<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________
For the quarterly period ended June 30, 1997
Commission file number 1-13108
________________
VASTAR RESOURCES, INC.
(Exact name of registrant as specified in its charter)
________________
Delaware 95-4446177
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15375 Memorial Drive
Houston, Texas 77079
(Address of principal executive offices) (Zip code)
__________________
(281) 584-6000
(Registrant's telephone number, including area code)
__________________
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
--- ---
Number of shares of Common Stock, $.01 par value, outstanding as of
June 30, 1997: 97,263,551.
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
VASTAR RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Millions of dollars 1997 1996 1997 1996
except per share amounts) ----- ----- ----- -----
<S> <C> <C> <C> <C>
REVENUES
Net sales and other operating
revenues ............................ $216.7 $217.6 $498.4 $440.9
Other revenues ........................ 13.2 12.1 15.1 15.6
----- ----- ----- -----
Net revenues ........................ 229.9 229.7 513.5 456.5
----- ----- ----- -----
EXPENSES
Operating expenses .................... 36.2 33.6 68.9 66.1
Exploration expenses .................. 26.1 35.2 96.9 75.0
Selling, general and administrative
expenses ............................ 16.5 14.9 31.2 27.1
Taxes other than income taxes ......... 10.0 9.7 24.6 19.7
Depreciation, depletion and
amortization ........................ 73.1 72.3 143.7 135.6
Interest .............................. 11.4 12.3 24.4 25.7
----- ----- ----- -----
Total expenses ...................... 173.3 178.0 389.7 349.2
----- ----- ----- -----
Income before income taxes ............ 56.6 51.7 123.8 107.3
Income tax provision (benefit)......... ( 1.7) ( 2.0) 2.6 ( 2.0)
----- ----- ----- -----
Net income ............................ $ 58.3 $ 53.7 $121.2 $109.3
===== ===== ===== =====
Earned per share ...................... $ 0.60 $ 0.55 $ 1.25 $ 1.12
===== ===== ===== =====
Cash dividends paid per share
of common stock ...................... $0.075 $ 0.075 $0.150 $0.150
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
- 1 -
<PAGE> 3
<TABLE>
<CAPTION>
VASTAR RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
1997 1996
-------- --------
(Millions of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 17.4 $ 21.9
Accounts receivable:
Trade ......................................... 261.1 470.4
Related parties ............................... 35.4 27.1
Inventories ..................................... 13.0 12.5
Prepaid expenses and other assets ............... 47.5 74.6
------- -------
Total current assets ............................ 374.4 606.5
Oil and gas properties and equipment, net ......... 1,384.3 1,332.6
------- -------
Total assets ...................................... $ 1,758.7 $ 1,939.1
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $ 268.5 $ 469.6
Accrued liabilities ............................. 58.1 81.5
------- -------
Total current liabilities ....................... 326.6 551.1
Long-term debt .................................... 643.3 778.4
Deferred liabilities and credits .................. 214.0 214.0
Deferred income taxes ............................. 174.8 102.2
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized, 110,000,000
shares; issued and outstanding, 97,263,551 shares
as of June 30, 1997 and 97,260,551 shares as of
December 31, 1996 ............................... 1.0 1.0
Capital in excess of par value of stock ........... 454.1 454.1
Accumulated deficit ............................... (55.1) (161.7)
------- -------
Total stockholders' equity ........................ 400.0 293.4
------- -------
Total liabilities and stockholders' equity ........ $ 1,758.7 $ 1,939.1
======= =======
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
- 2 -
<PAGE> 4
<TABLE>
<CAPTION>
VASTAR RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-------------------
1997 1996
(Millions of dollars) ----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 121.2 $ 109.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization ............... 143.7 135.6
Deferred income taxes .................................. 72.6 (2.3)
Dry hole expense and undeveloped leasehold amortization. 45.5 35.8
Gain on asset sales .................................... (10.9) (11.9)
Net change in accounts receivable, inventories
and accounts payable .................................. (0.6) 42.4
Other .................................................. 0.6 (13.9)
----- -----
Net cash provided by operating activities ................ 372.1 295.0
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties and equipment,
including dry hole costs ................................ (239.4) (246.7)
Proceeds from asset sales ................................ 12.9 13.8
Other .................................................... (0.4) 0.7
----- -----
Net cash used by investing activities .................... (226.9) (232.2)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt issuance .................... 95.0 ---
Repayments of long-term debt ............................. (230.1) (20.0)
Dividends paid ........................................... (14.6) (14.6)
Other .................................................... --- 0.1
----- -----
Net cash used by financing activities .................... (149.7) (34.5)
----- -----
Net change in cash and cash equivalents .................. (4.5) 28.3
Cash and cash equivalents at beginning of period ......... 21.9 5.3
----- -----
Cash and cash equivalents at end of period ............... $ 17.4 $ 33.6
===== =====
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
- 3 -
<PAGE> 5
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Introduction.
The foregoing information is unaudited and has been prepared from the
records of Vastar Resources, Inc. ("Vastar" or the "Company"). In the opinion
of management, the financial information reflects all adjustments (consisting
only of items of a normal recurring nature) necessary for a fair presentation
of the Company's financial position and results of operations in conformity
with generally accepted accounting principles. Such statements are presented
in accordance with the requirements of Regulation S-X which does not require
all disclosures normally required by generally accepted accounting principles
or those normally required on Form 10-K. These interim financial statements
should be read in conjunction with the annual financial statements for the
year ended December 31, 1996, and the Notes thereto contained in the Company's
Form 10-K and the first quarter Form 10-Q for the quarter ended March 31, 1997.
Certain previously reported amounts have been restated to conform with
classifications adopted in 1997.
NOTE 2. Summary of Significant Accounting Policies.
Hedging and Related Activities.
The Company utilizes derivative instruments in the form of natural gas
and crude oil price swap and price collar agreements in order to manage price
risk associated with future crude oil and natural gas production and fixed-
price crude oil and natural gas purchase and sale commitments. Such
agreements are accounted for as hedges using the deferral method of
accounting. Gains and losses resulting from these transactions are deferred
and included in other assets or accrued liabilities, as appropriate, until
recognized as operating income in the Company's Consolidated Statement of
Income as the physical production required by the contracts is delivered. The
cash flows related to any recognized gains or losses associated with these
hedges are reported as cash flows from operations. If the hedge is terminated
prior to expected maturity, gains or losses are deferred and included in
income in the same period as the physical production required by the contracts
is delivered.
The Company also uses derivative instruments in the form of interest rate
swaps primarily as a hedge against interest exposure on variable rate debt and
such agreements are accounted for as hedges using the accrual method of
accounting. The differences to be paid or received on swaps designated as
hedges are included in interest expense during the period to which the payment
or receipt relates. The related amounts payable to, or receivable from, the
counterparties are included in other assets or accrued liabilities. The cash
flows related to any recognized gains or losses associated with these hedges
are reported as cash flows from operations. The Company is currently not a
party to any interest rate swaps.
The conditions to be met for a derivative instrument to qualify as a
hedge are the following: (1) item to be hedged exposes the Company to price
or interest rate risk; (2) the derivative reduces the risk exposure and is
designated as a hedge at the time the derivative contract is entered into; and
(3) at the inception of the hedge and throughout the hedge period there is a
high correlation of changes in the market value of the derivative instrument
and the fair value of the underlying items being hedged.
- 4 -
<PAGE> 6
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
When the designated item associated with a derivative instrument matures,
is sold, extinguished or terminated, derivative gains or losses are recognized
as part of the gain or loss on sale or settlement of the underlying item.
When a derivative instrument is associated with an anticipated transaction
that is no longer expected to occur or if correlation no longer exists the
gain or loss on the derivative is recognized in income to the extent the
futures results have not been offset by the effects of price or interest rate
changes on the hedged item since the inception of the hedge.
New Accounting Standard.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
("SFAS 128"). This Statement specifies the computation, presentation and
disclosure requirements for Earnings Per Share. This statement is effective
for financial statements for both interim and annual periods ending after
December 15, 1997. The Company does not expect the adoption of SFAS 128 to
have a significant impact on its calculation of earnings per share.
NOTE 3. Net Sales and Other Operating Revenues.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
(Millions of dollars) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales and other operating revenues:
Unrelated parties ................ $ 698.5 $ 602.6 $1,734.2 $1,289.1
Related parties (1)<F1>........... 65.0 65.4 133.8 137.6
----- ----- ------ -----
Total 763.5 668.0 1,868.0 1,426.7
Less:
Purchases (2) <F2>................ (522.4) (433.7) (1,321.5) (956.8)
Delivery expenses ................ (24.4) (16.7) (48.1) (29.0)
----- ----- ----- -----
Net sales and
other operating revenues ......... $ 216.7 $ 217.6 $ 498.4 $ 440.9
===== ===== ===== =====
- -----------------
<FN>
<F1>(1) The weighted average lifting and purchase cost per Mcfe associated
with proprietary production and third party purchased volumes multiplied by
the related party sales volumes results in average costs of $41.1 million
and $40.9 million for the three months ended June 30, 1997 and 1996,
respectively, and $84.1 million and $101.0 million for the six months ended
June 30, 1997 and 1996, respectively.
<F2>(2) Includes purchases from related parties at a cost of $2.9 million and
$3.6 million for the three months ended June 30, 1997 and 1996,
respectively, and $8.0 million and $10.1 million for the six months ended
June 30, 1997 and 1996, respectively.
</FN>
</TABLE>
- 5 -
<PAGE> 7
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 4. Exploration Expenses.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
(Millions of dollars) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Dry hole costs .................... $ 4.6 $ 13.9 $ 31.0 $ 22.6
Geological and geophysical ........ 3.3 7.8 30.3 24.9
Undeveloped leasehold amortization. 7.7 6.9 14.5 13.2
Staff ............................. 9.2 5.5 17.7 12.5
Lease rentals ..................... 1.3 1.1 3.4 1.8
----- ----- ----- -----
Total ........................ $ 26.1 $ 35.2 $ 96.9 $ 75.0
===== ===== ===== =====
</TABLE>
NOTE 5. Per Share Data.
Earned per share is computed based upon the weighted average number of
common shares outstanding during the period. The dilutive effect of common
stock equivalents was not significant. The following table reflects the
weighted average number of common shares outstanding for the specified
periods.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Three months ended June 30, ........... 97,262,343 97,254,434
Six months ended June 30, ............. 97,261,551 97,252,218
</TABLE>
- 6 -
<PAGE> 8
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 6. Commitments and Contingencies.
The Company and its subsidiaries are involved in a number of lawsuits,
all of which have arisen in the ordinary course of the Company's business.
The Company believes that any ultimate liability resulting from any of these
suits will not have a material adverse effect on the financial position or
results of operations of the Company.
The operations and financial position of Vastar continue to be affected
from time to time in varying degrees by domestic and foreign political
developments, as well as legislation and regulations pertaining to
restrictions on oil and gas production, imports and exports, natural gas
regulations, tax increases, environmental regulations and cancellation of
contract rights. Both the likelihood of such occurrences and their overall
effect on the Company vary greatly and are not predictable. These
uncertainties are part of a number of items that Vastar has taken and will
continue to take into account in periodically establishing accounting
reserves.
Vastar and Atlantic Richfield Company ("ARCO") have agreements whereby
Vastar has agreed to indemnify ARCO against certain claims or liabilities which
ARCO may incur relating to ARCO's historical ownership and operation of
Vastar's properties, including liabilities under laws relating to the
protection of the environment and the workplace and liabilities arising out of
certain litigation. Under such agreements, ARCO has agreed to indemnify Vastar
with respect to other claims or liabilities and other matters of litigation not
related to Vastar's business or properties reflected in the consolidated
financial statements.
The Company has long-term contracts with certain cogeneration facilities
which have an approximate average remaining life of 13 years. These contracts
cover an average of 75 MMcfd of the Company's natural gas production for the
remaining term of the contracts at an average price of approximately $2.50,
adjusted annually.
In September 1996, the Company entered into a contract for the major
upgrade and operation of a semisubmersible drilling rig for a three-year deep
water drilling program in the Gulf of Mexico, commencing late 1997. This
contract along with other contracts for support equipment are anticipated to
cost approximately $160 million over the term of the contract.
- 7 -
<PAGE> 9
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 7. Taxes.
The provision (benefit) for taxes on income is comprised of the
following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ----------------
(Millions of dollars) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Federal:
Current ........................ $ (10.7) $ ( 1.0) $ (71.5) $ ( 1.9)
Deferred ....................... 7.8 ( 2.2) 71.5 ( 2.7)
------ ------ ------ ------
Total federal ................ (2.9) ( 3.2) 0.0 ( 4.6)
------ ------ ------ ------
State:
Current ........................ 0.7 1.5 1.5 2.2
Deferred ....................... 0.5 (0.3) 1.1 0.4
------ ------ ------ ------
Total state .................. 1.2 1.2 2.6 2.6
------ ------ ------ ------
Total income tax provision (benefit) $ (1.7) $ ( 2.0) $ 2.6 $ ( 2.0)
===== ====== ====== ======
</TABLE>
Refer to Management's Discussion and Analysis of Financial Condition and
Results of Operations for a discussion of the components of the federal income
tax provision for the six months ended June 30, 1997.
A reconciliation of the income tax provision (benefit) as compared to
the tax based on the federal statutory rate for the specified period is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Millions of dollars) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income before taxes ................ $ 56.6 $ 51.7 $ 123.8 $ 107.3
====== ====== ====== ======
Tax at 35% ......................... $ 19.8 $ 18.1 $ 43.3 $ 37.6
Increase (reduction) in taxes
resulting from:
State income taxes (net
of federal effect) ........ 0.8 0.9 1.7 1.8
Tax credits and other ........ (22.3) (21.0) (42.4) (41.4)
------ ------ ------ ------
Income tax provision (benefit)... $ (1.7) $ ( 2.0) $ 2.6 $ ( 2.0)
====== ====== ====== ======
</TABLE>
- 8 -
<PAGE> 10
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 8. Long-term Debt.
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
June 30, December 31,
(Millions of dollars) 1997 1996
------- -------
<S> <C> <C>
8.75% Notes, due in 2005................ $ 149.4 $ 149.4
6.95% Notes, due in 2006................ 75.0 75.0
6.96% Notes, due in 2007................ 75.0 ---
Commercial Paper........................ 343.9 554.0
------- -------
Total................................... $ 643.3 $ 778.4
======= =======
</TABLE>
The Company entered into an amended and restated revolving credit
agreement dated as of March 31, 1997 which extended the term of Vastar's credit
facility until March 31, 2002. As of June 30, 1997, the Company had no debt
outstanding under this facility.
NOTE 9. Subsequent Events.
Dividend
On July 23, 1997, the Company declared a quarterly dividend of $0.075
per share of common stock, payable on September 2, 1997, to stockholders of
record on August 8, 1997.
Marketing Alliance
On August 8, 1997, the Company entered into a Formation Agreement with
SEI Holdings, Inc., a Delaware corporation ("SEI") and a subsidiary of the
Southern Company, to combine certain natural gas and power trading and
marketing operations of the two companies and create a new energy services
company. The new company will be named Southern Company Energy Marketing L.P.
("SCEM" or the "Venture"). SCEM will be managed, through subsidiaries, by SEI
and Vastar and is expected to begin gas marketing September 1, 1997, and power
marketing as soon as practicable upon receipt of approvals from the Federal
Energy Regulatory Commission. Pursuant to the agreement, SEI has agreed to
contribute its Atlanta-based energy marketing and trading operations, Southern
Energy Trading and Marketing, to the Venture and Vastar has agreed to
contribute substantially all of the operations of its Vastar Gas Marketing,
Inc. and Vastar Power Marketing, Inc. subsidiaries. Vastar's gas processing
plant assets and related businesses and Vastar's contracts with cogeneration
facilities will not be contributed to the Venture. Under the terms of the
transaction, SEI will pay Vastar an initial cash payment of $40 million and
have an initial 60 percent ownership interest in SCEM, with Vastar holding a 40
percent interest. On July 1, 2001, the interests of SEI and Vastar will shift
to 75 percent and 25 percent, respectively. During the year 2002, SEI has an
option to purchase an additional 5 percent interest in the Venture from Vastar
for $80 million (the "SEI Call Option") and on January 1, 2003, Vastar has an
option to sell to SEI its remaining interest for $210 million (or $130 million
if the SEI Call Option has been exercised). For the first five years of
operation, Vastar is guaranteed, subject to certain exceptions, a minimum
- 9 -
<PAGE> 11
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
earnings distribution from the Venture of $20 million for the year 1998, $20
million for the year 1999, $25 million for the year 2000, $30 million for the
year 2001 and $30 million for the year 2002. Under very limited conditions,
SEI has an additional option to purchase Vastar's entire interest in the
Venture commencing on September 1, 1997, and expiring on December 31, 2007, for
$580 million (or $500 million if the SEI Call Option has been exercised) or a
certain multiple of earnings whichever is higher.
In connection with the Formation Agreement, Vastar has agreed to enter
into a Gas Purchase and Sale Agreement with SCEM for a primary term expiring on
December 31, 2007, pursuant to which Vastar will commit to sell, and the
Venture will commit to purchase (subject to certain partial releases or early
termination), substantially all of the gas produced and owned or controlled by
Vastar within the lower 48 states of the United States, Canada and Mexico, at
market-based prices. The Gas Purchase and Sale Agreement excludes certain gas
from the commitment and also reserves to Vastar certain rights, including gas
processing rights. The agreement will require that Vastar make available to
the Venture a minimum monthly quantity of gas.
Vastar management expects the transaction to close with respect to the
gas assets on or about September 1, 1997, and with respect to the power assets
as soon as practicable upon receipt of approvals from the Federal Energy
Regulatory Commission. Each closing is subject to certain conditions precedent
outlined in the Formation Agreement. The Formation Agreement, without
exhibits, has been filed as an exhibit to this Form 10-Q. To the extent the
exhibits to the Formation Agreement become material contracts they will be
filed after their execution.
- 10 -
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales and production volumes and average price statistics for the
specified periods are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Natural gas
Sales (MMcfd)*<F3> ................ 2,774 2,562 3,218 2,539
Production (MMcfd) ................ 880 882 877 885
Average sales price (per Mcf) ..... $ 2.09 $ 1.93 $ 2.40 $ 2.22
Average wellhead price (per Mcf) .. $ 1.72 $ 1.67 $ 2.02 $ 1.62
Crude oil
Sales (MBbld) ..................... 102.4 106.8 100.3 102.8
Production (MBbld) ................ 35.8 34.2 34.8 34.6
Average realized price (per Bbl)... $ 20.09 $ 21.02 $ 22.05 $ 20.19
Natural gas liquids
Production (MBbld) ................ 17.0 14.8 17.2 12.7
Average realized price (per Bbl) .. $ 11.93 $ 12.92 $ 13.72 $ 13.47
Total Production (MMcfed/net) ....... 1,197 1,176 1,189 1,169
<FN>
- ---------------------
<F3>* As used herein, the terms "Bcf," "MMcf" and "Mcf" mean billion,
million and thousand cubic feet, respectively; the terms "Bcfd," "MMcfd" and
"Mcfd" mean billion, million and thousand cubic feet per day, respectively;
the terms "MMBbl" and "MBbl" mean million and thousand barrels, respectively;
the term "Bbl" means barrel; the terms "MMBbld" and "MBbld" mean million and
thousand barrels per day, respectively. In calculating Mcf and Bbl
equivalents, one Bbl is equal to six Mcf.
</FN>
</TABLE>
- 11 -
<PAGE> 13
The following table sets forth the statements of income for the specified
periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Millions of dollars) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES
Natural gas
Sales ........................... $ 526.4 $ 450.6 $ 1,399.1 $ 1,026.5
Purchases ....................... (375.8) (301.3) (1,042.6) (717.9)
Delivery expenses ............... (17.0) (14.6) (38.5) (25.8)
------ ------ ------ ------
Net sales - natural gas ...... 133.6 134.7 318.0 282.8
------ ------ ------ ------
Crude oil
Sales ........................... 178.2 197.8 378.5 368.4
Purchases ....................... (111.5) (130.9) (236.7) (238.9)
Delivery expenses ............... (1.4) (1.4) (3.0) (2.5)
------ ------ ------ ------
Net Sales - crude oil ........ 65.3 65.5 138.8 127.0
------ ------ ------ ------
Natural gas liquids and other
Sales ........................... 58.9 19.6 90.4 31.8
Purchases and other costs ....... (41.1) (2.2) (48.8) (0.7)
------ ------ ------ ------
Net sales - NGLs and other ... 17.8 17.4 41.6 31.1
------ ------ ------ ------
Net sales and other operating
revenues ...................... 216.7 217.6 498.4 440.9
Other revenues .................... 13.2 12.1 15.1 15.6
------ ------ ------ ------
Net revenues ................. 229.9 229.7 513.5 456.5
------ ------ ------ ------
EXPENSES
Operating expenses ................ 36.2 33.6 68.9 66.1
Exploration expenses .............. 26.1 35.2 96.9 75.0
Selling, general and administrative
expenses ........................ 16.5 14.9 31.2 27.1
Taxes other than income taxes ..... 10.0 9.7 24.6 19.7
Depreciation, depletion and
amortization .................... 73.1 72.3 143.7 135.6
Interest .......................... 11.4 12.3 24.4 25.7
------ ------ ------ ------
Total expenses .................. 173.3 178.0 389.7 349.2
------ ------ ------ ------
Income before income taxes ........ 56.6 51.7 123.8 107.3
Income tax provision (benefit)..... (1.7) (2.0) 2.6 (2.0)
------ ------ ------ ------
Net income ........................ $ 58.3 $ 53.7 $ 121.2 $109.3
====== ====== ====== ======
</TABLE>
- 12 -
<PAGE> 14
SECOND QUARTER 1997 vs. SECOND QUARTER 1996.
Net income for the second quarter of 1997 was $58.3 million, compared to
$53.7 million for the second quarter of 1996. The nine percent increase in
earnings was primarily the result of lower exploration expenses during the
current period.
Natural gas sales increased by $75.8 million to $526.4 million in the
second quarter of 1997. The higher revenues were the result of an eight
percent increase in sales volumes to an average of 2.8 Bcfd and an eight
percent increase in the average natural gas sales price in the second quarter
of 1997 as compared to the second quarter of 1996. The price improvement
resulted from smaller basis differentials, especially in the San Juan Basin
area when compared to Henry Hub prices. Reflected in natural gas revenues for
the second quarter of 1997 and 1996 was the unfavorable impact of $2.3 million
and $11.3 million, respectively, related to the Company's hedging activities.
Second quarter 1997 natural gas purchases increased by $74.5 million
from the second quarter of 1996 to $375.8 million. This increase was a result
of the combined effect of an increase in the cost of gas purchased and a 15
percent increase in natural gas purchased volumes which rose to an average of
approximately 1.9 Bcfd. Such volume increase was necessary to meet higher
sales levels resulting from increased marketing activities.
Second quarter 1997 natural gas production averaged 880 MMcfd, essentially
the same volume reported for the second quarter 1996. Volume increases at
High Island 24-L, the continued ramp-up of Vastar's San Juan Basin area gas
rate and the recent start-ups of the South Pass 60 Bastian Bay well and the
Mobile Bay 904 well nearly offset natural field declines.
Crude oil sales in the second quarter of 1997 were $178.2 million, down
$19.6 million from the same period last year as a result of a six percent
decrease in sales price.
Crude oil production for the second quarter 1997 increased slightly as
compared to the same period last year, primarily as a result of increased
production volumes at South Pass 60 and Eugene Island 175.
Net sales for natural gas liquids (NGLs) and other products were
up slightly for the second quarter of 1997 as compared to the same period last
year. The increase is a result of higher NGL production available for sale.
NGLs production averaged 17.0 MBbld, up from the same period last year due to
increased processing in the Mid-Continent and Gulf Coast areas. Also included
in Net sales for NGLs and other products is approximately $39.0 million of
sales and purchases of electrical power attributable to the ramp-up of power
marketing activities during the second quarter of this year.
Second quarter 1997 exploration expenses were $26.1 million compared to
$35.2 million reported for the same period in 1996. The $9.1 million decrease
was primarily related to lower dry hole costs and geological and geophysical
costs partially offset by higher staff costs. The lower dry hole costs and
geological and geophysical costs resulted from the timing of activity during
each year; the higher staff costs during the second quarter of 1997 were a
result of higher consulting and contracting services.
- 13 -
<PAGE> 15
The income tax benefit of $1.7 million in the second quarter of 1997
reflected higher pre-tax earnings as compared to the same period in 1996. The
income tax benefit for second quarter 1997 and 1996 included the net benefit
of $22.2 million and $21.0 million, respectively, of Internal Revenue Code
Section 29 tax credits for non-conventional fuels.
SIX MONTHS ENDED JUNE 30, 1997 VS. SIX MONTHS ENDED JUNE 30, 1996.
Net income for the six months ended June 30, 1997 was $121.2
million, compared to $109.3 million for the same period of 1996. The earnings
increase reflects higher commodity prices and NGL produced volumes, partially
offset by higher costs.
Net sales and other operating revenues increased by $57.5 million to
$498.4 million for the first six months of 1997, as compared to
the same period last year, primarily as a result of higher overall
commodity prices and higher NGL volumes.
Natural gas sales increased by $372.6 million to $1,399.1 million for the
first six months of 1997. The higher revenues were primarily the result of
higher commodity prices for natural gas throughout the first six months of
1997. As a result of a strong market demand, the average sales price for
natural gas increased by $0.18 per Mcf to $2.40 per Mcf during the first six
months of 1997. Natural gas sales volumes rose 679 MMcfd to an average of
approximately 3.2 Bcfd. Reflected in natural gas revenues for the first six
months in 1997 and 1996 was $18.2 million and $34.0 million, respectively in
hedging losses.
For the first six months of 1997, gas purchases increased by $324.7
million to $1,042.6 million from the same period last year. This increase was
a result of the combined effect of a 41 percent increase in the natural gas
purchased volumes and a slight increase in the average purchase price for
natural gas. The higher purchased volumes were necessary to meet higher sales
levels.
Natural gas production for the first six months of 1997 declined slightly
as compared to the same period last year. Volume increases at High
Island 24-L, continued ramp-up of Vastar's San Juan Basin area gas rate and
the recent start-ups of the South Pass 60 Bastian Bay well and the Mobile Bay
904 well nearly offset natural field declines.
Crude oil production for the first half of 1997 was essentially the same
as compared to the first half of 1996. Development efforts at South Pass 60
and Eugene Island 175 offset natural field declines.
Net sales for NGLs and other products increased $10.5 million for the first
six months of 1997 as compared to the first six months of 1996 primarily as a
result of higher NGL production and prices. NGL production averaged 17.2 MBbld,
up 35 percent from the same period last year. The change reflects increased
processing of Mid-Continent and Gulf Coast area gas. Also included in Net sales
for NGLs and other products is approximately $43.0 million of sales and
purchases of electrical power attributable to the ramp-up of power marketing
activities during the second quarter of this year.
- 14 -
<PAGE> 16
Exploration costs during the first six months of 1997 increased $21.9
million, or 29 percent, when compared to the same time period in 1996. This
increase was primarily a result of increased dry hole, geological and
geophysical and staff costs. Dry hole costs for the first six months of 1997
were $31.0 million as compared to $22.6 million for the same period last year.
The increase in costs was attributable to the drilling of deeper, more complex
wells during the first half of 1997 when compared to the first half of 1996.
Staff costs increased primarily as a result of higher consulting and
contracting services.
Selling, general and administrative costs for the first six months of 1997
increased $4.1 million to $31.2 million as compared to the same time period
last year primarily as a result of ramping-up Vastar Gas Marketing and Vastar
Power Marketing activities, implementation of improved computer and software
technology and general cost increases.
For the first half of 1997 taxes other than income taxes increased $4.9
million, or 25 percent, as compared to the same time period last year. The
increase is primarily a result of higher production taxes driven by higher
product prices.
The income tax provision of $2.6 million in the first six months of 1997
reflected higher pre-tax earnings as compared to the $2.0 million benefit for
the same period in 1996. The income tax provision for first half of 1997 and
the benefit for the first half of 1996 included the net benefit of $42.4
million and $41.4 million, respectively, of Internal Revenue Code Section 29
tax credits for non-conventional fuels. In the first quarter of 1997, ARCO
and Vastar agreed to a second amendment to the Tax Sharing Agreement. The
amendment removed certain limitations under the original agreement and
generally allows Vastar to receive payment for all Section 29 credits in the
year generated. In return the Company agreed to a 3.25 percent reduction in
the tax payment it receives for credits generated from properties acquired by
the Company before June 1, 1995. ARCO and Vastar also agreed to apply the
same 3.25 percent reduction to the $61.4 million of Section 29 credits carried
forward as of December 31, 1996, in exchange for a $59.4 million tax payment
received in the first quarter 1997. Accordingly, the first quarter 1997 tax
provision included $2.0 million of tax expense related to the amendment which
consisted of a $59.4 million current tax benefit and a $61.4 million deferred
tax expense.
- 15 -
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES.
In the first half of 1997, cash flow from operations was $372.1 million,
compared to $295.0 million for the same period in 1996. This increase
was primarily due the receipt of $59.4 million from ARCO in the first
quarter of 1997 related to the second amendment to the Tax Sharing Agreement
and higher product prices.
Net cash used by investing activities in 1997 was $226.9 million,
basically flat as compared to the first half 1996.
The following table summarizes the Company's capital investments for the
comparative periods.
<TABLE>
<CAPTION>
CAPITAL SPENDING SUMMARY
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
(Millions of dollars) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Exploratory drilling................. $ 26.1 $ 44.1 $ 52.7 $ 59.6
Development drilling................. 51.3 61.0 91.7 112.0
Property acquisitions................ 6.7 47.6 69.0 51.5
Other additions..................... 12.6 11.2 26.0 23.6
------- ------ ------- -------
Total additions to property,
plant and equipment....... 96.7 163.9 239.4 246.7
Geological and geophysical.......... 3.3 7.8 30.3 24.9
------- ------- ------- -------
Total capital program............ $ 100.0 $ 171.7 $ 269.7 $ 271.6
======= ======= ======= =======
</TABLE>
Cash flow used by financing activities was $149.7 million in the first
half of 1997, reflecting a $135.1 million pay down of long-term debt (net of
new borrowings).
The Company entered into an amended and restated revolving credit
agreement dated as of March 31, 1997, which extended the term of Vastar's
credit facility until March 31, 2002. As of June 30, 1997, the Company had
no debt outstanding under this facility.
The Company's ratio of earnings to fixed charges for the six months ended
June 30, 1997 and 1996 was 6.1 and 5.2, respectively. This ratio was computed
by dividing earnings by fixed charges. For this purpose, earnings include
income before income taxes and fixed charges. Fixed charges include interest
and amortization of debt expenses and the estimated interest component of
rental expense.
- 16 -
<PAGE> 18
RISK MANAGEMENT.
From time to time, the Company uses various hedging arrangements,
predominantly natural gas and crude oil price swaps, to manage the Company's
exposure to price risk from its natural gas and petroleum liquids production.
These hedging arrangements have the effect of locking in for a specified period
(at predetermined prices or ranges of prices) the prices the Company will
receive for the volumes to which the hedge relates. As a result, while these
hedging arrangements are structured to reduce the Company's exposure to
decreases in price associated with the hedged commodity, they can also limit
the benefit the Company might otherwise have received from any price increases
associated with the hedged commodity.
As a result of the various hedging transactions for natural gas and crude
oil, the Company realized $18.2 million and $34.0 million of pre-tax losses in
the first six months of 1997 and 1996, respectively. Since these transactions
were considered to be hedges on production, these losses were included in sales
and other operating revenues and were reflected in the average sales price of
the particular products.
The following table summarizes the Company's open positions as of June
30, 1997.
<TABLE>
<CAPTION>
Average Range of
Product/Location Time Period Volume Prices
- ---------------- --------------------------- ---------- ----------------
<S> <C> <C> <C>
Per Mcf
----------------
Gas/Henry Hub July 1 to December 31, 1997 193 MMcfd $1.90 -- $2.16
Gas/Henry Hub January 1 to December 31, 1998 183 MMcfd $1.95 -- $2.21
Gas/San Juan July 1 to December 31, 1997 102 MMcfd $1.80 -- $1.82
Per Bbl
----------------
Oil/Cushing July 1 to December 31, 1997 7.5 MBbld $19.00 -- $22.44
</TABLE>
Based on forward price quotes from brokers and NYMEX forward prices as of
June 30, 1997, the deferred pre-tax loss to the Company for the hedged
transactions for 1997 and 1998 would be $18.5 million for natural gas and
crude oil. The actual gains or losses ultimately realized by the
Company from such hedges may vary significantly from the foregoing amounts due
to the volatility of the commodity markets.
The Company continues to evaluate its hedging positions in light of
current market conditions.
The Company has long-term contracts with certain cogeneration facilities
which have an approximate average remaining life of 13 years. These contracts
cover an average of 75 MMcfd of the Company's natural gas production for the
remaining term of the contracts at an average price of approximately $2.50,
adjusted annually.
During the second quarter of 1997, the Company's long-term sales
commitments did not exceed the total of proprietary production and other
natural gas production controlled through call rights with third-party
producers and marketing agreements with the Company's royalty owners.
- 17 -
<PAGE> 19
NEW ACCOUNTING STANDARD.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share, ("SFAS 128").
This Statement specifies the computation, presentation and disclosure
requirements for Earnings Per Share. This statement is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
The Company does not expect the adoption of SFAS 128 to have a significant
impact on its calculation of earnings per share.
------------------------
Management cautions against projecting any future results based on
present earnings levels because of economic uncertainties, the extent and form
of existing or future governmental regulations and other possible actions by
governments.
The foregoing financial information is unaudited and has been prepared
from the books and records of the Company. In the opinion of Management, the
financial information reflects all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
position and results of operations in conformity with generally accepted
accounting principles.
- 18 -
<PAGE> 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments with respect to the Company's
legal proceedings as previously reported in the Company's Form 10-K for
the year ending December 31, 1996 and the Company's Form 10-Q for the
quarter ending March 31, 1997.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders was held on May 21, 1997, in
Houston, Texas. Stockholders voted on the election of eight directors for a
one year term expiring in 1998 and the appointment of independent accountants
for the year 1997. The voting results on these matters were as follows.
(a) Election of Directors:
<TABLE>
<CAPTION>
Votes Received Votes Broker
Nominee For Withheld Non-votes
- ---------------- -------------- -------- ---------
<S> <C> <C> <C>
Jimmie D. Callison 95,226,728 69,054 -0-
Terry G. Dallas 95,173,904 121,878 -0-
Charles D. Davidson 95,176,029 119,753 -0-
Marie L. Knowles 95,173,412 122,370 -0-
Robert C. LeVine 95,226,513 69,269 -0-
William D. Schulte 95,226,755 69,027 -0-
Steven J. Shapiro 95,176,029 119,753 -0-
Michael E. Wiley 95,173,053 122,729 -0-
</TABLE>
(b) Approval of Appointment of Coopers & Lybrand L.L.P. as independent
accountants of the Company:
For: 95,281,150
Against: 10,100
Abstaining: 4,532
Broker Non-Votes: -0-
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Amended and Restated Credit Agreement, dated as of March 31,
1997, among Vastar Resources, Inc., the Banks, the parties
thereto, Morgan Guaranty Trust Company of New York, as Agent,
and the Co-Agents listed therein.
10.2 Formation Agreement, dated as of August 8, 1997, by and
between SEI Holdings, Inc. and Vastar Resources, Inc.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The following Current Reports on Form 8-K were filed during the
quarter ended June 30, 1997 and through the date hereof.
Date of Report Item No. Financial Statements
--------------- -------- --------------------
August 5, 1997 5 None
- 19 -
<PAGE> 21
SIGNATURE
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.
VASTAR RESOURCES, INC.
(Registrant)
Dated: August 14, 1997 /s/ Joseph P. McCoy
------------------------------
Joseph P. McCoy
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
- 20 -
<PAGE> 22
Exhibit Index
Exhibit No. Description
- ----------- --------------------------------
10.1 Amended and Restated Credit Agreement, dated as of March 31,
1997, among Vastar Resources, Inc., the Banks, the parties
thereto, Morgan Guaranty Trust Company of New York, as Agent,
and the Co-Agents listed therein.
10.2 Formation Agreement, dated as of August 8, 1997, by and
between SEI Holdings, Inc. and Vastar Resources, Inc.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
<PAGE> 1
EXECUTION COPY
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT dated as of March
31, 1997 among VASTAR RESOURCES, INC. (with its successors,
the "Borrower"), the BANKS listed on the signature pages
hereof (with their successors, the "Banks"), MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Agent for the Banks (with its
successors, the "Agent"), and the Co-Agents listed on the
signature pages hereof (with their successors, the "Co-
Agents").
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered
into a 5-Year Revolving Credit Agreement dated as of May 5,
1995 (as amended by Amendment No. 1 thereto and as in effect
from time to time prior to the Effective Date (as defined
below), as amended and restated hereby and as amended from
time to time thereafter, the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit
Agreement as set forth herein and to restate the Credit
Agreement in its entirety to read as set forth in the Credit
Agreement with the amendments specified below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise
specifically defined herein, each term used herein which is
defined in the Credit Agreement as in effect immediately
prior to the Effective Date shall have the meaning assigned
to such term in the Credit Agreement as so in effect. Each
reference to "hereof", "hereunder", "herein" and "hereby"
and each other similar reference and each reference to "this
Agreement" and each other similar reference contained in the
Credit Agreement shall from and after the date hereof refer
to the Credit Agreement as amended hereby.
SECTION 2. Amendment to Section 1.01 of the Agreement.
Section 1.01 of the Credit Agreement is amended by replacing
the definition of Commitment Termination Date to read in
full as follows:
"Commitment Termination Date" means March 31,
2002, or if such day is not a Euro-Dollar Business Day,
the next preceding Euro-Dollar Business Day.
<PAGE> 2
SECTION 3. Representations and Warranties. The
Borrower hereby represents and warrants that as of the date
hereof and after giving effect hereto:
(a) no Default under the Credit Agreement
has occurred and is continuing; and
(b) each representation and warranty of the
Borrower set forth in the Credit Agreement is true
and correct as though made on and as of this date.
SECTION 4. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York.
SECTION 5. Counterparts; Conditions to Effectiveness.
This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective (and the
Credit Agreement shall be amended and restated in the form
of the Credit Agreement immediately before giving effect
hereto and with the amendments referred to herein) as of the
date hereof (the "Effective Date") when the Agent shall have
received a duly executed counterparts hereof signed by the
Borrower and all of the Banks (or, in the case of any party
as to which an executed counterpart shall not have been
received, the Agent shall have received telegraphic, telex
or other written confirmation from such party of execution
of a counterpart hereof by such party).
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Amended and Restated Credit Agreement to be duly executed by
their respective authorized officers as of the day and year
first above written.
VASTAR RESOURCES, INC.
By /s/ Daniel D. Hawk
----------------------------------
Title: Treasurer
3
<PAGE> 4
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Bank and Agent
By /s/ John Kowalczuk
----------------------------------
Title: Vice President
NATIONSBANK OF TEXAS, N.A.,
as Bank and Co-Agent
By /s/ Patrick M. Delaney
----------------------------------
Title: Senior Vice President
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
as Bank and Co-Agent
By /s/ James C. Nicholas
----------------------------------
Title: Managing Director
UNION BANK OF SWITZERLAND,
as Bank and Co-Agent
By /s/ Cynthia A. P. Deere
----------------------------------
Title: Vice President
By /s/ Kelly Boots
----------------------------------
Title: Assistant Vice President
4
<PAGE> 5
BANK OF MONTREAL
By /s/ Bryan R. Gallow
----------------------------------
Title: Managing Director
THE BANK OF NEW YORK
By /s/ John W. Hall
----------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ F. C. H. Ashby
----------------------------------
Title: Senior Manager Loan
Operations
CITIBANK, N.A.
By /s/ Arezoo Jafari
----------------------------------
Title: Assistant Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By /s/ Pascal Poupelle
----------------------------------
Title: Authorized Signature
5
<PAGE> 6
THE FUJI BANK, LIMITED
By /s/ Nobuhiro Umemura
----------------------------------
Title: Joint General Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By /s/ Kensaku Iwata
----------------------------------
Title: Vice President, Houston
Office
LTCB TRUST COMPANY
By /s/ John J. Sullivan
----------------------------------
Title: Executive Vice President
MELLON BANK, N.A.
By /s/ A. J. Sabatelle
----------------------------------
Title: First Vice President
SOCIETE GENERALE
By /s/ Richard Ebert
----------------------------------
Title: Vice President
6
<PAGE> 7
WACHOVIA BANK OF GEORGIA, N.A.
By /s/ Joel K. Wood
----------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Vanessa Sheh Meyer
----------------------------------
Title: Vice President
THE DAI-ICHI KANGYO BANK, LTD.
By /s/ Masatsugu Morishita
----------------------------------
Title: Sr. Vice President & Joint
General Manager
PNC BANK, NATIONAL ASSOCIATION
By /s/ John R. Way
----------------------------------
Title: Commercial Banking Officer
ROYAL BANK OF CANADA
By /s/ Linda M. Stephens
----------------------------------
Title: Manager
7
<PAGE> 8
THE SUMITOMO BANK, LIMITED
By /s/ Toshihiro Kubota
----------------------------------
Title: Joint General Manager
BARCLAYS BANK PLC
By /s/ George McKean
----------------------------------
Title: Director
KREDIETBANK, N.V.
By /s/ Robert Snauffer
----------------------------------
Title: Vice President
By /s/ Tod R. Angus
----------------------------------
Title: Vice President
NORTHERN TRUST COMPANY
By /s/ Martin G. Alston
----------------------------------
Title: Vice President
THE SANWA BANK, LIMITED
By /s/ Gill Realon
----------------------------------
Title: Vice President
8
<PAGE> 9
TORONTO DOMINION (TEXAS), INC.
By /s/ Neva Nesbitt
----------------------------------
Title: Vice President
9
<PAGE> 1
- --------------------------------------------------------------------------------
FORMATION AGREEMENT
BY AND BETWEEN
SEI HOLDINGS, INC.
AND
VASTAR RESOURCES, INC.
AUGUST 8, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
FORMATION AGREEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.2 Certain Additional Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
1.3 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
ARTICLE II
TERMS OF THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
2.1 Adoption of Partnership Agreement and Limited Liability Company Agreement; Assets to
be Contributed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
2.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
2.3 Instruments of Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
2.4 Transfer of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
2.5 Liabilities Assumed by Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
2.6 Liabilities Not Assumed by Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
2.7 Sale of Partial Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
2.8 Retail Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
2.9 Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
ARTICLE III-A
FIRST CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
3.1-A Deliveries by VRI and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
3.2-A Deliveries by SEI Holdings and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
3.3-A Deliveries by the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
3.4-A Deliveries by the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
ARTICLE III-B
SECOND CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
3.1-B Deliveries by VRI and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
3.2-B Deliveries by SEI Holdings and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
3.3-B Deliveries by the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
3.4-B Deliveries by the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VRI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
4.2 Charter and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
4.3 Authority Relative to This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
4.4 Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
4.6 Exclusive Operation of the Vastar Marketing Business . . . . . . . . . . . . . . . . . . . . -26-
4.7 Title to Vastar Business Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
4.8 Financial Statements; Absence of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . -26-
4.9 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
4.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
4.11 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
4.12 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
4.13 Sufficiency of Assets and Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
4.14 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
4.15 Tangible Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
4.16 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
4.17 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
4.18 Intellectual Property; Technology; Software . . . . . . . . . . . . . . . . . . . . . . . . . -29-
4.19 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
4.20 Change in Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
4.21 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
4.22 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
4.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
4.24 Financial Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
4.25 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
4.26 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
4.27 No Material Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SEI HOLDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
5.2 Charter and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
5.3 Authority Relative to This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
5.4 Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
5.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
5.6 Exclusive Operation of the SETM Business . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
5.7 Title to SETM Business Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
5.8 Financial Statements; Absence of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . -36-
5.9 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
5.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
5.11 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
5.12 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
5.13 Sufficiency of Assets and Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
5.14 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
5.15 Tangible Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
5.16 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
5.17 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
5.18 Intellectual Property; Technology; Software . . . . . . . . . . . . . . . . . . . . . . . . . -38-
</TABLE>
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5.19 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
5.20 Change in Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
5.21 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
5.22 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
5.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
5.24 Financial Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
5.25 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
5.26 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
5.27 No Material Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
ARTICLE VI-A
CONDUCT OF VASTAR MARKETING BUSINESS PENDING CLOSINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
6.1-A Conduct and Preservation of the Vastar Marketing Business . . . . . . . . . . . . . . . . . . -43-
6.2-A Restrictions on Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
ARTICLE VI-B
CONDUCT OF SETM BUSINESS PENDING CLOSINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
6.1-B Conduct and Preservation of the SETM Business . . . . . . . . . . . . . . . . . . . . . . . . -45-
6.2-B Restrictions on Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
ARTICLE VII
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
7.1 Access to Information, Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
7.2 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
7.3 Release of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
7.4 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
7.5 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
7.6 Certain Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
7.7 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50-
7.8 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50-
7.9 Bulk Sales Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50-
7.10 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50-
7.11 Access to Records After Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51-
7.12 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -51-
7.13 Taxes; Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -52-
7.14 Officers and Directors of General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . -52-
7.15 Covenants Not To Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -52-
7.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
7.17 Staff Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
7.18 Post-Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
7.19 Assignment of LDC Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
7.20 Amendment of Disclosure Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF VRI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -54-
8.1 Conditions to First Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -54-
8.2 Conditions to Second Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -55-
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ARTICLE IX
CONDITIONS TO OBLIGATIONS OF SEI HOLDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -57-
9.1 Conditions to First Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -57-
9.2 Conditions to Second Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -58-
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -60-
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -60-
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -60-
10.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -61-
10.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -61-
10.5 Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -62-
10.6 No Special or Consequential Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -62-
ARTICLE XI
INDEMNIFICATION;SURVIVAL OF REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -62-
11.1 Indemnification Obligations of VRI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -62-
11.2 Indemnification Obligations of SEI Holdings . . . . . . . . . . . . . . . . . . . . . . . . . -63-
11.3 Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -64-
11.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65-
ARTICLE XII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -66-
12.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -66-
12.2 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
12.3 Binding Effect; Assignment; No Third Party Benefit . . . . . . . . . . . . . . . . . . . . . -67-
12.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
12.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
12.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
12.7 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -68-
12.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -68-
12.9 Dispute Resolution; Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -68-
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CLOSING SCHEDULES
Section 1.1(c) - First Closing Schedule of Assumed Contracts and Liabilities
- Second Closing Schedule of Assumed Contracts and Liabilities
EXHIBITS
Exhibit 1.1(aa) - SEI Holdings Disclosure Schedule
Section 1.1(j)(viii) - List of Certain Excluded Assets
Section 5.4 - List of exceptions to noncontravention representation
Section 5.5 - List of exceptions to no required governmental approvals representation
Section 5.6 - List of exceptions to exclusive operations of the SETM Business
Section 5.7 - List of title exceptions
Section 5.9 - List of exceptions for absence of changes representation
Section 5.10 - List of exceptions to tax representations
Section 5.12 - List of litigation and claims
Section 5.13 - List of exceptions to sufficiency of assets and personnel
Section 5.14 - List of leased real estate
Section 5.15 - List of tangible personal property
Section 5.18 - List of intellectual property, technology and software related to SETM Business
Section 5.19(a) - List of Permits related to SETM Business
Section 5.19(b) - List of exceptions to all necessary Permits representation
Section 5.21(a) - List of agreements
Section 5.21(b) - List of exceptions to agreements representations
Section 5.22 - List of environmental exceptions
Section 5.24 - List of bonds, etc.
Section 6.1-B - List of exceptions to limitations on conduct of business pending Second Closing
Exhibit 1.1(mm) - Vastar Disclosure Schedule
Section 1.1(j)(viii) - List of Certain Excluded Assets
Section 1.1(j)(ix) - List of LDC Contracts
Section 4.4 - List of exceptions to noncontravention representation
Section 4.5 - List of exceptions to no required governmental approvals representation
Section 4.6 - List of exceptions to exclusive operations of the Vastar Marketing Business
Section 4.7 - List of title exceptions
Section 4.9 - List of exceptions to absence of changes representation
Section 4.10 - List of exceptions to tax representations
Section 4.12 - List of litigation and claims
Section 4.13 - List of exceptions to sufficiency of assets and personnel
Section 4.14 - List of leased real estate
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Section 4.15 - List of tangible personal property
Section 4.18 - List of intellectual property, technology and software related to Vastar Marketing Business
Section 4.19(a) - List of Permits related to Vastar Marketing Business
Section 4.19(b) - List of exceptions to all necessary Permits representation
Section 4.21(a) - List of agreements
Section 4.21(b) - List of exceptions to agreements representations
Section 4.22 - List of environmental exceptions
Section 4.24 - List of bonds, etc.
Section 6.1-A - List of exceptions to limitations on conduct of business pending Second Closing
Exhibit 2.1(a)(i) - Amended and Restated Limited Liability Company Agreement of General Partner
Exhibit 2.1(b) - Amended and Restated Limited Partnership Agreement
of the Partnership (with Exhibit A (Certificate of Limited Partnership) attached)
Exhibit 2.7 - Escrow Agreement
Exhibit 7.6(a) - Gas Purchase and Sale Agreement
Exhibit 7.6(c)(i) - List of Executives to Receive Executive Employment Agreement
Exhibit 7.6(f) - Transfer Restriction Agreement
Exhibit 7.6(h) - Power Supply Agreement
Exhibit 7.6(l) - Noncompetition and Confidentiality Agreement
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FORMATION AGREEMENT
THIS FORMATION AGREEMENT (this "Agreement"), dated as of August 8,
1997, is entered into by and between SEI HOLDINGS, INC., a Delaware corporation
("SEI Holdings"), and VASTAR RESOURCES, INC., a Delaware corporation ("VRI").
WHEREAS, Vastar Gas Marketing, Inc. ("VGM"), a Delaware corporation
and wholly-owned indirect subsidiary of VRI, is in the business, among other
things, of gas marketing and trading (the "Vastar Gas Business," which
definition expressly excludes VGM's crude oil and natural gas liquids marketing
and trading business and gas gathering and processing business) and Vastar
Power Marketing, Inc. ("VPM"), a Delaware corporation and indirect wholly-owned
subsidiary of VRI, is in the business of marketing and trading electric energy
(the "Vastar Power Business") (together the Vastar Gas Business and the Vastar
Power Business constitute the "Vastar Marketing Business"); and
WHEREAS, Southern Energy Trading and Marketing, Inc., a Delaware
corporation and indirect wholly-owned subsidiary of SEI Holdings ("SETM"), is
in the business, among other things, of trading and marketing natural gas
(excluding gas contracts and trading positions which are tied to or incidental
to SETM power contracts, the "SETM Gas Business") and electric energy, crude
oil and other energy and energy-linked commodities, including gas contracts and
trading positions which are tied to or incidental to SETM power contracts (the
"SETM Power Business") (together the SETM Gas Business and the SETM Power
Business constitute the "SETM Business"); and
WHEREAS, the parties have identified opportunities in the marketplace
which may become open to them if they combine the SETM Business and the Vastar
Marketing Business (together, the "Marketing Business"); and
WHEREAS, VRI and SEI Holdings desire to create a limited partnership
for the purpose of further developing and continuing the Marketing Business;
and
WHEREAS, for this purpose, VRI desires to, and to cause its Affiliates
to, contribute the assets of the Vastar Gas Business and Vastar Power Business,
and SEI Holdings desires to, and to cause its Affiliates to, contribute the
assets of the SETM Gas Business and the SETM Power Business to the Partnership
to be formed by the parties and to the limited liability company that will act
as general partner of the Partnership, each in exchange for limited partnership
interests in the Partnership (and in exchange for interests in the limited
liability company that will act as general partner of the Partnership) to be
held by Vastar Energy, Inc., a Delaware corporation ("Vastar LP Sub") and SC
Energy Ventures, Inc., a Georgia corporation ("Southern LP Sub"), which will
use such assets to continue and develop the Marketing Business; and
Formation Agreement
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WHEREAS, at the First Closing, (a) VRI desires (i) to cause the Vastar
Gas Business to be contributed to the Partnership and to the General Partner
and (ii) to obligate itself to contribute, and to cause its Affiliates to
contribute, the Vastar Power Business at the Second Closing and the LDC
Contracts to the Partnership at January 1, 1998, and (b) SEI Holdings desires
(i) to cause the SETM Gas Business to be contributed to the Partnership and to
the General Partner and (ii) to obligate itself to contribute, and to cause its
Affiliates to contribute, the SETM Power Business to the Partnership at the
Second Closing; and
WHEREAS, the parties desire that, among other considerations, Southern
LP Sub (or its designee) shall immediately after the First Closing and subject
to Section 10.2, purchase a portion of the interest of Vastar LP Sub (or its
designee) in such limited partnership for $40 million;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. As used in this Agreement, each of the
following terms has the meaning given it below:
(a) "AFFILIATE" means, with respect to a Person, (i) any other
Person 50% or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with the power to vote by such Person or
(ii) any other Person directly or indirectly controlling, controlled by or
under common control with such Person. Notwithstanding the preceding sentence,
with respect to VRI, Vastar Holdings, Inc., a Delaware corporation ("Vastar
Holdings"), VGM, VPM or Vastar LP Sub, "Affiliate" shall not include Atlantic
Richfield Company, a Delaware corporation or any entity owned or controlled by
it other than VRI or an entity also, directly or indirectly, owned or
controlled by VRI and with respect to SEI Holdings, SETM, Southern Member Sub
or Southern LP Sub, "Affiliate" shall not include The Southern Company, a
Delaware corporation ("Southern Company") or any entity, directly or
indirectly, owned or controlled by it other than SEI Holdings or an entity
also, directly or indirectly, owned or controlled by SEI Holdings. The term
"controls" as used above means the possession of the power to direct or cause
the direction of the management and policies of a person by virtue of ownership
of voting securities or otherwise.
(b) "APPLICABLE LAW" means any statute, law, rule or regulation or
any judgment, order, writ, injunction or decree of any Governmental Entity to
which a specified Person or property is subject.
Formation Agreement
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(c) "ASSUMED CONTRACTS AND LIABILITIES" means the contracts and
liabilities that SEI Holdings and VRI mutually determine (with the economic
value of such contracts Marked to Market, as applicable, as of the respective
Closing Date) and identify on a schedule mutually executed for identification
purposes and which schedule specifies the Marked to Market value, and delivered
to each other at the First Closing and at the Second Closing (the "First
Closing and Second Closing Schedules of Assumed Contracts and Liabilities,"
respectively), will be assumed by the Partnership as of such respective First
Closing or Second Closing. (Schedule 1.1(c)). In the event the Marked to
Market value cannot be precisely determined at the respective Closing Date, the
parties shall agree on an approximation thereof at such Closing and shall
settle the actual value as described in Section 7.18, by paying additional cash
to the Partnership or receiving a refund of cash from the Partnership to meet
the obligations under Sections 2.1(b)(vii), 3.1-A(g), 3.2-A(g), 3.1-B(e) and
3.2-B(e). The First Closing Schedule of Assumed Contracts and Liabilities
shall include the LDC Contracts even though such Contracts will not be assigned
until January 1, 1998.
(d) "BUSINESS" shall mean the Vastar Marketing Business, when
referring to VGM, VPM, Vastar Holdings or VRI, the SETM Business when referring
to SEI Holdings or SETM, and the Marketing Business when referring to the
Partnership.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "CLOSING" means the First Closing or Second Closing, as
applicable.
(g) "CLOSING DATE" means the First Closing Date or the Second
Closing Date, as applicable.
(h) "ENCUMBRANCES" means liens, charges, pledges, options,
mortgages, deeds of trust, security interests, claims, restrictions, easements
and other encumbrances of every type and description, whether imposed by law,
agreement, understanding or otherwise.
(i) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(j) "EXCLUDED ASSETS" means as to SEI Holdings and its Affiliates
with respect to either the SETM Gas Business or the SETM Power Business, or as
to VRI and its Affiliates with respect to either the Vastar Gas Business or the
Vastar Power Business:
(i) any assets sold or otherwise disposed of by it in the
ordinary course of business and not in violation of the provisions of
this Agreement during the period commencing on the date of this
Agreement and ending on the respective Closing Date;
(ii) all articles of incorporation, bylaws, minutes,
capital stock ledgers, corporate seals and similar corporate
instruments of such Person;
Formation Agreement
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(iii) its general ledgers and original books of entry
ancillary thereto, Tax Returns and supporting papers, checks, vouchers
and bank statements;
(iv) all contracts (including specifically the cogen
contracts), contract rights and similar rights of it under or pursuant
to contracts that are not Assumed Contracts and Liabilities pursuant
to Section 2.5;
(v) all rights, claims and causes of action of it for
federal, state, local or foreign Tax refunds and all Tax loss carry
forward benefits and other benefits, rights and claims of it arising
in connection with or otherwise relating to Taxes relating to the
business of it for any period or partial period prior to the
respective Closing;
(vi) all rights of it under or pursuant to this Agreement,
the Partnership Agreement and Limited Liability Company Agreement, and
the Ancillary Agreements referred to in Section 7.6 to which it is a
party;
(vii) all cash, inventories, accounts receivable, pipeline
imbalances, notes receivable, deposits and Marked to Market contract
values (certain of which are to be transferred to the Partnership but
as a part of the respective Working Capital Contribution/Loans);
(viii) the assets, rights, and other interests described in
Schedule 1.1(j)(viii) of the SEI Holdings Disclosure Schedule or
Schedule 1.1(j)(viii) of the Vastar Disclosure Schedule;
(ix) as to VRI and its Affiliates, but only with respect
to the period between the First Closing and January 1, 1998, the LDC
contracts listed on Section 1.1(j)(ix) of the Vastar Disclosure
Schedule (the "LDC Contracts", such definition shall, to the extent
consent to transfer of any of such contracts as of January 1, 1998
cannot be obtained through the exercise of commercially reasonable
best efforts, or the General Partner concurs that obtaining such
consent is not advisable, include an agency or other agreement with
respect thereto in a form agreed to by the parties); and
(x) with respect to the period between the First Closing
and the Second Closing, the SETM Power Business and the SETM Power
Assets, and the Vastar Power Business and the Vastar Power Assets.
(k) "GENERAL PARTNER" means Southern Company Energy Marketing
G.P., L.L.C., a Delaware limited liability company formed under the Limited
Liability Company Agreement to act as general partner of the Partnership.
Formation Agreement
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(l) "GOVERNMENTAL ENTITY" means any court or tribunal in any
jurisdiction (domestic or foreign) or any federal, Indian, state, municipal or
other governmental body, agency, department, commission, board, bureau or
instrumentality (domestic or foreign).
(m) "INTELLECTUAL PROPERTY" means patents, technical drawings,
trademarks, service marks, trade names, service names, copyrights and similar
rights, and all registrations, applications, licenses and rights with respect
to any of the foregoing.
(n) "IRS" means the Internal Revenue Service.
(o) "LDC" means a local distribution company.
(p) "LEGAL EXPENSES" means the reasonable fees, costs and expenses
of any kind incurred by any Person entitled to indemnification pursuant to
Article XI in investigating, preparing for, defending against or providing
evidence, producing documents or taking other action with respect to any claim
as to which such person is entitled to indemnification pursuant to Article XI.
(q) "MARKED TO MARKET" means the future profit or loss to be
realized from the fair market value of forward positions that exist at the
applicable measurement date.
(r) "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means,
with respect to the representations, warranties and covenants of a party
contained herein, any change, development or effect (individually or in the
aggregate) which is, or is reasonably likely to be, materially adverse (A) to
the business, assets, results of operations, condition (financial or otherwise)
or prospects of the respective Businesses or to the ownership or operation of
the Vastar Business Assets or the SETM Business Assets, taken as a whole, (B)
to the ability of that party to perform on a timely basis any of its material
obligations under this Agreement, any Ancillary Agreement or any other
agreement, instrument or document entered into or delivered in connection
herewith, or (C) to the ability of the Partnership to function as contemplated
herein.
(s) "NET AFTER-TAX BASIS" means, with respect to the calculation
of any indemnification payment owed to any party pursuant to this Agreement,
calculation thereof in a manner taking into account any Taxes owing by the
indemnified party or its Affiliates as a result of receipt or accrual of the
indemnity payment and any savings in Taxes realized by the indemnified party or
its Affiliates as a result of the indemnified liability.
(t) "PARTNER" means any of the General Partner, Vastar LP Sub and
Southern LP Sub.
(u) "PARTNERSHIP" means Southern Company Energy Marketing L.P., a
limited partnership formed under the Delaware Revised Uniform Limited
Partnership Act and to operate under the Partnership Agreement, of which the
Partners are the partners.
Formation Agreement
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<PAGE> 13
(v) "PERMITS" means licenses, permits, franchises, consents,
approvals, variances, exemptions and other authorizations of or from
Governmental Entities.
(w) "PERMITTED ENCUMBRANCES" means (i) the Encumbrances set forth
in each party's Disclosure Schedule and specifically identified as such, (ii)
liens for Taxes not yet due and payable or the validity of which is being
contested in good faith by appropriate legal proceedings and for which adequate
reserves have been set aside, (iii) statutory liens (including materialmen's,
mechanic's, repairmen's, landlord's and other similar liens) arising in
connection with the ordinary course of business securing payments not yet due
and payable or, if due and payable, the validity of which is being contested in
good faith by appropriate legal proceedings and for which adequate reserves
have been set aside, and (iv) such imperfections or irregularities of title, if
any, as (A) are not substantial in character, amount or extent and do not
materially detract from the value of the property subject thereto, (B) do not
materially interfere with either the present or intended use of such property
and (C) do not, individually or in the aggregate, materially interfere with the
conduct of the respective Businesses.
(x) "PERSON" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, enterprise, unincorporated organization, Governmental Entity or other
entity.
(y) "PROCEEDINGS" means all proceedings, actions, claims, suits,
investigations and inquiries by or before any arbitrator or Governmental
Entity.
(z) "SALE OF PARTIAL INTEREST" means the sale (subject to Section
10.2) immediately after the First Closing by Vastar LP Sub (or its designee) to
Southern LP Sub (or its designee) of an 8.00% limited partnership interest in
the Partnership for $40 million in cash.
(aa) "SEI HOLDINGS DISCLOSURE SCHEDULE" means the disclosure
schedule delivered by SEI Holdings to VRI and the Partnership and attached
hereto as Exhibit 1.1(aa).
(bb) "SETM BUSINESS ASSETS" means the SETM Gas Assets and the SETM
Power Assets.
(cc) "SETM GAS ASSETS" means all assets and properties of SETM or
any Affiliate of every kind, character and description, whether tangible,
intangible, real, personal or mixed, and wherever located, which are owned,
used or held for use by SETM or any Affiliate on the First Closing Date in
connection with the SETM Gas Business, excluding the Excluded Assets, but
including the following assets and properties of SETM or any Affiliate owned,
used, or held for use on the First Closing Date for the SETM Gas Business:
(i) all furniture, fixtures, leasehold improvements,
equipment, machinery, computer hardware, supplies, materials, motor
vehicles, apparatus, tools, implements, appliances and other tangible
personal property;
Formation Agreement
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(ii) to the extent assignable or transferable, all
Intellectual Property, Technology and Software relating to, or used in
connection with the operation of, the SETM Gas Business, including the
Intellectual Property, Technology and Software described in Section
5.18 of the SEI Holdings Disclosure Schedule;
(iii) all right, title and interest that may be assignable
or transferable in, to and under all Permits relating to, or used in
connection with the operation of, the SETM Gas Business or relating to
the use, operation or enjoyment of the SETM Gas Assets, including the
Permits described in Section 5.19(a) of the SEI Holdings Disclosure
Schedule;
(iv) all right, title and interest in, to and under the
Assumed Contracts and Liabilities listed on the First Closing Schedule
of Assumed Contracts and Liabilities;
(v) all right, title and interest in and to all prepaid
rentals and other prepaid expenses arising from payments made in the
ordinary course of the operation of the SETM Gas Business prior to the
First Closing for goods or services where such goods or services have
not been received by the First Closing;
(vi) all books and records relating to the SETM Gas Assets
or the operation of the SETM Gas Business, including (A) financial and
accounting records, (B) all books and records relating to employees to
the extent permitted by Applicable Law to be transferred hereunder
other than those related to non-qualified plans and associated funding
arrangements, (C) all books and records relating to the purchase of
materials, supplies and services, and (D) all books and records
relating to dealings with customers, vendors and suppliers of the SETM
Gas Business, and including computerized books and records and other
computerized storage media (or, in each case, copies thereof in
accessible form or access thereto reasonably satisfactory to VRI);
(vii) all customer and potential customer lists and
customer and potential customer data, vendor lists and vendor data,
supplier lists and supplier data and sales and promotional material
and other sales-related material relating to, or used in connection
with the operation of, the SETM Gas Business;
(viii) to the extent assignable or transferable, all rights,
claims and causes of action under or pursuant to all warranties,
representations, indemnifications, hold harmless provisions and
guarantees made by suppliers, licensors, manufacturers or contractors
in respect of the SETM Gas Assets;
(ix) all goodwill associated with the SETM Gas Business;
and
(x) all rights to offer to employ the personnel listed in
a schedule previously delivered to VRI (the "SETM Gas Business
Personnel").
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(dd) "SETM POWER ASSETS" means all assets and properties of SETM or
any Affiliate of every kind, character and description, whether tangible,
intangible, real, personal or mixed, and wherever located, which are owned,
used or held for use by SETM or any Affiliate on the Second Closing Date in
connection with the SETM Power Business, excluding the Excluded Assets, but
including the following assets and properties of SETM or any Affiliate owned,
used, or held for use on the Second Closing Date for the SETM Power Business:
(i) all furniture, fixtures, leasehold improvements,
equipment, machinery, computer hardware, supplies, materials, motor
vehicles, apparatus, tools, implements, appliances and other tangible
personal property;
(ii) to the extent assignable or transferable, all
Intellectual Property, Technology and Software relating to, or used in
connection with the operation of, the SETM Power Business, including
the Intellectual Property, Technology and Software described in
Section 5.18 of the SEI Holdings Disclosure Schedule;
(iii) all right, title and interest that may be assignable
or transferable in, to and under all Permits relating to, or used in
connection with the operation of, the SETM Power Business or relating
to the use, operation or enjoyment of the SETM Power Assets, including
the Permits described in Section 5.19(a) of the SEI Holdings
Disclosure Schedule;
(iv) all right, title and interest in, to and under the
Assumed Contracts and Liabilities listed on the Second Closing
Schedule of Assumed Contracts and Liabilities;
(v) all right, title and interest in and to all prepaid
rentals and other prepaid expenses arising from payments made in the
ordinary course of the operation of the SETM Power Business prior to
the Second Closing for goods or services where such goods or services
have not been received by the Second Closing;
(vi) all books and records relating to the SETM Power
Assets or the operation of the SETM Power Business, including (A)
financial and accounting records, (B) all books and records relating
to employees to the extent permitted by Applicable Law to be
transferred hereunder other than those related to non-qualified plans
and associated funding arrangements, (C) all books and records
relating to the purchase of materials, supplies and services, and (D)
all books and records relating to dealings with customers, vendors and
suppliers of the SETM Power Business, and including computerized books
and records and other computerized storage media (or, in each case,
copies thereof in accessible form or access thereto reasonably
satisfactory to VRI);
(vii) all customer and potential customer lists and
customer and potential customer data, vendor lists and vendor data,
supplier lists and supplier data and sales and promotional
Formation Agreement
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material and other sales-related material relating to, or used in
connection with the operation of, the SETM Power Business;
(viii) to the extent assignable or transferable, all rights,
claims and causes of action under or pursuant to all warranties,
representations, indemnifications, hold harmless provisions and
guarantees made by suppliers, licensors, manufacturers or contractors
in respect of the SETM Power Assets;
(ix) all goodwill associated with the SETM Power Business;
and
(x) all rights to offer to employ the personnel listed in
a schedule previously delivered to VRI (the "SETM Power Business
Personnel").
(ee) "SOFTWARE" means computer software, including systems
software, documentation and object and source codes.
(ff) "SOUTHERN PERCENTAGE" means, with respect to the General
Partner, 60.00% until July 1, 2001, and 75.00% on July 1, 2001 and thereafter,
and with respect to the Partnership, 51.40% from the First Closing until the
Sale of Partial Interest, 59.40% from the Sale of Partial Interest until July
1, 2001, and 74.25% on July 1, 2001 and thereafter, in each case subject to
adjustment pursuant to the terms of the Transfer Restriction Agreement.
(gg) "TAX RETURN" means any return or report, including any related
or supporting information, with respect to Taxes.
(hh) "TAXES" means any income taxes or similar assessments or any
sales, gross receipts, excise, occupation, use, ad valorem, property,
production, severance, transportation, employment, payroll, franchise or other
tax imposed by any United States federal, state or local (or any foreign or
provincial) taxing authority, including any interest, penalties or additions
attributable thereto.
(ii) "TECHNOLOGY" means trade secrets, confidential information
(whether or not of a technological commercial nature), proprietary information,
inventions, patents, technical data, spreadsheets, technical plans and
drawings, blueprints, general specifications, tooling specifications, purchase
specifications, know-how, formulae, processes, procedures, research records,
records of inventions, test information, market surveys and marketing know-how.
(jj) "TO THE BEST KNOWLEDGE" of a specified Person (or similar
references to a person's knowledge) means the actual knowledge of any such
Person's officers, as such knowledge has been obtained in the normal conduct of
the business of such person or in connection with the preparation of that
Person's Disclosure Schedule or the furnishing of information to the other
party hereto as contemplated by this Agreement.
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(kk) "U.S. GAAP" means generally accepted accounting principles as
in effect in the United States of America from time to time.
(ll) "VASTAR BUSINESS ASSETS" means the Vastar Gas Assets and the
Vastar Power Assets.
(mm) "VASTAR DISCLOSURE SCHEDULE" means the disclosure schedule
delivered by VRI to SEI Holdings and the Partnership and attached hereto as
Exhibit 1.1(mm). (Together, the Vastar Disclosure Schedule and the SEI
Holdings Disclosure Schedule are referred to as the "Disclosure Schedules".)
(nn) "VASTAR GAS ASSETS" means all assets and properties of VGM or
any Affiliate of every kind, character and description, whether tangible,
intangible, real, personal or mixed, and wherever located, which are owned,
used or held for use by VGM or any Affiliate on the First Closing Date in
connection with the Vastar Gas Business, excluding the Excluded Assets, but
including the following assets and properties of VGM or any Affiliate owned,
used, or held for use on the First Closing Date for the Vastar Gas Business:
(i) all furniture, fixtures, leasehold improvements,
equipment, machinery, computer hardware, supplies, materials, motor
vehicles, apparatus, tools, implements, appliances and other tangible
personal property;
(ii) to the extent assignable or transferable, all
Intellectual Property, Technology and Software of VGM relating to, or
used in connection with the operation of, the Vastar Gas Business,
including the Intellectual Property, Technology and Software described
in Section 4.18 of the Vastar Disclosure Schedule;
(iii) all right, title and interest that may be assignable
or transferable in, to and under all Permits relating to, or used in
connection with the operation of, the Vastar Gas Business or relating
to the use, operation or enjoyment of the Vastar Gas Assets, including
the Permits described in Section 4.19(a) of the Vastar Disclosure
Schedule;
(iv) all right, title and interest in, to and under the
Assumed Contracts and Liabilities listed on the First Closing Schedule
of Assumed Contracts and Liabilities;
(v) all right, title and interest in and to all prepaid
rentals and other prepaid expenses arising from payments made in the
ordinary course of the operation of the Vastar Gas Business prior to
the First Closing for goods or services where such goods or services
have not been received by the First Closing;
(vi) all books and records relating to the Vastar Gas
Assets or the operation of the Vastar Gas Business, including (A)
financial and accounting records, (B) all books and records relating
to employees to the extent permitted by Applicable Law to be
transferred
Formation Agreement
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hereunder other than those related to non-qualified plans and
associated funding arrangements, (C) all books and records relating to
the purchase of materials, supplies and services, and (D) all books
and records relating to dealings with customers, vendors and suppliers
of the Vastar Gas Business, and including computerized books and
records and other computerized storage media (or, in each case, copies
thereof in accessible form or access thereto reasonably satisfactory
to SEI Holdings);
(vii) all customer and potential customer lists and
customer and potential customer data, vendor lists and vendor data,
supplier lists and supplier data and sales and promotional material
and other sales-related material relating to, or used in connection
with the operation of, the Vastar Gas Business;
(viii) to the extent assignable or transferable, all rights,
claims and causes of action under or pursuant to all warranties,
representations, indemnifications, hold harmless provisions and
guarantees made by suppliers, licensors, manufacturers or contractors
in respect of the Vastar Gas Assets;
(ix) all goodwill associated with the Vastar Gas Business;
and
(x) all rights to offer to employ the personnel listed in
a schedule previously delivered to SEI Holdings (the "Vastar Gas
Business Personnel").
(oo) "VASTAR PERCENTAGE" means, with respect to the General
Partner, 40.00% until July 1, 2001, and 25.00% on July 1, 2001 and thereafter,
and with respect to the Partnership, 47.60% from the First Closing until the
Sale of Partial Interest, 39.60% from the Sale of Partial Interest until July
1, 2001, and 24.75% on July 1, 2001 and thereafter, in each case subject to
adjustment pursuant to the terms of the Transfer Restriction Agreement.
(pp) "VASTAR POWER ASSETS" means all assets and properties of VPM
or any Affiliate of every kind, character and description, whether tangible,
intangible, real, personal or mixed, and wherever located, which are owned,
used or held for use by VPM or any Affiliate on the Second Closing Date in
connection with the Vastar Power Business, excluding the Excluded Assets, but
including the following assets and properties of VPM or any Affiliate owned,
used, or held for use on the Second Closing Date for the Vastar Power Business:
(i) all furniture, fixtures, leasehold improvements,
equipment, machinery, computer hardware, supplies, materials, motor
vehicles, apparatus, tools, implements, appliances and other tangible
personal property;
(ii) to the extent assignable or transferable, all
Intellectual Property, Technology and Software relating to, or used in
connection with the operation of, the Vastar Power
Formation Agreement
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Business, including the Intellectual Property, Technology and Software
described in Section 4.18 of the Vastar Disclosure Schedule;
(iii) all right, title and interest that may be assignable
or transferable in, to and under all Permits relating to, or used in
connection with the operation of, the Vastar Power Business or
relating to the use, operation or enjoyment of the Vastar Power
Assets, including the Permits described in Section 4.19(a) of the
Vastar Disclosure Schedule;
(iv) all right, title and interest in, to and under the
Assumed Contracts and Liabilities listed on the Second Closing
Schedule of Assumed Contracts and Liabilities;
(v) all right, title and interest in and to all prepaid
rentals and other prepaid expenses arising from payments made in the
ordinary course of the operation of the Vastar Power Business prior to
the Second Closing for goods or services where such goods or services
have not been received by the Second Closing;
(vi) all books and records relating to the Vastar Power
Assets or the operation of the Vastar Power Business, including (A)
financial and accounting records, (B) all books and records relating
to employees to the extent permitted by Applicable Law to be
transferred hereunder other than those related to non-qualified plans
and associated funding arrangements, (C) all books and records
relating to the purchase of materials, supplies and services, and (D)
all books and records relating to dealings with customers, vendors and
suppliers of the Vastar Power Business, and including computerized
books and records and other computerized storage media (or, in each
case, copies thereof in accessible form or access thereto reasonably
satisfactory to SEI Holdings);
(vii) all customer and potential customer lists and
customer and potential customer data, vendor lists and vendor data,
supplier lists and supplier data and sales and promotional material
and other sales-related material relating to, or used in connection
with the operation of, the Vastar Power Business;
(viii) to the extent assignable or transferable, all rights,
claims and causes of action under or pursuant to all warranties,
representations, indemnifications, hold harmless provisions and
guarantees made by suppliers, licensors, manufacturers or contractors
in respect of the Vastar Power Assets;
(ix) all goodwill associated with the Vastar Power
Business; and
(x) all rights to offer to employ the personnel listed in
a schedule previously delivered to SEI Holdings (the "Vastar Power
Business Personnel").
Formation Agreement
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1.2 CERTAIN ADDITIONAL DEFINED TERMS. In addition to such terms
as are defined in Section 1.1, the following terms are used in this Agreement
as defined in the Articles or Sections set forth opposite such terms:
<TABLE>
<CAPTION>
Defined Term Article or Section Reference
------------ ----------------------------
<S> <C>
Acquisition Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.5
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sections 4.21(a) and 5.21(a)
Alternate Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . Section 12.9
Ancillary Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.6
Applicable Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.22(a)
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.22(a)
Certificate of Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(a)
commercially reasonable best efforts . . . . . . . . . . . . . . . . . . . . . . Section 7.4
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 12.9(b)
Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1(mm)
Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.7
First Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Article III-A
First Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Article III-A
First Closing Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . Article III-A
First Closing Schedule of Assumed Contracts and Liabilities . . . . . . . . . . Section 1.1(c)
Hazardous Substance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.22(c)
indemnified party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 11.3(a)
indemnifying party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 11.3(a)
Instruments of Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.3
JAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 12.9(b)
LDC Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1(j)(ix)
Limited Liability Company Agreement . . . . . . . . . . . . . . . . . . . . . . Section 2.1(a)
LLC Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.4(b)
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 11.1
Marketing Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(b)(i)
Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.4(a)
RCRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.22(a)
Second Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Article III-B
Second Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Article III-B
Second Closing Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . Article III-B
Second Closing Schedule of Assumed Contracts and Liabilities . . . . . . . . . . Section 1.1(c)
SEI Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
</TABLE>
Formation Agreement
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<PAGE> 21
<TABLE>
<CAPTION>
Defined Term Article or Section Reference
------------ ----------------------------
<S> <C>
SEI Holdings Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.3
SENA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1
SETM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
SETM Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
SETM Gas Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
SETM Gas Business Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1(dd)(x)
SETM Power Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
SETM Power Business Personnel . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1(ee)(x)
Solid Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.22(c)
Southern Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1(a)
Southern LP Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Staff Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.13
Third Party Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 11.3(a)
transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(b)(ii)
Vastar Gas Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Vastar Gas Business Personnel . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1(nn)x)
Vastar Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1(a)
Vastar LP Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Vastar Marketing Business . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Vastar Power Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Vastar Power Business Personnel . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1(pp)(x)
VGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
VPM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
VRI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
VRI Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.3
Working Capital Contribution/Loans . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(b)(vii)
</TABLE>
1.3 CONSTRUCTION. Unless herein otherwise provided, or unless the
context shall otherwise require, words imparting the singular number shall
include the plural number, and vice versa; the terms "herein", "hereof",
"hereby" and "hereunder", or other similar terms, refer to this Agreement as a
whole and not only to the particular Article, Section or other subdivision in
which any such terms may be employed; references to Articles, Sections and
other subdivisions refer to the Articles, Sections and other subdivisions of
this Agreement; a reference to any person shall include such person's
predecessors and successors; the word "includes" and its derivatives means
"includes, but is not limited to," and corresponding derivative expressions;
and all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with U.S. GAAP. Each reference herein to a
Schedule or Exhibit refers to the item identified separately in writing by the
parties hereto as the described Schedule or Exhibit to this Agreement.
Formation Agreement
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ARTICLE II
TERMS OF THE TRANSACTION
2.1 ADOPTION OF PARTNERSHIP AGREEMENT AND LIMITED LIABILITY
COMPANY AGREEMENT; ASSETS TO BE CONTRIBUTED.
(a) At the First Closing, VRI and SEI Holdings shall cause Vastar
Member Sub and Southern Member Sub to execute and deliver the Amended and
Restated Limited Liability Company Agreement of the General Partner
substantially in the form attached hereto as Exhibit 2.1(a)(i) (the "Limited
Liability Company Agreement").
(b) At the First Closing, and on the terms and subject to the
conditions set forth in this Agreement
(i) VRI and SEI Holdings shall cause the Amended and
Restated Limited Partnership Agreement of the Partnership
substantially in the form attached hereto as Exhibit 2.l(b) (the
"Partnership Agreement") to be executed and delivered by the parties
named therein as the general and limited partners of the Partnership,
and VRI and SEI Holdings shall cause such parties to make such other
filings or recordings and take such other action as may be required by
Applicable Law to evidence the adoption of the Partnership Agreement;
(ii) VRI shall contribute, assign, transfer, deliver and
convey (collectively, "transfer"), or cause its Affiliates to
transfer, to the Partnership, and the Partnership shall accept, a 99%
undivided interest in the Vastar Gas Business and the Vastar Gas
Assets and the LDC Contracts (but the transfer of the LDC Contracts
shall be effective on January 1, 1998);
(iii) SEI Holdings shall transfer, or cause its Affiliates
to transfer, to the Partnership, and the Partnership shall accept, a
99% undivided interest in the SETM Gas Business and the SETM Gas
Assets;
(iv) VRI shall transfer, or cause its Affiliates to
transfer, to the General Partner, and the General Partner shall
accept, a 1% undivided interest in the Vastar Gas Business and the
Vastar Gas Assets and the LDC Contracts (but the transfer of the LDC
Contracts shall be effective on January 1, 1998);
(v) SEI Holdings shall transfer, or cause its Affiliates
to transfer, to the General Partner, and the General Partner shall
accept, a 1% undivided interest in the SETM Gas Business and the SETM
Gas Assets;
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(vi) VRI and SEI Holdings shall cause the General Partner
to transfer to the Partnership, and the Partnership shall accept, the
1% undivided interest in the Vastar Gas Business and the Vastar Gas
Assets and the 1% undivided interest in the SETM Gas Business and the
SETM Gas Assets; and
(vii) VRI shall, or shall cause its Affiliates to, transfer
$16,000,000 to the Partnership and SEI Holdings shall, or shall cause
its Affiliates to, transfer $24,000,000 to the Partnership for working
capital each in the form of a contribution to capital or an
interest-free subordinated loan as determined by the General Partner
pro rata based on the Partnership Interest of the limited partners
(the "Working Capital Contribution/Loans").
(c) At the Second Closing, and on the terms and subject to the
conditions set forth in this Agreement
(i) VRI shall transfer, or cause its Affiliates to
transfer, to the Partnership, and the Partnership shall accept, a 100%
undivided interest in the Vastar Power Business and the Vastar Power
Assets; and
(ii) SEI Holdings shall transfer, or cause its Affiliates
to transfer, to the Partnership, and the Partnership shall accept, a
100% undivided interest in the SETM Power Business and the SETM Power
Assets.
2.2 EXCLUDED ASSETS. Notwithstanding any provision contained in
this Agreement to the contrary, the Excluded Assets shall be excluded from the
assets to be transferred to the Partnership pursuant to Section 2.1.
2.3 INSTRUMENTS OF CONVEYANCE. In order to effectuate the
transfer of the Vastar Business Assets and the SETM Business Assets
contemplated by Sections 2.1(b) and (c), at each Closing, each of SEI Holdings
and VRI shall execute and deliver, or cause its Affiliates to execute and
deliver, to the Partnership or the General Partner, as applicable, dated the
respective Closing Date, all such documents or instruments of assignment,
transfer or conveyance as the Partnership shall reasonably deem necessary or
appropriate to vest in or confirm to the Partnership or the General Partner, as
applicable, good and indefeasible title to the respective transferred Vastar
Business Assets and SETM Business Assets free and clear of all Encumbrances
other than Permitted Encumbrances (the "Instruments of Conveyance").
2.4 TRANSFER OF INTERESTS.
(a) At the First Closing, the Partnership shall issue to VRI and
SEI Holdings, or their designees, all of the limited partnership interests in
the Partnership ("Partnership Interests"), as follows:
Formation Agreement
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(i) as provided in the Partnership Agreement, the
Partnership shall issue to VRI, or its designees, at the First
Closing, Partnership Interests which, immediately upon (and after
taking into account) the consummation of the First Closing, shall
represent the Vastar Percentage of all Partnership Interests then
issued and outstanding; and
(ii) as provided in the Partnership Agreement, the
Partnership shall issue to SEI Holdings, or its designees, at the
First Closing, Partnership Interests which, immediately upon (and
after taking into account) the consummation of the First Closing,
shall represent the Southern Percentage of all Partnership Interests
then issued and outstanding.
(b) At the First Closing, the General Partner shall issue to VRI
and SEI Holdings, or their designees, all of the membership interests in the
General Partner ("LLC Interests"), as follows:
(i) as provided in the Limited Liability Company
Agreement, the General Partner shall issue to VRI, or its designees,
at the First Closing, LLC Interests which, immediately upon (and after
taking into account) the consummation of the First Closing, shall
represent the Vastar Percentage of all LLC Interests then issued and
outstanding; and
(ii) as provided in the Limited Liability Company
Agreement, the General Partner shall issue to SEI Holdings, or its
designees, at the First Closing, LLC Interests which, immediately upon
(and after taking into account) the consummation of the First Closing,
shall represent the Southern Percentage of all LLC Interests then
issued and outstanding.
(c) At the Second Closing, each of the Partnership and the General
Partner shall adjust their respective accounts to take into account the
additional contributions to capital by the parties on behalf of the Partners
and of the members of the General Partner without any adjustment in the
respective Partnership Interests of the Partners or LLC Interests of the
Members of the General Partner.
2.5 LIABILITIES ASSUMED BY PARTNERSHIP.
(a) As further consideration for the contribution of the Vastar
Gas Assets and the SETM Gas Assets to the Partnership, the Partnership shall,
upon the terms and subject to the conditions set forth herein, assume, at the
First Closing, and agree to thereafter perform all Assumed Contracts and
Liabilities listed on the First Closing Schedule of Assumed Contracts and
Liabilities.
(b) As further consideration for the contribution of the Vastar
Power Assets and the SETM Power Assets to the Partnership, the Partnership
shall, upon the terms and subject to the conditions set forth herein, assume,
at the Second Closing, and agree to thereafter perform all Assumed Contracts
and Liabilities listed on the Second Closing Schedule of Assumed Contracts and
Liabilities.
Formation Agreement
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2.6 LIABILITIES NOT ASSUMED BY PARTNERSHIP. Neither the
Partnership nor the General Partner shall assume or take title to or be subject
to, or in any way be liable or responsible for, any liabilities or obligations
of VRI, SEI Holdings or their respective Affiliates (whether or not referred to
in any Schedule or Exhibit hereto), except as specifically provided in Section
2.5 or in the Partnership Agreement. The parties expressly acknowledge that it
is the intention of the parties hereto that all liabilities and obligations
that VRI, SEI Holdings or their respective Affiliates has or may have in the
future (whether accrued, absolute, contingent, unliquidated or otherwise,
whether or not known to VRI or SEI Holdings, and whether due or to become due,
including, without limitation, those arising on account of bank, institutional
and other financings, Taxes, royalties, warranties, employee benefit plan
obligations, claims or any other matter), other than under the Assumed
Contracts and Liabilities, shall be and remain the liabilities and obligations
of VRI, SEI Holdings or their respective Affiliates, as the case may be.
2.7 SALE OF PARTIAL INTEREST. Immediately after the First
Closing, Southern LP Sub (or its designee) shall purchase (subject to Section
10.2) from Vastar LP Sub (or its designee) an 8.00% interest in the Partnership
for $40,000,000 in cash delivered to Texas Commerce Bank, N.A. as Escrow Agent
(the "Escrow Agent") pursuant to the Escrow Agreement among Vastar LP Sub,
Southern LP Sub and the Escrow Agent in the form attached as Exhibit 2.7 so
that the relative interests of Southern LP Sub and Vastar LP Sub in the
Partnership shall be, respectively, 59.40% and 39.60%.
2.8 RETAIL BUSINESS. The parties agree that the Partnership and
their respective Affiliates may create such additional entities as they deem
necessary or desirable to permit the Partnership to enter into retail marketing
of energy and energy-linked commodities and to meet applicable regulatory and
tax requirements, so long as the governance thereof is controlled by the
provisions of the Limited Liability Company Agreement and the distributions
therefrom directly to Affiliates of VRI or Affiliates of SEI Holdings (other
than to the General Partner) are treated as Cash Distributions to Vastar LP Sub
or Southern LP Sub, respectively, for purposes of the Partnership Agreement.
2.9 REIMBURSEMENTS. It is agreed that SEI Holdings, VRI and their
respective Affiliates shall pay and be solely responsible for all costs,
expenses and liabilities arising or accruing with respect to their respective
Business prior to the respective Closing Dates. If the Partnership pays any
amount which was properly payable by SEI Holdings or one of its Affiliates or
VRI or one of its Affiliates, as the case may be, then such Person shall
reimburse the Partnership for such payments promptly following notice from the
Partnership.
Formation Agreement
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ARTICLE III-A
FIRST CLOSING
The First Closing of the transactions contemplated by Article II (the
"First Closing") shall be effective as of 12:01 a.m., Eastern Time, on
September 1, 1997 (the "First Closing Effective Date") and shall take place (i)
at the offices of Andrews & Kurth L.L.P., Houston, Texas, at 9:00 a.m., local
time, on August 28, 1997, or (ii) at such other time or place or on such other
date as VRI and SEI Holdings shall agree in writing. The date on which the
First Closing is required to take place is referred to herein as the "First
Closing Date." All First Closing transactions shall be deemed to have occurred
simultaneously.
At the First Closing, subject to the satisfaction or waiver of the
conditions to their respective obligations set forth in this Agreement, the
parties hereto shall make the following deliveries or such deliveries in
substitution therefor as are satisfactory to the indicated recipient:
3.1-A DELIVERIES BY VRI AND AFFILIATES.
(a) VRI shall execute and deliver, or cause its Affiliates to
execute and deliver, to the Partnership the Instruments of Conveyance in form
and substance reasonably satisfactory to SEI Holdings and the Partnership and
sufficient to transfer to the Partnership and effectively vest in the
Partnership good and indefeasible title to the 99% undivided interest in the
Vastar Gas Business, the Vastar Gas Assets and the LDC Contracts (but the
transfer of the LDC Contracts shall be effective on January 1, 1998), subject
only to Permitted Encumbrances.
(b) VRI shall execute and deliver, or cause its Affiliates to
execute and deliver, to the General Partner the Instruments of Conveyance in
form and substance reasonably satisfactory to SEI Holdings and the General
Partner and sufficient to transfer to the General Partner and effectively vest
in the General Partner good and indefeasible title to the 1% undivided interest
in the Vastar Gas Business, the Vastar Gas Assets and the LDC Contracts (but
the transfer of the LDC Contracts shall be effective on January 1, 1998),
subject only to Permitted Encumbrances.
(c) VRI shall deliver, or cause its Affiliates to deliver,
possession of the Vastar Gas Business and the Vastar Gas Assets to the General
Partner and the Partnership.
(d) VRI shall deliver to SEI Holdings and the Partnership a
certificate of an officer of VRI dated the First Closing Date certifying (i)
that attached to such certificate are true and correct copies of the
resolutions adopted by the Board of Directors, and, if necessary, the
stockholders, of VRI and each of VGM, VPM and Vastar LP Sub authorizing the
execution, delivery and performance of this Agreement and the execution,
delivery and performance of the Instruments of Conveyance and Ancillary
Agreements delivered at the First Closing and that such resolutions are in full
force and effect as of the First Closing, and (ii) the incumbency and
signatures of the officers
Formation Agreement
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of VRI or its Affiliates who have executed this Agreement and the other
certificates, instruments and documents delivered at the First Closing.
(e) VRI shall execute and deliver, or cause its Affiliates to
execute and deliver, to SEI Holdings and the Partnership the Partnership
Agreement, the Limited Liability Company Agreement and such other certificates,
instruments and documents as may be reasonably requested by, and in form and
substance reasonably satisfactory to, SEI Holdings and the Partnership in order
to effect the transactions contemplated by this Agreement to occur at the First
Closing.
(f) VRI and SEI Holdings shall execute and deliver the agreed
First Closing Schedule of Assumed Contracts and Liabilities.
(g) VRI shall deliver, or cause its Affiliates to deliver, to the
Partnership cash, deposits (including Oklahoma tax deposits), gas storage
inventory at market value, Marked to Market values of Assumed Contracts and
Liabilities, or other cash equivalents satisfactory to SEI Holdings and the
Partnership as its part of the Working Capital Contribution/Loan pursuant to
Section 2.1(b)(vii).
(h) Immediately after the First Closing, VRI shall deliver, or
cause its Affiliates to deliver, to Southern LP Sub or its designees, the
Instruments of Conveyance in form and substance reasonably satisfactory to SEI
Holdings and sufficient to transfer to Southern LP Sub or its designees the
8.00% Partnership Interest to be sold in the Sale of Partial Interest.
3.2-A DELIVERIES BY SEI HOLDINGS AND AFFILIATES.
(a) SEI Holdings shall execute and deliver, or cause its
Affiliates to execute and deliver, to the Partnership the Instruments of
Conveyance in form and substance reasonably satisfactory to VRI and the
Partnership and sufficient to transfer to the Partnership and effectively vest
in the Partnership good and indefeasible title to the 99% undivided interest in
the SETM Gas Business and the SETM Gas Assets, subject only to Permitted
Encumbrances.
(b) SEI Holdings shall execute and deliver, or cause its
Affiliates to execute and deliver, to the General Partner the Instruments of
Conveyance in form and substance reasonably satisfactory to VRI and the General
Partner and sufficient to transfer to the General Partner and effectively vest
in the General Partner good and indefeasible title to the 1% undivided interest
in the SETM Gas Business and the SETM Gas Assets, subject only to Permitted
Encumbrances.
(c) SEI Holdings shall deliver, or cause its Affiliates to
deliver, possession of the SETM Gas Business and the SETM Gas Assets to the
General Partner and the Partnership.
(d) SEI Holdings shall deliver to VRI and the Partnership a
certificate of an officer of SEI Holdings dated the First Closing Date
certifying (i) that attached to such certificate are true and correct copies of
the resolutions adopted by the Board of Directors, and, if necessary, the
Formation Agreement
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stockholders, of SEI Holdings and its Affiliates authorizing the execution,
delivery and performance of this Agreement and the execution, delivery and
performance of the Instruments of Conveyance and Ancillary Agreements delivered
at the First Closing and that such resolutions are in full force and effect as
of the First Closing, and (ii) the incumbency and signatures of the officers of
SEI Holdings or its Affiliates who have executed this Agreement and the other
certificates, instruments and documents delivered at the First Closing.
(e) SEI Holdings shall execute and deliver, or cause its
Affiliates to execute and deliver, to VRI and the Partnership the Partnership
Agreement, the Limited Liability Company Agreement and such other certificates,
instruments and documents as may be reasonably requested by, and in form and
substance reasonably satisfactory to, VRI and the Partnership in order to
effect the transactions contemplated by this Agreement to occur at the First
Closing.
(f) VRI and SEI Holdings shall execute and deliver the agreed
First Closing Schedule of Assumed Contracts and Liabilities.
(g) SEI Holdings shall deliver, or cause its Affiliates to deliver
to the Partnership cash, deposits, gas storage inventory at market value,
Marked to Market values of Assumed Contracts and Liabilities, or other cash
equivalents satisfactory to VRI and the Partnership as its part of the Working
Capital Contribution/Loan pursuant to Section 2.1(b)(vii).
(h) Immediately after the First Closing, SEI Holdings shall cause
Southern LP Sub to deliver to the Escrow Agent under the Escrow Agreement for
the benefit of Vastar LP Sub or its designee(s) a wire transfer of immediately
available funds in the amount of $40,000,000 as consideration for the Sale of
Partial Interest.
3.3-A DELIVERIES BY THE GENERAL PARTNER. VRI and SEI Holdings shall
cause the General Partner (i) to execute and deliver the Partnership Agreement
and (ii) to deliver to the Partnership the 1% undivided interest in the SETM
Gas Business and the SETM Gas Assets and the 1% undivided interest in the
Vastar Gas Business and the Vastar Gas Assets.
3.4-A DELIVERIES BY THE PARTNERSHIP.
(a) VRI and SEI Holdings shall cause the Partnership to deliver to
them or their respective designees instruments of assumption in form and
substance reasonably satisfactory to VRI and SEI Holdings pursuant to which the
Partnership shall assume at the First Closing, and thereafter perform the
Assumed Contracts and Liabilities listed on the First Closing Schedule of
Assumed Contracts and Liabilities.
(b) VRI and SEI Holdings shall cause the Partnership to deliver
such other certificates, instruments and documents as may be reasonably
requested by, and in form and substance
Formation Agreement
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reasonably satisfactory to, VRI and SEI Holdings to effect the transactions
contemplated by this Agreement to occur at the First Closing.
ARTICLE III-B
SECOND CLOSING
The Second Closing of the transactions contemplated by Article II (the
"Second Closing") shall be effective as of 12:01 a.m., Eastern Time, on the
later of the last day of the month in which all the conditions to the Second
Closing are met or January 1, 1998 (the "Second Closing Effective Date") and
shall take place (i) at the offices of Andrews & Kurth L.L.P., Houston, Texas,
at 9:00 a.m., local time, on the second business day after the Second Closing
Effective Date, or (ii) at such other time or place or on such other date as
VRI and SEI Holdings shall agree in writing. The date on which the Second
Closing is required to take place is referred to herein as the "Second Closing
Date." All Second Closing transactions shall be deemed to have occurred
simultaneously.
At the Second Closing, subject to the satisfaction or waiver of the
conditions to their respective obligations set forth in this Agreement, the
parties hereto shall make the following deliveries or such deliveries in
substitution therefor as are satisfactory to the indicated recipient:
3.1-B DELIVERIES BY VRI AND AFFILIATES.
(a) VRI shall execute and deliver, or cause its Affiliates to
execute and deliver, to the Partnership the Instruments of Conveyance in form
and substance reasonably satisfactory to SEI Holdings and the Partnership and
sufficient to transfer to the Partnership and effectively vest in the
Partnership good and indefeasible title to the 100% undivided interest in the
Vastar Power Business and the Vastar Power Assets, subject only to Permitted
Encumbrances.
(b) VRI shall deliver, or cause its Affiliates to deliver,
possession of the Vastar Power Business and the Vastar Power Assets to the
Partnership.
(c) VRI shall deliver to SEI Holdings and the Partnership a
certificate of an officer of VRI dated the Second Closing Date certifying (i)
that attached to such certificate are true and correct copies of the
resolutions adopted by the Board of Directors, and, if necessary, the
stockholders, of VRI, Vastar Holdings and each of VGM, VPM and Vastar LP Sub,
authorizing the execution, delivery and performance of this Agreement and the
execution, delivery and performance of all the Instruments of Conveyance and
Ancillary Agreements delivered at the Second Closing and that such resolutions
are in full force and effect as of the Second Closing, (ii) the incumbency and
signatures of the officers of VRI or its Affiliates who have executed the
certificates, instruments and documents delivered at the Second Closing, and
(iii) that the employment of the Vastar Gas Business Personnel and Vastar Power
Business Personnel by VRI and its Affiliates has been terminated.
Formation Agreement
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(d) VRI shall execute and deliver, or cause its Affiliates to
execute and deliver, to SEI Holdings and the Partnership such other
certificates, instruments and documents as may be reasonably requested by, and
in form and substance reasonably satisfactory to, SEI Holdings and the
Partnership in order to effect the transactions contemplated by this Agreement
to occur at the Second Closing.
(e) VRI shall execute and deliver the agreed Second Closing
Schedule of Assumed Contracts and Liabilities and shall cause to be adjusted,
by way of cash payments to or from the Partnership, the then proportionate
Working Capital Contribution/Loans to accommodate the Marked to Market values
thereof.
(f) VRI shall cause Vastar LP Sub to cause the Escrow Agent to
deliver to VRI or its designees the $40,000,000 (plus interest) placed in
escrow in connection with the Sale of Partial Interest.
3.2-B DELIVERIES BY SEI HOLDINGS AND AFFILIATES.
(a) SEI Holdings shall execute and deliver, or cause its
Affiliates to execute and deliver, to the Partnership the Instruments of
Conveyance in form and substance reasonably satisfactory to VRI and the
Partnership and sufficient to transfer to the Partnership and effectively vest
in the Partnership good and indefeasible title to the 100% undivided interest
in the SETM Power Business and the SETM Power Assets subject only to Permitted
Encumbrances.
(b) SEI Holdings shall deliver, or cause its Affiliates to
deliver, possession of the SETM Power Business and the SETM Power Assets to the
Partnership.
(c) SEI Holdings shall deliver to VRI and the Partnership a
certificate of an executive officer of SEI Holdings dated the Second Closing
Date certifying (i) that attached to such certificate are true and correct
copies of resolutions adopted by the Board of Directors, and, if necessary the
stockholders, of SEI Holdings and its Affiliates authorizing the execution,
delivery and performance of this Agreement and the execution, delivery and
performance of the Instruments of Conveyance and Ancillary Agreements delivered
at the Second Closing and that such resolutions are in full force and effect as
of the Second Closing, (ii) the incumbency and signatures of the officers of
SEI Holdings or its Affiliates who have executed the certificates, instruments
and documents delivered at the Second Closing, and (iii) that the employment of
the SETM Gas Business Personnel and SETM Power Business Personnel by SEI
Holdings and its Affiliates has been terminated.
(d) SEI Holdings shall execute and deliver, or cause its
Affiliates to execute and deliver, to VRI and the Partnership such other
certificates, instruments and documents as may be reasonably requested by, and
in form and substance reasonably satisfactory to, VRI and the Partnership in
order to effect the transactions contemplated by this Agreement to occur at the
Second Closing.
Formation Agreement
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(e) SEI Holdings shall execute and deliver the agreed Second
Closing Schedule of Assumed Contracts and Liabilities and shall cause to be
adjusted, by way of cash payments to or from the Partnership, the then
proportionate Working Capital Contribution/Loans to accommodate the Marked to
Market values thereof.
(f) SEI Holdings shall cause Southern LP Sub to cause the Escrow
Agent to deliver to Vastar LP Sub or its designee the$40,000,000 (plus
interest) placed in escrow in connection with the Sale of Partial Interest.
3.3-B DELIVERIES BY THE GENERAL PARTNER. VRI and SEI Holdings shall
cause the General Partner to deliver such certificates, instruments and
documents as may be reasonably requested by, and in form and substance
reasonably satisfactory to, VRI and SEI Holdings to effect the transactions
contemplated by this Agreement to occur at the Second Closing.
3.4-B DELIVERIES BY THE PARTNERSHIP.
(a) VRI and SEI Holdings shall cause the Partnership to deliver to
them or their respective designees instruments of assumption in form and
substance reasonably satisfactory to VRI and SEI Holdings pursuant to which the
Partnership shall assume at the Second Closing, and thereafter perform the
Assumed Contracts and Liabilities listed on the Second Closing Schedule of
Assumed Contracts and Liabilities.
(b) VRI and SEI Holdings shall cause the Partnership to deliver
such other certificates, instruments and documents as may be reasonably
requested by, and in form and substance reasonably satisfactory to, VRI and SEI
Holdings to effect the transactions contemplated by this Agreement to occur at
the Second Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VRI
VRI represents and warrants to SEI Holdings as of the date hereof
that:
4.1 CORPORATE ORGANIZATION. Each of VRI, Vastar Holdings, VGM,
VPM and Vastar LP Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of VRI, Vastar
Holdings, VGM, VPM and Vastar LP Sub has all requisite corporate power and
authority to own, lease and operate the Vastar Business Assets and to carry on
the Vastar Marketing Business as now being conducted. No actions or
proceedings to dissolve VRI, Vastar Holdings, VGM, VPM or Vastar LP Sub are
pending.
Formation Agreement
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4.2 CHARTER AND BYLAWS. VRI has delivered or made available to
SEI Holdings accurate and complete copies of the Certificate of Incorporation
and Bylaws of each of VRI, Vastar Holdings, VGM, VPM and Vastar LP Sub as
currently in effect.
4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of VRI, Vastar
Holdings, VGM, VPM and Vastar LP Sub has full corporate power and authority to
execute, deliver and perform this Agreement, the Partnership Agreement, the
Limited Liability Company Agreement, the Ancillary Agreements (as defined in
Section 7.6 of this Agreement), and the Instruments of Conveyance
(collectively, the "VRI Documents") to which it is a party, and to consummate
the transactions contemplated thereby. The execution, delivery and performance
by each of VRI, Vastar Holdings, VGM, VPM, and Vastar LP Sub, as the case may
be, of the VRI Documents, to which it is a party, and the consummation by it of
the transactions contemplated thereby, have been duly authorized by all
necessary corporate action. This Agreement has been duly executed and
delivered by VRI and constitutes, and each of the VRI Documents and each other
agreement, instrument or document executed or to be executed by VRI, Vastar
Holdings, VGM, VPM and/or Vastar LP Sub in connection with the transactions
contemplated hereby has been, or when executed will be, duly executed and
delivered by each of VRI, Vastar Holdings, VGM, VPM and/or Vastar LP Sub and
constitutes, or when executed and delivered will constitute, a valid and
legally binding obligation of VRI, Vastar Holdings, VGM, VPM or Vastar LP Sub,
as the case may be, enforceable against it in accordance with their respective
terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights generally and (ii) equitable principles which may limit the
availability of certain equitable remedies (such as specific performance) in
certain instances.
4.4 NONCONTRAVENTION. Except as disclosed in Section 4.4 of the
Vastar Disclosure Schedule, the execution, delivery and performance by each of
VRI, Vastar Holdings, VGM, VPM and/or Vastar LP Sub of the VRI Documents, to
which it is a party, and the consummation by it of the transactions
contemplated thereby do not and will not (i) conflict with or result in a
violation of any provision of the respective charter or bylaws or other
governing instruments of each of VRI, Vastar Holdings, VGM, VPM, and Vastar LP
Sub (ii) conflict with or result in a violation of any provision of, or
constitute (with or without the giving of notice or the passage of time or
both) a default under, or give rise (with or without the giving of notice or
the passage of time or both) to any right of termination, cancellation or
acceleration under, any bond, debenture, note, mortgage, indenture, lease,
contract, agreement or other instrument or obligation to which it is a party or
by which it, its Business or any of the Vastar Business Assets may be bound,
(iii) result in the creation or imposition of any Encumbrance upon any of the
Vastar Business Assets or (iv) assuming compliance with the matters referred to
in Section 4.5, violate any Applicable Law binding upon it, its Business or any
of the Vastar Business Assets, except, in the case of clauses (ii), (iii) and
(iv) above, for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not, individually or in the
aggregate, have a Material Adverse Effect.
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4.5 GOVERNMENTAL APPROVALS. No consent, approval, order or
authorization of, or declaration, filing or registration with, any Governmental
Entity is required to be obtained or made by VRI, Vastar Holdings, VGM, VPM or
Vastar LP Sub in connection with the execution, delivery or performance by VRI,
Vastar Holdings, VGM, VPM or Vastar LP Sub of the VRI Documents or the
consummation by it of the transactions contemplated thereby, other than (i) as
set forth in Section 4.5 of the Vastar Disclosure Schedule; (ii) filings with
Governmental Entities with respect to the transfer of the Vastar Business
Assets, to occur in the ordinary course following the consummation of the
transactions contemplated hereby; and (iii) such consents, approvals, orders or
authorizations which, if not obtained, and such declarations, filings or
registrations which, if not made, would not, individually or in the aggregate,
have a Material Adverse Effect.
4.6 EXCLUSIVE OPERATION OF THE VASTAR MARKETING BUSINESS. Except
as set forth in Schedule 4.6 to the Vastar Disclosure Schedule, VRI does not
have any direct or indirect equity or ownership interest in any corporation,
partnership, joint venture or other entity other than VGM or VPM which is
involved, directly or indirectly, in the conduct of the Vastar Marketing
Business, and the Vastar Gas Business is conducted solely and exclusively by
VGM and the Vastar Power Business is conducted solely and exclusively by VPM.
4.7 TITLE TO VASTAR BUSINESS ASSETS. Except as set forth in
Section 4.7 of the Vastar Disclosure Schedule, VRI, Vastar Holdings, VGM or VPM
is the owner of, and has good and marketable title to, all the Vastar Business
Assets. Upon transfer of the Vastar Business Assets as provided in Article III
of this Agreement, the Partnership will have good and marketable title to all
the Vastar Business Assets (including, except as set forth in Section 4.7 of
the Vastar Disclosure Schedule, the Intellectual Property, Technology and
Software), free and clear of all Encumbrances (other than the Permitted
Encumbrances).
4.8 FINANCIAL STATEMENTS; ABSENCE OF LIABILITIES.
(a) VRI ACKNOWLEDGES THAT NEITHER IT NOR ANY OF ITS AFFILIATES HAS
RELIED ON ANY FINANCIAL STATEMENTS OF SETM OR ITS SUBSIDIARIES IN CONNECTION
WITH ITS DECISION TO ENTER INTO THIS AGREEMENT.
(b) Neither VGM nor VPM has any liabilities or obligations
(whether accrued, absolute, contingent, unliquidated or otherwise, whether or
not known to VRI, and whether due or to become due) that will become
liabilities or obligations of the General Partner or the Partnership except for
the Assumed Contracts and Liabilities (or as otherwise contemplated hereby) or
that will create or result in any Encumbrances on the assets of the General
Partner or the Partnership except for Permitted Encumbrances.
4.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section
4.9 of the Vastar Disclosure Schedule, since June 30, 1997, (i) there has been
no Material Adverse Effect with respect to the Vastar Marketing Business; (ii)
the Vastar Marketing Business has been conducted only in the
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ordinary course consistent with past practice; (iii) except for, or as
contemplated by, this Agreement, neither VRI, VGM nor VPM has, in respect of
its Business, incurred any material liability, engaged in any material
transaction or entered into any material agreement outside the ordinary course
of business consistent with past practice; (iv) neither VRI, VGM nor VPM has
suffered any material loss, damage, destruction or other casualty to any of the
Vastar Business Assets (whether or not covered by insurance); and (v) neither
VRI, VGM nor VPM has, in respect of its Business, taken any of the actions set
forth in Section 6.2-A except as permitted thereunder.
4.10 TAX MATTERS. Except as disclosed in Section 4.10 of the
Vastar Disclosure Schedule, VRI, Vastar Holdings, VGM and VPM have (and as of
each Closing will have) (either directly or indirectly or as part of a
consolidated or combined group) (i) duly filed all material federal, state,
local and foreign Tax Returns required to be filed by or with respect to it
with the IRS or other applicable Taxing authority, (ii) paid, or adequately
reserved against all Taxes due, or claimed by any Taxing authority to be due,
from or with respect to it, and (iii) made all material deposits required with
respect to Taxes, in each such case to the extent that the failure to do so
would result in the imposition of any Encumbrance (other than a Permitted
Encumbrance) on the Vastar Business Assets. To the best knowledge of VRI,
there has been no material issue raised or material adjustment proposed (and
none is pending) by the IRS or any other Taxing authority in connection with
any Tax Returns relating to the Vastar Business Assets or the operation of the
Vastar Marketing Business. Except as set forth in Section 4.10 of the Vastar
Disclosure Schedule, no waiver or extension of any statute of limitations as to
any federal, state, local or foreign Tax matter relating to the Vastar Business
Assets or the operation of the Vastar Marketing Business has been given by or
requested from VRI, Vastar Holdings, VGM or VPM with respect to any Tax year.
Neither VRI, Vastar Holdings, VGM nor VPM has filed a consent under Section
341(f) of the Code.
4.11 COMPLIANCE WITH LAWS. To the best knowledge of VRI, each of
VRI, Vastar Holdings, VGM and VPM has complied with all Applicable Laws
relating to the ownership or operation of the Vastar Business Assets and the
operation of the Vastar Marketing Business, except for noncompliance with such
Applicable Laws which, individually or in the aggregate, does not and will not
have a Material Adverse Effect. Neither VRI, Vastar Holdings, VGM nor VPM is
charged or, to the best knowledge of VRI, threatened with, or, to the best
knowledge of VRI, under investigation with respect to, any violation of any
Applicable Law relating to any aspect of the ownership or operation of the
Vastar Business Assets or the operation of the Vastar Marketing Business, other
than violations which, individually or in the aggregate, do not and will not
have a Material Adverse Effect.
4.12 LEGAL PROCEEDINGS. To the best knowledge of VRI, except as
set forth on Section 4.12 of the Vastar Disclosure Schedule, there are no
Proceedings pending or threatened against or involving VRI, Vastar Holdings,
VGM, VPM or Vastar LP Sub relating to the Vastar Business Assets or the
operation of the Vastar Marketing Business which, individually or in the
aggregate, might reasonably be expected to have a Material Adverse Effect or to
result in a material adverse change in the Assumed Contracts and Liabilities.
Except as set forth in Section 4.12 of the
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Vastar Disclosure Schedule, neither VRI, Vastar Holdings, VGM, VPM nor Vastar
LP Sub is subject to any judgment, order, writ, injunction or decree of any
Governmental Entity which is reasonably likely to have a Material Adverse
Effect or result in a material adverse change in the Assumed Contracts and
Liabilities. To the best knowledge of VRI, except as set forth in Section 4.12
of the Vastar Disclosure Schedule, there are no Proceedings pending or
threatened seeking to restrain, prohibit or obtain damages or other relief in
connection with this Agreement or the transactions contemplated hereby.
4.13 SUFFICIENCY OF ASSETS AND PERSONNEL. Except for the Excluded
Assets and except as set forth in Section 4.13 of the Vastar Disclosure
Schedule and except for staff services (such as accounting, treasury, human
resources, tax advice, insurance, information technology and legal services)
which are currently provided by Affiliates of the parties ("Staff Services")
which VRI or an Affiliate is available to perform on an arm's-length contract
basis, the Vastar Business Assets, and the Vastar Gas Business Personnel and
Vastar Power Business Personnel, (i) constitute all the assets and properties
used or held for use, and all of the employees employed, in connection with the
operation of the Vastar Marketing Business and (ii) constitute all the assets
and properties and personnel the use, employment or benefit of which are
reasonably necessary for the operation of the Vastar Marketing Business as
currently conducted. The Vastar Business Assets and their uses conform to all
Applicable Laws, except for such nonconformance as does not and will not have a
Material Adverse Effect. All tangible assets and properties included in the
Vastar Business Assets are in the possession, or under the control, of VRI, VGM
or VPM.
4.14 REAL PROPERTY. Neither VGM nor VPM owns any real property.
Set forth in Section 4.14 of the Vastar Disclosure Schedule is the street
address and a brief description of the principal facilities and structures
leased by VRI, Vastar Holdings, VGM or VPM and used or held for use in
connection with the operation of the Vastar Marketing Business.
4.15 TANGIBLE PERSONAL PROPERTY. Set forth in Section 4.15 of the
Vastar Disclosure Schedule is a list, as of the date hereof, of all furniture,
fixtures, leasehold improvements, equipment, machinery, computer hardware,
prototypes, spare parts, supplies, materials, motor vehicles, apparatus, tools,
implements, appliances and other tangible personal property (other than
inventories) owned or leased by VRI, Vastar Holdings, VGM or VPM and used or
held for use in connection with the operation of the Vastar Marketing Business,
except for items having a value individually of less than $5,000 which do not,
in the aggregate, have a value exceeding $100,000.
4.16 INVENTORY. The value of each item of inventory included in
the Vastar Business Assets transferred as a part of the Working Capital
Contribution/Loan shall be reflected at market value as of the respective
Closing.
4.17 RECEIVABLES. There are no accounts receivable of VRI, Vastar
Holdings, VGM or VPM generated by the Vastar Marketing Business to be
transferred to the General Partner or the Partnership pursuant to Section 2.1.
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4.18 INTELLECTUAL PROPERTY; TECHNOLOGY; SOFTWARE.
(a) Set forth in Section 4.18 of the Vastar Disclosure Schedule is
a list of all Intellectual Property, Technology and Software relating to or
used in connection with the operation of the Vastar Marketing Business.
Section 4.18 of the Vastar Disclosure Schedule specifies, as applicable: (i)
the nature of such Intellectual Property, Technology and Software; (ii) the
owner of such Intellectual Property, Technology and Software; and (iii) all
licenses, sublicenses and other agreements to which VRI, VGM or VPM is a party
and pursuant to which any person is authorized to use the Intellectual
Property, Technology and Software, including the identity of all parties
thereto, a description of the nature and subject matter thereof, the applicable
royalty (if any) and the term thereof.
(b) The Intellectual Property, Technology and Software listed in
Section 4.18 of the Vastar Disclosure Schedule constitutes all Intellectual
Property, Technology and Software necessary for the conduct of the Vastar
Marketing Business on a basis consistent with past practice. VRI, VGM or VPM
has good and marketable title to or is validly licensed to use all such
Intellectual Property, Technology and Software. Each item of such Intellectual
Property, Technology and Software is in full force and effect, each of VRI,
Vastar Holdings, VGM and VPM is in compliance in all material respects with all
its obligations with respect thereto and, to the best knowledge of VRI, no
event has occurred which permits, or upon the giving of notice or the passage
of time or otherwise would permit, the revocation or termination of any
thereof. To the best knowledge of VRI, there are no Proceedings pending or
threatened against it, Vastar Holdings, VGM or VPM asserting that the use by
VRI, VGM or VPM of any of such Intellectual Property, Technology or Software
infringes the rights of any other person or seeking revocation, termination or
concurrent use of any of such Intellectual Property, Technology or Software,
and there is, to the best knowledge of VRI, no basis for any such Proceeding.
To the best knowledge of VRI, none of the Intellectual Property, Technology or
Software that is owned by VRI or its Affiliates is being infringed upon by any
other person. Except as set forth in Section 4.18 of the Vastar Disclosure
Schedule, none of such Intellectual Property, Technology or Software that is
owned by VRI or its Affiliates is subject to any outstanding judgment, order,
writ, injunction or decree of any Governmental Entity, or any agreement,
arrangement or understanding, restricting the scope or use thereof. To the
best knowledge of VRI, the conduct of the Vastar Marketing Business at any time
prior to the First Closing or Second Closing, as the case may be, did not, and
the conduct of the Vastar Marketing Business on a basis consistent with VRI's
past practice as of such Closing will not, infringe upon or otherwise
misappropriate any Intellectual Property, Technology or Software of any other
person.
4.19 PERMITS.
(a) Set forth in Section 4.19 (a) of the Vastar Disclosure
Schedule is a list of all Permits held by VGM or VPM which relate to the Vastar
Business Assets or the Vastar Marketing Business. Each of such Permits is in
full force and effect, each of VRI, VGM and VPM is in compliance in all
material respects with all its obligations with respect thereto and, to the
best knowledge of VRI, no event has occurred which permits, or with or without
the giving of notice or the passage of time or
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both would permit, the revocation or termination of any thereof. Except as
disclosed in Section 4.19(a) of the Vastar Disclosure Schedule, to the best
knowledge of VRI, no notice has been issued by any Governmental Entity and no
Proceeding is pending or threatened with respect to any alleged failure by VRI,
VGM or VPM to have any Permit the absence of which would have a Material
Adverse Effect.
(b) Except as set forth in Section 4.19(b) of the Vastar
Disclosure Schedule and, except for Permits the absence of which do not and
will not have a Material Adverse Effect, the Permits listed in Section 4.19(a)
of the Vastar Disclosure Schedule constitute all the Permits necessary or
required for the ownership and operation of the Vastar Business Assets and the
conduct of the Vastar Marketing Business as of the First Closing or Second
Closing, as the case may be.
4.20 CHANGE IN CORPORATE STRUCTURE. Except as previously
disclosed in writing, the board of directors of each of VRI, Vastar Holdings,
VGM, VPM or Vastar LP Sub (as reflected in their respective minutes) is not
currently contemplating and does not have any plans to consolidate, merge with
or, reorganize or recapitalize with any other Person or to convey, transfer,
sell, or lease a substantial portion of its assets to any other Person in a
single transaction or series of transactions.
4.21 AGREEMENTS.
(a) Set forth in Section 4.21(a) of the Vastar Disclosure Schedule
is a list of all the following contracts, agreements and arrangements
(collectively, for purposes of this Section only, "agreements") to which VRI,
VGM or VPM is a party or by which VRI, VGM or VPM is otherwise bound that
relate to the Vastar Business Assets or the Vastar Marketing Business:
(i) collective bargaining agreements and similar
agreements with employees as a group;
(ii) agreements, trusts, plans, funds or other employee
benefit arrangements of any nature;
(iii) agreements with any director, officer, employee,
consultant or advisor of VRI or any of its Affiliates;
(iv) agreements between or among VRI and any of its
Affiliates;
(v) indentures, mortgages, security agreements, notes,
loan or credit agreements or other agreements relating to the
borrowing of money by VRI, VGM or VPM or to the direct or indirect
guarantee or assumption by VRI, VGM or VPM of any obligation of
others;
(vi) agreements relating to the acquisition or disposition
of assets;
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(vii) agreements with respect to the lease of real or
personal property;
(viii) agreements concerning the management or operation of
any real property;
(ix) supplier, broker, distributor, dealer, manufacturer's
representative, sales, agency, sales promotion, advertising,
marketing, consulting, research and development, maintenance, service
and repair agreements;
(x) license, royalty or other agreements relating to
Intellectual Property, Technology or Software;
(xi) partnership, joint venture and profit sharing
agreements;
(xii) agreements with any Governmental Entity;
(xiii) agreements in the nature of a settlement or a
conciliation agreement arising out of any claim asserted by any other
person;
(xiv) agreements containing any covenant limiting the
freedom of VRI, VGM or VPM to engage in any line of business or
compete with any other person in any geographic area or during any
period of time;
(xv) powers of attorney granted by VRI, VGM or VPM in
favor of any person;
(xvi) agreements not made in the ordinary course of the
Vastar Marketing Business;
(xvii) agreements for the purchase, sale, exchange,
marketing, or other use of natural gas, electric energy, or other
commodities that may not be terminated for convenience and without
penalty prior to January 1, 1998, and all exchange, swap, hedging, and
other financial or future contracts and agreements; and
(xviii) other agreements, whether or not made in the ordinary
course of the Vastar Marketing Business, that are material to the
Vastar Marketing Business or the ownership or operation of the Vastar
Business Assets or any material portion thereof.
(b) VRI has delivered or made available to SEI Holdings accurate
and complete copies of the agreements listed in Section 4.21(a) of the Vastar
Disclosure Schedule. Except as set forth in Section 4.21(b) of the Vastar
Disclosure Schedule, each of such agreements is a valid and binding agreement
of VRI, VGM or VPM, as the case may be, and (to the best knowledge of VRI) the
other parties thereto. Except as set forth in Section 4.21(b) of the Vastar
Disclosure Schedule, neither VRI, VGM nor VPM is in breach of or in default in
any material respect under, nor has any event
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occurred which (with or without the giving of notice or the passage of time or
both) would constitute a material default by it under, any material provision
of any of such agreements, and neither VRI, VGM nor VPM has received any
written notice from any other party indicating that it is in breach of or in
default under any such material provision. To the best knowledge of VRI, no
other party to any of such agreements is in breach of or in default under such
agreements, nor has any assertion been made by VRI, VGM or VPM of any such
breach or default except as would not have a Material Adverse Effect. Except
as disclosed in Section 4.21(b) of the Vastar Disclosure Schedule and except as
would not have a Material Adverse Effect, each of such agreements is freely and
fully assignable to the Partnership without penalty or other adverse
consequence.
4.22 ENVIRONMENTAL MATTERS.
(a) To the best knowledge of VRI, neither VRI, VGM nor VPM is in
violation of, or subject to, any pending or threatened Proceeding under, or
subject to any remedial obligations under, any Applicable Laws pertaining to
health, safety, the environment, Hazardous Substances or Solid Wastes (such
Applicable Laws as they now exist are herein collectively called "Applicable
Environmental Laws") relating to the ownership or operation of the Vastar
Business Assets or the operation of the Vastar Marketing Business, including
without limitation (i) the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended ("CERCLA"), and (ii) the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"). To the best
knowledge of VRI, VRI, Vastar Holdings, VGM and VPM have obtained all Permits
to construct, occupy, operate or use any equipment or other tangible property
forming a part of the Vastar Business Assets by reason of any Applicable
Environmental Laws.
(b) Except as disclosed in Section 4.22 of the Vastar Disclosure
Schedule, to the best knowledge of VRI, there are no past or present events,
conditions, circumstances or plans (i) that interfere with or prevent
compliance or continued compliance, with respect to the Vastar Marketing
Business or the Vastar Business Assets, with Applicable Environmental Laws or
(ii) that are reasonably expected to give rise to any common law or other legal
liability or obligation with respect to the Vastar Marketing Business or the
Vastar Business Assets, including but not limited to, liability or obligation
under CERCLA or RCRA, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling or the
emission, discharge, release or threatened release into the environment, of any
pollutant, contaminant, chemical, industrial toxic or Hazardous Substance or
Solid Waste.
(c) As used in this Agreement, the term "Hazardous Substance"
shall have the meaning currently specified in CERCLA, and the term "Solid
Waste" shall have the meaning currently specified in RCRA; provided that to the
extent the laws of the jurisdiction in which the particular asset is located
have currently established a meaning for such term that is broader than that
specified in CERCLA or RCRA, such broader meaning shall apply.
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4.23 INSURANCE. Except as would not have a Material Adverse
Effect, VRI and its Affiliates have fire, liability, casualty and other
insurance coverage with respect to the Vastar Business Assets and the Vastar
Marketing Business sufficient to satisfy all material requirements of
Applicable Laws and any agreements, arrangements or understandings to which
VRI, Vastar Holdings, VGM or VPM is a party, and which is customary for
businesses of similar size engaged in similar lines of business.
4.24 FINANCIAL REQUIREMENTS. Except as reflected on Section 4.24
of the Vastar Disclosure Schedule, there are no currently effective bonds,
deposits, financial assurance requirements or insurance coverages required to
be submitted to Governmental Entities or any third parties for the continued
ownership and operation of the Vastar Business Assets and the operation of the
Vastar Marketing Business.
4.25 BOOKS AND RECORDS. All the books and records of VRI, Vastar
Holdings, VGM or VPM relating to the Vastar Business Assets or the Vastar
Marketing Business, including all personnel files, employee data and other
materials relating to employees of the Vastar Marketing Business, are
substantially complete and correct in all material respects, have been in all
material respects maintained in accordance with good business practice and all
Applicable Laws, and, in the case of the books of account, have been in all
material respects prepared and maintained in accordance with U.S. GAAP
consistently applied. Such books and records accurately and fairly reflect, in
reasonable detail, all material transactions, assets and liabilities of VRI,
VGM or VPM with respect to the Vastar Marketing Business.
4.26 INVESTMENT INTENT. VRI or its designees are acquiring the
Partnership Interests and members' interests in the General Partner to be
acquired by it at the respective Closing for its own account for investment and
not with a view to, or for sale or other disposition in connection with, any
public distribution of all or any part thereof.
4.27 NO MATERIAL OMISSIONS. To the best knowledge of VRI, there
are no factors or circumstances that are material to the Vastar Marketing
Business or the Vastar Business Assets, or the continued ownership or operation
thereof, that have not been disclosed to SEI Holdings in this Agreement or in
the Vastar Disclosure Schedule or to representatives of SEI Holdings prior to
the date hereof. EXCEPT AS PROVIDED SPECIFICALLY IN THIS AGREEMENT, VRI MAKES
NO REPRESENTATIONS OR WARRANTIES IN THIS AGREEMENT OR IN ANY INSTRUMENT,
EXHIBIT, SCHEDULE OR DOCUMENT DELIVERED IN CONNECTION HEREWITH OR REFERRED TO
HEREIN AS TO ANY FINANCIAL PROJECTIONS, ESTIMATES TO COMPLETE TRANSACTIONS,
VALUES AT RISK, TRANSACTION LOSS PROJECTIONS, OR SIMILAR PREDICTIVE
INFORMATION, AND SEI HOLDINGS SPECIFICALLY ACKNOWLEDGES THAT IT IS NOT SEEKING
OR RELYING ON ANY SUCH REPRESENTATIONS OR WARRANTIES.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SEI HOLDINGS
SEI Holdings represents and warrants to VRI as of the date hereof
that:
5.1 CORPORATE ORGANIZATION. Each of SEI Holdings, Southern Energy
North America, Inc.,("SENA") and SETM is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
Southern LP Sub and Southern Member Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Georgia.
Each of SEI Holdings, SENA, SETM and Southern LP Sub has all requisite
corporate power and authority to own, lease and operate the SETM Business
Assets and to carry on the SETM Business as now being conducted. No actions or
proceedings to dissolve SEI Holdings, SENA, SETM, Southern Member Sub or
Southern LP Sub are pending.
5.2 CHARTER AND BYLAWS. SEI Holdings has delivered or made
available to VRI accurate and complete copies of the Certificate of
Incorporation and Bylaws of each of SEI Holdings, SETM, Southern Member Sub and
Southern LP Sub as currently in effect.
5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of SEI Holdings,
SENA, SETM, Southern Member Sub and Southern LP Sub has full corporate power and
authority to execute, deliver and perform this Agreement, the Partnership
Agreement, the Limited Liability Company Agreement, the Ancillary Agreements (as
defined in Section 7.6 of this Agreement) and the Instruments of Conveyance
(collectively, the "SEI Holdings Documents") to which it is a party, and to
consummate the transactions contemplated thereby. The execution, delivery and
performance by each of SEI Holdings, SENA, SETM, Southern Member Sub and
Southern LP Sub, as the case may be, of the SEI Holdings Documents to which it
is a party, and the consummation by it of the transactions contemplated thereby,
have been duly authorized by all necessary corporate action. This Agreement has
been duly executed and delivered by SEI Holdings, and constitutes, and each of
the SEI Holdings Documents and each other agreement, instrument or document
executed or to be executed by SEI Holdings, SENA, SETM, Southern Member Sub
and/or Southern LP Sub in connection with the transactions contemplated hereby
has been, or when executed will be, duly executed and delivered by each of SEI
Holdings, SENA, SETM, Southern Member Sub and/or Southern LP Sub and
constitutes, or when executed and delivered will constitute, a valid and legally
binding obligation of SEI Holdings, SENA, SETM, Southern Member Sub or Southern
LP Sub, as the case may be, enforceable against it in accordance with their
respective terms, except that such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights generally and (ii) equitable principles which may
limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
5.4 NONCONTRAVENTION. Except as disclosed in Section 5.4 of the
SEI Holdings Disclosure Schedule, the execution, delivery and performance by
each of SEI Holdings, SENA,
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SETM, Southern Member Sub and/or Southern LP Sub of the SEI Holdings Documents,
to which it is a party, and the consummation by it of the transactions
contemplated thereby do not and will not (i) conflict with or result in a
violation of any provision of the respective charter or bylaws or other
governing instruments of each of SEI Holdings, SENA, SETM, Southern Member Sub
and Southern LP Sub, (ii) conflict with or result in a violation of any
provision of, or constitute (with or without the giving of notice or the passage
of time or both) a default under, or give rise (with or without the giving of
notice or the passage of time or both) to any right of termination, cancellation
or acceleration under, any bond, debenture, note, mortgage, indenture, lease,
contract, agreement or other instrument or obligation to which it is a party or
by which it, the SETM Business or any of the SETM Business Assets may be bound,
(iii) result in the creation or imposition of any Encumbrance upon any of the
SETM Business Assets or (iv) assuming compliance with the matters referred to in
Section 5.5, violate any Applicable Law binding upon it, the SETM Business or
any of the SETM Business Assets, except, in the case of clauses (ii), (iii) and
(iv) above, for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not, individually or in the
aggregate, have a Material Adverse Effect.
5.5 GOVERNMENTAL APPROVALS. No consent, approval, order or
authorization of, or declaration, filing or registration with, any Governmental
Entity is required to be obtained or made by SEI Holdings, SENA, SETM, Southern
Member Sub or Southern LP Sub in connection with the execution, delivery or
performance by SEI Holdings, SENA, SETM, Southern Member Sub or Southern LP Sub
of the SEI Holdings Documents or the consummation by it of the transactions
contemplated thereby, other than (i) as set forth in Section 5.5 of the SEI
Holdings Disclosure Schedule; (ii) filings with Governmental Entities with
respect to the transfer of the SETM Business Assets, to occur in the ordinary
course following the consummation of the transactions contemplated hereby; and
(iii) such consents, approvals, orders or authorizations which, if not
obtained, and such declarations, filings or registrations which, if not made,
would not, individually or in the aggregate, have a Material Adverse Effect.
5.6 EXCLUSIVE OPERATION OF THE SETM BUSINESS. Except as set forth
in Schedule 5.6 to the SEI Holdings Disclosure Schedule, SEI Holdings does not
have any direct or indirect equity or ownership interest in any corporation,
partnership, joint venture or other entity which is involved, directly or
indirectly, in the conduct of the SETM Business, and the SETM Business is
conducted solely and exclusively by SETM.
5.7 TITLE TO SETM BUSINESS ASSETS. Except as set forth in Section
5.7 of the SEI Holdings Disclosure Schedule, SEI Holdings or SETM is the owner
of, and has good and marketable title to, all the SETM Business Assets. Upon
transfer of the SETM Business Assets as provided in Article III of this
Agreement, the Partnership will have good and marketable title to all the SETM
Business Assets (including, except as set forth in Section 5.7 of the SEI
Holdings Disclosure Schedule, the Intellectual Property, Technology and
Software), free and clear of all Encumbrances (other than the Permitted
Encumbrances).
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5.8 FINANCIAL STATEMENTS; ABSENCE OF LIABILITIES.
(a) SEI HOLDINGS ACKNOWLEDGES THAT NEITHER IT NOR ANY OF ITS
AFFILIATES HAS RELIED ON ANY FINANCIAL STATEMENTS OF VGM, VPM OR THEIR
SUBSIDIARIES IN CONNECTION WITH ITS DECISION TO ENTER INTO THIS AGREEMENT.
(b) SETM has no liabilities or obligations (whether accrued,
absolute, contingent, unliquidated or otherwise, whether or not known to SEI
Holdings, and whether due or to become due) that will become liabilities or
obligations of the General Partner or the Partnership except for the Assumed
Contracts and Liabilities (or as otherwise contemplated hereby) or that will
create or result in any Encumbrances on the assets of the General Partner or
the Partnership except for Permitted Encumbrances.
5.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section
5.9 of the SEI Holdings Disclosure Schedule, since June 30, 1997, (i) there has
been no Material Adverse Effect with respect to the SETM Business; (ii) the
SETM Business has been conducted only in the ordinary course consistent with
past practice; (iii) except for or as contemplated by this Agreement, SETM has
not, in respect of the SETM Business, incurred any material liability, engaged
in any material transaction or entered into any material agreement outside the
ordinary course of business consistent with past practice; (iv) SETM has not
suffered any material loss, damage, destruction or other casualty to any of the
SETM Business Assets (whether or not covered by insurance); and (v) SETM has
not, in respect of the SETM Business, taken any of the actions set forth in
Section 6.2-B except as permitted thereunder.
5.10 TAX MATTERS. Except as disclosed in Section 5.10 of the SEI
Holdings Disclosure Schedule, SEI Holdings, SENA and SETM have (and as of each
Closing will have) (either directly or indirectly or as part of a consolidated
or combined group) (i) duly filed all material federal, state, local and
foreign Tax Returns required to be filed by or with respect to it with the IRS
or other applicable Taxing authority, (ii) paid, or adequately reserved against
all Taxes due, or claimed by any Taxing authority to be due, from or with
respect to it, and (iii) made all material deposits required with respect to
Taxes, in each such case to the extent that the failure to do so would result
in the imposition of any Encumbrance (other than a Permitted Encumbrance) on
the SETM Business Assets. To the best knowledge of SEI Holdings, there has
been no material issue raised or material adjustment proposed (and none is
pending) by the IRS or any other Taxing authority in connection with any Tax
Returns relating to the SETM Business Assets or the operation of the SETM
Business. Except as set forth in Section 5.10 of the SEI Holdings Disclosure
Schedule, no waiver or extension of any statute of limitations as to any
federal, state, local or foreign Tax matter relating to the SETM Business
Assets or the operation of the SETM Business has been given by or requested
from SEI Holdings, SENA and SETM with respect to any Tax year. Neither SEI
Holdings, SENA nor SETM has filed a consent under Section 341(f) of the Code.
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5.11 COMPLIANCE WITH LAWS. To the best knowledge of SEI Holdings,
each of SEI Holdings, SENA and SETM has complied with all Applicable Laws
relating to the ownership or operation of the SETM Business Assets and the
operation of the SETM Business, except for noncompliance with such Applicable
Laws which, individually or in the aggregate, does not and will not have a
Material Adverse Effect. Neither SEI Holdings, SENA nor SETM is charged or, to
the best knowledge of SEI Holdings, threatened with, or, to the best knowledge
of SEI Holdings, under investigation with respect to, any violation of any
Applicable Law relating to any aspect of the ownership or operation of the SETM
Business Assets or the operation of the SETM Business, other than violations
which, individually or in the aggregate, do not and will not have a Material
Adverse Effect.
5.12 LEGAL PROCEEDINGS. To the best knowledge of SEI Holdings,
except as set forth in Section 5.12 of the SEI Holdings Disclosure Schedule,
there are no Proceedings pending or threatened against or involving SEI
Holdings, SETM or Southern LP Sub relating to the SETM Business Assets or the
operation of the SETM Business which, individually or in the aggregate, might
reasonably be expected to have a Material Adverse Effect or to result in a
material adverse change in the Assumed Contracts and Liabilities. Except as
set forth in Section 5.12 of the SEI Holdings Disclosure Schedule, neither SEI
Holdings, SETM nor Southern LP Sub is subject to any judgment, order, writ,
injunction or decree of any Governmental Entity which is reasonably likely to
have a Material Adverse Effect or result in a material adverse change in the
Assumed Contracts and Liabilities. To the best knowledge of SEI Holdings,
except as set forth in Section 5.12 of the SEI Holdings Disclosure Schedule,
there are no Proceedings pending or threatened seeking to restrain, prohibit or
obtain damages or other relief in connection with this Agreement or the
transactions contemplated hereby.
5.13 SUFFICIENCY OF ASSETS AND PERSONNEL. Except for the Excluded
Assets and except as set forth in Section 5.13 of the SEI Holdings Disclosure
Schedule and except for Staff Services which SEI Holdings or an Affiliate is
available to perform on an arm's length contract basis, the SETM Business
Assets, and the SETM Gas Business Personnel and SETM Power Business Personnel,
(i) constitute all the assets and properties used or held for use, and all of
the employees employed, in connection with the operation of the SETM Business
and (ii) constitute all the assets and properties and personnel the use,
employment or benefit of which are reasonably necessary for the operation of
the SETM Business as currently conducted. The SETM Business Assets and their
uses conform to all Applicable Laws, except for such nonconformance as does not
and will not have a Material Adverse Effect. All tangible assets and
properties included in the SETM Business Assets are in the possession, or under
the control, of SETM.
5.14 REAL PROPERTY. SETM does not own any real property. Set
forth in Section 5.14 of the SEI Holdings Disclosure Schedule is the street
address and a brief description of the principal facilities and structures
leased by SEI Holdings, SENA or SETM and used or held for use in connection
with the operation of the SETM Business.
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5.15 TANGIBLE PERSONAL PROPERTY. Set forth in Section 5.15 of the
SEI Holdings Disclosure Schedule is a list, as of the date hereof, of all
furniture, fixtures, leasehold improvements, equipment, machinery, computer
hardware, prototypes, spare parts, supplies, materials, motor vehicles,
apparatus, tools, implements, appliances and other tangible personal property
(other than inventories) owned or leased by SEI Holdings, SENA or SETM and used
or held for use in connection with the operation of the SETM Business, except
for items having a value individually of less than $5,000 which do not, in the
aggregate, have a value exceeding $100,000.
5.16 INVENTORY. The value of each item of inventory included in
the SETM Business Assets transferred as part of the Working Capital
Contribution/Loan shall be reflected at market value as of the respective
Closing.
5.17 RECEIVABLES. There are no accounts receivable of SEI
Holdings, SENA or SETM generated by the SETM Business to be transferred to the
General Partner or the Partnership pursuant to Section 2.1.
5.18 INTELLECTUAL PROPERTY; TECHNOLOGY; SOFTWARE.
(a) Set forth in Section 5.18 of the SEI Holdings Disclosure
Schedule is a list of all Intellectual Property, Technology and Software
relating to or used in connection with the operation of the SETM Business.
Section 5.18 of the SEI Holdings Disclosure Schedule specifies, as applicable:
(i) the nature of such Intellectual Property, Technology and Software; (ii) the
owner of such Intellectual Property, Technology and Software; and (iii) all
licenses, sublicenses and other agreements to which SEI Holdings is a party and
pursuant to which any person is authorized to use the Intellectual Property,
Technology and Software, including the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable royalty
(if any) and the term thereof.
(b) The Intellectual Property, Technology and Software listed in
Section 5.18 of the SEI Holdings Disclosure Schedule constitutes all
Intellectual Property, Technology and Software necessary for the conduct of the
SETM Business on a basis consistent with past practice. Each of SEI Holdings,
SENA and SETM has good and marketable title to or is validly licensed to use
all such Intellectual Property, Technology and Software. Each item of such
Intellectual Property, Technology and Software is in full force and effect, and
each of SEI Holdings, SENA and SETM is in compliance in all material respects
with all its obligations with respect thereto and, to the best knowledge of SEI
Holdings, no event has occurred which permits, or upon the giving of notice or
the passage of time or otherwise would permit, the revocation or termination of
any thereof. To the best knowledge of SEI Holdings, there are no Proceedings
pending or threatened against SEI Holdings, SENA or SETM asserting that the use
by SEI Holdings, SENA or SETM of any of such Intellectual Property, Technology
or Software infringes the rights of any other person or seeking revocation,
termination or concurrent use of any of such Intellectual Property, Technology
or Software, and there is, to the best knowledge of SEI Holdings, no basis for
any such Proceeding.
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To the best knowledge of SEI Holdings, none of such Intellectual Property,
Technology or Software that is owned by SEI Holdings or its Affiliates is being
infringed upon by any other person. Except as set forth in Section 5.18 of the
SEI Holdings Disclosure Schedule, none of the Intellectual Property, Technology
or Software that is owned by SEI Holdings or its Affiliates is subject to any
outstanding judgment, order, writ, injunction or decree of any Governmental
Entity, or any agreement, arrangement or understanding, restricting the scope
or use thereof. To the best knowledge of SEI Holdings, the conduct of the SETM
Business at any time prior to the First or Second Closing, as the case may be,
did not, and the conduct of the SETM Business on a basis consistent with SEI
Holdings' past practice as of such Closing will not, infringe upon or otherwise
misappropriate any Intellectual Property, Technology or Software of any other
person.
5.19 PERMITS.
(a) Set forth in Section 5.19 (a) of the SEI Holdings Disclosure
Schedule is a list of all Permits held by SETM which relate to the SETM
Business Assets or the SETM Business. Each of such Permits is in full force
and effect, SETM is in compliance in all material respects with all its
obligations with respect thereto and, to the best knowledge of SEI Holdings, no
event has occurred which permits, or with or without the giving of notice or
the passage of time or both would permit, the revocation or termination of any
thereof. Except as disclosed in Section 5.19(a) of the SEI Holdings Disclosure
Schedule, to the best knowledge of SEI Holdings, no notice has been issued by
any Governmental Entity and no Proceeding is pending or threatened with respect
to any alleged failure by SEI Holdings or SETM to have any Permit the absence
of which would have a Material Adverse Effect.
(b) Except as set forth in Section 5.19(b) of the SEI Holdings
Disclosure Schedule and, except for Permits the absence of which do not and
will not have a Material Adverse Effect, the Permits listed in Section 5.19(a)
of the SEI Holdings Disclosure Schedule constitute all the Permits necessary or
required for the ownership and operation of the SETM Business Assets and the
conduct of the SETM Business as of the First or Second Closing, as the case may
be.
5.20 CHANGE IN CORPORATE STRUCTURE. Except as previously disclosed
in writing, the board of directors of each of SEI Holdings, SENA, SETM,
Southern Member Sub or Southern LP Sub (as reflected in their respective
minutes) is not currently contemplating and does not have any plans to
consolidate, merge with or, reorganize or recapitalize with any other Person or
to convey, transfer, sell, or lease a substantial portion of its assets to any
other Person in a single transaction or series of transactions.
5.21 AGREEMENTS.
(a) Set forth in Section 5.21(a) of the SEI Holdings Disclosure
Schedule is a list of all the following contracts, agreements and arrangements
(collectively, for purposes of this Section
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only, "agreements") to which SEI Holdings, SENA or SETM is a party or by which
SEI Holdings, SENA or SETM is otherwise bound that relate to the SETM Business
Assets or the SETM Business:
(i) collective bargaining agreements and similar
agreements with employees as a group;
(ii) agreements, trusts, plans, funds or other employee
benefit arrangements of any nature;
(iii) agreements with any director, officer, employee,
consultant or advisor of SEI Holdings or any of its Affiliates;
(iv) agreements between or among SEI Holdings and any of
its Affiliates;
(v) indentures, mortgages, security agreements, notes,
loan or credit agreements or other agreements relating to the
borrowing of money by SEI Holdings, SENA or SETM or to the direct or
indirect guarantee or assumption by SEI Holdings, SENA or SETM of any
obligation of others;
(vi) agreements relating to the acquisition or disposition
of assets;
(vii) agreements with respect to the lease of real or
personal property;
(viii) agreements concerning the management or operation of
any real property;
(ix) supplier, broker, distributor, dealer, manufacturer's
representative, sales, agency, sales promotion, advertising,
marketing, consulting, research and development, maintenance, service
and repair agreements;
(x) license, royalty or other agreements relating to
Intellectual Property, Technology or Software;
(xi) partnership, joint venture and profit sharing
agreements;
(xii) agreements with any Governmental Entity;
(xiii) agreements in the nature of a settlement or a
conciliation agreement arising out of any claim asserted by any other
person;
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(xiv) agreements containing any covenant limiting the
freedom of SEI Holdings, SENA or SETM to engage in any line of
business or compete with any other person in any geographic area or
during any period of time;
(xv) powers of attorney granted by SEI Holdings, SENA or
SETM in favor of any person;
(xvi) agreements not made in the ordinary course of the
SETM Business;
(xvii) agreements for the purchase, sale, exchange,
marketing, or other use of natural gas, electric energy, or other
commodities that may not be terminated for convenience and without
penalty prior to January 1, 1998, and all exchange, swap, hedging, and
other financial or future contracts and agreements; and
(xviii) other agreements, whether or not made in the ordinary
course of the SETM Business, that are material to the SETM Business or
the ownership or operation of the SETM Business Assets or any material
portion thereof.
(b) SEI Holdings has delivered or made available to VRI accurate
and complete copies of the agreements listed in Section 5.21(a) of the SEI
Holdings Disclosure Schedule. Except as set forth in Section 5.21(b) of the
SEI Holdings Disclosure Schedule, each of such agreements is a valid and
binding agreement of SEI Holdings, SENA or SETM, or as the case may be, and (to
the best knowledge of SEI Holdings) the other parties thereto. Except as set
forth in Section 5.21(b) of the SEI Holdings Disclosure Schedule, neither SEI
Holdings, SENA nor SETM is in breach of or in default in any material respect
under, nor has any event occurred which (with or without the giving of notice
or the passage of time or both) would constitute a material default by it
under, any material provision of any of such agreements, and neither SEI
Holdings, SENA nor SETM has received any written notice from any other party
indicating that it is in breach of or in default under any such material
provision. To the best knowledge of SEI Holdings, no other party to any of
such agreements is in breach of or in default under such agreements, nor has
any assertion been made by SEI Holdings, SENA or SETM of any such breach or
default except as would not have a Material Adverse Effect. Except as
disclosed in Section 5.21(b) of the SEI Holdings Disclosure Schedule and except
as would not have a Material Adverse Effect, each of such agreements is freely
and fully assignable to the Partnership without penalty or other adverse
consequence.
5.22 ENVIRONMENTAL MATTERS.
(a) To the best knowledge of SEI Holdings, neither SEI Holdings,
SENA nor SETM is in violation of, or subject to, any pending or threatened
Proceeding under, or subject to any remedial obligations under, any Applicable
Environmental Laws relating to the ownership or operation of the SETM Business
Assets or the operation of the SETM Business, including without limitation (i)
CERCLA and (ii) RCRA. To the best knowledge of SEI Holdings, SEI Holdings,
SENA and SETM
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have obtained all Permits to construct, occupy, operate or use any equipment or
other tangible property forming a part of the SETM Business Assets by reason of
any Applicable Environmental Laws.
(b) Except as disclosed in Section 5.22 of the SEI Holdings
Disclosure Schedule, to the best knowledge of SEI Holdings, there are no past
or present events, conditions, circumstances or plans (i) that interfere with
or prevent compliance or continued compliance, with respect to the SETM
Business or the SETM Business Assets, with Applicable Environmental Laws or
(ii) that are reasonably expected to give rise to any common law or other legal
liability or obligation with respect to the SETM Business or the SETM Business
Assets, including but not limited to, liability or obligation under CERCLA or
RCRA, based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling or the emission, discharge,
release or threatened release into the environment, of any pollutant,
contaminant, chemical, industrial toxic or Hazardous Substance or Solid Waste.
5.23 INSURANCE. Except as would not have a Material Adverse
Effect, SEI Holdings and its Affiliates have fire, liability, casualty and
other insurance coverage with respect to the SETM Business Assets and the SETM
Business sufficient to satisfy all material requirements of Applicable Laws and
any agreements, arrangements or understandings to which SEI Holdings, SENA or
SETM is a party, and which is customary for businesses of similar size engaged
in similar lines of business.
5.24 FINANCIAL REQUIREMENTS. Except as reflected on Section 5.24
of the SEI Holdings Disclosure Schedule, there are no currently effective
bonds, deposits, financial assurance requirements or insurance coverages
required to be submitted to Governmental Entities or any third parties for the
continued ownership and operation of the SETM Business Assets and the operation
of the SETM Business.
5.25 BOOKS AND RECORDS. All the books and records of SEI Holdings,
SENA or SETM relating to the SETM Business Assets or the SETM Business,
including all personnel files, employee data and other materials relating to
employees of the SETM Business, are substantially complete and correct in all
material respects, have been in all material respects maintained in accordance
with good business practice and all Applicable Laws, and, in the case of the
books of account, have been in all material respects prepared and maintained in
accordance with U.S. GAAP consistently applied. Such books and records
accurately and fairly reflect, in reasonable detail, all material transactions,
assets and liabilities of SEI Holdings, SENA or SETM with respect to the SETM
Business.
5.26 INVESTMENT INTENT. SEI Holdings or its designees are acquiring
the Partnership Interests and member's interests in the General Partner to be
acquired by it at the respective Closing for its own account for investment and
not with a view to, or for sale or other disposition in connection with, any
public distribution of all or any part thereof.
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5.27 NO MATERIAL OMISSIONS. To the best knowledge of SEI Holdings,
there are no factors or circumstances that are material to the SETM Business or
the SETM Business Assets, or the continued ownership or operation thereof, that
have not been disclosed to VRI in this Agreement or in the SEI Holdings
Disclosure Schedule or to representatives of VRI prior to the date hereof.
EXCEPT AS PROVIDED SPECIFICALLY IN THIS AGREEMENT, SEI HOLDINGS MAKES NO
REPRESENTATIONS OR WARRANTIES IN THIS AGREEMENT OR ANY INSTRUMENT, EXHIBIT,
SCHEDULE OR DOCUMENT DELIVERED IN CONNECTION HEREWITH OR REFERRED TO HEREIN AS
TO ANY FINANCIAL PROJECTIONS, ESTIMATES TO COMPLETE TRANSACTIONS, VALUES AT
RISK, TRANSACTION LOSS PROJECTIONS, OR SIMILAR PREDICTIVE INFORMATION, AND VRI
SPECIFICALLY ACKNOWLEDGES THAT IT IS NOT SEEKING OR RELYING ON ANY SUCH
REPRESENTATIONS OR WARRANTIES.
ARTICLE VI-A
CONDUCT OF VASTAR MARKETING BUSINESS PENDING CLOSINGS
VRI hereby covenants and agrees with SEI Holdings and the Partnership
as follows:
6.1-A CONDUCT AND PRESERVATION OF THE VASTAR MARKETING BUSINESS.
Except as expressly provided in this Agreement, or except as listed in Section
6.1-A of the Vastar Disclosure Schedule, during the period from the date hereof
to the First Closing Effective Date with respect to the Vastar Gas Business and
Vastar Gas Assets and to the Second Closing Effective Date with respect to the
Vastar Power Business and the Vastar Power Assets, and to January 1, 1998, with
respect to the LDC Contracts, VRI shall, and shall cause VGM and VPM and its
other Affiliates to, (i) conduct the Vastar Marketing Business substantially as
it is being conducted on the date hereof; (ii) use its commercially reasonable
best efforts to preserve, maintain and protect the Vastar Business Assets,
consistent with available resources; and (iii) use its commercially reasonable
best efforts to preserve intact the business organization of the Vastar
Marketing Business, consistent with its available resources, to keep available
the services of the employees of the Vastar Marketing Business and to maintain
existing relationships with suppliers, contractors, distributors, customers and
others having business relationships with the Vastar Marketing Business.
6.2-A RESTRICTIONS ON CERTAIN ACTIONS. Without limiting the
generality of Section 6.1-A, or except as listed in Section 6.1-A of the Vastar
Disclosure Schedule and except as otherwise expressly provided in this
Agreement, prior to the First Closing Effective Date with respect to the Vastar
Gas Business and Vastar Gas Assets and to the Second Closing Effective Date
with respect to the Vastar Power Business and the Vastar Power Assets, VRI,
without the written consent of SEI Holdings, shall not, and shall not permit
VGM or VPM to:
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(a) make any expenditures outside the ordinary course of
the Vastar Marketing Business consistent with past practice which,
individually or in the aggregate, exceed $250,000;
(b) make any material change in the ongoing operations of
the Vastar Marketing Business or its assets;
(c) create, incur, guarantee or assume any indebtedness
for borrowed money outside the ordinary course of the Vastar Marketing
Business;
(d) mortgage or pledge any of the Vastar Business Assets
or create or suffer to exist any Encumbrance thereupon, other than
Permitted Encumbrances;
(e) sell, lease, transfer or otherwise dispose of,
directly or indirectly, any of the Vastar Business Assets, except in
the ordinary course of the Vastar Marketing Business consistent with
past practice, or sell, lease, transfer, or otherwise dispose of any
fixed assets, whether or not in the ordinary course of the Vastar
Marketing Business, which have a value, individually, in excess of
$10,000, or, in the aggregate, in excess of $250,000;
(f) enter into any lease, contract, agreement,
commitment, arrangement or transaction relating to the Vastar
Marketing Business other than in the ordinary course of business;
(g) amend, modify or change any existing lease, contract
or agreement relating to the Vastar Marketing Business, other than in
the ordinary course of the business of the Vastar Marketing Business
consistent with past practice;
(h) waive, release, grant or transfer any rights of value
relating to the Vastar Marketing Business, other than in the ordinary
course of the business of the Vastar Marketing Business consistent
with past practice;
(i) except in the ordinary course of business, hire any
new employees or recall any laid-off employees of VGM or VPM;
(j) delay payment of any account payable or other
liability of VGM or VPM relating to the Vastar Marketing Business
beyond the later of its due date or the date when such liability would
have been paid in the ordinary course of the Vastar Marketing Business
consistent with past practice;
(k) permit any current insurance or reinsurance coverage
to lapse if such policy covers Vastar Business Assets or insures
risks, contingencies or liabilities of the Vastar Marketing Business;
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(l) except as set forth in this Section 6.2-A, take any
action which would make any of the representations or warranties of
VRI contained in this Agreement untrue or inaccurate as of any time
from the date of this Agreement to the date of the First Closing or
the Second Closing, as applicable, or would result in any of the
conditions set forth in this Agreement not being satisfied; or
(m) authorize or propose, or agree in writing or
otherwise to take, any of the actions described in this Section.
ARTICLE VI-B
CONDUCT OF SETM BUSINESS PENDING CLOSINGS
SEI Holdings hereby covenants and agrees with VRI and the Partnership
as follows:
6.1-B CONDUCT AND PRESERVATION OF THE SETM BUSINESS. Except as
expressly provided in this Agreement, or except as listed on Section 6.1-B of
the SEI Holdings Disclosure Schedule during the period from the date hereof to
the First Closing Effective Date with respect to the SETM Gas Business and SETM
Gas Assets and to the Second Closing Effective Date with respect to the SETM
Power Business and SETM Power Assets, SEI Holdings shall, and shall cause SETM
and its other Affiliates to, (i) conduct the SETM Business substantially as it
is being conducted on the date hereof; (ii) use its commercially reasonable
best efforts to preserve, maintain and protect the SETM Business Assets,
consistent with available resources; and (iii) use its commercially reasonable
best efforts to preserve intact the business organization of the SETM Business,
consistent with its available resources, to keep available the services of the
employees of the SETM Business and to maintain existing relationships with
suppliers, contractors, distributors, customers and others having business
relationships with the SETM Business.
6.2-B RESTRICTIONS ON CERTAIN ACTIONS. Without limiting the
generality of Section 6.1-B, or except as listed on Section 6.1-B of the SEI
Holdings Disclosure Schedule and except as otherwise expressly provided in this
Agreement, prior to the First Closing Effective Date with respect to the SETM
Gas Business and SETM Gas Assets and to the Second Closing Effective Date with
respect to the SETM Power Business and SETM Power Assets, SEI Holdings, without
the written consent of VRI, shall not, and shall not permit SETM to:
(a) make any expenditures outside the ordinary course of
the SETM Business consistent with past practice which, individually or
in the aggregate, exceed $250,000;
(b) make any material change in the ongoing operations of
the SETM Business or its assets;
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(c) create, incur, guarantee or assume any indebtedness
for borrowed money outside the ordinary course of the SETM Business;
(d) mortgage or pledge any of the SETM Business Assets or
create or suffer to exist any Encumbrance thereupon, other than
Permitted Encumbrances;
(e) sell, lease, transfer or otherwise dispose of,
directly or indirectly, any of the SETM Business Assets, except in the
ordinary course of the SETM Business consistent with past practice, or
sell, lease, transfer, or otherwise dispose of any fixed assets,
whether or not in the ordinary course of the SETM Business, which have
a value, individually, in excess of $10,000, or, in the aggregate, in
excess of $250,000;
(f) enter into any lease, contract, agreement,
commitment, arrangement or transaction relating to the SETM Business
other than in the ordinary course of business;
(g) amend, modify or change any existing lease, contract
or agreement relating to the SETM Business, other than in the ordinary
course of the business of the SETM Business consistent with past
practice;
(h) waive, release, grant or transfer any rights of value
relating to the SETM Business, other than in the ordinary course of
the business of the SETM Business consistent with past practice;
(i) except in the ordinary course of business, hire any
new employees or recall any laid-off employees of SETM;
(j) delay payment of any account payable or other
liability of SETM relating to the SETM Business beyond the later of
its due date or the date when such liability would have been paid in
the ordinary course of the SETM Business consistent with past
practice;
(k) permit any current insurance or reinsurance coverages
to lapse if such policy covers SETM Business Assets or insures risks,
contingencies or liabilities of the SETM Business;
(l) except as set forth in this Section 6.2-B, take any
action which would make any of the representations or warranties of
SEI Holdings contained in this Agreement untrue or inaccurate as of
any time from the date of this Agreement to the date of the First
Closing or the Second Closing, as applicable, or would result in any
of the conditions set forth in this Agreement not being satisfied; or
(m) authorize or propose, or agree in writing or
otherwise to take, any of the actions described in this Section.
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ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 ACCESS TO INFORMATION, CONFIDENTIALITY.
(a) Between the date hereof and the Second Closing, VRI (i) shall
give SEI Holdings and its authorized representatives reasonable access to all
employees, all facilities and all books and records of VRI, Vastar Holdings,
VGM and VPM relating to the Vastar Business Assets or the Vastar Marketing
Business, (ii) shall permit SEI Holdings and its authorized representatives to
make such inspections of the Vastar Business Assets as they may reasonably
require to verify the accuracy of any representation or warranty contained in
Article IV and (iii) shall cause officers of VRI, Vastar Holdings, VGM and VPM
to furnish SEI Holdings and its authorized representatives with such financial
and operating data and other information with respect to the Vastar Business
Assets and the Vastar Marketing Business as SEI Holdings may from time to time
reasonably request; provided, however, that VRI shall have the right to have a
representative present at all times of any such inspections or examinations
conducted at the offices or other facilities of VRI or its Affiliates.
(b) Between the date hereof and the Second Closing, SEI Holdings
(i) shall give VRI and its authorized representatives reasonable access to all
employees, all facilities and all books and records of SEI Holdings, SENA and
SETM relating to the SETM Business Assets or the SETM Business, (ii) shall
permit VRI and its authorized representatives to make such inspections of the
SETM Business Assets as they may reasonably require to verify the accuracy of
any representation or warranty contained in Article V and (iii) shall cause
officers of SEI Holdings, SENA and SETM to furnish VRI and its authorized
representatives with such financial and operating data and other information
with respect to the SETM Business Assets and the SETM Business as VRI may from
time to time reasonably request; provided, however, that SEI Holdings shall
have the right to have a representative present at all times of any such
inspections or examinations conducted at the offices or other facilities of SEI
Holdings or its Affiliates.
(c) The Confidentiality Agreement dated March 25, 1997, between
SEI Holdings and VGM shall remain in full force and effect as set out therein
until the First Closing at which time such Confidentiality Agreement shall be
superseded in its entirety by the Confidentiality and Noncompetition Agreement
referred to in Section 7.6(l).
7.2 THIRD PARTY CONSENTS. Each party shall use its commercially
reasonable best efforts to obtain all consents, approvals, orders,
authorizations and waivers of, and to effect all declarations, filing and
registrations with, all third parties (including Governmental Entities) that
are necessary or required to permit the transfers of assets to the Partnership
as contemplated by this Agreement and to otherwise consummate the transactions
contemplated hereby.
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7.3 RELEASE OF LIENS. Each party shall use its commercially
reasonable best efforts to obtain full releases of the liens and encumbrances
on the assets to be transferred by it other than Permitted Encumbrances.
7.4 BEST EFFORTS. Each party hereto agrees that it will not
voluntarily undertake any course of action inconsistent with the provisions or
intent of this Agreement and will use its commercially reasonable best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things reasonably necessary, proper or advisable under Applicable Laws to
consummate the transactions contemplated by this Agreement. Each party hereto
shall cooperate with and assist the other parties hereto in order to provide an
efficient and orderly transfer of the control and management of the assets and
its Business to the Partnership and to avoid any undue interruption in the
ongoing operations of such assets and Businesses following the respective
Closing. The phrase "commercially reasonable best efforts" or any phrase of
similar tenor as used in this Agreement or any Ancillary Agreement shall mean
such good faith efforts as are commercially reasonable, comparing the cost and
expense of the efforts to the benefit to be gained (without regard to the
identity of the beneficiary).
7.5 ACQUISITION PROPOSALS. From and after the date of this
Agreement until the earlier of the Second Closing or the termination of this
Agreement, neither party nor any Affiliate, director, officer, employee or
representative of either party shall, directly or indirectly, (a) solicit,
initiate or knowingly encourage any Acquisition Proposal with respect to the
Vastar Business Assets, the SETM Business Assets or the respective Businesses
or (b) engage in discussions or negotiations with, or provide any information
to, any person that is considering making or has made such an Acquisition
Proposal. If any party or any of its respective Affiliates shall receive any
such Acquisition Proposal, the party receiving such proposal shall immediately
communicate to the other the terms of such proposal including the identity of
the person making such proposal. The term "Acquisition Proposal", as used in
this Section with respect to any assets or business, means any offer or
proposal for, or any indication of interest in, the acquisition of any of such
assets or business, directly or indirectly, other than the transactions
expressly permitted by this Agreement.
7.6 CERTAIN ANCILLARY AGREEMENTS. The parties hereto covenant
with each other that they shall do the following, cause their Affiliates to do
the following, or in the case of a parent company not controlled by the party
hereto, represent and warrant that their respective parents have agreed to do
the following:
(a) VRI and the Partnership shall enter into the Gas
Purchase and Sale Agreement substantially in the form attached hereto
as Exhibit 7.6(a) and a Gas Accounting Services Agreement in a form
satisfactory to the parties at (and subject to the occurrence of) the
First Closing;
(b) the Partnership, SEI Holdings and its Affiliates (as
necessary) and VRI and its Affiliates (as necessary) shall enter into
a Technology Licensing and Transfer Agreement
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in a form satisfactory to the parties at (and subject to the
occurrence of) the First Closing with respect to Intellectual Property
included in the Vastar Gas Business or the SETM Gas Business, and at
(and subject to the occurrence of) the Second Closing, with respect to
Intellectual Property included in the Vastar Power Business or the
SETM Power Business;
(c) the Partnership and the employees listed on Exhibit
7.6(c)(i) shall have entered into Employment Agreements satisfactory
to the Partnership and such employees on or prior to the First Closing
(but effective subject to the occurrence of the Second Closing);
(d) the Partnership, the General Partner and Southern
Company and its Affiliates shall enter into a Service Mark License
Agreement relating to the use of the name "Southern Company" and the
Partnership and the General Partner and VRI shall enter into a Service
Mark License Agreement relating to the use of the name "Vastar" and
the required use of the tagline "A Vastar Partnership" as part of the
Partnership's identity, both in forms satisfactory to the parties at
(and subject to the occurrence of) the First Closing;
(e) the Partnership, the General Partner and SEI Holdings
and VRI and their Affiliates shall enter into the Secondment
Agreements in forms satisfactory to the parties at (and subject to the
occurrence of) the First Closing;
(f) the Partnership, the General Partner and SEI Holdings
and VRI and their Affiliates shall enter into the Transfer Restriction
Agreement substantially in the form attached hereto as Exhibit 7.6(f)
at (and subject to the occurrence of) the First Closing;
(g) SEI Holdings, VRI and the Partnership shall enter
into an Indemnity and Contribution Agreement in a form satisfactory to
the parties at (and subject to the occurrence of) the First Closing;
(h) SEI Holdings, SENA and the Partnership shall enter
into the Power Supply Agreement substantially in the form attached
hereto as Exhibit 7.6(h) at (and subject to the occurrence of) the
Second Closing;
(i) VRI or its Affiliates and the Partnership shall enter
into agency, services and gas supply agreements, respecting certain
cogeneration, LDC and other gas contracts, satisfactory to the parties
at (and subject to the occurrence of) the First Closing or Second
Closing as specified on such Exhibit;
(j) SEI Holdings and VRI shall have entered into the
Parent Guaranty of Floor and Put Payments in form satisfactory to the
parties at (and subject to the occurrence of) the First Closing;
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(k) Vastar LP Sub, Southern LP Sub and the Escrow Agent
shall have entered into the Escrow Agreement at (and subject to the
occurrence of) the First Closing;
(l) SEI Holdings, VRI and the Partnership shall enter
into the Confidentiality and Noncompetition Agreement substantially in
the form attached hereto as Exhibit 7.6(l) at (and subject to the
occurrence of) the First Closing; and
(m) SEI Holdings and VRI shall enter into certain parent
guaranties for the benefit of the Partnership or the seller of gas to
the Partnership satisfactory to the parties.
The foregoing are the "Ancillary Agreements."
7.7 PUBLIC ANNOUNCEMENTS. Except as may be required by Applicable
Law or stock exchange rule, neither party hereto nor any of its Affiliates or
parents shall issue any press release or otherwise make any public statement
with respect to this Agreement or the transactions contemplated hereby without
the prior written consent of both VRI and SEI Holdings.
7.8 BROKERAGE. In the event any person shall assert a claim to a
fee, commission or other compensation on account of alleged employment as a
broker or finder, or performance of services as a broker or finder, in
connection with the transactions contemplated by this Agreement or any
transactions prior to this Agreement, the party (or parties) alleged to have
been responsible for such employment or performance of services shall hold
harmless the other party (or parties) as well as the party's directors,
officers and employees, from and against such claim and at the indemnifying
party's (or parties') sole expense defend any and all actions, suits or
proceedings involving such claim that may at any time be brought against those
so indemnified and satisfy promptly any settlement or judgment arising
therefrom. If, however, it is ultimately determined in any action, suit or
proceeding in which the indemnifying party (or parties) were afforded the
opportunity to have their counsel participate in the defense, that the
employment was by or services were performed for the indemnified party (or
parties), then the latter shall be responsible under this Section and shall
reimburse any amounts theretofore paid by the indemnifying party (or parties)
by reason hereof.
7.9 BULK SALES LAWS. Each of the parties hereto waives compliance
by the other parties with any applicable bulk sales or bulk transfer laws in
connection with the transfer of the assets to the Partnership pursuant to this
Agreement.
7.10 NOTIFICATION OF CERTAIN MATTERS.
(a) Until the Second Closing, any party, upon learning of the
same, shall promptly notify the other of any Proceeding which is commenced or
threatened against it and which affects this Agreement or the transactions
contemplated hereby.
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(b) VRI shall give prompt notice to SEI Holdings of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in
Article IV to be untrue or inaccurate in any material respect at or prior to
either the First or Second Closing and (ii) any material failure of VRI to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by VRI hereunder at the time of either the First or Second
Closing. SEI Holdings shall give prompt notice to VRI of (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained in Article V to be
untrue or inaccurate in any material respect at or prior to the First or Second
Closing and (ii) any material failure of SEI Holdings to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by SEI
Holdings hereunder either at the time of either the First or Second Closing.
(c) The delivery of any notice pursuant to this Section shall not
be deemed to (i) modify the representations or warranties hereunder of the
party delivering such notice, (ii) modify the conditions set forth in Articles
VIII and IX or (iii) limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
7.11 ACCESS TO RECORDS AFTER CLOSING. For a period of three years
from and after the Second Closing Date, each party and its representatives
shall have reasonable access to inspect and copy all books and records relating
to the assets or the Businesses transferred to the Partnership hereunder to the
extent that such access may reasonably be required in connection with matters
relating to or affected by the operation of the such assets or its Business
prior to the Second Closing Date. Such access shall be afforded by the
Partnership upon receipt of reasonable advance notice and during normal
business hours. If the Partnership shall desire to dispose of any of such
books and records prior to the expiration of such period, the Partnership
shall, prior to such disposition, give the affected party a reasonable
opportunity, at its expense, to segregate and remove such books and records as
it may select. Each party shall be solely responsible for any costs or
expenses incurred by it pursuant to this Section.
7.12 FEES AND EXPENSES. Except as otherwise expressly provided in
this Agreement, each party hereto shall pay its own fees and expenses
(including (i) its own internal company expenses, including all salaries and
expenses of its employees performing legal or accounting duties and (ii) the
fees and expenses of counsel, financial advisors, accountants and others
engaged by such party) incurred in connection with the negotiation, execution,
delivery and the First Closing and Second Closing hereof. This Agreement and
the transactions contemplated hereby, whether or not any Closing shall have
occurred, except that the parties agree that those transition expenses agreed
to by the parties and one-half of certain employee retention costs (as agreed
to by the parties) shall be borne by the Partnership, and that they shall cause
the Partnership to pay the same.
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7.13 TAXES; OTHER CHARGES.
(a) All sales, use, registration, stamp, property transfer,
transfer and similar Taxes (including any real estate transfer taxes) incurred
in connection with the consummation of the transactions contemplated by this
Agreement shall be borne by the transferring party. VRI and SEI Holdings
mutually agree to cooperate in the filing of all necessary documentation and
returns with respect to all such Taxes.
(b) Subject to the occurrence of the respective Closings, the
parties shall cause the Partnership to pay all real and personal property taxes
attributable to the transferred assets that are due after the respective
Closing Date, whether accruing prior to or after such Closing Date; provided,
however, that each party shall pay to the Partnership with respect to its
assets being transferred, at the time payment of such taxes is made by the
Partnership, all such taxes attributable to any period or periods prior to such
Closing Date and the Partnership shall pay to each party at each Closing Date
the amounts of such taxes, if any, paid by that party or its Affiliates and
attributable to periods after such Closing Date. For the taxable period within
which a Closing Date occurs, the real and personal property taxes attributable
to the portion of the period prior to the respective Closing Date shall be
considered to be the amount of such Taxes for the entire taxable period in
which such Closing Date occurs, multiplied by a fraction, the numerator of
which is the number of days in the portion of such period ending on such
Closing Date and the denominator of which is the number of days in the entire
period.
(c) All utility and other service charges and prepaid rentals and
insurance premiums, relating to the assets transferred to the Partnership
hereunder shall be prorated as between the transferor and the Partnership as of
the respective Closing Date.
7.14 OFFICERS AND DIRECTORS OF GENERAL PARTNER. Effective upon the
First Closing, SEI Holdings and VRI shall cause the members of the General
Partner to elect the persons listed below to be the members of the Board of
Governors of the General Partner:
Board of Governors: Thomas G. Boren
Charles D. Davidson
S. Marce Fuller
Richard J. Pershing
Steven J. Shapiro
W. L. Westbrook, III
7.15 COVENANTS NOT TO COMPETE. The parties shall abide by the
covenants not to compete and confidentiality covenants in the Confidentiality
and Noncompetition Agreement referred to in Section 7.6(l).
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7.16 INSURANCE. SEI Holdings shall use commercially reasonable
best efforts to obtain fire, liability, casualty and other insurance coverage
with respect to the Marketing Business of the Partnership sufficient to satisfy
all material requirements of Applicable Laws and any agreements, arrangements
or understandings to which the Partnership is a party, and which is customary
for businesses of similar size engaged in similar lines of business, effective
on and after the First Closing Date on arm's-length terms acceptable to VRI and
maintain such coverage at the request and expense of the Partnership.
7.17 STAFF SERVICES. The parties each agree that it and its
Affiliates shall provide Staff Services to the Partnership from the First
Closing until the Second Closing on the same terms, conditions, prices, cost
allocations and basis as currently being provided to their respective
Businesses, except that SEI Holdings alone shall be responsible for insurance
coverage as described in Section 7.16. Both parties agree to provide Staff
Services during 1998 at cost. Neither party nor its Affiliates can charge
administrative costs or overhead to the Partnership unless the General Partner
agrees to such charges except as required by the Public Utility Holding Company
Act of 1935, as amended.
7.18 POST-CLOSING. Good Faith estimates of Marked to Market
values, the Working Capital Contribution/Loans, and any other financial or
accounting issue associated with either of the Closings shall be adjusted by
agreement of the parties within 30 days after the respective Closing, and if
the parties are not able to agree within such time, then by determination by a
Big Six accounting firm selected by the unanimous vote of the Board of the
General Partner, the fees and expenses of which shall be paid by the
Partnership (which determination shall be conclusive).
7.19 ASSIGNMENT OF LDC CONTRACTS. VRI shall, and shall cause its
Affiliates to, use commercially reasonable best efforts to obtain all consents
and approvals that are required from third parties.
7.20 AMENDMENT OF DISCLOSURE SCHEDULES. Each party hereto agrees
that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until 24 hours prior to the First Closing to supplement or amend promptly its
respective Disclosure Schedule with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in such Disclosure Schedule,
provided however, that supplements and amendments to such Disclosure Schedules
shall only have to be delivered at the First Closing Date if they involve an
amount in excess of $100,000. For all purposes of this Agreement, including
for purposes of determining whether the conditions set forth in Articles VIII
and IX have been fulfilled, the Disclosure Schedules hereto shall be deemed to
be the Disclosure Schedules as amended or supplemented pursuant to this Section
7.20. Notwithstanding the foregoing sentence, no amendment or supplement to a
disclosure schedule prepared by a party that constitutes or reflects an event
or occurrence that would have any changes thereon that are less favorable to
the Partnership or other party by an amount in excess of $500,000 may be made
unless the other party consents to such
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amendment or supplement. If the other party does not consent to the amendment
or supplement referred to in the preceding sentence, the other party may
terminate this Agreement or require that the Closing take place without the
amendment to such Disclosure Schedule, unless the first party offers to make
the Partnership whole in a reasonably satisfactory manner.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF VRI
8.1 CONDITIONS TO FIRST CLOSING. The obligations of VRI to
consummate the transactions contemplated by this Agreement at the First Closing
shall be subject to the fulfillment on or prior to the First Closing Date of
each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. All the representations
and warranties of SEI Holdings contained in this Agreement, and in any
agreement, instrument or document delivered pursuant hereto on or prior to the
First Closing Date, shall be true and correct in all material respects as of
the date made and (having been deemed to have been made again on and as of the
First Closing Date in the same language) shall be true and correct in all
material respects on and as of the First Closing Date.
(b) COVENANTS AND AGREEMENTS PERFORMED. SEI Holdings shall have
performed and complied with, in all material respects, all covenants and
agreements required by this Agreement to be performed or complied with by it.
(c) CERTIFICATES. VRI shall have received certificates executed
by an officer of SEI Holdings, dated such Closing Date, representing and
certifying, in such detail as VRI may reasonably request, that the conditions
set forth in Sections 8.1(a) and 8.1(b) have been fulfilled.
(d) LEGAL PROCEEDINGS. No preliminary or permanent injunction or
other order, decree or ruling issued by a Governmental Entity, and no statute,
rule, regulation or executive order promulgated or enacted by a Governmental
Entity, shall be in effect (i) that restrains, enjoins, prohibits or otherwise
makes illegal the consummation of the transactions contemplated hereby or (ii)
that would impose any material limitation on the ability of the Partnership
effectively to exercise full rights of ownership of the businesses and assets
to be acquired by the Partnership hereunder. No Proceeding before a
Governmental Entity shall be pending (i) seeking to restrain or prohibit the
consummation of the transactions contemplated hereby or (ii) that could
reasonably be expected, if adversely determined, to impose any material
limitation on the ability of the Partnership effectively to exercise full
rights of ownership of the businesses and assets to be acquired by the
Partnership hereunder.
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(e) CONSENTS. All consents, approvals and waivers of, and all
declarations, filings and registrations with, Governmental Entities required
for the consummation of the transactions contemplated hereby, and all consents,
approvals and waivers of third parties required for the transfer of the Vastar
Gas Assets and the SETM Gas Assets and the respective Gas Businesses to the
Partnership hereunder at such Closing, shall have been obtained or made and
shall be in full force and effect at the time of such Closing or the
Partnership shall be entitled to substantially the same economic benefits of
any contract for which consent to transfer has not been obtained under one of
the agreements referred to in Section 7.6(i). VRI acknowledges that some
owners of Software may not consent to transfer of their Software and licenses
to the Partnership and may require that the Partnership purchase new licenses,
and if so, such event shall not constitute a failure to obtain a consent
hereunder unless the cost of such new license, would in the aggregate exceed
$100,000.
(f) NO MATERIAL ADVERSE CHANGE. Since the date hereof, there
shall not have been any material adverse change in the business, assets,
results of operations, condition (financial or otherwise) or prospects of the
SETM Business to be transferred hereunder at or after the First Closing or the
ownership or operation of the SETM Gas Assets to be transferred hereunder at or
after such Closing.
(g) DELIVERIES. SEI Holdings and its Affiliates shall have made
the deliveries required at the First Closing by Section 3.2-A, the General
Partner shall have made the deliveries required by Section 3.3-A, and the
Partnership shall have made the deliveries required by Section 3.4-A, as the
case may be.
(h) CERTAIN ANCILLARY AGREEMENTS. The Ancillary Agreements
referred to in Section 7.6 to be executed and delivered as of the First Closing
shall have been executed and delivered by all parties thereto other than VRI
and its Affiliates and parent. Furthermore, the Partnership or an Affiliate
shall have entered into an agreement with SEI Holdings with respect to retail
residential and small commercial and industrial (mass market) customers, in a
form acceptable to VRI and SEI Holdings.
(i) RELEASE OF LIENS AND ENCUMBRANCES. All liens and encumbrances
on the SETM Business Assets to be transferred at the First Closing other than
Permitted Encumbrances shall have been fully released.
8.2 CONDITIONS TO SECOND CLOSING. The obligations of VRI to
consummate transactions contemplated by this Agreement at the Second Closing
shall be subject to the fulfillment on or prior to the Second Closing Date of
each of the following conditions:
(a) COVENANTS AND AGREEMENTS PERFORMED. SEI Holdings shall have
performed and complied with, in all material respects, all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Second Closing Date.
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(b) CERTIFICATES. VRI shall have received certificates executed
by an officer of SEI Holdings, dated such Closing Date, representing and
certifying, in such detail as VRI may reasonably request, that the conditions
set forth in Section 8.2(a) have been fulfilled.
(c) LEGAL PROCEEDINGS. No preliminary or permanent injunction or
other order, decree or ruling issued by a Governmental Entity, and no statute,
rule, regulation or executive order promulgated or enacted by a Governmental
Entity, shall be in effect (i) that restrains, enjoins, prohibits or otherwise
makes illegal the consummation of the transactions contemplated hereby or (ii)
that would impose any material limitation on the ability of the Partnership
effectively to exercise full rights of ownership of the businesses and assets
to be acquired by the Partnership hereunder. No Proceeding before a
Governmental Entity shall be pending (i) seeking to restrain or prohibit the
consummation of the transactions contemplated hereby or (ii) that could
reasonably be expected, if adversely determined, to impose any material
limitation on the ability of the Partnership effectively to exercise full
rights of ownership of the businesses and assets to be acquired by the
Partnership hereunder.
(d) CONSENTS. All consents, approvals and waivers of, and all
declarations, filings and registrations with, Governmental Entities required
for the consummation of the transactions contemplated hereby, and all consents,
approvals and waivers of third parties required for the transfer of the Vastar
Power Assets and the SETM Power Assets and the respective Power Businesses to
the Partnership hereunder at such Closing, shall have been obtained or made and
shall be in full force and effect at the time of such Closing or the
Partnership shall be entitled to substantially the same economic benefits of
any contract for which consent to transfer has not been obtained under one of
the agreements referred to it in Section 7.6(i).
(e) DELIVERIES. SEI Holdings and its Affiliates shall have made
the deliveries required to be made at the Second Closing by Section 3.2-B, the
General Partner shall have made the deliveries required by Section 3.3-B and
the Partnership shall have made the deliveries required by Section 3.4-B, as
the case may be.
(f) CERTAIN ANCILLARY AGREEMENTS. The Ancillary Agreements
referred to in Section 7.6 to be executed and delivered as of the Second
Closing shall have been executed and delivered by all parties thereto other
than VRI and its Affiliates.
(g) RELEASE OF LIENS AND ENCUMBRANCES. All liens and encumbrances
on the SETM Power Assets to be transferred at the Second Closing other than
Permitted Encumbrances shall have been fully released.
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ARTICLE IX
CONDITIONS TO OBLIGATIONS OF SEI HOLDINGS
9.1 CONDITIONS TO FIRST CLOSING. The obligations of SEI Holdings
to consummate the transactions contemplated by this Agreement shall be subject
to the fulfillment on or prior to the First Closing Date of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. All the representations
and warranties of VRI contained in this Agreement, and in any agreement,
instrument or document delivered pursuant hereto on or prior to such Closing
Date, shall be true and correct in all material respects as of the date made
and (having been deemed to have been made again on and as of the First Closing
Date in the same language) shall be true and correct in all material respects
on and as of the First Closing Date.
(b) COVENANTS AND AGREEMENTS PERFORMED. VRI shall have performed
and complied with, in all material respects, all covenants and agreements
required by this Agreement to be performed or complied with by it on or prior
to such Closing Date.
(c) CERTIFICATES. SEI Holdings shall have received certificates
executed by an officer of VRI, dated such Closing Date, representing and
certifying, in such detail as SEI Holdings may reasonably request, that the
conditions set forth in Sections 9.1(a) and 9.1(b) have been fulfilled.
(d) LEGAL PROCEEDINGS. No preliminary or permanent injunction or
other order, decree or ruling issued by a Governmental Entity, and no statute,
rule, regulation or executive order promulgated or enacted by a Governmental
Entity, shall be in effect (i) that restrains, enjoins, prohibits or otherwise
makes illegal the consummation of the transactions contemplated hereby or (ii)
that would impose any material limitation on the ability of the Partnership
effectively to exercise full rights of ownership of the businesses and assets
to be acquired by the Partnership hereunder. No Proceeding before a
Governmental Entity shall be pending (i) seeking to restrain or prohibit the
consummation of the transactions contemplated hereby or (ii) that could
reasonably be expected, if adversely determined, to impose any material
limitation on the ability of the Partnership effectively to exercise full
rights of ownership of the businesses and assets to be acquired by the
Partnership hereunder.
(e) CONSENTS. All consents, approvals and waivers of, and all
declarations, filings and registrations with, Governmental Entities required
for the consummation of the transactions contemplated hereby, and all consents,
approvals and waivers of third parties required for the transfer of the Vastar
Gas Assets and the SETM Gas Assets and the respective Gas Businesses, to the
Partnership hereunder at such Closing, shall have been obtained or made and
shall be in full force and effect at the time of such Closing or the
Partnership shall be entitled to substantially the same economic benefits of
any contract for which consent to transfer has not been obtained under one of
the agreements referred to in Section 7.6(i). SEI Holdings acknowledges that
some owners of
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Software may not consent to transfer of their Software and licenses to the
Partnership and may require that the Partnership purchase new licenses, and if
so, such event shall not constitute a failure to obtain a consent hereunder
unless the cost of such new license, would in the aggregate exceed $100,000.
(f) NO MATERIAL ADVERSE CHANGE. Since the date hereof, there
shall not have been any material adverse change in the business, assets,
results of operations, condition (financial or otherwise) or prospects of the
Vastar Marketing Business or the ownership or operation of the Vastar Gas
Assets to be transferred hereunder at or after the First Closing.
(g) DELIVERIES. VRI and its Affiliates shall have made the
deliveries required at the First Closing by Section 3.1-A, the General Partner
shall have made the deliveries required by Section 3.3-A, and the Partnership
shall have made the deliveries required by Section 3.4-A, as the case may be.
(h) CERTAIN ANCILLARY AGREEMENTS. The Ancillary Agreements
referred to in Section 7.6 to be executed and delivered at the First Closing
shall have been executed and delivered by all parties thereto other than SEI
Holdings and its Affiliates and parent. Furthermore, the Partnership or an
Affiliate shall have entered into an agreement with SEI Holdings with respect
to retail residential small commercial and industrial (mass market) customers,
in a form acceptable to VRI and SEI Holdings.
(i) RELEASE OF LIENS AND ENCUMBRANCES. All liens and
encumbrances, on the Vastar Gas Assets to be transferred at the First Closing
other than Permitted Encumbrances shall have been fully released.
(j) PERSONNEL. SEI Holdings shall be satisfied, in its reasonable
discretion, that the traders, marketers, asset managers, schedulers, contract
administrators and other personnel of the Vaster Marketing business which have
(as of the First Closing Date) agreed to become employees, of the Partnerhsip
represent a sufficient personnel base for the Partnerhsip to thereafter
continue to conduct and to expand the Marketing Business in substantially the
same manner as conducted prior to the First Closing.
9.2 CONDITIONS TO SECOND CLOSING. The obligations of SEI Holdings
to consummate the transactions contemplated by this Agreement at the Second
Closing shall be subject to the fulfillment on or prior to the Second Closing
Date of each of the following conditions:
(a) COVENANTS AND AGREEMENTS PERFORMED. VRI shall have performed
and complied with, in all material respects, all covenants and agreements
required by this Agreement to be performed or complied with by it on or prior
to the Second Closing Date.
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(b) CERTIFICATES. SEI Holdings shall have received certificates
executed by an officer of VRI, dated such Closing Date, representing and
certifying, in such detail as SEI Holdings may reasonably request, that the
conditions set forth in Section 9.2(a) have been fulfilled.
(c) LEGAL PROCEEDINGS. No preliminary or permanent injunction or
other order, decree or ruling issued by a Governmental Entity, and no statute,
rule, regulation or executive order promulgated or enacted by a Governmental
Entity, shall be in effect (i) that restrains, enjoins, prohibits or otherwise
makes illegal the consummation of the transactions contemplated hereby or (ii)
that would impose any material limitation on the ability of the Partnership
effectively to exercise full rights of ownership of the businesses and assets
to be acquired by the Partnership hereunder. No Proceeding before a
Governmental Entity shall be pending (i) seeking to restrain or prohibit the
consummation of the transactions contemplated hereby or (ii) that could
reasonably be expected, if adversely determined, to impose any material
limitation on the ability of the Partnership effectively to exercise full
rights of ownership of the businesses and assets to be acquired by the
Partnership hereunder.
(d) CONSENTS. All consents, approvals and waivers of, and all
declarations, filings and registrations with, Governmental Entities required
for the consummation of the transactions contemplated hereby, and all consents,
approvals and waivers of third parties required for the transfer of the Vastar
Power Assets and the SETM Power Assets and the respective Power Businesses to
the Partnership hereunder at such Closing, shall have been obtained or made and
shall be in full force and effect at the time of such Closing or the
Partnership shall be entitled to substantially the same economic benefits of
any contract for which consent to transfer has not been obtained under one of
the agreements referred to it in Section 7.6(i).
(e) DELIVERIES. VRI and its Affiliates shall have made the
deliveries required to be made at the Second Closing by Section 3.1-B, the
General Partner shall have made the deliveries required by Section 3.3-B and
the Partnership shall have made the deliveries required by Section 3.4-B, as
the case may be.
(f) CERTAIN ANCILLARY AGREEMENTS. The Ancillary Agreements
referred to in Section 7.6 to be executed and delivered as of the Second
Closing shall have been executed and delivered by all parties thereto other
than SEI Holdings and its Affiliates.
(g) RELEASE OF LIENS AND ENCUMBRANCES. All liens and
encumbrances, on the Vastar Power Assets to be transferred at the Second
Closing other than Permitted Encumbrances shall have been fully released.
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ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Second
Closing in the following manner:
(a) by mutual written consent of VRI and SEI Holdings; or
(b) by either VRI or SEI Holdings if the First Closing shall not
have occurred on or before October 1, 1997, or if the Second Closing shall not
have occurred on or before July 1, 1998, unless such failure to close shall be
due to a breach of this Agreement by the party seeking to terminate this
Agreement pursuant to this clause (b); or
(c) by either VRI or SEI Holdings, if there shall be any statute,
rule or regulation that makes consummation of the transactions contemplated
hereby illegal or otherwise prohibited or a Governmental Entity (i) shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated hereby, and such order, decree, ruling or other action shall have
become final and nonappealable or (ii) shall have made any order, decree,
ruling or other action consenting to or approving consummation of the
transactions contemplated hereby contingent or conditional in any manner that
has a Material Adverse Effect on the business of the Partnership, such party
and its Affiliates taken as a whole; or
(d) by VRI, if there has been any violation or breach by SEI
Holdings of any representation, warranty, covenant or agreement contained in
this Agreement that has rendered the satisfaction of any condition to the
obligations of VRI set forth in Article VIII impossible and such violation or
breach has not been waived by VRI or if any other event shall occur that shall
render the satisfaction of any such condition to the obligations of VRI
impossible and such condition has not been waived by VRI; or
(e) by SEI Holdings, if there has been a violation or breach by
VRI of any representation, warranty, covenant or agreement contained in this
Agreement that has rendered the satisfaction of any condition to the
obligations of SEI Holdings set forth in Article IX impossible and such
violation or breach has not been waived by SEI Holdings or if any other event
shall occur that shall render the satisfaction of any such condition to the
obligations of SEI Holdings impossible and such condition has not been waived
by SEI Holdings.
10.2 EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement pursuant to
Section 10.1 by VRI or SEI Holdings, written notice thereof shall forthwith be
given to the other party specifying the
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provision hereof pursuant to which such termination is made, and this Agreement
shall become void and have no effect, except that the agreements contained in
this Section 10.2 and in Sections 7.1(c), 7.7, 7.8, 7.12 and 10.5 and Articles
XI and XII shall survive the termination hereof. Nothing contained in this
Section shall relieve any party from liability for any breach of this
Agreement.
(b) In the event a termination of this Agreement as set forth
above shall have occurred after the First Closing Date, then the First Closing
shall be unwound as follows:
(i) the parties shall cause the General Partner and the
Partnership
(x) to transfer to VRI or its designees (A) all
assets, personnel and liabilities associated with the natural
gas trading and marketing business of the Partnership
(including the Gas Purchase and Sale Agreement referred to in
Section 7.6(a)) originally transferred from VRI and its
Affiliates (but not those originally transferred from SEI
Holdings and its Affiliates), (B) all rights to, and to
require the contribution of, the Vastar Power Business, the
Vastar Power Assets and the LDC Contracts, and (C) all
portions of combined gas and power business allocated to it by
agreement of the parties hereto and
(y) to transfer to SEI Holdings or its designees
(A) all assets, personnel and liabilities associated with the
natural gas trading and marketing business, originally
transferred from SEI Holdings and its Affiliates (but not
those originally transferred from VRI and its Affiliates), (B)
all rights to, and to require the contribution of, the SETM
Power Business and the SETM Power Assets, and (C) all portions
of combined gas and power business allocated to it by
agreement of the parties hereto;
(ii) the parties shall cause the Partnership and the
General Partner to terminate and dissolve and to distribute any
remaining net assets in accordance with the then applicable Southern
Percentage and Vastar Percentage with respect to the Partnership and
the General Partner; and
(iii) thereafter, VRI and SEI Holdings shall cause Vastar
LP Sub and Southern LP Sub, respectively, shall cause the Escrow Agent
to refund (without interest) the $40,000,000 received for the Sale of
Partial Interest to Southern LP Sub or its designee.
10.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of both VRI and SEI Holdings.
10.4 WAIVER. Each of VRI and SEI Holdings may (i) waive any
inaccuracies in the representations and warranties of the other and the other's
Affiliates contained herein or in any document, certificate or writing
delivered pursuant hereto, (ii) waive compliance by the other and
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the other's Affiliates with any of the agreements of the other and the other's
Affiliates contained herein and (iii) waive fulfillment of any conditions to
its own and its Affiliate's or Affiliates' obligations contained herein. Any
agreement on the part of a party hereto to any such waiver shall be valid only
if set forth in an instrument in writing signed by or on behalf of such party.
No failure or delay by a party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
10.5 REMEDIES NOT EXCLUSIVE. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law. The rights and remedies of any party based upon, arising out
of or otherwise in respect of any inaccuracy in or breach of any
representation, warranty, covenant or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
10.6 NO SPECIAL OR CONSEQUENTIAL DAMAGES. NO PARTY SHALL BE
ENTITLED TO RECOVER SPECIAL OR CONSEQUENTIAL DAMAGES FROM THE OTHER PARTIES,
AND EACH PARTY HEREBY WAIVES ANY CLAIM OR RIGHT TO SPECIAL, CONSEQUENTIAL,
EXEMPLARY OR PUNITIVE DAMAGES HEREUNDER, EVEN IF CAUSED BY THE ACTIVE, PASSIVE,
SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY, OR OTHER
FAULT OF ANY PARTY.
ARTICLE XI
INDEMNIFICATION;
SURVIVAL OF REPRESENTATIONS
11.1 INDEMNIFICATION OBLIGATIONS OF VRI. From and after the First
Closing, VRI shall indemnify the Partnership or SEI Holdings, as the case may
be and hold it harmless on a Net After-Tax Basis against and in respect of any
and all "Losses", (defined herein to be any and all losses, damages,
liabilities, claims, costs and expenses (including, without limitation, Legal
Expenses), but excluding losses in connection with lost profits or punitive or
consequential damages), arising out of, based upon or resulting from:
(a) the breach of any representation or warranty of VRI or any of
its Affiliates contained in this Agreement or any of the Ancillary Agreements
or Instruments of Conveyance;
(b) the breach by VRI or any of its Affiliates of, or failure of
VRI or any of its Affiliates to observe or perform in any material respect any
of, its covenants or agreements contained in this Agreement or any of the
Ancillary Agreements or Instruments of Conveyance;
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(c) any liability or obligation of or attributable to VRI, Vastar
Holdings, VGM, VPM or, with respect to periods prior to the respective Closing
as of which transferred, the Vastar Business Assets other than the Assumed
Contracts and Liabilities;
(d) the ownership, management or use of the Vastar Business Assets
prior to the respective Closing as of which transferred and the conduct of the
Vastar Marketing Business prior to the respective Closing as of which
transferred; and
(e) any litigation arising out of or in connection with the Vastar
Marketing Business or the Vastar Business Assets in connection with events
occurring prior to the respective Closing as of which transferred; provided
that VRI shall not have any obligation to indemnify the Partnership or SEI
Holdings under this Section 11.1 unless and until the aggregate amount of all
Losses exceeds $100,000 (regardless of whether, in the case of third party
actions, suits or proceedings with respect to any of the foregoing, VRI may
have a meritorious defense).
11.2 INDEMNIFICATION OBLIGATIONS OF SEI HOLDINGS. From and after
the First Closing, SEI Holdings shall indemnify the Partnership or VRI, as the
case may be and hold it harmless on a Net After-Tax Basis against and in
respect of any and all Losses, arising out of, based upon or resulting from:
(a) the breach of any representation or warranty of SEI Holdings
contained in this Agreement or any of the Ancillary Agreements or Instruments
of Conveyance;
(b) the breach by SEI Holdings or any of its Affiliates of, or
failure of SEI Holdings or any of its Affiliates to observe or perform in any
material respect any of, its covenants or agreements contained in this
Agreement or any of the Ancillary Agreements or Instruments of Conveyance;
(c) any liability or obligation of or attributable to SEI Holdings
or, with respect to the period prior to the respective Closing as of which
transferred, the SETM Business Assets, other than the Assumed Contracts and
Liabilities;
(d) the ownership, management or use of the SETM Business Assets
prior to the respective Closing as of which transferred and the conduct of the
SETM Business prior to the respective Closing as of which transferred; and
(e) any litigation arising out of or in connection with the SETM
Business or the SETM Business Assets in connection with events occurring prior
to the respective Closing as of which transferred; provided that SEI Holdings
shall not have any obligation to indemnify the Partnership or VRI under this
Section 11.2 unless and until the aggregate amount of all Losses exceeds
$100,000 (regardless of whether, in the case of third party actions, suits or
proceedings with respect to any of the foregoing, SEI Holdings may have a
meritorious defense).
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11.3 INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by any person entitled to
indemnification under Section 11.1 or 11.2 (an "indemnified party") of notice
of the commencement of any action, suit or proceeding by a person not a party
to this Agreement in respect of which the indemnified party will seek
indemnification hereunder (a "Third Party Action"), the indemnified party shall
notify the person that is obligated to provide such indemnification (an
"indemnifying party") thereof in writing, but any failure to so notify the
indemnifying party shall not relieve it from any liability that it may have to
the indemnified party under Section 11.1 or 11.2, except to the extent that the
indemnifying party is prejudiced by the failure to give such notice. The
indemnifying party shall be entitled to participate in the defense of such
Third Party Action and to assume control of such defense with counsel
reasonably satisfactory to such indemnified party; provided, however, that:
(i) the indemnified party shall be entitled to
participate in the defense of such Third Party Action and to employ
counsel at its own expense to assist in the handling of such Third
Party Action;
(ii) the indemnifying party shall obtain the prior written
approval of the indemnified party before entering into any settlement
of such Third Party Action or ceasing to defend against such Third
Party Action, if pursuant to or as a result of such settlement or
cessation, injunctive or other equitable relief would be imposed
against the indemnified party or the indemnified party would be
adversely affected thereby;
(iii) no indemnifying party shall consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to
each indemnified party of a release from all liability in respect of
such Third Party Action; and
(iv) the indemnifying party shall not be entitled to
control the defense of any Third Party Action unless within 15 days
after receipt of such written notice from the indemnified party the
indemnifying party confirms in writing its responsibility to indemnify
the indemnified party with respect to such Third Party Action and
reasonably demonstrates that it will be able to pay the full amount of
the reasonably expected Losses in connection with any such Third Party
Action.
After written notice by the indemnifying party to the indemnified
party of its election to assume control of the defense of any such Third Party
Action in accordance with the foregoing and compliance by the indemnifying
party with Section 11.3(a)(iv), (i) the indemnifying party shall not be liable
to such indemnified party hereunder for any Legal Expenses subsequently
incurred by such indemnified party attributable to defending against such Third
Party Action, and (ii) as long as the indemnifying party is reasonably
contesting such Third Party Action in good faith, the indemnified party shall
not admit any liability with respect to, or settle, compromise or discharge the
claim
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underlying, such Third Party Action without the indemnifying party's prior
written consent. If the indemnifying party does not assume control of the
defense of such Third Party Action in accordance with this Section 11.3, the
indemnified party shall have the right to defend and/or settle such Third Party
Action in such manner as it may deem appropriate at the cost and expense of the
indemnifying party, and the indemnifying party will promptly reimburse the
indemnified party therefor in accordance with this Article XI. The
reimbursement of fees, costs and expenses required by this Article XI shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
(b) If the indemnifying party shall be obligated to indemnify the
indemnified party pursuant to this Article XI, the indemnifying party shall,
upon payment of such indemnity in full, be subrogated to all rights of the
indemnified party with respect to the claims to which such indemnification
relates. If an indemnified party becomes entitled to any indemnification from
an indemnifying party, such indemnification shall be made in cash upon demand.
(c) The right of indemnification pursuant to this Article XI shall
constitute the sole and exclusive remedy of each of the parties to this
Agreement for a breach of any representation or warranty by another party
contained in this Agreement or in any statement or certification furnished
pursuant to this Agreement. So long as a claim for indemnification pursuant to
this Article XI is being contested in good faith by the indemnifying party or
such claim shall otherwise remain unliquidated, such claim shall not affect any
of the rights of the indemnifying party under the Partnership Agreement,
including any right to current distributions by the Partnership.
11.4 SURVIVAL. All covenants and agreements contained in this
Agreement shall survive (and not be affected in any respect by) either Closing,
any investigation conducted by any party hereto and any information which any
party may receive. The right to indemnification:
(a) with respect to all representations and warranties contained
in this Agreement with the exception of those representations and warranties
contained in Sections 4.10, 4.22, 5.10 and 5.22 of this Agreement, shall
survive for one year after the date of the audit for the first full fiscal year
of the Partnership; and
(b) with respect to the representations and warranties contained
in Sections 4.10, 4.22, 5.10 and 5.22 of this Agreement, shall survive until
the applicable statute of limitations as extended has run; provided that, in
each case there shall be no termination of any such representation or warranty
as to which a bona fide claim has been asserted prior to the termination of
such survival period.
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ARTICLE XII
MISCELLANEOUS
12.1 NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made hereunder by any party
hereto shall be in writing, and shall be delivered either personally, or by
registered or certified mail (postage prepaid and return receipt requested) or
by express courier or delivery service, or by telegram, telefax, telex or
similar facsimile means, to the parties, at the addresses (or at such other
addresses as shall be specified by the parties by like notice) set forth below:
(i) if to any of the Southern Company Parties:
SEI Holdings, Inc.
900 Ashwood Parkway
Suite 500
Atlanta, Georgia 30338-4780
Attn: Chief Financial Officer
Facsimile: 770-379-7001
Telephone: 770-379-7000
with a copy to:
Southern Energy, Inc.
900 Ashwood Parkway
Suite 500
Atlanta, Georgia 30338-4780
Attn: Senior Vice President - North American Division
Facsimile: 770-379-7001
Telephone: 770-379-7000
(ii) if to any of the Vastar Parties:
Vastar Resources, Inc.
15375 Memorial Drive
Houston, Texas 77079
Attn: Chief Financial Officer
Facsimile: 281-584-6519
Telephone: 281-584-6000
Notices and other communications shall be deemed given or made (i) when
received, if sent by telegram, telefax, telex or similar facsimile means
(confirmation of such receipt by confirmed
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facsimile transmission being deemed receipt of communications sent by telefax,
telex or similar facsimile means) and (ii) when delivered and receipted for (or
upon the date of attempted delivery where delivery is refused), if hand-
delivered, sent by registered or certified mail or sent by express courier or
delivery service, except in the case of facsimile transmissions received after
the normal close of business at the receiving location, which shall be deemed
given on the next Business Day.
12.2 ENTIRE AGREEMENT. This Agreement and the documents referred
to herein, together with the Schedules and Exhibits hereto (where applicable,
as executed and delivered), constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
12.3 BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFIT. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any party hereto without the prior written consent of the other parties, and
any purported assignment without such consent shall be void. Except as
provided in Article XI, nothing in this Agreement, express or implied, is
intended to or shall confer upon any person other than the parties hereto and
the Partnership, and their respective successors and permitted assigns, any
rights, benefits or remedies of any nature whatsoever under or by reason of
this Agreement.
12.4 SEVERABILITY. If any provision of this Agreement is held to
be unenforceable, this Agreement shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and in all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by Applicable Law.
12.5 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
without regard to the principles of conflicts of laws of such state.
12.6 FURTHER ASSURANCES. From time to time following the First
Closing, at the request of any party hereto and without further consideration,
the other parties shall execute and deliver to such requesting party such
instruments and documents and take such other action as such requesting party
may reasonably request or as may be otherwise necessary to (i) more fully and
effectively transfer to, and vest in, the Partnership, and put the Partnership
in possession of, any part of the Vastar Business Assets and the SETM Business
Assets, (ii) enable the Partnership to assume and fully and timely perform in
accordance with their terms any or all of the Assumed Contracts and
Liabilities, (iii) enable the Partnership to continue the Vastar Marketing
Business and the SETM Business, and (iv) otherwise consummate more fully and
effectively the transactions contemplated by this Agreement and the Ancillary
Agreements.
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12.7 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only, do not constitute a part of this
Agreement and shall not affect in any manner the meaning or interpretation of
this Agreement.
12.8 COUNTERPARTS. This Agreement may be executed by the parties
hereto in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same agreement.
12.9 DISPUTE RESOLUTION; ARBITRATION. The procedures for dispute
resolution under this Agreement ("Alternate Dispute Resolution") shall be as
follows:
(a) Except as otherwise provided in Section 7.18, the parties
agree that any controversy or claim arising out of or relating to this
Agreement or the breach hereof that cannot be settled by agreement of the
parties within 30 days shall first be submitted to the Board of Governors of
the General Partner for consideration. If the controversy or claim cannot be
settled by unanimous vote of such Board of Governors (as defined in the Limited
Liability Company Agreement) within an additional 30 days, it shall be subject
to arbitration as described in Section 12.9(b) below ("Alternate Dispute
Resolution").
(b) Except as provided above in Section 7.18 or Section 12.9(a),
any controversy or claim arising out of or relating to this Agreement, or the
breach hereof, (or, except as otherwise provided therein, relating to any of
the Partnership Agreement, the Limited Liability Company Agreement or any of
the Ancillary Agreements, or the breach thereof) shall be settled by
arbitration administered by the JAMS/Endispute, Inc. ("JAMS") under the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration proceedings shall be conducted in Memphis, Tennessee. Any dispute
submitted for arbitration shall be referred to a panel of three arbitrators.
The party or parties submitting the intention to arbitrate (the "Demand") shall
nominate one arbitrator, who shall be independent of the party or parties
nominating him. The party or parties required to answer the Demand shall
nominate one arbitrator, who shall be independent of the party or parties
nominating him. If the arbitrator chosen by the party or parties submitting
the Demand and the arbitrator chosen by the party or parties answering the
Demand can agree upon a neutral arbitrator within seven days of submission to
the JAMS of the answer to the Demand, then such individual shall serve as the
third arbitrator. If no such agreement is reached, the third arbitrator shall
be appointed by the JAMS. The arbitration award shall be final and binding on
the parties and shall be enforced in accordance with its terms. The
arbitration award shall be enforceable by any court having jurisdiction over
the party against which the award has been rendered.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
VASTAR RESOURCES, INC. SEI HOLDINGS, INC.
By: /s/ CHARLES D. DAVIDSON By: /s/ S. MARCE FULLER
-------------------------- ---------------------------
Name: Charles D. Davidson Name: S. Marce Fuller
Title: President and Chief Title: Assistant Secretary
Executive Officer
<PAGE> 1
<TABLE>
<CAPTION>
VASTAR RESOURCES, INC.
EXHIBIT 12
STATEMENT SETTING FORTH DETAIL OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
For the six
months ended
June 30,
-------------
(Millions of dollars) 1997 1996
except ratio amounts) ----- -----
<S> <C> <C>
Income from continuing operations
before income taxes, minority
interest and cumulative effect of
change in accounting principle(1)......$123.8 $107.3
Fixed Charges:
Interest expense charged to income,
and portion of rentals
representative of interest(2)........... 24.4 25.7
Capitalized Interest................. --- ---
------ ------
Total fixed charges..................... 24.4 25.7
------ ------
Earnings (1) + (2) $148.2 $133.0
====== ======
Ratio of earnings to fixed charges 6.1 5.2
====== ======
</TABLE>
The Company has no issuances of preferred stock.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Vastar Resources, Inc.: Financial Data Schedule as of the six months
ending June 30, 1997. This schedule contains summary financial informa-
tion extracted from the Consolidated Statement of Income and the
Consolidated Balance Sheet and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 17,400
<SECURITIES> 0
<RECEIVABLES> 296,500
<ALLOWANCES> 0
<INVENTORY> 13,000
<CURRENT-ASSETS> 374,400
<PP&E> 4,831,300
<DEPRECIATION> 3,447,000
<TOTAL-ASSETS> 1,758,700
<CURRENT-LIABILITIES> 326,600
<BONDS> 643,300
0
0
<COMMON> 1,000
<OTHER-SE> 399,000
<TOTAL-LIABILITY-AND-EQUITY> 1,758,700
<SALES> 498,400
<TOTAL-REVENUES> 513,500
<CGS> 237,200
<TOTAL-COSTS> 334,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,400
<INCOME-PRETAX> 123,800
<INCOME-TAX> 2,600
<INCOME-CONTINUING> 121,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,200
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
