AGREEMENT OF MERGER
Dated May 9, 1996
Between
CENTRAL AND SOUTH WEST CORPORATION
and
TEJAS GAS CORPORATION
Relating to
TRANSOK, INC.
i
AGREEMENT OF MERGER
TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions 1
Section 1.02. Rules of Construction 1
ARTICLE II.
TERMS OF MERGER
Section 2.01. Statutory Merger 1
Section 2.02. Purchase Price 2
Section 2.03. Closing 2
Section 2.04. Actions at the Closing 2
Section 2.05. Effect of the Merger 2
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AS TO THE SELLER
Section 3.01. Organization 4
Section 3.02. Authorization of Agreement 4
Section 3.03. Approvals 4
Section 3.04. No Violation 4
Section 3.05. Litigation 5
Section 3.06. Brokerage Agreements 5
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AS TO THE COMPANY
Section 4.01. Organization and Qualification 5
Section 4.02. Capitalization 6
Section 4.03. No Violation 7
Section 4.04. Financial Statements 8
Section 4.05. No Material Adverse Effect; Conduct 8
ii
Section 4.06. Title to Properties 8
Section 4.07. Certain Obligations 9
Section 4.08. Regulation; Permits and Licenses. 10
Section 4.09. Litigation; Compliance with Laws 11
Section 4.10. Taxes 12
Section 4.11. Employee Benefit Plans 12
Section 4.12. Environmental Matters 14
Section 4.13. Patents, Trademarks 14
Section 4.14. Insurance 15
Section 4.15. Public Utility 15
Section 4.16. Minute Books 15
Section 4.17. Powers of Attorney 15
Section 4.18. Intercompany Transactions 15
Section 4.19. Accounts Receivable 15
Section 4.20. Gas Balancing 16
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER
Section 5.01. Organization and Good Standing 16
Section 5.02. Financing 16
Section 5.03. Authorization of Agreement 16
Section 5.04. Approvals 16
Section 5.05. No Violation 17
Section 5.06. Litigation 17
Section 5.07. Brokerage Agreements 17
Section 5.08. Accounts Receivable 17
ARTICLE VI.
AGREEMENTS
Section 6.01. Affirmative Covenants of the Seller 17
Section 6.02. Negative Covenants of the Seller 18
Section 6.03. Access 20
Section 6.04. Appropriate Action; Consents; Filings 21
Section 6.05. Pending and Upcoming Rate Proceedings. 22
Section 6.06. Preparation and Filing of Tax Returns;
Payment of Taxes. 22
Section 6.07. Access to Information. 24
Section 6.08. Employees and Employee Benefit Plans 25
Section 6.09. Working Capital Contribution 28
Section 6.10. Intercompany Accounts; Post-Closing
Relationships; Closing Covenants 29
iii
Section 6.11. Estimated Purchase Price 30
Section 6.12. Determination of Final Purchase Price 30
Section 6.13. Public Announcements 31
Section 6.14. Confidentiality 31
Section 6.15. Acquisition Proposals 31
ARTICLE VII.
CONDITIONS TO THE CLOSING
Section 7.01. Conditions to Obligations of Each Party 32
Section 7.02. Conditions to Obligation of the Purchaser 32
Section 7.03. Conditions to Obligation of the Seller 33
ARTICLE VIII.
INDEMNIFICATION
Section 8.01. Survival of Representations, Warranties,
Covenants and Agreements 34
Section 8.02. General Indemnification 34
Section 8.03. Tax Indemnification and Audits 38
Section 8.04. Section 338(h)(10) Elections 40
ARTICLE IX.
TERMINATION
Section 9.01. Termination 41
Section 9.02. Effect of Termination; Nonconsummation 42
Section 9.03. Fees and Expenses 42
ARTICLE X.
MISCELLANEOUS
Section 10.01. Notices 43
Section 10.02. Headings; Cross References 43
Section 10.03. Prior Agreements 43
Section 10.04. Amendment 43
Section 10.05. Waiver 43
Section 10.06. Further Actions 44
Section 10.07. Assignment 44
Section 10.08. Governing Law 44
Section 10.09. Counterparts 44
Section 10.10. Tranpache Partnership 44
iv
ANNEXES
Annex A _ Definitions
Annex B _ Transition Services
1
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "Agreement") is made and
entered into on May 9, 1996, by and between TEJAS GAS
CORPORATION, a Delaware corporation (the "Purchaser"), and
CENTRAL AND SOUTH WEST CORPORATION, a Delaware corporation (the
"Seller").
RECITALS
This Agreement contemplates a transaction in which the
Purchaser will acquire all of the outstanding capital stock of
Transok, Inc., an Oklahoma corporation and wholly-owned
subsidiary of the Seller (the "Company"), for cash through a
reverse subsidiary merger of a newly formed wholly-owned
subsidiary of the Purchaser (the "Merger Subsidiary") with and
into the Company. For federal and state income tax purposes, the
parties will treat the reverse subsidiary merger as a sale of
stock by the Seller to the Purchaser, and the Seller and the
Purchaser will make a timely joint Code section 338(h)(10)
election.
NOW, THEREFORE, in consideration of the premises hereof, the
mutual promises herein made, and the representations, warranties
and covenants herein contained, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions. Certain capitalized and other terms
used in this Agreement are defined in Annex A hereto and are used
herein with the meanings ascribed to them therein.
Section 1.02. Rules of Construction. Unless the context
otherwise requires, as used in this Agreement: a term has the
meaning ascribed to it; an accounting term not otherwise defined
has the meaning ascribed to it in accordance with generally
accepted accounting principles as in effect from time to time:
"or" is not exclusive; "including" means "including, without
limitation;" and words in the singular include the plural and
words in the plural include the singular.
ARTICLE II.
TERMS OF MERGER
Section 2.01. Statutory Merger. Subject to the terms and
conditions and in reliance upon the representations, warranties,
covenants and agreements contained herein, the Merger Subsidiary
shall merge with and into the Company (the "Merger"), at the
Effective Time. The terms and conditions of the Merger and the
mode of carrying the same into effect shall be as set forth in
this Agreement. The Company shall be the corporation surviving
the Merger. Hereafter "Surviving Corporation" shall mean the
Company and "Constituent Corporations" shall mean the Company and
the Merger Subsidiary.
2
Section 2.02. Purchase Price.
(a) The purchase price (the "Purchase Price") payable to
the Seller pursuant to the Merger shall be an amount equal to
$690,000,000; plus the amount by which the Working Capital of the
Company as of the Closing exceeds zero or minus the amount by
which the Working Capital of the Company as of the Closing is
less than zero, as the case may be. As required by Section 6.09,
Working Capital of the Company as of the Closing shall be zero.
(b) The Estimated Purchase Price, determined as provided in
Section 6.11, shall be paid by the Purchaser to the Seller by
wire transfer of immediately available funds at the Closing and
the Final Purchase Price shall be determined and paid as provided
in Section 6.12.
Section 2.03. Closing. The Closing shall take place at the
offices of Vinson & Elkins L.L.P., 2001 Ross Avenue, Dallas,
Texas 75201 at 10:00 a.m. on May 31, 1996 or at such other place,
time and date as the parties hereto may agree. The date on which
the Closing occurs is referred to herein as the "Closing Date".
Section 2.04. Actions at the Closing. At the Closing, upon
fulfillment or waiver of the conditions precedent to the Closing
set forth in Article VII, the Seller and the Purchaser shall
cause the Constituent Corporations to file with the Secretary of
State of the State of Oklahoma a certificate of merger (the
"Certificate of Merger") containing the information required by
Section 1081(C) of the Oklahoma General Corporation Act (the
"OGCA") and executed and delivered in accordance with this
Agreement and in accordance with the provisions of Section 1007
of the OGCA, at which time the Merger will become effective (the
"Effective Time"), and two newly formed wholly-owned
subsidiaries of the Merger Subsidiary to merge with and into
Transok Gas Company and Transok Gas Processing Company (each a
Delaware corporation and wholly-owned subsidiary of the Company),
respectively, pursuant to Section 251 of the Delaware General
Corporation Law.
Section 2.05. Effect of the Merger.
(a) From and after the Effective Time, (i) for all purposes
the separate corporate existence of the Merger Subsidiary shall
cease and the Company, as the Surviving Corporation, shall
possess all the rights, privileges, powers and franchises of a
public nature as well as of a private nature, and be subject to
all the restrictions, disabilities and duties of each of the
Constituent Corporations to the Merger; (ii) all and singular of
the rights, privileges, powers and franchises of each of the
Constituent Corporations and all property, real, personal and
mixed, and all debts due to any of the Constituent Corporations
and all property, real, personal and mixed, and all debts due to
any of the Constituent Corporations shall be vested in the
Surviving Corporation; (iii) all property, rights, privileges,
powers and franchises, and all and every other interest shall be
as effectually the property of the Surviving Corporation as they
were of the Constituent Corporations, and the title to any real
estate, vested by deed or otherwise, in any of the Constituent
Corporations shall not revert or in any way be impaired by reason
of the provisions of the OGCA, but all rights of creditors and
all liens upon any property of any Constituent Corporation shall
be preserved unimpaired; and (iv) all debts, liabilities and
3
duties of each Constituent Corporation shall attach to the
Surviving Corporation and may be enforced against it to the same
extent as if such debts, liabilities and duties had been incurred
or contracted by the Surviving Corporation. The Merger shall
have the effect set forth in the OGCA.
(b) The Surviving Corporation may, at any time after the
Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either of
the Constituent Corporations in order to carry out and effectuate
the transactions contemplated by this Agreement.
(c) The certificate of incorporation of the Surviving
Corporation shall be amended and restated in the Merger at and as
of the Effective Time to read as did the certificate of
incorporation of the Merger Subsidiary immediately prior to the
Effective Time (except that Article First of such certificate of
incorporation shall read in full as follows: "The name of the
corporation is Transok, Inc.").
(d) The bylaws of the Surviving Corporation shall be
amended and restated at and as of the Effective Time to read as
did the bylaws of the Merger Subsidiary immediately prior to the
Effective Time (except that the name of the Surviving Corporation
will remain unchanged).
(e) The directors and officers of the Merger Subsidiary
immediately prior to the Effective Time shall become the
directors and officers of the Surviving Corporation at and as of
the Effective Time (retaining their respective positions and
terms of office).
(f) The manner of converting the shares of each of the
Constituent Corporations into shares or securities of the
Surviving Corporation or the cash, property or other rights which
the holders of shares of such Constituent Corporations are to
receive in exchange for or upon conversion of such shares is as
follows:
(i) At and as of the Effective Time, the outstanding shares
of Common Stock of the Company shall be converted into the right
to receive the Purchase Price.
(ii) At and as of the Effective Time, each share of common
stock, par value $100.00 per share, of the Merger Subsidiary
shall be converted into one share of common stock, par value
$100.00 per share, of the Surviving Corporation.
4
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AS TO THE SELLER
Subject to the provisions of Sections 8.01 and 8.02, the Seller
hereby represents and warrants as to itself to the Purchaser as follows:
Section 3.01. Organization. The Seller is a corporation duly
incorporated, validly existing and in good standing under the
Laws of the State of Delaware, with all requisite corporate power
and authority to own, lease and operate its properties and to
carry on its business as it is now conducted.
Section 3.02. Authorization of Agreement. The Seller has all
requisite corporate power and authority to execute and deliver
this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing, to perform its obligations
hereunder and thereunder and to consummate the transactions
contemplated hereby. The execution and delivery by the Seller of
this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing and the performance of its
obligations hereunder and thereunder have been duly and validly
authorized by all requisite corporate action on the part of the
Seller. This Agreement has been duly executed and delivered by
the Seller and (assuming due authorization, execution and
delivery hereof by the other party hereto) constitutes a legal,
valid and binding obligation of the Seller, enforceable against
the Seller in accordance with its terms, except as the same may
be limited by legal principles of general applicability governing
the application and availability of equitable remedies.
Section 3.03. Approvals. Except for the requirements of the
HSR Act and those Laws, Regulations and Orders noncompliance
with which could not reasonably be expected to have a material
adverse effect on the ability of the Seller to perform its
obligations under this Agreement or to have a Material Adverse
Effect on the Company, no filing or registration with, no waiting
period imposed by and no Permit or Order of, any Governmental
Authority is required under any Law, Regulation or Order
applicable to the Seller or the Company or any of its
subsidiaries to permit the Seller to execute, deliver or perform
this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing.
Section 3.04. No Violation. Assuming effectuation of all
filings and registrations with, termination or expiration of any
applicable waiting periods imposed by and receipt of all Permits
and Orders of, Governmental Authorities indicated as required in
Section 3.03, neither the execution and delivery by the Seller of
this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing nor the performance by the
Seller of its obligations hereunder or thereunder will violate
or breach the terms of or cause a default under any Law,
Regulation or Order applicable to the Seller, the certificate of
incorporation or bylaws of the Seller or any contract or
agreement to which the Seller or any of its subsidiaries (other
than the Company and its subsidiaries) is a party or by which it
or any of its properties or assets is bound, or with the passage
of time, the giving of notice or the taking of any action by a
third party, have any of the effects set forth in clause (a) of
this Section, except in any such case for any matters described
in this Section that could not reasonably be expected to have a
material adverse effect upon the ability of the Seller to perform
its obligations under this Agreement.
5
Section 3.05. Litigation. There are no actions, suits,
investigations or proceedings (including any proceedings in
arbitration) pending, or, to the Knowledge of the Seller,
threatened, against the Seller or any of its assets, at law or in
equity, in any Court or before or by any Governmental Authority
that could reasonably be expected to have a material adverse
effect on the validity or enforceability of this Agreement or the
ability of the Seller to perform its obligations under this
Agreement.
Section 3.06. Brokerage Agreements. Neither the Seller, the
Company nor any of the Company's subsidiaries has, directly or
indirectly, entered into any agreement with any Person that would
obligate the Company, any of its subsidiaries or the Purchaser to
pay any commission, brokerage fee or "finder's fee" in connection
with the transactions contemplated herein. The fees and expenses
of Morgan Stanley & Co. Incorporated incurred in connection with
the transactions contemplated hereby will be for the account of
the Seller.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AS TO THE COMPANY
The Purchaser acknowledges that, prior to the execution
of this Agreement, it has been afforded the opportunity to
inspect the business and properties of the Company and to
examine the records of the Company at its offices, and has
been afforded access to all information in the
Company's possession requested by the Purchaser. THE PURCHASER
FURTHER ACKNOWLEDGES THAT, EXCEPT AS EXPRESSLY PROVIDED IN
ARTICLE III OR THIS ARTICLE IV, THE SELLER, ITS OFFICERS,
DIRECTORS, EMPLOYEES, REPRESENTATIVES AND AGENTS HAVE MADE NO,
AND THE SELLER HEREBY EXPRESSLY DISCLAIMS ANY, REPRESENTATIONS OR
WARRANTIES AS TO THE ACCURACY OR COMPLETENESS OF SUCH
INFORMATION, AS TO TITLE OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES TO ANY ASSETS, OR AS TO ANY OTHER INFORMATION, DATA
OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO THE PURCHASER
OR ITS REPRESENTATIVES OR AGENTS BY OR ON BEHALF OF THE SELLER.
Subject to the foregoing and to the provisions of
Sections 8.01 and 8.02, the Seller represents and warrants
as to the Company to the Purchaser as follows:
Section 4.01. Organization and Qualification. The Company and
each of its subsidiaries is a corporation or other legal entity
duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization (which in the case
of the Company is the State of Oklahoma), has all requisite
corporate or partnership, as the case may be, power and authority
to own, lease and operate its properties and to carry on its
business as it is now conducted, and is duly qualified to do
business and is in good standing as a foreign corporation or
other entity in each jurisdiction in which the character of its
properties or the nature of its business makes such qualification
necessary, except where the failure to be so qualified or in good
6
standing could not reasonably be expected to have a Material
Adverse Effect on the Company. The names and jurisdictions of
organization of each of the Company's subsidiaries are listed in
Section 4.01 of the Seller's Disclosure Letter. Complete copies
of the certificate of incorporation and bylaws or other
organizational documents of the Company and each of its
subsidiaries, as amended to the date hereof, have been made
available to the Purchaser.
Section 4.02. Capitalization.
(a) The authorized capital stock of the Company consists
solely of 95,000 shares of common stock, par value $100.00 per
share ("Common Stock"), of which 92,186 shares (the "Stock") are
issued and outstanding and owned beneficially and of record by
the Seller, free and clear of all Liens. No other shares of
capital stock of the Company are issued or outstanding. Each
share of Stock has been validly issued and is fully paid and
nonassessable. No shares of Stock have been issued in violation
of any preemptive or similar rights of any past or present
stockholder of the Company. None of the shares of capital stock
of the Company or any other class of securities of the Company
has been or is registered under the Securities Act or the
Exchange Act.
(b) No shares of Common Stock are reserved for issuance,
and, except for this Agreement, there are no contracts,
agreements, commitments or arrangements obligating the Seller or
the Company to offer, sell, issue or grant any shares of, or any
options, warrants or rights of any kind to acquire any shares of,
or any securities that are convertible into or exchangeable for
any shares of, capital stock of the Company, to redeem, purchase
or acquire, or offer to purchase or acquire, any outstanding
shares of, or any outstanding options, warrants or rights of any
kind to acquire any shares of, or any outstanding securities that
are convertible into or exchangeable for any shares of, capital
stock of the Company or to grant any Lien on any shares of
capital stock of the Company.
(c) The authorized, issued and outstanding capital stock
of, or other equity interests in, each of the Company's
subsidiaries and the names and addresses of the holders of record
of the capital stock or other equity interests of each such
subsidiary are set forth in Section 4.02(c) of the Seller's
Disclosure Letter. The issued and outstanding shares of capital
stock of, or other equity interests in, each of the subsidiaries
of the Company that are owned by the Company or any of its
subsidiaries have been duly authorized and are validly issued,
and, with respect to capital stock, are fully paid and
nonassessable, and were not issued in violation of any preemptive
or similar rights of any past or present equity holder of such
subsidiary. All such issued and outstanding shares, or other
equity interests, that are indicated as owned by the Company or
one of its subsidiaries in Section 4.02(c) of the Seller's
Disclosure Letter are owned beneficially as set forth therein
and free and clear of all Liens. No shares of capital stock of,
or other equity interests in, any subsidiary of the Company are
reserved for issuance, and there are no contracts, agreements,
commitments or arrangements obligating the Company or any of its
subsidiaries (i) to offer, sell, issue, grant, pledge, dispose of
or encumber any shares of capital stock of, or other equity
interests in, or any options, warrants or rights of any kind to
acquire any shares of capital stock of, or other equity interests
in, or any securities that are convertible into or exchangeable
for any shares of capital stock of, or other equity interests in,
any of the subsidiaries of the Company or (ii) to redeem,
7
purchase or acquire, or offer to purchase or acquire, any
outstanding shares of capital stock of, or other equity interests
in, or any outstanding options, warrants or rights of any kind to
acquire any shares of capital stock of or other equity interest
in, or any outstanding securities that are convertible into or
exchangeable for, any shares of capital stock of, or other equity
interests in, any of the subsidiaries of the Company or (iii) to
grant any Lien on any outstanding shares of capital stock of, or
other equity interest in, any of the subsidiaries of the Company;
provided, however, that certain terms and provisions of, and
applicable law relating to, the partnership or joint venture
agreements or arrangements listed in Section 4.02(c) of the
Seller's Disclosure Letter may require the partnerships or joint
ventures to which such agreements or arrangements relate or the
partners or venturers therein to take certain actions not
Material to the Company with respect to the equity interests in
such partnerships and joint ventures contrary to clauses (i),
(ii) or (iii) above.
(d) Neither the Company nor any of its subsidiaries
directly or indirectly owns, has agreed to purchase or
otherwise acquire or holds any interest convertible into or
exchangeable or exercisable for the capital stock or other equity
interests of any Person (other than the subsidiaries of the
Company identified in Section 4.01 of the Seller's Disclosure
Letter). Except for any contracts, agreements, commitments or
arrangements between the Company and its subsidiaries or between
such subsidiaries or between the Company and its subsidiaries,
on the one hand, and the Seller and its Affiliates (other than
the Company and its Subsidiaries), on the other, that will be
terminated at or prior to the Closing, there are no contracts,
agreements, commitments or arrangements of any character
(contingent or otherwise) pursuant to which any Person is or may
be entitled to receive any payment from the Company or any of its
subsidiaries based on, or calculated in accordance with, the
revenues or earnings of the Company or any of its subsidiaries,
except for payments not Material to the Company from the
partnerships or joint ventures listed in Section 4.02(c) of the
Seller's Disclosure Letter.
Section 4.03. No Violation. Assuming effectuation of all
filings and registrations with, the termination or expiration of
any applicable waiting periods imposed by and receipt of all
Permits and Orders of, Governmental Authorities indicated as
required in Section 3.03, neither the execution and delivery by
the Seller of this Agreement or any instrument required hereby to
be executed and delivered by it at the Closing nor the
performance by the Seller of its obligations hereunder or
thereunder will violate or breach the terms of or cause a
default under any Law, Regulation or Order applicable to the
Company or any of its subsidiaries, the certificate of
incorporation or bylaws or other organizational documents of the
Company or any of its subsidiaries or any contract or agreement
to which the Company or any of its subsidiaries is a party or by
which they or any of their properties or assets are bound,
result in the creation or imposition of any Lien, other than any
Permitted Encumbrance, on any of the properties or assets of the
Company or any of its subsidiaries, result in the cancellation,
forfeiture, revocation, suspension or adverse modification of any
Permit owned or held by the Company or any of its subsidiaries or
, with the passage of time, the giving of notice or the taking of
any action by a third party, have any of the effects set forth in
clause (a), (b) or (c) of this Section, except in any such case
for any matters described in this Section that could not
reasonably be expected to have a Material Adverse Effect on the
Company.
8
Section 4.04. Financial Statements. There is included in
Section 4.04 of the Seller's Disclosure Letter a copy of the
Consolidated Financial Statements, and such Consolidated
Financial Statements fairly present the consolidated financial
position of the Company as of the respective dates of the balance
sheets included therein and the consolidated results of the
operations of the Company for the fiscal years ended on such
dates, all in conformity with GAAP throughout the periods
involved. Except as set forth in the Seller's Disclosure Letter,
there exist no liabilities or obligations of the Company that are
Material to the Company, whether accrued, absolute, contingent or
threatened, which would be required to be reflected, reserved for
or disclosed under GAAP in the consolidated financial statements
of the Company as of and for the period ended on the date of this
representation and warranty, other than liabilities or
obligations which are adequately reflected, reserved for or
disclosed in the Consolidated Financial Statements, and
liabilities or obligations incurred in the ordinary course of
business of the Company since December 31, 1995.
Section 4.05. No Material Adverse Effect; Conduct.
(a) Since December 31, 1995, no event (other than any
event that is of general application to all or a substantial
portion of the Company's industry and other than any event that
is expressly subject to any other representation or warranty
contained in Articles III or IV) has, to the Knowledge of the
Seller, occurred that, individually or together with other
similar events, could reasonably be expected to constitute or
cause a Material Adverse Effect on the Company.
(b) Except as disclosed in the Seller's Disclosure Letter,
during the period from December 31, 1995 to the execution of this
Agreement by the Seller, neither the Company nor any of its
subsidiaries has engaged in any conduct that is proscribed
during the period from the execution of this Agreement by the
Seller to the Closing by subsections (a) through (j) of Section
6.02 or agreed in writing or otherwise during such period prior
to the execution of this Agreement by the Seller to engage in any
such conduct.
Section 4.06. Title to Properties.
(a) The Company or its subsidiaries, individually or
together, have indefeasible title to all of the properties
reflected in the Consolidated Balance Sheet, (other than the
Pipeline Assets, as to which they have such title or interest as
is sufficient to enable the Company and its subsidiaries to
conduct their business as currently conducted without material
interference, and other than any properties reflected in the
Consolidated Balance Sheet that have been sold or otherwise
disposed of since the date of the Consolidated Balance Sheet
without breaching either Section 4.05(b) or Section 6.02(f) or
are not, individually or in the aggregate, Material to the
Company) free and clear of Liens, other than (x) Liens the
existence of which is reflected in the Consolidated Financial
Statements, (y) Permitted Encumbrances and (z) Liens that,
individually or in the aggregate, are not Material to the
Company. The Company or its subsidiaries, individually or
together, hold under valid lease agreements all real and personal
properties reflected in the Consolidated Balance Sheet as being
held under capitalized leases, and all real and personal property
that is subject to the operating leases to which reference is
made in the notes to the Consolidated Financial Statements, and
enjoy peaceful and undisturbed possession of such properties
under such leases, other than (i) any properties as to which such
9
leases have terminated in the ordinary course of business since
the date of the Consolidated Balance Sheet and (ii) any
properties that, individually or in the aggregate, are not
Material to the Company. Neither the Company nor any of its
subsidiaries has received any written notice of any adverse claim
to the title to any properties owned by them or with respect to
any lease under which any properties are held by them, other than
any claims that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the
Company.
(b) Easements. Neither the Company nor any of its
subsidiaries is in violation of the terms of any Easement except
any such violations that, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect on
the Company. All Easements that are Material to the Company are
valid and enforceable and grant the rights purported to be
granted thereby and all rights necessary thereunder for the
current operation of the business of the Company and its
subsidiaries. There are no spatial gaps in the Easements that
could reasonably be expected to have a Material Adverse Effect on
the Company, and all parts of the Pipeline Assets that are
Material to the Company are located either on property owned in
fee by the Company or a subsidiary of the Company or on property
subject to an Easement in favor of the Company or a subsidiary of
the Company.
Section 4.07. Certain Obligations.
(a) Except as set forth in Section 4.07(a) of the Seller's
Disclosure Letter, neither the Company nor any of its
subsidiaries is a party to or bound by any Material Contract.
Except as set forth in Section 4.07(a) of the Seller's Disclosure
Letter, all Material Contracts are in full force and effect, the
Company or the subsidiary of the Company that is a party to or
bound by such Material Contract has performed its obligations
thereunder to date and, to the Knowledge of the Seller, each
other party thereto has performed its obligations thereunder to
date, other than any failure of a Material Contract to be in full
force and effect or any nonperformance thereof that could not
reasonably be expected to have a Material Adverse Effect on the
Company. Each of the Medium-Term Notes issued by the Company
pursuant to the Medium-Term Note Program identified in Section
4.07(a) of the Seller's Disclosure Letter conform in all material
respects to the sample Medium-Term Note included in Section
4.07(a-l) of the Seller's Disclosure Letter.
(b) Subject to Section 4.08(a), except for matters that
could not reasonably be expected to have a Material Adverse
Effect on the Company, no provision of any Law, Regulation or
Order applicable to the Company or any of its subsidiaries would
preclude the Company or any of its subsidiaries from charging and
collecting, without the necessity for approvals of any
Governmental Authority and without refund obligation, market
based rates for storing, processing, purchasing, gathering or
selling Hydrocarbons; would preclude the Company or any of its
subsidiaries from constructing additions to, modifications of or
interconnections with third parties with respect to, its
transportation, storage, processing or gathering facilities; or
could reasonably be expected to require the Company or any of
its subsidiaries to make refunds of amounts collected for sales
or services.
10
(c) Except as set forth in Section 4.07(c) of the Seller's
Disclosure Letter and for matters that could not reasonably be
expected to have a Material Adverse Effect on the Company, none
of the Company and its subsidiaries engages in any natural gas or
other futures or options trading or is a party to any price
swaps, hedges, futures or similar instruments, except for
transactions and agreements entered into primarily to hedge
contracts for the purchase or sale of Hydrocarbons to which the
Company or one of its subsidiaries is a party. Section 4.07(c)
of the Seller's Disclosure Letter sets forth a true and correct
statement of the position, as of the date hereof, of the Company
and its subsidiaries with respect to obligations under Fixed
Price Contracts (including, with respect to each Fixed Price
Contract, location of delivery and variations in the obligation
to take or deliver) and related Hydrocarbon price swaps, hedges,
futures or similar instruments to which the Company or any of its
subsidiaries is a party and that are Material to the Company.
Section 4.08. Regulation; Permits and Licenses.
(a) The Company and its subsidiaries operate intrastate
pipelines with Pipeline Assets located in the States of Texas,
Oklahoma, and Louisiana. As such, the natural gas storage,
transportation, and exchange services performed in interstate
commerce by the Company and certain of its subsidiaries are
subject to the provisions of either a limited jurisdiction
certificate issued under the NGA or Section 311 of the NGPA
("Section 311") and the applicable Regulations of the FERC
promulgated thereunder (including applicable facilities
construction, rate authorization, reporting and refund
requirements), as the provisions of such certificate, Section 311
and such Regulations may be interpreted, amended or modified from
time to time pursuant to Orders of the FERC or of any Court.
Under such Laws and Regulations, the Company and certain of its
subsidiaries are authorized to charge market based rates for
Section 311 storage services and are authorized to charge various
maximum rates for Section 311 transportation and exchange
services. Except as set forth in Section 4.08(a) of the Seller's
Disclosure Letter, the rates for services collected pursuant to
such rate authorizations are not being collected subject to
refund. In addition, sales for resale of natural gas in
interstate commerce made by the Company or its subsidiaries of
natural gas that is produced from reserves owned by a party other
than such seller are made pursuant to Section 311 and the
applicable Regulations thereunder or the terms and conditions of
a blanket sales certificate authorization issued by the FERC
under the NGA, as such authorization may be amended, modified or
interpreted from time to time pursuant to Orders of the FERC or
of any Court. Intrastate transportation, exchange, storage,
gathering, and pipeline sales services performed by the Company
and its subsidiaries may be subject to certain facilities
construction, rate, reporting and prior authorization
requirements applicable under the Laws of the States of Texas,
Oklahoma, and Louisiana, and Regulations promulgated thereunder
by the TRC, the OCC and the LCC, respectively, as such
Regulations may be amended, modified and interpreted by the
respective Governmental Authorities or the Courts.
(b) To the Knowledge of the Seller, the Company and its
subsidiaries have obtained all Permits, including all
certificates of public convenience and necessity and rate
authorizations required by the LCC and by the FERC, as are
necessary to carry on their businesses as currently conducted,
except for any such Permits that the failure to possess which,
11
individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company. Such
Permits are in full force and effect, have not been violated in
any respect that could reasonably be expected to have a Material
Adverse Effect on the Company and, to the Knowledge of the
Seller, no suspension, revocation or cancellation thereof has
been threatened.
(c) Neither the Company nor any subsidiary of the Company
is subject to the jurisdiction of the FERC under the NGA, except
pursuant to Sections 284.121 through 284.126 of the FERC's
regulations, 18 C.F.R. 284.121 through 284.126 (1995), Section
284.142 of the FERC's regulations, 18 C.F.R., 284.142 (1995),
and pursuant to a limited jurisdiction blanket certificate issued
under Section 284.227 of the FERC's regulations, 18 C.F.R.
284.227 (1994). The Company and its subsidiaries have engaged
in no activities which would subject them, their activities, or
their facilities to the NGA jurisdiction of the FERC. All of the
Company's and its subsidiaries' facilities used to transport
natural gas are non-jurisdictional intrastate transmission or
"gathering" facilities within the meaning of the NGA and/or NGPA,
and, except as set forth in the first sentence of this Section
4.08(c), neither the Company nor any of its subsidiaries has or
is engaged in the interstate transmission of gas through any of
its facilities. The Company's and each of its subsidiaries'
representations concerning the jurisdictional status of its
facilities and operations made to natural gas purchasers and
interstate or intrastate pipelines in order to effect sales or
to facilitate transportation transactions (whether for the
Company, its subsidiaries or any third parties) have been and,
through the Closing, are true and correct in all Material
respects, and the Company and its subsidiaries have complied in
all Material respects with the terms and conditions of such
sales, transportation or interconnect or similar arrangements
(including "on behalf of" certificates). Neither the Company nor
any of its subsidiaries has violated, and neither has received
notification from any Governmental Authority that it has
violated, the NGA, the NGPA, or any other Law concerning the
transmission and sale of natural gas or the conduct of gathering,
treating, processing, and compression activities associated with
natural gas, except for any violations that, individually or in
the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Company.
Section 4.09. Litigation; Compliance with Laws. There are no
actions, suits, investigations or proceedings (including any
proceedings in arbitration) pending or, to the Knowledge of the
Seller, threatened against the Company or any of its
subsidiaries, at law or in equity, in any Court or before or by
any Governmental Authority (excluding any rulemaking or similar
proceedings of general applicability and any appeal or petition
for review related thereto), except actions, suits or proceedings
that are set forth in Section 4.09 or Section 4.12 of the
Seller's Disclosure Letter or , individually or, with respect to
multiple actions, suits or proceedings that allege similar
theories of recovery based on similar facts, in the aggregate,
could not reasonably be expected to have a Material Adverse
Effect on the Company. Except as set forth in Section 4.09 of
the Seller's Disclosure Letter, the Company and its subsidiaries
are in substantial compliance with all applicable Laws and
Regulations and are not in default with respect to any Order
applicable to the Company or any of its subsidiaries, except such
events of noncompliance or defaults that, individually or in the
aggregate, could not reasonably be expected to have a Material
Adverse Effect on the Company.
12
Section 4.10. Taxes.
(a) Except for such matters as could not reasonably be
expected to have a Material Adverse Effect on the Company, all
returns and reports of or with respect to any Tax which are
required to be filed by or with respect to the Company or any of
its subsidiaries ("Tax Returns") on or before the Closing Date
have been or will be timely filed, all Taxes which are shown to
be due on such Tax Returns on or before the Closing Date have
been or will be timely paid in full, all withholding Tax
requirements imposed on or with respect to the Company or any of
its subsidiaries have been or will be satisfied in full in all
respects and no penalty, interest or other charge is or will
become due with respect to the late filing of any such Tax Return
or late payment of any such Tax.
(b) Except as set forth in Section 4.10(b) of the Seller's
Disclosure Letter, all Tax Returns have been audited by the
applicable Governmental Authority or the applicable statute of
limitations has expired for the period covered by such Tax
Returns.
(c) Except as set forth in Section 4.10(c) of the Seller's
Disclosure Letter, there is not in force any extension of time
with respect to the due date for the filing of any Tax Return or
any waiver or agreement for any extension of time for the
assessment or payment of any Tax due with respect to the period
covered by any Tax Return.
(d) There is no claim against the Company or any of its
subsidiaries for any Taxes, and no assessment, deficiency or
adjustment has been asserted or proposed with respect to any Tax
Return that could reasonably be expected to have a Material
Adverse Effect on the Company.
(e) Except as set forth in Section 4.10(e) of the Seller's
Disclosure Letter, none of the Company and its subsidiaries,
during the last ten years, has been a member of an affiliated
group filing a consolidated federal income Tax Return (other than
the Seller's Group).
Section 4.11. Employee Benefit Plans.
(a) Each Benefit Plan is listed in Section 4.11(a) of the
Seller's Disclosure Letter. True and correct copies of each of
the following have been made available to the Purchaser: the
most recent annual report (Form 5500) relating to each Benefit
Plan filed with the IRS, each such Benefit Plan, the trust
agreement, if any, relating to each such Benefit Plan, the most
recent summary plan description for each such Benefit Plan for
which a summary plan description is required by ERISA, the most
recent actuarial report or valuation relating to each such
Benefit Plan subject to Title IV of ERISA and the most recent
determination letter, if any, issued by the IRS with respect to
any such Benefit Plan qualified under Section 401 of the Code.
(b) With respect to the Benefit Plans, no event has
occurred and, to the Knowledge of the Seller, there exists no
condition or set of circumstances in connection with which the
Company or any of its subsidiaries could be subject to any
liability under the terms of such Benefit Plans, ERISA, the Code
13
or any other applicable Law, other than any condition or set of
circumstances that could not reasonably be expected to have a
Material Adverse Effect on the Company.
(c) As to any Benefit Plan intended to be qualified under
Section 401 of the Code, such Benefit Plan satisfies in form the
requirements of such Section and there has been no termination or
partial termination of such Benefit Plan within the meaning of
Section 411(d)(3) of the Code.
(d) There are no actions, suits or claims pending (other
than routine claims for benefits) or, to the Knowledge of the
Seller, threatened against, or with respect to, any of the
Benefit Plans or their assets.
(e) All contributions required to be made to the Benefit
Plans pursuant to their terms and provisions have been made
timely.
(f) As to any Benefit Plan subject to Title IV of ERISA,
there has been no event or condition which presents the material
risk of plan termination, no accumulated funding deficiency,
whether or not waived, within the meaning of Section 302 of ERISA
or Section 412 of the Code has been incurred, no notice of intent
to terminate the Benefit Plan has been given under Section 4041
of ERISA, no proceeding has been instituted under Section 4042 of
ERISA to terminate the Benefit Plan, and no liability to the
Pension Benefit Guaranty Corporation has been incurred (other
than with respect to required premium payments).
(g) In connection with the consummation of the transactions
contemplated by this Agreement, no payments have or will be made
under the Benefit Plans or any of the programs, agreements,
policies or other arrangements described in Section 4.11(i) of
the Seller's Disclosure Letter which, in the aggregate, would be
nondeductible under Section 280G of the Code.
(h) No collective bargaining agreement is being negotiated
by the Company or any of its subsidiaries. There is no pending
or, to the Knowledge of the Seller, threatened labor dispute,
strike or work stoppage against the Company or any of its
subsidiaries which could reasonably be expected to interfere with
the business activities of the Company or any of its
subsidiaries. To the Knowledge of the Seller, none of the
Company, any of its subsidiaries or any of their respective
representatives or employees has committed any unfair labor
practices in connection with the operation of the respective
businesses of the Company or its subsidiaries, and there is no
pending or, to the Knowledge of the Seller, threatened charge or
complaint against the Company or any of its subsidiaries by the
National Labor Relations Board or any comparable state agency.
(i) Except as set forth in Section 4.11(i) of the Seller's
Disclosure Letter, neither the Company nor any of its
subsidiaries is a party to or is bound by any severance
agreements, programs or policies. True and correct copies of
all employment agreements with officers of the Company and its
subsidiaries, and all vacation, overtime and other compensation
14
policies of the Company and its subsidiaries relating to their
employees have been made available to the Purchaser. Except as
set forth in Section 4.11(i) of the Seller's Disclosure Letter,
there are no (x) agreements with consultants of the Company and
its subsidiaries obligating the Company or any of its
subsidiaries to make cash payments in an amount exceeding
$150,000 or (y) noncompetition agreements with the Company or any
of its subsidiaries executed by officers of the Company.
(j) Except as set forth in Section 4.11(j) of the Seller's
Disclosure Letter, no Benefit Plan provides retiree medical or
retiree life insurance benefits to any Person and neither the
Company nor any of its subsidiaries is contractually or otherwise
obligated (whether or not in writing) to provide any Person with
life insurance or medical benefits upon retirement or termination
of employment, other than as required by the provisions of
Sections 601 through 608 of ERISA and Section 4980B of the Code.
(k) Neither the Company nor any of its subsidiaries
contributes to or has an obligation to contribute to, and has not
within six years prior to the date of this Agreement contributed
to or had an obligation to contribute to, a multiemployer plan
within the meaning of Section 3(37) of ERISA.
(l) The Company's vacation policy does not provide for
carryover vacation from one calendar year to the next.
Section 4.12. Environmental Matters. Except for matters
disclosed in Section 4.12 of the Seller's Disclosure Letter and
except for matters that, individually or in the aggregate, would
not have a Material Adverse Effect on the Company, the
properties, operations and activities of the Company and its
subsidiaries are in compliance with all applicable Environmental
Laws; the Company and its subsidiaries and the properties and
operations of the Company and its subsidiaries are not subject to
any existing, pending or, to the Knowledge of the Seller,
threatened action, suit, investigation, inquiry or proceeding by
or before any Court or Governmental Authority under any
Environmental Law; all Permits, if any, required to be obtained
or filed by the Company or any of its subsidiaries under any
Environmental Law in connection with the business of the Company
and its subsidiaries have been obtained or filed and are valid
and currently in full force and effect; there has been no
release of any hazardous substance, pollutant or contaminant into
the environment by the Company or its subsidiaries or in
connection with their properties or operations; and the Company
and its subsidiaries have made available to the Purchaser all
internal and external environmental audits and studies and all
correspondence on substantial environmental matters in each case
relevant to the Company or any of its subsidiaries and known by
the Seller, or which the Seller should have known, to be in the
possession of the Company or its subsidiaries.
Section 4.13. Patents, Trademarks. Section 4.13 of the Seller's
Disclosure Letter sets forth all patents, trademarks, service
marks, trade names and copyrights and registrations and
applications for any thereof, domestic or foreign, owned by or
registered in the name of the Company or one of its subsidiaries
or in which the Company or its subsidiaries has any rights and
which are Material to the Company. The Company or its
subsidiaries own or hold licenses under such patents, trademarks,
service marks, trade names and copyrights as are necessary for
the conduct of its business as currently conducted except for
licenses which the failure to own or hold could not reasonably be
15
expected to have a Material Adverse Effect on the Company.
Neither the Company nor any of its subsidiaries is currently in
receipt of any notice of infringement or notice of conflict with
the asserted rights of others in any patents, trademarks, service
marks, trade names and copyrights owned or held by other Persons,
except, in each case, for matters that could not reasonably be
expected to have a Material Adverse Effect on the Company.
Section 4.14. Insurance. Section 4.14 of the Seller's
Disclosure Letter sets forth all insurance policies held by the
Company and its subsidiaries that are Material to the Company.
To the Knowledge of the Seller, all such policies are in full
force and effect and all premiums due thereon have been paid.
Section 4.15. Public Utility. The Company is not a "holding
company," or a "public utility company," as such terms are
defined in the Holding Company Act and the rules and regulations
thereunder; it is, however, a "subsidiary company" of a "holding
company," and an "affiliate" of a "holding company," as such
terms are defined in the Holding Company Act and the rules and
regulations thereunder. The Seller has taken no action that, and
no relationship between the Seller and its Affiliates existing
prior to the Closing, will cause the Company to continue to be a
"subsidiary company" of a "holding company" or an "affiliate" of
a "holding company" after the Closing within the meaning of the
Holding Company Act and the rules and regulations thereunder.
Section 4.16. Minute Books. The minute books of the Company and
its subsidiaries which have been made available to the Purchaser
for review constitute all of the Company's and its subsidiaries'
minute books and contain a complete and accurate record of all
resolutions and formal actions of the Company's and its
subsidiaries' stockholders and directors (and any committees
thereof), in each case, in their respective capacities as such.
Section 4.17. Powers of Attorney. No Persons hold powers of
attorney for the Company or its subsidiaries except for revocable
limited powers of attorney granted in connection with ad valorem,
franchise and other state and local taxes or other routine
business matters.
Section 4.18. Intercompany Transactions. Except as may
otherwise be required by Sections 6.09 and 6.10, since December
31, 1995, all Material intercompany transactions between the
Company and its subsidiaries, on the one hand, and the Seller and
its Affiliates (other than the Company and its subsidiaries), on
the other, including charges for factoring accounts receivable,
interest, administrative and overhead services, transporting
Hydrocarbons and sales of Hydrocarbons, have been made on terms
consistent in all material respects with, and accounted for by
the Company and its subsidiaries consistent with, transactions of
a similar nature occurring during the periods reflected in the
Consolidated Financial Statements. The Company and its
subsidiaries have not guaranteed, or provided collateral, surety,
or credit support for, any obligations of the Seller and its
Affiliates (other than the Company and its subsidiaries) to third
parties, except such that will be released at the Closing.
Section 4.19. Accounts Receivable. The accounts receivable
included in current accounts of the Company comprising part of
the Working Capital of the Company arise from, in all material
respects, sales made or services rendered in the ordinary course
of business, are not subject to any material Lien (except Liens
to be released at or prior to the Closing), are not subject to
16
any material conditions that would preclude the sale thereof by
the Company (except any such condition to be satisfied or
released at or prior to Closing) and are collectible in the
ordinary course of business, except as reflected in the reserve
for doubtful accounts included in the Working Capital of the
Company as of the Closing.
Section 4.20. Gas Balancing. Except as set forth in Section
4.09 of the Seller's Disclosure Letter, to the Knowledge of the
Seller, since December 31, 1995 no claim has been asserted
against the Company or any of its subsidiaries relating to any
Material gas balancing liabilities.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER
Subject to the provisions of Sections 8.01 and 8.02, the
Purchaser represents and warrants to the Seller as follows:
Section 5.01. Organization and Good Standing. The Purchaser is
a corporation duly incorporated, validly existing and in good
standing under the Laws of the State of Delaware with all
requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as currently
conducted.
Section 5.02. Financing. The Purchaser has available to it
internal funds that are otherwise uncommitted and funds that it
can acquire through borrowings from nationally recognized
financial institutions, which borrowings are the subject of firm
commitments from such institutions obtained for the purposes of
this Agreement, and such funds are, in the aggregate, sufficient
to enable the Purchaser to pay the Estimated Purchase Price of
the Stock in full, together with all costs and expenses related
thereto, and otherwise to perform its obligations under this
Agreement.
Section 5.03. Authorization of Agreement. The Purchaser has all
requisite corporate power and authority to enter into this
Agreement and each instrument required hereby to be executed and
delivered by it at the Closing, to perform its obligations
hereunder and thereunder and to consummate the transactions
contemplated hereby. The execution and delivery by the Purchaser
of this Agreement and each instrument required hereby to be
executed and delivered by it at the Closing, and the performance
of its obligations hereunder and thereunder, have been duly and
validly authorized by all requisite corporate action on the part
of the Purchaser. This Agreement has been duly executed and
delivered by the Purchaser and (assuming due authorization,
execution and delivery hereof by the other party hereto)
constitutes a legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with
its terms, except as the same may be limited by legal principles
of general applicability governing the application and
availability of equitable remedies.
Section 5.04. Approvals. Except for the requirements of the
HSR Act and those Laws, Regulations and Orders noncompliance
with which could not reasonably be expected to have a material
adverse effect on the Purchaser's ability to perform this
Agreement, no filing or registration with, no waiting period
imposed by and no Permit or Order of, any Governmental Authority
is required under any Law, Regulation or Order applicable to the
Purchaser to permit the Purchaser to execute, deliver or perform
17
this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing.
Section 5.05. No Violation. Assuming effectuation of all filings
and registrations with, termination or expiration of all waiting
periods imposed by and receipt of all Permits and Orders of,
Governmental Authorities indicated as required in Section 5.04,
neither the execution and delivery by the Purchaser of this
Agreement or any instrument required hereby to be executed and
delivered by it at the Closing nor the performance by the
Purchaser of its obligations hereunder or thereunder will
violate or breach the terms of or cause a default under any
Law, Regulation or Order applicable to the Purchaser, the
charter or bylaws of the Purchaser or any contract or agreement
to which the Purchaser is a party or by which it or any of its
properties or assets is bound, or , with the passage of time or
the giving of notice or the taking of any action by a third
party, have any of the effects set forth in clause (a) of this
Section, except in any such case for any matters described in
this Section that could not reasonably be expected to have a
material adverse effect upon the ability of the Purchaser to
perform its obligations under this Agreement.
Section 5.06. Litigation. There are no actions, suits,
investigations or proceedings (including any proceedings in
arbitration) pending, or, to the Knowledge of the Purchaser,
threatened, against the Purchaser or any of its assets, at law or
in equity, in any Court or before or by any Governmental
Authority that could reasonably be expected to have a material
adverse effect on the validity or enforceability of this
Agreement or the ability of the Purchaser to perform its
obligations under this Agreement.
Section 5.07. Brokerage Agreements. Neither the Purchaser nor
any of its subsidiaries has, directly or indirectly, entered into
any agreement with any Person that would obligate the Seller, the
Company or any of the Company's subsidiaries to pay any
commission, brokerage fee or "finder's fee" in connection with
the transactions contemplated herein.
Section 5.08. Accounts Receivable. The reserve for doubtful
accounts included in the Working Capital of the Company as of the
Closing does not exceed the amount of receivables of the Company
comprising part of the Working Capital of the Company as of the
Closing that is not collectible (it being understood and agreed
that this representation is intended solely to provide a
mechanism pursuant to which the Purchaser will rebate to the
Seller, pursuant to Section 8.02, the excess of receivables
actually collected over the amount credited to the Seller for
such receivables pursuant to Section 6.09(c) in computing the
Final Purchase Price).
ARTICLE VI.
AGREEMENTS
Section 6.01. Affirmative Covenants of the Seller. Except as
expressly contemplated by this Agreement or consented to in
writing by the Purchaser (which consent shall not be unreasonably
withheld), the Seller will, during the period from the execution
of this Agreement by the Seller to the Closing, cause the Company
and its subsidiaries:
18
(a) to operate their businesses in all material respects in
the usual and ordinary course consistent with past practices;
(b) to use all reasonable efforts to preserve substantially
intact their business organizations, maintain the rights and
franchises that are Material to the Company, retain the services
of their officers and maintain the relationships with the
customers and suppliers that are Material to the Company;
(c) to maintain and keep the properties and assets that are
Material to the Company in as good repair and condition as on the
date of this Agreement, ordinary wear and tear excepted, and
maintain supplies and inventories in quantities consistent with
their customary business practices;
(d) to use all commercially reasonable efforts to keep in
full force and effect insurance comparable in amount and scope of
coverage to that set forth in Section 4.14 of the Seller's
Disclosure Letter; and
(e) to comply in all material respects with all applicable
Laws, Regulations and Orders.
Section 6.02. Negative Covenants of the Seller. Except as (i)
expressly contemplated by this Agreement, (ii) required by the
partnership or joint venture agreements or arrangements listed in
Section 4.02(c) of the Seller's Disclosure Letter with respect to
the business, condition (financial or otherwise), operations,
performance or properties of the partnerships and joint ventures
created thereby, or (iii) as otherwise consented to in writing by
the Purchaser (which consent shall not be unreasonably withheld),
the Seller will not, from the execution of this Agreement by the
Seller until the Closing, permit the Company or any of its
subsidiaries:
(a) (i) to increase in any material respect the
compensation payable to or to become payable to any director or
executive officer, except for increases in salary or wages
payable or to become payable in the ordinary course of business
and consistent with past practice; to grant in any material
respect any severance or termination pay (other than pursuant to
the normal severance policy of the Company and its subsidiaries
as in effect on the date of this Agreement) to, or to enter into
or to amend any employment or severance agreement with, any
director, officer or employee; or to establish, adopt or enter
into any Benefit Plan;
(b) to declare or to pay any dividend on, or to make any
other distribution in respect of, outstanding shares of capital
stock or other equity interests, except for dividends or any
other distributions by a wholly-owned subsidiary of the Company
to the Company or another wholly-owned subsidiary of the Company
or as disclosed in Section 6.02(b) of the Seller's Disclosure
Letter;
(c) (i) to redeem, purchase or acquire, or to offer to
purchase or acquire, any outstanding shares of capital stock of,
or other equity interests in, or any securities that are
convertible into or exchangeable for any shares of capital stock
of, or other equity interests in (other than any such acquisition
19
by the Company or any of its wholly-owned subsidiaries directly
from any wholly-owned subsidiary of the Company in exchange for
capital contributions or loans to such subsidiary), or any
outstanding options, warrants or rights of any kind to acquire
any shares of capital stock of, or other equity interests in, the
Company or any of its subsidiaries; to effect any reorganization
or recapitalization; or to split, combine or reclassify any of
the capital stock of, or other equity interests in, the Company
or any of its subsidiaries or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of such capital stock or such equity
interests;
(d) (i) to offer, sell, issue or grant, or authorize the
offering, sale, issuance or grant, of any shares of capital stock
of, or other equity interests in, any securities convertible into
or exchangeable for any shares of capital stock of, or other
equity interests in, or any options, warrants or rights of any
kind to acquire any shares of capital stock of, or other equity
interests in, the Company or any of its subsidiaries; or to
grant any Lien with respect to any shares of capital stock of, or
other equity interests in, any subsidiary of the Company;
(e) to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of,
or in any other manner, any business or any corporation,
partnership, association or other business organization or
division thereof, or otherwise to acquire any assets of any other
Person (other than the purchase of assets from suppliers or
vendors in the ordinary course of business and consistent with
past practice), the aggregate purchase prices for which exceeds
$3,000,000;
(f) to sell, lease, exchange or otherwise dispose of, or to
grant any Lien (other than a Permitted Encumbrance) with respect
to, any of the assets of the Company or any of its subsidiaries
that are Material to the Company, except for dispositions of
assets (up to an aggregate fair market value of $3,000,000) and
inventories in the ordinary course of business and consistent
with past practice;
(g) to adopt any amendments to its charter or bylaws or
other organizational documents that would alter the terms of its
capital stock or other equity interests or would have a material
adverse effect on the ability of the Seller to perform its
obligations under this Agreement;
(h) (i) to change any of its policies or practices related to
business transactions between the Company and its subsidiaries,
on the one hand, and the Seller and its Affiliates (other than
the Company and its subsidiaries), on the other hand, to change
any of its methods of accounting in effect at December 31, 1995,
except as may be required to comply with GAAP, to make or
rescind any election relating to Taxes, to settle or compromise
any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes (except
where the cost to the Company and its subsidiaries of such
settlements or compromises, individually or in the aggregate,
does not exceed $500,000), or to change any of its methods of
reporting income or deductions for federal income tax purposes
from those employed in the preparation of the federal income tax
returns for the taxable year ending December 31, 1994, except, in
each case, as may be required by Law and except, in the cases of
20
clauses (i), (ii) (iii) and (v), for matters that could not
reasonably be expected to have a Material Adverse Effect on the
Company;
(i) to incur any obligations for borrowed money or purchase
money indebtedness that are Material to the Company, whether or
not evidenced by a note, bond, debenture or similar instrument,
except obligations to the Seller and its Affiliates which, in the
case of obligations to the Seller and its Affiliates other than
the Company and its subsidiaries, will be forgiven or otherwise
satisfied at the Closing in accordance with Sections 6.09 and
6.10;
(j) to enter into any arrangement, agreement or contract
with any third party (other than customers in the ordinary course
of business) which is Material to the Company and that is
substantially more restrictive on the Company and its
subsidiaries or substantially less advantageous to the Company
and its subsidiaries than arrangements, agreements or contracts
existing on the date hereof;
(k) to enter into any (i) new Hydrocarbons purchase
contract or Hydrocarbons sale contract or amend or modify any
such contract now in existence, which contract, amendment or
modification is Material to the Company or (ii) Fixed Price
Contract;
(l) to enter into any new Hydrocarbons transportation,
gathering, compression or dehydration contract or amend or modify
any such contract now in existence, which contract, amendment or
modification is Material to the Company;
(m) to enter into any new Hydrocarbons storage contract or
Hydrocarbons processing contract or amend or modify any such
contract now in existence, which contract amendment or
modification is Material to the Company;
(n) to initiate any proceeding before the OCC, the LCC, the
TRC, the FERC or any other federal or state regulatory agency,
which proceeding could reasonably be expected to have a Material
Adverse Effect on the Company; or
(o) to agree in writing or otherwise to do any of the
foregoing.
Section 6.03. Access.
(a) From the execution of this Agreement by the Seller
until the Closing, the Seller shall cause the Company and its
subsidiaries to afford the Purchaser and its officers,
directors, employees, accountants, consultants, legal counsel,
agents and other representatives, including environmental
engineers (collectively, the "Purchaser's Representatives"),
reasonable access at reasonable times, upon reasonable prior
notice, to the officers, employees, agents, properties, offices
and other facilities of the Company and its subsidiaries and to
the books and records thereof and to furnish promptly to the
Purchaser and the Purchaser's Representatives such information
concerning the business, properties, contracts, records and
personnel of the Company and its subsidiaries (including
financial, operating and other data and information) as may be
reasonably requested, from time to time, by the Purchaser.
21
(b) Notwithstanding the foregoing provisions of this
Section, the Seller shall not be required to cause the Company or
any of its subsidiaries to grant access or furnish information to
the Purchaser or any of the Purchaser's Representatives to the
extent that such information is subject to an attorney/client or
attorney work product privilege or that such access or the
furnishing of such information is prohibited by Law or by a valid
and binding confidentiality agreement with a third party;
provided, however, that, in the latter instance, if so requested
by the Purchaser, the Seller will use all commercially reasonable
efforts to obtain from such third party a waiver of such
prohibition.
(c) The information received pursuant to this Section shall
be deemed to be "Evaluation Material" for purposes of the
Confidentiality Agreement.
Section 6.04. Appropriate Action; Consents; Filings.
(a) The Seller and the Purchaser shall each use, and shall
cause each of their respective subsidiaries to use, all
commercially reasonable efforts to take, or to cause to be
taken, all appropriate action, and to do, or to cause to be done,
all things necessary, proper or advisable under applicable Law or
otherwise to consummate and make effective the transactions
contemplated by this Agreement, to obtain from any Governmental
Authorities any Licenses, Permits or Orders required to be
obtained by the Purchaser or the Seller or any of their
subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the performance of their
obligations hereunder, to make all necessary filings, and
thereafter to make promptly any other required submissions, with
respect to this Agreement required under the HSR Act or any
other applicable Law, Regulation or Order; provided, however,
that the Purchaser and the Seller shall cooperate with each other
in connection with the making of all such filings and in
supplying any information requested supplementally or by second
request from any Governmental Authority. The Purchaser and the
Seller shall request early termination of the waiting period
under the HSR Act with respect to the transactions contemplated
hereby.
(b) The Purchaser and the Seller agree to cooperate and to
cause their respective subsidiaries to cooperate with respect to,
and agree to use all commercially reasonable efforts vigorously
to contest and resist and to have vacated, lifted, reversed or
overturned, any action, including legislative, administrative or
judicial action, including any Order (whether temporary,
preliminary or permanent) of any Governmental Authority, that is
in effect and that restricts, prevents or prohibits the
consummation of the transactions contemplated by this Agreement.
Each of the Purchaser and the Seller also agree to take any and
all commercially reasonable actions that may be required by any
Governmental Authority as a condition to the granting of any
Permit or Order required in order to permit the consummation of
the transactions contemplated hereby or as may be required to
vacate, lift, reverse or overturn any administrative or judicial
action that would otherwise cause any condition to the Closing
not to be satisfied; provided, however, that in no event shall
the Seller take any action that could reasonably be expected to
have a Material Adverse Effect on the Company and in no event
shall either party be required to take any action that could
reasonably be expected to have a Material Adverse Effect on such
party or to result in a breach of this Agreement.
22
(c) Each of the Seller and the Purchaser shall use, and
shall cause its subsidiaries to use, all commercially reasonable
efforts to obtain from all Persons (other than Governmental
Authorities) all consents that are necessary, proper or
advisable or otherwise required under any contracts, licenses,
leases, Easements, or other agreements to which the Seller or the
Purchaser or any of its subsidiaries is a party or by which it is
bound, in order to permit the Seller or the Purchaser, as the
case may be, to perform its obligations hereunder.
(d) If any party shall fail to obtain any third party
consent described in subsection (c) of this Section, such party
shall use all commercially reasonable efforts, and shall take any
such actions reasonably requested by the other party, to limit
the adverse effect upon the Seller and the Purchaser, their
respective subsidiaries, and their respective businesses
resulting, or which could reasonably be expected to result after
the Closing, from the failure to obtain such consent.
(e) Each of the Purchaser and the Seller shall promptly
notify the other of any complaints, investigations or hearings
(or communications indicating that the same may be contemplated)
from or by any Governmental Authorities with respect to the
transactions contemplated hereby or the institution or the
threat of litigation involving this Agreement or the transactions
contemplated hereby.
Section 6.05. Pending and Upcoming Rate Proceedings. The
Company and its subsidiaries currently have pending rate
proceedings in FERC Docket Nos. PR96-2 (Traditional System),
PR96-7 (Anadarko System) and TRC Docket No. 8457 with respect to
transportation service under Section 311. From the execution of
this Agreement by the Seller until the Closing, the Seller shall
cause the Company and its subsidiaries to use all commercially
reasonable efforts to obtain approval for the maximum rates
requested in such proceedings and to prevail in such litigation.
Notwithstanding the foregoing, the Seller reserves the right to
permit the Company and its subsidiaries to agree with the
appropriate Governmental Authorities or other parties, at any
time prior to the Closing, to settle all or any part of the
issues in such proceedings or litigation, including any issues
regarding the appropriate maximum rate, fuel component, rate of
return or other cost of service or rate design aspect, when in
the sole judgment of the Company or such subsidiary, such action
is in the best interests of the Company or such subsidiary and
could not reasonably be expected to have a Material Adverse
Effect on the Company.
Section 6.06 Preparation and Filing of Tax Returns; Payment of
Taxes.
(a) With respect to each Tax Return covering a taxable
period ending on or before the Closing Date that is required to
be filed after the Closing Date for, by or with respect to the
Company or any subsidiary of the Company (other than the Tax
Returns described in subsection (c) of this Section), the Seller
shall cause such Tax Return to be prepared, shall cause to be
included in such Tax Return all items of income, gain, loss,
deduction and credit or other items (collectively "Tax Items")
required to be included therein, and shall deliver the original
of such Tax Return to the Purchaser at least thirty (30) days
prior to the due date (including extensions) of such Tax Return.
If the amount of the Tax shown to be due on such Tax Return
exceeds the amount of the Closing Date Tax Accrual for such Tax,
the Seller shall pay to the Purchaser the amount of such excess
23
not less than five (5) days prior to the due date of such Tax
Return. If the amount of the Tax shown to be due on such Tax
Return is less than the amount of the Closing Date Tax Accrual
for such Tax, the Purchaser shall pay to the Seller the amount of
such difference not less than five (5) days prior to the due date
of such Tax Return. The Purchaser shall cause the Company or the
respective subsidiary to file timely such Tax Return with the
appropriate taxing authority and to pay the amount of Taxes shown
to be due on such Tax Return.
(b) With respect to each Tax Return covering a taxable
period beginning on or before the Closing Date and ending after
the Closing Date that is required to be filed after the Closing
Date for, by or with respect to the Company or any subsidiary of
the Company (other than the Tax Returns described in subsection
(c) of this Section), the Purchaser shall cause such Tax Return
to be prepared and shall cause to be included in such Tax Return
all Tax Items required to be included therein. The Purchaser
shall determine, subject to verification by the Seller, the
portion, if any, of the Tax due with respect to the period
covered by such Tax Return which is attributable to the Company
or the respective subsidiary for a Pre-Closing Taxable Period.
The determination of the portion of such Tax that is attributable
to the Pre-Closing Period shall be based, in the case of real and
personal property Taxes, on a per diem basis and, in the case of
other Taxes, on the actual activities, taxable income or taxable
loss of the Company and its subsidiaries during the Pre-Closing
Period and Post-Closing Period. At least thirty (30) days prior
to the due date (including extensions) of such Tax Return, the
Purchaser shall deliver to the Seller a copy of such Tax Return.
If the amount of Tax attributable to the Pre-Closing Taxable
Period exceeds the amount of the Closing Date Tax Accrual for
such Tax, the Seller shall pay to the Purchaser the amount of
such excess Tax not less than five (5) days prior to the due date
of such Tax Return. If the amount of Tax attributable to the Pre-
Closing Taxable Period is less than the amount of the Closing
Date Tax Accrual for such Tax, the Purchaser shall pay to the
Seller the amount of such difference not less than five (5) days
prior to the due date of such Tax Return. The Purchaser shall
cause the Company or the respective subsidiary to file timely
such Tax Return with the appropriate taxing authority and to pay
timely the amount of Taxes shown to be due on such Tax Return.
For purposes of this subsection, (i) any Texas franchise Tax
imposed on the Taxable Earned Surplus of the Company or any of
its subsidiaries which is determined with reference to the
federal taxable income of the Company or any of its subsidiaries
for the period up to and including the Closing Date shall be
treated as attributable to a Pre-Closing Taxable Period, and (ii)
any state income or franchise Tax (other than Texas franchise
Tax) which is imposed on the Company or any of its subsidiaries
in a Post-Closing Taxable Period and is determined by reference
to federal taxable income of a Pre-Closing Taxable Period of the
Company or any of its subsidiaries shall be treated as
attributable to a Pre-Closing Taxable Period.
(c) The Seller shall cause to be included in the
consolidated federal income Tax Returns (and the state income Tax
Returns of any state in which the Seller files consolidated,
combined or unitary income Tax Returns) of the Seller's Group
for all periods ending on or before or which include the Closing
Date, all Tax Items of the Company and its subsidiaries which are
required to be included therein, shall file timely all such Tax
Returns with the appropriate taxing authorities and shall pay
timely all Taxes due with respect to the periods covered by such
Tax Returns.
24
(d) The Seller shall be responsible for the payment of all
state and local transfer, sales, use or other similar taxes
resulting from the transactions contemplated by this Agreement.
(e) From time to time prior to the Closing Date, the Seller
shall have the right to cause the Company or any of its
subsidiaries to pay to the IRS or the applicable state taxing
authority (or to the Seller or another member of the Seller's
Group as agent for the payment of such Tax) such amounts on
account of the Company's and the subsidiaries' shares of
consolidated federal income Tax liability and any consolidated,
combined or unitary state income Tax liability of the Seller's
Group for the 1996 taxable year as are consistent with any tax
sharing agreements, arrangements, policies or guidelines ("Tax
Sharing Agreements") that may exist between the Company or any
subsidiary of the Company, on the one hand, and the Seller or any
other Affiliate of the Seller, on the other. All such Tax
Sharing Agreements will be terminated and any obligations to make
payments under them shall be canceled as of the Closing Date.
Any and all payments then remaining due under those Tax Sharing
Agreements shall be made prior to their termination.
Section 6.07. Access to Information. From and after the
Closing:
(a) The Seller and each member of the Seller's Group shall
grant to the Purchaser (or its designees) access at all
reasonable times to all of the information, books and records
relating to the Company and its subsidiaries within the
possession of the Seller or any member of the Seller's Group
(including work papers and correspondence with taxing
authorities), and shall afford to the Purchaser (or its
designees) the right (at the Purchaser's expense) to take
extracts therefrom and to make copies thereof, to the extent
reasonably necessary to permit the Purchaser or any of its
Affiliates (or its designees) to prepare Tax Returns, to conduct
negotiations with Tax authorities, to fulfill an obligation to
any Governmental Authority imposed by Law, Regulation or Order
and to implement the provisions of, or to investigate or defend
any claims between the parties arising under, this Agreement.
(b) The Purchaser shall grant or cause the Company and its
subsidiaries to grant to the Seller or any of its Affiliates (or
its designees) access at all reasonable times to all of the
information, books and records relating to the Company and its
subsidiaries within the possession of the Purchaser, the Company
or its subsidiaries (including work papers and correspondence
with taxing authorities), and shall afford to the Seller (or its
designees) the right (at the Seller's expense) to take extracts
therefrom and to make copies thereof, to the extent reasonably
necessary to permit the Seller (or its designees) to prepare Tax
Returns, to conduct negotiations with Tax authorities, to fulfill
an obligation to any Governmental Authority imposed by Law,
Regulation or Order and to implement the provisions of, or to
investigate or defend any claims between the parties arising
under, this Agreement or otherwise.
(c) Each of the parties hereto will preserve and retain all
schedules, work papers and other documents relating to any Tax
Returns of or with respect to the Company or any of its
subsidiaries or to any claims, audits or other proceedings
affecting the Company or any of its subsidiaries until the
expiration of the statute of limitations (including extensions)
25
applicable to the taxable period to which such documents relate
or until the final determination of any controversy with respect
to such taxable period, and until the final determination of any
payments that may be required with respect to such taxable period
under this Agreement.
(d) Notwithstanding the foregoing provisions of this
Section, neither party hereto shall be required to grant or cause
to be granted to the other access to information, books and
records or to furnish extracts or copies thereof if such
information, books and records also include information regarding
such party or any of its Affiliates. In such circumstances, such
party shall either provide appropriately detailed summaries of
the information contained therein or , in providing extracts or
copies thereof, redact the information relating to such party or
its Affiliates.
Section 6.08. Employees and Employee Benefit Plans.
(a) Effective as of the Closing, the Seller shall cause the
Company to withdraw as a participating employer from all Benefit
Plans other than any Benefit Plans as to which the Company is the
sole sponsoring entity.
(b) Effective as of the Closing, the Seller shall cause
each employee of the Company on the Closing Date (the "Continuing
Employees") who is a participant in the Central and South West
System Pension Plan (the "CSW Pension Plan") on the Closing Date
to become 100% vested in his accrued benefit under the CSW
Pension Plan as of the Closing and shall cause the accrued
benefits of the Continuing Employees under the CSW Pension Plan
to be distributed to such Continuing Employees pursuant to the
terms and provisions of the CSW Pension Plan as if the Continuing
Employees had terminated employment for purposes of the CSW
Pension Plan as of the Closing. Effective as of the Closing, the
Purchaser shall take all action necessary and appropriate to
extend coverage under a new or existing defined benefit pension
plan (the "Purchaser's Pension Plan") qualified under section
401(a) of the Code to the Continuing Employees who were
participants in the CSW Pension Plan at the Closing. The
Continuing Employees shall be credited with service under the
Purchaser's Pension Plan, for eligibility, vesting, and accrual
of benefit purposes, with the service credited to them for such
purposes under the CSW Pension Plan as of the Closing. The
Continuing Employees' benefits under the Purchaser's Pension Plan
shall be reduced by the actuarial equivalent of the pension
benefit paid or payable to such Continuing Employees from the CSW
Pension Plan. In making such reduction, the pension paid or
payable under each plan shall be determined under the provisions
of each plan as if payable at normal retirement date in the
normal form; provided, however, that the pension benefit paid or
payable under the CSW Pension Plan in the normal form at the
normal retirement date shall be converted to the normal form
under the Purchaser's Pension Plan using the actuarial
assumptions under the Purchaser's Pension Plan. The net pension
payable under the Purchaser's Pension Plan shall then be
actuarially adjusted in accordance with the provisions of the
Purchaser's Pension Plan for the actual time and form of payment.
(c) Effective as of the Closing, the Purchaser shall take
all action necessary and appropriate to extend coverage under a
new or existing defined contribution plan (the "Purchaser's
Savings Plan") qualified under section 401(a) of the Code to the
26
Continuing Employees who have account balances under the Central
and South West System Thrift Plus Plan (the "CSW Thrift Plan") at
the Closing. The Continuing Employees shall be credited with
service under the Purchaser's Savings Plan, for eligibility and
vesting purposes, with the service credited to them under the
terms of the CSW Thrift Plan as of the Closing. As soon as
practicable following the Closing, the Seller shall cause to be
transferred from the trustee of the CSW Thrift Plan to the
trustee of the Purchaser's Savings Plan an amount in cash or in
kind (with any in kind transfers to be agreed upon by the Seller
and the Purchaser, except that it is hereby agreed that
participant loans shall be transferred in kind; provided,
however, that any loan repayments shall be applied to investments
available under the Purchaser's Savings Plan) equal to the
aggregate account balances (both vested and unvested) of the
Continuing Employees under the CSW Thrift Plan determined as of
the transfer date (which shall be a valuation date) in accordance
with the methods of valuation set forth in the CSW Thrift Plan.
From and after the date of such transfer, the Purchaser shall
cause the Purchaser's Savings Plan to assume the obligations of
the CSW Thrift Plan with respect to the benefits accrued by the
Continuing Employees under the CSW Thrift Plan, and the CSW
Thrift Plan shall cease to be responsible therefor.
(d) Except as provided in subsections (e), (f), and (j) of
this Section, claims for benefits under welfare plans, as such
term is defined in Section 3(1) of ERISA, in which Continuing
Employees participate arising out of occurrences prior to the
Closing shall be covered by the applicable welfare plan of the
Seller in accordance with the terms of such plan. All such
claims for benefits by Continuing Employees arising out of
occurrences subsequent to the Closing shall be covered by the
applicable welfare plan of the Purchaser in accordance with the
terms of such plan. Neither the Purchaser nor any of its
subsidiaries shall be liable for payment of any disability
benefit due to disabled employees of the Company or its
subsidiaries or Continuing Employees who, prior to the Closing,
are in the waiting or qualifying period for disability benefits.
After the Closing, the Seller shall be responsible for disability
benefits payable to such persons under the Seller's disability
plan.
(e) Claims for medical, dental, prescription drug, vision,
and employee assistance plan benefits by Continuing Employees
with respect to purchases or services or treatment rendered prior
to the Closing shall be covered by the applicable welfare plan of
the Seller in accordance with the terms of such plan. Claims for
such benefits by Continuing Employees with respect to purchases
or services or treatment rendered on or subsequent to the Closing
shall be covered by the applicable welfare plan of the Purchaser
in accordance with the terms of such plan. The Purchaser shall
cause the Continuing Employees to be granted credit under the
welfare plan of the Purchaser providing medical, dental,
prescription drug, vision, and employee assistance plan coverage,
for the year during which the Closing occurs, for any deductibles
already incurred by such Continuing Employees for such year under
the welfare plan of the Seller providing such coverage, and the
Purchaser shall cause to be waived any eligibility waiting
periods and pre-existing condition restrictions under the welfare
plans of the Purchaser to the extent necessary to provide
immediate coverage under such welfare plans as of the Closing
(but only to the extent that coverage was provided under the
applicable welfare plan of the Seller). The Purchaser shall
provide the Continuing Employees (and their respective
beneficiaries) with medical benefits sufficient to satisfy the
obligations of the Seller under Section 4980B(f) of the Code with
respect to such Continuing Employees so that the Seller will not
incur any tax under Section 4980B of the Code.
27
(f) Effective as of the Closing, the Purchaser shall, or
shall cause the Company to, take all action necessary and
appropriate to extend coverage under a new or existing health
care spending account plan (the "Purchaser's Health Care Plan")
to the Continuing Employees. A Continuing Employee shall be
considered to have an account balance under the Purchaser's
Health Care Plan following the Closing that is the same as such
Continuing Employee's account balance under the Central and South
West System Health Care Reimbursement Plan (the "CSW Health Care
Plan") immediately prior to the Closing, and the elections in
effect for the year in which the Closing Date occurs under the
CSW Health Care Plan shall remain in effect under the Purchaser's
Health Care Plan for the remainder of such year unless changed as
a result of a change in family status. As of the Closing, the
positive and negative balances of the Continuing Employees under
the CSW Health Care Plan shall be netted. To the extent that
there is a net positive balance, claims under the Purchaser's
Health Care Plan following the Closing shall be paid from the
Central and Southwest System Voluntary Employees' Beneficiary
Association (the "CSW VEBA") until such balance is eliminated.
Thereafter, all such claims shall be paid by the Company. To the
extent that there is a net negative balance as of the Closing,
the Company shall make a contribution to the CSW VEBA as of or
before the Closing equal to the net negative balance. For
purposes of this paragraph, a Continuing Employee shall be
considered to have a positive balance in such employee's account
as of the Closing if the amounts that have been withheld from
such Continuing Employee's compensation during the year in which
the Closing occurs, pursuant to the CSW Health Care Plan, prior
to the Closing, exceeded disbursements on such Continuing
Employee's behalf from the CSW Health Care Plan prior to the
Closing for such year's claims. A Continuing Employee shall be
considered to have a negative balance in such Continuing
Employee's account as of the Closing if the disbursements on such
Continuing Employee's behalf from the CSW Health Care Plan prior
to the Closing for the year in which the Closing occurs exceeds
the amounts that have been withheld from such Continuing
Employee's compensation during such year, pursuant to the CSW
Health Care Plan, prior to the Closing.
(g) Effective as of the Closing, the Purchaser shall, or
shall cause the Company to, take all action necessary and
appropriate to extend coverage under a new or existing dependent
care spending account plan (the "Purchaser's Dependent Care
Plan") to the Continuing Employees. A Continuing Employee shall
be considered to have an account balance under the Purchaser's
Dependent Care Plan following the Closing that is the same as
such Continuing Employee's account balance under the Central and
South West System Dependent Care Assistance Plan (the "CSW
Dependent Care Plan") immediately prior to the Closing, and the
elections in effect for the year in which the Closing Date occurs
under the CSW Dependent Care Plan shall remain in effect under
the Purchaser's Dependent Care Plan for the remainder of such
year unless changed as a result of a change in family status.
To the extent that there are amounts held in the CSW VEBA as of
the Closing attributable to a Continuing Employee's participation
in the CSW Dependent Care Plan, claims under the Purchaser's
Dependent Care Plan following the Closing shall be paid from the
CSW VEBA until such amounts are depleted. Thereafter, all such
claims shall be paid by the Company.
(h) For a period of one year following the Closing Date,
the Purchaser shall, or shall cause the Company to, establish and
manage a severance benefit plan to cover the Continuing Employees
with such severance benefit being a severance benefit plan
28
substantially similar to the Central and South West System
Severance Benefit Plan, effective July 1, 1995 (the "CSW
Severance Benefit Plan"). For purposes of such plan, any
restructuring, reorganization, or other position elimination
involving a Continuing Employee shall be considered approved
within the meaning of Section 2.1 of the CSW Severance Benefit
Plan and service with the Seller or any of its subsidiaries,
including the Company, shall be taken into account.
(i) Vacation entitlement accrued by Continuing Employees
for the year in which the Closing Date occurs under the Company's
vacation policy as in effect as of the Closing shall be
recognized by the Purchaser and the Company following the
Closing. Service with the Seller or any of its subsidiaries,
including the Company, shall be taken into account for purposes
of the Purchaser's vacation policy following the Closing.
(j) With respect to all employees who retired from
employment with the Company prior to the Closing and who have
been, or are eligible to be, provided with post-retirement
medical, dental, or life insurance coverage as of the Closing
under plans sponsored by the Seller or the Company, the Seller
shall assume or retain any and all liability with respect to the
provision of such coverages to such retired employees and their
eligible dependents on and after the Closing. With respect to
all Continuing Employees who retire from employment with the
Company after the Closing and who have been, or are eligible to
be, provided with post-retirement medical, dental or life
insurance as of the Closing under plans sponsored by the Company
or the Seller, the Purchaser shall assume any and all liability
with respect to the provision of such coverages to such retired
Continuing Employees and their eligible dependents on and after
the Closing (up to a present benefit obligation of $3.2 million,
computed using the actuarial assumptions of the CSW Pension
Plan).
(k) Claims for workers compensation benefits for Continuing
Employees arising out of occurrences prior to the Closing shall
be the responsibility of the Seller. Claims for workers
compensation benefits for Continuing Employees arising out of
occurrences subsequent to the Closing shall be the responsibility
of the Purchaser.
(l) Nothing herein shall be deemed or construed to give
rise to any rights, claims, benefits, or causes of action to any
Continuing Employee or any other Person, except the Seller or to
prevent, restrict, or limit the Purchaser or the Company and its
subsidiaries following the Closing from modifying or terminating
its pension or other benefit plans, programs, or policies from
time to time as it may deem appropriate, subject only to
compliance with the express provisions of subsections (a) through
(k) of this Section for the benefit of the Seller.
Section 6.09. Working Capital Contribution. Effective as of the
Closing, the Seller shall cause the purchase agreement dated
January 2, 1991, between the Company and CSW Credit, Inc.
pursuant to which the Company factors its trade accounts
receivable to CSW Credit, Inc. to be amended to terminate the
factoring of accounts receivable of the Company arising after the
Closing, the Company's intercompany payable or receivable
balance, as the case may be, in the CSW Money Pool to be forgiven
in full resulting in a capital contribution (or resulting in a
distribution), and (c) to be assigned (without recourse) to the
29
Company, as a capital contribution, the right, title and interest
in and to the amount of current accounts receivable balances
existing as of the Closing that are required to bring the Working
Capital of the Company as of the Closing to zero (after giving
effect to clause (b) of this Section and Section 6.10(a)) and
that have been factored by the Company to CSW Credit, Inc.
pursuant to such purchase agreement.
Section 6.10. Intercompany Accounts; Post-Closing Relationships;
Closing Covenants.
(a) Except for the Company's intercompany payable or
receivable balance, as the case may be, in the CSW Money Pool
(which is specifically addressed in Section 6.09), and except for
those accounts set forth in Section 6.10(a) of the Seller's
Disclosure Letter, the Seller, effective as of the Closing, will
cause all intercompany accounts (including those pertaining to
all income taxes) between the Company and its subsidiaries, on
the one hand, and the Seller and its Affiliates (other than the
Company and its subsidiaries), on the other, to be paid or
otherwise satisfied.
(b) Effective as of the Closing, the only obligations of
the Company and its subsidiaries to the Seller and its Affiliates
(other than the Company and its subsidiaries) and of the Seller
and its Affiliates (other than the Company and its subsidiaries)
to the Company and its subsidiaries shall be those obligations
expressly set forth in the contracts listed in Section 6.10(b) of
the Seller's Disclosure Letter, irrespective of any prior
relationships, arrangements, business practices or courses of
dealing and any forecasts, estimates or projections related to
the subject matter of such contracts.
(c) The Seller agrees to assign to the Company, at or prior
to the Closing, the confidentiality agreements with all other
prospective purchasers of the Company.
(d) At the Purchaser's request, the Seller agrees to
provide the transition services described in Annex B to this
Agreement to the Company until April 15, 1997 at a level
sufficient to effect a smooth transfer of the ownership and
operation of the Company by the Seller to the Purchaser, and the
Purchaser agrees to pay the Seller the cost of such services
(consistent with the payment for similar services made in the
past under that certain agreement among Central and South West
Services, Inc., the Company and certain Affiliates of the Company
dated August 18, 1988).
(e) As of the Closing, the Seller shall cause the Company
and its subsidiaries to have no outstanding long term
indebtedness for borrowed money which would be required to be
reflected under GAAP in the consolidated financial statements of
the Company as of the Closing, other than any such indebtedness
reflected in the Consolidated Financial Statements and the debt
secured by the real estate mortgages disclosed in Section 4.07(a)
of the Seller's Disclosure Letter.
(f) The Seller agrees to use commercially reasonable
efforts to cooperate with the Company and its subsidiaries after
the Closing in making and prosecuting claims under insurance
policies and programs of the Seller and its Affiliates that cover
the Company and its subsidiaries. The insurance trust of which
the Seller is a member under the Trust Agreement dated
November 1, 1990 (the "Trust"), will continue to process, respond
to, defend, and pay claims received prior to the Closing. The
30
Company and its subsidiaries will process, respond to, defend,
and pay claims made after the Closing; provided, however, that
the Company and its subsidiaries after the Closing will continue
to be entitled to make claims against insurance policies
purchased by the Trust prior to the Closing in which the Company
and its subsidiaries are named as insureds in accordance with the
terms of such policies so long as such insurance policies remain
in effect, but the Company and its subsidiaries will not make
claims against the Trust or Trust assets for claims made after
the Closing. The Seller shall cause no premiums or assessments
to be due and payable from the Company and its subsidiaries to
the Trust (and no distributions or refunds to be due and payable
from the Trust to the Company and its subsidiaries) after the
Closing.
(g) Prior to or at the Closing the Seller shall enter into,
or cause Public Service Company of Oklahoma to enter into, an
agreement providing for the indemnity to the Company and its
subsidiaries described in the seventh paragraph of Note 10 to the
Consolidated Financial Statements as such indemnity relates to
the claims against the Company or such subsidiaries described in
such paragraph or similar claims against the Company or such
subsidiaries made subsequent to December 31, 1995 that relate to
events occurring or circumstances existing prior to the Closing.
Such agreement shall contain terms similar to those set forth in
Sections 8.02(e) and (f) regarding the defense and settlement of
claims, but in any event shall be in form and substance
reasonably acceptable to the Purchaser.
Section 6.11. Estimated Purchase Price. At least three (3) days
prior to the Closing, the Seller in good faith shall prepare in
reasonable detail and deliver to the Purchaser a statement
setting forth the Seller's calculations with respect to its best
estimation of the Purchase Price, including its best estimation
of the amount of Working Capital of the Company as of the Closing
(the "Estimated Purchase Price").
Section 6.12. Determination of Final Purchase Price. As soon as
reasonably practicable and in any event within sixty (60) days
following the Closing Date, the Purchaser shall cause the Company
to prepare and deliver to the Seller a statement setting forth
the Purchaser's calculation (the "Final Purchase Price
Calculation") of the final purchase price (the "Final Purchase
Price"), including the actual amount of Working Capital of the
Company as of the Closing and, if the Final Purchase Price
differs from the Estimated Purchase Price, the reasons therefor
in reasonable detail. The Final Purchase Price Calculation shall
contain sufficient detail to enable the Seller to relate the
calculations contained therein to the books and records of the
Company and its subsidiaries. The Purchaser shall cause the
Company to make available to the Seller all information in the
possession of the Company and its subsidiaries reasonably
required for the Seller to verify whether the Final Purchase
Price Calculation is correct. Within forty-five (45) days
following the delivery of the Final Purchase Price Calculation,
the Seller shall notify the Purchaser whether it agrees with the
Final Purchase Price Calculation; provided, however, that, if the
Seller shall fail so to notify the Purchaser within such forty-
five (45) day period, it shall be deemed to have agreed with the
Final Purchase Price Calculation. If the Seller shall disagree
with the Final Purchase Price Calculation, the Seller and the
Purchaser shall endeavor in good faith to agree on the Final
Purchase Price but, if they shall not agree within thirty (30)
days following the Seller's notice to the Purchaser, either the
Purchaser or the Seller may cause the issues in dispute to be
referred for resolution to Price Waterhouse L.L.P. (or such other
firm of independent public accountants as the Purchaser and the
Seller may mutually designate), and the Seller and the Purchaser
30
shall cooperate, and the Purchaser shall cause the Company and
its subsidiaries to cooperate, with such firm of independent
public accountants by making available to that firm such
information, books and records and such personnel as such firm
may reasonably request. The costs of such firm of independent
public accountants shall be borne equally by the Purchaser and
the Seller. The Purchaser and the Seller shall use all
commercially reasonable efforts to cause such firm of independent
public accountants to examine the books and records of the
Company and its subsidiaries, as well as any other information
that such firm may reasonably conclude is necessary to make such
determination, and to make a determination with respect to such
issues within sixty (60) days following the date such issues are
referred to them. Any such determination shall be final and
binding on the Purchaser and the Seller and may be enforced by
appropriate judicial or other proceedings. The Final Purchase
Price shall then be calculated by the Seller and the Purchaser
based on those matters as to which they are in agreement and the
determination by the independent public accountants as to those
matters, if any, as to which they did not agree. If the Final
Purchase Price as so determined (whether by agreement of the
parties or determination by accountants) shall exceed the
Estimated Purchase Price, the Purchaser shall pay the Seller the
amount of such excess plus interest thereon from the Closing Date
until paid at a rate equal to the base or reference rate quoted
from time to time by the Bank, but, if the Final Purchase Price
as so determined shall be less than the Estimated Purchase Price,
the Seller shall pay the Purchaser the amount of such shortfall
plus interest thereon from the Closing Date until paid at a rate
equal to the base or reference rate quoted from time to time by
the Bank, such payment in either case to be made within five (5)
days following the final determination of the Final Purchase
Price.
Section 6.13. Public Announcements. Except as otherwise
required by Law or the New York Stock Exchange, the Seller and
the Purchaser shall consult with each other before issuing any
press release or otherwise making any public statements with
respect to this Agreement and the transactions contemplated
hereby and shall not issue any such press release or make any
such public statement prior to such consultation. The press
release announcing the execution and delivery of this Agreement
shall be a joint press release of the Seller and the Purchaser.
Section 6.14. Confidentiality. After the Closing, the Seller
will not, and will not permit its Affiliates which it controls
(excluding the Company and its subsidiaries) to, disclose or
provide to any other Person any material non-public information
of a confidential nature concerning the business or operations of
the Company or its subsidiaries, except as required by Law,
Regulation or Order.
Section 6.15. Acquisition Proposals. From the execution of this
Agreement by the Seller until the Closing or the termination of
this Agreement in accordance with its terms, the Seller will not,
and will cause its officers, directors, employees or agents not
to, directly or indirectly, take any action to solicit, initiate
or encourage any proposal regarding the acquisition of the
Company or its assets by merger or otherwise or , except as
required by Law, Regulation or Order, engage in negotiations
with, or disclose any non-public information relating to the
Company, or afford access to its properties, books or records to
any Person that has made or, to the Knowledge of the Seller, may
be considering making an acquisition proposal.
32
ARTICLE VII.
CONDITIONS TO THE CLOSING
Section 7.01. Conditions to Obligations of Each Party. The
obligations of each party to this Agreement to effect the
transactions contemplated hereby to occur at the Closing shall be
subject to the satisfaction or, to the extent permitted by Law,
waiver of each of the following conditions:
(a) All requirements of any applicable Law, Regulation or
Order necessary for the valid consummation of the transactions
contemplated herein to occur at the Closing shall have been
fulfilled (including the termination or expiration of the
applicable waiting period under the HSR Act), and all filings
required to be made with any Governmental Authority under any
applicable Law, Regulation or Order (including the filing of the
Certificate of Merger) and all Permits and Orders required to be
obtained from any Governmental Authority or Court under any
applicable Law, Regulation or Order, in each case, in order to
permit the Seller or the Purchaser to consummate the transactions
contemplated hereby to occur at the Closing shall have been made
or obtained (other than any requirement the nonfulfillment of
which and any Permit or Order the nonreceipt of which could not
reasonably be expected to have a Material Adverse Effect on the
Seller, the Purchaser or the Company); and
(b) No temporary restraining order, preliminary or
permanent injunction or other Order issued by any Court of
competent jurisdiction preventing the consummation of the
transactions contemplated hereby to occur at the Closing shall be
in effect.
Section 7.02. Conditions to Obligation of the Purchaser. The
obligation of the Purchaser to effect the transactions
contemplated hereby to occur at the Closing shall be subject to
the satisfaction or, to the extent permitted by Law, waiver of
each of the following conditions:
(a) The representations and warranties of the Seller set
forth in this Agreement shall be true and correct in all material
respects as of the execution of this Agreement by the Seller and
(except to the extent such representations and warranties speak
as of an earlier date) as of the Closing as though made at and as
of the Closing and the Purchaser shall have received a
certificate signed on behalf of the Seller by the president or
any vice president and by the chief financial officer of the
Seller to such effect (except the representations and warranties
set forth in Sections 4.07, 4.08 and 4.09 insofar as they relate
to the Palo Duro Pipeline);
(b) The Seller shall have performed in all material
respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and the Purchaser
shall have received a certificate signed on behalf of the Seller
by the president or any vice president and by the chief financial
officer of the Seller to such effect;
(c) The Seller shall have furnished the Purchaser at the
Closing with certified copies of resolutions duly adopted by the
Board of Directors of the Seller authorizing the execution,
delivery and performance of this Agreement and each instrument
required hereby to be executed and delivered by the Seller at the
Closing;
33
(d) There shall not be any action or proceeding pending or
threatened (including any investigation) by any Governmental
Authority to restrain, enjoin or invalidate the transactions
contemplated herein or to compel the Purchaser to divest any
material assets, which would, in the judgment of the Board of
Directors of the Purchaser, made in good faith and based upon the
advice of counsel, involve expense or lapse of time or result in
a reconfiguration of the Purchaser's business which expense,
lapse of time or result would be materially adverse to the
interests of the Purchaser;
(e) The Purchaser shall have received from counsel to the
Seller an opinion dated as of the Closing Date in form and
substance reasonably satisfactory to the Purchaser; and
(f) The Purchaser shall have received at the Closing
resignations of all directors of the Company and its
subsidiaries.
Section 7.03. Conditions to Obligation of the Seller. The
obligation of the Seller to effect the transactions contemplated
hereby to occur at the Closing shall be subject to the
satisfaction or, to the extent permitted by Law, waiver of each
of the following conditions:
(a) The representations and warranties of the Purchaser set
forth in this Agreement shall be true and correct in all material
respects as of the execution of this Agreement by the Purchaser
and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing as though made at
and as of the Closing and the Seller shall have received a
certificate signed on behalf of the Purchaser by the president or
any vice president and by the chief financial officer of the
Purchaser to such effect;
(b) The Purchaser shall have performed in all material
respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and the Seller
shall have received a certificate signed on behalf of the
Purchaser by the president or any vice president and by the chief
financial officer of the Purchaser to such effect;
(c) The Purchaser shall have furnished the Seller at the
Closing with certified copies of resolutions duly adopted by the
Board of Directors of the Purchaser authorizing the execution,
delivery and performance of this Agreement and each instrument
required hereby to be executed and delivered by the Purchaser at
the Closing;
(d) There shall not be any action or proceeding pending or
threatened (including any investigation) by any Governmental
Authority to restrain, enjoin or invalidate the transactions
contemplated herein or to compel the Seller to divest any
material assets, which would, in the judgment of the Board of
Directors of the Seller, made in good faith and based upon the
advice of counsel, involve expense or lapse of time or result in
a reconfiguration of the Seller's business which expense, lapse
of time or result would be materially adverse to the interests of
the Seller or pay over any material amount of the proceeds from
the Merger;
(e) The Seller shall have received from counsel to the
Purchaser an opinion dated as of the Closing Date in form and
substance reasonably satisfactory to the Seller; and
34
(f) The Purchaser shall have delivered to the Seller at the
Closing immediately available funds in an amount equal to the
Estimated Purchase Price.
ARTICLE VIII.
INDEMNIFICATION
Section 8.01. Survival of Representations, Warranties, Covenants
and Agreements. The representations, warranties, covenants and
agreements of the parties contained in Articles II, III, IV, V
and VI (other than the representations and warranties contained
in Sections 3.02, 3.06, 4.02(a), 4.08(c) (to the extent the
representations and warranties set forth in such Section relate
to the Palo Duro Pipeline), 4.09, 4.10, 4.11, 4.12, 4.16, 4.17
and 4.18 and the covenants and agreements contained in Sections
6.06, 6.07, 6.08, 6.10 and 6.14) shall survive both the Closing
and any investigation by the parties with respect thereto but
shall terminate and be of no further force or effect on the first
anniversary of the Closing. The representations and warranties
contained in Sections 4.09 and 4.11 shall survive both the
Closing and any investigation by the parties with respect thereto
but shall terminate and be of no further force and effect on the
second anniversary of the Closing. The representations and
warranties contained in Section 4.12 shall survive the Closing
and any investigation by the parties with respect thereto until
the tenth anniversary of the Closing. The representations and
warranties contained in Sections 3.02, 3.06, 4.02(a), 4.08(c)
(except to the extent the representations and warranties set
forth in such Section relate to the Palo Duro Pipeline), 4.16,
4.17 and 4.18 and the covenants and agreements contained in
Sections 6.06, 6.07, 6.08, 6.10(a)-(f) and 6.14 shall survive
both the Closing and any investigation by the parties with
respect thereto until the expiration of the statute of
limitations (including any and all periods of extension or
tolling thereof) applicable to actions on written contracts. The
representations and warranties contained in Sections 4.08(c) (to
the extent the representations and warranties set forth in such
Section relate to the Palo Duro Pipeline), and 4.10 and the
covenants contained in Section 6.10(g) shall survive both the
Closing and any investigation by the parties with respect thereto
until the expiration of the statute of limitations (including any
and all periods of extension or tolling thereof) applicable to
the subject matter of such sections. Notwithstanding the
foregoing, any such representation, warranty, covenant or
agreement as to which a bona fide claim relating thereto is
asserted in writing in accordance with Section 8.02 during such
survival period shall, with respect only to such claim, survive
such survival period. The covenants and agreements in this
Article VIII shall survive the Closing and shall remain in full
force and effect for such period as is necessary to resolve any
bona fide claim made with respect to any representation,
warranty, covenant or agreement contained in this Agreement
during the survival period thereof. The remaining covenants and
agreements of the parties hereto contained in this Agreement
shall survive the Closing without any contractual limitation on
the period of survival.
Section 8.02. General Indemnification.
(a) Subject to the limitations on survival contained in
Section 8.01, if the transactions contemplated hereby to occur at
the Closing are effected, each party hereto (the "Indemnifying
Party") hereby agrees, from and after the Closing, to indemnify
and hold harmless the other party hereto (the "Indemnified
Party") against any losses, claims, damages or liabilities
35
("Losses") which such Indemnified Party shall actually incur, to
the extent that such Losses (or actions, suits or proceedings in
respect thereof and any appeals therefrom ("Proceedings")) (other
than any Losses subject to Section 8.03 herein):
(i) arise out of or are based upon any allegation that any
representation or warranty made herein in Article III, IV or V
for the benefit of the Indemnified Party by the Indemnifying
Party is untrue or has been breached in any respect; or
(ii) arise out of or are based upon any allegation that any
covenant or agreement made herein for the benefit of the
Indemnified Party by the Indemnifying Party has not been
performed in accordance with its terms;
and will reimburse the Indemnified Party for any legal
or other expenses reasonably incurred by it in connection with
investigating or defending against any such Losses or
Proceedings. Notwithstanding the foregoing, except for Losses
resulting from breaches of Sections 3.02, 3.06, 4.02, 4.08(c) (to
the extent the representations and warranties set forth in such
Section relate to the Palo Duro Pipeline), 4.10, 4.18, 4.19,
5.08, 6.06, 6.09, 6.10 and 6.12, the Indemnifying Party shall
(x) not be liable to the Indemnified Party under this Section for
any Loss incurred by the Indemnified Party which does not exceed
$500,000, and (y) be liable to the Indemnified Party under this
Section only for the amount of Losses incurred by the Indemnified
Party which exceed $10,000,000 in the aggregate; provided,
however, that the amount of such Losses that are subject to
indemnification hereunder shall not exceed the Final Purchase
Price; and provided, further, that the Losses incurred by an
Indemnified Party shall, for purposes of determining the
threshold level thereof in accordance with this sentence and
otherwise, be offset by (i) the amount of any such Losses
incurred by the Indemnifying Party jointly and severally with the
Indemnified Party to the extent of payments made by the
Indemnifying Party; and (ii) the proceeds of any insurance
received by the Indemnified Party with respect thereto.
(b) Promptly after receipt by the Indemnified Party under
subsection (a) of this Section of notice of a Loss or the
commencement of any Proceeding against which it believes it is
indemnified under this Section, the Indemnified Party shall, if a
claim in respect thereto is to be made against the Indemnifying
Party under this Section, notify the Indemnifying Party in
writing of the commencement thereof; provided, however, that the
omission so to notify the Indemnifying Party shall not relieve it
from any liability which it may have to the Indemnified Party to
the extent that the Indemnifying Party is not prejudiced by such
omission.
(c) For purposes of determining whether an event, fact or
occurrence constitutes a misrepresentation or a breach of any
representation, warranty, covenant or agreement contained in this
Agreement for which indemnification can be or is sought under
this Section, as used in any such representation, warranty,
covenant or agreement, the terms "Material" and "Material Adverse
Effect" shall have the following meanings:
"Material" shall mean material to the
condition (financial and other), results of operations or
business of a specified Person and its subsidiaries, if any,
36
taken as whole; provided that, without limiting the foregoing
definition, the parties acknowledge and agree that any amount
exceeding $500,000 is material; and
"Material Adverse Effect" shall mean any
change or effect that would be materially adverse to the
consolidated business, condition (financial or otherwise),
operations, performance or properties of a specified Person and
its subsidiaries, if any, taken as a whole; provided that,
without limiting the foregoing definition, the parties
acknowledge and agree that any amount exceeding $5,000,000 is
material in respect of Section 4.05 and that any amount exceeding
$500,000 is material in all other cases;
provided that the special purpose use of the terms
"Material" and "Material Adverse Effect" in this subsection (c)
shall be disregarded and given no effect in determining what is
"material" for purposes of the definitions of such terms
contained in Annex A to this Agreement and how they are used
elsewhere in this Agreement.
(d) The Indemnifying Party shall, within thirty (30) days
after receipt of a notice of Loss or Proceeding given pursuant to
subsection (b) of this Section, either acknowledge liability, as
between the Indemnifying Party and the Indemnified Party, for
such Loss or the amount in controversy in such Proceeding and pay
the Indemnified Party the amount of such Loss or the amount in
controversy in such Proceeding in cash or other immediately
available funds (or establish by agreement with the Indemnified
Party an alternative payment schedule), acknowledge liability,
as between the Indemnifying Party and the Indemnified Party, for
such Loss or the amount in controversy in such Proceeding,
disavow the validity of the Loss or Proceeding or the amount
thereof and, to the extent that it shall so desire in accordance
with subsection (d) of this Section, assume the legal defense
thereof, or object (or reserve the right to object until
additional information is obtained) to the claim for
indemnification or the amount thereof, setting forth the grounds
therefor in reasonable detail; provided that, if the Indemnifying
Party objects (or reserves its right to object) within such 30-
day period as provided in this clause (iii), then the Indemnified
Party may bring suit (in the same Proceeding or otherwise) to
resolve the dispute and, pending final resolution of such
dispute, the Indemnified Party may proceed as though the
Indemnifying Party had responded in accordance with clause (i)
above. If the Indemnifying Party does not respond to the
Indemnified Party as provided in this subsection within such 30-
day period, the Indemnifying Party shall be deemed to have
acknowledged its liability for such indemnification claim in
accordance with clause (i) of this subsection and the Indemnified
Party may exercise any and all of its rights under applicable law
to collect such amount.
(e) If any such Proceeding shall be brought against an
Indemnified Party and it shall notify the Indemnifying Party
thereof in accordance with subsection (c) of this Section, the
Indemnifying Party shall, if it shall have responded to such
notice in accordance with clause (ii) of subsection (c) of this
Section, be entitled to assume the legal defense thereof with
counsel reasonably satisfactory to the Indemnified Party. After
notice from the Indemnifying Party to the Indemnified Party of
its election to assume the defense of such claim or such action,
37
the Indemnifying Party shall not be liable to the Indemnified
Party under this Section for any attorney's fees or other
expenses (except reasonable costs of investigation) subsequently
incurred by the Indemnified Party in connection with the defense
thereof. If the Indemnifying Party does not assume the defense of
a Proceeding as to which it has acknowledged liability, as
between itself and the Indemnified Party, pursuant to clause (ii)
of subsection (c) of this Section, the Indemnified Party may
require the Indemnifying Party to reimburse it on a current basis
for its reasonable expenses of investigation, reasonable
attorney's fees and expenses and reasonable out-of-pocket
expenses incurred in the defense thereof and, subject to the
provisions of subsection (e) of this Section, the Indemnifying
Party shall be bound by the result obtained with respect thereto
by the Indemnified Party.
(f) An Indemnifying Party will not, without the prior
written consent of the Indemnified Party (which consent shall not
be unreasonably withheld), settle or compromise or consent to the
entry of any judgment with respect to any pending or threatened
Proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the Indemnified Party is
an actual or potential party to such Proceeding) unless such
settlement, compromise or consent includes an unconditional
release of the Indemnified Party from all liability arising out
of such Proceeding. If the Indemnifying Party has responded to
the Indemnified Party pursuant to clause (i) of subsection (c) of
this Section, the Indemnified Party may settle or compromise or
consent to the entry of any judgment with respect to the
Proceeding that was the subject of notice to the Indemnifying
Party pursuant to subsection (c) of this Section without the
consent of the Indemnifying Party. An Indemnified Party will not
otherwise, without the prior written consent of the Indemnifying
Party (which consent shall not be unreasonably withheld), settle
or compromise or consent to the entry of any judgment with
respect to any pending or threatened Proceeding, but, if such
Proceeding is settled or compromised or if there is entered any
judgment with respect to any such Proceeding, in either case with
the consent of the Indemnifying Party, or if there be a final
judgment of the plaintiff in any such Proceeding, the
Indemnifying Party agrees to indemnify and hold harmless any
Indemnified Party from and against any loss or liability by
reason of such settlement, compromise or judgment.
(g) From and after the Closing, except as provided in
Section 8.03, the provisions of this Section shall be the sole
and exclusive remedy of each party hereto for any breach of the
other party's representations, warranties, covenants or
agreements contained in this Agreement; provided, however, that
each party may seek specific performance by the other party of
the agreements and obligations set forth in Sections 6.07, 6.13
and 6.14. Notwithstanding anything in this Agreement to the
contrary, in no event shall any losses, claims, damages or
liabilities indemnified hereunder include any consequential or
punitive damages, except to the extent that such are awarded to a
third party in a proceeding against an indemnified party.
38
Section 8.03. Tax Indemnification and Audits.
(a) From and after the Closing, the Seller hereby agrees to
protect, defend, indemnify and hold harmless the Purchaser and
the Company and its subsidiaries from and against, and agrees to
pay, all:
(i) Taxes of the Company or any subsidiary of the Company
attributable to any Pre-Closing Taxable Period (except for Taxes
arising out of any transaction of the Company or its subsidiaries
not in the ordinary course of business occurring on the Closing
Date but subsequent to the Closing), but only to the extent the
amount of such Taxes exceeds the amount taken into account as a
liability for such Taxes in determining the Purchase Price;
(ii) Taxes of any corporation (other than the Company
and its subsidiaries) that is or was a member of the Seller's
Group; and
(iii) Taxes of the Company or any subsidiary of the
Company attributable to the Section 338(h)(10) Elections made pursuant
to Section 8.04.
(b) From and after the Closing, the Purchaser agrees to
protect, defend, indemnify and hold harmless the Seller from and
against, and agrees to pay, all:
(i) Taxes of the Company or any subsidiary of the
Company attributable to any Post-Closing Taxable Period; and
(ii) Taxes arising out of any transaction of the
Company or its subsidiaries not in the ordinary course of business
occurring on the Closing Date and after the Closing.
(c) If a claim shall be made by any taxing authority that,
if successful, would result in the indemnification of a party
(the "Tax Indemnified Party") under this Section, the Tax
Indemnified Party shall promptly notify the party (the "Tax
Indemnifying Party") obligated under this Section to indemnify
the Tax Indemnified Party in writing of such fact; provided,
however, that the omission to so notify the Indemnifying Party
shall not relieve it from any liability which it may have to the
Indemnified Party to the extent that the Indemnifying Party is
not prejudiced by such omission.
(i) The Tax Indemnified Party shall take such action in
connection with contesting such claim as the Tax Indemnifying
Party shall request in writing from time to time, including the
selection of counsel and experts and the execution of powers of
attorney; provided that (a) within thirty (30) days after the notice
required by this subsection has been delivered (or such earlier
date that any payment of Taxes is due by the Tax Indemnified
Party but in no event sooner than five (5) days after the Tax
Indemnifying Party's receipt of such notice), the Tax
Indemnifying Party requests that such claim be contested, and
(b) the Tax Indemnifying Party shall have agreed to pay to the Tax
39
Indemnified Party all costs and expenses that the Tax Indemnified
Party incurs in connection with contesting such claim, including
reasonable attorneys' and accountants' fees and disbursements.
The Tax Indemnified Party shall not make any payment of such
claim for at least thirty (30) days (or such shorter period as
may be required by applicable law) after the giving of the notice
required by this subsection, shall give to the Tax Indemnifying
Party any information requested relating to such claim, and
otherwise shall cooperate with the Tax Indemnifying Party in
order to contest effectively any such claim. The Tax
Indemnifying Party shall determine the method of any contest of
such claim and shall control the conduct thereof.
(ii) Subject to the provisions of paragraph (i) of this
subsection, the Tax Indemnified Party shall enter into a
settlement of such contest with the applicable taxing authority
or prosecute such contest to a determination in a Court, all as
the Tax Indemnifying Party may request.
(iii) Promptly after the extent of the liability of the Tax
Indemnified Party with respect to a claim shall be established by
the final judgment or decree of a Court or a final and binding
settlement with a Governmental Authority having jurisdiction
thereof, the Tax Indemnifying Party shall pay to the Tax
Indemnified Party the amount of any Taxes to which the Tax
Indemnified Party may become entitled by reason of the provisions
of this Section.
(d) Notwithstanding anything to the contrary in this
Section, any interest, penalties, fines, assessments or additions
to Tax resulting from or attributable to the failure of the Tax
Indemnified Party to act in a timely manner, including in filing
Tax Returns, responding to Tax audit or other inquiries or making
payments shall not be indemnifiable hereunder and shall be the
sole responsibility of the Tax Indemnified Party.
(e) In addition to the provisions of this subsection (c) of
this Section, if any proposed audit adjustments of a Pre-Closing
Taxable Period Tax Return could result in a tax adjustment for a
Post-Closing Taxable Period, the Seller shall promptly inform the
Purchaser. If the Seller elects not to contest the adjustment,
the Purchaser shall have the option, at the Purchaser's own
expense, to contest the proposed adjustment in accordance with
the provisions of subsection (c) of this Section.
(f) In addition to the provisions of subsection (c) of this
Section, if any proposed audit adjustments of a Post-Closing
Taxable Period Tax Return could result in an audit adjustment for
a Pre-Closing Taxable Period, the Purchaser shall promptly inform
the Seller. If the Purchaser elects not to contest the
adjustment, the Seller shall have the option, at the Seller's own
expense, to contest the proposed adjustment in accordance with
the provisions of subsection (c) of this Section.
(g) Except for the indemnification provided in Section 8.02
for breach of any representation or warranty contained in Section
4.10 or any covenant or agreement contained in Section 6.06, the
indemnification provided in this Section shall be the sole remedy
for any claim in respect of Taxes. In the event of a conflict
between the provisions of this Section and any other provisions
of this Agreement, the provisions of this Section shall control.
40
The limitations of Section 8.02 shall not apply to any amounts
for which a party is liable under this Section. Any claim for
indemnity under this Section must be made prior to the expiration
of the applicable Tax statute of limitations with respect to the
relevant taxable period (including all periods of tolling or
extension).
(h) To the extent any determination of Taxes, whether as
the result of an audit or examination, a claim for refund, the
filing of an amended return or otherwise results in a refund of
Taxes paid (a "Refund"), the Seller shall be entitled to any
part of such Refund attributable to a Pre-Closing Taxable Period,
the Purchaser shall be entitled to any part of such Refund
attributable to a Post-Closing Taxable Period, and the Purchaser
and the Seller shall each be entitled to a Refund attributable to
a taxable period described in Section 6.06(b) in the portions
that the Purchaser and the Seller originally bore any Taxes
payable with respect to such taxable period. Whichever party
receives such Refund shall, within ten (10) days after receipt
thereof, pay such Refund, or any part thereof, and the interest
received thereon to the party entitled thereto under this
subsection.
(i) Any payment from the Purchaser to the Seller pursuant
to Section 6.06 or this Section shall be treated for Tax purposes
as an increase in the Purchase Price, and any payment from the
Seller to the Purchaser pursuant to Section 6.06 or this Section
shall be treated for Tax purposes as a reduction in the Purchase
Price.
Section 8.04. Section 338(h)(10) Elections.
(a) The Seller, as the common parent of the Seller's Group,
and the Purchaser shall make a joint election under section
338(h)(10) of the Code and a similar election under any
applicable state income tax law for the Company and for each of
the corporate subsidiaries (collectively, the "Section 338(h)(10)
Elections"). At the Closing, the Seller shall deliver to the
Purchaser an Internal Revenue Service Form 8023-A and any similar
form under applicable state income tax law (the "Forms") with
respect to the Section 338(h)(10) Elections, which shall have
been duly executed by an authorized person for the Seller. The
Purchaser shall cause the Forms to be duly executed by an
authorized person for the Purchaser, shall complete any schedules
required to be attached thereto, shall provide a copy of the
executed Forms and schedules to the Seller, and the Seller and
the Purchaser shall duly and timely file the Forms as prescribed
by Treasury Regulation 1.338(h)(10)-1 or the corresponding
provisions of applicable state income tax law.
(b) The Purchaser shall select a firm of qualified
appraisers to conduct an appraisal of the Company's assets (the
"Appraisal"), which selection must be approved by the Seller,
such approval not to be unreasonably withheld. The Seller and the
Purchaser agree that the results of the Appraisal shall be used
to allocate the Purchase Price and liabilities of the Company and
its subsidiaries (plus other relevant items) to the assets of the
Company and its subsidiaries for all purposes (including United
States or any state, county or local government Tax purposes) in
accordance with the Code and applicable Treasury Regulations.
Such allocation of the Purchase Price shall be prepared by the
Purchaser and submitted in writing to the Seller within ninety
(90) calendar days after the date on which the Final Purchase
Price is determined. The Seller shall consent to such Purchase
41
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.
ARTICLE IX.
TERMINATION
Section 9.01. Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual consent of the Seller and the Purchaser;
(b) by the Purchaser, upon a breach in any material respect
of any representation, warranty, covenant or agreement on the
part of the Seller set forth in this Agreement, or if any
representation or warranty of the Seller shall have become untrue
in any material respect, in either case such that the conditions
set forth in Section 7.02(a) or Section 7.02(b), as the case may
be, would be incapable of being satisfied by June 30, 1996 (or
as otherwise extended as described in Section 9.01(e)); provided,
however, that, in any case, a willful breach shall be deemed to
cause such conditions to be incapable of being satisfied for
purposes of this subsection;
(c) by the Seller, upon a breach in any material respect of
any representation, warranty, covenant or agreement on the part
of the Purchaser set forth in this Agreement, or if any
representation or warranty of the Purchaser shall have become
untrue in any material respect, in either case such that the
conditions set forth in Section 7.03(a) or Section 7.03(b), as
the case may be, would be incapable of being satisfied by June
30, 1996 (or as otherwise extended as described in
Section 9.01(e)); provided, however, that, in any case, a willful
breach shall be deemed to cause such conditions to be incapable
of being satisfied for purposes of this subsection (c);
(d) by either the Seller or the Purchaser, if there shall
be any Order which is final and nonappealable preventing the
consummation of the transactions contemplated hereby, unless the
party relying on such Order to terminate this Agreement has not
complied with its obligations under Section 6.04(b); and
42
(e) by either the Seller or the Purchaser, if the Closing
shall not have occurred prior to June 30, 1996; provided,
however, that this Agreement may be extended by written notice
from either party hereto to the other to a date not later than
July 31, 1996, if the Closing shall not have occurred as a direct
result of the nonfulfillment of the condition contained in
subsection (a) of Section 7.01 by June 30, 1996.
The right of any party hereto to terminate this
Agreement pursuant to this Section shall remain operative and in
full force and effect regardless of any investigation made by or
on behalf of any party hereto, any person controlling any such
party or any of their respective officers, directors, employees
or representatives, whether prior to or after the execution of
this Agreement; provided, however, that each party shall provide
written notice to the other party of any breach by such other
party of a representation, warranty, covenant or agreement set
forth in this Agreement as soon as practicable upon learning of
such breach, and the non-breaching party may only terminate this
Agreement pursuant to subsections (b) or (c) of this Section, as
the case may be, if such breach is not cured within ten (10) days
of such notice being given. If such ten (10) day cure period
extends beyond the date set forth in such subsections, then such
date shall be extended to be the first business day immediately
following the expiration of such ten (10) day cure period.
Section 9.02. Effect of Termination; Nonconsummation. Except as
provided in this Section and Section 9.03, in the event of the
termination of this Agreement pursuant to Section 9.01, this
Agreement shall forthwith become void and of no further force and
effect. If the transactions contemplated hereby are not
consummated by reason of the termination of this Agreement or
otherwise, there shall be no liability on the part of either
party hereto to the other and all rights and obligations of each
party hereto shall cease, except that nothing herein (other than
the immediately following sentence) shall relieve any party of
any liability for any breach of such party's covenants or
agreements contained in this Agreement or any breach of such
party's representations or warranties contained in this
Agreement. Notwithstanding anything in this Agreement to the
contrary, in no event shall any losses, claims, damages or
liabilities claimed with respect to the exception to the
immediately preceding sentence include any consequential or
punitive damages, except to the extent that such are awarded to a
third party in a Proceeding against an Indemnified Party.
Section 9.03. Fees and Expenses. All Expenses incurred by the
parties hereto shall be borne solely and entirely by the party
which has incurred such Expenses; provided, however, that the
Seller (and not the Company or its subsidiaries) shall be
responsible for the fees and expenses of all third parties
retained by or on behalf of the Seller and its Affiliates in
connection with the transactions contemplated by this Agreement.
43
ARTICLE X.
MISCELLANEOUS
Section 10.01. Notices. All notices and other communications
hereunder to a party hereto shall be in writing and shall be
deemed to be properly given if delivered personally, telecopied
(subject to confirmation) or mailed to it by registered or
certified mail (return receipt requested), in the case of the
Seller, to:
Central and South West Corporation
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 77256-0164
Telecopy Number: (214) 777-1528
Attention: Senior Vice President and General Counsel
and in the case of the Purchaser, to:
Tejas Gas Corporation
1301 McKinney Street, Suite 700
Houston, Texas 77010
Telecopy Number: (713) 658-9600
Attention: James W. Whalen, Chief Financial Officer
or at such other address as shall be specified by like
notice.
Section 10.02. Headings; Cross References. The descriptive
headings of the several Articles and Sections of this Agreement
are inserted for convenience only and do not constitute a part of
the Agreement. Unless the context otherwise requires, all
references herein to Articles or Sections shall refer to Articles
or Sections of this Agreement.
Section 10.03. Prior Agreements. This Agreement shall supersede
all prior agreements, documents or other instruments with respect
to the matters covered hereby, save and except the
Confidentiality Agreement which shall remain in full force and
effect in accordance with its terms until the Closing, but shall
expire at the Closing.
Section 10.04. Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Closing.
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
Section 10.05. Waiver. At any time prior to the Closing, either
party hereto may extend the time for the performance of any of
the obligations or other acts of the other party hereto, waive
any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered
pursuant hereto and waive compliance by the other party with any
44
of the covenants or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an
instrument in writing signed by the party or parties to be bound
thereby.
Section 10.06. Further Actions. Each party shall execute and
deliver such other certificates, agreements and other documents
and take such other actions as may reasonably be requested by the
other party in order to consummate or implement the transactions
contemplated by this Agreement.
Section 10.07. Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, by
operation of law or otherwise, by any party hereto without the
prior written consent of the other party; provided, however, that
the Purchaser may assign its rights under this Agreement to any
corporation, all of the outstanding voting stock of which is
owned directly or indirectly by the Purchaser; and provided,
further, that no such assignment shall relieve the Purchaser of
any of its obligations under this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any
person other than the parties hereto and their respective
successors and permitted assigns, any rights, remedies or
obligations under or by reason of this Agreement.
Section 10.08. Governing Law. The terms of this Agreement shall
be governed by, and interpreted in accordance with the provisions
of, the laws of the State of Texas.
Section 10.09. Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed shall
be deemed an original but all of which together shall constitute
one and the same instrument.
Section 10.10. Tranpache Partnership. To the extent that any
representation, warranty or covenant contained in this Agreement
relates to the business, condition (financial or otherwise),
operations, performance or properties of Tranpache Partnership,
(i) any such representation or warranty shall be limited to only
those matters of which the Seller has Knowledge and (ii) any such
covenants shall be limited to only those matters over which the
Seller has control.
45
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be signed in its corporate name by its duly
authorized officer, all on the date first above written.
CENTRAL AND SOUTH WEST CORPORATION
By:
E. R. Brooks
Chairman, President and
Chief Executive Officer
TEJAS GAS CORPORATION
By:
Charles R. Crisp
President
A-1
ANNEX A
SCHEDULE OF DEFINED TERMS
The following terms when used in the Agreement shall have
the meanings set forth below unless the context shall otherwise
require:
"Affiliate" shall, with respect to any Person, mean any
other Person that controls, is controlled by or is under common
control with the former. The term "control" and correlative terms
shall have the meanings ascribed to them in Rule 405 under the
Securities Act.
"Agreement" shall mean the Agreement of Merger made and
entered into as of May 9, 1996 between the Seller and the
Purchaser, including any amendments thereto and each Annex
(including this Annex A) and Schedule thereto (including the
Seller's Disclosure Letter and the Purchaser's Disclosure
Letter).
"Appraisal" shall have the meaning ascribed to such term in
Section 8.04(b).
"Bank" shall mean Citibank N.A.
"Benefit Plans" shall mean any employee pension benefit plan
(whether or not insured), as defined in Section 3(2) of ERISA,
any employee welfare benefit plan (whether or not insured) as
defined in Section 3(1) of ERISA, any stock bonus, stock
ownership, stock option, stock purchase, stock appreciation
rights, phantom stock or other stock plan (whether qualified or
nonqualified), and any bonus or incentive compensation plan under
which the Company or any of its subsidiaries may become obligated
in any manner (including obligations to make contributions or
other payments) to any of the present or former directors,
officers, employees, agents, consultants or other similar
representatives providing services to or for the Company or any
of its subsidiaries in connection with such services; provided,
however, that such term shall not include (a) routine employment
policies and procedures developed and applied in the ordinary
course of business and consistent with past practice, including
wage, vacation, holiday and sick or other leave policies,
(b) workers compensation insurance and (c) directors and officers
liability insurance.
"Certificate of Merger" shall have the meaning ascribed to
such term in Section 2.04 of the Agreement.
"Closing" shall mean a meeting of all Persons interested in
the transactions contemplated by the Agreement at which all
documents deemed necessary by the parties to the Agreement to
evidence the fulfillment or waiver of all conditions precedent to
the consummation of the transactions contemplated by the
Agreement are executed and delivered.
"Closing Date" shall have the meaning ascribed thereto in
Section 2.03 of the Agreement.
A-2
"Closing Date Tax Accrual" for a Tax shall be the amount
reflected as a liability for that Tax in the Consolidated Balance
Sheet plus or minus, as the case may be, any adjustments to that
liability arising during the Computation Period and reflected in
the Purchase Price pursuant to Section 2.02(a) of the Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Common Stock" shall have the meaning ascribed to such term
in Section 4.02(a) of the Agreement.
"Company" shall have the meaning ascribed to such term in
the Recitals to the Agreement.
"Confidentiality Agreement" shall mean that certain
confidentiality agreement between the Seller and the Purchaser
dated February 9, 1996.
"Consolidated Balance Sheet" shall mean the consolidated
balance sheet of the Company and its subsidiaries, as of December
31, 1995, included in the Consolidated Financial Statements
together with the notes thereto.
"Consolidated Financial Statements" shall mean the
consolidated balance sheets of the Company and its subsidiaries
as of December 31, 1994 and December 31, 1995 and the related
consolidated statements of income, cash flows and changes in
stockholder's equity for the fiscal years ended December 31,
1993, 1994 and 1995, together with the notes thereto, all as
audited by Arthur Andersen LLP, independent accountants, under
their report with respect thereto dated February 9, 1996.
"Constituent Corporations" shall have the meaning ascribed
to such term in Section 2.01 of the Agreement.
"Continuing Employees" shall have the meaning ascribed to
such term in Section 6.08(b) of the Agreement.
"Court" shall mean any court, federal, state or local, or
arbitration tribunal.
"CSW Health Care Plan" shall have the meaning ascribed to
such term in Section 6.08(f) of the Agreement.
"CSW Dependent Care Plan" shall have the meaning ascribed to
such term in Section 6.08(g) of the Agreement.
"CSW Money Pool" shall mean the arrangement among the Seller
and its Affiliates pursuant to which surplus cash is consolidated
and short term borrowings are facilitated as reflected in the
A-3
accounting records of the Company by the captions titled
"Advances to Affiliates" and "Advances from Affiliates" included
in the Consolidated Balance Sheet.
"CSW Pension Plan" shall have the meaning ascribed to such
term in Section 6.08(b) of the Agreement.
"CSW Severance Benefit Plan" shall have the meaning ascribed
to such term in Section 6.08(h) of the Agreement.
"CSW Thrift Plan" shall the meaning ascribed to such term in
Section 6.08(c) of the Agreement.
"CSW VEBA" shall the meaning ascribed to such term in
Section 6.08(f) of the Agreement.
"Easements" shall mean any easements, rights of way,
permits, servitudes, licenses, leasehold estates and similar
rights held by the Company or any of its subsidiaries relating to
real property used in their business but owned by other Persons.
"Effective Time" shall have the meaning ascribed to such
term in Section 2.04 of the Agreement.
"Environmental Law or Laws" shall mean any and all laws,
statutes, ordinances, rules, regulations, or orders of any
Governmental Authority pertaining to health or the environment
currently in effect and applicable to the Company and its
subsidiaries, including the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended, the Federal Water
Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Resource Conservation and
Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as
amended, the Hazardous & Solid Waste Amendments Act of 1984, as
amended, the Superfund Amendments and Reauthorization Act of
1986, as amended, the Hazardous Materials Transportation Act, as
amended, the Oil Pollution Act of 1990 ("OPA"), any state laws
implementing the foregoing federal laws, and any state laws
pertaining to the handling of oil and gas exploration and
production wastes or the use, maintenance, and closure of pits
and impoundments, and all other environmental conservation or
protection laws. For purposes of the Agreement, the terms
"hazardous substance" and "release" have the meanings specified
in CERCLA; provided, however, that to the extent the laws of the
state in which the property is located establish a meaning for
"hazardous substance" or "release" that is broader than that
specified in either CERCLA or RCRA, such broader meaning shall
apply, and the term "hazardous substance" shall include all
dehydration and treating wastes, waste (or spilled) oil, and
waste (or spilled) petroleum products, and (to the extent in
excess of background levels) radioactive material, even if such
are specifically exempt from classification as hazardous
substances pursuant to CERCLA or RCRA or the analogous statutes
of any jurisdiction applicable to the Company or its subsidiaries
or any of their respective properties or assets.
A-4
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations
promulgated thereunder.
"Estimated Purchase Price" shall have the meaning ascribed
to such term in Section 6.11 of the Agreement.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder.
"Expenses" shall mean all out-of-pocket expenses (including
all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to a party hereto and its
affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation,
execution and performance of the Agreement, and all other matters
related to the consummation of the transactions contemplated
thereby.
"FERC" shall mean the Federal Energy Regulatory Commission
including its predecessor, the Federal Power Commission, and any
successors thereto.
"Final Purchase Price" shall have the meaning ascribed to
such term in Section 6.12 of the Agreement.
"Final Purchase Price Calculation" shall have the meaning
ascribed to such term in Section 6.12.
"Fixed Price Contracts" shall mean any contracts,
commitments or agreements for the purchase or sale of
Hydrocarbons (i) having a remaining term of more than sixty (60)
days, wherein the purchase or sale price thereunder throughout
part of the remaining life of such contract, commitment or
agreement is a fixed amount or an amount that is otherwise
reasonably determinable as of the date hereof pursuant to the
terms of such contract, commitment or agreement, or (ii) which
the Company or any subsidiary thereof has hedged with futures
contracts or otherwise; provided, however, that the term Fixed
Price Contracts will not include any contract, commitment or
agreement under which the purchase or sales price throughout the
remaining life of the contract, commitment or agreement is based
on a market responsive reference price for a Hydrocarbon.
"Forms" shall have the meaning ascribed to such term in
Section 8.04(a) of the Agreement.
"GAAP" shall mean generally accepted accounting principles
consistently applied; provided, however, that the Statements of
Financial Accounting Standards (SFAS) Nos. 121 will be applied in
determining Working Capital of the Company prior to the Closing.
"Governmental Authority" shall mean any federal, state or
local governmental agency or authority (other than a Court).
A-5
"Holding Company Act" shall mean the Public Utility Holding
Company Act of 1935, as amended, and the rules and regulations
promulgated thereunder.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder.
"Hydrocarbons" shall mean crude oil, natural gas, natural
gas liquids and other hydrocarbons produced from crude oil or
natural gas.
"Indemnified Party" shall have the meaning ascribed to such
term in Section 8.02(a) of the Agreement.
"Indemnifying Party" shall have the meaning ascribed to such
term in of Section 8.02(a) of the Agreement.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" shall mean (i) with respect to the Seller, the
actual knowledge of the officers of the Seller and the Company,
and the in-house attorneys employed in the general counsel's
office of the Company and (ii) with respect to the Purchaser, the
actual knowledge of the officers of the Purchaser. For the
purposes of this definition, and without limiting other matters
of which they have knowledge, in-house attorneys of the Company
shall be deemed also to have knowledge of the contents of letters
directed to the Company's independent auditors from outside
counsel of the Company in connection with its fiscal 1995, 1994
and 1993 annual audits.
"Law" shall mean all laws, statutes, ordinances, rules and
regulations of the United States, any foreign country, or any
domestic or foreign state, and any political subdivision or
agency thereof, including all decisions of Courts having the
effect of law in each such jurisdiction.
"LCC" shall mean the Commissioner of Conservation,
Department of Natural Resources of the State of Louisiana, and
any predecessors or successors thereto.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement
to give any of the foregoing), any conditional sale or other
title retention agreement, any lease in the nature thereof or the
filing of or agreement to give any financing statement under the
Uniform Commercial Code of any jurisdiction.
"Losses" shall have the meaning ascribed to such term in
Section 8.02(a) of the Agreement.
"Material" shall mean material to the condition (financial
and other), results of operations or business of a specified
Person and its subsidiaries, if any, taken as a whole; provided
that the special purpose use of the term "Material" in Section
8.02(c) of the Agreement shall be disregarded and given no effect
A-6
in any determination of what is material for purposes of this
definition of the term "Material" as used elsewhere in this
Agreement.
"Material Adverse Effect" shall mean any change or effect
that would be materially adverse to the consolidated business,
condition (financial or otherwise), operations, performance or
properties of a specified Person and its subsidiaries, if any,
taken as a whole; provided that the special purpose use of the
term "Material Adverse Effect" in Section 8.02(c) shall be
disregarded and given no effect in any determination of what is
material for purposes of this definition of the term "Material
Adverse Effect" as used elsewhere in this Agreement.
"Material Contract" shall mean, as between the Company or
any of its subsidiaries, on the one hand, and any Person other
than any other member of the group consisting of the Company and
its subsidiaries, on the other:
(1) Any collective bargaining agreement or other
agreement with any labor union;
(2) Any employment or consulting agreement, contract
or commitment between the Company or any of its subsidiaries and
any employee, officer or director thereof (i) having more than
one year to run from the date hereof, (ii) providing for an
obligation to pay or accrue compensation of $250,000 or more per
annum or (iii) providing for the payment or accrual of any
additional compensation upon a change in control of the Company
or any of its subsidiaries or upon any termination of such
employment or consulting relationship following a change in
control of the Company or any of its subsidiaries;
(3) Any agency or representation agreement with any
Person which is not terminable by the Company or one of its
subsidiaries without penalty upon not more than ninety (90) days'
notice;
(4) Any agreement, contract or commitment with any
Person containing any covenant limiting the freedom of the
Company or any of its subsidiaries to engage in any line of
business or to compete with any Person;
(5) Any partnership, joint venture or profit sharing
agreement with any Person;
(6) Any agreement, contract, commitment, indenture or
other instrument relating to the borrowing of money in a
principal amount of $500,000 or more or any direct or indirect
guarantee of any obligation of any other Person or Governmental
Authority for, or agreement to service the repayment of, borrowed
money in a principal amount of $500,000 or more, including any
agreement or arrangement (i) relating to the maintenance of
compensating balances, (ii) with respect to lines of credit or
letters of credit, (iii) relating to the purchase or repurchase
obligations of any other Person or Governmental Authority, (iv)
to advance or supply funds to or to invest in any other Person or
Governmental Authority, (v) to pay for property, products or
services of any other Person or Governmental Authority even if
such property, products or services are not conveyed, delivered
or rendered and (vi) to guarantee any lease or other similar
periodic payments to be made by any other Person or Governmental
Authority;
A-7
(7) Any lease (A) with annual rental payments
aggregating $500,000 or more that is not terminable without
premium or penalty on ninety (90) days or less notice or (B) of
assets exceeding $10,000,000 fair market value;
(8) Any agreement, contract or commitment relating to
the disposition or acquisition of any investment in any Person if
such investment has a book value of, or the disposition or
acquisition price of such investment or interest is, $500,000 or
more;
(9) Any agreement, contract or commitment to which the
Company or any of its subsidiaries is a party or by which any of
them is bound (i) which relates to the receiving, storing,
compressing, dehydrating, processing, purchasing, transporting,
gathering, exchanging or sale of Hydrocarbons (either for the
account of the Company or a subsidiary thereof or on behalf of
third parties) (A) involving a commitment of the Company for a
term in excess of one month (or that may not be terminated by the
Company upon notice of one month or less) and involving
consideration in excess of $500,000 within any twelve-month
period commencing after the date of the Agreement, or which is
otherwise Material to the Company, and (B) regardless of whether
the agreement, contract or commitment is "firm" or
"interruptible" or (ii) which is a swap, exchange or futures
contract. As used in clause (i) in reference to any sales,
purchase, transportation, storage or exchange agreement, contract
or commitment, the term "interruptible" means that neither the
Company nor any of its subsidiaries will be liable for any reason
for any damages (including consequential damages) if it elects
to not purchase, sell, transport or exchange hydrocarbons in
connection with such agreement, contract or commitment, and the
term "firm" means that such agreement, contract or commitment
does not meet the foregoing definition of "interruptible"; or
(10) Any other agreement, contract or commitment which
involves payment or potential payment, pursuant to the terms of
such agreement, contract or commitment, by or to the Company or
any of its subsidiaries of $500,000 or more within any twelve
month period commencing after the date of the Agreement;
"Merger" shall have the meaning ascribed to such term in
Section 2.01 of the Agreement.
"Merger Subsidiary" shall have the meaning ascribed to such
term in the Recitals to the Agreement.
"NGA" shall mean the Natural Gas Act of 1938, as amended.
"NGPA" shall mean the Natural Gas Policy Act of 1978, as
amended.
A-8
"OCC" shall mean the Oklahoma Corporation Commission and any
predecessors or successors thereto.
"OGCA" shall have the meaning ascribed to such term in
Section 2.04 of the Agreement.
"Order" shall mean any judgment, order or decree of any
court, arbitration tribunal or Governmental Authority, federal,
state or local.
"Palo Duro Lease" means that certain Lease and License
Agreement dated July 1, 1993, between Palo Duro Pipeline Company,
Inc. and the Company.
"Palo Duro Pipeline" means the pipeline facility and related
interests and assets leased or licensed to the Company pursuant
to the Palo Duro Lease.
"Permit" shall mean any and all permits, licenses,
authorizations, orders, certificates, registrations or other
approvals granted by any federal, state, local or foreign
Governmental Authority.
"Permitted Encumbrances" shall mean the following:
(1) liens for taxes, assessments and other
governmental charges not delinquent or which are currently being
contested in good faith by appropriate proceedings; provided
that, in the latter case, the Company or one of its subsidiaries
shall have set aside on its books adequate reserves with respect
thereto;
(2) mechanics' and materialmen's liens not filed of
record and similar charges not delinquent or which are filed of
record but are being contested in good faith by appropriate
proceedings; provided that, in the latter case, the Company or
one of its subsidiaries shall have set aside on its books
adequate reserves with respect thereto;
(3) liens in respect of judgments or awards with
respect to which the Company or one of its subsidiaries shall in
good faith currently be prosecuting an appeal or other proceeding
for review and with respect to which the Company or such
subsidiary shall have secured a stay of execution pending such
appeal or such proceeding for review; provided that the Company
or such subsidiary shall have set aside on its books adequate
reserves with respect thereto;
(4) easements, leases, reservations or other rights of
others in, or minor defects and irregularities in title to,
property or assets of the Company or any of its subsidiaries;
provided that such easements, leases, reservations, rights,
defects or irregularities do not materially impair the use of
such property or assets for the purposes for which they are held;
and
A-9
(5) any lien or privilege vested in any lessor,
licensor or permittor for rent or other obligations of the
Company or any of its subsidiaries thereunder so long as the
payment of such rent or the performance of such obligations is
not delinquent.
"Person" shall mean an individual, partnership, limited
liability company, corporation, joint stock company, trust,
estate, joint venture, association or unincorporated
organization, or any other form of business or professional
entity.
"Pipeline Assets" shall mean the pipelines, equipment, other
tangible personal property, Easements and other similar assets
and rights used by the Company or its subsidiaries in connection
with their natural gas pipeline, gathering, processing and
storage operations that are reflected in the Consolidated Balance
Sheet other than any such properties, assets and rights that (i)
have been sold or otherwise disposed of since the date of the
Consolidated Balance Sheet without breaching either Section
4.05(b) or Section 6.02(f) of the Agreement or (ii) are not,
individually or in the aggregate, Material to the Company.
"Post-Closing Taxable Period" means (i) any taxable period
beginning after the Closing Date and (ii) with respect to any
taxable period beginning on or before the Closing Date and ending
after the Closing Date, the portion of such taxable period that
is after the Closing Date.
"Pre-Closing Taxable Period" means (i) any taxable period
ending on or before the Closing Date or (ii) with respect to any
taxable period beginning on or before the Closing Date and ending
after the Closing Date, the portion of such taxable period that
is on or before the Closing Date.
"Proceedings" shall have the meaning ascribed to such term
in Section 8.02(a) of the Agreement.
"Purchase Price" shall have the meaning ascribed to such
term in Section 2.02 of the Agreement.
"Purchaser" shall have the meaning ascribed to such term in
the introductory paragraph of the Agreement.
"Purchaser's Dependent Care Plan" shall have the meaning
ascribed to such term in Section 6.08(g) of the Agreement.
"Purchaser's Disclosure Letter" shall mean that certain
disclosure letter of even date with the Agreement from the
Purchaser to the Seller delivered concurrently with the execution
and delivery of the Agreement.
"Purchaser's Health Care Plan" shall have the meaning
ascribed to such term in Section 6.08(f) of the Agreement.
A-10
"Purchaser's Pension Plan" shall have the meaning ascribed
to such term in Section 6.08(b) of the Agreement.
"Purchaser's Representatives" shall have the meaning
ascribed to such term in Section 6.03(a) of the Agreement.
"Purchaser's Savings Plan" shall have the meaning ascribed
to such term in Section 6.08(c) of the Agreement.
"Refund" shall have the meaning ascribed to such term in
Section 8.03(h) of the Agreement.
"Regulation" shall mean any rule or regulation of any
Governmental Authority having the effect of law.
"Section 338(h)(10) Elections" shall have the meaning
ascribed to such term in Section 8.04(a) of the Agreement.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Seller" shall have the meaning ascribed to such term in the
first paragraph of the Agreement.
"Seller's Disclosure Letter" shall mean that certain
disclosure letter of even date with the Agreement from the Seller
to the Purchaser delivered concurrently with the execution and
delivery of the Agreement.
"Seller's Group" means the "affiliated group" of
corporations (as defined in Section 1504 of the Code) of which
Seller has been and will be the "common parent" (as that term is
used in Section 1504(a) of the Code).
"Stock" shall have the meaning ascribed to such term in
Section 4.02(a) of the Agreement.
A "subsidiary" of a specified Person shall be any
corporation, partnership, limited liability company, joint
venture or other legal entity of which the specified Person
(either alone or through or together with any other subsidiary)
owns, directly or indirectly, 50% or more of the stock or other
equity or partnership interests the holders of which are
generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other
legal entity.
"Surviving Corporation" shall have the meaning ascribed to
such term in Section 2.01 of the Agreement.
"Taxable Earned Surplus" shall have the meaning ascribed to
the term "Net Taxable Earned Surplus" in 171.110 of the Texas
Tax Code (Vernon 1992 and Supp. 1996).
A-11
"Tax Indemnified Party" shall have the meaning ascribed to
such term in Section 8.03(c) of the Agreement.
"Tax Indemnifying Party" shall have the meaning ascribed to
such term in Section 8.03(c) of the Agreement.
"Tax Items" shall have the meaning ascribed to such term in
Section 6.06(a) of the Agreement.
"Tax Returns" shall have the meaning ascribed to such term
in Section 4.10(a) of the Agreement.
"Tax Sharing Agreements" shall have the meaning ascribed to
such term in Section 6.06(e) of the Agreement.
"Taxes" shall mean all taxes, charges, imposts, tariffs,
fees, levies or other similar assessments or liabilities,
including income taxes, ad valorem taxes, excise taxes,
withholding taxes or other taxes of or with respect to gross
receipts, premiums, real property, personal property, windfall
profits, sales, use, transfers, licensing, employment, payroll
and franchises imposed by or under any Law; and such terms shall
include any interest, fines, penalties, assessments or additions
to tax resulting from, attributable to or incurred in connection
with any such tax or any contest or dispute thereof.
"TRC" shall mean the Texas Railroad Commission and any
predecessors and successors thereto.
"Trust" shall have the meaning ascribed to such term in
Section 6.10(f).
"Working Capital of the Company" shall mean the current
assets of the Company and its subsidiaries minus the current
liabilities of the Company and its subsidiaries, each as
determined in accordance with GAAP.
B-1
ANNEX "B"
TRANSITION SERVICES
(a) Consultation, analysis and advice in connection with
matters relating to operations, management, financing and
financial planning, engineering, system planning, law,
governmental and general business problems or questions.
(b) Consultation, analysis and advice in connection with
personnel relations and employee benefit plans.
(c) Tax services relating to the preparation and filing of
returns for federal, state and local taxes, and the consolidation
of such returns.
(d) Assistance in connection with audits or returns by, and
participation in discussions of such returns with, the Internal
Revenue Service and other taxing bodies or authorities.
(e) Consultation, analysis and advice in connection with
accounting matters and in preparation of accounts and the
consolidation of such accounts.
(f) Electronic data processing services, including
establishing and operating a data processing center, processing
of customer billing, revenues and statistics, payrolls, property
accounting, general accounting, cash forecasts, load flow
studies, and various other business and engineering applications.
(g) special services, in addition to those specified above,
as may be required and which the Seller concludes it is equipped
to perform.
In supplying the above services, the Seller may
arrange, where it deems appropriate, for the services of such
experts, consultants, advisers and other persons with necessary
qualifications as are required for or pertinent to the rendition
of such services.