Index to Exhibits
7.1 - Agreement dated October 31, 1997 by and between ▇▇▇▇▇▇ Natural Gas,
Inc., Republic Gas Corp. and Riverbend Gas Company.
Exhibit 7.1
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AGREEMENT
among
▇▇▇▇▇▇ NATURAL GAS, INC.
REPUBLIC GAS CORP.
and
RIVERBEND GAS COMPANY
Dated October 31, 1997
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TABLE OF CONTENTS
PAGE
1. REPRESENTATIONS AND WARRANTIES...............................................................1
1.1 Definitions..............................................................................1
1.2 Representations and Warranties...........................................................1
2. ALLOCATION AGREEMENT.........................................................................2
2.1 Allocation of Consideration Under Merger Agreement.......................................2
2.2 Allocation of Consideration under Other Agreements.......................................2
2.3 Post Closing Distributions and Expenses..................................................2
2.4 Payment of Certain Expenses..............................................................2
3. INDEMNITY OBLIGATIONS UNDER MERGER AGREEMENT.................................................3
3.1 Responsibility for Indemnity Obligations Under Merger Agreement..........................3
3.2 Limitation on Liability for Indemnification..............................................3
3.3 Notices, etc.............................................................................3
3.4 Right to Contest and Defend..............................................................3
3.5 Cooperation..............................................................................4
3.6 Right to Participate.....................................................................4
3.7 Indemnification Regarding Taxes..........................................................4
4. VOTING MATTERS...............................................................................4
4.1 Board of Directors.......................................................................4
4.2 Action to be Taken by the Parties Under the Merger Agreement.............................4
4.3 Other Activities of the Parties; Fiduciary Duties........................................5
5. STOCK PLEDGE.................................................................................5
6. MISCELLANEOUS................................................................................6
6.1 Amendment Waivers........................................................................6
6.2 Termination..............................................................................6
6.3 Specific Performance.....................................................................6
6.4 Assignment...............................................................................6
6.5 Shares Subject to this Agreement.........................................................6
6.6 Notices..................................................................................6
6.7 Counterparts.............................................................................7
6.8 Headings.................................................................................7
6.9 Choice of Law............................................................................7
6.10 Entire Agreement........................................................................7
6.11 Cumulative Rights.......................................................................7
6.12 Construction............................................................................7
6.13 No Partnership..........................................................................7
6.14 Severability............................................................................7
6.15 Third Persons...........................................................................7
6.16 Indemnification.........................................................................8
6.17 Dispute Resolution......................................................................8
6.18 Change of Control.......................................................................8
AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of October 31,
1997, by and among ▇▇▇▇▇▇ Natural Gas, Inc., a Texas corporation ("▇▇▇▇▇▇"),
Republic Gas Corp., a Texas corporation ("Republic Gas"), and Riverbend Gas
Company, a Delaware corporation ("Riverbend", and together with ▇▇▇▇▇▇, and
Republic Gas are hereinafter referred to individually as a "Party" and
collectively as the "Parties");
W I T N E S S E T H:
--------------------
WHEREAS, the Parties, among other parties, formed Republic Gas Partners,
L.L.C., a Delaware limited liability company ("Republic") to acquire and hold
the stock of the Midla Subsidiaries (as defined in the Merger Agreement, defined
below);
WHEREAS, the Parties are entering into an Agreement and Plan of Merger with
Midcoast Energy Resources, Inc., a Nevada corporation (the "Corporation"), and
Republic (the "Merger Agreement") providing for the merger of Republic with the
Corporation (the "Merger");
WHEREAS, the Corporation shall be the surviving corporation of the Merger;
WHEREAS, upon the consummation of the Merger, the Parties shall receive
shares of common stock of the Corporation and other consideration as provided in
the Merger Agreement and other agreements executed of even date therewith.
WHEREAS, in conjunction with the Merger and the cessation of Republic as a
separate entity, the Parties desire to enter into this Agreement to provide for
and agree as to the allocation of the purchase price, a sharing of the indemnity
agreement under the Merger Agreement, and to provide a mechanism for voting on
and effectuating the provisions under the Merger Agreement, among other things;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
hereinafter set forth and the consideration as provided in the Merger Agreement,
the parties hereto, intending to be legally bound, hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES
1.1 Definitions. All terms not otherwise defined herein shall have the
meanings set forth in the Merger Agreement.
1.2 Representations and Warranties. (a) Each Party (as to itself only)
represents and warrants to the other Parties that as of the date hereof: (i)
such Party has full power and authority to execute and deliver this Agreement
and the execution and delivery by such Party of this Agreement have been duly
authorized by all necessary action; and (ii) this Agreement has been duly and
validly executed and delivered by such Party and constitutes the binding
obligation of such Party enforceable against such Party in accordance with its
terms.
2. ALLOCATION AGREEMENT
2.1 Allocation of Consideration Under Merger Agreement. The Parties
hereby agree and consent to the allocation of the consideration under Section
1.2 of the Merger Agreement as provided in Exhibit A, attached hereto and
incorporated herein for all purposes and such allocation represents the agreed
application of Article 11 under the Amended and Restated Regulations of Republic
dated as of March 1, 1996.
2.2 Allocation of Consideration under Other Agreements. The Parties
hereto have executed an Agreement ("Coho Agreement") dated October 2, 1997, by
and among Republic, the Parties and Midcoast Energy Resources, Inc.
(collectively, the "Agreement Parties") and an Agreement (Grand Isle Pipeline
Project) ("Grand Isle Agreement") dated October 2, 1997, by and among the
Agreement Parties (collectively, the "Other Agreements"). The Parties agree to
allocate any and all monies, distributions and consideration under the Other
Agreements, including without limitation, the "338(h)(10) Claim" as defined and
provided in the Coho Agreement, the Warrants as defined and provided in the
Grand Isle Agreement, and the monetary payment of $1,200,000 as provided in the
Grand Isle Agreement, all in accordance with the terms and provisions of Section
2.3 below.
2.3 Post Closing Distributions and Expenses. To the extent the Parties
receive any distributions under the Merger Agreement, including, without
limitation, pursuant to Section 1.3 of the Merger Agreement regarding Working
Capital adjustments, the Parties agree to distribute such distributions,
receipts or other consideration in the following proportions:
▇▇▇▇▇▇ 72%
Republic Gas 14%
Riverbend 14%.
Further, to the extent the Parties are required to pay any expenses or
other payments under the Merger Agreement or any agreement related to the
transactions contemplated thereby, or any Other Agreements, then the Parties
shall also pay such expenses or payments in the foregoing percentages.
2.4 Payment of Certain Expenses. The Parties agree that from the
working capital cash distributions under Section 1.3 of the Merger Agreement,
the following amounts shall be paid: (i) $125,000 shall be used to pay bonuses
to employees of Republic and the Midla Subsidiaries, (ii) $300,000 shall be
escrowed to pay expenses under the interest rate hedge agreement with Union Bank
of California, N.A., and other miscellaneous closing expenses and such amount
(or the remaining balance thereof) shall be released from such escrow upon
termination of such hedge agreement, as decided by the vote of the Parties
pursuant to Section 4.2, (iii) $42,000 shall be paid to ▇▇▇▇▇ ▇▇▇▇▇▇▇, and (iv)
$15,000 shall be escrowed as reserve for post closing expenses.
3. INDEMNITY OBLIGATIONS UNDER MERGER AGREEMENT
3.1 Responsibility for Indemnity Obligations Under Merger Agreement.
The Parties acknowledge and agree that ▇▇▇▇▇▇ is the sole party which makes
representations and warranties under the Merger Agreement and is correspondingly
the sole party responsible for any indemnity obligations under the Merger
Agreement, notwithstanding the fact that Riverbend and Republic Gas are also
equity holders of Republic Gas. Accordingly, the Parties desire to provide for
indemnification rights in favor of ▇▇▇▇▇▇ by Riverbend and Republic Gas so that
any claim for indemnity under the Merger Agreement borne by ▇▇▇▇▇▇ are paid by
Riverbend and Republic Gas to the extent of their percentage interest as
provided below in Section 3.2. Therefore, Riverbend and Republic Gas, severally,
indemnify and hold ▇▇▇▇▇▇ harmless from and against any ▇▇▇▇▇▇ Indemnity
Obligations suffered or incurred by ▇▇▇▇▇▇ arising out of or related to the
indemnification obligations under Section 4.1 of the Merger Agreement to the
extent of the percentage provided in Section 3.2 below. In the event any other
claims arise as a result of the Merger Agreement, the Parties shall allocate the
liability with regard to such claims in the percentages set forth in Section
2.3, and shall indemnify each other to the extent of such percentages except to
the extent any claim is as a result of the sole action or inaction on the part
of any Party.
3.2 Limitation on Liability for Indemnification. Riverbend and Republic
Gas shall each be severally liable to the extent of 14% of the indemnification
obligations provided in Section 3.1 above.
3.3 Notices, etc. ▇▇▇▇▇▇ (the "Indemnified Party") agrees that upon
obtaining knowledge of facts indicating that it may have a basis for a claim,
including receipt by it of notice of any demand, assertion, claim or proceeding
by any third person (any such third person proceeding being referred to as an
"Action") with respect to any matter as to which it may be entitled to indemnity
hereunder, it will give prompt notice thereof in writing to Riverbend and
Republic Gas (the "Indemnifying Parties") together with a statement of such
information respecting any of the foregoing as it shall then have; provided,
however, the failure to give any such notice shall not affect the rights of the
Indemnified Party to indemnification hereunder unless (i) the Indemnified Party
has proceeded to contest, defend or settle the Action with respect to which it
has failed to give prior notice to the Indemnifying Parties or (ii) the
Indemnifying Parties are otherwise harmed or damaged in any material respect by
such failure.
3.4 Right to Contest and Defend. The Indemnified Party and Indemnifying
Parties shall unanimously select and agree to legal counsel to represent the
Parties hereto with respect to an indemnification proceeding for a ▇▇▇▇▇▇
Indemnity Obligation (as defined in the Merger Agreement).
3.5 Cooperation. The Parties agree to cooperate with the counsel
selected to contest any ▇▇▇▇▇▇ Indemnity Obligation. The Parties agree that they
shall take reasonable steps to preserve and maintain such files and records of
Republic and the Midla Subsidiaries in their respective possessions or obtained
as a result of consummation of the transactions contemplated hereby as may be
reasonable, necessary or appropriate so as not to disadvantage the Parties in
contesting any ▇▇▇▇▇▇ Indemnity Obligation.
3.6 Right to Participate. The Parties agree to afford each other and
their counsel the opportunity, at their expense, to be present at, and to
participate in, conferences with all persons, asserting any action against
▇▇▇▇▇▇ for the ▇▇▇▇▇▇ Indemnity Obligation and conferences with representatives
of or counsel for such persons.
3.7 Indemnification Regarding Taxes. The Parties acknowledge and agree
that pursuant to Section 1.5 of the Merger Agreement, the merger contemplated
thereby shall be treated for tax purposes as a tax-free reorganization under
Section 368 of the Code. The Parties acknowledge and agree that to the extent
any Party takes any action which causes the transaction to not be treated as a
tax-free reorganization under Section 368 of the Code, then such Party which has
caused the tax-free reorganization not to be recognized as such shall indemnify
and hold the other Parties harmless from and against any obligations, costs,
damages or expenses resulting from a breach of Section 1.5 of the Merger
Agreement and for the taxes to be incurred by such Parties as a result of such
breach. In addition, to the extent any excess taxes arise as a result of the
formation, organization and structure of Republic Gas from a tax standpoint,
then the Parties agree to allocate any additional taxes among the Parties hereto
in the percentages set forth in Section 2.3.
4. VOTING MATTERS
4.1 Board of Directors. In conjunction with the board positions
provided pursuant to Section 6.8 of the Merger Agreement, each of the Parties
agrees that it will at all times vote as a stockholder of the Corporation (to
the extent such Party has the right to vote its shares of capital stock of the
Corporation), for, among other things, the election of the designees for
directors of the Corporation in accordance with Section 6.8. In addition, each
of the Parties agrees that it will not vote any capital stock of the Corporation
to cause the removal from the board of directors of any directors designated
thereunder, except with the written consent (or upon the written direction) of
the Parties.
4.2 Action to be Taken by the Parties Under the Merger Agreement. The
Parties agree that all actions to be taken by the Republic Gas Owners under the
Merger Agreement and Other Agreements, in connection with the exercise of any of
the rights of the Republic Gas Owners as a group, shall be as decided and
approved by a majority in number of the Parties, i.e. the affirmative vote of 2
out of 3 of the Parties. Once such matters are decided, the Parties agree that
▇▇▇▇▇ ▇▇▇▇▇▇▇ or his successor, as the case may be, shall have the authority to
carry out, and implement all such actions and that the Parties agree to
indemnify ▇▇▇▇▇ ▇▇▇▇▇▇▇ or his successor for any and all liabilities incurred or
arising as a result of all actions taken by ▇▇▇▇▇ ▇▇▇▇▇▇▇ or his successor
authorized hereunder in good faith in the fulfillment of ▇▇▇▇▇▇▇'▇ (or his
successor's) obligations hereunder. The foregoing voting percentage shall apply
to any removal of ▇▇▇▇▇ ▇▇▇▇▇▇▇ from his duties hereunder or the election of his
successor.
4.3 Other Activities of the Parties; Fiduciary Duties. It is understood
and accepted that the Parties and their affiliates have interests in other
business ventures that may be competitive with the activities of the Corporation
and the subsidiaries and that, to the fullest extent permitted by law, nothing
in this Agreement shall limit the current or future business activities of any
of the Parties or any of their respective affiliates whether or not such
activities are competitive with those of the Corporation or any of its
subsidiaries. Except as expressly provided herein, nothing in this Agreement
shall limit in any manner the ability of any Party or its affiliates to exercise
its rights under this Agreement or as a stockholder of the Corporation and this
Agreement shall not create or affect, or be deemed or interpreted to create or
affect, any fiduciary or similar duty of any Party owing to any other Party or
the Corporation; provided, however, nothing in this Agreement, express or
implied, shall relieve any officer or director of the Corporation or any of its
subsidiaries, as such, of any fiduciary duties they may have to the stockholders
of the Corporation.
5. STOCK PLEDGE To secure their respective proportionate share of any
▇▇▇▇▇▇ Indemnity Obligation as provided in Section 3.2, Riverbend and Republic
Gas (the "Pledging Parties") hereby pledge, grant a security interest in,
mortgage, assign, transfer, deliver, set over and confirm unto ▇▇▇▇▇▇ the
Collateral described in Exhibit B attached hereto and incorporated herein for
all purposes. The Collateral set forth on Exhibit B equals 14% of $2,500,000
(the maximum ▇▇▇▇▇▇ Indemnity Obligation of the Pledging Parties, respectively)
or $350,000, as determined by multiplying the shares of Collateral,
respectively, by the closing price for the day before this Agreement (the day
before Closing) of the Midcoast Energy Resources, Inc. common stock (the
"Pledged Amount"). Riverbend and Republic Gas retain the right to receive all
dividends (cash or otherwise), stock dividends, dividends paid in stock,
distributions upon redemption or liquidation, distributions as a result of
split-ups, recapitalizations or rearrangements, all stock rights, rights to
subscribe, voting rights, and rights to receive securities with respect to the
Collateral; provided however, that upon any reclassification, reorganization,
conversion, rearrangements or recapitalizations of the Midcoast Common Stock
pledged hereunder, the number of shares pledged hereunder shall be appropriately
adjusted to result in the Pledged Amount being pledged to ▇▇▇▇▇▇ hereunder. The
Pledging Parties have the right to sell the Collateral, provided cash or cash
equivalents in an amount equal to the Pledged Amount or such lesser amount if
the total ▇▇▇▇▇▇ Indemnity Obligation is adjusted under the Merger Agreement and
such amount shall be substituted for the Collateral. The Pledging Parties will
continue to exercise all voting and consensual powers and rights pertaining to
the Collateral or any part thereof for all purposes not inconsistent with the
terms of this Agreement. ▇▇▇▇▇▇ agrees to facilitate any sale requested
hereunder as expeditiously as possible to the extent the selling party shall
otherwise satisfy the requirements of this Section 5. The Parties agree that the
Pledging Parties shall not be required to pledge any additional securities in
the event that the market value of the Collateral falls below the Pledged Amount
hereunder.
6. MISCELLANEOUS
6.1 Amendment Waivers. This Agreement may only be altered, supplemented,
amended or waived by the written consent of each Party.
6.2 Termination. This Agreement shall terminate upon the termination of the
▇▇▇▇▇▇ Indemnity Obligations under the Merger Agreement and the termination of
all rights under the Merger Agreement and Other Agreements.
6.3 Specific Performance. The Parties recognize that the obligations
imposed on them in this Agreement are special, unique, and of extraordinary
character, and that in the event of breach by any party, damages will be an
insufficient remedy; consequently, it is agreed that the Parties may have
specific performance and injunctive relief (in addition to damages) as a remedy
for the enforcement hereof, without proving damages.
6.4 Assignment. Except as otherwise expressly provided herein, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the Parties, and their permitted assigns; provided, however, assigns shall
only have those rights that are expressly provided for herein. No such
assignment shall relieve the assignor from any liability accruing hereunder
prior to an assignment permitted hereunder.
6.5 Shares Subject to this Agreement. Except as otherwise provided for
herein, all shares of common stock or common stock equivalents now owned or
hereafter acquired by any of the Parties or its affiliates shall be subject to
the terms of this Agreement.
6.6 Notices. Any and all notices, designations, consents, offers,
acceptances, or other communications provided for herein (each a "Notice") shall
be given in writing by overnight courier, telegram, or telecopy which shall be
addressed, or sent, to the respective addresses as follows (or such other
address as the Corporation or any Party may specify to the Corporation and all
other parties by Notice):
Each Party: To such address or telecopy number of such party as set
forth in the Merger Agreement or as such Party provides by notice to the other
Parties.
All Notices shall be deemed effective and received (a) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified
above and receipt hereof is confirmed; (b) if given by overnight courier, on the
business day immediately following the day on which such Notice is delivered to
a reputable overnight courier service; or (c) if given by telegram, when such
Notice is delivered at the address specified above. No Party shall be entitled
to receive a Notice hereunder (or a copy of a Notice delivered to the
Corporation) if, at the time such Notice is to be sent, such part (including its
affiliates) no longer owns any shares of stock.
6.7 Counterparts. This Agreement may be executed in two or more
counterparts and each counterpart shall be deemed to be an original and which
counterparts together shall constitute one and the same agreement of the parties
hereto.
6.8 Headings. Headings contained in this Agreement are inserted only as a
matter of convenience and in no way define, limit, or extend the scope or intent
of this Agreement or any provisions hereof.
6.9 Choice of Law. This Agreement shall be governed by the internal laws of
the State of Texas without regard to the principles of conflicts of laws
thereof.
6.10 Entire Agreement. This Agreement contains the entire understanding of
the parties hereto respecting the subject matter hereof and supersedes all prior
agreements, discussions and understandings with respect thereto.
6.11 Cumulative Rights. The rights of the Parties under this Agreement are
cumulative and in addition to all similar and other rights of the parties under
any other agreement.
6.12 Construction. The Parties participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties, and no presumption or burden of proof shall arise favoring or
disfavoring either Party by virtue of the authorship of any of the provisions of
this Agreement.
6.13 No Partnership. No term or provision of this Agreement shall be
construed to establish any relationship of partnership, agency or joint venture
between the parties hereto.
6.14 Severability. In the event any one or more of the provisions contained
in this Agreement should be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby. The
parties hereto shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions, the economic effect
of which approximates as nearly as possible that of the invalid, illegal or
unenforceable provisions.
6.15 Third Persons. Nothing herein expressed or implied is intended or
shall be construed to confer upon or to give any Person not a party hereto any
rights or remedies under or by reason of this Agreement.
6.16 Indemnification. Each Party (the "Indemnitor"), hereby agrees to
protect, defend, indemnify and hold harmless all other Parties and their
respective successors, heirs and assigns (the "Indemnitees") against any and all
claims, lawsuits, damages and other liabilities and expenses (including
reasonable attorneys' fees) suffered or incurred by any of the Indemnitees and
which arise out of any breach by the Indemnitor of its representations,
warranties, covenants or other obligations hereunder.
6.17 Dispute Resolution. The Parties acknowledge and agree that any
dispute, controversy or claim of any kind or nature which may arise between the
Parties including any dispute, controversy or claim of any kind or nature which
may arise between the Parties with respect to this Agreement or the transactions
contemplated hereby shall, if said dispute cannot be settled through negotiation
between the Parties, try in good faith to settle each dispute by mediation under
the Commercial Mediation Rules of the American Arbitration Association. The
mediation shall be conducted by a professional mediator who is a licensed
attorney in the state of Texas, who is mutually agreeable to the Parties, and
who is not affiliated, directly or indirectly, with any of the Parties. If the
Parties are unable to agree on an mediator, then the mediator shall be selected
by the American Arbitration Association.
6.18 Change of Control. In the event a "Change of Control" (as herein
defined) of ▇▇▇▇▇▇, the Pledging Parties' pledge of the Collateral under Section
5 hereof shall be terminated and such Collateral shall be returned to the
respective Pledging Parties. As used in this Agreement, "Change of Control"
means the sale, transfer, assignment, or other disposition of the outstanding
securities of ▇▇▇▇▇▇ which results in a change in the ability of the current
shareholders to direct or cause the direction of the management and policies of
▇▇▇▇▇▇, whether through the ownership of common stock in ▇▇▇▇▇▇, by contract or
otherwise.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
▇▇▇▇▇▇ NATURAL GAS, INC.
By:/s/_____________________
Its President
REPUBLIC GAS CORP.
By:/s/_____________________
Its President
RIVERBEND GAS COMPANY
By:/s/_____________________
Its President
EXHIBIT B
Shares of Midcoast Energy
Resources Inc. Common Stock
---------------------------
Republic Gas Corp. 15,014
Riverbend Gas Company 15,014
B-1