SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of
earliest event reported).........................June 6, 1996
TEJAS GAS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-17389 76-0263364
(Commission File Number) (I.R.S. Employer
Identification Number)
1301 McKinney, Suite 700
Houston, Texas 77010
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number
including area code: (713) 658-0509
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 6, 1996, Tejas Gas Corporation ("Tejas") acquired Transok, Inc.
("Transok") from Central and South West Corporation ("CSW") through a merger of
a recently formed wholly owned subsidiary of Tejas into Transok pursuant to an
Agreement of Merger dated May 9, 1996, between Tejas and CSW, as amended (the
"Merger Agreement"). The Merger Agreement is filed as Exhibit 2(a)to this
Current Report on Form 8-K and is incorporated herein by reference. Immediately
prior to the acquisition, Transok sold seven gas processing plants (the "Transok
Plants")to a third-party lessor (the"Lessor") which in turn leased these
facilities to Tejas pursuant to a Lease Agreement dated June 6, 1996 (the
"Lease"). The Lease and related documentation are filed as Exhibits 2(b) and
2(c) to this Form 8-K and are incorporated herein by reference.
Transok, which was founded in 1955, operates intrastate natural gas
pipeline systems in Oklahoma, Louisiana and Texas and is the largest processor
of natural gas in Oklahoma. Transok's operations include (i) more than 6,500
miles of gathering and transmission pipelines in Oklahoma, Louisiana and Texas
with 2.3 billion cubic feet ("BCF") per day of pipeline capacity; (ii) eight
operating processing plants, of which seven are leased, with total capacity of
564 million cubic feet per day ("Mmcf/d") of natural gas; (iii) a 26
BCF-capacity natural gas reservoir storage facility with 300 Mmcf/d of
withdrawal and 200 Mmcf/d of injection capacity; and (iv) 1.4 trillion cubic
feet of connected third-party natural gas reserves. Transok's average system
throughput was 1.3 BCF per day during the first quarter of 1996 and 1.4 BCF per
day in 1995. Liquids production was 25,100 barrels per day during the first
quarter of 1996 and 22,400 barrels per day in 1995.
The total purchase price received by CSW at closing was $690 million in
cash of which $565 million was paid by Tejas and $125 million was paid by the
Lessor to acquire the Transok Plants. In addition, Transok had outstanding at
the time of the acquisition $200 million principal amount of medium-term notes,
which remained in place following the merger. Tejas' financing for its cash
requirements consisted of (i) $178 million borrowed under an existing credit
facility of a wholly-owned Tejas subsidiary and (ii) $387 million, net of a
voluntary prepayment, borrowed under a new $425 million credit facility arranged
by Bank of Montreal and Canadian Imperial Bank of Commerce. The Lessor is
leasing the Transok Plants to Tejas for a five-year term with annual lease
payments of approximately $9 million. The Lease may be extended by Tejas for up
to two two-year terms with the approval of the Lessor and provides Tejas the
option to purchase the Transok Plants during the term. The option to purchase
all of the Transok Plants is exercisable for $125 million. If such purchase
option is not exercised, Tejas will be obligated to pay the Lessor a termination
fee of approximately $106 million at the end of the Lease. However, such fee
will be reduced by the excess, if any, of the proceeds from the Lessor's sale of
the assets over $19 million. The Lease also provides Tejas the option at any
time during the term to purchase such number of the Transok Plants as may be
purchased for an amount not exceeding approximately $31 million, with
corresponding reductions in the $106 million termination fee and $19 million
threshold amount. Tejas estimates that transaction costs associated with the
merger and related financing will total approximately $13 million.
1
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
An index of historical financial statements of the business
acquired included in this current report is presented on Page
4. Such financial statements include the historical financial
position, results of operations and cash flows of Transok,
Inc.
(b) Pro forma financial information.
An index of pro forma financial information included in this
report is presented on page 4.
(c) Exhibits.
2(a) Agreement of Merger dated as of May 9, 1996 between Central
and South West Corporation and Tejas Gas Corporation relating
to Transok, Inc., as amended by First Amendment to Agreement
of Merger dated June 6, 1996.
*2(b) Lease Agreement dated as of June 6, 1996 between Canadian
Imperial Bank of Commerce Inc. ("CIBC Inc."), as lessor, and
Transok Acquisition Corporation III, ("TAC III"), as lessee.
*2(c) Participation Agreement dated as of June 6, 1996 between TAC
III, as lessee, CIBC Inc., as lessor, Canadian Imperial Bank
of Commerce, New York agency, as administrative agent, and
Bank of Montreal, as documentation agent.
*2(d) Secured Credit Agreement dated as of June 6, 1996 between
Transok Acquisition Company, Bank of Montreal and CIBC Inc.
* To be filed by amendment
2
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 hereunto duly authorized.
TEJAS GAS CORPORATION
Date: June 18, 1996 By: /s/ JAMES W. WHALEN
James W. Whalen
Executive Vice President and Chief
Financial Officer (principal financial
officer and principal accounting officer)
3
TEJAS GAS CORPORATION
CURRENT REPORT ON FORM 8-K
INDEX TO FINANCIAL INFORMATION
I. PREDECESSOR OPERATIONS OF TRANSOK, INC.
Report of Independent Public Accountants .................................. 5
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1994 (audited) and as of March 31, 1996 .................... 6
(unaudited)
Consolidated Statements of Income for each of the Three
Years in the Period Ended December 31, 1995 (audited)
and for the Three Months Ended March 31, 1996 and 1995
(unaudited) ............................................................. 7
Consolidated Statements of Equity for each of the Three
Years in the Period Ended December 31, 1995 (audited)
and for the Three Months Ended March 31, 1996 (unaudited)................ 8
Consolidated Statements of Cash Flows for each of the
Three Years in the Period Ended December 31, 1995
(audited) and for the Three Months Ended March 31,
1996 and 1995 (unaudited)................................................ 9
Notes to Consolidated Financial Statements ................................ 10
II. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
Introduction .............................................................. 22
Unaudited Pro Forma Consolidated Statement of Earnings
for the Year Ended December 31, 1995 .................................... 23
Unaudited Pro Forma Consolidated Statement of Earnings
for the Three Months Ended March 31, 1996 ............................... 24
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1996 ....... 25
Notes to Unaudited Pro Forma Consolidated Financial Statements ............ 26
4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Transok, Inc.:
We have audited the accompanying consolidated balance sheet of Transok, Inc. (an
Oklahoma Corporation and a wholly owned subsidiary of Central and South West
Corporation) and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, cash flows and stockholder's equity for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Transok, Inc., and subsidiaries
as of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Notes 3 and 7 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 106, No. 109 and
No. 112 effective January 1, 1993.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 9, 1996
5
<PAGE>
TRANSOK, INC.
CONSOLIDATED BALANCE SHEET
(thousands of dollars)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1994 1996
- -------------------------------------------------------------------------------------
ASSETS (unaudited)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents ..................... $ 7,195 $ 3,601 $ 7,797
Accounts receivable less allowance for doubtful
accounts of $450 in 1995 (Note 1) ......... 44,660 35,014 29,023
Advances to affiliates ........................ 6,586 -- 42,607
Gas stored underground (Note 2) ............... 10,567 22,550 117
Materials and supplies, at average cost ....... 8,869 10,796 8,647
Extracted products, at average cost ........... 1,878 821 21
Income taxes receivable ....................... 143 3,144 914
Prepayments and other ......................... 8,121 4,610 12,082
- -------------------------------------------------------------------------------------
88,019 80,536 101,208
Property, Plant and Equipment ...................... 868,595 798,312 878,058
Less - Accumulated Depreciation .................... 236,043 203,488 244,914
- -------------------------------------------------------------------------------------
632,552 594,824 633,144
Other Investments, net (Note 2) .................... 30,576 32,392 29,805
Deferred Charges and Other Assets .................. 21,133 18,997 23,539
- -------------------------------------------------------------------------------------
$ 772,280 $726,749 $787,696
=====================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Advances from affiliates ...................... $ -- 28,104 $ --
Accounts payable .............................. 118,198 77,913 124,998
Accrued interest .............................. 5,107 5,105 1,333
Accrued taxes ................................. 5,102 3,884 2,788
Other ......................................... 1,615 6,019 2,828
- -------------------------------------------------------------------------------------
130,022 121,025 131,947
Long-Term Debt (Note 4) ............................ 200,000 200,000 200,000
Deferred Income Taxes (Note 3) ..................... 116,192 104,985 121,371
Stockholder's Equity
Common stock, $100 par value, authorized
95,000 shares, issued and outstanding
92,186 shares ......................... 9,219 9,219 9,219
Paid-in capital ............................... 162,000 162,000 162,000
Retained earnings ............................. 154,847 129,520 163,159
- -------------------------------------------------------------------------------------
326,066 300,739 334,378
- -------------------------------------------------------------------------------------
$772,280 $726,749 $787,696
=====================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
6
TRANSOK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1995 1994 1993 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues (Note 1) ............................. $ 720,866 $ 646,719 $ 702,192 $ 255,635 $ 159,706
Operating Expenses and Taxes
Natural gas purchased for resale ................... 466,384 404,569 501,719 176,827 95,440
Product extraction and marketing ................... 109,237 98,103 85,613 35,919 28,060
Operations and maintenance ......................... 25,123 24,163 24,559 6,163 6,558
Administrative and general ......................... 22,750 25,350 24,953 7,779 7,608
Depreciation and amortization ...................... 31,478 32,162 28,822 8,995 9,014
Taxes, other than income taxes ..................... 9,248 9,693 8,377 2,567 2,661
- ------------------------------------------------------------------------------------------------------------------------------------
664,220 594,040 674,043 238,250 149,341
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income ........................................ 56,646 52,679 28,149 17,385 10,365
- ------------------------------------------------------------------------------------------------------------------------------------
Other Income and (Deductions)
Interest expense ................................... (14,031) (15,783) (15,318) (2,929) (3,852)
Factoring expense .................................. (4,795) (3,636) (3,747) (1,826) --
Other, net ......................................... 1,269 1,926 7,832 (39) 577
- ------------------------------------------------------------------------------------------------------------------------------------
(17,557) (17,493) (11,233) (4,794) (3,275)
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes and
Cumulative
Effect of Changes in Accounting Principles ......... 39,089 35,186 16,916 12,591 7,090
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for Income Taxes (Note 3) ..................... 13,762 10,053 4,463 4,279 2,390
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Cumulative Effect of
Changes in Accounting Principles ................... 25,327 25,133 12,453 8,312 4,700
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Effect of Changes in Accounting
Principles (Note 3 and 7) .......................... -- -- 6,691 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income .............................................. $ 25,327 $ 25,133 $ 19,144 $ 8,312 $ 4,700
====================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
7
<PAGE>
TRANSOK, INC.
STATEMENTS OF EQUITY
(thousands of dollars)
Three
Months
Ended
December 31, March 31,
1995 1994 1993 1996
- --------------------------------------------------------------------------------
Balance, beginning of period $300,739 $255,606 $191,462 $326,066
Net Income ................. 25,327 25,133 19,144 8,312
Capital Contribution ....... -- 20,000 45,000 --
- --------------------------------------------------------------------------------
Balance, end of Period ..... $326,066 $300,739 $255,606 $334,378
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
8
<PAGE>
TRANSOK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1995 1994 1993 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net Income ........................................... $ 25,327 $ 25,133 $ 19,144 $ 8,312 $ 4,700
Non-cash items included
Depreciation and amortization .................... 32,453 33,149 29,689 9,026 9,251
Deferred Income taxes ............................ 11,207 19,439 16,461 5,179 3,486
Tex/Con reserve write off ........................ -- -- (3,430) -- --
Operations reserve ............................... -- -- 3,743 -- --
Cumulative effect of changes in
accounting principles ........................ -- -- (6,691) -- --
Other ................................................ (1,659) (1,767) (1,490) (553) (495)
- ------------------------------------------------------------------------------------------------------------------------------------
Funds provided by operations ......................... 67,328 75,954 57,426 21,964 16,942
Changes in assets and liabilities (Note 5) ........... 37,470 (45,653) 47,086 22,905 1,752
- ------------------------------------------------------------------------------------------------------------------------------------
104,798 30,301 104,512 44,869 18,694
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Capital expenditures ................................. (65,931) (64,893) (88,310) (10,003) (9,871)
Other ................................................ (583) 388 (941) 1,757 (267)
- ------------------------------------------------------------------------------------------------------------------------------------
(66,514) (64,505) (89,251) (8,246) (10,138)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Medium-term notes issued ............................. -- -- 60,000 -- --
Capital contribution ................................. -- 20,000 45,000 -- --
Advances from/to affiliates .......................... (34,690) 6,830 (70,945) (36,021) (7,337)
Note payable to CSW .................................. -- -- (47,468) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
(34,690) 26,830 (13,413) (36,021) (7,337)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents ................... 3,594 (7,374) 1,848 602 1,219
Cash and Cash Equivalents at Beginning of Year ............ 3,601 10,975 9,127 7,195 3,601
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year .................. $ 7,195 $ 3,601 $ 10,975 $ 7,797 $ 4,820
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
9
TRANSOK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. TRANSACTIONS WITH AFFILIATES
Transok, Inc. (the Company or Transok) is an intrastate natural gas
transmission, storage, marketing, gathering and processing company with
headquarters in Tulsa, Oklahoma. Incorporated in 1955, Transok was created to
supply natural gas to Public Service Company of Oklahoma (PSO) electric power
generation stations and has since expanded its operations to transport gas for
other parties, as well as engage in other services such as gas processing,
storage, gathering, compression, risk management and gas and liquids marketing.
Transok is a wholly owned subsidiary of Central and South West
Corporation (CSW). On January 9, 1996, CSW announced it will explore strategic
alternatives for Transok, including a possible sale.
As a wholly-owned subsidiary of CSW, a holding company subject to the
Public Utility Holding Company Act of 1935, Transok engages in transactions and
coordinates its activities and operations with other members of the CSW System,
principally PSO. The Company provides administrative services in support of
PSO's natural gas requirements. It further provides for the transportation of
PSO's natural gas fuel supply through the Company's gathering and transmission
system.
The transportation and administration fees charged to PSO are
determined annually through a fully allocated cost of service study that
allocates costs to the Company's various business functions. In addition to
actual transportation and administration costs allocated to PSO, the Company is
permitted to earn a return on equity equal to the rate allowed PSO in its most
recent rate case before the Corporation Commission of the State of Oklahoma
(OCC). Revenues from transportation and administration services with PSO were
$31.8 million in 1995, $31.4 million in 1994 and $28.5 million in 1993.
The Company also provides transportation services to West Texas
Utilities Company, (WTU) and Southwestern Electric Power Company, (SWEPCO).
Transportation fees charged to WTU and SWEPCO are based on the Company's cost of
providing service plus an equity return. Revenues from transportation fees
charged to WTU and SWEPCO were $3.0 million, $3.5 million and $.8 million in
1995, 1994 and 1993, respectively.
The Company also makes gas sales to CSW affiliates. Gas sales to PSO
were $77.6 million, $76.9 million and $54.4 million in 1995, 1994 and 1993,
respectively. Gas sales to other members of the CSW system were $16.8 million,
$14.4 million and $17.7 million in 1995, 1994 and 1993, respectively. All sales
made to PSO and other members of the CSW system are made at cost and therefore
have no impact on the Company's net financial results of operations.
The Company, together with other members of the CSW System, has
established a money pool to coordinate short-term borrowings from banks and
through the issuance of commercial paper. Money pool balances are shown as
advances from and to affiliates on the consolidated balance sheets. Funds
borrowed from, or loaned to, the money pool are charged, or earn, interest in
accordance with the money pool arrangement. The Company incurred net interest
costs of $0.5 million, $1.3 million and $1.3 million under the money pool
arrangement in 1995, 1994 and 1993, respectively. The Company is authorized to
borrow up to $200 million under this arrangement.
10
Central and South West Services, Inc., performs, at cost, certain
accounting, tax, legal, financial, electronic data processing and other services
for the Company. Costs incurred to provide such services are allocated to
Transok and other CSW affiliates based on various formulas. Amounts charged to
expense were $3.6 million, $4.8 million and $3.6 million in 1995, 1994 and 1993,
respectively.
The Company sells selected accounts receivable, without recourse, to
CSW Credit, Inc., a wholly owned subsidiary of CSW. At December 31, 1995 and
1994, the Company had $79.7 million and $42.9 million in outstanding receivables
which had been sold to CSW Credit, Inc.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its subsidiary companies. All
significant intercompany balances and transactions have been eliminated.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
PARTNERSHIPS - The Company accounts for its partnership interests using
the equity method of accounting.
PROPERTY, PLANT AND EQUIPMENT - Gas plant acquisitions are stated at
fair market value based on the purchase price while other gas plant is stated at
the original cost of construction, which includes the cost of contracted
services, direct labor, materials, overhead items and capitalized interest.
DEPRECIATION AND AMORTIZATION - Provisions for depreciation of gas
plant are computed using the half-year convention straight-line method,
generally at individual rates applied to the various classes of depreciable
property. The annual consolidated composite rates averaged 3.6%, 3.2% and 3.4%
for 1995, 1994 and 1993.
Amortization of the Tranpache investment is based on the Company's
interest in the Tranpache properties and the expected life of the investment.
The average annual amortization rates for 1995, 1994 and 1993 were 12.3%, 24.0%
and 26.6%, respectively.
STATEMENTS OF CASH FLOWS - Cash equivalents are considered to be highly
liquid debt instruments purchased with a maturity of three months or less.
Accordingly, temporary cash investments are considered cash equivalents.
NEW ACCOUNTING STANDARDS - Effective January 1, 1995, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 116, Accounting
for Contributions Made and Contributions Received. This statement establishes
accounting standards for contributions and applies to all entities that either
receive or make contributions. Contributions made, including unconditional
promises to give, must be recognized as expenses in the period made at fair
market value. Conditional promises to give must be recognized when they become
unconditional, that is, when the conditions of the gift are substantially met.
The impact of adopting this statement in 1995 was not material.
11
In March 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, to be effective for financial statements
for fiscal years beginning after December 15, 1995. The Statement establishes a
two fold test for identification and quantification of an impairment. The first
test in determining an impairment is to compare the sum of expected future cash
flows (undiscounted and without interest charges) to the carrying value of the
asset. If the sum of expected cash flows are not sufficient to recover the
carrying value of the asset, then an impairment is recognized. Once an
impairment is identified, the second part of the test is applied to quantify the
value of the impairment. The statement lists several alternative methods of
establishing fair market value and quantifying the impairment.
Transok will adopt SFAS No. 121 effective January 1, 1996. The Company
is not aware of any assets which would currently meet the test for impairment.
In October 1993, the FASB issued FAS No. 123, Accounting for Stock
Based Compensation, with an effective date for transactions entered into after
December 15, 1995. The Statement requires the use of an option pricing model to
calculate the value of stock-based transactions where such value cannot
otherwise be determined, but then allows for two options on how this value is
utilized. One method recognizes this value as a cost of compensation and as an
expense for the current period. The alternative allows for only footnote
disclosure of the compensation cost, without actually charging the amount
against current earnings.
As provided by the provisions of SFAS No. 123, Transok will continue to
apply the recognition and measurement provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and adopt the
disclosure requirements of SFAS No. 123 in 1996. Accordingly, the adoption of
SFAS No. 123 will not impact Transok's consolidated results of operations or
financial condition.
PRICE RISK MANAGEMENT ACTIVITIES - The Company periodically uses
natural gas futures, options and basis swap contracts to manage the impact of
price fluctuations on its inventory of natural gas, fuel and shrinkage
requirements for its processing plants and certain fixed price purchase and
sales contracts. Such contracts are designated at inception as either a hedge,
when there is a direct relationship to the price risk associated with the
Company's operations, or as a speculative contract where there is no such
relationship. Gains and losses on hedge contracts are deferred until the effect
of the corresponding hedged transaction is recognized. For those contracts that
are not designated as hedges, changes in the fair value of those contracts are
recognized as gains or losses in income currently and are recorded in the
balance sheet at fair value at the reporting date. The Company determines the
fair value of its contracts based upon settlement prices for exchange-traded
contracts, market-related indexes or by obtaining quotes from brokers (see Note
9, "Price Risk Management Activities").
INVENTORIES - Gas stored underground represents gas stored in
Company-owned storage facilities as well as off-system storage facilities and
includes gas anticipated to be withdrawn in the next year. The non-current
portion of gas stored underground represents that quantity of gas in storage
that the Company does not anticipate using within the next year and is
classified as deferred charges and other assets. All inventories are valued at
the lower of average cost or market.
RECLASSIFICATION - Certain financial statement items for prior years
have been reclassified to conform to the 1995 presentation.
12
NOTE 3. FEDERAL AND STATE INCOME TAXES
The Company, together with other members of the CSW System, files a
consolidated Federal income tax return.
The Company adopted SFAS No. 109, Accounting for Income Taxes,
effective January 1, 1993. The cumulative effect of adopting SFAS No. 109 on the
Company's financial statements was to increase 1993 net income by $7.0 million,
of which, federal deferred income taxes were reduced by $8.7 million and state
deferred taxes were increased by $1.7 million.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax effects
of significant items comprising the Company's net deferred tax liability at
December 31, 1995 and 1994 are as follows:
1995 1994
- --------------------------------------------------------------------------------
(thousands)
Deferred Tax Liabilities:
Differences between book and tax basis of property .. $112,778 $102,022
Other ............................................... 6,042 5,557
- --------------------------------------------------------------------------------
118,820 107,579
- --------------------------------------------------------------------------------
Deferred Tax Assets:
Accrued expenses not currently deductible ........... 2,628 2,594
- --------------------------------------------------------------------------------
Deferred income taxes $116,192 $104,985
- --------------------------------------------------------------------------------
Significant components of the provision for income taxes are as follows:
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
(thousands)
Current
Federal ................................ $ 1,955 $(8,971)$ (10,182)
State .................................. 600 (415) (872)
- --------------------------------------------------------------------------------
Total current ...................... 2,555 (9,386) (11,054)
- --------------------------------------------------------------------------------
Deferred
Federal ................................ 9,567 16,602 13,457
State .................................. 1,640 2,837 2,060
- --------------------------------------------------------------------------------
Total deferred current year activity 11,207 19,439 15,517
- --------------------------------------------------------------------------------
Provision for income taxes .................. $13,762 $ 10,053 4,463
- --------------------------------------------------------------------------------
13
A reconciliation of the statutory U.S. Federal income tax rate and the
Company's effective tax rate is as follows:
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
(percentage)
Statutory rate 35.0 35.0 35.0
Increase (decrease) resulting from:
Tax credits (4.3) (9.2) (11.9)
Consolidated Tax Savings (0.2) (2.0) 0.0
State Income Taxes 5.7 5.3 5.2
Other (1.0) (0.5) (1.9)
- --------------------------------------------------------------------------------
Effective income tax rate 35.2 28.6 26.4
- --------------------------------------------------------------------------------
NOTE 4. LONG-TERM DEBT
In 1993 and 1992 the Company sold $60 million and $140 million,
respectively, of medium-term notes maturing from 1999 to 2023 under its $200
million private placement medium-term note program. Proceeds from the sale of
these notes were used primarily to repay interim financing provided by CSW in
1991 and 1992 for acquisitions made by the Company. The weighted average
interest rate of the notes was 7.7% at December 31, 1995 and 1994. The long-term
debt outstanding at the end of December 31, 1995 and 1994 was as follows:
Maturities Interest Rates
- ------------------------------------------------------------------------
From To From To Balance
- ------------------------------------------------------------------------
Medium Term Notes (thousands)
1999 2003 6.600 8.280 $ 92,000
2004 2009 6.710 8.340 68,000
2010 2014 8.350 8.900 10,000
2015 2019 8.960 8.960 15,000
2020 2023 7.750 7.750 15,000
- ------------------------------------------------------------------------
Total 200,000
- ------------------------------------------------------------------------
14
NOTE 5. CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
Changes in operating assets and liabilities consist of:
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
(thousands)
Decrease (increase) in:
Receivables $ (6,645) $ 3,189 $ 56,425
Inventories 12,853 (3,447) (13,912)
Other current assets (3,511) (82) 10,722
Other assets (2,328) (5,590) (5,222)
Increase (decrease) in:
Accounts payable 40,285 (34,062) (8,268)
Accrued taxes 1,218 654 630
Accrued interest 2 63 1,724
Other liabilities (4,404) (6,378) 4,987
- --------------------------------------------------------------------------------
$ 37,470 $(45,653) $ 47,086
================================================================================
Income taxes refunded were $1.3 million, $12.4 million and $3.3 million
during 1995, 1994 and 1993, respectively.
Interest paid, net of amounts capitalized, was $13.9 million, $15.6
million and $12.8 million during 1995, 1994 and 1993, respectively.
NOTE 6. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate fair value.
CASH AND SHORT-TERM INVESTMENTS - The carrying amount approximates fair
value because of the short maturity of those instruments.
LONG-TERM DEBT - The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities.
The estimated fair values of the Company's financial instruments at
December 31 are as follows:
1995 1994
- --------------------------------------------------------------------------------
(thousands)
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Cash and short-term investments .... $ 7,195 $ 7,195 $ 3,601 $ 3,601
Long-term debt ..................... $200,000 $216,211 $200,000 $185,651
15
NOTE 7. BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN - The Company, together with other members
of the CSW System, maintains a tax qualified, non-contributory defined benefit
pension plan covering substantially all its employees. Benefits are based on
employees' years of credited service, age at retirement and final average annual
earnings with an offset for the participant's primary Social Security benefit.
The CSW System's funding policy is based on actuarially determined
contributions, taking into account amounts which are deductible for income tax
purposes and minimum contributions required by the Employee Retirement Income
Security Act of 1974, as amended. Contributions to the plan for the years ended
December 31, 1995, 1994 and 1993 were $2.0 million, $1.8 million and $1.8
million, respectively. Pension plan assets consist primarily of common stocks
and short-term and intermediate-term fixed income investments.
The components of net periodic pension cost and the assumptions used in
accounting for pensions are as follows:
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
(dollars in thousands)
Net periodic Pension Cost
Service Cost 1,420 1,494 1,275
Interest cost on projected benefit obligation 4,492 4,121 3,628
Actual return on plan assets (8,203) (292) (4,408)
Net amortization and deferral 3,064 (4,632) 16
- --------------------------------------------------------------------------------
$ 773 $ 691 $ 511
- --------------------------------------------------------------------------------
Assumptions
Discount rate 8.00% 8.25% 7.75%
Long-term compensation increase 5.46% 5.46% 5.46%
Return on plan assets 9.50% 9.50% 9.50%
At December 31, 1995, the plan's net assets were approximately equal to
the total actuarial present value of the accumulated benefit obligation. No
reconciliation of the funding status of the plan is presented because such
information is available.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - The Company adopted SFAS
No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions,
January 1, 1993. The Company's accumulated postretirement benefit obligation was
$5.2 million at December 31, 1995 and $4.7 million at December 31, 1994. CSW
System's funding policy is based on actuarially determined contributions, taking
into account amounts which are deductible for income tax purposes. The Company
contributed $807,000 in 1995, $934,000 in 1994 and $874,000 in 1993.
16
The Components of net periodic postretirement benefit cost and the
assumptions used in accounting for postretirement benefits are as follows:
Year Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
(thousands)
Net periodic Postretirement Benefit Cost
Service cost $ 458 $ 508 $ 460
Interest cost on accumulated postretirement
benefit obligation 383 388 338
Actual return on plan assets (220) (21) (24)
Amortization of transition obligation 166 166 166
Net amortization and deferral 20 (107) (66)
- --------------------------------------------------------------------------------
$ 807 $ 934 $ 874
- --------------------------------------------------------------------------------
A reconciliation of the funded status of the plan to the amounts
recognized on the consolidated balance sheets follows:
December 31, 1995 1994
- --------------------------------------------------------------------------------
(thousands)
Accumulated Postretirement Benefit Obligation (APBO)
Retirees $ 2,020 $ 1,756
Other fully eligible participants 163 245
Other active participants 3,010 2,721
- --------------------------------------------------------------------------------
Total APBO 5,193 4,722
Plan Assets at Fair Value (3,227) (2,402)
- --------------------------------------------------------------------------------
APBO in Excess of Plan Assets 1,966 2,320
Unrecognized Transition Obligation (2,834) (3,000)
Unrecognized Gain (Loss) 871 643
- --------------------------------------------------------------------------------
Accrued (Prepaid) Cost $ 3 $ (37)
- --------------------------------------------------------------------------------
The following assumptions were used in accounting for SFAS No. 106:
Discount rate 8.00% 8.25%
Return on plan assets 9.50% 9.50%
Tax rate for taxable trusts 39.60% 39.60%
17
Health Care Cost Trend Rate Assumptions:
Pre-65 Participants:
1995 rate of 10.00% grading down .75% per year to an ultimate rate of
6.0% in 2001.
1994 rate of 11.75% grading down .75% per year to an ultimate rate of
6.5% in 2001.
Post-65 Participants:
1995 rate of 10.00% grading down .75% per year to an ultimate rate of
5.5% in 2001.
1994 rate of 11.25% grading down .75% per year to an ultimate rate of
6.0% in 2001.
Upon implementation of SFAS No. 106 in 1993, the CSW System decided to
amortize the transition obligation over a 20 year period.
Increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1995 by $740,000 and increase the aggregate of the
service and interest cost components of net postretirement benefits by $168,000.
POSTEMPLOYMENT BENEFITS - In November 1992, the FASB issued SFAS No.
112, Employers' Accounting for Postemployment Benefits. This statement required
the accrual method of accounting for certain types of postemployment benefits
provided to former or inactive employees after employment, but before
retirement. This standard required that the expected cost of these benefits be
accrued during the period employees render service to qualify for benefits. The
most significant costs for the Company are the continued medical and salary
benefits during long-term disability. Effective January 1, 1993 the Company
adopted SFAS No. 112 and the effect of the change on 1993 income was $273,000,
net of taxes of $173,000 reflected in cumulative effect of changes in accounting
principles.
NOTE 8. RENTAL AND LEASE COMMITMENTS
The Company leases certain land, facilities and equipment under various
cancelable and non-cancelable operating leases. During 1993, the Company entered
into a long-term operating lease arrangement to lease all the pipeline
facilities of Palo Duro Pipeline Company (Palo Duro). The agreement, which
includes provisions to purchase the leased pipeline assets, provides for an
initial term of five years with several options to extend the lease for up to an
additional seventeen years.
Total rental charges to operating expenses for the year ended December
31, including the Palo Duro lease noted above, were as follows:
(millions)
- ------------------------------------
1993 $ 2.5
1994 $ 3.7
1995 $ 3.7
- ------------------------------------
18
Minimum rental commitments as of December 31, 1995 for all
non-cancelable leases are:
- -----------------------------------
1996 $ 4.3
1997 $ 4.7
1998 $ 3.3
1999 $ 3.3
2000 $ 3.2
Thereafter $ 17.9
- -----------------------------------
NOTE 9. PRICE RISK MANAGEMENT ACTIVITIES
HEDGING ACTIVITIES - The Company uses natural gas futures, options and
basis swaps to reduce its price risk exposure arising from the purchase and sale
of natural gas. Natural gas futures and options allow the Company to protect
against volatility in supply cost in fulfilling fixed price sales contracts,
meeting storage requirements and purchasing natural gas for processing
operations. Natural gas futures and options are also used to protect the Company
against price exposure on sales of natural gas from storage or fixed price
purchase agreements. In addition, basis swaps protect the Company against
volatility in price differentials between geographic areas. At December 31, 1995
and 1994, the Company had deferred gains (losses) of $(0.5) million and $1.9
million, respectively, from these transactions.
The following table presents the Company's net open positions at
December 31 for the financial instruments described above:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------------
(dollars in thousands)
Fair Fair
Notional Market Notional Market
BBtus Value Value BBtus Value Value
<S> <C> <C> <C> <C> <C> <C>
Swaps purchased (sold) .... 4,300 $7,297 $7,942 -- $ -- $ --
Futures purchased (sold) .. 5,200 $8,549 $6,559 (1,500) $(3,933) $ (2,546)
</TABLE>
At December 31, 1995, the Company held a net long position in basis
swaps with notional quantities of 6,000 BBtus valued at a net gain of $632,000.
TRADING ACTIVITIES - Beginning in 1995, the Company entered into
limited transactions using its fundamental and technical analysis of market
conditions to earn additional revenues. The types of instruments used include
futures, price swaps, over-the-counter and exchange-traded options. These
contracts run for periods of up to 2 years. The following table discloses the
fair value of contracts held or issued for trading purposes and net gains
(losses) from trading activities as of or for the period ended December 31,
1995:
19
Fair Value
of Assets Net
(Liabilities) Gains
-----------
BBtus Average Ending (Losses)
- --------------------------------------------------------
(dollars in thousands)
Options (2,500) (124) (1,030) (755)
Basis Swaps (4,000) 17 (83) 517
Swaps -- (7) -- (20)
Futures 2,000 203 1,164 2,383
- --------------------------------------------------------
Total (4,500) $ 89 $ 51 $ 2,125
- --------------------------------------------------------
NOTE 10. LITIGATION AND REGULATORY PROCEEDINGS
On October 30, 1992, Transok filed with the Federal Energy Regulatory
Commission ("FERC") a rate case in Docket No. PR93-4 for approval of cost of
service rates for Section 311 transportation on the Traditional System. On
September 18, 1995, the FERC approved a settlement of Transok's rate case. The
settlement provided for maximum rates of $2.7360 per MMBtu and $0.1045 per MMBtu
for firm reservation and firm usage charges, respectively, $0.1945 per MMBtu for
interruptible and an allowance of 1.7% of the gas received for fuel use and lost
and unaccounted for gas. These rates were effective from November 1, 1992, until
October 31, 1995, when Transok was required to file a new rate case. On November
17, 1995, Transok filed with the FERC a Refund Report indicating that it had
made refunds to its shippers of approximately $900,000 as the difference between
what it had collected from Section 311 shippers and the approved rates during
their effective time period plus interest.
On November 1, 1995, Transok filed with the FERC a rate case in Docket
No. PR96-2 for approval of cost of service rates for Section 311 transportation
on the Traditional System. Transok requested approval of maximum rates of $2.736
per MMBtu and $.1751 per MMBtu for firm reservation and firm usage charges,
respectively, $0.265 per MMBtu for interruptible plus the shipper's pro rata
share of compressor fuel and 0.5% of the volumes transported as an allowance for
lost and unaccounted for gas. Transok also informed the FERC in the case that it
was ceasing to offer new firm transportation service and was seeking approval of
the above firm rates only for the purpose of collecting the rates contained in
firm transportation contracts still in effect as of November 1, 1995. Ten
parties have intervened in the rate case. This matter is presently pending
before the FERC, and therefore, the outcome is not ascertainable at this time.
Transok's Greasy Creek storage facility located on the Traditional
System is currently approved by the FERC to charge market based rates for up to
4.0 Bcf of the facility's capacity. The rates are effective for an indefinite
time period, subject to Transok informing the FERC if it becomes affiliated with
a local distribution company outside of the State of Oklahoma.
Transok's Anadarko System in Oklahoma is currently authorized to
collect a maximum rate of $0.145 per MMBtu for Section 311 interruptible
transportation, plus each shipper's pro rata share of compressor fuel and 0.5%
of the volumes transported as an allowance for lost and unaccounted for gas.
Transok is required to file a new rate case with the FERC covering this system
on or before May 1, 1996.
Transok's North Louisiana System is currently authorized to collect a
maximum rate of $0.1866 per MMBtu for Section 311 interruptible transportation,
plus the shipper's pro rata share of compressor fuel and 0.5% of the volumes
transported as an allowance for lost and unaccounted for gas. Transok is
required to file a new rate case with the FERC covering this system on or before
November 1, 1996.
20
Transok leases the Palo Duro pipeline system in Texas that provides
transportation service both in intrastate commerce and under Section 311 of the
Natural Gas Policy Act. On April 29, 1994, Transok filed an Application for
Review of Reasonableness of Transportation Rates for the Palo Duro system with
the Texas Railroad Commission proposing a maximum rate of $0.20 per MMBtu (plus
taxes) plus the shipper's pro rata share of compressor fuel and lost and
unaccounted for volumes. The matter is still pending before the Railroad
Commission and the ultimate outcome of this filing is unknown at this time.
The Company, which provides natural gas services to PSO, and PSO have
been named defendants in various lawsuits filed in federal and state courts of
Oklahoma and Texas in 1984 through January 1995 by gas suppliers alleging claims
arising out of certain gas purchase contracts. Cases currently pending seek
approximately $1 million in actual damages, together with claims for punitive
damages which, in compliance with pleading code requirements, are alleged to be
in excess of $10,000. The plaintiffs seek relief through the filing dates as
well as attorney fees. As a result of settlements among the parties, certain
plaintiffs dismissed their claims with prejudice to further action. The
settlements were funded by PSO and did not have a significant effect on the
Company's consolidated results of operations. The remaining suits are in
preliminary stages. Management believes the ultimate resolution of the remaining
complaints will not have a significant effect on the Company's consolidated
financial position or results of operations. The Company is indemnified pursuant
to an agreement with PSO for any loss or costs that may be incurred by the
Company involving PSO gas supply contracts.
The Company's compressor engines and other emission sources are subject
to air permit requirements, including monitoring. As a result of Clean Air Act
amendments, the Company may become subject to additional permit requirements in
the future, including compliance assurance monitoring, at eight facilities.
Should these sites become subject to additional permit requirements, it is not
expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
The Company is party to various other legal claims, actions and
complaints arising in the normal course of business. Management does not expect
disposition of these matters to have a material adverse effect on the Company's
consolidated financial position or results of operations.
21
<PAGE>
TEJAS GAS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The following unaudited pro forma consolidated statements of earnings
for the year ended December 31, 1995 and the three-month period ended March 31,
1996 and the unaudited pro forma consolidated balance sheet as of March 31, 1996
(the "Pro Forma Consolidated Financial Statements") give effect to (i) the
Transok, Inc. acquisition under the purchase method of accounting and the
related assumptions and adjustments described in the notes to the Unaudited Pro
Forma Consolidated Financial Statements and, (ii) the net borrowing by Tejas of
its cash requirements of approximately $583 million, including related financing
costs, to finance the Transok, Inc. acquisition.
The Pro Forma Consolidated Financial Statements are based upon the
historical audited and unaudited consolidated financial statements of Tejas and
Transok, Inc. and should be read in conjunction with the audited financial
statements and notes thereto included in Tejas' Annual Report on Form 10-K for
the year ended December 31, 1995, the unaudited Tejas' Quarterly Report on Form
10-Q for the three months ended March 31, 1996, and the audited and unaudited
financial statements and notes thereto of Transok, Inc. included in this current
report. Because of the seasonal nature of Tejas' and Transok's operations, among
other factors, the results of the interim period presented is not necessarily
indicative of the results to be expected of an entire year.
The unaudited pro forma consolidated statements of earnings for the
year ended December 31, 1995 and the three months ended March 31, 1996 were
prepared assuming that the transactions described above were consummated as of
the beginning of each period presented. The unaudited pro forma consolidated
balance sheet as of March 31, 1996 was prepared assuming that the transaction
described above was consummated as of March 31, 1996. The Pro Forma Consolidated
Financial Statements have been prepared based upon assumptions deemed
appropriate by Tejas and may not be indicative of actual results.
22
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED EARNINGS - TRANSOK ACQUISITION
TEJAS GAS CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
--------------------------------
Tejas Acquired
Gas Transok Pro Forma
Corporation Operations Adjustments Pro Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ................................................. $ 1,043,621 $ 720,866 $ -- $ 1,764,487
Cost of Sales ............................................ 877,088 575,621 -- 1,452,709
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit ........................................ 166,533 145,245 -- 311,778
Operating Expense ........................................ 38,081 25,123 6,058 (a) 69,262
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income .................................... 128,452 120,122 (6,058) 242,516
- ------------------------------------------------------------------------------------------------------------------------------------
Taxes, other than income ................................. -- 9,248 -- 9,248
General and Administrative ............................... 20,407 22,750 (5,250)(b) 37,907
Depreciation and Amortization ............................ 32,324 31,478 1,201 (c) 65,003
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings From Operations ................................. 75,721 56,646 (2,009) 130,358
- ------------------------------------------------------------------------------------------------------------------------------------
Other Income (Expenses):
Equity in Earnings (Loss) of
Unconsolidated subsidiaries ..................... (158) -- -- (158)
Interest income ..................................... 448 -- -- 448
Interest expense .................................... (26,130) (14,031) (44,165)(d) (84,326)
Factoring expenses .................................. -- (4,795) 4,795 (e) --
Distributions on Preferred Membership
Units of a Subsidiary ........................... (36) -- -- (36)
Other, net .......................................... 1,945 1,269 -- 3,214
- ------------------------------------------------------------------------------------------------------------------------------------
Total ............................................... (23,931) (17,557) (39,370) (80,858)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Before Taxes .................................... 51,790 39,089 (41,379) 49,500
- ------------------------------------------------------------------------------------------------------------------------------------
Income Taxes:
Current ......................................... 9,656 2,555 -- 12,211
Deferred ........................................ 9,197 11,207 (16,138)(f) 4,266
- ------------------------------------------------------------------------------------------------------------------------------------
Total ............................................... 18,853 13,762 (16,138) 16,477
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings .................................... 32,937 25,327 (25,241) 33,023
Preferred Dividend Requirements .......................... 8,393 -- -- 8,393
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings Applicable
to Common Stock ..................................... $ 24,544 $ 25,327 $(25,241) $ 24,630
====================================================================================================================================
Average Shares Outstanding ............................... 17,352 17,352
Earnings Per Share ....................................... $ 1.41 $ 1.42
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
23
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS - TRANSOK ACQUISITION
TEJAS GAS CORPORATION
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
---------------------------
Tejas Acquired
<PAGE>
Gas Transok Pro Forma
Corporation Operations Adjustments Pro Forma
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 432,401 $ 255,635 $ -- $ 688,036
Cost of Sales 389,072 212,746 -- 601,818
- --------------------------------------------------------------------------------------------------------
Gross Profit 43,329 42,889 -- 86,218
Operating Expense 9,516 6,163 1,740 (a) 17,419
- --------------------------------------------------------------------------------------------------------
Operating Income 33,813 36,726 (1,740) 68,799
- --------------------------------------------------------------------------------------------------------
Taxes, other than income -- 2,567 -- 2,567
General and Administrative 6,047 7,779 (1,313)(b) 12,513
Depreciation and Amortization 8,079 8,995 (650)(c) 16,424
- --------------------------------------------------------------------------------------------------------
Earnings From Operations 19,687 17,385 223 37,295
- --------------------------------------------------------------------------------------------------------
Other Income (Expenses):
Equity in Earnings (Loss) of
Unconsolidated Subsidiaries 3,666 -- -- 3,666
Interest income 302 -- -- 302
Interest expense (5,155) (2,929) (11,042)(d) (19,126)
Factoring expenses -- (1,826) 1,826 (e) --
Distributions on Preferred Membership
Units of a Subsidiary (947) -- -- (947)
Other, net 92 (39) -- 53
- --------------------------------------------------------------------------------------------------------
Total (2,042) (4,794) (9,216) (16,052)
- --------------------------------------------------------------------------------------------------------
Earnings Before Taxes 17,645 12,591 (8,993) 21,243
- --------------------------------------------------------------------------------------------------------
Income Taxes:
Current 3,939 (900) -- 3,039
Deferred 2,768 5,179 (3,507)(f) 4,440
- --------------------------------------------------------------------------------------------------------
Total 6,707 4,279 (3,507) 7,479
- --------------------------------------------------------------------------------------------------------
Net Earnings 10,938 8,312 (5,486) 13,764
Preferred Dividend Requirements 2,098 - -- 2,098
- --------------------------------------------------------------------------------------------------------
Net Earnings Applicable
to Common Stock $ 8,840 $ 8,312 $ (5,486) $ 11,666
========================================================================================================
Average Shares Outstanding 17,405 17,405
Earnings Per Share $ 0.51 $ 0.67
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
24
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET - TRANSOK ACQUISITION
TEJAS GAS CORPORATION
AS OF MARCH 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Historical
------------------------
Tejas Acquired
Gas Transok Pro Forma
Corporation Operations Adjustments Pro Forma
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 937 $ 7,797 $ -- $ 8,734
Accounts receivable 185,081 71,630 30,739 (h) 287,450
Exchange gas receivable 9,547 -- -- 9,547
Working gas 10,484 117 -- 10,601
Prepaids and other current assets 3,042 20,750 -- 23,792
Deferred tax asset 2,948 914 3,862
- --------------------------------------------------------------------------------------------------------------------
Total current assets 212,039 101,208 30,739 343,986
- --------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment 799,817 878,058 (137,647)(i) 1,540,228
Less: Accumulated depreciation and amortization 186,364 244,914 (244,914)(i) 186,364
- --------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 613,453 633,144 107,267 1,353,864
- --------------------------------------------------------------------------------------------------------------------
Investment in Unconsolidated Entities 35,005 29,805 -- 64,810
Goodwill, Net of Accumulated Amortization 10,161 -- -- 10,161
Other Assets 11,300 23,539 (8,455)(i) 26,384
- --------------------------------------------------------------------------------------------------------------------
Total $ 881,958 $ 787,696 $ 129,551 $ 1,799,205
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Gas purchases payable $ 163,820 $ 124,998 $ -- $ 288,818
Exchange gas payable 14,285 - -- 14,285
Accounts payable 10,929 2,828 -- 13,757
Accrued liabilities 22,163 1,333 -- 23,496
Deferred credits 3,428 - -- 3,428
Income taxes payable 3,821 2,788 -- 6,609
Current maturities of long-term obligations 5,317 - -- 5,317
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 223,763 131,947 -- 355,710
- --------------------------------------------------------------------------------------------------------------------
Deferred Credit and Other Liabilities - - 2,500 (g) 2,500
Long-Term Debt 242,075 200,000 582,800 (j) 1,024,875
Deferred Income Taxes 54,105 121,371 (121,371)(i) 54,105
Preferred Membership Units of a Subsidiary 50,683 -- -- 50,683
Stockholders' Equity:
Preferred Stock 460 -- -- 460
Common Stock 4,351 9,219 (9,219)(i) 4,351
Additional paid-in capital 191,497 162,000 (162,000)(i) 191,497
Retained earnings 115,024 163,159 (163,159)(i) 115,024
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 311,332 334,378 (334,378) 311,332
- --------------------------------------------------------------------------------------------------------------------
Total $ 881,958 $ 787,696 $ 129,551 $ 1,799,205
====================================================================================================================
</TABLE>
See notes to unaudited pro forma consolidated financial statements
25
TEJAS GAS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS For the Year Ended December 31,
1995 and the
Three Months Ended March 31, 1996
1. BASIS OF PRESENTATION
The Unaudited Pro Forma Consolidated Balance Sheet is presented
assuming the combination occurred on March 31, 1996. The Unaudited Pro Forma
Consolidated Statements of Earnings for the year ended December 31, 1995 and the
three months ended March 31, 1996 are presented as if the combination occurred
at the beginning of each period presented. The Pro Forma Consolidated Financial
Statements may not necessarily be indicative of the results which would actually
have occurred if the combination had been in effect on the date or for the
periods indicated or which may result in the future.
While the 1996 first quarter pro forma statement of earnings indicates
a 32% improvement over the historical Tejas' 1996 first quarter, Tejas does not
anticipate the improvement created by the merger for the full year 1996 to be
significantly greater than the pro forma improvement reflected for the year
ended December 31, 1995.1 Projected improvements versus those anticipated for
Tejas before the merger are not expected to be substantial until the completion
of the capital expenditure programs related to the west to east movement of
natural gas on the Transok system. Under current plans, these programs will be
completed by the end of 1997. Tejas believes that the improvements from these
capital expenditures and the enhanced ability to market gas within the state of
Oklahoma will result in Transok making a significant contribution to Tejas'
consolidated earnings beginning in 1998.
Since Tejas plans to reinvest the majority of the available free cash
flow on capital expenditures for the remainder of 1996 and 1997, Tejas
anticipates the issuance of at least $100 million of common equity and is also
reviewing a number of other alternatives to reduce leverage of Tejas from the
74% debt to total capitalization reflected on the pro forma balance sheet for
March 31, 1996 to a range approaching 60% by year end 1996 or mid year 1997.
2. PRO FORMA ADJUSTMENTS - STATEMENTS OF EARNINGS
The pro forma adjustments to the Unaudited Pro Forma Consolidated
Statements of Earnings reflect the following:
(a) OPERATING EXPENSES - Through the consolidation and realignment of
operations and field- based personnel (a reduction of personnel from
approximately 540 at December 31, 1995 to approximately 480 at June 6, 1996),
Tejas anticipates a reduction of Transok's historical operating, general and
administration costs. Such reductions amount to approximately $2.8 million for
the year ended December 31, 1995 and approximately $0.7 million for the quarter
ended March 31, 1996. Offsetting these reductions is an increase in rental
expense associated with the lease of seven Transok gas processing plants. The
rental expense for the twelve month period is $9.8 million and the expense for
the three
- --------
1 The statements included herein regarding future financial performance and
results and the other statements that are not historical facts are
forward-looking statements. The words "expect," "project,""estimate," "predict,"
"anticipate" and similar expressions are also intended to identify
forward-looking statements. Such statements involve risks, uncertainties and
assumptions, including but not limited to, industry conditions, stock market
conditions, prices of natural gas and other factors discussed in this Form 8-K
and in the Company's other filings with the Securities and Exchange Commission.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual outcomes may vary materially from
those indicated.
26
<PAGE>
month period is $2.4 million, including in both periods amortization of
associated costs. Additionally, this pro forma statement of earnings reflects a
1995 reclassification of $.9 million from operating expense to depreciation
expense to reflect Transok's change in presentation of financial data related to
depreciation of transportation equipment.
(b) GENERAL AND ADMINISTRATIVE EXPENSES - A significant portion of the
historical amounts incurred by Transok for general and administrative expenses
represent parent company allocations. Based on Tejas' projected actual cost of
providing such incremental corporate services, the historical amounts have been
reduced by $2.4 million and $.6 million for the 1995 annual period and the 1996
three-month period, respectively. In addition, general and administrative
expenses have been reduced by $2.8 million for the year ended December 31, 1995
and $0.7 million for the three months ended March 31, 1996 to reflect personnel
and other cost reductions.
(c) DEPRECIATION AND AMORTIZATION - The adjustment reflects the pro
forma depreciation and amortization expense based on the use of adjusted asset
lives and salvage value, straight-line method of depreciation for all assets and
the allocation of the purchase price.
(d) INTEREST EXPENSE - The adjustment for interest expense reflects
interest computed on the additional indebtedness incurred for the purchase of
Transok. The principal amount of indebtedness incurred was approximately $582.8
million and the interest rate used to calculate the interest expense was 7.5%.
Interest expense also includes amortization of financing costs.
(e) FACTORING EXPENSE - Transok has historically factored a portion of
its accounts receivable balances to its parent company in order to obtain
greater liquidity. Since accounts receivable will no longer be factored, a pro
forma adjustment has been made to reverse the factoring expense of $4.8 million
for the 1995 annual period and $1.8 million for the 1996 three-month period.
(f) INCOME TAXES - The adjustment for income taxes represent the tax
effect of the foregoing pro forma adjustments computed at a 39% statutory income
tax rate which reflects both federal and state income tax rates. The reduction
of income taxes resulting from the pro forma adjustments is classified as
deferred on the income statement due to Tejas' alternative minimum tax position
during the pro forma periods.
3. PRO FORMA ADJUSTMENTS - BALANCE SHEET
The pro forma adjustments to the Unaudited Pro Forma Consolidated
Balance Sheet reflect the following:
(g) DEFERRED CREDITS AND OTHER LIABILITIES - A $2.5 million liability
has been recorded to reflect management's current intent to (i) exercise a
purchase option on an office building that Transok is currently leasing and (ii)
subsequently sell the building for an estimated $2.5 million loss.
(h) NET WORKING CAPITAL ADJUSTMENT - The adjustment reflects a $30.7
million working capital contribution by CSW as required by the terms of the
Merger Agreement.
(i) ALLOCATION OF PURCHASE PRICE - Total cash consideration to be paid
by Tejas for the Transok, Inc. acquisition, plus related transaction costs, was
$582.8 million. In addition, Tejas assumed $200.0 million of Transok's
outstanding debt. The adjustments reflect the recording of the acquisition using
the purchase method of accounting and the allocation of the purchase price based
on the fair value of the
27
<PAGE>
assets and liabilities acquired. The allocation of the purchase price is
preliminary, as valuation and other studies have not been finalized. It is not
expected that the final allocation of the purchase price will produce materially
different results from those presented herein. The adjustments also take into
consideration the sale by Transok to a third party of seven Transok gas
processing plants, immediately prior to the acquisition, and the leasing of
those plants by Tejas.
(j) LONG-TERM DEBT - Adjustment to record borrowings associated with
the cash consideration paid to purchase Transok. Of the total cash consideration
of approximately $582.8 million, including transaction costs; $401.9 million was
obtained through the new credit facilities and $180.9 million was obtained under
the existing credit facilities of Tejas Gas and Acadian.
27
Exhibit 2.a
AGREEMENT OF MERGER
DATED MAY 9, 1996
BETWEEN
CENTRAL AND SOUTH WEST CORPORATION
AND
TEJAS GAS CORPORATION
RELATING TO
TRANSOK, INC.
AGREEMENT OF MERGER
TABLE OF CONTENTS
PAGE
ARTICLE I. ----
DEFINITIONS
Section 1.01. Definitions.........................................1
Section 1.02. Rules of Construction...............................1
ARTICLE II.
TERMS OF MERGER
Section 2.01. Statutory Merger....................................1
Section 2.02. Purchase Price......................................2
Section 2.03. Closing.............................................2
Section 2.04. Actions at the Closing..............................2
Section 2.05. Effect of the Merger................................2
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AS TO THE SELLER
Section 3.01. Organization........................................4
Section 3.02. Authorization of Agreement..........................4
Section 3.03. Approvals...........................................4
Section 3.04. No Violation........................................4
Section 3.05. Litigation..........................................5
Section 3.06. Brokerage Agreements................................5
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AS TO THE COMPANY
Section 4.01. Organization and Qualification......................5
Section 4.02. Capitalization......................................6
Section 4.03. No Violation........................................7
Section 4.04. Financial Statements................................8
Section 4.05. No Material Adverse Effect; Conduct.................8
i
Section 4.06. Title to Properties.................................8
Section 4.07. Certain Obligations.................................9
Section 4.08. Regulation; Permits and Licenses...................10
Section 4.09. Litigation; Compliance with Laws...................11
Section 4.10. Taxes..............................................12
Section 4.11. Employee Benefit Plans.............................12
Section 4.12. Environmental Matters..............................14
Section 4.13. Patents, Trademarks................................14
Section 4.14. Insurance..........................................15
Section 4.15. Public Utility.....................................15
Section 4.16. Minute Books.......................................15
Section 4.17. Powers of Attorney.................................15
Section 4.18. Intercompany Transactions..........................15
Section 4.19. Accounts Receivable................................15
Section 4.20. Gas Balancing......................................16
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER
Section 5.01. Organization and Good Standing.....................16
Section 5.02. Financing..........................................16
Section 5.03. Authorization of Agreement.........................16
Section 5.04. Approvals..........................................16
Section 5.05. No Violation.......................................17
Section 5.06. Litigation.........................................17
Section 5.07. Brokerage Agreements...............................17
Section 5.08. Accounts Receivable................................17
ARTICLE VI.
AGREEMENTS
Section 6.01. Affirmative Covenants of the Seller................17
Section 6.02. Negative Covenants of the Seller...................18
Section 6.03. Access.............................................20
Section 6.04. Appropriate Action; Consents; Filings..............21
Section 6.05. Pending and Upcoming Rate Proceedings..............22
Section 6.06. Preparation and Filing of Tax Returns;
Payment of Taxes. .................................22
Section 6.07. Access to Information. ...........................24
Section 6.08. Employees and Employee Benefit Plans...............25
Section 6.09. Working Capital Contribution.......................28
Section 6.10. Intercompany Accounts; Post-Closing
Relationships; Closing Covenants ..................29
Section 6.11. Estimated Purchase Price...........................30
ii
Section 6.12. Determination of Final Purchase Price..............30
Section 6.13. Public Announcements...............................31
Section 6.14. Confidentiality....................................31
Section 6.15. Acquisition Proposals..............................31
ARTICLE VII.
CONDITIONS TO THE CLOSING
Section 7.01. Conditions to Obligations of Each Party............32
Section 7.02. Conditions to Obligation of the Purchaser..........32
Section 7.03. Conditions to Obligation of the Seller.............33
ARTICLE VIII.
INDEMNIFICATION
Section 8.01. Survival of Representations, Warranties,
Covenants and Agreements...........................34
Section 8.02. General Indemnification............................34
Section 8.03. Tax Indemnification and Audits.....................38
Section 8.04. Section 338(h)(10) Elections.......................40
ARTICLE IX.
TERMINATION
Section 9.01. Termination........................................41
Section 9.02. Effect of Termination; Nonconsummation.............42
Section 9.03. Fees and Expenses..................................42
ARTICLE X.
MISCELLANEOUS
Section 10.01. Notices...............................................43
Section 10.02. Headings; Cross References............................43
Section 10.03. Prior Agreements......................................43
Section 10.04. Amendment.............................................43
Section 10.05. Waiver................................................43
Section 10.06. Further Actions.......................................44
Section 10.07. Assignment............................................44
Section 10.08. Governing Law.........................................44
Section 10.09. Counterparts..........................................44
Section 10.10. Tranpache Partnership.................................44
iii
ANNEXES
Annex A -- Definitions
Annex B -- Transition Services
1
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "Agreement") is made and entered into on
May 9, 1996, by and between TEJAS GAS CORPORATION, a Delaware corporation (the
"Purchaser"), and CENTRAL AND SOUTH WEST CORPORATION, a Delaware corporation
(the "Seller").
RECITALS
This Agreement contemplates a transaction in which the Purchaser will
acquire all of the outstanding capital stock of Transok, Inc., an Oklahoma
corporation and wholly-owned subsidiary of the Seller (the "Company"), for cash
through a reverse subsidiary merger of a newly formed wholly-owned subsidiary of
the Purchaser (the "Merger Subsidiary") with and into the Company. For federal
and state income tax purposes, the parties will treat the reverse subsidiary
merger as a sale of stock by the Seller to the Purchaser, and the Seller and the
Purchaser will make a timely joint Code section 338(h)(10) election.
NOW, THEREFORE, in consideration of the premises hereof, the mutual
promises herein made, and the representations, warranties and covenants herein
contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01. DEFINITIONS. Certain capitalized and other terms used in
this Agreement are defined in Annex A hereto and are used herein with the
meanings ascribed to them therein.
Section 1.02. RULES OF CONSTRUCTION. Unless the context otherwise
requires, as used in this Agreement: (a) a term has the meaning ascribed to it;
(b) an accounting term not otherwise defined has the meaning ascribed to it in
accordance with generally accepted accounting principles as in effect from time
to time: (c) "or" is not exclusive; (d) "including" means "including, without
limitation;" and (e) words in the singular include the plural and words in the
plural include the singular.
ARTICLE II.
TERMS OF MERGER
Section 2.01. STATUTORY MERGER. Subject to the terms and conditions and
in reliance upon the representations, warranties, covenants and agreements
contained herein, the Merger Subsidiary shall merge with and into the Company
(the "Merger"), at the Effective Time. The terms and conditions of the Merger
and the mode of carrying the same into effect shall be as set forth in this
Agreement. The Company shall be the corporation surviving the Merger. Hereafter
"Surviving Corporation" shall mean the Company and "Constituent Corporations"
shall mean the Company and the Merger Subsidiary.
1
Section 2.02. PURCHASE PRICE.
(a) The purchase price (the "Purchase Price") payable to the
Seller pursuant to the Merger shall be an amount equal to $690,000,000;
plus the amount by which the Working Capital of the Company as of the
Closing exceeds zero or minus the amount by which the Working Capital
of the Company as of the Closing is less than zero, as the case may be.
As required by Section 6.09, Working Capital of the Company as of the
Closing shall be zero.
(b) The Estimated Purchase Price, determined as provided in
Section 6.11, shall be paid by the Purchaser to the Seller by wire
transfer of immediately available funds at the Closing and the Final
Purchase Price shall be determined and paid as provided in Section
6.12.
Section 2.03. CLOSING. The Closing shall take place at the offices of
Vinson & Elkins L.L.P., 2001 Ross Avenue, Dallas, Texas 75201 at 10:00 a.m. on
May 31, 1996 or at such other place, time and date as the parties hereto may
agree. The date on which the Closing occurs is referred to herein as the
"Closing Date".
Section 2.04. ACTIONS AT THE CLOSING. At the Closing, upon fulfillment
or waiver of the conditions precedent to the Closing set forth in Article VII,
the Seller and the Purchaser shall cause (a) the Constituent Corporations to
file with the Secretary of State of the State of Oklahoma a certificate of
merger (the "Certificate of Merger") containing the information required by
Section 1081(C) of the Oklahoma General Corporation Act (the "OGCA") and
executed and delivered in accordance with this Agreement and in accordance with
the provisions of Section 1007 of the OGCA, at which time the Merger will become
effective (the "Effective Time"), and (b) two newly formed wholly-owned
subsidiaries of the Merger Subsidiary to merge with and into Transok Gas Company
and Transok Gas Processing Company (each a Delaware corporation and wholly-owned
subsidiary of the Company), respectively, pursuant to Section 251 of the
Delaware General Corporation Law.
Section 2.05. EFFECT OF THE MERGER.
(a) From and after the Effective Time, (i) for all purposes
the separate corporate existence of the Merger Subsidiary shall cease
and the Company, as the Surviving Corporation, shall possess all the
rights, privileges, powers and franchises of a public nature as well as
of a private nature, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations to the
Merger; (ii) all and singular of the rights, privileges, powers and
franchises of each of the Constituent Corporations and all property,
real, personal and mixed, and all debts due to any of the Constituent
Corporations and all property, real, personal and mixed, and all debts
due to any of the Constituent Corporations shall be vested in the
Surviving Corporation; (iii) all property, rights, privileges, powers
and franchises, and all and every other interest shall be as
effectually the property of the Surviving Corporation as they were of
the Constituent Corporations, and the title to any real estate, vested
by deed or otherwise, in any of the Constituent Corporations shall not
revert or in any way be impaired by reason of the provisions of the
OGCA, but all rights of creditors and all liens upon any property of
any Constituent Corporation shall be preserved unimpaired; and
-2-
(iv) all debts, liabilities and duties of each Constituent Corporation
shall attach to the Surviving Corporation and may be enforced against
it to the same extent as if such debts, liabilities and duties had been
incurred or contracted by the Surviving Corporation. The Merger shall
have the effect set forth in the OGCA.
(b) The Surviving Corporation may, at any time after the
Effective Time, take any action (including executing and delivering any
document) in the name and on behalf of either of the Constituent
Corporations in order to carry out and effectuate the transactions
contemplated by this Agreement.
(c) The certificate of incorporation of the Surviving
Corporation shall be amended and restated in the Merger at and as of
the Effective Time to read as did the certificate of incorporation of
the Merger Subsidiary immediately prior to the Effective Time (except
that Article First of such certificate of incorporation shall read in
full as follows: "The name of the corporation is Transok, Inc.").
(d) The bylaws of the Surviving Corporation shall be amended
and restated at and as of the Effective Time to read as did the bylaws
of the Merger Subsidiary immediately prior to the Effective Time
(except that the name of the Surviving Corporation will remain
unchanged).
(e) The directors and officers of the Merger Subsidiary
immediately prior to the Effective Time shall become the directors and
officers of the Surviving Corporation at and as of the Effective Time
(retaining their respective positions and terms of office).
(f) The manner of converting the shares of each of the
Constituent Corporations into shares or securities of the Surviving
Corporation or the cash, property or other rights which the holders of
shares of such Constituent Corporations are to receive in exchange for
or upon conversion of such shares is as follows:
(i) At and as of the Effective Time, the outstanding
shares of Common Stock of the Company shall be converted into
the right to receive the Purchase Price.
(ii) At and as of the Effective Time, each share of
common stock, par value $100.00 per share, of the Merger
Subsidiary shall be converted into one share of common stock,
par value $100.00 per share, of the Surviving Corporation.
-3-
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AS TO THE SELLER
Subject to the provisions of Sections 8.01 and 8.02, the Seller hereby
represents and warrants as to itself to the Purchaser as follows:
Section 3.01. ORGANIZATION. The Seller is a corporation duly
incorporated, validly existing and in good standing under the Laws of the State
of Delaware, with all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now conducted.
Section 3.02. AUTHORIZATION OF AGREEMENT. The Seller has all requisite
corporate power and authority to execute and deliver this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby. The execution and delivery by the Seller of
this Agreement and each instrument required hereby to be executed and delivered
by it at the Closing and the performance of its obligations hereunder and
thereunder have been duly and validly authorized by all requisite corporate
action on the part of the Seller. This Agreement has been duly executed and
delivered by the Seller and (assuming due authorization, execution and delivery
hereof by the other party hereto) constitutes a legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms, except as the same may be limited by legal principles of general
applicability governing the application and availability of equitable remedies.
Section 3.03. APPROVALS. Except for the requirements of (a) the HSR Act
and (b) those Laws, Regulations and Orders noncompliance with which could not
reasonably be expected to have a material adverse effect on the ability of the
Seller to perform its obligations under this Agreement or to have a Material
Adverse Effect on the Company, no filing or registration with, no waiting period
imposed by and no Permit or Order of, any Governmental Authority is required
under any Law, Regulation or Order applicable to the Seller or the Company or
any of its subsidiaries to permit the Seller to execute, deliver or perform this
Agreement or any instrument required hereby to be executed and delivered by it
at the Closing.
Section 3.04. NO VIOLATION. Assuming effectuation of all filings and
registrations with, termination or expiration of any applicable waiting periods
imposed by and receipt of all Permits and Orders of, Governmental Authorities
indicated as required in Section 3.03, neither the execution and delivery by the
Seller of this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing nor the performance by the Seller of its
obligations hereunder or thereunder will (a) violate or breach the terms of or
cause a default under (i) any Law, Regulation or Order applicable to the Seller,
(ii) the certificate of incorporation or bylaws of the Seller or (iii) any
contract or agreement to which the Seller or any of its subsidiaries (other than
the Company and its subsidiaries) is a party or by which it or any of its
properties or assets is bound, or (b) with the passage of time, the giving of
notice or the taking of any action by a third party, have any of the effects set
forth in clause (a) of this Section, except in any such case for any matters
described in this Section that could not reasonably be expected to have a
material adverse effect upon the ability of the Seller to perform its
obligations under this Agreement.
-4-
Section 3.05. LITIGATION. There are no actions, suits, investigations
or proceedings (including any proceedings in arbitration) pending, or, to the
Knowledge of the Seller, threatened, against the Seller or any of its assets, at
law or in equity, in any Court or before or by any Governmental Authority that
could reasonably be expected to have a material adverse effect on the validity
or enforceability of this Agreement or the ability of the Seller to perform its
obligations under this Agreement.
Section 3.06. BROKERAGE AGREEMENTS. Neither the Seller, the Company nor
any of the Company's subsidiaries has, directly or indirectly, entered into any
agreement with any Person that would obligate the Company, any of its
subsidiaries or the Purchaser to pay any commission, brokerage fee or "finder's
fee" in connection with the transactions contemplated herein. The fees and
expenses of Morgan Stanley & Co. Incorporated incurred in connection with the
transactions contemplated hereby will be for the account of the Seller.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AS TO THE COMPANY
The Purchaser acknowledges that, prior to the execution of this
Agreement, it has been afforded the opportunity to inspect the business and
properties of the Company and to examine the records of the Company at its
offices, and has been afforded access to all information in the Company's
possession requested by the Purchaser. THE PURCHASER FURTHER ACKNOWLEDGES THAT,
EXCEPT AS EXPRESSLY PROVIDED IN ARTICLE III OR THIS ARTICLE IV, THE SELLER, ITS
OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES AND AGENTS HAVE MADE NO, AND THE
SELLER HEREBY EXPRESSLY DISCLAIMS ANY, REPRESENTATIONS OR WARRANTIES AS TO THE
ACCURACY OR COMPLETENESS OF SUCH INFORMATION, AS TO TITLE OF THE COMPANY OR ANY
OF ITS SUBSIDIARIES TO ANY ASSETS, OR AS TO ANY OTHER INFORMATION, DATA OR OTHER
MATERIALS (WRITTEN OR ORAL) FURNISHED TO THE PURCHASER OR ITS REPRESENTATIVES OR
AGENTS BY OR ON BEHALF OF THE SELLER.
Subject to the foregoing and to the provisions of Sections 8.01 and
8.02, the Seller represents and warrants as to the Company to the Purchaser as
follows:
Section 4.01. ORGANIZATION AND QUALIFICATION. The Company and each of
its subsidiaries is a corporation or other legal entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization (which in the case of the Company is the State of Oklahoma), has
all requisite corporate or partnership, as the case may be, power and authority
to own, lease and operate its properties and to carry on its business as it is
now conducted, and is duly qualified to do business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the character
of its properties or the nature of its business makes such qualification
necessary, except where the failure to be so qualified or in good standing could
not
-5-
reasonably be expected to have a Material Adverse Effect on the Company. The
names and jurisdictions of organization of each of the Company's subsidiaries
are listed in Section 4.01 of the Seller's Disclosure Letter. Complete copies of
the certificate of incorporation and bylaws or other organizational documents of
the Company and each of its subsidiaries, as amended to the date hereof, have
been made available to the Purchaser.
Section 4.02. CAPITALIZATION.
(a) The authorized capital stock of the Company consists
solely of 95,000 shares of common stock, par value $100.00 per share
("Common Stock"), of which 92,186 shares (the "Stock") are issued and
outstanding and owned beneficially and of record by the Seller, free
and clear of all Liens. No other shares of capital stock of the Company
are issued or outstanding. Each share of Stock has been validly issued
and is fully paid and nonassessable. No shares of Stock have been
issued in violation of any preemptive or similar rights of any past or
present stockholder of the Company. None of the shares of capital stock
of the Company or any other class of securities of the Company has been
or is registered under the Securities Act or the Exchange Act.
(b) No shares of Common Stock are reserved for issuance, and,
except for this Agreement, there are no contracts, agreements,
commitments or arrangements obligating the Seller or the Company (i) to
offer, sell, issue or grant any shares of, or any options, warrants or
rights of any kind to acquire any shares of, or any securities that are
convertible into or exchangeable for any shares of, capital stock of
the Company, (ii) to redeem, purchase or acquire, or offer to purchase
or acquire, any outstanding shares of, or any outstanding options,
warrants or rights of any kind to acquire any shares of, or any
outstanding securities that are convertible into or exchangeable for
any shares of, capital stock of the Company or (iii) to grant any Lien
on any shares of capital stock of the Company.
(c) The authorized, issued and outstanding capital stock of,
or other equity interests in, each of the Company's subsidiaries and
the names and addresses of the holders of record of the capital stock
or other equity interests of each such subsidiary are set forth in
Section 4.02(c) of the Seller's Disclosure Letter. The issued and
outstanding shares of capital stock of, or other equity interests in,
each of the subsidiaries of the Company that are owned by the Company
or any of its subsidiaries have been duly authorized and are validly
issued, and, with respect to capital stock, are fully paid and
nonassessable, and were not issued in violation of any preemptive or
similar rights of any past or present equity holder of such subsidiary.
All such issued and outstanding shares, or other equity interests, that
are indicated as owned by the Company or one of its subsidiaries in
Section 4.02(c) of the Seller's Disclosure Letter are owned (i)
beneficially as set forth therein and (ii) free and clear of all Liens.
No shares of capital stock of, or other equity interests in, any
subsidiary of the Company are reserved for issuance, and there are no
contracts, agreements, commitments or arrangements obligating the
Company or any of its subsidiaries (i) to offer, sell, issue, grant,
pledge, dispose of or encumber any shares of capital stock of, or other
equity interests in, or any options, warrants or rights of any kind to
acquire any shares of capital stock of, or other equity interests in,
or any securities that are convertible into or exchangeable for any
shares of capital stock of, or other equity interests in, any of the
subsidiaries of the Company or
-6-
(ii) to redeem, purchase or acquire, or offer to purchase or acquire,
any outstanding shares of capital stock of, or other equity interests
in, or any outstanding options, warrants or rights of any kind to
acquire any shares of capital stock of or other equity interest in, or
any outstanding securities that are convertible into or exchangeable
for, any shares of capital stock of, or other equity interests in, any
of the subsidiaries of the Company or (iii) to grant any Lien on any
outstanding shares of capital stock of, or other equity interest in,
any of the subsidiaries of the Company; PROVIDED, HOWEVER, that certain
terms and provisions of, and applicable law relating to, the
partnership or joint venture agreements or arrangements listed in
Section 4.02(c) of the Seller's Disclosure Letter may require the
partnerships or joint ventures to which such agreements or arrangements
relate or the partners or venturers therein to take certain actions not
Material to the Company with respect to the equity interests in such
partnerships and joint ventures contrary to clauses (i), (ii) or (iii)
above.
(d) Neither the Company nor any of its subsidiaries (i)
directly or indirectly owns, (ii) has agreed to purchase or otherwise
acquire or (iii) holds any interest convertible into or exchangeable or
exercisable for the capital stock or other equity interests of any
Person (other than the subsidiaries of the Company identified in
Section 4.01 of the Seller's Disclosure Letter). Except for any
contracts, agreements, commitments or arrangements (A) between the
Company and its subsidiaries or between such subsidiaries or (B)
between the Company and its subsidiaries, on the one hand, and the
Seller and its Affiliates (other than the Company and its
Subsidiaries), on the other, that will be terminated at or prior to the
Closing, there are no contracts, agreements, commitments or
arrangements of any character (contingent or otherwise) pursuant to
which any Person is or may be entitled to receive any payment from the
Company or any of its subsidiaries based on, or calculated in
accordance with, the revenues or earnings of the Company or any of its
subsidiaries, except for payments not Material to the Company from the
partnerships or joint ventures listed in Section 4.02(c) of the
Seller's Disclosure Letter.
Section 4.03. NO VIOLATION. Assuming effectuation of all filings and
registrations with, the termination or expiration of any applicable waiting
periods imposed by and receipt of all Permits and Orders of, Governmental
Authorities indicated as required in Section 3.03, neither the execution and
delivery by the Seller of this Agreement or any instrument required hereby to be
executed and delivered by it at the Closing nor the performance by the Seller of
its obligations hereunder or thereunder will (a) violate or breach the terms of
or cause a default under (i) any Law, Regulation or Order applicable to the
Company or any of its subsidiaries, (ii) the certificate of incorporation or
bylaws or other organizational documents of the Company or any of its
subsidiaries or (iii) any contract or agreement to which the Company or any of
its subsidiaries is a party or by which they or any of their properties or
assets are bound, (b) result in the creation or imposition of any Lien, other
than any Permitted Encumbrance, on any of the properties or assets of the
Company or any of its subsidiaries, (c) result in the cancellation, forfeiture,
revocation, suspension or adverse modification of any Permit owned or held by
the Company or any of its subsidiaries or (d), with the passage of time, the
giving of notice or the taking of any action by a third party, have any of the
effects set forth in clause (a), (b) or (c) of this Section, except in any such
case for any matters described in this Section that could not reasonably be
expected to have a Material Adverse Effect on the Company.
-7-
Section 4.04. FINANCIAL STATEMENTS. There is included in Section 4.04
of the Seller's Disclosure Letter a copy of the Consolidated Financial
Statements, and such Consolidated Financial Statements fairly present (a) the
consolidated financial position of the Company as of the respective dates of the
balance sheets included therein and (b) the consolidated results of the
operations of the Company for the fiscal years ended on such dates, all in
conformity with GAAP throughout the periods involved. Except as set forth in the
Seller's Disclosure Letter, there exist no liabilities or obligations of the
Company that are Material to the Company, whether accrued, absolute, contingent
or threatened, which would be required to be reflected, reserved for or
disclosed under GAAP in the consolidated financial statements of the Company as
of and for the period ended on the date of this representation and warranty,
other than (i) liabilities or obligations which are adequately reflected,
reserved for or disclosed in the Consolidated Financial Statements, and (ii)
liabilities or obligations incurred in the ordinary course of business of the
Company since December 31, 1995.
Section 4.05. NO MATERIAL ADVERSE EFFECT; CONDUCT.
(a) Since December 31, 1995, no event (other than any event
that is of general application to all or a substantial portion of the
Company's industry and other than any event that is expressly subject
to any other representation or warranty contained in Articles III or
IV) has, to the Knowledge of the Seller, occurred that, individually or
together with other similar events, could reasonably be expected to
constitute or cause a Material Adverse Effect on the Company.
(b) Except as disclosed in the Seller's Disclosure Letter,
during the period from December 31, 1995 to the execution of this
Agreement by the Seller, neither the Company nor any of its
subsidiaries has engaged in any conduct that is proscribed during the
period from the execution of this Agreement by the Seller to the
Closing by subsections (a) through (j) of Section 6.02 or agreed in
writing or otherwise during such period prior to the execution of this
Agreement by the Seller to engage in any such conduct.
Section 4.06. TITLE TO PROPERTIES.
(a) The Company or its subsidiaries, individually or together,
have indefeasible title to all of the properties reflected in the
Consolidated Balance Sheet, (other than the Pipeline Assets, as to
which they have such title or interest as is sufficient to enable the
Company and its subsidiaries to conduct their business as currently
conducted without material interference, and other than any properties
reflected in the Consolidated Balance Sheet that (i) have been sold or
otherwise disposed of since the date of the Consolidated Balance Sheet
without breaching either Section 4.05(b) or Section 6.02(f) or (ii) are
not, individually or in the aggregate, Material to the Company) free
and clear of Liens, other than (x) Liens the existence of which is
reflected in the Consolidated Financial Statements, (y) Permitted
Encumbrances and (z) Liens that, individually or in the aggregate, are
not Material to the Company. The Company or its subsidiaries,
individually or together, hold under valid lease agreements all real
and personal properties reflected in the Consolidated Balance Sheet as
being held under capitalized leases, and all real and personal property
that is subject to the operating leases to which reference is made in
the notes to the Consolidated Financial Statements, and enjoy peaceful
and undisturbed possession of such properties under such
-8-
leases, other than (i) any properties as to which such leases have
terminated in the ordinary course of business since the date of the
Consolidated Balance Sheet and (ii) any properties that, individually
or in the aggregate, are not Material to the Company. Neither the
Company nor any of its subsidiaries has received any written notice of
any adverse claim to the title to any properties owned by them or with
respect to any lease under which any properties are held by them, other
than any claims that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the
Company.
(b) EASEMENTS. Neither the Company nor any of its subsidiaries
is in violation of the terms of any Easement except any such violations
that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company. All
Easements that are Material to the Company are valid and enforceable
and grant the rights purported to be granted thereby and all rights
necessary thereunder for the current operation of the business of the
Company and its subsidiaries. There are no spatial gaps in the
Easements that could reasonably be expected to have a Material Adverse
Effect on the Company, and all parts of the Pipeline Assets that are
Material to the Company are located either on property owned in fee by
the Company or a subsidiary of the Company or on property subject to an
Easement in favor of the Company or a subsidiary of the Company.
Section 4.07. CERTAIN OBLIGATIONS.
(a) Except as set forth in Section 4.07(a) of the Seller's
Disclosure Letter, neither the Company nor any of its subsidiaries is a
party to or bound by any Material Contract. Except as set forth in
Section 4.07(a) of the Seller's Disclosure Letter, all Material
Contracts are in full force and effect, the Company or the subsidiary
of the Company that is a party to or bound by such Material Contract
has performed its obligations thereunder to date and, to the Knowledge
of the Seller, each other party thereto has performed its obligations
thereunder to date, other than any failure of a Material Contract to be
in full force and effect or any nonperformance thereof that could not
reasonably be expected to have a Material Adverse Effect on the
Company. Each of the Medium-Term Notes issued by the Company pursuant
to the Medium-Term Note Program identified in Section 4.07(a) of the
Seller's Disclosure Letter conform in all material respects to the
sample Medium-Term Note included in Section 4.07(a-l) of the Seller's
Disclosure Letter.
(b) Subject to Section 4.08(a), except for matters that could
not reasonably be expected to have a Material Adverse Effect on the
Company, no provision of any Law, Regulation or Order applicable to the
Company or any of its subsidiaries (i) would preclude the Company or
any of its subsidiaries from charging and collecting, without the
necessity for approvals of any Governmental Authority and without
refund obligation, market based rates for storing, processing,
purchasing, gathering or selling Hydrocarbons; (ii) would preclude the
Company or any of its subsidiaries from constructing additions to,
modifications of or interconnections with third parties with respect
to, its transportation, storage, processing or gathering facilities; or
(iii) could reasonably be expected to require the Company or any of its
subsidiaries to make refunds of amounts collected for sales or
services.
-9-
(c) Except as set forth in Section 4.07(c) of the Seller's
Disclosure Letter and for matters that could not reasonably be expected
to have a Material Adverse Effect on the Company, none of the Company
and its subsidiaries engages in any natural gas or other futures or
options trading or is a party to any price swaps, hedges, futures or
similar instruments, except for transactions and agreements entered
into primarily to hedge contracts for the purchase or sale of
Hydrocarbons to which the Company or one of its subsidiaries is a
party. Section 4.07(c) of the Seller's Disclosure Letter sets forth a
true and correct statement of the position, as of the date hereof, of
the Company and its subsidiaries with respect to obligations under
Fixed Price Contracts (including, with respect to each Fixed Price
Contract, location of delivery and variations in the obligation to take
or deliver) and related Hydrocarbon price swaps, hedges, futures or
similar instruments to which the Company or any of its subsidiaries is
a party and that are Material to the Company.
Section 4.08. REGULATION; PERMITS AND LICENSES.
(a) The Company and its subsidiaries operate intrastate
pipelines with Pipeline Assets located in the States of Texas,
Oklahoma, and Louisiana. As such, the natural gas storage,
transportation, and exchange services performed in interstate commerce
by the Company and certain of its subsidiaries are subject to the
provisions of either a limited jurisdiction certificate issued under
the NGA or Section 311 of the NGPA ("Section 311") and the applicable
Regulations of the FERC promulgated thereunder (including applicable
facilities construction, rate authorization, reporting and refund
requirements), as the provisions of such certificate, Section 311 and
such Regulations may be interpreted, amended or modified from time to
time pursuant to Orders of the FERC or of any Court. Under such Laws
and Regulations, the Company and certain of its subsidiaries are
authorized to charge market based rates for Section 311 storage
services and are authorized to charge various maximum rates for Section
311 transportation and exchange services. Except as set forth in
Section 4.08(a) of the Seller's Disclosure Letter, the rates for
services collected pursuant to such rate authorizations are not being
collected subject to refund. In addition, sales for resale of natural
gas in interstate commerce made by the Company or its subsidiaries of
natural gas that is produced from reserves owned by a party other than
such seller are made pursuant to Section 311 and the applicable
Regulations thereunder or the terms and conditions of a blanket sales
certificate authorization issued by the FERC under the NGA, as such
authorization may be amended, modified or interpreted from time to time
pursuant to Orders of the FERC or of any Court. Intrastate
transportation, exchange, storage, gathering, and pipeline sales
services performed by the Company and its subsidiaries may be subject
to certain facilities construction, rate, reporting and prior
authorization requirements applicable under the Laws of the States of
Texas, Oklahoma, and Louisiana, and Regulations promulgated thereunder
by the TRC, the OCC and the LCC, respectively, as such Regulations may
be amended, modified and interpreted by the respective Governmental
Authorities or the Courts.
(b) To the Knowledge of the Seller, the Company and its
subsidiaries have obtained all Permits, including all certificates of
public convenience and necessity and rate authorizations required by
the LCC and by the FERC, as are necessary to carry on their businesses
as currently conducted, except for any such Permits that the failure to
possess
-10-
which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company. Such Permits
are in full force and effect, have not been violated in any respect
that could reasonably be expected to have a Material Adverse Effect on
the Company and, to the Knowledge of the Seller, no suspension,
revocation or cancellation thereof has been threatened.
(c) Neither the Company nor any subsidiary of the Company is
subject to the jurisdiction of the FERC under the NGA, except pursuant
to Sections 284.121 through 284.126 of the FERC's regulations, 18
C.F.R. ss.ss.284.121 through 284.126 (1995), Section 284.142 of the
FERC's regulations, 18 C.F.R., ss. 284.142 (1995), and pursuant to a
limited jurisdiction blanket certificate issued under Section 284.227
of the FERC's regulations, 18 C.F.R. ss.284.227 (1994). The Company and
its subsidiaries have engaged in no activities which would subject
them, their activities, or their facilities to the NGA jurisdiction of
the FERC. All of the Company's and its subsidiaries' facilities used to
transport natural gas are non-jurisdictional intrastate transmission or
"gathering" facilities within the meaning of the NGA and/or NGPA, and,
except as set forth in the first sentence of this Section 4.08(c),
neither the Company nor any of its subsidiaries has or is engaged in
the interstate transmission of gas through any of its facilities. The
Company's and each of its subsidiaries' representations concerning the
jurisdictional status of its facilities and operations made to natural
gas purchasers and interstate or intrastate pipelines in order to
effect sales or to facilitate transportation transactions (whether for
the Company, its subsidiaries or any third parties) have been and,
through the Closing, are true and correct in all Material respects, and
the Company and its subsidiaries have complied in all Material respects
with the terms and conditions of such sales, transportation or
interconnect or similar arrangements (including "on behalf of"
certificates). Neither the Company nor any of its subsidiaries has
violated, and neither has received notification from any Governmental
Authority that it has violated, the NGA, the NGPA, or any other Law
concerning the transmission and sale of natural gas or the conduct of
gathering, treating, processing, and compression activities associated
with natural gas, except for any violations that, individually or in
the aggregate, could not reasonably be expected to have a Material
Adverse Effect on the Company.
Section 4.09. LITIGATION; COMPLIANCE WITH LAWS. There are no actions,
suits, investigations or proceedings (including any proceedings in arbitration)
pending or, to the Knowledge of the Seller, threatened against the Company or
any of its subsidiaries, at law or in equity, in any Court or before or by any
Governmental Authority (excluding any rulemaking or similar proceedings of
general applicability and any appeal or petition for review related thereto),
except actions, suits or proceedings that (a) are set forth in Section 4.09 or
Section 4.12 of the Seller's Disclosure Letter or (b), individually or, with
respect to multiple actions, suits or proceedings that allege similar theories
of recovery based on similar facts, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company. Except as set forth
in Section 4.09 of the Seller's Disclosure Letter, the Company and its
subsidiaries are in substantial compliance with all applicable Laws and
Regulations and are not in default with respect to any Order applicable to the
Company or any of its subsidiaries, except such events of noncompliance or
defaults that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company.
-11-
Section 4.10. TAXES.
(a) Except for such matters as could not reasonably be
expected to have a Material Adverse Effect on the Company, (i) all
returns and reports of or with respect to any Tax which are required to
be filed by or with respect to the Company or any of its subsidiaries
("Tax Returns") on or before the Closing Date have been or will be
timely filed, (ii) all Taxes which are shown to be due on such Tax
Returns on or before the Closing Date have been or will be timely paid
in full, (iii) all withholding Tax requirements imposed on or with
respect to the Company or any of its subsidiaries have been or will be
satisfied in full in all respects and (iv) no penalty, interest or
other charge is or will become due with respect to the late filing of
any such Tax Return or late payment of any such Tax.
(b) Except as set forth in Section 4.10(b) of the Seller's
Disclosure Letter, all Tax Returns have been audited by the applicable
Governmental Authority or the applicable statute of limitations has
expired for the period covered by such Tax Returns.
(c) Except as set forth in Section 4.10(c) of the Seller's
Disclosure Letter, there is not in force any extension of time with
respect to the due date for the filing of any Tax Return or any waiver
or agreement for any extension of time for the assessment or payment of
any Tax due with respect to the period covered by any Tax Return.
(d) There is no claim against the Company or any of its
subsidiaries for any Taxes, and no assessment, deficiency or adjustment
has been asserted or proposed with respect to any Tax Return that could
reasonably be expected to have a Material Adverse Effect on the
Company.
(e) Except as set forth in Section 4.10(e) of the Seller's
Disclosure Letter, none of the Company and its subsidiaries, during the
last ten years, has been a member of an affiliated group filing a
consolidated federal income Tax Return (other than the Seller's Group).
Section 4.11. EMPLOYEE BENEFIT PLANS.
(a) Each Benefit Plan is listed in Section 4.11(a) of the
Seller's Disclosure Letter. True and correct copies of each of the
following have been made available to the Purchaser: (i) the most
recent annual report (Form 5500) relating to each Benefit Plan filed
with the IRS, (ii) each such Benefit Plan, (iii) the trust agreement,
if any, relating to each such Benefit Plan, (iv) the most recent
summary plan description for each such Benefit Plan for which a summary
plan description is required by ERISA, (v) the most recent actuarial
report or valuation relating to each such Benefit Plan subject to Title
IV of ERISA and (vi) the most recent determination letter, if any,
issued by the IRS with respect to any such Benefit Plan qualified under
Section 401 of the Code.
(b) With respect to the Benefit Plans, no event has occurred
and, to the Knowledge of the Seller, there exists no condition or set
of circumstances in connection with which the Company or any of its
subsidiaries could be subject to any liability under the terms
-12-
of such Benefit Plans, ERISA, the Code or any other applicable Law,
other than any condition or set of circumstances that could not
reasonably be expected to have a Material Adverse Effect on the
Company.
(c) As to any Benefit Plan intended to be qualified under
Section 401 of the Code, such Benefit Plan satisfies in form the
requirements of such Section and there has been no termination or
partial termination of such Benefit Plan within the meaning of Section
411(d)(3) of the Code.
(d) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the Knowledge of the Seller,
threatened against, or with respect to, any of the Benefit Plans or
their assets.
(e) All contributions required to be made to the Benefit Plans
pursuant to their terms and provisions have been made timely.
(f) As to any Benefit Plan subject to Title IV of ERISA, there
has been no event or condition which presents the material risk of plan
termination, no accumulated funding deficiency, whether or not waived,
within the meaning of Section 302 of ERISA or Section 412 of the Code
has been incurred, no notice of intent to terminate the Benefit Plan
has been given under Section 4041 of ERISA, no proceeding has been
instituted under Section 4042 of ERISA to terminate the Benefit Plan,
and no liability to the Pension Benefit Guaranty Corporation has been
incurred (other than with respect to required premium payments).
(g) In connection with the consummation of the transactions
contemplated by this Agreement, no payments have or will be made under
the Benefit Plans or any of the programs, agreements, policies or other
arrangements described in Section 4.11(i) of the Seller's Disclosure
Letter which, in the aggregate, would be nondeductible under Section
280G of the Code.
(h) No collective bargaining agreement is being negotiated by
the Company or any of its subsidiaries. There is no pending or, to the
Knowledge of the Seller, threatened labor dispute, strike or work
stoppage against the Company or any of its subsidiaries which could
reasonably be expected to interfere with the business activities of the
Company or any of its subsidiaries. To the Knowledge of the Seller,
none of the Company, any of its subsidiaries or any of their respective
representatives or employees has committed any unfair labor practices
in connection with the operation of the respective businesses of the
Company or its subsidiaries, and there is no pending or, to the
Knowledge of the Seller, threatened charge or complaint against the
Company or any of its subsidiaries by the National Labor Relations
Board or any comparable state agency.
(i) Except as set forth in Section 4.11(i) of the Seller's
Disclosure Letter, neither the Company nor any of its subsidiaries is a
party to or is bound by any severance agreements, programs or policies.
True and correct copies of (i) all employment agreements with officers
of the Company and its subsidiaries, and (ii) all vacation, overtime
and other compensation
-13-
policies of the Company and its subsidiaries relating to their
employees have been made available to the Purchaser. Except as set
forth in Section 4.11(i) of the Seller's Disclosure Letter, there are
no (x) agreements with consultants of the Company and its subsidiaries
obligating the Company or any of its subsidiaries to make cash payments
in an amount exceeding $150,000 or (y) noncompetition agreements with
the Company or any of its subsidiaries executed by officers of the
Company.
(j) Except as set forth in Section 4.11(j) of the Seller's
Disclosure Letter, (i) no Benefit Plan provides retiree medical or
retiree life insurance benefits to any Person and (ii) neither the
Company nor any of its subsidiaries is contractually or otherwise
obligated (whether or not in writing) to provide any Person with life
insurance or medical benefits upon retirement or termination of
employment, other than as required by the provisions of Sections 601
through 608 of ERISA and Section 4980B of the Code.
(k) Neither the Company nor any of its subsidiaries
contributes to or has an obligation to contribute to, and has not
within six years prior to the date of this Agreement contributed to or
had an obligation to contribute to, a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(l) The Company's vacation policy does not provide for
carryover vacation from one calendar year to the next.
Section 4.12. ENVIRONMENTAL MATTERS. Except for matters disclosed in
Section 4.12 of the Seller's Disclosure Letter and except for matters that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company, (a) the properties, operations and activities of the Company and
its subsidiaries are in compliance with all applicable Environmental Laws; (b)
the Company and its subsidiaries and the properties and operations of the
Company and its subsidiaries are not subject to any existing, pending or, to the
Knowledge of the Seller, threatened action, suit, investigation, inquiry or
proceeding by or before any Court or Governmental Authority under any
Environmental Law; (c) all Permits, if any, required to be obtained or filed by
the Company or any of its subsidiaries under any Environmental Law in connection
with the business of the Company and its subsidiaries have been obtained or
filed and are valid and currently in full force and effect; (d) there has been
no release of any hazardous substance, pollutant or contaminant into the
environment by the Company or its subsidiaries or in connection with their
properties or operations; and (e) the Company and its subsidiaries have made
available to the Purchaser all internal and external environmental audits and
studies and all correspondence on substantial environmental matters in each case
relevant to the Company or any of its subsidiaries and known by the Seller, or
which the Seller should have known, to be in the possession of the Company or
its subsidiaries.
Section 4.13. PATENTS, TRADEMARKS. Section 4.13 of the Seller's
Disclosure Letter sets forth all patents, trademarks, service marks, trade names
and copyrights and registrations and applications for any thereof, domestic or
foreign, owned by or registered in the name of the Company or one of its
subsidiaries or in which the Company or its subsidiaries has any rights and
which are Material to the Company. The Company or its subsidiaries own or hold
licenses under such patents, trademarks, service marks, trade names and
copyrights as are necessary for the conduct of its business as currently
conducted except for licenses which the failure to own or hold could not
reasonably be expected to
-14-
have a Material Adverse Effect on the Company. Neither the Company nor any of
its subsidiaries is currently in receipt of any notice of infringement or notice
of conflict with the asserted rights of others in any patents, trademarks,
service marks, trade names and copyrights owned or held by other Persons,
except, in each case, for matters that could not reasonably be expected to have
a Material Adverse Effect on the Company.
Section 4.14. INSURANCE. Section 4.14 of the Seller's Disclosure Letter
sets forth all insurance policies held by the Company and its subsidiaries that
are Material to the Company. To the Knowledge of the Seller, all such policies
are in full force and effect and all premiums due thereon have been paid.
Section 4.15. PUBLIC UTILITY. The Company is not a "holding company,"
or a "public utility company," as such terms are defined in the Holding Company
Act and the rules and regulations thereunder; it is, however, a "subsidiary
company" of a "holding company," and an "affiliate" of a "holding company," as
such terms are defined in the Holding Company Act and the rules and regulations
thereunder. The Seller has taken no action that, and no relationship between the
Seller and its Affiliates existing prior to the Closing, will cause the Company
to continue to be a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" after the Closing within the meaning of the
Holding Company Act and the rules and regulations thereunder.
Section 4.16. MINUTE BOOKS. The minute books of the Company and its
subsidiaries which have been made available to the Purchaser for review
constitute all of the Company's and its subsidiaries' minute books and contain a
complete and accurate record of all resolutions and formal actions of the
Company's and its subsidiaries' stockholders and directors (and any committees
thereof), in each case, in their respective capacities as such.
Section 4.17. POWERS OF ATTORNEY. No Persons hold powers of attorney
for the Company or its subsidiaries except for revocable limited powers of
attorney granted in connection with ad valorem, franchise and other state and
local taxes or other routine business matters.
Section 4.18. INTERCOMPANY TRANSACTIONS. Except as may otherwise be
required by Sections 6.09 and 6.10, since December 31, 1995, all Material
intercompany transactions between the Company and its subsidiaries, on the one
hand, and the Seller and its Affiliates (other than the Company and its
subsidiaries), on the other, including charges for factoring accounts
receivable, interest, administrative and overhead services, transporting
Hydrocarbons and sales of Hydrocarbons, have been made on terms consistent in
all material respects with, and accounted for by the Company and its
subsidiaries consistent with, transactions of a similar nature occurring during
the periods reflected in the Consolidated Financial Statements. The Company and
its subsidiaries have not guaranteed, or provided collateral, surety, or credit
support for, any obligations of the Seller and its Affiliates (other than the
Company and its subsidiaries) to third parties, except such that will be
released at the Closing.
Section 4.19. ACCOUNTS RECEIVABLE. The accounts receivable included in
current accounts of the Company comprising part of the Working Capital of the
Company arise from, in all material respects, sales made or services rendered in
the ordinary course of business, are not subject to any material Lien (except
Liens to be released at or prior to the Closing), are not subject to any
material
-15-
conditions that would preclude the sale thereof by the Company (except any such
condition to be satisfied or released at or prior to Closing) and are
collectible in the ordinary course of business, except as reflected in the
reserve for doubtful accounts included in the Working Capital of the Company as
of the Closing.
Section 4.20. GAS BALANCING. Except as set forth in Section 4.09 of the
Seller's Disclosure Letter, to the Knowledge of the Seller, since December 31,
1995 no claim has been asserted against the Company or any of its subsidiaries
relating to any Material gas balancing liabilities.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER
Subject to the provisions of Sections 8.01 and 8.02, the Purchaser
represents and warrants to the Seller as follows:
Section 5.01. ORGANIZATION AND GOOD STANDING. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
Laws of the State of Delaware with all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as
currently conducted.
Section 5.02. FINANCING. The Purchaser has available to it internal
funds that are otherwise uncommitted and funds that it can acquire through
borrowings from nationally recognized financial institutions, which borrowings
are the subject of firm commitments from such institutions obtained for the
purposes of this Agreement, and such funds are, in the aggregate, sufficient to
enable the Purchaser to pay the Estimated Purchase Price of the Stock in full,
together with all costs and expenses related thereto, and otherwise to perform
its obligations under this Agreement.
Section 5.03. AUTHORIZATION OF AGREEMENT. The Purchaser has all
requisite corporate power and authority to enter into this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby. The execution and delivery by the Purchaser of
this Agreement and each instrument required hereby to be executed and delivered
by it at the Closing, and the performance of its obligations hereunder and
thereunder, have been duly and validly authorized by all requisite corporate
action on the part of the Purchaser. This Agreement has been duly executed and
delivered by the Purchaser and (assuming due authorization, execution and
delivery hereof by the other party hereto) constitutes a legal, valid and
binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms, except as the same may be limited by legal principles
of general applicability governing the application and availability of equitable
remedies.
Section 5.04. APPROVALS. Except for the requirements of (a) the HSR Act
and (b) those Laws, Regulations and Orders noncompliance with which could not
reasonably be expected to have a material adverse effect on the Purchaser's
ability to perform this Agreement, no filing or registration with, no waiting
period imposed by and no Permit or Order of, any Governmental Authority is
required under any Law, Regulation or Order applicable to the Purchaser to
permit the Purchaser to
-16-
execute, deliver or perform this Agreement or any instrument required hereby to
be executed and delivered by it at the Closing.
Section 5.05. NO VIOLATION. Assuming effectuation of all filings and
registrations with, termination or expiration of all waiting periods imposed by
and receipt of all Permits and Orders of, Governmental Authorities indicated as
required in Section 5.04, neither the execution and delivery by the Purchaser of
this Agreement or any instrument required hereby to be executed and delivered by
it at the Closing nor the performance by the Purchaser of its obligations
hereunder or thereunder will (a) violate or breach the terms of or cause a
default under (i) any Law, Regulation or Order applicable to the Purchaser, (ii)
the charter or bylaws of the Purchaser or (iii) any contract or agreement to
which the Purchaser is a party or by which it or any of its properties or assets
is bound, or (b), with the passage of time or the giving of notice or the taking
of any action by a third party, have any of the effects set forth in clause (a)
of this Section, except in any such case for any matters described in this
Section that could not reasonably be expected to have a material adverse effect
upon the ability of the Purchaser to perform its obligations under this
Agreement.
Section 5.06. LITIGATION. There are no actions, suits, investigations
or proceedings (including any proceedings in arbitration) pending, or, to the
Knowledge of the Purchaser, threatened, against the Purchaser or any of its
assets, at law or in equity, in any Court or before or by any Governmental
Authority that could reasonably be expected to have a material adverse effect on
the validity or enforceability of this Agreement or the ability of the Purchaser
to perform its obligations under this Agreement.
Section 5.07. BROKERAGE AGREEMENTS. Neither the Purchaser nor any of
its subsidiaries has, directly or indirectly, entered into any agreement with
any Person that would obligate the Seller, the Company or any of the Company's
subsidiaries to pay any commission, brokerage fee or "finder's fee" in
connection with the transactions contemplated herein.
Section 5.08. ACCOUNTS RECEIVABLE. The reserve for doubtful accounts
included in the Working Capital of the Company as of the Closing does not exceed
the amount of receivables of the Company comprising part of the Working Capital
of the Company as of the Closing that is not collectible (it being understood
and agreed that this representation is intended solely to provide a mechanism
pursuant to which the Purchaser will rebate to the Seller, pursuant to Section
8.02, the excess of receivables actually collected over the amount credited to
the Seller for such receivables pursuant to Section 6.09(c) in computing the
Final Purchase Price).
ARTICLE VI.
AGREEMENTS
Section 6.01. AFFIRMATIVE COVENANTS OF THE SELLER. Except as expressly
contemplated by this Agreement or consented to in writing by the Purchaser
(which consent shall not be unreasonably withheld), the Seller will, during the
period from the execution of this Agreement by the Seller to the Closing, cause
the Company and its subsidiaries:
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(a) to operate their businesses in all material respects in
the usual and ordinary course consistent with past practices;
(b) to use all reasonable efforts to preserve substantially
intact their business organizations, maintain the rights and franchises
that are Material to the Company, retain the services of their officers
and maintain the relationships with the customers and suppliers that
are Material to the Company;
(c) to maintain and keep the properties and assets that are
Material to the Company in as good repair and condition as on the date
of this Agreement, ordinary wear and tear excepted, and maintain
supplies and inventories in quantities consistent with their customary
business practices;
(d) to use all commercially reasonable efforts to keep in full
force and effect insurance comparable in amount and scope of coverage
to that set forth in Section 4.14 of the Seller's Disclosure Letter;
and
(e) to comply in all material respects with all applicable
Laws, Regulations and Orders.
Section 6.02. NEGATIVE COVENANTS OF THE SELLER. Except as (i) expressly
contemplated by this Agreement, (ii) required by the partnership or joint
venture agreements or arrangements listed in Section 4.02(c) of the Seller's
Disclosure Letter with respect to the business, condition (financial or
otherwise), operations, performance or properties of the partnerships and joint
ventures created thereby, or (iii) as otherwise consented to in writing by the
Purchaser (which consent shall not be unreasonably withheld), the Seller will
not, from the execution of this Agreement by the Seller until the Closing,
permit the Company or any of its subsidiaries:
(a) (i) to increase in any material respect the compensation
payable to or to become payable to any director or executive officer,
except for increases in salary or wages payable or to become payable in
the ordinary course of business and consistent with past practice; (ii)
to grant in any material respect any severance or termination pay
(other than pursuant to the normal severance policy of the Company and
its subsidiaries as in effect on the date of this Agreement) to, or to
enter into or to amend any employment or severance agreement with, any
director, officer or employee; or (iii) to establish, adopt or enter
into any Benefit Plan;
(b) to declare or to pay any dividend on, or to make any other
distribution in respect of, outstanding shares of capital stock or
other equity interests, except for dividends or any other distributions
by (i) a wholly-owned subsidiary of the Company to the Company or
another wholly-owned subsidiary of the Company or (ii) as disclosed in
Section 6.02(b) of the Seller's Disclosure Letter;
(c) (i) to redeem, purchase or acquire, or to offer to
purchase or acquire, any outstanding shares of capital stock of, or
other equity interests in, or any securities that are convertible into
or exchangeable for any shares of capital stock of, or other equity
interests
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in (other than any such acquisition by the Company or any of its
wholly-owned subsidiaries directly from any wholly-owned subsidiary of
the Company in exchange for capital contributions or loans to such
subsidiary), or any outstanding options, warrants or rights of any kind
to acquire any shares of capital stock of, or other equity interests
in, the Company or any of its subsidiaries; (ii) to effect any
reorganization or recapitalization; or (iii) to split, combine or
reclassify any of the capital stock of, or other equity interests in,
the Company or any of its subsidiaries or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of such capital stock or such equity
interests;
(d) (i) to offer, sell, issue or grant, or authorize the
offering, sale, issuance or grant, of any shares of capital stock of,
or other equity interests in, any securities convertible into or
exchangeable for any shares of capital stock of, or other equity
interests in, or any options, warrants or rights of any kind to acquire
any shares of capital stock of, or other equity interests in, the
Company or any of its subsidiaries; or (ii) to grant any Lien with
respect to any shares of capital stock of, or other equity interests
in, any subsidiary of the Company;
(e) to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or in
any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise to acquire any assets of any other Person (other than the
purchase of assets from suppliers or vendors in the ordinary course of
business and consistent with past practice), the aggregate purchase
prices for which exceeds $3,000,000;
(f) to sell, lease, exchange or otherwise dispose of, or to
grant any Lien (other than a Permitted Encumbrance) with respect to,
any of the assets of the Company or any of its subsidiaries that are
Material to the Company, except for dispositions of assets (up to an
aggregate fair market value of $3,000,000) and inventories in the
ordinary course of business and consistent with past practice;
(g) to adopt any amendments to its charter or bylaws or other
organizational documents that would alter the terms of its capital
stock or other equity interests or would have a material adverse effect
on the ability of the Seller to perform its obligations under this
Agreement;
(h) (i) to change any of its policies or practices related to
business transactions between the Company and its subsidiaries, on the
one hand, and the Seller and its Affiliates (other than the Company and
its subsidiaries), on the other hand, (ii) to change any of its methods
of accounting in effect at December 31, 1995, except as may be required
to comply with GAAP, (iii) to make or rescind any election relating to
Taxes, (iv) to settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or
controversy relating to Taxes (except where the cost to the Company and
its subsidiaries of such settlements or compromises, individually or in
the aggregate, does not exceed $500,000), or (v) to change any of its
methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income
tax returns for the taxable year ending December 31, 1994, except, in
each case, as may be required by
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Law and except, in the cases of clauses (i), (ii) (iii) and (v), for
matters that could not reasonably be expected to have a Material
Adverse Effect on the Company;
(i) to incur any obligations for borrowed money or purchase
money indebtedness that are Material to the Company, whether or not
evidenced by a note, bond, debenture or similar instrument, except
obligations to the Seller and its Affiliates which, in the case of
obligations to the Seller and its Affiliates other than the Company and
its subsidiaries, will be forgiven or otherwise satisfied at the
Closing in accordance with Sections 6.09 and 6.10;
(j) to enter into any arrangement, agreement or contract with
any third party (other than customers in the ordinary course of
business) which is Material to the Company and that is substantially
more restrictive on the Company and its subsidiaries or substantially
less advantageous to the Company and its subsidiaries than
arrangements, agreements or contracts existing on the date hereof;
(k) to enter into any (i) new Hydrocarbons purchase contract
or Hydrocarbons sale contract or amend or modify any such contract now
in existence, which contract, amendment or modification is Material to
the Company or (ii) Fixed Price Contract;
(l) to enter into any new Hydrocarbons transportation,
gathering, compression or dehydration contract or amend or modify any
such contract now in existence, which contract, amendment or
modification is Material to the Company;
(m) to enter into any new Hydrocarbons storage contract or
Hydrocarbons processing contract or amend or modify any such contract
now in existence, which contract amendment or modification is Material
to the Company;
(n) to initiate any proceeding before the OCC, the LCC, the
TRC, the FERC or any other federal or state regulatory agency, which
proceeding could reasonably be expected to have a Material Adverse
Effect on the Company; or
(o) to agree in writing or otherwise to do any of the
foregoing.
Section 6.03. ACCESS.
(a) From the execution of this Agreement by the Seller until
the Closing, the Seller shall cause the Company and its subsidiaries
(i) to afford the Purchaser and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other
representatives, including environmental engineers (collectively, the
"Purchaser's Repre sentatives"), reasonable access at reasonable times,
upon reasonable prior notice, to the officers, employees, agents,
properties, offices and other facilities of the Company and its
subsidiaries and to the books and records thereof and (ii) to furnish
promptly to the Purchaser and the Purchaser's Representatives such
information concerning the business, properties, contracts, records and
personnel of the Company and its subsidiaries (including financial,
operating and other data and information) as may be reasonably
requested, from time to time, by the Purchaser.
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(b) Notwithstanding the foregoing provisions of this Section,
the Seller shall not be required to cause the Company or any of its
subsidiaries to grant access or furnish information to the Purchaser or
any of the Purchaser's Representatives to the extent that such
information is subject to an attorney/client or attorney work product
privilege or that such access or the furnishing of such information is
prohibited by Law or by a valid and binding confidentiality agreement
with a third party; PROVIDED, HOWEVER, that, in the latter instance, if
so requested by the Purchaser, the Seller will use all commercially
reasonable efforts to obtain from such third party a waiver of such
prohibition.
(c) The information received pursuant to this Section shall be
deemed to be "Evaluation Material" for purposes of the Confidentiality
Agreement.
Section 6.04. APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) The Seller and the Purchaser shall each use, and shall
cause each of their respective subsidiaries to use, all commercially
reasonable efforts (i) to take, or to cause to be taken, all
appropriate action, and to do, or to cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the transactions contemplated by this
Agreement, (ii) to obtain from any Governmental Authorities any
Licenses, Permits or Orders required to be obtained by the Purchaser or
the Seller or any of their subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the
performance of their obligations hereunder, (iii) to make all necessary
filings, and thereafter to make promptly any other required
submissions, with respect to this Agreement required under (A) the HSR
Act or (B) any other applicable Law, Regulation or Order; PROVIDED,
HOWEVER, that the Purchaser and the Seller shall cooperate with each
other in connection with the making of all such filings and in
supplying any information requested supplementally or by second request
from any Governmental Authority. The Purchaser and the Seller shall
request early termination of the waiting period under the HSR Act with
respect to the transactions contemplated hereby.
(b) The Purchaser and the Seller agree to cooperate and to
cause their respective subsidiaries to cooperate with respect to, and
agree to use all commercially reasonable efforts vigorously to contest
and resist and to have vacated, lifted, reversed or overturned, any
action, including legislative, administrative or judicial action,
including any Order (whether temporary, preliminary or permanent) of
any Governmental Authority, that is in effect and that restricts,
prevents or prohibits the consummation of the transactions contemplated
by this Agreement. Each of the Purchaser and the Seller also agree to
take any and all commercially reasonable actions that may be required
by any Governmental Authority as a condition to the granting of any
Permit or Order required in order to permit the consummation of the
transactions contemplated hereby or as may be required to vacate, lift,
reverse or overturn any administrative or judicial action that would
otherwise cause any condition to the Closing not to be satisfied;
PROVIDED, HOWEVER, that in no event shall the Seller take any action
that could reasonably be expected to have a Material Adverse Effect on
the Company and in no event shall either party be required to take any
action that could reasonably be expected to have a Material Adverse
Effect on such party or to result in a breach of this Agreement.
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(c) Each of the Seller and the Purchaser shall use, and shall
cause its subsidiaries to use, all commercially reasonable efforts to
obtain from all Persons (other than Governmental Authorities) all
consents that are (i) necessary, proper or advisable or (ii) otherwise
required under any contracts, licenses, leases, Easements, or other
agreements to which the Seller or the Purchaser or any of its
subsidiaries is a party or by which it is bound, in order to permit the
Seller or the Purchaser, as the case may be, to perform its obligations
hereunder.
(d) If any party shall fail to obtain any third party consent
described in subsection (c) of this Section, such party shall use all
commercially reasonable efforts, and shall take any such actions
reasonably requested by the other party, to limit the adverse effect
upon the Seller and the Purchaser, their respective subsidiaries, and
their respective businesses resulting, or which could reasonably be
expected to result after the Closing, from the failure to obtain such
consent.
(e) Each of the Purchaser and the Seller shall promptly notify
the other of (i) any complaints, investigations or hearings (or
communications indicating that the same may be contemplated) from or by
any Governmental Authorities with respect to the transactions
contemplated hereby or (ii) the institution or the threat of litigation
involving this Agreement or the transactions contemplated hereby.
Section 6.05. PENDING AND UPCOMING RATE PROCEEDINGS. The Company and
its subsidiaries currently have pending rate proceedings in FERC Docket Nos.
PR96-2 (Traditional System), PR96-7 (Anadarko System) and TRC Docket No. 8457
with respect to transportation service under Section 311. From the execution of
this Agreement by the Seller until the Closing, the Seller shall cause the
Company and its subsidiaries to use all commercially reasonable efforts to
obtain approval for the maximum rates requested in such proceedings and to
prevail in such litigation. Notwithstanding the foregoing, the Seller reserves
the right to permit the Company and its subsidiaries to agree with the
appropriate Governmental Authorities or other parties, at any time prior to the
Closing, to settle all or any part of the issues in such proceedings or
litigation, including any issues regarding the appropriate maximum rate, fuel
component, rate of return or other cost of service or rate design aspect, when
in the sole judgment of the Company or such subsidiary, such action is in the
best interests of the Company or such subsidiary and could not reasonably be
expected to have a Material Adverse Effect on the Company.
Section 6.06. PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF
TAXES.
(a) With respect to each Tax Return covering a taxable period
ending on or before the Closing Date that is required to be filed after
the Closing Date for, by or with respect to the Company or any
subsidiary of the Company (other than the Tax Returns described in
subsection (c) of this Section), the Seller shall cause such Tax Return
to be prepared, shall cause to be included in such Tax Return all items
of income, gain, loss, deduction and credit or other items
(collectively "Tax Items") required to be included therein, and shall
deliver the original of such Tax Return to the Purchaser at least
thirty (30) days prior to the due date (including extensions) of such
Tax Return. If the amount of the Tax shown to be due on such Tax Return
exceeds the amount of the Closing Date Tax Accrual for such Tax, the
Seller shall
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pay to the Purchaser the amount of such excess not less than five (5)
days prior to the due date of such Tax Return. If the amount of the Tax
shown to be due on such Tax Return is less than the amount of the
Closing Date Tax Accrual for such Tax, the Purchaser shall pay to the
Seller the amount of such difference not less than five (5) days prior
to the due date of such Tax Return. The Purchaser shall cause the
Company or the respective subsidiary to file timely such Tax Return
with the appropriate taxing authority and to pay the amount of Taxes
shown to be due on such Tax Return.
(b) With respect to each Tax Return covering a taxable period
beginning on or before the Closing Date and ending after the Closing
Date that is required to be filed after the Closing Date for, by or
with respect to the Company or any subsidiary of the Company (other
than the Tax Returns described in subsection (c) of this Section), the
Purchaser shall cause such Tax Return to be prepared and shall cause to
be included in such Tax Return all Tax Items required to be included
therein. The Purchaser shall determine, subject to verification by the
Seller, the portion, if any, of the Tax due with respect to the period
covered by such Tax Return which is attributable to the Company or the
respective subsidiary for a PreClosing Taxable Period. The
determination of the portion of such Tax that is attributable to the
Pre-Closing Period shall be based, in the case of real and personal
property Taxes, on a per diem basis and, in the case of other Taxes, on
the actual activities, taxable income or taxable loss of the Company
and its subsidiaries during the Pre-Closing Period and PostClosing
Period. At least thirty (30) days prior to the due date (including
extensions) of such Tax Return, the Purchaser shall deliver to the
Seller a copy of such Tax Return. If the amount of Tax attributable to
the Pre-Closing Taxable Period exceeds the amount of the Closing Date
Tax Accrual for such Tax, the Seller shall pay to the Purchaser the
amount of such excess Tax not less than five (5) days prior to the due
date of such Tax Return. If the amount of Tax attributable to the
Pre-Closing Taxable Period is less than the amount of the Closing Date
Tax Accrual for such Tax, the Purchaser shall pay to the Seller the
amount of such difference not less than five (5) days prior to the due
date of such Tax Return. The Purchaser shall cause the Company or the
respective subsidiary to file timely such Tax Return with the
appropriate taxing authority and to pay timely the amount of Taxes
shown to be due on such Tax Return. For purposes of this subsection,
(i) any Texas franchise Tax imposed on the Taxable Earned Surplus of
the Company or any of its subsidiaries which is determined with
reference to the federal taxable income of the Company or any of its
subsidiaries for the period up to and including the Closing Date shall
be treated as attributable to a Pre-Closing Taxable Period, and (ii)
any state income or franchise Tax (other than Texas franchise Tax)
which is imposed on the Company or any of its subsidiaries in a
Post-Closing Taxable Period and is determined by reference to federal
taxable income of a Pre-Closing Taxable Period of the Company or any of
its subsidiaries shall be treated as attributable to a Pre-Closing
Taxable Period.
(c) The Seller shall cause to be included in the consolidated
federal income Tax Returns (and the state income Tax Returns of any
state in which the Seller files consolidated, combined or unitary
income Tax Returns) of the Seller's Group for all periods ending on or
before or which include the Closing Date, all Tax Items of the Company
and its subsidiaries which are required to be included therein, shall
file timely all such Tax Returns with the appropriate taxing
authorities and shall pay timely all Taxes due with respect to the
periods covered by such Tax Returns.
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(d) The Seller shall be responsible for the payment of all
state and local transfer, sales, use or other similar taxes resulting
from the transactions contemplated by this Agreement.
(e) From time to time prior to the Closing Date, the Seller
shall have the right to cause the Company or any of its subsidiaries to
pay to the IRS or the applicable state taxing authority (or to the
Seller or another member of the Seller's Group as agent for the payment
of such Tax) such amounts on account of the Company's and the
subsidiaries' shares of consolidated federal income Tax liability and
any consolidated, combined or unitary state income Tax liability of the
Seller's Group for the 1996 taxable year as are consistent with any tax
sharing agreements, arrangements, policies or guidelines ("Tax Sharing
Agreements") that may exist between the Company or any subsidiary of
the Company, on the one hand, and the Seller or any other Affiliate of
the Seller, on the other. All such Tax Sharing Agreements will be
terminated and any obligations to make payments under them shall be
canceled as of the Closing Date. Any and all payments then remaining
due under those Tax Sharing Agreements shall be made prior to their
termination.
Section 6.07. ACCESS TO INFORMATION. From and after the Closing:
(a) The Seller and each member of the Seller's Group shall
grant to the Purchaser (or its designees) access at all reasonable
times to all of the information, books and records relating to the
Company and its subsidiaries within the possession of the Seller or any
member of the Seller's Group (including work papers and correspondence
with taxing authorities), and shall afford to the Purchaser (or its
designees) the right (at the Purchaser's expense) to take extracts
therefrom and to make copies thereof, to the extent reasonably
necessary to permit the Purchaser or any of its Affiliates (or its
designees) to prepare Tax Returns, to conduct negotiations with Tax
authorities, to fulfill an obligation to any Governmental Authority
imposed by Law, Regulation or Order and to implement the provisions of,
or to investigate or defend any claims between the parties arising
under, this Agreement.
(b) The Purchaser shall grant or cause the Company and its
subsidiaries to grant to the Seller or any of its Affiliates (or its
designees) access at all reasonable times to all of the information,
books and records relating to the Company and its subsidiaries within
the possession of the Purchaser, the Company or its subsidiaries
(including work papers and correspondence with taxing authorities), and
shall afford to the Seller (or its designees) the right (at the
Seller's expense) to take extracts therefrom and to make copies
thereof, to the extent reasonably necessary to permit the Seller (or
its designees) to prepare Tax Returns, to conduct negotiations with Tax
authorities, to fulfill an obligation to any Governmental Authority
imposed by Law, Regulation or Order and to implement the provisions of,
or to investigate or defend any claims between the parties arising
under, this Agreement or otherwise.
(c) Each of the parties hereto will preserve and retain all
schedules, work papers and other documents relating to any Tax Returns
of or with respect to the Company or any of its subsidiaries or to any
claims, audits or other proceedings affecting the Company or any of its
subsidiaries until the expiration of the statute of limitations
(including extensions)
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applicable to the taxable period to which such documents relate or
until the final determination of any controversy with respect to such
taxable period, and until the final determination of any payments that
may be required with respect to such taxable period under this
Agreement.
(d) Notwithstanding the foregoing provisions of this Section,
neither party hereto shall be required to grant or cause to be granted
to the other access to information, books and records or to furnish
extracts or copies thereof if such information, books and records also
include information regarding such party or any of its Affiliates. In
such circumstances, such party shall either (i) provide appropriately
detailed summaries of the information contained therein or (ii), in
providing extracts or copies thereof, redact the information relating
to such party or its Affiliates.
Section 6.08. EMPLOYEES AND EMPLOYEE BENEFIT PLANS.
(a) Effective as of the Closing, the Seller shall cause the
Company to withdraw as a participating employer from all Benefit Plans
other than any Benefit Plans as to which the Company is the sole
sponsoring entity.
(b) Effective as of the Closing, the Seller shall cause each
employee of the Company on the Closing Date (the "Continuing
Employees") who is a participant in the Central and South West System
Pension Plan (the "CSW Pension Plan") on the Closing Date to become
100% vested in his accrued benefit under the CSW Pension Plan as of the
Closing and shall cause the accrued benefits of the Continuing
Employees under the CSW Pension Plan to be distributed to such
Continuing Employees pursuant to the terms and provisions of the CSW
Pension Plan as if the Continuing Employees had terminated employment
for purposes of the CSW Pension Plan as of the Closing. Effective as of
the Closing, the Purchaser shall take all action necessary and
appropriate to extend coverage under a new or existing defined benefit
pension plan (the "Purchaser's Pension Plan") qualified under section
401(a) of the Code to the Continuing Employees who were participants in
the CSW Pension Plan at the Closing. The Continuing Employees shall be
credited with service under the Purchaser's Pension Plan, for
eligibility, vesting, and accrual of benefit purposes, with the service
credited to them for such purposes under the CSW Pension Plan as of the
Closing. The Continuing Employees' benefits under the Purchaser's
Pension Plan shall be reduced by the actuarial equivalent of the
pension benefit paid or payable to such Continuing Employees from the
CSW Pension Plan. In making such reduction, the pension paid or payable
under each plan shall be determined under the provisions of each plan
as if payable at normal retirement date in the normal form; PROVIDED,
HOWEVER, that the pension benefit paid or payable under the CSW Pension
Plan in the normal form at the normal retirement date shall be
converted to the normal form under the Purchaser's Pension Plan using
the actuarial assumptions under the Purchaser's Pension Plan. The net
pension payable under the Purchaser's Pension Plan shall then be
actuarially adjusted in accordance with the provisions of the
Purchaser's Pension Plan for the actual time and form of payment.
(c) Effective as of the Closing, the Purchaser shall take all
action necessary and appropriate to extend coverage under a new or
existing defined contribution plan (the "Purchaser's Savings Plan")
qualified under section 401(a) of the Code to the Continuing
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Employees who have account balances under the Central and South West
System Thrift Plus Plan (the "CSW Thrift Plan") at the Closing. The
Continuing Employees shall be credited with service under the
Purchaser's Savings Plan, for eligibility and vesting purposes, with
the service credited to them under the terms of the CSW Thrift Plan as
of the Closing. As soon as practicable following the Closing, the
Seller shall cause to be transferred from the trustee of the CSW Thrift
Plan to the trustee of the Purchaser's Savings Plan an amount in cash
or in kind (with any in kind transfers to be agreed upon by the Seller
and the Purchaser, except that it is hereby agreed that participant
loans shall be transferred in kind; PROVIDED, HOWEVER, that any loan
repayments shall be applied to investments available under the
Purchaser's Savings Plan) equal to the aggregate account balances (both
vested and unvested) of the Continuing Employees under the CSW Thrift
Plan determined as of the transfer date (which shall be a valuation
date) in accordance with the methods of valuation set forth in the CSW
Thrift Plan. From and after the date of such transfer, the Purchaser
shall cause the Purchaser's Savings Plan to assume the obligations of
the CSW Thrift Plan with respect to the benefits accrued by the
Continuing Employees under the CSW Thrift Plan, and the CSW Thrift Plan
shall cease to be responsible therefor.
(d) Except as provided in subsections (e), (f), and (j) of
this Section, claims for benefits under welfare plans, as such term is
defined in Section 3(1) of ERISA, in which Continuing Employees
participate arising out of occurrences prior to the Closing shall be
covered by the applicable welfare plan of the Seller in accordance with
the terms of such plan. All such claims for benefits by Continuing
Employees arising out of occurrences subsequent to the Closing shall be
covered by the applicable welfare plan of the Purchaser in accordance
with the terms of such plan. Neither the Purchaser nor any of its
subsidiaries shall be liable for payment of any disability benefit due
to disabled employees of the Company or its subsidiaries or Continuing
Employees who, prior to the Closing, are in the waiting or qualifying
period for disability benefits. After the Closing, the Seller shall be
responsible for disability benefits payable to such persons under the
Seller's disability plan.
(e) Claims for medical, dental, prescription drug, vision, and
employee assistance plan benefits by Continuing Employees with respect
to purchases or services or treatment rendered prior to the Closing
shall be covered by the applicable welfare plan of the Seller in
accordance with the terms of such plan. Claims for such benefits by
Continuing Employees with respect to purchases or services or treatment
rendered on or subsequent to the Closing shall be covered by the
applicable welfare plan of the Purchaser in accordance with the terms
of such plan. The Purchaser shall cause the Continuing Employees to be
granted credit under the welfare plan of the Purchaser providing
medical, dental, prescription drug, vision, and employee assistance
plan coverage, for the year during which the Closing occurs, for any
deductibles already incurred by such Continuing Employees for such year
under the welfare plan of the Seller providing such coverage, and the
Purchaser shall cause to be waived any eligibility waiting periods and
pre-existing condition restrictions under the welfare plans of the
Purchaser to the extent necessary to provide immediate coverage under
such welfare plans as of the Closing (but only to the extent that
coverage was provided under the applicable welfare plan of the Seller).
The Purchaser shall provide the Continuing Employees (and their
respective beneficiaries) with medical benefits sufficient to satisfy
the obligations of the Seller under Section 4980B(f) of the Code with
respect to such Continuing Employees so that the Seller will not incur
any tax under Section 4980B of the Code.
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(f) Effective as of the Closing, the Purchaser shall, or shall
cause the Company to, take all action necessary and appropriate to
extend coverage under a new or existing health care spending account
plan (the "Purchaser's Health Care Plan") to the Continuing Employees.
A Continuing Employee shall be considered to have an account balance
under the Purchaser's Health Care Plan following the Closing that is
the same as such Continuing Employee's account balance under the
Central and South West System Health Care Reimbursement Plan (the "CSW
Health Care Plan") immediately prior to the Closing, and the elections
in effect for the year in which the Closing Date occurs under the CSW
Health Care Plan shall remain in effect under the Purchaser's Health
Care Plan for the remainder of such year unless changed as a result of
a change in family status. As of the Closing, the positive and negative
balances of the Continuing Employees under the CSW Health Care Plan
shall be netted. To the extent that there is a net positive balance,
claims under the Purchaser's Health Care Plan following the Closing
shall be paid from the Central and Southwest System Voluntary
Employees' Beneficiary Association (the "CSW VEBA") until such balance
is eliminated. Thereafter, all such claims shall be paid by the
Company. To the extent that there is a net negative balance as of the
Closing, the Company shall make a contribution to the CSW VEBA as of or
before the Closing equal to the net negative balance. For purposes of
this paragraph, a Continuing Employee shall be considered to have a
positive balance in such employee's account as of the Closing if the
amounts that have been withheld from such Continuing Employee's
compensation during the year in which the Closing occurs, pursuant to
the CSW Health Care Plan, prior to the Closing, exceeded disbursements
on such Continuing Employee's behalf from the CSW Health Care Plan
prior to the Closing for such year's claims. A Continuing Employee
shall be considered to have a negative balance in such Continuing
Employee's account as of the Closing if the disbursements on such
Continuing Employee's behalf from the CSW Health Care Plan prior to the
Closing for the year in which the Closing occurs exceeds the amounts
that have been withheld from such Continuing Employee's compensation
during such year, pursuant to the CSW Health Care Plan, prior to the
Closing.
(g) Effective as of the Closing, the Purchaser shall, or shall
cause the Company to, take all action necessary and appropriate to
extend coverage under a new or existing dependent care spending account
plan (the "Purchaser's Dependent Care Plan") to the Continuing
Employees. A Continuing Employee shall be considered to have an account
balance under the Purchaser's Dependent Care Plan following the Closing
that is the same as such Continuing Employee's account balance under
the Central and South West System Dependent Care Assistance Plan (the
"CSW Dependent Care Plan") immediately prior to the Closing, and the
elections in effect for the year in which the Closing Date occurs under
the CSW Dependent Care Plan shall remain in effect under the
Purchaser's Dependent Care Plan for the remainder of such year unless
changed as a result of a change in family status. To the extent that
there are amounts held in the CSW VEBA as of the Closing attributable
to a Continuing Employee's participation in the CSW Dependent Care
Plan, claims under the Purchaser's Dependent Care Plan following the
Closing shall be paid from the CSW VEBA until such amounts are
depleted. Thereafter, all such claims shall be paid by the Company.
(h) For a period of one year following the Closing Date, the
Purchaser shall, or shall cause the Company to, establish and manage a
severance benefit plan to cover the Continuing Employees with such
severance benefit being a severance benefit plan
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substantially similar to the Central and South West System Severance
Benefit Plan, effective July 1, 1995 (the "CSW Severance Benefit
Plan"). For purposes of such plan, (i) any restructuring,
reorganization, or other position elimination involving a Continuing
Employee shall be considered approved within the meaning of Section 2.1
of the CSW Severance Benefit Plan and (ii) service with the Seller or
any of its subsidiaries, including the Company, shall be taken into
account.
(i) Vacation entitlement accrued by Continuing Employees for
the year in which the Closing Date occurs under the Company's vacation
policy as in effect as of the Closing shall be recognized by the
Purchaser and the Company following the Closing. Service with the
Seller or any of its subsidiaries, including the Company, shall be
taken into account for purposes of the Purchaser's vacation policy
following the Closing.
(j) With respect to all employees who retired from employment
with the Company prior to the Closing and who have been, or are
eligible to be, provided with post-retirement medical, dental, or life
insurance coverage as of the Closing under plans sponsored by the
Seller or the Company, the Seller shall assume or retain any and all
liability with respect to the provision of such coverages to such
retired employees and their eligible dependents on and after the
Closing. With respect to all Continuing Employees who retire from
employment with the Company after the Closing and who have been, or are
eligible to be, provided with post-retirement medical, dental or life
insurance as of the Closing under plans sponsored by the Company or the
Seller, the Purchaser shall assume any and all liability with respect
to the provision of such coverages to such retired Continuing Employees
and their eligible dependents on and after the Closing (up to a present
benefit obligation of $3.2 million, computed using the actuarial
assumptions of the CSW Pension Plan).
(k) Claims for workers compensation benefits for Continuing
Employees arising out of occurrences prior to the Closing shall be the
responsibility of the Seller. Claims for workers compensation benefits
for Continuing Employees arising out of occurrences subsequent to the
Closing shall be the responsibility of the Purchaser.
(l) Nothing herein shall be deemed or construed (i) to give
rise to any rights, claims, benefits, or causes of action to any
Continuing Employee or any other Person, except the Seller or (ii) to
prevent, restrict, or limit the Purchaser or the Company and its
subsidiaries following the Closing from modifying or terminating its
pension or other benefit plans, programs, or policies from time to time
as it may deem appropriate, subject only to compliance with the express
provisions of subsections (a) through (k) of this Section for the
benefit of the Seller.
Section 6.09. WORKING CAPITAL CONTRIBUTION. Effective as of the
Closing, the Seller shall cause (a) the purchase agreement dated January 2,
1991, between the Company and CSW Credit, Inc. pursuant to which the Company
factors its trade accounts receivable to CSW Credit, Inc. to be amended to
terminate the factoring of accounts receivable of the Company arising after the
Closing, (b) the Company's intercompany payable or receivable balance, as the
case may be, in the CSW Money Pool to be forgiven in full resulting in a capital
contribution (or resulting in a distribution), and (c) to be assigned (without
recourse) to the Company, as a capital contribution, the right, title and
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interest in and to the amount of current accounts receivable balances existing
as of the Closing that are required to bring the Working Capital of the Company
as of the Closing to zero (after giving effect to clause (b) of this Section and
Section 6.10(a)) and that have been factored by the Company to CSW Credit, Inc.
pursuant to such purchase agreement.
Section 6.10. INTERCOMPANY ACCOUNTS; POST-CLOSING RELATIONSHIPS;
CLOSING COVENANTS.
(a) Except for the Company's intercompany payable or
receivable balance, as the case may be, in the CSW Money Pool (which is
specifically addressed in Section 6.09), and except for those accounts
set forth in Section 6.10(a) of the Seller's Disclosure Letter, the
Seller, effective as of the Closing, will cause all intercompany
accounts (including those pertaining to all income taxes) between the
Company and its subsidiaries, on the one hand, and the Seller and its
Affiliates (other than the Company and its subsidiaries), on the other,
to be paid or otherwise satisfied.
(b) Effective as of the Closing, the only obligations of the
Company and its subsidiaries to the Seller and its Affiliates (other
than the Company and its subsidiaries) and of the Seller and its
Affiliates (other than the Company and its subsidiaries) to the Company
and its subsidiaries shall be those obligations expressly set forth in
the contracts listed in Section 6.10(b) of the Seller's Disclosure
Letter, irrespective of any prior relationships, arrangements, business
practices or courses of dealing and any forecasts, estimates or
projections related to the subject matter of such contracts.
(c) The Seller agrees to assign to the Company, at or prior to
the Closing, the confidentiality agreements with all other prospective
purchasers of the Company.
(d) At the Purchaser's request, the Seller agrees to provide
the transition services described in Annex B to this Agreement to the
Company until April 15, 1997 at a level sufficient to effect a smooth
transfer of the ownership and operation of the Company by the Seller to
the Purchaser, and the Purchaser agrees to pay the Seller the cost of
such services (consistent with the payment for similar services made in
the past under that certain agreement among Central and South West
Services, Inc., the Company and certain Affiliates of the Company dated
August 18, 1988).
(e) As of the Closing, the Seller shall cause the Company and
its subsidiaries to have no outstanding long term indebtedness for
borrowed money which would be required to be reflected under GAAP in
the consolidated financial statements of the Company as of the Closing,
other than any such indebtedness reflected in the Consolidated
Financial Statements and the debt secured by the real estate mortgages
disclosed in Section 4.07(a) of the Seller's Disclosure Letter.
(f) The Seller agrees to use commercially reasonable efforts
to cooperate with the Company and its subsidiaries after the Closing in
making and prosecuting claims under insurance policies and programs of
the Seller and its Affiliates that cover the Company and its
subsidiaries. The insurance trust of which the Seller is a member under
the Trust Agreement dated November 1, 1990 (the "Trust"), will continue
to process, respond to,
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defend, and pay claims received prior to the Closing. The Company and
its subsidiaries will process, respond to, defend, and pay claims made
after the Closing; PROVIDED, HOWEVER, that the Company and its
subsidiaries after the Closing will continue to be entitled to make
claims against insurance policies purchased by the Trust prior to the
Closing in which the Company and its subsidiaries are named as insureds
in accordance with the terms of such policies so long as such insurance
policies remain in effect, but the Company and its subsidiaries will
not make claims against the Trust or Trust assets for claims made after
the Closing. The Seller shall cause no premiums or assessments to be
due and payable from the Company and its subsidiaries to the Trust (and
no distributions or refunds to be due and payable from the Trust to the
Company and its subsidiaries) after the Closing.
(g) Prior to or at the Closing the Seller shall enter into, or
cause Public Service Company of Oklahoma to enter into, an agreement
providing for the indemnity to the Company and its subsidiaries
described in the seventh paragraph of Note 10 to the Consolidated
Financial Statements as such indemnity relates to the claims against
the Company or such subsidiaries described in such paragraph or similar
claims against the Company or such subsidiaries made subsequent to
December 31, 1995 that relate to events occurring or circumstances
existing prior to the Closing. Such agreement shall contain terms
similar to those set forth in Sections 8.02(e) and (f) regarding the
defense and settlement of claims, but in any event shall be in form and
substance reasonably acceptable to the Purchaser.
Section 6.11. ESTIMATED PURCHASE PRICE. At least three (3) days prior
to the Closing, the Seller in good faith shall prepare in reasonable detail and
deliver to the Purchaser a statement setting forth the Seller's calculations
with respect to its best estimation of the Purchase Price, including its best
estimation of the amount of Working Capital of the Company as of the Closing
(the "Estimated Purchase Price").
Section 6.12. DETERMINATION OF FINAL PURCHASE PRICE. As soon as
reasonably practicable and in any event within sixty (60) days following the
Closing Date, the Purchaser shall cause the Company to prepare and deliver to
the Seller a statement setting forth the Purchaser's calculation (the "Final
Purchase Price Calculation") of the final purchase price (the "Final Purchase
Price"), including the actual amount of Working Capital of the Company as of the
Closing and, if the Final Purchase Price differs from the Estimated Purchase
Price, the reasons therefor in reasonable detail. The Final Purchase Price
Calculation shall contain sufficient detail to enable the Seller to relate the
calculations contained therein to the books and records of the Company and its
subsidiaries. The Purchaser shall cause the Company to make available to the
Seller all information in the possession of the Company and its subsidiaries
reasonably required for the Seller to verify whether the Final Purchase Price
Calculation is correct. Within forty-five (45) days following the delivery of
the Final Purchase Price Calculation, the Seller shall notify the Purchaser
whether it agrees with the Final Purchase Price Calculation; PROVIDED, HOWEVER,
that, if the Seller shall fail so to notify the Purchaser within such forty-five
(45) day period, it shall be deemed to have agreed with the Final Purchase Price
Calculation. If the Seller shall disagree with the Final Purchase Price
Calculation, the Seller and the Purchaser shall endeavor in good faith to agree
on the Final Purchase Price but, if they shall not agree within thirty (30) days
following the Seller's notice to the Purchaser, either the Purchaser or the
Seller may cause the issues in dispute to be referred for resolution to Price
Waterhouse L.L.P. (or such other firm of independent public accountants as the
Purchaser and the Seller may mutually designate),
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and the Seller and the Purchaser shall cooperate, and the Purchaser shall cause
the Company and its subsidiaries to cooperate, with such firm of independent
public accountants by making available to that firm such information, books and
records and such personnel as such firm may reasonably request. The costs of
such firm of independent public accountants shall be borne equally by the
Purchaser and the Seller. The Purchaser and the Seller shall use all
commercially reasonable efforts to cause such firm of independent public
accountants to examine the books and records of the Company and its
subsidiaries, as well as any other information that such firm may reasonably
conclude is necessary to make such determination, and to make a determination
with respect to such issues within sixty (60) days following the date such
issues are referred to them. Any such determination shall be final and binding
on the Purchaser and the Seller and may be enforced by appropriate judicial or
other proceedings. The Final Purchase Price shall then be calculated by the
Seller and the Purchaser based on those matters as to which they are in
agreement and the determination by the independent public accountants as to
those matters, if any, as to which they did not agree. If the Final Purchase
Price as so determined (whether by agreement of the parties or determination by
accountants) shall exceed the Estimated Purchase Price, the Purchaser shall pay
the Seller the amount of such excess plus interest thereon from the Closing Date
until paid at a rate equal to the base or reference rate quoted from time to
time by the Bank, but, if the Final Purchase Price as so determined shall be
less than the Estimated Purchase Price, the Seller shall pay the Purchaser the
amount of such shortfall plus interest thereon from the Closing Date until paid
at a rate equal to the base or reference rate quoted from time to time by the
Bank, such payment in either case to be made within five (5) days following the
final determination of the Final Purchase Price.
Section 6.13. PUBLIC ANNOUNCEMENTS. Except as otherwise required by Law
or the New York Stock Exchange, the Seller and the Purchaser shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement and the transactions contemplated
hereby and shall not issue any such press release or make any such public
statement prior to such consultation. The press release announcing the execution
and delivery of this Agreement shall be a joint press release of the Seller and
the Purchaser.
Section 6.14. CONFIDENTIALITY. After the Closing, the Seller will not,
and will not permit its Affiliates which it controls (excluding the Company and
its subsidiaries) to, disclose or provide to any other Person any material
non-public information of a confidential nature concerning the business or
operations of the Company or its subsidiaries, except as required by Law,
Regulation or Order.
Section 6.15. ACQUISITION PROPOSALS. From the execution of this
Agreement by the Seller until the Closing or the termination of this Agreement
in accordance with its terms, the Seller will not, and will cause its officers,
directors, employees or agents not to, directly or indirectly, (a) take any
action to solicit, initiate or encourage any proposal regarding the acquisition
of the Company or its assets by merger or otherwise or (b), except as required
by Law, Regulation or Order, engage in negotiations with, or disclose any
non-public information relating to the Company, or afford access to its
properties, books or records to any Person that has made or, to the Knowledge of
the Seller, may be considering making an acquisition proposal.
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ARTICLE VII.
CONDITIONS TO THE CLOSING
Section 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations
of each party to this Agreement to effect the transactions contemplated hereby
to occur at the Closing shall be subject to the satisfaction or, to the extent
permitted by Law, waiver of each of the following conditions:
(a) All requirements of any applicable Law, Regulation or
Order necessary for the valid consummation of the transactions
contemplated herein to occur at the Closing shall have been fulfilled
(including the termination or expiration of the applicable waiting
period under the HSR Act), and all filings required to be made with any
Governmental Authority under any applicable Law, Regulation or Order
(including the filing of the Certificate of Merger) and all Permits and
Orders required to be obtained from any Governmental Authority or Court
under any applicable Law, Regulation or Order, in each case, in order
to permit the Seller or the Purchaser to consummate the transactions
contemplated hereby to occur at the Closing shall have been made or
obtained (other than any requirement the nonfulfillment of which and
any Permit or Order the nonreceipt of which could not reasonably be
expected to have a Material Adverse Effect on the Seller, the Purchaser
or the Company); and
(b) No temporary restraining order, preliminary or permanent
injunction or other Order issued by any Court of competent jurisdiction
preventing the consummation of the transactions contemplated hereby to
occur at the Closing shall be in effect.
Section 7.02. CONDITIONS TO OBLIGATION OF THE PURCHASER. The obligation
of the Purchaser to effect the transactions contemplated hereby to occur at the
Closing shall be subject to the satisfaction or, to the extent permitted by Law,
waiver of each of the following conditions:
(a) The representations and warranties of the Seller set forth
in this Agreement shall be true and correct in all material respects as
of the execution of this Agreement by the Seller and (except to the
extent such representations and warranties speak as of an earlier date)
as of the Closing as though made at and as of the Closing and the
Purchaser shall have received a certificate signed on behalf of the
Seller by the president or any vice president and by the chief
financial officer of the Seller to such effect (except the
representations and warranties set forth in Sections 4.07, 4.08 and
4.09 insofar as they relate to the Palo Duro Pipeline);
(b) The Seller shall have performed in all material respects
all obligations required to be performed by it under this Agreement at
or prior to the Closing Date, and the Purchaser shall have received a
certificate signed on behalf of the Seller by the president or any vice
president and by the chief financial officer of the Seller to such
effect;
(c) The Seller shall have furnished the Purchaser at the
Closing with certified copies of resolutions duly adopted by the Board
of Directors of the Seller authorizing the execution, delivery and
performance of this Agreement and each instrument required hereby to be
executed and delivered by the Seller at the Closing;
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(d) There shall not be any action or proceeding pending or
threatened (including any investigation) by any Governmental Authority
to restrain, enjoin or invalidate the transactions contemplated herein
or to compel the Purchaser to divest any material assets, which would,
in the judgment of the Board of Directors of the Purchaser, made in
good faith and based upon the advice of counsel, involve expense or
lapse of time or result in a reconfiguration of the Purchaser's
business which expense, lapse of time or result would be materially
adverse to the interests of the Purchaser;
(e) The Purchaser shall have received from counsel to the
Seller an opinion dated as of the Closing Date in form and substance
reasonably satisfactory to the Purchaser; and
(f) The Purchaser shall have received at the Closing
resignations of all directors of the Company and its subsidiaries.
Section 7.03. CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of
the Seller to effect the transactions contemplated hereby to occur at the
Closing shall be subject to the satisfaction or, to the extent permitted by Law,
waiver of each of the following conditions:
(a) The representations and warranties of the Purchaser set
forth in this Agreement shall be true and correct in all material
respects as of the execution of this Agreement by the Purchaser and
(except to the extent such representations and warranties speak as of
an earlier date) as of the Closing as though made at and as of the
Closing and the Seller shall have received a certificate signed on
behalf of the Purchaser by the president or any vice president and by
the chief financial officer of the Purchaser to such effect;
(b) The Purchaser shall have performed in all material
respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and the Seller shall have
received a certificate signed on behalf of the Purchaser by the
president or any vice president and by the chief financial officer of
the Purchaser to such effect;
(c) The Purchaser shall have furnished the Seller at the
Closing with certified copies of resolutions duly adopted by the Board
of Directors of the Purchaser authorizing the execution, delivery and
performance of this Agreement and each instrument required hereby to be
executed and delivered by the Purchaser at the Closing;
(d) There shall not be any action or proceeding pending or
threatened (including any investigation) by any Governmental Authority
to restrain, enjoin or invalidate the transactions contemplated herein
or to compel the Seller to (i) divest any material assets, which would,
in the judgment of the Board of Directors of the Seller, made in good
faith and based upon the advice of counsel, involve expense or lapse of
time or result in a reconfiguration of the Seller's business which
expense, lapse of time or result would be materially adverse to the
interests of the Seller or (ii) pay over any material amount of the
proceeds from the Merger;
(e) The Seller shall have received from counsel to the
Purchaser an opinion dated as of the Closing Date in form and substance
reasonably satisfactory to the Seller; and
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(f) The Purchaser shall have delivered to the Seller at the
Closing immediately available funds in an amount equal to the Estimated
Purchase Price.
ARTICLE VIII.
INDEMNIFICATION
Section 8.01. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. The representations, warranties, covenants and agreements of the
parties contained in Articles II, III, IV, V and VI (other than the
representations and warranties contained in Sections 3.02, 3.06, 4.02(a),
4.08(c) (to the extent the representations and warranties set forth in such
Section relate to the Palo Duro Pipeline), 4.09, 4.10, 4.11, 4.12, 4.16, 4.17
and 4.18 and the covenants and agreements contained in Sections 6.06, 6.07,
6.08, 6.10 and 6.14) shall survive both the Closing and any investigation by the
parties with respect thereto but shall terminate and be of no further force or
effect on the first anniversary of the Closing. The representations and
warranties contained in Sections 4.09 and 4.11 shall survive both the Closing
and any investigation by the parties with respect thereto but shall terminate
and be of no further force and effect on the second anniversary of the Closing.
The representations and warranties contained in Section 4.12 shall survive the
Closing and any investigation by the parties with respect thereto until the
tenth anniversary of the Closing. The representations and warranties contained
in Sections 3.02, 3.06, 4.02(a), 4.08(c) (except to the extent the
representations and warranties set forth in such Section relate to the Palo Duro
Pipeline), 4.16, 4.17 and 4.18 and the covenants and agreements contained in
Sections 6.06, 6.07, 6.08, 6.10(a)-(f) and 6.14 shall survive both the Closing
and any investigation by the parties with respect thereto until the expiration
of the statute of limitations (including any and all periods of extension or
tolling thereof) applicable to actions on written contracts. The representations
and warranties contained in Sections 4.08(c) (to the extent the representations
and warranties set forth in such Section relate to the Palo Duro Pipeline), and
4.10 and the covenants contained in Section 6.10(g) shall survive both the
Closing and any investigation by the parties with respect thereto until the
expiration of the statute of limitations (including any and all periods of
extension or tolling thereof) applicable to the subject matter of such sections.
Notwithstanding the foregoing, any such representation, warranty, covenant or
agreement as to which a bona fide claim relating thereto is asserted in writing
in accordance with Section 8.02 during such survival period shall, with respect
only to such claim, survive such survival period. The covenants and agreements
in this Article VIII shall survive the Closing and shall remain in full force
and effect for such period as is necessary to resolve any bona fide claim made
with respect to any representation, warranty, covenant or agreement contained in
this Agreement during the survival period thereof. The remaining covenants and
agreements of the parties hereto contained in this Agreement shall survive the
Closing without any contractual limitation on the period of survival.
Section 8.02. GENERAL INDEMNIFICATION.
(a) Subject to the limitations on survival contained in
Section 8.01, if the transactions contemplated hereby to occur at the
Closing are effected, each party hereto (the "Indemnifying Party")
hereby agrees, from and after the Closing, to indemnify and hold
harmless the other party hereto (the "Indemnified Party") against any
losses, claims, damages
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or liabilities ("Losses") which such Indemnified Party shall actually
incur, to the extent that such Losses (or actions, suits or proceedings
in respect thereof and any appeals therefrom ("Proceedings")) (other
than any Losses subject to Section 8.03 herein):
(i) arise out of or are based upon any allegation
that any representation or warranty made herein in Article
III, IV or V for the benefit of the Indemnified Party by the
Indemnifying Party is untrue or has been breached in any
respect; or
(ii) arise out of or are based upon any allegation
that any covenant or agreement made herein for the benefit of
the Indemnified Party by the Indemnifying Party has not been
performed in accordance with its terms;
and will reimburse the Indemnified Party for any legal or other
expenses reasonably incurred by it in connection with investigating or
defending against any such Losses or Proceedings. Notwithstanding the
foregoing, except for Losses resulting from breaches of Sections 3.02,
3.06, 4.02, 4.08(c) (to the extent the representations and warranties
set forth in such Section relate to the Palo Duro Pipeline), 4.10,
4.18, 4.19, 5.08, 6.06, 6.09, 6.10 and 6.12, the Indemnifying Party
shall (x) not be liable to the Indemnified Party under this Section for
any Loss incurred by the Indemnified Party which does not exceed
$500,000, and (y) be liable to the Indemnified Party under this Section
only for the amount of Losses incurred by the Indemnified Party which
exceed $10,000,000 in the aggregate; PROVIDED, HOWEVER, that the amount
of such Losses that are subject to indemnification hereunder shall not
exceed the Final Purchase Price; and PROVIDED, FURTHER, that the Losses
incurred by an Indemnified Party shall, for purposes of determining the
threshold level thereof in accordance with this sentence and otherwise,
be offset by (i) the amount of any such Losses incurred by the
Indemnifying Party jointly and severally with the Indemnified Party to
the extent of payments made by the Indemnifying Party; and (ii) the
proceeds of any insurance received by the Indemnified Party with
respect thereto.
(b) Promptly after receipt by the Indemnified Party under
subsection (a) of this Section of notice of a Loss or the commencement
of any Proceeding against which it believes it is indemnified under
this Section, the Indemnified Party shall, if a claim in respect
thereto is to be made against the Indemnifying Party under this
Section, notify the Indemnifying Party in writing of the commencement
THEREOF; PROVIDED, HOWEVER, that the omission so to notify the
Indemnifying Party shall not relieve it from any liability which it may
have to the Indemnified Party to the extent that the Indemnifying Party
is not prejudiced by such omission.
(c) For purposes of determining whether an event, fact or
occurrence constitutes a misrepresentation or a breach of any
representation, warranty, covenant or agreement contained in this
Agreement for which indemnification can be or is sought under this
Section, as used in any such representation, warranty, covenant or
agreement, the terms "Material" and "Material Adverse Effect" shall
have the following meanings:
"Material" shall mean material to the condition
(financial and other), results of operations or business of a
specified Person and its
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subsidiaries, if any, taken as whole; PROVIDED that, without
limiting the foregoing definition, the parties acknowledge and
agree that any amount exceeding $500,000 is material; and
"Material Adverse Effect" shall mean any change or
effect that would be materially adverse to the consolidated
business, condition (financial or otherwise), operations,
performance or properties of a specified Person and its
subsidiaries, if any, taken as a whole; PROVIDED that, without
limiting the foregoing definition, the parties acknowledge and
agree that any amount exceeding $5,000,000 is material in
respect of Section 4.05 and that any amount exceeding $500,000
is material in all other cases;
PROVIDED that the special purpose use of the terms "Material" and
"Material Adverse Effect" in this subsection (c) shall be disregarded
and given no effect in determining what is "material" for purposes of
the definitions of such terms contained in Annex A to this Agreement
and how they are used elsewhere in this Agreement.
(d) The Indemnifying Party shall, within thirty (30) days
after receipt of a notice of Loss or Proceeding given pursuant to
subsection (b) of this Section, either (i) acknowledge liability, as
between the Indemnifying Party and the Indemnified Party, for such Loss
or the amount in controversy in such Proceeding and pay the Indemnified
Party the amount of such Loss or the amount in controversy in such
Proceeding in cash or other immediately available funds (or establish
by agreement with the Indemnified Party an alternative payment
schedule), (ii) acknowledge liability, as between the Indemnifying
Party and the Indemnified Party, for such Loss or the amount in
controversy in such Proceeding, disavow the validity of the Loss or
Proceeding or the amount thereof and, to the extent that it shall so
desire in accordance with subsection (d) of this Section, assume the
legal defense thereof, or (iii) object (or reserve the right to object
until additional information is obtained) to the claim for
indemnification or the amount thereof, setting forth the grounds
therefor in reasonable detail; PROVIDED that, if the Indemnifying Party
objects (or reserves its right to object) within such 30-day period as
provided in this clause (iii), then the Indemnified Party may bring
suit (in the same Proceeding or otherwise) to resolve the dispute and,
pending final resolution of such dispute, the Indemnified Party may
proceed as though the Indemnifying Party had responded in accordance
with clause (i) above. If the Indemnifying Party does not respond to
the Indemnified Party as provided in this subsection within such 30-day
period, the Indemnifying Party shall be deemed to have acknowledged its
liability for such indemnification claim in accordance with clause (i)
of this subsection and the Indemnified Party may exercise any and all
of its rights under applicable law to collect such amount.
(e) If any such Proceeding shall be brought against an
Indemnified Party and it shall notify the Indemnifying Party thereof in
accordance with subsection (c) of this Section, the Indemnifying Party
shall, if it shall have responded to such notice in accordance with
clause (ii) of subsection (c) of this Section, be entitled to assume
the legal defense thereof with counsel reasonably satisfactory to the
Indemnified Party. After notice from the Indemnifying Party to the
Indemnified Party of its election to assume the defense of such
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claim or such action, the Indemnifying Party shall not be liable to the
Indemnified Party under this Section for any attorney's fees or other
expenses (except reasonable costs of investigation) subsequently
incurred by the Indemnified Party in connection with the defense
thereof. If the Indemnifying Party does not assume the defense of a
Proceeding as to which it has acknowledged liability, as between itself
and the Indemnified Party, pursuant to clause (ii) of subsection (c) of
this Section, the Indemnified Party may require the Indemnifying Party
to reimburse it on a current basis for its reasonable expenses of
investigation, reasonable attorney's fees and expenses and reasonable
out-of-pocket expenses incurred in the defense thereof and, subject to
the provisions of subsection (e) of this Section, the Indemnifying
Party shall be bound by the result obtained with respect thereto by the
Indemnified Party.
(f) An Indemnifying Party will not, without the prior written
consent of the Indemnified Party (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of
any judgment with respect to any pending or threatened Proceeding in
respect of which indemnification or contribution may be sought
hereunder (whether or not the Indemnified Party is an actual or
potential party to such Proceeding) unless such settlement, compromise
or consent includes an unconditional release of the Indemnified Party
from all liability arising out of such Proceeding. If the Indemnifying
Party has responded to the Indemnified Party pursuant to clause (i) of
subsection (c) of this Section, the Indemnified Party may settle or
compromise or consent to the entry of any judgment with respect to the
Proceeding that was the subject of notice to the Indemnifying Party
pursuant to subsection (c) of this Section without the consent of the
Indemnifying Party. An Indemnified Party will not otherwise, without
the prior written consent of the Indemnifying Party (which consent
shall not be unreasonably withheld), settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened
Proceeding, but, if such Proceeding is settled or compromised or if
there is entered any judgment with respect to any such Proceeding, in
either case with the consent of the Indemnifying Party, or if there be
a final judgment of the plaintiff in any such Proceeding, the
Indemnifying Party agrees to indemnify and hold harmless any
Indemnified Party from and against any loss or liability by reason of
such settlement, compromise or judgment.
(g) From and after the Closing, except as provided in Section
8.03, the provisions of this Section shall be the sole and exclusive
remedy of each party hereto for any breach of the other party's
representations, warranties, covenants or agreements contained in this
Agreement; PROVIDED, HOWEVER, that each party may seek specific
performance by the other party of the agreements and obligations set
forth in Sections 6.07, 6.13 and 6.14. NOTWITHSTANDING ANYTHING IN THIS
AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL ANY LOSSES, CLAIMS,
DAMAGES OR LIABILITIES INDEMNIFIED HEREUNDER INCLUDE ANY CONSEQUENTIAL
OR PUNITIVE DAMAGES, EXCEPT TO THE EXTENT THAT SUCH ARE AWARDED TO A
THIRD PARTY IN A PROCEEDING AGAINST AN INDEMNIFIED PARTY.
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Section 8.03. TAX INDEMNIFICATION AND AUDITS.
(a) From and after the Closing, the Seller hereby agrees to
protect, defend, indemnify and hold harmless the Purchaser and the
Company and its subsidiaries from and against, and agrees to pay, all:
(i) Taxes of the Company or any subsidiary of the
Company attributable to any Pre-Closing Taxable Period (except
for Taxes arising out of any transaction of the Company or its
subsidiaries not in the ordinary course of business occurring
on the Closing Date but subsequent to the Closing), but only
to the extent the amount of such Taxes exceeds the amount
taken into account as a liability for such Taxes in
determining the Purchase Price;
(ii) Taxes of any corporation (other than the Company
and its subsidiaries) that is or was a member of the Seller's
Group; and
(iii) Taxes of the Company or any subsidiary of the
Company attributable to the Section 338(h)(10) Elections made
pursuant to Section 8.04.
(b) From and after the Closing, the Purchaser agrees to
protect, defend, indemnify and hold harmless the Seller from and
against, and agrees to pay, all:
(i) Taxes of the Company or any subsidiary of the
Company attributable to any Post-Closing Taxable Period; and
(ii) Taxes arising out of any transaction of the
Company or its subsidiaries not in the ordinary course of
business occurring on the Closing Date and after the Closing.
(c) If a claim shall be made by any taxing authority that, if
successful, would result in the indemnification of a party (the "Tax
Indemnified Party") under this Section, the Tax Indemnified Party shall
promptly notify the party (the "Tax Indemnifying Party") obligated
under this Section to indemnify the Tax Indemnified Party in writing of
such fact; provided, however, that the omission to so notify the
Indemnifying Party shall not relieve it from any liability which it may
have to the Indemnified Party to the extent that the Indemnifying Party
is not prejudiced by such omission.
(i) The Tax Indemnified Party shall take such action
in connection with contesting such claim as the Tax
Indemnifying Party shall request in writing from time to time,
including the selection of counsel and experts and the
execution of powers of attorney; PROVIDED that (A) within
thirty (30) days after the notice required by this subsection
has been delivered (or such earlier date that any payment of
Taxes is due by the Tax Indemnified Party but in no event
sooner than five (5) days after the Tax Indemnifying Party's
receipt of such notice), the Tax Indemnifying Party requests
that such claim be contested, and (B) the Tax Indemnifying
Party shall have agreed to pay to the Tax Indemnified Party
all costs and expenses that the Tax Indemnified Party
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incurs in connection with contesting such claim, including
reasonable attorneys' and accountants' fees and disbursements.
The Tax Indemnified Party shall not make any payment of such
claim for at least thirty (30) days (or such shorter period as
may be required by applicable law) after the giving of the
notice required by this subsection, shall give to the Tax
Indemnifying Party any information requested relating to such
claim, and otherwise shall cooperate with the Tax Indemnifying
Party in order to contest effectively any such claim. The Tax
Indemnifying Party shall determine the method of any contest
of such claim and shall control the conduct thereof.
(ii) Subject to the provisions of paragraph (i) of
this subsection, the Tax Indemnified Party shall enter into a
settlement of such contest with the applicable taxing
authority or prosecute such contest to a determination in a
Court, all as the Tax Indemnifying Party may request.
(iii) Promptly after the extent of the liability of
the Tax Indemnified Party with respect to a claim shall be
established by the final judgment or decree of a Court or a
final and binding settlement with a Governmental Authority
having jurisdiction thereof, the Tax Indemnifying Party shall
pay to the Tax Indemnified Party the amount of any Taxes to
which the Tax Indemnified Party may become entitled by reason
of the provisions of this Section.
(d) Notwithstanding anything to the contrary in this Section,
any interest, penalties, fines, assessments or additions to Tax
resulting from or attributable to the failure of the Tax Indemnified
Party to act in a timely manner, including in filing Tax Returns,
responding to Tax audit or other inquiries or making payments shall not
be indemnifiable hereunder and shall be the sole responsibility of the
Tax Indemnified Party.
(e) In addition to the provisions of this subsection (c) of
this Section, if any proposed audit adjustments of a Pre-Closing
Taxable Period Tax Return could result in a tax adjustment for a
Post-Closing Taxable Period, the Seller shall promptly inform the
Purchaser. If the Seller elects not to contest the adjustment, the
Purchaser shall have the option, at the Purchaser's own expense, to
contest the proposed adjustment in accordance with the provisions of
subsection (c) of this Section.
(f) In addition to the provisions of subsection (c) of this
Section, if any proposed audit adjustments of a Post-Closing Taxable
Period Tax Return could result in an audit adjustment for a Pre-Closing
Taxable Period, the Purchaser shall promptly inform the Seller. If the
Purchaser elects not to contest the adjustment, the Seller shall have
the option, at the Seller's own expense, to contest the proposed
adjustment in accordance with the provisions of subsection (c) of this
Section.
(g) Except for the indemnification provided in Section 8.02
for breach of any representation or warranty contained in Section 4.10
or any covenant or agreement contained in Section 6.06, the
indemnification provided in this Section shall be the sole remedy for
any claim in respect of Taxes. In the event of a conflict between the
provisions of this Section and any other provisions of this Agreement,
the provisions of this Section shall control. The
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limitations of Section 8.02 shall not apply to any amounts for which a
party is liable under this Section. Any claim for indemnity under this
Section must be made prior to the expiration of the applicable Tax
statute of limitations with respect to the relevant taxable period
(including all periods of tolling or extension).
(h) To the extent any determination of Taxes, whether as the
result of an audit or examination, a claim for refund, the filing of an
amended return or otherwise results in a refund of Taxes paid (a
"Refund"), (i) the Seller shall be entitled to any part of such Refund
attributable to a Pre-Closing Taxable Period, (ii) the Purchaser shall
be entitled to any part of such Refund attributable to a Post-Closing
Taxable Period, and (iii) the Purchaser and the Seller shall each be
entitled to a Refund attributable to a taxable period described in
Section 6.06(b) in the portions that the Purchaser and the Seller
originally bore any Taxes payable with respect to such taxable period.
Whichever party receives such Refund shall, within ten (10) days after
receipt thereof, pay such Refund, or any part thereof, and the interest
received thereon to the party entitled thereto under this subsection.
(i) Any payment from the Purchaser to the Seller pursuant to
Section 6.06 or this Section shall be treated for Tax purposes as an
increase in the Purchase Price, and any payment from the Seller to the
Purchaser pursuant to Section 6.06 or this Section shall be treated for
Tax purposes as a reduction in the Purchase Price.
Section 8.04. SECTION 338(H)(10) ELECTIONS.
(a) The Seller, as the common parent of the Seller's Group,
and the Purchaser shall make a joint election under section 338(h)(10)
of the Code and a similar election under any applicable state income
tax law for the Company and for each of the corporate subsidiaries
(collectively, the "Section 338(h)(10) Elections"). At the Closing, the
Seller shall deliver to the Purchaser an Internal Revenue Service Form
8023-A and any similar form under applicable state income tax law (the
"Forms") with respect to the Section 338(h)(10) Elections, which shall
have been duly executed by an authorized person for the Seller. The
Purchaser shall cause the Forms to be duly executed by an authorized
person for the Purchaser, shall complete any schedules required to be
attached thereto, shall provide a copy of the executed Forms and
schedules to the Seller, and the Seller and the Purchaser shall duly
and timely file the Forms as prescribed by Treasury Regulation ss.
1.338(h)(10)-1 or the corresponding provisions of applicable state
income tax law.
(b) The Purchaser shall select a firm of qualified appraisers
to conduct an appraisal of the Company's assets (the "Appraisal"),
which selection must be approved by the Seller, such approval not to be
unreasonably withheld. The Seller and the Purchaser agree that the
results of the Appraisal shall be used to allocate the Purchase Price
and liabilities of the Company and its subsidiaries (plus other
relevant items) to the assets of the Company and its subsidiaries for
all purposes (including United States or any state, county or local
government Tax purposes) in accordance with the Code and applicable
Treasury Regulations. Such allocation of the Purchase Price shall be
prepared by the Purchaser and submitted in writing to the Seller within
ninety (90) calendar days after the date on which the Final Purchase
Price is determined. The Seller shall consent to such Purchase Price
allocation unless such
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Purchase Price allocation is unreasonable. If the Seller does not
object in writing to such proposed allocation within thirty (30)
calendar days after receipt of the Purchaser's written proposal, the
Purchaser's proposed allocation shall become final and binding on the
Seller and the Purchaser. If the Seller makes timely objection to the
Purchaser's proposal, the Purchaser and Seller shall have thirty (30)
calendar days to reach agreement or the allocation shall be submitted
to Price Waterhouse L.L.P. The determination of Price Waterhouse L.L.P.
shall be final and binding on the Purchaser and the Seller and the fees
and expenses of Price Waterhouse L.L.P. shall be borne equally by the
Purchaser and the Seller. Price Waterhouse L.L.P. shall adjust the
Purchase Price allocation provided by the Purchaser to the extent
necessary to make such allocation reasonable. The Purchaser and the
Seller shall duly prepare and timely file such reports and information
returns as may be required under the Code and applicable Treasury
Regulations and any corresponding or comparable provisions of
applicable state and local Tax laws to report the allocation of the
Purchase Price.
ARTICLE IX.
TERMINATION
Section 9.01. TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual consent of the Seller and the Purchaser;
(b) by the Purchaser, upon a breach in any material respect of
any representation, warranty, covenant or agreement on the part of the
Seller set forth in this Agreement, or if any representation or
warranty of the Seller shall have become untrue in any material
respect, in either case such that the conditions set forth in Section
7.02(a) or Section 7.02(b), as the case may be, would be incapable of
being satisfied by June 30, 1996 (or as otherwise extended as described
in Section 9.01(e)); PROVIDED, HOWEVER, that, in any case, a willful
breach shall be deemed to cause such conditions to be incapable of
being satisfied for purposes of this subsection;
(c) by the Seller, upon a breach in any material respect of
any representation, warranty, covenant or agreement on the part of the
Purchaser set forth in this Agreement, or if any representation or
warranty of the Purchaser shall have become untrue in any material
respect, in either case such that the conditions set forth in Section
7.03(a) or Section 7.03(b), as the case may be, would be incapable of
being satisfied by June 30, 1996 (or as otherwise extended as described
in Section 9.01(e)); PROVIDED, HOWEVER, that, in any case, a willful
breach shall be deemed to cause such conditions to be incapable of
being satisfied for purposes of this subsection (c);
(d) by either the Seller or the Purchaser, if there shall be
any Order which is final and nonappealable preventing the consummation
of the transactions contemplated hereby, unless the party relying on
such Order to terminate this Agreement has not complied with its
obligations under Section 6.04(b); and
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(e) by either the Seller or the Purchaser, if the Closing
shall not have occurred prior to June 30, 1996; PROVIDED, HOWEVER, that
this Agreement may be extended by written notice from either party
hereto to the other to a date not later than July 31, 1996, if the
Closing shall not have occurred as a direct result of the
nonfulfillment of the condition contained in subsection (a) of Section
7.01 by June 30, 1996.
The right of any party hereto to terminate this Agreement pursuant to
this Section shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
employees or representatives, whether prior to or after the execution of this
Agreement; PROVIDED, HOWEVER, that each party shall provide written notice to
the other party of any breach by such other party of a representation, warranty,
covenant or agreement set forth in this Agreement as soon as practicable upon
learning of such breach, and the non-breaching party may only terminate this
Agreement pursuant to subsections (b) or (c) of this Section, as the case may
be, if such breach is not cured within ten (10) days of such notice being given.
If such ten (10) day cure period extends beyond the date set forth in such
subsections, then such date shall be extended to be the first business day
immediately following the expiration of such ten (10) day cure period.
Section 9.02. EFFECT OF TERMINATION; NONCONSUMMATION. Except as
provided in this Section and Section 9.03, in the event of the termination of
this Agreement pursuant to Section 9.01, this Agreement shall forthwith become
void and of no further force and effect. If the transactions contemplated hereby
are not consummated by reason of the termination of this Agreement or otherwise,
there shall be no liability on the part of either party hereto to the other and
all rights and obligations of each party hereto shall cease, except that nothing
herein (other than the immediately following sentence) shall relieve any party
of any liability for (a) any breach of such party's covenants or agreements
contained in this Agreement or (b) any breach of such party's representations or
warranties contained in this Agreement. NOTWITHSTANDING ANYTHING IN THIS
AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL ANY LOSSES, CLAIMS, DAMAGES OR
LIABILITIES CLAIMED WITH RESPECT TO THE EXCEPTION TO THE IMMEDIATELY PRECEDING
SENTENCE INCLUDE ANY CONSEQUENTIAL OR PUNITIVE DAMAGES, EXCEPT TO THE EXTENT
THAT SUCH ARE AWARDED TO A THIRD PARTY IN A PROCEEDING AGAINST AN INDEMNIFIED
PARTY.
Section 9.03. FEES AND EXPENSES. All Expenses incurred by the parties
hereto shall be borne solely and entirely by the party which has incurred such
Expenses; PROVIDED, HOWEVER, that the Seller (and not the Company or its
subsidiaries) shall be responsible for the fees and expenses of all third
parties retained by or on behalf of the Seller and its Affiliates in connection
with the transactions contemplated by this Agreement.
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ARTICLE X.
MISCELLANEOUS
Section 10.01. NOTICES. All notices and other communications hereunder
to a party hereto shall be in writing and shall be deemed to be properly given
if delivered personally, telecopied (subject to confirmation) or mailed to it by
registered or certified mail (return receipt requested), in the case of the
Seller, to:
Central and South West Corporation
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 77256-0164
Telecopy Number: (214) 777-1528
Attention: Senior Vice President and General Counsel
and in the case of the Purchaser, to:
Tejas Gas Corporation
1301 McKinney Street, Suite 700
Houston, Texas 77010
Telecopy Number: (713) 658-9600
Attention: James W. Whalen, Chief Financial Officer
or at such other address as shall be specified by like notice.
Section 10.02. HEADINGS; CROSS REFERENCES. The descriptive headings of
the several Articles and Sections of this Agreement are inserted for convenience
only and do not constitute a part of the Agreement. Unless the context otherwise
requires, all references herein to Articles or Sections shall refer to Articles
or Sections of this Agreement.
Section 10.03. PRIOR AGREEMENTS. This Agreement shall supersede all
prior agreements, documents or other instruments with respect to the matters
covered hereby, save and except the Confidentiality Agreement which shall remain
in full force and effect in accordance with its terms until the Closing, but
shall expire at the Closing.
Section 10.04. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Closing. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 10.05. WAIVER. At any time prior to the Closing, either party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance by the other party
with
-43-
any of the covenants or conditions contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
Section 10.06. FURTHER ACTIONS. Each party shall execute and deliver
such other certificates, agreements and other documents and take such other
actions as may reasonably be requested by the other party in order to consummate
or implement the transactions contemplated by this Agreement.
Section 10.07. ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned, by
operation of law or otherwise, by any party hereto without the prior written
consent of the other party; PROVIDED, HOWEVER, that the Purchaser may assign its
rights under this Agreement to any corporation, all of the outstanding voting
stock of which is owned directly or indirectly by the Purchaser; and PROVIDED,
FURTHER, that no such assignment shall relieve the Purchaser of any of its
obligations under this Agreement. Nothing in this Agreement, express or implied,
is intended to confer upon any person other than the parties hereto and their
respective successors and permitted assigns, any rights, remedies or obligations
under or by reason of this Agreement.
Section 10.08. GOVERNING LAW. The terms of this Agreement shall be
governed by, and interpreted in accordance with the provisions of, the laws of
the State of Texas.
Section 10.09. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed an
original but all of which together shall constitute one and the same instrument.
Section 10.10. TRANPACHE PARTNERSHIP. To the extent that any
representation, warranty or covenant contained in this Agreement relates to the
business, condition (financial or otherwise), operations, performance or
properties of Tranpache Partnership, (i) any such representation or warranty
shall be limited to only those matters of which the Seller has Knowledge and
(ii) any such covenants shall be limited to only those matters over which the
Seller has control.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed in its corporate name by its duly authorized officer, all
on the date first above written.
CENTRAL AND SOUTH WEST CORPORATION
By: /s/ E. R. BROOKS
E. R. Brooks
Chairman, President and
Chief Executive Officer
TEJAS GAS CORPORATION
By: /s/ CHARLES R. CRISP
Charles R. Crisp
President
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FIRST AMENDMENT
TO
AGREEMENT OF MERGER
THIS FIRST AMENDMENT (this "Amendment") to that certain Agreement of
Merger (the "Merger Agreement") made and entered into on May 9, 1996, by and
between TEJAS GAS CORPORATION, a Delaware corporation (the "Purchaser"), and
CENTRAL AND SOUTH WEST CORPORATION, a Delaware corporation (the "Seller"), is
made and entered into as of June 6, 1996, by and between the Purchaser and the
Seller.
RECITALS
WHEREAS, the Purchaser and the Seller have heretofore entered into the
Merger Agreement pursuant to which the Purchaser has agreed to acquire all of
the outstanding capital stock of Transok, Inc., an Oklahoma corporation and
wholly-owned subsidiary of the Seller (the "Company"), for cash through a
reverse subsidiary merger of a newly formed wholly-owned subsidiary of the
Purchaser with and into the Company; for federal and state income tax purposes,
the parties have agreed to treat the reverse subsidiary merger as a sale of
stock by the Seller to the Purchaser, and the Seller and the Purchaser have
agreed to make a timely joint Code section 338(h)(10) election; and
WHEREAS, the Purchaser and the Seller desire to amend the Merger
Agreement as provided herein.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 2.04 of the Merger Agreement is amended to read, in
its entirety, as follows:
"At the Closing, upon fulfillment or waiver of the conditions
precedent to the Closing set forth in Article VII, the Seller and the Purchaser
shall cause (a) the Constituent Corporations to file with the Secretary of State
(i) of the State of Oklahoma a certificate of merger (the "Certificate of
Merger") containing the information required by Section 1082(C) of the Oklahoma
General Corporation Act (the "OGCA") and executed and delivered in accordance
with this Agreement and in accordance with the provisions of Section 1007 of the
OGCA and (ii) of the State of Delaware of a certificate of merger containing the
information required by Section 251 of the Delaware General Corporation Law (the
"DGCL") and executed and delivered in accordance with this Agreement and in
accordance with the provisions of Section 103 of the DGCL, at which time the
Merger will become effective (the "Effective Time"), and (b) three newly formed
wholly-owned subsidiaries of the Merger Subsidiary to merge with and into
Transok Gas Company, Transok Gas Processing Company and Transok Properties, Inc.
(each a Delaware corporation and wholly-owned subsidiary of the Company),
respectively, pursuant to Section 251 of the DGCL."
1
2. Section 2.05(c) of the Merger Agreement is amended to read, in
its entirety, as follows:
"The certificate of incorporation of the Company shall be the
certificate of incorporation of the Surviving Corporation."
3. Section 2.05(d) of the Merger Agreement is amended to read, in
its entirety, as follows:
"The bylaws of the Company shall be the bylaws of the
Surviving Corporation."
4. Section 6.06(d) of the Merger Agreement is amended to read, in
its entirety, as follows:
"Except as provided in Section 6.16(e), the Seller shall be
responsible for the payment of all state and local transfer, sales, use or other
similar taxes resulting from the transactions contemplated by this Agreement."
5. Section 6.08(a) of the Merger Agreement is amended to read, in
its entirety, as follows:
"Effective as of the Closing, the Seller shall cause the
Company to withdraw as a participating employer from all Benefit Plans
other than any Benefit Plans as to which the Company is the sole
sponsoring entity. The preceding sentence notwithstanding, the Company
shall continue to participate in the CSW System Employees' Cafeteria
Plan with respect to employee contributions for the medical, dental,
prescription drug, vision, and employee assistance plan coverage
provided to Continuing Employees (as such term is defined in subsection
(b) of this Section) by Seller welfare plans following the Closing
pursuant to the provisions of subsection (e) of this Section."
6. Section 6.08(c) of the Merger Agreement is amended to read, in
its entirety, as follows:
"Effective as of the Closing, the Seller shall cause each
Continuing Employee who is a participant in the Central and South West
System Thrift Plan (the "CSW Thrift Plan") on the Closing Date to
become 100% vested in his account balances under the CSW Thrift Plan as
of the Closing Date and shall cause the account balances of the
Continuing Employees under the CSW Thrift Plan to be distributable to
such Continuing Employees pursuant to the terms and provisions of the
CSW Thrift Plan in accordance with the provisions of Code ss.ss.
401(k)(2)(B)(i)(II) and 401(k)(10). Effective as of the Closing, the
Purchaser shall take all action necessary and appropriate to extend
coverage under a new or existing defined contribution plan (the
"Purchaser's Savings Plan") qualified under section 401(a) of the Code
to the
2
Continuing Employees. The Continuing Employees shall be credited with
service under the Purchaser's Savings Plan, for eligibility and vesting
purposes, with the service credited to them under the terms of the CSW
Thrift Plan as of the Closing. The Purchaser's Savings Plan shall
accept direct rollovers (as that term is defined in temporary Treasury
regulation ss. 1.401(a)(31)-1T, Q&A-3) from the CSW Thrift Plan of
account balances of Continuing Employees, including direct rollovers of
participant loans in kind."
7. Section 6.08(e) of the Merger Agreement is amended to read, in
its entirety, as follows:
"Claims for medical, dental, prescription drug, vision, and
employee assistance plan benefits by Continuing Employees with respect
to purchases or services or treatment rendered prior to the Closing
shall be covered by the applicable welfare plan of the Seller in
accordance with the terms of such plan. Claims for such benefits by
Continuing Employees with respect to purchases or services or treatment
rendered on or subsequent to the Closing shall be covered by the
applicable welfare plan of the Purchaser in accordance with the terms
of such plan. The Purchaser shall cause the Continuing Employees to be
granted credit under the welfare plan of the Purchaser providing
medical, dental, prescription drug, vision, and employee assistance
plan coverage, for the year during which the Closing occurs, for any
deductibles already incurred by such Continuing Employees for such year
under the welfare plan of the Seller providing such coverage, and the
Purchaser shall cause to be waived any eligibility waiting periods and
pre-existing condition restrictions under the welfare plans of the
Purchaser to the extent necessary to provide immediate coverage under
such welfare plans as of the Closing (but only to the extent that
coverage was provided under the applicable welfare plan of the Seller).
The Purchaser shall provide the Continuing Employees (and their
respective beneficiaries) with medical benefits sufficient to satisfy
the obligations of the Seller under Section 4980B(f) of the Code with
respect to such Continuing Employees so that the Seller will not incur
any tax under Section 4980B of the Code. The preceding provisions of
this subsection (e) to the contrary notwithstanding, Continuing
Employees shall be provided medical, dental, prescription drug, vision,
and employee assistance plan benefits under the applicable Seller
welfare plan for a period of ninety (90) days following the Closing (or
such shorter period as the Seller and the Purchaser may agree) on the
same basis as they were receiving such benefits immediately prior to
the Closing. Such coverage shall be provided to the Continuing
Employees at the same employee contribution rate as in effect on the
Closing Date. The Purchaser shall reimburse the Seller for the cost of
such coverage (determined at the maximum rate that may be charged for
COBRA coverage pursuant to section 4980B(f)(2)(C) of the Code) less the
contributions of the Continuing Employees."
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8. Section 6.08(j) of the Merger Agreement is amended to read, in
its entirety, as follows:
"With respect to all employees who retired from employment
with the Company prior to the Closing and who have been, or are
eligible to be, provided with post-retirement medical, dental, or life
insurance coverage as of the Closing under plans sponsored by the
Seller or the Company, the Seller shall assume or retain any and all
liability with respect to the provision of such coverages to such
retired employees and their eligible dependents on and after the
Closing. With respect to all Continuing Employees who retire from
employment with the Company or the Purchaser after the Closing and who
would be eligible (without regard to any changes in the terms of such
eligibility made after May 9, 1996) to receive post-retirement medical,
dental, or life insurance benefits under plans sponsored by the Company
or the Seller were they to retire on the day preceding the Closing, the
Seller shall provide post-retirement medical, dental, and life
insurance coverage to such retired Continuing Employees and their
eligible dependents under plans sponsored by the Seller following such
Continuing Employees' retirement from employment with the Company or
the Purchaser, and the Purchaser shall reimburse the Seller on an
annual basis for the actual medical and dental benefit payments under
such coverage (excluding any payments reimbursed by stop loss insurance
coverage) up to a maximum aggregate reimbursement of $3.2 million."
9. Section 6.09(c) of the Merger Agreement is amended to read, in
its entirety, as follows:
"the Company to acquire from CSW Credit, Inc., in
consideration of funds contributed to the Company by the Seller for such
purpose, the right, title and interest in and to the amount of current accounts
receivable balances existing as of the Closing that are required to bring the
Working Capital of the Company to zero (after giving effect to clause (b) of
this Section and Section 6.10(a)) and that have been factored by the Company to
CSW Credit, Inc. pursuant to such purchase agreement."
10. The last sentence of Section 6.10(f) of the Merger Agreement
is deleted and replaced, in its entirety, by the following:
"If after the Closing, the Company receives from the Trust
payment of any amount pursuant to Section 11.3 of the Trust Agreement, the
Purchaser shall pay to the Seller such amount. If after the Closing the Company
must pay to the Trust any amount pursuant to the Trust Agreement, the Seller
shall pay to the Purchaser such amount."
11. The words "sixty (60) days" contained in the first sentence of
Section 6.12 of the Merger Agreement are changed to read "ninety (90) days."
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12. A new Section 6.16 of the Merger Agreement is added that
reads, in its entirety, as follows:
"SALE OF GAS PROCESSING PLANTS; RELEASE; INDEMNITY.
(a) The Seller shall use commercially reasonable efforts to cause
Transok Gas Processing Company, a wholly-owned subsidiary of the Company, to
sell (the "Processing Plants Sale") all of its right, title and interest in and
to the Processing Plants to CIBC, Inc. pursuant to that certain Bill of Sale
(the "Bill of Sale") dated the Closing Date. The Purchaser has informed the
Seller that the Purchaser or one or more subsidiaries or affiliates thereof may
lease (the "Processing Plants Lease") the Processing Plants from CIBC, Inc. The
Seller and the Purchaser hereby agree that the Estimated Purchase Price, the
Final Purchase Price and the Working Capital of the Company shall be computed as
though the Processing Plants Sale and the Processing Plants Lease, if any, and
the receipt of cash in consideration thereof had not occurred.
(b) Notwithstanding any other provision of this Agreement to the
contrary, none of the Processing Plants Sale, the Seller's failure to own the
Processing Plants as of the Closing because of the Processing Plants Sale or the
Processing Plants Lease, if any, shall cause (i) any representation or warranty
made in this Agreement by the Seller to be untrue, incorrect or breached by the
Seller in any respect, (ii) any covenant or agreement made in this Agreement by
the Seller to be unfulfilled or otherwise breached by the Seller in any respect,
or (iii) any condition to the obligation of the Purchaser to effect the
transactions contemplated by the Agreement to not be satisfied; PROVIDED,
HOWEVER, that those representations and warranties of the Seller contained in
Article IV of this Agreement shall be true and correct in all material respects
with respect to the Processing Plants as of the time immediately prior to
consummation of the Processing Plants Sale, and such representations and
warranties shall continue to be subject to the indemnification obligations set
forth in Section 8.02(a).
(c) The Purchaser (on behalf of itself and any subsidiary or affiliate
thereof) hereby irrevocably releases and discharges the Seller from any and all
liabilities, obligations, debts, controversies, causes of action, suits,
covenants, contracts, agreements, judgments, demands or claims of any kind
(known or unknown)(collectively referred to herein as "Liabilities"), whether
arising under contract, tort, implied or express warranty, strict liability,
common law, statute or otherwise, against the Seller and the Seller's
stockholders, directors, officers, employees, agents and affiliates
(collectively, the "CSW Released Parties"), and whether arising directly or
indirectly through the Company, Transok Gas Processing Company or any other
person, INCLUDING THOSE ARISING FROM THE JOINT, CONCURRENT OR COMPARATIVE
NEGLIGENCE OF ANY CSW RELEASED PARTY, which the Purchaser or any subsidiary or
affiliate thereof ever had, now has, or hereafter can or may have in any way
arising out of, based upon or related to the Processing Plant's Sale or the
Processing Plants Lease, if any, or the Bill of Sale, and any documents
effecting the Processing Plants Lease (the "Processing Plants Transaction
Documents"), unless such Liabilities would have arisen or been incurred if the
Processing Plants Sale, the Processing Plants Lease, if any, or any Processing
Plants Transaction Documents had not
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been entered into and the Merger had occurred with the Processing Plants still
being owned by Transok Gas Processing Company.
(d) The Purchaser (on behalf of itself and any subsidiary or affiliate
thereof) hereby waives any rights it or any subsidiary or affiliate thereof may
have to initiate judicial or other proceedings against the CSW Released Parties
for any claim based on the failure of any party, including the CSW Released
Parties, to perform or observe any of the provisions contained in the Processing
Plants Transaction Documents, unless such rights would have arisen or been
incurred if the Processing Plants Sale, the Processing Plants Lease, if any, or
any Processing Plants Transaction Documents had not been entered into and the
Merger had occurred with the Processing Plants still being owned by Transok Gas
Processing Company.
(e) Notwithstanding any other provision of this Agreement to the
contrary (including Sections 6.06 and 8.03) the Purchaser agrees to indemnify
and hold harmless the Seller from and against any and all Losses (or Proceedings
in respect thereof) that arise out of, are based upon or are related in any way
to the Processing Plants Sale, the Processing Plants Lease, if any, or any
Processing Plants Transaction Documents unless such Losses would have arisen or
been incurred if the Processing Plants Sale, the Processing Plants Lease, if
any, or any Processing Plants Transaction Documents had not been entered into
and the Merger had occurred with the Processing Plants still being owned by
Transok Gas Processing Company. This indemnification obligation shall apply to
Losses of every kind or character whatsoever, including Losses related to third
party claims asserted against the Seller that arise by operation of statute,
contract law, tort law or otherwise.
THIS INDEMNIFICATION OBLIGATION IS INTENDED BY THE PARTIES TO APPLY
EVEN IF IT HAS THE EFFECT OF EXCULPATING AND INDEMNIFYING THE SELLER
FROM LEGAL RESPONSIBILITY FOR THE CONSEQUENCES OF ITS INTENTIONAL
OR NEGLIGENT CONDUCT. Section 8.02(b), (d), (e) and (f) shall apply to the
indemnification of Losses pursuant to this subsection as if such Losses were
indemnified against pursuant to the first sentence of Section 8.02(a). For
purposes of this Section 6.16, the term "Losses" shall include any increase in
tax, interest or penalty that is payable to any taxing jurisdiction by reason of
such jurisdiction's characterization of the Processing Plants Sale and the
Processing Plants Lease, if any, as a sale rather than a financing transaction
for taxation purposes, including all state and local transfer, sales, use or
other similar taxes. The Seller shall file all of its Tax Returns and related
forms consistent with the parties' intent that the Processing Plants Sale is a
financing transaction and not a sale for tax purposes.
(f) The Purchaser agrees to reimburse the Seller for any legal or other
expenses incurred by it in connection with investigating or defending against
any Losses or Proceedings against which it is indemnified in subsection (e) of
this Section."
13. Section 7.02(f) of the Merger Agreement is deleted in its
entirety.
14. The following defined terms are added to Annex A to the Merger
Agreement:
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"Bill of Sale" shall have the meaning ascribed to such term in Section
6.16(a).
"Liabilities" shall have the meaning ascribed to such term in Section
6.16(c).
"Processing Plants" shall mean those assets described on Exhibit A to
the Bill of Sale.
"Processing Plants Sale" shall have the meaning ascribed to such term
in Section 6.16(a).
"Processing Plants Lease" shall have the meaning ascribed to such term
in Section 6.16(a).
"Processing Plants Transaction Documents" shall have the meaning
ascribed to such term in Section 6.16(c).
15. This Amendment may be executed in any number of counterparts, each
of which when so executed shall be deemed an original but all of which together
shall constitute one and the same instrument.
16. Unless otherwise defined herein, capitalized terms used herein
shall have the meanings ascribed to such terms in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be signed in its corporate name by its duly authorized officer, all
on the date first above written.
CENTRAL AND SOUTH WEST CORPORATION
By: /s/ E. R. BROOKS
E. R. Brooks
Chairman, President and Chief
Executive Officer
TEJAS GAS CORPORATION
By: /s/ CHARLES R. CRISP
Charles R. Crisp
President
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