EXHIBIT 10.31
PURCHASE AND SALE AGREEMENT
BY AND AMONG
ENRON PIPELINE COMPANY
AS SELLER
and
BLACK MARLIN ENERGY COMPANY
AS BUYER
and
BLUE DOLPHIN ENERGY COMPANY
AS PARENT
September 28, 1998
TABLE OF CONTENTS
RECITALS...............................................................1
ARTICLE 1 DEFINITIONS................................................1
1.1 DEFINED TERMS....................................................1
ARTICLE 2 PURCHASE AND SALE..........................................5
2.1 THE TRANSACTION..................................................5
2.2 PURCHASE PRICE...................................................5
2.3 CLOSING..........................................................6
2.4 DELIVERIES AT CLOSING............................................6
2.5 REVENUES AND EXPENSES............................................6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER...................7
3.1 ORGANIZATION.....................................................7
3.2 QUALIFICATION....................................................7
3.3 CAPITALIZATION, SUBSIDIARIES.....................................7
3.4 AUTHORIZATIONS AND APPROVALS.....................................7
3.5 ABSENCE OF CONFLICTS.............................................8
3.6 CONTRACTS AND COMMITMENTS........................................8
3.7 ABSENCE OF CHANGES...............................................8
3.8 LITIGATION.......................................................9
3.9 COMPLIANCE WITH LAW..............................................9
3.10 PERMITS........................................................9
3.11 TITLE TO THE SHARES AND ASSETS.................................9
3.12 BROKERS' FEES..................................................9
3.13 ENVIRONMENTAL MATTERS..........................................9
3.14 PUBLIC UTILITY HOLDING COMPANY ACT............................10
3.15 CONDITION OF ASSETS...........................................10
3.16 ABSENCE OF LIABILITIES........................................10
3.17 CONFORMITY OF COPIES..........................................11
3.18 EMPLOYEES.....................................................11
3.19 REPORTS.......................................................11
3.20 THROUGHPUT AND COSTS..........................................11
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER...................11
4.1 CORPORATE ORGANIZATION..........................................11
4.2 QUALIFICATION...................................................11
4.3 AUTHORIZATIONS; APPROVALS......................................11
4.4 ABSENCE OF CONFLICTS............................................12
4.5 BROKERS' FEES...................................................12
4.6 FINANCING.......................................................12
4.7 LITIGATION......................................................12
ARTICLE 5 COVENANTS OF SELLER AND BUYER.............................12
5.1 ACCESS..........................................................12
5.2 CONDUCT OF BUSINESS PENDING THE CLOSING.........................13
5.3 CONSENTS........................................................14
5.4 COMMERCIALLY REASONABLE EFFORTS.................................14
5.5 USE OF NAME.....................................................14
5.6 DELIVERY AND RETENTION OF RECORDS...............................14
5.7 COMMERCIAL EFFORTS..............................................14
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5.8 AMENDMENTS OF SCHEDULES AND REMEDY..............................15
5.9 FERC MATTERS....................................................15
5.10 RELOCATION OF PIPELINE........................................15
5.11 PIPELINE COVER................................................17
5.12 DISPOSITION OF SECTION 311 PIPELINE...........................17
5.13 PURCHASE OPTION...............................................17
5.14 TRANSFER TAXES................................................17
5.15 PERIODIC MEETINGS.............................................18
5.16 CASUALTY LOSS AND CONDEMNATION................................18
5.17 DISTRIBUTION BY BLACK MARLIN..................................18
ARTICLE 6 INDEPENDENT INVESTIGATION AND DISCLAIMER..................18
6.1 INDEPENDENT INVESTIGATION AND DISCLAIMER........................18
ARTICLE 7 CONDITIONS TO CLOSING.....................................19
7.1 CONDITIONS PRECEDENT TO OBLIGATION OF EACH PARTY................19
7.2 ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.........19
7.3 ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER........20
ARTICLE 8 INDEMNIFICATION AND ASSUMPTION............................20
8.1 BY SELLER.......................................................20
8.2 BY BUYER........................................................21
8.3 EXPRESS NEGLIGENCE RULE.........................................21
8.4 EXCEPTIONS TO INDEMNITIES.......................................22
8.5 NOTICE OF CLAIM.................................................22
8.6 THIRD-PARTY CLAIMS..............................................23
8.7 SUBROGATION.....................................................24
8.8 EXCLUSIVE REMEDIES; SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
LIMITATION OF CERTAIN LIABILITIES...................................24
8.9 WAIVER OF TEXAS DTPA............................................25
ARTICLE 9 TERMINATION...............................................25
9.1 TERMINATION.....................................................25
9.2 EFFECT OF TERMINATION...........................................26
ARTICLE 10 TAX MATTERS..............................................26
10.1 SECTION 338(H)(10) ELECTIONS..................................26
10.2 PREPARATION OF TAX RETURNS; RESPONSIBILITY FOR TAXES..........27
10.3 ACCESS TO INFORMATION.........................................28
10.4 TAX SHARING AGREEMENTS........................................28
10.5 NON-FOREIGN PERSON AFFIDAVIT..................................29
10.6 ASSISTANCE AND COOPERATION....................................29
ARTICLE 11 MISCELLANEOUS............................................29
11.1 EXPENSES......................................................29
11.2 WAIVER AND AMENDMENT..........................................29
11.3 PUBLIC STATEMENT..............................................29
11.4 ASSIGNMENT....................................................29
11.5 NOTICES.......................................................30
11.6 GOVERNING LAW.................................................31
11.7 FURTHER ASSURANCES............................................31
11.8 SEVERABILITY..................................................31
11.9 COUNTERPARTS..................................................31
11.10 HEADINGS......................................................31
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11.11 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES................31
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into as of
this 28th day of September, 1998 by and among ENRON PIPELINE COMPANY, a Delaware
corporation ("Seller"), and BLACK MARLIN ENERGY COMPANY, a Delaware corporation
("Buyer"), and BLUE DOLPHIN ENERGY COMPANY, a Delaware corporation ("Parent").
Seller, on the one hand, and Buyer and Parent, on the other hand, are referred
to collectively herein as the "Parties" and individually as a "Party."
RECITALS
WHEREAS, Seller owns 100% of the outstanding capital stock of Black Marlin
Pipeline Company, a Texas corporation ("Black Marlin");
WHEREAS, Black Marlin owns certain natural gas transmission assets located
in the Gulf of Mexico offshore Texas and onshore in Galveston County, Texas and
related onshore separation storage and dehydration facilities more particularly
described on Exhibit A attached hereto;
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to acquire
from Seller, all of the outstanding capital stock of Black Marlin pursuant to
the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained the Parties hereto
hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. Capitalized terms not otherwise defined herein or in
the recitals to this Agreement used in this Agreement shall have the meanings
ascribed to them in this Section 1.1.
"ADJUSTED PURCHASE PRICE" shall have the meaning given such term in
Section 2.2.
"AFFILIATE" shall mean with respect to any Person, any Person which
directly or indirectly, controls, is controlled by, or is under a common control
with such Person. The term "control" (including the terms "controlled by" and
"under common control with") as used in the preceding sentence means the
possession, directly or indirectly, of the power to direct or cause the
direction of management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise.
"ASSETS" shall mean the assets and properties described in Exhibit "A"
hereto, and for purposes of Article 3, the term Assets shall also include the
High Island Lateral.
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"BOLIVAR SPOIL SITE ENCROACHMENT" shall mean the planned construction by
the Army Corps of Engineers of a spoil disposal site and levee system over and
in close proximity to the Pipeline in Galveston Bay.
"BUYER INDEMNIFIED LIABILITIES" shall have the meaning given such term in
Section 8.1.
"BUYER MATERIAL ADVERSE EFFECT" shall mean any material and adverse effect
on the assets, liabilities, financial condition, business, operations, affairs
or circumstances of Buyer.
"BUYER PARTIES" shall have the meaning given such term in Section 8.1.
"CLAIM" shall mean all demands, claims, actions, investigations, causes of
action, proceedings and arbitrations, whether or not ultimately determined to be
valid.
"CLAIM NOTICE" shall have the meaning given such term in Section 8.5(b).
"CLOSING" shall have the meaning given such term in Section 2.3.
"CLOSING DATE" shall have the meaning given such term in Section 2.3.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONFIDENTIALITY AGREEMENT" shall have the meaning given such term in
Section 5.1.
"CUSTOMARY POST-CLOSING CONSENTS" shall mean consents and approvals from
Governmental Authorities that are customarily obtained after closing in
connection with a sale of assets similar to the Assets.
"DECERTIFICATION" means the receipt by Buyer of written confirmation from
the FERC that the Assets and the High Island Lateral, if applicable, are no
longer subject to rate or tariff regulation under the NGA by the FERC.
"DISCLOSURE SCHEDULE" shall have the meaning given such term in the first
sentence of Article 3.
"EFFECTIVE TIME" shall be 12:00 a.m. on the Closing Date.
"ELECTION PERIOD" shall have the meaning given such term in Section
8.6(a).
"ENCUMBRANCE" shall mean any lien, pledge, condemnation proceeding, claim,
restriction, security interest, mortgage or similar encumbrance.
"ENVIRONMENTAL LAWS" shall mean any and all federal, state and local laws,
statutes, regulations, rules, orders, ordinances or permits of any governmental
authority pertaining to health, the environment, wildlife or natural resources
in effect in any and all jurisdictions in which the Assets are located,
including, without limitation, the Clean Air Act, as amended,
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and the Federal Water Pollution Control Act, as amended, the Rivers and Harbors
Act of 1899, as amended, the Safe Drinking Water Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as amended,
the Resource Conservation and Recovery Act, as amended, The Hazardous and Solid
Waste Amendments Act of 1984, as amended, the Toxic Substances Control Act, as
amended, the Occupational Safety and Health Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Natural Gas Pipeline Safety Act of
1968, as amended and the Hazardous Liquid Pipeline Safety Act of 1979, as
amended.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"FERC" shall mean Federal Energy Regulatory Commission.
"GOVERNMENTAL AUTHORITY" shall mean the United States and any state,
county, city or other political subdivision, agency, court or instrumentality,
including the U. S. Army Corps of Engineers and the Port of Houston Authority.
"HIGH ISLAND LATERAL" shall mean the 6.9 mile, 8 inch O.D. lateral line
originating in High Island Block 199, which is connected to the Pipeline at High
Island Block 171, for which permission and approval for the abandonment by sale
to Black Marlin is pending FERC approval in Northern Natural Gas Company's
Docket No. CP98-714-000 filed on August 7, 1998.
"INCOME TAXES" shall mean federal income taxes as provided in IRC ss.11,
alternative minimum tax as provided in IRC ss.55, and any state taxes measured
by net income, and any interest and penalties thereon, including, without
limitation, the earned surplus tax component of the Texas Franchise Tax.
"INDEMNIFIED PARTY" shall have the meaning given such term in Section
8.5(a).
"INDEMNIFYING PARTY" shall have the meaning given such term in Section
8.5(a).
"IRC" shall mean the Internal Revenue Code of 1986, as amended.
"LAWS" shall mean any constitution, statute, code, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
applicable Governmental Authority.
"LOSS" shall mean all debts, liabilities, obligations, losses, damages,
costs and expenses (including, without limitation, interest including
prejudgment interest in any litigated matter), penalties, fines, court costs and
reasonable attorneys' fees and expenses, judgments, settlements and assessments.
"NGA" shall mean the Natural Gas Act of 1938, as amended.
"PARTIES" shall have the meaning given in the introductory paragraph of
this Agreement.
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"PERMITS" shall have the meaning given such term in Section 3.10.
"PERMITTED ENCUMBRANCE" shall mean any of the following: (i) any liens for
taxes and assessments not yet delinquent or, if delinquent, that are being
contested in good faith in the ordinary course of business; (ii) any obligations
or duties reserved to or vested in any municipality or other Governmental
Authority to regulate any of the Assets in any manner including all applicable
Laws; (iii) the terms and conditions of all leases, servitudes, contracts for
sale, purchase, exchange, refining or processing of hydrocarbons, operating
agreements, construction agreements, construction and operation agreements,
partnership agreements, processing agreements, conditioning agreements, treating
agreements, plant agreements, pipeline, gathering, exchange and transportation
agreements, disposal agreements, permits, licenses and other agreements set
forth in Exhibit A and the Disclosure Schedule; (iv) Customary Post-Closing
Consents; (v) any required third party consents to assignment and similar
agreements and obligations with respect to which prior to Closing (A) waivers or
consents have been obtained from the appropriate person; (B) the applicable
period of time for asserting such rights has expired without any exercise of
such rights, or (C) arrangements reasonably satisfactory to Buyer have been made
by the Parties to allow Buyer to receive substantially the same economic
benefits as if all such waivers and consents had been obtained; (vi) easements,
rights of way, servitudes, permits, surface leases and other rights with respect
to surface obligations, pipelines, conditions, covenants or other restrictions,
so long as individually or in the aggregate they are not such as are reasonably
likely to have a material adverse effect on the use, ownership or operation of
the Assets, taken as a whole; (vii) materialmen's, mechanics', repairmen's, and
other similar liens or charges arising in the ordinary course of business
incidental to construction, maintenance or operation of the Assets (A) if they
have not been filed pursuant to law, (B) if filed, they have not yet become due
and payable or (C) if their validity is being contested in good faith in the
ordinary course of business by appropriate action; and (viii) any other liens,
charges, encumbrances, contracts, agreements, instruments, obligations, defects
or irregularities of any kind whatsoever affecting the Assets that individually
or in the aggregate are not such as are reasonably likely to have a material
adverse effect on the use, ownership or operation of the Assets, taken as a
whole.
"PERSON" shall mean any natural person, firm, partnership, association,
corporation, limited liability company, trust, entity, public body or
government.
"PIPELINE" shall have the meaning given such term in Exhibit "A."
"PIPELINE LOWERING" shall have the meaning given such term in Section
5.10.
"PIPELINE COVERING" shall have the meaning given such term in Section
5.11.
"PURCHASE PRICE" shall have the meaning given such term in Section 2.2.
"RECORDS" shall have the meaning given such term in Section 5.6.
"SELLER MATERIAL ADVERSE EFFECT" shall mean any material and adverse
effect on the use, ownership or operation of the Assets and the High Island
Lateral, taken as a whole, or
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the financial condition of Black Marlin, other than conditions affecting the
industry as a whole and other than the transactions contemplated by this
Agreement, including the transfer of the Section 311 Pipeline.
"SELLER PARTIES" shall have the meaning given such term in Section 8.2.
"SERVICE AGREEMENT" shall have the meaning given such term in Section 5.6.
"SHARES" shall have the meaning given such term in Section 2.1.
"TAX" or "TAXES" shall mean all taxes, however denominated, including any
interest, penalties or other additions to tax that may become payable in respect
thereof, imposed by any federal, territorial, state, local or foreign government
or any agency or political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income or profits
taxes (including, but not limited to, federal income taxes and state income
taxes), real property gains taxes, payroll and employee withholding taxes,
unemployment insurance taxes, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, and other
obligations of the same or of a similar nature.
"TAX RETURNS" shall mean all returns and reports of or with respect to any
Tax which are required to be filed with respect to Black Marlin.
"THIRD-PARTY CLAIM" shall mean a Claim asserted against an Indemnified
Party by a Person that is not a party to this Agreement or an Affiliate of a
party to this Agreement that could give rise to a right of indemnification under
this Agreement.
ARTICLE 2
PURCHASE AND SALE
2.1 THE TRANSACTION. Subject to and in accordance with the terms and
conditions of this Agreement, Buyer agrees to purchase from Seller all of the
outstanding capital stock of Black Marlin (the "Shares") for the Purchase Price,
as adjusted in the manner described in Section 2.2. Subject to and in accordance
with the terms and conditions of this Agreement, Seller agrees to sell to Buyer
the Shares for the Purchase Price, as adjusted in the manner described in
Section 2.2.
2.2 PURCHASE PRICE. Subject to the terms and conditions of this Agreement,
Buyer agrees to pay to Seller at the Closing $7,000,000 (the "Purchase Price"),
as adjusted in the manner described in this Section 2.2. The Purchase Price
shall be (i) increased by all capital expenditures incurred by Seller or Black
Marlin that relate to the Assets (other than capital expenditures incurred
pursuant to Section 5.10 and Section 5.11 below) from and after 12:00 a.m.,
Houston, Texas time on the date of this Agreement and that are incurred prior to
Closing without creating any indebtedness or obligation on the part of Black
Marlin (other than borrowings from Seller, which are repaid at or prior to
Closing); provided that
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any such individual non-emergency capital expenditure in excess of $25,000 must
have received the written approval of Buyer, which approval shall not be
unreasonably withheld, in order for such capital expenditure to be included in
such adjustment, and (ii) decreased by $5,567 for each complete calendar day
that the Closing Date is subsequent to May 1, 1998. The Purchase Price as
adjusted pursuant to this Section is herein after referred to as the "Adjusted
Purchase Price." The Adjusted Purchase Price shall be payable by Buyer by wire
transfer or delivery of other immediately available funds to the account of
Seller, Account No. 4066-8275, at CitiBank, N.A., ABA Routing No. 021 000089 (or
to such other bank and account designated in writing by Seller to Buyer).
2.3 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Seller, 1400 Smith
Street, Houston, Texas 77002 commencing at 10:00 a.m., local time, on the last
business day of the month in which all conditions set forth in Article 7 have
been satisfied or waived by the appropriate party, or such other date as the
Parties shall agree in writing, and shall be effective as of the Effective Time
(the "Closing Date").
2.4 DELIVERIES AT CLOSING. At the Closing (i) Seller will deliver to Buyer
the agreements referred to in Section 7.2(b); (ii) Seller will deliver to Buyer
or its assigns a stock certificate(s) representing all of the Shares endorsed in
blank or accompanied by duly executed assignment documents; and (iii) Buyer will
deliver to Seller the Adjusted Purchase Price.
2.5 REVENUES AND EXPENSES. (a) Seller shall be (i) subject to the first
sentence of Section 2.5(b), entitled to all revenues (and related accounts
receivable) attributable to Black Marlin and (ii) subject to Section 2.2(i),
responsible for the payment of all expenses (and related accounts payable),
including the payment of ad valorem taxes, attributable to Black Marlin, in each
case to the extent the foregoing relate to the period of time prior to the
Effective Time. Buyer shall be (i) entitled to all revenues (and related
accounts receivable) attributable to Black Marlin, and (ii) subject to Article 8
hereof, responsible for the payment of all expenses (and related accounts
payable), including the payment of ad valorem taxes, attributable to Black
Marlin, in each case to the extent the foregoing relate to the period of time
occurring on and after the Closing Date.
(b) Within 45 days after Closing, Seller shall provide a written notice to
Buyer of all uncollected revenues (and related accounts receivable) attributable
to Black Marlin for the period prior to the Effective Time. To the extent that
Buyer receives any funds identified in such notice, Buyer shall promptly deliver
such funds to Seller. Buyer shall have no obligation to deliver any funds to
Seller not identified in such notice. To the extent that Seller receives any
funds to which Buyer is entitled pursuant to Section 2.5(a), Seller shall
promptly deliver such funds to Buyer. If either Party pays any expense (or
related account payable) that is properly borne by the other Party pursuant to
Section 2.5(a), the Party responsible for such expense (or related account
payable) pursuant to Section 2.5(a) shall promptly reimburse the Party who made
such payment. The obligations of Buyer and Seller hereunder shall be performed
without any right of setoff.
ARTICLE 3
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REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows, subject to the
matters set forth in the disclosure schedule delivered by Seller to Buyer on the
date hereof (the "Disclosure Schedule"):
3.1 ORGANIZATION. Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Black Marlin is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas.
3.2 QUALIFICATION. Black Marlin is duly qualified to do business as a
foreign corporation and is in good standing in Oklahoma, and is not required to
be qualified to do business as a foreign corporation in any other state or
jurisdiction.
3.3 CAPITALIZATION, SUBSIDIARIES. The Disclosure Schedule sets forth for
Black Marlin, the number of authorized shares of its capital stock, the number
of issued and outstanding shares of its capital stock and the owner thereof. The
issued and outstanding capital stock of Black Marlin has been duly authorized,
validly issued, fully paid and is nonassessable. There are no preemptive rights
with respect to the issuance of the shares of capital stock of Black Marlin.
There are no outstanding options, warrants, purchase rights, conversion rights,
exchange rights, or other contracts or commitments that could require Black
Marlin to issue, sell or otherwise cause to become outstanding any of such
entity's capital stock. There are no voting trusts, proxies, or other agreements
or understandings with respect to the voting of the capital stock, or
restrictions upon the transfer of the capital stock, of Black Marlin except as
set forth on the Disclosure Schedule. Black Marlin has no Subsidiaries. For
purposes hereof, the term "Subsidiary" means, with respect to any Person, any
corporation more than 50% of the outstanding voting securities of which, or any
partnership, joint venture or other entity more than 50% of the total equity
interest of which, is directly or indirectly owned by such Person.
3.4 AUTHORIZATIONS AND APPROVALS. The execution and delivery by Seller of
this Agreement and the performance of its obligations hereunder have been duly
and validly authorized by all requisite corporate action. This Agreement has
been duly executed and delivered by Seller, and this Agreement constitutes the
legal, valid and binding obligation of Seller enforceable against it in
accordance with its terms except insofar as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity regardless of
whether such principles are considered in a proceeding at law or in equity.
Except as disclosed in the Disclosure Schedule, Seller does not need to give any
notice to, make any filing or register with, or obtain any consent, approval,
authorization, waiver, permit, certificate or order of any Governmental
Authority to consummate the transactions contemplated by this Agreement, except
for those the absence of which are not reasonably likely to have a Seller
Material Adverse Effect, including Customary Post-Closing Consents, and except
for consents or waivers to be obtained by Seller or Black Marlin prior to the
Closing Date.
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3.5 ABSENCE OF CONFLICTS. Neither the execution and delivery of this
Agreement by Seller, nor the consummation of the transactions contemplated
hereby will (assuming receipt of all consents, approvals, authorizations,
waivers, permits, certificates and orders disclosed in the Disclosure Schedule):
(a) violate or breach the terms of, cause a default under, conflict with, result
in acceleration of, create in any party the right to accelerate, terminate,
modify or cancel or require any notice under (i) any applicable Law, (ii) the
charter or bylaws of Seller or Black Marlin or (iii) any contract, agreement,
lease, license or other arrangement to which Seller or Black Marlin is a party
or by which either of them, or any of their properties, is bound; (b) result in
the creation or imposition of any Encumbrance (other than a Permitted
Encumbrance) on the Shares or any of the Assets; (c) result in the cancellation,
forfeiture, revocation, suspension or adverse modification of any existing
consent, approval, authorization, license, permit, certificate or order of any
Governmental Authority having jurisdiction over Seller or Black Marlin; or (d)
with the passage of time or the giving of notice or the taking of any action of
any third party have any of the effects set forth in clauses (a), (b) or (c) of
this Section, except, in the case of clauses (a) through (d), where such
violation, conflict, breach, default, acceleration, termination, modification,
cancellation, claim, encumbrance, forfeiture, suspension, revocation or lien is
not reasonably likely to have a Seller Material Adverse Effect, including
Customary Post-Closing Consents, or materially impair the ability of Seller to
consummate the transactions contemplated by this Agreement.
3.6 CONTRACTS AND COMMITMENTS. Exhibit A and the Disclosure Schedule
includes a list of all material contracts and agreements (including, without
limitation, any transportation contract or agreement and other contracts or
agreements providing for receipt or payment, contingent or otherwise, of $25,000
or more annually (unless any such other contract or agreement is terminable with
notice of 90 days or less without a penalty) in either case relating to the
continued ownership and operation of Black Marlin or the Assets (the
"Contracts"), and each such Contract (other than inactive transportation
contracts or agreements) is in full force and effect, except where the failure
to be in full force and effect is not reasonably likely to have a Seller
Material Adverse Effect. Black Marlin (or Northern Natural Gas Company with
respect to Contracts related to the High Island Lateral) has in all respects
performed all material obligations required to be performed by it to date under
the Contracts, and is not in default under any material obligation of any such
Contracts. To the knowledge of Seller, no other party to any Contract is in
default thereunder. Black Marlin (or Northern Natural Gas Company with respect
to Contracts related to the High Island Lateral) has not assigned to any other
person any of its rights under the Contracts. Black Marlin (or Northern Natural
Gas Company with respect to Contracts related to the High Island Lateral) has
not waived any of its rights of material value under the Contracts. Except as
set forth on the Disclosure Schedule, there are currently no gas imbalances
under any of the Contracts, and there are currently no arrangements to sell,
transport, or deliver hydrocarbons at some future time without then or
thereafter receiving full payment therefor, or to make payment at some future
time for hydrocarbons or the transportation or the delivery of hydrocarbons
previously purchased or transported.
3.7 ABSENCE OF CHANGES. Except as set forth in the Disclosure Schedule,
since January 1, 1998:
(i) there has not been any Seller Material Adverse Effect;
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(ii) to Seller's knowledge, the Assets have been operated and maintained
in a prudent manner and in the ordinary course of the business;
(iii) there has not been any material damage, destruction or loss to any
material portion of the Assets, whether covered by insurance or not;
and
(iv) there has been no actual, pending, or to the knowledge of Seller,
threatened change affecting the Assets with any customers,
licensors, suppliers, distributors or sales representatives, except
such as has not had, and is not reasonably expected to have, a
Seller Material Adverse Effect.
3.8 LITIGATION. Except as disclosed in the Disclosure Schedule, there are
no actions at law, suits in equity, investigations, proceedings or claims
pending, affecting or, to the knowledge of Seller, threatened against Black
Marlin or the Assets before or by any federal, state, foreign or local court,
tribunal or governmental agency or authority, except such as in the aggregate
are not reasonably likely to have a Seller Material Adverse Effect.
3.9 COMPLIANCE WITH LAW. Except as disclosed in the Disclosure Schedule,
Black Marlin is in compliance with all applicable Laws, except where the failure
to be in compliance is not reasonably likely to have a Seller Material Adverse
Effect; provided, however, notwithstanding the foregoing, no representation or
warranty in this Section 3.9 is made with respect to compliance with
Environmental Laws, which are covered exclusively by the provisions set forth in
Section 3.13.
3.10 PERMITS. Except as set forth in the Disclosure Schedule, Black Marlin
(or Northern Natural Gas Company with respect to the High Island Lateral) owns
or holds all franchises, licenses, permits, consents, approvals and
authorizations of all Governmental Authorities necessary for the conduct of its
business (collectively, the "Permits"), except for those Permits which the
failure to own or hold are not reasonably likely to have a Seller Material
Adverse Effect. Each Permit is in full force and effect, and Black Marlin (or
Northern Natural Gas Company with respect to the High Island Lateral) is in
compliance with all of its obligations with respect thereto, except where the
failure to be in full force and effect or to be in compliance would not have a
Seller Material Adverse Effect. To the knowledge of Seller, no event has
occurred that permits, or upon the giving of notice or the lapse of time or
otherwise would permit, revocation or termination of any Permit except such as
in the aggregate would not have a Seller Material Adverse Effect.
3.11 TITLE TO THE SHARES AND ASSETS. Seller owns the Shares free and clear
of all Encumbrances. Except as set forth on the Disclosure Schedule, Black
Marlin owns the Assets free and clear of all Encumbrances other than the
Permitted Encumbrances.
3.12 BROKERS' FEES. Neither Seller nor Black Marlin has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
3.13 ENVIRONMENTAL MATTERS. Except as listed or described in the
Disclosure Schedule or as described in Sections 5.10 and 5.11 below:
9
(a) To the knowledge of Seller, Black Marlin and Northern Natural Gas
Company with respect to the High Island Lateral are: (i) not in violation of any
Environmental Laws, and (ii) not subject to any remedial obligations under such
Environmental Laws, other than such violations or obligations which are not
reasonably likely to have a Seller Material Adverse Effect.
(b) To the knowledge of Seller, each of Black Marlin and Northern Natural
Gas Company with respect to the High Island Lateral has in effect, or
applications pending for, all permits required by applicable Environmental Laws
for the operation and ownership of the Assets, except where the failure to own
or hold such permits are not reasonably likely to have a Seller Material
Adverse Effect, and, to the knowledge of Seller, neither Black Marlin nor
Northern Natural Gas Company is in violation of the terms and conditions of
such permits, other than such violations that are not reasonably likely to have
a Seller Material Adverse Effect.
(c) To the knowledge of Seller, neither Black Marlin nor Northern Natural
Gas Company with respect to the High Island Lateral: (i) is subject to any
consent decree, compliance order or administrative order issued pursuant to
applicable Environmental Laws, and (ii) has received written notice under the
citizen suit provision of any Environmental Law or written request for
information, notice of violation, demand letter, administrative inquiry,
complaint or claim from any governmental agency pursuant to applicable
Environmental Laws, other than such of the foregoing that are not reasonably
likely to have a Seller Material Adverse Effect.
3.14 PUBLIC UTILITY HOLDING COMPANY ACT. Seller is not subject to, or is
exempt from, regulation as a "holding company" or a "subsidiary company" of a
"holding company" or an affiliate of a "holding company," or an "affiliate" of a
"subsidiary company" of a "holding company," in each case within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
3.15 CONDITION OF ASSETS. Except as set forth in the Disclosure Schedule,
the Assets (other than the High Island Lateral) constitute all of the assets and
properties used by Black Marlin in connection with its Gulf Coast business.
Except as set forth on the Disclosure Schedule, to the knowledge of the Seller,
the Assets (a) are in serviceable and functional condition, (b) have been
maintained to normal industry standards with cathodic protection, (c) (other
than the High Island Lateral) are suitable for the purposes used by Black
Marlin, and (d) (other than the High Island Lateral) are adequate for the normal
operation of the business of Black Marlin. Except as set forth on the Disclosure
Schedule, there is no imminent repair or replacement pending with respect to the
Assets, other than the Pipeline Lowering, Pipeline Covering and possibly, the
Bolivar Spoil Site Encroachment.
3.16 ABSENCE OF LIABILITIES. To the knowledge of Seller and except as set
forth on the Disclosure Schedule, there are no existing, contingent, or
threatened liabilities, obligations, liens, or claims (absolute, accrued,
contingent or otherwise) that relate to or have been or may be asserted against
Black Marlin other than liabilities and obligations which will be paid in full
by Black Marlin or the Seller prior to the Effective Time and liabilities and
10
obligations related to the Pipeline Lowering and possible liabilities and
obligations related to the Bolivar Spoil Site Encroachment.
3.17 CONFORMITY OF COPIES. The Seller has made available for Buyer's
review accurate and complete copies of all Contracts and as-built drawings of
the Assets and the following information with respect to the Assets, which have
been prepared since January 1, 1997, MAOP reports, rectified output history,
test point readings, annual cathodic protection check reports, operation and
maintenance reports, average daily volume reports, pigging reports, and depth of
cover surveys.
3.18 EMPLOYEES. Since January 1, 1990, Black Marlin has had no employees.
Black Marlin has no continuing obligations or liabilities for any employee
benefit plans or employee welfare plans (as defined under ERISA) or collective
bargaining agreements.
3.19 REPORTS. The Disclosure Schedule sets forth a list of all of the
environmental, accident, safety, and Governmental Authority inspections and
reports concerning Black Marlin which have been performed since January 1, 1997.
3.20 THROUGHPUT AND COSTS. The Disclosure Schedule sets forth with respect
to the period beginning on January 1, 1997 and ending on June 30, 1998: (a) the
monthly throughput, itemized by customer, of the Pipeline, and (b) the monthly
revenue of the Pipeline, (c) the monthly operating expenses of the Pipeline.
Such information is accurate and complete in all respects.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer and Parent, jointly and severally, represent and warrant to Seller
as follows:
4.1 CORPORATE ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
4.2 QUALIFICATION. Buyer is duly qualified to do business as a foreign
corporation and is in good standing in Texas.
4.3 AUTHORIZATIONS; APPROVALS. The execution and delivery by Buyer of this
Agreement and the performance of its obligations hereunder have been duly and
validly authorized by all requisite corporate action. This Agreement has been
duly executed and delivered by Buyer, and this Agreement constitutes the legal,
valid and binding obligation of Buyer enforceable against it in accordance with
its terms except insofar as the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity regardless of whether such
principles are considered in a proceeding at law or in equity. Buyer is not
required to give any notice to, make any filing or register with, or obtain any
consent, approval, authorization, waiver, permit, certificate or order of any
Governmental Authority to consummate the transactions
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contemplated by this Agreement except for those the absence of which are not
reasonably likely to have a Buyer Material Adverse Effect, including Customary
Post-Closing Consents, and except for consents or waivers to be obtained by
Buyer prior to the Closing Date.
4.4 ABSENCE OF CONFLICTS. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby will, to
the knowledge of Buyer, violate or breach the terms of, cause a default under,
conflict with, result in acceleration of, create in any party the right to
accelerate, terminate, modify or cancel or require any notice under (a) any
applicable Law, (b) the charter or bylaws of Buyer, or (c) any material contact,
agreement, lease, license or other arrangement to which Buyer is a party or by
which it, or any of its properties, is bound, except in each case for those the
absence of which are not reasonably likely to have a Buyer Material Adverse
Effect, including Customary Post-Closing Consents.
4.5 BROKERS' FEES. Buyer has no liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
4.6 FINANCING. Buyer has sufficient cash, available lines of credit or
other sources of immediately available funds to enable it to make payment of the
Adjusted Purchase Price at the Closing.
4.7 LITIGATION. There are no actions, suits, proceedings or governmental
investigations or inquiries pending, or to the knowledge of Buyer, threatened,
against Buyer or any of its properties, assets, operations or businesses that
might delay, prevent or hinder the consummation of the transactions contemplated
hereby.
ARTICLE 5
COVENANTS OF SELLER AND BUYER
5.1 ACCESS. Upon reasonable notice and at Buyer's sole risk, liability and
expense, and during normal business hours, Seller shall afford Buyer, MCNIC, and
their respective representatives reasonable access, from the date hereof until
the Closing Date, to the Assets and the High Island Lateral (including without
limitation for the purpose of safety and environmental inspections, assessments
and nondestructive and noninvasive testing of such Assets by a safety and/or an
environmental engineering firm designated by Buyer and reasonably satisfactory
to Seller) and the contracts, books, records and data of Black Marlin; provided,
such access shall be subject to Seller's obtaining all necessary consents and
approvals from third parties. Seller shall promptly notify Buyer in each case
when such consents are required, and when they have been obtained or withheld.
Buyer's investigation shall be conducted in a manner that does not unreasonably
interfere with Black Marlin's normal operations. Notwithstanding the foregoing,
Buyer shall not have access to personnel records of Black Marlin (or any
Affiliates thereof). Buyer agrees to maintain the confidentiality of all such
information pursuant to the terms of that certain letter agreement regarding
confidentiality dated August 26, 1997 between Blue Dolphin Energy Company and
Black Marlin, as amended from time to time (the "Confidentiality Agreement").
BUYER
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AND PARENT HEREBY, JOINTLY AND SEVERALLY, AGREE TO DEFEND, INDEMNIFY, RELEASE,
PROTECT, SAVE AND HOLD HARMLESS THE SELLER AND ITS AFFILIATES FROM AND AGAINST
ANY AND ALL LOSSES ARISING OUT OF OR RELATING TO ANY CLAIMS RELATING TO ANY
PLANT OR FIELD VISIT, OR OTHER DUE DILIGENCE ACTIVITY, CONDUCTED BY BUYER OR ANY
OF ITS AGENTS, REPRESENTATIVES, AFFILIATE, SUCCESSOR, ASSIGN, OFFICER,
REPRESENTATIVE OR DIRECTOR, INCLUDING WITHOUT LIMITATION ANY LOSSES RESULTING,
IN WHOLE OR IN PART, FROM THE SOLE, CONCURRENT OR JOINT NEGLIGENCE OR STRICT
LIABILITY OF SELLER OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SELLER.
5.2 CONDUCT OF BUSINESS PENDING THE CLOSING. Seller covenants and agrees,
that from the date of this Agreement until the Closing Date, unless Buyer shall
otherwise agree or as otherwise contemplated by this Agreement:
(a) Seller will, or will cause Black Marlin to, operate the Assets in all
material respects in the same manner as presently being operated, and will
refrain from entering into any transaction or contract relating directly to any
Assets other than in the ordinary course of business;
(b) Seller will, or will cause Black Marlin to, use commercially
reasonable efforts to perform its obligations under any contracts and agreements
to which it is a party or to which the Assets are subject, except for such
obligations as it in good faith may dispute and except for such failures to
perform as would not in the aggregate have a Seller Material Adverse Effect;
(c) Except as set forth on Schedule 5.2, Seller will not, and will not
permit Black Marlin to, directly or indirectly, enter into any transaction with
any of its Affiliates affecting the Assets, other than in the ordinary course of
business;
(d) Seller will not permit Black Marlin to make any non-emergency capital
expenditure that would cost $25,000 or more without the prior written approval
of Buyer, which approval shall not be unreasonably withheld;
(e) Black Marlin will not create, incur, guarantee, or assume any
indebtedness;
(f) Black Marlin will not mortgage or pledge any of the Assets or create
or suffer to exist any encumbrance thereupon, other than Permitted Encumbrances;
(g) Except as set forth on Schedule 5.2, Seller will not, and will not
permit Black Marlin to, lease, transfer, or otherwise dispose of, directly or
indirectly, any of the Assets;
(h) Seller will not, and will not permit Black Marlin to, enter into any
new firm, long-term contract pursuant to which Black Marlin becomes obligated to
transport or deliver any products through or by means of the Assets at a price
less than the maximum applicable FERC tariff, or upon terms and conditions which
are substantially different from the terms and conditions applicable to the
transportation of products by Black Marlin pursuant to the Contracts;
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(i) Insurance will be maintained for Black Marlin and the Assets through
Enron Corp.'s insurance program.
5.3 CONSENTS. Each of the Parties, severally and not jointly, will use its
commercially reasonable efforts to obtain the authorizations, consents, orders
and approvals of Governmental Authorities (including the FERC approvals referred
to in Section 5.9) and any other third parties that may be or become necessary
or advisable for the performance of its obligations pursuant to this Agreement
and the consummation of the transactions contemplated hereby and will cooperate
in all reasonable respects with each other in promptly seeking to obtain such
authorizations, consents, orders and approvals as may be necessary or advisable
for the performance of their respective obligations pursuant to this Agreement.
5.4 COMMERCIALLY REASONABLE EFFORTS. Each of the Parties, severally and
not jointly, shall use commercially reasonable efforts to obtain the
satisfaction of all conditions of Closing attributable to such Party in an
expeditious manner.
5.5 USE OF NAME. As soon as practicable, but in any event within 60 days
after the Closing Date, Buyer shall remove the names of Seller, its Affiliates,
Enron or any words or expressions similar thereto (other than the name "Black
Marlin") from the Assets.
5.6 DELIVERY AND RETENTION OF RECORDS. As soon as practicable, but in any
event within thirty (30) days after the Closing Date, Seller will deliver or
cause to be delivered to Buyer all files, records, information and data relating
to Black Marlin that are in the possession or control of Seller (the "Records")
except such files as may be necessary for Seller to perform its obligations
under the Services Agreement to be executed at Closing in substantially the form
of Exhibit B attached hereto (the "Services Agreement"). Within sixty (60) days
after expiration or termination of the Services Agreement, Seller will deliver
all such retained Records to Buyer. Buyer agrees to (a) hold the Records and not
to destroy or dispose of any thereof for the longer of (i) six years from the
Closing Date, or (ii) such longer time as may be required by law, including upon
notice from Seller for any mandatory or consensual extension of a statutory
limitations period determined by the Internal Revenue Service for Tax Returns,
provided that, if it desires to destroy or dispose of such Records during such
period, it will first offer in writing at least 60 days prior to such
destruction or disposition to surrender them to the Seller and if Seller does
not accept such offer within 20 days after receipt of such offer, Buyer may take
such action and (b) following the Closing Date to afford Seller and its
accountants and counsel during normal business hours, upon reasonable request,
at any time, full access to the Records and to Buyer's employees to the extent
that such access may be requested for any legitimate purpose at no cost to
Seller (other than for reasonable out-of-pocket expenses), provided however,
that such access will not operate to cause the waiver of any attorney-client,
work product or like privilege; provided, further, that in the event of any
litigation nothing herein shall limit either party's rights of discovery under
applicable law.
5.7 COMMERCIAL EFFORTS. Subject to Section 5.2, Seller agrees to use
reasonable efforts to keep Buyer advised of, and to consult with Buyer
regarding, any commercial commitments to be entered into by Black Marlin related
to the Assets prior to Closing,
14
providing that Seller shall take all reasonable steps to prevent Buyer from
being required to participate in Black Marlin's regulatory proceedings or
related litigation until after the Closing Date. Buyer agrees that it will not
contact Black Marlin's customers (or the customers of the High Island Lateral)
on matters relating to Black Marlin or the High Island Lateral without the prior
written consent of Seller and in the event Seller consents, Buyer will allow a
representative of Black Marlin or one of its affiliates to be present at any
meeting.
5.8 AMENDMENTS OF SCHEDULES AND REMEDY.
(a) Seller may, from time to time, prior to the Closing, by written notice
to Buyer, supplement or amend the Disclosure Schedule or other schedules
attached to this Agreement to correct any matter that would constitute a breach
of any representation, warranty of Seller herein contained; PROVIDED HOWEVER,
except as provided in this Section 5.8, no such supplement or amendment will
affect the rights or obligations of the parties to this Agreement (including
without limitation Buyer's rights and obligations under Section 7.2(a) hereof)
until after the Closing Date. Notwithstanding any other provision hereof, if the
Closing occurs, any such supplement or amendment of any Schedule will be
effective to cure and correct for indemnification purposes (but only for such
purposes) any breach of any representation, warranty or covenant that would have
existed by reason of Seller not having made such supplement or amendment.
(b) If Buyer terminates this Agreement solely as a result of Seller's
amendment of the Disclosure Schedule or other schedules to reflect Material
Items (as defined below) and such Material Items were not made available to
Buyer before the date hereof, Buyer and Seller agree that in lieu of any other
remedy Buyer may have against Seller at law, equity or otherwise, Seller shall
owe to Buyer money damages for Buyer's out-of-pocket costs related directly to
due diligence activities and negotiation of this Agreement in an amount up to
$100,000. As used in this Section 5.8, the term "Material Items" shall mean
matters occurring prior to the date of this Agreement, which would have an
adverse impact of $500,000 or greater in the aggregate on the Assets or Black
Marlin. Buyer agrees that if it terminates this Agreement as a result of an
amendment to the Disclosure Schedule or other schedule that does not constitute
a Material Item, Buyer shall not have any recourse against Seller.
5.9 FERC MATTERS. Black Marlin filed a rate case at the FERC in Docket No.
RP98-274-000 (the "Rate Case") proposing to place rates into effect no later
than August 1, 1998. Buyer will have the right to, within ten (10) business
days of receipt of any settlement proposal related to the Rate Case, approve
such settlement before such is filed with the FERC to resolve the Rate Case;
provided, however, if Buyer rejects, or does not approve, any such settlement
proposal within such ten (10) business day period, then Seller shall have the
right to terminate this Agreement pursuant to Section 9.1(f). In the event FERC
rejects or materially alters any settlement approved by Buyer, or all or part
of the Rate Case is litigated, Buyer shall have the right to terminate this
Agreement pursuant to Section 9.1(g) if resolution of the Rate Case is not
reasonably satisfactory to Buyer.
5.10 RELOCATION OF PIPELINE. (a) Seller shall be financially responsible
for any removal, relocation, and replacement, if applicable, of the Pipeline to
a depth which will
15
accommodate the lowering of the Houston Ship Channel to a depth of 45 feet, Mean
Low Tide, and a bottom width of 530 feet, whether before or after the Closing
Date (the "Pipeline Lowering"). Seller shall cause the Pipeline Lowering to be
complete by January 1, 2000, or such earlier or later date as the U. S. Army
Corps of Engineers and the Port of Houston Authority shall require or allow.
(b) Subject to the following sentence, the Seller shall control the manner
of the performance of the work relating to the Pipeline Lowering performed prior
to and after the Closing Date (the "Work"), subject to the following obligations
and limitations: (i) the Work shall be conducted in a proper and workmanlike
manner in accordance with industry standards and applicable rules and
regulations of Governmental Authorities, (ii) the Pipeline, after the completion
of Work, shall be of the same or superior quality and condition as prior to the
performance of the Work (including pressure requirements), and (iii) Seller
shall use commercially reasonable efforts to minimize disruption of Pipeline
operations after the Closing Date. The Seller shall (x) obtain the approval of
the Buyer of the plans, specifications and contracts relating to the Work, which
consent shall not be unreasonably withheld, and (y) hold semimonthly meetings
with operational personnel of the Buyer to review the status and scope of the
Work. The Buyer shall have the right to inspect the Work from time to time as
performed. The Seller shall require any contractor hired to perform work on the
Pipeline Lowering to post bonds and provide indemnities. In connection
therewith, Seller shall consult with Buyer upon the amount of any such bonds,
indemnities and prepayments prior to execution of any agreement between the
contractor and Black Marlin or Seller, as the case may be. The Seller shall pay
for the Work in the time and manner reasonably required by the U. S. Army Corps
of Engineers, including payments directly to contractors and other vendors. If
necessary, Seller will cooperate with Black Marlin to provide any guaranties of
Black Marlin's payment obligations under contracts entered into by Black Marlin
for Work.
(c) Seller shall use reasonable efforts prior to the Closing to allow
Buyer to have a representative at any meeting with the U. S. Army Corps of
Engineers relating to the Pipeline Lowering. Prior to the Closing, Seller will
consult with Buyer on any issues raised by the U. S. Army Corps of Engineers
that may affect the Pipeline; provided, however, neither Seller nor Black Marlin
shall be obligated to advocate any position taken by Buyer if such position
would conflict with the position taken by Seller, Black Marlin, or any of their
respective affiliates.
(d) Any amounts recovered by Black Marlin after the Closing to recoup the
cost of the Pipeline Lowering, other than from tariffs or fees paid by its
customers, shall be for the account of, and shall be distributed to, Seller. At
the request of Seller, Buyer shall cause Black Marlin to assign to Seller any
rights it may have against any Persons for reimbursement of the cost of the
Pipeline Lowering (other than against customers for reimbursement out of tariffs
or fees). The Buyer and Seller shall name each other as additional insureds
under their respective liability insurance policies to the extent of the
indemnity obligations in this Agreement, with waiver of subrogation, with
respect to the Pipeline Lowering.
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5.11 PIPELINE COVER. To the extent that cover over the Pipeline on Bolivar
Peninsula does not meet applicable legal requirements, Seller will cause such
cover to be repaired to a minimum depth of thirty (30) inches prior to Closing
at no cost to Buyer or Black Marlin (the "Pipeline Covering"). Any amounts
recovered by Black Marlin to recoup the cost of the Pipeline Covering, other
than from tariffs or fees paid by its customers, shall be for the account of,
and shall be distributed to, Seller. At the request of Seller, Buyer shall cause
Black Marlin to assign to Seller any rights it may have against any Persons for
reimbursement of the cost of the Pipeline Covering (other than against customers
for reimbursement out of tariffs or fees).
5.12 DISPOSITION OF SECTION 311 PIPELINE. On or before the Closing Date,
Seller shall cause Black Marlin to dispose of that certain 39-mile, 30-inch
natural gas pipeline located near the Texas-Oklahoma border and any related
assets (the "Section 311 Pipeline"), provided that Black Marlin shall not incur
any continuing indemnity or other obligations with respect to such disposition.
5.13 PURCHASE OPTION. The Buyer shall notify the Seller of the
Decertification within 30 days of its occurrence. Within the earlier of the
third anniversary of the notice of Decertification from the Buyer or the fifth
anniversary of the Closing Date, Enron Corp. or any of its Affiliates shall have
the option to elect in writing to purchase a minimum of a 25%, and a maximum of
a 33 1/3%, undivided interest in the Assets and, if applicable, the High Island
Lateral, in exchange for a proportionate amount of the Purchase Price, plus a
proportionate share of any capital improvements or additions made to the Assets
and, if applicable, the High Island Lateral subsequent to the Effective Time,
free and clear of any Liens, other than Permitted Encumbrances. Such acquisition
would be on terms and conditions substantially similar to those contained in
this Agreement, to the extent applicable. The parties shall cooperate with each
other to close the acquisition of the undivided interest as promptly as
practicable and such acquisition shall be effective as of the date of closing.
Enron Corp. or one of its Affiliates, as the case may be, shall execute such
documents as are reasonably required by Buyer with respect to such acquisition
of the undivided interest, including documents which provide that (a) Black
Marlin shall be the sole operator of the Assets and, if applicable, the High
Island Lateral, (b) the costs, expenses and revenues relating to the operation
of the Assets shall be proportionately shared by the owners of the Assets and,
if applicable, the High Island Lateral, (c) the interest in the Assets and, if
possible, the High Island Lateral acquired by Enron Corp. or one of its
Affiliates shall be subject to a right of first refusal held by Black Marlin in
the event (and to the extent) such entity desires to transfer all or a portion
of its undivided interest in the Assets and, if applicable, the High Island
Lateral to an unaffiliated third party, and (d) information disclosed to Enron
Corp. or one of its Affiliates, relating to the Assets shall be confidential.
Seller and its Affiliates shall keep confidential and not disclose the existence
or terms of this option.
5.14 TRANSFER TAXES. Buyer 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, other than Income Taxes for
Pre-Closing Periods (as defined in Section 10.2 below), and the Income Taxes
arising from the elections made pursuant to Section 10.1.
17
5.15 PERIODIC MEETINGS. Marketing and operational personnel of the Seller
and the Buyer shall conduct semimonthly meetings to discuss the ongoing
marketing and operation of the Assets prior to Closing.
5.16 CASUALTY LOSS AND CONDEMNATION. In the event that there exist at and
as of the Closing any condemnation proceeding with respect to the Assets, the
Seller shall assign to Buyer at and as of the Closing any rights it may have to
claims against any governmental entity, or third party with respect to such
condemnation proceeding. In the event that there exist at and as of the Closing
any casualty loss with respect to the Assets, the Seller shall process the
claim, if any, with its insurance carrier, and shall promptly turn over any
proceeds received from its insurance carrier with respect to such casualty loss.
5.17 DISTRIBUTION BY BLACK MARLIN. On or before the Closing Date, Black
Marlin shall dividend or distribute to the Seller any cash, cash equivalents,
and accounts receivable of Black Marlin as of the Effective Time, subject to
Seller's obligation to pay expenses of Black Marlin pursuant to Section 2.5
above. Black Marlin shall not distribute to the Seller any other amounts or
property prior or subsequent to the Closing.
ARTICLE 6
INDEPENDENT INVESTIGATION AND DISCLAIMER
6.1 INDEPENDENT INVESTIGATION AND DISCLAIMER. Buyer acknowledges that: (a)
it has had, and pursuant to this Agreement will have prior to the Closing,
access to Black Marlin, the Assets and the High Island Lateral and the officers
and employees of Black Marlin and Seller, (b) in making the decision to enter
into this Agreement and consummate the transactions contemplated hereby, Buyer
has relied solely on the basis of its own independent investigation (including
review of materials provided to it by Seller) and upon the expressed
representations, warranties, covenants and agreements set forth in this
Agreement, and (c) it is familiar with investments of the nature of the Shares,
the Assets and the High Island Lateral, understands that this investment
involves substantial risks, has adequately investigated the Shares, the Assets
and the High Island Lateral and has substantial knowledge and experience in
financial and business matters such that it is capable of evaluating, and has
evaluated, the merits and risks inherent in purchasing the Shares, the Assets
and the High Island Lateral, and is able to bear the economic risks of such
investment. Accordingly, except as set forth in Article 3, Buyer acknowledges
that Seller has not made, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES ANY
REPRESENTATION OR WARRANTY, EXPRESSED, IMPLIED, AT COMMON LAW, BY STATUE, OR
OTHERWISE RELATING TO (i) THE CONDITION OF THE ASSETS AND THE HIGH ISLAND
LATERAL (INCLUDING WITHOUT LIMITATION, ANY IMPLIED OR EXPRESSED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS, OR ENVIRONMENTAL CONDITION), (ii) ANY INFRINGEMENT BY
BLACK MARLIN OF ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY, AND (iii)
ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO BUYER BY
OR ON BEHALF OF SELLER (INCLUDING WITHOUT LIMITATION, IN RESPECT OF THE
EXISTENCE OR EXTENT OF OIL,
18
GAS OR OTHER MINERAL RESERVES, THE RECOVERABILITY OF OR THE COST OF RECOVERING
ANY SUCH RESERVES AND THE ABILITY OF BUYER TO BECOME OPERATOR OF THE ASSETS AND
THE HIGH ISLAND LATERAL UNDER ANY OPERATING OR SIMILAR AGREEMENT); AND BUYER
WILL HAVE SOLE RESPONSIBILITY FOR ANY ACTION TAKEN BY BUYER, OR BY OTHERS
RELYING ON BUYER'S ADVICE BASED ON THE GEOLOGICAL MAPS, RECORDS, LOGS,
PRODUCTION OR RESERVE FORECASTS AND OTHER DATA, IF ANY, TRANSFERRED UNDER THIS
AGREEMENT.
ARTICLE 7
CONDITIONS TO CLOSING
7.1 CONDITIONS PRECEDENT TO OBLIGATION OF EACH PARTY. The respective
obligations of each Party to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) No order shall have been entered and remain in effect in any action or
proceeding before any federal, state, foreign or local court or governmental
agency or other federal, state, foreign or local regulatory or administrative
agency or commission that would prevent or make illegal the consummation of the
transactions contemplated by this Agreement and no action or proceeding that has
a reasonable likelihood of preventing or materially hindering the transactions
contemplated hereby shall have been instituted, which shall not have been
subsequently dismissed; and
(b) Any and all consents of third parties (other than Customary
Post-Closing Consents), necessary in connection with the transactions
contemplated hereby shall have been obtained or arrangements shall have been
made reasonably satisfactory to Buyer to allow Buyer to receive substantially
the same economic benefits as if all such consents had been obtained.
7.2 ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The
obligation of Buyer to consummate the transactions contemplated by this
Agreement are also subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) The representations and warranties contained in Article 3, to the
extent qualified as to materiality shall be accurate in all respects, and, to
the extent not so qualified, shall be accurate in all material respects, as of
the Closing Date as though such representations and warranties had been made at
and as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by Seller on or before the Closing
Date shall have been duly complied with and performed in all material respects,
and a certificate to the foregoing effect dated the Closing Date and signed by
an authorized executive officer of Seller shall have been delivered to Buyer;
(b) The Transition Services Agreement, in substantially the form attached
hereto as Exhibit B, shall have been executed by the parties thereto;
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(c) The Rate Case shall have been resolved on terms reasonably
satisfactory to Buyer; provided, however, Buyer agrees that filing with FERC of
an uncontested Settlement that was previously approved by Buyer pursuant to
Section 5.9 shall constitute resolution on terms reasonably satisfactory to
Buyer;
(d) The Assets shall not have been materially damaged and there shall have
been no condemnation of the Assets; and
(e) No Seller Material Adverse Effect shall have occurred and be
continuing.
7.3 ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The
obligation of Seller to consummate the transactions contemplated by this
Agreement are also subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) The representations and warranties of Buyer contained in Article 4
shall be accurate in all material respects as of the Closing Date as though such
representations and warranties had been made at and as of that time; all the
terms, covenants and conditions of this Agreement to be complied with and
performed by Buyer on or before the Closing Date shall have been duly complied
with and performed in all material respects, and a certificate to the foregoing
effect dated the Closing Date and signed by an authorized executive officer of
Buyer shall have been delivered to Seller.
ARTICLE 8
INDEMNIFICATION AND ASSUMPTION
8.1 BY SELLER. SUBJECT TO THE TERMS AND CONDITIONS OF THIS ARTICLE 8,
SELLER HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, BLACK MARLIN,
MCNIC, AND THEIR RESPECTIVE AFFILIATES AND ITS AND THEIR RESPECTIVE DIRECTORS,
OFFICERS, SHAREHOLDERS AND EMPLOYEES (COLLECTIVELY, THE "BUYER PARTIES"), FROM
AND AGAINST THE FOLLOWING (COLLECTIVELY, THE "BUYER INDEMNIFIED LIABILITIES"):
ANY CLAIM INDIVIDUALLY CONSTITUTING A LOSS IN EXCESS OF $10,000 ASSERTED
AGAINST, IMPOSED UPON, OR INCURRED BY ANY BUYER PARTY, DIRECTLY OR INDIRECTLY,
BY REASON OF, ARISING OUT OF, OR RESULTING FROM (A) THE INACCURACY OR BREACH OF
ANY REPRESENTATION OR WARRANTY MADE BY SELLER IN ARTICLE 3 OF THIS AGREEMENT; OR
(B) THE BREACH OF ANY COVENANT OR AGREEMENT OF SELLER CONTAINED IN THIS
AGREEMENT; OR (C) THE OPERATIONS OF BLACK MARLIN OR THE ASSETS PRIOR TO THE
EFFECTIVE TIME (INCLUDING EMPLOYEE OR ERISA RELATED CLAIMS; OR (D) CLAIMS
RELATED TO THE SECTION 311 PIPELINE; OR (E) REFUND OBLIGATIONS IMPOSED BY FERC
IN THE RATE CASE AND CREDITING OF INTERRUPTIBLE REVENUE); OR (F) OPERATION OF
THE HIGH ISLAND LATERAL PRIOR TO THE LATER OF THE EFFECTIVE TIME OR THE DATE
SUCH ASSET IS CONVEYED TO BLACK MARLIN; OR (G) THE PIPELINE
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LOWERING OR THE PIPELINE COVERING; OR (H) ANY LITIGATION DISCLOSED BY THE SELLER
PURSUANT TO THE DISCLOSURE SCHEDULE; OR (I) ANY TAXES OF BLACK MARLIN RELATING
TO PRE-CLOSING PERIODS, INCLUDING TAXES ARISING FROM THE DISPOSITION OF THE
SECTION 311 PIPELINE, ANY DISTRIBUTIONS FROM BLACK MARLIN TO THE SELLER, THE
SECTION 338(H)(10) ELECTIONS, OR THE LIABILITY OF ANY OTHER PERSON IMPOSED ON
BLACK MARLIN UNDER TREASURY REGULATION SECTION 1.1502-6 WITH RESPECT TO THE
CONSOLIDATED GROUP OF THE PARENT; PROVIDED, NONE OF THE BUYER PARTIES SHALL BE
ENTITLED TO ASSERT RIGHTS OF INDEMNIFICATION BY SELLER UNDER THIS ARTICLE 8 FOR
BUYER INDEMNIFIED LIABILITIES PURSUANT TO CLAUSES (A) OR (B) UNLESS AND UNTIL
THE AGGREGATE OF ALL SUCH BUYER INDEMNIFIED LIABILITIES EXCEEDS $100,000 (IT
BEING UNDERSTOOD THAT SUCH BUYER INDEMNIFIED LIABILITIES SHALL ACCUMULATE UNTIL
SUCH TIME OR TIMES AS THE AGGREGATE OF ALL SUCH BUYER INDEMNIFIED LIABILITIES
EXCEEDS $100,000, WHEREUPON THE BUYER PARTIES SHALL BE ENTITLED TO
INDEMNIFICATION BY SELLER HEREUNDER TO THE EXTENT OF SUCH EXCESS); PROVIDED,
FURTHER, SELLER'S MAXIMUM INDEMNIFICATION OBLIGATION UNDER CLAUSES (A), (B), (C)
AND (F) OF THIS SECTION 8.1 SHALL BE CAPPED AT AN AGGREGATE AMOUNT EQUAL TO $1
MILLION.
8.2 BY BUYER. SUBJECT TO THE TERMS AND CONDITIONS OF THIS ARTICLE 8, BUYER
AND PARENT HEREBY, JOINTLY AND SEVERALLY, AGREE TO INDEMNIFY, DEFEND AND HOLD
HARMLESS SELLER AND ITS AFFILIATES AND THEIR RESPECTIVE DIRECTORS, OFFICERS,
SHAREHOLDERS AND EMPLOYEES (COLLECTIVELY, "SELLER PARTIES"), FROM AND AGAINST
THE FOLLOWING (COLLECTIVELY, THE "SELLER INDEMNIFIED LIABILITIES"): ANY CLAIM
INDIVIDUALLY CONSTITUTING A LOSS ASSERTED AGAINST, IMPOSED UPON OR INCURRED BY
ANY SELLER PARTY, DIRECTLY OR INDIRECTLY, BY REASON OF, ARISING OUT OF OR
RESULTING FROM (A) THE INACCURACY OR BREACH OF ANY REPRESENTATION OR WARRANTY OF
BUYER IN ARTICLE 4 OF THIS AGREEMENT; OR (B) THE BREACH OF ANY COVENANT OR
AGREEMENT OF BUYER CONTAINED IN THIS AGREEMENT; OR (C) THE OPERATION AND
OWNERSHIP OF THE ASSETS ON OR AFTER THE EFFECTIVE TIME; OR (D) THE OPERATION OF
THE HIGH ISLAND LATERAL AFTER THE LATER OF THE EFFECTIVE TIME OR THE DATE SUCH
ASSET IS CONVEYED TO BLACK MARLIN; OR (E) ANY TAXES OF BLACK MARLIN RELATING TO
POST-CLOSING PERIODS.
8.3 EXPRESS NEGLIGENCE RULE. WITHOUT LIMITING OR ENLARGING THE SCOPE OF
THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN INDEMNIFIED
PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE
TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO SUCH
INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR COMPARATIVE
NEGLIGENCE, STRICT
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LIABILITY OR VIOLATION OF ANY LAW OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES
AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
8.4 EXCEPTIONS TO INDEMNITIES. NOTWITHSTANDING ANYTHING TO THE CONTRARY
SET FORTH IN SECTION 8.1, BUYER INDEMNIFIED LIABILITIES SHALL NOT INCLUDE ANY
AND ALL CLAIMS TO THE EXTENT SAME ARE ATTRIBUTABLE TO A BREACH OF ANY
REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT OF BUYER UNDER THIS AGREEMENT.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN SECTION 8.2, SELLER
INDEMNIFIED LIABILITIES SHALL NOT INCLUDE ANY AND ALL CLAIMS TO THE EXTENT SAME
ARE ATTRIBUTABLE TO A BREACH OF ANY REPRESENTATION, WARRANTY, COVENANT OR
AGREEMENT OF SELLER UNDER THIS AGREEMENT.
8.5 NOTICE OF CLAIM. (A) FOR PURPOSES OF THIS ARTICLE 8, THE TERM
"INDEMNIFYING PARTY" WHEN USED IN CONNECTION WITH A PARTICULAR CLAIM SHALL MEAN
THE PARTY HAVING AN OBLIGATION TO INDEMNIFY ANOTHER PARTY WITH RESPECT TO SUCH
CLAIM PURSUANT TO THIS ARTICLE 8, AND THE TERM "INDEMNIFIED PARTY" WHEN USED IN
CONNECTION WITH A PARTICULAR CLAIM SHALL MEAN THE PARTY HAVING THE RIGHT TO BE
INDEMNIFIED WITH RESPECT TO SUCH CLAIM BY ANOTHER PARTY PURSUANT TO THIS ARTICLE
8.
(B) PROMPTLY AFTER ANY INDEMNIFIED PARTY BECOMES AWARE OF FACTS GIVING
RISE TO A CLAIM BY IT FOR INDEMNIFICATION PURSUANT TO THIS ARTICLE 8, SUCH
INDEMNIFIED PARTY WILL PROVIDE NOTICE THEREOF IN WRITING TO THE INDEMNIFYING
PARTY (A "CLAIM NOTICE") SPECIFYING THE NATURE AND SPECIFIC BASIS FOR SUCH CLAIM
AND A COPY OF ALL PAPERS SERVED WITH RESPECT TO SUCH CLAIM (IF ANY). FOR
PURPOSES OF THIS SECTION 8.5(B), RECEIPT BY A PARTY OF WRITTEN NOTICE OF ANY
DEMAND, ASSERTION, CLAIM, ACTION OR PROCEEDING (JUDICIAL, ADMINISTRATIVE OR
OTHERWISE) BY OR FROM ANY PERSON OR ENTITY OTHER THAN A PARTY TO THIS AGREEMENT
WHICH GIVES RISE TO A CLAIM ON BEHALF OF SUCH PARTY SHALL CONSTITUTE THE
DISCOVERY OF FACTS GIVING RISE TO A CLAIM BY IT AND SHALL REQUIRE PROMPT NOTICE
OF THE RECEIPT OF SUCH MATTER AS PROVIDED IN THE FIRST SENTENCE OF THIS SECTION
8.5(B). EACH CLAIM NOTICE SHALL SET FORTH A REASONABLE DESCRIPTION OF THE CLAIM
AS THE INDEMNIFIED PARTY SHALL THEN HAVE AND SHALL CONTAIN A STATEMENT TO THE
EFFECT THAT THE INDEMNIFIED PARTY GIVING THE NOTICE IS MAKING A CLAIM PURSUANT
TO, AND FORMAL DEMAND FOR INDEMNIFICATION, UNDER THIS ARTICLE 8. THE CLAIM
NOTICE MUST SET FORTH THE PARTICULAR PROVISION IN THIS ARTICLE 8 AND ANY RELATED
PROVISION IN THIS AGREEMENT PURSUANT TO WHICH SUCH INDEMNIFICATION CLAIM IS
MADE. FOR EXAMPLE, IF AN INDEMNIFIED PARTY ELECTS TO ASSERT AN INDEMNIFICATION
CLAIM FOR BREACH OF THE INDEMNIFYING PARTY'S BREACH
22
OF REPRESENTATION, THE INDEMNIFIED PARTY'S CLAIM NOTICE WOULD PROVIDE THAT THE
CLAIM IS ASSERTED UNDER SECTION 8.1(A) OR 8.2(A)(I), AS APPLICABLE, AND THAT THE
REPRESENTATION ALLEGEDLY BREACHED IS, FOR EXAMPLE, THE LITIGATION REPRESENTATION
CONTAINED IN SECTION 3.8 OR 4.8, AS APPLICABLE. NOTWITHSTANDING THE FOREGOING
HOWEVER, THE FAILURE OF THE INDEMNIFIED PARTY TO TIMELY PROVIDE A CLAIM NOTICE
SHALL NOT EXCUSE THE INDEMNIFYING PARTY FROM ITS OBLIGATION TO PROVIDE
INDEMNIFICATION HEREUNDER UNLESS SUCH FAILURE MATERIALLY IMPAIRS THE ABILITY OF
THE INDEMNIFYING PARTY TO MITIGATE OR DEFEND SUCH CLAIM.
8.6 THIRD-PARTY CLAIMS. (A) IF AN INDEMNIFIED PARTY SHALL HAVE ANY
THIRD-PARTY CLAIM ASSERTED AGAINST SUCH INDEMNIFIED PARTY, THE INDEMNIFIED PARTY
PROMPTLY SHALL TRANSMIT TO THE INDEMNIFYING PARTY A CLAIM NOTICE RELATING TO
SUCH THIRD-PARTY CLAIM. PRIOR TO THE EXPIRATION OF THE 45-DAY PERIOD FOLLOWING
THE INDEMNIFYING PARTY'S RECEIPT OF SUCH NOTICE (THE "ELECTION PERIOD"), THE
INDEMNIFYING PARTY SHALL NOTIFY THE INDEMNIFIED PARTY (I) WHETHER THE
INDEMNIFYING PARTY DISPUTES ITS POTENTIAL LIABILITY TO THE INDEMNIFIED PARTY
UNDER THIS ARTICLE 8 WITH RESPECT TO SUCH THIRD-PARTY CLAIM AND (II) WHETHER THE
INDEMNIFYING PARTY ELECTS, AT THE SOLE COST AND EXPENSE OF SUCH INDEMNIFYING
PARTY, TO DEFEND THE INDEMNIFIED PARTY AGAINST SUCH THIRD-PARTY CLAIM.
(B) IF AN INDEMNIFYING PARTY NOTIFIES AN INDEMNIFIED PARTY WITHIN THE
ELECTION PERIOD THAT THE INDEMNIFYING PARTY DOES NOT DISPUTE ITS POTENTIAL
LIABILITY TO THE INDEMNIFIED PARTY UNDER THIS ARTICLE 8 AND THAT THE
INDEMNIFYING PARTY ELECTS TO ASSUME THE DEFENSE OF THE THIRD-PARTY CLAIM, THEN
THE INDEMNIFYING PARTY SHALL HAVE THE RIGHT TO DEFEND, AT ITS SOLE COST AND
EXPENSE, SUCH THIRD-PARTY CLAIM BY ALL APPROPRIATE PROCEEDINGS, WHICH
PROCEEDINGS SHALL BE PROSECUTED DILIGENTLY BY THE INDEMNIFYING PARTY TO A FINAL
CONCLUSION OR SETTLED AT THE DISCRETION OF THE INDEMNIFYING PARTY IN ACCORDANCE
WITH THIS SECTION 8.6(B). THE INDEMNIFYING PARTY SHALL HAVE FULL CONTROL OF SUCH
DEFENSE AND PROCEEDINGS, INCLUDING ANY COMPROMISE OR SETTLEMENT THEREOF. IF
REQUESTED BY THE INDEMNIFYING PARTY, THE INDEMNIFIED PARTY AGREES TO COOPERATE
FULLY WITH THE INDEMNIFYING PARTY AND ITS COUNSEL AT THE INDEMNIFYING PARTY'S
EXPENSE IN CONTESTING ANY THIRD-PARTY CLAIM THAT THE INDEMNIFYING PARTY ELECTS
TO CONTEST, INCLUDING, WITHOUT LIMITATION, THE MAKING OF ANY RELATED
COUNTERCLAIM AGAINST THE PERSON ASSERTING THE THIRD-PARTY CLAIM OR ANY
CROSS-COMPLAINT AGAINST ANY PERSON. THE INDEMNIFIED PARTY SHALL HAVE THE RIGHT
TO PARTICIPATE IN, BUT NOT CONTROL, ANY DEFENSE
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OR SETTLEMENT OF ANY THIRD-PARTY CLAIM CONTROLLED BY THE INDEMNIFYING PARTY
PURSUANT TO THIS SECTION 8.6(B) AND SHALL BEAR ITS OWN COSTS AND EXPENSES WITH
RESPECT TO ANY SUCH PARTICIPATION.
8.7 SUBROGATION. IN THE EVENT THAT ANY INDEMNIFIED PARTY HAS A RIGHT
AGAINST A THIRD PARTY WITH RESPECT TO ANY DAMAGES, LOSSES, COSTS OR EXPENSES
PAID TO SUCH INDEMNIFIED PARTY BY AN INDEMNIFYING PARTY, THEN SUCH INDEMNIFYING
PARTY SHALL, TO THE EXTENT OF SUCH PAYMENT, BE SUBROGATED TO THE RIGHT OF SUCH
INDEMNIFIED PARTY.
8.8 EXCLUSIVE REMEDIES; SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
LIMITATION OF CERTAIN LIABILITIES.
(A) BUYER, SELLER AND PARENT (I) AGREE THAT ONLY ACTUAL DAMAGES SHALL BE
RECOVERABLE UNDER THIS AGREEMENT AND (II) HEREBY WAIVE ANY RIGHT TO RECOVER
SPECIAL, PUNITIVE, CONSEQUENTIAL, INCIDENTAL OR EXEMPLARY DAMAGES EXCEPT TO THE
EXTENT ANY SUCH PARTY SUFFERS SUCH DAMAGES TO AN UNAFFILIATED THIRD-PARTY IN
CONNECTION WITH A THIRD-PARTY CLAIM, IN WHICH EVENT SUCH DAMAGES SHALL BE
RECOVERABLE. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, THE
INDEMNIFICATION PROVISIONS OF THIS ARTICLE 8 SHALL BE THE EXCLUSIVE REMEDIES FOR
ANY CLAIM BASED UPON THIS AGREEMENT OR THE TRANSACTIONS DESCRIBED HEREIN
FOLLOWING CLOSING. IN FURTHERANCE OF THE FOREGOING, ALL OTHER REMEDIES AVAILABLE
AT LAW OR IN EQUITY, IN TORT, CONTRACT OR OTHERWISE ARE HEREBY WAIVED, RELEASED
AND DISCHARGED BY SELLER, BUYER AND PARENT. NO CLAIM OF ANY NATURE CAN BE
BROUGHT BY ANY BUYER PARTY OR SELLER PARTY UNLESS WRITTEN NOTICE OF SUCH CLAIM
HAS BEEN GIVEN IN ACCORDANCE WITH ARTICLE 8 AS FOLLOWS: (A) ON OR BEFORE THE
THIRD ANNIVERSARY OF THE CLOSING DATE WITH RESPECT TO ANY BUYER INDEMNIFIED
LIABILITIES UNDER SECTION 8.1(A), (B), (C), (D), OR (E) AND ANY SELLER
INDEMNIFIED LIABILITIES UNDER 8.2(A), (B), (C), OR (D); AND (B) WITHIN THE
APPLICABLE STATUTE OF LIMITATIONS WITH RESPECT TO BUYER INDEMNIFIED LIABILITIES
UNDER 8.1(I) AND SELLER INDEMNIFIED LIABILITIES UNDER 8.2(E). INDEMNITY
OBLIGATIONS OF ANY INDEMNIFYING PARTY SHALL BE REDUCED BY ANY INSURANCE PROCEEDS
REALIZED BY ANY INDEMNIFIED PARTY, EXCEPT ANY PAYMENTS RECEIVED PURSUANT TO AN
INSURANCE PROGRAM UNDER WHICH THE INDEMNIFIED PARTY OR ANY OF ITS AFFILIATES
BEARS THE ULTIMATE COST OF SUCH CLAIM.
(B) NEITHER BUYER PARTIES NOR SELLER PARTIES MAY ASSERT ANY CLAIM UNDER
THIS ARTICLE 8 BASED ON FACTS CONSTITUTING A BREACH OF ANY OF THE
REPRESENTATIONS AND WARRANTIES
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HEREUNDER TO THE EXTENT SUCH PERSON HAD ACTUAL KNOWLEDGE OF SUCH FACTS PRIOR TO
THE CLOSING DATE.
8.9 WAIVER OF TEXAS DTPA. IT IS THE INTENT OF THE PARTIES THAT BUYER'S
RIGHTS AND REMEDIES WITH RESPECT TO THIS TRANSACTION AND WITH RESPECT TO ALL
ACTS OR PRACTICES OF SELLER, PAST, PRESENT OR FUTURE, IN CONNECTION WITH THIS
TRANSACTION SHALL BE GOVERNED BY LEGAL PRINCIPLES OTHER THAN THE TEXAS DECEPTIVE
TRADE PRACTICES - CONSUMER PROTECTION ACT, TEX. BUS. & COM. CODE ANN. SS. 17.41
ET SEQ. (VERNON 1987 AND SUPP. 1994) (THE "DTPA"). AS SUCH, BUYER HEREBY WAIVES
THE APPLICABILITY OF THE DTPA TO THIS TRANSACTION AND ANY AND ALL DUTIES, RIGHTS
OR REMEDIES THAT MIGHT BE IMPOSED BY THE DTPA, WHETHER SUCH DUTIES, RIGHTS OR
REMEDIES ARE APPLIED DIRECTLY BY THE DTPA ITSELF OR INDIRECTLY IN CONNECTION
WITH OTHER STATUTES: PROVIDED, HOWEVER, BUYER DOES NOT WAIVE SECTION 17.555 OF
THE DTPA. BUYER ACKNOWLEDGES, REPRESENTS AND WARRANTS THAT IT IS PURCHASING THE
ASSETS COVERED BY THIS AGREEMENT FOR COMMERCIAL OR BUSINESS USE; THAT BUYER HAS
ASSETS OF FIVE MILLION DOLLARS ($5,000,000) OR MORE ACCORDING TO ITS MOST RECENT
FINANCIAL STATEMENT PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES; THAT BUYER HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS OF A TRANSACTION SUCH AS
THIS; AND THAT IT IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH
SELLER. BUYER EXPRESSLY RECOGNIZES THAT THE PRICE FOR WHICH THE SELLER HAS
AGREED TO SELL THE ASSETS AND PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT HAS
BEEN PREDICATED UPON THE INAPPLICABILITY OF THE DTPA AND THIS WAIVER OF THE
DTPA. BUYER FURTHER RECOGNIZES THAT SELLER, IN DETERMINING TO PROCEED WITH THE
ENTERING INTO OF THIS AGREEMENT, HAS EXPRESSLY RELIED ON THIS WAIVER AND THE
INAPPLICABILITY OF THE DTPA.
ARTICLE 9
TERMINATION
9.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby abandoned as follows:
(a) By the mutual written consent of Buyer and Seller at any time prior to
the Closing;
(b) By Buyer or Seller if a final, non-appealable order to restrain,
enjoin or otherwise prevent the consummation of the transactions contemplated
hereby shall have been entered;
25
(c) By Seller at any time prior to the Closing if the Closing shall not
have occurred on or before March 31, 1999 by reason of a failure of any
condition precedent under Section 7.1 or 7.3 unless the failure results
primarily from the breach by Seller of any representation, warranty or covenant
contained in this Agreement;
(d) By Buyer at any time prior to the Closing if the Closing shall not
have occurred on or before March 31, 1999 by reason of a failure of any
condition precedent under Section 7.1 or 7.2 unless the failure results
primarily from the breach by Buyer of any representation, warranty or covenant
contained in this Agreement;
(e) by Buyer or Seller if the Closing shall not have occurred on or before
March 31, 1999, so long as the terminating party is not in material breach of
any representation, warranty or covenant contained in this Agreement;
(f) by Seller if Buyer doesn't approve of any Rate Case settlement
proposal within ten (10) business days after notice of a settlement proposal is
submitted to Buyer; and
(g) by Buyer, if final resolution of the Rate Case is not reasonably
satisfactory to Buyer.
(h) by Buyer or Seller within ten (10) business days of Seller's written
notice to Buyer detailing the results of Seller's investigation of and Seller's,
or its Affiliates', determined course of action regarding the Bolivar Spoil Site
Encroachment, or by Buyer if such written notice is not received prior to the
Closing.
9.2 EFFECT OF TERMINATION. In the event of any termination of this
Agreement pursuant to Section 9.1, (i) Seller and Buyer shall have no obligation
or liability to each other except that the provisions of Section 5.1 and Section
5.8 shall survive any such termination, (ii) nothing herein and no termination
pursuant hereto will relieve any party from liability for any breach of this
Agreement prior to such termination or, with respect to those provisions that
survive such termination, prior to or following termination, and (iii) Buyer's
sole remedy for termination of this Agreement arising out of amendment to the
Disclosure Schedule and other schedules to reflect Material Items shall be the
remedy set forth in Section 5.8(b).
ARTICLE 10
TAX MATTERS
10.1 SECTION 338(H)(10) ELECTIONS. For purposes of this Article 10,
"Parent" means Enron Corp., the parent of the Seller. Parent and Buyer 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 Black Marlin, if any (the
"Section 338(h)(10) Elections"). Not later than 180 days after the Closing Date,
Seller shall prepare and deliver to Buyer 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, together with any completed
schedules required to be attached thereto, which Forms shall have been duly
executed by an authorized person for Parent. Within 15 days of receipt thereof,
Buyer shall cause the Forms to be duly
26
executed by an authorized person for Buyer, shall provide a copy of the executed
Forms and schedules to Seller, shall duly and timely file the Forms as
prescribed by Treasury Regulation ss.1.338(h)(10)-1 or the corresponding
provisions of applicable state income taX law. Seller will pay the Income Taxes
of Black Marlin attributable to the making of the Section 338(h)(10) Elections.
The allocation of Adjusted Purchase Price among the assets of Black Marlin shall
be made in accordance with Code Sections 338 and 1060 and any comparable
provisions of state, local or foreign law, as appropriate. Seller shall, unless
it would be unreasonable to do so, accept Buyer's determination of such Adjusted
Purchase Price allocations and shall report, act, file in all respects and for
all purposes consistent with such determination of Buyer.
10.2 PREPARATION OF TAX RETURNS; RESPONSIBILITY FOR TAXES. (a) Seller
shall cause to be included in the consolidated federal income Tax Returns (and
the state income Tax Returns of any state that permits consolidated, combined or
unitary income Tax Returns, if any) of the Seller for all taxable periods ending
on or before the Closing Date ("Pre-Closing Period(s)"), all items of income,
gain, loss, deduction and credit and other tax items ("Tax Items") of Black
Marlin which are required to be included therein, shall cause such Tax Returns
to be timely filed with the appropriate taxing authorities, and shall be
responsible for the timely payment (and entitled to any refund) of all Taxes due
with respect to the periods covered by such Tax Returns. Subject to, and in
accordance with, Section 5.17, at or prior to Closing Seller may cause Black
Marlin to dividend cash reserved on its balance sheet for payment of Taxes
related to Pre-Closing Periods.
(b) With respect to any Tax Return covering a Pre-Closing Period that is
required to be filed after the Closing Date with respect to Black Marlin that is
not described in paragraph (a) above (other than one-day returns necessitated by
a stand-alone election under Section 338(g) or the corresponding provisions of
applicable state income tax law), Seller shall cause such Tax Return to be
prepared, shall cause to be included in such Tax Return all Tax Items required
to be included therein, shall cause such Tax Return to be filed timely with the
appropriate taxing authority, and shall be responsible for the timely payment
(and entitled to any refund) of all Taxes due with respect to the period covered
by such Tax Return. Subject to, and in accordance with, Section 5.17, at or
prior to Closing Seller may cause Black Marlin to dividend cash reserved on its
balance sheet for payment of Taxes related to Pre-Closing Periods.
(c) With respect to any 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 with respect to Black Marlin (including one-day
returns necessitated by a stand-alone election under Section 338(g) or the
corresponding provisions of applicable state income law), Buyer shall cause such
Tax Return to be prepared, shall cause to be included in such Tax Return all Tax
Items required to be included therein, shall furnish a copy of such Tax Return
to Seller, shall file timely such Tax Return with the appropriate taxing
authority, and shall be responsible for the timely payment (and entitled to any
refund) of all Taxes due with respect to the period covered by such Tax Return.
Seller shall determine (by an interim closing of the books as of the Closing
Date except for ad valorem Taxes which shall be prorated on a daily basis) the
portion of the Tax due with respect to the period covered by such Tax Return
which is attributable to the Pre-Closing Period. Seller shall pay the amount
27
of Tax so determined to be attributable to the Pre-Closing Period not later than
five days after the filing of such Tax Return.
(d) Notwithstanding anything to the contrary herein, any franchise Tax
paid or payable with respect to Black Marlin shall be allocated to the taxable
period during which the right to do business obtained by the payment of such
franchise Tax relates, regardless of whether such franchise Tax is measured by
income, operations, assets or capital relating to another taxable period. With
respect to any franchise Tax of Black Marlin so allocated to the taxable period
in which the Closing Date occurs: (i) Seller shall determine (by an interim
closing of the books as of the Closing Date) the portion of the franchise Tax of
Black Marlin due with respect to the portion of such taxable period ending on
the Closing Date and the remaining portion of such taxable period, and (ii) if
the amount of such franchise Tax paid or provided for as of the Closing Date
exceeds the amount so prorated to the portion of such taxable period ending on
the Closing Date, the Buyer shall pay to Seller such excess amount.
Notwithstanding the foregoing, however, Seller shall remain responsible for, and
shall indemnify Buyer and Black Marlin against, any incremental franchise tax
liability resulting from the Section 338(h)(10) Elections.
(e) Any Tax Return to be prepared pursuant to the provisions of this
Section 10.2 shall be prepared in a manner consistent with practices followed in
prior years with respect to similar Tax Returns, except for changes required by
changes in law or fact.
(f) Buyer shall not file an amended tax return for any period ending on or
prior to the Closing Date without the consent of Seller.
(g) Any refunds of taxes paid in Pre-Closing periods will be for the
account of Seller and, upon receipt thereof, Buyer shall promptly pay such
amounts to Seller.
10.3 ACCESS TO INFORMATION. (a) Seller shall grant to Buyer (or its
designee) access at all reasonable times to all of the information, books and
records relating to Black Marlin within the possession of Seller (including work
papers and correspondence with taxing authorities), and shall afford Buyer (or
its designee) the right (at Buyer's expense) to take extracts therefrom and to
make copies thereof, to the extent reasonably necessary to permit Buyer (or its
designees) to prepare Tax Returns and to conduct negotiations with taxing
authorities.
(b) Buyer shall grant or cause Black Marlin to grant to Seller (or its
designee) access at all reasonable times to all of the information, books and
records relating to Black Marlin within the possession of Buyer or Black Marlin
(including work papers and correspondence with taxing authorities), and shall
afford Seller (or its designee) the right (at Seller's expense) to take extracts
therefrom and to make copies thereof, to the extent reasonably necessary to
permit Seller (or its designee) to prepare Tax Returns and to conduct
negotiations with taxing authorities.
10.4 TAX SHARING AGREEMENTS. Seller shall, as of the Closing Date,
terminate all tax allocation agreements or tax sharing agreements with respect
to Black Marlin and shall ensure that such agreements are of no further force or
effect as to Black Marlin on and after
28
the Closing Date and there shall be no further liability of Black Marlin under
any such agreement.
10.5 NON-FOREIGN PERSON AFFIDAVIT. Seller shall have delivered to Buyer an
affidavit to the effect that Seller is not a "foreign person" within the meaning
of Sections 1445 or 7701 of the Code executed under penalty of perjury and
satisfying the requirements of the Treasury Regulations promulgated pursuant to
such Code sections.
10.6 ASSISTANCE AND COOPERATION. After the Closing Date, in the case of
any audit, examination or other proceeding ("Proceeding") with respect to Taxes
for which Seller are or may be liable pursuant to this Agreement, Buyer shall
inform Seller (within 10 days of the receipt of a notice of such Proceeding),
and shall afford Seller, at Seller's expense, the opportunity to control the
conduct of such Proceedings. Buyer shall execute or cause to be executed powers
of attorney or other documents necessary to enable Seller to take all actions
desired by Seller with respect to such Proceeding to the extent such Proceeding
may affect either the amount of Taxes for which Seller is liable pursuant to
this Agreement. Seller shall have the right to control any such Proceedings,
and, if there is substantial authority therefor, to initiate any claim for
refund, file any amended return or take any other action which they deem
appropriate with respect to such Taxes. Any Proceeding with respect to Taxes for
a period which includes but does not end on the Closing Date shall be controlled
jointly by Seller and Buyer.
ARTICLE 11
MISCELLANEOUS
11.1 EXPENSES. Seller and Buyer shall bear and pay all costs and expenses
incurred by it in connection with the transactions contemplated by this
Agreement.
11.2 WAIVER AND AMENDMENT. Any provision of this Agreement may be waived
at any time by the Party that is entitled to the benefits thereof. This
Agreement may not be amended or supplemented at any time, except by an
instrument in writing signed on behalf of each Party hereto. The waiver by any
Party hereto of any condition or of a breach of another provision of this
Agreement shall not operate or be construed as a waiver of any other condition
or subsequent breach. The waiver by any Party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived.
11.3 PUBLIC STATEMENT. Seller and Buyer agree to consult with, and obtain
the approval of (which approval will not be unreasonably withheld), each other
prior to issuing any press release or otherwise making any public statement with
respect to the transactions contemplated hereby, and shall not issue any such
press release or make any such public statement prior to such consultation and
approval, except as may be required by law.
11.4 ASSIGNMENT. This Agreement shall inure to the benefit of and will be
binding upon the Parties hereto and their respective legal representatives,
successors and permitted assigns. This Agreement shall not be assignable by the
Parties hereto without the prior
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written consent of the other Parties hereto; provided that Buyer may assign its
rights under this Agreement to one or more of its Affiliates, MCNIC Pipeline &
Processing Company ("MCNIC"), or an Affiliate of MCNIC upon five (5) business
days notice prior to Closing, provided that such assignee assumes a
proportionate share of the obligations of the Buyer hereunder and is capable of
making the representations and warranties set forth in Article 4; and provided,
further, no such assignment or assumption of obligations shall relieve Buyer of
any obligations under this Agreement.
11.5 NOTICES. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (a) delivered
in person or by courier, (b) sent by telecopy or facsimile transmission, answer
back requested, or (c) mailed by registered or certified mail, postage prepaid,
return receipt requested, to the parties at the following addresses:
if to Seller: Enron Pipeline Company
1400 Smith Street
Houston, Texas 77002
Fax: 713/853-2534
Attention: Corporate Secretary
if to Buyer: Eleven Greenway Plaza, Suite 1606
Houston, Texas 77046
Attention: William Fisher
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 11.5. Such notice shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when the
answer back is received, or (iii) if mailed, the date of delivery as shown by
the return receipt therefor.
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11.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CHOICE OF LAW
RULES THAT MAY DIRECT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. THE
PARTIES HERETO AGREE TO SUBMIT TO ARBITRATION IN THE CITY OF HOUSTON, TEXAS ANY
DISPUTE ARISING OUT OF THIS AGREEMENT UNDER THE COMMERCIAL ARBITRATION RULES OF
THE AMERICAN ARBITRATION ASSOCIATION. THE PARTIES AGREE THAT ANY SUCH DISPUTE
SHALL BE SUBMITTED TO THREE ARBITRATORS SELECTED FROM THE PANEL OF ARBITRATORS
OF THE AMERICAN ARBITRATION ASSOCIATION. THE PARTIES FURTHER AGREE THAT THEY
WILL FAITHFULLY OBSERVE THIS AGREEMENT AND THE RULES, AND THAT THEY WILL ABIDE
BY AND PERFORM ANY AWARD RENDERED BY THE ARBITRATORS AND THAT A JUDGMENT OF A
COURT HAVING JURISDICTION MAY BE ENTERED UPON THE AWARD.
11.7 FURTHER ASSURANCES. In case at any time after the Closing Date any
further action is necessary to carry out the purposes of this Agreement
including, without limitation, the transfer of the Assets to Buyer and obtaining
all Customary Post Closing Consents, Seller and Buyer will take or cause to be
taken such further action (including the execution and delivery of such further
instruments and documents) as the other party reasonably may request all without
further consideration.
11.8 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated unless such an interpretation
would materially alter the rights and privileges of any party hereto or
materially alter the terms of the transactions contemplated hereby.
11.9 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same agreement.
11.10 HEADINGS. The section headings herein are for convenience only and
shall not affect the construction hereof.
11.11 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement,
including the Exhibits hereto and the Disclosure Schedule, and any other
documents executed and delivered pursuant to this Agreement and the
Confidentiality Agreement constitute the entire agreements and supersede all
other prior agreements and understandings, both oral and written, between the
Parties, with respect to the subject matter hereof. Except as provided in
Section 5.13 and Article 8 hereof, neither this nor any document delivered in
connection with this Agreement, confers upon any person not a party hereto any
rights or remedies hereunder.
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
SELLER:
ENRON PIPELINE COMPANY
By: /s/ RODERICK J. HAYSLETT
Title: SR VP FINANCE AND ACCOUNTING
BUYER:
BLACK MARLIN ENERGY COMPANY
By: /s/ WILLIAM D. FISHER
Title: SR. V.P. BUSINESS DEVELOPMENT
PARENT:
BLUE DOLPHIN ENERGY COMPANY
By: /s/ WILLIAM D. FISHER
Title: SR. V.P. BUSINESS DEVELOPMENT
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