AGREEMENT AND PLAN OF MERGER
WITH RESPECT TO
▇▇▇▇▇▇ PETROLEUM, INC.
AND
PURCHASE AGREEMENT PERTAINING TO
REMAINING FLARE, LLC MEMBERSHIP INTERESTS
AGREEMENT AND PLAN OF MERGER
WITH RESPECT TO
▇▇▇▇▇▇ PETROLEUM, INC.
AND
PURCHASE AGREEMENT PERTAINING TO
REMAINING FLARE, L.L.C. MEMBERSHIP INTERESTS
THIS AGREEMENT AND PLAN OF MERGER WITH RESPECT TO ▇▇▇▇▇▇ PETROLEUM, INC.
AND PURCHASE AGREEMENT PERTAINING TO REMAINING FLARE, L.L.C. MEMBERSHIP
INTERESTS (this "Agreement") dated as of March 11, 1999, is made by and among
the following parties (hereinafter collectively referred to as the "Parties" and
individually as a "Party"): MIDCOAST ENERGY RESOURCES, INC., a Nevada
corporation ("Midcoast"); MAGNOLIA RESOURCES, INC., a Mississippi corporation
("Magnolia); DPI/MIDCOAST, INC., a Mississippi corporation ("DPI/Midcoast");
▇▇▇▇▇▇ PETROLEUM, INC., a Mississippi corporation ("DPI"); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
III, and wife, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (collectively, the "DPI Shareholders"); ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (collectively, the "Flare Minority
Owners").
W I T N E S S E T H:
WHEREAS, ▇▇▇▇▇▇ Petroleum, Inc. is taxed as a "C" corporation and all of
its issued and outstanding shares of capital stock are owned fifty percent (50%)
by ▇▇▇▇▇▇ ▇▇▇▇▇▇, III and fifty percent (50%) by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇; ▇▇▇▇▇▇
Petroleum, Inc. owns eighty percent (80%) of all of the issued and outstanding
membership interests of Flare, L.L.C. ("Flare"), which is a Mississippi limited
liability company taxed as a partnership; and the Flare Minority Owners
collectively own the remaining twenty percent (20%) of all of the issued and
outstanding membership interests of Flare, as follows: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, five
percent (5%); ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, three percent (3%); ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, two
percent (2%); ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, two and one-half percent (2.5%); ▇▇▇▇▇ ▇▇▇▇▇▇,
two and one-half percent (2.5%); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, two and one-half percent
(2.5%); and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, two and one-half percent (2.5%); and
WHEREAS, the DPI Shareholders desire to merge DPI with and into
DPI/Midcoast, a wholly-owned subsidiary of Midcoast with DPI/Midcoast as the
surviving corporation of the merger, subject to the terms and conditions of this
Agreement; and the Flare Minority Owners desire to sell and convey to Magnolia,
a wholly-owned subsidiary of Midcoast, contemporaneously therewith all of their
respective membership interests of Flare, subject to the terms and conditions of
this Agreement; and
WHEREAS, Midcoast desires for DPI to merge with and into DPI/Midcoast,
with DPI/Midcoast as the surviving corporation of the merger, subject to the
terms and conditions of this Agreement; and Magnolia desires to purchase and
acquire from the Flare Minority Owners all of their respective membership
interests of Flare, subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the Parties hereby agree as follows:
1. DEFINITIONS.
"ACTUAL VALUE" has the meaning set forth in Section 4 of this Agreement.
"ACQUISITION EFFECTIVE DATE" shall have the meaning set forth in Section 5
of this Agreement.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of Code
Section 1504.
"BASE CONSIDERATION" has the following meanings: (a) with respect to the
DPI Shareholders, the meaning set forth in Section 2(b) of this Agreement; and
(b) with respect to the Flare Minority Owners, the meaning set forth in Section
3(b) of this Agreement.
"CAPITAL COST" means the actual out-of-pocket cost incurred to develop,
design and build a project through the point of successful initial operation,
including actual dedicated time of management (excluding any indirect corporate
general and administrative allocation).
"CLAIMS" means all demands, claims, actions, investigations, causes of
action, proceedings, arbitrations, injunctions, hearings, orders, rulings and
decrees, whether or not ultimately determined to be valid.
"CLOSING" has the meaning set forth in Section 5 of this Agreement.
"CLOSING DATE" has the meaning set forth in Section 5 of this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTINGENT DEFERRED CONSIDERATION" means: (a) with respect to the Merger
of DPI into DPI/Midcoast, the total consideration which may be payable by
Midcoast to the DPI Shareholders subsequent to Closing pursuant to Section 2(d)
of this Agreement; and, (b) with respect to the purchase of membership interests
of Flare by Magnolia from the Flare Minority Shareholders, the total
consideration which may be payable by Midcoast to the Flare Minority Owners
pursuant to Section 3(d) of this Agreement.
"DISCLOSURE SCHEDULE" means the schedule attached to this Agreement in
which the DPI Shareholders and the Flare Minority Owners disclose certain
matters with respect to their representations and warranties made under this
Agreement to Midcoast and DPI/Midcoast.
"DPI" means ▇▇▇▇▇▇ Petroleum, Inc.
"DPI PROJECTS" means the proposed long term projects of ▇▇▇▇▇▇ Petroleum,
Inc. set forth on EXHIBIT B attached hereto and made a part hereof.
"DPI SHAREHOLDERS" means ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
"DPI DRAFT BALANCE SHEET" has the meaning set forth in Section 4 of this
Agreement.
"EBITDA PROJECTION" means: (a) with respect to each individual DPI
Project, Midcoast and DPI's projected average annual gross operating revenues,
less average annual operating expenses projected by them for such period
(excluding general and administrative overhead costs) before interest, income
taxes, depreciation and amortization, computed over the first ten (10) years
after the Project becomes operational, with consideration being given to (i) the
reasonable salvage value of the equipment at the end of the Project, (ii) the
term of the contract(s), and (iii) the long term economic viability of the
project; and (b) with respect to each individual Flare Project, Midcoast and
DPI's projected average annual gross operating revenues, less the average annual
operating expenses projected by them before interest, income taxes, depreciation
and amortization, computed over the first ten (10) years after the Project
becomes operational, with consideration being given to (i) the reasonable
salvage value of the equipment at the end of the Project, (ii) the term of the
contract(s) and (iii) the long term viability of the project.
"EFFECTIVE DATE" shall have the meaning set forth in Section 5 of this
Agreement.
"ENCUMBRANCE" means any mortgage, pledge, lien, encumbrance, charge, other
security interest or defect in title.
"ENVIRONMENTAL LAW" or "ENVIRONMENTAL LAWS" has the meaning given to that
term in Section 7(a)(10)(i) of this Agreement.
"EQUIPMENT BASE PAYMENT" shall have the meaning set forth in Section 2(d)
and 3(d) of this Agreement.
"FIRPTA CERTIFICATE" shall have the meaning set forth in Section 8(c) of
this Agreement.
"FLARE DRAFT BALANCE SHEET" has the meaning set forth in Section 4 of this
Agreement.
"FLARE EQUIPMENT" means the equipment owned by Flare, LLC and listed on
EXHIBIT E attached hereto and made a part hereof.
"FLARE MINORITY OWNERS" means ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇.
"FLARE PROJECTS" means the proposed long term projects of Flare, LLC set
forth on EXHIBIT D attached hereto and made a part hereof.
"GAAP" means U.S. generally accepted accounting principles consistently
applied as in effect from time to time.
"GOVERNMENTAL AUTHORITY" means the United States and any state, county,
city or other political subdivision, agency, court or instrumentality.
"HAZARDOUS SUBSTANCES" means all materials, substances and wastes which
are regulated under any Environmental Law or which may form the basis for
liability under any Environmental Law.
"HSR ACT" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended.
"INDEMNIFIED PARTY" has the meaning set forth in Section 9(f) of
this Agreement.
"INDEMNIFYING PARTY" has the meaning set forth in Section 9(f) of
this Agreement.
"KNOWLEDGE" means actual knowledge and, in reference to DPI and/or Flare,
includes any of the current shareholders or members, officers, and directors of
DPI and Flare and also includes ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇.
"LAWS" means any constitution, statute, code, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
applicable Governmental Authority.
"LIABILITIES" means all debts, liabilities, obligations, losses, damages,
costs and expenses (including, without limitation, prejudgment interest and
postjudgment interest), penalties, fines, taxes, liens, court costs, judgments,
awards, settlements, assessments, and attorneys' and accountants' fees and
expenses (including, without limitation, those incurred in investigating and
defending any Claims indemnified and those incurred in enforcing any indemnity
obligation), but excluding any consequential damages or operating losses.
"LONG TERM DEBT" means all liabilities other than current liabilities, as
determined in accordance with GAAP.
"MERGER" has the meaning set forth in Section 2(a) of this Agreement.
"MERGER EFFECTIVE DATE" has the meaning set forth in Section 5 of
this Agreement.
"MIDCOAST" means Midcoast Energy Resources, Inc.
"MIDCOAST COMMON STOCK" means shares of common stock, par value $.01 per
share, of Midcoast Energy Resources, Inc.
"MIDCOAST SUB" means Magnolia Resources, Inc., a Mississippi
corporation.
"MIDCOAST'S VALUE" has the meaning set forth in Section 4 of this
Agreement.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with the affected Party's past custom and practice (including with
respect to quantity and frequency).
"PARTIES" and "PARTY" have the meanings set forth in the first
paragraph of this Agreement.
"PERMITTED ENCUMBRANCES" means 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 Subject Assets in any manner, including all
applicable Laws; (iii) liens securing rental payments under capital lease
arrangements, and (iv) any Customary Post-Closing Consents.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, limited liability company, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PRELIMINARY CASH CONSIDERATION" has the following meanings: (a) with
respect to DPI, the meaning set forth in Section 2(b)(2) of this Agreement; and
(b) with respect to Flare, the meaning set forth in Section 3(b)(2) of this
Agreement.
"PRELIMINARY STOCK CONSIDERATION" has the following meanings: (a)
with respect to DPI, the meaning set forth in Section 2(b)(1) of this
Agreement.
"RECORDS" has the meaning set forth in Section 8(b) of this
Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens; (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings; (c)
purchase money liens and liens securing rental payments under capital lease
arrangements; and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"SELLERS' VALUE" has the meaning set forth in Section 4 of this
Agreement.
"TAX" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A), custom
duties, capital stock, franchise profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty
or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" means Claims asserted against a Party by a Person
other than a Party to this Agreement.
"WORKING CAPITAL" means the positive or negative difference between
current assets and current liabilities, as determined in accordance with GAAP.
2. THE TRANSACTION WITH THE DPI SHAREHOLDERS.
(a) THE MERGER. Subject to the terms and conditions of this Agreement, at
the Closing, DPI/Midcoast and DPI shall duly execute, and Midcoast shall
promptly file with the Secretary of State of Mississippi, Articles of Merger,
inclusive of a Plan of Merger, consistent with the provisions of this Agreement,
whereby DPI is merged with and into DPI/Midcoast, with DPI/Midcoast as the
surviving corporation of the Merger, and the separate existence of DPI shall
cease (the "Merger"). At the Closing, the effect of the Merger shall be as
provided by applicable statutes of the state of Mississippi. At the Closing, by
virtue of the Merger, and without any action on the part of
Midcoast,DPI/Midcoast, DPI or the DPI Shareholders, all of the issued and
outstanding shares of capital stock of DPI shall be converted into the right to
receive the Base Consideration provided for under Section 2(b) of this
Agreement, and the Contingent Deferred Consideration provided for under Section
2(d) of this Agreement. Without limiting the generality of the foregoing, as of
the Merger:
(1) all property, rights, privileges, policies and franchises of DPI
and DPI/Midcoast, together with all causes of action, proceedings and
claims of DPI and DPI/Midcoast, shall vest in DPI/Midcoast (and to the
extent any of the foregoing are not vested by operation of law the same
shall thereupon be deemed automatically assigned by DPI to DPI/Midcoast
without further act or deed) and all debts, liabilities and duties of DPI
and DPI/Midcoast shall become the debts, liabilities and duties of
DPI/Midcoast as the surviving corporation of the merger; and
(2) the Articles of Incorporation and Bylaws of DPI/Midcoast, as in
effect immediately prior to Closing, shall remain its Article of
Incorporation and Bylaws thereafter, unless and until amended in
accordance with their terms and as provided by law.
The Parties hereto acknowledge and agree that the merger contemplated hereby
shall be treated for tax purposes as a tax-free reorganization under Section 368
of the Code and agree to take all actions necessary to cause such treatment to
occur.
(b) BASE CONSIDERATION AND RELEASES. Subject to the terms and conditions
of this Agreement, at the Closing, as consideration for the merger, Midcoast, on
behalf of DPI/Midcoast, shall:
(1) issue and deliver collectively to the DPI Shareholders the
number of shares of Midcoast Common Stock which is valued at Two Million
Four Hundred Forty-Two Thousand Four Hundred Seventy-Eight Dollars
($2,442,478) based upon the average of the daily closing price on the
American Stock Exchange for Midcoast Common Stock over the five (5)
trading days immediately preceding the actual Closing Date, ("the
Preliminary Stock Consideration"), in the respective percentage amounts
set forth opposite their names on EXHIBIT A, subject, however, to the
post-closing adjustments provided for under Section 2(c) of this
Agreement;
(2) pay to the DPI Shareholders, in the respective percentage
amounts also set forth opposite their names on EXHIBIT A, the collective
sum in immediately available funds of Two Million Nine Hundred Eighty-Five
Thousand Two Hundred Fifty Dollars ($2,985,250) (the "Preliminary Cash
Consideration"), subject, however, to the post-closing adjustments
provided for under Section 2(c) of this Agreement; and
(3) secure releases of all personal guaranties of the DPI
Shareholders as to debt of DPI and Flare.
(The collective amounts of the Preliminary Stock Consideration and the
Preliminary Cash Consideration, after the respective adjustments made thereto
under Section 2(c) of this Agreement, are hereinafter sometimes referred to as
the "Base Consideration" with respect to the DPI Shareholders.) The Midcoast
Common Stock shall consist of stock issued pursuant to a previous registration
to the extent such stock exists in the treasury of Midcoast at the required time
of delivery to the DPI Shareholders and the balance of said stock, if any, shall
be previously unissued Midcoast Common Stock, for which no registration will be
made. Said Midcoast Common Stock issued to the DPI Shareholders and all Midcoast
Common Stock issued to the DPI Shareholders under this Agreement shall be
restricted as to sell or trade by DPI Shareholders for twelve (12) months after
delivery by Midcoast, except for by gift to donees who remain obligated to honor
said restriction on sale or trade. Midcoast agrees to enter into a separate
Registration Rights Agreement with the DPI Shareholders to "piggy-back" with the
registration and sale of Midcoast Common Stock the Midcoast Common Stock
transferred to the DPI Shareholders under this Agreement. The separate
Registration Rights Agreement shall executed and delivered by Midcoast and the
DPI Shareholders at the Closing.
(c) POST CLOSING ADJUSTMENTS TO THE PRELIMINARY STOCK CONSIDERATION AND
THE PRELIMINARY CASH CONSIDERATION. Following the Closing, the Preliminary Stock
Consideration and the Preliminary Cash Consideration payable to the DPI
Shareholders shall be adjusted according to the procedure set forth in Section 4
and in accordance with the following:
(1) Debt with respect to DPI:
(i) if the debt (current and long term) of DPI on the Closing
Date is less than $3,237,840, upward by an amount equal to one
hundred percent (100%) of such deficiency; or
(ii) if the debt (current and long term) of DPI on the Closing
Date is greater than $3,237,840, downward by an amount equal to one
hundred percent (100%) of such excess; and
(2) Debt with respect to Flare:
(i) if the debt (current and long term) of Flare on the
Closing Date is less than $2,268,039, upward by an amount equal to
eighty percent (80%) of such deficiency; or
(ii) if the debt (current and long term) of Flare on the
Closing Date is greater than $2,268,039, downward by an amount equal
to eighty percent (80%) of such excess; and
(3) The DPI Shareholders shall bear and pay all prepayment
penalties, attorneys' fees, and other costs incurred in Midcoast's
payment of the debt (excluding the leases) and obtaining of releases
of liens and security interests covering assets of DPI.
(4) Working Capital with respect to DPI:
(i) if the total of the Working Capital of DPI(excluding the
current portion of long term debt and any other debt for which
adjustment has otherwise been made under Section 2(c)(1) of this
Agreement on the Closing Date plus the sum of $120,000.00 is less
than one dollar ($1.00), downward by an amount equal to one hundred
percent (100%) of such deficiency; or
(ii) if the total of the Working Capital of DPI (excluding the
current portion of long term debt and any other debt for which
adjustment has otherwise been made under Section 2(c)(l)of this
Agreement on the Closing Date plus the sum of $120,000.00 is greater
than one dollar ($1.00), upward by an amount equal to one hundred
percent (100%) of such excess.
(5) Working Capital with respect to Flare:
(i) if the Working Capital of Flare (excluding the current
portion of long term debt, excluding any other debt for which
adjustment has otherwise been made pursuant to Section 2(c)(2)of
this Agreement, and excluding cash receipts and cash disbursements
pertaining to the Calumet and ▇▇▇▇▇▇▇ projects) of Flare on the
Closing Date is less than one dollar ($1.00), downward by an amount
equal to eighty percent (80%) of such deficiency; or
(ii) if the Working Capital of Flare (excluding the current
portion of long term debt, excluding any other debt for which
adjustment has otherwise been made under Section 2(c)(2) of this
Agreement, and excluding cash receipts and cash disbursements
pertaining to the Calumet and ▇▇▇▇▇▇▇ projects) of Flare on the
Closing Date is greater than one dollar ($1.00), upward by an amount
equal to eighty percent (80%) of such excess.
All such adjustments (whether positive or negative) shall be made forty-five
percent (45%) to the Preliminary Stock Consideration and fifty-five percent
(55%) to the Preliminary Cash Consideration. Adjustment to the Preliminary Cash
Consideration of this Agreement shall be paid in immediately available funds by
wire transfer or other means within three (3) business days after such that
determination has been made and such adjustment to the Preliminary Stock
Consideration shall be effected by the transfer of Midcoast Common Stock within
ten (10) days after such final determination has been made. The number of shares
of Midcoast Common Stock to be transferred shall be determined by the value
based upon the average of the daily closing price on the American Stock Exchange
(or New York Stock Exchange if then listed on such exchange) over the five (5)
trading days immediately preceding June 11, 1999.
(d) CONTINGENT DEFERRED CONSIDERATION.
(1) WITH RESPECT TO DPI. Subject to the terms and conditions of this
Agreement, Midcoast, on behalf of DPI/Midcoast, agrees to pay and deliver
to the DPI Shareholders, as set forth in Section 2(d)(3) and in the
respective percentage amounts set forth opposite their names on EXHIBIT A,
additional consideration for the Merger, consisting of fifty-five percent
(55%) cash and forty-five percent (45%) Midcoast Common Stock, as and when
DPI or its successor in interest, within three (3) years following
Closing, enters into the necessary contracts to commence a DPI Project(s)
and the DPI Project(s) is started-up, all as hereinafter more particularly
set forth. The number of shares of Midcoast Common Stock shall be
determined based upon the average of the daily closing price on the
American Stock Exchange (or New York Stock Exchange if then listed on such
exchange) for Midcoast Common Stock over the five (5) trading days
immediately preceding the date on which payment of Contingent Deferred
Consideration is due the DPI Shareholders. This Contingent Deferred
Consideration will be calculated with respect to each of the DPI Projects
which DPI elects to enter into and which are placed under contract and
started-up in each such year pursuant to the following formula:
EBITDA Projection times four (4), less Capital Cost of the
DPI Project.
It is understood by the Parties that consideration for the transportation
and margin relating to liquids purchased by Diversified in the Diversified
Chemical Project is included in the Base Consideration stated in Section
2(b) above. It is further understood that Midcoast and DPI/Midcoast shall
have no duty or obligation to the DPI Shareholders or the Flare Minority
Owners to enter into any DPI Project, at any time or times; it being
understood and agreed that any decision to enter into a DPI Project shall
be determined solely by the arrangement and/or the Board of Directors of
Midcoast based upon economic criteria, risk evaluation, profitability,
corporate goals and other factors which may vary from time-to-time. The
Parties agree that for purposes of calculating EBITDA under Section
2(d)(1), EBITDA shall not include any corporate general, administrative,
or overhead expense allocation for Midcoast, except those costs of
management personnel directly attributable to the operation of the DPI
Projects. Furthermore, if Midcoast, DPI/Midcoast or DPI pays off any or
all of the leases presently held by DPI, then the DPI threshold amounts
under (i),(ii) and/or (iii) hereinafter, as applicable, shall be increased
for such year in which the pay-off occurs by the amount of the lease
payments that would have been made during such year had the payoff not
occurred and for all subsequent years by the amount of the lease payments
that would have been made during each such subsequent year had the payoff
not occurred. None of the revenues and expenses pertaining to the DPI
Projects listed on EXHIBIT B hereto shall be taken into account in
determining DPI's EBITDA calculations for purposes of determining whether
DPI's threshold amounts have been met under (i),(ii) and (iii)
hereinafter. Notwithstanding the calculation and payment of Contingent
Deferred Consideration pursuant to the above formula:
(i) If it is determined that DPI or its successor did not
reach an annual EBITDA threshold of $1,651,397 ("Annual DPI
Threshold") for the first year of the Agreement (January 1, 1999
through December 31, 1999) and if Contingent Deferred Consideration
has been paid for said first year under Section 2(d) hereof, the DPI
Shareholders shall be required to repay to Midcoast, within fifteen
(15) days of said determination, the lesser of: (aa) the amount of
Contingent Deferred Consideration calculated and paid by Midcoast to
the DPI Shareholders under Section 2(d) for the first year of this
Agreement or (bb) the difference between the DPI EBITDA for the
first year and the Annual DPI Threshold;
(ii) If it is determined that DPI or its successor did not
reach a cumulative EBITDA threshold of $3,302,794 for the first year
(January 1, 1999 through December 31, 1999) and second year (January
1, 2000 through December 31, 2000) of the Agreement and if
Contingent Deferred Consideration has been paid for either or both
of the first year and said second year under Section 2(d), the DPI
Shareholders shall be required to repay to Midcoast, within fifteen
(15) days of said determination, the difference between the
cumulative EBITDA threshold of $3,302,794 and the cumulative actual
EBITDA for the first year and said second year, not to exceed,
however, the amount of the Retained Deferred Consideration (as
hereinafter defined in this Section 2(d)(1). However, if the
cumulative amount of actual EBITDA for the first year and said
second year exceeds the cumulative EBITDA threshold of $3,302,794
(the "Excess EBITDA"), then Midcoast shall repay to the DPI
Shareholders, on a nonrecourse basis solely out of the Contingent
Deferred Consideration repaid by the DPI shareholders to it, the
amount of the Excess EBITDA;
(iii) If it is determined that DPI or its successor did not
reach a cumulative EBITDA of $4,954,191 for the first year (January
1, 1999 through December 31, 1999), the second year (January 1, 2000
through December 31, 2000), and the third year (January 1, 2001 to
December 31, 2001) of the Agreement and if Contingent Deferred
Consideration has been paid for any of the first year, the second
year and said third year under Section 2(d), the DPI Shareholders
shall be required to repay to Midcoast, within fifteen (15) days of
said determination, the difference between the cumulative EBITDA
threshold of $4,954,191 and the cumulative actual EBITDA for the
first year, the second year and said third year not to exceed,
however, the amount of the Retained Contingent Deferred
Consideration. However, if the cumulative amount of the actual
EBITDA for the first year, the second year and said third year
exceeds the cumulative EBITDA threshold of $4,954,191 (the "Excess
EBITDA") then Midcoast shall repay to the DPI Shareholders, on a
nonrecourse basis solely out of the Contingent Deferred
Consideration repaid by the DPI Shareholders to it, the amount of
the Excess EBITDA.
In this Section 2(d)(1), the term "Retained Contingent Deferred Consideration"
shall mean the amount of Contingent Deferred Consideration that is paid by
Midcoast to the DPI Shareholders under Section 2(d) that has not been repaid to
Midcoast under the provisions of Sections 2(d)(1)(i), 2(d)(1)(ii), and
2(d)(1)(iii).
(2) WITH RESPECT TO FLARE.
(i) Subject to the terms and conditions of this Agreement, as
additional consideration for the merger, Midcoast, on behalf of
DPI/Midcoast, agrees to pay and/or deliver to the DPI Shareholders,
as set forth in Section 2(d)(3) and in the respective percentage
amounts set forth opposite their names on EXHIBIT A, additional
consideration, consisting of fifty-five percent (55%) cash and
forty-five percent (45%) Midcoast Common Stock, as and when Flare or
its successor in interest, within three (3) years following Closing,
enters into the necessary contracts to commence a Flare Project(s)
and the Flare Project(s) is started-up, all as hereinafter more
particularly set forth. The number of shares of Midcoast Common
Stock to be included in any such payment shall be determined based
upon the average of the daily closing price on the American Stock
Exchange (or New York Stock Exchange if then listed on such
exchange) for Midcoast Common Stock over the five (5) trading days
immediately preceding the date on which payment of Contingent
Deferred Consideration is due the DPI Shareholders. This Contingent
Deferred Consideration will be calculated with respect to each of
the Flare Projects for which Contingent Deferred Consideration is
due, pursuant to the following formula:
Eighty percent (80%) of EBITDA Projection times four (4), less
eighty percent (80%) of the Capital Cost of the Flare Project,
excluding the value of the Flare Equipment (if Flare Equipment
is used)
Midcoast and DPI/Midcoast shall have no duty or obligation to the
DPI Shareholders or the Flare Minority Owners to put any of the
Flare Equipment into service on any of the Flare Projects, or any
other projects, at any time or times; it being understood and agreed
that any decision to put any of the Flare Equipment into service in
connection with the Flare Projects, or any other projects, shall be
determined solely by the management and/or the Board of Directors of
Midcoast based upon economic criteria, risk evaluation,
profitability, corporate goals and other factors which may vary from
time-to-time.
(ii) Flare currently owns equipment ("Flare Equipment") that
is described on EXHIBIT E. For each item of Flare Equipment that is
placed into operation by Flare or its successor in interest, within
three (3) years following Closing, the DPI Shareholders will receive
additional consideration, under Section 2(d)(2)(i), payable as
described in that Section. For each item of Flare Equipment that is
sold by Flare or its successor in interest and purchase funds are
received by Flare or its successor, within three (3) years of
Closing, the DPI Shareholders will receive, as set forth in Section
2(d)(3) and in the respective percentage amounts set forth opposite
their names on Exhibit A, additional consideration, consisting of
fifty-five percent(55%) cash and forty-five percent (45%) Midcoast
Common Stock, calculated pursuant to the following formula:
Eighty percent (80%) of sales revenue from Flare Equipment,
less eighty percent (80%) of the cost to recondition (based
upon Flare's then current applicable published rate sheet) and
transport the Flare Equipment and less eighty percent (80%) of
related costs, times seventy-five percent (75%).
(iii) Midcoast, on behalf of DPI/Midcoast, agrees to pay
and/or deliver to the DPI Shareholders, as set forth in Section
2(d)(3) and in the respective percentage amounts set forth opposite
their names on Exhibit A, additional consideration for the Merger,
consisting of fifty-five percent (55%)cash and forty-five percent
(45%) Midcoast Common Stock, based upon the Flare Equipment that has
not been placed into service and for which no consideration has been
paid to the DPI Shareholders and the Flare Minority Owners under
Sections 2(d)(i) and Section 3(d)(i) and which has not been sold and
for which no consideration has been paid to the DPI Shareholders and
Flare Minority Owners under Sections 2(d)(ii) and Section 3(d)(ii),
said additional consideration to be determined by eighty percent
(80%) of the liquidation value of the equipment.
(iv) The additional consideration which may hereafter become
due by Midcoast to the DPI Shareholders and the Flare Minority
Owners shall be calculated and determined on the basis provided
above, but no payment shall be due by Midcoast to either the Flare
Minority Owners or the DPI Shareholders for the amounts calculated
unless and until the aggregate amounts calculated for both of them
under Sections 2(d) and 3(d) shall exceed the sum of one million
dollars ($1,000,000), said sum being that portion of the Base
Consideration which is deemed by the Parties to be an advance
payment made by Midcoast to the DPI Shareholders and the Flare
Minority Owners (of which sum, eighty percent (80%) was allocated to
the DPI Shareholders and included in the Base Consideration payable
to them and twenty percent (20%) was allocated to the Flare Minority
Owners and included in the Base Consideration payable to them)
toward the calculations for additional consideration under Sections
2(d) and 3(d) (the "Equipment Base Payment"). Midcoast's obligation
for additional consideration calculated under Sections 2(d) and 3(d)
collectively for the Flare Minority Owners and the DPI Shareholders
shall be limited, however, to two million five hundred dollars
($2,500,000), exclusive of the Equipment Base Payment.
(v) The Parties agree that for purposes of calculating actual
EBITDA under Section 2(d)(2), EBITDA shall not include any corporate
general, administrative, or overhead expense allocation for
Midcoast, except those costs of management personnel directly
attributable to the operation of the respective Flare Project.
Furthermore, if Midcoast or Flare pays off any or all of the leases
presently held by Flare, then the Flare threshold amounts under (i),
(ii) and/or (iii) hereinafter, as applicable, shall be increased for
such year in which the pay-off occurs by the amount of the lease
payments that would have been made during such year had the payoff
not occurred and for all subsequent years by the amount of the lease
payments that would have been made during each such subsequent year
had the payoff not occurred. None of the revenues and expenses
pertaining to the Calumet and ▇▇▇▇▇▇▇ projects, the Flare Projects
listed on EXHIBIT D hereto, or sales of Flare Equipment listed on
EXHIBIT E hereto, shall be taken into account in Flare's EBITDA
calculations for purposes of determining whether Flare's threshold
amounts under (aa), (bb) or (cc) hereinafter have been met.
Notwithstanding the calculation and payment of Contingent Deferred
Consideration pursuant to the above formulas:
(aa) If it is determined that Flare or its successor did
not reach an annual EBITDA threshold of $420,000 ("Annual
Flare Threshold") for the first year of the Agreement (January
1, 1999 through December 31, 1999) and if Contingent Deferred
Consideration has been paid for said first year under Section
2(d) hereof, the DPI Shareholders shall be required to repay
to Midcoast, within fifteen (15) days of said determination,
the lesser of: (aaa) the amount of Contingent Deferred
Consideration calculated and paid by Midcoast to the DPI
Shareholders for the first year of this Agreement or (bbb)
eighty percent (80%) of the difference between the Flare
EBITDA for the first year and the Annual Flare Threshold;
(bb) If it is determined that Flare did not reach a
cumulative EBITDA threshold of $840,000 for the first year
(January 1, 1999 through December 31, 1999) and second year
(January 1, 2000 through December 31, 2000) of the Agreement
and if Contingent Deferred Consideration has been paid for
said second year under Section 2(d), the DPI Shareholders
shall be required to repay to Midcoast, within fifteen (15)
days of said determination, eighty percent (80%) of the
difference between the cumulative EBITDA threshold of $840,000
and the cumulative actual EBITDA for the first year and said
second year, not to exceed, however eighty percent (80%) of
the amount of the Retained Deferred Consideration (as
hereinafter defined in this Section 2(d)(2)). However, if the
cumulative amount of the actual EBITDA for the first year and
said second year exceeds the cumulative EBITDA threshold of
$840,000 (the "Excess EBITDA"), then Midcoast shall repay to
the DPI Shareholders, on a nonrecourse basis solely out of the
Contingent Deferred Consideration repaid by the DPI
Shareholders to it, eighty percent (80%) of the amount of the
Excess EBITDA;
(cc) If it is determined that Flare did not reach a
cumulative EBITDA threshold of $1,260,000 for the first year
(January 1, 1999 through December 31, 1999), the second year
(January 1, 2000 through December 31, 2000), and the third
year (January 1, 2001 to December 31, 2001) of the Agreement
and if Contingent Deferred Consideration has been paid for
said third year under Section 2(d) and/or for the liquidation
value of the Equipment under Section 2(d), the DPI
Shareholders shall be required to repay to Midcoast, within
fifteen (15) days of said determination, eighty percent (80%)
of the difference between the cumulative EBITDA threshold of
$1,260,000 and the cumulative actual EBITDA for the first
year, the second year and said third year, not to exceed,
however, the amount of the Retained Deferred Consideration (as
hereinafter defined in this Section 2(d)(2). However, if the
cumulative amount of the actual EBITDA for the first year, the
second year and said third year exceeds the cumulative EBITDA
threshold of $1,260,000 (the "Excess EBITDA"), then Midcoast
shall repay to the DPI Shareholders, on a nonrecourse basis
solely out of the Contingent Deferred Consideration repaid by
the DPI Shareholders to it, eighty percent (80%) of the amount
of the Excess EBITDA.
In this Section 2(d)(2), the term "Retained Contingent Deferred Consideration"
shall mean the amount of Contingent Deferred Consideration that is paid by
Midcoast to the DPI Shareholders under Section 2(d) that has not been repaid to
Midcoast under the provisions of Sections 2(d)(2)(v)(aa), 2(d)(2)(v)(bb), and
2(d)(2)(v)(cc).
(3) On or before the expiration of sixty (60) days after the
execution of the necessary contracts to perform each of the respective DPI
Projects and/or Flare Projects and actual start-up of the respective
project [as described in Section 2(d)(1) and 2(d)(2)(i)] and/or within
sixty (60) days after receipt of sales proceeds for each piece of Flare
Equipment [as described in Section 2(d)(2)(ii)] and/or within fifteen (15)
days following three (3) years from Closing [as described in paragraph
2(d)(2)(iii)], as applicable, Midcoast shall prepare and deliver to the
DPI Shareholders and the Flare Minority Owners a proposed proforma
describing any additional consideration due the Flare Shareholders, if
any. The DPI Shareholders and the Flare Minority Owners shall have thirty
(30) days within which to accept or reject the draft proforma. If the DPI
Shareholders and the Flare Minority Owners accept the draft proforma, the
additional cash consideration for the merger will be paid within three (3)
business days after such acceptance and the additional stock consideration
shall be effected by the transfer of Midcoast Common Stock within ten (10)
days after such acceptance. If the DPI Shareholders and the Flare Minority
Owners reject the draft proforma, and, failing to reach agreement within
thirty (30) days from the date of rejection of said draft performa, the
parties shall submit the issue to binding arbitration pursuant to Section
12 of this Agreement.
(4) Within seventy-five (75) days following the end of each of the
first three (3) years of the Agreement, Midcoast shall prepare and deliver
to the DPI Shareholders a calculation of the DPI EBITDA and the Flare
EBITDA for the previous calendar year to be used by the parties in
determining EBITDA for the previous calendar year of the Agreement, and
Midcoast will simultaneously deliver to the Flare Minority Owners a copy
of the calculation of the Flare EBITDA for similar purposes. The DPI
Shareholders and Flare Minority Owners shall have thirty (30) days within
which to accept or reject the calculations of the DPI EBITDA and the Flare
EBITDA prepared by Midcoast. If the DPI Shareholders and Flare Minority
Owners accept the DPI EBITDA and/or the Flare EBITDA calculations, any
repayments pursuant to the accepted DPI EBITDA and/or the Flare EBITDA
calculation shall be made within fifteen (15) days of said acceptance. If
the DPI Shareholders and Flare Minority Owners reject the DPI EBITDA or
Flare EBITDA calculation, any dispute will be resolved in a similar manner
as the dispute resolution provisions stated in Section 4(d), 4(e), and
4(f).
3. THE TRANSACTION WITH THE FLARE MINORITY OWNERS.
(a) PURCHASE OF MEMBERSHIP INTERESTS. On and subject to the terms and
conditions of this Agreement, contempor-aneously with the consummation of the
Merger and expressly conditioned thereupon, Magnolia agrees to purchase and
acquire from the Flare Minority Owners, and the Flare Minority Owners
collectively agree to sell and convey to Magnolia, free and clear of all
Encumbrances, all of the issued and outstanding Company Membership Interests,
other than those owned by DPI, for the Base Consideration provided for under
Section 3(b) of this Agreement (subject to the adjustments provided for under
Section 3(c) of this Agreement) and the Contingent Deferred Consideration
provided for under Section 3(d) of this Agreement.
(b) BASE CONSIDERATION AND RELEASES. Subject to the terms of this
Agreement, at the Closing, as base consideration for the purchase of the Flare
membership interests owned by the Flare Minority Owners, Magnolia shall:
(1) pay, issue and/or deliver collectively to the Flare Minority
Owners, in the respective percentage share amounts set forth opposite
their names under Column B on Exhibit C-1, base consideration of One
Hundred Sixty Six Thousand Three Hundred Ninety-Two Dollars ($166,392),
said consideration to be paid in cash, as set forth on Exhibit C-2,
subject, however, to the post-closing adjustments provided for under
Section 3(c) of this Agreement; and
(2) secure releases of all personal guaranties of the Flare Minority
Owners as to debt of Flare.
(The collective amounts of the Preliminary Cash Consideration, after the
respective adjustments made thereto under Section 3(c) of this Agreement, are
hereinafter sometimes referred to as the "Base Consideration" with respect to
the Flare Minority Owners.)
(c) POST CLOSING ADJUSTMENTS TO THE PRELIMINARY CASH CONSIDERATION.
The Preliminary Cash Consideration payable to the Flare Minority Owners
shall be adjusted following the Closing as follows:
(1) Debt:
(i) if the Debt (current and long term) of Flare on the
Closing Date is less than $2,268,039, upward by an amount equal to
twenty percent (20%) of such deficiency; or
(ii) if the Debt (current and long term) of Flare on the
Closing Date is greater than $2,268,039, downward by an amount equal
to twenty percent (20%) of such excess; and
(2) The DPI Shareholders and Flare Minority Owners, in the
respective percentages of 80% and 20%, shall bear and pay all
prepayment penalties, attorneys' fees, and other costs incurred in
Midcoast's payment of the debt (including the leases) and obtaining
of releases of liens and security interests covering assets of
Flare.
(3) Working Capital:
(i) if the Working Capital of Flare (excluding the current
portion of long term debt, excluding any other debt for which
adjustment has otherwise been made under Section 3(c)(1) of this
Agreement, and excluding cash receipts and cash disbursements
pertaining to the Calumet and ▇▇▇▇▇▇▇ projects) on the Closing Date
is less than one dollar ($1.00), downward by an amount equal to
twenty percent (20%) of such deficiency; or
(ii) if the Working Capital of Flare (excluding the current
portion of long term debt, excluding and any other debt for which
adjustment has otherwise been made under Section 3(c)(1) of this
Agreement, and excluding cash receipts and cash disbursements
pertaining to the Calumet and ▇▇▇▇▇▇▇ projects) on the Closing Date
is greater than one dollar ($1.00), upward by an amount equal to
twenty percent (20%) of such excess.
All such adjustments shall be made to each individual Flare Minority Owner as
set forth on Exhibit C-2. Adjustment to the Preliminary Cash Consideration of
this Agreement shall be paid in immediately available funds by wire transfer or
other means within three (3) business days after such final determination has
been made.
(d) CONTINGENT DEFERRED CONSIDERATION.
(1) Subject to the terms and conditions of this Agreement, as
additional consideration for the purchase of the Flare membership
interests other than those owned by DPI, Midcoast, on behalf of Magnolia,
agrees to pay and/or deliver to the Flare Minority Owners, as set forth in
Section 3(d)(5) and in the respective percentage amounts set forth
opposite their names under Column B on EXHIBIT C-1, additional
consideration, consisting of cash as and when Flare or its successor in
interest, within three (3) years following Closing, enters into the
necessary contracts to commence a Flare Project(s) and the Flare Project
is started up, all as hereinafter more particularly set forth. The number
of shares of Midcoast Common Stock to be included in any such payment
shall be determined based upon the average of the daily closing price on
the American Stock Exchange (or New York Stock Exchange if then listed on
such exchange)for Midcoast Common Stock over the five (5) trading days
immediately preceding the date in which payment of Contingent Deferred
Consideration is due the Flare Minority Owners. This Contingent Deferred
Consideration will be calculated with respect to each of the Flare
Projects for which Contingent Deferred Consideration is due, pursuant to
the following formula:
Twenty percent (20%) of EBITDA Projection times four (4), less
twenty percent (20%) of the Capital Cost of the Flare Project,
excluding the value of the Flare Equipment (if Flare Equipment is
used).
Midcoast and Magnolia shall have no duty or obligation to the DPI
Shareholders or the Flare Minority Owners to put any of the Flare
Equipment into service on any of the Flare Projects, or any other
projects, at any time or times; it being understood and agreed that any
decision to put any of the Flare Equipment into service in connection with
the Flare Projects, or any other projects, shall be determined solely by
the management and/or the Board of Directors of Midcoast based upon
economic criteria, risk evaluation, profitability, corporate goals and
other factors which may vary from time-to-time.
(2) Flare currently owns equipment ("Flare Equipment") that is
described on EXHIBIT E. For each item of Flare Equipment that is placed
into operation by Flare or its successor in interest, within three (3)
years following the Closing, the Flare Minority Owners will receive
additional compensation under Subsection 3(d)(1). For each item of Flare
Equipment that is sold by Flare or its successor in interest and purchase
funds are received by Flare or its successor, within the next three (3)
years, the Flare Minority Owners will receive, as set forth in Section
3(d)(5) and in the respective percentage amounts set forth opposite their
names under Column B on EXHIBIT C-1, additional consideration, consisting
of cash in the manner set forth on EXHIBIT C-2, calculated pursuant to the
following formula:
Twenty percent (20%) of sales revenue from Flare Equipment, less
twenty percent (20%) of the cost to recondition (based upon Flare's
then current applicable published rate sheet) and transport the
Flare Equipment and less twenty percent (20%) of related costs,
times seventy-five percent (75%).
(3) Midcoast, on behalf of Magnolia, agrees to pay and/or deliver to
the Flare Minority Owners, as set forth in Section 3(d)(5) and in the
respective percentage amounts set forth opposite their names on EXHIBIT
C-1, additional consideration, consisting of cash, based upon the Flare
Equipment that has not been placed into service and for which no
consideration has not been paid to the DPI Shareholders and Flare Minority
Owners under Sections 2(d)(2) and 3(d)(1) and which has not been sold and
for which consideration has not been paid to the DPI Shareholders and
Flare Minority Owners under Section 2(d)(2) and 3(d)(2), said additional
consideration to be determined by twenty percent (20%) of the liquidation
value of the equipment.
(4) The additional consideration which may hereafter become due by Midcoast
to the DPI Shareholders and the Flare Minority Owners shall be calculated
and determined on the basis provided above, but no payment shall be due
by Midcoast to either the Flare Minority Owners or the DPI Shareholders
for the amounts calculated unless and until the aggregate amounts
calculated for both of them under Sections 2(d) and 3(d) shall exceed the
sum of one million dollars ($1,000,000), said sum being that portion of
the Base Consideration which is deemed by the Parties to be an advance
payment made by Midcoast to the DPI Shareholders and the Flare Minority
Owners (of which sum, eighty percent (80%) was allocated to the DPI
Shareholders and included in the Base Consideration payable to them and
twenty percent (20%) was allocated to the Flare Minority Owners and
included in the Base Consideration payable to them) toward the
calculations for additional consideration under this Section 3(d) (the
"Equipment Base Payment"). Midcoast's obligation for additional
consideration calculated under this Section 3(d) collectively for the
Flare Minority Owners and the DPI Shareholders shall be limited, however,
to two million five hundred dollars ($2,500,000) exclusive of the
Equipment Base Payment.
(5) On or before the expiration of sixty (60) days after the
execution of the necessary contracts to perform each of the Flare Projects
and actual start-up of the respective project [as described in Section
3(d)(1)] and/or within sixty (60) days after receipt of sales proceeds for
each piece of Flare Equipment [as described in Section 3(d)(2)] and/or
within fifteen (15) days following three (3) years from Closing [as
described in Section 3(d)(3)], as applicable, Midcoast shall prepare and
deliver to the DPI Shareholders and Flare Minority Owners a proposed
proforma describing any additional consideration due the DPI Shareholders
and the Flare Minority Owners, if any. The DPI Shareholders and the Flare
Minority Owners shall have thirty (30) days within which to accept or
reject the draft proforma. If the DPI Shareholders and the Flare Minority
Owners accept the draft proforma, the additional cash consideration for
the merger will be paid within three (3) business days after such
acceptance. If the DPI Shareholders and the Flare Minority Owners reject
the draft proforma, and, failing to reach agreement within thirty (30)
days from the date of rejection of said draft performa, the Parties shall
submit the issue to binding arbitration pursuant to Section 12 of this
Agreement.
4. DETERMINATION OF LONG TERM DEBT AND WORKING CAPITAL OF DPI AND FLARE.
(a) On or before the expiration of ninety (90) days after the Closing
Date, Midcoast shall prepare and deliver (i) to the DPI Shareholders a draft
balance sheet of DPI as of 12:00 midnight Texas time on February 28, 1999 (the
"DPI Draft Balance Sheet") and (ii) to the DPI Shareholders and the Flare
Minority Owners a draft balance sheet of Flare as of 12:00 midnight Texas time
on February 28, 1999 (the "Flare Draft Balance Sheet"). The DPI Draft Balance
Sheet and the Flare Draft Balance Sheet will both be prepared in accordance with
GAAP applied on a basis consistent with the preparation of the balance sheets of
DPI and Flare attached hereto as EXHIBIT F and EXHIBIT G, respectively, and
shall have a schedule calculating the Debt and the Working Capital ("Midcoast's
Value").
(b) In determining Working Capital of DPI on said balance sheets, there
shall be a calculation of the taxable income or loss of DPI for the period
beginning with the Effective Date and ending on the Closing Date. If there is
taxable income for such period, the income tax (federal and state as applicable)
on such income shall be calculated and the amount so calculated shall be treated
as a current liability in determining Working Capital. If there is a loss for
such period, the amount of tax refund which can be obtained by carrying back
such loss shall be treated as a current asset in determining Working Capital.
(c) In determining the Working Capital of Flare, all cash receipts and
cash disbursements associated with the ▇▇▇▇▇▇▇ and Calumet projects will not be
taken into account.
(d) If the DPI Shareholders and/or the Flare Minority Owners, as
applicable, have any objections to the DPI Draft Balance Sheet and/or the Flare
Draft Balance Sheet, or the Midcoast's Value calculations of Long Term Debt and
Working Capital, they shall deliver a detailed statement describing their
objections to Midcoast within fifteen (15) days after receiving Midcoast's Value
calculations (the "Sellers' Value"). Midcoast and the DPI Shareholders and/or
the Flare Minority Owners, as applicable, shall use reasonable efforts to
resolve any such objections themselves. If they do not resolve such objections
within thirty (30) days after Sellers' value has been delivered to Midcoast, the
DPI Shareholders and Midcoast shall select an accounting firm mutually
acceptable to them which shall resolve any remaining objections. If they are
unable to agree on the choice of an accounting firm, they shall select a
nationally-recognized accounting firm by lot (after excluding their respective
outside accounting firms), which such selection shall occur no later than ten
(10) days following the expiration of the foregoing fifteen (15) day time
period. The determinations made by the accounting firm so selected shall be set
forth in writing and shall be conclusive and binding upon the Parties (the
"Actual Value"). The Actual Value as determined by the accounting firm shall be
delivered to the applicable Parties by the selected accounting firm no later
than thirty (30) days following its selection.
(e) In the event Midcoast and the DPI Shareholders and/or the Flare
Minority Owners, as applicable, submit any unresolved objections to an
accounting firm for resolution as provided in for above, they shall share
responsibility for the fees and expenses of the accounting firm as follows:
(1) if the accounting firm resolves all of the unresolved objections
in favor of the Midcoast's Value, the DPI Shareholders and/or the Flare
Minority Owners, as applicable, shall be responsible for all of the fees
and expenses of the accounting firm;
(2) if the accounting firm resolves all of the unresolved
objections in favor Sellers' Value, Midcoast shall be responsible for all
of the fees and expenses of the accounting firm;
(3) if the accounting firm resolves some of the unresolved
objections in favor of the Midcoast's Value and the rest of the unresolved
objections in favor of the Sellers' Value, Midcoast shall be responsible
for the fraction of the fees and expenses of the accounting firm equal to
(1) the difference between the Actual Value and Midcoast's Value, divided
by (2) the difference between Sellers' Value and Midcoast's Value; and,
the DPI Shareholders and/or the Flare Minority Owners, as applicable,
shall be responsible for the remaining portion of the fees and expenses of
the accounting firm.
EXAMPLE #1:
If Midcoast's Value is 100, the Actual Value is 125, and the
Sellers' Value is 175, then Midcoast shall pay 25/75 or 1/3 of the
fees and expenses of the accounting firm, and the DPI Shareholders
and/or the Flare Minority Owners, as applicable, shall pay the
remaining 2/3.
125-100 = 25 or 1
------------ ----- -
175-100 75 3
EXAMPLE #2:
If Midcoast's Value is 50, the Actual Value is 150, and Sellers'
Value is 200, then Midcoast shall pay 100/150 or 2/3 of the fees and
expenses of the accounting firm, and the DPI Shareholders and/or the
Flare Minority Owners, as applicable, shall pay the remaining 1/3.
150-50 = 100 or 2
200-50 150 3
(f) Midcoast shall make the books and records of DPI and Flare available
for inspection, review and copying to the DPI Shareholders and the Flare
Minority Owners and their accountants and other representatives. Midcoast shall
cooperate with the DPI Shareholders and the Flare Minority Owners and will make
the work papers and backup materials used in preparing the DPI Draft Balance
Sheet and the Flare Draft Balance Sheet available to them and their accountants
and other representatives at all relevant times upon reasonable notice.
5. THE CLOSING. The closing of the Merger and the Acquisition (the
"Closing") shall occur contemporaneously with the execution and delivery of this
Agreement (approval of the transactions by the Federal Trade Commission and the
Department of Justice having previously been obtained) (the "Closing Date"). The
Merger shall be deemed to be effective as of January 1, 1999 (the "Merger
Effective Date"), notwithstanding that for legal purposes the Merger will not be
effective until the date of issuance of certificates of merger by the
secretaries of state of the respective states of incorporation of DPI/Midcoast
and DPI. The Acquisition shall be effective as of January 1, 1999 (the
"Acquisition Effective Date"). (The Merger Effective Date and the Acquisition
Effective Date are hereinafter collectively referred to as the "Effective
Date".)
6. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARTIES.
(a) REPRESENTATIONS AND WARRANTIES CONCERNING THE DPI SHAREHOLDERS AND THE
FLARE MINORITY OWNERS. DPI and the DPI Shareholders represent and warrant to
Midcoast, Magnolia and DPI/Midcoast that the statements contained in this
Section 6(a) are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then).
(1) AUTHORIZATION OF MERGER AND THE ACQUISITION. DPI, the DPI
Shareholders and the Flare Minority Owners have full power and authority
to execute and deliver this Agreement and to perform their obligations
hereunder. This Agreement constitutes a valid and legally binding
obligation of them, enforceable in accordance with its terms and
conditions, subject, however, to the effects of bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, and to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Except
for compliance with the HSR Act, to their Knowledge, they need not give
any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(2) NONCONTRAVENTION. Except for requirements of the HSR Act, if
applicable, neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which DPI, Flare, or either of them, are
subject or any provision of their charter or bylaws; or (ii), to their
Knowledge, conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any person the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which DPI, Flare, or either of them, are a party or by which they are
bound or to which any of their assets is subject, except for such
violations, defaults, breaches, or other occurrences that do not,
individually or in the aggregate, have a Material Adverse Effect on their
ability to consummate the transactions contemplated by this Agreement, and
except for Long Term Debt which may contain acceleration clauses.
(3) BROKERS' FEES. None of the DPI Shareholders, the Flare
Minority Owners, DPI or Flare have 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 for which Midcoast, Magnolia,
or DPI/Midcoast could become liable or obligated.
(b) REPRESENTATIONS AND WARRANTIES CONCERNING MIDCOAST AND DPI/MIDCOAST.
Midcoast represents and warrants to the DPI Shareholders and the Flare Minority
Owners that the statements contained in this Section 6(b) are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then).
(1) ORGANIZATION OF MIDCOAST, MAGNOLIA AND DPI/MIDCOAST. Midcoast is
a corporation duly organized, validly existing, and in good standing under
the laws of the state of Nevada. Magnolia is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Mississippi. DPI/Midcoast is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Mississippi.
(2) AUTHORIZATION OF TRANSACTION. Midcoast, Magnolia and
DPI/Midcoast both have full power and authority (including full corporate
power and authority) to execute and deliver this Agreement and to perform
their obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of Midcoast, Magnolia, and DPI/Midcoast,
enforceable in accordance with its terms and conditions, subject, however,
to the effects of bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting creditors' rights generally and to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). Except for compliance
with the HSR Act by Midcoast with respect to its acquisition of DPI,
neither Midcoast or Magnolia need give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions
contemplated by this Agreement
(3) NONCONTRAVENTION. Except for requirements of the HSR Act, if
applicable, neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Midcoast, Magnolia, or DPI/Midcoast
is subject or any provision of their charter or bylaws; or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any person the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which Midcoast,
Magnolia, or DPI/Midcoast is a party or by which either is bound or to
which any of their assets are subject, except for such violations,
defaults, breaches, or other occurrences that do not, individually or in
the aggregate, have a Material Adverse Affect on the ability of Midcoast,
Magnolia, or DPI/Midcoast to consummate the transactions contemplated by
this Agreement.
(4) BROKERS' FEES. Neither Midcoast, Magnolia, or DPI/Midcoast have
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 for which the DPI Shareholders or the Flare Minority Owners
could become liable or obligated.
(5) INVESTMENT. Midcoast is not acquiring DPI and Magnolia is not
acquiring membership interests in Flare with a view to or for sale in
connection with any distribution thereof within the meaning of the
Securities Act of 1933, as amended. All of Midcoast, Magnolia, and
DPI/Midcaost together with their directors and executive officers and
advisors, are familiar with investments of the nature of the transactions
contemplated by this Agreement, understand that this investment involves
substantial risks, and have adequately investigated DPI, Flare and their
respective assets, and have substantial knowledge and experience in
financial and business matters such that both are capable of evaluating,
and has evaluated, the merits and risks inherent with respect to the
Merger and the Acquisition, and are able to bear the economic risks of
such investment.
7. REPRESENTATIONS AND WARRANTIES CONCERNING THE MERGER AND THE
ACQUISITION.
(a) DPI and the DPI Shareholders represent and warrant to Midcoast,
Magnolia and DPI/Midcoast that the statements contained in this Section 7(a) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then).
(1) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. DPI and Flare
(i) are both organizations duly organized and are validly existing under
the laws of the jurisdiction of their incorporation; (ii) are both duly
authorized to conduct business and is in good standing under the laws of
each jurisdiction where such qualification is required, except where the
lack of such qualification would not have a Material Adverse Effect; and
(iii) both have full power and authority to carry on their respective
businesses in which they are engaged and to own and use the properties
owned and used by them.
(2) NONCONTRAVENTION. Except for requirements of the HSR Act, if
applicable, neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which DPI or Flare is subject or any
provision of the charter, bylaws or other organizing document of DPI or
Flare; or (ii), to their Knowledge, conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require
any notice or trigger any rights to payment or other compensation under
any agreement, contract, lease, license, instrument, or other arrangement
to which DPI or Flare is a party or by which either of them is bound or to
which any of its assets is subject (or result in the imposition of any
Encumbrance upon any of their respective assets), except where the
violation, conflict, breach, default, acceleration, termination,
modification, cancellation, failure to give notice, right to payment or
other compensation, or Encumbrance would not have a Material Adverse
Effect, or materially adversely affect the ability of the Parties to
consummate the transactions contemplated by this Agreement. Neither DPI or
Flare needs to give notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions
contemplated by this Agreement, except where the failure to give notice,
to file, or to obtain any authorization, consent, or approval would not
have a Material Adverse Effect or materially adversely affect the ability
of the Parties to consummate the transactions contemplated by this
Agreement, and except for Long Term Debt which may contain acceleration
clauses.
(3) BROKERS' FEES. Neither DPI or Flare 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.
(4) TITLE TO TANGIBLE ASSETS. Both DPI and Flare own good and
marketable title to all of their respective assets, free and clear of all
Encumbrances, except as to the Encumbrances set forth in Section 7(a)(4)
of the DISCLOSURE SCHEDULE.
(5) FINANCIAL STATEMENTS. EXHIBIT F and EXHIBIT G set forth the
respective unaudited balance sheets as of December 31, 1998 (the "Balance
Sheet Date") of DPI and Flare, and the respective unaudited statement of
income for DPI and Flare for the periods ended December 31, 1998
(collectively, the "Financial Statements"). The respective Financial
Statements, including the schedules thereto, have been prepared from the
books and records of DPI and Flare substantially in accordance with GAAP,
however certain information and footnote disclosures, including
significant accounting policies, normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted. The
Financial Statements, including the schedules thereto, are true and
correct and present fairly the financial condition of DPI and Flare at the
date specified and the results of their operations for the period then
ended, except for certain reclassification entries that would not have a
negative financial impact upon Midcoast on a "going forward" basis. The
Financial Statements accurately and fairly reflect all the transactions
of, acquisitions and dispositions of assets by, and incurrence of
Liabilities by, DPI and Flare which are required to be reflected in
accordance with GAAP. There are no Liabilities and no assets of DPI and
Flare that are not reflected in their respective Financial Statements and
the schedules thereto which are required to be reflected in accordance
with GAAP.
(6) LEGAL COMPLIANCE. To their Knowledge, DPI and Flare have
complied with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all
agencies thereof), except where the failure to comply would not have a
Material Adverse Effect.
(7) TAX MATTERS. Except as expressly set forth in Section 7(a)(7) of
the DISCLOSURE SCHEDULE, (i) DPI and Flare have timely filed all Tax
Returns, (ii) DPI and Flare have timely paid all Taxes, and (iii) there
are no outstanding contests or disputes with respect to any Taxes relating
to either of them, their respective businesses, or their respective
property, whether paid, payable or asserted to be payable by a taxing
authority. Neither DPI or Flare has waived any law or regulation fixing,
or consented to the extension of, any period of time for assessment of any
Taxes which waiver or consent is currently in effect. No claim has been
made by a taxing authority in a jurisdiction in which either DPI or Flare
does not file Tax Returns that they or either of them are required to file
Tax Returns in such jurisdiction, and, to the DPI Shareholders' and the
Flare Minority Owners' Knowledge, no taxing authority could reasonably
make such a claim. Neither DPI or Flare has any obligation or liability
for the payment of Taxes of any other person arising as a result of any
obligation to indemnify another person or as a result of them, or either
of them, assuming or succeeding to the tax liability of any other entity
or person as a successor, transferee or otherwise. Neither DPI or Flare
will be required to include any amount in taxable income for any taxable
period (or portion thereof) ending after the Closing as a result of (i) a
change in method of accounting for a taxable period ending prior to the
Closing, (ii) any "closing agreement" as described in Section 7121 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any
corresponding provision of state, local or foreign income tax laws)
entered into prior to the Closing, (iii) any sale reported on the
installment method that occurred prior to the Closing or (iv) any prepaid
amount received prior to the Closing.
(8) LITIGATION. Section 7(a)(8) of the DISCLOSURE SCHEDULE sets
forth each instance in which DPI, Flare or any of their respective assets
(i) is subject to any outstanding injunction, judgment, order, decree,
ruling, or charge; or (ii) is a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or is the subject of any pending or, to the Knowledge of the
DPI Shareholders, DPI, the Flare Minority Owners and Flare, threatened
claim, demand, or notice of violation or liability from any party, except
where any of the foregoing would not have a Material Adverse Effect.
(9) EMPLOYEE BENEFIT PLANS. Except as expressly set forth in Section
7(a)(9) of the DISCLOSURE SCHEDULE, neither DPI or Flare is a party to,
contributes to, sponsors, or maintains, or has any current or will have
any future obligation or liability with respect to, nor has either of them
been a party to, contributed to, sponsored, or maintained within the
preceding six (6) years, any pension, profit sharing, retirement, stock
purchase, stock option, bonus, incentive compensation or deferred
compensation plan, life, health, accident, disability, workers'
compensation or other insurance plan, severance or separation plan, or any
other employee benefit plan, practice, policy, program or arrangement of
any kind, whether written or oral.
(10) ENVIRONMENTAL MATTERS. Except as expressly set forth in Section
7(a)(10) of the DISCLOSURE SCHEDULE:
(i) To their Knowledge, DPI and Flare are and have been in
compliance with all applicable federal, state and local laws
(including common law), ordinances, orders, agreements, decisions,
orders, rules and regulations relating to protection or enhancement
of human health or the environment including, without limitation,
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.,
the Resource Conservation and Recovery Act of 1976, as amended, 42
U.S.C. Section 6901, et seq., the Clean Air Act, as amended, 42
U.S.C. Section 7401, et seq., the Federal Water Pollution Control
Act, as amended, 33 U.S.C. Section 1251, et seq., and the Oil
Pollution Act of 1990, 33 U.S.C. Section 2701, et seq.
(collectively, the "Environmental Laws" and individually an
"Environmental Law"), except for such instances of noncompliance
that individually or in the aggregate do not have and will not have
a Material Adverse Effect.
(ii) To their Knowledge, DPI and Flare have obtained all
permits, licenses, franchises, authorities, consents, and approvals,
and have made all filings and maintained all material information,
documentation, and records, as necessary under applicable
Environmental Laws for operating its assets and business as it is
presently conducted, and all such permits, licenses, franchises,
authorities, consents, approvals, and filings remain in full force
and effect, except for such matters that individually or in the
aggregate would not have a Material Adverse Effect.
(iii) There are no pending or threatened claims, demands,
actions, administrative proceedings, lawsuits, or investigations
against DPI or Flare, and neither DPI or Flare, or any of their
respective assets are subject to any injunction, judgment, order,
decree or ruling under any Environmental Laws, except for such
matters that individually or in the aggregate do not have a Material
Adverse Effect.
(11) INSURANCE. DPI and Flare maintain in effect the respective
insurance coverages described in Section 7(a)(11) of the DISCLOSURE
SCHEDULE. Such insurance policies are in full force and effect on the date
hereof and will remain in effect on through the Closing Date. Neither DPI
nor Flare is in default with respect to any provision contained in any
insurance policy covering any portion of their respective assets, except
where such default would not prevent or impede the consummation of the
transactions contemplated hereby or have a Material Adverse Effect on the
operations, assets or financial condition of either of them.
(l2) PERMITS. To their Knowledge, except as expressly set forth in
Section 7(a)(12) of the DISCLOSURE SCHEDULE, DPI and Flare own or hold all
franchises, licenses, permits, consents, approvals, and authorizations of
all Governmental Authorities necessary for the conduct of their respective
businesses (collectively, the "Permits"), except for Permits whose absence
is not reasonably likely to have a Material Adverse Effect. Specifically,
to their Knowledge, (i) each Permit is in full force and effect, and DPI
or Flare, as applicable, are in compliance with all of their obligations
with respect to the Permit, except where the failure to be in full force
and effect or to be in compliance would not have a Material Adverse
Effect; and (ii) to the Knowledge of the DPI Shareholders and the Flare
Minority Owners, 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
Material Adverse Effect.
(13) CUSTOMERS AND SUPPLIERS. To their Knowledge, the relationships
of DPI and Flare with their respective customers and suppliers are
satisfactory, and there are no unresolved disputes with any of such
customers or suppliers. None of the DPI Shareholders, DPI, the Flare
Minority Owners and Flare have Knowledge that any customers of DPI or
Flare will refuse to continue to do business with them after the
transactions contemplated by this Agreement.
(14) CONTRACTS AND COMMITMENTS. Section 7(a)(14) of the DISCLOSURE
SCHEDULE contains a true, complete and correct list (and the DPI
Shareholders have previously provided to Midcoast for review true,
complete and correct copies) of all of the following documents or
agreements, or summaries of oral agreements or understandings to which, on
the date of this Agreement, DPI and/or Flare is a party, or which relate
to or affects either or both of them and/or the respective business of
them or their respective assets or the transactions contemplated hereby,
and all documents or agreements which may require any action or consent in
connection with such transactions, as they may have been amended to the
date hereof (collectively, the "Contracts"):
(i) all contracts or other type commitments for the purchase,
sale, treating, processing, storing, gathering and/or transporting
of oil, gas and/or other liquid or gaseous hydrocarbons or products
or components thereof, together with all amendments thereto;
(ii) all rights-of-way, easements, leases, licenses and
permits;
(iii) any agreement or instrument relating to the borrowing of
money, or the direct or indirect guaranty of any obligation for, or
an agreement to service the repayment of, borrowed money or any
other contingent obligations in respect of indebtedness of any other
entity or party;
(iv) any agreement, contract or commitment relating to the
future disposition or acquisition of any investment in any entity or
party or of any interest in any business enterprise involving the
business of DPI and Flare or the Subject Assets;
(v) any contract or commitment for capital expenditures or the
acquisition or construction of fixed assets in an amount in excess
of $5,000;
(vi) any contract or commitment outside the Ordinary Course of
Business;
(vii) any contract with grants to any entity or person a
preferential right to purchase any of the assets of DPI or Flare;
(viii) any contract, agreement or commitment with respect to
environmental matters; and
(ix) any other agreement or instrument not made in the
Ordinary Course of Business.
Except expressly set forth in Section 7(a)(14) of the DISCLOSURE SCHEDULE, there
is no course of dealing, waiver, side agreement, arrangement or understanding
applicable to any Contracts of DPI or Flare. Except as set forth in the
DISCLOSURE SCHEDULE: (i) DPI and Flare have in all respects performed all
material obligations required to be performed by them to date under the
Contracts; (ii) neither has defaulted under any material obligation of the
Contracts; (iii) to the Knowledge of the DPI Shareholders, DPI, the Flare Owners
and Flare, no other party to any of the Contracts is in default thereunder; and
(iv) neither DPI or Flare has assigned to any Person any rights under the
Contracts or waived any rights of material value under the Contracts.
(15) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as expressly set
forth in Section 7(a)(15) of the DISCLOSURE SCHEDULE, there has not been,
occurred or arisen any of the following as they relate to DPI or Flare
since the Balance Sheet Date:
(i) any change in the assets or the operation of the
businesses of either of them, except for such matters that
individually or in the aggregate would not have a Material Adverse
Effect;
(ii) any destruction, damage, or loss suffered by either of
them, with respect to any of their respective assets (whether or not
covered by insurance), except for such destruction, damage or loss
that individually or in the aggregate does not have a Material
Adverse Effect;
(iii) any amendment or termination of any contract, agreement,
or license to which either of them is a party or to which any of
their respective assets are subject, except in the Ordinary Course
of Business;
(iv) any breach of the terms of any of the Contracts;
(v) any Liabilities that have not been disclosed in the
Financial Statements, other than those incurred in the Ordinary
Course of Business;
(vi) any waiver or release of any right or claim of either of
them;
(vii) any amendment to any national, federal, state,
municipal, local, foreign or other tax returns or reports that have
been filed by either of them in any jurisdiction;
(viii) any change by either of them in accounting methods or
principles that would be required to be disclosed under GAAP;
(ix) any borrowing of funds, agreement to borrow funds or
guaranty by either of them affecting them or their respective assets
or any termination or amendment of any evidence of indebtedness,
contract, agreement, deed, mortgage, lease, license or other
instrument to which either of them is bound or by which any of their
respective assets are bound or to which any of their respective
assets are subject, other than in the Ordinary Course of Business;
(x) to our Knowledge, any entry into any commitment of any
kind giving rise to any contingent liability of either of them not
covered by the foregoing; or
(xi) any contract, commitment or agreement to do any of the
foregoing.
(16) NO "TAKE OR PAY". Except as expressly set forth in Section
7(a)(16) of the DISCLOSURE SCHEDULE, there are currently no arrangements
or requirements under any of the Contracts or otherwise by which DPI or
Flare will be obligated by virtue of a prepayment arrangement, a
"take-or-pay" arrangement, a production payment, or any other arrangement
or obligation, 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.
(17) FACILITY RIGHTS-OF-WAY. Except as expressly set forth in
Section 7(a)(17) of the DISCLOSURE SCHEDULE, neither DPI or Flare has
Knowledge of any deficiency in any rights-of-way, easements, licenses,
leases, or permits with respect to the entire route of all pipelines owned
and used or held for use by DPI or Flare. Other than sales or assignments
to customers, DPI and Flare have not sold or assigned any rights-of-way,
easements, licenses, leases, or permits, in whole or in part, or any
undivided interest therein, to any persons whatsoever, except as expressly
disclosed in Section 7(a)(17) of the DISCLOSURE SCHEDULE.
(18) IMBALANCES. Except as expressly set forth in Section 7(a)(18)
of the DISCLOSURE SCHEDULE, there are no hydrocarbon imbalances for which
DPI, Flare, or DPI/Midcoast (as the survivor of the Merger) shall have any
liability or other obligation after the Closing Date.
(19) TARIFFS. Except as expressly set forth in Section 7(a)(19) of
the DISCLOSURE SCHEDULE, to the extent that the operations of DPI and/or
Flare are subject to a tariff approved by FERC, those operations are in
compliance with each such tariff, except where such noncompliance would
not, individually or in the aggregate, have a Material Adverse Effect.
Neither DPI nor Flare has Knowledge of any refund claim of any customers
or any refund obligation of them or either of them imposed under an order
issued by FERC and, except as expressly set forth in Section 7(a)(19) of
the DISCLOSURE SCHEDULE, has no Knowledge of any facts or circumstances
which would give rise to any such refund claim or refund obligation.
Except as expressly set forth in Section 7(a)(19) of the DISCLOSURE
SCHEDULE, there are no customer complaints pending or threatened against
DPI or Flare before FERC, which would, either individually or in the
aggregate, have a Material Adverse Effect.
(20) ASSETS OWNED. DPI and Flare own, or have rights-of-way,
easements, licenses, leases, or permits with respect to all of the
material assets used in the operation of their respective businesses and
assets held in storage for use in the operation of their respective
businesses or assets. Other than sales or assignments to its customers,
neither DPI or Flare has sold or assigned any rights-of-way, easements,
licenses, leases or permits, in whole or in part, or any undivided
interest therein, to any Person whatsoever, except as expressly disclosed
in Section 7(a)(20) of the Disclosure Schedule.
(21) NO JOINT OWNERSHIP. Neither DPI or Flare is a party to any
partnership or joint venture and owns no membership interest or capital
shares of any limited liability company, corporation or other entity
(other than DPI owns 80% of the membership interests of Flare and other
than DPI owns 20% of Claiborne Energy, LLC).
(22) NO CURTAILMENTS OR OTHER CHANGES. Except as expressly set forth
in Section 7(a)(22) of the DISCLOSURE SCHEDULE, neither DPI or Flare has
any Knowledge of any threatened or planned plant closings of customers of
DPI or Flare or reason to believe that there will likely be curtailment by
such customers of future purchases by such customers from DPI or Flare, or
any Knowledge of or reason to believe that there will be any change in the
business of DPI or Flare or of other persons that could affect the
presently existing economics of the respective businesses of DPI or Flare.
(23) REAL PROPERTY. Neither DPI or Flare has Knowledge of any
threatened termination or reduction of the current access to or from the
real property used by them in their respective businesses to existing
roads or the sewer or other utility services presently serving such real
property. Neither DPI or Flare has received any notice that its real
property is in violation of any zoning laws, statutes, ordinances or
building or use restrictions applicable to such real property or which
prohibit the use of such real property for its current use or uses.
(24) PATENTS, COPYRIGHTS, TRADEMARKS, ETC. Except as expressly set
forth in Section 7(a)(24) of the DISCLOSURE SCHEDULE, to the Knowledge of
DPI and Flare, the present conduct of the respective businesses of DPI and
Flare do not conflict with, infringe upon or violate the patents,
trademarks, servicemarks, trade names, copyrights or trade secrets or
other intangible assets of any other person or entity, and neither DPI or
Flare has received any notice of any infringement thereof, except where
such conflicts, infringements and violations would not, either
individually or in the aggregate, have a Material Adverse Effect.
(25) NO LEASES. Except as expressly set forth in Section 7(a)(25) of
the DISCLOSURE SCHEDULE, all the equipment and real property (other than
rights-of-way, easements, licenses and permits) which are material to the
operations of DPI and Flare are owned by DPI and Flare and not leased or
rented.
(26) ACCOUNTS AND NOTES RECEIVABLE. Set forth in Section 7(26) of
the DISCLOSURE SCHEDULE are a list of the accounts and notes receivable
for DPI and Flare. All of these accounts and notes receivable are
collectible in full in the ordinary course of business except as otherwise
expressly stated in Section (26) of the DISCLOSURE SCHEDULE.
(27) MATERIAL MISSTATEMENTS OR OMISSIONS. No statement,
representation, warranty or covenant made by DPI and the DPI Shareholders
in this Agreement or in any Exhibit or Schedule to this Agreement contains
or will contain any untrue statement of material fact or omits or will
omit to state any material fact necessary in order to make the statements
herein or therein, in the light of the circumstances under which they were
made, not misleading.
(b) Midcoast represents and warrants to the DPI Shareholders and the Flare
Minority Owners the following: Midcoast has provided to the DPI Shareholders or
their representatives a copy of its annual report on Form 10K for the year ended
1997 and its financial statements for the year ended December 31, 1998 (the
"Financial Statements") and its Form 10Q for the quarters ended September 30,
1998 and December 31, 1998 (such Form 10K and 10Q's are collectively called the
"SEC Reports"). The information contained in the SEC Reports is compiled, in all
material respects, in accord with all of the rules and regulations promulgated
by the Securities and Exchange Commission and does not contain an untrue
statement of a material fact or omit to state any material facts necessary to
make the statements set forth therein, in the light of the circumstances under
which they were made, not misleading. There has been no material adverse change
in any information contained in any such documents. The Financial Statements,
including the schedules thereto, have been prepared from the books and records
of Midcoast and its Affiliates in accordance with GAAP consistently applied
during the periods presented (except as noted therein, or, in the case of
unaudited statements, to normal adjustments). The Financial Statements,
including schedules thereto, present fairly the financial condition of Midcoast
and its Affiliates at the dates specified and the results of their operation for
the periods then ended. No representation or warranty made by Midcoast of its
Affiliates in this Agreement contains any untrue statement of material fact or
omits to state a material fact necessary in order to make the statements herein
not misleading. Except as disclosed on Schedule 7(b), there are no pending
lawsuits, arbitration proceedings, or other proceedings involving matters in
controversy in excess of $100,000 against Midcoast or its Affiliates, and
Midcoast has provided to the DPI Shareholders or their representatives copies of
all material correspondence pertaining to any such claims involving matters in
controversy in excess of $100,000. Except as disclosed on Schedule 7(b), there
are no pending SEC, Justice Department, Environmental Protection Agency, Federal
Trade Commission, or Internal Revenue Service inquiry, investigation, or
enforcement action. Except with respect to present pending litigation matter(s),
to the actual knowledge of the officers of Midcoast (without any duty of
inquiry), Midcoast has no legal liability for environmental damages or
remediation that would exceed $1,000,000 in exposure to Midcoast in excess of
available insurance coverage.
8. COVENANTS. The Parties agree as follows:
(a) GENERAL. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as the other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Section 9 of this Agreement).
(b) DELIVERY AND RETENTION OF RECORDS. Within five (5) business days after
the Closing Date, the DPI Shareholders and the Flare Minority Owners will
deliver or cause to be delivered to Midcoast all files, records, information,
and data relating to DPI and Flare that are in the possession or control of any
of the DPI Shareholders and the Flare Minority Owners (together with all of the
their contractual rights to request other such files, records, information, and
data from any third party) (the "Records"). Midcoast agrees to (i) hold the
Records and not to destroy or dispose of any thereof for a period of three (3)
years from the Closing Date or such longer time as may be required by law,
provided that, if it desires to destroy or dispose of such Records during such
period, it will first offer in writing at least sixty (60) days before such
destruction or disposition to surrender them to the DPI Shareholders and/or the
Flare Minority Owners and if they do not accept such offer within twenty (20)
days after receipt of such offer, Midcoast may take such action; and (ii)
following the Closing Date to afford the DPI Shareholders and the Flare Minority
Owners, their accountants, and counsel, during normal business hours, upon
reasonable request, at any time, full access to the Records and to Midcoast
Sub's employees to the extent that such access may be requested for any
legitimate purpose at no cost to them (other than for reasonable out-of-pocket
expenses); provided, however, that such access will not be construed to require
the disclosure of Records that would 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. Midcoast shall have the same rights, and the DPI Shareholders
and the Flare Minority Owners shall have the same obligations, as are set forth
in this Section with respect to any copies of the Records of the DPI
Shareholders and the Flare Minority Owners that are retained by them, with the
exception of Tax Returns retained by them, provided that such access will not be
construed to require the disclosure of Records that would cause the waiver of
any attorney-client, work product, or like privilege.
(c) CERTIFICATE OF NON-FOREIGN STATUS. On or prior to the Closing Date,
the DPI Shareholders and the Flare Minority Owners shall provide Midcoast with a
properly executed certificate of non-foreign status in accordance with Treas.
Reg. ss.1.1445-2(b) (a "FIRPTA Certificate") certifying under penalties of
perjury that DPI and Flare are not foreign persons within the meaning of section
1445(f) of the Code and Treas. Reg. ss.1.1445-2(b). Provided Midcoast is
otherwise entitled to rely on such Certificate, Midcoast shall not be obligated
to withhold a portion of the Base Consideration and the Contingent Deferred
Consideration under section 1445 of the Code. All Parties acknowledge that
unless Midcoast is provided with such FIRPTA Certificate in the time and manner
described above, Midcoast shall be obligated to withhold a portion of the Base
Consideration and the Contingent Deferred Consideration in the amount and manner
required under section 1445 of the Code and the applicable Treasury Regulations.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNI-TIES.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties of the Parties contained in this Agreement shall survive the
Closing of this Agreement, any investigation by the Parties, and the execution
and delivery of documents contemplated by this Agreement, and shall continue in
force and effect for a period of two (2) years following the Closing. During
such period of time if no claim in writing has been brought by the Party to whom
such respective representations and warranties have been made, then such Party
shall be forever barred from bringing any claim or action for a breach thereof,
notwithstanding any longer period of limitation of actions which may otherwise
be available to such Party by statute or law.
(b) GENERAL INDEMNITY BY THE DPI SHAREHOLDERS. The DPI Shareholders,
jointly and severally, agree to protect, defend, indemnify and hold Midcoast,
Magnolia and DPI/Midcoast harmless from and against:
(1) one hundred percent (100%) of all Third Party Claims and all
Liabilities to Midcoast, Magnolia and DPI/Midcoast resulting from breaches
of any of the representations, warranties and/or covenants of the DPI
Shareholders contained in this Agreement; and
(2) one hundred percent (100%) of all Third Party Claims and all
Liabilities to Midcoast and DPI/Midcoast (whether arising out of contract,
tort, misrepresentation, strict liability, violations of environmental
laws, or any other laws or otherwise) relating to or arising from the
ownership, operation or control of the businesses and/or assets of DPI
and/or Flare prior to Closing Date, except the following:
(i) such Liabilities as disclosed by the December 31, 1998
balance sheets of DPI and Flare attached hereto as EXHIBIT F
and EXHIBIT G, respectively;
(ii) such Liabilities netted out in the working capital
adjustments provided for in Sections 2(c) and 3(c) of this
Agreement;
(iii) such Liabilities arising from contracts entered into with
good faith and in the ordinary course of business of DPI or
Flare prior to the Closing Date and not in default as of the
Closing Date;
(iv) such insured Third Party Claims and Liabilities, to the
extent covered by insurance which actually pays such losses
and which insurance has a contractual waiver of subrogation
in effect; and
(v) such Third Party Claims and Liabilities, if any, pertaining
to Claiborne Energy, LLC (such Third Party Claims and
Liabilities pertaining to Claiborne Energy, LLC that might
exist or arise being addressed in Section 9(d) of this
Agreement).
The indemnity obligations of the DPI Shareholders to Midcoast, Magnolia and
DPI/Midcoast under this Section 9(b) shall terminate and be of no further force
and effect upon the expiration of two (2) years following the Closing Date,
except as to matters which are the subject of a written claim made to the DPI
Shareholders prior thereto.
(c) GENERAL INDEMNITY BY MIDCOAST. Midcoast agrees to protect, defend,
indemnify, and hold the DPI Shareholders and Flare Minority Owners harmless from
and against:
(1) one hundred percent (100%) of all Third Party Claims and all
Liabilities to the DPI Shareholders resulting from breaches of any of
Midcoast's representations, warranties and/or covenants contained in this
Agreement; and
(2) one hundred percent (100%) of all Third Party Claims and all
Liabilities to the DPI Shareholders (whether arising out of contract,
tort, misrepresentation, strict liability, violations of environmental
laws or any other laws, or otherwise) relating to or arising from the
ownership, operation or control of the businesses and/or assets of DPI and
Flare following closing (other than relating to or affecting the Midcoast
Stock received or to be received by them or the Contingent Deferred
Consideration which may be received by them).
The indemnity obligations of Midcoast to the DPI Shareholders under this Section
9(c) shall terminate and be of no further force and effect upon the expiration
of two (2) years following the Closing Date, except as to matters which are the
subject of a written claim made to Midcoast prior thereto.
(d) SPECIAL INDEMNITY BY THE DPI SHAREHOLDERS. The DPI Shareholders agree
to protect, defend, indemnify and hold Midcoast, Magnolia and DPI/Midcoast (as
the surviving corporation of the Merger) harmless from and against one hundred
percent (100%) of all Third Party Claims and all Liabilities (whether arising
out of contract, tort, misrepresentation, strict liability, violations of any
environmental laws or any other laws, or otherwise) arising from or attributable
to the operation of the Claiborne Plant, the investment of DPI in Claiborne
Energy, LLC, the pending arbitration proceeding pertaining thereto and any
subsequent arbitration or judicial proceedings, for all periods of time both
prior to and subsequent to the Effective Date; provided, however, in no event
shall the DPI Shareholders' liability to make indemnification payments to
Midcoast, Magnolia and/or DPI/Midcoast pursuant to the foregoing provisions of
this Section 9(d): (i) extend to Liabilities against Midcoast, Magnolia and/or
DPI/Midcoast except to the extent that Midcoast, Magnolia and/or DPI/Midcoast is
legally required to make payment of monies or property and the payment of monies
and/or property is actually paid in satisfaction, settlement or compromise of
such Liabilities; (ii) extend to Third Party Claims and/or Liabilities incurred
by Midcoast, Magnolia or DPI/Midcoast which are actually paid or reimbursed to
them by insurance which has a contractual waiver of subrogation clause in effect
or by other parties liable to DPI, Midcoast, Magnolia or DPI/Midcoast (provided
that none of DPI, Midcoast, Magnolia or DPI/Midcoast have any duty or obligation
to collect or attempt to collect against any third parties); or (iii) extend to
Third Party Claims and Liabilities of DPI paid prior to the Closing Date and
included in the Long Term Debt and/or Working Capital adjustments of DPI, as
applicable, to be made pursuant to Section 2(c) of this Agreement; or (iv)
extend to Third Party Claims and/or Liabilities incurred by Midcoast, Magnolia
or DPI/Midcoast as a result of Midcoast's, Magnolia's or DPI/Midcoast's breach
of contractual obligations existing as of the Closing Date.
(e) MATTERS INVOLVING THIRD PARTIES.
(1) If any third party shall notify any Party (the "Indemnified
Party") with respect to any Third Party Claim that may give rise to a
claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 9, then the Indemnified Party shall promptly
(and in any event within five (5) business days after receiving notice of
the Third Party Claim) notify the Indemnifying Party thereof in writing.
(2) The Indemnifying Party will have the right to assume and
thereafter conduct the defense of the Third Party Claim with counsel of
its choice reasonably satisfactory to the Indemnified Party; provided,
however, that the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnified Party (not to
be withheld unreasonably) unless the judgment or proposed settlement
involves only the payment of money damages and does not impose an
injunction or other equitable relief upon the Indemnified Party.
(3) Unless and until the Indemnifying Party assumes the defense of
the Third Party Claim as provided in subsection 9(e)(2) above, however,
the Indemnified Party may defend against the Third Party Claim in any
manner it reasonably may deem appropriate.
(4) In no event will the Indemnified Party consent to the entry of
any judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnifying Party which
consent shall not be withheld unreasonably.
(f) Notwithstanding anything herein to the contrary, in no event and under
no circumstances shall the DPI Shareholders be required to pay any moneys or
damages to Midcoast, under or in connection with the DPI Shareholders'
warranties, representations, covenants, and indemnification provisions of this
Agreement which, in the aggregate, exceed the value of the total consideration
received by the DPI Shareholders pursuant to this Agreement.
(g) Notwithstanding anything herein to the contrary, in no event and under
no circumstances shall Midcoast, Magnolia or DPI/Midcoast be required to pay any
money or damages to the DPI Shareholders and/or the Flare Minority Owners,
collectively, under or in connection with their warranties, representations,
covenants, and indemnification provisions of this Agreement which, in the
aggregate, exceeds the value of the total consideration received by the DPI
Shareholders pursuant to this Agreement.
10. TAX MATTERS.
(a) RETURNS FOR TAX PERIODS ENDING ON OR BEFORE THE EFFECTIVE DATE. The
DPI Shareholders shall prepare and file, or cause to be prepared and filed
(pursuant to a limited power of attorney), all Tax Returns for DPI and Flare for
all periods ending on or prior to the Effective Date. With respect to any such
Tax Returns filed after the Effective Date, the DPI Shareholders shall permit
Midcoast to review and comment on each such Tax Return. All Taxes shown as due
on Tax Returns required to be filed on DPI by operation of this section shall be
paid by the DPI Shareholders, and all Taxes shown as due on Tax Returns required
to be filed on Flare by operation of this section shall be paid eighty percent
(80%) by the DPI Shareholders and twenty percent (20%) by the Flare Minority
Owners. If said amount of tax due or refund due is known in adequate time, any
tax due and unpaid shall be considered as a negative adjustment to Working
Capital or any refund due shall be considered as a positive adjustment to
Working Capital.
(b) TAX CONSOLIDATED RETURNS FOR PERIODS ENDING ON THE EFFECTIVE DATE.
The DPI Shareholders and the Flare Minority Owners shall prepare and timely file
a federal income Tax Return and a State of Mississippi income Tax Return on DPI
and Flare for the period beginning October 1, 1998 and ending on December 31,
1998, and the DPI Shareholders and the Flare Minority Owners shall collectively
pay any income Taxes attributable to such income. The income of DPI and Flare
will be apportioned to the period up to and including the Effective Date and the
period after the Effective Date by closing their books of the end of the day
before the Effective Date. If said amount of tax due or refund due is known in
adequate time, any tax due and unpaid shall be considered as a negative
adjustment to Working Capital or any refund due shall be considered as a
positive adjustment to Working Capital.
(c) OTHER TAX RETURNS FOR PERIODS BEGINNING BEFORE AND ENDING AFTER THE
EFFECTIVE DATE. Midcoast shall prepare and file, or cause to be prepared and
filed, any Tax Returns of DPI and Flare for Tax periods which begin before the
Effective Date and end after the Effective Date. The DPI Shareholders and the
Flare Minority Owners shall pay to the Midcoast within fifteen (15) days after
the date on which Taxes are paid with respect to such periods an amount equal to
the portion of such Taxes which relates to the portion of such Taxable period
ending on the Effective Date. For purposes of this Section, in the case of any
Taxes that are imposed on a periodic basis and are payable for a Taxable period
that includes (but does not end on) the Effective Date, the portion of such tax
which relates to the portion of such Taxable period ending on the Effective Date
shall (1) in the case of any Taxes other than Taxes based upon or related to
income or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator of which is the number of
days in the Taxable period ending on the Effective Date and the denominator of
which is the number of days in the entire Taxable period, and (2) in the case of
any Tax based upon or related to income or receipts be deemed equal to the
amount which would be payable if the relevant Taxable period ended on the
Effective Date.
(d) COOPERATION ON TAX MATTERS. All Parties shall cooperate fully, as and
to the extent reasonably requested by any other Party, in connection with the
filing of Tax Returns pursuant to this section and any audit, litigation or
other proceeding and making employees available on a mutually convenient basis
to provide additional information and explanation of any material provided
hereunder. DPI/Midcoast shall: (i) retain all books and records with respect to
Tax matters pertinent to DPI and Flare relating to any taxable period beginning
before the Effective Date until the expiration of the statute of limitations
(and, to the extent notified by the DPI Shareholders or the Flare Minority
Owners, any extensions thereof) of the respective taxable periods, and to abide
by all record retention agreements entered into with any taxing authority, and
(ii) give the DPI Shareholders and the Flare Minority Owners reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if they so request, shall allow them to take possession of such
books and records.
(e) CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) imposed by any state which are incurred in connection with this
Agreement, shall be paid by the DPI Shareholders and the Flare Minority Owners,
as applicable, when due, and they will, at their own expense, file all necessary
Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, they will, and will cause their Affiliates to, join
in the execution of any such Tax Returns and other documentation.
11. PROHIBITED ACTIVITIES OF THE DPI SHAREHOLDERS AND ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
In order to protect the goodwill and business interests of DPI and Flare
following the Closing, the DPI Shareholders and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ covenant and
agree that they will not:
(a) directly or indirectly, for a period of five (5) years from the
Closing Date, request or advise any party to any contracts or commitments, now
or hereafter existing, with DPI, Magnolia or Flare, or their repsective
successors, to withdraw, curtail or cancel any service to or from such parties
under the terms of such contract or commitment;
(b) for a period of five (5) years from the Closing Date, aid, abet or
otherwise assist any person, firm or corporation seeking to interfere with DPI's
and Flare's or their successors'relationship with the parties to, or the term
of, any contract, now or hereafter existing, with it; or
(c) acting alone or in conjunction with others, directly or indirectly, in
Mississippi, Alabama, Louisiana, and Texas, for a period of five (5) years from
the Closing Date, engage in any businesses in competition with the respective
businesses presently conducted by DPI and Flare or their successors, whether for
their own account or for others.
It is recognized that ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III owns an interest in ▇▇▇▇▇▇▇ Gas
Processing Co. (through DPI Gas Marketing and Gathering Co.) and El Mesquite
Plant, LC, two (2) companies that own natural gas processing plants.
Notwithstanding anything herein to the contrary, it is agreed that the covenants
contained in Section 11(a), (b), and (c) shall not pertain to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
III's ownership interest in ▇▇▇▇▇▇▇ Gas Processing Co. and El Mesquite Plant, LC
and the business of those entities.
12. MEDIATION AND ARBITRATION. 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 (including any dispute, controversy or claim relating to the
validity of this dispute resolution clause) shall be settled by alternative
dispute resolution if said dispute cannot be settled through negotiation between
the Parties. The Parties agree first to try in good faith to settle each dispute
by mediation in Houston, ▇▇▇▇▇▇ County, Texas. 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 a
mediator, then the mediator shall be selected under the rules of the American
Arbitration Association. If mediation is unsuccessful at resolving the dispute
between the Parties, the dispute shall be finally settled by binding arbitration
as provided below.
The Parties acknowledge and agree that this Agreement and the performance
of the transactions contemplated hereby evidence transactions contemplated
hereby which involve a substantial nexus with interstate commerce. Accordingly,
any dispute, controversy or claim of any kind or nature which may arise between
the Parties (including any dispute, controversy or claim relating to the
validity of this arbitration clause) with respect to this Agreement or the
transactions contemplated hereby, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. Such arbitration proceedings shall be held in
Houston, Texas, and shall be heard by an arbitrator mutually agreeable to the
Parties and to the extent practicable, who is knowledgeable and experienced in
the type of matter that is the subject of the dispute. The Parties understand
and agree that the decision of the arbitrator shall be final and binding upon
both of them, and that the arbitrator shall have all powers provided by law, and
may award any legal or equitable relief, including, without limitation, money
damages, declaratory relief and injunctive relief. The arbitrator shall charge
all fees and expenses of the arbitration equally to the Parties, except that
each Party shall bear and pay all of its own attorneys' fees, accountants' fees,
expert witness fees and other fees and expenses incurred by it in connection
with its preparation for and participation in the arbitration.
13. BOARD SEAT. Prior to or at Closing, Midcoast shall appoint ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, III, as interim director on Midcoast Energy Resources, Inc.'s board of
directors to serve until the 1999 Midcoast annual shareholder's meeting.
Thereafter, subject to fiduciary obligations under applicable law, Midcoast
shall use reasonable efforts to take the actions necessary to nominate, support
the election of, and elect ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III, as a director of Midcoast
Energy Resources, Inc. for an additional term or terms aggregating two (2) years
from the 1999 Midcoast annual shareholders' meeting. In the event that the
aggregate number of shares of common stock of Midcoast Energy Resources, Inc.
held by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, or any trust
for the benefit of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and/or other family members is ever less than
seventy-five percent (75%) from that initially issued to them pursuant to the
terms of this Agreement, then the Board of Directors of Midcoast Energy
Resources, Inc. may, at its option, request and shall receive the resignation of
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III, as a Director.
14. CONTRACTS OF EMPLOYMENT. Midcoast shall cause DPI/Midcoast to tender
to the following individuals reasonable contracts of employment for a minimum
two (2) year period with DPI/Midcoast, with duties comparable to their immediate
previous duties with DPI at salaries comparable to their immediate previous
salaries and shall make good faith efforts to continue the employment of said
individuals, provided said individuals perform their duties in a reasonable
manner:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
15. NAME. Midcoast agrees to retain the name of DPI/Midcoast (into which
DPI is merged) for a minimum period of the lesser of (a) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III's
employment with DPI/Midcoast, or (b) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III's service on the
Board of Directors of Midcoast Energy Resources, Inc.
16. GENERAL.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. None of the DPI Shareholders,
DPI, the Flare Minority Owners and Flare shall issue any press release or make
any public announcement relating to the subject matter of this Agreement before
the Closing without the prior written approval of Midcoast.
(b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
heirs, devisees, legal representatives, successors and permitted assigns.
(c) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective heirs, devisees, legal
representatives, successors and permitted assigns. No Party may assign either
this Agreement or any of his, her, or its rights, interests, or obligations
hereunder without the prior written approval of the other Parties.
(d) COUNTERPARTS; FASCIMILIE SIGNATURES. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument. A fascimile or fax
signature on a counterpart of this Agreement shall be deemed for all purposes
the same as an original signature. The Parties agree that the signature pages
from each executed counterpart of this Agreement may be detached from each such
counterpart and reassembled and attached to another counterpart, and that the
same shall constitute for all purposes a fully executed original of this
Agreement. This Agreement shall be binding upon all Parties hereunto signing a
counterpart whether or not all named Parties execute a counterpart hereof or
not.
(e) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given two (2) business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended recipient as set forth below:
IF TO DPI OR THE DPI SHAREHOLDERS:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
and wife, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
IF TO THE FLARE MINORITY OWNERS:
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇'▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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IF TO MIDCOAST:
Midcoast Energy Resources, Inc.
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Attn: I.J. "Chip" ▇▇▇▇▇▇▇▇▇, II
Contract Administration
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the addresses set forth above using any
other means (including personal delivery, expedited courier, messenger service,
facsimile, or ordinary mail), but no such notice, request, demand, claim, or
other communication shall be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any Party may change the address
to which notices, requests, demands, claims, and other communications hereunder
are to be delivered by giving the other Party notice in the manner herein set
forth.
(f) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the state of Texas without giving effect to
any choice or conflict of law provision or rule (whether of the state of Texas
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the state of Texas.
(g) AMENDMENTS. No amendment of any provision of this Agreement shall be
valid unless the same shall be in writing and signed by all of the respective
Parties as to whom the amendment applies.
(h) SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(i) TRANSACTION EXPENSES. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby, including, (i) in the case
of the DPI Shareholders, one hundred percent (100%) of DPI's costs and expenses
and eighty percent (80%) of Flare's costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby through Closing,
and, (ii) in the case of the Flare Minority Owners, twenty percent (20%) of
Flare's costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby through Closing.
(j) CONSTRUCTION. The Parties have 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 any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(k) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(l) WAIVER OF CONSUMER RIGHTS. IT IS THE INTENT OF THE PARTIES THAT
MIDCOAST'S RIGHTS AND REMEDIES WITH RESPECT TO THIS TRANSACTION AND WITH RESPECT
TO ALL ACTS OR PRACTICES OF THE DPI SHAREHOLDERS AND THE FLARE MINORITY OWNERS,
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 ▇▇▇. SECTION 17.41 ET SEQ. (▇▇▇▇▇▇ 1987
AND SUPP. 1995) (THE "DTPA"). MIDCOAST ACKNOWLEDGES, REPRESENTS, AND WARRANTS
THAT IT IS NOT A CONSUMER AS DEFINED BY THE DTPA BECAUSE (I) IT IS A PARTNERSHIP
OR CORPORATION THAT SEEKS TO ACQUIRE THE COMPANY SHARES AND THE SUBJECT ASSETS
FOR COMMERCIAL OR BUSINESS USE; AND (II) IT HAS ASSETS OF $25 MILLION OR MORE OR
IS OWNED OR CONTROLLED BY A CORPORATION OR ENTITY WITH ASSETS OF $25 MILLION OR
MORE. IF MIDCOAST IS NONETHELESS DEEMED TO BE A CONSUMER AS DEFINED BY THE DTPA,
IT HEREBY WAIVES ITS RIGHTS UNDER THE DTPA, A LAW THAT GIVES CONSUMERS SPECIAL
RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF MIDCOAST'S OWN
SELECTION, MIDCOAST VOLUNTARILY CONSENTS TO THIS WAIVER. MIDCOAST ACKNOWLEDGES,
REPRESENTS AND WARRANTS THAT (I) IT IS NOT IN A SIGNIFICANTLY DISPARATE
BARGAINING POSITION WITH THE SELLERS; (II) IT WAS REPRESENTED BY LEGAL COUNSEL
IN THIS TRANSACTION; AND (III) IT SELECTED ITS OWN LEGAL COUNSEL, WHICH WAS NOT
DIRECTLY OR INDIRECTLY IDENTIFIED, SUGGESTED OR SELECTED BY SELLERS, A COMPANY
OR A SUBSIDIARY OR ANY AGENT THEREOF. MIDCOAST EXPRESSLY RECOGNIZES THAT THE
PRICE FOR WHICH THE SELLERS HAVE AGREED TO SELL THE COMPANY SHARES AND PERFORM
ITS OBLIGATIONS UNDER THIS AGREEMENT HAS BEEN PREDICATED UPON THE
INAPPLICABILITY OF THE DTPA AND THE EFFECTIVENESS OF THIS WAIVER OF THE DTPA.
MIDCOAST FURTHER RECOGNIZES THAT THE SELLERS, IN DETERMINING TO ENTER INTO THIS
AGREEMENT, HAVE EXPRESSLY RELIED ON THIS WAIVER AND THE INAPPLICABILITY OF THE
DTPA.
(m) WAIVER. No failure or delay by any Party in exercising any right,
power or privilege hereunder (and no course of dealing between or among any of
the Parties) shall operate as a waiver of any such right, power or privilege. No
waiver of any default on any one occasion shall constitute a waiver of any
subsequent or other default. No single or partial exercise of any such right,
power or privilege hereunder shall be enforceable unless in writing an executed
by the Party against whom such enforcement is sought. 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.
(n) INCLUDING. Wherever terms such as "include" or "including" are used
in this Agreement, they shall mean include or including without limiting the
generality of any description or word preceding such term.
(o) GENDER. Throughout this Agreement, wherever the context so permits,
the masculine gender shall be deemed to include the feminine gender and
vice-versa, and both shall be deemed to include the neuter and vice-versa, and
the singular shall be deemed to include the plural and vice-versa.
(p) CAPTIONS. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
(q) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they have related in any way to the subject
matter hereof. There are no contemporaneous agreements, oral or written, by or
among the Parties regarding the subject matter hereof.
(r) ADDITIONAL DOCUMENTS. The Parties to this Agreement shall cause to
be delivered on the Closing Date, or at such other times and places as shall be
agreed upon, such additional documents as a Party may reasonably require for the
purpose of carrying out this Agreement. The Parties shall exert best efforts in
coordinating such requests, and shall direct officers, directors, employees and
representatives to furnish information, evidence, testimony, and other
assistance in connection with resolution of any disputes arising from this
Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in
multiple counterpart originals as of the date first above written.
(SIGNATURE PAGES FOLLOW.)
"MIDCOAST": "DPI":
MIDCOAST ENERGY RESOURCES, INC. ▇▇▇▇▇▇ PETROLEUM, INC.
By:_________________________ By:______________________
▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III,
President President
"MAGNOLIA" "DPI SHAREHOLDERS":
MAGNOLIA RESOURCES, INC.
By:_________________________ _________________________
▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
President
"DPI/MIDCOAST" _________________________
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DPI/MIDCOAST, INC.
By:_____________________ "FLARE MINORITY OWNERS:"
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
President
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