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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 0-17389
TEJAS GAS CORPORATION
(Exact name of registrant as specified in its
charter)
DELAWARE 76-0263364
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1301 MCKINNEY, SUITE 700
HOUSTON, TEXAS
(Address of principal executive 77010
offices) (Zip Code)
(713) 658-0509
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
As of October 31, 1997, Tejas Gas Corporation had 20,608,446 shares of
common stock, par value $.25 per share, outstanding.
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TEJAS GAS CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Tejas Gas Corporation ("Tejas")
included herein have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
notes normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. It is suggested that these financial statements
be read in conjunction with the audited financial statements and the notes
thereto included in Tejas' Annual Report on Form 10-K for the year ended
December 31, 1996.
Because of the seasonal nature of Tejas' operations, among other factors,
the results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for an entire year.
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TEJAS GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER December
30, 31,
1997 1996
---------- ----------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,517 $ 45,247
Accounts receivable 229,127 384,652
Exchange gas receivable 38,259 10,792
Storage gas inventory 87,737 45,389
Prepaids and other current assets 63,770 29,154
Deferred income tax assets 8,251 2,097
---------- ----------
Total current assets 432,661 517,331
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - AT COST 1,580,860 1,526,499
Less accumulated depreciation 244,394 217,261
---------- ----------
Property, plant and equipment, net 1,336,466 1,309,238
---------- ----------
GOODWILL, NET 9,461 9,811
---------- ----------
INVESTMENTS AND OTHER ASSETS 108,367 68,168
---------- ----------
TOTAL $ 1,886,955 $ 1,904,548
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Gas purchases payable $ 258,202 $ 386,766
Exchange gas payable 25,282 9,237
Accounts payable 3,744 11,124
Accrued liabilities 55,667 74,142
Current maturities of long-term obligations 6,724 7,382
---------- ----------
Total current liabilities 349,619 488,651
---------- ----------
LONG-TERM DEBT 916,755 847,755
---------- ----------
DEFERRED INCOME TAXES 106,348 72,072
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
---------- ----------
MINORITY INTERESTS 43,788 54,610
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value; 6,000,000 shares
authorized
200,000 shares of 9.96% Cumulative Preferred
Stock issued and outstanding in 1997 and 1996;
$250 liquidation preference per share 200 200
260,000 shares of 5 1/4% Convertible Preferred
Stock issued and outstanding in 1997 and 1996;
$250 liquidation preference per share 260 260
Common Stock, $.25 par value; 30,000,000 shares
authorized;
20,578,508 and 20,551,051 shares issued and
outstanding in 1997 and 1996, respectively 5,145 5,138
Capital surplus 295,389 294,599
Retained earnings 169,451 141,263
---------- ----------
Total stockholders' equity 470,445 441,460
---------- ----------
TOTAL $ 1,886,955 $ 1,904,548
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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TEJAS GAS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUES $ 549,832 $ 541,912 $1,677,154 $1,393,597
---------- --------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 472,161 466,960 1,454,693 1,228,825
Operating expenses 19,250 19,301 54,735 40,729
Depreciation and amortization 13,227 13,333 40,813 31,539
General and administrative 11,027 11,258 32,811 23,516
---------- --------- ---------- ----------
Total 515,665 510,852 1,583,052 1,324,609
EARNINGS FROM OPERATIONS 34,167 31,060 94,102 68,988
OTHER INCOME (EXPENSE):
Equity in earnings of
unconsolidated entities 1,649 425 8,175 6,000
Interest income 184 141 737 653
Interest expense (17,061) (16,372) (46,627) (28,911)
Minority interests (1,141) (913) (3,627) (2,785)
Other, net 485 (4) 616 668
---------- --------- ---------- ----------
Total (15,884) (16,723) (40,726) (24,375)
---------- --------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 18,283 14,337 53,376 44,613
---------- --------- ---------- ----------
INCOME TAXES:
Current 3,476 (1,294) (9,228) 4,579
Deferred 3,013 5,379 28,122 10,829
---------- --------- ---------- ----------
Total 6,489 4,085 18,894 15,408
---------- --------- ---------- ----------
NET EARNINGS 11,794 10,252 34,482 29,205
---------- --------- ---------- ----------
PREFERRED STOCK DIVIDEND
REQUIREMENTS 2,098 2,098 6,294 6,294
---------- --------- ---------- ----------
NET EARNINGS APPLICABLE TO COMMON
STOCK $ 9,696 $ 8,154 $ 28,188 $ 22,911
---------- --------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 20,573 19,655 20,564 18,161
========== ========= ========== ==========
EARNINGS PER COMMON SHARE $ 0.47 $ 0.41 $ 1.37 $ 1.26
========== ========= ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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TEJAS GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
-------------------------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 34,482 $ 29,205
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 40,813 31,539
Amortization of deferred costs 2,346 2,061
Deferred income taxes 28,122 10,829
Equity in earnings of unconsolidated
entities (8,175) (6,000)
Distributions from unconsolidated entities 11,380 8,462
Other, net 46 (91)
---------- ---------
109,014 76,005
---------- ---------
Net increase/(decrease) in working capital (87,278) 39,051
---------- ---------
Net cash provided by operating activities 21,736 115,056
---------- ---------
INVESTING ACTIVITIES:
Capital expenditures and investments (146,847) (36,456)
Proceeds from sale of assets 32,609 -
Acquisition of Transok - (568,500)
Other, net 749 527
---------- ---------
Net cash used in investing activities (113,489) (604,429)
---------- ---------
FINANCING ACTIVITIES:
Net borrowings (repayments) under line-of-credit
agreements 10,000 (7,900)
Proceeds from issuance of long-term debt 60,000 605,900
Retirement of long-term debt (1,000) (208,320)
Preferred stock dividends (6,294) (6,294)
Issuance of additional common shares - 102,761
Distribution to minority interest holders (11,480) (3,013)
Exercise of stock options 797 1,002
---------- ---------
Net cash provided by financing activities 52,023 484,136
---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (39,730) (5,237)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 45,247 29,935
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,517 $ 24,698
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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TEJAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and notes thereto for
Tejas Gas Corporation ("Tejas") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. In connection with the preparation of
these financial statements, management was required to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues,
expenses and disclosure of contingent liabilities. Actual results could differ
from such estimates. The accompanying consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in Tejas' Annual Report on Form 10-K for
the year ended December 31, 1996.
Certain amounts in the consolidated financial statements for periods prior
to 1997 have been reclassified to conform to the current presentation.
In the opinion of Tejas' management, all adjustments have been made which
are necessary to fairly state the consolidated financial position of Tejas and
its subsidiaries as of September 30, 1997, the results of their operations for
the three month and nine month periods ended September 30, 1997 and 1996 and the
cash flows for the nine month periods ended September 30, 1997 and 1996.
2. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Effective January 1, 1997, Tejas increased its ownership in Coral Energy,
L.P. ("Coral") to fifty percent. Coral was previously owned one-third by Tejas
and two-thirds by Shell Oil Company ("Shell"). Effective May 31, 1997, Coral
formed an alliance with Shell Canada Limited ("Shell Canada") pursuant to which
Shell Canada received a twelve percent ownership interest in Coral. The
remaining equity ownership is held forty-four percent by Tejas and forty-four
percent by Shell.
3. STOCKHOLDERS' EQUITY
During the first nine months of 1997 Tejas granted options for 124,950 and
14,850 shares to its employees and directors, respectively. During the same
period, employee options for 26,094 shares were exercised. Employee options for
7,636 shares and director options for 2,475 shares were canceled during the same
period.
On October 2, 1997, Tejas announced that its Board of Directors had called
all of Tejas' 5 1/4% Convertible Preferred Stock ("5 1/4% Preferred Stock") and
the depositary shares ("Depositary Shares"), each of which represents a
one-fifth interest in a share of the 5 1/4% Preferred Stock, for redemption for
cash on November 10, 1997 at a price of $258.2031 per share of 5 1/4% Preferred
Stock (equivalent to a redemption price of $51.6406 for each Depositary Share)
which includes accrued and unpaid dividends for the period from November 1, 1997
to November 10, 1997. Prior to redemption, each share of 5 1/4%
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Preferred Stock was convertible into Tejas common stock at a conversion price
of $42.4243 per Depositary Share (equivalent to a conversion rate of
approximately 5.8928 shares of Tejas common stock for each share of 5 1/4%
Preferred Stock, or equivalent to a conversion rate of 1.1786 shares of Tejas
common stock for each Depositary Share).
As a result of the call for redemption during the fourth quarter of 1997,
1,298,538 Depositary Shares were converted into 1,530,399 shares of Tejas common
stock and the remaining 1,462 Depositary Shares and 58 fractional shares of
common stock were redeemed for cash at a cost of approximately $79 thousand.
4. INCOME TAXES
Tejas is able to take U.S. federal income tax credits for the Canadian
income tax paid on Coral's Canadian income. These tax credits result in a lower
effective income tax rate for Tejas.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The "Net increase/(decrease) in working capital" amount included in the
Consolidated Statements of Cash Flows is comprised of the following:
Nine Months Ended September 30,
-------------------------------
1997 1996(1)
------ --------
(IN THOUSANDS)
Decrease (increase) in:
Accounts receivable $ 155,525 $ 37,618
Exchange gas receivable (27,467) 3,873
Storage gas inventory (42,348) (17,714)
Prepaids and other current
assets (34,615) 2,973
Increase (decrease) in:
Gas purchases payable (128,564) 40,089
Exchange gas payable 16,045 (2,703)
Accounts payable (7,380) (31,516)
Accrued liabilities (18,474) 12,962
Income taxes payable - (6,531)
--------- ---------
Total $(87,278) $ 39,051
========= =========
________________________
(1) Excludes Transok's balances at acquisition.
6. COMMITMENTS AND CONTINGENCIES
THE LONG TRUST LITIGATION
Tejas is a defendant or party in various lawsuits that have risen in the
ordinary course of Tejas' business. In particular, a subsidiary of Tejas is a
defendant in THE LONG TRUSTS V. TEJAS GAS CORP. ET. AL., 123rd Judicial District
Court, Panola County, Texas, filed March 1, 1989, in which plaintiffs assert
claims and allege damages for breach of contract and failure to take-or-pay for
natural gas pursuant to three
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natural gas purchase contracts. Plaintiffs allege that, in addition to failing
to take-or-pay for gas, Tejas breached (a) one of the contracts by failing to
take a minimum quantity of gas and to install and maintain pipeline facilities
sufficient to permit Tejas to meet its quantity purchase obligations, and (b)
all three contracts by failing to take gas in quantities sufficient to enable
plaintiffs to produce ratably with other producers in a common reservoir. In
plaintiffs' Seventh Amended Original Petition filed April 11, 1997, the
plaintiffs are seeking take-or-pay damages for the twelve year period 1984-1996
in excess of $36 million, plus pre-judgment interest, post-judgment interest,
attorneys' fees and court costs and other unspecified actual damages. In
connection with their depositions in this matter, certain expert witnesses
retained by The Long Trusts have presented damage models purporting to show
approximately $60 million in take-or-pay damages and $70 million for failure to
take The Long Trusts' gas ratably. Management disputes The Long Trusts' claims
and believes that The Long Trusts' damage models are seriously flawed.
On January 6, 1993, the Court entered an interlocutory summary judgment
order granting in part and denying in part plaintiffs' motions for summary
judgment. The Court found, among other things, as a matter of law that (a) Tejas
breached the minimum take obligations under one of the contracts, (b) Tejas is
not entitled to any credits or offsets for natural gas purchased by third
parties, and (c) the "availability" of natural gas for take-or-pay purposes is
established by the delivery capacity testing procedures in the contracts.
Damages, if any, have not been determined. The effect of this order on Tejas'
case was unclear and Tejas had sought clarification and rehearing. On July 14,
1997, the Court granted Tejas' motion for summary judgment regarding natural gas
takes under interruptible purchase contracts. According to the Court's order,
Tejas will receive a volumetric credit for all natural gas purchased by Tejas
and its affiliates under the interruptible contracts. Although a formal
evaluation has not been made, because most of the natural gas purchased from
1985 through 1989 was purchased by Tejas or one of its affiliates under
interruptible contracts, this ruling should significantly reduce the potential
damages, if any. This order reverses the partial summary judgment granted by
Judge Boles in January 1993, regarding credit or offsets for natural gas
purchased by third parties.
On October 27, 1997, Robert M. Griffin, Sr., Robert M. Griffin, Jr. and
Charles Conrad, working interest owners in wells operated by the plaintiffs
(collectively referred to as "Interveners"), filed an Original Plea in
Intervention, requesting that the Court allow Interveners to prosecute their own
claims against Tejas. Interveners have adopted the plaintiffs' Seventh Amended
Original Petition and the allegations contained therein for all purposes not
inconsistent with differences that the Interveners have with the plaintiffs. The
Interveners have alleged that irreconcilable differences have arisen between
themselves and the plaintiffs and no longer desire to have plaintiffs represent
their interest in the lawsuit.
Because of the relationship between The Long Trusts' contracts and certain
contracts between Tejas and Valero Transmission Company ("VTC"), and in order to
resolve existing and potential claims and disputes, Tejas, VTC and Valero
Transmission, L.P. ("VTLP") entered into an agreement, pursuant to which, among
other things, Tejas, VTC and VTLP would cooperate in the conduct of The Long
Trusts' litigation, and VTC and VTLP would bear a substantial portion of the
costs of any appeal and of the amount of any nonappealable final judgment
rendered against Tejas. On April 15, 1994, the plaintiffs named VTC and VTLP
(collectively "Valero") as additional defendants to the lawsuit, alleging that
Valero intentionally and maliciously interfered with the plaintiffs' contracts
with Tejas. In its Seventh Amended Original Petition, plaintiffs are seeking
damages against Valero in an amount in excess of $200 million for loss of
profits which plaintiffs claim they would have realized but for Valero's alleged
acts of interference. Plaintiffs further allege that Tejas conspired with Valero
in interfering with the contracts and that Tejas should be jointly liable with
Valero for the damages plaintiffs have asserted against Valero. Plaintiffs also
seek from Valero exemplary damages treble the amount of the actual, economic
damages, if any, found by the Court for the interference claim. Plaintiffs have
also added Tejas Gas Corporation as a defendant claiming that Tejas Gas
Corporation operated with its subsidiary, Tejas Gas Corp., as a single business
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entity and should therefore be liable for the alleged wrongful acts of Tejas Gas
Corp. Plaintiff alleges similar claims against Valero Energy Corporation with
respect to VTC and VTLP.
Although Tejas has not obtained a formal opinion, based on discussions
with outside counsel and an internal examination of this lawsuit, management
believes that it has adequate defenses or recourse to third parties relating to
such lawsuit and does not believe this matter will have a material adverse
effect on Tejas' financial condition.
GAS STORAGE FACILITIES
Tejas' West Clear Lake Storage Facility (the "WCLSF") and Greasy Creek
Storage Facility (the "GCSF") require the maintenance of cushion gas in order to
sustain anticipated operational requirements. Such cushion gas requirements have
been satisfied by a combination of natural gas purchased by Tejas and third
party natural gas stored in the facilities. At September 30, 1997, Tejas had
purchased approximately 10 billion cubic feet ("Bcf") of cushion gas. In late
1994, Tejas entered into an agreement with a third party whereby the third party
agreed to purchase up to 35 Bcf of natural gas at a cost not to exceed $65
million and to store such gas in the WCLSF. The agreement with the third party
was scheduled to expire in September 2000. Effective January 16, 1997, the third
party agreement described above was amended and extended. The principal
modifications to the agreement included the extension of the contract expiration
date to December 31, 2002 and, at Tejas' option, an increase in the maximum
volume of natural gas that may be stored in Tejas' facilities, including the
GCSF, to 70 Bcf. In order to secure Tejas' ability to purchase the natural gas
from the third party, the agreement provides for the payment by Tejas of a
reservation fee to the third party which is adjusted quarterly based upon the
third party's financing costs. On certain option dates, Tejas may elect to
purchase specified volumes of the third party's gas based upon market prices.
Should Tejas decline to purchase the natural gas, the third party may instruct
Tejas to sell such volumes on the third party's behalf. In such case, it will be
necessary for Tejas to obtain cushion gas through other means in order to meet
the anticipated operational requirements of the WCLSF and GCSF. At September 30,
1997, the third party had approximately 30.6 Bcf of natural gas in storage at
the WCLSF and GCSF, which such party purchased for $63.2 million. Tejas
estimates the net 1997 cost related to the reservation of the 30.6 Bcf of
natural gas to be approximately $2.3 million.
Tejas bears the cost of physical loss, if any, incurred during storage.
Management estimates that physical losses will not be significant and has
insured against physical losses due to catastrophic events.
7. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," which requires dual presentation of basic and diluted earnings per share
for entities with complex capital structures. Basic earnings per share excludes
dilution and is computed by dividing net income by the weighted average number
of shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. SFAS No. 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. The adoption of SFAS No. 128 would not change basic
earnings per share for the three month and nine month periods ended September
30, 1997 and 1996 and would not have a material impact on diluted earnings per
share for either period.
8
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8. SUBSEQUENT EVENTS
MERGER AGREEMENT - SHELL OIL COMPANY
Tejas and Shell have entered into a merger agreement (the "Shell Merger")
pursuant to which a company to be formed by Shell will acquire all of the
outstanding common stock of Tejas for $61.50 per share in cash, which, on a
fully diluted common stock basis, would represent an aggregate common stock
purchase price of approximately $1.4 billion. In addition, the majority of
Tejas' balance sheet debt and all of its preferred stock will be retired and
Tejas will terminate two operating leases and purchase the related leased
properties for approximately $270 million.
The Board of Directors of Tejas, acting on the unanimous recommendation of
a special committee of the Board of Directors of Tejas, unanimously approved the
transaction and recommended that stockholders of Tejas approve and adopt the
agreement and the merger. Certain Tejas stockholders and members of Tejas
management, who now hold approximately 19 percent of the outstanding Tejas
common stock, have agreed to vote in favor of the transaction. The transaction
is subject to the approval of the Tejas stockholders, applicable regulatory
approvals and certain other conditions.
Following the transaction, Shell's own natural gas midstream business will
be combined with the business of Tejas. Shell's natural gas midstream business
consists of offshore and onshore pipelines, gas processing and natural gas
liquids fractionation, transportation and marketing, with facilities in Texas,
Louisiana, Mississippi and the Gulf of Mexico. The consolidated Tejas and Shell
executive and operating team will be led by Tejas' Chief Executive Officer, Jay
A. Precourt, and Tejas' Chairman of the Board, Frederic C. Hamilton, both of
whom have been with Tejas since it became a publicly-traded company in 1988. Two
Shell Oil Company executives, Philip J. Carroll, the President and Chief
Executive Officer of Shell Oil Company, and Jack E. Little, President and Chief
Executive Officer of Shell Exploration and Production Company, will join the
Board of the new combined business.
The transaction is expected to be finalized in January, 1998, subject to
the closing conditions described above.
PURCHASE AGREEMENT - AMOCO PRODUCTION COMPANY
Tejas and Amoco Production Company have entered into a stock purchase
agreement pursuant to which Tejas will acquire Amoco Gas Company. Tejas plans to
borrow approximately $150 million from Shell in connection with the purchase.
The purchase of Amoco Gas Company is expected to be completed prior to year end,
subject to customary regulatory approvals and closing conditions.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On June 6, 1996, Tejas acquired (the "Transok acquisition") the pipeline
assets and related facilities and leased processing plants of Transok, Inc.
("Transok"). The results of operations for the assets acquired or leased
("Transok operations") are included below for the period subsequent to the
acquisition. A summary of Tejas' natural gas average daily throughput is set
forth below:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1997 1996(2)(3) 1997 1996(2)(3)
------- ----------- ------ ----------
AVERAGE DAILY THROUGHPUT IN MILLION
CUBIC FEET ("MMCF"):
System sales 2,320 2,233 2,202 1,978
Transportation 2,310 2,755 2,293 2,079
Partnership volumes (Tejas' share)(1) 49 56 45 56
------- ------ ------ ------
Total system throughput 4,679 5,044 4,540 4,113
Gas processed 55 86 69 80
------- ------ ------ ------
Total daily throughput 4,734 5,130 4,609 4,193
======= ====== ====== ======
NATURAL GAS PROCESSING DATA:
Average daily natural gas liquids
production in thousands of gallons 1,409 1,394 1,369 667
Average daily inlet volumes in MMcf 522 561 536 281
------- ------ ------ ------
________________________
(1) Includes Tejas' share of unconsolidated partnerships.
(2) Includes Transok operations beginning June 6, 1996.
(3) Certain volumes in 1996 have been reclassified to conform to the
current presentation.
Tejas' net earnings for the first nine months of 1997 were $34.5 million
as compared to $29.2 million for the same period in 1996, an increase of $5.3
million. Net earnings applicable to common stock and earnings per common share
for the first nine months of 1997 were $28.2 million and $1.37, respectively,
versus $22.9 million and $1.26, respectively, for the first nine months of 1996.
These increases were partially attributable to the inclusion of Transok. Net
earnings for the third quarter of 1997 were $11.8 million as compared to $10.3
million for the third quarter of 1996. Net earnings applicable to common stock
for the third quarter of 1997 were $9.7 million as compared to $8.2 million for
the same period in 1996, an increase of $1.5 million which was due mainly to
increased equity earnings from Coral Energy, L.P. ("Coral"). Net earnings
applicable to common stock and per share results include a provision for
dividends on Tejas' 9.96% Cumulative Preferred Stock (the "9.96% Preferred
Stock") and Tejas' 5 1/4% Convertible Preferred Stock (the "5 1/4% Preferred
Stock").
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NATURAL GAS SYSTEMS
Sales and transportation of natural gas through its owned and/or operated
natural gas pipeline systems is Tejas' core business. For the first nine months
of 1997, Tejas' system volumes increased 10% from the same period in 1996 to a
total of 4.5 billion cubic feet ("Bcf") of natural gas per day. Gross profit on
transportation and sales increased by $49.3 million to a total of $192.5 million
for the first nine months of 1997 as compared to the first nine months of 1996.
A significant portion of these improvements resulted from the inclusion of the
Transok operations in the first nine months of 1997 and the inclusion of a $7
million gain associated with a sale related to a long-term natural gas sales
contract in the second quarter of 1997.
ENERGY MARKETING PARTNERSHIP - CORAL ENERGY, L.P.
Coral, the energy marketing venture between Tejas and Shell Oil Company
("Shell"), commenced operations in November 1995. Coral's total sales volume for
the first nine months of 1997 averaged 6 Bcf of natural gas per day. Income from
the partnership contributed $8.2 million and $1.7 million to Tejas' pre-tax
income for the first nine months and third quarter of 1997, respectively,
compared to $6.0 million and $0.1 million during the same periods in 1996.
Effective January 1, 1997, Tejas increased its ownership in Coral from one-third
to fifty percent. Effective May 31, 1997, Coral formed an alliance with Shell
Canada Limited ("Shell Canada") pursuant to which Shell Canada obtained a twelve
percent ownership in Coral. The remaining equity ownership is held forty-four
percent by Tejas and forty-four percent by Shell.
NATURAL GAS PROCESSING/TREATING
During the first nine months and third quarter of 1997, Tejas' natural gas
processing and treating activities contributed gross profit of $29.9 million and
$11.5 million, respectively, as compared to $21.6 million and $14.5 million for
the corresponding periods in 1996. The increase for the first nine months of
1997 is attributable to the acquisition of Transok operations. The lower gross
profit in the third quarter of 1997 was a result of lower margins from
processing activity.
REVENUES
Revenues for the first nine months of 1997 were $1,677 million as compared
to $1,394 million for the same period in 1996, an increase of $283 million. The
20% growth in revenues is primarily a result of the acquisition of Transok in
June 1996, the availability of natural gas and the operational flexibility at
the West Clear Lake Storage Facility (the "WCLSF") and the Greasy Creek Storage
Facility (the "GCSF"). Revenues increased by 1.5% during the third quarter of
1997 as compared to the third quarter of 1996, primarily because cooler
temperatures during the 1997 period reduced the utility load necessary to meet
air conditioning demand thus resulting in lower sales prices and system
throughput.
OPERATING EXPENSES/DEPRECIATION/GENERAL AND ADMINISTRATIVE EXPENSES
During the first nine months of 1997, operating expenses, depreciation,
and general and administrative expenses increased by $32.6 million to $128.4
million. These increases for the first nine months of 1997 were primarily due to
the inclusion of the Transok operations beginning June 1996. During the third
quarter of 1997 these expenses remained relatively unchanged compared to the
third quarter of 1996.
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OTHER INCOME (EXPENSE)
Interest expense increased by $17.7 million and $0.7 million to $46.6
million and $17.1 million for the first nine months and third quarter of
1997, respectively, as compared to the same periods in 1996. These increases
were primarily the result of the additional financing required for the
acquisition of Transok in June 1996.
INCOME TAXES
The effective income tax rate for the first nine months of 1997 increased
by 0.86% compared to the same period of 1996 primarily due to the inclusion of
Transok operations, which are subject to higher state income tax rates than
Tejas' other operations. This increase was partially offset by U.S. Federal
income tax credits for the Canadian income tax paid on Coral's Canadian income.
CAPITAL RESOURCES, LIQUIDITY AND OUTLOOK
MERGER AGREEMENT - SHELL OIL COMPANY
Tejas and Shell have entered into a merger agreement pursuant to which a
company to be formed by Shell will acquire all of the outstanding common stock
of Tejas. If the conditions to the merger are satisfied or waived and regulatory
approval is received, Tejas will merge with a subsidiary of Shell, and Tejas'
common stockholders will be entitled to receive $61.50 in cash for each share of
Tejas' common stock they own. The aggregate amount of the payments to be made to
holders of common stock and holders of stock options will be approximately $1.4
billion. In addition, Tejas plans to redeem its 9.96% Cumulative Preferred
Stock, par value $1.00 per share, in February 1998.
At a special meeting of stockholders to be held in January 1998, the
holders of Tejas' common stock will vote on a proposal to adopt the merger
agreement. Tejas' directors and executive officers who hold approximately 19% of
Tejas' common stock have agreed to vote in favor of the merger. The transaction
is subject to the approval of the Tejas stockholders, applicable regulatory
approvals and certain other conditions.
CASH FLOWS FROM OPERATING ACTIVITIES
For the nine months ended September 30, 1997, net cash provided by
operating activities totaled $21.7 million as compared to $115.1 million for the
same period in 1996. This $93.4 million decrease in net cash provided by
operations is primarily due to changes in working capital. Excluding net changes
in working capital components, Tejas' operating activities generated $109
million in cash during the first nine months of 1997 as compared to $76 million
in the first nine months of 1996, an increase of $33 million due primarily to
higher cash earnings.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities during the first nine months of 1997
totaled $113.5 million, most of which was used to expand the storage and
transportation facilities in Oklahoma and to increase Tejas' ownership in Coral.
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LIQUIDITY
Tejas' working capital increased $54.3 million to $83 million at September
30, 1997 from $28.7 million at December 31, 1996, primarily due to seasonal
inventory build up. In order to effectively utilize its cash balances, Tejas
will continue to make periodic borrowings under its revolving credit facilities
and money market credit lines to meet immediate cash needs.
At September 30, 1997, Tejas' long-term debt with banks totaled $709.6
million, consisting of $443.8 million borrowed under Tejas' $480 million
revolving credit facilities established for its subsidiaries Tejas-Acadian
Holding Company ("TAHC") and Tejas Natural Gas Company ("TNGC"), $255.8 million
borrowed under a $275 million credit facility established for its subsidiary
Transok, and $10 million borrowed under various money market credit lines. In
addition, Tejas has $200 million of long-term debt that was retained by Transok
as part of the Transok acquisition and $7.2 million in notes payable, net of $2
million in current maturities, related to Industrial Development Refunding
Revenue Bonds issued by Lewis and Pleasants Counties, West Virginia.
The $455 million TAHC and $25 million TNGC credit facilities (the "Credit
Agreements") bear interest at Tejas' option, based on either the prime rate or
the London Interbank Offered Rate ("LIBOR"). The margins over LIBOR that TAHC
and TNGC must pay vary, depending on TAHC's funded debt to capitalization ratio,
from a minimum of 0.5% to a maximum of 1.25%. Based upon borrowings at September
30, 1997, of $443.8 million, and after considering restrictions to provide for a
$10 million letter of credit, approximately $26.2 million of additional
borrowings were available under these facilities. Additionally, at September 30,
1997, based upon TAHC's funded debt to capitalization ratio test, both the TAHC
and TNGC credit facilities bore interest at Tejas' option, at either the prime
rate or at LIBOR plus .75%. Under the terms of the Credit Agreements, after two
years the revolving credit facilities will convert into six-year reducing
revolving credit agreements unless extended at the option of the lenders.
Commitment reductions aggregating $15 million per quarter are scheduled to begin
March 31, 1999 with the final remaining commitment reduction to occur on
December 31, 2004. Based upon the current terms of the Credit Agreements and the
outstanding principal balances thereunder at September 30, 1997, no principal
payments are required until the year 1999.
The Transok credit facility bears interest, at Tejas' option, based upon
either the prime rate or LIBOR. Depending upon Transok's funded debt to
capitalization ratio, the margins over LIBOR that Transok must pay vary, subject
to a minimum margin for a limited period of time, from a minimum of 0.5% to a
maximum of 1.25%. Based upon the September 30, 1997 outstanding balance of
approximately $255.8 million, the Transok credit facility had available
borrowings of approximately $19.2 million and bore interest at Tejas' option, at
either the prime rate or at LIBOR plus 1.0%. Under the terms of the Transok
credit facility, after two years the revolver will, unless extended at the
option of the lenders, convert into a six-year reducing revolver. Unless
extended, commitment reductions of approximately $8.6 million per quarter will
begin March 31, 1999 with the final remaining commitment reduction to occur on
December 31, 2004. Based upon the current terms of the Transok credit facility
and the outstanding principal balance thereunder at September 30, 1997, no
principal payments are required until the year 1999.
On September 19, 1997, Tejas entered into a $115 million unsecured credit
agreement (the "Tejas Credit Facility"). A portion of the amounts borrowed under
the Tejas Credit Facility have been used for the redemption of the 5 1/4%
Preferred Stock (to the extent such preferred was not converted into Company
common stock) with the remaining portion to be used for general liquidity
purposes. The redemption of the 5 1/4% Preferred Stock is described under Note 3
"Stockholders' Equity" of Item 1. of this report. The Tejas Credit Facility
matures on September 18, 1998, requires no principal payments prior to maturity,
and bears interest, at Tejas' option, based upon either the prime rate or LIBOR.
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The margins over the prime rate or LIBOR that Tejas must pay are initially 0%
and 1.0%, respectively, with such margins increasing by .25% per month beginning
in March of 1998, subject to a cap if certain events related to the merger with
Shell occur. As of September 30, 1997, $50 million of the $115 million in
commitments was in effect, $40 million was available to be borrowed, and there
were no amounts outstanding under the Tejas Credit Facility. Subsequent to
quarter end, the remaining $65 million in commitments became effective.
The obligations under the Transok credit facility are secured by certain
intercompany notes, the capital stock of all of Transok's subsidiaries and
certain partnership interests held by Transok, and are guaranteed by such
subsidiaries. The obligations under the Credit Agreements are secured by the
capital stock, partnership interests and various intercompany notes of all
material subsidiaries and partnerships of TAHC (excluding the capital stock of
Acadian Gas Corporation ("Acadian"), but including the capital stock and
partnership interests of the material operating subsidiaries and partnerships of
Acadian) and are guaranteed by such subsidiaries and partnerships. The notes
payable related to the Lewis and Pleasants Counties' bonds are secured by bank
letters of credit which in turn are secured by mortgages on two natural gas
processing plants located in West Virginia. The notes are also subject to
certain covenants and require that Tejas' subsidiaries, TAHC and Gulf Energy
Gathering & Processing Corporation, maintain certain financial standards. All of
Tejas' credit facilities are subject to certain covenants, including the
maintenance of certain financial ratios, with which Tejas expects to be able to
comply in the ordinary course of business.
Although TAHC, TNGC and Transok have additional borrowing capacity
available under the Credit Agreements and the Transok credit facility, the
amount of loans, advances and dividends that may be made to Tejas from TAHC,
TNGC and Transok under the Credit Agreements and the Transok credit facility is
subject to certain limitations. At September 30, 1997, the permitted amount of
such payments was $185.6 million. Such limitations as herein described are not
expected to have any material effect on the ability of Tejas to meet its cash
obligations. Tejas' liquidity is ultimately dependent on cash generated by
operations, and Tejas believes its earnings from operations will generate
sufficient cash to fund expansion projects, make required debt payments and meet
anticipated dividend requirements of the 9.96% Preferred Stock.
Tejas has uncommitted money market credit lines which allow Tejas to
borrow up to $50 million for periods of up to two months. Any such borrowings
are unsecured and may be extended for additional periods if agreed to by the
lenders. At September 30, 1997, Tejas had $10 million of borrowings outstanding
under such lines. Tejas has agreed to maintain funds including, but not limited
to, availability under the Tejas Credit Facility, the Credit Agreements and/or
the Transok credit facility sufficient to repay borrowings under the money
market credit lines.
A subsidiary of Tejas, Tejas-Magnolia Energy, L.L.C. ("Tejas-Magnolia"),
makes distributions on preferred equity interests that were issued to a third
party in 1995 in return for a capital investment of $55 million. The
distributions constitute a return on capital (at an effective fixed after tax
cost to Tejas of 4.2%) and return of capital over an eight-year term. During the
second quarter of 1997 Tejas-Magnolia elected to repurchase $7.5 million of
these preferred equity interests.
As part of the Transok acquisition in June 1996 and the acquisition of
pipeline and related facilities from Exxon in September 1993, Tejas (the
"lessee") entered into separate five-year operating leases with third parties
(the "lessor") for seven natural gas processing plants ("Plant Lease") and a
pipeline system ("System Lease"), respectively. Lease payments under the two
leases are adjusted quarterly based upon the respective lessor's financing
costs. However, Tejas has entered into interest rate derivative agreements in a
notional amount of $269.5 million to fully hedge the effects of such adjustments
on the required minimum lease payments. The Plant Lease expires June 6, 2001
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unless extended by mutual consent of the lessor and lessee for up to two
additional two-year periods. The System Lease currently expires on September 14,
1998. Upon the completion of the Shell Merger, Tejas expects to terminate these
operating leases and purchase the leased properties from the lessors.
In the normal course of business, Tejas regularly reviews opportunities
for the possible acquisition of, or combination with, additional natural gas
pipelines and processing plants and companies that own natural gas pipelines and
processing plants. When potential opportunities are deemed to be consistent with
Tejas' growth strategy, Tejas may pursue them. It is uncertain whether any
offers submitted by Tejas in response to these opportunities would be acceptable
to the other parties to the potential transaction. In the event of a future
significant acquisition or business combination, Tejas may require additional
financing in connection therewith.
Tejas and Amoco Production Company have entered into a stock purchase
agreement pursuant to which Tejas will acquire Amoco Gas Company. Tejas plans to
borrow approximately $150 million from Shell in connection with the purchase.
The purchase of Amoco Gas Company is expected to be completed prior to year end,
subject to customary regulatory approvals and closing conditions.
OUTLOOK
Tejas' management knows of no trends or uncertainties that will impair
Tejas' ability to comply with its debt covenants or pay the dividends on the
9.96% Preferred Stock.
The statements included in this Report on Form 10-Q 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," "plans," "anticipate," "believes" and similar expressions
are also intended to identify forward-looking statements. Such statements and
Tejas' results are subject to numerous risks, uncertainties and assumptions,
including but not limited to, changes in general economic conditions in the
United States, changes in laws and regulations to which Tejas is subject, the
cost and effects of legal and administrative claims and proceedings against
Tejas or its subsidiaries or which may be brought against Tejas or its
subsidiaries, conditions in the capital markets utilized by Tejas to access
capital to finance operations, Tejas' ability to develop expanded markets and
product offerings as well as maintain existing markets, energy prices,
competition from other pipelines and alternate fuels, the general level of
natural gas and petroleum product demand and weather conditions, among other
things, and other risks and uncertainties described in this Report on Form 10-Q
and in Tejas' other filings with the Securities and Exchange Commission.
Further, natural gas prices, which directly impact transportation and gathering
and processing throughput and operating profits, may fluctuate in unpredictable
ways. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those indicated.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Tejas is a defendant or party in various lawsuits that have risen in the
ordinary course of Tejas' business. In particular, a subsidiary of Tejas is a
defendant in THE LONG TRUSTS V. TEJAS GAS CORP. ET. AL., 123rd Judicial District
Court, Panola County, Texas, filed March 1, 1989, in which plaintiffs assert
claims and allege damages for breach of contract and failure to take-or-pay for
natural gas pursuant to three natural gas purchase contracts. Plaintiffs allege
that, in addition to failing to take-or-pay for gas, Tejas breached (a) one of
the contracts by failing to take a minimum quantity of gas and to install and
maintain pipeline facilities sufficient to permit Tejas to meet its quantity
purchase obligations, and (b) all three contracts by failing to take gas in
quantities sufficient to enable plaintiffs to produce ratably with other
producers in a common reservoir. In plaintiffs' Seventh Amended Original
Petition filed April 11, 1997, the plaintiffs are seeking take-or-pay damages
for the twelve year period 1984-1996 in excess of $36 million, plus pre-judgment
interest, post-judgment interest, attorneys' fees and court costs and other
unspecified actual damages. In connection with their depositions in this matter,
certain expert witnesses retained by The Long Trusts have presented damage
models purporting to show approximately $60 million in take-or-pay damages and
$70 million for failure to take The Long Trusts' gas ratably. Management
disputes The Long Trusts' claims and believes that The Long Trusts' damage
models are seriously flawed.
On January 6, 1993, the Court entered an interlocutory summary judgment
order granting in part and denying in part plaintiffs' motions for summary
judgment. The Court found, among other things, as a matter of law that (a) Tejas
breached the minimum take obligations under one of the contracts, (b) Tejas is
not entitled to any credits or offsets for natural gas purchased by third
parties, and (c) the "availability" of natural gas for take-or-pay purposes is
established by the delivery capacity testing procedures in the contracts.
Damages, if any, have not been determined. The effect of this order on Tejas'
case was unclear and Tejas had sought clarification and rehearing. On July 14,
1997, the Court granted Tejas' motion for summary judgment regarding natural gas
takes under interruptible purchase contracts. According to the Court's order,
Tejas will receive a volumetric credit for all natural gas purchased by Tejas
and its affiliates under the interruptible contracts. Although a formal
evaluation has not been made, because most of the natural gas purchased from
1985 through 1989 was purchased by Tejas or one of its affiliates under
interruptible contracts, this ruling should significantly reduce the potential
damages, if any. This order reverses the partial summary judgment granted by
Judge Boles in January 1993, regarding credit or offsets for natural gas
purchased by third parties.
On October 27, 1997, Robert M. Griffin, Sr., Robert M. Griffin, Jr. and
Charles Conrad, working interest owners in wells operated by the plaintiffs
(collectively referred to as "Interveners"), filed an Original Plea in
Intervention, requesting that the Court allow Interveners to prosecute their own
claims against Tejas. Interveners have adopted the plaintiffs' Seventh Amended
Original Petition and the allegations contained therein for all purposes not
inconsistent with differences that the Interveners have with the plaintiffs. The
Interveners have alleged that irreconcilable differences have arisen between
themselves and the plaintiffs and no longer desire to have plaintiffs represent
their interest in the lawsuit.
Because of the relationship between The Long Trusts' contracts and certain
contracts between Tejas and Valero Transmission Company ("VTC"), and in order to
resolve existing and potential claims and disputes, Tejas, VTC and Valero
Transmission, L.P. ("VTLP") entered into an agreement, pursuant to which, among
other things, Tejas, VTC and VTLP would cooperate in the conduct of The Long
Trusts' litigation, and VTC and VTLP would bear a substantial portion of the
costs of any appeal and of the amount of any nonappealable final judgment
rendered against Tejas. On April 15, 1994, the plaintiffs named VTC and VTLP
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(collectively "Valero") as additional defendants to the lawsuit, alleging that
Valero intentionally and maliciously interfered with the plaintiffs' contracts
with Tejas. In its Seventh Amended Original Petition, plaintiffs are seeking
damages against Valero in an amount in excess of $200 million for loss of
profits which plaintiffs claim they would have realized but for Valero's alleged
acts of interference. Plaintiffs further allege that Tejas conspired with Valero
in interfering with the contracts and that Tejas should be jointly liable with
Valero for the damages plaintiffs have asserted against Valero. Plaintiffs also
seek from Valero exemplary damages treble the amount of the actual, economic
damages, if any, found by the Court for the interference claim. Plaintiffs have
also added Tejas Gas Corporation as a defendant claiming that Tejas Gas
Corporation operated with its subsidiary, Tejas Gas Corp., as a single business
entity and should therefore be liable for the alleged wrongful acts of Tejas Gas
Corp. Plaintiff alleges similar claims against Valero Energy Corporation with
respect to VTC and VTLP.
Although Tejas has not obtained a formal opinion, based on discussions
with outside counsel and an internal examination of this lawsuit, management
believes that it has adequate defenses or recourse to third parties relating to
such lawsuit and does not believe this matter will have a material adverse
effect on Tejas' financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
2.1 Stock Purchase Agreement dated November 6, 1997 between Amoco
Production Company and Tejas Gas Corp.
11.1 Computation of Earnings Per Common Share.
27.1 Financial Data Schedule.
99.1 Form of Management Agreement among Trango Holdings
Corporation, Shell Oil Company, Sierra Acquisition, and
Frederic C. Hamilton, Jay A. Precourt, Precourt Interests
Ltd., James W. Whalen, Rene R. Joyce, P. Anthony Lannie and
certain other persons as holders of stock appreciation rights.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated September 25, 1997, was filed
during the third quarter of 1997 with respect to Item No. 5 of Form
8-K "Other Events" and Item No. 7 of Form 8-K "Financial Statements
and Exhibits" to report that Tejas Gas Corporation and Shell Oil
Company had entered into a Merger Agreement that provides for the
merger of a special purpose subsidiary of Shell Oil Company with and
into Tejas Gas Corporation, which, subject to stockholder approval
and other conditions, will result in Tejas Gas Corporation becoming
a subsidiary of Shell Oil Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEJAS GAS CORPORATION
(Registrant)
By: /s/ JAMES W. WHALEN
James W. Whalen
Senior Executive Vice President-
Chief Financial
Officer (principal financial officer
and principal accounting officer)
Date: November 14, 1997
EXHIBIT 2.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BETWEEN
AMOCO PRODUCTION COMPANY
("SELLER")
AND
TEJAS GAS CORP.
("PURCHASER")
DATED
NOVEMBER 6, 1997
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTIONS OF THE DISCLOSURE SCHEDULE
SECTION # DISCLOSURE SCHEDULE
4.4 Subsidiaries
4.5 Financial Statements
4.6 Absence of Undisclosed Liabilities
4.7 Assets
4.8(a) Owned Real Property
4.8(b) Rights-of-Way
4.8(c) Leases
4.9 Material Contracts
4.10 Environmental Matters
4.11 Litigation
4.14 Absence of Changes
7.2(b) Seller Consents
7.3(b) Purchaser Consents
9.3(f)(i) Employee Benefit Plans and Policies
9.3(f)(vi) Severance
9.5 Employees
EXHIBITS
EXHIBIT # EXHIBIT NAME PAGE NO.
--------- ------------ --------
1.1 Working Capital 7
7.2(e) Form of Opinion of Seller's Counsel 18
7.2(a) Form of Assignment and Assumption Agreement 18
7.2(h) Utilities Agreement 18
7.2(i) Form of Affiliate Contract Amendments 18
7.3(d) Form of Opinion of Purchaser's Counsel 19
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("AGREEMENT") is made on the 6th day of
November, 1997, by and between Tejas Gas Corp., a corporation incorporated under
the laws of Nevada and having an address at 1301 McKinney, Suite 700, Houston,
Texas 77010 (the "PURCHASER") and Amoco Production Company, a corporation
incorporated under the laws of the State of Delaware, United States of America
and having an address at 200 East Randolph Drive, Chicago, Illinois 60601,
United States of America (the "SELLER"). The Purchaser and the Seller are
sometimes referred to herein as the "PARTIES." Unless otherwise indicated,
capitalized terms used but not defined prior to the first usage herein are
defined in Article I.
RECITALS
A. The Seller owns one hundred percent (100%) of the issued and outstanding
capital stock of Amoco Gas Company, a Delaware corporation (the
"COMPANY").
B. The Seller desires to sell, and the Purchaser desires to purchase, all of
the issued and outstanding capital stock of the Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, provisions and covenants contained in this Agreement, the Parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITION OF CERTAIN TERMS. The terms defined in this Section 1.1,
whenever used in this Agreement (including in the Disclosure Schedule), shall
have the respective meanings indicated below for all purposes of this Agreement.
"ACTION" means any action, complaint, petition, investigation, suit
or other proceeding, whether civil or criminal, in law or in equity, or before
any arbitrator, mediator or Governmental Authority.
"AETC" shall have the meaning ascribed to such term in Section
7.2(g).
"AETC CONTRACTS" shall have the meaning ascribed to such term in
Section 3.3 hereof.
"AFFILIATE" of a Person means a Person that directly or indirectly
through one or more intermediaries, Controls, is Controlled by, or is under
common Control with, the first Person.
"AGREEMENT" means this Stock Purchase Agreement, including the
Disclosure Schedule hereto and all Exhibits, Schedules or other attachments.
<PAGE>
"AMOCO AFFILIATE" means any company wholly owned, directly or
indirectly by Amoco Corporation, an Indiana corporation.
"AMOCO SAVINGS PLAN" shall have the meaning ascribed to such term in
Section 9.3(f) (iii) hereof.
"APPLICABLE LAW" means all applicable provisions of all (i) Laws
and (ii) Governmental Approvals.
"AMOCO RETIREMENT PLAN" shall have the meaning ascribed to such term
in Section 9.3(f)(ii) hereof.
"AMOCO SEVERANCE PLAN" shall have the meaning ascribed to such term
in Section 9.3(f)(vi) hereof.
"AUDIT PROCEEDINGS" shall have the meaning ascribed to such term in
Section 8.2 hereof.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized to be closed in the State of Texas.
"CLOSING" shall have the meaning ascribed to such term in Section
3.1 hereof.
"CLOSING DATE" shall have the meaning ascribed to such term in
Section 3.1 hereof.
"CLOSING DATE VOLUME" shall have the meaning ascribed to such term
in Section 3.2(c) hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall mean Amoco Gas Company, a Delaware corporation.
"CONFIDENTIALITY AGREEMENT" shall have the meaning ascribed to such
term in Section 6.6 hereof.
"CONFIDENTIAL INFORMATION" shall mean any information concerning
the business and affairs of the Company.
"CONSENT" means any consent, approval, authorization, waiver,
permit, grant, franchise, concession, agreement, license, exemption or order of
registration, certificate, declaration or filing with, or report or notice to,
any Person, including but not limited to any Governmental Authority, in each
case only if the failure to obtain, file, report or give notice would be
material to the Company.
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"CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"DECEMBER 31, 1996 FINANCIAL STATEMENTS" shall have the meaning
ascribed to such term in Section 4.5 hereof.
"DISCLOSURE SCHEDULE" shall have the meaning ascribed to such term
in Article IV hereof.
"EMPLOYEE PLANS" means all of the Company's employee benefit plans
established, maintained or contributed to by the Company or Amoco Corporation in
which active or retired employees of the Company or their beneficiaries
participate as listed in Section 9.3(f)(i) of the Disclosure Schedule.
"EMPLOYEES" means all employees of the Company as listed on
Section 9.5 of the Disclosure Schedule.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESTIMATED PURCHASE PRICE" shall have the meaning ascribed to such
term in Section 3.2(a).
"FINANCIAL ADJUSTMENT AMOUNT" shall have the meaning ascribed to
such term in Section 3.2(c) hereof.
"FINAL PURCHASE PRICE CALCULATION" shall have the meaning ascribed
to such term in Section 3.2(b) hereof.
"FINANCIAL STATEMENTS" shall have the meaning ascribed to such term
in Section 4.5 hereof.
"GAAP" shall mean generally accepted accounting principles.
"GOVERNMENTAL APPROVAL" means any Consent of any Governmental
Authority.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state
or other political subdivision thereof (including executive, legislative,
judicial, regulatory, or administrative bodies thereof).
"HART-SCOTT-RODINO ACT" means the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended.
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"HOUSTON SHIP CHANNEL INDEX" shall have the meaning ascribed to such
term in Section 3.2(c) hereof.
"INDEMNIFIED PARTY" shall have the meaning ascribed to such term in
Section 11.3 hereof.
"INDEMNIFYING PARTY" shall have the meaning ascribed to such term in
Section 11.3 hereof.
"JUNE 30, 1997 BALANCE SHEET" shall have the meaning ascribed to
such term in Section 4.5 hereof.
"JUNE 30, 1997 FINANCIAL STATEMENTS" shall have the meaning ascribed
to such term in Section 4.5 hereof.
"LAW" means any law, statute, regulation, code, ordinance, rule,
order, judgment, Consent, decree, settlement agreement, governmental
requirement, permit or license having the force of law enacted, promulgated,
entered into, agreed, granted or imposed by any Governmental Authority.
"LAZARD" shall have the meaning ascribed to such term in Section
4.15 hereof.
"LEASES" shall have the meaning ascribed to such term in Section
4.8(c) hereof.
"LEAVE" shall have the meaning ascribed to such term in 9.3(f)(i)
hereof.
"LIEN" means any mortgage, pledge, security interest, charge,
right-of-way, easement, encroachment or encumbrance.
"LOSS" means any loss, liability, deficiency, damage, claim or
expense (including without limitation reasonable legal fees and expenses and
fines and penalties).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
financial condition of the Company, taken as a whole.
"MATERIAL CONTRACTS" shall have the meaning ascribed to such term in
Section 4.9 hereof.
"ORDER" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
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"OWNED REAL PROPERTY" shall have the meaning ascribed to such term
in Section 4.8(a) hereof.
"PAD GAS" shall have the meaning ascribed to such term in Section
3.2(c) hereof.
"PERMITTED LIENS" means (i) Liens securing liabilities which are
reflected or reserved against in the Financial Statements to the extent so
reflected or reserved, (ii) liens of carriers, warehousemen, mechanics and
materialmen and incurred in the Ordinary Course of Business that individually
and in the aggregate do not have a Material Adverse Effect; (iii) zoning,
entitlements, land use, easements, rights of way, restrictions of record and
other similar charges and encumbrances, or (iv) Liens that, individually and in
the aggregate, do not materially detract from the value of any of the property
or assets of the Company or materially interfere with the use thereof as
currently used.
"PERSON" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization or a Governmental Authority.
"POTENTIAL SURPLUS EMPLOYEE" shall have the meaning ascribed to such
term in Section 9.5 hereof.
"PURCHASE PRICE" shall have the meaning ascribed to such term in
Section 2.2 hereof.
"PURCHASER'S SAVINGS PLAN" shall have the meaning ascribed to such
term in Section 9.3(f)(iii) hereof.
"PURCHASER'S PENSION PLAN" shall have the meaning ascribed to such
term in Section 9.3(f)(ii) hereof.
"REAL PROPERTY" means the Owned Real Property, the Rights-of-Way
and the Leases.
"REASONABLE EFFORTS" means reasonable efforts which are commercially
reasonable under the circumstances, excluding the payment of any money or other
consideration to any third party or the commencement of any litigation or
arbitration.
"RIGHTS-OF-WAY" shall have the meaning ascribed to such term in
Section 4.8(b) hereof.
"SALES AND TRANSFER TAXES" shall have the meaning ascribed to such
term in Section 8.1 hereof.
"SHARES" shall have the meaning ascribed to such term in Section 4.4
hereof.
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"STRATTON RIDGE STORAGE CAVERN" shall mean the Stratton Ridge gas
storage facility.
"STOCK POWER" means a duly executed assignment document for the
Shares.
"SUBSIDIARY" means, with respect to any Person, any corporation of
which more than 50% of the outstanding capital stock having ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person.
"TAX" or "TAXES" means all taxes, charges, fees, duties, levies or
other assessments, including without limitation any local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, environmental, customs, capital
stock, franchise, employee income withholding, foreign or domestic withholding,
social security, unemployment, disability, real property, personal property,
sales, use, transfer, value added, alternative or add-on minimum or other
similar tax, governmental fee, governmental assessment or governmental charge of
any kind whatsoever, including any interest, penalties or additions to Tax or
additional amounts with respect to the foregoing.
"TAX RETURNS" means any return, report, declaration, form, claim for
refund or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THRESHOLD" shall have the meaning ascribed to such term in Section
11.4 hereof.
"TRANSACTION DOCUMENTS" means this Agreement, the Stock Power and
the agreements and other documents described in Sections 7.2 and 7.3.
"TRANSACTION EXPENSES" shall have the meaning ascribed to such term
in Section 9.3(b) hereof.
"TRANSFER DATE" shall have the meaning ascribed to such term in
Section 9.5 hereof.
"TRANSITION PERIOD" shall have the meaning ascribed to such term in
Section 9.5 hereof.
"WARN AND WARN OBLIGATIONS" shall have the meanings ascribed to such
terms in Section 9.3(f)(xi) hereof.
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"WORKING CAPITAL OF THE COMPANY" shall mean those current assets of
the Company and its subsidiaries minus those current liabilities of the Company
and its subsidiaries described in Exhibit 1.1 hereof.
"WORKING GAS" shall have the meaning ascribed to such term in
Section 3.2(c) hereof.
1.2 OTHER DEFINITIONAL PROVISIONS.
(a) ACCOUNTING TERMS. Accounting terms (if any) which are not
otherwise defined in this Agreement have the meanings given to them under
GAAP.
(b) HEREOF, ETC. The "HEREOF," "HEREIN" and "HEREUNDER" and terms of
similar import are references to this Agreement as a whole and not to any
particular provision of this Agreement. The term "including" as used in
this Agreement is used to list items by way of example and shall not be
deemed to constitute a limitation of any term or provision contained
herein. As used in this Agreement, the singular or plural number shall be
deemed to include the other whenever the context so requires. Article,
Section, clause, Exhibit and Section of Disclosure Schedule references
contained in this Agreement are references to Articles, Sections, clauses,
Exhibits and Sections of the Disclosure Schedule in or to this Agreement,
unless otherwise specified.
ARTICLE II
PURCHASE AND SALE
2.1 PURCHASE AND SALE OF THE SHARES. On the terms and subject to the
conditions set forth herein, at the Closing (as defined below), the Seller shall
sell to the Purchaser, and the Purchaser shall purchase from the Seller, the
Shares (as defined below).
2.2 PURCHASE PRICE.
(a) The purchase price (the "Purchase Price") payable to the Seller
shall be an amount equal to $162,100,000; plus (i) 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, plus or minus, as the case may be, (ii) the
amount by which the value of the Working Gas on the Closing differs from the
value of the Working Gas on the date hereof, plus or minus, as the case may be,
(iii) the amount by which the value of the natural gas attributable to the
Company pipeline imbalances ("Pipeline Imbalances") at the Closing differs from
the value of the Pipeline Imbalances on the date hereof.
(b) The Estimated Purchase Price, determined as provided in Section 3.2,
shall be paid by the Purchaser to the Seller by wire transfer of immediately
available funds, to the
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account of the Seller at the Chase Manhattan Bank, New York, New York, Account
No. 910-249-9747 (Route No. 221-000-021), at the Closing and the Purchase Price
shall be determined and paid as provided in Section 3.2. The Seller shall
furnish to the Purchaser written wiring instructions not less than one Business
Day prior to the Closing.
ARTICLE III
CLOSING
3.1 THE CLOSING. The closing of the purchase and sale of the Shares (the
"CLOSING") shall take place at the offices of the Seller at 200 E. Randolph
Drive, Chicago, IL 60601 at 2:00 p.m. local time on the third Business Day
following the satisfaction or waiver of all conditions to the obligations of the
Parties hereto to consummate the transactions contemplated hereby or such other
date as the Purchaser and the Seller may mutually determine (the "CLOSING
DATE").
3.2 PURCHASE PRICE CALCULATION.
(a) 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 (the "Estimated Purchase
Price").
(b) DETERMINATION OF 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 Purchase Price, including (i) the actual amount of Working
Capital as of the Closing, (ii) the actual amount by which the value of the
Working Gas on the Closing differs from the value of the Working Gas on the date
hereof and (iii) the actual amount by which the value of the Pipeline Imbalances
at the Closing differs from the value of the Pipeline Imbalances on the date
hereof and, if the 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 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 a
nationally recognized firm of independent
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public accountants as the Purchaser and the Seller may mutually designate, and
the Seller and the Purchaser shall cooperate, and the Purchaser shall cause the
Company and its subsidiary 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 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 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 the "Prime rate" as published in the WALL
STREET JOURNAL on the day before the day of payment, 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 the Prime rate as published in the
WALL STREET JOURNAL on the day before the day of payment, such payment in either
case to be made within five (5) days following the final determination of the
Purchase Price.
(c) VALUE OF WORKING GAS. The working gas in the Stratton Ridge Storage
Cavern (the "Working Gas") shall be valued as follows:
(i) The amount of the Working Gas as of the Closing shall be
determined by subtracting the amount of the Pad Gas and Financial
Adjustment Amount from the Closing Date Volume.
(A) The "Closing Date Volume" is the amount of natural
gas in the Stratton Ridge Cavern on the Closing. The amount of the
Closing Date Volume shall be calculated by determining the change in
volume in the Stratton Ridge Storage Cavern from June 30, 1997 to
the Closing. This change in volume will be based upon metered
receipts into and shipments out of the Stratton Ridge Storage Cavern
between June 30, 1997 and the Closing. The Parties agree that the
volume of natural gas in the Stratton Ridge Storage Cavern as of
June 30, 1997 is 2,821 mmcf. The change in volume based on metered
receipts into and out of the Stratton Ridge Storage Cavern shall be
determined using substantially the same procedures the Company used
for determination of the volume as of June 30, 1997. The volumes at
the Closing shall be determined a MMBtu basis.
(B) The "Financial Adjustment Amount" is agreed to be
375 mmcf, which is the amount the Parties agree is the appropriate
amount by which to
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write down the amount of inventory in the Stratton Ridge Storage
Cavern due to a difference between the inventory volume (calculated
based on wellhead pressure) and the financial book volume (which is
based on metered receipts and deliveries).
(C) The volume of gas which remains as a pad in the
Stratton Ridge Storage Cavern ("Pad Gas") is agreed to be 1,029
mmcf.
(ii) The value of the Working Gas on the Closing shall be
calculated by multiplying the volume of the Working Gas on the Closing
Date determined in accordance with Section 3.2(c)(i) above, by the Houston
Ship Channel Index as of January 1, 1998. The "Houston Ship Channel Index"
is 100% of that certain price quoted by INSIDE F.E.R.C.'S GAS MARKET
REPORT, in its first appropriate publication of each month, and identified
in the section entitled "Delivered Spot-Gas Prices" and by Caption
"Houston Ship Channel/Beaumont, Texas," "index (Large Package)" for sales
of at least 3,500 mcf per day.
(iii) The value of the Working Gas as of the date hereof is
agreed to be $4,506,060. The volume of the Working Gas on the date hereof
is agreed to be 1,417 mmcf and the price of the natural gas on the date
hereof is agreed to be $3.18 per mcf.
(d) VALUE OF PIPELINE IMBALANCES.
(i) The Pipeline Imbalances at the Closing shall be
valued as follows:
(A) The amount of Pipeline Imbalances as of the Closing
shall be determined by subtracting and adding, as appropriate, the
metered receipts for the changes in volume from September 30, 1997
to the Closing from 277 mmcf due to the Company. This change in
volume from September 30, 1997 to the Closing shall be determined
using substantially the same procedures the Company used for
determination of the volume as of September 30, 1997. The volumes at
the Closing shall be determined a MMBtu basis.
(B) The parties agree that the net Pipeline Imbalances
as of the date hereof is 277 mmcf due to the Company.
(ii) The value of the Pipeline Imbalances on the Closing shall
be calculated by multiplying the volume of the Pipeline Imbalances on the
Closing, determined in accordance with 3.2(d)(i) above, by the Houston
Ship Channel Index as of January 1, 1998.
(iii) The value of the Pipeline Imbalances on the date hereof
is agreed to be $882,431. The volume of the Pipeline Imbalances on the
date hereof is agreed to be 277 mmcf and the price of natural gas on the
date hereof is agreed to be $3.18 per mcf.
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3.3 CLOSING DATE ACTIONS. The Company's trade accounts receivable (except
pipeline imbalance accounts) and payable balances (except pipeline balance
accounts) and the intercompany account balances (balance sheet account balances
resulting from transactions with affiliates) as of the Closing Date will be
assigned by the Company to the Seller or another Amoco Affiliate designated by
the Seller (and the Seller or such Amoco Affiliate shall assume such accounts
payable) immediately prior to the Closing. AETC shall retain any and all
accounts receivable generated or resulting from the Material Contracts
identified on the Disclosure Schedule as AETC contracts (the "AETC CONTRACTS")
up to and including the Closing Date. The AETC Contracts shall be assigned to
the Company and the Company shall assume the AETC Contracts as of the Closing
and shall be entitled to the accounts receivable generated or resulting from the
AETC Contracts from and after the Closing Date. Any and all cash of the Company
as of the Closing Date shall be transferred by the Company to the Seller or
another Amoco Affiliate designated by the Seller immediately prior to the
Closing. No adjustments to the Purchase Price shall be made as a result of the
assignments, transfers and assumptions described in this Section 3.3.
3.4 DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller will deliver
to the Purchaser the various certificates, instruments, and documents referred
to in Section 7.2 below, (ii) the Purchaser will deliver to the Seller the
various certificates, instruments, and documents referred to in Section 7.3
below, (iii) the Seller will deliver to the Purchaser the stock certificate
representing the Shares, endorsed in blank or accompanied by the Stock Power,
and (iv) the Purchaser will deliver to the Seller the Purchase Price as
specified in Section 2.2 above.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser that the statements
contained in this Article IV are correct as of the date of this Agreement and
will be correct in all material respects as of the Closing Date (as though made
then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article IV), except as set forth in the disclosure
schedule accompanying this Agreement and initialed by the parties (the
"DISCLOSURE SCHEDULE"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Article
IV and in this Agreement.
4.1 CORPORATE STATUS. The Seller is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. The
Company is a corporation duly organized, validly existing and in good standing
under the Laws of the State of Delaware.
4.2 AUTHORIZATION OF TRANSACTION. The Seller has the corporate power and
authority to execute and deliver the Transaction Documents, to perform fully its
obligations hereunder and thereunder, and to consummate the actions contemplated
hereby and thereby. The execution and delivery by the Seller of the Transaction
Documents, and the consummation of
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the transactions contemplated hereby and thereby have been duly authorized by
all requisite corporate action of the Seller. The Seller has duly executed and
delivered this Agreement, and the other Transaction Documents when delivered by
the Seller pursuant to the terms hereof, will have been duly executed and
delivered by the Seller. This Agreement is a legal, valid and binding obligation
of the Seller, and the other Transaction Documents, when executed and delivered
pursuant to the terms hereof, will constitute a legal, valid and binding
obligation of the Seller, in each case enforceable against the Seller in
accordance with its terms, except as such enforceability may be limited by (i)
applicable insolvency, bankruptcy, reorganization, moratorium or other similar
Laws affecting creditors' rights generally and (ii) applicable equitable
principles (whether considered in a proceeding at law or in equity). Except for
the Government Approvals of the Governmental Authorities and other Consents set
forth in Section 7.2(b) of the Disclosure Schedule, to the Seller's knowledge,
the Seller need not give any notice to, make any filing with, or obtain any
authorization or Consent in order to consummate the transactions contemplated by
this Agreement.
4.3 NO CONFLICTS. To the Seller's knowledge, neither the execution or the
delivery by the Seller of any Transaction Document nor, assuming receipt of the
Government Approvals and other Consents set forth in Section 7.2(b) of the
Disclosure Schedule, the performance by the Seller of the transactions
contemplated hereby will: (i) violate any statute, regulation, rule, order or
decree of any Governmental Authority or arbitrator applicable to the Seller or
the Company; (ii) violate any Applicable Law; (iii) violate or conflict with any
provision of the Certificate of Incorporation or Bylaws of the Seller; or (iv)
violate or conflict with, or result in a breach of, or constitute a default
(with or without notice or lapse of time or both) under, or permit cancellation
of, or result in the creation of any Lien (other than Permitted Liens) upon any
of the properties or assets of the Seller under any of the terms, conditions, or
provisions of any note, bond, mortgage, indenture, lease, license, franchise,
permit, agreement or other instrument or obligation to which the Seller is a
party, or by which any of its properties or assets are bound; excluding from the
foregoing clauses (i), (ii) and (iv) such violations, conflicts, breaches,
defaults and events of default which would neither (A) materially adversely
affect the Seller's ability to consummate the transactions contemplated by this
Agreement nor (B) have a Material Adverse Effect.
4.4 CAPITAL STOCK AND SUBSIDIARIES. The outstanding capital stock of the
Company consists of 4,000 shares, $100 par value per share (the "Shares"), all
of which as of the date hereof are validly authorized, validly issued, fully
paid, and nonassessable and have not been issued and are not owned or held in
violation of any preemptive right of shareholders, and all of which as of the
Closing Date shall be owned by the Seller free and clear of any security
interests, voting trusts, proxies, options or other restrictions. Except as set
forth in Section 4.4 of the Disclosure Schedule, the Company has no
Subsidiaries, no interest in any partnership or joint venture and does not hold
shares of stock or other ownership interest in any corporation, trust or other
Person.
4.5 FINANCIAL STATEMENTS. Section 4.5 of the Disclosure Schedule contains
copies of (a) the unaudited December 31, 1996 balance sheet and statement of
income of the Company as of and for the twelve month period ended December 31,
1996 (the "DECEMBER 31, 1996
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FINANCIAL STATEMENTS"), and (b) the unaudited balance sheet (the "JUNE 30, 1997
BALANCE SHEET") and statement of income of the Company as of and for the six
month period ended June 30, 1997 (the "JUNE 30, 1997 FINANCIAL STATEMENTS") (the
December 31, 1996 Financial Statements and the June 30, 1997 Financial
Statements are collectively referred to as the "FINANCIAL STATEMENTS"). Except
as set forth in Section 4.5 of the Disclosure Schedule, the Financial Statements
have been prepared in accordance with GAAP.
4.6 ABSENCE OF UNDISCLOSED LIABILITIES. The Company did not have, as of
the date of the June 30, 1997 Balance Sheet, except to the extent reflected,
disclosed or reserved against therein or in Section 4.6 of the Disclosure
Schedule or except liabilities or obligations which individually and in the
aggregate did not and do not have a Material Adverse Effect, any unrecorded
liabilities or obligations (absolute or contingent) of a nature customarily
reflected in balance sheets prepared in accordance with GAAP.
4.7 ASSETS. Except as set forth in Section 4.7 of the Disclosure Schedule,
the Company has good title to all material personal, tangible assets (other than
Real Property which shall be governed by the provisions of Section 4.8 below)
reflected on the June 30, 1997 Balance Sheet (except for sales of inventory or
services in the Ordinary Course of Business subsequent to June 30, 1997) free
and clear of all Liens except Permitted Liens. Except as set forth in Section
4.7 of the Disclosure Schedule, to the Seller's knowledge, all material
personal, tangible assets of the Company are in good condition and repair,
normal wear and tear excepted.
4.8 REAL PROPERTY.
(a) OWNED REAL PROPERTY. Section 4.8(a) of the Disclosure Schedule,
lists all owned property ownership interests of the Company (the "OWNED
REAL PROPERTY"), and except for matters which would not have a Material
Adverse Effect:
(i) except as set forth in Section 4.8(a)(i) of the Disclosure
Schedule, the Company has good and marketable title to each parcel
of Owned Real Property, free and clear of any Lien except for
Permitted Liens;
(ii) other than as set forth in Section 4.8(a)(ii) of the
Disclosure Schedule, there are no leases, subleases, licenses,
concessions, or other agreements granting to any party or parties
the right of use or occupancy of any portion of the parcels of Owned
Real Property except for Permitted Liens; and
(iii) other than as set forth in Section 4.8(a) (iii) of the
Disclosure Schedule, there are no outstanding options or rights of
first refusal to purchase any of the parcels of Owned Real Property,
or any portion thereof or interest therein.
(b) RIGHTS OF WAY. Section 4.8(b) of the Disclosure Schedule lists
all easements and rights of way interests held by the Company relating to
real property
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used in business of the Company (collectively, "Rights of Way"). Except as
set forth in Section 4.8(b) of the Disclosure Schedule, the Company is not
in material violation of the terms of any Rights of Way. Except as set
forth in Section 4.8(b) of the Disclosure Schedule, all Rights of Way 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 except to the extent the failure to have such
Rights of Way would not have a Material Adverse Effect. There are no
spatial gaps in any of the Rights of Way except for spatial gaps that
would not have a Material Adverse Effect. Except as set forth on Section
4.8(b) of the Disclosure Schedule, all of the Company's pipelines are
lawfully located in the Rights of Way.
(c) LEASES. Section 4.8(c) of the Disclosure Schedule contains a
complete and correct list of all leasehold interests of the Company, as
lessee, (the "LEASES"), setting forth the address, landlord and tenant for
each lease or sublease. Except as set forth in Section 4.8(c) of the
Disclosure Schedule, neither the Seller nor the Company has received
notice of any material default of the Leases that has not been cured. The
Company has a valid leasehold interest in each Lease to which it is a
party, free and clear of any Lien, except for (i) the subleases set forth
on Section 4.8(c) of the Disclosure Schedule, (ii) Permitted Liens and
(iii) encumbrances and restrictions referred to in such Leases and except
that Leases of Real Property may be subject to zoning or planning
restrictions, easements, permits, licenses and other restrictions or
limitations on the use of real property or irregularities in title thereto
which do not materially detract from the value of or interfere with the
use of such leased property.
4.9 MATERIAL CONTRACTS. Section 4.9 of the Disclosure Schedule lists all
contracts, agreements, and other written arrangements to which the Company is a
party (i) for the purchase, sale, storage, processing or transportation of
natural gas, (ii) involving the payment by or to the Company of more than
$100,000, or (iii) in the nature of a collective bargaining agreement,
employment agreement, or severance agreement with any of its directors,
officers, and employees ("MATERIAL CONTRACTS"). The Seller has made available
and will deliver prior to Closing to the Purchaser a correct and complete copy
of each Material Contract. Except as set forth in Section 4.9 of the Disclosure
Schedule, the Company has not received any written notice of any material
default of any of the Material Contracts that has not been cured.
4.10 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.10 of the
Disclosure Schedule, to the Seller's knowledge, the Seller has made available to
the Purchaser all of the Company's currently existing reports and records
relating to (i) known emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, wastes, petroleum, toxic substances and
hazardous substances on the Company's Owned Real Property or Rights Of Way or
(ii) the handling, treatment, storage or disposal of any such materials on
property not currently owned by the Company. Such reports and records were
prepared by or furnished to the Company in the Ordinary Course of Business and
were relied upon by the Company in the Ordinary Course of its Business. Other
than as set forth in Section 4.10 of the Disclosure Schedule, (a) the
properties, operations and activities of the Company are in compliance with all
applicable environmental laws except to the extent non-compliance would not have
a
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Material Adverse Effect, and (b) all permits, if any, required to be obtained or
filed by the Company under any environmental law in connection with the business
of the Company have been obtained or filed and are valid and currently in full
force and effect.
4.11 LITIGATION. Except as set forth in Section 4.11 of the Disclosure
Schedule, there is no Order or Action pending or, to the Seller's knowledge,
threatened in writing against the Company that individually or when aggregated
with one or more other Orders or Actions is reasonably expected to have a
Material Adverse Effect or materially impair the ability of the Seller to
perform this Agreement or any other aspect of the transactions contemplated by
this Agreement.
4.12 TAXES. The Company has filed all Tax Returns that it was required to
file, and has paid all Taxes shown thereon as owing, except where the failure to
file or to pay Taxes would not have a Material Adverse Effect.
4.13 GOVERNMENTAL APPROVALS . The Company has obtained all Governmental
Approvals necessary for the conduct of its business as now conducted except
where the failure to obtain such Governmental Approvals would not have a
Material Adverse Effect and all such Governmental Approvals are in full force
and effect and the Company is in compliance in all material respects with each
such Governmental Approval.
4.14 ABSENCE OF CHANGES. Since June 30, 1997, except as disclosed in
Section 4.14 of the Disclosure Schedule or as contemplated or expressly required
or permitted by this Agreement, to the Seller's knowledge, the Company has not
taken any action which, if taken subsequent to the execution of this Agreement
and on or prior to the Closing Date, would constitute a breach of Section 6.3 or
would have a Material Adverse Effect.
4.15 BROKERS, FINDERS, ETC. With the exception of Lazard Freres & Co. LLC
("LAZARD"), no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement. The Seller is solely responsible for the fees
and expenses of Lazard.
4.16 INTERCOMPANY TRANSACTIONS. 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.
4.17 EMPLOYMENT AGREEMENTS. Except for standard Amoco and Amoco Affiliate
employment agreements, which are employment at will agreements, and an
arrangement with one Company employee that he will have employment beyond the
Transition Period with an Amoco Affiliate immediately following the Closing if
he so desires, there are not employment agreements between the Company or its
subsidiary and any employees (not subject to a collective bargaining agreement).
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as of the date hereof,
as follows:
5.1 CORPORATE STATUS. The Purchaser is a corporation duly organized,
validly existing and in good standing under the Laws of Nevada.
5.2 AUTHORIZATION OF TRANSACTION. The Purchaser has the corporate power
and authority to execute and deliver the Agreement, to perform fully its
obligations hereunder and thereunder, and to consummate the actions contemplated
hereby. The execution and delivery by the Purchaser of the Transaction
Documents, and the consummation of the actions contemplated hereby have been
duly authorized by all requisite corporate action of the Purchaser. The
Purchaser has duly executed and delivered this Agreement and the other
Transaction Documents when delivered by the Purchaser pursuant to the terms
hereof, will have been duly executed and delivered by the Purchaser. This
Agreement is a legal, valid and binding obligation of the Purchaser and
constitutes, and the other Transaction Documents when delivered by the Purchaser
pursuant to the terms hereof, will each constitute, a legal, valid and binding
obligation of the Purchaser, in each case enforceable against the Purchaser in
accordance with its terms, except as such enforceability may be limited by (i)
applicable insolvency, bankruptcy, reorganization, moratorium or other similar
Laws affecting creditors' rights generally and (ii) applicable equitable
principles (whether considered in a proceeding at law or in equity). Except for
the Government Approvals set forth in Section 7.3(b) of the Disclosure Schedule,
the Purchaser need not give any notice to, make any filing with, or obtain any
authorization, Consent, or Governmental Approval in order to consummate the
transactions contemplated by this Agreement.
5.3 NO CONFLICTS. To the Purchaser's knowledge, neither the execution or
the delivery by the Purchaser of the Agreement, nor assuming receipt of the
Government Approvals set forth in Section 7.3(b) of the Disclosure Schedule, the
performance by the Purchaser of the transactions contemplated hereby will: (i)
violate any statute, regulation, rule, Order or decree of any Governmental
Authority or arbitrator applicable to the Purchaser; (ii) violate any applicable
Law; (iii) violate or conflict with any provision of the charter or bylaws of
the Purchaser; or (iv) violate or conflict with, or result in a breach of, or
constitute a default (with or without notice or lapse of time or both) under, or
permit cancellation of, or result in the creation of any Lien upon any of the
properties or assets of the Purchaser under any of the terms, conditions, or
provisions of any note, bond, mortgage, indenture, lease, license, franchise,
permit, agreement or other instrument or obligation to which the Purchaser is a
party, or by which any of its properties or assets are bound; excluding from the
foregoing clauses (i), (ii) and (iv) such violations, conflicts, breaches,
defaults and events of default which would neither (A) materially adversely
affect the Purchaser's ability to consummate the transactions contemplated by
this Agreement nor (B) have a material adverse effect on the financial condition
of the Purchaser.
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5.4 LITIGATION. There is no Order or Action pending or, to the knowledge
of the Purchaser, threatened in writing against or affecting the Purchaser that
individually or when aggregated with one or more other Orders or Actions has or
might reasonably be expected to have a material adverse effect on the
Purchaser's ability to perform this Agreement or any other aspect of the
transactions contemplated by this Agreement.
5.5 AVAILABLE FUNDS. The Purchaser has sufficient funds available to pay
the Purchase Price in immediately available funds on the Closing Date and to
make all other necessary payments by it in connection with the transactions
contemplated hereby.
5.6 INVESTMENT INTENT. The Purchaser is purchasing the Shares for its own
account with the present intention of holding such Shares for investment
purposes and not with a view to, or for sale in connection with, any public
distribution of the Shares in violation of any federal or state or other
securities Laws.
5.7 BROKERS, FINDERS, ETC.. All negotiations relating to this Agreement
and the transactions contemplated hereby have been carried out without the
participation of any Person acting on behalf of the Purchaser in such manner as
to give rise to any valid claim against the Seller for any brokerage or finder's
commission, fee or similar compensation.
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 GENERAL. Each of the Parties will use Reasonable Efforts to take all
action and to do all things necessary, proper, or advisable to consummate and
make effective the transactions contemplated by this Agreement (including
satisfying the closing conditions set forth in Article VII below).
6.2 NOTICES AND CONSENTS. The Seller will give any notices to third
parties, and will use its Reasonable Efforts to obtain any third party consents
that the Purchaser reasonably may request in connection with the matters
pertaining to the Company disclosed or required to be disclosed in the
Disclosure Schedule. Each of the Parties, if required, will file any
Notification and Report Forms and related material that it may be required to
file with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the Hart-Scott-Rodino Act, will use
Reasonable Efforts to obtain a waiver from the applicable waiting period, and
will make any further filings pursuant thereto that may be necessary, proper, or
advisable. Each of the Parties will take any additional action that may be
necessary, proper, or advisable in connection with any other notices to, filings
with, and authorizations, consents, and approvals of governments, governmental
agencies, and third parties that it may be required to give, make, or obtain;
provided, however, that the Party shall not be required to make any material
expenditure or commitment in order to obtain any such authorizations, consents
or approvals.
6.3 OPERATION OF BUSINESS. Prior to the Closing, the Company will not
engage in any practice, take any action, or enter into any transaction outside
the Ordinary Course of
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Business without the express prior written consent of the Purchaser provided
that the Seller may do environmental assessments on the Real Property prior to
Closing. The Seller will use Reasonable Efforts to keep its business and
properties substantially intact, including (unless otherwise consented to by the
Purchaser) its present operations, physical facilities and relationships with
lessors, licensors, suppliers, customers, and employees.
6.4 ACCESS. The Seller will permit representatives of the Purchaser to
have reasonable access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Company, to the premises,
properties, books, records, contracts, Tax records, and documents of or
pertaining to the Company.
6.5 RESIGNATION OF OFFICERS AND DIRECTORS. The Seller shall cause each
officer and member of the Board of Directors of the Company to tender his or her
resignation from such position effective as of the Closing Date.
6.6 CONFIDENTIALITY. At all times prior to the Closing, the Purchaser will
treat and hold as such any Confidential Information it receives from the Seller,
the Company, Lazard or any of their respective Affiliates, agents or
representatives in accordance with the terms of the confidentiality agreement
between the Seller and the Purchaser dated as of July 15, 1997 (the
"CONFIDENTIALITY AGREEMENT").
6.7 ACQUISITION PROPOSALS. From the execution of this Agreement by the
Seller and the Purchaser 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 sale of stock 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 and records other than in connection with the Ordinary Course
of Business of the Company to any Person that has made or, to the knowledge of
the Seller, may be considering making a proposal to acquire the Company.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITION TO OBLIGATIONS OF EACH PARTY. The obligations of the Parties
to consummate the transactions contemplated hereby shall be subject to the
fulfillment on or prior to the Closing Date on the condition that the
consummation of the transactions contemplated hereby shall not have been
restrained, enjoined or otherwise prohibited by any Order of any Governmental
Authority.
7.2 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations of the
Purchaser to consummate the actions contemplated hereby shall be subject to the
fulfillment on or prior to the Closing Date of the following conditions:
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(a) REPRESENTATIONS, PERFORMANCE. The representations and warranties
of the Seller contained in Article IV of this Agreement shall be true and
correct in all material respects at and as of the Closing Date. The Seller
shall have duly performed and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed or complied with by it prior to or on the Closing Date. The
Seller shall have delivered to the Purchaser a certificate, dated the
Closing Date and signed by its duly authorized officers to the foregoing
effect.
(b) CONSENTS. All applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise
been terminated, and if terminated, no such termination shall require
either Purchaser or the Company or any Affiliate thereof to divest any
assets or impose any restrictions on any business or operations of any
such parties or Affiliates. The Seller shall have obtained and shall have
delivered to the Purchaser copies of all Consents reasonably requested by
the Purchaser necessary to be obtained by the Seller in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby as identified in Section 7.2(b) of the
Disclosure Schedule, unless the failure to obtain any Consent would not,
individually or in the aggregate, result in a Material Adverse Effect. The
Seller shall have obtained and shall have delivered to Purchaser copies of
all material Governmental Approvals necessary to be obtained by the Seller
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(c) TRANSACTION DOCUMENTS. The Seller shall have executed and
delivered to the Purchaser the Transaction Documents.
(d) RESOLUTIONS. The Seller shall have delivered to the Purchaser
copies of the resolutions duly adopted by the Seller's Board of Directors
authorizing the execution, delivery and performance of this Agreement and
each of the other agreements contemplated hereby.
(e) OPINION OF COUNSEL TO THE SELLER. The Seller shall have
delivered an opinion, dated the Closing Date, of internal counsel for the
Seller substantially in the form attached hereto as Exhibit 7.2(e).
(f) CLOSING DATE ACTIONS. The Closing Date actions described in
Section 3.3 shall have been consummated.
(g) AETC CONTRACTS Amoco Energy Trading Corporation ("AETC") shall
have assigned to the Company the AETC Contracts and the Company shall have
assumed all the obligations under the AETC Contracts pursuant to an
assignment and assumption agreement substantially in the form attached as
Exhibit 7.2(g).
(h) UTILITIES AGREEMENT. Prior to or simultaneously with the
Closing, the Company, and Amoco Oil Company and/or Amoco Affiliates shall
have executed an
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agreement (substantially in the form attached hereto as Exhibit 7.2(h))
providing for the supply of certain utilities and other services to the
Company for a period of fifteen (15) years after the Closing.
(i) AFFILIATE CONTRACTS. Evidence that the amendments to the
agreements described on Exhibit 7.2(i) attached hereto shall have been
duly executed by the applicable Amoco Affiliate and the Company.
(j) OTHER ACTIONS. All actions to be taken by the Seller in
connection with the consummation of the transactions contemplated hereby
and all certificates, opinions, instruments and other documents required
to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Purchaser.
The Purchaser may waive any condition specified in this Section 7.2 if it
executes a writing so stating at or prior to the Closing.
7.3 CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligation of the Seller
to consummate the transactions contemplated hereby shall be subject to the
fulfillment, on or prior to the Closing Date, of the following additional
conditions:
(a) REPRESENTATIONS, PERFORMANCE. The representations and warranties
of the Purchaser contained in Article V of this Agreement shall be true
and correct in all material respects at and as of the Closing Date. The
Purchaser shall have duly performed and complied in all material respects
with all covenants, agreements and conditions required by this Agreement
to be performed or complied with by it prior to or on the Closing Date.
The Purchaser shall have delivered to the Seller a certificate, dated the
Closing Date and signed by its duly authorized officers to the foregoing
effect.
(b) CONSENTS. All applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise
been terminated, and if terminated, no such termination shall require the
Company or any Affiliate thereof to divest any assets or impose any
restrictions on any business or operations of the Seller or its Affiliates
or the Company or its Affiliates. The Purchaser shall have obtained and
shall have delivered to the Seller copies of all Government Approvals and
consents necessary to be obtained by the Purchaser in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby as identified in Section 7.3(b) of the
Disclosure Schedule, unless the failure to obtain any such Government
Approval and Consent would not, individually or in the aggregate, result
in a Material Adverse Effect.
(c) RESOLUTIONS. The Purchaser shall have delivered to the Seller
copies of the resolutions duly adopted by the Purchaser's Board of
Directors authorizing the execution, delivery and performance of this
Agreement and each of the other agreements contemplated hereby.
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(d) OPINION OF COUNSEL TO THE PURCHASER. The Purchaser shall have
delivered an opinion, dated the Closing Date, of Jackson Walker L.L.P.,
counsel to the Purchaser, substantially in the form attached hereto as
Exhibit 7.3(d).
(e) PAYMENT FOR SHARES. Seller shall have received at the Closing
the Estimated Purchase Price in immediately available funds pursuant to
Section 2.2 of this Agreement.
(f) UTILITIES AGREEMENT Prior to or simultaneously with the Closing,
the Company, and Amoco Oil Company and/or Amoco Affiliates shall have
executed an agreement (substantially in the form attached hereto as
Exhibit 7.2(h)), providing for the supply of certain utilities and other
services to the Company for a period of fifteen (15) years after the
Closing.
(g) CLOSING DATE ACTIONS. The Closing Date actions described in
Section 3.3 hereof shall have been consummated.
(h) OTHER ACTIONS. All actions to be taken by the Purchaser in
connection with consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Seller.
The Seller may waive any condition specified in this Section 7.3 if it executes
a writing so stating at or prior to the Closing.
ARTICLE VIII
TAXES
8.1 SALES AND TRANSFER TAXES. All Taxes (other than income or franchise
Taxes) imposed upon or resulting from the sale and transfer of the Shares to the
Purchaser ("SALES AND TRANSFER TAXES") as contemplated herein shall be borne by
the Purchaser. The Purchaser and the Seller shall cooperate in timely preparing
and making all filings, returns, reports and forms as may be required to comply
with the provisions of Applicable Law in connection with the payment of the
Sales and Transfer Taxes, and the Purchaser and the Seller shall cooperate in
good faith to minimize the amount of any Sales and Transfer Taxes payable in
connection with the sale and transfer of the Shares.
8.2 TAX INFORMATION AND AUDITS. The Purchaser shall, with regard to any
taxable period of the Company prior to or including the Closing Date or with
respect to any tax for which the Seller is responsible pursuant to Section
8.4(a) hereof, (i) provide the Seller with notice of any communication with any
federal, state or local Tax authority; (ii) permit the Seller at any time,
directly or through its representatives, to exercise exclusive control over all
stages of all audit, administrative or judicial proceedings (collectively,
"AUDIT PROCEEDINGS"); (iii) permit the Seller to have authority to settle any
proposed Tax adjustment or deficiency
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with any federal, state or local Tax authority; (iv) permit the Seller to
contest any proposed Tax adjustment or deficiency with a federal, state or local
Tax authority; and (v) provide, at the Seller's cost and expense (other than DE
MINIMIS out-of-pocket costs and expenses incurred by the Purchaser, which shall
be borne by the Purchaser), full and accurate Tax information reasonably
requested by the Seller and such cooperation as the Seller may reasonably
request in regard to any Audit Proceedings. The Seller agrees that to the extent
it exercises control or authority with regard to any such Audit Proceedings it
will do so in good faith. In the event the Seller declines to exercise control
over such Audit Proceeding, the Purchaser shall act in good faith and shall not
settle or compromise such proceedings with respect to any Taxes for which the
Seller would be liable pursuant to Section 8.4(a) hereof without the prior
written consent of the Seller. In any event, the Seller or Amoco Corporation
shall be entitled to control any proceedings that relate to a consolidated or
combined return filed by Amoco Corporation, the Seller or any of their
Affiliates. Notwithstanding the foregoing, Seller shall not agree to any
settlement concerning Taxes for any period ending on or before the Closing Date
which may result in an increase in federal income Taxes for any period ending
after the Closing Date without the prior written consent of Purchaser.
8.3 TAX RETURNS. The Seller shall cause the Company and its eligible
Affiliates to join for all taxable years and periods ending on or before the
Closing Date in the consolidated federal income tax return of the "affiliated
group" or corporations of which Amoco Corporation is the common parent. The
Seller shall be responsible for the preparation and filing of all returns of the
Company for all Taxes for taxable periods ending on or before the Closing Date.
The Seller shall indemnify the Purchaser and the Company against any additional
liability incurred by reason of the failure of the Seller to timely file the
returns and pay the Taxes as required by the immediately preceding sentence. The
Purchaser shall be responsible for the preparation of all tax returns that
relate to the Company and which are required to be filed for periods ending
after the Closing Date, and shall indemnify the Seller against any additional
liability incurred by reason of the failure of the Purchaser to timely file such
returns and pay such Taxes.
Each of the Purchaser and the Seller and their respective Affiliates shall
(1) provide the other Party with reasonable assistance and any and all
information, documentation, working papers and schedules reasonably requested by
such other Party for use in the preparation and timely filing of any Tax Return
with respect to or containing information pertaining to the Company, (2)
preserve all such information, records and documents at least until the
expiration of any applicable tax statutes of limitations or extensions thereof
and as otherwise provided, (3) make available to the other party, as reasonably
requested, personnel responsible for preparing or maintaining information,
records and documents in connection with tax matters (subject to reimbursement
by such other party of the additional direct costs incurred thereby), (4)
provide timely notice to the other party in writing of any pending or threatened
tax audits or assessments of the Company for periods beginning prior to the
Closing date, and (5) furnish the other party with copies of all correspondence
received from any taxing authority in connection with any tax audit or
information request with respect to any such period.
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8.4 TAXES.
(a) SELLER RESPONSIBILITY. The Seller shall be solely responsible
(i) for all income Taxes, and franchise Taxes which are based on income,
incurred or payable with respect to the Company for periods ending on or
before the Closing Date, or attributable to transactions and income
occurring on or before the Closing Date (including, without limitation,
any liability that arises because of the elections made pursuant to
Section 8.6 hereof) and (ii) for all withholding Taxes on wages paid to
employees of the Company prior to the Closing.
(b) PURCHASER RESPONSIBILITY. Except as provided in the preceding
Section 8.4(a), the Purchaser shall be solely responsible for all other
Taxes that are imposed on or incurred by the Company for all periods
ending after the Closing Date.
(c) PAYMENTS. All Taxes shall be paid by the party legally
responsible therefore. However, the foregoing sentence shall not change
the ultimate responsibility for such Taxes, as determined pursuant to
Sections 8.4(a) and 8.4(b) hereof. Upon payment of any Taxes with respect
to which a party is entitled to receive indemnification hereunder, such
party shall submit an invoice to the indemnifying party stating that such
Taxes have been paid and giving in reasonable detail the particulars
relating thereto. The indemnifying party shall remit payment for such
Taxes promptly upon receipt of invoice.
(d) TAX REFUNDS. If Purchaser or any of its Affiliates receives a
refund of any Taxes described in Section 8.4(a) or if Seller or any of its
Affiliates receives a refund of any Taxes described in Section 8.4(b), the
party receiving such refund shall, within thirty days of the receipt of
such refund, remit it to the other party. The amount of such remittance
shall be reduced by any amount reasonably necessary to compensate the
initial recipient against any additional liability for Taxes that such
party may incur as a result of the refund payment assuming the highest
marginal federal income tax rate for the tax period in which the refund or
credit is received.
8.5 TAX AGREEMENTS. Any and all agreements with respect to Taxes imposed
by any taxing jurisdiction executed between or agreed to by the Company and any
of its Affiliates, on the one hand, and the Seller or any of its Affiliates, on
the other hand, shall be terminated as of the Closing Date with respect to the
Company, and no payments that are owed by or to the Company pursuant thereto
subsequently shall be made thereafter except as set forth in the June 30, 1997
Financial Statements.
8.6 SECTION 338 ELECTIONS. The Purchaser shall make a timely election
under Section 338(g) of the Internal Revenue Code of 1986, as amended (the
"CODE") (and any similar state law provisions in all applicable states) with
respect to the sale and purchase of the Shares. Amoco Corporation (or any
corporation controlling the consolidated group of which Seller is a member) and
the Purchaser shall jointly make a timely election under Section 338(h)(10) of
the Code (and any similar state law provisions in all applicable states) with
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respect to such sale and purchase. The Purchaser and the Seller (or any
corporation controlling the consolidated group of which Seller is a member)
shall similarly make timely elections pursuant to Code Sections 338(g) and
338(h)(10) with respect to each eligible corporate subsidiary of the Company
which is included as a member of the consolidated federal income tax return
group which includes the Company as of the Closing Date. The parties confirm
that for purposes of Section 338 of the Code, the "acquisition date" as defined
in Section 338(h)(2) of the Code shall be the Closing Date. The Seller and the
Purchaser shall, as promptly as practicable following the Closing Date, take all
actions necessary and appropriate to effect and preserve timely elections. Each
party shall be liable for, and shall indemnify and hold the other party harmless
against, any Taxes or other costs resulting from such party's failure to take
all actions required by the immediately preceding sentence. The Seller and the
Buyer shall act together in good faith to determine and agree upon (i) the
amount of the "adjusted grossed-up basis" of the Shares; and (ii) appropriate
allocations of such amount among the assets of the Company. The Seller and the
Purchaser and their respective Affiliates shall not take any position
inconsistent with such determinations in any tax return or otherwise; provided
that each side may take into account its respective transaction costs in making
such determinations. If, within 60 days following the Closing Date, the parties
are unable to agree upon either (i) the calculation of the "adjusted grossed-up
basis" of the Company Shares, or (ii) the Allocations, or both, then as promptly
as practicable, but in any event in sufficient time to allow for timely filing
of the elections, the Purchaser shall select a firm of qualified appraisers to
conduct at Purchaser's sole expense 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 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.
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ARTICLE IX
OTHER COVENANTS AND AGREEMENTS
9.1 FURTHER ASSURANCES OF THE SELLER. Following the Closing, the Seller
shall from time to time execute and deliver such additional instruments,
documents, conveyances or assurances and take such other actions as shall be
necessary, or otherwise reasonably requested by the Purchaser, to confirm and
assure the rights and obligations provided for in this Agreement and render
effective the consummation of the transactions contemplated hereby. To the
extent any such further actions are expressly required by other provisions of
this Agreement then the expenses, costs and fees incurred in connection with
such actions shall be paid by the Parties as provided in Section 9.3(b), and all
other costs, expenses and fees incurred in connection with such actions shall be
paid by the Seller. The making of any recordings and the costs and expenses
(including any recording fees) associated with any such recordings and any
actions pursuant to the foregoing sentence shall be borne by the Purchaser.
9.2 COVENANTS AND AGREEMENTS OF THE PURCHASER.
(a) FURTHER ASSURANCES. Following the Closing, the Purchaser shall
from time to time execute and deliver such additional instruments,
documents, conveyances or assurances and take such other actions as shall
be necessary, or otherwise reasonably requested by the Seller, to confirm
and assure the rights and obligations provided for in this Agreement and
render effective the consummation of the transactions contemplated hereby.
Such actions shall include, but not be limited to, taking the necessary
steps under Applicable Law to ensure that the corporate name of the
Company and its subsidiary be immediately changed following the Closing to
delete all references to "Amoco".
(b) POST-CLOSING ACCESS AND INFORMATION.
(i) After the Closing Date, the Purchaser will (and will cause
each of its Affiliates and its Affiliates' respective accountants,
counsel, consultants, employees and agents to) give the Seller, and
its accountants, counsel, consultants, employees and agents,
reasonable access, during normal business hours and upon reasonable
notice, to all employees, documents, records, work papers and
information with respect to all of the Company's properties, assets,
books, contracts, commitments, reports and records relating to the
business of the Company prior to Closing, including, without
limitation, with respect to the lawsuits identified in Section
11.2(a) hereof for which the Seller is retaining responsibility and
liability, as the Seller may from time to time reasonably request.
In addition, the Purchaser shall permit the Seller to make copies at
its own expense of any of the above-mentioned documents, records and
information.
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(ii) The Purchaser will retain all books and records relating
to the Company for at least seven (7) years. The Purchaser shall not
dispose of or permit the disposal of any such books and records
without first giving 60 days' prior written notice to the Seller
offering to surrender the same to the Seller at the Seller's
expense.
(iii) In the event that the Purchaser obtains, either prior to
or after the Closing, any documents, records or information that,
instead of or in addition to relating to the Company, relate to the
Seller or any of its Affiliates (other than the Company) or any of
their respective operations or businesses, the Purchaser shall (A)
promptly notify the Seller of that fact, (B) promptly return such
document, record or information to the Seller and Purchaser may
retain a copy thereof, and (C) comply with Section 9.2(c).
(c) CONFIDENTIALITY.
(i) Until the fifth anniversary of the Closing, the Purchaser
agrees to maintain the confidentiality of all proprietary and other
non-public information regarding the Seller and any of its
Affiliates (other than the Company and its subsidiary and the AETC
Contracts), except as may be required by Law. Until the fifth
anniversary of the Closing, the Seller agrees to maintain the
confidentiality of all proprietary and other non-public information
regarding the Company and its subsidiary, except as may be required
by Law. In the event that a Party reasonably believes after
consultation with counsel that it is required by Law to disclose any
such information (the "Disclosing Party"), the Disclosing Party
shall (i) provide the other Party with prompt notice before such
disclosure in order that the other Party may attempt to obtain a
protective order or other assurance that confidential treatment will
be accorded such confidential information and (ii) cooperate with
the other Party in attempting to obtain such order or assurance. The
provisions of this Section 9.2(c) shall not apply to any
information, documents or materials which are, as shown by
appropriate evidence, in the public domain or, as shown by
appropriate evidence, shall come into the public domain, other than
by reason of default by the Disclosing Party or its Affiliates.
(ii) The Parties agree the Confidentiality Agreement shall
terminate as of the Closing.
(iii) Each Party agrees that any remedy at Law for any breach
by it of this Section 9.2(c) would be inadequate, and the
non-breaching Party would be entitled to injunctive relief in such a
case. If it is ever held that the restrictions placed on either
Party by this Section 9.2(c) are too onerous and are not necessary
for the protection of the other Party, the Parties agree that any
court sitting in the State of Texas, United States of America of
competent jurisdiction may reduce the duration or scope hereof, or
delete specific words or phrases,
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and in its reduced form such provision will then be enforceable and
will be enforced.
9.3 OTHER AGREEMENTS OF THE PARTIES.
(a) USE OF BUSINESS NAMES BY THE PURCHASER. The Purchaser agrees
that the right to the use of the trademarks, service marks, brand, trade,
corporate or business logos of the Seller or of any of the Amoco
Affiliates, including without limitation the "TORCH AND OVAL" and the name
"AMOCO", shall remain the property of the Seller or the relevant Amoco
Affiliate following the Closing.
(b) EXPENSES. Except as otherwise provided herein, the Seller, on
the one hand, and the Purchaser, on the other hand, shall bear their
respective expenses, costs and fees (including attorneys' and accountants'
fees) in connection with the transactions contemplated hereby, including
the preparation, execution and delivery of this Agreement and compliance
herewith (the "TRANSACTION EXPENSES"), whether or not the transactions
contemplated hereby shall be consummated.
(c) BROKERS. Without limiting the generality of Section 9.3(b)
above, regardless of whether the Closing shall occur, (i) Seller shall
indemnify the Purchaser and its Affiliates against and hold the Purchaser
and its Affiliates harmless from any and all liability for any brokers' or
finders' fees arising with respect to brokers for finders retained or
engaged by, or having any claim by virtue of the actions of, the Seller or
any of its Affiliates in respect of the transactions contemplated by this
Agreement and (ii) the Purchaser shall indemnify the Seller and its
Affiliates against and hold the Seller and its Affiliates harmless from
any and all liability for any brokers' or finders' fees arising with
respect to brokers or finders retained or engaged by, or having any claim
by virtue of the actions of, the Purchaser or any of its Affiliates in
respect of the actions contemplated by this Agreement.
(d) DISCLAIMER OF INFORMATION. Except for the specific
representations and warranties of Seller or its Affiliates contained in
this Agreement, the Transaction Documents, or in the Disclosure Schedule,
any information supplied by any director, officer, employee, agent,
advisor, consultant or contractor of the Seller, the Company, Amoco
Corporation or any Amoco Affiliate in connection with this Agreement or
the business or affairs of the Company (including, but not limited to,
information supplied by Lazard) shall not constitute a representation or
warranty by any such Person as to the accuracy thereof and the Purchaser
agrees not to bring (or allow the Company to bring) any action or
proceeding against any such director, officer, employee, agent, advisor,
consultant or contractor with respect to the provision of such
information. THE PURCHASER ACKNOWLEDGES AND CONFIRMS THAT NONE OF THE
SELLER, THE COMPANY, AMOCO CORPORATION OR ANY AMOCO AFFILIATE MAKES ANY
REPRESENTATION OR WARRANTY TO THE PURCHASER EXCEPT AS SPECIFICALLY MADE BY
THE SELLER IN THIS AGREEMENT AND THAT THE PURCHASER HAS NOT RELIED ON ANY
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REPRESENTATIONS OR WARRANTIES BY ANY OTHER PERSON. By way of illustration,
and in no way as a limitation on the above disclaimers of warranties,
neither the Seller nor the Company make any representation or warranty to
the Purchaser with respect to (i) the information set forth in the
Information Memorandum or any supplement to such Information Memorandum,
distributed by Lazard pertaining to the business of the Company, (ii) the
accuracy of any statement or information made or communicated (orally or
in writing) to the Purchaser or its representatives or agents by Lazard,
(iii) any summary of any agreement or other document relating to the
Company made available to the Purchaser by the Seller, or (iv) any
financial projection, estimate or forecast relating to the Company. With
respect to any such projection, estimate or forecast delivered by or on
behalf of the Seller to the Purchaser, the Purchaser acknowledges that (A)
there are uncertainties inherent in attempting to make such projections,
estimates and forecasts, (B) it is familiar with such uncertainties, (C)
it is taking full responsibility for making its own evaluation of the
matters set forth in all such projections, estimates and forecasts and (D)
it shall have no claim against any director, officer, employee, agent,
advisor, consultant or contractor of the Seller or the Company including,
but not limited to, Lazard in connection with such projections, estimates
and forecasts.
(e) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Until the Closing Date,
the Parties hereby agree that, except as may be required by law or a rule
of the New York Stock Exchange, they will not issue any press release or
other public announcements to the Company's customers, suppliers or the
public relating to the transactions contemplated hereby unless such press
release or announcement is mutually agreed upon and prepared by the
Purchaser, Lazard and the Seller, except that the Seller may make any such
announcement(s) to the employees of the Company.
(f) EMPLOYEES AND EMPLOYEE BENEFITS PLANS.
(i) PERSONNEL EMPLOYMENT. The Purchaser shall continue to
employ all Employees including those Employees who, as of the
Transfer Date, are on personal, military, family, educational or
medical leave or those receiving sickness and disability benefits,
occupational illness and injury benefits, or long-term disability
benefits (as those terms are defined in the excerpts from the Amoco
Corporation Personnel Policy Manual set forth in Section 9.3(f)(i)
of the Disclosure Schedule, hereinafter collectively referred to as
"LEAVE"), at the same or substantially similar base salaries or
wages, and except as provided herein, under substantially similar
employee benefit plans and policies provided Employees by Amoco or
its Affiliates with similar duties and responsibilities, and for
those Employees currently located at Texas City, Texas, at the same
location immediately prior to the Transfer Date. Purchaser shall
assume and become obligated under contract number 149 of Section 4.9
of the Disclosure Schedule; PROVIDED HOWEVER, that Purchaser shall
not be precluded from asserting any claims it might have subsequent
to the Transfer Date that it is not
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bound as a matter of fact or law to honor the terms of that contract
or to recognize the contracting party.
(ii) Effective as of the Transfer Date, the Purchaser shall
take all action necessary and appropriate to extend coverage under
the existing Tejas Gas Corp. Pension Plan (the "Purchaser's Pension
Plan") qualified under section 401(a) of the Code to the Employees
who were participants in the Amoco Employee Retirement Plan of Amoco
Corporation and Participating Companies ("Amoco Retirement Plan") at
the Transfer Date. The 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 Amoco Retirement Plan as of the Transfer
Date. The Employees' benefits under the Purchaser's Pension Plan
shall be reduced by the accrued age 65 single life annuity payable
to Employees eligible under the Amoco Retirement Plan. In no event
shall the age 65 single life benefit accrued under Purchaser's
Pension Plan for Employees be less than the benefit such Employees
would receive if only service with the Purchaser were recognized
under Purchaser's Pension Plan. Purchaser's Pension Plan may include
such other terms and provisions as shall be determined by the
Purchaser in its sole discretion to the extent not inconsistent with
this Section 9.3(f)(ii). Amoco agrees to furnish on a timely basis
such information with regard to benefits payable to Employees under
the Amoco Retirement Plan and such other information as the
Purchaser may from time to time reasonably request for purposes of
complying with this Section 9.3(f)(ii).
(iii) Effective as of the Transfer Date, the Purchaser shall
take all action necessary and appropriate to extend coverage under
the Tejas Gas Corp. Thrift Plan (the "Purchaser's Savings Plan")
qualified under section 401(a) of the Code to the Continuing
Employees who have account balances under the Amoco Employees
Savings Plan ("Amoco Savings Plan") on the Transfer Date. The
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 Amoco Savings Plan as of the
Transfer Date. Effective as of the Transfer Date, Purchaser shall
amend its Purchaser's Savings Plan to provide (1) that Employees are
eligible to participate in Purchaser's Savings Plan on the Transfer
Date on the same terms as other employees of Purchaser, and (2) that
Employees' vesting service recognized under the Amoco Employee
Savings Plan shall be recognized in the Purchaser's Savings Plan for
the purposes of both vesting service and eligibility service.
Purchaser shall permit Employees at their option to transfer their
Amoco Savings Plan Accounts to the Purchaser's Savings Plan pursuant
to a trust to trust transfer within ninety (90) days of the Transfer
Date, and to transfer any outstanding loan balances to the
Purchaser's Savings Plan under terms and conditions established by
the Purchaser's Savings Plan. Within ten (10) days of Closing, the
Seller shall provide Purchaser a list of Employees' vesting service
recognized under the
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Amoco Employee Savings Plan as of the Transfer Date.
(iv) Except as provided in subsections (v), (viii), and (ix)
of this Section, claims for benefits under welfare plans, as such
term is defined in Section 3(1) of ERISA, in which Employees
participate arising out of occurrences prior to the Transfer Date
shall be covered by the applicable welfare plan of Amoco in
accordance with the terms of such plan. All such claims for benefits
by Employees arising out of occurrences subsequent to the Transfer
Date 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 long-term disability benefit due to any Employee who, prior to
the Transfer Date, is in the waiting or qualifying period for
long-term disability benefits or is on long-term disability. After
the Transfer Date, the Seller shall be responsible for disability
benefits payable to such Employees under the Seller's disability
plan.
(v) Claims for medical, dental, prescription drug, vision, and
employee assistance plan benefits by Employees with respect to
purchases or services or treatment rendered prior to the Transfer
Date shall be covered by the applicable welfare plan of Amoco
Corporation in accordance with the terms of such plan. Claims for
such benefits by Employees with respect to purchases of services, or
treatment rendered on or subsequent to the Transfer Date shall be
covered by the applicable welfare plan of the Purchaser in
accordance with the terms of such plan. The Purchaser shall cause
the 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
Transfer Date occurs, for any deductibles already incurred by such
Employees for such year under the welfare plan of Amoco Corporation
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 Transfer Date (but only to the extent that coverage was
provided under the applicable welfare plan of Amoco). The Purchaser
shall provide the 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
Employees so that the Seller will not incur any tax under Section
4980B of the Code.
(vi) For a period of twelve (12) months following the Transfer
Date, the Purchaser shall establish and manage a severance benefit
plan to cover the Employees with such severance benefit being a
severance benefit plan substantially similar to the Amoco
Corporation and Participating Affiliates Severance Plan (the "Amoco
Severance Plan"). The Purchaser's severance benefit plan shall
include, without limitation, a severance allowance, medical
benefits, life insurance, and educational assistance, to Employees
whose
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employment is terminated by the Purchaser following the Transfer
Date or who are offered positions with the Purchaser that require a
geographical relocation of more than fifty (50) miles or who suffer
wage or salary reductions effected by the Purchaser during the
period of twelve (12) months after the Transfer Date under
circumstances that would make such Employees eligible for the
severance benefits described in the Amoco Severance Plan. During
this same twelve (12) month period, the Purchaser also agrees to
provide an additional sixty (60) calendar days on the payroll after
such Employees are notified of eligibility for severance benefits,
which is consistent with the past practice and policy of Amoco and
its Affiliates, and to provide up to Five Thousand Dollars ($5,000)
in outplacement benefits to each such Employee, with the level of
outplacement benefits actually provided being commensurate with the
level of each Employee's job. For purposes of calculating the
severance allowance described in the Amoco Severance Plan, as
applied herein by Purchaser, "credited service" shall include each
Employee's service with Amoco and its Affiliates in addition to each
Employee's service with the Purchaser, its successors and its
Affiliates. The amounts of each Employee's credited service with
Amoco and its Affiliates immediately prior to the Transfer Date
shall be delivered to the Purchaser prior to the Closing. The
Purchaser also agrees to include the Seller and its Affiliates as
third party beneficiaries in any release executed by Employee in
order to receive the severance benefits described in the Amoco
Severance Plan. The Purchaser agrees not to require Employees to
execute a release in order to receive the sixty (60) calendar days
on the payroll and the outplacement benefits described above.
Purchaser shall be responsible for the first five hundred thousand
dollars ($500,000) paid in severance benefits to any Potential
Surplus Employee who is terminated either by Amoco or by Purchaser
after the Transfer Date pursuant to the provisions of this section.
Purchaser will reimburse Amoco for any severance benefits it
provides to Potential Surplus Employees pursuant to the $500,000
maximum. Amoco will reimburse Purchaser in the event Purchaser
incurs severance benefit expenses pursuant to this provision
exceeding $500,000 in the aggregate. Notwithstanding the two
preceding sentences, Purchaser shall be responsible for all
severance benefits pursuant to this Section for all other Employees
after the Transfer Date who are not Potential Surplus Employees.
During the period of twelve (12) months after the Transfer Date, the
Purchaser shall not be responsible for providing severance benefits
under this Section if circumstances arise which cause the Purchaser
to enact a salary or wage reduction, layoff, or relocation program
which affects a simple majority of the Purchaser's entire work force
at the time of the action.
(vii) Vacation entitlement accrued by Employees for the year
in which the Transfer Date occurs under Amoco's vacation policy as
in effect as of the Transfer Date shall be recognized by the
Purchaser following the Transfer Date. Service with Amoco
Corporation or any Amoco Affiliate shall be credited for purposes of
the Purchaser's vacation policy following the Transfer Date.
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(viii) With respect to all Employees who retired from
employment with Amoco Corporation or an Amoco Affiliate prior to the
Transfer Date and who have been, or are eligible to be, provided
with post-retirement medical or life insurance coverage as of the
Transfer Date sponsored by Amoco Corporation or an Amoco Affiliate,
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 Employees who retire from employment with Purchaser after the
Transfer Date, such Employees shall be covered by Purchaser's plans
that are in effect at the time of retirement.
(ix) Claims for workers compensation benefits for Employees
arising out of occurrences prior to the Transfer Date shall be the
responsibility of the Seller. Claims for workers compensation
benefits for Employees arising out of occurrences subsequent to the
Transfer Date shall be the responsibility of the Purchaser.
(x) Nothing herein shall be deemed or construed (i) to give
rise to any rights, claims, benefits, or causes of action to any
Employee or any other person, except the Seller or (ii) to prevent,
restrict, or limit the Purchaser and its subsidiaries following the
Transfer Date 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 (i) through (x) of this Section for the
benefit of the Seller.
(xi) The Purchaser represents and warrants that there will be
no major employment losses as a consequence of the transactions
contemplated by this Agreement that might trigger obligations under
the Worker Adjustment and Retraining Notification ("WARN") Act, 29
U.S.C. Section 2102 et seq., or under any similar provision of any
federal, state, regional, foreign, or local law, rule, or regulation
(referred to collectively as "WARN OBLIGATIONS"). Moreover, to the
extent that any WARN obligations might arise as a consequence of the
transactions contemplated by this Agreement, it is agreed that the
Seller shall be responsible for any WARN obligations arising as a
result of any employment losses occurring prior to the Transfer Date
and the Purchaser shall be responsible for any WARN obligations
arising as a result of any employment losses occurring upon or after
the Transfer Date. Furthermore, for the first ninety (90) days
following the Transfer Date, the Purchaser shall not engage in any
mass layoff, plant closing, or other action that might trigger
obligations of the Seller and/or its Affiliates under the WARN Act
or under any similar provision of any federal, state, regional,
foreign, or local law, rule or regulation.
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(xii) Prior to the Closing Date, Purchaser shall provide the
Seller a list of current Company employee classifications that it
deems to be surplus. Employees in the surplus classifications (the
"Potential Surplus Employees") shall have an opportunity to seek
alternate employment with Amoco Corporation or an Amoco Affiliate
prior to the Transfer Date, and any Potential Surplus Employees who
have not obtained alternative employment with Amoco Corporation or
an Amoco Affiliate will become employees of Purchaser on the
Transfer Date pursuant to Section 9.5. A list of the employees of
the Company is included in Section 9.5 of the Disclosure Schedule.
This list will be updated and delivered to Purchaser at least two
(2) days prior to the Closing.
(g) EASEMENTS. The Seller acknowledges that certain pipelines,
compressors, measurement facilities and other facilities relating thereto
which are owned or leased by the Company and its subsidiaries (the
"Pipelines") are located on property owned by the Seller and its
Affiliates. The Seller and its Affiliates grant to the Company and its
subsidiaries easements for the purposes of maintaining, inspecting,
operating, protecting, repairing, replacing, changing the size of, and
removing the Pipelines and all valves, fittings, devices for controlling
electrolysis and cleaning the Pipeline interior, other necessary
appurtenances above or below ground, and suitable markers to mark the
location of the Pipelines, together with rights of ingress and egress
upon, over, and through the property of Seller and its Affiliates adjacent
to such easements for the purpose of constructing, operating, inspecting,
repairing, maintaining, replacing, re-sizing or removing the Pipelines and
appurtenances of the Company and its subsidiaries located on the
easements. After the Closing, Seller and its Affiliates will execute,
notarize, and record such further documents evidencing the foregoing
easements as may be reasonably requested by Purchaser from time to time.
(h) ASSETS. After the Closing, the Seller and its Affiliates
will transfer and convey to the Company and its subsidiaries all
furniture, computers, telephones, copying and fax machines, supplies, and
equipment, if any, used by the Company and its subsidiaries in the
Ordinary Course of Business but held in the name of the Seller or its
Affiliates other than the Company and its subsidiaries.
9.4 BENEFIT PLAN INDEMNITY. The Seller shall indemnify and
hold harmless the Purchaser against any Loss suffered by the Purchaser
resulting from:
(a) any liability, action, suit, claim, contribution,
benefits, or accumulated funding deficiency payable under the terms of, or
relating to, any Employee Plans of Amoco Corporation or an Amoco Affiliate
(including those in which the Company was a participant prior to the
Transfer Date) whether arising under the terms of such plan, ERISA, the
Code or any other applicable Law;
(b) non-compliance of any such Employee Plans with the Code,
ERISA or any Law to the extent the Code, ERISA or such Law is applicable
to such Employee Plans;
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(c) any post-retirement life insurance or medical benefits
payable under any Amoco Employee Plans to any person employed by the
Company after the Transfer Date;
(d) any liability of the Company or its subsidiaries to the
Pension Benefit Guaranty Corporation relating to such Employee Plans; or
(e) any obligations of the Company or its subsidiaries to
contribute to any multi-employer plan within the meaning of Section 3(37)
of ERISA.
Seller agrees to remain responsible for and make all payments
required under the Amoco Gas Company Retention Plan.
9.5 EMPLOYMENT MATTERS.
(a) TRANSITION PERIOD. Effective on the Closing Date all
Employees will be transferred to an Amoco Affiliate for a period of 60
days following the Closing Date ("Transition Period"). Upon the 60th day
following the Closing Date (the "Transfer Date"), all the Employees who
were transferred to such Amoco Affiliate on the Closing Date shall be
offered employment with the Company or an Affiliate in accordance with the
provisions of Section 9.3(f) unless any such Employees have accepted
alternate employment with an Amoco Affiliate or have terminated employment
with Amoco Corporation and its Affiliates prior to the Transfer Date.
During the Transition Period the Employees who were transferred to such
Amoco Affiliate shall provide services to the Company in similar
capacities as such Employees provided services to the Company prior to the
Closing, in accordance with a Transition Services Agreement, the terms of
which shall be mutually agreed upon by the parties prior to the Closing
and shall be effective as of the Closing.
9.6 NEGATIVE COVENANTS. From the date of this Agreement
through the Closing, neither the Company nor AETC shall (i) accept
prepayment for goods (including natural gas and liquids) or services to be
rendered by the Company or under any AETC Contract after the Closing or
(ii) enter into any fixed-price, take-or-pay or ship-or-pay contracts to
be assumed by the Company or its subsidiaries or the Purchaser or its
Affiliates which would obligate any such parties after the Closing to
purchase or sell gas at a fixed (as distinguished from floating index)
price for more than 30 days or to pay for natural gas or transportation
not taken or used (or demand or reservation charges therefor).
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ARTICLE X
TERMINATION
10.1 ABILITY TO TERMINATE. The Parties may terminate this Agreement as
provided below:
(a) the Purchaser and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(b) the Purchaser may terminate this Agreement by giving written
notice to the Seller if the Closing shall not have occurred on or before
December 31, 1997 by reason of the failure of any condition precedent
pursuant to Sections 7.1 or 7.2 (unless the failure results primarily from
the Purchaser breaching any representation, warranty, or covenant
contained in this Agreement); and
(c) the Seller may terminate this Agreement by giving written notice
to the Purchaser if the Closing shall not have occurred on or before
December 31, 1997 by reason of the failure of any condition precedent
pursuant to Sections 7.1 or 7.3 (unless the failure results primarily from
the Seller breaching any representation, warranty, or covenant contained
in this Agreement).
10.2 EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 10.1, all rights and obligations of the Parties to the other
Party hereunder shall terminate without any liability of any Party to the other
Party; PROVIDED, HOWEVER, that the provisions contained in Sections 6.7, 9.3(b)
and 9.3(c) shall survive termination; and PROVIDED, FURTHER, that any
termination of this Agreement pursuant to subparagraphs (b) or (c) of Section
10.1 by reason of any breach of any representation and warranty or failure to
perform or comply with any covenant or other agreement contained herein shall
not relieve the breaching or defaulting Party from any liability for breach of
contract to the other Party hereto.
ARTICLE XI
INDEMNIFICATION AND RELATED MATTERS
11.1 INDEMNIFICATION.
(a) SELLER INDEMNIFICATION. The Seller shall indemnify and hold
harmless the Purchaser against any Loss suffered by the Purchaser
resulting from (i) any breach by the Seller of this Agreement including
without limitation failure by the Seller to pay promptly any Taxes
pursuant to Article VIII or (ii) any inaccuracy in or breach of any of the
representations, warranties or covenants made by the Seller herein or in
any document delivered pursuant hereto.
(b) PURCHASER INDEMNIFICATION. The Purchaser shall indemnify and
hold harmless the Seller against any Loss suffered by the Seller resulting
from (i) any breach
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by Purchaser of this Agreement or (ii) any inaccuracy in or breach of any
of the representations, warranties or covenants made by Purchaser herein
or in any document delivered pursuant hereto.
11.2 ALLOCATION OF ENVIRONMENTAL LIABILITY.
(a) ENVIRONMENTAL LIABILITY OF THE SELLER. The Seller shall remain
liable and indemnify and hold harmless the Purchaser from any and all
Losses of any kind relating to any release, discharge, disposal or
emission of hazardous waste, hazardous substances, pollutants,
contaminants, materials, products or byproducts ("POLLUTANTS") into the
environment, including, without limitation, the surface or subsurface of
the Real Property and/or any other property on which Pollutants from the
Real Property have come to be located (hereinafter "ENVIRONMENTAL
CONTAMINATION"), that occurred on or before the Closing Date; provided,
however, that the foregoing indemnities shall not apply nor shall any of
them be construed as covering any loss or dimunition in the value of the
Real Property as a result of the presence on or under the Real Property of
said Pollutants. Without limiting the foregoing, the Seller agrees to
retain control, management, responsibility and liability for the following
lawsuits and all appeals and progeny thereof: AQUIRRE, ET AL V. AMOCO, ET
AL; TERRY, CARL, ET AL V. AMOCO CHEMICAL COMPANY AND AMOCO GAS COMPANY;
and CROFTON V. AMOCO CHEMICAL COMPANY.
(b) ENVIRONMENTAL LIABILITY OF THE PURCHASER. The Purchaser shall be
liable and indemnify and hold harmless the Seller from any and all Losses
relating to any Environmental Contamination that occurs after the Closing
Date; except to the extent the cause of such Environmental Contamination
is attributable to the Seller, its Affiliates, or their respective
employees, contractors, agents, representatives or licensees. The
Purchaser shall notify the Seller, in writing and by telephone, of any
releases, discharges, disposal or emissions of Pollutants onto the surface
or subsurface of the Real Property by the Purchaser, or by any third
party, after the Closing Date, if the Purchaser has actual knowledge of
such releases, discharges, disposal or emissions by such third party.
(c) COMPARATIVE RESPONSIBILITY. As to Environmental Contamination
where there is a dispute between the parties regarding whether Seller or
Purchaser is responsible under Sections 11.2(a) and (b) above, the Seller
and the Purchaser shall allocate liability and responsibilities with
respect to remediation based on comparative responsibility. In such event,
the party having the larger share of such comparative liability shall be
entitled to control and manage the remediation under Sections 11.2(d) or
(e), as the case may be. If such party does not undertake such remediation
within a reasonable period of time following the discovery of the
Environmental Contamination, then the other Party may do so upon thirty
(30) days prior written notice to the other Party, during which period the
Party having the larger share of such comparative liability may commence
and shall be entitled to control and manage such remediation. If at the
end of such thirty (30) day period such remediation shall not have
commenced, the other Party may commence, control and manage such
remediation. The fact that a
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Party undertakes remediation pursuant to this Section 11.2(c) shall not
waive, diminish, prejudice, impair, or otherwise reduce such Party's right
to indemnity under Section 11.2(a) or (b).
(d) REMEDIATION BY THE SELLER. To the extent the Seller is liable
for Environmental Contamination under Section 11.2(a) herein, the Seller
shall have the right to perform or have performed at its cost, any
required remediation, including dealing with any environmental agency or
agencies with regard to the corrective action required, clean-up standards
and appropriate work plans. With respect to any required remediation that
the Seller elects to perform, the Seller may select, subject to approval
by the Purchaser (such approval not to be unreasonably withheld), one or
more environmental consultants to investigate and characterize all
environmental contamination potentially subject to remediation, and to
design and perform any required remediation. The Purchaser shall have the
right, at its cost, to participate in the planning and design of any
required remediation, and the Purchaser shall be provided, for review and
comment, a draft of any study, workplan, report or similar document to be
submitted to an environmental agency at least ten (10) working days before
the Seller intends to submit it. The Seller will consider in good faith
any comments made by the Purchaser with respect to any such study,
workplan, report or similar document and, to the extent practicable, will
incorporate such comments into the document submitted to the environmental
agency. Any required remediation will be designed and performed by the
Seller in a manner that complies with all environmental laws, minimizes
any potential future liability of the site owner/operator, is commercially
reasonable and cost effective and does not unreasonably interfere with the
Purchaser's operations. The Seller shall provide the Purchaser a copy of
all reports, plans and correspondence submitted to an environmental agency
with respect to any required remediation thereof. In addition, the
Purchaser shall have the right, at its cost, to attend and participate in
any meetings, conferences or other sessions with any environmental agency
concerning the required remediation and will be provided at least ten (10)
days' notice of any such meetings (or the maximum number of days as is
practicable if the meeting date is not set at least ten (10) days prior to
the meeting). With respect to any remediation performed by or on behalf of
the Seller pursuant to this Section, the Seller shall be the generator of
any wastes generated in connection with such remediation and shall prepare
all documents associated with such remediation in a manner that clearly
identifies the Seller as the generator of the waste, including, but not
limited to, the use of identification numbers issued to the Seller. Upon
completion of the required remediation, the Seller shall provide the
Purchaser written confirmation that the remediation plan designed as set
forth above has been completed. TO THE EXTENT THAT, PURSUANT TO THIS
SECTION, THE SELLER OR ITS REPRESENTATIVES OR CONSULTANTS ARE PROVIDED
ACCESS TO THE REAL PROPERTY, THE SELLER SHALL REIMBURSE THE PURCHASER FOR,
AND DEFEND, INDEMNIFY AND HOLD HARMLESS THE PURCHASER FROM AND AGAINST,
ANY AND ALL LOSS, DAMAGE, COSTS (INCLUDING REIMBURSEMENT OF ALL REASONABLE
ATTORNEY FEES AND OTHER COSTS OF DEFENSE), LIABILITY, CLAIM OR SUIT,
WHETHER FOR BODILY
37
<PAGE>
INJURY OR DEATH OF ANY PERSON (INCLUDING THE SELLER'S EMPLOYEES, AGENTS
AND REPRESENTATIVES), DAMAGE TO OR DESTRUCTION OR LOSS OF PROPERTY, OR
OTHERWISE, ARISING IN ANY MANNER WHATSOEVER OUT OF THE SELLER OR ITS
REPRESENTATIVES OR CONSULTANTS BEING GIVEN ACCESS TO THE REAL PROPERTY,
WHETHER OR NOT BASED UPON STRICT LIABILITY OR CAUSED BY THE SOLE OR
CONCURRENT NEGLIGENCE (ORDINARY OR GROSS) OF THE PURCHASER OR ANY OTHER
PERSON OR ENTITY, UNLESS SUCH LOSS, DAMAGE, COST, LIABILITY, CLAIM OR SUIT
WAS OCCASIONED SOLELY BY THE NEGLIGENCE OR INTENTIONAL TORT OF THE
PURCHASER OR ANY OFFICER, DIRECTOR OR AGENT THEREOF.
(e) REMEDIATION BY THE PURCHASER. To the extent the Purchaser is
liable for Environmental Contamination under Section 11.2(b) herein, the
Purchaser shall have the right to perform or have performed at its cost,
any required remediation, including dealing with any environmental agency
or agencies with regard to the corrective action required, clean-up
standards and appropriate work plans. With respect to any required
remediation that the Purchaser elects to perform, the Purchaser may
select, subject to approval by the Seller (such approval not to be
unreasonably withheld), one or more environmental consultants to
investigate and characterize all environmental contamination potentially
subject to remediation, and to design and perform any required
remediation. The Seller shall have the right, at its cost, to participate
in the planning and design of any required remediation, and the Seller
shall be provided, for review and comment, a draft of any study, workplan,
report or similar document to be submitted to an environmental agency at
least ten (10) working days before the Purchaser intends to submit it. The
Purchaser will consider in good faith any comments made by the Seller with
respect to any such study, workplan, report or similar document and, to
the extent practicable, will incorporate such comments into the document
submitted to the environmental agency. Any required remediation will be
designed and performed by the Purchaser in a manner that complies with all
environmental laws, minimizes any potential future liability of the site
owner/operator, is commercially reasonable and cost effective and does not
unreasonably interfere with the Seller's operations. The Purchaser shall
provide the Seller a copy of all reports, plans and correspondence
submitted to an environmental agency with respect to any required
remediation thereof. In addition, the Seller shall have the right, at its
cost, to attend and participate in any meetings, conferences or other
sessions with any environmental agency concerning the required remediation
and will be provided at least ten (10) days' notice of any such meetings
(or the maximum number of days as is practicable if the meeting date is
not set at least ten (10) days prior to the meeting). With respect to any
remediation performed by or on behalf of the Purchaser pursuant to this
Section, the Purchaser shall be the generator of any wastes generated in
connection with such remediation and shall prepare all documents
associated with such remediation in a manner that clearly identifies the
Purchaser as the generator of the waste, including, but not limited to,
the use of identification numbers issued to the Purchaser. Upon completion
of the required remediation, the Purchaser shall provide the Seller
38
<PAGE>
written confirmation that the remediation plan designed as set forth above
has been completed. TO THE EXTENT THAT, PURSUANT TO THIS SECTION, THE
PURCHASER OR ITS REPRESENTATIVES OR CONSULTANTS ARE PROVIDED ACCESS TO THE
SELLER'S PROPERTY, THE PURCHASER SHALL REIMBURSE THE SELLER FOR, AND
DEFEND, INDEMNIFY AND HOLD HARMLESS THE SELLER FROM AND AGAINST, ANY AND
ALL LOSS, DAMAGE, COSTS (INCLUDING REIMBURSEMENT OF ALL REASONABLE
ATTORNEY FEES AND OTHER COSTS OF DEFENSE), LIABILITY, CLAIM OR SUIT,
WHETHER FOR BODILY INJURY OR DEATH OF ANY PERSON (INCLUDING THE
PURCHASER'S EMPLOYEES, AGENTS AND REPRESENTATIVES), DAMAGE TO OR
DESTRUCTION OR LOSS OF PROPERTY, OR OTHERWISE, ARISING IN ANY MANNER
WHATSOEVER OUT OF THE PURCHASER OR ITS REPRESENTATIVES OR CONSULTANTS
BEING GIVEN ACCESS TO THE SELLER'S PROPERTY, WHETHER OR NOT BASED UPON
STRICT LIABILITY OR CAUSED BY THE SOLE OR CONCURRENT NEGLIGENCE (ORDINARY
OR GROSS) OF THE SELLER OR ANY OTHER PERSON OR ENTITY, UNLESS SUCH LOSS,
DAMAGE, COST, LIABILITY, CLAIM OR SUIT WAS OCCASIONED SOLELY BY THE
NEGLIGENCE OR INTENTIONAL TORT OF THE SELLER OR ANY OFFICER, DIRECTOR OR
AGENT THEREOF.
(f) ACCESS. Effective as of the Closing Date, the Purchaser hereby
grants to the Seller, its employees, contractors, agents, representatives,
and licensees, access to the Real Property for the purpose of testing,
assessing and, if necessary, remediating the Real Property, including but
not limited to: (a) the installation, monitoring and maintenance of
monitoring wells, recovery wells, and other equipment and devices onto, in
or around the Real Property; (b) the removal, storage and/or treatment of
soils, groundwater and surface water from or on the Real Property; (c)
ingress and egress, by persons, vehicles and equipment, in, across and
around the Real Property; and (d) the completion of such additional
related activities as may be necessary or desired by the Seller to test,
assess and, if necessary, remediate any Environmental Contamination in or
on the surface or subsurface of the Real Property.
11.3 INDEMNIFICATION PROCEDURES.
(a) NOTICE OF CLAIM. Upon obtaining knowledge thereof, a party
entitled to be indemnified pursuant to Section 11.1(a), 11.1(b) or 11.2
hereof (the "INDEMNIFIED PARTY") shall notify the party liable for such
indemnification (the "INDEMNIFYING PARTY") of any claim or demand which it
has determined has given or could give rise to a right of indemnification
under this Agreement. If such claim or demand relates to a claim asserted
by a third party, the Indemnifying Party shall have a reasonable time to
contest any such claim or demand and the condition's and procedures in
Section 11.3(b) shall be followed. Subject to the Indemnifying Party's
right to defend third party claims as set forth above and Section 11.3(b),
the Indemnifying Party shall reimburse the Indemnified Party promptly upon
demand for any payment made or Loss suffered by the Indemnified
39
<PAGE>
Party in respect of any Loss, to which this Article XI relates.
Notwithstanding anything contained in this Section 11.3, with respect to
remediation of Environmental Contamination the procedures described in
Section 11.2 shall supercede the procedures described in this Section
11.3.
(b) CONTROL OF DEFENSE; CONDITIONS. The obligations of an
Indemnifying Party under this Section 11 with respect to Losses arising
from claims of any third party that are subject to the indemnification
provided in Section 11.1 above shall be governed by and contingent upon
the following additional terms and conditions:
(i) At its option, an Indemnifying Party may appoint as lead
counsel of such defense any legal counsel selected by the
Indemnifying Party (even if the provisions of Section 11.1 or 11.2
would or could limit such Indemnifying Party's obligation), which
legal counsel shall be acceptable to the Indemnified Party (such
acceptance not to be unreasonably withheld or delayed).
(ii) Notwithstanding Section 11.3(b)(i) above, the Indemnified
Party will be entitled to participate in the defense of such claim
and to employ counsel of its choice for such purpose; provided, that
such employment shall be at the Indemnified Party's own expense
unless (1) the employment thereof has been specifically authorized
by the Indemnified Party in writing, (2) the Indemnifying Party has
failed to assume the defense and employ counsel, or (3) one or more
of the Indemnifying Parties is a party to such claim and there is a
conflict of interest which could prohibit a single legal counsel
from representing both the Indemnified Party and the Indemnifying
Party, in which case the reasonable fees and expenses of the
Indemnified Party's counsel shall be paid by the Indemnifying Party.
(iii) The Indemnified Party will not consent to the entry of
any judgment or enter into any settlement with respect to any third
party claim without the prior written consent of the Indemnifying
Party (not to be withheld unreasonably). The Indemnifying Party will
not consent to the entry of any judgment or enter into any
settlement with respect to any third party claim without the prior
written consent of the Indemnified Party (not to be withheld
unreasonably); PROVIDED, HOWEVER, that no such consent of the
Indemnified Party shall be required if such judgment or settlement
contains no finding or admission of fault or guilt on the part of
the Indemnified Party and such judgment or settlement contains an
unconditional release of the Indemnified Party with respect to the
particular matter.
11.4 LIMITATIONS ON INDEMNIFICATION. An Indemnified Party shall not be
entitled to assert any right of indemnification (x) under Section 11.1 for any
Loss suffered by it after the second anniversary of the Closing and (y) under
Section 11.2 for any Loss suffered by it after the tenth anniversary of the
Closing, except that (i) if there shall then be pending any dispute, claim,
proceeding or action under this Agreement, the Indemnified Party shall continue
to have the right to be indemnified with respect to such pending dispute, claim,
proceeding or action and (ii) there
40
<PAGE>
shall be no time limitation on claims for indemnification for breaches of
Sections 4.2, 4.4 and 5.2 of the Agreement and the time limitation for claims
under Section 9.4 and claims regarding Taxes under Article VIII shall be the
applicable statue of limitations for the underlying Tax or claim (including any
tollings or extensions thereof). The Purchaser shall not be entitled to
indemnification hereunder until the aggregate Loss suffered by it exceeds
$5,000,000 ("THRESHOLD"), whereupon the Purchaser shall be entitled to
indemnification hereunder by the Seller for any Loss in excess of the Threshold;
provided that this limitation shall not apply to claims for income and Texas
franchise taxes under Article VIII or to claims under Section 9.4. The Seller's
aggregate liability under Section 11.1 shall be limited to, and shall not
exceed, the Purchase Price; provided that this limitation shall not apply to
claims for income and Texas franchise taxes under Article VIII or to claims
under Section 9.4.
11.5 OTHER INDEMNIFICATION PROVISIONS.
(a) SOLE REMEDY. The foregoing indemnification provisions are in
addition to, and not in derogation of, any statutory or common law remedy
any Party may have for breach of representation, warranty, or covenant;
PROVIDED, HOWEVER, that the Purchaser acknowledges that (i) its sole
pre-Closing remedy for any breach of any of the representations and
warranties contained in Article IV above shall be the release of its
obligation to close pursuant to Section 7.2(a) above and (ii) its sole
post-Closing remedy for any breach of any of the representations and
warranties contained in Article IV of the Agreement shall be the
indemnification provisions set forth in this Article XI.
(b) NO CONSEQUENTIAL DAMAGES. Any indemnification obligation with
respect to any breach or non-performance by either Party of a
representation, warranty, covenant or agreement shall be limited to the
amount of actual damages sustained by such Party by reason of such breach
or non-performance. Notwithstanding anything to the contrary elsewhere in
this Agreement or in the Transaction Documents, no Party or its Affiliates
shall in any event be liable to the other Party or its Affiliates for any
consequential damages, including, but not limited to, loss of revenue or
income, cost of capital, or loss of business reputation or opportunity.
Each Party agrees that it shall not seek punitive damages as to any matter
relating to this Agreement or the Transaction Documents or the
transactions contemplated thereby.
ARTICLE XII
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. The Transaction Documents (including the Disclosure
Schedule thereto) and the Confidentiality Agreement constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, between the Parties with respect to the subject matter hereof.
12.2 DISCLOSURE SCHEDULE. Any information set forth in any Section of the
Disclosure Schedule attached to this Agreement or incorporated in any Section of
this Agreement shall be
41
<PAGE>
considered to have been set forth in each other Section of the Disclosure
Schedule hereto unless it is not reasonably apparent that a disclosure in one
section of the Disclosure Schedule applies to another section of the Disclosure
Schedule. The specification of any dollar amount in the representations and
warranties contained in this Agreement or the inclusion of any specific item in
the Disclosure Schedule hereto is not intended to imply that such amounts, or
higher or lower amounts, or the items so included or other items, are or are not
required to be disclosed (including, without limitation, whether such amounts or
items are required to be disclosed as material or threatened) or are within or
outside of the Ordinary Course of Business, and neither Party shall use the fact
of the setting of such amounts or the fact of the inclusion of any such item in
the Disclosure Schedule in any dispute or controversy between the Parties as to
whether any obligation, item or matter not described herein or included in a
Section of the Disclosure Schedule hereto is or is not required to be disclosed
(including, without limitation, whether such amounts or items are required to be
disclosed as material or threatened) or is within or outside of the Ordinary
Course of Business for the purposes of this Agreement; PROVIDED, HOWEVER, that
specification of any dollar amount in Section 4.11 is intended to imply that
items exceeding such dollar amount are required to be disclosed. The information
contained in the Disclosure Schedule hereto is disclosed solely for the purposes
of this Agreement, and no information contained therein shall be deemed to be an
admission by any Party hereto to any third party of any matter whatsoever,
including any violation of law or breach of any agreement.
12.3 GOVERNING LAW, ETC.. This Agreement will be governed by and construed
in accordance with the domestic Laws of the State of Texas without giving effect
to any choice of Law or conflict provision or rule (whether of the State of
Texas or any other jurisdiction) that would cause the Laws of any jurisdiction
other than the State of Texas to be applied. In furtherance of the foregoing,
the domestic Laws of the State of Texas will control the interpretation and
construction of this Agreement, even if under such jurisdiction's choice of Law
or conflict of Law analysis, the substantive Law of some other jurisdiction
would ordinarily apply, PROVIDED, HOWEVER, that any issue pertaining to the
transfer of the Shares from the Seller to the Purchaser shall be governed by
Applicable Law. The Parties each acknowledge that they were advised by counsel
regarding this Agreement.
12.4 SEVERABILITY. If any covenant, agreement, provision or term of this
Agreement is held to be invalid for any reason whatsoever, then such covenant,
agreement, provision or term will be deemed severable from the remaining
covenants, agreements, provisions and terms of this Agreement and will in no way
affect the validity or enforceability of any other provision of this Agreement.
12.5 NOTICES. All notices, requests, demands, waivers and other
communication required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been duly given if (i) delivered personally,
(ii) mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or (iii) sent by next-day or overnight mail or
delivery by an express courier of national repute or (iv) sent by telecopy (with
verbal or electronic confirmation of receipt) or telegram.
42
<PAGE>
IF TO THE SELLER:
Amoco Production Company
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Michael G. Classen
Mail Code 3203
Fax Number: (312)616-0997
Confirm Number: (312)856-7602
WITH A COPY TO:
Amoco Corporation
200 East Randolph Drive
Mail Code 2108
Chicago, Illinois 60601
Attn: General Attorney - Corporate
Fax Number: 312-856-4091
Confirm Number: 312-856-3025
IF TO THE PURCHASER:
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, Texas 77010
Attn: James W. Whalen
Chief Financial Officer
Fax Number: 713-658-9600
Confirm Number: 713-951-3587
with a copy to:
P. Anthony Lannie
General Counsel
Fax Number: 713-650-6231
Confirm Number: 713-951-3505
or, in each case, at such other address as may be specified in writing to the
other parties.
All such notices, requests, demands, waivers and other communications shall be
deemed to have been received (i) if by personal delivery on the date after such
delivery, (ii) if by certified, registered, next-day or overnight mail or
delivery, on the day delivered, and (iii) if by telecopy or telegram, on the
next day following the day on which such telecopy or telegram was sent, provided
that a copy is also sent by certified or registered mail.
43
<PAGE>
12.6 HEADINGS. The headings used in this Agreement are for the purpose of
reference only and will not affect the meaning or interpretation of any
provision of this Agreement.
12.7 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and permitted assigns.
12.8 ASSIGNMENT. This Agreement shall not be assignable or otherwise
transferable by any Party hereto without the prior written consent of the other
Party hereto.
12.9 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall confer
any rights upon any Person or entity other than the Parties and their respective
successors and permitted assigns.
12.10 AMENDMENT, WAIVERS, ETC. No amendment, modification or discharge of
this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the Party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the Party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
Parties of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the Parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder.
12.11 NO STRICT CONSTRUCTION; INTERPRETATION. The language used in this
Agreement will be deemed to be the language chosen by the Parties to express
their mutual intent and no rule of strict construction will be applied against
any Person.
44
<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed this Stock Purchase
Agreement as of the date first above written.
AMOCO PRODUCTION COMPANY
By: /s/ M.C. WILLIAMS
Name: M.C. Williams
Title: Treasurer
TEJAS GAS CORP.
By: /s/ RENE R. JOYCE
Name: Rene R. Joyce
Title: Sr. Exec. V.P.
Exhibit 11.1
TEJAS GAS CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1997 1996 1997 1996
------ ----- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Weighted average number of common
shares outstanding 20,573 19,655 20,564 18,161
Incremental common shares resulting
from assumed exercise of stock
options based on the stock's
daily average market price - - - -
-------- ------- ------ ------
Weighted average number of common
shares outstanding and common
equivalent shares for primary
calculation 20,573 19,655 20,564 18,161
Incremental common shares resulting
from assumed exercise of stock
options based on the more dilutive
of the stock's daily average market
price or ending price - - - -
-------- ------- ------ ------
Weighted average number of common
shares outstanding and common
equivalent shares assuming full
dilution 20,573 19,655 20,564 18,161
========= ========= ======== =========
NET EARNINGS APPLICABLE TO
COMMON STOCK $ 9,696 $ 8,154 $ 28,188 $ 22,911
========= ========= ======== =========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary $ 0.47 $ 0.41 $ 1.37 $ 1.26
========= ========= ======== =========
Fully-diluted $ 0.47 $ 0.41 $ 1.37 $ 1.26
========= ========= ======== =========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,517
<SECURITIES> 0
<RECEIVABLES> 267,386
<ALLOWANCES> 0
<INVENTORY> 87,737
<CURRENT-ASSETS> 432,661
<PP&E> 1,580,860
<DEPRECIATION> 244,394
<TOTAL-ASSETS> 1,886,955
<CURRENT-LIABILITIES> 347,619
<BONDS> 918,755
0
460
<COMMON> 5,145
<OTHER-SE> 464,840
<TOTAL-LIABILITY-AND-EQUITY> 1,886,955
<SALES> 1,677,154
<TOTAL-REVENUES> 1,677,154
<CGS> 1,454,693
<TOTAL-COSTS> 1,550,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,627
<INCOME-PRETAX> 53,376
<INCOME-TAX> 18,894
<INCOME-CONTINUING> 34,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,482
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
</TABLE>
EXHIBIT 99.1
MANAGEMENT AGREEMENT
DATED AS OF _________ ___ , 1997
AMONG
TRANGO HOLDINGS CORPORATION,
SHELL OIL COMPANY,
SIERRA ACQUISITION,
AND
THE SAR HOLDERS LISTED HEREIN
<PAGE>
TABLE OF CONTENTS
---------------
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS; INTERPRETATION OF DEFINED TERMS ................. 1
ARTICLE 2
CORPORATE GOVERNANCE
SECTION 2.01. COMPOSITION OF THE BOARD .................................... 11
SECTION 2.02. VOTING OF SHARES ............................................ 13
SECTION 2.03. COMPOSITION OF BOARD COMMITTEES AND SUBSIDIARY BOARDS ....... 13
SECTION 2.04. VACANCIES ................................................... 14
SECTION 2.05. REMOVAL ..................................................... 14
SECTION 2.06. NOTICE FOR BOARD AND COMMITTEE MEETINGS ..................... 15
SECTION 2.07. BOARD AND SHELL CONSENT FOR CERTAIN ACTIONS BY HOLDINGS ..... 15
SECTION 2.08. GOVERNANCE OF HOLDINGS' SUBSIDIARIES ........................ 16
SECTION 2.09. STRATEGIC PLANNING PROCESS .................................. 16
SECTION 2.10. OPERATING PLANNING PROCESSES ................................ 16
SECTION 2.11. APPOINTMENT OF OFFICERS ..................................... 16
SECTION 2.12. CERTIFICATE OF INCORPORATION AND BY-LAWS; INCONSISTENT
AGREEMENTS ........................................................... 17
SECTION 2.13. SHELL PREEMPTIVE RIGHT ....................................... 17
ARTICLE 3
GRANT OF SARS; VESTING; SAR STRIKE PRICE AND LOANS; EXPIRATION;
EXERCISE AND PAYMENT OF SARS
SECTION 3.01. GRANT OF ROLLOVER SARS AND ASSUMPTION OF STOCK OPTIONS ...... 18
SECTION 3.02. VESTING AND SAR STRIKE PRICE OF ROLLOVER SARS ............... 19
SECTION 3.03. GRANT OF INCENTIVE SARS ..................................... 19
SECTION 3.04. VESTING AND SAR STRIKE PRICE OF INCENTIVE SARS .............. 20
SECTION 3.05. EXPIRATION AND LAPSE OF CERTAIN SARS ........................ 20
SECTION 3.06. EXPIRATION AND LAPSE OF SARS OF HAMILTON SAR HOLDERS
AND PRECOURT SAR HOLDERS ............................................. 21
SECTION 3.07. INTENTIONALLY OMITTED ....................................... 21
SECTION 3.08. INTENTIONALLY OMITTED ....................................... 21
SECTION 3.09. REPRESENTATIONS BY THE SAR HOLDERS .......................... 21
SECTION 3.10. DELIVERIES AT THE CONTRIBUTION CLOSING ...................... 22
SECTION 3.11. CONDITIONS TO THE OBLIGATIONS OF THE SAR HOLDERS ............ 23
SECTION 3.12. GENERAL RESTRICTION ON TRANSFER ............................. 24
SECTION 3.13. RESTRICTIONS ON TRANSFERS BY SAR HOLDERS .................... 24
<PAGE>
PAGE
SECTION 3.14. EXERCISE OF SAR EXERCISE RIGHTS OF SAR HOLDERS OTHER THAN THE
PRINCIPAL SAR HOLDERS AND MANAGEMENT SAR HOLDERS ..................... 24
SECTION 3.15. LEGENDS ..................................................... 27
SECTION 3.16. INDEMNIFICATION FOR BREACH OF TRANSFER RESTRICTIONS; TAX
INDEMNITY AND TREATMENT .............................................. 28
SECTION 3.17. NO RESTRICTIONS ON SHELL TRANSFERS OR PURCHASES OF
SECURITIES ........................................................... 28
SECTION 3.18. SAR EXERCISE RIGHTS ......................................... 28
SECTION 3.19. VOLUNTARY EXERCISE OF SAR EXERCISE RIGHTS BY ADDITIONAL
HOLDERS .............................................................. 29
SECTION 3.20. PROCEDURE FOR VOLUNTARY EXERCISE OF SAR EXERCISE RIGHTS
BY SAR HOLDERS; CANCELLATION; EXPENSES ............................... 30
SECTION 3.21. DETERMINATION OF FINAL EXERCISE PRICE ....................... 31
SECTION 3.22. CALCULATION OF EXERCISE PRICE ............................... 36
SECTION 3.23. PROCEDURE FOR PAYMENT ....................................... 39
SECTION 3.24. HOLDERS OF RECORD ........................................... 39
SECTION 3.25. EMPLOYEES AT WILL ........................................... 39
ARTICLE 4
TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS AND ANTI-DILUTIVE RIGHTS
SECTION 4.01. RIGHT TO PARTICIPATE IN TRANSFER ............................ 40
SECTION 4.02. RIGHT TO COMPEL PARTICIPATION IN CERTAIN TRANSFERS .......... 41
SECTION 4.03. ANTI-DILUTIVE RIGHTS ........................................ 41
ARTICLE 5
COMMON STOCK PURCHASE RIGHTS
SECTION 5.01. SALE OF COMMON STOCK TO SHELL ............................... 43
ARTICLE 6
SCOPE OF BUSINESS PROVISIONS
SECTION 6.01. SCOPE OF BUSINESS ........................................... 43
SECTION 6.02. RIGHT OF FIRST OFFER/LAST LOOK .............................. 43
SECTION 6.03. NONCOMPETITION OF PRINCIPAL SAR HOLDERS ..................... 46
ARTICLE 7
FURNISHING OF INFORMATION; CONFIDENTIALITY; ACCOUNTS; DEBT FINANCING
AND INSURANCE
SECTION 7.01. ACCESS TO INFORMATION ....................................... 47
SECTION 7.02. FURNISHING OF INFORMATION ................................... 47
ii
<PAGE>
PAGE
SECTION 7.03. ACCOUNTANTS ................................................. 48
SECTION 7.04. DEBT FINANCING .............................................. 48
SECTION 7.05. INSURANCE ................................................... 48
SECTION 7.06. RISK MANAGEMENT ............................................. 49
SECTION 7.07. AUTHORITY ................................................... 49
SECTION 7.08. CODE OF CONDUCT ............................................. 49
SECTION 7.09. DEBT OF UNCONSOLIDATED PERSONS .............................. 49
ARTICLE 8
MISCELLANEOUS
SECTION 8.01. NOTICES ..................................................... 50
SECTION 8.02. AMENDMENTS; WAIVERS; BENEFIT OF CERTAIN SECTIONS ............ 51
SECTION 8.03. SEVERABILITY ................................................ 51
SECTION 8.04. ENTIRE AGREEMENT ............................................ 51
SECTION 8.05. SUCCESSORS AND ASSIGNS ...................................... 51
SECTION 8.06. PARTIES IN INTEREST ......................................... 52
SECTION 8.07. COUNTERPARTS; EFFECTIVENESS ................................. 52
SECTION 8.08. GOVERNING LAW ............................................... 52
SECTION 8.09. TERMINATION OF CERTAIN PROVISIONS ........................... 52
SECTION 8.10. SPECIFIC PERFORMANCE ........................................ 52
SECTION 8.11. WAIVER OF JURY TRIAL ........................................ 53
SECTION 8.12. ARBITRATION ................................................. 53
SECTION 8.13. CONTROL OF ACTIONS BY HOLDINGS .............................. 53
SECTION 8.14. CONTRIBUTION AGREEMENT ...................................... 53
Exhibit A-1 Certain Matters to be Decided by the Board
Exhibit A-2 Matters Requiring the Consent of Shell
Exhibit B Certain Accounting Adjustments in Computing
the Exercise Price
Exhibit C Scope of Business
Exhibit D Financing Agreement
Exhibit E The Shell Code of Conduct
Exhibit F Form of Note
iii
<PAGE>
MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT dated as of ____ , 1997 among TRANGO HOLDINGS
CORPORATION, a Delaware corporation ("HOLDINGS"), SHELL OIL COMPANY, a Delaware
corporation ("SHELL"), SIERRA ACQUISITION, an entity to be formed prior to the
Contribution Closing ("SIERRA ACQUISITION"), and the SAR Holders party hereto
from time to time, including the Principal SAR Holders and the Management SAR
Holders.
WHEREAS, the SAR Holders hold SARs (as defined herein) and Shell and
Sierra Acquisition hold shares of Common Stock, par value $0.01 per share, of
Holdings ("COMMON STOCK"); and
WHEREAS, Shell, Sierra Acquisition, the SAR Holders and Holdings desire to
set forth certain agreements and understandings regarding the interests of Shell
and Sierra Acquisition in Holdings, the SAR Holders holding SARs and the
management of Holdings.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements contained herein, Shell, Sierra Acquisition, each of the SAR
Holders and Holdings hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS; INTERPRETATION OF DEFINED TERMS. Capitalized
terms used and not defined herein shall have the meanings assigned to them in
the Contribution Agreement (as defined below). As used in this Agreement, the
following terms shall have the following meanings:
"AFFILIATE" shall, with respect to any Person, mean any other Person that
controls, is controlled by or is under common control with the former; PROVIDED
that, (i) for purposes of this Agreement, none of the members of the Shell Group
or their Subsidiaries shall be considered an Affiliate of any entity that
controls Shell or any other Subsidiaries of such entity (other than the members
of the Shell Group and their Subsidiaries), and none of the entities that
control Shell shall be considered an Affiliate of any member of the Shell Group
or their Subsidiaries and (ii) none of the members of the Shell Group shall be
deemed an Affiliate of any Holder of an SAR solely by reason of its investment
in Holdings. The term "CONTROL" and correlative terms shall have the meanings
ascribed to them in Rule 405 under the Securities Act.
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"ANNUAL OPERATING PLAN" means, for any year, the operating plan of
Holdings and its Subsidiaries which plan shall provide, among other things, for
an analysis of gross profits, summary of operating expenses, personnel levels,
pricing, budgets for each business segment and niche businesses, cash flows,
capital expenditures and return on funds assigned, and shall be consistent with
the then applicable Strategic Plan of Holdings.
"ASSOCIATE" has the meaning given it under Rule 12b-2 under the
Exchange Act.
"BOARD" means the Board of Directors of Holdings, except where the context
requires otherwise.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banking institutions in Houston, Texas are authorized by law or
executive order to close.
"BY-LAWS" means the by-laws of Holdings, as amended from time to time in
accordance with the provisions of such By-Laws, the Certificate of Incorporation
and this Agreement.
"CAUSE" means, with respect to any officer or director, any of the
following:
(i) such Person's willful failure substantially to perform his or
her duties as an officer or director which is materially injurious
to the financial condition or business reputation of Holdings or its
Affiliates as determined in the sole discretion of the Independent
Directors; or
(ii) an act or acts on such Person's part constituting a felony
under the laws of the U.S. or any state or any other jurisdiction
(but only if such act is performed in a jurisdiction in which such
law is applicable) which is materially injurious to the financial
condition or business reputation of Holdings or its Affiliates as
determined in the sole discretion of the Independent Directors.
"CERTIFICATE OF INCORPORATION" means the Certificate of Incorporation of
Holdings, as amended from time to time in accordance with the provisions of such
Certificate of Incorporation, the By-laws and this Agreement.
"COMMON EQUITY SECURITY" means (i) any Common Stock, (ii) any security
issued by Holdings that is convertible into or exchangeable for Common Stock or
(iii) any options, rights or warrants issued by Holdings to acquire Common
Stock.
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"CONTRIBUTION AGREEMENT" means the Contribution Agreement dated as of
_______________, 1997 among Shell, Holdings and Tango Acquisition Corporation, a
Delaware corporation, as amended from time to time.
"CONTROL DATE" means the earlier of (i) the fifth anniversary of the
Contribution Closing or (ii) the date on which both Mr. Frederic C. Hamilton and
Mr. Jay A. Precourt have exited or been deemed to have exited from Holdings. A
Person shall be deemed to "EXIT" or to have "EXITED" upon the first to occur of
such Person's (a) death, (b) in the case of Mr. Frederic C. Hamilton, ceasing to
serve as Chairman of the Board of Holdings and in the case of Mr. Jay A.
Precourt, ceasing to serve as any of Chairman of the Board, Vice Chairman of the
Board or Chief Executive Officer of Holdings, in each case, due to his
resignation, Disability or removal for Cause by majority vote of the Independent
Directors or (c) irrevocable exercise or deemed exercise of his SAR Exercise
Right.
"DELAWARE LAW" means the laws of the State of Delaware (particularly
Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and
supplemental thereto).
"DIRECTOR" means a member of the Board.
"DISABILITY" shall mean with respect to any person, such person's
inability, as a result of physical or mental incapacity, to perform the duties
of his or her position for a period of nine (9) consecutive months. Any
disagreement between a person and Holdings as to the existence of a Disability
shall be determined in writing by a qualified independent physician mutually
acceptable to such person and Holdings. If such person and Holdings cannot agree
as to a qualified independent physician, each shall appoint such a physician,
and those two physicians shall select a third physician who shall make such
determination in writing. The determination of Disability made in writing to
Holdings and such person by the third physician shall be final and conclusive
for all purposes of this Agreement.
"EQUITY SECURITY" means (a) with respect to any corporation, (i) any
capital stock issued by such corporation, (ii) any debt securities of such
corporation convertible into or exchangeable for capital stock or (iii) any
options, rights or warrants issued by such corporation to acquire capital stock
and (b) with respect to any other Person any security entitling the holder
thereof to participate in the equity interest in such Person or any security
convertible into or exercisable or exchangeable for any such security.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
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"EXERCISE EXPIRATION DATE" means, with respect to the SAR Exercise Right
of each vested SAR, the date on which such vested SAR ceases to be exercisable.
"EXERCISING HOLDER" means, with respect to the determination of the Final
Exercise Price for any particular Exercise Price Determination Date, each SAR
Holder who has exercised, or has been deemed to exercise, the SAR Exercise Right
in respect of a SAR of such SAR Holder, which SAR is or may be subject to
payment at such Final Exercise Price determined for such Exercise Price
Determination Date.
"HAMILTON SAR HOLDER" means a SAR Holder listed on the signature pages
hereof under the caption "Hamilton SAR Holders" and any Permitted Transferee of
such Hamilton SAR Holder holding SARs which it acquired in a Permitted Transfer.
"HOLDER" means a SAR Holder or Additional Holder.
"INCENTIVE SARS" means SARs granted pursuant to Section 3.03.
"INDEPENDENT DIRECTOR" means a Director of Holdings who is not (i) an
officer, employee, Affiliate (other than an Affiliate who is such only because
of being a Director of Holdings) or Associate of Holdings or an officer,
employee or director of any Affiliate or Associate of Holdings, (ii) an officer,
employee, director, Affiliate or Associate of Shell, Sierra Acquisition or any
of their Affiliates (other than solely because of being a Director of Holdings),
(iii) a Principal SAR Holder or an Affiliate or Associate of a Principal SAR
Holder, (iv) a Shell Director, (v) a SAR Holder Director or (vi) a Person who
has, or is an Affiliate or Associate of a Person who has, a material business
relationship with Shell or Sierra Acquisition or any of their Affiliates or
Holdings or any of its Affiliates or a SAR Holder. For purposes of this
definition, clause (i) of the proviso to the definition of Affiliate shall not
apply.
"IRC" means the Internal Revenue Code of 1986, as amended.
"MANAGEMENT SAR HOLDER" means a SAR Holder listed on the signature pages
hereof under the caption "Management SAR Holders".
"MATERIAL SUBSIDIARY" means any Subsidiary with assets of $5,000,000 or
more.
"NOMINATING COMMITTEE" means a committee of the Board composed of three
members, (x) one of whom is a Shell Director, (y) one of whom is an Independent
Director mutually agreed on by the other two members of such
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committee and (z) one of whom is appointed by majority vote of the SAR
Holders.
"OFF-BALANCE SHEET FINANCING" means any Indebtedness or existing lease
transactions of Holdings or its consolidated Subsidiaries which are not required
to be reflected on Holdings' consolidated balance sheet in accordance with
generally accepted accounting principles, consistently applied.
"OM SAR HOLDERS" means the Management SAR Holders and, with respect to any
particular Management SAR Holder, each Permitted Transferee of such Management
SAR Holder holding SARs acquired by it in a Permitted Transfer.
"PERMITTED TRANSFEREE" means,
(x) with respect to any particular Precourt SAR Holder, (A) Mr. Jay A.
Precourt and the spouse or a lineal descendant, executor, administrator or
testamentary trustee of Mr. Jay A. Precourt, (B) any trust established
solely for the benefit of any of the Persons named in clause (A) or an
organization qualified under Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended; or (C) any partnership, the general or limited
partners of which include only Persons named in clauses (A) and (B);
(y) with respect to any particular Hamilton SAR Holder, (D) Mr. Frederic
C. Hamilton and the spouse or a lineal descendant, executor, administrator
or testamentary trustee of Mr. Frederic C. Hamilton, (E) any trust
established solely for the benefit of any of the Persons named in clause
(D) or an organization qualified under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended; or (F) any partnership, the general or
limited partners of which include Persons named in (D) and (E); and
(z) with respect to any particular Management SAR Holder, (G) such
Management SAR Holder and the spouse or a lineal descendant, executor,
administrator or testamentary trustee of such Management SAR Holder; (H)
any trust established solely for the benefit of any of the Persons named
in clause (G) or an organization qualified under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended; or (I) any partnership, the
general or limited partners of which include only such Management SAR
Holder or Persons named in clauses (G) and (H).
"PERSON" means an individual, a firm, a partnership, a joint venture, a
limited liability company, a corporation, a trust, an incorporated or
unincorporated organization or a government or any department or agency thereof.
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"PRECOURT SAR HOLDER" means a SAR Holder listed on the signature pages
hereof under the caption "Precourt SAR Holders" and any Permitted Transferee of
such Precourt SAR Holder holding SARs which it acquired in a Permitted Transfer.
"PRINCIPAL SAR HOLDER" shall mean each of Mr. Frederic C. Hamilton
and Mr. Jay A. Precourt.
"QUALIFIED CLAIM" means a claim or potential claim for indemnity under
Section 4.03(a) or (b) of the Contribution Agreement which may be applied to
reduce the Exercise Price as contemplated by Section 4.03(d) of the Contribution
Agreement.
"ROLLOVER SARS" means SARs issued pursuant to Section 3.01.
"SAR" means a right granted by Holdings to receive an amount in cash
determined pursuant to Article 3, in respect of a number of units after
deduction of an exercise price per unit (the "SAR STRIKE PRICE") all as set
forth in this Agreement and the instrument granting such right.
"SAR HOLDERS" means Precourt SAR Holders, the Hamilton SAR Holders and the
OM SAR Holders.
"SAR HOLDER DIRECTOR" means a Director who has been designated for such
position by the Principal SAR Holders or by a Principal SAR Holder in accordance
with Section 2.01(c)(iii) hereof.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SHELL DIRECTOR" means a Director who has been designated for such
position by Shell in accordance with Section 2.01(c)(i) hereof.
"SHELL GROUP" means Shell and its Affiliates and Sierra Acquisition and
its controlled Affiliates (other than Holdings and its Subsidiaries).
"SIGNIFICANT ASSET" means any onshore or offshore natural gas pipeline,
fractionation plant, gas processing facility or other asset transferred to
Holdings by Shell or its Affiliates or which is integral to the Shell Group
businesses other than Holdings and its Subsidiaries, in either such case, having
a fair market value in excess of $10,000,000.
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"STRATEGIC PLAN" means the strategic plan of Holdings and its Subsidiaries
which sets forth the strategic direction for Holdings and its Subsidiaries and
their businesses (by strategic business units) for a period of five fiscal years
and which provides for, among other things, an analysis of the business
environment, objectives, strategies and revenues, financial forecasts, capital
plans, acquisition and divestiture plans, business segment analysis and niche
business plans.
"STRATEGIC REVIEW" means a review process that determines whether the
Strategic Plan is still valid, reviews progress to date, updates key elements of
the Strategic Plan, if deemed necessary, and proposes modifications in
objectives and strategies if deemed necessary. Such process shall include a
review of (i) whether assumptions (including, without limitation, as to market
factors, competition, regulation or patents) are still valid, (ii) whether
objectives are still realistic, (iii) whether strategies and programs are on
track, (iv) whether resource assessments are still valid and (v) updated outlook
(financial and nonfinancial) if material deviations are expected.
"SUBSIDIARY" of any Person means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person and, solely for purposes of Exhibit
A-2, with respect to any action set forth therein, any Person which, due to
Holdings' or its Subsidiaries' ownership interest in such Person, Holdings or
its Subsidiaries could prevent from taking such action.
A "SUBSTANTIAL PART" of any Person means, as of any date of determination,
more than 10% of the fair market value of the total consolidated assets of such
Person and its Subsidiaries as of the end of such Person's most recent fiscal
quarter ending prior to such date of determination.
"TEJAS" means Tejas Gas Corporation, a Delaware corporation.
"TEJAS STOCK OPTION PLAN" means the Tejas Employee Stock Option Plan, as
amended and restated effective as of January 1, 1997.
"TEJAS STOCK OPTIONS" means options to purchase shares of Tejas common
stock, par value $0.25 per share.
(a) Each of the following terms is defined in the Section set forth
opposite such term:
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TERM SECTION
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Accounting Referee 3.21(d)
Acquired Indebtedness Exhibit A-2
Additional Holders 3.03(a)
Additional Incentive Holders 3.03(a)
Additional Rollover Holders 3.01(a)
Affiliate 1.01
Anti-dilutive Rights 4.03(a)
Balance Sheet 3.21(b)
Benefits 3.07(a)
Calculation Documents 3.21(b)
Cash and Cash Equivalents 3.22(i)
Cash Flow Statement 3.21(b)
Code 3.07(a)
Common Stock Recitals
Company Form of Notice of Exercise
Company's Calculation 3.21(b)
Control 1.01 (Affiliate)
Control/controlling/ 1.01 (Affiliate)
controlled by/
under common control with
Convertible Securities 3.22(c)
Debt to Total Capitalization Exhibit A-2
Ratio
Decision Date 3.23
Deductibles Buy-Down 7.05
Deemed Stock Sale Proceeds 3.22(j)
Drag-Along Notice 4.02(a)
Drag-Along Sale 4.02(a)
Drag-Along Seller 4.02(a)
Environmental Referee 3.21(e)
Enterprise Indemnity 3.22(g)
Deduction
Enterprise Value 3.22(d)
Exercise Indebtedness 3.22(f)
Exercise Indebtedness Exhibit A-2
Exercise Price 3.22(a)
Exercise Price Determination 3.22(b)
Date
Exercise-Year Environmental 3.21(f)
Expense
Final Exercise Price 3.21(a)
Financial Statements 3.21(b)
First Exercise Date 3.18(a)
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TERM SECTION
Fully Diluted Common Stock 3.22(c)
Future Environmental Losses 3.21(e)
GAAP 3.21(b)
Holdings Recitals
Shell Recitals
Incentive SARS 3.03(a)
Incurrence Exhibit A-2
Indebtedness 3.22(l)
Indemnity Deduction 3.22(h)
Independent Nominees 2.01(c)(iv)
Maintenance Securities 4.03(a)
Merger Recitals
Merger Agreement Recitals
MergerSub Recitals
Net Debt 3.22(f)
Non-Recurring Items 3.22(k)
Normalized EBITDA 3.22(e)
Note 3.01(c)
Offer 6.02(a)(i)
Offered Interest 6.02(a)
Outstanding Indebtedness Exhibit A-2
Parachute Payment 3.07(a)
Permitted Transfer 3.13
Principal SAR Holder Recitals
Pro Rata Portion 4.01
Purchase Date 3.23
Purchased SARs 3.23
Relevant Management SAR 3.14(c)
Holder
Response 6.02(a)(i)
Rights 3.22(c)
Rollover SARS 3.01(b)
SAR Exercise Notice 3.20(a)
SAR Exercise Right 3.18(a)
SAR Holder Nominees 2.01(c)(iii)
Selling Party 6.02(a)
Shell Recitals
Shell Nominees 2.01(c)(i)
Sierra Acquisition Recitals
Statement of Earnings 3.21(b)
Subsidiary Voting Stock 4.04(e)
Tag-Along Acceptance Notice 4.01
Tag-Along Notice 4.01
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TERM SECTION
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Tag-Along Offer 4.01
Tag-Along Right 4.01
Tag-Along Sale 4.01
Tagging Person 4.01
Target Ratio 3.22(c)
Tejas Stock Options 3.01(b)
The Revolver Ex. C
Third Party 4.01
Transactions Recitals
transfer 3.12(a)
(b) Unless the context otherwise requires, as used in this Agreement: (i)
except for accounting terms used in Section 3.21 and 3.22 which, except as
otherwise provided in such Sections, have the meaning given them under GAAP, an
accounting term not otherwise defined has the meaning ascribed to it in
accordance with generally accepted accounting principles, consistently applied;
(ii) "or" is not exclusive; (iii) "including" means "including, without
limitation," (iv) words in the singular include the plural and words in the
plural include the singular, and (v) masculine, feminine and neuter pronouns
shall be deemed to include each other gender.
(c) Certain terms used herein are defined in Exhibit B - Scope of Business
attached hereto.
(d) All references herein to Mr. Frederic C. Hamilton, Mr. Jay A. Precourt,
and each Management SAR Holder shall mean, with respect to each of them after
their death, the executor, or if there is no executor, the administrator, of
each of their respective estates.
ARTICLE 2
CORPORATE GOVERNANCE
SECTION 2.01. COMPOSITION OF THE BOARD. In consideration of Shell's and
Sierra Acquisition's interest in Holdings and the SAR Holders holding SARs from
and after the Contribution Closing, Shell and Sierra Acquisition agree to take
all lawful actions within their power to ensure at all times that the
composition of the Board shall be as follows:
(a) At all times from and after the Contribution Closing until the Control
Date, the Board shall be comprised of 10 (ten) Directors in accordance with the
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Certificate of Incorporation. The size and the composition of the Board may be
changed only with the approval of the Board and in accordance with this
Agreement. Notwithstanding the foregoing, on and after the Control Date, Shell
shall have the right to change the size of the Board; PROVIDED that the size of
the Board shall be a sufficient number to allow the election of the number of
directors required pursuant to Section 2.01(c) and shall not in any case be less
than 3 (three).
(b) At the Contribution Closing, the members of the board of Tejas
immediately prior to the Effective Time shall become members of the Board of
Holdings. Immediately prior to the Contribution Closing, Holdings shall cause
all other members of its Board to resign and, at the Contribution Closing, shall
cause Mr. Philip J. Carroll and Mr. Jack E. Little to be duly appointed to its
Board (except that if either Mr. Carroll or Mr. Little, or both, is unable to
serve in such capacity, Holdings shall appoint as a Director a substitute
individual designated by Shell prior to the Contribution Closing).
(c) At all times from and after the Contribution Closing, the Directors
shall be nominated as follows (it being understood that such nomination shall
include any nomination of any incumbent Director for re-election to the Board):
(i) at all times from the Contribution Closing until the Control Date,
Shell shall have the right to designate for nomination to the Board two
Directors (the "SHELL NOMINEES"), each of whom shall be nominated for
Director by the Nominating Committee;
(ii) on and from time to time after the Control Date, Shell shall have the
right to call a stockholders meeting (or act by written consent) in
accordance with the Certificate of Incorporation for the purposes of
removing some or all of the Directors (other than any Directors which the
Principal SAR Holders are entitled to nominate as provided in Section
2.01(c)(iii)) from the Board and electing new Directors nominated by
Shell. On and after such time, the Nominating Committee shall be disbanded
and there shall be no restrictions on the right of Shell and Sierra
Acquisition to nominate and vote for Directors in their sole discretion,
except as otherwise expressly provided herein;
(iii) at all times from and after the Contribution Closing, Mr. Jay A.
Precourt, until he has exited, and Mr. Frederic C. Hamilton, until he has
exited, each shall have, if he is not nominated for election, the right to
designate for nomination to the Board one Director who may be himself or
another person (the "SAR HOLDER NOMINEES"), each of whom shall be elected
to the Board; and
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(iv) at all times from the Contribution Closing until the Control Date, the
Nominating Committee shall nominate 5 (five) persons who qualify as
Independent Directors ("INDEPENDENT NOMINEES") (which shall include A.J.
Miller so long as he shall serve as a Director), and one other person who
shall be either an Independent Nominee or an employee of Holdings or its
Subsidiaries.
(d) If Mr. Frederic C. Hamilton exits, or otherwise ceases to serve as
Chairman of the Board of Holdings, then Mr. Philip J. Carroll shall be appointed
Chairman of the Board of Holdings. If Mr. Philip J. Carroll is unavailable or
unwilling to serve as, or ceases to serve as, Chairman of the Board of Holdings,
then Mr. Jay A. Precourt, if he has not exited, or otherwise ceased to serve as
an officer or Vice Chairman of the Board of Holdings, shall be appointed as
Chairman of the Board of Holdings, but only if he ceases to serve as an officer
of Holdings and its Subsidiaries (other than the office of Chairman). If Mr.
Philip J. Carroll and Mr. Jay A. Precourt are unavailable or unwilling to fill
the vacancy in the office of Chairman of the Board of Holdings, then the Board
shall fill such vacancy by majority vote. If Mr. Jay A. Precourt exits, or
otherwise ceases to serve as Chief Executive Officer, the Board shall appoint
the new Chief Executive Officer by majority vote.
(e) Without limiting the generality of the foregoing, if, at any time after
the Contribution Closing, the number of Directors differs from the number that
each of Shell, the Principal SAR Holders and the Nominating Committee have the
right (and desire) to nominate pursuant to Section 2.01(c), each of Shell,
Sierra Acquisition, the Principal SAR Holders and the Board, shall promptly
take, or cause to be taken, all actions as are necessary to cause one or more
Shell Directors, SAR Holder Directors, or Independent Directors or other
Directors as the case may be, to be elected as a member of the Board, including
without limitation (i) creating vacancies, (ii) designating individuals for
nomination to the Board, (iii) calling a stockholders meeting (or acting by
written consent), (iv) removing the appropriate number of Directors of the Board
or (v) amending the By-laws to create new Director positions (subject to the
limitations set forth in Article 5 of the Certificate of Incorporation).
SECTION 2.02. VOTING OF SHARES. (a) In (i) any election of Directors or
(ii) any meeting of the stockholders of Holdings called for the election or the
removal of Directors, each of Shell and Sierra Acquisition shall be, and shall
cause their respective Affiliates to be, present for purposes of establishing a
quorum, and shall vote all of their shares of Common Stock (x) in favor of all
nominees selected in accordance with Sections 2.01(c)(i), 2.01(c)(iii) and
2.01(c)(iv) or (y) in favor of removal of any Director as contemplated by
Section 2.05(a).
(b) At all times from and after the Contribution Closing, each of Shell and
Sierra Acquisition shall not (and shall cause their respective Affiliates not
to)
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propose or vote in favor of any amendment of the Certificate of Incorporation or
By-laws that would supersede or contravene the rights conferred to the holders
of Common Stock or SARs, Shell and Sierra Acquisition as set forth herein and in
the Certificate of Incorporation, unless otherwise agreed to by Shell and by SAR
Holders holding a majority of the SARs then held by the SAR Holders. This
Section 2.02(b) shall not affect any right or duty of the Shell Directors in
their capacities as Directors.
(c) In any other matter submitted to a vote of the stockholders of
Holdings, each of Shell and Sierra Acquisition and their respective Affiliates
may vote any or all of its or their shares of Common Stock in its sole
discretion subject to the requirements otherwise set forth herein or in the
Certificate of Incorporation.
(d) Each of Shell, Sierra Acquisition and each Principal SAR Holder agrees
that it will, and will cause its Affiliates to, use its best efforts to cause
the Directors nominated by it to take all action as is reasonably within its
control as necessary to implement the provisions of this Agreement.
SECTION 2.03. COMPOSITION OF BOARD COMMITTEES AND SUBSIDIARY BOARDS. (a)
Shell, Sierra Acquisition and the Principal SAR Holders agree to take all lawful
actions within their power to ensure that at all times after the Contribution
Closing, the composition of the committees of the Board and the board of
directors (and the committees thereof) of the Subsidiaries of Holdings shall be
as follows:
(i) At all times from the Contribution Closing until the Control Date,
Shell shall have the right to appoint at least one Shell Director to serve
on (x) each of the committees of the Board and (y) the board of directors
(or any committees thereof) of each Subsidiary of Holdings on which any of
the Principal SAR Holders or any Person who is not an employee of Holdings
serves as a Director;
(ii) At all times from the Contribution Closing until the Control Date,
Shell shall have the right to appoint the person it nominates as
controller of Holdings pursuant to Section 2.11(b) to serve on the board
of directors (or any committees thereof) of each Subsidiary of Holdings on
which a Shell Director does not sit; and
(iii) At all times from the Control Date until such time as both Principal
SAR Holders shall have exited, the Principal SAR Holders shall have the
right to appoint at least one SAR Holder Director to serve on (x) each of
the committees of the Board and (y) the board of directors (or any
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committees thereof) of each Subsidiary of Holdings on which any of the
Shell Directors or any Person who is not an employee of Holdings serves as
a Director.
(b) With respect to each meeting of stockholders of Subsidiaries at which
directors are to be elected, Holdings shall vote shares of such Subsidiaries and
in turn direct those Subsidiaries to vote shares held in other Subsidiaries in
favor of the nominees selected in accordance with Section 2.03(a).
SECTION 2.04. VACANCIES. Each party hereby agrees that, if any Shell
Director or SAR Holder Director ceases to serve on the Board (or any of the
committees thereof) or any boards of directors (or any of the committees
thereof) of the Subsidiaries of Holdings at a time when Shell or the Principal
SAR Holders are entitled to nominate or elect such Directors pursuant to Section
2.01, 2.02 or 2.03, Shell or the Principal SAR Holders, as the case may be,
shall have the right to designate for nomination to the Board, respectively, a
replacement member in accordance with Section 2.01 hereof who shall be nominated
by the Nominating Committee or Board, as the case may be, and to appoint another
Shell Director or SAR Holder Director, respectively, to such Board committee, or
board of directors or committee thereof of any Subsidiary in accordance with
Section 2.03.
SECTION 2.05. REMOVAL. (a) Each party hereby agrees that, at any time
after the Contribution Closing, (i) Shell shall have the right to call a
stockholders meeting (or act by written consent) in accordance with the
Certificate of Incorporation for the purpose of removing any Shell Director
nominated in accordance with Section 2.01(c)(i), with or without cause, and
replacing such Shell Director in accordance with Section 2.04 and (ii) each
Principal SAR Holder shall have the right to require Shell and Sierra
Acquisition to call a stockholders meeting (or to require action by written
consent) in accordance with the Certificate of Incorporation for the purpose of
removing any SAR Holder Director nominated by such Principal SAR Holder in
accordance with Section 2.01(c)(iii), with or without cause, and replacing such
SAR Holder Director in accordance with Section 2.04.
(b) The Board shall have the right to remove Mr. Frederic C. Hamilton and
Mr. Jay A. Precourt as officers (including Chairman of the Board) of Holdings
with or without cause; PROVIDED that such removal shall not waive or modify
their respective rights under any change of control or severance agreement to
which either of them is a party.
SECTION 2.06. NOTICE FOR BOARD AND COMMITTEE MEETINGS. (a) No action by
the Board or any committee thereof shall be valid unless taken at (x) a regular
meeting or (y) a special meeting for which five business days' prior notice has
been duly given or waived by the Directors or the members of such committee, as
the case may be, except by unanimous written consent of the Board or of the
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members of the committee, as the case may be. Such notice shall include a
description of the general nature of the business to be transacted at the
meeting, and no other business may be transacted at a general or special meeting
unless a Shell Director and a SAR Holder Director, or a Shell Director and a SAR
Holder Director who is a member of the committee, as the case may be, are
present and consent to the consideration of such other business.
(b) Each of the Board and the committees established by the Board shall
establish and adopt such other rules and procedures for its operation and
governance (consistent with the terms of this Agreement, the Certificate of
Incorporation and By-laws) as it shall determine appropriate and may seek such
consultation and advice as to matters within its purview as it shall require.
SECTION 2.07. BOARD AND SHELL CONSENT FOR CERTAIN ACTIONS BY HOLDINGS. (a)
The parties agree that Holdings and its Subsidiaries will not take any of the
actions listed on Exhibit A-1 attached hereto without the approval of the Board.
Exhibit A-1 in no way limits the powers or obligations of the Board granted to
it under the Certificate of Incorporation, the By-laws or any relevant statute.
(b) Notwithstanding the foregoing paragraph (a), no action by Holdings or
any Subsidiary (including, but not limited to any action by their respective
boards of directors or any committee thereof) shall be taken with respect to any
of the matters set forth on Exhibit A-2 hereto without first obtaining the
written consent of Shell; PROVIDED that if Holdings provides Shell with written
notice of the action to be taken in accordance with this Agreement and Shell
does not deliver a written notice to Holdings in accordance with this Agreement
objecting to such action within 10 (ten) Business Days after receipt of such
notice, Shell shall be deemed to have consented thereto in writing.
SECTION 2.08. GOVERNANCE OF HOLDINGS' SUBSIDIARIES. Holdings shall not
allow a Subsidiary to take or agree to take any action which, if taken by
Holdings, would require approval of Shell pursuant to this Agreement, unless
such action is first approved by Shell. Holdings shall not allow a Subsidiary to
take or agree to take any action which, if taken by Holdings, would require
approval of the Board pursuant to this Agreement, unless such action is first
approved by the Board. The Board shall select the Persons who from time to time
shall be elected as the directors of Holdings' Subsidiaries, subject to Section
2.03.
SECTION 2.09. STRATEGIC PLANNING PROCESS. (a) The Chief Executive Officer
(as defined in the By-Laws) of Holdings shall, on an annual basis, cause to be
prepared and proposed to the Board, a Strategic Plan covering a five-year period
beginning with the period 1998-2002. The initial Strategic Plan shall be
proposed to the Board within 45 days after the Contribution Closing. Thereafter,
the Strategic Plan for each year (and the five-year period) shall be proposed to
the Board not later than September 1 of the preceding year. In connection with
the
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preparation of each Strategic Plan, the Chief Executive Officer shall confer on
a reasonable basis with the Board.
(b) Once a year, and prior to the budgeting process for the following year,
the Chief Executive Officer will hold a Strategic Review with the Board and, in
light of such review, the Board may propose revisions or updates to the
Strategic Plan in light of changed circumstances.
SECTION 2.10. OPERATING PLANNING PROCESSES. The Chief Executive Officer
will be responsible for the preparation, on an annual basis, of a proposed
Annual Operating Plan for each fiscal year, which shall be submitted to the
Board as part of the Strategic Plan not later than September 1 of the preceding
year. The financial and operating performance goals in each Annual Operating
Plan shall be determined by reference to the applicable Strategic Plan, taking
into account such factors as the Chief Executive Officer determines are
appropriate.
SECTION 2.11. APPOINTMENT OF OFFICERS. (a) At the Contribution Closing,
Shell, Sierra Acquisition, the Principal SAR Holders and Holdings, through its
Board, shall cause Mr. Douglas Krenz and Mr. Robert Belknap to be duly appointed
as Holdings' Chief Operating Officer of Offshore Pipelines and Chief Operating
Officer of Plants, respectively, for pipelines and plants serving Shell's
offshore production. Such appointed individuals shall not be removed without
Cause for a period of two years after the Contribution Closing, unless the Shell
Directors consent to such removal, and if either of such offices becomes vacant
during such period, the Board shall appoint a successor designated by the Shell
Directors. Upon the death, Disability, resignation, removal, lateral move or
promotion of either of such individuals after such initial two year period, the
Chief Executive Officer shall, subject to the approval of the Shell Directors
(which approval shall not be unreasonably withheld), designate another
individual to fill such vacancy who shall be appointed by the Board.
(b) At all times after the Contribution Closing, Shell shall have the right
to nominate the controller of Holdings, and Shell, Sierra Acquisition, the
Principal SAR Holders and Holdings, through its Board, shall at all times take
all necessary actions to cause such individual to be duly appointed as the
controller of Holdings; PROVIDED if the Board has a reasonable basis to object
to such nominee it shall not be obligated to make such appointment (it being
agreed that there shall be deemed not to be a reasonable basis to object,
whether or not such nominee is an employee or former employee of Shell, if the
individual is of good character and reputation, is a certified public
accountant, has at least 10 (ten) years of relevant experience (of which the
last three years were spent in the industry) in the subject matter of the
controller position, and has experience managing other accountants.
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(c) It is understood and agreed that the controller will have the customary
responsibilities of a controller of a public company and will have full and
complete access to all information and records of Holdings and its Subsidiaries
and its auditors as appropriate in order to perform such functions.
SECTION 2.12. CERTIFICATE OF INCORPORATION AND BY-LAWS; INCONSISTENT
AGREEMENTS. Holdings, Shell, Sierra Acquisition and the Principal SAR Holders
shall take or cause to be taken all lawful action necessary to ensure at all
times that (x) the Certificate of Incorporation and By-laws and the certificate
of incorporation and by-laws of the Subsidiaries of Holdings are not at any time
inconsistent with the provisions of this Agreement, and (y) Holdings is not
bound by any agreement and will not hereafter enter into any agreement, with
respect to its securities which conflicts or is inconsistent with the rights
granted to Shell, Sierra Acquisition and the Principal SAR Holders as set forth
herein.
SECTION 2.13. SHELL PREEMPTIVE RIGHT. If Holdings or any of its
Subsidiaries incurs any debt or issues any Equity Securities which are not
Common Equity Securities, Shell shall have the option to be the lender of such
debt or the purchaser of such Equity Securities or debt if the terms offered by
Shell are at least as favorable as those offered by a prospective bona fide
third party lender or purchaser, as applicable, of such debt or Equity
Securities as set forth in a firm, written, all cash offer to lend or purchase,
as applicable, of such purchaser or lender.
ARTICLE 3
GRANT OF SARS; VESTING; SAR STRIKE PRICE AND LOANS; EXPIRATION;
EXERCISE AND PAYMENT OF SARS
SECTION 3.01. GRANT OF ROLLOVER SARS AND ASSUMPTION OF STOCK OPTIONS. (a)
At the time of the Contribution Closing, each of the SAR Holders agrees to have
the number of Tejas Stock Options set forth opposite its name on Schedule
3.01(a) hereto cancelled. At the time of the Contribution Closing, each of the
persons ("ADDITIONAL ROLLOVER HOLDERS") listed on Schedule 3.01(b) hereto agrees
to have the number of Tejas Stock Options set forth opposite such Holder's name
on Schedule 3.01(b) hereto cancelled. At the time of the Contribution Closing,
Holdings shall grant to (i) each SAR Holder a number of SARs equal to the number
of such SAR Holder's Tejas Stock Options set forth opposite the name of such SAR
Holder on Schedule 3.01(a) hereto and (ii) each Additional Rollover Holder a
number of SARs equal to the number of such Additional Rollover Holder's Tejas
Stock Options set forth on Schedule 3.01(b) hereto. The Tejas Stock Options so
cancelled pursuant to this Section 3.01 shall not be converted into cash in the
manner provided in Section 1.05 of the Merger
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Agreement but shall be assumed by Holdings (by its grant of Rollover SARs). The
balance of the Tejas Stock Options held by such SAR Holders and Additional
Rollover Holders shall be converted into cash in the manner provided in Section
1.05 of the Merger Agreement. If the Contribution Closing is not consummated
within 30 days following the Effective Time, then the Tejas Stock Options which
would have been cancelled and assumed pursuant to this Section 3.01 shall not be
cancelled and assumed pursuant to this Section 3.01 and shall be converted into
cash in the manner provided in Section 1.05 of the Merger Agreement.
(b) The number of SARs granted to Additional Rollover Holders pursuant to
this Section 3.01 shall not exceed 219,422.
(c) If solely as a result of the grant of Rollover SARs to SAR Holders and
Additional Rollover Holders, any of such persons are obligated to pay an amount
of federal income tax in respect of the tax year in which such Rollover SARs are
granted, and such tax is payable at a time which is earlier than the time at
which such tax would have been payable if such Rollover SARs had not been
granted to such persons, and they had, in lieu thereof, been granted options to
purchase shares of Common Stock, then Holdings shall lend to each such person
the amount of such payment at the time such payment is due, and each such person
shall execute and deliver to Holdings a note (the "NOTE"), in substantially the
form of Exhibit F attached hereto, in a principal amount equal to such loan
amount; PROVIDED that in no case will Holdings lend any amount to any Holder of
a SAR if the tax liability of such Holder arises due to any act by such Holder
which accelerates such tax or due to SARs being issued to a Person other than a
Principal SAR Holder, a Management SAR Holder or an Additional Rollover Holder.
(d) If Holdings shall be required to withhold any amounts by reason of any
federal, state or local tax rules or regulations in respect of the payment of
cash in respect of SARs or the grant of SARs, Holdings shall be entitled to
deduct and withhold such amounts from any cash payments to be made to the
Holders of SARs or from any SARs which would otherwise be delivered. Each Holder
of SARs shall make available to Holdings, promptly when requested by Holdings,
sufficient funds to meet the requirements of such withholding, and Holdings
shall be entitled to take and authorize such steps as it may deem advisable in
order to have such funds made available to Holdings out of any funds or property
due or to become due to such Holder of SARs.
SECTION 3.02. VESTING AND SAR STRIKE PRICE OF ROLLOVER SARS. Each Rollover
SAR granted shall be fully vested on the date of the Contribution Closing to the
extent that the assumed and cancelled Tejas Stock Option in respect of which it
is granted is fully vested pursuant to the Tejas Stock Option Plan at the time
immediately prior to the Effective Time (without giving effect to any
accelerated or early vesting which occurs as a result of the Transactions). Each
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other Rollover SAR shall vest on the date that the assumed and cancelled Tejas
Stock Option in respect of which it is granted would have otherwise vested
pursuant to the terms of the Tejas Stock Option Plan had such Tejas Stock Option
remained outstanding (without giving effect to any accelerated or early vesting
which occurs as a result of the Transactions). Only vested Rollover SARs may be
exercised. The SAR Strike Price for each Rollover SAR shall be equal to the
exercise price of the Tejas Stock Option in respect of which it is granted.
SECTION 3.03. GRANT OF INCENTIVE SARS. (a) At the Contribution Closing (i)
Holdings shall grant to each of the SAR Holders the number of SARs set forth
opposite the name of such SAR Holder on Schedule 3.03 hereto, and (ii) at the
discretion of the Board's Compensation Committee, Holdings shall grant up to
180,000 SARs to approximately 20 employees of Holdings who are not SAR Holders
(such persons are referred to herein "ADDITIONAL INCENTIVE HOLDERS", and
together with the Additional Rollover Holders, the "ADDITIONAL HOLDERS").
Holdings shall not grant any SARs other than as provided in Section 3.01 and
this Section 3.03, except by unanimous vote of the Compensation Committee
including at least one Shell Director.
(b) Holdings will provide the recipients of Rollover and Incentive SARs
granted pursuant to this Agreement with documentation evidencing such SARs.
SECTION 3.04. VESTING AND SAR STRIKE PRICE OF INCENTIVE SARS. The
Incentive SARs granted shall vest in equal installments on each of the first
four anniversaries of the date of the Contribution Closing. Only vested
Incentive SARs may be exercised. The SAR Strike Price for the Incentive SARs
vested on the first and second anniversaries of the Contribution Closing will be
set at the Contribution Closing and will be equal to the Merger Consideration
(as defined in the Merger Agreement). The SAR Strike Price for the Incentive
SARs vested on the third anniversary of the Contribution Closing will be set as
soon as practicable after the second anniversary of the Contribution Closing and
will be the Final Exercise Price calculated as if the Exercise Price
Determination Date were December 31, 1999. The SAR Strike Price for the
Incentive SARs vested on the fourth anniversary of the Contribution Closing will
be set as soon as practicable after the third anniversary and will be the Final
Exercise Price calculated as if the Exercise Price Determination Date were
December 31, 2000. Notwithstanding the foregoing, the SAR Strike Price for
87,500 of the Incentive SARs issued to Mr. Frederic C. Hamilton vesting on each
of the third and fourth anniversaries of the Contribution Closing shall be set
at the time of vesting at the Merger Consideration.
SECTION 3.05. EXPIRATION AND LAPSE OF CERTAIN SARS. Vested SARs of each
SAR Holder (other than the Precourt SAR Holders and the Hamilton SAR Holders)
and each Additional Holder will lapse, expire and cease to be exercisable on the
earlier of (i) the tenth anniversary of the Contribution Closing or (ii) the
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date which is 90 days after the termination of employment of such SAR Holder or
Additional Holder (or with respect to any OM SAR Holder, 90 days after the
termination of employment of the Relevant Management Holder) with Holdings or
its Affiliates for any reason. All Rollover SARs of each SAR Holder (other than
the Precourt SAR Holders and the Hamilton SAR Holders) and each Additional
Holder which are not vested prior to the earlier of (i) the tenth anniversary of
the Contribution Closing and (ii) the date of the termination of employment of
such SAR Holder (or with respect to any OM SAR Holder, the termination of
employment of the Relevant Management Holder) or such Additional Holder with
Holdings or its Affiliates for any reason shall lapse, expire and cease to be
exercisable on the date of such termination, unless such termination is by
Holdings or its Affiliates without cause or due to death or Disability, in which
case such Rollover SARs shall vest on the date of such termination. All
Incentive SARs of each SAR Holder (other than the Precourt SAR Holders and the
Hamilton SAR Holders) and each Additional Holder which are not vested prior to
the earlier of (i) the tenth anniversary of the Contribution Closing or (ii) the
date of the termination of employment of such SAR Holder (or with respect to any
OM SAR Holder, the termination of employment of the Relevant Management Holder)
or such Additional Holder with Holdings or its Affiliates for any reason will
lapse, expire and cease to be exercisable on the earlier of such dates. Any SAR
of an SAR Holder (including the Precourt SAR Holders and Hamilton SAR Holders)
which is not vested on the date such SAR Holder irrevocably exercises or is
deemed to exercise SAR Exercise Rights will lapse, expire and cease to be
exercisable on such date.
SECTION 3.06. EXPIRATION AND LAPSE OF SARS OF HAMILTON SAR HOLDERS AND
PRECOURT SAR HOLDERS. Vested SARs of the Precourt SAR Holders and the Hamilton
SAR Holders will lapse, expire and cease to be exercisable on the earlier of (i)
the tenth anniversary of the Contribution Closing or (ii) the date which is 365
days after the death of Mr. Jay A. Precourt, with respect to all Precourt SAR
Holders, or the death of Mr. Frederic C. Hamilton, in the case of all Hamilton
SAR Holders. All Rollover SARs of the Precourt SAR Holders which are not vested
on the earlier of such dates will vest immediately prior to the earlier of such
dates, and all Incentive SARs of the Precourt SAR Holders which are not vested
on the earlier of such dates will lapse, expire and cease to be exercisable on
the earlier of such dates. All Rollover SARs and Incentive SARs of the Precourt
SAR Holders which are not vested on the date on which Mr. Jay A. Precourt's
employment with Holdings or its Affiliates is terminated for any reason shall
lapse, expire and cease to be exercisable on the date of such termination,
unless (i) such termination is by Holdings or its Affiliates without cause, in
which case, all such Rollover SARs and Incentive SARs shall vest on the date of
such termination or (ii) such termination is due to death or Disability, in
which case all such Rollover SARs shall vest on such date. All Incentive SARs of
the Hamilton SAR Holders which are not vested on the date on which Mr. Frederic
C. Hamilton's service to Holdings or its Affiliates is terminated for any reason
shall
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lapse, expire and cease to be exercisable on the date of such termination,
unless such termination is by Holdings or its Affiliates without cause, in which
case, all such Incentive SARs shall vest on the date of such termination.
SECTION 3.07. INTENTIONALLY OMITTED.
SECTION 3.08. INTENTIONALLY OMITTED.
SECTION 3.09. REPRESENTATIONS BY THE SAR HOLDERS. Each of the SAR Holders,
severally and not jointly, represents and warrants to Shell and Holdings as
follows:
(a) The execution, delivery and performance by such SAR Holder of this
Agreement, the Note, if applicable, and the other Transaction Agreements to
which such SAR Holder is a party, and the consummation of the transactions
contemplated hereby and thereby, do not and will not contravene or constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any material right or obligation of such SAR Holder or to a loss
of any material benefit of such SAR Holder under any provision of applicable law
or regulation or of any agreement, judgment, injunction, order, decree or other
instrument binding on such SAR Holder or result in the imposition of any Lien on
any asset of such SAR Holder.
(b) The execution, delivery and performance by each of the SAR Holders of
this Agreement, the Note, if applicable, and the other Transaction Agreements to
which such SAR Holder is a party and the consummation by each of the SAR Holders
of the Transactions are within each of the SAR Holders' powers and have been
duly authorized by all necessary actions, if any, including all necessary
actions by the trustees of the SAR Holder, if the SAR Holder is a trust. Each of
this Agreement, the Note, if applicable, and the other Transaction Agreements to
which such SAR Holder is a party constitute valid and binding agreements of such
SAR Holder, enforceable against such SAR Holder in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights generally. If such SAR Holder
is married and the Tejas Stock Options owned by such SAR Holder constitute
community property under applicable laws, this Agreement has been duly
authorized, executed and delivered by, and constitutes the valid and binding
agreement of, such SAR Holder's spouse, enforceable in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights generally. If
this Agreement, the Note, if applicable, and the other Transaction Agreements to
which such SAR Holder is a party is being executed in a representative or
fiduciary capacity, the person signing this Agreement or such other Transaction
Agreements has full power and authority to enter into and
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perform this Agreement and has obtained any necessary consents in connection
with execution of this Agreement and such other Transaction Agreements.
(c) No investment banker, broker, finder or other intermediary has been
retained by or is authorized to act on behalf of such SAR Holder who is or may
be entitled to a commission or fee from Shell, Holdings, Tejas or any of their
respective Subsidiaries in respect of this Agreement based upon any arrangement
or agreement made by or on behalf of such SAR Holder.
SECTION 3.10. DELIVERIES AT THE CONTRIBUTION CLOSING. At the Contribution
Closing, Holdings will execute and deliver to each of the SAR Holders and
Additional Holders an agreement (an "SAR AGREEMENT") evidencing the SARs granted
hereunder.
SECTION 3.11. CONDITIONS TO THE OBLIGATIONS OF THE SAR HOLDERS. The
obligations of the SAR Holders to consummate the transactions contemplated by
this Agreement are subject to the satisfaction or waiver of the following
conditions:
(a) the Merger shall have been consummated in accordance with the
Merger Agreement;
(b) (i) each member of the Shell Group shall have performed in all material
respects all of its obligations hereunder and under the other Transaction
Agreements to which it is a party required to be performed by it at or prior to
the Contribution Closing and (ii) except for such inaccuracies or omissions the
consequences of which do not singly or in the aggregate constitute a Holdings
Material Adverse Effect, the warranties of each member of the Shell Group
contained in the Contribution Agreement and in the other Transaction Agreements
and in any certificate or other writing delivered by any member of the Shell
Group pursuant thereto shall be true in all material respects at and as of the
Contribution Closing as if made at and as of such time (except to the extent
such warranty is made as of an earlier date, in which case the warranty shall be
true in all respects as of such date), and the Principal SAR Holders shall have
received a certificate signed by the President, any Vice President or the
Treasurer of Shell to the foregoing effect;
(c) all consents, waivers, approvals, authorizations or orders required to
be obtained, and all filings required to be made, by each member of the Shell
Group for the authorization, execution and delivery of this Agreement, the other
Transaction Agreements, and the consummation by it of the transactions
contemplated hereby and thereby shall have been obtained and made by such
member, except where the failure to receive such consents, waivers, approvals,
authorizations or orders or to make such filings would not reasonably be
expected to have a Holdings Material Adverse Effect;
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(d) the Principal SAR Holders shall have received all documents they may
reasonably request relating to the authority of each member of the Shell Group
for this Agreement and the other Transaction Agreements, all in form and
substance satisfactory to the Principal SAR Holders;
(e) Shell, Holdings and Sierra Acquisition shall have duly executed and
delivered the agreements set forth in Section 3.06 of the Contribution Agreement
to which they are intended to be parties; and
(f) there shall not have been any event, occurrence or development which,
individually or together with other similar events, has had or reasonably would
be expected to have a Holdings Material Adverse Effect.
SECTION 3.12. GENERAL RESTRICTION ON TRANSFER. (a) Each party to the
Agreement agrees that it will not, directly or indirectly, sell, assign, convey,
transfer, grant a participation in, pledge or otherwise dispose of (including by
way of gift or bequest) ("TRANSFER") any shares of Common Stock or SARs (or
solicit any offers to transfer any shares of Common Stock or SARs) except in
compliance with the Securities Act (solely in the case of shares of Common
Stock) and the terms and conditions of this Agreement applicable to such party.
(b) Holdings shall not, and shall not permit any transfer agent to, give
any effect in Holdings' stock or other records to any transfer, or attempted
transfer, of shares of Common Stock or SARs not in compliance with this
Agreement. Any transfer or attempted transfer of any such securities in
violation of this Agreement shall be null and void and of no force or effect.
SECTION 3.13. RESTRICTIONS ON TRANSFERS BY SAR HOLDERS. Each SAR Holder
may transfer SARs only to a Permitted Transferee of such SAR Holder upon the
death of such SAR Holder; PROVIDED that, any such Permitted Transferee shall
enter into an agreement supplemental hereto, consented to by Holdings and Shell,
agreeing to be bound by the terms of this Agreement and agreeing that Mr. Jay A.
Precourt (or his executor or administrator upon his death), in the case of
Precourt SAR Holders, or Mr. Frederic C. Hamilton (or his executor or
administrator upon his death), in the case of Hamilton SAR Holders, or the
Management SAR Holder (or his executor or administrator upon his death) who
first transferred the securities being acquired by the Permitted Transferee, in
the case of all other SAR Holders, shall continue at all times to have the
right, from time to time, to vote and to give consents, ratifications and
waivers and the right to exercise the SAR Exercise Right, in each case with
respect to such transferred SARs, the Certificate of Incorporation and this
Agreement, and all other rights pertaining thereto to the same extent provided
in Section 3.14. Each transfer in compliance with this Section 3.13 is referred
to as a "PERMITTED TRANSFER".
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SECTION 3.14. EXERCISE OF SAR EXERCISE RIGHTS OF SAR HOLDERS OTHER THAN
THE PRINCIPAL SAR HOLDERS AND MANAGEMENT SAR HOLDERS. (a) Each Precourt SAR
Holder hereby agrees that Mr. Jay A. Precourt is entitled to exercise the SAR
Exercise Rights with respect to all SARs owned by all Precourt SAR Holders only
once in accordance with the provisions of this Agreement, subject to the right
of Mr. Jay A. Precourt to cancel certain exercises of a SAR Exercise Right in
accordance with this Agreement. Mr. Jay A. Precourt agrees that he will exercise
the SAR Exercise Right for all SARs held by him and all Precourt SAR Holders if
he exercises any SAR Exercise Right of any SAR, and all Precourt SAR Holders
agree that if he does not do so, the exercise of the SAR Exercise Right with
respect to any SARs in respect of which it is exercised shall be deemed to have
not occurred. Each Precourt SAR Holder agrees that if a deemed exercise of the
SAR Exercise Right occurs with respect to the SARs held by Mr. Jay A. Precourt
or any other Precourt SAR Holder the SAR Exercise Right with respect to all SARs
of such Precourt SAR Holder shall be deemed exercised as well.
(b) Each Hamilton SAR Holder hereby agrees that Mr. Frederic C. Hamilton is
entitled to exercise the SAR Exercise Rights with respect to all SARs owned by
all Hamilton SAR Holders only once in accordance with the provisions of this
Agreement, subject to the right of Mr. Frederic C. Hamilton to cancel certain
exercises of a SAR Exercise Right in accordance with this Agreement. Mr.
Frederic C. Hamilton agrees that he will exercise the SAR Exercise Right for all
SARs held by him and all Hamilton SAR Holders if he exercises any SAR Exercise
Right of any SAR, and all Hamilton SAR Holders agree that if he does not do so,
the exercise of the SAR Exercise Right with respect to any SARs in respect of
which it is exercised shall be deemed to have not occurred. Each Hamilton SAR
Holder agrees that if a deemed exercise of the SAR Exercise Right occurs with
respect to the SARs held by Mr. Frederic C. Hamilton or any other Hamilton SAR
Holder the SAR Exercise Right with respect to all SARs of such Hamilton SAR
Holder shall be deemed exercised as well.
(c) Each OM SAR Holder acknowledges and agrees that the Management SAR
Holder who first transferred SARs to such OM SAR Holder or his predecessor (the
"RELEVANT MANAGEMENT SAR HOLDER" with respect to such OM SAR Holder) is entitled
to exercise the SAR Exercise Rights with respect to all SARs owned by such OM
SAR Holders only once in accordance with the provisions of this Agreement,
subject to the right of such OM SAR Holder to cancel certain exercises of a SAR
Exercise Right in accordance with this Agreement. Each Relevant Management SAR
Holder agrees that he will exercise the SAR Exercise Right for all SARs held by
him and all of his OM SAR Holders if he exercises any SAR Exercise Right of any
SAR, and all OM SAR Holders agree that if he does not do so, the exercise of the
SAR Exercise Right with respect to any SARs in respect of which it is exercised
shall be deemed to have not occurred. Each OM SAR Holder agrees that if a deemed
exercise of the SAR Exercise Right occurs with respect to the SARs held by the
Relevant Management
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SAR Holder or any of his OM SAR Holders the SAR Exercise Right of all SARs of
such OM SAR Holder shall be deemed exercised as well.
(d) (i) Each Hamilton SAR Holder (including each Person who becomes a
Hamilton SAR Holder after the date hereof by becoming a party hereto) hereby
irrevocably designates and appoints Mr. Frederic C. Hamilton, as his
attorney-in-fact, representative and proxy, with full power of substitution, to
make all decisions and determinations, to deliver and receive all notices and
other communications (including pursuant to Article 3, Section 4.01 and 4.02
hereof) to enter into and execute all documents or agreements and to take or
refrain from taking any action for and on behalf of such Hamilton SAR Holder,
(ii) each Precourt SAR Holder (including each Person who becomes a Precourt SAR
Holder after the date hereof by becoming a party hereto) hereby irrevocably
designates and appoints Mr. Jay A. Precourt as his attorney-in-fact,
representative and proxy, with full power of substitution, to make all decisions
and determinations, to deliver and receive all notices and other communications
(including pursuant to Article 3, Section 4.01 and 4.02 hereof) to enter into
and execute all documents or agreements and to take or refrain from taking any
action for and on behalf of such Precourt SAR Holder and (iii) each OM SAR
Holder (including each Person who becomes an OM SAR Holder after the date hereof
by becoming a party hereto) hereby irrevocably designates and appoints the
Relevant Management SAR Holder as his attorney-in-fact, representative and
proxy, with full power of substitution, to make all decisions and
determinations, to deliver and receive all notices and other communications
(including pursuant to Article 3, Section 4.01 and 4.02 hereof) to enter into
and execute all documents or agreements and to take or refrain from taking any
action for and on behalf of such OM SAR Holder, in each case (as to clauses (i),
(ii) and (iii) preceding), with respect to all matters related to the SARs held
by such Person, including with respect to the rights of such SARs (including
specifically the right to exercise the SAR Exercise Right in respect of such
SARs), the right to vote such SARs on all matters submitted to the vote of SAR
Holders, the right to give any consent or waiver of any provision of the
Certificate of Incorporation, By-laws, the Contribution Agreement or this
Agreement and the right to enter into any amendment of any provision of the
Certificate of Incorporation, By-laws, the Contribution Agreement or this
Agreement, and irrevocably waives the right to exercise, by any action of such
SAR Holder, any of the foregoing rights.
(E) THE FOREGOING IS EXPRESSLY INTENDED TO BE AN IRREVOCABLE APPOINTMENT,
DURABLE POWER OF ATTORNEY AND IRREVOCABLE PROXY COUPLED WITH AN INTEREST. EACH
HAMILTON SAR HOLDER, EACH PRECOURT SAR HOLDER AND EACH OM SAR HOLDER AGREES UPON
REQUEST OF HOLDINGS OR SHELL TO EXECUTE ANY DOCUMENT OR AGREEMENT NECESSARY OR
DESIRABLE UNDER APPLICABLE LAW TO PERFECT THE VESTING OF ALL OF THE FOREGOING
RIGHTS AND POWERS IN MR. FREDERIC C. HAMILTON, MR. JAY A. PRECOURT OR THE
RELEVANT MANAGEMENT SAR HOLDER, RESPECTIVELY.
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(F) THE HAMILTON SAR HOLDERS, PRECOURT SAR HOLDERS AND OM SAR HOLDERS
HEREBY EXPRESSLY ACKNOWLEDGE THAT THEY ARE IRREVOCABLY WAIVING AND RELINQUISHING
VALUABLE RIGHTS IN FAVOR OF EACH OF THE PRINCIPAL SAR HOLDERS AND MANAGEMENT SAR
HOLDERS AND THAT SHELL AND SIERRA ACQUISITION ARE ENTERING INTO THIS AGREEMENT
IN RELIANCE ON THIS WAIVER AND RELINQUISHMENT.
(g) A legend to the foregoing effect of this Section 3.14 will be placed on
the reverse of all SAR Agreements.
(h) NO RIGHTS AS STOCKHOLDER. A holder of SARs is not a stockholder of
Holdings or any Affiliate thereof and shall not have any rights as such and
hereby waives any such right that could be construed as occurring by operation
of law.
SECTION 3.15. LEGENDS. (a) In addition to any other legend that may be
required by the Certificate of Incorporation or otherwise, each certificate for
the shares of Common Stock and each SAR Agreement shall bear a legend in
substantially the following form:
"THIS SHARE/AGREEMENT IS SUBJECT TO RESTRICTIONS ON TRANSFER AS SET
FORTH IN THE MANAGEMENT AGREEMENT DATED AS OF _____________, 1997,
COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM TRANGO HOLDINGS
CORPORATION OR ANY SUCCESSOR THERETO AND IN PARTICULAR THIS SECURITY
MAY NOT BE TRANSFERRED WITHOUT THE CONSENT OF TRANGO HOLDINGS
CORPORATION AND SHELL OIL COMPANY."
(b) SAR AGREEMENT LEGENDS. Each SAR Agreement shall bear a legend in
substantially the following form:
"THIS SAR IS SUBJECT TO MANDATORY EXERCISE AND CARRY CERTAIN
OPTIONAL EXERCISE RIGHTS EXERCISABLE BY THE HOLDER HEREOF, ALL AS
SET FORTH IN THE MANAGEMENT AGREEMENT DATED AS OF ___________ AMONG
THE COMPANY, SHELL OIL COMPANY AND CERTAIN HOLDERS OF SARS, COPIES
OF WHICH MAY BE OBTAINED FROM THE COMPANY WITHOUT CHARGE UPON
WRITTEN REQUEST. BY ACQUIRING THE SAR REPRESENTED BY THIS
CERTIFICATE THE HOLDER HEREOF AGREES, AND
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SHALL BE DEEMED TO AGREE, TO ALL OF THE TERMS
AND PROVISIONS SET FORTH THEREIN, INCLUDING THE
ARBITRATION PROVISIONS THEREOF RELATING TO
DETERMINATIONS OF EXERCISE PRICES."
SECTION 3.16. INDEMNIFICATION FOR BREACH OF TRANSFER RESTRICTIONS; TAX
INDEMNITY AND TREATMENT. Each SAR Holder agrees to indemnify Holdings and Shell
for any damages due to a breach of the transfer restrictions by such SAR Holder
and in the case of Mr. Jay A. Precourt any breach by any Precourt SAR Holder, in
the case of Mr. Frederic C. Hamilton, any breach by any Hamilton SAR Holder and
in the case of any Management SAR Holder all of such person's OM SAR Holders. In
connection with the grant of SARs to a Precourt SAR Holder other than Mr. Jay A.
Precourt, Holdings and Mr. Jay A. Precourt shall take the position in all
filings of tax returns (and permit Shell to control any dispute that arise with
respect to such position) that any payment made in respect of such SARs shall
continue to be included in the ordinary income of Mr. Jay A. Precourt, and
Holdings shall treat such grant and payment as compensation expense.
SECTION 3.17. NO RESTRICTIONS ON SHELL TRANSFERS OR PURCHASES OF
SECURITIES. Neither Shell, Sierra Acquisition nor any of their Affiliates shall
be subject to any restriction pursuant to this Agreement on (i) purchases or
other acquisitions of securities issued by Holdings (including shares of Common
Stock and SARs) whether pursuant to open market purchases, privately negotiated
transactions, tender offers or otherwise or (ii) except as set forth in Article
4 and Section 8.05 hereto, the transfer of any such securities.
SECTION 3.18. SAR EXERCISE RIGHTS. (a) Subject to the provisions of
Section 3.14 hereof which limits the rights of SAR Holders to exercise SAR
Exercise Rights, each SAR Holder shall have the right according to the
procedures set out below to exercise the payment right of each vested SAR (the
"SAR EXERCISE RIGHT") at any time after the first anniversary of the
Contribution Closing (the "FIRST EXERCISE DATE") and prior to the Exercise
Expiration Date applicable to such SAR Holder, to require Holdings to pay to
such SAR Holder an amount in cash equal to the product of (x) the Final Exercise
Price with respect to such SAR less the SAR Strike Price of such SAR and (y) the
number of units which such SAR represents, in full satisfaction of all rights of
the SAR Holder in respect thereof; PROVIDED that (i) each SAR Holder may
exercise the SAR Exercise Right of all such SAR Holder's SARs only once, subject
to Section 3.20(b) hereof permitting cancellation of certain exercises of SAR
Exercise Rights, and must exercise the SAR Exercise Rights of all of its SARs at
the same time, (ii) if a proposed exercise of a SAR Exercise Right is canceled
pursuant to Section 3.20(b) such exercise shall not be counted as an exercise of
the SAR Exercise Right for any purposes hereof, (iii) if a Drag-Along Notice is
delivered in accordance with the provisions of Section 4.02, each SAR Holder who
has not theretofore exercised (or been deemed to have exercised) his SAR
Exercise Right
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shall be deemed to have delivered a SAR Exercise Notice on the date of delivery
of the Drag-Along Notice and, if on or prior to the Decision Date applicable to
such deemed delivery, a SAR Holder cancels such exercise of the SAR Exercise
Right, such SAR Holder may not exercise its SAR Exercise Right until 120 days
after such Decision Date or (iv) after a SAR Holder has delivered a Tag-Along
Acceptance Notice in accordance with Section 4.01 hereof, the SAR Holder shall
be deemed to have waived his SAR Exercise Right with respect to all SARs covered
by the Tag-Along Acceptance Notice, unless such SARs are not purchased in the
Tag-Along Sale in accordance with the terms of Section 4.01 within 120 days
after the date the Tag-Along Notice is delivered.
(b) If any SARs of a SAR Holder are subject to a pledge or other security
interest and the pledgee commences the exercise of foreclosure with respect to
such pledge or other security interest, such SAR Holder's SAR Exercise Right
shall, on the date on which such foreclosure is commenced, be deemed to be
automatically exercised with respect to all SARs owned by such SAR Holder;
PROVIDED that (i) if a Drag-Along Notice is delivered prior to such deemed
exercise in accordance with Section 4.02, such automatic exercise shall be
deemed to be void and of no force or effect, unless the Drag-Along Sale is not
consummated in accordance with Section 4.02, in which case such automatic
exercise shall be deemed to have occurred on the date Shell notifies the holder
that the Drag-Along Sale will not be consummated and (ii) if a SAR Holder has
delivered a Tag-Along Acceptance Notice in accordance with Section 4.01 prior to
such deemed exercise, such automatic exercise shall be void and of no force or
effect with respect only to the SARs covered by the Tag-Along Acceptance Notice,
unless such SARs are not purchased in the Tag-Along Sale in accordance with the
terms of Section 4.01, in which case, such automatic exercise shall be deemed to
have occurred with respect only to such SARs on the date Shell notifies the
holder that the Tag-Along Sale will not be consummated.
(c) Holdings will notify Shell of each deemed exercise pursuant to Section
3.18(b) within 3 Business Days of Holdings becoming aware of such deemed
exercise.
SECTION 3.19. VOLUNTARY EXERCISE OF SAR EXERCISE RIGHTS BY ADDITIONAL
HOLDERS. Commencing with the close of the fourth complete fiscal quarter after
the Contribution Closing, within a reasonable period of time after the end of
each fiscal quarter of Holdings and when the financial statements for such
fiscal quarter are available, Holdings will publish a SAR Payment Price for the
four fiscal quarters then ended, calculated by Holdings and approved by Shell,
which price will be calculated on the same basis as the Exercise Price. In
addition, if due to an exercise or deemed exercise of a SAR Exercise Right of a
SAR Holder, a Final Exercise Price is being calculated pursuant to this
Agreement, Holdings will publish such Final Exercise Price within 5 (five)
business days after the date it is finally determined. At any time within 30
days
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after a SAR Payment Price is published or a Final Exercise Price is published,
each Additional Holder may deliver a notice to Holdings electing to exercise a
vested SAR, in whole or in part (but not as to fractional units). Any such
notice of exercise shall be irrevocable. On the business day which is 5 (five)
business days after the expiration of such 30 day period, Holdings shall pay to
the holder of each exercised SAR an amount in cash equal to the product of (i)
such SAR Payment Price or Final Exercise Price, as applicable, less the SAR
Strike Price of such SAR and (ii) the number of units which such SAR represents
which are being exercised, in full satisfaction of all rights of the holder of
such SAR in respect of the number of units being exercised. The Additional
Holders shall have no right to participate in the determination of a SAR Payment
Price or Final Exercise Price, and the determination of a SAR Payment Price or
Final Exercise Price pursuant to the provisions of this Agreement shall be final
and binding on such Additional Holders. The fact that Shell has approved a
specific SAR Payment Price shall not in any way affect Shell's right to object
to any subsequent calculation of a SAR Payment Price or the calculation of the
Exercise Price or Final Exercise Price pursuant to this Agreement, but no
retroactive adjustments will be made following actual payment to any Additional
Holder.
SECTION 3.20. PROCEDURE FOR VOLUNTARY EXERCISE OF SAR EXERCISE RIGHTS BY
SAR HOLDERS; CANCELLATION; EXPENSES. (a) Each SAR Holder who wishes to exercise
his SAR Exercise Right pursuant to Section 3.18 shall give written notice (the
"SAR EXERCISE NOTICE") of his proposed exercise of such right to Holdings and
Shell in substantially the form attached hereto. Such notice shall state that
the Holder is proposing to exercise his SAR Exercise Right.
(b) At any time after delivery to each Exercising Holder by the Accounting
Referee or, if the Accounting Referee is not determining the Final Exercise
Price, Holdings or Shell of a notice setting forth the Final Exercise Price for
the SAR Exercise Rights then being exercised pursuant to Section 3.20(a) and
prior to 5:00 p.m., Eastern Standard Time on the tenth Business Day after
delivery of such notice (if and only if the Final Exercise Price is less than
the Company's Calculation or the exercise resulted from the delivery of a
Drag-Along Notice), each Exercising Holder who exercised a SAR Exercise Right
pursuant to Section 3.20(a) or who was deemed to deliver an exercise notice as a
result of the delivery of a Drag-Along Notice may cancel the exercise of such
SAR Exercise Rights by delivering written notice to Holdings and Shell to that
effect, and upon delivery of such notice, such SAR Exercise Right shall be
deemed for all purposes hereof not to have been exercised and such Exercising
Holder may again exercise such SAR Exercise Right, subject to, and after
compliance with, all of his obligations under Section 3.20(c) hereof, if
applicable. If the exercise of such SAR Exercise Right is not so canceled by
timely notice, the exercise thereof shall be final and irrevocable. If the Final
Exercise Price is not less than the Company's Calculation, the exercise of the
SAR Exercise Right may not be canceled, unless the exercise resulted from the
delivery of a Drag-Along Notice. The exercise of a
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SAR Exercise Right may not be canceled by a Holder after the Exercise Expiration
Date applicable to such Holder, unless the exercise resulted from the delivery
of a Drag-Along Notice.
(c) If the Final Exercise Price is greater than or equal to 95% of the
Company's Calculation and an Exercising Holder cancels the exercise of its SAR
Exercise Right, then, unless the exercise resulted from the delivery of a
Drag-Along Notice, the Exercising Holder shall pay to Holdings all of its
reasonable costs and expenses incurred in connection with determining the Final
Exercise Price and shall pay to Shell all of its reasonable costs and expenses
incurred in connection with determining the Final Exercise Price. In such event,
the Exercising Holder shall not have the right to exercise its SAR Exercise
Right pursuant to Section 3.18(a) for 12 months after delivery of the notice of
cancellation.
SECTION 3.21. DETERMINATION OF FINAL EXERCISE PRICE.
(a) "FINAL EXERCISE PRICE" means the Exercise Price as shown in the
Company's Calculation delivered pursuant to Section 3.21(b) if no notice of
disagreement with respect thereto is duly delivered pursuant to Section 3.21(c)
or, if such a notice of disagreement is delivered, as agreed by all of the
Exercising Holders and Shell pursuant to Section 3.21(d) or, in the absence of
such agreement, as shown in the Accounting Referee's calculation delivered
pursuant to Section 3.21(d); PROVIDED that in no event shall the Final Exercise
Price be more than the highest calculation of the Exercise Price delivered
pursuant to Section 3.21(c) by any Exercising Holder (or the Company's
Calculation if no calculation is delivered by an Exercising Holder) or less than
Shell's calculation of the Exercise Price delivered pursuant to Section 3.21(c)
(or the Company's Calculation if Shell does not deliver a calculation). The
Exercising Holders, all Holders of SARs, all holders of Common Stock, Shell and
Holdings agree, and shall be deemed to agree, that the provisions of Sections
3.22 and 3.23 constitute an agreement to arbitrate and that the Final Exercise
Price, including all components thereof (as determined pursuant to Sections 3.22
and 3.23), shall be final and binding as an arbitration decision and enforceable
as an arbitration decision and judgment upon the decision rendered by the
Accounting Referee may be entered by any court having jurisdiction.
(b) As promptly as practicable, but no later than 45 days, after the later
of (i) delivery of a SAR Exercise Notice or the deemed exercise of a SAR
Exercise Right pursuant to Section 3.18(b) and (ii) the completion of financial
statements for the fiscal quarter ending on the Exercise Price Determination
Date, Holdings will cause to be prepared and delivered to each Exercising Holder
and Shell, (A) a consolidated balance sheet (the "BALANCE SHEET") as of the
Exercise Price Determination Date, together with a consolidated statement of
earnings (the "STATEMENT OF EARNINGS") and cash flows (the "CASH FLOW
STATEMENT", and
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collectively, the "FINANCIAL STATEMENTS") for the four fiscal quarter period
ending on the Exercise Price Determination Date, together with an unqualified
report of Holdings' independent public accountants thereon, (B) a schedule of
the adjustments required to adjust such Financial Statements to show the amounts
they would have shown had Holdings' accounting principles, policies and
procedures been consistent with Shell's audited financial statements for the
fiscal year ended December 31, 1996 as adjusted pursuant to the provisions of
Exhibit B (the "ADJUSTMENTS"), (C) an adjusted Balance Sheet (the "ADJUSTED
BALANCE SHEET"), together with an adjusted Statement of Earnings (the "ADJUSTED
STATEMENT OF EARNINGS") and an adjusted Statement of Cash Flows (the "ADJUSTED
CASH FLOW STATEMENT", and collectively, the "ADJUSTED FINANCIAL STATEMENTS")
each adjusted to take into account the Adjustments, and (D) a certificate of
Holdings' chief financial officer, approved by Holdings' audit committee, and
attested by Deloitte & Touche LLP based on the Adjusted Financial Statements and
underlying accounting records and independent auditors' work papers (access to
all of which will be provided to Deloitte & Touche LLP without restrictions),
setting forth in reasonable detail the calculation of the Exercise Price and all
components thereof (the "COMPANY'S CALCULATION") (all such documents together,
the "CALCULATION DOCUMENTS"); PROVIDED that delivery of the Company's
Calculation shall be delayed to the extent required to allow the Environmental
Referee and arbitrator to determine the components of the calculation of
Exercise Price they are reviewing, if called upon to do so. The Adjusted
Financial Statements shall (i) fairly present the consolidated financial
position, results of operations and cash flows of Holdings and its Subsidiaries
as of the close of business on the Exercise Price Determination Date and for the
four fiscal quarter period then ended, in accordance with generally accepted
accounting principles, policies and procedures consistent with Shell's audited
financial statements for the fiscal year ended December 31, 1996, subject to the
adjustments set forth on Exhibit B hereto, without giving effect to any changes
in generally accepted accounting principles after December 31, 1996,
consistently applied ("GAAP"), (ii) be prepared as year end financial statements
and reflect any appropriate year end audit adjustments and (iii) be adjusted as
set forth in the schedule of Adjustments.
(c) Any or all of the Exercising Holders or Shell may conduct a review or
audit of the Adjusted Financial Statements and calculation of the Exercise
Price, the related work papers and other Calculation Documents at its own
expense; PROVIDED that such review or audit must be completed within 45 days
after the later of (i) delivery of the Calculation Documents or (ii) access to
such work papers. If any of them disagree with the Company's Calculation, they
each may, within 45 days after delivery of the Calculation Documents (or 45 days
after delivery of such work papers, if later), deliver a written notice to
Holdings, Shell and the Exercising Holders, as applicable, setting forth their
calculation of such amount. Any such notice of disagreement shall specify those
items or amounts as to which the Person delivering it disagrees, and such Person
shall be deemed to
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have agreed with all other items and amounts contained in the Adjusted Financial
Statements and the Company's Calculation of the Exercise Price delivered
pursuant to Section 3.21(b) to which such Person does not so timely object.
(d) If a notice of disagreement shall be duly delivered pursuant to Section
3.21(c), the Exercising Holders and Shell shall, during the 15 days following
such delivery, use their commercially reasonable efforts to reach agreement on
the disputed items or amounts in order to determine the Exercise Price. If,
during such period, the Exercising Holders and Shell are unable to reach such
agreement, they shall promptly thereafter cause Ernst & Young, LLP, or if such
accountants refuse to serve, a nationally recognized accounting firm (which
shall not be either Holdings', Shell's or any Exercising Holder's auditors)
appointed by Shell with the consent (not to be unreasonably withheld) of the
Exercising Holders (the "ACCOUNTING REFEREE"), promptly to review the provisions
hereof and the disputed items or amounts for the purpose of calculating the
Exercise Price. In making such calculation, the Accounting Referee shall
consider only those items or amounts in the Calculation Documents as to which
Shell or an Exercising Holder has disagreed. The Accounting Referee shall
deliver to each Exercising Holder and Shell, as promptly as practicable, a
report setting forth such calculation. Such report shall be final and binding
upon Holdings, the Exercising Holders, all holders of Common Stock and SARs and
Shell. The cost of such review and report shall be borne by the Exercising
Holder who calculated the greatest Exercise Price if (i) the difference between
the Final Exercise Price and such Exercising Holder's calculation of the
Exercise Price delivered pursuant to Section 3.21(c) is greater than (ii) the
difference between Final Exercise Price and Shell's calculation of the Exercise
Price delivered pursuant to Section 3.21(c) (or the Company's Calculation if
Shell does not deliver a calculation); by Shell if the difference calculated
under clause (i) is less than the difference calculated under clause (ii); and
equally by the Exercising Holders as a group and Shell if such differences are
equal.
(e) If within 30 days after the date Shell receives a SAR Exercise Notice
or written notice of the automatic or deemed exercise of any SAR Exercise Right,
Shell provides a written notice to Holdings of the existence of any Qualified
Claim for any Company Pre-Closing Environmental Conditions that have not been
fully remediated or otherwise resolved or the liability for which has not been
fully resolved, then Shell and the Exercising Holders shall, during the 15 days
following such delivery, use their commercially reasonable efforts to reach
agreement on the disputed items or amounts in order to determine the Exercise
Price. If during such period, such Persons are unable to reach such agreement,
then Shell and the Exercising Holders agree to immediately retain jointly Entrix
(provided the parties have had no unsatisfactory dealings therewith) or if so,
or if such consultants refuse to serve, a third party environmental consultant
of recognized standing with significant experience in the natural gas sector,
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reasonably acceptable to the Exercising Holders and Shell (the "ENVIRONMENTAL
REFEREE"). The Environmental Referee shall, as promptly as possible, review the
submissions of Shell and Holdings and each Exercising Holder, if any, with
respect to such Company Pre-Closing Environmental Condition, and, if necessary,
perform environmental testing at the sites of Company Pre-Closing Environmental
Conditions and determine (i) whether each such condition is a Company
Pre-Closing Environmental Condition (or is probable to be such), (ii) the
estimated amount of Losses (as defined in the Contribution Agreement) which are
probable to be incurred after the Exercise Price Determination Date in respect
of such Company Pre-Closing Environmental Condition ("FUTURE ENVIRONMENTAL
LOSSES") and (iii) the extent to which such Losses should have been or are
probable to be incurred on a recurring basis. The Environmental Referee's
determinations shall be final and binding on the Exercising Holders, all other
holders of Common Stock and SARs, Holdings and Shell as an arbitration decision
as provided in Section 3.21(a).
(f) If within 30 days after the date Shell receives a SAR Exercise Notice
or written notice of the automatic exercise or deemed exercise of any SAR
Exercise Right, Shell provides a written notice to Holdings of the existence of
any Qualified Claim (including claims for Future Environmental Losses) that has
not been fully resolved or the liability for which has not been fully resolved,
then Shell and the Exercising Holders shall, during the 15 days following such
delivery, use their commercially reasonable efforts to reach agreement on the
disputed items or amounts in order to determine the Exercise Price. If during
such period, such Persons are unable to reach such agreement, then such claim
shall be settled by arbitration in accordance with the then current CPR
Institute for Dispute Resolution Rules for Non-Administered Arbitration of
Business Disputes, and this provision. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. ss.ss. 1-16 to the exclusion of any
provision of state law inconsistent therewith or which would produce a different
result, and judgment upon the decision rendered by the arbitrator may be entered
by any court having jurisdiction. The arbitration shall be held in Harris
County, Texas. There shall be one arbitrator. The arbitrator shall determine the
claims of the parties and render a final award in accordance with the
substantive law of the State of Delaware, excluding the conflicts provisions of
such law. The costs of the arbitrator shall be borne by Holdings and each party
to the arbitration shall bear its own costs incurred, unless the arbitrator
orders otherwise. The arbitrator shall set forth the reasons for the award in
writing. The arbitrator shall, as promptly as possible, review the Contribution
Agreement, this Agreement, the submissions of Shell and Holdings and each
Exercising Holder, if any, with respect to such claim, and determine (i) whether
Shell is (or is probable to be) entitled to indemnity under Section 4.03(a) or
(b) of the Contribution Agreement, (ii) the amount of Losses incurred prior to
the Exercise Price Determination Date and the amount of Losses estimated to be
incurred after the Exercise Price Determination Date, in each case, in respect
of such controversy or claim which will be applied to reduce the
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Exercise Price as contemplated by Section 4.03(d) of the Contribution Agreement
and (iii) if applicable, the Exercise-Year Environmental Expense in respect of
such controversy or claim; PROVIDED however that in rendering its decision the
arbitrator shall accept and rely on all findings of the Environmental Referee
with respect to Future Environmental Losses (including findings as to the
existence, amount and recurring nature thereof). The "EXERCISE-YEAR
ENVIRONMENTAL EXPENSE" shall be the amount of Future Environmental Losses which
should have been recognized as a recurring expense during the four fiscal
quarters used to determine the Final Exercise Price, such amount to be based on
the extent to which such Future Environmental Losses, in the opinion of the
Environmental Referee, should have been (but were not) incurred on a recurring
basis (assuming that Holdings was aware of the Company Pre-Closing Environmental
Condition at the beginning of such period) during such period (offset by any
costs or expenses actually incurred for such losses by Holdings during such
period). The arbitrator's determinations shall be final and binding on the
Exercising Holders, all other holders of Common Stock and SARs, Holdings and
Shell as an arbitration decision as provided in Section 3.21(a).
(g) Holdings, the Exercising Holders and Shell agree that they will, and
that Holdings shall cause its Subsidiaries to, and agree to cause their
respective independent accountants and employees to, cooperate and assist in the
preparation of the Financial Statements and other Calculation Documents, and the
calculation of the Final Exercise Price and in the conduct of the financial,
environmental and other audits, reviews and arbitrations referred to in this
Section 3.21, including without limitation, the making available to the extent
necessary of books, records, underlying accounting records, work papers,
environmental studies or reports and personnel and the access to properties for
environmental reviews.
SECTION 3.22. CALCULATION OF EXERCISE PRICE.
(a) "EXERCISE PRICE" means, for any particular exercise of a SAR Exercise
Right, the result obtained by dividing (i) Enterprise Value calculated for
Holdings' four most recent fiscal quarters ending on the Exercise Price
Determination Date by (y) the sum of (a) the number of shares of Fully Diluted
Common Stock calculated as of the Exercise Price Determination Date and (b) to
the extent greater than zero, the number of SARs exercised and paid by Holdings
prior to such Exercise Price Determination Date minus the number of additional
shares of Common Stock purchased from Holdings by Shell or its Affiliates in
connection with such payments by Holdings; and (ii) subtracting from such result
the Enterprise Indemnity Deduction divided by (x) the number of SARs then
outstanding plus (y) the number of SARs exercised and paid by Holdings prior to
such Exercise Price Determination Date.
(b) "EXERCISE PRICE DETERMINATION DATE" means, with respect to any
particular exercise or deemed or automatic exercise of a SAR Exercise Right, the
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last day of Holdings' fiscal quarter most recently ended prior to (x) the date
of delivery or deemed delivery of the SAR Exercise Notice, in the case of a
voluntary exercise or in the case of an exercise resulting from delivery of a
Drag-Along Notice, or (y) the date of a deemed or automatic exercise of the SAR
Exercise Right, in the case of a deemed or automatic exercise.
(c) "FULLY DILUTED COMMON STOCK" means (x) the number of outstanding shares
of Common Stock plus (y) the number of additional shares of Common Stock which
would be outstanding if (a) all outstanding options, warrants, rights and other
securities exercisable for shares of Common Stock were then exercised (whether
or not then exercisable) ("RIGHTS"), (b) all outstanding securities which are
convertible into or exchangeable for shares of Common Stock were then converted
or exchanged (whether or not then convertible or exchangeable) ("CONVERTIBLE
SECURITIES") and (c) the units represented by all SARs were outstanding as
shares of Common Stock. If after the Control Date and prior to the date both
Principal SAR Holders have irrevocably exercised, or been deemed to exercise,
their SAR Exercise Rights, Holdings issues Equity Securities in a transaction,
or in connection with a transaction (other than in connection with the purchase
of Common Stock to fund the payment of SARs) which results in the Debt to Total
Capitalization Ratio (as defined in Exhibit A-2), decreasing below what it was
immediately prior to such transaction (the "TARGET RATIO"), after giving effect
thereto, the Equity Securities so issued in such transaction shall not be
included in calculating Fully Diluted Common Stock, until the Debt to Total
Capitalization Ratio again exceeds the Target Ratio.
(d) "ENTERPRISE VALUE" means, for any particular exercise of a SAR Exercise
Right, the result obtained by (x) multiplying Normalized EBITDA calculated for
Holdings' four most recent fiscal quarters ending on the Exercise Price
Determination Date by 10 (ten) and (y) subtracting from such product, the sum of
(a) Net Debt as of the Exercise Price Determination Date plus (b) any cash
distributed to Holdings or any of its Consolidated Subsidiaries after the
Contribution Closing by an unconsolidated Person in an amount in excess of the
sum of Holdings' investment in such unconsolidated Person and Holdings' interest
in the accumulated earnings of such unconsolidated Person.
(e) "NORMALIZED EBITDA" means the result obtained by taking (x) the sum of
(a) consolidated net earnings of Holdings and its Subsidiaries before (i) income
taxes, (ii) interest income, (iii) interest expense, (iv) depreciation and
amortization, in each case, as set forth opposite such line item on the Adjusted
Statement of Earnings, as adjusted by the Accounting Referee, if applicable, (v)
the amount of compensation expense recognized with respect to SARs, (vi)
Non-Recurring Items and (vii) Holdings' share of Non-Recurring Items included in
Holdings' equity interest in earnings or loss of each unconsolidated Person (to
the extent included in computing each unconsolidated Person's net earnings or
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loss); and (b) Holdings' share of depreciation and amortization and income taxes
included in Holdings' equity interest in earnings or loss of each unconsolidated
Person, other than Coral (to the extent deducted in computing each
unconsolidated Person's net earnings or loss) and (y) subtracting therefrom the
Exercise-Year Environmental Expense.
(f) "NET DEBT" means, as of any date, the result obtained by subtracting
(x) the sum of (i) Cash and Cash Equivalents, (ii) Deemed Stock Sale Proceeds,
in each case as of such date, and (iii) the amount of Indebtedness incurred
prior to the Exercise Price Determination Date to fund the payment of SARs (less
the amount of such Indebtedness which is repaid out of the proceeds of the sale
of shares of Common Stock) and $318.4 million from (y) Indebtedness as of such
date.
(g) "ENTERPRISE INDEMNITY DEDUCTION" means the Indemnity Deduction less the
Exercise-Year Environmental Expense.
(h) "INDEMNITY DEDUCTION" means 4.72% of the amount (or an estimate of the
amount) to which Shell has been determined to be (or determined to be probable
to be) entitled to be indemnified for in respect of Qualified Claims as
determined pursuant to Section 3.21(e) and (f). The Exercising Holders, all
other holders of Common Stock and SARs, Shell and Holdings agree that the
Environmental Referee and the arbitrator under Section 3.21(f) may determine
that the Indemnity Deduction includes amounts for Losses which are probable but
have not actually been incurred prior to the Exercise Price Determination Date
and that would not be required to be reflected on Holdings' financial statements
because such Losses are not estimable in accordance with generally accepted
accounting principles consistently applied.
(i) "CASH AND CASH EQUIVALENTS" means the amount set forth opposite the
line item "Cash and Cash Equivalents" on the Adjusted Balance Sheet, as adjusted
by the Accounting Referee, if applicable.
(j) "DEEMED STOCK SALE PROCEEDS" means, as of any date, the sum of (x) the
amount of cash which Holdings would receive if all Rights were exercised, (y)
the purchase price paid to Holdings or any of its wholly-owned subsidiaries for
the purchase of any Convertible Security which evidences Indebtedness (other
than preferred stock) and (z) the aggregate amount of the SAR Strike Price of
all SARs; in the case of (x), (y) and (z), outstanding as of such date.
(k) "NON-RECURRING ITEMS" means, with respect to any Person, items
affecting net earnings of such Person which are unusual and generally
non-recurring in nature, including, but not limited to (i) legal and tax
reserves, settlements, costs and awards, (ii) uninsured property and casualty
losses, insurance reserves and deductibles, (iii) penalties and fines, (iv)
inventory
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valuation gains or losses, (v) gains or losses on sales of assets (other than
sales of inventory in the ordinary course of business) and (vi) extraordinary
items under generally accepted accounting principles, consistently applied.
(l) "INDEBTEDNESS" means debt of Holdings or its consolidated subsidiaries,
including, without duplication and on a consolidated basis, if applicable, (i)
all payment obligations for borrowed money or for the deferred purchase price of
property or services, (ii) all payment obligations evidenced by The Revolver and
any other note, bond, debenture or similar instrument (excluding solely for
purposes of calculating Enterprise Value, Convertible Securities), (iii) the
principal component of all capitalized lease obligations, (iv) all unreimbursed
amounts drawn under all letters of credit or standby letters of credit
supporting financial obligations otherwise constituting Indebtedness of Holdings
or its consolidated subsidiaries, (v) all payment obligations of any other
Person (other than Shell and its Affiliates) in respect of indebtedness for
borrowed money secured by any lien on any property owned by Holdings or its
consolidated subsidiaries, whether or not such obligation has been assumed, (vi)
the amount of all obligations guaranteeing repayment of indebtedness for
borrowed money of any Person (other than Shell and its Affiliates), including by
way of a keepwell or similar agreement, (vii) the obligation to pay the
redemption price of redeemable preferred stock, whether subject to mandatory
redemption or to redemption at the option of Holdings or the holder thereof,
issued by Holdings or its consolidated subsidiaries, (viii) all property
purchase obligations, (ix) all obligations in respect of prepaid forward sales
agreements, (x) all obligations for production payments from property operated
by or on behalf of Holdings or its consolidated subsidiaries and other similar
arrangements with respect to hydrocarbons and carbon dioxide to the extent shown
as a liability on Holdings' balance sheet (but excluding royalty payments and
similar payment obligations to governmental entities), (xi) the aggregate amount
of all accounts receivable sold from time to time net of all collections
received on, and all write-offs in accordance with generally accepted accounting
principles, consistently applied, of such accounts receivable, (xii) the net
marked-to-market liability under all derivative or swap transactions, including
commodity, interest rate or currency swaps, caps or collars to the extent that
such transactions are not consistent with Holdings' Risk Management Policy and
(xiii) the amount of obligations in connection with any sale and leaseback
transaction which would be shown as a liability on the balance sheet if such
liability were accounted for as a capitalized lease.
SECTION 3.23. PROCEDURE FOR PAYMENT. On the date (the "PURCHASE DATE")
which is 5 Business Days after the latter of the determination of the Final
Exercise Price or, if applicable, the expiration of the period during which an
Exercising Holder may cancel the exercise of a SAR Exercise Right (the "DECISION
DATE"), each SAR Holder of a SAR with respect to which Exercise Rights have been
exercised or deemed exercised (the "PURCHASED SARS") and which has been validly
delivered to Holdings or its agent shall be paid by
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Holdings or its agent an amount of cash equal to the product of (i) the Final
Exercise Price with respect to such SAR less the SAR Strike Price of such SAR
and (ii) the number of units which such SAR represents, in full satisfaction of
all rights of the SAR Holder in respect thereof. On and after the Purchase Date
(unless default shall be made by Holdings in paying or providing money for the
payment of the amount due), notwithstanding that any instrument evidencing a
Purchased SAR is not surrendered for cancellation, the SAR represented thereby
shall no longer be deemed outstanding and all rights of the holders thereof as a
holder of a SAR shall cease and terminate, except the right to receive the
amount due upon exercise thereof as provided above.
SECTION 3.24. HOLDERS OF RECORD. Holdings shall be entitled to treat the
person in whose name any SAR is registered as the owner thereof, for all
purposes, and shall not be bound to recognize any equitable or other claim to,
or interest in, such SAR on the part of any other person, whether or not
Holdings shall have notice thereof, except as provided by applicable law.
SECTION 3.25. EMPLOYEES AT WILL. This Agreement or the grant of a SAR
shall not be construed to create a contract of employment. Without limiting or
modifying in any way the rights and obligations of any party that may be a
consequence of such termination under this Agreement, the parties hereto agree
that nothing in this Agreement shall limit or restrict Holdings or its
Affiliates from terminating the employment of a signatory hereto or a Holder of
a SAR at any time for any reason with or without cause or notice, nor shall it
prevent or restrict a signatory hereto or a Holder of a SAR from terminating his
or her employment with Holdings or its Affiliates, at any time, with or without
cause or notice.
ARTICLE 4
TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS AND ANTI-DILUTIVE RIGHTS
SECTION 4.01. RIGHT TO PARTICIPATE IN TRANSFER. Neither Shell nor Sierra
Acquisition nor any Affiliate (excluding Holdings and its Subsidiaries) of
either shall transfer to a Person that is not an Affiliate of Shell or Sierra
Acquisition (a "THIRD PARTY") a number of shares of Common Stock equal to or
exceeding 50% of the Fully Diluted Common Stock in a single transaction or in a
series of related transactions (a "TAG-ALONG SALE"), unless Shell has exercised
the drag along option pursuant to Section 4.02 or unless such Third Party shall
have offered ("TAG-ALONG OFFER") to each Holder of SARs, (a "TAGGING PERSON") to
acquire concurrently with the acquisition of Shell's, Sierra Acquisition's or
such Affiliate's Common Stock, on the same terms and conditions (less the SAR
Strike Price applicable thereto) of the proposed transfer, a number of units of
SARs held by such Tagging Person equal to the total number of units of all of
such Tagging
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Person's SARs multiplied by a fraction, the numerator of which is the number of
shares of Common Stock proposed to be sold by Shell, Sierra Acquisition or such
Affiliate pursuant to this Section 4.01 and the denominator of which is the
aggregate number of shares of Common Stock held by Shell, Sierra Acquisition,
and such Affiliates (the "PRO RATA PORTION"). In the event of such a proposed
transfer, the Third Party shall provide each Tagging Person with a written
notice of the terms and conditions of the proposed transfer ("TAG-ALONG
NOTICE"). The Tag-Along Notice shall identify the Tagging Person's Pro Rata
Portion of each such security subject to the Tag-Along Offer, the proposed
consideration and all other material terms and conditions of the Tag-Along
Offer. Each Tagging Person shall have the right (a "TAG-ALONG RIGHT"),
exercisable by written notice given to the Third Party within 20 business days
after receipt of the Tag-Along Notice to the address set forth in the Tag-Along
Notice (a "TAG-ALONG ACCEPTANCE NOTICE"), to request the Third Party to include
in the proposed transfer all or any portion of the Pro Rata Portion of such
Tagging Person; PROVIDED that if any Tagging Person does not exercise its
Tag-Along Right or exercises its Tag-Along Right only as to a part of its Pro
Rata Portion, Shell, Sierra Acquisition or such Affiliate shall have the right
to sell in the Tag-Along Sale an additional amount of Common Stock to the Third
Party up to the number of units of SARs which could have been sold by such
Persons pursuant to the Tag-Along Right without again complying with this
Section 4.01.
SECTION 4.02. RIGHT TO COMPEL PARTICIPATION IN CERTAIN TRANSFERS. (a) If,
after the Control Date, Shell, Sierra Acquisition and all of their Affiliates
propose to transfer 100% of their aggregate ownership of Common Stock to a Third
Party (a "DRAG-ALONG SALE"), Shell may at its option require each Holder of a
SAR (each a "DRAG-ALONG SELLER") to sell all, but not less than all, of the
units of SARs then held by such SAR Holder for the same consideration per unit
(less the SAR Strike Price applicable thereto) and otherwise on the same terms
and conditions as Shell, Sierra Acquisition and their Affiliates; PROVIDED that
each SAR Holder shall have the right to exercise his SAR Exercise Right in such
circumstances prior to such compelled sale as provided in Section 3.18(b)
hereof. Shell shall notify ("DRAG-ALONG NOTICE") Holdings and each Holder of a
SAR in writing of the exercise of its right to cause a Drag-Along Sale, the
consideration per share and the other terms and conditions of such sale, at
least 20 business days prior to such Drag-Along Sale. In the event that the
Drag-Along Sale closes and a Drag-Along Seller fails to deliver its SARs to the
Third Party, Holdings shall cause the books and records of Holdings to show that
such SARs are bound by the provisions of this Section 4.02 and that such SARs
shall be transferred to the Third Party in the Drag-Along Sale immediately upon
surrender thereof for transfer by the Drag-Along Seller and, unless previously
exercised pursuant to Section 3.18(b), such SARs shall cease to be exercisable.
For purposes of this Section 4.02, clause (i) of the proviso to the definition
of Affiliate shall not apply.
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(b) Promptly after the consummation of the transfer of SARs pursuant to
this Section, Shell shall give notice thereof to the Drag-Along Sellers, shall
remit to each of the Drag-Along Sellers who have surrendered their certificates
the total consideration for the SARs transferred pursuant hereto and shall
furnish such other evidence of the completion and time of completion of such
transfer and the terms thereof as may be reasonably requested by such Drag-Along
Sellers.
(c) In any Drag-Along Sale, no representations, warranties or indemnities
will be required of a Drag-Along Seller, other than with respect to such
Drag-Along Seller's title to the SARs and authority, power, and right to enter
into and consummate the sale without contravention of any law or agreement.
SECTION 4.03. ANTI-DILUTIVE RIGHTS. (a) Except as provided in Section
4.03(c) below or Section 5.01, Holdings shall not issue, sell or transfer any
Common Equity Securities to any Person unless (i) each of Shell and Sierra
Acquisition is offered in writing the right to purchase, at the same price and
on the same terms proposed to be issued and sold, an amount of such Common
Equity Securities and (ii) each SAR Holder is offered in writing the right to
enter into a contractual arrangement with Holdings which will provide to such
Holder the same economic benefit such Holder would have received had he
purchased such Common Equity Securities, for the same price such Holder would
have paid had such Holder purchased an amount of Common Equity Securities (such
shares and contract rights collectively, the "MAINTENANCE INTERESTS"), as is
equal to the total amount of Common Equity Securities to be offered multiplied
by a fraction, the numerator of which is the number of shares of Fully Diluted
Common Stock owned by each such Person immediately prior to such sale and the
denominator of which is the total number of shares of Fully Diluted Common Stock
outstanding immediately prior to such sale. Such holders shall have the right,
during the period specified in Section 4.03(b), to accept the offer for any or
all of the Maintenance Interests. If a Person does not purchase all of the
Maintenance Interests which it has the right to purchase pursuant to this
Section 4.03, Shell, Sierra Acquisition and their Affiliates shall have the
right to purchase such Maintenance Interests.
(b) If such holder does not deliver to Holdings written notice of
acceptance of any offer made pursuant to Section 4.03(a) within 20 Business Days
after such holder's receipt of such offer, such holder shall be deemed to have
waived its right to purchase all or any part of its Maintenance Interests as set
forth in such offer, but such holder shall retain its rights under this Article
4 with respect to future offers.
(c) The anti-dilution rights set forth above shall not apply to (i) the
grant or exercise of options to purchase Common Stock or the issuance of shares
of Common Stock to employees of Holdings or any of its Subsidiaries or otherwise
pursuant to a plan adopted by the Board with the consent of Shell (ii) the
issuance
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of shares of Common Stock issuable upon exercise of any option, warrant,
Convertible Security or other rights to purchase or subscribe for Common Stock
or (iii) securities issued pursuant to any stock split, stock dividend or other
similar stock recapitalization, PROVIDED that the action referred to in clauses
(i), (ii) or (iii) of this Section 4.03(c) as the case may be, shall have been
approved (to the extent required) in accordance with the provisions of this
Agreement and the Certificate of Incorporation.
(d) A closing for the purchase of Maintenance Interests pursuant to this
Section shall occur on the later of (i) the date on which such public or private
issuance occurs and (ii) such date as may be agreed to by such holder and
Holdings, at a time and place specified by such holder in a notice provided to
Holdings at least ten (10) days prior to such specified closing date. In
connection with such closing, Holdings and such holder shall provide such
customary closing certificates and opinions as such holder or Holdings, as
appropriate, shall reasonably request.
ARTICLE 5
COMMON STOCK PURCHASE RIGHTS
SECTION 5.01. SALE OF COMMON STOCK TO SHELL. Whenever Purchased SARs are
paid by Holdings, Shell, Sierra Acquisition or any of their Affiliates, shall
thereafter have the right exercisable from time to time on two (2) business days
notice, for a period of 90 business days following such purchase, to purchase up
to a number of shares of Common Stock equal to the number of Purchased SARs at a
price equal to the aggregate SAR Strike Price of such Purchased SARs plus the
aggregate amount paid to the Holders of such Purchased SARs in respect of the
exercise of such Purchased SARs. Each of Shell, Sierra Acquisition, each SAR
Holder and Holdings agree to take, or cause to be taken, any or all action
necessary to issue such Common Stock.
ARTICLE 6
SCOPE OF BUSINESS PROVISIONS
SECTION 6.01. SCOPE OF BUSINESS. The parties hereto hereby agree to the
provisions set forth in Exhibit C hereto - Scope of Business.
SECTION 6.02. RIGHT OF FIRST OFFER/LAST LOOK. (a) If Holdings or any of
its Subsidiaries (each, for purposes of this Section, a "SELLING PARTY")
proposes a sale, transfer, exchange, lease, mortgage, pledge or other
disposition by merger or
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consolidation, sale of securities, sale of assets or otherwise of any property,
asset or group of assets ("OFFERED INTEREST") (in one transaction or a series of
related transactions) where the fair market value of the consideration to be
received by the Selling Party exceeds or is reasonably likely to exceed
$10,000,000 and which does not require Shell's consent to consummate, such
Selling Party shall first give Shell an opportunity to acquire such Offered
Interest as follows:
(i) The Selling Party shall offer in writing (the "OFFER") to sell all of
the Offered Interest to Shell, which Offer shall include a copy of all
material agreements pursuant to which the sale of the Offered Interest
would occur, including the proposed price. Shell shall have a period of 30
days to respond to such Offer, and within such time may make a written
acceptance (the "RESPONSE") to the Selling Party to purchase the Offered
Interest upon the price, terms, and conditions of the Offer.
(ii) If Shell delivers a Response within the 30-day period, the Selling
Party and Shell shall close the sale within 90 days of the Response or as
soon thereafter as practicable.
(iii) If Shell fails to deliver a Response within the required period or
rejects the Offer, then, after compliance with paragraph (b) below, the
Selling Party may, but is not obligated to sell the subject Offered
Interest, upon the terms and conditions of paragraph (b) below. If the
Selling Party does not make such a sale, it shall retain the Offered
Interest, subject to compliance with the Section for any subsequent
proposed transfer.
(b) The parties hereto expressly acknowledge and agree that, except for
transfers expressly permitted under Section 6.02(a) (it being understood that
such transfers do not require compliance with this Section 6.02(b)), no Selling
Party may transfer any Offered Interest without compliance with the following
provisions:
(i) If Shell fails to deliver a Response within the required period or
rejects the Offer, the Selling Party may accept or solicit an Offer (as
defined above) from one or more Persons to buy the Offered Interest for
cash at the closing pursuant to a written Offer, the acceptance of which
by such Person would create a binding and enforceable agreement of sale of
the Offered Interest, but only after compliance with Section 6.02(b)(ii)
through (vi) hereof.
(ii) Prior to accepting any Offer pursuant to Section 6.02(b)(i), the
Selling Party shall give written notice to Shell of all the terms,
provisions, and, conditions (including, without limitation, whether an
election under Section 338(h)(10) of the Code is being made) with respect
to such Offer, including a copy thereof, and the Selling Party shall offer
to
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sell to Shell the Offered Interest which is subject to such Offer on the
same terms, price, provisions, and conditions as are set forth in the
Offer, except that the purchase price may be increased as provided in
6.02(b)(vi).
(iii) Shell shall have a period of 30 days from the date of its receipt of
such written notice from the Selling Party to accept such offer on the
same terms, price, provisions, and conditions stated in such written
notice insofar as they may be applicable to Shell (subject to any increase
in the purchase price required by Section 6.02(b)(vi)), which acceptance
must be in writing and be received by the Selling Party prior to the
expiration of such 30-day period. Any purported acceptance made orally
shall be ineffective, and any purported acceptance which varies the terms
of such offer shall be deemed a rejection thereof for all purposes. If
Shell accepts such offer in accordance with the foregoing provisions,
Shell shall be bound to purchase the Offered Interest in accordance with
such offer and the Selling Party shall be bound to sell the Offered
Interest on the terms, price, provisions, and conditions set forth in the
Selling Party's written notice (including any increase in the purchase
price required by Section 6.02(b)(vi)). The closing of the purchase by
Shell shall be held at the time and place specified in the written notice
from the Selling Party, or such later date as is mutually agreed to by
Shell and the Selling Party, but in no event shall closing take place
earlier than sixty (60) days from the date of receipt by Shell of the
written notice from the Selling Party.
(iv) If Shell delivers written notice of rejection to the Selling Party, or
if Shell fails to accept the Offer in the manner required by Section
6.02(b)(iii) hereof, the Offer made by the Selling Party shall be deemed
to have been rejected by Shell, the Selling Party shall be free to sell,
transfer, assign, or convey such Offered Interest to a third party on the
terms, provisions and conditions set forth in the written notice to Shell
or other terms and conditions not less favorable to the Selling Party.
(v) In the event that such transaction is not consummated as provided in
Section 6.02(b)(iv) hereof on or before sixty (60) days after the closing
date specified in the notice from the Selling Party to Shell, or, in the
event any terms and provisions of such transaction are changed following a
rejection by the Selling Party in a manner which renders such terms less
favorable to the Selling Party, no transfer of such Offered Interest may
be made unless the provisions of this Section 6.02 are again complied
with.
(vi) The purchase price payable by Shell under Section 6.02(b) shall be
increased by 10% if (and only if) the third party Offer under Section
6.02(b)(i) exceeds the price at which the Selling Party offered to sell
the Offered Interest to Shell under Section 6.02(a). No 10% premium
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shall be due in the event of an unsolicited offer from a third party to
the Selling Party.
(c) Shell may at its option, in lieu of paying any amount payable by it
pursuant to this Section 6.02 in cash, discharge its obligation to pay such
amount by distributing such Offered Interest to reduce its equity in Holdings
provided appropriate adjustment is made to The Revolver to put Holdings in the
same debt capacity position it would have been in had the cash been paid.
SECTION 6.03. NONCOMPETITION OF PRINCIPAL SAR HOLDERS. (a) Each of Mr.
Frederic C. Hamilton and Mr. Jay A. Precourt agrees that from and after the
Contribution Closing until the first anniversary of the Control Date, neither he
nor any of his Affiliates shall engage, either directly or indirectly, as a
principal or for its own account or solely or jointly with others, or as
stockholders in any corporation or joint stock association, in any business that
competes with the business of Holdings as it exists at any time up to the
Control Date within the United States and Mexico; PROVIDED that each of them may
make passive investments of less than 10% of the equity securities in publicly
traded companies and PROVIDED further that this Section 6.03 shall not require
divestiture of any investment held on the date of this Agreement or any
investment which predates the date on which Holdings began to engage in a
business which prior to such acquisition was outside of the Scope of Business
set forth in Section 1(b) of Exhibit C hereto so long as any action taken with
respect to such investment does not violate such person's fiduciary duties as an
officer or director of Holdings.
(b) If any provision contained in this Section shall for any reason be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Section, but this
Section shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. It is the intention of the parties
that if any of the restrictions or covenants contained herein are held to cover
a geographic area or to be for a length of time which is not permitted by
applicable law, or are in any way construed to be too broad or to any extent
invalid, such provision shall not be construed to be null, void and of no
effect, but to the extent such provision would be valid or enforceable under
applicable law, a court of competent jurisdiction shall construe and interpret
or reform this Section to provide for a covenant having the maximum enforceable
geographic area, time period and other provisions (not greater than those
contained herein) as shall be valid and enforceable under such applicable law.
Each of Mr. Frederic C. Hamilton and Mr. Jay A. Precourt acknowledges that Shell
would be irreparably harmed by any breach of this Section and that there would
be no adequate remedy at law or in damages to compensate Shell for any such
breach. Each of Mr. Frederic C. Hamilton and Mr. Jay A. Precourt agrees that
Shell shall be entitled to injunctive relief requiring specific performance by
Mr. Frederic C. Hamilton or Mr. Jay A.
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Precourt, as the case may be, of this Section, and each of Hamilton and Precourt
consents to the entry thereof.
ARTICLE 7
FURNISHING OF INFORMATION; CONFIDENTIALITY; ACCOUNTS; DEBT FINANCING
AND INSURANCE
SECTION 7.01. ACCESS TO INFORMATION. (a) Holdings will at all times (i)
give, and will cause each Subsidiary to give, Shell, its counsel, financial
advisors, auditors, environmental consultants and other authorized
representatives, full access, upon reasonable notice and subject to restrictions
necessary to maintain attorney client privilege, to the offices, properties,
customers, books and records (including accountants' work papers) of Holdings
and its Subsidiaries, and (ii) furnish, and will cause each Subsidiary to
furnish, to Shell, and its counsel, financial advisors, auditors, environmental
consultants and other authorized representatives, such financial and operating
data and other information (including information on financial statement,
natural resource or any other reserves) relating to Holdings or any Subsidiary
as such Persons may reasonably request and (iii) instruct the senior management,
counsel, auditors, financial advisors and other Authorized representatives of
Holdings or any Subsidiary to cooperate with Shell in any investigation of
Holdings or any Subsidiary it desires to make.
(b) Nothing in this Section 7.01 shall limit the rights of the parties
hereto under Delaware Law and the Certificate of Incorporation.
(c) Holdings and Affiliates of Shell engaged in E&P activities in the Gulf
of Mexico shall enter into information disclosure arrangements and corresponding
confidentiality arrangements as necessary to enable Holdings to prepare its
Strategic Plan and Annual Operating Plans.
SECTION 7.02. FURNISHING OF INFORMATION.
(a) From and after the Contribution Closing, Holdings shall furnish to
Shell and each of the Principal SAR Holders and Management SAR Holders:
(i) within 90 days after the end of each fiscal year, its consolidated
balance sheet and related statements of income and changes in financial
position, showing the financial condition of Holdings and its consolidated
Subsidiaries as of the close of such fiscal year and the results of its
operations and the operations of such Subsidiaries during such year, all
audited by Holdings' independent public accountants and accompanied by an
opinion of such accountants (which shall not be qualified in any material
respect) to the effect that such consolidated financial statements fairly
present the financial condition and results of operations of Holdings
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on a consolidated basis in accordance with generally accepted accounting
principles, consistently applied; and
(ii) within 60 days after the end of each fiscal quarter of each fiscal
year, its consolidated balance sheet and related statements of income and
changes in financial position, showing the financial condition of Holdings
and its consolidated Subsidiaries as of the close of such fiscal quarter
and the results of its operations and the operations of such Subsidiaries
during such fiscal quarter and the then elapsed portion of the fiscal
year, all certified by one of the senior financial officers as fairly
presenting the financial condition and results of operations of Holdings
on a consolidated basis in accordance with generally accepted accounting
principles, consistently applied, subject to normal year-end audit
adjustments.
(b) Holdings shall promptly notify Shell of (a) any material notice or
other material communication from any governmental or regulatory agency or
authority received by Holdings or its Subsidiaries; (b) any notice received by
Holdings or its Subsidiaries of any actions, suits, claims, investigations or
proceedings commenced or, to its knowledge, threatened against, relating to or
involving or otherwise affecting Holdings or its Subsidiaries where the amount
involved exceeds $1,000,000 or as may be required to permit Shell to compile
information for SEC reporting purposes; or (c) any liability or potential
liability which is reasonably likely to occur of which Holdings becomes aware in
respect of which Shell may be entitled to indemnification pursuant to the
Contribution Agreement (excluding Assumed Liabilities (as defined in the
Contribution Agreement)).
SECTION 7.03. ACCOUNTANTS. Holdings agrees to retain as its independent
public accountants and auditors the accounting firm retained by Shell for such
purposes, and to employ accounting principles, policies and procedures as
employed by Shell from time to time.
SECTION 7.04. DEBT FINANCING. Holdings and Shell agree to enter into The
Revolver (as defined in Exhibit D hereto) and to comply with all the other
provisions of Exhibit D hereto.
SECTION 7.05. INSURANCE. From and after the Contribution Closing, Holdings
and its Subsidiaries shall be included in the insurance programs of Shell and
its Subsidiaries (including any third party insurance that Shell may obtain
which applies to the Contributed Businesses), will have access to insurance
carried by Shell and its Subsidiaries to insure losses covered under the Shell
programs, and shall bear and pay an allocable portion of the cost of
participation in such programs. However, the parties will agree to an
appropriate adjustment of such allocable cost to Holdings of participating in
such insurance programs if such
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cost is materially different from the cost of maintaining comparable insurance
with a third-party insurer of comparable quality (based on a mutually agreeable
validation process). If requested by Holdings, Shell will arrange for one or
more of its Affiliates or third parties to provide insurance coverage to the
Contributed Businesses for all deductibles and insurance retentions in excess of
the per occurrence level which would otherwise apply under the insurance
coverage available to the Contributed Businesses as of the date of the
Contribution Agreement (the "DEDUCTIBLES BUY-DOWN") (to such retention level in
excess of $5 million per occurrence as may be requested by Holdings) for the
period after the Contribution Closing, and Holdings will pay Shell the cost of
obtaining such Deductibles Buy-Down.
SECTION 7.06. RISK MANAGEMENT. At the Contribution Closing, Holdings will
adopt and comply with Tejas' Risk Management Policy, but a revised Risk
Management Policy appropriate for Holdings will be designed in consultation with
Shell and presented to the Board for approval within 6 months of the
Contribution Closing. Until such policy is adopted, Holdings will continue to
propose such policy at each meeting of the Board.
SECTION 7.07. AUTHORITY. At the Contribution Closing, Holdings will adopt
and comply with Tejas' Delegation of Authority Policy with respect to entering
into contracts. At the first meeting of the Board after the Contribution
Closing, Holdings will propose a revised policy for the delegation of authority
to management for entering into contracts. Until such policy is adopted,
Holdings will continue to propose such policy at each meeting of the Board.
SECTION 7.08. CODE OF CONDUCT. Holdings agrees to adopt and comply
with Shell's Code of Conduct attached hereto as Exhibit E.
SECTION 7.09. DEBT OF UNCONSOLIDATED PERSONS. Holdings will vote, and will
cause each of its Subsidiaries to vote, the shares or other equity interests in
its direct or indirect subsidiaries which are not consolidated with Holdings
against the incurrence of any Indebtedness by such unconsolidated subsidiaries
and will not consent, and will not permit its direct or indirect subsidiaries to
consent, to the incurrence of any Indebtedness by an unconsolidated subsidiary
unless the amount of such Indebtedness to be incurred by such unconsolidated
subsidiary in one transaction or a series of transactions is less than $10
million or one of the Shell Directors consents thereto (which in the case of
Coral may be evidenced by vote of the Shell-appointed directors of Coral's board
of directors).
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ARTICLE 8
MISCELLANEOUS
SECTION 8.01. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including by telecopy or similar
writing) and shall be given:
if to Shell, to: President
Shell Exploration & Production Company
Room 4401
One Shell Place
Houston, TX 77002
Facsimile: (713) 241-7913
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: David W. Ferguson, Esq.
Telecopy: (212) 450-4800
if to Holdings, to: James W. Whalen
Tejas Gas Corporation
1301 McKinney, Suite 700
Houston, TX 77010
Telecopy: (713) 658-9600
with a copy to: James L. Palenchar, Esq.
Bartlit Beck Herman Palenchar & Scott
The Kittredge Building
511 Sixteenth Street
Denver, CO 80202
Telecopy: (303) 592-3140; and
if to the SAR Holders, to the addresses set forth on the signature pages
hereto,
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to each the other party hereto. Each such notice, request
or other communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate confirmation is received or (b) if given by any other means, when
delivered at the address specified in this Section.
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SECTION 8.02. AMENDMENTS; WAIVERS; BENEFIT OF CERTAIN SECTIONS. (a) Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
each of Shell, Sierra Acquisition and a majority of the individuals comprising
the Principal SAR Holders and Management SAR Holders, or in the case of a
waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 8.03. SEVERABILITY. If any provision of this Agreement or the
application thereof to either party or set of circumstances shall, in any
jurisdiction and to any extent, be finally held invalid or unenforceable, such
term or provision shall only be ineffective as to such jurisdiction, and only to
the extent of such invalidity or unenforceability, without invalidating or
rendering unenforceable any other terms or provisions of this Agreement or under
any other circumstances, and the parties shall negotiate in good faith a
substitute provision which comes as close as possible to the invalidated or
unenforceable term or provision, and which puts each party in a position as
nearly comparable as possible to the position it would have been in but for the
finding of invalidity or unenforceability, while remaining valid and
enforceable.
SECTION 8.04. ENTIRE AGREEMENT. The Contribution Agreement, the
Certificate of Incorporation, this Agreement (including the Exhibits hereto),
and the agreements contemplated hereby and thereby constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior agreements and undertakings, both written and
oral, among the parties with respect to the subject matter hereof.
SECTION 8.05. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, successors and permitted assigns. Except by death,
no party may assign, delegate or otherwise transfer all or any of its rights or
obligations under this Agreement without the consent of the other parties
hereto; PROVIDED that (i) Shell and Sierra Acquisition may assign, delegate or
otherwise transfer all or any of its rights under this Agreement to any Person,
without the consent of Holdings or any SAR Holder, so long as such transferee
agrees in writing to be bound by the provisions hereof applicable to Shell and
Sierra Acquisition and (ii) Permitted Transferees who become parties hereto in a
Permitted Transfer shall have rights hereunder as a Permitted Transferee. No
assignment by Shell or Sierra Acquisition of this Agreement shall relieve Shell
or Sierra Acquisition from their obligations hereunder.
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SECTION 8.06. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and each Person who becomes
a party hereto or bound by the terms of this Agreement, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person, other than the parties hereto and their respective successors and
permitted assigns, any right, benefit or remedy of any nature or kind whatsoever
under or by reason of this Agreement; PROVIDED that each Additional Holder, as a
condition to receiving any SARs, shall enter into an agreement supplemental
hereto agreeing to be bound by Article 3 (but with respect to Section 3.01 only
if such person is to receive Rollover SARs), Section 4.01 and 4.02 and Article 8
hereof, and acknowledging and agreeing that such Additional Holders do not have
any rights or obligations under any of the other provisions hereof.
SECTION 8.07. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective upon the Contribution Closing.
SECTION 8.08. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed and to be fully performed in that State.
SECTION 8.09. TERMINATION OF CERTAIN PROVISIONS. Section 4.03 and Section
6.01 (and Exhibit B hereto) shall terminate and be of no further force or effect
on the date that both Mr. Jay A. Precourt and Mr. Frederic C. Hamilton have
irrevocably exercised or been deemed to have irrevocably exercised their
respective SAR Exercise Rights.
SECTION 8.10. SPECIFIC PERFORMANCE. Each party hereto acknowledges and
agrees that each other party's remedies at law for a breach or threatened breach
of any of the provisions of this Agreement would be inadequate and, in
recognition of that fact, each agrees that, in the event of a breach or
threatened breach by any party hereto of the provisions of this Agreement, in
addition to any remedies at law, each party, without posting any bond shall be
entitled to obtain equitable relief in the form of specific performance, a
temporary restraining order, a temporary or permanent injunction or any other
equitable remedy which may then be available.
SECTION 8.11. WAIVER OF JURY TRIAL. Each of the parties hereto hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of any of them in the negotiation,
administration, performance and enforcement thereof.
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SECTION 8.12. ARBITRATION. Any controversy or claim, whether based on
contract, tort, statute or other legal or equitable theory (including but not
limited to any claim of fraud, misrepresentation or fraudulent inducement or any
question of validity or effect of this Agreement including this clause) arising
out of or related to this Agreement (including the Exhibits hereto and any
amendments or extensions), or the breach or termination hereof shall be settled
by arbitration in accordance with the then current CPR Institute for Dispute
Resolution Rules for Non-Administered Arbitration of Business Disputes, and this
provision. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. ss.ss. 1-16 to the exclusion of any provision of state law
inconsistent therewith or which would produce a different result, and judgment
upon the award rendered by the arbitrator may be entered by any court having
jurisdiction. The arbitration shall be held in Harris County, Texas. There shall
be one arbitrator. The arbitrator shall determine the claims of the parties and
render a final award in accordance with the substantive law of the State of
Delaware, excluding the conflicts provisions of such law. The arbitrator shall
not be precluded from granting injunctive relief as contemplated by Section 8.10
if it determines such relief is appropriate. The arbitrator shall set forth the
reasons for the award in writing. Notwithstanding the foregoing, determination
of the Final Exercise Price shall be governed exclusively by the provisions of
Article 3 hereof.
SECTION 8.13. CONTROL OF ACTIONS BY HOLDINGS. Following the Control Date
until the SARs of both Principal SAR Holders have been paid, Holdings shall take
such actions, and shall refrain from taking any actions, in each case pursuant
to Article 4 of the Contribution Agreement, as are directed by the SAR Holders
holding a majority of the units of SARs held by the SAR Holders.
SECTION 8.14. CONTRIBUTION AGREEMENT. (a) Each Holder of a SAR
acknowledges that such Person is an informed and sophisticated buyer experienced
in the evaluation of transactions such as those contemplated by this Agreement
and the other Transaction Agreements. Each Holder of a SAR acknowledges that
such Person has undertaken (or will prior to the Contribution Closing undertake)
such investigation and has been (or will be) provided with and has evaluated (or
will evaluate) such documents and information as such Person deems necessary to
enable such Person to make an informed and intelligent decision with respect to
the execution, delivery and performance of this Agreement or any other
Transaction Agreements. In particular, each Holder of a SAR acknowledges that
such Person and its representatives have been afforded (or will prior to the
Contribution Closing be afforded) the opportunity to inspect the Shell Assets
and the Assumed Liabilities and to examine the records of Shell and its
Subsidiaries with respect to all information in possession of Shell and its
Subsidiaries relating to the Shell Assets, the Assumed Liabilities, the
Contributed Businesses and the Merger Sub that has been requested by the Holders
of SARs. EACH HOLDER OF A SAR FURTHER ACKNOWLEDGES THAT, EXCEPT AS EXPRESSLY
PROVIDED IN THIS AGREEMENT OR THE OTHER
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TRANSACTION AGREEMENTS, SHELL AND ITS SUBSIDIARIES AND THEIR OFFICERS,
DIRECTORS, EMPLOYEES, REPRESENTATIVES AND AGENTS (IN THEIR CAPACITIES AS SUCH)
HAVE MADE NO, AND SHELL AND ITS SUBSIDIARIES HEREBY EXPRESSLY DISCLAIM ANY,
REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OR COMPLETENESS OF SUCH
INFORMATION, AS TO THE TITLE OF SHELL OR ANY OF ITS SUBSIDIARIES TO ANY SHELL
ASSETS, OR AS TO ANY OTHER INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR
ORAL) FURNISHED TO THE HOLDERS OF SARS OR THEIR REPRESENTATIVES BY OR ON BEHALF
OF SHELL OR ANY OF ITS SUBSIDIARIES. SHELL AND ITS SUBSIDIARIES EXPRESSLY
DISCLAIM ANY WARRANTY OF MERCHANTABILITY OF ANY OF THE SHELL ASSETS OR OF THE
FITNESS OF ANY OF THE SHELL ASSETS FOR ANY PURPOSE. IT IS UNDERSTOOD THAT,
EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT OR THE OTHER TRANSACTION
AGREEMENTS, THE SHELL ASSETS ARE TO BE CONTRIBUTED TO HOLDINGS PURSUANT TO THE
CONTRIBUTION AGREEMENT IN AN "AS IS"AND "WHERE IS" CONDITION. IT IS EXPRESSLY
UNDERSTOOD AND AGREED THAT NONE OF THE WARRANTIES IN THE MERGER AGREEMENT OR THE
CONTRIBUTION AGREEMENT BY SHELL SHALL BE DEEMED TO COVER CORAL. MOREOVER, MANY
OF THE FACILITIES INCLUDED IN THE SHELL ASSETS ARE OPERATED BY A THIRD PARTY ON
BEHALF OF SHELL, AND ACCORDINGLY, ANY WARRANTIES WITH REGARD TO SUCH FACILITIES
OR THE ASSETS AND LIABILITIES RELATED THERETO ARE EXPRESSLY LIMITED BY THE
KNOWLEDGE OF SHELL, WHETHER EXPRESSED AS SUCH OR NOT.
(b) Shell will not permit Holdings to enter into an amendment or waiver of
the Contribution Agreement unless such amendment or waiver is in writing and
consented to by the SAR Holders who hold (or, in the case of any consent,
approval or agreement prior to the Contribution Closing, who will hold
immediately after the Contribution Closing) a majority of the SARs held (or to
be held immediately after the Contribution Closing) by all SAR Holders.
(c) In accordance with the Contribution Agreement, Shell may add, delete or
modify the schedules to the Contribution Agreement by delivering supplemental
Schedules to the SAR Holders at any time prior to November 1, 1997; PROVIDED
that, Shell will not insert generic exceptions to the schedules that would
modify the scope of the warranties or covenants set forth therein. The revised
schedules will be marked to show all deletions and additions to the original
schedules. The SAR Holders shall have the right to review the revised schedules
for a period of 5 business days after receipt thereof. At any time within the 5
business-day time period, the SAR Holders who after the Contribution Closing
would hold a majority of the SARs held by the SAR Holders shall have
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the right to terminate this Agreement by notice to Shell if the revised or
supplemented information would reasonably be likely to have a Holdings Material
Adverse Effect, whereupon, the Contribution Agreement shall automatically
terminate. Any such notice, if given, shall specify the information forming the
basis for the decision to terminate. Shell shall have 10 business days after
receipt of any such notice to review with the SAR Holder the information forming
the basis for the decision to terminate and to attempt to agree on corrective
measures, if any. If the parties cannot agree on corrective measures within such
10 business-day period, then this Agreement shall terminate whereupon, the
Contribution Agreement shall automatically terminate. If this Agreement and the
Contribution Agreement are not terminated as permitted by this Section, the SAR
Holders shall be deemed to have accepted such revisions, and the schedules
attached to the Contribution Agreement as of the date of the Contribution
Agreement shall be deemed to be superseded by the revised schedules (and the
applicable warranties to which such revised schedules refer should be deemed
qualified by the matters included in the applicable schedules).
(d) Each of the SAR Holders agrees to take all lawful actions within his
power (but without any payment of money by any SAR Holders, without requiring
any SAR Holder who is a director of Tejas to take any actions inconsistent with
such SAR Holder's fiduciary obligations under applicable law, and without
requiring any SAR Holder who is an officer of Tejas to contravene any Tejas
policy or any order or direction of the Board of Directors of Tejas or officers
of Tejas senior to such SAR Holder) to assure that Tejas will comply with its
covenants and agreements set forth in the other Transaction Agreements.
(e) Each of the Holders of SARs and Holdings will file its Tax Returns
consistent with the intent to treat the assumption and cancellation of Tejas
Stock Options and the conversion thereof into SARs as tax-free to the Holders of
SARs and will not take any position inconsistent with such intent.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be duly executed by their respective
authorized officers, as of the day and year first above written.
TRANGO HOLDINGS CORPORATION
By:________________________
Name:
Title:
SHELL OIL COMPANY
By:________________________
Name:
Title:
SIERRA ACQUISITION
CORPORATION
By:________________________
Name:
Title:
SAR HOLDERS:
HAMILTON SAR HOLDERS:
___________________________
Mr. Frederic C. Hamilton
[Address]
PRECOURT SAR HOLDERS:
___________________________
Mr. Jay A. Precourt
[Address]
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PRECOURT INTERESTS LTD., A
LIMITED PARTNERSHIP
By:_________________________, as a
general partner
Name: Jay A. Precourt
Title: [President]
[Address]
MANAGEMENT SAR HOLDERS:
____________________________
Name: James W. Whalen
[Address]
____________________________
Name: Rene Joyce
[Address]
____________________________
Name: P. Anthony Lannie
[Address]
____________________________
Name: X
[Address]
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The undersigned, each as a spouse of a SAR Holder executing this Agreement,
hereby consents to such SAR Holder's execution, delivery and performance of this
Agreement, and, to the extent of her community property rights, if any, agrees
to be bound by this Agreement.
________________________
Molly L. Precourt
________________________
Virginia A. Whalen
________________________
Kay P. Joyce
________________________
Donna Dean Lannie
________________________
Spouse of X
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EXHIBIT A-1
(to Management Agreement)
CERTAIN MATTERS TO BE DECIDED BY THE BOARD
(i) Any purchase or other acquisition of (whether effected by a merger or
consolidation, purchase of securities or purchase of assets), or any investment
in, any Person (other than a wholly-owned Subsidiary of Holdings) by Holdings or
any of its Subsidiaries in an amount in excess of $10,000,000, in any one
transaction or a series of related transactions;
(ii) Except as set forth in the Annual Operating Plan, the making of any
capital expenditure (or the entering into of a commitment to make any capital
expenditure) by Holdings or any of its Subsidiaries, in an amount in excess of
$10,000,000, in any one transaction or series of related transactions;
(iii) The initiation or settlement of any material litigation involving
Holdings or any of its Subsidiaries; and
(iv) The adoption of, or making of any change to, the Strategic Plan and
the adoption of, or the making of any material change to, the Annual Operating
Plan.
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EXHIBIT A-2
(to Management Agreement)
MATTERS REQUIRING THE CONSENT OF SHELL
(i) any merger or consolidation of Holdings or any of its Material
Subsidiaries with or into any Person other than a merger or consolidation
of any wholly-owned Subsidiary of Holdings with another wholly-owned
Subsidiary of Holdings;
(ii) any amendment to the Certificate of Incorporation or By-Laws;
(iii) any sale, asset exchange, lease, mortgage, pledge, transfer or other
disposition by merger or otherwise by Holdings or any of its Subsidiaries
(in one transaction or a series of related transactions) of any
Significant Assets;
(iv) any project or acquisition which the Shell Directors reasonably
conclude (x) may result in adverse publicity to Shell or (y) would subject
Shell or any of its Affiliates or Holdings or any of its Subsidiaries to
any material regulatory burden to which any of them would not otherwise be
subject;
(v) any change in the Scope of Business as set forth in Section 1(b) of
Exhibit C to the Management Agreement;
(vi) any transaction involving an amount in excess of $60,000 (other than
transactions governed by clause (xi) of this Exhibit A-2) between (x)
Holdings or any of its Subsidiaries, on the one hand and (y) any senior
executive, such senior executive's spouse, if any, any relatives of such
senior executive or his or her spouse, if any, or any Person in which any
senior executive has an interest (except for corporations the shares of
common stock of which are traded on a public securities exchange or
quotation system), on the other hand (for purposes of this clause (vi) and
clause (xi), "senior executive" means a director of Holdings or any
officer of Holdings or any Subsidiary who would be required to make
filings pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended, if Holdings was subject to such Section 16);
(vii) the issuance of any Equity Security or phantom equity security
(including SARs) by Holdings, or any direct or indirect Subsidiary of
Holdings, other than (x) issuances to Holdings or any wholly-owned
Subsidiary of Holdings or, (y) as specifically contemplated by this
Management Agreement, the Certificate of Incorporation or the Contribution
Agreement;
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(viii) any redemption, purchase or other acquisition, directly or indirectly,
of any Equity Security or phantom equity security (including SARs) of
Holdings or any of its Subsidiaries by Holdings or any of its Subsidiaries
other than as specifically required by this Management Agreement or the
Certificate of Incorporation;
(ix) the declaration or payment of any dividend or the making of any other
distribution by Holdings or any of its Subsidiaries (whether in cash,
securities or other property or assets) with respect to any class of
Equity Securities of Holdings, except for dividends on Preferred Stock (as
defined in the Certificate of Incorporation) of Holdings;
(x) any creation, incurrence, assumption, guarantee or becoming directly or
indirectly liable for (an "INCURRENCE") of any Indebtedness (including any
Acquired Indebtedness) by Holdings or any of its consolidated
subsidiaries, unless, after giving effect to the Incurrence of such
Indebtedness and the application of the proceeds thereof, the Debt to
Total Capitalization Ratio would be less than 0.55 to 1. "DEBT TO TOTAL
CAPITALIZATION RATIO" means, as of any date, the ratio of the amount of
consolidated Indebtedness of Holdings and its consolidated subsidiaries
outstanding as of such date (less the amount of any Exercise Indebtedness
then outstanding) ("OUTSTANDING INDEBTEDNESS") to the sum of the
consolidated stockholders' equity (including minority interests) of
Holdings and its consolidated subsidiaries, as of such date, determined in
accordance with generally accepted accounting principles, consistently
applied and the amount of Outstanding Indebtedness. "ACQUIRED
INDEBTEDNESS" means Indebtedness of a Person (i) existing at the time such
Person becomes a consolidated subsidiary of Holdings or (ii) assumed in
connection with the acquisition of assets from a Person. "EXERCISE
INDEBTEDNESS" means, as of any date, the amount of Indebtedness incurred
prior to such date to fund the payment of Purchased SARs less the amount
of such Indebtedness which is repaid out of the proceeds of the sale of
shares of Common Stock prior to such date;
(xi) any change in the compensation of any director or senior executive,
other than in the ordinary course of business consistent with past
practice, and any changes to pension or employee benefit plans, other than
as required to comply with ERISA or to continue their existing tax
treatment and treatment under federal securities laws except that, after
the Contribution Closing, the Compensation Committee will determine
whether the Incentive SARs of Mr. Frederic C. Hamilton will be amended to
vest upon the death or Disability of Mr. Hamilton. The Shell Director on
the Compensation Committee shall be invited to all deliberations of the
Compensation Committee on such subject, and the majority vote of the
Compensation Committee shall be binding on the parties;
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(xii) any change in or initiation of new accounting or tax principles, or
policies with respect to the financial statements, records or financial
affairs, any change in or initiation of new significant tax positions or
any change in the fiscal year of Holdings or any consolidated Subsidiary,
except as required by generally accepted accounting principles or by law;
(xiii) any change in the independent public accountants of Holdings;
(xiv) the dissolution, liquidation or winding-up of Holdings or any of its
Material Subsidiaries; or the adoption of a plan of liquidation by
Holdings or any of its Material Subsidiaries; or any action by Holdings or
any of its Subsidiaries to commence any suit, case, proceeding or other
action under any existing or future law of any jurisdiction relating to
bankruptcy, insolvency, reorganization or relief of debtors seeking to
have an order for relief entered with respect to Holdings or any of its
Subsidiaries, or seeking to adjudicate Holdings or any of its Subsidiaries
a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding up, liquidation, dissolution, composition or other
relief with respect to Holdings or any of its Subsidiaries or seeking
appointment of a receiver, trustee, custodian or other similar official
for Holdings or any of its Subsidiaries thereof, or for all or any
Substantial Part of Holdings or any of its Subsidiaries thereof; or making
a general assignment for the benefit of the creditors of Holdings or any
of its Subsidiaries;
(xv) any purchase of, acquisition of or investment in (whether effected by a
merger or consolidation, joint venture, purchase of securities or purchase
of assets) any Person or any asset (other than a wholly-owned Subsidiary
of Holdings) by Holdings or any of its Subsidiaries (A) in an amount in
excess of $150 million (including Acquired Indebtedness), in any one
transaction or a series of related transactions, or (B) in a
non-controlling interest in any Person in an amount in excess of $20
million, in any one transaction or a series of related transactions;
(xvi) the making of any capital expenditure (or the entering into of a
commitment to make any capital expenditure) by Holdings or any of its
Subsidiaries, in an amount in excess of $150 million, in any one
transaction or series of related transactions;
(xvii) any amendment or alteration of Holdings' Risk Management Policy; or
(xviii) any adoption, amendment or alteration of Tejas' Delegation of Authority
Policy.
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EXHIBIT B
(TO MANAGEMENT AGREEMENT)
CERTAIN ACCOUNTING ADJUSTMENTS
IN COMPUTING THE EXERCISE PRICE
The following adjustments will be made to the generally accepted
accounting principles utilized in preparing Holdings' adjusted financial
statements for purposes of calculating the Exercise Price or Final Exercise
Price in determining GAAP:
(i) borrowings required to buy out the operating leases on the North
Pipeline System and the Transok gas plants shall be accounted for as if
such leases (x) were still in existence as they were in effect on June 30,
1997, and (y) were operating leases;
(ii) borrowings required to repurchase the cushion gas sold to
Houston Gas Ventures (in the amount outstanding on June 30, 1997) shall be
accounted for as if such repurchase had not occurred and amounts which
would otherwise have been paid to Houston Gas Ventures were paid pursuant
to an operating lease with a term (including renewals) extending for at
least 10 years after the Effective Time;
(iii) gains on pre-Contribution Closing sales of economic interests
in natural gas sales contracts shall continue to be immediately recognized
as reflected in Tejas' June 30, 1997 financial statements;
(iv) Coral's application (as of December 31, 1996) of
market-to-market accounting for physical and financial positions shall be
used FOR POSITIONS OF 6 MONTHS OR LESS IN DURATION;
(v) Tejas Gas Corporation's methodology (as in effect on December
31, 1996) for pricing of purchases and the costing of sales of storage gas
shall be continued for all future periods; and
(vi) provided that a risk management policy appropriate for the
Company is designed in consultation with Shell and presented to the
Company's Board of Directors for approval within 6 months of the
Contribution Closing, hedge accounting for hedging of gas purchases to
replace gas consumed in processing shall be used.
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EXHIBIT C
(TO MANAGEMENT AGREEMENT)
SCOPE OF BUSINESS
SECTION 1. HOLDINGS EXCLUSIVITY; LIMITATIONS. (a) Subject to (i) Imbedded
Assets, (ii) Excluded Businesses, (iii) assets or businesses the E&P Segment
purchases, leases or otherwise acquires or constructs in the future which
qualify as Imbedded Assets or Excluded Businesses, (iv) contractual arrangements
as in effect on the date of the Contribution Agreement and (v) the rights of
Shell or the E&P Segment under the other provisions hereof, after the
Contribution Closing (as defined in the Contribution Agreement), the Holdings
and its Subsidiaries shall be the exclusive business unit of the E&P Segment for
the acquisition, construction and operation of Midstream Assets and the
operation of Midstream Businesses operating in the United States, Canada and
Mexico.
(b) Holdings and its Subsidiaries will not engage in any business other
than the Midstream Business and the ownership and operation of Electricity
Projects and any and all activities incidental thereto (including, without
limitation, hedging, risk management and financing its activities). Holdings and
its Subsidiaries will not engage in the business of selling natural gas or
electricity to residential or Small Commercial Users.
(c) Holdings and its Subsidiaries will not engage in any business outside
of North America, Central America, South America or the Carribean Islands.
Holdings and its Subsidiaries will not engage in any business in any country in
Central or South America (other than Mexico), the Carribean Islands or in
Canada, unless and until the E&P Segment is generally engaged in substantial
exploration and production operations in such country (assessed on a
country-by-country basis). Holdings and its Subsidiaries will not engage in
businesses in the State of California or in the Permian Basin in the State of
Texas and New Mexico to the extent prohibited or restricted by contractual
agreements in effect on the date of the Contribution Agreement made by Shell or
its Affiliates relating to Aera Energy LLC or Altura Energy LLC. This paragraph
(c) does not, and is not intended to, create any limitation on the right of any
of the E&P Segment, Shell or any of its Affiliates or Parent or any Parent
Affiliate to engage in any business in any jurisdiction.
(d) Notwithstanding anything else contained herein:
(i) the operation of the businesses and assets of the E&P Segment as
they exist from time to time (including Midstream Businesses and Midstream
Assets not contributed or sold to Holdings) shall not constitute a breach
or violation of any provision of this Exhibit C;
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(ii) nothing contained in this Exhibit C shall prohibit or restrict
the E&P Segment from engaging in any Midstream Business or having an
interest in any Person engaged, directly or indirectly, in any Midstream
Business, provided that such Midstream Business (whether engaged in by the
E&P Segment or such other Person) does not generate annual gross revenues
in excess of $5 million, and none of the provisions of this Exhibit C
shall apply to any such Midstream Business or the Midstream Assets of such
Midstream Business;
(iii) nothing contained in this Exhibit C shall prohibit or restrict
the E&P Segment from owning, directly or indirectly, an aggregate of less
than five percent (5%) of the common stock of, or other ownership interest
in, any Person engaged in the Midstream Business, and none of the
provisions of this Exhibit C shall apply to any such Midstream Business or
the Midstream Assets of such Midstream Business;
(iv) nothing contained in this Exhibit C shall prohibit or restrict
the E&P Segment from selling or otherwise providing products or services
to any Person engaged in a Midstream Business which products or services
the E&P Segment would otherwise be permitted to sell or provide to a
Person that is not engaged in a Midstream Business; and
(v) nothing contained in this Exhibit C shall prohibit or restrict
the E&P Segment from performing under any contract existing as of the date
of the Contribution Agreement
SECTION 2. RESTRICTIONS LIMITED TO E&P SEGMENT; NO LIMITATION ON OTHER
SHELL OR PARENT BUSINESSES. (a) Notwithstanding anything contained herein, (i)
the provisions of this Exhibit C apply only to the E&P Segment (including
Persons engaged primarily in the Midstream Business over which the E&P Segment
has and exercises majority voting control ("E&P CONTROLLED PERSONS")) and apply
only to the operations of the E&P Segment and the E&P Controlled Persons located
in the United States, Canada and Mexico (excluding the State of California and
the Permian Basin in the State of Texas to the extent prohibited or restricted
by contractual agreements in effect on the date of the Contribution Agreement
made by Shell or its Affiliates relating to Aera Energy LLC or Altura Energy
LLC), (ii) none of the provisions of this Exhibit C apply, or shall be construed
to apply, in any way to Shell or any of its Affiliates (other than the E&P
Segment and the E&P Controlled Persons), Parent or any Parent Affiliate
(including Shell Canada Limited) and (iii) none of the provisions of this
Exhibit C apply, or shall be construed to apply, in any way to any Person (other
than the E&P Segment) which is not an E&P Controlled Person and the E&P Segment
shall only be responsible for actions or inactions of E&P Controlled Persons if
it has voting control over such action or inaction.
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(b) Except as otherwise provided herein and in the Coral Contribution
Agreement (as defined in the Contribution Agreement), nothing contained in this
Exhibit C or any other Transaction Agreements (as defined in the Contribution
Agreement) shall be deemed to restrict in any way the freedom of the E&P Segment
or the E&P Controlled Persons, Shell or any of its Affiliates (other than any
E&P Controlled Persons) or Parent or any Parent Affiliate to conduct
independently of Holdings and its Subsidiaries, any business or activity
whatsoever without accountability to Holdings or any of its Subsidiaries or to
the Stockholders. For the avoidance of doubt the parties agree that, Shell
Canada Limited and its controlled Affiliates are not restricted in any way by
the provisions of this Exhibit C, and this Exhibit C does not limit their
ability to engage in any business, whether or not in competition with Holdings,
anywhere in the world, including in the United States, Canada and Mexico,
irrespective of whether Holdings or any of its Subsidiaries is engaged in any
business in any such jurisdiction and the provisions of this Exhibit C shall not
apply to Shell Canada Limited.
SECTION 3. HOLDINGS OFFER TO PURCHASE CERTAIN IMBEDDED ASSETS. It is
anticipated that if the primary economic benefit of an Imbedded Asset (which is
not an Excluded Business) owned by Shell or its Affiliates and operated by the
E&P Segment is no longer derived from its use by the E&P Segment, Shell shall so
notify Holdings, and Holdings will have a one-time right to offer to purchase
such Asset, exercisable by written notice delivered to Shell within 30 days
after delivery of Shell's notice to Holdings, at a price in cash equal to its
fair market value; PROVIDED that Holdings will at the time of such sale enter
into an agreement for the provision of services to the E&P Segment utilizing
such Imbedded Asset upon mutually agreeable market terms and conditions. If
Holdings does not timely deliver a notice of exercise of its right to offer,
Holdings' rights under this Section 3 in respect of such Imbedded Asset shall
expire and be void, and Shell shall thereafter be free to make use of such
Imbedded Asset as it desires, including transferring such Imbedded Asset to any
Person, without any restriction under this Exhibit C. If Holdings exercises its
right to purchase the Imbedded Asset, the parties agree to consummate such
purchase within 90 days of the date of delivery of the Holdings' notice to Shell
exercising such right.
SECTION 4. RIGHT TO OFFER TO PURCHASE CERTAIN ACQUIRED ASSETS. If after
the date hereof the E&P Segment (a) purchases, leases or otherwise acquires or
constructs (or proposes to do so) a Midstream Business or Midstream Asset
(whether separately or as part of a larger acquisition, an "ACQUIRED MIDSTREAM
BUSINESS " or "ACQUIRED MIDSTREAM ASSET") or (b) purchases, leases or otherwise
acquires or constructs (or proposes to do so) an electric generation or
transmission project or facility (except a project or facility that is primarily
designed to provide power to a facility of Shell or one of its Affiliates (other
than Holdings, Coral and their Subsidiaries) and except a project or facility
related to an Imbedded Asset or an Excluded Business) (an "ELECTRICITY PROJECT")
that, in any such case, would not qualify as an Imbedded Asset or an Excluded
Business and which is located (or to be
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located) within the United States, Canada (subject to Section 1(c) above) or
Mexico, Shell will notify Holdings of such fact (prior to or after the date of
such purchase, lease or other acquisition, at the option of Shell), and Holdings
will have a one-time right, exercisable by written notice delivered to Shell
within 60 days after delivery of Shell's notice to Holdings, (x) in the case of
a purchase, lease or other acquisition, to purchase such Midstream Business,
Midstream Asset or Electricity Project at a price in cash equal to the price
paid (or to be paid) therefor (or a proportional share (based on the fair market
value of the Midstream Business, Midstream Asset or Electricity Project to be
sold to Holdings as compared to the price paid by the E&P Segment for the whole)
of the price paid (or to be paid) for the larger business, as determined by good
faith negotiations between the parties) by the E&P Segment (including the
expenses (including taxes) incurred in developing and effecting such
acquisition), plus any tax costs resulting from the transfer to Holdings (which
the parties will work together to minimize) or (y) in the case of construction,
to construct such Midstream Business, Midstream Asset or Electricity Project at
a price and on terms equivalent to that proposed by an independent third party
construction firm selected by the E&P Segment, and in the case of (x) and (y),
on the same terms and conditions, and as were provided to (in the case of (x))
or by (in the case of (y)) the third party. Holdings shall provide to Shell or
its Affiliates, products and services requested by Shell or its Affiliates
relating to such Midstream Asset, Midstream Business or Electricity Project on
market terms and conditions. If Holdings does not timely deliver a notice of
exercise of its right to purchase, Holdings' right of purchase in respect of
such Midstream Business, Midstream Asset or Electricity Project shall expire and
be void. If Holdings exercises its right to purchase a Midstream Business,
Midstream Asset or Electricity Project, the parties agree to consummate such
purchase within 90 days of the date of delivery of Holdings' notice to Shell
exercising such right. If such Midstream Business, Midstream Asset or
Electricity Project is being acquired as part of a larger acquisition (an
"INCLUDED BUSINESS"), the E&P Segment shall be free, for a period of one year
after acquiring such Business, Asset or Project to make use of such Business,
Asset or Project as it desires. If Holdings exercises its right to purchase,
lease, acquire or construct, Holdings shall reimburse the E&P Segment an amount
equal to the direct costs incurred by the E&P Segment in connection with
developing such opportunity.
SECTION 5. OPERATION OF ACQUIRED MIDSTREAM BUSINESSES AND ASSETS; BACK-IN
RIGHT. If Holdings does not exercise its right to purchase, lease or otherwise
acquire or construct an Acquired Midstream Business, an Acquired Midstream Asset
or Electricity Project pursuant to Section 4, (i) the E&P Segment will have the
right to purchase, lease or otherwise acquire or construct (or retain) such
Business, Asset or Project for its own account, (ii) Holdings will, subject to
the rights of the E&P Segment in respect of Included Businesses pursuant to
Section 4, operate the Business, Asset or Project on an "at cost" basis for the
E&P Segment, with profits and losses thereof to be for the account of the E&P
Segment and (iii) if Holdings declines to purchase an Acquired Midstream
Business, an Acquired Midstream Asset or Electricity Project solely because the
Return Threshold is not met, Holdings will
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have the option to require the E&P Segment to cause such Business, Asset or
Project to be transferred to Holdings, at Holdings' expense (including the
payment of any taxes payable by Shell or its Affiliates in connection with such
transfer), exercisable within 90 days after the date the E&P Segment has
received an amount of cash (after actual taxes and all expenses of operation)
generated by such Business, Asset or Project equal to three times the amount of
cash utilized by Shell in acquiring and constructing such Business, Asset or
Project from and including the time of acquisition or construction through the
time such aggregate cash return is realized. For purposes of this Exhibit C
operation on an "at cost" basis means Holdings' actual direct costs incurred in
operating the Business, Asset or Project, all as shown in reasonable detail on
monthly invoices delivered to the E&P Segment.
SECTION 6. CERTAIN E&P SEGMENT CONTROLLED DECISIONS. (a) The parties agree
that Holdings will (and with respect to each Unrelated Qualified Project will
consider in good faith whether to) invest in, purchase, lease or otherwise
acquire and construct and operate, if necessary, each Qualified Project and
Unrelated Qualified Project presented to Holdings by the E&P Segment on the
terms contained in the Project Specifications. For each Project (as defined
below) submitted to Holdings pursuant to this Section 6 only, Shell will deliver
to Holdings a presentation (the "PROJECT SPECIFICATIONS") setting forth in
reasonable detail (a) a description of the Project (including whether it is
intended to qualify as a Qualified Project or an Unrelated Qualified Project),
(b) a description of the financing for the Project (together with copies of any
commitment letters, if any, for financing and, if necessary, appropriate waivers
of any violation of the Debt to Total Capitalization Ratio that would result
therefrom), and (c) a calculation of whether the Project meets the Return
Threshold. Holdings will have 30 days to review the Project Specifications. If
Holdings does not agree that the Project is a Qualified Project or an Unrelated
Qualified Project, it will give the E&P Segment written notice of such fact
prior to the end of such period stating the reasons why it believes the Project
is not a Qualified Project or an Unrelated Qualified Project. Holdings shall be
deemed to have waived any right to raise any issue as to whether the Project is
a Qualified Project or Unrelated Qualified Project not raised in any such
notice. If Holdings does not deliver such notice of disagreement it shall be
deemed to have agreed that the Project is a Qualified Project or an Unrelated
Qualified Project, as applicable, and shall (in the case of a Qualified Project)
be required to invest in, purchase, lease or otherwise acquire or construct and,
if applicable, operate the Project on the terms set forth in the Project
Specifications. If Holdings delivers a notice of disagreement, Holdings' and the
E&P Segment's respective chief executives will, unless otherwise agreed, meet
within 20 business days after delivery of such notice to discuss such
disagreement in good faith in order to resolve the same within 5 business days.
If such disagreements are not resolved within such 5 business day period or if
Holdings determines not to invest in, purchase, lease or otherwise acquire or
construct and operate an Unrelated Qualified Project, the E&P Segment shall be
free to invest in, purchase, lease or otherwise acquire or construct and operate
the Project and may, at its option, require Holdings to construct, if
applicable, and operate, if applicable,
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such Project on an "at cost" basis for the E&P Segment with profits and losses
to be for the account of the E&P Segment. Neither Section 4 nor Section 5 hereof
shall apply to such Project. If Holdings pursues any such opportunity, Holdings
shall reimburse the E&P Segment an amount equal to the direct costs incurred by
the E&P Segment in connection with developing such opportunity.
"QUALIFIED PROJECT" means, a proposal to invest in, purchase, lease or
otherwise acquire or to construct or operate a Midstream Business, Midstream
Asset or Electricity Project (collectively, a "PROJECT") which is related to the
E&P Segment, the Refining Segment or the Chemicals Segment (in each case, as
conducted from time to time, or as proposed to be conducted in connection with
the Project being proposed by Shell) and which satisfies the Return Threshold.
"UNRELATED QUALIFIED PROJECT" means a Project which would be a Qualified Project
except for the fact that it is not related to the E&P Segment, the Refining
Segment or the Chemicals Segment.
(b) Holdings will consult with Shell on any proposed significant decision
affecting assets transferred by Shell to Holdings or which would have an
economic impact on Shell's assets outside Holdings. Holdings will implement any
Shell request with respect to the foregoing provided that in the case of a
request concerning a decision affecting assets outside Holdings such request
meets the Return Threshold.
(c) The parties hereby agree that they will (i) act reasonably and in good
faith in assessing whether a Project meets the Return Threshold, and (ii) will
each base their calculations on assumptions which are reasonable (including
assumptions regarding rates of taxation). However, neither Holdings nor its
Subsidiaries, the E&P Segment, Shell, the Shell Directors, the Principal
Stockholders nor the Stockholder Directors will guarantee that the Return
Threshold will be met or exceeded or have any responsibility if the Return
Threshold is not realized or if the assumptions are inaccurate.
(d) With respect to any Qualified Project that includes one or more FERC
jurisdictional pipelines, Shell and its Subsidiaries will not initiate, or
actively seek in, any proceedings before the FERC (or any judicial appeals from
such FERC proceedings) to reduce the FERC rates that Shell has agreed will apply
to that pipeline until the earlier of (i) the tenth anniversary of the Effective
Time or (ii) such time as the relevant pipeline has earned cumulatively a 17% or
greater after tax internal rate of return; PROVIDED, that nothing in this
Section shall (x) restrict Shell and its Subsidiaries from initiating or taking
an active role in any such proceedings or appeals to the extent that the rates
being charged by Holdings or its Subsidiaries to Shell or its Subsidiaries for
the use of that pipeline exceed those being charged by Holdings or its
Subsidiaries to any other shipper or producer, after such rates are
appropriately adjusted for any differences in the service or transportation
provided to Shell or its Subsidiaries and the other shipper or producer or (y)
limit the right of
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Shell and its Subsidiaries to take action (including by signing any necessary
pleadings) to obtain the benefit of more favorable rates sought by third
parties. Except as provided in this Section, Shell and its Subsidiaries shall
not be restricted from appearing or asserting any rights before the FERC (or in
any judicial appeals from such proceedings).
SECTION 7. INADVERTENT VIOLATIONS. Notwithstanding anything to the
contrary contained herein, if the E&P Segment or any E&P Controlled Person shall
inadvertently violate the provisions of this Exhibit C, such inadvertent
violation shall not be a breach of this Agreement; PROVIDED that if Holdings or
Shell shall become aware of such inadvertent violation, it shall promptly give
written notice thereof to the other party, as the case may be, and thereafter
Holdings and Shell shall negotiate in good faith to reach an agreement with
respect to a cure for such inadvertent violation; PROVIDED FURTHER, that unless
otherwise agreed to by Holdings and Shell in such an agreement, the E&P Segment
shall (or shall cause the E&P Controlled Person to), within one year (or such
longer period as may be consented to by Holdings, which consent may not be
unreasonably withheld) following the delivery of such notice, subject to any
regulatory constraints (PROVIDED that the E&P Segment has used reasonable
efforts to seek to obtain a waiver thereof or other relief therefrom), either
(i) sell the Midstream Business or Midstream Asset or all the equity securities
of the Person engaged in such Midstream Business or owning such Midstream Asset,
as the case may be, to Holdings (subject to its consent) at a price equal to the
unrecovered cost with respect to such Business, Asset or such equity securities,
as reasonably demonstrated to Holdings, or (ii) dispose of the Business, Asset
or all the equity securities of the Person engaged in such Business or owning
the Asset, as the case may be, to an unaffiliated third party. For the purposes
of this Section 7, an "INADVERTENT VIOLATION" shall include, without limitation,
(x) any violation that results from the actions of an E&P Controlled Person not
consented to by Shell or any other Person other than the E&P Segment and (y) any
action taken in good faith and not intended to permanently circumvent the
provisions of this Exhibit C, including any acquisition of an interest in any
Person that owns a Midstream Business or Midstream Asset or Electricity Project.
SECTION 8. EVOLUTION OF BUSINESS. The parties acknowledge that the
existing businesses of the E&P Segment and the E&P Controlled Persons will
likely evolve in ways that cannot be fully anticipated at this time. In the
event such evolution results in any actual or potential violation by the E&P
Segment or an E&P Controlled Person of any provision of this Exhibit C, each of
Holdings and Shell shall discuss in good faith and reasonably resolve such
issue, taking account of the legitimate interests of each of Holdings and the
E&P Segment.
SECTION 9. DEFINITIONS. Capitalized terms used in this Exhibit C and not
defined herein have the meaning given them in the Management Agreement to which
this Exhibit C is attached, and the following terms have the following meanings:
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"AFFILIATE" shall, with respect to any Person, mean any other Person that
controls, is controlled by or is under common control with the former; PROVIDED
that, for purposes of this Agreement, none of the members of the Shell Group,
the Contributed Subsidiaries (as defined in the Contribution Agreement) or Owned
Subsidiaries (as defined in the Contribution Agreement) or the Contributed
Businesses (as defined in the Contribution Agreement), Holdings or their
Subsidiaries shall be considered an Affiliate of any entity that controls Shell
and none of the Subsidiaries of such entity (other than the members of the Shell
Group, the Contributed Subsidiaries, Owned Subsidiaries, the Contributed
Businesses, Holdings and their Subsidiaries), and none of the entities that
control Shell shall be considered an Affiliate of any member of the Shell Group,
Holdings, the Contributed Subsidiaries or Owned Subsidiaries or the Contributed
Businesses or their Subsidiaries. The term "CONTROL" and correlative terms shall
have the meanings ascribed to them in Rule 405 under the Securities Act of 1933,
as amended.
"CHEMICALS SEGMENT" means the business segment of Shell described in
Shell's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
under the caption "Business and Properties -- Chemical Products", as such
business segment changes over time, as described in each such Annual Report
filed after the date hereof; PROVIDED that if the scope of operations required
by generally accepted accounting principles to be included in such segment is
broadened or narrowed the parties agree to modify this definition so that the
scope of operations included in this definition is consistent with its scope as
of the date hereof.
"E&P SEGMENT" means the business segment of Shell described in Shell's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 under the
caption "Business and Properties -- Oil and Gas Exploration and Production",
excluding operations described under "--International Oil and Gas", as such
business segment changes over time, as described in each such Annual Report
filed after the date hereof; PROVIDED that if the scope of operations required
by generally accepted accounting principles to be included in such segment is
broadened or narrowed the parties agree to modify this definition so that the
scope of operations included in this definition is consistent with its scope as
of the date hereof. The E&P Segment includes each E&P Controlled Entity.
"EQUITY IRR" means the after tax internal rate of return to a Person on
equity capital invested by such Person (assuming that such equity capital is not
borrowed) in a Midstream Business, Midstream Asset, Electricity Project or
Project, assuming that any borrowing necessary to finance the Midstream
Business, Midstream Asset, Electricity Project or Project is limited to the
amount and carries a rate of interest that could reasonably be expected to be
obtained in an arm's length negotiation with a commercial lender experienced in
project based lending (or if commitments (whether or not binding) for such
financing have been made, in the amounts and at the rates set forth in such
commitments) for financing such Midstream Business, Midstream Asset, Electricity
Project or Project, with recourse for a default in respect
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of such borrowing being limited to the assets of the Midstream Business,
Midstream Asset, Electricity Project or Project itself.
"EXCLUDED BUSINESS" means a Midstream Business, Midstream Asset or
Imbedded Asset (i) which the E&P Segment does not have control rights over
sufficient to permit it to convey such business or asset to Holdings, (ii) are
significantly geographically dislocated from the principal assets of the E&P
Segment's Midstream Business contributed to Holdings pursuant to the
Contribution Agreement and have an aggregate fair market value of less than $250
million or (iii) which is a natural gas production flowline or umbilical
transporting hydrocarbons prior to the point of first sale or delivery into any
third party's (or Holdings' and its Subsidiaries') pipeline. The parties agree
that the following are Excluded Businesses (i) any Midstream Asset or Midstream
Business managed or owned as of the date hereof by any of Aera Energy LLC,
Altura Energy LLC, the Chemicals Segment or the Refining Segment and (ii) any of
the E&P Segment's Midstream Assets or Midstream Businesses located outside of
the United States and Mexico.
"IMBEDDED ASSET" means a Midstream Asset which would, under Shell's
management structure as in effect on the date hereof, fall within the managerial
profit and loss responsibility of an E&P Segment non-midstream business unit
because of the importance of the use of the asset to the viability of an E&P
Segment business unit, including the Midstream Assets and Midstream Businesses
related to the Kalkaska, Michigan and Yellowhammer, Alabama facilities.
"MIDSTREAM ASSET" means any onshore or offshore natural gas pipeline or
onshore treatment, processing, fractionation or storage facility used primarily
in the Midstream Business.
"MIDSTREAM BUSINESS" means the business of (i) gathering and transporting
natural gas through offshore or onshore pipelines, (ii) treating, processing,
fractionation and storage of natural gas at treatment, processing, fractionation
or storage facilities located onshore, (iii) transporting natural gas liquids to
wholesale or commercial consumers and (iv) purchasing, and subject to Holdings'
and its Subsidiaries' agreements with Coral, selling natural gas and natural gas
liquids. The term "NATURAL GAS LIQUIDS" as used throughout this Exhibit C
excludes natural gas liquids produced at oil refineries.
"PARENT" means Shell Petroleum Inc., a Delaware corporation.
"PARENT AFFILIATE" means any Affiliate of Parent other than Shell and its
controlled Affiliates.
"REFINING SEGMENT" means the business segment of Shell described in
Shell's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
under the caption "Business and Properties -- Oil Products", as such business
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segment changes over time, as described in each such Annual Report filed after
the date hereof; PROVIDED that if the scope of operations required by generally
accepted accounting principles to be included in such segment is broadened or
narrowed the parties agree to modify this definition so that the scope of
operations included in this definition is consistent with its scope as of the
date hereof.
"RETURN THRESHOLD" means (a) an Equity IRR of 13%, in the case of offshore
pipelines to provide transportation to the E&P Segment's equity natural gas and
(b) an after tax internal rate of return of 13% on capital invested (both debt
and equity) in all other cases.
"SMALL COMMERCIAL USER" means a customer using either (a) gas through a
single meter with an average monthly gas consumption of less than 300 dekatherms
or (b) electricity through a single meter with an average monthly electricity
consumption of less than 3,000 kilowatthours, in either such case in commercial
activities, such as apartment buildings, rooming and boarding dwellings,
residential hotels, multifamily row housing, doubles, duplexes, any combination
commercial and residential accounts (if commercial usage is half or more than
half of the total services), other situations where gas is supplied to consumers
in two or more dwelling units designed for the primary purposes of residences,
wholesale and retail stores, offices, office buildings, hotels, clubs, lodges,
associations, restaurants, railroad and bus stations, banks, laundries, dry
cleaners, mortuaries, garages for commercial activity, gasoline stations,
theaters, bowling alleys, billiard parlors, motor courts, camps, bars, grills,
taverns, retail bakeries, hospitals, schools, churches, religious and charitable
institutions or the like.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar function (such as a general partner of a partnership or the manager of a
limited liability company) are directly or indirectly owned by such Person, and
with respect to Holdings shall include any Person or venture which Holdings
makes an investment in after the date hereof in excess of $5 million, including,
by way of a joint venture or minority interest.
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EXHIBIT D
(to Management Agreement)
FINANCING AGREEMENT
Shell or an Affiliate of Shell shall provide funding for Holdings and its
consolidated Subsidiaries to assist Holdings in its pursuit of profitable
growth; PROVIDED that if an Affiliate of Shell commits to provide such funding
Shell shall fully and unconditionally guarantee such funding. To this end, Shell
(or an Affiliate) will provide a revolving credit (in an initial commitment
amount as requested by Holdings with increases or decreases (in minimum
increments of $50 million) as requested by Holdings on reasonable notice of not
less than 10 days consistent with this Financing Agreement) and cash management
agreement ("THE REVOLVER") to Holdings. The terms of The Revolver will be
designed such that Holdings obtains required funding simply, and with covenants
(including maintenance of financial ratios) and events of default, in each case,
no more restrictive than those that would be available to Holdings (on a stand
alone basis independent of Shell's ownership position) from financings with
third parties. Holdings will use The Revolver for all its borrowing
requirements, except where it is more economic for Holdings to use another
source or structure, and where such use of another source or structure has been
approved in writing by Shell, such approval not to be unreasonably withheld.
Holdings shall not execute, unless approved in writing by Shell, such approval
not to be unreasonably withheld, any financings with third parties.
Shell (or an Affiliate) shall provide The Revolver to Holdings effective
at the Contribution Closing. The terms of The Revolver will be no less favorable
than terms that would be available from third parties to Holdings. The borrowing
rate will incorporate a market competitive commitment fee based on the undrawn
portion of the commitment amount and a market competitive borrowing spread
relative to the relevant U.S. dollar LIBOR interest rate, in each case
appropriate to a borrower having Shell's credit rating. Holdings shall be free
to manage its fixed and floating interest rate exposure through interest rate
swaps, options, caps or collars executed with Shell (or an Affiliate) on terms
no less favorable than those that would be available from third parties for
similar transactions. Shell (or an Affiliate) agrees to provide such derivative
products to Holdings.
As agreed between Shell and Holdings, Holdings will refinance its current
Indebtedness (excluding medium term notes and industrial development revenue
bonds) and its existing lease transactions and, to the extent economically
feasible, other existing Off-Balance Sheet Financings with funds provided under
The Revolver.
The Revolver will terminate and all sums due thereunder shall be repaid on
the date that both Mr. Frederic C. Hamilton or Mr. Jay A. Precourt have
irrevocably
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exercised or been deemed to have irrevocably exercised their respective SAR
Exercise Rights.
Shell (or an Affiliate) shall increase the amount of funds available for
borrowing under The Revolver to the extent Holdings must borrow funds to pay the
amounts payable upon exercise of SARs after the Control Date.
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Exhibit E
(to Management Agreement)
THE SHELL CODE OF CONDUCT
INTRODUCTION
The Shell tradition and reputation require and reward honest, highly capable
employees who pursue Shell's best interests diligently, seeking always to act
ethically and to comply with all applicable laws. No decision which knowingly
results in a violation of law on the part of the Company or any of its
subsidiaries can ever be justified as being in the Company's or any such
subsidiary's best interest. Ethical conduct consistent with the expectations of
the communities in which we operate is equally essential to our long-term
success in achieving a high standard of performance. No other standard of
conduct is acceptable and each employee's performance and opportunities are
measured against all of the components of our standard. The requirements and
standards set forth above constitute the Code of Conduct for Shell Oil Company
and its subsidiaries. In addition, Shell will promote the application of these
principles in joint venture operations and in companies in which Shell does not
own a controlling interest. As used herein, "Shell" shall refer to both Shell
Oil Company (the "Company") and its subsidiaries.
REMEMBER, WITHIN THE COURSE AND SCOPE OF YOUR EMPLOYMENT, COMPLIANCE WITH OUR
CODE OF CONDUCT IS YOUR JOB. DO WHAT IS RIGHT AND LET OTHERS AROUND YOU KNOW YOU
EXPECT THE SAME OF THEM.
Compliance depends on knowing these principles and observing them in practice.
When you have a concern or are called upon to evaluate the legal or ethical
correctness of a course of action as a result of your employment with Shell:
O SEEK OUT THE APPROPRIATE POLICY STATEMENTS AND
TRAINING MANUALS AND ASK YOUR SUPERVISOR FOR
CLARIFICATION WHEN NEEDED.
O DON'T DEBATE ALONE; SEEK THE ADVISE OF LEGAL,
TAX, HUMAN RESOURCES, HS&E OR OTHER
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ADMINISTRATIVE ORGANIZATIONS THAT CAN BE OF
ASSISTANCE.
O AS A GUIDE IN MAKING YOUR DECISION, CONSIDER WHETHER IF ALL THE FACTS
SURROUNDING YOUR DECISION WERE PUBLISHED IN THE LOCAL NEWSPAPER, YOU WOULD
HAVE ANY REGRETS OR CONCERNS.
O UNDERSTAND THAT SHELL'S BEST INTERESTS CAN NEVER BE SERVED BY ILLEGAL OR
UNETHICAL CONDUCT AND THAT SHELL WILL NEVER CONDONE IT.
Remember, the perception of integrity and good character, corporate as well as
individual, can be as important as the reality. A reputation for fair, honest,
legal and ethical conduct is an essential business asset. Do not act in a manner
to jeopardize this asset.
The remainder of this booklet contains greater detail concerning your
obligations under this Code of Conduct, how you can carry out these obligations
and the discipline for failure to meet these obligations. Also included is a
brief summary of certain important Shell policies concerning compliance with law
or ethical conduct.
LEGAL AND ETHICAL OBLIGATIONS UNDER
THE CODE OF CONDUCT
These obligations are simply stated:
1) Comply fully with all applicable laws;
2) Foster an affirmative attitude concerning compliance with the law among those
reporting to you and among your colleagues;
3) Demand and exhibit conduct consistent with the expectations of the
communities in which we operate and necessary to maintain the good reputation
of Shell for fair, honest and ethical conduct; and
4) Report any violation of our Code of Conduct or any threat to human health,
safety, the environment or Shell assets that you have a good faith reason to
believe has occurred or exists to your management, your Human Resources
representative or to the Shell hotline (discussed on page 7).
COMPANY COMPLIANCE POLICIES
Most of the Shell Compliance Policies covering the matters discussed below are
recorded in a written document generally applicable to all employees and may be
obtained from your Human Resources representative or by calling the Shell
hotline. Others are adapted specifically to certain work areas or to employees
dealing in the areas covered by the policy. It is the responsibility of every
employee to know which policies apply to his or her job performance, to be
familiar with all relevant policies and to conduct his or her job in strict
compliance with such policies. Questions concerning all policies may be
addressed to your immediate supervisors, your Human Resources representative,
the Legal Organization or, in cases where deemed appropriate, the Shell hotline.
Shell also conducts ongoing educational programs and training on certain
compliance issues for employees. Because written policies and training programs
cannot anticipate every possible factual situation, each employee has an
obligation to seek clarification and advice whenever a question concerning
compliance with our Code of Conduct arises.
1. ANTITRUST LAWS. Shell's ANTITRUST COMPLIANCE POLICY and ANTITRUST COMPLIANCE
GUIDE set forth Shell's intention to conduct operations in strict compliance
with all applicable antitrust laws. The antitrust laws generally prohibit
business activities which constitute unreasonable restraints of trade. This
policy discusses the Sherman Act's prohibition against horizontal conduct
between competitors, such as price-fixing agreements. Also discussed in the
policy statement are the severe criminal and civil penalties, both corporate
and individual, for violations of the antitrust laws. Recommendations for
avoiding inadvertent violations, including guidelines for discussions of
business activities, are also included.
2. BOYCOTT LAWS. Federal law prohibits persons from taking or agreeing to take
certain actions
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in connection with any unsanctioned foreign boycott directed against any
country friendly to the United States. Shell's COMPLIANCE WITH THE FOREIGN
BOYCOTTS TITLE OF THE EXPORT ADMINISTRATION ACT details compliance issues and
reporting requirements.
3. CONFLICTS OF INTEREST. Employees have a duty to avoid situations which might
be adverse to Shell's interest, result in conflicting loyalties or interests.
Shell's CONFLICTS OF INTEREST policy letter includes discussions of
prohibited involvement with suppliers, contractors, competitors or customers,
prohibited gifts and entertainment, prohibited use of company information and
prohibited transactions involving oil and gas interests.
4. DRUG AND ALCOHOL ABUSE. Shell strives to provide employees with a workplace
free from substance abuse; i.e., the illegal or illicit use of drugs and the
abuse of alcohol; and a workplace where all individuals are able to perform
their assigned responsibilities in a safe and productive manner. SHELL'S
SUBSTANCE ABUSE POLICY is an extensive program which includes education,
substance abuse identification and rehabilitation.
5. ENVIRONMENT. Proper regard for the environment must be an essential element
of all Shell business transactions. Every employee has a responsibility
towards ensuring sound environmental performance. Shell's CORPORATE POLICY ON
ENVIRONMENTAL PERFORMANCE sets out Shell's policy for full compliance with
all environmental laws and regulations, including the assessment of
environmental consequences before entering new ventures, activities or
acquisitions, as well as fostering environmental awareness and
responsibility. Corporate and individual criminal and civil liability exists
for many violations of environmental laws.
6. EQUAL OPPORTUNITY. Shell is fully committed to a workplace that is founded on
equal opportunity and is free from discriminatory action. In support of this
commitment, Shell's EQUAL OPPORTUNITY POLICY clearly prohibits discrimination
on the basis of race, color, religion, sex, national origin, age, physical or
mental handicap, status as a special disabled veteran of the Vietnam era or
citizenship of individuals legally authorized to work in the United States.
Also prohibited is any form of harassment for any of these reasons.
7. EXPORT CONTROL. All exports of commodities and technical data are regulated
under federal law. Violations of export control regulations can result in
serious criminal penalties to Shell and to individuals. A summary of the
export control laws and regulations is available through the Legal
Organization.
8. GOVERNMENT CONTRACTS. The federal government imposes additional obligations
on companies with which it does business. Failure to comply with these
requirements may be a criminal offense in many instances. Further information
on this subject is available for employees dealing in this area by consulting
the Legal Organization.
9. INSIDER TRADING. Federal securities laws prohibit an employee from trading in
publicly held securities, including those of Royal Dutch Petroleum Company
and The "Shell" Transport and Trading Company, while in the possession of
material confidential (nonpublic) information which is learned in the course
of employment. More detailed information is contained in Shell's INSIDER
INFORMATION WITH RESPECT TO PUBLICLY HELD SECURITIES and may be obtained from
the Corporate Secretary's office or the Legal Organization.
10.POLITICAL CONTRIBUTIONS AND FOREIGN CORRUPT PRACTICES ACT. Shell has adopted
a policy setting forth the standard of conduct to be observed and procedures
to be followed in all matters pertaining to political contributions, illegal
or questionable payments, and related accounting procedures. Such policy and
related guidelines can be found in Shell's POLICY STATEMENT ON POLITICAL
CONTRIBUTIONS, ILLEGAL PAYMENTS AND ACCOUNTING PROCEDURES AND POLICY GUIDE
AND PROCEDURES CONCERNING POLITICAL CONTRIBUTIONS, ILLEGAL OR QUESTIONABLE
PAYMENTS AND RELATED ACCOUNTING PROCEDURES.
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The use of corporate funds or assets for any unlawful or improper purpose,
including payments to governmental employees or any other person as a
commercial bribe, influence payment or kickback, is prohibited. Specifically
discussed are matters dealing with entertainment of or gifts to government
officials and employees. As a policy, Shell does not make payments with
corporate funds to political parties or candidates for public office. Shell
will support Political Action Committees (PACs) in accordance with applicable
law and employees are encouraged to make personal political contributions to
PACs, candidates and organizations of their choice. However, any employee who
elects to make a personal political contribution must bear the entire
financial burden of such a contribution.
11.PRODUCT QUALITY AND SAFETY. Federal laws require the reporting of suspect
chemical hazards and/or defects in consumer products to the proper
authorities. Failure to report can result in substantial civil and criminal
penalties for the company and for individuals aware of the hazard. Shell's
REPORTING OF SUSPECT HAZARDS contains a summary of applicable laws and the
procedure to be followed by employees in reporting hazards or defects which
could pose substantial risks to human health or the environment. Such reports
may also be made through the Shell hotline.
12.PROTECTION OF ASSETS. Shell has a large variety of assets, including
extremely valuable proprietary information and physical assets. Shell
proprietary information includes intellectual property and the confidential
data entrusted to employees in connection with their jobs. Protection of
Shell assets and third party confidential information properly in Shell's
possession is the personal responsibility of each employee. Further details
concerning these obligations can be obtained by contacting the Legal
Organization.
13.SAFE WORKPLACE ENVIRONMENT. Shell is fully dedicated to maintaining a
workplace free of recognized health or safety hazards. In this regard, Shell
has ongoing and comprehensive programs and policies designed to achieve this
policy objective and ensure full compliance with all applicable laws and
regulations.
PROCEDURES FOR OBTAINING GUIDANCE
Shell policies summarized above and numerous specific policies, training
programs and operating procedures exist for the various jobs in Shell. Each
employee is charged with the obligation to understand applicable policies,
procedures and training made available to him or her. Seek clarification from
your supervisors when necessary. Managers and supervisors have the additional
duty to monitor the continuing adequacy of policies, procedures and training
within their areas of responsibility and compliance with our Code of Conduct by
persons reporting to them. Compliance Officers who are the senior operating
management within each organization have been designated for each segment of the
Company and for each subsidiary.
Any employee who feels a need for clarification concerning any compliance with
law or ethical matter should consult his or her supervisor, management or Human
Resources representative. Any question concerning legal compliance which cannot
be answered promptly and clearly should be referred to the Legal Organization.
Legal and other appropriate administrative organizations, working with the
Compliance Officer or his or her designee, will seek to explain in a practical
and readily understandable manner what is required of employees in order to
comply with the law and with Shell's ethical requirements. When an employee
feels it is necessary or advisable to do so, calls seeking clarification
regarding compliance with our Code of Conduct may be addressed to the Shell
hotline.
Our compliance policies and training, our Compliance Officer network and our
Code of Conduct are all aimed at avoiding violations of law and unethical
conduct. Our long-term success in this area will depend on each employee's
realizing Shell's sincere commitment to these goals, seeking advice before
engaging in conduct which presents legal or ethical questions and obtaining
correct and unambiguous advice.
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REPORTING COMPLIANCE ISSUES
If an employee has a good faith reason to believe that any violation of our Code
of Conduct has occurred, he or she is required by our Code of Conduct to report
such violation. Additionally, any good faith reason to believe that a threat to
human health, safety, the environment or Shell assets has arisen or exists in or
as the result of conduct in the workplace must be reported promptly.
Reporting to your supervisor or your Human Resources representative discharges
this obligation. Such parties have the responsibility to see that the
appropriate Compliance Officer or his or her designee and, when compliance with
law issues are raised, the appropriate representatives of the Legal Organization
are promptly informed.
If you feel you cannot for any reason report a suspected violation of the Code
of Conduct to any of these individuals, the Shell hotline is available to
receive such calls between the hours of 8 a.m. and 5 p.m. (Central time) from
Monday through Friday. The Shell hotline telephone number is 1-800-738-1615.
Calls made after business hours will be recorded and returned during business
hours. The Shell hotline is manned by the American Arbitration Association and
is not located on Shell property. If requested, calls to this hotline will
remain anonymous and Shell will not be informed by the American Arbitration
Association of the identity of the caller. Any caller so requesting will be
informed of the outcome of the investigation of his or her report.
The American Arbitration Association describes their organization as follows:
The American Arbitration Association ("AAA"), founded in 1926, is a private
organization which provides education and administrative services in the dispute
resolution field. As the oldest, national alternative dispute resolution (ADR)
provider in the United States, the AAA is the leader in developing and
implementing new peaceful resolution methods. In addition to mediation,
fact-finding, minitrial, and arbitration services, the AAA also is proactive in
teaching and designing communication structures which maintain peace between and
among countries, companies and other representational entities. The AAA conducts
all processes with the utmost integrity and confidentiality.
Any attempt at retaliation or intimidation against anyone reporting in good
faith a suspected violation of' our Code of Conduct or any condition thought to
constitute a threat to human health, safety, the environment or Shell assets is
a serious violation of our Code of Conduct.
INVESTIGATING SUSPECTED VIOLATION OF OUR CODE OF CONDUCT
When non-compliance with our Code of Conduct is reported or otherwise suspected,
the responsible Compliance Officer or his designee and the appropriate members
of the Legal Organization, in the case of an alleged violation of law, will be
informed. A prompt investigation will follow. If unlawful conduct is detected
and continuing, Shell will make all efforts to stop such conduct immediately.
Shell will cooperate with government agencies investigating such matters. Prompt
action shall be taken upon notice of any such investigation to preserve
documents believed to be relevant. It will be a serious violation of Shell
policy to conceal an offense or to alter or destroy evidence in any such case.
DISCIPLINE
Shell will consistently and appropriately enforce the Code of Conduct and
company policies. Discipline will be determined by the Compliance Officer, the
Human Resources Vice President or their designees in appropriate cases.
Intentional non-compliance will constitute grounds for dismissal or other
serious discipline. In appropriate cases or when required by law, law
enforcement officials will be informed of facts discovered by any investigation
concerning non-compliance with the law.
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Exhibit F
PROMISSORY NOTE AND PLEDGE
(PAY-IN-KIND)
New York, New York
__________ __, 199_
For value received, ____________ (the "EXECUTIVE") promises to pay to the
order of Trango Holdings Corporation (the "COMPANY") $______ (the "LOAN"), the
principal amount of which will be repayable in full on the date the Executive
receives payment of the amount payable in respect of any SARs (as defined in the
Management Agreement dated as of __________, 1997 among Trango Holdings
Corporation, a Delaware corporation, Shell Oil Company, a Delaware corporation,
Sierra Acquisition (an entity to be formed prior to the Effective Time as
defined in the Merger Agreement dated as of September __, 1997 among Tejas Gas
Corporation, Shell Oil Company, Trango Holdings Corporation and Tango
Acquisition Corporation) and the SAR Holders listed therein) pledged hereunder
(the "PAYMENT DATE") subject to prepayment as set forth below; PROVIDED that if
the Executive disposes of any SARs pledged hereunder, the after tax proceeds of
any such sale shall be used by the Executive as follows: first to pay any
accrued but unpaid interest on the Loan and second to repay the principal amount
of the Loan (or portion thereof), promptly upon receipt of such proceeds. For
purposes of this Promissory Note and Pledge, "AFTER TAX PROCEEDS" shall mean the
applicable proceeds reduced by the estimated federal, state and local taxes
imposed on such proceeds, estimated for this purpose at the highest marginal tax
rates applicable to such proceeds. The Executive promises to pay on the Payment
Date, all accrued and unpaid interest on the Loan on such date as well as all
outstanding principal on such date. Interest will accrue on the outstanding
principal amount of the Loan at the Interest Rate, in effect from time to time,
payable quarterly in arrears, on March 31, June 30, September 30 and December 31
(unless such day is not a business day, in which event on the next succeeding
business day) (each an "INTEREST PAYMENT DATE") of each year. All payments of
principal and interest shall be made in lawful money of the United States in
Federal or other immediately available funds at the principal executive office
of the Company or as otherwise notified to the Executive by the Company;
PROVIDED that until the Payment Date, in lieu of payment in whole or part of
interest in cash on this Promissory Note and Pledge, interest shall accrue and
be added to the principal amount of this Note on each Interest Payment Date. The
Executive may prepay the Loan without penalty in whole at any time, or from time
to time in part, by paying the principal amount to be prepaid, together with all
accrued interest to the date of prepayment. In the event that the Executive
remains employed by the Company until December 31, 2002, all interest accrued
and payable hereunder shall cease to be payable.
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"INTEREST RATE" means, for each year ending on the anniversary of the date
hereof, the three month Treasury Bill Rate in effect at the close of business on
the business day preceding the first day of each such year.
To secure payment of the principal of and all interest on the Loan, the
Executive hereby assigns, pledges and grants a security interest in and delivers
to the Company (i) all rights and privileges with respect to such SARs, (ii) all
income and profits thereon, (iii) all dividends, payments and other
distributions with respect thereto, and (iv) all proceeds thereof and
substitutions therefor other than any cash income, profits, dividends, payments,
distributions or proceeds so long as the Executive is not in default hereunder
at the time of receipt thereof (collectively, the "COLLATERAL"). The Executive
is delivering certificates representing the SARs in pledge hereunder and agrees
to deliver certificates representing the SARs.
The Company's recourse under this Promissory Note and Pledge is limited to
the Collateral.
Certificates evidencing the SARs shall remain in the physical custody of
the Company or its designee at all times until the Executive has made payment in
full of all principal of and interest on the Loan.
This Promissory Note and Pledge constitutes a security agreement for
purposes of the Uniform Commercial Code in all relevant jurisdictions. Upon the
nonpayment of principal or interest when due hereunder (a "DEFAULT"), the
Company (i) may, by notice to the Executive, declare the Loan (together with
accrued and unpaid interest thereon) to be, and the Loan shall thereupon become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Executive and (ii) shall have
all the rights and remedies of a secured party provided in the Uniform
Commercial Code in force in New York.
The Collateral is granted as security only and shall not subject the
Company to, or in any way affect or modify, any obligation or liability of the
Executive with respect to any of the Collateral or any transaction in connection
therewith.
The Executive agrees that he will, at the Company's expense and in such
manner and form as the Company may reasonably require, execute, deliver, file
and record any financing statement, specific assignment or other paper and take
any other action that may be reasonably necessary or desirable, or that the
Company may reasonably request, in order to create, preserve, perfect or
validate any security interest or to enable the Company to exercise and enforce
its rights hereunder with respect to any of the Collateral. To the extent
permitted by applicable law, the Executive hereby authorizes the Company to
execute and file, in the name of the Executive or otherwise, Uniform Commercial
Code financing statements (which may be carbon, photographic, photostatic or
other reproductions of this Promissory Note and Pledge or of a financing
statement
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relating to this Promissory Note and Pledge) which the Company in its sole
discretion may deem necessary or appropriate to further perfect its security
interest in the Collateral.
The Company may at any time or from time to time, in its sole discretion,
cause any or all of the SARs to be transferred of record into the name of the
Company or its nominee. The Executive will promptly give to the Company copies
of any notices or other communications received by him with respect to the SARs
registered in the name of the Executive, and the Company will promptly give to
the Executive copies of any notices and communications received by the Company
with respect to the SARs registered in the name of the Company or its nominee.
If a Default shall have occurred and be continuing, the Company shall have
the right to receive and to retain as Collateral hereunder all dividends,
interest and other payments and distributions made upon or with respect to the
Collateral, and the Executive shall take all such action as the Company may deem
necessary or appropriate to give effect to such right.
Unless a Default shall have occurred and be continuing, the Executive
shall have the right, from time to time, to receive and retain all cash
dividends, interest and other payments and distributions made upon or with
respect to the Collateral and to vote and to give consents, ratifications and
waivers with respect to the SARs, and the Company shall deliver to the Executive
or as specified in such request such proxies, powers of attorney, consents,
ratifications and waivers in respect of any of the SARs which are registered in
the name of the Company or its nominee as shall be specified in such request and
be in form and substance satisfactory to the Company.
If a Default shall have occurred and be continuing, the Company shall have
the right to the extent permitted by law and the Executive shall take all such
action as may be necessary or appropriate to give effect to such right to give
consents, ratifications and waivers, and take any other action with respect to
any or all of the SARs with the same force and effect as if the Company were the
absolute and sole owner thereof.
The Executive hereby irrevocably appoints the Company its true and lawful
attorney, with full power of substitution, in the name of the Executive, the
Company or otherwise, for the sole use and benefit of the Company, but at the
expense of the Company, to the extent permitted by law to exercise, at any time
and from time to time while a Default has occurred and is continuing, all or any
of the following powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give acquittance for any and
all monies due to become due upon or by virtue thereof,
(ii) to settle, compromise, compound, prosecute or defend any action or
proceeding with respect thereto,
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(iii) to sell, transfer, assign or otherwise deal in or with the same or the
proceeds or avails thereof, as fully and effectually as if the Company
were the absolute owner thereof, and
(iv) to extend the time of payment of any or all thereof and to make any
allowance and other adjustments with reference thereto;
PROVIDED that the Company shall give the Executive not less than ten days' prior
written notice of the time and place of any sale or other intended disposition
of any of the Collateral. The Company and the Executive agree that such notice
constitutes "reasonable notification" within the meaning of Section 9-504(3) of
the Uniform Commercial Code.
The Executive covenants and agrees that in the event that any of the
Collateral shall become subject to any lien or security interest other than the
lien and security interest in favor of the Company created hereunder, or the
lien on and security interest in the Collateral in favor of the Company created
hereunder shall cease to be a first priority perfected security interest in and
lien on any of such Collateral except pursuant to a release herein contemplated,
the Executive will promptly take whatever reasonable action may be necessary to
release such other liens or security interests or to restore the Company's lien
on and security interest in the Collateral as a first priority perfected
security interest or lien, as the case may be. The Executive acknowledges that
money damages would not be a sufficient remedy for the breach of the Executive's
covenant in this paragraph and that, in addition to all other remedies that may
be available, the Company shall be entitled to specific performance as a remedy
for any such breach.
The Executive agrees that the Company may retain out of the proceeds of
the Collateral the amount of any and all reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of counsel and of any other
experts, which the Company may incur in connection with (w) the enforcement of
this Promissory Note and Pledge, including such expenses as are incurred to
preserve the value of the Collateral and the validity, perfection, rank and
value of any security interest, (x) the collection, sale or other disposition of
any of the Collateral, (y) the exercise by the Company of any of the rights
conferred upon it hereunder or (z) any Default.
For the purpose of this Promissory Note and Pledge, notices and all other
communications provided for in this Promissory Note and Pledge shall be in
writing and shall be given to the respective addresses or telecopy numbers set
forth in the Management Agreement; PROVIDED that all notices to the Company
shall be directed to the attention of the Board with a copy to the Secretary of
the Company, or to such other address as either party may have furnished to the
other in writing in accordance herewith. Each such notice or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified in this paragraph and telephonic confirmation
of receipt thereof is obtained, (ii) if given by prepaid overnight courier, upon
confirmation of delivery by such courier or (iii) if given by United States
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certified or registered mail, postage prepaid, five business days after deposit
with the United States postal service; PROVIDED that notice of change of address
shall be effective only upon receipt.
No failure or delay by the Company in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Any provision of this Promissory Note and Pledge may be amended or waived
if, and only if, such amendment or waiver is in writing and is signed by the
Executive and the Company. The provisions of this Promissory Note and Pledge
shall be binding upon the Executive and his successors, assigns, personal
representatives, estate and heirs and shall inure to the benefit of the Company
and its successors and assigns.
All capitalized terms used herein and not defined herein shall have the
meanings set forth in the Agreement.
This Promissory Note and Pledge shall be governed by and construed in
accordance with the laws of the State of New York.
Upon the repayment in full of the principal of and interest on the Loan,
the security interest shall terminate and all rights to the Collateral shall
revert to the Executive, and, except as otherwise provided in the Agreement, the
Company shall take all actions which may reasonably be requested by the
Executive to reflect the termination of such security interest.
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This Promissory Note and Pledge, together with the relevant portions of
the Certificate of Incorporation and the Management Agreement, constitute the
entire agreement and understanding among the parties hereto and supersedes any
and all prior agreements and understandings, oral or written, relating to the
subject matter hereof.
____________________________
Name:
Address:
Agreed and Acknowledged
TRANGO HOLDINGS CORPORATION
By: _______________________
Name:
Title:
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[FORM OF NOTICE OF EXERCISE]
To: Tejas Holdings Corporation
The undersigned owner of SARs granted by Tejas Holdings Corporation (the
"COMPANY") hereby: (i) exercises his SAR Exercise Right in respect of such SAR
subject to the terms and conditions set forth in the Management Agreement and
(ii) directs that a check in payment of the amount due upon exercise of such SAR
be issued and delivered to the registered holder hereof unless a different name
has been indicated below.
Dated: _________________
Name:_________________________
______________________________
Signature
Number of Units of the SAR being exercised:
(if less than all)
______________________________
Fill in for delivery of payment if to be delivered otherwise than to and
in the name of the registered holder.
______________________________
Social Security or Other Taxpayer Identifying
Number
______________________________
(Name)
______________________________
(Street Address)
______________________________
(City, State and Zip Code)
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SCHEDULE 3.01(A)
(TO MANAGEMENT AGREEMENT)
EXISTING
OPTIONS OTHER THAN THOSE NUMBER OF UNITS OF
OFFERED FOR MERGER ROLLOVER
OPTION RECIPIENT CONSIDERATION SARS
JAY A. PRECOURT 325,662 325,662
JAMES W. WHALEN 105,032 105,032
RENE JOYCE 95,971 95,971
P. ANTHONY LANNIE 39,544 39,544
MR. X 180,000 180,000
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SCHEDULE 3.01(B)
(TO MANAGEMENT AGREEMENT)
[TO COME]
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SCHEDULE 3.03
(TO MANAGEMENT AGREEMENT)
UNITS OF
INCENTIVE SARS
MR. FREDERIC C. HAMILTON 600,000
MR. JAY A. PRECOURT 250,000
MESSRS. WHALEN, JOYCE, LANNIE, AND 290,000 IN THE AGGREGATE
FRASIER
88
