100 %
------- ------- ------- ------- ------- -------
Total marketed 567 367 200 54 % 431 316 115 36 %
------- ------- ------- ------- ------- -------
Total throughput and
marketed 1,032 888 144 16 % 931 795 136 17 %
======= ======= ======= ======= ======= =======
Gross NGLs production (MBbls/d) 42 35 7 20 % 41 31 10 32 %
Average natural gas price ($/Mcf) $ 2.17 $ 1.45 $ .72 50 % $ 2.16 $ 1.49 $ .67 45 %
Average NGLs price ($/gallon) $ .35 $ .26 $ .09 35 % $ .33 $ .28 $ .05 18 %
</TABLE>
- -------------------------
(a) The amounts for Oasis Marketing have been included since July 1, 1996.
These per day volumes are being averaged over the respective time period.
Volumes included are only those volumes marketed by the Company.
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.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Total operating revenues increased 70% to $202.6 million in 1996 compared to
$119.4 million in 1995. Natural gas revenues increased 75% to $177.8 million
in 1996 compared to $101.6 million in 1995 partially as the result of the
activity related to the Oasis Marketing which contributed natural gas revenues
of $36.3 million with associated marketed natural gas volumes of 176 MMcf/d.
Excluding Oasis Marketing activity, natural gas revenues increased 39% to
$141.5 million due to a 48% increase in the average natural gas price to $2.15
per Mcf in 1996 from $1.45 per Mcf in 1995 partially offset by a decrease in
natural gas sold and marketed to 718 MMcf/d in 1996 from 760 MMcf/d in 1995.
Natural gas throughput decreased 11% to 465 MMcf/d in 1996 from 521 MMcf/d in
1995 due to a reduction in well connect activity and normal production declines
on the Southeast Texas Pipeline System (SETPS), the Company's principal
gathering system.
NGLs revenues increased 39% to $24.8 million in 1996 compared to $17.8
million in 1995 as the result of a 20% increase in gross NGLs production to
42,000 barrels per day (Bbls/d) in 1996 compared to 35,000 Bbls/d in 1995 and a
35% increase in the average NGLs price to $.35 per gallon from $.26 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 $170.7 million, or 84% of operating revenues, in 1996
compared to $95.3 million, or 80% of operating revenues, in 1995. The increase
in the cost of sales is due partially to the Oasis Marketing activity which
contributed $34.7 million. Excluding Oasis Marketing activity, cost of sales
increased as the result of an increase in the average natural gas price offset
by a decrease in the volume of natural gas sold and marketed.
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 $31.9 million, or 16% of operating revenues, in 1996 compared to $24.1
million, or 20% of operating revenues, in 1995. The decrease in percentage is
primarily due to a higher cost of gas supply for the pipeline systems. The
increase in the gross margin is due partially to the Oasis Marketing activity
which contributed gross margin of $1.6 million. Excluding Oasis Marketing
activity, the gross margin increased 26% due primarily to an increase in
average natural gas and NGLs prices of 48% and 35%, respectively, an increase
in NGLs production offset by a decrease in the natural gas sold and marketed
previously noted.
Operating expenses increased 11% to $5.9 million in 1996 compared to $5.3
million in 1995 primarily as a result of expanded gathering systems and plant
operations as well as an increase in compressor maintenance and rentals.
General and administrative expenses increased 5% to $4.1 million in 1996
compared to $3.9 million in 1995 due primarily to increased compensation costs.
Depreciation and amortization increased 11% to $6.0 million in 1996 compared
to $5.4 million in 1995 primarily as the result of fixed asset additions on the
SETPS and the amortization of the purchase price allocated to the
transportation rights related to Oasis.
Interest and debt expenses increased 29% to $3.6 million in 1996 compared to
$2.8 million in the 1995 period primarily as a result of increased debt
balances incurred for capital expenditures, the 15% Oasis Acquisition 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 100% to $4.8 million in
1996 compared to $2.4 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. Also, see Note 3 to the Condensed Consolidated Financial Statements
relating to other tax matters.
9
<PAGE> 10
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Total operating revenues increased 57% to $534.6 million in 1996 compared to
$340.3 million in 1995. Natural gas revenues increased 60% to $468.4 million
in 1996 compared to $292.0 million in 1995 due partially to the Oasis Marketing
activity, which has been included since July 1, 1996, which contributed natural
gas revenues of $36.3 million with associated marketed natural gas volumes of
59 MMcf/d. Excluding Oasis Marketing activity, natural gas revenues increased
48% to $432.1 million due to a 44% increase in the average natural gas price to
$2.15 per Mcf in 1996 from $1.49 per Mcf in 1995 and an increase in natural gas
sold and marketed to 731 MMcf/d in 1996 from 690 MMcf/d in 1995.
NGLs revenues increased 37% to $66.2 million in 1996 compared to $48.3
million in 1995 as the result of a 32% increase in gross NGLs production to
41,000 Bbls/d in 1996 compared to 31,000 Bbls/d in 1995 and an 18% increase in
the average NGLs price to $.33 per gallon from $.28 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 $437.6 million, or 82% of operating revenues, in 1996
compared to $269.4 million, or 79% of operating revenues, in 1995. The
increase in the cost of sales is due partially to the Oasis Marketing activity
which contributed $34.7 million. Excluding Oasis Marketing related activity,
cost of sales increased as the result of an increase in the average natural gas
price and an increase in natural gas sold and marketed.
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 $97.0 million, or 18% of operating revenues, in 1996 compared to
$70.9 million, or 21% of operating revenues, in 1995. The decrease in
percentage is primarily due to a higher cost of gas supply for the pipeline
systems. The increase in the gross margin is due partially to the Oasis
Marketing activity which contributed gross margin of $1.6 million. Excluding
Oasis Marketing activity, the gross margin increased 35% due to an increase in
average natural gas and NGLs prices of 44% and 18%, respectively, an increase
in NGLs production and an increase in the natural gas sold and marketed noted
above offset by a reduction in the NGLs content in the natural gas delivered to
the Company from the wellhead.
Operating expenses increased 10% to $17.4 million in 1996 compared to $15.8
million in 1995 primarily as a result of expanded gathering systems and plant
operations.
General and administrative expenses increased 19% to $13.9 million in 1996
compared to $11.7 million in 1995 due to increased compensation costs.
Depreciation and amortization increased 13% to $17.5 million in 1996
compared to $15.5 million in 1995 primarily as the result of fixed asset
additions on the SETPS.
Interest and debt expenses increased 31% to $11.3 million in 1996 compared
to $8.6 million in the 1995 period primarily as a result of increased debt
balances incurred for capital expenditures, the 15% Oasis Acquisition 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 96% to $14.1 million in
1996 compared to $7.2 million in 1995 due to an increase in income before
income taxes in 1996 compared to 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes it generates significant cash from operations and
expects such cash and borrowings to be its primary source of liquidity. The
Company's primary uses of cash are capital expenditures, acquisitions, working
capital requirements, dividends and debt repayment. The Company's historical
additions to pipeline, property, plant and equipment were $22.5 million and
$76.2 million for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively. Capital expenditures are expected to be
approximately $30 million in 1996, excluding business acquisitions. In July
1996 and November 1996, the Company completed the 15% and 25%, respectively,
Oasis Acquisitions for a cash purchase price of $47.1 million and $84.0
million, respectively.
10
<PAGE> 11
The Company maintains revolving credit agreements (the Revolvers) of $100.0
million with Aquila Energy to provide funds for general corporate purposes.
There was $95.5 million and $54.0 million outstanding on the Revolvers at
September 30, 1996 and December 31, 1995, respectively. The total amount
available to borrow on the Revolvers was $4.5 million at September 30, 1996.
Subsequent to September 30, 1996, the Company amended the Revolvers to increase
the available borrowings to $165.0 million and amended the maturity dates to
extend the expiration dates to the fourth quarter of 1998. The Revolvers, as
amended, were utilized to fund the Oasis Acquisition.
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 matures in June 2005. 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 September 30, 1996, the Company was in compliance with such
covenants.
The 8.29% Senior Notes issued by Aquila Southwest Energy Corporation (Aquila
Southwest) require annual principal payments of $12.5 million annually
beginning in 1992. 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 September 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. 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.
11
<PAGE> 12
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.
None.
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 Exhibits.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1996.
12
<PAGE> 13
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: November 14, 1996 By: Craig F. Strehl
President and Chief
Operating Officer
/s/ Damon C. Button
-----------------------
Date: November 14, 1996 By: Damon C. Button
Vice President, Treasurer
and Chief Financial Officer
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Number
Numbered Description Page
-------- ------------ -------------
<S> <C> <C>
10.1 Acquisition Agreement for Oasis Pipe Line
Company dated August 28, 1996 between
Dow Hydrocarbons and Resources Inc. and AQP
Holdings L.P.
10.2 Note Agreement dated July 1, 1996
between Aquila Energy Corporation
and AQP Holdings L.P.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Aquila Gas Pipeline Corporation
File Number 1-12426
Exhibit 10.1
Acquisition Agreement for Oasis Pipe Line Company
dated August 28, 1996 between Dow Hydrocarbons
and Resources Inc. and AQP Holdings L.P.
<PAGE> 2
EXECUTION COPY
AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of August 28,
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) "Applicable Ratio" shall mean a fraction the
numerator of which shall be 1 and the denominator of which shall be 1, unless
the circumstances described in the following sentence shall occur, in which
case "Applicable Ratio" shall have the meaning set forth in such sentence. In
the event that the Channel Rights are exercised with respect to the Interests,
then (i) the "Applicable Ratio" as it applies to the purchase of the Interests
by AQP Holdings LP shall be equal to a fraction, the numerator of which shall
be 1 and the denominator of which shall be 3, and (ii) the "Applicable Ratio"
as it applies to the purchase of the Interests by Channel (or an Affiliate of
Channel) shall be equal to a fraction, the numerator of which shall be 2 and
the denominator of which shall be 3.
(c) "Baseline Balance Sheet" shall mean the consolidated
balance sheet of Oasis dated December 31, 1995.
(d) "Baseline Shareholders' Equity" shall mean
$27,485,000, which represents the consolidated shareholders' equity of Oasis as
of December 31, 1995.
(e) "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,
1
<PAGE> 3
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.
(f) "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.
(g) "Capital Improvement Program" shall mean the Oasis
Capital Project Plan approved by the board of directors of Oasis for the year
1996 (as updated through July 1996 and presented to the stockholders of Oasis
on August 20, 1996), a copy of which is set forth in Schedule 1.1(g).
(h) "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.
(i) "Channel Rights" shall mean the rights of Channel (or
an Affiliate of Channel) to preferential purchase rights with respect to the
Interests as set forth in Sections 3(e) and 3(f) of the 1989 Capital Stock
Agreement.
(j) "Closing" shall mean the consummation of the purchase
of the Interests.
(k) "Closing Date" shall mean (i) 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 6 and 7, are satisfied, or (ii) December 5,
1996, if such conditions are satisfied on or after December 1, 1996 and on or
before December 5, 1996, or (iii) such other Business Day as Buyer and Seller
shall agree in writing. In no event shall the Closing occur prior to November
1, 1996.
(l) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(m) "Common Stock" shall mean the common stock of Oasis.
(n) "Companies" shall mean Oasis and Oasis Finance.
(o) "Company" shall mean either Oasis or Oasis Finance.
(p) "Contracts" or "Other Agreements" shall mean all
contracts, agreements, indentures, notes, bonds, loans, instruments, leases,
mortgages, commitments or other binding arrangements.
(q) "Dividend" shall mean any distribution, whether in
cash or in kind, on or with respect to the Common Stock and Preference Stock.
(r) "Dow" shall mean The Dow Chemical Company, a Delaware
corporation.
(s) "Enron" shall mean Enron Corp., a Delaware
corporation.
(t) "Entity" shall mean any Person other than an
individual.
2
<PAGE> 4
(u) "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.
(v) "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."
(w) "Governing Body" shall mean, with respect to a
corporation, its board of directors, with respect to a limited partnership, its
general partner, and, with respect to any other entity, its comparable
governing body.
(x) "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.
(y) "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.
(z) "HPL" shall mean Houston Pipe Line Company, a
Delaware corporation.
(aa) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
(ab) "Information Request" 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.
(ac) "Intratex" shall mean Intratex Gas Company, a
Delaware corporation.
3
<PAGE> 5
(ad) "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 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 (or, if Buyer is a
limited partnership, the officers and directors of the general partner of
Buyer).
(ae) "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.
(af) "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.
(ag) "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.
(ah) "Line Pack Gas Agreement" means the agreement of even
date herewith providing for the disposition of certain line pack gas.
(ai) "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.
(aj) "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.
(ak) "Oasis" shall mean Oasis Pipe Line Company, a
Delaware corporation.
(al) "Oasis Finance" shall mean Oasis Pipe Line Finance
Company, a Delaware corporation.
(am) "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
4
<PAGE> 6
governing documents, and, as to a limited partnership, shall mean the
partnership's Partnership Agreement and Certificate of Limited Partnership, or
similar governing documents.
(an) "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 Agency or Other Regulatory Bodies.
(ao) "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 Agency or Other Regulatory Body or other entity.
(ap) "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(ap),
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.
(aq) "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.
(ar) "Preference Stock" shall mean the preference stock of
Oasis.
(as) "Property" means real, personal or mixed property(s),
tangible or intangible.
(at) "Public Parent" shall mean, in the case of AQP
Holdings LP, Aquila Gas Pipeline Corporation, and, in the case of Channel (or
any Affiliate of Channel), Tennessee, or any corporation with which Tennessee
shall be merged or consolidated, or to which Tennessee shall have transferred
all or substantially all of its assets.
(au) "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.
(av) "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.
(aw) "Shares" shall mean the shares of Common Stock and
Preference Stock to be acquired by Buyer pursuant to Section 2.1 hereof.
5
<PAGE> 7
(ax) "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).
(ay) "Tennessee" shall mean Tennessee Gas Pipeline
Company, a Delaware corporation.
(az) "Transportation Agreements" shall mean the agreements
described in Schedule 1.1(az).
(ba) "Transportation Rights" shall mean the rights
described on Schedule 1.1(ba).
1.2 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Agreement shall be defined according to GAAP.
1.3 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(aa), 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(aa)), 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.
1.4 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.
1.5 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).
6
<PAGE> 8
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) 1667 shares of Common Stock, (ii) 100 shares of Preference Stock,
and (iii) the Transportation Rights. The Common Stock and Preference Stock to
be sold and purchased hereunder consists of the shares of Series C Common Stock
and Series C Preference Stock acquired by Seller pursuant to the Settlement
Agreement dated March 31, 1995, by and between Seller, Dow, and Dow Pipeline
Company, and HPL, Intratex and Enron. Seller shall not sell, transfer or
assign to Buyer, and Buyer shall not assume or become obligated under, 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. In the event that
Channel (or an Affiliate of Channel) shall give notice to Seller of the
election by Channel (or its Affiliate) to exercise the Channel Rights, then the
number of shares of Common Stock and Preference Stock to be acquired by AQP
Holdings LP shall be equal to the Applicable Ratio multiplied by the number of
shares of Common Stock and Preference Stock set forth in (i) and (ii), above.
2.2 Purchase Price. Subject to the post-Closing adjustment set
forth in Section 2.3, the total purchase price for the Interests (the "Purchase
Price") shall be either (i) the Applicable Ratio multiplied by $84,000,000 if
the Closing shall occur on or prior to November 1, 1996, or (ii) the Applicable
Ratio multiplied by $84,600,000 if the Closing shall occur after November 1,
1996.
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)
7
<PAGE> 9
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 excess of $27,500,000 over the Closing
Shareholders' Equity, but only in the event that such excess is more than 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.
(d) Adjustment of Purchase Price; Payment. If the
Closing Shareholders' Equity is less than $27,500,000, then the Purchase Price
shall be reduced by the amount equal to .25 multiplied by the product of (i)
the Applicable Ratio; multiplied by (ii) $27,500,000 minus the Closing
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 shall pay to Buyer 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
Seller 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
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<PAGE> 10
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 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. 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
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<PAGE> 11
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 67 shares are Series A, 100
shares are Series B, 100 shares are Series C and 33 shares are Series D, and
(z) 6,667 shares of Common Stock issued and outstanding, of which 2,000 shares
are Series A, 2,000 shares are Series B, 1,667 shares are Series C and 1,000
shares are Series D. The outstanding shares of capital stock of Oasis are
owned by the Persons, and in the amounts, set forth on Schedule 3.3.
(b) 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(b), 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 (other than Buyer), 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 (other than Buyer), any securities that are
convertible into or exchangeable for shares of capital stock or other
securities of Oasis or Oasis Finance.
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, or
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<PAGE> 12
(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; No Adverse Action.
Except as set forth on Schedule 3.6 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.
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."
(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.
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<PAGE> 13
(e) Except as set forth in Schedule 3.7(e), all material
imbalances which existed as of December 31, 1995, are reflected in the Baseline
Balance Sheet. Except for imbalances set forth on Schedule 3.7(e), there are
no material imbalances.
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;
(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 assumption, guarantee, endorsement or other
assumption of responsibility or liability by either Company for any material
Liability of any other Person;
(e) 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;
(f) 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;
(g) 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;
(h) any cancellation, modification or settlement for less
than the full amount thereof of any material debt or claim by or owing to
either Company;
(i) any termination, discontinuance, closing or disposal
of any material facility or business operation of either Company;
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<PAGE> 14
(j) any material transaction, contract or commitment
entered into by either Company which is not in the ordinary course of business
and on reasonable commercial terms, or any material change in the accounting
methods used by either Company;
(k) any commitments by either Company for expenditures of
a capital nature in excess, individually or in the aggregate, of $100,000 other
than commitments pursuant to and consistent with the Capital Improvement
Program.
(l) any agreement, whether written or oral, by Seller or
by either Company to do, or cause to be done, any of the foregoing.
3.9 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 3.9(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 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 3.9(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 3.9(c)(i) discloses all open examinations of
the Companies for taxes for past periods by any Federal, State, local or
foreign governmental authority. Schedule 3.9(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 3.9(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.
3.10 No Litigation, Adverse Events or Violations.
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(a) Except as set forth on Schedule 3.10(a), to Seller's
knowledge there is no action, suit, claim or legal, administrative,
arbitration, condemnation or other proceeding or governmental investigation or
examination pending, or threatened, against either Company or any of its
Business or Property, or any injunction, order, arbitration award, or to
Seller's knowledge other similar matter, entered, pending or, threatened,
against either Company 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, except for any such foregoing
matters which, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
(b) To Seller's knowledge, 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 3.10(b) does not cover any of the matters
addressed by Sections 3.9 or 3.11.
3.11 Environmental Matters.
(a) Except as set forth on Schedule 3.11(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.
(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 3.11(c), 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.
(d) Seller makes no representation or warranty as to the
Liability of Oasis, or the adequacy of reserves reflected in the Baseline
Balance Sheet, with regard to potential environmental Liabilities
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<PAGE> 16
arising out of the Purchase and Sale Agreement dated October 27, 1994 between
Oasis and Western Gas Resources - Texas, Inc.
3.12 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.
3.13 Transportation Rights.
(a) Schedule 1.1(az) 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(ba) 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(az), 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 under any of the
foregoing. There are no unresolved material disputes under any of the
agreements specified on Schedule 1.1(az).
(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.
3.14 Seller's Investigation. In connection with the
representations and warranties set forth herein, Seller has interviewed the
following employee of Oasis as to whether he is aware of any exceptions to the
representations and warranties set forth opposite his 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>
Cliff Reed 3.11(a), (b), (c)
</TABLE>
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<PAGE> 17
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Organization. Buyer is duly organized, validly
existing and in good standing under the laws of the State of Delaware.
4.2 Execution and Delivery. 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.
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.
4.3 No Conflicts. Except as set forth in Schedule 4.3,
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 shareholders or partners, 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.
4.4 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 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.
4.6 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
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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.
4.7 Other Acquisitions. None of Buyer or Buyer's Affiliates is
presently involved in any negotiations, or is 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.
4.8 Source of Financing. Buyer has provided to Seller a copy of a
commitment letter concerning Buyer's source of funding.
ARTICLE 5.
ADDITIONAL AGREEMENTS
5.1 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 5.1, 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) Oasis shall not declare or pay cash Dividends on the
Common Stock and the Preference Stock unless such Dividends are consistent with
past practices and are in the ordinary course of operations of Oasis, and
Schedule 5.1(b) sets forth cash Dividends expected to be made by Oasis prior to
Closing; the cash Dividends declared by Oasis shall not exceed the expected
Dividends set forth on Schedule 5.1(b);
(c) 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, and Seller will not agree to any
amendment or termination of or waive any rights under any of the Transportation
Rights.
5.2 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
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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.
5.3 Information. Prior to the Closing: (i) Seller will promptly
inform Buyer in writing of any litigation commenced, or any material claim
asserted, against Seller 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.
5.4 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.
5.5 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.
5.6 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.
5.7 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
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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.
5.8 Limitation of Duties. Nothing in this Article V shall be
interpreted as requiring Buyer or 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 Buyer or Seller (or any employee of
Buyer or Seller acting as a director or officer of either Company) of any
fiduciary or other duty owed by Buyer or Seller or such employee to Oasis or
any other shareholder of Oasis.
ARTICLE 6.
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.
6.1 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 6.1 have been satisfied, the provisions of Section 5.8 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.
6.2 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.
6.3 Certificate. Seller shall have delivered to Buyer a
certificate dated the Closing Date, in the form attached as Schedule 6.3, and
signed by one of its duly authorized officers.
6.4 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.
6.5 Tax certificate. Seller shall have delivered to Buyer a
certificate in accordance with the terms of Section 1445 of the Code certifying
that Seller is not a foreign corporation, foreign partnership, foreign trust or
foreign estate, which shall be in the form attached hereto as Schedule 6.5.
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6.6 Receipt. Seller shall have duly executed and delivered to
Buyer a receipt, in the form attached as Schedule 6.6, and signed by one of its
duly authorized officers, acknowledging payment of the Purchase Price specified
in Section 2.2 above.
6.7 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.
6.8 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.
6.9 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.
6.10 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.
6.11 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.
6.12 Preferential Rights. Either (i) the Channel Rights to acquire
any of the Interests shall have been waived (by action or inaction), or (ii)
the Channel Rights shall have been exercised within the time period
contemplated for such exercise, and such exercise shall be subject to the
provisions of Article 11 hereof.
In addition, the parties listed thereon shall have entered into the
agreement set forth in Schedule 6.12. Seller agrees to cause Dow to execute
and deliver such agreement at the Closing.
6.13 Assurance by Dow. Dow shall have delivered to Buyer the
letter agreement regarding assurance, in the form of Schedule 6.13. Seller
agrees to cause Dow to deliver such letter agreement at the Closing.
6.14 Consents. The consents or other actions identified on
Schedule 3.5 shall have been obtained or taken.
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ARTICLE 7.
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.
7.1 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.
7.2 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.
7.3 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, or, if Buyer is a limited
partnership, of Buyer's general partner.
7.4 Authorization. Seller shall have received from Buyer a copy
of resolutions duly adopted by the Governing Body of Buyer and relevant
extracts of the Organizational Documents 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 authorized to
execute and deliver such documents on behalf of Buyer.
7.5 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.
7.6 Receipts. Buyer shall have duly executed and delivered to
Seller, an instrument in the form attached as Schedule 7.6 acknowledging the
receipt of the Interests to be transferred and all other deliveries made
pursuant hereto.
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 transaction 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 Seller which approval shall not
unreasonably be withheld.
7.10 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.
7.11 Other Agreements. As to those agreements listed on Schedule
7.11(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 the Public Parent of Buyer, in the form
of Schedule 7.11(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 7(ii), 7(iii), and 7(vi) of that
certain Intratex Consent and Agreement dated February 1, 1990 (the "Intratex
Consent"), and the approval referred to in Section 7(vii) of the Intratex
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 7
of the Intratex Consent.
7.12 Preferential Rights. Either (i) the Channel Rights to acquire
any of the Interests shall have been waived (by action or inaction), or (ii)
the Channel Rights shall have been exercised within the time period
contemplated for such exercise, and such exercise shall be subject to the
provisions of Article 11 hereof.
In addition, the parties listed thereon shall have entered into the
agreement set forth in Schedule 6.12. Buyer agrees to cause its parent entity
identified on Schedule 6.12 to execute and deliver such agreement at the
Closing.
7.13 Assurance by Public Parent of Buyer. The Public Parent of
Buyer shall have delivered to Seller the letter agreement regarding assurance,
in the form of Schedule 7.13. Buyer agrees to cause its Public Parent to
deliver such letter agreement at the Closing.
7.14 Consent. The consents or other actions identified on Schedule
3.5 shall have been obtained or taken.
ARTICLE 8.
REMEDIES
8.1 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.
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For purposes of determining whether an Event of Default has occurred
for which a claim may be made under this Article 8 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 the Applicable Ratio multiplied by $33,333.33. (In the
case of Losses sustained or incurred by Buyer with respect to losses, damages
or costs to the Companies, the $33,333.33 amount is equivalent to losses,
damages and costs to the Companies of $133,333.33.) As used in this Article 8,
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.
8.2 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 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 .25 multiplied by
the product of (x) the Applicable Ratio 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 8.2.
8.3 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 8.6 on or before July 1, 1999; 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 3.6, 3.12, 4.1, 4.2, 4.3, 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 3.9, 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.
8.4 Limitations on Claims.
(a) Except as provided in Section 8.4(b) Buyer shall not
make any claim in respect of any Event of Default hereunder unless the
claim involves Losses of more than the Applicable Ratio multiplied by
$33,333.33 (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
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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
3.6.
(b) Notwithstanding Section 8.4(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 3.6, 3.9 and 3.12 (such Sections being the
"Excluded Sections").
(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 $1,500,000 multiplied by the Applicable Ratio 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 the Applicable Ratio multiplied by $1,500,000 and is
equal to or less than the Applicable Ratio multiplied by
$3,166,666.66 on a cumulative basis.
(d) Seller's obligations to Buyer under this Article 8
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 the Applicable Ratio multiplied by $12,000,000.
"Excluded Covenant" means any of the covenants set forth in Sections 5.1(b),
5.1(c), 5.2, 5.5 and 6.13. Further, in no event shall Seller's obligations to
Buyer under this Article 8, 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 3.6, 3.9, 3.10,
3.11 and 3.12 shall be asserted by Buyer in respect of the applicable provision
or provisions of such sections. (iii) Nothing in Section 8.4(e)(i) shall
require Buyer to assert any claim referred to in Section 8.4(e)(ii) under any
provision of Article 3 other than the sections referred to in Section
8.4(e)(ii). (iv) Nothing in this Agreement shall be interpreted to permit
either party to obtain a double recovery of any Losses.
8.5 Collateral Source Recoveries; Income Tax Recoveries.
(a) To the extent that any claim of a party under this
Article 8 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.
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(b) (i) For purposes of this Section 8.5(b): "Tax
Matters Losses" shall mean .25 multiplied by the product of (x) the Applicable
Ratio multiplied by (y) losses, damages or costs sustained or incurred by the
Companies in respect of matters covered by Section 3.9; "Tax Matters
Recoveries" means .25 multiplied by the product of (x) the Applicable Ratio
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 3.9 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 8 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.
8.6 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 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 8.7 hereof.
8.7 Arbitration. Except as otherwise provided in Articles 2 and
10, 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.
8.8 Exclusive Remedy. Except as provided in Articles 2 and 10,
hereof, each party's remedies referred to in this Article 8 are intended to be
the exclusive remedies of such party under this Agreement.
8.9 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
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a claim may be asserted under this Article 8. Nothing in this Section 8.9
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.
8.10 Examples. For purposes of illustration of the provisions of
Article 8, the following examples are used (each example assumes that the
Applicable Ratio is 1 over 1 and that the claim in the example is not barred by
the provisions of Section 8.3):
(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 $500,000 from Seller (the
losses sustained by Oasis multiplied by .25). Tax matters are covered by
Section 3.9, and thus are not subject to the limits set forth in Section
8.4(c). If, thereafter, Buyer sustained a Loss of $15,000,000 in respect of
Section 3.11 (equivalent to Oasis losses of $60,000,000), Buyer would be
entitled to a recovery of $12,000,000 from Seller, assuming no other Losses
subject to the limitations set forth in Section 8.4(c) had previously been
recovered from Seller. The previous recovery in respect of Section 3.9 would
not affect the amounts recoverable under Section 8.4(d) in respect of
representations and warranties which are not contained in the Excluded
Sections.
(b) With respect to Section 8.5(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).
(c) If Oasis were subjected to a $120,000 judgment for
violation of law covered by Section 3.10(b), Buyer would not recover anything
with respect to such matter. The "Losses" to Buyer would be $30,000 (.25
multiplied by $120,000), and thus would not reach the Minimum Claim
requirements set forth in Section 8.4(a). If the same judgment were $200,000,
such matter would satisfy the Minimum Claim requirement because the "Losses" to
Buyer (.25 multiplied by $200,000 = $50,000) exceed $33,333.33. However, Buyer
would not be entitled to any recovery unless all of Buyer's "Losses" from
Events of Default covered by Section 8.4(c) exceed $1,500,000, and then only to
the extent of the excess. If Buyer previously had $1,490,000 in Losses
covered by Section 8.4(c), then the $50,000 Loss would entitle Buyer to a
recovery of $20,000 from Seller. (In the immediately preceding sentence, the
first $10,000 of such Loss would bring the total Losses covered by Section
8.4(c) to $1,500,000, which is the amount for which Buyer has no claim under
Section 8.4(c)(i) in regard to Events of Default covered by Section 8.4(c)(i);
the remaining $40,000 is subject to the 50% limit set forth in Section
8.4(c)(ii).) If Buyer previously had $1,550,000 in Losses covered by Section
8.4(c), then the $50,000 Loss would entitle Buyer to a recovery of $25,000 from
Seller. If Buyer previously had $3,200,000 in Losses covered by Section
8.4(c), then the $50,000 Loss would entitle Buyer to a recovery of $50,000 from
Seller.
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(d) If Oasis were subjected to $150,000 in costs due to
a past failure to comply with an Environmental Law which also constitutes a
breach of Section 3.11(a), the Buyer's Losses (.25 multiplied by $150,000 =
$37,500) would meet the Materiality Requirement set forth in Section 3.11(a)
because it is in excess of $33,333.33, and also would meet the requirements for
a Minimum Claim (again, because it is in excess of $33,333.33).
ARTICLE 9.
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 10.
TERMINATION
10.1 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 December 5, 1996 (the "Termination Date"); 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.
10.2 Remedies Upon Termination.
(a) Except as provided in Section 10.2(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 5 hereof; or (iii) Seller
failing to cause the fulfillment of conditions within its control set forth in
Article 6; or (iv) Buyer failing to cause the fulfillment of the conditions
within its control set forth in Article 7; (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
10.1, to (A) seek and obtain specific performance of this Agreement or (B) seek
the remedies provided in Article 9 hereof.
27
<PAGE> 29
10.3 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 the stated date of termination.
10.4 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 10 or otherwise, the
provisions contained in Article 9 and Article 10 shall survive such termination
indefinitely.
ARTICLE 11.
CHANNEL RIGHTS EXERCISE
11.1 If notice of exercise of the Channel Rights shall be given to
Seller within the time period provided for such notice in Sections 3(e) and
3(f) of the 1989 Capital Stock Agreement, then Seller shall sell to Buyer and
Buyer shall purchase from Seller the Applicable Ratio of the Interests as
provided for under Section 2.1 hereof, subject to satisfaction of the
conditions to Closing set forth in Articles 6 and 7 hereof.
11.2 If following exercise of the Channel Rights, Channel (or an
Affiliate of Channel) and Seller shall not complete the transfer to Channel (or
an Affiliate of Channel) of the Applicable Ratio of the Interests on or before
the first Business Day of February, 1997, then the agreement to purchase and
sell between Channel (or an Affiliate of Channel) and Seller created by the
exercise of such Channel Rights shall terminate, and AQP Holdings LP shall
purchase from Seller and Seller shall sell to AQP Holdings LP the Interests
with respect to which the Channel Rights were exercised all on the same terms
and conditions and at the price as set forth in this Agreement, subject to the
following requirements:
(a) All of the conditions to Closing as set forth in
Articles 6 and 7 of this Agreement shall have been satisfied on or prior to the
Closing of such additional purchase by AQP Holdings LP;
(b) The failure to consummate the sale of the Applicable
Ratio of the Interests by Seller to Channel (or an Affiliate of Channel) shall
not be due to the breach or other wrongful conduct of Seller;
(c) There shall be no dispute with Channel, any Affiliate
of Channel, or any other party, pending or threatened, as to the ability or
right of Seller to transfer such Interests to AQP Holdings LP, free and clear
of any Liens and Encumbrances; and
(d) All of the conditions to such Closing shall have been
satisified on or prior to the first Business Day of May, 1997.
(e) Buyer shall not assert that a condition to Closing
under this Section 11.2 has not been satisfied if the failure to satisfy such
condition is the result of an action which Buyer as a stockholder of Oasis has
voted in favor of (or which the Oasis director appointed by Buyer has voted in
favor of) at any time after the initial purchase of Interests by Buyer under
this Agreement, nor shall Buyer assert a claim under Article 8 based on any
such action which Buyer or the Oasis director
28
<PAGE> 30
appointed by Buyer has voted in favor of after such initial purchase of
Interests by Buyer under this Agreement.
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 to the
parties and their legal counsel in accordance with written instructions
delivered herewith, as such instructions may be superseded from time to time by
subsequent written instructions from one party to the other given in accordance
with this Section 12.1. Each party shall give the other such initial written
instructions within 30 days of the execution hereof. All notices hereunder
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.
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.
29
<PAGE> 31
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.
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.
30
<PAGE> 32
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
31
<PAGE> 1
Aquila Gas Pipeline Corporation
File Number 1-12426
Exhibit 10.2
Note Agreement dated July 1, 1996 between Aquila
Energy Corporation and AQP Holdings L.P.
<PAGE> 2
NOTE AGREEMENT
Note Agreement ("Agreement") dated as of July 1, 1996 between AQUILA
ENERGY CORPORATION, a Missouri corporation ("Company") and AQP HOLDINGS L. P.,
a Delaware limited partnership ("Subsidiary").
RECITALS
1. AQP Holdings L. P., a partially-owned subsidiary of the
Company, from time to time requires advances of funds to enable it to meet
temporary working capital needs and operating expenses and make acquisitions of
assets.
AGREEMENT
1. The Advances. As evidenced by the Contract Note ("Note"),
which is attached hereto and a part of this Agreement, the Company hereto
agrees on the terms and conditions hereinafter set forth, to make advances (the
"Advances") to Subsidiary from time to time in an aggregate amount not to
exceed $3,000,000. (The term "Lender" shall refer to the Company in its
capacity as a maker of Advances, and the term "Borrower" shall refer to
Subsidiary in its capacity as the recipient of Advances.) Within the limits of
such amount, the Borrower may borrow, repay and reborrow under this paragraph
1: provided, however, that Borrower may not borrow or reborrow hereunder if
demand for payment is made by Lender pursuant to the express provisions of
paragraph 3 or following an Event of Default (as defined in paragraph 10), as
the case may be. Each Advance shall be made pursuant to pre-authorized
instructions or as Lender and Borrower shall otherwise agree.
2. Interest on Advances. Borrower shall pay interest on the
unpaid principal amount of each Advance made by Lender from the date of such
Advance until such principal amount shall be paid in full at the Prime Rate or
rates offered from time to time by Lender calculated on a 360-day year basis.
The "Prime Rate" means the rate of interest per annum established and
announced from time to time by Citibank, N. A. of New York as its prime rate or
such other base rate established and announced by Citibank in the event the
Prime Rate is not established or announced by Citibank.
The Interest Period, for each loan made, is the period commencing on
the date of such Loan and ending on the last day of the period selected by the
Borrower pursuant to the provisions below, and, thereafter, each subsequent
period commencing on the last day of the immediately preceding Interest Period
and ending on the last day of the period selected by the Borrower pursuant to
the provisions below.
<PAGE> 3
(i) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day.
3. Repayment; Evidence of Indebtedness. Unless a fixed date for
repayment is expressly agreed, Borrower shall repay, no later than the Expiry
Date of this Agreement, at such place and by such means as Lender may select,
the aggregate unpaid principal amount of all Advances made to Borrower as
evidenced by such Lender's ledger balance. All advances and payments shall be
evidenced by notation by the Company on the attached Note, provided that the
failure to make such notation shall not affect the obligations of the Borrower.
4. Prepayment. Borrower may prepay the Advances made to it in
whole or in part at any time; provided, however, that if the obligations of
Borrower hereunder shall be payable on a fixed date, no such prepayment shall
be made without the prior written consent of Lender.
5. Conditions to Advances.
5.1 Conditions to Initial Advance. The obligation of the
Lender to make its initial Advance is subject to the following conditions
precedent:
(a) Notes. The Lender shall have received the
Note, confirming to the requirements hereof and executed by duly
authorized officers of the Borrower.
(b) Organizational Documents. The Lender shall have
received copies of the Certificate or Articles of Limited Partnership,
and all amendments and restatements thereof, of the Borrower certified
as of or as close as possible to the date the initial Advance is made
as correct and complete by the Secretary of State of the Borrower's
jurisdiction of incorporation.
(c) Corporate Proceedings and Incumbency. The Lender
shall have received a certificate of the secretary or assistance
secretary of the General Partner of Borrower, dated the date the
initial Advance is made, certifying: (i) the due adoption and continued
force and effect of attached resolutions of the Board of Directors of
the General Partner of Borrower authorizing the borrowing of the
Advances and the execution and delivery by specified officers and
performance by the Borrower of this Agreement and the Notes; (ii) the
incumbency and signatures of the officers of the General Partner of
Borrower executing this Agreement and the Notes, together with evidence
of the incumbency and signature of such secretary or assistance
secretary; and (iii) attached copies of the By-laws of the General
Partner of Borrower.
<PAGE> 4
(d) Required Approvals. The Lender shall have received
certified copies of any consent or approval of any public authority or
other Person which is required in connection with the transactions
contemplated by this Agreement.
(e) Additional Matters. All proceedings and other
documents and legal matters in connection with the transactions
contemplated by this Agreement shall be satisfactory in form and
substance to the Lender and its counsel.
5.2 Conditions to All Advances. The obligations of the
Lender to make each Advance (including the initial Advance) to be made by it
hereunder is subject to the following additional conditions precedent:
(a) Representations and Warranties. The representations
and warranties made by the Borrower contained in this Agreement, and
any certificate, document or financial or other written statement
furnished at any time under or in connection herewith shall be true and
correct in all material respects on and as of the date of such Advance
and after giving effect thereto as if made on and as of such date and
otherwise in exactly the same language.
(b) Covenants. On the date of the Advance and after
giving effect thereto, the Borrower shall have complied and shall then
be in compliance in all material respects with all the terms, covenants
and conditions of this Agreement which are binding upon it.
(c) No Event of Default. No Event or Event of Default
shall have occurred and be continuing as of the date of such Advance or
after giving effect to such Advance.
(d) No Material Adverse Change. At the date of such
Advance and after giving effect thereto, there shall have occurred no
material adverse change in the Borrower's business or financial
condition as a whole since the date the immediately preceding Advance
was made.
Whenever the Borrower makes, or is deemed to make, a request to
borrow, the Borrower shall be deemed to have represented and warranted to the
Lender that the conditions precedent to such Advance set forth above have been
satisfied, to the same extent as if the Borrower so represented and warranted
at that time in a written certificate delivered to the Lender.
<PAGE> 5
6. Books and Records; Examination; Financial Information;
Notices. So long as any Obligations remain unpaid or this Agreement is in
effect, the Borrower shall; (a) maintain, at all times, true and complete
books, records and accounts in which true and correct entries are made of its
transactions in accordance with GAAP and (b) by means of appropriate entries,
reflect in such accounts and in all financial statements proper liabilities and
reserves for all taxes and proper provision for depreciation and amortization
of properties and bad debts, all in accordance with GAAP. The Lender may at
all reasonable times have access to examine, audit, make extracts from and
inspect the Borrower's records, files and books of account. The Borrower will
deliver to the Lender any instrument necessary for the Lender to obtain records
from any Person maintaining records for the Borrower.
7. General Warranties and Representations. The Borrower
continuously warrants and represents to the Lender, until all Advances have
been paid, that, except as hereafter disclosed to and accepted by the Lender in
writing:
7.1 Organization and Qualification; Power and Authority.
The Borrower (a) is duly incorporated and organized and validly
existing in good standing under the laws of the State of Delaware,
(b) is qualified to do business and is in good standing in all
states in which qualification and good standing are necessary in order
for it to conduct its business and own or lease its property, and (c)
has all requisite power and authority to conduct its business and to
own and lease its property.
7.2 No Material Adverse Change. No material adverse
change has occurred in the property, business, operations or conditions
(financial or otherwise) of the Borrower and its subsidiaries since the
date of the most recent financial statements delivered to the Lender.
7.3 Adequate Assets. The Borrower and its subsidiaries
possess adequate assets for the conduct of their respective
businesses.
7.4 Margin Securities. The Borrower does not own any
"margin security", as that term is defined in Regulation U of the
Federal Reserve Board. None of the Advances will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin
security, for the purpose of reducing or retiring any Indebtedness
which was originally incurred to purchase or carry any margin security
or for any other purpose which might cause any of such Advances to be
considered a "purpose credit" within the meaning of, or otherwise to
violate, Regulation G, T, U or X of the Federal Reserve Board. The
Borrower will neither take nor permit any agent acting on its behalf to
take any action which might cause any transaction, obligation or right
created by this Agreement, or any document or instrument delivered
pursuant hereto, to violate any regulation of the Federal Reserve Board.
<PAGE> 6
7.5 Authorization, Validity and Enforceability of this
Agreement and the Note.
The Borrower has the power and authority to execute, deliver and perform
this Agreement and the Note. Both the Agreement and the Note has been
duly authorized by the Borrower by all required action, has been duly
executed and delivered by the Borrower, and constitutes its legal, valid
and binding agreement and obligation, enforceable against it in
accordance with its terms without defense, setoff or counterclaim. The
execution and delivery of this Agreement and Note by the Borrower and
the carrying out of their terms and provisions do not and will not: (a)
contravene in any material respect any provision of law, statute, rule
or regulation or any order, writ, decree or injunction of any
governmental authority; (b) conflict with, or violate in any material
respect the terms of, or result in the breach of, any of the terms or
conditions or provisions of any material indenture, deed of trust,
mortgage, agreement or other instrument to which the Borrower or any of
its subsidiaries is a party, (c) result in the creation or imposition of
any material Lien upon the property of the Borrower or any of its
subsidiaries, or (d) violate any provision of the Certificate of
Articles of Limited Partnership or By-laws of the Borrower or any of its
subsidiaries.
7.6 Disclosure. Neither this Agreement nor any document
or statement furnished to the Lender by or on behalf of the Borrower
hereunder contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements
contained herein or therein not misleading.
8. Affirmative Covenants. The Borrower covenants that, so long
as any of the Advances remain outstanding, the Borrower and each subsidiary
shall:
8.1 Partnership Existence and Good Standing. Maintain its
partnership existence and its qualification and good standing in all
states necessary to conduct its business and own or lease its property,
and maintain all licenses, permits, franchises and governmental
authorizations necessary to conduct its business and own or lease its
property.
8.2 Insurance. Maintain insurance (including product and
other liability insurance) with responsible insurance companies against
such risks and in such amounts as is customarily maintained by entities
engaged in the same or similar business and similarly situated
(provided that the Borrower or any subsidiary may self-insure to the
extent that adequate reserves have been established and maintained and
exist with respect thereto in accordance with GAAP).
8.3 Maintenance of Property. Maintain all of its
property necessary and useful in its business in good operating
condition and repair, ordinary wear and tear excepted.
<PAGE> 7
8.4 Environmental Laws. Obtain all applicable permits,
licenses and other authorization which are required under all
Environmental Laws except to the extent failure to have any such
permit, license or authorization would not have a material adverse
effect on the business of Borrower or its financial condition,
operations or prospects. Borrower shall also maintain compliance
with the terms and conditions of all such applicable permits, licenses
and authorizations, and shall also maintain compliance with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in
any applicable Environmental Law or in any regulation, code, plan,
order, decree, judgement, injunction, notice or demand letter issued,
entered, promulgated, or approved thereunder, except to the extent
failure to comply would not have a material adverse effect on its
financial condition, operations, business or prospects.
8.5 Further Assurances. Execute and deliver to the
Lender, upon request, such documents and agreements as the Lender may,
from time to time, reasonably request to carry out the terms and
conditions of this Agreement.
9. Negative Covenants. The Borrower covenants that, so long as
any of the Advances remain outstanding, the Borrower shall not, without the
Lender's prior written consent:
9.1 Conduct of Business. Engage, directly or indirectly,
in any line of business other than the business of purchasing,
transportation, processing and sale of natural gas and natural gas
liquids and other businesses reasonably related thereto.
9.2 Mergers, Consolidations or Sales of Assets.
(a) Merge, consolidate, combine with or into, or acquire
all or a substantial part of the assets or business of, any Person,
except that this paragraph 9.2 shall not apply to (i) the merger,
consolidation or combination of the Borrower, with or into any other
person, or the acquisition by the Borrower, of all or a substantial
part of the assets or business of any other person, and (ii) the
merger, consolidation or combination with or into any direct or
indirect wholly-owned subsidiary, so long as (x) no Default shall have
occurred and be continuing at the time of such merger, consolidation,
combination or acquisition or would result therefrom, and (y) in the
case of clause (i), such merger, consolidation, combination or
acquisition would not, in the reasonable judgement of the Lender, have
an adverse effect on the perfection, validity or enforceability of any
of the rights of the Lender under this Agreement and the person
surviving such merger, consolidation or combination, if other than the
Borrower, shall have assumed, in a manner and pursuant to a written
instrument in form, scope and substance reasonably satisfactory to the
Lender, all of the liabilities and obligations of the Borrower, as the
case may be, under the Agreement.
<PAGE> 8
(b) Sell, lease, transfer or otherwise dispose of a
majority of its assets, except that this paragraph 9.2(b) shall not
apply to (i) sales of assets (or, in the case of natural gas and
natural gas liquids inventory, exchanges thereof), other than assets
consisting of real property, in the ordinary course of business and
(ii) sales of obsolete or retired property not used or useful in its
business.
10. Events of Default. If the obligations of Borrower hereunder
shall not be payable on demand pursuant to the express provisions of paragraph
3, then in such event if any of the following events ("Events of Default")
shall occur and be continuing:
(a) Borrower shall fail to pay the principal of, or
interest on, any Advance when due, which failure is not cured within 30
days;
(b) Borrower or any subsidiary of Borrower shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against Borrower or any subsidiary of
Borrower seeking to adjudicate it as bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment
of a receiver, trustee, or other similar official for it or for any
substantial part of its property; or Borrower or any subsidiary of
Borrower shall take any partnership action to authorize any of the
actions set forth above in this subparagraph (b);
(c) At any time Lender shall cease to be majority
beneficial owner of Borrower within the meaning of Section 13d-3 of the
Securities Exchange Act; or
(d) Borrower shall make or commit to make a transfer,
sale or assignment of the major portion of its assets (other than the
sale of accounts receivable).
Then and in such event, Lender thereby may, by notice to Borrower, (i) declare
its obligation to make Advances to be terminated, whereupon the same shall
forthwith terminate, and (ii) declare the Advances made to Borrower, and all
other amounts payable under this Agreement to be forthwith due and payable,
whereupon such Advances, and such amounts shall become and be forthwith due and
payable without presentment, demand, protest, or further notice of any kind,
all of which are hereby expressly waived by Borrower. Borrower agrees to pay
Lender on demand all costs and expenses, including without limitation
reasonable fees and expenses of counsel, incurred by Lender in connection with
the enforcement of this Agreement.
<PAGE> 9
11. Notices. All notices required hereunder shall be directed to
the parties hereto as follows:
(a) If to Aquila Energy Corporation
at 2533 N. 117th Ave.
Omaha, Nebraska 68164
Attention: Vice President - Finance
Telephone: 402-498-4496
Facsimile: 402-498-4276
(b) If to AQP Holdings L.P.
c/o Aquila Gas Pipeline Corporation
at 100 N.E. Loop 410, Suite 1000
San Antonio, Texas 78216-4754
Attention: Vice President - Finance
Telephone: 210-342-0685
Facsimile: 210-340-6341
12. Amendments, Etc. No amendments or waiver of any provision of
this Agreement shall be effective unless the same shall be in writing and
signed by Borrower and Lender. No delay or failure of Lender in exercising any
right, power, privilege or remedy hereunder or under to Note shall affect such
right, power, privilege or remedy or be deemed a waiver thereof, nor shall any
single or partial exercise thereof or any failure to exercise the same in any
instance preclude any future exercise thereof.
13. Expiry Date. This Agreement shall expire on December 31,
1999, or such later date that may be established at the sole discretion of
Lender.
14. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first provided above.
AQUILA ENERGY CORPORATION AQP NEWCO CORPORATION
Title: The General Partner
By: /s/ Lawrence Clayton By: /s/ Damon C. Button
---------------------- --------------------
Title: Vice President Title: Vice President
-------------- --------------
<PAGE> 10
ADVANCES BY THE COMPANY AND REPAYMENTS BY
AQP HOLDINGS L. P.
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________
Amount of
Amount of Principal Notation
Date Advance Repaid Made By
<S> <C> <C> <C>
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</TABLE>
<PAGE> 11
CONTRACT NOTE
U.S. $3,000,000
Date: July 1, 1996
For value received, AQP HOLDINGS L.P., a Delaware limited partnership
(the "Borrower"), promises to pay to the order of AQUILA ENERGY CORPORATION, a
Missouri corporation (the "Lender"), the principal sum of Three Million and
No/l00 Dollars ($3,000,000.00) or, if less, the aggregate unpaid principal
amount of the Advances made by the Lender to the Borrower pursuant to Paragraph
1 of the Note Agreement referred to below. The Borrower promises to pay
interest on the unpaid principal amount hereof on the dates and at the rate or
rates provided for in the Note Agreement. All such payments of principal and
interest shall be made in lawful money of the United States in federal or other
immediately available funds at the office of the Lender in Omaha, Nebraska.
The date and amount of each Advance made by the Lender, the date and
amount of each repayment of the principal thereof made pursuant to Paragraph 4
of the Note Agreement shall be recorded by the Lender and, prior to any
transfer hereof, endorsed by the Lender on the schedule attached hereto, or on
a continuation of such schedule attached to and made a part hereof, provided
that the failure of the Lender to make any such recordation or endorsement
shall not affect the obligations of the borrower hereunder or under the Note
Agreement.
This note is the Contract Note referred to in the Note Agreement dated
as of July 1, 1996 between the Borrower and the Lender (the "Note Agreement")
and is entitled to the benefits thereof. Terms defined in the Note Agreement
are used herein with the same meanings. Reference is made to the Note
Agreement for provisions for the payment and prepayment hereof and the
acceleration of the maturity hereof.
The Borrower hereby waives diligence, presentment, protest and notice
of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance of other indulgence,
without notice.
This note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by the Borrower or any successor or assign of
the borrower, and the Lender or any holder thereof.
This note shall be governed by, and construed in accordance with, the
laws of the State of Texas, and shall be binding upon the successors and
assigns of the Borrower and insure to the benefit of the Lender, its
successors, endorses and assigns. If any term or provisions of this note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions thereof shall in no way be affected thereby.
AQP NEWCO CORPORATION
Title: The General Partner
By: /s/ Damon C. Button
-------------------
Name: Damon C. Button
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONENSED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 28,457
<SECURITIES> 0
<RECEIVABLES> 81,543
<ALLOWANCES> 0
<INVENTORY> 4,245
<CURRENT-ASSETS> 119,573
<PP&E> 487,210
<DEPRECIATION> (90,294)
<TOTAL-ASSETS> 582,373
<CURRENT-LIABILITIES> 115,760
<BONDS> 209,578
0
0
<COMMON> 294
<OTHER-SE> 190,112
<TOTAL-LIABILITY-AND-EQUITY> 582,373
<SALES> 534,587
<TOTAL-REVENUES> 534,587
<CGS> 437,620
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 48,837
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,287
<INCOME-PRETAX> 36,808
<INCOME-TAX> 13,974
<INCOME-CONTINUING> 22,834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,834
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
