UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____________ to ______________
Commission file number 1-3480
MDU Resources Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 41-0423660
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
|
Schuchart Building
918 East Divide Avenue
P.O. Box 5650
Bismarck, North Dakota 58506-5650
(Address of principal executive offices)
(Zip Code)
(701) 222-7900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X. No.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X. No.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 27, 2005: 119,740,593 shares.
INTRODUCTION
This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements are all statements other than statements of historical fact,
including without limitation, those statements that are identified by the
words "anticipates," "estimates," "expects," "intends," "plans,"
"predicts" and similar expressions. In addition to the risk factors and
cautionary statements included in this Form 10-Q at Item 2 -- Management's
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) - Risk Factors and Cautionary Statements that May Affect Future
Results, the following are some other factors that should be considered
for a better understanding of the financial condition of MDU Resources
Group, Inc. (Company). These other factors may impact the Company's
financial results in future periods.
- Acquisition, disposal and impairment of assets or facilities
- Changes in operation, performance and construction of plant
facilities or other assets
- Changes in present or prospective generation
- The availability of economic expansion or development opportunities
- Population growth rates and demographic patterns
- Market demand for, and/or available supplies of, energy products and
services
- Cyclical nature of large construction projects at certain operations
- Changes in tax rates or policies
- Unanticipated project delays or changes in project costs
- Unanticipated changes in operating expenses or capital expenditures
- Labor negotiations or disputes
- Inability of the various contract counterparties to meet their
contractual obligations
- Changes in accounting principles and/or the application of such
principles to the Company
- Changes in technology
- Changes in legal or regulatory proceedings
- The ability to effectively integrate the operations of acquired
companies
- Fluctuations in natural gas and crude oil prices
- Decline in general economic environment
- Changes in governmental regulation
- Unanticipated increases in competition
- Variations in weather
The Company is a diversified natural resource company, which was
incorporated under the laws of the state of Delaware in 1924. Its
principal executive offices are at the Schuchart Building, 918 East Divide
Avenue, P.O. Box 5650, Bismarck, North Dakota 58506-5650, telephone
(701) 222-7900.
Montana-Dakota Utilities Co. (Montana-Dakota), a public utility division of the Company, through the electric and natural gas distribution segments, generates, transmits and distributes electricity and distributes natural gas in the northern Great Plains. Great Plains Natural Gas Co. (Great Plains), another public utility division of the Company, distributes natural gas in western Minnesota and southeastern North Dakota. These operations also supply related value-added products and services in the northern Great Plains.
The Company, through its wholly owned subsidiary, Centennial Energy Holdings, Inc. (Centennial), owns WBI Holdings, Inc. (WBI Holdings), Knife River Corporation (Knife River), Utility Services, Inc. (Utility Services), Centennial Energy Resources LLC (Centennial Resources) and Centennial Holdings Capital LLC (Centennial Capital).
WBI Holdings is comprised of the pipeline and energy services and the natural gas and oil production segments. The pipeline and energy services segment provides natural gas transportation, underground storage and gathering services through regulated and nonregulated pipeline systems primarily in the Rocky Mountain and northern Great Plains regions of the United States. The pipeline and energy services segment also provides energy-related management services, including cable and pipeline magnetization and locating. The natural gas and oil production segment is engaged in natural gas and oil acquisition, exploration, development and production activities, primarily in the Rocky Mountain region of the United States and in and around the Gulf of Mexico.
Knife River mines aggregates and markets crushed stone, sand, gravel and related construction materials, including ready-mixed concrete, cement, asphalt and other value-added products, as well as performs integrated construction services, in the central and western United States and in the states of Alaska and Hawaii.
Utility Services specializes in electrical line construction, pipeline construction, inside electrical wiring and cabling, and the manufacture and distribution of specialty equipment.
Centennial Resources owns, builds and operates electric generating facilities in the United States and has investments in domestic and international natural resource-based projects. Electric capacity and energy produced at its power plants are sold primarily under mid- and long-term contracts to nonaffiliated entities.
Centennial Capital insures various types of risks as a captive insurer for certain of the Company's subsidiaries. The function of the captive is to fund the deductible layers of the insured companies' general liability and automobile liability coverages. Centennial Capital also owns certain real and personal property and contract rights. These activities are reflected in the Other category.
INDEX
Part I -- Financial Information
Consolidated Statements of Income --
Three and Six Months Ended June 30, 2005 and 2004
Consolidated Balance Sheets --
June 30, 2005 and 2004, and December 31, 2004
Consolidated Statements of Cash Flows --
Six Months Ended June 30, 2005 and 2004
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Controls and Procedures
Part II -- Other Information
Legal Proceedings
Unregistered Sales of Equity Securities and Use of Proceeds
Exhibits
Signatures
Exhibit Index
Exhibits
|
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MDU RESOURCES GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
(In thousands, except per share amounts)
Operating revenues:
Electric, natural gas distribution
and pipeline and energy services $182,109 $159,368 $ 437,481 $ 391,215
Utility services, natural gas and oil
production, construction materials
and mining, independent power
production and other 588,063 493,933 936,986 777,545
770,172 653,301 1,374,467 1,168,760
Operating expenses:
Fuel and purchased power 14,547 16,370 30,733 33,095
Purchased natural gas sold 46,673 39,534 160,172 134,278
Operation and maintenance:
Electric, natural gas distribution
and pipeline and energy services 39,482 38,329 78,467 80,530
Utility services, natural gas and oil
production, construction materials
and mining, independent power
production and other 475,784 397,084 766,788 643,454
Depreciation, depletion and
amortization 51,588 51,787 104,427 101,298
Taxes, other than income 28,574 25,466 55,243 47,351
656,648 568,570 1,195,830 1,040,006
Operating income 113,524 84,731 178,637 128,754
Earnings from equity method
investments 15,404 7,723 16,718 11,148
Other income 1,505 1,847 2,656 3,216
Interest expense 13,342 15,653 26,359 29,499
Income before income taxes 117,091 78,648 171,652 113,619
Income taxes 36,918 20,018 57,059 31,410
Net income 80,173 58,630 114,593 82,209
Dividends on preferred stocks 171 172 342 342
Earnings on common stock $ 80,002 $ 58,458 $ 114,251 $ 81,867
Earnings per common share -- basic $ .68 $ .50 $ .97 $ .71
Earnings per common share -- diluted $ .67 $ .50 $ .96 $ .70
Dividends per common share $ .18 $ .17 $ .36 $ .34
Weighted average common shares
outstanding -- basic 118,348 116,559 118,089 115,609
Weighted average common shares
outstanding -- diluted 119,037 117,567 118,767 116,632
|
The accompanying notes are an integral part of these consolidated financial statements.
MDU RESOURCES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, June 30, December 31,
2005 2004 2004
(In thousands, except shares
and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents $ 57,711 $ 132,476 $ 99,377
Receivables, net 546,722 421,653 440,903
Inventories 158,886 121,920 143,880
Deferred income taxes 6,840 5,457 2,874
Prepayments and other current assets 56,859 62,304 41,144
827,018 743,810 728,178
Investments 98,563 78,067 120,555
Property, plant and equipment 4,273,670 3,744,146 3,931,428
Less accumulated depreciation,
depletion and amortization 1,440,732 1,267,014 1,358,723
2,832,938 2,477,132 2,572,705
Deferred charges and other assets:
Goodwill 214,972 200,553 199,743
Other intangible assets, net 30,297 21,105 22,269
Other 91,953 91,941 90,071
337,222 313,599 312,083
$4,095,741 $3,612,608 $3,733,521
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Long-term debt due within one year $ 26,866 $ 93,249 $ 72,046
Accounts payable 212,888 183,097 184,993
Taxes payable 26,300 23,031 28,372
Dividends payable 21,685 20,139 21,449
Other accrued liabilities 164,225 132,866 142,233
451,964 452,382 449,093
Long-term debt 1,119,719 887,721 873,441
Deferred credits and other liabilities:
Deferred income taxes 505,651 467,376 494,589
Other liabilities 244,018 232,464 235,385
749,669 699,840 729,974
Commitments and contingencies
Stockholders' equity:
Preferred stocks 15,000 15,000 15,000
Common stockholders' equity:
Common stock
Shares issued -- $1.00 par value
120,093,303 at June 30, 2005,
117,829,664 at June 30, 2004 and
118,586,065 at December 31, 2004 120,093 117,830 118,586
Other paid-in capital 898,373 843,658 863,449
Retained earnings 770,361 617,222 699,095
Accumulated other comprehensive loss (24,347) (17,419) (11,491)
Treasury stock at cost - 412,906
shares at June 30, 2005, and
359,281 shares at December 31,
2004 and June 30, 2004 (5,091) (3,626) (3,626)
Total common stockholders' equity 1,759,389 1,557,665 1,666,013
Total stockholders' equity 1,774,389 1,572,665 1,681,013
$4,095,741 $3,612,608 $3,733,521
|
The accompanying notes are an integral part of these consolidated financial statements.
MDU RESOURCES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2005 2004
(In thousands)
Operating activities:
Net income $114,593 $ 82,209
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 104,427 101,298
Earnings, net of distributions, from equity
method investments (14,619) (10,455)
Deferred income taxes 5,120 10,141
Changes in current assets and liabilities, net
of acquisitions:
Receivables (34,399) (45,143)
Inventories (12,963) (2,863)
Other current assets (16,463) (11,508)
Accounts payable 20,545 24,026
Other current liabilities (12,193) 23,814
Other noncurrent changes 9,282 809
Net cash provided by operating activities 163,330 172,328
Investing activities:
Capital expenditures (216,912) (141,868)
Acquisitions, net of cash acquired (162,274) (22,006)
Net proceeds from sale or disposition of property 11,355 10,001
Investments 657 (22,684)
Proceeds from notes receivable --- 22,000
Net cash used in investing activities (367,174) (154,557)
Financing activities:
Issuance of long-term debt 324,727 55,115
Repayment of long-term debt (123,734) (42,202)
Proceeds from issuance of common stock 4,116 54,917
Dividends paid (42,931) (39,466)
Net cash provided by financing activities 162,178 28,364
Increase (decrease) in cash and cash equivalents (41,666) 46,135
Cash and cash equivalents -- beginning of year 99,377 86,341
Cash and cash equivalents -- end of period $ 57,711 $132,476
|
The accompanying notes are an integral part of these consolidated financial statements.
MDU RESOURCES GROUP, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2005 and 2004
(Unaudited)
1. Basis of presentation
The accompanying consolidated interim financial statements were prepared in conformity with the basis of presentation reflected in the consolidated financial statements included in the Annual Report to Stockholders on Form 10-K for the year ended December 31, 2004 (2004 Annual Report), and the standards of accounting measurement set forth in Accounting Principles Board (APB) Opinion No. 28 and any amendments thereto adopted by the Financial Accounting Standards Board (FASB). Interim financial statements do not include all disclosures provided in annual financial statements and, accordingly, these financial statements should be read in conjunction with those appearing in the Company's 2004 Annual Report. The information is unaudited but includes all adjustments that are, in the opinion of management, necessary for a fair presentation of the accompanying consolidated interim financial statements.
2. Seasonality of operations
Some of the Company's operations are highly seasonal and revenues from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Accordingly, the interim results for particular businesses, and for the Company as a whole, may not be indicative of results for the full fiscal year.
3. Allowance for doubtful accounts
The Company's allowance for doubtful accounts as of June 30, 2005 and 2004, and December 31, 2004, was $7.4 million, $8.0 million and $6.8 million, respectively.
4. Natural gas in underground storage
Natural gas in underground storage for the Company's regulated operations is carried at cost using the last-in, first-out method. The portion of the cost of natural gas in underground storage expected to be used within one year was included in inventories and was $7.2 million, $5.2 million and $24.9 million at June 30, 2005 and 2004, and December 31, 2004, respectively. The remainder of natural gas in underground storage was included in other assets and was $43.3 million, $42.6 million, and $43.3 million at June 30, 2005 and 2004, and December 31, 2004, respectively.
5. Inventories
Inventories, other than natural gas in underground storage for the Company's regulated operations, consisted primarily of aggregates held for resale of $84.2 million, $68.1 million and $71.0 million; materials and supplies of $45.8 million, $36.0 million and $31.0 million; and other inventories of $21.7 million, $12.6 million and $17.0 million; as of June 30, 2005 and 2004, and December 31, 2004, respectively. These inventories were stated at the lower of average cost or market.
6. Earnings per common share
Basic earnings per common share were computed by dividing earnings on common stock by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per common share were computed by dividing earnings on common stock by the total of the weighted average number of shares of common stock outstanding during the applicable period, plus the effect of outstanding stock options, restricted stock grants and performance share awards. For the three and six months ended June 30, 2004, 205,305 shares with an average exercise price of $24.54, attributable to the exercise of outstanding stock options, were excluded from the calculation of diluted earnings per share because their effect was antidilutive. For the three and six months ended June 30, 2005 and 2004, no adjustments were made to reported earnings in the computation of earnings per share. Common stock outstanding includes issued shares less shares held in treasury.
7. Stock-based compensation
The Company has stock option plans for directors, key employees and employees. In 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," and began expensing the fair market value of stock options for all awards granted on or after January 1, 2003. Compensation expense recognized for awards granted on or after January 1, 2003, for the six months ended June 30, 2005, was $4,000 (after tax). Compensation expense recognized for awards granted on or after January 1, 2003, for the three and six months ended June 30, 2004, was $2,000 and $5,000, respectively (after tax).
As permitted by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS No. 123," the Company accounts for stock options granted prior to January 1, 2003, under APB Opinion No. 25, "Accounting for Stock Issued to Employees." No compensation expense has been recognized for stock options granted prior to January 1, 2003, as the options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.
The Company adopted SFAS No. 123 effective January 1, 2003, for newly granted options only. The following table illustrates the effect on earnings and earnings per common share for the three and six months ended June 30, 2005 and 2004, as if the Company had applied SFAS No. 123 and recognized compensation expense for all outstanding and unvested stock options based on the fair value at the date of grant:
Three Months Ended
June 30,
2005 2004
(In thousands, except
per share amounts)
Earnings on common stock, as
reported $ 80,002 $ 58,458
Stock-based compensation expense
included in reported earnings,
net of related tax effects --- 2
Total stock-based compensation
expense determined under fair
value method for all awards,
net of related tax effects (88) (79)
Pro forma earnings on common stock $ 79,914 $ 58,381
Earnings per common share -- basic --
as reported $ .68 $ .50
Earnings per common share -- basic --
pro forma $ .68 $ .50
Earnings per common share -- diluted --
as reported $ .67 $ .50
Earnings per common share -- diluted --
pro forma $ .67 $ .50
Six Months Ended
June 30,
2005 2004
(In thousands, except
per share amounts)
Earnings on common stock, as
reported $114,251 $ 81,867
Stock-based compensation expense
included in reported earnings,
net of related tax effects 4 5
Total stock-based compensation
expense determined under fair
value method for all awards,
net of related tax effects (125) (172)
Pro forma earnings on common stock $114,130 $ 81,700
Earnings per common share -- basic --
as reported $ .97 $ .71
Earnings per common share -- basic --
pro forma $ .97 $ .71
Earnings per common share -- diluted --
as reported $ .96 $ .70
Earnings per common share -- diluted --
pro forma $ .96 $ .70
8. Cash flow information
|
Cash expenditures for interest and income taxes were as follows:
Six Months Ended
June 30,
2005 2004
(In thousands)
Interest, net of amount capitalized $ 23,184 $26,269
Income taxes paid $ 54,650 $21,295
|
9. Reclassifications
Certain reclassifications have been made in the financial statements for the prior year to conform to the current presentation. Such reclassifications had no effect on net income or stockholders' equity as previously reported.
10. New accounting standards
SAB No. 106
In September 2004, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 106 (SAB No. 106) which is an interpretation regarding the application of SFAS No. 143, "Accounting for Asset Retirement Obligations" by oil and gas producing companies following the full-cost accounting method. SAB No. 106 clarifies that the future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet should be excluded from the computation of the present value of estimated future net revenues for purposes of the full-cost ceiling calculation. SAB No. 106 also states that a company is expected to disclose in the financial statement footnotes and MD&A how the company's calculation of the ceiling test and depreciation, depletion and amortization are affected by the adoption of SFAS No. 143. SAB No. 106 was effective for the Company as of January 1, 2005. The adoption of SAB No. 106 did not have a material effect on the Company's financial position or results of operations. The effects of the adoption of SFAS No. 143 and SAB No. 106 as they relate to the Company's natural gas and oil production properties are described below.
Ceiling Test Calculation
As discussed in Note 1 of the 2004 Annual Report, the Company's natural gas and oil production properties are subject to a "ceiling test" that limits capitalized costs to the aggregate of the present value of future net revenues of proved reserves based on single point-in-time spot market prices, as mandated under the rules of the SEC, and the cost of unproved properties. Prior to the adoption of SFAS No. 143, the Company calculated the full-cost ceiling by reducing its expected future revenues from proved natural gas and oil reserves by the estimated future expenditures to be incurred in developing and producing such reserves, including future retirements, discounted using a factor mandated by the rules of the SEC. While expected future cash flows related to the asset retirement obligations were included in the calculation of the ceiling test, no associated asset retirement obligation was recognized on the balance sheet.
Upon the adoption of SFAS No. 143 but prior to the effective date of SAB No. 106, the Company continued to calculate the full-cost ceiling as previously described. In addition, the Company recorded the fair value of a liability for the asset retirement obligation and capitalized the cost by increasing the carrying amount of the related long-lived asset. Upon the adoption of SAB No. 106, the future capitalized discounted cash outflows associated with settling asset retirement obligations that are accrued on the consolidated balance sheet are excluded from the computation of the present value of estimated future net revenues for purposes of the full- cost ceiling calculation in accordance with SAB No. 106.
Depreciation, Depletion, and Amortization
Costs subject to amortization include: (A) all capitalized costs, less accumulated amortization, other than the cost of acquiring and evaluating unproved property; (B) the estimated future expenditures (based on current costs) to be incurred in developing proved reserves; and (C) estimated dismantlement and abandonment costs, net of estimated salvage values.
Subsequent to the adoption of SFAS No. 143, the estimated future dismantlement and abandonment costs described in (C) above are included in the capitalized costs described in (A) above at the expected future cost discounted to the present value, to the extent that a legal obligation exists. Under SFAS No. 143, the recognition of the asset retirement obligation does not take into account estimated salvage values. The liability associated with the recognition of an asset retirement obligation is accreted over time with accretion expense recorded in depreciation, depletion, and amortization expense on the income statement. The Company's estimated dismantlement and abandonment costs as described in (C) above were adjusted to account for asset retirement obligations accrued on the consolidated balance sheet when calculating the depreciation, depletion and amortization rates. In addition, estimated salvage values were included in the Company's depreciation, depletion and amortization calculation. The Company's estimate of future dismantlement and abandonment costs that will be incurred as a result of future development activities on proved reserves continues to be included in the calculation of costs to be amortized.
Any gains or losses on the settlement of an asset retirement obligation, if applicable, are treated as adjustments to the capitalized costs, consistent with the full-cost accounting method.
SFAS No. 123 (revised)
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" (SFAS No. 123 (revised)). SFAS No. 123
(revised) revises SFAS No. 123 and requires entities to
recognize compensation expense in an amount equal to the fair
value of share-based payments granted to employees. SFAS No.
123 (revised) requires a company to record compensation expense
for all awards granted after the date of adoption of SFAS No.
123 (revised) and for the unvested portion of previously
granted awards that remain outstanding at the date of adoption.
SFAS No. 123 (revised) is effective for the Company on January 1,
2006. The Company is evaluating the effects of the adoption
of SFAS No. 123 (revised).
FIN 47
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - An Interpretation of FASB Statement No. 143" (FIN 47). FIN 47 addresses the diverse accounting practices that developed with respect to the timing of liability recognition for legal obligations associated with the retirement of a tangible long- lived asset when the timing and/or method of settlement of the obligation are conditional on a future event. FIN 47 concludes that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47 is effective for the Company at the end of the fiscal year ending December 31, 2005. The Company is evaluating the effects of the adoption of FIN 47.
EITF No. 04-6
In March 2005, the FASB ratified Emerging Issues Task Force Issue No. 04-6, "Accounting for Stripping Costs in the Mining Industry" (EITF No. 04-6). EITF No. 04-6 requires that post- production stripping costs be treated as a variable inventory production cost. As a result, such costs will be subject to inventory costing procedures in the period they are incurred. EITF No. 04-6 is effective for the Company on January 1, 2006. The Company is evaluating the effects of the adoption of EITF No. 04-6.
11. Comprehensive income
Comprehensive income is the sum of net income as reported and other comprehensive income (loss). The Company's other comprehensive income (loss) resulted from gains (losses) on derivative instruments qualifying as hedges and foreign currency translation adjustments. For more information on derivative instruments, see Note 14 of Notes to Consolidated Financial Statements.
Comprehensive income, and the components of other comprehensive income (loss) and related tax effects, were as follows:
Three Months Ended
June 30,
2005 2004
(In thousands)
Net income $80,173 $58,630
Other comprehensive income (loss):
Net unrealized gain (loss) on
derivative instruments qualifying
as hedges:
Net unrealized gain (loss) on
derivative instruments arising
during the period, net of tax of
$1,225 and $3,711 in 2005 and 2004,
respectively 1,957 (5,804)
Less: Reclassification adjustment
for loss on derivative
instruments included in net income,
net of tax of $4,522 and $1,473 in
2005 and 2004, respectively (7,223) (2,304)
Net unrealized gain (loss) on
derivative instruments qualifying
as hedges 9,180 (3,500)
Foreign currency translation
adjustment (925) (377)
8,255 (3,877)
Comprehensive income $88,428 $54,753
Six Months Ended
June 30,
2005 2004
(In thousands)
Net income $114,593 $82,209
Other comprehensive loss:
Net unrealized loss on
derivative instruments qualifying
as hedges:
Net unrealized loss on
derivative instruments arising
during the period, net of tax of
$8,467 and $6,424 in 2005 and 2004,
respectively (13,525) (10,047)
Less: Reclassification adjustment
for loss on derivative
instruments included in net income,
net of tax of $1,057 and $1,020 in
2005 and 2004, respectively (1,688) (1,595)
Net unrealized loss on
derivative instruments qualifying
as hedges (11,837) (8,452)
Foreign currency translation
adjustment (1,019) (1,438)
(12,856) (9,890)
Comprehensive income $101,737 $72,319
|
12. Equity method investments
The Company has a number of equity method investments including Carib Power Management LLC (Carib Power) and Hartwell Energy Limited Partnership (Hartwell). The Company assesses its equity method investments for impairment whenever events or changes in circumstances indicate that the related carrying values may not be recoverable. None of the Company's equity method investments have been impaired and, accordingly, no impairment losses have been recorded in the accompanying consolidated financial statements or related equity method investment balances.
In February 2004, Centennial Energy Resources International, Inc. (Centennial International), an indirect wholly owned subsidiary of the Company, acquired 49.99 percent of Carib Power. Carib Power, through a wholly owned subsidiary, owns a 225-megawatt natural gas-fired electric generating facility located in Trinidad and Tobago (Trinity Generating Facility). The Trinity Generating Facility sells its output to the Trinidad and Tobago Electric Commission (T&TEC), the governmental entity responsible for the transmission, distribution and administration of electrical power to the national electrical grid of Trinidad and Tobago. The power purchase agreement expires in September 2029. T&TEC also is under contract to supply natural gas to the Trinity Generating Facility during the term of the power purchase contract. The functional currency for the Trinity Generating Facility is the U.S. dollar.
In September 2004, Centennial Resources, through wholly owned subsidiaries, acquired a 50-percent ownership interest in a 310- megawatt natural gas-fired electric generating facility located in Hartwell, Georgia (Hartwell Generating Facility). The Hartwell Generating Facility sells its output under a power purchase agreement with Oglethorpe Power Corporation (Oglethorpe) that expires in May 2019. Oglethorpe reimburses the Hartwell Generating Facility for actual costs of fuel acquired to operate the plant. American National Power, a wholly owned subsidiary of International Power of the United Kingdom, holds the remaining 50-percent ownership interest and is the operating partner for the facility.
In June 2005, an indirect wholly owned subsidiary of the Company completed the sale to Petrobras, the Brazilian state- controlled energy company, of its 49 percent interest in MPX Termoceara, Ltda. (MPX). The Company realized a gain of $15.6 million from the sale. MPX owns and operates a 220-megawatt natural gas-fired electric generating facility (Termoceara Generating Facility) in the Brazilian state of Ceara. Petrobras had entered into a contract to purchase all of the capacity and market all of the energy from the Termoceara Generating Facility. The electric power sales contract with Petrobras was scheduled to expire in mid-2008.
The functional currency for the Termoceara Generating Facility was the Brazilian Real. The electric power sales contract with Petrobras contained an embedded derivative, which derived its value from an annual adjustment factor, which largely indexed the contract capacity payments to the U.S. dollar. The Company's 49 percent share of the gain from the change in fair value of the embedded derivative in the electric power sales contract for the three and six months ended June 30, 2004, was $4.1 million (after tax). The Company's 49 percent share of the foreign currency loss resulting from the decrease in value of the Brazilian Real versus the U.S. dollar for the three and six months ended June 30, 2004, was $1.8 million (after tax) and $2.0 million (after tax), respectively.
In 2005, the Termoceara Generating Facility was accounted for as an asset held for sale and as a result no depreciation, depletion and amortization expense was recorded in 2005.
Centennial had unconditionally guaranteed a portion of certain bank borrowings of MPX. For more information on this guarantee, see Note 19.
At June 30, 2005, the Company's equity method investments, including Carib Power and Hartwell, had total assets of $243.6 million, and long-term debt of $159.6 million. At December 31, 2004, MPX, Carib Power and Hartwell had total assets of $334.2 million, and long-term debt of $224.9 million. At June 30, 2004, MPX and Carib Power had total assets of $202.8 million and long-term debt of $158.0 million. The Company's investment in its equity method investments, including the Trinity and Hartwell Generating Facilities, was approximately $43.4 million, including undistributed earnings of $2.6 million, at June 30, 2005. The Company's investment in the Termoceara, Trinity and Hartwell Generating Facilities was approximately $65.7 million, including undistributed earnings of $26.6 million, at December 31, 2004. The Company's investment in the Termoceara and Trinity Generating Facilities was approximately $26.0 million, including undistributed earnings of $14.8 million, at June 30, 2004.
13. Goodwill and other intangible assets
The changes in the carrying amount of goodwill were as follows:
Balance Goodwill Balance
as of Acquired as of
Six Months January 1, During June 30,
Ended June 30, 2005 2005 the Year* 2005
(In thousands)
Electric $ --- $ --- $ ---
Natural gas
distribution --- --- ---
Utility services 62,632 12,102 74,734
Pipeline and energy
services 5,464 --- 5,464
Natural gas and oil
production --- --- ---
Construction materials
and mining 120,452 3,155 123,607
Independent power
production 11,195 (28) 11,167
Other --- --- ---
Total $199,743 $ 15,229 $214,972
Balance Goodwill Balance
as of Acquired as of
Six Months January 1, During June 30,
Ended June 30, 2004 2004 the Year* 2004
(In thousands)
Electric $ --- $ --- $ ---
Natural gas
distribution --- --- ---
Utility services 62,604 28 62,632
Pipeline and energy
services 9,494 --- 9,494
Natural gas and oil
production --- --- ---
Construction materials
and mining 120,198 (2,668) 117,530
Independent power
production 7,131 3,766 10,897
Other --- --- ---
Total $199,427 $ 1,126 $200,553
Balance Goodwill Goodwill Balance
as of Acquired Impaired as of
Year Ended January 1, During During December 31,
December 31, 2004 2004 the Year* the Year 2004
(In thousands)
Electric $ --- $ --- $ --- $ ---
Natural gas
distribution --- --- --- ---
Utility services 62,604 28 --- 62,632
Pipeline and energy
services 9,494 --- (4,030) 5,464
Natural gas and oil
production --- --- --- ---
Construction materials
and mining 120,198 254 --- 120,452
Independent power
production 7,131 4,064 --- 11,195
Other --- --- --- ---
Total $199,427 $4,346 $(4,030) $199,743
__________________
|
* Includes purchase price adjustments related to acquisitions acquired in a prior period.
Innovatum, Inc. (Innovatum), an indirect wholly owned subsidiary of the Company, which specializes in cable and pipeline magnetization and location, developed a hand-held locating device that can detect both magnetic and plastic materials, including unexploded ordnance. Innovatum was working with, and had demonstrated the device to, a Department of Defense contractor and had also met with individuals from the Department of Defense to discuss the possibility of using the hand-held locating device in their operations. In the third quarter of 2004, after communications with the Department of Defense, and delays in further testing resulting from a Department of Defense request to enhance the hand-held locating device, Innovatum decreased its expected future cash flows from the hand-held locating device. This decrease, coupled with the continued downturn in the telecommunications and energy industries, resulted in a revised earnings forecast for Innovatum, and as a result, a goodwill impairment loss of $4.0 million (before and after tax) was recognized in the third quarter of 2004. Innovatum, a reporting unit for goodwill impairment testing, is part of the pipeline and energy services segment. The fair value of Innovatum was estimated using the expected present value of future cash flows.
Other intangible assets were as follows:
June 30, June 30, December 31,
2005 2004 2004
(In thousands)
Amortizable intangible assets:
Acquired contracts $ 18,707 $14,636 $ 15,041
Accumulated amortization (6,519) (3,036) (5,013)
12,188 11,600 10,028
Noncompete agreements 11,784 10,275 10,575
Accumulated amortization (8,310) (8,024) (8,186)
3,474 2,251 2,389
Other 14,698 6,656 9,535
Accumulated amortization (914) (362) (534)
13,784 6,294 9,001
Unamortizable intangible
assets 851 960 851
Total $ 30,297 $ 21,105 $ 22,269
|
The unamortizable intangible assets were recognized in accordance with SFAS No. 87, "Employers' Accounting for Pensions," which requires that if an additional minimum liability is recognized an equal amount shall be recognized as an intangible asset, provided that the asset recognized shall not exceed the amount of unrecognized prior service cost. The unamortizable intangible asset will be eliminated or adjusted as necessary upon a new determination of the amount of additional liability.
Amortization expense for amortizable intangible assets for the three and six months ended June 30, 2005 was $1.2 million and $2.1 million, respectively. Amortization expense for amortizable intangible assets for the three and six months ended June 30, 2004, and for the year ended December 31, 2004, was $702,000, $1.3 million and $3.8 million, respectively. Estimated amortization expense for amortizable intangible assets is $5.9 million in 2005, $6.0 million in 2006, $4.5 million in 2007, $4.0 million in 2008, $3.9 million in 2009 and $7.2 million thereafter.
14. Derivative instruments
From time to time, the Company utilizes derivative instruments as part of an overall energy price, foreign currency and interest rate risk management program to efficiently manage and minimize commodity price, foreign currency and interest rate risk. The following information should be read in conjunction with Notes 1 and 5 in the Company's Notes to Consolidated Financial Statements in the 2004 Annual Report.
As of June 30, 2005, Fidelity Exploration & Production Company (Fidelity), an indirect wholly owned subsidiary of the Company, held derivative instruments designated as cash flow hedging instruments.
Hedging activities
Fidelity utilizes natural gas and oil price swap and collar agreements to manage a portion of the market risk associated with fluctuations in the price of natural gas and oil on its forecasted sales of natural gas and oil production. Each of the natural gas and oil price swap and collar agreements was designated as a hedge of the forecasted sale of natural gas and oil production.
For the three and six months ended June 30, 2005 and 2004, the amount of hedge ineffectiveness, which was included in operating revenues, was immaterial. For the three and six months ended June 30, 2005 and 2004, Fidelity did not exclude any components of the derivative instruments' gain or loss from the assessment of hedge effectiveness and there were no reclassifications into earnings as a result of the discontinuance of hedges.
Gains and losses on derivative instruments that are reclassified from accumulated other comprehensive income (loss) to current-period earnings are included in the line item in which the hedged item is recorded. As of June 30, 2005, the maximum term of Fidelity's swap and collar agreements, in which it is hedging its exposure to the variability in future cash flows for forecasted transactions, is 18 months. Fidelity estimates that over the next 12 months net losses of approximately $13.7 million will be reclassified from accumulated other comprehensive loss into earnings, subject to changes in natural gas and oil market prices, as the hedged transactions affect earnings.
15. Business segment data
The Company's reportable segments are those that are based on the Company's method of internal reporting, which generally segregates the strategic business units due to differences in products, services and regulation. Prior to the fourth quarter of 2004, the Company reported six reportable segments consisting of electric, natural gas distribution, utility services, pipeline and energy services, natural gas and oil production and construction materials and mining. The independent power production and other operations did not individually meet the criteria to be considered a reportable segment. In the fourth quarter of 2004, the Company separated independent power production as a reportable business segment due to the significance of its operations. The Company's operations are now conducted through seven reportable segments and all prior period information has been restated to reflect this change.
The vast majority of the Company's operations are located within the United States. The Company also has investments in foreign countries, which largely consist of investments in natural resource-based projects.
The electric segment generates, transmits and distributes electricity, and the natural gas distribution segment distributes natural gas. These operations also supply related value-added products and services in the northern Great Plains.
The utility services segment specializes in electrical line construction, pipeline construction, inside electrical wiring and cabling, and the manufacture and distribution of specialty equipment.
The pipeline and energy services segment provides natural gas transportation, underground storage and gathering services through regulated and nonregulated pipeline systems primarily in the Rocky Mountain and northern Great Plains regions of the United States. The pipeline and energy services segment also provides energy-related management services, including cable and pipeline magnetization and locating.
The natural gas and oil production segment is engaged in natural gas and oil acquisition, exploration, development and production activities, primarily in the Rocky Mountain region of the United States and in and around the Gulf of Mexico.
The construction materials and mining segment mines aggregates and markets crushed stone, sand, gravel and related construction materials, including ready-mixed concrete, cement, asphalt and other value-added products, as well as performs integrated construction services, in the central and western United States and in the states of Alaska and Hawaii.
The independent power production segment owns, builds and operates electric generating facilities in the United States and has investments in domestic and international natural resource-based projects. Electric capacity and energy produced at its power plants are sold primarily under mid- and long-term contracts to nonaffiliated entities.
The information below follows the same accounting policies as described in Note 1 in the Company's Notes to Consolidated Financial Statements in the 2004 Annual Report. Information on the Company's businesses was as follows:
Inter-
External segment Earnings
Operating Operating on Common
Revenues Revenues Stock
(In thousands)
Three Months
Ended June 30, 2005
Electric $ 41,052 $ --- $ 1,755
Natural gas distribution 54,691 --- (1,283)
Pipeline and energy
services 86,366 15,055 8,737
182,109 15,055 9,209
Utility services 136,911 (19) 3,659
Natural gas and oil
production 43,487 54,255 29,949
Construction materials
and mining 394,015 --- 18,421
Independent power
production 13,650 --- 18,582
Other --- 1,367 182
588,063 55,603 70,793
Intersegment eliminations --- (70,658) ---
Total $ 770,172 $ --- $ 80,002
Inter-
External segment Earnings
Operating Operating on Common
Revenues Revenues Stock
(In thousands)
Three Months
Ended June 30, 2004
Electric $ 39,834 $ --- $ 735
Natural gas distribution 47,461 --- (1,097)
Pipeline and energy
services 72,073 13,423 4,434
159,368 13,423 4,072
Utility services 97,226 --- (2,294)
Natural gas and oil
production 39,038 45,181 26,136
Construction materials
and mining 347,026 200 20,345
Independent power
production 10,643 --- 10,136
Other --- 919 63
493,933 46,300 54,386
Intersegment eliminations --- (59,723) ---
Total $ 653,301 $ --- $ 58,458
Inter-
External segment Earnings
Operating Operating on Common
Revenues Revenues Stock
(In thousands)
Six Months
Ended June 30, 2005
Electric $ 85,371 $ --- $ 4,888
Natural gas distribution 199,665 --- 3,539
Pipeline and energy
services 152,445 41,803 11,963
437,481 41,803 20,390
Utility services 250,621 132 5,617
Natural gas and oil
production 81,797 103,025 58,754
Construction materials
and mining 581,102 7 9,885
Independent power
production 23,466 --- 19,339
Other --- 2,735 266
936,986 105,899 93,861
Intersegment eliminations --- (147,702) ---
Total $1,374,467 $ --- $114,251
Inter-
External segment Earnings
Operating Operating on Common
Revenues Revenues Stock
(In thousands)
Six Months
Ended June 30, 2004
Electric $ 86,824 $ --- $ 4,143
Natural gas distribution 175,779 --- 1,228
Pipeline and energy
services 128,612 41,036 7,117
391,215 41,036 12,488
Utility services 197,477 --- (4,195)
Natural gas and oil
production 76,544 88,644 51,395
Construction materials
and mining 486,473 200 8,464
Independent power
production 17,051 --- 13,399
Other --- 1,837 316
777,545 90,681 69,379
Intersegment eliminations --- (131,717) ---
Total $1,168,760 $ --- $ 81,867
|
Earnings (loss) from electric, natural gas distribution and pipeline and energy services are substantially all from regulated operations. Earnings (loss) from utility services, natural gas and oil production, construction materials and mining, independent power production, and other are all from nonregulated operations.
16. Acquisitions
During the first six months of 2005, the Company acquired utility services businesses in Nevada and construction materials and mining businesses in Idaho and Oregon, and natural gas and oil properties in south Texas, none of which was individually material. The total purchase consideration for these businesses and properties and purchase price adjustments with respect to certain other acquisitions acquired prior to 2005, including the Company's common stock and cash, was $192.9 million.
The above acquisitions were accounted for under the purchase method of accounting and, accordingly, the acquired assets and liabilities assumed have been preliminarily recorded at their respective fair values as of the date of acquisition. Final fair market values are pending the completion of the review of the relevant assets, liabilities and issues identified as of the acquisition date. The results of operations of the acquired businesses and properties are included in the financial statements since the date of each acquisition. Pro forma financial amounts reflecting the effects of the above acquisitions are not presented, as such acquisitions were not material to the Company's financial position or results of operations.
17. Employee benefit plans
The Company has noncontributory defined benefit pension plans and other postretirement benefit plans for certain eligible employees. The Company recognized the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (2003 Medicare Act) during the second quarter of 2004. Components of net periodic benefit cost for the Company's pension and other postretirement benefit plans were as follows:
Other
Pension Postretirement
Three Months Benefits Benefits
Ended June 30, 2005 2004 2005 2004
(In thousands)
Components of net periodic
benefit cost:
Service cost $2,121 $ 1,984 $ 546 $ 312
Interest cost 4,152 4,011 1,039 850
Expected return on
assets (5,063) (5,100) (1,042) (979)
Amortization of prior
service cost 256 283 --- 72
Recognized net actuarial
(gain) loss 483 (8) (38) (27)
Amortization of net
transition obligation
(asset) (11) (62) 525 550
Net periodic benefit cost 1,938 1,108 1,030 778
Less amount capitalized 185 117 115 80
Net periodic benefit cost $1,753 $ 991 $ 915 $ 698
Other
Pension Postretirement
Six Months Benefits Benefits
Ended June 30, 2005 2004 2005 2004
(In thousands)
Components of net periodic
benefit cost:
Service cost $4,168 $ 3,833 $1,031 $ 896
Interest cost 8,308 7,952 2,136 2,173
Expected return on
assets (9,973) (10,187) (2,025)(1,972)
Amortization of prior
service cost 512 561 --- 72
Recognized net actuarial
(gain) loss 692 239 (77) (82)
Amortization of net
transition obligation
(asset) (22) (125) 1,063 1,076
Net periodic benefit cost 3,685 2,273 2,128 2,163
Less amount capitalized 357 191 206 182
Net periodic benefit cost $3,328 $ 2,082 $1,922 $1,981
|
In addition to the qualified plan defined pension benefits reflected in the table above, the Company also has an unfunded, nonqualified benefit plan for executive officers and certain key management employees that generally provides for defined benefit payments at age 65 following the employee's retirement or to their beneficiaries upon death for a 15-year period. The Company's net periodic benefit cost for this plan for the three and six months ended June 30, 2005, was $1.4 million and $3.3 million, respectively. The Company's net periodic benefit cost for this plan for the three and six months ended June 30, 2004, was $2.3 million and $3.8 million, respectively.
18. Regulatory matters and revenues subject to refund
On March 24, 2005, Montana-Dakota filed an application with the South Dakota Public Utilities Commission (SDPUC) for the East River service area for a natural gas rate increase. Montana- Dakota requested a total increase of $850,000 annually or 12.8 percent above current rates. A final order from the SDPUC is expected in late 2005.
In September 2004, Great Plains filed an application with the Minnesota Public Utilities Commission (MPUC) for a natural gas rate increase. Great Plains had requested a total increase of $1.4 million annually or approximately 4.0 percent above current rates. Great Plains also requested an interim increase of $1.4 million annually. In November 2004, the MPUC issued an Order authorizing an interim increase of $1.4 million annually effective with service rendered on or after January 10, 2005, subject to refund. A final order from the MPUC is expected in early 2006.
A liability has been provided for a portion of the revenues that have been collected subject to refund with respect to Great Plains' pending regulatory proceeding. Great Plains believes that the liability is adequate based on its assessment of the ultimate outcome of the proceeding.
In December 1999, Williston Basin Interstate Pipeline Company (Williston Basin), an indirect wholly owned subsidiary of the Company, filed a general natural gas rate change application with the Federal Energy Regulatory Commission (FERC). Williston Basin began collecting such rates effective June 1, 2000, subject to refund. In May 2001, the Administrative Law Judge (ALJ) issued an Initial Decision on Williston Basin's natural gas rate change application. The Initial Decision addressed numerous issues relating to the rate change application, including matters relating to allowable levels of rate base, return on common equity, and cost of service, as well as volumes established for purposes of cost recovery, and cost allocation and rate design. In July 2003, the FERC issued its Order on Initial Decision. The Order on Initial Decision affirmed the ALJ's Initial Decision on many of the issues including rate base and certain cost of service items as well as volumes to be used for purposes of cost recovery, and cost allocation and rate design. However, there were other issues as to which the FERC differed with the ALJ including return on common equity and the correct level of corporate overhead expense. In August 2003, Williston Basin requested rehearing of a number of issues including determinations associated with cost of service, throughput, and cost allocation and rate design, as discussed in the FERC's Order on Initial Decision. In May 2004, the FERC issued an Order on Rehearing. The Order on Rehearing denied rehearing on all of the issues addressed by Williston Basin in its August 2003 request for rehearing except for the issue of the proper rate to utilize for transmission system negative salvage expenses. In addition, the FERC remanded the issues regarding certain service and annual demand quantity restrictions to an ALJ for resolution. In June 2004, Williston Basin requested clarification of a few of the issues addressed in the Order on Rehearing including determinations associated with cost of service and cost allocation, as discussed in the FERC's Order on Rehearing. In June 2004, Williston Basin also made its filing to comply with the requirements of the various FERC orders in this proceeding. Williston Basin participated in a hearing before the ALJ in early January 2005, regarding certain service and annual demand quantity restrictions remanded to the ALJ by the FERC in its Order on Rehearing. On April 8, 2005, the ALJ issued an Initial Decision on the matters remanded by the FERC. In the Initial Decision, the ALJ decided that Williston Basin had not supported its position regarding the service and annual demand quantity restrictions. Williston Basin filed its Brief on Exceptions regarding these issues with the FERC on May 9, 2005, and its Brief Opposing Exceptions to issues raised by Northern States Power Company on May 31, 2005. On April 19, 2005, the FERC issued its Order on Compliance Filing and Motion for Refunds. In this Order, the FERC approved Williston Basin's refund rates and established rates to be effective April 19, 2005. Williston Basin filed its compliance filing complying with the requirements of this Order regarding rates and issued refunds totaling approximately $18.5 million to its customers on May 19, 2005. Williston Basin filed its Refund Report, detailing the $18.5 million in refunds it issued to its customers, with the FERC on June 1, 2005. As a result of the Order, Williston Basin recorded a $5.0 million (after tax) benefit from the resolution of the rate proceeding.
19. Contingencies
Litigation
In June 1997, Jack J. Grynberg (Grynberg) filed suit under the Federal False Claims Act against Williston Basin and Montana- Dakota and filed over 70 similar suits against natural gas transmission companies and producers, gatherers, and processors of natural gas. Grynberg, acting on behalf of the United States under the Federal False Claims Act, alleged improper measurement of the heating content and volume of natural gas purchased by the defendants resulting in the underpayment of royalties to the United States. In April 1999, the United States Department of Justice decided not to intervene in these cases. In response to a motion filed by Grynberg, the Judicial Panel on Multidistrict Litigation consolidated all of these cases in the United States District Court for the District of Wyoming (Wyoming Federal District Court).
In June 2004, following preliminary discovery, Williston Basin and Montana-Dakota joined with other defendants and filed a Motion to Dismiss on the ground that the information upon which Grynberg based his complaint was publicly disclosed prior to the filing of his complaint and further, that he is not the original source of such information. The Motion to Dismiss is additionally based on the ground that Grynberg disclosed the filing of the complaint prior to the entry of a court order allowing such disclosure and that Grynberg failed to provide adequate information to the government prior to filing suit. The Motion to Dismiss was heard on March 17 and 18, 2005, by the Special Master appointed by the Wyoming Federal District Court. The Special Master, in his Written Report dated May 13, 2005, recommended the dismissal of Williston Basin and Montana- Dakota. The Written Report will be considered for adoption by the Wyoming Federal District Court.
In the event the Motion to Dismiss is not granted, it is expected that further discovery will follow. Williston Basin and Montana-Dakota believe Grynberg will not prevail in the suit or recover damages from Williston Basin and/or Montana- Dakota because insufficient facts exist to support the allegations. Williston Basin and Montana-Dakota believe Grynberg's claims are without merit and intend to vigorously contest this suit.
Grynberg has not specified the amount he seeks to recover. Williston Basin and Montana-Dakota are unable to estimate their potential exposure and will be unable to do so until discovery is completed.
Fidelity has been named as a defendant in, and/or certain of its operations are or have been the subject of, more than a dozen lawsuits filed in connection with its coalbed natural gas development in the Powder River Basin in Montana and Wyoming. These lawsuits were filed in federal and state courts in Montana between June 2000 and November 2004 by a number of environmental organizations, including the Northern Plains Resource Council (NPRC) and the Montana Environmental Information Center, as well as the Tongue River Water Users' Association and the Northern Cheyenne Tribe. Portions of two of the lawsuits have been transferred to the Wyoming Federal District Court. The lawsuits involve allegations that Fidelity and/or various government agencies are in violation of state and/or federal law, including the Federal Clean Water Act, the National Environmental Policy Act (NEPA), the Federal Land Management Policy Act, the National Historic Preservation Act (NHPA) and the Montana Environmental Policy Act. The cases involving alleged violations of the Federal Clean Water Act have been resolved without a finding that Fidelity is in violation of the Federal Clean Water Act. There presently are no claims pending for penalties, fines or damages under the Federal Clean Water Act. The suits that remain extant include a variety of claims that state and federal government agencies violated various environmental laws that impose procedural requirements and the lawsuits seek injunctive relief, invalidation of various permits and unspecified damages.
In suits filed in the United States District Court for the District of Montana (Montana Federal District Court), the NPRC and the Northern Cheyenne Tribe asserted that further development by Fidelity and others of coalbed natural gas in Montana should be enjoined until the Bureau of Land Management (BLM) completes a Supplemental Environmental Impact Statement (SEIS). The Montana Federal District Court, in February 2005, entered a ruling requiring the BLM to complete a SEIS. The Montana Federal District Court later entered an order that would have allowed limited coalbed natural gas production in the Powder River Basin in Montana pending the BLM's preparation of the SEIS. The plaintiffs appealed the decision to the United States Ninth Circuit Court of Appeals (Ninth Circuit). The Montana Federal District Court declined to enter an injunction requested by the NPRC and the Northern Cheyenne Tribe that would have enjoined production pending the appeal. In late May 2005, the Ninth Circuit granted the request of the NPRC and the Northern Cheyenne Tribe and, pending further order from the Ninth Circuit, enjoined the BLM from approving any coalbed natural gas production projects in the Powder River Basin in Montana. That court also enjoined Fidelity from drilling any additional federally permitted wells in its Montana Coal Creek Project and from constructing infrastructure to produce and transport coalbed natural gas from the Coal Creek Project's existing federal wells.
In related actions in the Montana Federal District Court, the NPRC and the Northern Cheyenne Tribe asserted (among other things) that the actions of the BLM in approving Fidelity's applications for permits and the plan of development for the Tongue River-Badger Hills Project in Montana (Badger Hills Project) did not comply with applicable Federal laws, including the NHPA and the NEPA. The NPRC also asserted that the Environmental Assessment that supported the BLM's prior approval of the Badger Hills Project was invalid. On June 6, 2005, the Montana Federal District Court issued orders in these cases enjoining operations on Fidelity's Badger Hills Project pending the BLM's consultation with the Northern Cheyenne Tribe as to satisfaction of the applicable requirements of NHPA and a further environmental analysis under NEPA. Fidelity has sought and obtained stays of the injunctive relief from the Montana Federal District Court and production from Fidelity's Badger Hills Project continues.
Fidelity is vigorously defending all coalbed-related lawsuits and related actions in which it is involved, including the recent Ninth Circuit and Montana Federal District Court injunctions. In those cases where damage claims have been asserted, Fidelity is unable to quantify the damages sought and will be unable to do so until after the completion of discovery. If the plaintiffs are successful in these lawsuits, the ultimate outcome of the actions could have a material effect on Fidelity's existing coalbed natural gas operations and/or the future development of this resource in the affected regions.
Montana-Dakota has joined with two electric generators in appealing a finding by the North Dakota Department of Health (ND Health Department) in September 2003 that the ND Health Department may unilaterally revise operating permits previously issued to electric generating plants. Although it is doubtful that any revision of Montana-Dakota's operating permits by the ND Health Department would reduce the amount of electricity its plants could generate, the finding, if allowed to stand, could increase costs for sulfur dioxide removal and/or limit Montana- Dakota's ability to modify or expand operations at its North Dakota generation sites. Montana-Dakota and the other electric generators filed their appeal of the order in October 2003, in the Burleigh County District Court in Bismarck, North Dakota. Proceedings have been stayed pending discussions with the U.S. Environmental Protection Agency (EPA), the ND Health Department and the other electric generators.
The Company is also involved in other legal actions in the ordinary course of its business. Although the outcomes of any such legal actions cannot be predicted, management believes that the outcomes with respect to these other legal proceedings will not have a material adverse effect upon the Company's financial position or results of operations.
Environmental matters
In December 2000, Morse Bros., Inc. (MBI), an indirect wholly owned subsidiary of the Company, was named by the EPA as a Potentially Responsible Party in connection with the cleanup of a commercial property site, acquired by MBI in 1999, and part of the Portland, Oregon, Harbor Superfund Site. Sixty-eight other parties were also named in this administrative action. The EPA wants responsible parties to share in the cleanup of sediment contamination in the Willamette River. To date, costs of the overall remedial investigation of the harbor site for both the EPA and the Oregon State Department of Environmental Quality (DEQ) are being recorded, and initially paid, through an administrative consent order by the Lower Willamette Group (LWG), a group of 10 entities, which does not include MBI. The LWG estimates the overall remedial investigation and feasibility study will cost approximately $10 million. It is not possible to estimate the cost of a corrective action plan until the remedial investigation and feasibility study has been completed, the EPA has decided on a strategy, and a record of decision has been published. While the remedial investigation and feasibility study for the harbor site has commenced, it is expected to take several years to complete. The development of a proposed plan and record of decision on the harbor site is not anticipated to occur until 2006, after which a cleanup plan will be undertaken.
Based upon a review of the Portland Harbor sediment contamination evaluation by the DEQ and other information available, MBI does not believe it is a Responsible Party. In addition, MBI has notified Georgia-Pacific West, Inc., the seller of the commercial property site to MBI, that it intends to seek indemnity for any and all liabilities incurred in relation to the above matters, pursuant to the terms of their sale agreement.
The Company believes it is not probable that it will incur any material environmental remediation costs or damages in relation to the above administrative action.
In August 2004, Colorado Power Partners (CPP) and BIV Generation Company, LLC (BIV), indirect wholly owned subsidiaries of the Company, were each issued a draft Compliance Order on Consent (Compliance Orders) by the Colorado Department of Public Health and Environment (CDPHE). The Compliance Orders were issued in connection with excess emission periods of nitrogen oxides and carbon monoxide at the Company's electric generating facilities in Brush, Colorado, occurring mainly during start-up and shut-down periods. In June 2005, CPP, BIV and the CDPHE agreed upon the Compliance Orders. The terms of the Compliance Orders for CPP and BIV include administrative penalties of $9,900 and $10,600, and noncompliance/economic benefit penalties of $7,700 and $8,300, respectively. In addition, the terms of the Compliance Orders include an agreement for CPP and BIV to make a non-tax deductible donation for a Supplemental Environmental Project (SEP) in Morgan County, Colorado with total expenditures of not less than $39,600 and $42,400, respectively. If the parties cannot come to an agreement on the SEP to be funded within 120 days of the Compliance Order, CPP and BIV shall pay $39,600 and $42,400, respectively, as administrative penalties.
Guarantees
Centennial had unconditionally guaranteed a portion of certain bank borrowings of MPX in connection with the Company's equity method investment in the Termoceara Generating Facility, as discussed in Note 12. The Company, through an indirect wholly owned subsidiary, owned 49 percent of MPX. The guarantee to MPX's creditors expired on July 25, 2005, as the outstanding bank borrowings were repaid on that date. At June 30, 2005, the aggregate amount of borrowings outstanding subject to these guarantees was $29.6 million. These guarantees are not reflected on the Consolidated Balance Sheets.
In connection with the sale of MPX to Petrobras an indirect wholly-owned subsidiary of the Company has agreed to indemnify Petrobras for 49 percent of any losses which Petrobras may incur from certain contingent liabilities specified in the purchase agreement. Centennial has agreed to unconditionally guarantee payment of the indemnity obligations to Petrobras.
In addition, WBI Holdings has guaranteed certain of Fidelity's natural gas and oil price swap and collar agreement obligations. Fidelity's obligations at June 30, 2005, were $11.3 million. There is no fixed maximum amount guaranteed in relation to the natural gas and oil price swap and collar agreements, as the amount of the obligation is dependent upon natural gas and oil commodity prices. The amount of hedging activity entered into by the subsidiary is limited by corporate policy. The guarantees of the natural gas and oil price swap and collar agreements at June 30, 2005, expire in 2005 and 2006; however, Fidelity continues to enter into additional hedging activities and, as a result, WBI Holdings from time to time may issue additional guarantees on these hedging obligations. The amount outstanding by Fidelity was reflected on the Consolidated Balance Sheets at June 30, 2005. In the event Fidelity defaults under its obligations, WBI Holdings would be required to make payments under its guarantees.
Certain subsidiaries of the Company have outstanding guarantees to third parties that guarantee the performance of other subsidiaries of the Company. These guarantees are related to natural gas transportation and sales agreements, electric power supply agreements, insurance policies and certain other guarantees. At June 30, 2005, the fixed maximum amounts guaranteed under these agreements aggregated $99.3 million. The amounts of scheduled expiration of the maximum amounts guaranteed under these agreements aggregate $15.0 million in 2005; $27.4 million in 2006; $2.2 million in 2007; $200,000 in 2008; $900,000 in 2009; $30.0 million in 2010; $12.0 million in 2012; $2.1 million in 2028; $500,000, which is subject to expiration 30 days after the receipt of written notice and $9.0 million, which has no scheduled maturity date. A guarantee for an unfixed amount estimated at $300,000 at June 30, 2005, has no scheduled maturity date. The amount outstanding by subsidiaries of the Company under the above guarantees was $528,000 and was reflected on the Consolidated Balance Sheets at June 30, 2005. In the event of default under these guarantee obligations, the subsidiary issuing the guarantee for that particular obligation would be required to make payments under its guarantee.
Fidelity and WBI Holdings have outstanding guarantees to Williston Basin. These guarantees are related to natural gas transportation and storage agreements that guarantee the performance of Prairielands Energy Marketing, Inc. (Prairielands), an indirect wholly owned subsidiary of the Company. At June 30, 2005, the fixed maximum amounts guaranteed under these agreements aggregated $22.9 million. Scheduled expiration of the maximum amounts guaranteed under these agreements aggregate $2.9 million in 2008 and $20.0 million in 2009. In the event of Prairielands' default in its payment obligations, the subsidiary issuing the guarantee for that particular obligation would be required to make payments under its guarantee. The amount outstanding by Prairielands under the above guarantees was $1.5 million, which was not reflected on the Consolidated Balance Sheet at June 30, 2005, because these intercompany transactions are eliminated in consolidation.
In addition, Centennial has issued guarantees to third parties related to the Company's routine purchase of maintenance items for which no fixed maximum amounts have been specified. These guarantees have no scheduled maturity date. In the event a subsidiary of the Company defaults under its obligation in relation to the purchase of certain maintenance items, Centennial would be required to make payments under these guarantees. Any amounts outstanding by subsidiaries of the Company for these maintenance items were reflected on the Consolidated Balance Sheet at June 30, 2005.
As of June 30, 2005, Centennial was contingently liable for the performance of certain of its subsidiaries under approximately $614 million of surety bonds. These bonds are principally for construction contracts and reclamation obligations of these subsidiaries entered into in the normal course of business. Centennial indemnifies the respective surety bond companies against any exposure under the bonds. The purpose of Centennial's indemnification is to allow the subsidiaries to obtain bonding at competitive rates. In the event a subsidiary of the Company does not fulfill its obligations in relation to its bonded contract or obligation, Centennial may be required to make payments under its indemnification. A large portion of these contingent commitments is expected to expire within the next 12 months; however, Centennial will likely continue to enter into surety bonds for its subsidiaries in the future. The surety bonds were not reflected on the Consolidated Balance Sheets.
20. Related party transactions
In 2004, Bitter Creek Pipelines, LLC (Bitter Creek), an indirect wholly owned subsidiary of the Company, entered into two natural gas gathering agreements with Nance Petroleum Corporation (Nance Petroleum), a wholly owned subsidiary of St. Mary Land & Exploration Company (St. Mary). Robert L. Nance, an executive officer and shareholder of St. Mary, is also a member of the Board of Directors of the Company. The natural gas gathering agreements with Nance Petroleum were effective upon completion of certain high and low pressure gathering facilities, which occurred in mid-December 2004. Bitter Creek's capital expenditures related to the completion of the gathering lines and the expansion of its gathering facilities to accommodate the natural gas gathering agreements were $1.1 million and $2.1 million for the three and six months ended June 30, 2005, respectively, and are estimated for the next three years to be $3.2 million in 2005, $2.2 million in 2006 and $3.3 million in 2007. The natural gas gathering agreements are each for a term of 15 years and month-to-month thereafter. Bitter Creek's revenues from these contracts were $287,000 and $539,000 for the three and six months ended June 30, 2005, respectively, and estimated revenues from these contracts for the next three years are $1.8 million in 2005, $4.3 million in 2006 and $6.0 million in 2007. The amount due from Nance Petroleum at June 30, 2005, was $98,000.
Montana-Dakota entered into an agreement to purchase natural gas from Nance Petroleum for the period April 1, 2005 to October 31, 2005. Montana-Dakota estimates that it will purchase between $2.0 million to $2.5 million of natural gas from Nance Petroleum during this period. Montana-Dakota's expenses under this agreement for the three and six months ended June 30, 2005, were $760,000. The amount due to Nance Petroleum at June 30, 2005, was $251,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This subsection of MD&A is an overview of the important factors that management focuses on in evaluating the Company's businesses, the Company's financial condition and operating performance, the Company's overall business strategy and the earnings of the Company for the period covered by this report. This subsection is not intended to be a substitute for reading the entire MD&A section. Reference is made to the various important factors listed under the heading Risk Factors and Cautionary Statements that May Affect Future Results, as well as other factors that are listed in the Introduction in relation to any forward-looking statement.
Business and Strategy Overview
Prior to the fourth quarter of 2004, the Company reported six reportable segments consisting of electric, natural gas distribution, utility services, pipeline and energy services, natural gas and oil production and construction materials and mining. The independent power production and other operations did not individually meet the criteria to be considered a reportable segment. In the fourth quarter of 2004, the Company separated independent power production as a reportable business segment due to the significance of its operations. The Company's operations are now conducted through seven reportable segments and all prior period information has been restated to reflect this change.
The vast majority of the Company's operations are located within the United States. The Company also has investments in foreign countries, which consist of investments in natural resource-based projects, as discussed in Note 12 of Notes to Consolidated Financial Statements.
The electric segment includes the electric generation, transmission and distribution operations of Montana-Dakota. The natural gas distribution segment includes the natural gas distribution operations of Montana-Dakota and Great Plains Natural Gas Co. The electric and natural gas distribution segments also supply related value-added products and services in the northern Great Plains.
The utility services segment includes all the operations of Utility Services, Inc., which specializes in electrical line construction, pipeline construction, inside electrical wiring and cabling, and the manufacture and distribution of specialty equipment.
The pipeline and energy services segment includes WBI Holdings' natural gas transportation, underground storage and gathering services through regulated and nonregulated pipeline systems primarily in the Rocky Mountain and northern Great Plains regions of the United States. The pipeline and energy services segment also provides energy-related management services, including cable and pipeline magnetization and locating.
The natural gas and oil production segment includes WBI Holdings' natural gas and oil acquisition, exploration, development and production operations, primarily in the Rocky Mountain region of the United States and in and around the Gulf of Mexico.
The construction materials and mining segment includes the results of Knife River, which mines aggregates and markets crushed stone, sand, gravel and related construction materials, including ready- mixed concrete, cement, asphalt and other value-added products, as well as performs integrated construction services, in the central and western United States and in the states of Alaska and Hawaii.
The independent power production operations of Centennial Resources own, build and operate electric generating facilities in the United States and have investments in domestic and international natural resource-based projects. Electric capacity and energy produced at its power plants are sold primarily under mid- and long-term contracts to nonaffiliated entities.
Earnings (loss) from electric, natural gas distribution and pipeline and energy services are substantially all from regulated operations. Earnings (loss) from utility services, natural gas and oil production, construction materials and mining, independent power production, and other are all from nonregulated operations.
The Company's strategy is to apply its expertise in energy and transportation infrastructure industries to increase market share through internal growth along with acquisition of well-managed companies and properties, and development of projects that enhance shareholder value and are accretive to earnings per share and returns on invested capital.
The Company has capabilities to fund its growth and operations through various sources, including internally generated funds, commercial paper credit facilities and through the issuance of long- term debt and the Company's equity securities. Net capital expenditures are estimated to be approximately $700 million for 2005.
The Company faces certain challenges and risks as it pursues its growth strategies, including, but not limited to the following:
- The natural gas and oil production business experiences fluctuations in natural gas and oil prices. These prices are volatile and subject to significant change at any time. The Company hedges a portion of its natural gas and oil production in order to mitigate the effects of price volatility.
- Economic volatility both domestically and in the foreign countries where the Company does business affects the Company's operations as well as the demand for its products and services and, as a result, may have a negative impact on the Company's future revenues.
- Fidelity continues to seek additional reserve and production growth, both in areas of existing activity and in other regions, through acquisition, exploration, development and production of natural gas and oil resources, including the development and production of its coalbed natural gas properties in the Powder River Basin. In this context, Fidelity has been named as a defendant in, and/or certain of its operations are the subject of, more than a dozen lawsuits filed in connection with its coalbed natural gas development program. Some of these actions have been successfully resolved and Fidelity is actively defending the others. If the plaintiffs are successful in the outstanding lawsuits, the ultimate outcome of the actions could have a material effect on Fidelity's existing coalbed natural gas operations and/or the future development of its coalbed natural gas properties in this region.
For further information on certain factors that should be considered for a better understanding of the Company's financial condition, see the various important factors listed under the heading Risk Factors and Cautionary Statements that May Affect Future Results, as well as other factors that are listed in the Introduction.
For information pertinent to various commitments and contingencies, see Notes to Consolidated Financial Statements.
Earnings Overview
The following table summarizes the contribution to consolidated earnings by each of the Company's businesses.
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
(Dollars in millions, where applicable)
Electric $ 1.8 $ .7 $ 4.9 $ 4.2
Natural gas distribution (1.3) (1.1) 3.5 1.2
Utility services 3.7 (2.3) 5.6 (4.2)
Pipeline and energy services 8.7 4.4 12.0 7.1
Natural gas and oil production 29.9 26.2 58.8 51.4
Construction materials and mining 18.4 20.4 9.9 8.5
Independent power production 18.6 10.1 19.3 13.4
Other .2 .1 .3 .3
Earnings on common stock $80.0 $ 58.5 $114.3 $81.9
Earnings per common
share - basic $ .68 $ .50 $ .97 $ .71
Earnings per common
share - diluted $ .67 $ .50 $ .96 $ .70
Return on average common equity
for the 12 months ended 14.4% 13.3%
________________________________
|
Three Months Ended June 30, 2005 and 2004
Consolidated earnings for the second quarter ended June 30, 2005, increased $21.5 million largely due to:
- A $15.6 million benefit from the sale of the Termoceara
Generating Facility, partially offset by the absence in 2005 of the
2004 operating results from the Termoceara Generating Facility at
the independent power production business
- Increased outside electrical line construction and inside
electrical workloads and margins at the utility services business
- A $5.0 million (after tax) benefit from the resolution of a
rate proceeding, as discussed in Note 18 of Notes to Consolidated
Financial Statements at the pipeline and energy services business
- Higher natural gas prices of 19 percent and higher oil prices
of 29 percent at the natural gas and oil production business
Partially offsetting the increase was the absence of the favorable resolution of federal and related state income tax matters, which resulted in a benefit of $5.9 million (after tax), including interest, for the three months ended June 30, 2004.
Six Months Ended June 30, 2005 and 2004
Consolidated earnings for the six months ended June 30, 2005, increased $32.4 million largely due to:
- Increased outside electrical line construction and inside
electrical workloads and margins at the utility services business
- Higher natural gas prices of 14 percent and higher oil prices
of 28 percent at the natural gas and oil production business
- A $15.6 million benefit from the sale of the Termoceara
Generating Facility, partially offset by the absence in 2005 of the
2004 operating results from the Termoceara Generating Facility at
the independent power production business
- A $5.0 million (after tax) benefit from the resolution of a
rate proceeding, as previously discussed
Partially offsetting the increase was the absence of the favorable resolution of federal and related state income tax matters realized in 2004.
FINANCIAL AND OPERATING DATA
The following tables contain key financial and operating statistics for each of the Company's businesses.
Electric
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
(Dollars in millions, where applicable)
Operating revenues $ 41.1 $ 39.8 $ 85.4 $ 86.8
Operating expenses:
Fuel and purchased power 14.5 16.4 30.7 33.1
Operation and maintenance 14.9 14.6 28.7 29.6
Depreciation, depletion and
amortization 5.2 5.0 10.4 10.0
Taxes, other than income 2.1 2.0 4.3 4.2
36.7 38.0 74.1 76.9
Operating income $ 4.4 $ 1.8 $ 11.3 $ 9.9
Retail sales (million kWh) 554.7 505.3 1,159.2 1,126.5
Sales for resale (million kWh) 115.3 170.0 313.3 397.2
Average cost of fuel and
purchased power per kWh $ .021 $ .022 $ .020 $ .020
|
Three Months Ended June 30, 2005 and 2004
Electric earnings increased $1.1 million due to:
- Increased retail sales margins, largely the result of a 10
percent increase in retail sales volumes
- Increased sales for resale margins of $400,000 (after tax),
due to lower fuel costs which were partially offset by a 32 percent
decrease in sales for resale volumes
- Lower interest expense of $300,000 (after tax)
The increase in earnings was partially offset by the absence of the favorable resolution of federal and related state income tax matters realized in 2004 of $1.2 million (after tax), including interest.
Six Months Ended June 30, 2005 and 2004
Electric earnings increased $700,000 due to:
- Decreased operation and maintenance expense of $600,000 (after
tax)
- Higher retail sales margins, largely due to higher volumes
- Higher sales for resale margins, primarily the result of higher
average realized prices of 11 percent and lower purchased power-
related costs, offset in part by decreased sales for resale volumes
of 21 percent
- Lower net interest expense of $500,000 (after tax)
Partially offsetting the increase in earnings was the absence of the favorable resolution of federal and related state income tax matters realized in 2004 of $1.2 million (after tax), including interest.
Natural Gas Distribution
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
(Dollars in millions, where applicable)
Operating revenues:
Sales $ 53.6 $ 46.5 $ 197.3 $ 173.5
Transportation and other 1.1 1.0 2.4 2.3
54.7 47.5 199.7 175.8
Operating expenses:
Purchased natural gas sold 41.6 35.4 162.1 141.0
Operation and maintenance 11.3 11.3 23.2 25.1
Depreciation, depletion and
amortization 2.3 2.3 4.8 4.7
Taxes, other than income 1.4 1.4 3.0 2.9
56.6 50.4 193.1 173.7
Operating income (loss) $ (1.9) $ (2.9) $ 6.6 $ 2.1
Volumes (MMdk):
Sales 5.3 5.4 21.2 21.7
Transportation 3.0 2.6 6.9 6.5
Total throughput 8.3 8.0 28.1 28.2
Degree days (% of normal)* 92% 98% 93% 96%
Average cost of natural gas,
including transportation
thereon, per dk $ 7.82 $ 6.58 $ 7.66 $ 6.49
_____________________
|
* Degree days are a measure of the daily temperature-related demand for energy for heating.
Three Months Ended June 30, 2005 and 2004
The natural gas distribution business experienced a seasonal loss of $1.3 million in the second quarter compared to a loss of $1.1 million in the second quarter of 2004. The decrease in earnings of $200,000 was largely due to:
- The absence of the favorable resolution of federal and related
state income tax matters realized in 2004 of $1.1 million (after
tax), including interest, partially offset by
- Higher retail sales margins, primarily due to rate increases
effective in North Dakota, Minnesota, South Dakota and Montana
Six Months Ended June 30, 2005 and 2004
The natural gas distribution business experienced an increase in earnings of $2.3 million due to:
- Higher average realized rates, largely as a result of rate
increases in North Dakota, Minnesota, South Dakota and Montana
- Decreased operation and maintenance expenses of $1.2 million
(after tax)
The increase was partially offset by the absence of the favorable resolution of federal and related state income tax matters realized in 2004 of $1.1 million (after tax), including interest.
Utility Services
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
(In millions)
Operating revenues $ 136.9 $ 97.2 $ 250.8 $ 197.5
Operating expenses:
Operation and maintenance 122.6 93.5 223.7 188.9
Depreciation, depletion
and amortization 3.1 2.5 5.9 5.2
Taxes, other than income 4.3 3.7 10.1 8.5
130.0 99.7 239.7 202.6
Operating income (loss) $ 6.9 $ (2.5) $ 11.1 $ (5.1)
|
Three Months Ended June 30, 2005 and 2004
Utility services realized $3.7 million in earnings for the second quarter compared to a $2.3 million loss in the comparable prior period. The increase is due to:
- Increased outside electrical line construction workloads and
margins
- Higher inside electrical workloads and margins
- Higher equipment sales and rentals
- Earnings from acquisitions made during the second quarter 2005
which contributed less than 10 percent to the increase
Six Months Ended June 30, 2005 and 2004
Utility services realized $5.6 million in earnings for the first six months of 2005 compared to a $4.2 million loss in the comparable prior period. The increase is due to:
- Increased outside electrical line construction workloads and
margins
- Higher inside electrical workloads and margins
- Higher equipment sales and rentals
- Lower general and administrative expenses of $600,000 (after
tax), largely lower payroll-related costs
- Earnings from businesses acquired during the second quarter
2005
Pipeline and Energy Services
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
(Dollars in millions)
Operating revenues:
Pipeline $ 22.5 $ 22.7 $ 42.3 $ 45.7
Energy services 78.9 62.8 151.9 123.9
101.4 85.5 194.2 169.6
Operating expenses:
Purchased natural gas sold 71.4 59.2 136.9 116.5
Operation and maintenance 13.3 12.5 26.6 25.9
Depreciation, depletion
and amortization (1.5) 4.7 3.1 9.2
Taxes, other than income 2.0 1.9 4.1 3.8
85.2 78.3 170.7 155.4
Operating income $ 16.2 $ 7.2 $ 23.5 $ 14.2
Transportation volumes (MMdk):
Montana-Dakota 7.7 7.6 15.4 15.9
Other 19.6 20.4 33.5 34.5
27.3 28.0 48.9 50.4
Gathering volumes (MMdk) 19.7 19.8 39.7 39.3
|
Three Months Ended June 30, 2005 and 2004
Pipeline and energy services experienced an increase in earnings of $4.3 million due to:
- The benefit from the resolution of a rate proceeding of $5.0
million (after tax) which included a reduction to depreciation,
depletion and amortization expense. For further information see
Note 18 of Notes to Consolidated Financial Statements.
- Higher gathering rates of $1.3 million (after tax)
Partially offsetting the increase were:
- The absence of the favorable resolution of federal and related
state income tax matters realized in 2004 of $1.6 million (after
tax), including interest
- Decreased transportation and storage rates in 2005, the result
of lower rates effective July 1, 2004
Six Months Ended June 30, 2005 and 2004
Pipeline and energy services experienced an increase in earnings of $4.9 million due to:
- The benefit from the resolution of a rate proceeding of $5.0
million (after tax), as previously discussed
- Higher gathering rates of $2.5 million (after tax)
- Decreased operation and maintenance expenses, largely payroll-
related expenses
Partially offsetting the increase in earnings were:
- Lower transportation and storage rates in 2005 of $2.4 million
(after tax), the result of lower rates effective July 1, 2004
- The absence of the favorable resolution of federal and related
state income tax matters realized in 2004 of $1.6 million (after
tax), including interest
Natural Gas and Oil Production
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
(Dollars in millions, where applicable)
Operating revenues:
Natural gas $ 80.3 $ 68.5 $ 152.8 $ 134.9
Oil 17.3 14.9 31.8 29.1
Other .1 .8 .2 1.2
97.7 84.2 184.8 165.2
Operating expenses:
Purchased natural gas sold .1 .7 .2 1.1
Operation and maintenance:
Lease operating costs 9.8 8.6 17.7 16.8
Gathering and
transportation 2.8 2.7 5.6 5.2
Other 6.4 5.9 11.9 11.9
Depreciation, depletion
and amortization 21.2 17.9 38.3 34.5
Taxes, other than income:
Production and property
taxes 7.5 5.7 13.5 10.4
Other .1 .1 .3 .3
47.9 41.6 87.5 80.2
Operating income $ 49.8 $ 42.6 $ 97.3 $ 85.0
Production:
Natural gas (MMcf) 14,627 14,796 29,054 29,302
Oil (000's of barrels) 406 450 773 907
Average realized prices
(including hedges):
Natural gas (per Mcf) $ 5.49 $ 4.63 $ 5.26 $ 4.60
Oil (per barrel) $ 42.60 $ 33.09 $ 41.21 $ 32.12
Average realized prices
(excluding hedges):
Natural gas (per Mcf) $ 5.71 $ 4.78 $ 5.37 $ 4.73
Oil (per barrel) $ 47.81 $ 35.75 $ 46.06 $ 34.03
Production costs, including
taxes, per net equivalent Mcf:
Lease operating costs $ .57 $ .49 $ .52 $ .48
Gathering and
transportation .17 .15 .17 .15
Production and property
taxes .44 .33 .40 .30
$ 1.18 $ .97 $ 1.09 $ .93
|
Three Months Ended June 30, 2005 and 2004
The natural gas and oil production business experienced an increase in earnings of $3.7 million due to:
- Higher average realized natural gas prices of 19 percent
- Higher average realized oil prices of 29 percent
Partially offsetting the increase were:
- Higher depreciation, depletion and amortization expense of $2.0
million (after tax) due to higher rates, largely driven by a recent
acquisition
- Decreased oil production volumes of 10 percent, due in part to
normal production declines, offset in part by production from an
acquisition made in the second quarter of 2005
- Decreased natural gas production of 1 percent, primarily due to
normal production declines and timing-related delays affecting
coalbed natural gas drilling activity as a result of ongoing
environmental litigation, largely offset by increased production
from natural gas properties in the Rocky Mountain region and
production from an acquisition made in the second quarter of 2005
Six Months Ended June 30, 2005 and 2004
Natural gas and oil production earnings increased $7.4 million due to:
- Higher average realized natural gas prices of 14 percent
- Higher average realized oil prices of 28 percent
Partially offsetting the increase were:
- Decreased oil production of 15 percent, primarily due to normal
production declines, offset in part by production from an
acquisition made in the second quarter of 2005
- Higher depreciation, depletion and amortization expense of $2.4
million (after tax) due to higher rates
- Lower natural gas production of 1 percent, primarily due to
normal production declines and timing-related delays affecting
coalbed natural gas drilling activity as a result of ongoing
environmental litigation, largely offset by increased production
from natural gas properties in the Rocky Mountain region and
production from an acquisition made in the second quarter of 2005
Construction Materials and Mining
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
(Dollars in millions)
Operating revenues $ 394.0 $ 347.2 $ 581.1 $ 486.7
Operating expenses:
Operation and maintenance 330.0 286.6 500.5 419.7
Depreciation, depletion
and amortization 19.0 17.0 37.2 33.2
Taxes, other than income 10.5 9.6 18.4 16.1
359.5 313.2 556.1 469.0
Operating income $ 34.5 $ 34.0 $ 25.0 $ 17.7
Sales (000's):
Aggregates (tons) 11,023 11,187 16,929 15,994
Asphalt (tons) 2,139 2,346 2,500 2,648
Ready-mixed concrete
(cubic yards) 1,224 1,239 1,884 1,813
|
Three Months Ended June 30, 2005 and 2004
Construction materials and mining had $18.4 million in earnings for the second quarter of 2005 compared to $20.4 million in the comparable prior period. The $2.0 million decrease in earnings was due to:
- The absence in 2005 of the 2004 favorable resolution of federal
and related state income tax matters of $1.2 million (after tax),
including interest
- Increased depreciation, depletion and amortization expenses of
$1.0 million (after tax) due to higher property, plant and equipment
balances
- The effects of unfavorable weather on asphalt and construction
volumes and margins
Partially offsetting the decline were increased ready-mixed concrete margins.
Six Months Ended June 30, 2005 and 2004
Earnings at the construction materials and mining business increased $1.4 million due to:
- Increased ready-mixed concrete volumes and margins
- Higher cement volumes
- Earnings from companies acquired since the comparable prior
period, which contributed approximately 6 percent of earnings
Partially offsetting the increase were:
- Higher depreciation, depletion and amortization expenses, the
result of higher property, plant and equipment balances
- Lower asphalt volumes and margins due largely to effects of
weather and higher fuel prices
- The absence in 2005 of the 2004 favorable resolution of federal
and related state income tax matters of $1.2 million (after tax),
including interest
Independent Power Production
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
(Dollars in millions)
Operating revenues $ 13.7 $ 10.6 $ 23.5 $ 17.1
Operating expenses:
Operation and maintenance 7.3 2.8 13.7 6.8
Depreciation, depletion and
amortization 2.2 2.3 4.7 4.4
Taxes, other than income .7 1.1 1.4 1.1
10.2 6.2 19.8 12.3
Operating income $ 3.5 $ 4.4 $ 3.7 $ 4.8
Net generation capacity - kW* 279,600 279,600 279,600 279,600
Electricity produced and sold
(thousand kWh)* 90,762 84,148 128,012 115,503
_____________________
|
* Excludes equity method investments. NOTE: The earnings from the Company's equity method investments are not reflected in the above table.
Three Months Ended June 30, 2005 and 2004
Independent power production experienced an increase in earnings of $8.5 million, largely due to:
- A $15.6 million benefit from the sale of the Termoceara
Generating Facility, partially offset by the absence in 2005 of the
2004 operating results from the Termoceara Generating Facility
- Earnings from a domestic electric-generating facility acquired
since the comparable prior period
Six Months Ended June 30, 2005 and 2004
Independent power production experienced an increase in earnings of $5.9 million, largely due to:
- A $15.6 million benefit from the sale of the Termoceara
Generating Facility, partially offset by the absence in 2005 of the
2004 operating results from the Termoceara Generating Facility
- Earnings from equity method investments acquired since the
comparable prior period
Other and Intersegment Transactions
Amounts presented in the preceding tables will not agree with the Consolidated Statements of Income due to the Company's other operations and the elimination of intersegment transactions. The amounts relating to these items are as follows:
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004 2005 2004
(In millions)
Other:
Operating revenues $ 1.4 $ 1.0 $ 2.7 $ 1.8
Operation and maintenance 1.2 .8 2.4 1.5
Depreciation, depletion and
amortization .1 .1 .1 .1
Taxes, other than income --- --- .1 ---
Intersegment transactions:
Operating revenues $ 70.7 $ 59.7 $ 147.7 $ 131.7
Purchased natural gas sold 66.4 55.8 139.0 124.3
Operation and maintenance 4.3 3.9 8.7 7.4
|
For further information on intersegment eliminations, see Note 15 of Notes to Consolidated Financial Statements.
RISK FACTORS AND CAUTIONARY STATEMENTS THAT MAY AFFECT FUTURE RESULTS
The Company is including the following factors and cautionary statements in this Form 10-Q to make applicable and to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions (many of which are based, in turn, upon further assumptions) and other statements that are other than statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Prospective Information. All these subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are also expressly qualified by these factors and cautionary statements.
Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties. Nonetheless, the Company's expectations, beliefs or projections may not be achieved or accomplished.
Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of the factors, nor can it assess the effect of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
Following are some specific factors that should be considered for a better understanding of the Company's financial condition. These factors and the other matters discussed herein are important factors that could cause actual results or outcomes for the Company to differ materially from those discussed in the forward-looking statements included elsewhere in this document.
Economic Risks
The Company's natural gas and oil production and pipeline and energy services businesses are dependent on factors, including commodity prices and commodity price basis differentials, which cannot be predicted or controlled.
These factors include: price fluctuations in natural gas and crude oil prices; fluctuations in commodity price basis differentials; availability of economic supplies of natural gas; drilling successes in natural gas and oil operations; the timely receipt of necessary permits and approvals; the ability to contract for or to secure necessary drilling rig contracts and to retain employees to drill for and develop reserves; the ability to acquire natural gas and oil properties; and other risks incidental to the operations of natural gas and oil wells. Significant changes in these factors could negatively affect the results of operations and financial condition of the Company's natural gas and oil production and pipeline and energy services businesses.
The construction and operation of power generation facilities may involve unanticipated changes or delays that could negatively impact the Company's business and its results of operations.
The construction and operation of power generation facilities involves many risks, including start-up risks, breakdown or failure of equipment, competition, inability to obtain required governmental permits and approvals, and inability to negotiate acceptable acquisition, construction, fuel supply, off-take, transmission or other material agreements, as well as the risk of performance below expected levels of output or efficiency. Such unanticipated events could negatively impact the Company's business and its results of operations.
The Company's utility services business operates in highly competitive markets characterized by low margins in a number of service lines and geographic areas.
This business' ability to continue its return to profitability on a sustained basis will depend upon improved capital spending for electric construction services and continuing success in management's ability to refocus the business on more profitable markets, reduce operating costs and implement process improvements in project management.
Economic volatility affects the Company's operations as well as the demand for its products and services and, as a result, may have a negative impact on the Company's future revenues.
The global demand for natural resources, interest rates, governmental budget constraints, and the ongoing threat of terrorism can create volatility in the financial markets. A soft economy could negatively affect the level of public and private expenditures on projects and the timing of these projects which, in turn, would negatively affect the demand for the Company's products and services.
The Company relies on financing sources and capital markets. If the Company is unable to obtain financing in the future, the Company's ability to execute its business plans, make capital expenditures or pursue acquisitions that the Company may otherwise rely on for future growth could be impaired.
The Company relies on access to both short-term borrowings, including the issuance of commercial paper, and long-term capital markets as a source of liquidity for capital requirements not satisfied by its cash flow from operations. If the Company is not able to access capital at competitive rates, the ability to implement its business plans may be adversely affected. Market disruptions or a downgrade of the Company's credit ratings may increase the cost of borrowing or adversely affect its ability to access one or more financial markets. Such disruptions could include:
- A severe prolonged economic downturn
- The bankruptcy of unrelated industry leaders in the same line
of business
- A deterioration in capital market conditions
- Volatility in commodity prices
- Terrorist attacks
- Fluctuations in the value of the dollar on currency exchanges
Environmental and Regulatory Risks
Some of the Company's operations are subject to extensive environmental laws and regulations that may increase costs of operations, impact or limit business plans, or expose the Company to environmental liabilities.
The Company is subject to extensive environmental laws and regulations affecting many aspects of its present and future operations including air quality, water quality, waste management and other environmental considerations. These laws and regulations can result in increased capital, operating and other costs, and delays as a result of ongoing litigation and compliance, remediation, containment and monitoring obligations, particularly with regard to laws relating to power plant emissions and coalbed natural gas development. These laws and regulations generally require the Company to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals. Public officials and entities, as well as private individuals and organizations, may seek injunctive relief or other remedies to enforce applicable environmental laws and regulations. The Company cannot predict the outcome (financial or operational) of any related litigation that may arise.
Existing environmental regulations may be revised and new regulations seeking to protect the environment may be adopted or become applicable to the Company. Revised or additional regulations, which result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from customers, could have a material effect on the Company's results of operations.
One of the Company's subsidiaries is subject to litigation in connection with its coalbed natural gas development activities. These proceedings have caused delays in coalbed natural gas drilling activity in 2005, and the ultimate outcome of the actions could have a material effect on existing coalbed natural gas operations and/or the future development of its coalbed natural gas properties.
Fidelity has been named as a defendant in, and/or certain of its operations are the subject of, a number of lawsuits filed in connection with its coalbed natural gas development in the Powder River Basin in Montana and Wyoming. Injunctive orders issued by the Ninth Circuit and the Montana Federal District Court have occasioned reductions in Fidelity's estimated total 2005 natural gas production levels. If the plaintiffs are successful in these lawsuits, the ultimate outcome of the actions could have a material effect on Fidelity's existing coalbed natural gas operations and/or the future development of its coalbed natural gas properties.
The Company is subject to extensive government regulations that may delay and/or have a negative impact on its business and its results of operations.
The Company is subject to regulation by federal, state and local regulatory agencies with respect to, among other things, allowed rates of return, financings, industry rate structures, and recovery of purchased power and purchased gas costs. These governmental regulations significantly influence the Company's operating environment and may affect its ability to recover costs from its customers. The Company is unable to predict the impact on operating results from the future regulatory activities of any of these agencies.
Changes in regulations or the imposition of additional regulations could have an adverse impact on the Company's results of operations.
Risks Relating to Foreign Operations
The value of the Company's investments in foreign operations may diminish due to political, regulatory and economic conditions in countries where the Company does business.
The Company is subject to political, regulatory and economic conditions in foreign countries where the Company does business. Significant changes in the political, regulatory or economic environment in these countries could negatively affect the value of the Company's investments located in these countries.
Other Risks
Competition is increasing in all of the Company's businesses.
All of the Company's businesses are subject to increased competition. The independent power production industry includes many strong and capable competitors, some of which have greater resources and more experience in the operation, acquisition and development of power generation facilities. Utility services' competition is based primarily on price and reputation for quality, safety and reliability. The construction materials products are marketed under highly competitive conditions and are subject to such competitive forces as price, service, delivery time and proximity to the customer. The electric utility and natural gas industries are also experiencing increased competitive pressures as a result of consumer demands, technological advances, deregulation, greater availability of natural gas-fired generation and other factors. Pipeline and energy services competes with several pipelines for access to natural gas supplies and gathering, transportation and storage business. The natural gas and oil production business is subject to competition in the acquisition and development of natural gas and oil properties as well as in the sale of its production output. The increase in competition could negatively affect the Company's results of operations and financial condition.
Weather conditions can adversely affect the Company's operations and revenues.
The Company's results of operations can be affected by changes in the weather. Weather conditions directly influence the demand for electricity and natural gas, affect the wind-powered operation at the independent power production business, affect the price of energy commodities, affect the ability to perform services at the utility services and construction materials and mining businesses and affect ongoing operation and maintenance and construction and drilling activities for the pipeline and energy services and natural gas and oil production businesses. In addition, severe weather can be destructive, causing outages, reduced natural gas and oil production, and/or property damage, which could require additional costs to be incurred. As a result, adverse weather conditions could negatively affect the Company's results of operations and financial condition.
PROSPECTIVE INFORMATION
The following information includes highlights of the key growth strategies, projections and certain assumptions for the Company and its subsidiaries and other matters for each of the Company's businesses. Many of these highlighted points are forward-looking statements. There is no assurance that the Company's projections, including estimates for growth and increases in revenues and earnings, will in fact be achieved. Reference is made to assumptions contained in this section, as well as the various important factors listed under the heading Risk Factors and Cautionary Statements that May Affect Future Results, and other factors that are listed in the Introduction. Changes in such assumptions and factors could cause actual future results to differ materially from targeted growth, revenue and earnings projections.
MDU Resources Group, Inc.
- Earnings per common share for 2005, diluted, are projected in the range of $1.90 to $2.10, an increase from prior guidance of $1.80 to $2.00.
- The Company expects the percentage of 2005 earnings per common share, diluted, by quarter to be in the following approximate ranges:
- Third quarter - 30 percent to 35 percent
- Fourth quarter - 18 percent to 23 percent
- The Company's long-term compound annual growth goals on earnings per share from operations are in the range of 7 percent to 10 percent.
- The Company anticipates investing approximately $700 million in capital expenditures during 2005.
Electric
- The expected earnings in 2005 are anticipated to be slightly lower than 2004.
- This segment is involved in the review of potential power projects to replace capacity associated with expiring purchased power contracts and to provide for future growth. Those projects include participation in a proposed 600-megawatt (MW) coal-fired facility to be located in northeastern South Dakota and construction of a 175-MW lignite coal-fired facility (Vision 21) to be located in southwestern North Dakota. The costs of building and/or acquiring the additional generating capacity needed by the utility are expected to be recovered in rates.
- Montana-Dakota has obtained and holds valid and existing franchises authorizing it to conduct its electric operations in all of the municipalities it serves where such franchises are required. Montana-Dakota intends to protect its service area and seek renewal of all expiring franchises.
- On October 25, 2004, Montana-Dakota issued a request for proposal for 70 megawatts to 100 megawatts of firm capacity and associated energy for the period of November 1, 2006 through December 31, 2010. Montana-Dakota is currently in the process of evaluating the responses. A decision is expected to be made late 2005.
Natural gas distribution
- The expected earnings for this segment for 2005 are projected to be significantly higher than the earnings for 2004.
- In September 2004, a natural gas rate case was filed with the MPUC requesting an increase of $1.4 million annually, or 4.0 percent. An interim increase of $1.4 million annually was approved by the MPUC effective January 10, 2005, subject to refund. A final order is expected in early 2006.
- In March 2005, a natural gas rate case was filed with the SDPUC for the East River service area requesting an increase of $850,000 annually, or 12.8 percent. A final order is expected in late 2005.
- Montana-Dakota and Great Plains have obtained and hold valid and existing franchises authorizing them to conduct their natural gas operations in all of the municipalities they serve where such franchises are required. Montana-Dakota and Great Plains intend to protect their service areas and seek renewal of all expiring franchises.
Utility services
- Revenues are expected to be in the range of $550 million to $600 million in 2005.
- The Company anticipates margins to increase substantially in 2005 as compared to 2004 levels.
- Work backlog as of June 30, 2005, was approximately $358 million, compared to $217 million at June 30, 2004.
Pipeline and energy services
- In 2005, total natural gas gathering and transportation throughput is expected to be down approximately 5 percent from the record levels achieved in 2004.
- Firm capacity for the Grasslands Pipeline is currently 90,000 Mcf per day with expansion possible to 200,000 Mcf per day.
- The labor contract that Williston Basin was negotiating, as reported in Items 1 and 2 - Business and Properties - General in the Company's 2004 Annual Report, remains in negotiations.
Natural gas and oil production
- The Company is expecting to drill approximately 300 wells in 2005.
- In 2005, the Company expects combined natural gas and oil production to approximate the record levels achieved in 2004, assuming continued production from existing wells at its Badger Hills Project in southeastern Montana. The Badger Hills Project has been the subject of two related actions filed in the Montana Federal District Court, in connection with which the Montana Federal District Court issued orders enjoining operations on the project. Subsequently, the Montana Federal District Court issued temporary stays of the injunction orders in these cases, thereby permitting continued production at the project pending further developments in the cases. Currently, this segment's net combined natural gas and oil production is approximately 200,000 Mcf equivalent to 210,000 Mcf equivalent per day.
- Estimates of natural gas prices in the Rocky Mountain region for August through December 2005 reflected in earnings guidance are in the range of $4.75 to $5.25 per Mcf. The Company's estimates for natural gas prices on the NYMEX for August through December 2005 reflected in earnings guidance are in the range of $5.75 to $6.25 per Mcf. During 2004, more than three-fourths of this segment's natural gas production was priced using Rocky Mountain or other non- NYMEX prices.
- Estimates of NYMEX crude oil prices for July through December 2005 reflected in earnings guidance are in the range of $45 to $50 per barrel.
- The Company has hedged a portion of its natural gas and oil production. The hedges that are in place as of July 20, 2005, for production in the last six months of 2005 and the twelve months of 2006 are summarized below:
Commodity Index* Period Forward Price Swap or
Outstanding Notional Costless
Volume Collar
(MMBtu)/(Bbl) Floor-Ceiling
(Per MMBtu/Bbl)
Natural Gas Ventura 7/05 - 12/05 920,000 $5.00
Natural Gas Ventura 7/05 - 12/05 920,000 $4.75-$5.25
Natural Gas Ventura 7/05 - 12/05 1,840,000 $5.41-$6.80
Natural Gas Ventura 7/05 - 12/05 1,840,000 $5.00-$5.865
Natural Gas CIG 7/05 - 12/05 1,840,000 $5.25-$6.47
Natural Gas Ventura 7/05 - 12/05 920,000 $5.15
Natural Gas NYMEX 7/05 - 12/05 920,000 $6.50-$8.70
Natural Gas Ventura 7/05 - 12/05 1,840,000 $5.56
Natural Gas Ventura 7/05 - 12/05 920,000 $5.50-$7.18
Natural Gas CIG 11/05 - 12/05 549,000 $7.0500
Natural Gas NYMEX 8/05 - 12/05 1,530,000 $7.50-$8.40
Natural Gas Ventura 1/06 - 12/06 1,825,000 $6.00-$7.60
Natural Gas Ventura 1/06 - 12/06 3,650,000 $6.6550
Natural Gas CIG 1/06 - 03/06 900,000 $7.1600
Natural Gas CIG 1/06 - 03/06 810,000 $7.0500
Natural Gas Ventura 1/06 - 12/06 1,825,000 $6.75-$7.71
Natural Gas Ventura 1/06 - 12/06 1,825,000 $6.75-$7.77
Natural Gas Ventura 1/06 - 12/06 1,825,000 $7.00-$8.85
Natural Gas NYMEX 1/06 - 12/06 1,825,000 $7.75-$8.50
Natural Gas Ventura 1/06 - 12/06 1,825,000 $7.76
Natural Gas CIG 4/06 - 12/06 1,375,000 $6.50-$6.98
Crude Oil NYMEX 7/05 - 12/05 82,800 $32.00-$36.50
Crude Oil NYMEX 7/05 - 12/05 92,000 $43.00-$52.05
Crude Oil NYMEX 7/05 - 12/05 63,770 $39.00-$47.20
Crude Oil NYMEX 7/05 - 12/05 92,000 $30.70
Crude Oil NYMEX 1/06 - 12/06 182,500 $43.00-$54.15
|
* Ventura is an index pricing point related to Northern Natural Gas Co.'s system; CIG is an index pricing point related to Colorado Interstate Gas Co.'s system.
Construction materials and mining
- The Company anticipates improved earnings in 2005 as compared to 2004 with an expected return to normal weather conditions in Texas, improved construction volumes and margins and earnings from acquisitions.
- Aggregate, asphalt and ready-mixed concrete volumes in 2005 are expected to be comparable to 2004 levels.
- Revenues in 2005 are expected to be approximately 5 percent to 10 percent higher than 2004 levels.
- The Company expects that the replacement funding legislation for the Transportation Equity Act for the 21st Century (TEA-21) will be equal to or higher than previous funding levels.
- Work backlog as of June 30, 2005, was approximately $740 million, compared to $545 million at June 30, 2004.
- The labor contract that Knife River was negotiating, as reported in Items 1 and 2 - Business and Properties - General in the Company's 2004 Annual Report, has been ratified.
Independent power production
- Earnings for 2005 are expected to be somewhat lower than 2004 earnings primarily due to benefits realized in 2004 from foreign currency gains and the effects of the embedded derivative in the Brazilian electric power sales contract, as well as the absence of ongoing earnings resulting from the Termoceara Generating Facility sale.
- The Company is constructing a 116-MW coal-fired electric generating facility near Hardin, Montana. A power sales agreement with Powerex Corp., a subsidiary of BC Hydro, has been secured for the entire output of the plant for a term expiring October 31, 2008, with the purchaser having an option for a two-year extension. The projected on-line date for this plant is late 2005.
NEW ACCOUNTING STANDARDS
SAB No. 106
In September 2004, the SEC issued SAB No. 106 which is an interpretation regarding the application of SFAS No. 143 by oil and gas producing companies following the full-cost accounting method. SAB No. 106 was effective for the Company as of January 1, 2005. The adoption of SAB No. 106 did not have a material effect on the Company's financial position or results of operations.
SFAS No. 123 (revised)
In December 2004, the FASB issued SFAS No. 123 (revised). SFAS No.
123 (revised) revises SFAS No. 123 and requires entities to
recognize compensation expense in an amount equal to the fair value
of share-based payments granted to employees. SFAS No. 123
(revised) requires a company to record compensation expense for all
awards granted after the date of adoption of SFAS No. 123 (revised)
and for the unvested portion of previously granted awards that
remain outstanding at the date of adoption. SFAS No. 123 (revised)
is effective for the Company on January 1, 2006. The Company is
evaluating the effects of the adoption of SFAS No. 123 (revised).
FIN 47
In March 2005, the FASB issued FIN 47. FIN 47 addresses the diverse accounting practices that developed with respect to the timing of liability recognition for legal obligations associated with the retirement of a tangible long-lived asset when the timing and/or method of settlement of the obligation are conditional on a future event. FIN 47 is effective for the Company at the end of the fiscal year ending December 31, 2005. The Company is evaluating the effects of the adoption of FIN 47.
EITF No. 04-6
In March 2005, the FASB ratified EITF No. 04-6. EITF No. 04-6 requires that post-production stripping costs be treated as a variable inventory production cost. EITF No. 04-6 is effective for the Company on January 1, 2006. The Company is evaluating the effects of the adoption of EITF No. 04-6.
For further information on SAB No. 106, SFAS No. 123 (revised), FIN 47 and EITF No. 04-6, see Note 10 of Notes to Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES
The Company's critical accounting policies involving significant estimates include impairment testing of long-lived assets and intangibles, impairment testing of natural gas and oil production properties, revenue recognition, purchase accounting, asset retirement obligations, and pension and other postretirement benefits. There were no material changes in the Company's critical accounting policies involving significant estimates from those reported in the 2004 Annual Report. For more information on critical accounting policies involving significant estimates, see
Part II, Item 7 in the 2004 Annual Report.
LIQUIDITY AND CAPITAL COMMITMENTS
Cash flows
Operating activities
Cash flows provided by operating activities in the first six months of 2005 decreased by $9.0 million from the comparable 2004 period, largely the result of a decrease in working capital of $43.8 million due in part to increased income tax payments. Partially offsetting the decrease was an increase in net income of $32.4 million.
Investing activities
Cash flows used in investing activities in the first six months of 2005 increased $212.6 million compared to the comparable 2004 period, primarily due to an increase in net capital expenditures (capital expenditures; acquisitions, net of cash acquired; and net proceeds from the sale or disposition of property) of $214.0 million due largely to acquisitions in the second quarter of 2005, the construction of a 116-megawatt coal-fired electric generating facility near Hardin, Montana and higher ongoing capital expenditures. Net capital expenditures exclude the noncash transactions related to acquisitions, including the issuance of the Company's equity securities. The noncash transactions were $30.6 million and $32.6 million for the six months ended June 30, 2005 and 2004, respectively.
Financing activities
Cash flows provided by financing activities in the first six months of 2005 increased by $133.8 million compared to the comparable 2004 period, largely the result of an increase in the issuance of long- term debt due in part to acquisitions in the second quarter of 2005 and the construction of a 116-megawatt coal-fired electric generating facility near Hardin, Montana. The increase was partially offset by an increase in the repayment of long-term debt of $81.5 million, partially due to the redemption of $20.9 million in Pollution Control Refunding Revenue bonds, and a $50.8 million decrease in the issuance of common stock as the result of proceeds received from an underwritten public offering in 2004.
Defined benefit pension plans
The Company has qualified noncontributory defined benefit pension plans (Pension Plans) for certain employees. Plan assets consist of investments in equity and fixed income securities. Various actuarial assumptions are used in calculating the benefit expense (income) and liability (asset) related to the Pension Plans. Actuarial assumptions include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Company within certain guidelines. At December 31, 2004, certain Pension Plans' accumulated benefit obligations exceeded these plans' assets by approximately $3.7 million. Pretax pension expense (income) reflected in the years ended December 31, 2004, 2003 and 2002, was $4.1 million, $153,000, and ($2.4) million, respectively. The Company's pension expense is currently projected to be approximately $6.5 million to $7.5 million in 2005. A reduction in the Company's assumed discount rate for Pension Plans along with declines in the equity markets experienced in 2002 and 2001 have combined to largely produce the increase in these costs. Funding for the Pension Plans is actuarially determined. The minimum required contributions for 2004, 2003 and 2002 were approximately $1.2 million, $1.6 million, and $1.2 million, respectively.
For further information on the Company's Pension Plans, see Note 17 of Notes to Consolidated Financial Statements.
Capital expenditures
Net capital expenditures for the first six months of 2005 were $398.4 million. Net capital expenditures, including the issuance of the Company's equity securities in connection with acquisitions, are estimated to be approximately $700 million for the year 2005. Estimated capital expenditures include those for:
- Potential future acquisitions
- System upgrades
- Routine replacements
- Service extensions
- Routine equipment maintenance and replacements
- Buildings, land and building improvements
- Pipeline and gathering expansion projects
- Further enhancement of natural gas and oil production and
reserve growth
- Power generation opportunities, including certain costs for
additional electric generating capacity and for a 116-megawatt coal-
fired development project, as previously discussed
- Other growth opportunities
Approximately 31 percent of estimated 2005 net capital expenditures are associated with completed and potential future acquisitions. The Company continues to evaluate potential future acquisitions and other growth opportunities; however, they are dependent upon the availability of economic opportunities and, as a result, capital expenditures may vary significantly from the estimated 2005 capital expenditures referred to previously. It is anticipated that all of the funds required for capital expenditures will be met from various sources, including internally generated funds; commercial paper credit facilities at Centennial and MDU Resources Group, Inc., as described below; and through the issuance of long-term debt and the Company's equity securities.
Capital resources
Certain debt instruments of the Company and its subsidiaries, including those discussed below, contain restrictive covenants, all of which the Company and its subsidiaries were in compliance with at June 30, 2005.
MDU Resources Group, Inc.
The Company has a revolving credit agreement with various banks totaling $100 million (with provision for an increase, at the option of the Company on stated conditions, up to a maximum of $125 million) at June 30, 2005. There were no amounts outstanding under the credit agreement at June 30, 2005. The credit agreement supports the Company's $75 million commercial paper program. There were no amounts outstanding under the Company's commercial paper program at June 30, 2005. The commercial paper borrowings classified as long-term debt are intended to be refinanced on a long- term basis through continued MDU Resources commercial paper borrowings and as further supported by the credit agreement, which expires in June 2010.
The Company's goal is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper. If the Company were to experience a minor downgrade of its credit ratings, it would not anticipate any change in its ability to access the capital markets. However, in such event, the Company would expect a nominal basis point increase in overall interest rates with respect to its cost of borrowings. If the Company were to experience a significant downgrade of its credit ratings, which it does not currently anticipate, it may need to borrow under its credit agreement.
To the extent the Company needs to borrow under its credit agreement, it would be expected to incur increased annualized interest expense on its variable rate debt. This was not applicable at June 30, 2005, as there were no variable rate borrowings.
Prior to the maturity of the credit agreement, the Company plans to negotiate the extension or replacement of this agreement, which provides credit support to access the capital markets. In the event the Company is unable to successfully negotiate the credit agreement, or in the event the fees on this facility became too expensive, which it does not currently anticipate, the Company would seek alternative funding. One source of alternative funding might involve the securitization of certain Company assets.
In order to borrow under the Company's credit agreement, the Company must be in compliance with the applicable covenants and certain other conditions, including covenants not to permit, as of the end of any fiscal quarter, (A) the ratio of funded debt to total capitalization (determined on a consolidated basis) to be greater than 65 percent or (B) the ratio of funded debt to capitalization (determined with respect to the Company alone, excluding its subsidiaries) to be greater than 65 percent. Also included is a covenant that does not permit the ratio of the Company's earnings before interest, taxes, depreciation and amortization to interest expense (determined with respect to the Company alone, excluding its subsidiaries), for the twelve-month period ended each fiscal quarter, to be less than 2.5 to 1. Other covenants include limitation on sale of assets and limitation on investments. The Company was in compliance with these covenants and met the required conditions at June 30, 2005. In the event the Company does not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued, as previously described.
There are no credit facilities that contain cross-default provisions between the Company and any of its subsidiaries.
The Company's issuance of first mortgage debt is subject to certain restrictions imposed under the terms and conditions of its Indenture of Mortgage. Generally, those restrictions require the Company to fund $1.43 of unfunded property or use $1.00 of refunded bonds for each dollar of indebtedness incurred under the Indenture and, in some cases, to certify to the trustee that annual earnings (pretax and before interest charges), as defined in the Indenture, equal at least two times its annualized first mortgage bond interest costs. Under the more restrictive of the tests, as of June 30, 2005, the Company could have issued approximately $350 million of additional first mortgage bonds.
The Company's coverage of fixed charges including preferred dividends was 5.4 times and 4.7 times for the twelve months ended June 30, 2005, and December 31, 2004, respectively. Additionally, the Company's first mortgage bond interest coverage was 9.3 times and 7.1 times for the twelve months ended June 30, 2005, and December 31, 2004, respectively. Common stockholders' equity as a percent of total capitalization (net of long-term debt due within one year) was 61 percent and 65 percent at June 30, 2005, and December 31, 2004, respectively.
Centennial Energy Holdings, Inc.
Centennial has three revolving credit agreements with various banks and institutions that support $331.4 million of Centennial's $350 million commercial paper program. There were no outstanding borrowings under the Centennial credit agreements at June 30, 2005. Under the Centennial commercial paper program, $300.8 million was outstanding at June 30, 2005. The Centennial commercial paper borrowings are classified as long-term debt as Centennial intends to refinance these borrowings on a long-term basis through continued Centennial commercial paper borrowings and as further supported by the Centennial credit agreements. One of these credit agreements is for $300 million and expires on August 17, 2007, and another agreement is for $21.4 million (previously $25 million) and expires on April 30, 2007. Pursuant to this credit agreement, on the last business day of April 2006, the line of credit will be reduced by $3.6 million. Centennial intends to negotiate the extension or replacement of these agreements prior to their maturities, and is currently in the process of negotiating the extension of the $300 million credit facility. The third agreement is an uncommitted line for $10 million, which was effective on January 25, 2005, and may be terminated by the bank at any time.
Centennial has an uncommitted long-term master shelf agreement that allows for borrowings of up to $450 million. Under the terms of the master shelf agreement, $388 million was outstanding at June 30, 2005. The ability to request additional borrowings under this master shelf agreement will expire in April 2008. To meet potential future financing needs, Centennial may pursue other financing arrangements, including private and/or public financing.
Centennial's goal is to maintain acceptable credit ratings in order to access the capital markets through the issuance of commercial paper. If Centennial were to experience a minor downgrade of its credit ratings, it would not anticipate any change in its ability to access the capital markets. However, in such event, Centennial would expect a nominal basis point increase in overall interest rates with respect to its cost of borrowings. If Centennial were to experience a significant downgrade of its credit ratings, which it does not currently anticipate, it may need to borrow under its committed bank lines.
To the extent Centennial needs to borrow under its committed bank lines, it would be expected to incur increased annualized interest expense on its variable rate debt of approximately $451,000 (after tax) based on June 30, 2005, variable rate borrowings. Based on Centennial's overall interest rate exposure at June 30, 2005, this change would not have a material effect on the Company's results of operations or cash flows.
Prior to the maturity of the Centennial credit agreements, Centennial plans to negotiate the extension or replacement of these agreements, which provide credit support to access the capital markets. In the event Centennial was unable to successfully negotiate these agreements, or in the event the fees on such facilities became too expensive, which Centennial does not currently anticipate, it would seek alternative funding. One source of alternative funding might involve the securitization of certain Centennial assets.
In order to borrow under Centennial's credit agreements and the Centennial uncommitted long-term master shelf agreement, Centennial and certain of its subsidiaries must be in compliance with the applicable covenants and certain other conditions including, covenants not to permit, as of the end of any fiscal quarter, the ratio of total debt to total capitalization to be greater than 60 percent. Also included is a covenant that does not permit the ratio of the Company's earnings before interest, taxes, depreciation and amortization to interest expense, for the twelve-month period ended each fiscal quarter, to be less than 2.25 to 1 (for the credit agreements) and 1.75 to 1 (for the master shelf agreement). Other covenants include minimum consolidated net worth, limitation on priority debt, limitation on sale of assets and limitation on loans and investments. Centennial and such subsidiaries were in compliance with these covenants and met the required conditions at June 30, 2005. In the event Centennial or such subsidiaries do not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued as previously described.
Certain of Centennial's financing agreements contain cross-default provisions. These provisions state that if Centennial or any subsidiary of Centennial fails to make any payment with respect to any indebtedness or contingent obligation, in excess of a specified amount, under any agreement that causes such indebtedness to be due prior to its stated maturity or the contingent obligation to become payable, the applicable agreements will be in default. Certain of Centennial's financing agreements and Centennial's practice limit the amount of subsidiary indebtedness.
Williston Basin Interstate Pipeline Company
Williston Basin has an uncommitted long-term master shelf agreement that allows for borrowings of up to $100 million. Under the terms of the master shelf agreement, $55.0 million was outstanding at June 30, 2005. The ability to request additional borrowings under this master shelf agreement expires on December 20, 2005.
In order to borrow under Williston Basin's uncommitted long-term master shelf agreement, it must be in compliance with the applicable covenants and certain other conditions including, covenants not to permit, as of the end of any fiscal quarter, the ratio of total debt to total capitalization to be greater than 55 percent. Other covenants include limitation on priority debt, limitation on sale of assets and limitation on investments. Williston Basin was in compliance with these covenants and met the required conditions at June 30, 2005. In the event Williston Basin does not comply with the applicable covenants and other conditions, alternative sources of funding may need to be pursued.
Off balance sheet arrangements
Centennial had unconditionally guaranteed a portion of certain bank borrowings of MPX in connection with the Company's equity method investment in the Termoceara Generating Facility, as discussed in Note 12. The Company, through an indirect wholly owned subsidiary, owned 49 percent of MPX. The guarantee to MPX's creditors expired on July 25, 2005, as the outstanding bank borrowings were repaid on that date. At June 30, 2005, the aggregate amount of borrowings outstanding subject to these guarantees was $29.6 million.
As of June 30, 2005, Centennial was contingently liable for the performance of certain of its subsidiaries under approximately $614 million of surety bonds. These bonds are principally for construction contracts and reclamation obligations of these subsidiaries entered into in the normal course of business. Centennial indemnifies the respective surety bond companies against any exposure under the bonds. The purpose of Centennial's indemnification is to allow the subsidiaries to obtain bonding at competitive rates. In the event a subsidiary of the Company does not fulfill its obligations in relation to its bonded contract or obligation, Centennial may be required to make payments under its indemnification. A large portion of these contingent commitments is expected to expire within the next 12 months; however, Centennial will likely continue to enter into surety bonds for its subsidiaries in the future. The surety bonds were not reflected on the Consolidated Balance Sheets.
Contractual obligations and commercial commitments
There are no material changes in the Company's contractual obligations relating to operating leases and purchase commitments from those reported in the 2004 Annual Report.
The Company's long-term debt at June 30, 2005, increased $201.1 million or 21 percent from December 31, 2004 due in part to acquisitions in the second quarter of 2005 and the construction of a 116-megawatt coal-fired electric generating facility near Hardin, Montana. At June 30, 2005, the Company's long-term debt and estimated interest payments (for the twelve months ended June 30, of each year listed in the table below) were as follows:
2006 2007 2008 2009 2010 Thereafter Total
(In millions)
Long-term debt $26.9 $482.8 $131.3 $86.3 $36.8 $382.5 $1,146.6
Estimated interest
payments* 60.3 46.8 36.6 29.1 25.1 103.7 301.6
|
$87.2 $529.6 $167.9 $115.4 $61.9 $486.2 $1,448.2
*Estimated interest payments are calculated based on the applicable rates and payment dates.
For more information on contractual obligations and commercial commitments, see Part II, Item 7 in the 2004 Annual Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of market fluctuations associated with commodity prices and interest rates. The Company has policies and procedures to assist in controlling these market risks and utilizes derivatives to manage a portion of its risk.
Commodity price risk
Fidelity utilizes natural gas and oil price swap and collar agreements to manage a portion of the market risk associated with fluctuations in the price of natural gas and oil on its forecasted sales of natural gas and oil production. For more information on commodity price risk, see Part II, Item 7A in the 2004 Annual Report, and Notes 11 and 14 of Notes to Consolidated Financial Statements.
The following table summarizes hedge agreements entered into by Fidelity as of June 30, 2005. These agreements call for Fidelity to receive fixed prices and pay variable prices.
(Notional amount and fair value in thousands)
Weighted Forward
Average Notional
Fixed Price Volume
(Per MMBtu) (In MMBtu's) Fair Value
Natural gas swap
agreements maturing
in 2005 $ 5.54 4,229 $ (5,908)
Natural gas swap
agreements maturing
in 2006 $ 7.04 7,185 $ (4,542)
Weighted
Average Forward
Floor/Ceiling Notional
Price Volume
(Per MMBtu) (In MMBtu's) Fair Value
Natural gas collar
agreements maturing
in 2005 $ 5.68/$6.88 9,810 $ (5,709)
Natural gas collar
agreements maturing
in 2006 $ 6.85/$8.09 9,125 $ (3,014)
Weighted Forward
Average Notional
Fixed Price Volume
(Per barrel) (In barrels) Fair Value
Oil swap agreement
maturing in 2005 $ 30.70 92 $ (2,523)
Weighted
Average Forward
Floor/Ceiling Notional
Price Volume
(Per barrel) (In barrels) Fair Value
Oil collar agreements
maturing in 2005 $38.11/$45.36 239 $ (3,202)
Oil collar agreement
maturing in 2006 $43.00/$54.15 183 $ (1,450)
|
Interest rate risk
There were no material changes to interest rate risk faced by the Company from those reported in the 2004 Annual Report. For more information on interest rate risk, see Part II, Item 7A in the 2004 Annual Report.
Foreign currency risk
The Company's investment, through an indirect wholly owned subsidiary, in the Termoceara Generating Facility was sold as discussed in Note 12 of Notes to Consolidated Financial Statements and, as a result, the Company no longer has any material exposure to foreign currency exchange risk.
ITEM 4. CONTROLS AND PROCEDURES
The following information includes the evaluation of disclosure controls and procedures by the Company's chief executive officer and the chief financial officer, along with any significant changes in internal controls of the Company.
Evaluation of disclosure controls and procedures
The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. The Company's chief executive officer and chief financial officer have evaluated the effectiveness of the Company's disclosure controls and procedures and they have concluded that, as of the end of the period covered by this report, such controls and procedures were effective.
Changes in internal controls
The Company maintains a system of internal accounting controls that is designed to provide reasonable assurance that the Company's transactions are properly authorized, the Company's assets are safeguarded against unauthorized or improper use, and the Company's transactions are properly recorded and reported to permit preparation of the Company's financial statements in conformity with generally accepted accounting principles in the United States of America. There were no changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information regarding legal proceedings, see Note 19 of Notes to Consolidated Financial Statements, which is incorporated by reference.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Between April 1, 2005 and June 30, 2005, the Company issued 1,271,389 shares of Common Stock, $1.00 par value, and the Preference Share Purchase Rights appurtenant thereto, as part of the consideration paid by the Company for all of the issued and outstanding capital stock with respect to businesses acquired during this period. The Common Stock and Rights issued by the Company in these transactions were issued in a private transaction exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof, Rule 506 promulgated thereunder, or both. The classes of persons to whom these securities were sold were either accredited investors or other persons to whom such securities were permitted to be offered under the applicable exemption.
The following table includes information with respect to the issuer's purchase of equity securities:
ISSUER PURCHASES OF EQUITY SECURITIES
(a) (b) (c) (d)
Maximum Number (or
Total Total Number of Approximate Dollar
Number of Average Shares (or Units) Value) of Shares (or
Shares Price Purchased as Part Units) that May Yet
(or Units) Paid of Publicly Be Purchased Under
Purchased per Share Announced Plans the Plans or
Period (or Unit) or Programs (3) Programs (3)
April 1 through
April 30, 2005 34,655(1) $26.97
May 1 through
May 31, 2005 53,625(2) $27.33
June 1 through
June 30, 2005
Total 88,280
|
(1) Represents 13,055 shares of common stock withheld by the Company to pay taxes in connection with the vesting of shares granted pursuant to a compensation plan and 21,600 shares of common stock purchased on the open market in connection with annual stock grants made to the Company's non-employee directors.
(2) Represents shares of common stock withheld by the Company to pay taxes in connection with vesting of restricted shares.
(3) Not applicable. The Company does not currently have in place any publicly announced plans or programs to purchase equity securities.
ITEM 6. EXHIBITS
4(a) Centennial Energy Holdings, Inc. Master Shelf Agreement,
dated April 29, 2005, among Centennial Energy Holdings, Inc.
and The Prudential Insurance Company of America
4(b) MDU Resources Group, Inc. Credit Agreement, dated June 21,
2005, among MDU Resources Group, Inc., Wells Fargo Bank,
National Association, as Administrative Agent, and The Other
Financial Institutions Party thereto
10(a) Purchase and Sale Agreement between Fidelity and Smith
Production Inc., dated April 19, 2005 (Flores)
10(b) Purchase and Sale Agreement between Fidelity and Smith
Production Inc., dated April 19, 2005 (Tabasco and Texas
Gardens)
10(c) First Amendment to the Purchase and Sale Agreements between
Fidelity and Smith Production Inc., dated April 19, 2005
10(d) Second Amendment to the Purchase and Sale Agreement between
Fidelity and Smith Production Inc., dated April 19, 2005
10(e) Directors' Compensation Policy, as amended on May 12, 2005
12 Computation of Ratio of Earnings to Fixed Charges
and Combined Fixed Charges and Preferred Stock
Dividends
31(a) Certification of Chief Executive Officer filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31(b) Certification of Chief Financial Officer filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial
Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MDU RESOURCES GROUP, INC.
DATE: August 3, 2005 BY: /s/ Warren L. Robinson
Warren L. Robinson
Executive Vice President
and Chief Financial Officer
BY: /s/ Vernon A. Raile
Vernon A. Raile
Senior Vice President
and Chief Accounting Officer
|
EXHIBIT INDEX
Exhibit No.
4(a) Centennial Energy Holdings, Inc. Master Shelf Agreement,
dated April 29, 2005, among Centennial Energy Holdings,
Inc. and The Prudential Insurance Company of America
4(b) MDU Resources Group, Inc. Credit Agreement, dated June 21, 2005,
among MDU Resources Group, Inc., Wells Fargo Bank, National
Association, as Administrative Agent, and The Other Financial
Institutions Party thereto
10(a) Purchase and Sale Agreement between Fidelity and Smith Production
Inc., dated April 19, 2005 (Flores)
10(b) Purchase and Sale Agreement between Fidelity and Smith Production
Inc., dated April 19, 2005 (Tabasco and Texas Gardens)
10(c) First Amendment to the Purchase and Sale Agreements between
Fidelity and Smith Production Inc., dated April 19, 2005
10(d) Second Amendment to the Purchase and Sale Agreement between
Fidelity and Smith Production Inc., dated April 19, 2005
10(e) Directors' Compensation Policy, as amended on May 12, 2005
12 Computation of Ratio of Earnings to Fixed Charges
and Combined Fixed Charges and Preferred Stock
Dividends
31(a) Certification of Chief Executive Officer filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31(b) Certification of Chief Financial Officer filed pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief
Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
(Execution Copy)
CENTENNIAL ENERGY HOLDINGS, INC.
$450,000,000
Senior Notes
AMENDED AND RESTATED MASTER SHELF AGREEMENT
Dated as of December 27, 1999
(effective as of April 29, 2005)
Note: This Agreement contains confidentiality obligations:
Section 20
TABLE OF CONTENTS
1. RESTATEMENT AND AMENDMENT; AUTHORIZATION OF NOTES
1.1. Restatement and Amendment of Existing Agreement
1.2. Authorization of Issue of Notes
2. SALE AND PURCHASE OF NOTES
2.1. Facility
2.2. Issuance Period
2.3. Periodic Spread Information
2.4. Request for Purchase
2.5. Rate Quotes
2.6. Acceptance
2.7. Market Disruption
2.8. Fees
3. CLOSING
3.1. Closings
3.2. Rescheduled Closings
4. CONDITIONS TO CLOSING
4.1. Representations and Warranties
4.2. Performance; No Default
4.3. Compliance Certificates
4.4. Opinions of Counsel
4.5. Purchase Permitted By Applicable Law, etc
4.6. Payment of Facility Fee and Structuring Fee
4.7. Private Placement Number
4.8. Changes in Corporate Structure
4.9. Certain Documents
4.10.Proceedings and Documents
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.1. Organization; Power and Authority
5.2. Authorization, etc
5.3. Disclosure
5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates
5.5. Financial Statements
5.6. Compliance with Laws, Other Instruments, etc
5.7. Governmental Authorizations, etc
5.8. Litigation; Observance of Agreements, Statutes and Orders
5.9. Taxes
5.10.Title to Property; Leases
5.11.Licenses, Permits, etc
5.12.Compliance with ERISA
5.13.Private Offering by the Company
5.14.Use of Proceeds; Margin Regulations
5.15.Existing Indebtedness; Future Liens
5.16.Status under Certain Statutes
5.17.Environmental Matters
5.18.Hostile Tender Offers
5.19.Foreign Assets Control Regulations, Etc
6. REPRESENTATIONS OF THE PURCHASER
6.1. Purchase for Investment
6.2. Source of Funds
7. INFORMATION AS TO COMPANY
7.1. Financial and Business Information
7.2. Officer's Certificate
7.3. Inspection
8. PREPAYMENT OF THE NOTES
8.1. Required Prepayments
8.2. Optional Prepayments with Make-Whole Amount
8.3. Allocation of Partial Prepayments
8.4. Maturity; Surrender, etc
8.5. Purchase of Notes
8.6. Make-Whole Amount
9. AFFIRMATIVE COVENANTS
9.1. Compliance with Law
9.2. Insurance
9.3. Maintenance of Properties
9.4. Payment of Taxes
9.5. Corporate Existence, etc
9.6. Information Required by Rule 144A
9.7. Covenant to Secure Notes Equally
10. NEGATIVE COVENANTS
10.1. Maximum Company Capitalization Ratio
10.2. Minimum Interest Coverage Ratio
10.3. Consolidated Net Worth
10.4. Limitation on Liens
10.5. Limitation on Priority Debt
10.6. Limitation on Sale of Assets
10.7. Consolidations and Mergers
10.8. Loans and Investments
10.9. Transactions with Affiliates
10.10.Use of Proceeds
10.11.Agreements Restricting Subsidiary Dividends
10.12.Restrictions on Subsidiary Guarantees
10.13.Terrorism Sanctions Regulations
11. EVENTS OF DEFAULT
12. REMEDIES ON DEFAULT, ETC
12.1. Acceleration
12.2. Other Remedies
12.3. Rescission
12.4. No Waivers or Election of Remedies, Expenses, etc
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES
13.1. Registration of Notes
13.2. Transfer and Exchange of Notes
13.3. Replacement of Notes
14. PAYMENTS ON NOTES
14.1. Place of Payment
14.2. Home Office Payment
15. EXPENSES, ETC
15.1. Transaction Expenses
15.2. Survival
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT
17. AMENDMENT AND WAIVER
17.1. Requirements
17.2. Solicitation of Holders of Notes
17.3. Binding Effect, etc
17.4. Notes held by Company, etc
18. NOTICES
19. REPRODUCTION OF DOCUMENTS
20. CONFIDENTIAL INFORMATION
21. SUBSTITUTION OF PURCHASER
22. MISCELLANEOUS
22.1. Successors and Assigns
22.2. Payments Due on Non-Business Days
22.3. Severability
22.4. Construction
22.5. Counterparts
22.6. Governing Law
23.CONDITIONS TO EFFECTIVENESS
23.1. Secretary's Certificate
23.2. Opinion of Counsel
SCHEDULE A -- Information Relating to Purchaser
SCHEDULE B -- Defined Terms
SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock
SCHEDULE 5.8 -- Litigation
SCHEDULE 5.10 -- Title to Property
SCHEDULE 5.15 -- Existing Indebtedness; Liens
SCHEDULE 5.17 -- Environmental Matters
EXHIBIT 1 -- Form of Senior Note
EXHIBIT 2.4 -- Form of Request for Purchaser
EXHIBIT 2.6 -- Form of Confirmation of Acceptance
EXHIBIT 4.4(a) -- Form of Opinion of Counsel to the Company
EXHIBIT 4.4(b) -- Form of Opinion of General Counsel of the Company
CENTENNIAL ENERGY HOLDINGS, INC.
Schuchart Building
918 East Divide Avenue
Bismarck, North Dakota 58506
As of December 27, 1999
(effective as of April 29, 2005)
To: Prudential Investment Management, Inc. ("Prudential")
The Prudential Insurance Company of America ("PICA")
Pruco Life Insurance Company
Pruco Life Insurance Company of New Jersey
Hartford Life Insurance Company
Southland Life Insurance Company
First Colony Life Insurance Company
General Electric Capital Assurance Company
General Electric Life Annuity Assurance Company
Each Prudential Affiliate (as defined herein)
which becomes bound by certain provisions of this
Agreement as hereinafter provided (together with
each above-named entity, the "Purchasers")
c/o Prudential Capital Group
Gateway Center Four
100 Mulberry Street
Newark, NJ 07102-4069
Ladies and Gentlemen:
Centennial Energy Holdings, Inc., a Delaware corporation (the "Company"), agrees with you as follows:
1. RESTATEMENT AND AMENDMENT; AUTHORIZATION OF NOTES.
1.1. Restatement and Amendment of Existing Agreement. The Company and PICA entered into a Master Shelf Agreement dated as of December 27, 1999 (the "Original Agreement"), as amended by Letter Amendment No. 1 dated May 4, 2000, Letter Amendment No. 2 dated September 29, 2000, Letter Amendment No. 3 dated September 4, 2001, Letter Amendment No. 4 dated October 1, 2002 and Letter Amendment No. 5 dated December 15, 2004. (The Original Agreement, as amended, is referred to herein as the "Existing Agreement".) The Company, Prudential and each holder of Notes outstanding under the Existing Agreement desire to, among other things, amend certain provisions of the Existing Agreement including, without limitation, to increase the size of the Facility from $400,000,000 to $450,000,000 and extend the period during which Notes may be issued. Accordingly, the Company, Prudential and each holder of Notes outstanding under the Existing Agreement agree that the Existing Agreement is amended and restated in its entirety to read as provided in this Agreement.
1.2. Authorization of Issue of Notes. The Company will authorize the issue of its senior promissory notes (the "Notes") in the aggregate principal amount of $450,000,000 to be dated the date of issue thereof; to mature, in the case of each Note so issued, no more than 12 years after the date of original issuance thereof; to have an average life, in the case of each note so issued, of no more than 10 years after the date of original issuance thereof; to bear interest on the unpaid balance thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Note so issued, in the Confirmation of Acceptance with respect to such Note delivered pursuant to Section 2.6; and to be substantially in the form of Exhibit 1 attached hereto. The term "Notes" as used herein shall include each Note delivered pursuant to any provision of this Agreement and each Note delivered in substitution or exchange for any such Note pursuant to any such provision. Notes which have (i) the same final maturity, (ii) the same installment payment dates, (iii) the same installment payment amounts (as a percentage of the original principal amount of each Note), (iv) the same interest rate, (v) the same interest payment periods, and (vi) the same original date of issuance are herein called a "Series" of Notes. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
2.1. Facility; Limitation on Facility.
(a) Facility. Prudential is willing to consider, in
its sole discretion and within limits which may be authorized for
purchase by Prudential Affiliates from time to time, the purchase
of $450,000,000 of the total amount of authorized Notes pursuant
to this Agreement. The willingness of Prudential to consider
such purchase of Notes is herein called the "Facility." At any
time, subject to the additional limitations in Section 2.1(b),
the aggregate principal amount of Notes stated in Section 1.2,
minus the aggregate principal amount of Notes purchased and sold
pursuant to this Agreement prior to such time, minus the
aggregate principal amount of Accepted Notes which have not yet
been purchased and sold hereunder prior to such time, plus the
aggregate principal amount of Notes purchased and sold pursuant
to this Agreement and thereafter retired prior to such time (to
the extent that the Company shall have agreed with Prudential to
reinstate the Facility with respect to such amount) is herein
called the "Available Facility Amount" at such time.
NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER
PURCHASES OF NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS
UNDERSTANDING THAT NEITHER PRUDENTIAL NOR ANY PRUDENTIAL
AFFILIATE SHALL BE OBLIGATED TO MAKE OR ACCEPT OFFERS TO PURCHASE
NOTES, OR TO QUOTE RATES, SPREADS OR OTHER TERMS WITH RESPECT TO
SPECIFIC PURCHASES OF NOTES, AND THE FACILITY SHALL IN NO WAY BE
CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY PRUDENTIAL
AFFILIATE.
(b) Limitation on Facility. Notwithstanding anything in Section 2.1(a), the Company may not request the issuance of Notes, and neither Prudential nor any Prudential Affiliate shall be required to purchase Notes, pursuant to the Facility if, after the issuance of such Notes, the aggregate amount of Centennial Exposure would exceed $325,000,000.
2.2. Issuance Period.
Notes may be issued and sold pursuant to this Agreement until the earlier of (i) April 29, 2008 (or if any such anniversary is not a Business Day, the Business Day next preceding such anniversary) and (ii) the thirtieth day after Prudential shall have given to the Company, or the Company shall have given to Prudential, a notice stating that it elects to terminate the issuance and sale of Notes pursuant to this Agreement (or if such thirtieth day is not a Business Day, the Business Day next preceding such thirtieth day). The period during which Notes may be issued and sold pursuant to this Agreement is herein called the "Issuance Period".
2.3. Periodic Spread Information.
Provided no Default or Event of Default exists, not later than 9:30 A.M. (New York City local time) on a Business Day during the Issuance Period if there is an Available Facility Amount on such Business Day, the Company may request by telecopier or telephone, and Prudential will, to the extent reasonably practicable, provide to the Company on such Business Day (or, if such request is received after 9:30 A.M. (New York City local time) on such Business Day, on the following Business Day), information (by telecopier or telephone) with respect to various spreads at which Prudential Affiliates might be interested in purchasing Notes of different average lives; provided, however, that the Company may not make such requests more frequently than once in every five Business Days or such other period as shall be mutually agreed to by the Company and Prudential. The amount and content of information so provided shall be in the sole discretion of Prudential but it is the intent of Prudential to provide information which will be of use to the Company in determining whether to initiate procedures for use of the Facility. Information so provided shall not constitute an offer to purchase Notes, and neither Prudential nor any Prudential Affiliate shall be obligated to purchase Notes at the spreads specified. Information so provided shall be representative of potential interest only for the period commencing on the day such information is provided and ending on the earlier of the fifth Business Day after such day and the first day after such day on which further spread information is provided. Prudential may suspend or terminate providing information pursuant to this Section 2.3 if, in its sole discretion, it determines that there has been an adverse change in the credit quality of the Company after the Effective Date.
2.4. Request for Purchase.
The Company may from time to time during the Issuance Period make requests for purchases of Notes (each such request being a "Request for Purchase"). Each Request for Purchase shall be made to Prudential by telecopier and confirmed by nationwide overnight delivery service, shall be on the letterhead of the Company, and shall (i) specify the aggregate principal amount of Notes covered thereby, which shall not be less than $5,000,000 and not be greater than the Available Facility Amount (and shall be subject to the limitations of Section 2.1(b)) at the time such Request for Purchase is made if the request is made, (ii) specify the principal amounts, final maturities, installment payment dates and amounts and interest payment periods (quarterly or semi- annual in arrears) of the Notes covered thereby, (iii) specify the use of proceeds of such Notes, (iv) specify the proposed day for the closing of the purchase and sale of such Notes, which shall be a Business Day during the Issuance Period not less than 10 days and not more than 20 days after the making of such Request for Purchase, (v) specify the number of the account and the name and address of the depository institution to which the purchase prices of such Notes are to be transferred on the Closing Day for such purchase and sale, (vi) certify that the representations and warranties contained in Section 5 (as they may have been amended pursuant to this Section 2.4) are true on and as of the date of such Request for Purchase except to the extent of changes caused by the transactions herein contemplated and that there exists on the date of such Request for Purchase no Event of Default or Default, and (vii) be substantially in the form of Exhibit 2.4 attached hereto. Each Request for Purchase shall be in writing and shall be deemed made when received by Prudential. Any previous notification referenced in a Request for Purchase or any Request for Purchase that contains information that purports to amend the information contained in any Schedule or Exhibit hereto, shall not be effective to amend such information unless it is received by Prudential at least five Business Days prior to the Acceptance Day for Notes to which such Request for Purchase relates. If Prudential provides such interest rates quotes earlier than five Business Days after Prudential receives a Request for Purchase which contains information that purports to amend the information contained in any Schedule or Exhibit hereto and Prudential states in writing that it waives the requirement in this Section 2.4 that the information shall not be effective to amend unless it is received by Prudential at least five Business Days prior to the Acceptance Day, the information contained in such Schedule or Exhibit shall be deemed effective to amend such information at the time of the issuance of the quotes.
2.5. Rate Quotes.
Not later than six Business Days after the Company
shall have given Prudential a Request for Purchase pursuant to
Section 2.4, Prudential may provide (by telephone promptly
thereafter confirmed by telecopier, in each case no earlier than
9:30 A.M. and no later than 1:30 P.M. New York City local time)
interest rate quotes for the several principal amounts,
maturities, installment payment schedules, and interest payment
periods of Notes specified in such Request for Purchase. Each
quote shall represent the interest rate per annum payable on the
outstanding principal balance of such Notes until such balance
shall have become due and payable, at which a Prudential
Affiliate would be willing to purchase such Notes at 100% of the
principal amount thereof.
2.6. Acceptance.
Within 30 minutes after Prudential shall have provided any interest rate quotes pursuant to Section 2.5 or, in the event that due to conditions in the market place it shall not be feasible to hold such interest rate quotes open 30 minutes, such shorter period as Prudential may specify to the Company (such period being the "Acceptance Window"), the Company may, subject to Section 2.7, elect to accept such interest rate quotes as to not less than $5,000,000 aggregate principal amount of the Notes specified in the related Request for Purchase. Such election shall be made by an Authorized Officer of the Company notifying Prudential by telephone or telecopier within the Acceptance Window (but not earlier than 9:30 A.M. or later than 1:30 P.M., New York City local time) that the Company elects to accept such interest rate quotes, specifying the Notes (each such Note being an "Accepted Note") as to which such acceptance (an "Acceptance") relates. The day the Company notifies an Acceptance with respect to any Accepted Notes is herein called the "Acceptance Day" for such Accepted Notes. Any interest rate quotes as to which Prudential does not receive an Acceptance within the Acceptance Window shall expire, and no purchase or sale of Notes hereunder shall be made based on such expired interest rate quotes. Subject to Section 2.7 and the other terms and conditions hereof, the Company agrees to sell to a Prudential Affiliate, and Prudential agrees to cause the purchase by a Prudential Affiliate of, the Accepted Notes at 100% of the principal amount of such Notes. As soon as practicable following the Acceptance Day, the Company, Prudential and each Prudential Affiliate which is to purchase any such Accepted Notes will execute a confirmation of such Acceptance substantially in the form of Exhibit 2.6 attached hereto (a "Confirmation of Acceptance").
2.7. Market Disruption.
Notwithstanding the provisions of Section 2.6, if
Prudential shall have provided interest rate quotes pursuant to
Section 2.5 and thereafter prior to the time an Acceptance with
respect to such quotes shall have been notified to Prudential in
accordance with Section 2.6 there shall occur a general
suspension, material limitation, or significant disruption of
trading in securities generally on the New York Stock Exchange or
in the market for U.S. Treasury securities and other financial
instruments, then such interest rate quotes shall expire, and no
purchase or sale of Notes hereunder shall be made based on such
expired interest rate quotes. If the Company thereafter notifies
Prudential of the Acceptance of any such interest rate quotes,
such Acceptance shall be ineffective for all purposes of this
Agreement, and Prudential shall promptly notify the Company that
the provisions of this Section 2.7 are applicable with respect to
such Acceptance.
2.8. Fees.
(a) Facility Fee. The Company will pay to each Purchaser in immediately available funds a fee (the "Facility Fee") on each Closing Day on or after January 30, 2000, in an amount equal to 0.125% of the aggregate principal amount of Notes sold to such Purchaser on such Closing Day.
(b) Delayed Delivery Fee. If the closing of the purchase and sale of any Accepted Note is delayed for any reason (other than in the case where all conditions in Section 4 (other than Section 4.5 and Section 4.7) have been satisfied and a Purchaser fails to purchase its Accepted Notes) beyond the original Closing Day for such Accepted Note, the Company will pay to Prudential on the Cancellation Date or actual closing date of such purchase and sale (if such Cancellation Date or closing date occurs on a date later than the date specified in the Confirmation of Acceptance for such Accepted Note), a fee (the "Delayed Delivery Fee") calculated as follows:
(BEY - MMY) X DTS/360 X PA
where "BEY" means Bond Equivalent Yield, i.e., the bond equivalent yield per annum of such Accepted Note, "MMY" means Money Market Yield, i.e., the yield per annum on an alternative investment selected by Prudential on the date Prudential receives notice of the delay in the closing for such Accepted Notes having a maturity date or dates the same as, or closest to, the Rescheduled Closing Day or Rescheduled Closing Days (a new alternative investment being selected by Prudential each time such closing is delayed); "DTS" means Days to Settlement, i.e., the number of actual days elapsed from and including the originally scheduled Closing Day with respect to such Accepted Note (in the case of the first such payment with respect to such Accepted Note) or from and including the date of the next preceding payment (in the case of any subsequent delayed delivery fee payment with respect to such Accepted Note) to but excluding the date of such payment; and "PA" means Principal Amount, i.e., the principal amount of the Accepted Note for which such calculation is being made. In no case shall the Delayed Delivery Fee be less than zero. Nothing contained herein shall obligate any Purchaser to purchase any Accepted Note on any day other than the Closing Day for such Accepted Note, as the same may be rescheduled from time to time in compliance with Section 3.2.
(c) Cancellation Fee. If the Company at any time notifies Prudential in writing that the Company is canceling the closing of the purchase and sale of any Accepted Note, or if Prudential notifies the Company in writing under the circumstances set forth in the last sentence of Section 3.2 that the closing of the purchase and sale of such Accepted Note is to be canceled, or if the closing of the purchase and sale of such Accepted Note is not consummated on or prior to the last day of the Issuance Period (the date of any such notification, or the last day of the Issuance Period, as the case may be, being the "Cancellation Date"), the Company will pay Prudential in immediately available funds an amount (the "Cancellation Fee") calculated as follows:
PI X PA
where "PI" means Price Increase, i.e., the quotient (expressed in decimals) obtained by dividing (a) the excess of the ask price (as determined by Prudential) of the Hedge Treasury Note(s) on the Cancellation Date over the bid price (as determined by Prudential) of the Hedge Treasury Notes(s) on the Acceptance Day for such Accepted Note by (b) such bid price; and "PA" has the meaning specified in Section 2.8(b). The foregoing bid and ask prices shall be as reported by Telerate Systems, Inc. (or, if such data for any reason ceases to be available through Telerate Systems, Inc., any publicly available source of similar market data). Each price shall be based on a U.S. Treasury security having a par value of $100.00 and shall be rounded to the second decimal place. In no case shall the Cancellation Fee be less than zero.
(d) Structuring Fee. The Company paid PICA a fee of
$75,000 at the time of the execution and delivery of the Original
Agreement. The Company will pay to Prudential in immediately
available funds a fee (the "Structuring Fee") on October 28, 2005
in an amount equal to $50,000 unless after the Effective Date and
(I) on or before October 28, 2005 the Company issues at least
$50,000,000 of Notes or (II) on or before July 29, 2005 the
Company issues at least $25,000,000 of Notes.
3. CLOSING.
3.1. Closings.
Not later than 11:30 A.M. (New York City local time) on the Closing Day for any Accepted Notes, the Company will deliver to each Purchaser listed in the Confirmation of Acceptance relating thereto at the offices of Prudential Capital Group, 2200 Ross Avenue, Suite 4200E, Dallas, Texas, 75201 the Accepted Notes to be purchased by such Purchaser in the form of one or more Notes in authorized denominations as such Purchaser may request for each Series of Accepted Notes to be purchased on the Closing Day, dated the Closing Day and registered in such Purchaser's name (or in the name of its nominee), against payment of the purchase price thereof by transfer of immediately available funds for credit to the Company's account specified in the Request for Purchase of such Notes.
3.2. Rescheduled Closings.
If the Company fails to tender to any Purchaser the
Accepted Notes to be purchased by such Purchaser on the scheduled
Closing Day for such Accepted Notes as provided in Section 3.1,
or any of the conditions specified in Section 4 shall not have
been fulfilled by the time required on such scheduled Closing
Day, the Company shall, prior to 1:00 P.M., New York City local
time, on such scheduled Closing Day notify such Purchaser in
writing whether (i) such closing is to be rescheduled (such
rescheduled date to be a Business Day during the Issuance Period
not less than one Business Day and not more than 30 Business Days
after such scheduled Closing Day (the "Rescheduled Closing Day")
and certify to such Purchaser that the Company reasonably
believes that it will be able to comply with the conditions set
forth in Section 4 on such Rescheduled Closing Day and that the
Company will pay the Delayed Delivery Fee in accordance with
Section 2.8(b) or (ii) such closing is to be canceled as provided
in Section 2.8(c). In the event that the Company shall fail to
give such notice referred to in the preceding sentence, such
Purchaser may at its election, at any time after 1:00 P.M., New
York City local time, on such scheduled Closing Day, notify the
Company in writing that such closing is to be canceled as
provided in Section 2.8(c).
4. CONDITIONS TO CLOSING.
The obligation of any Purchaser to purchase and pay for any Accepted Notes is subject to the fulfillment to such Purchaser's satisfaction, prior to or at the Closing Day for such Accepted Notes, of the following conditions:
4.1. Representations and Warranties.
The representations and warranties of the Company in this Agreement shall be correct when made and at such Closing Day.
4.2. Performance; No Default.
The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at such Closing Day and after giving effect to the issue and sale of such Accepted Notes (and the application of the proceeds thereof as contemplated by the Request for Purchase for such Accepted Notes) no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction from December 31, 2004 to the Effective Date, that would have been prohibited by Sections 10.1 through 10.12, hereof had such Sections applied since such date.
4.3. Compliance Certificates.
(a) Officer's Certificate. The Company shall have delivered to such Purchaser an Officer's Certificate, dated the date of such Closing Day, certifying that the conditions specified in Sections 4.1, 4.2 and 4.8 have been fulfilled.
(b) Secretary's Certificate. The Company shall have delivered to such Purchaser a certificate, dated as of such Closing Day, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of such Accepted Notes and this Agreement.
4.4. Opinions of Counsel.
Such Purchaser shall have received opinions in form and substance reasonably satisfactory to such Purchaser, dated the date of such Closing Day from Thelen Reid & Priest LLP, counsel for the Company, and Paul K. Sandness, General Counsel of the Company, or Cynthia J. Norland, Associate General Counsel of the Company covering the matters set forth in Exhibits 4.4(a) and 4.4(b), respectively, and covering such other matters incident to the transactions contemplated hereby as such Purchaser or its counsel may reasonably request. The Company hereby directs each such counsel to deliver such opinion and agrees that the issuance and sale of any Accepted Notes will constitute a renewal of such direction. The Company has advised such counsel that each Purchaser receiving such an opinion will rely on such opinion, as of the date of such opinion.
4.5. Purchase Permitted By Applicable Law, etc.
On such Closing Day the purchase of Notes by such Purchaser shall (i) be permitted by the laws and regulations of each jurisdiction to which it is subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (iii) not subject such Purchaser to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested, such Purchaser shall have received an Officer's Certificate certifying as to such matters of fact as it may reasonably specify to enable such Purchaser to determine whether such purchase is so permitted.
4.6. Payment of Facility Fee and Structuring Fee.
The Company shall have paid on or before such Closing Day the Facility Fee required by Section 2.8(a) for such Accepted Notes and the Structuring Fee, if required by Section 2.8(d).
4.7. Private Placement Number.
A Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained by the Purchasers for such Accepted Notes.
4.8. Changes in Corporate Structure.
The Company shall not be in violation of Section 9.5.
4.9. Certain Documents.
Such Purchaser shall have received the following:
(i) The Accepted Note(s) to be purchased by such Purchaser on such Closing Day.
(ii) Certified copies of the Certificate of Incorporation and By-laws of the Company as of such Closing Day, or a certificate of the Secretary or an Assistant Secretary of the Company certifying that there have been no changes to the Certificate of Incorporation and By-laws of the Company since the same were previously delivered pursuant to this Agreement.
(iii) A good standing certificate for the Company from the Secretary of State of Delaware dated of a recent date prior to such Closing Day and such other evidence of the status of the Company as such Purchaser may reasonably request.
4.10. Proceedings and Documents.
All of the Company's corporate and other proceedings required in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory to Prudential and its counsel, and Prudential and its counsel shall have received all such counterpart originals or certified or other copies of such documents as Prudential or they may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
5.1. Organization; Power and Authority.
The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof.
5.2. Authorization, etc.
This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
5.3. Disclosure.
The Company has delivered to Prudential a copy of the
MDU Annual Report. The information with respect to the Company
contained in the MDU Annual Report fairly describes, in all
material respects, the general nature of the business and
principal properties of the Company and its Subsidiaries as of
the Effective Date. This Agreement, the MDU Annual Report (as the
same may be updated pursuant to an Officer's Certificate
certifying that the information contained therein is an update of
information pertaining to the general nature of the business and
principal properties of the Company and its Subsidiaries
contained in the MDU Annual Report and delivered pursuant to this
Section 5.3 and Section 2.4) and the financial statements
referred to in Section 5.5, taken as a whole, do not contain any
untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading in
light of the circumstances under which they were made. Except as
expressly described in the MDU Annual Report (as updated as
provided in this Section 5.3), or in the financial statements
referred to in Section 5.5, since December 31, 2004 (with respect
to information pertaining to the general nature of the business
and principal properties of the Company and its Subsidiaries
contained in the MDU Annual Report (as updated) other than
financial statements) and, since the end of the most recent
fiscal year for which audited financial statements have been
furnished (with respect to financial statements), there has been
no change in the financial condition, operations, business or
properties of the Company or any Subsidiary except changes that
individually or in the aggregate would not reasonably be expected
to have a Material Adverse Effect. There is no fact known to the
Company that would reasonably be expected to have a Material
Adverse Effect that has not been set forth herein or in the MDU
Annual Report (as updated or amended from time to time pursuant
to Section 2.4) or in the financial statements referred to in
Section 5.5.
5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates.
(a) Schedule 5.4, as it may be amended from time to time pursuant to Section 2.4, contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary and designating each Subsidiary as a Restricted or Unrestricted Subsidiary, (ii) of the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's directors and senior officers.
(b) All of the outstanding shares of capital stock of
each Subsidiary shown in Schedule 5.4, as it may be amended from
time to time pursuant to Section 2.4, as being owned by the
Company and its Subsidiaries have been validly issued, are fully
paid and nonassessable and are owned by the Company or another
Subsidiary free and clear of any Lien (except as permitted by
Section 10.4).
(c) Each Subsidiary identified in Schedule 5.4, as it may be amended from time to time pursuant to Section 2.4, is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact.
(d) No Restricted Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than the agreements listed on Schedule 5.4, as it may be amended from time to time, pursuant to Section 2.4, and customary limitations imposed by Requirements of Law) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary.
5.5. Financial Statements.
The Company has delivered to each Purchaser of Accepted Notes copies of the following financial statements (i) a consolidated balance sheet of the Company and its Subsidiaries as at December 31 in each of the two fiscal years of the Company most recently completed prior to the date as of which this representation is made or repeated to such Purchaser (other than fiscal years completed within 120 days prior to such date for which audited financial statements have not been released) and consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for each such year, all reported on by the Company's independent auditors (which shall be Deloitte & Touche or another nationally recognized independent accounting firm); and (ii) an unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of the quarterly period (if any) most recently completed prior to such date and after the end of such fiscal year (other than quarterly periods completed within 60 days prior to such date for which financial statements have not been released) and the comparable quarterly period in the preceding fiscal year and unaudited consolidated statements of income, stockholders' equity and cash flows for the periods from the beginning of the fiscal years in which such quarterly periods are included to the end of such quarterly periods, prepared by the Company. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such financial statements and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments).
5.6. Compliance with Laws, Other Instruments, etc.
The execution, delivery and performance by the Company of this Agreement and the Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary.
5.7. Governmental Authorizations, etc.
No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes.
5.8. Litigation; Observance of Agreements, Statutes and Orders.
(a) Except as disclosed in Schedule 5.8, as it may be amended from time to time pursuant to Section 2.4, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
5.9. Taxes.
The Company and its Subsidiaries have filed all tax
returns that are required to have been filed in any jurisdiction,
and have paid all taxes shown to be due and payable on such
returns and all other taxes and assessments levied upon them or
their properties, assets, income or franchises, to the extent
such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments
(i) the amount of which is not individually or in the aggregate
Material or (ii) the amount, applicability or validity of which
is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or a
Subsidiary, as the case may be, has established adequate reserves
in accordance with GAAP. As of the Effective Date, (x) the
Company knows of no basis for any other tax or assessment that
could reasonably be expected to have a Material Adverse Effect;
(y) the charges, accruals and reserves on the books of the
Company and its Subsidiaries in respect of Federal, state or
other taxes for all fiscal periods are adequate; and (z) the
Federal income tax liabilities of the Company and its
Subsidiaries have been determined by the Internal Revenue Service
and accrued for all fiscal years up to and including the fiscal
year ended December 31, 2000.
5.10. Title to Property; Leases.
The Company and its Restricted Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Restricted Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business or listed on Schedule 5.10, as it may be amended from time to time pursuant to Section 2.4), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects.
5.11. Licenses, Permits, etc.
(a) The Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material to the operation of the business of the Company and its Restricted Subsidiaries, taken as a whole, without known conflict with the rights of others.
(b) To the best knowledge of the Company, no product of the Company infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person.
(c) To the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries.
5.12. Compliance with ERISA.
(a) Each Plan is in compliance in all material respects with ERISA, the Code and other applicable federal or state law. Each Plan which is intended to quality under Section 401 (a) of the Code has received a favorable determination letter from IRS and, to the best knowledge of the Company, nothing has occurred which would or could reasonably be expected to cause the loss of such qualification of any such Plan or related trust.
(b) There are no pending or, to the best knowledge of the Company, threatened claims (other than routine claims for benefits in the ordinary course), actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. To the best knowledge of the Company, there has been no prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA or other material violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect.
(c) No Reportable Event has occurred or is reasonably expected to occur with respect to any Pension Plan or Multiemployer Plan.
(d) The aggregate Unfunded Pension Liability for all Pension Plans (calculated based on the most recent actuarial report for each Pension Plan) does not exceed $15,000,000.
(e) Neither the Company nor any ERISA Affiliate has incurred nor does it reasonably expect to incur, any liability under Title IV or ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA).
(f) Neither the Company nor any ERISA Affiliate has transferred any Unfunded Pension Liability to any Person or otherwise engaged in a transaction that could be subject to Section 4069 of ERISA.
(g) Neither the Company nor any ERISA Affiliate has incurred nor reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan.
(h) The execution and delivery of this Agreement and the
issuance and sale of the Notes will be exempt from, or will not
involve any transaction which is subject to, the prohibitions of
Section 406(a) of ERISA and will not involve any transaction in
connection with which a penalty could be imposed under Section
502(i) of ERISA or a tax could be imposed pursuant to
Section 4975(c)(i)(A)-(D) of the Code. The representation by the
Company in the next preceding sentence is made in reliance upon
and subject to the accuracy of the representation of each
Purchaser in Section 6.2 as to the source of funds to be used by
it to purchase any Notes.
5.13. Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has
offered the Notes or any similar securities for sale to, or
solicited any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof with, any person
other than the Purchasers and other Institutional Investors, each
of which has been offered the Notes at a private sale for
investment. Neither the Company nor anyone acting on its behalf
has taken, or will take, any action that would subject the
issuance or sale of the Notes to the registration requirements of
Section 5 of the Securities Act.
5.14. Use of Proceeds; Margin Regulations.
The Company will apply the proceeds of the sale of the Notes of any Series as set forth in the Request for Purchase for such Notes. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 2% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 5% of the value of such assets. As used in this Section, the terms "margin stock" and "purpose of buying or carrying" shall have the meanings assigned to them in said Regulation U.
5.15. Existing Indebtedness; Future Liens.
(a) Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Restricted Subsidiaries as of December 31, 2004. Neither the Company nor any of its Restricted Subsidiaries has any outstanding Indebtedness except as permitted by Section 10.1, 10.2, 10.3 and 10.5. Neither the Company nor any Restricted Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Restricted Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Restricted Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment.
(b) As of the Effective Date, neither the Company nor
any Restricted Subsidiary has any Indebtedness secured by a Lien
on any of their respective property. Neither the Company nor any
Restricted Subsidiary has agreed or consented to cause or permit
in the future (upon the happening of a contingency or otherwise)
any of its property, whether now owned or hereafter acquired, to
be subject to a Lien securing Indebtedness, in violation of
Section 10.4.
5.16. Status under Certain Statutes.
Neither the Company nor any Subsidiary or Affiliate is subject to regulation under the Investment Company Act of 1940, as amended. The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, the Federal Power Act, as amended, any state public utilities code or statute, or any other Federal or state statute or regulation limiting its ability to incur indebtedness.
5.17. Environmental Matters.
Except as described in Schedule 5.17, as it may be amended from time to time pursuant to Section 2.4, the Company and its Subsidiaries and all of their respective properties and facilities have complied at all times and in all respects with all Federal, state, local and regional statutes, laws, ordinances and judicial or administrative orders, judgments, rulings and regulations relating to protection of the environment except, in any such case, where failure to comply would not result in a Material Adverse Effect.
5.18. Hostile Tender Offers.
None of the proceeds of the sale of any Notes will be used to finance a Hostile Tender Offer.
5.19. Foreign Assets Control Regulations, Etc.
(a) Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto.
(b) Neither the Company nor any Subsidiary (i) is a
Person described or designated in the Specially Designated
Nationals and Blocked Persons List of the Office of Foreign
Assets Control or in Section 1 of the Anti-Terrorism Order or
(ii) engages in any dealings or transactions with any such
Person. The Company and its Subsidiaries are in compliance, in
all material respects, with the USA Patriot Act.
(c) No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases that such Act applies to the Company.
6. REPRESENTATIONS OF THE PURCHASER.
6.1. Purchase for Investment.
Each Purchaser represents that it is purchasing the Notes for its own account or for one or more separate accounts maintained by it or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of its or their property shall at all times be within its or their control. Each Purchaser understands that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes.
6.2. Source of Funds.
Each Purchaser represents that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by it to pay the purchase price of the Notes to be purchased by it hereunder:
(a) the Source is an "insurance company general account" (as the term is defined in the United States Department of Labor's Prohibited Transaction Exemption ("PTE") 95-60) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the National Association of Insurance Commissioners (the "NAIC Annual Statement")) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchaser's state of domicile; or
(b) the Source is a separate account that is maintained solely in connection with such Purchaser's fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or
(c) the Source is either (i) an insurance company
pooled separate account, within the meaning of PTE 90-1 or
(ii) a bank collective investment fund, within the meaning
of PTE 91-38 and, except as disclosed by such Purchaser to
the Company in writing pursuant to this clause (c), no
employee benefit plan or group of plans maintained by the
same employer or employee organization beneficially owns
more than 10% of all assets allocated to such pooled
separate account or collective investment fund; or
(d) the Source constitutes assets of an "investment fund" (within the meaning of Part V of PTE 84-14 (the "QPAM Exemption")) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this clause (d); or
(e) the Source constitutes assets of a "plan(s)" (within the meaning of Section IV of PTE 96-23 (the "INHAM Exemption")) managed by an "in-house asset manager" or "INHAM" (within the meaning of Part IV of the INHAM exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of "control" in Section IV(d) of the INHAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such INHAM and (ii) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the Company in writing pursuant to this clause (e); or
(f) the Source is a governmental plan; or
(g) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this clause (g); or
(h) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account"
shall have the respective meanings assigned to such terms in
Section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1. Financial and Business Information.
The Company shall deliver to each holder of Notes that is an Institutional Investor:
(a) Quarterly Statements -- as soon as practicable and in any event within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of,
(i) unaudited consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such quarter, and
(ii) unaudited consolidated and consolidating statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures
for the corresponding periods in the previous fiscal year,
all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer as fairly
presenting, in all material respects, the financial position
of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from
year-end adjustments, provided that, at such times as the
Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, delivery within the
time period specified above of copies of the Company's
Quarterly Report on Form 10-Q prepared in compliance with
the requirements therefor and filed with the SEC shall be
deemed to satisfy the requirements of this Section 7.1(a);
(b) Annual Statements -- as soon as practicable and in any event within 120 days after the end of each fiscal year of the Company, duplicate copies of,
(i) consolidated and unaudited consolidating balance sheet of the Company and its Subsidiaries, as at the end of such year, and
(ii) consolidated and unaudited consolidating statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and, in the case of the consolidated statements, accompanied
(A) by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and
(B) a certificate of such accountants stating that, in making the audit necessary for their report on such financial statements, they have obtained no knowledge of any Default or any Event of Default, or, if they have obtained knowledge of any Default or Event of Default, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit);
provided that, at such times as the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the SEC, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section 7.1(b);
(c) Annual Statements of Principal Operating Subsidiaries -- as soon as available, but not later than 120 days after the end of each fiscal year, a copy of the audited consolidated balance sheet of each of the Principal Operating Subsidiaries and their respective Subsidiaries (and any other Subsidiary the audited financial statements of which are delivered to other creditors of the Company, such Subsidiary being an "Additional Reporting Subsidiary") as at the end of such year and the related consolidated statements of income or operations, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied in each case by the opinion of independent certified public accountants of recognized national standing which opinion shall state that such consolidated financial statements present fairly, in all material respects, the financial position and the results of operations of the companies being reported on at the time and for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinions shall not be qualified or limited because of a restricted or limited examination by such accountants of any material portion of any of the Principal Operating Subsidiaries' or any other Subsidiary's or Additional Reporting Subsidiary's records.
(d) Quarterly Statements of Principal Operating Subsidiaries -- as soon as available, but not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidated balance sheet of each of the Principal Operating Subsidiaries and its Subsidiaries and any Additional Reporting Subsidiary, respectively, as of the end of such quarter and the related consolidated statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, certified by a Responsible Officer as fairly presenting, in all material respects, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial positions and the results of operations of each of the companies being reported on at the time and for the periods indicated;
(e) SEC and Other Reports -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each final prospectus and all amendments thereto filed by the Company or any Subsidiary with the SEC, and (iii) copies of all financial statements and regular, periodical or special reports (including Forms 10K, 10Q and 8K) that MDU Resources Group, Inc. may make to, or file with, the SEC;
(f) Reports of Accountants -- promptly upon receipt thereof, a copy of each other material (in the reasonable judgment of the Company) report submitted to the Company or any Subsidiary by independent public accountants in connection with any annual, interim or special audit made by them of the books and records of the Company or any Subsidiary;
(g) Notice of Default or Event of Default -- promptly, and in any event within five days after a Senior Financial Officer becomes aware of the existence of any Default or Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto;
(h) ERISA Matters -- promptly, and in any event within five days after a Senior Financial Officer becomes aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any Reportable Event; or
(ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, would reasonably be expected to have a Material Adverse Effect;
(i) Notices from Governmental Authority -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect;
(j) Notice of Change in Ratings -- promptly, written notice of the announcement by any rating agency of any change or possible change in any component of the Pricing Rating; and
(k) Requested Information -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes, in any case as from time to time may be reasonably requested by any such holder of Notes.
7.2. Officer's Certificate.
Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Sections 10.1 through Section 10.3, Section 10.5, Section 10.6 and Section 10.8 hereof, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and
(b) Event of Default -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto.
7.3. Inspection.
The Company shall permit the representatives of each holder of Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Restricted Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Restricted Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists, at the expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all the respective books of account, records, reports and other papers of the Company and any Subsidiary, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries, so long as a representative of the Company is offered, on at least two Business Days' notice, the opportunity to be present), all at such times and as often as may be requested.
8. PREPAYMENT OF THE NOTES.
8.1. Required Prepayments.
The Notes of each Series shall be subject to the required prepayments, if any, set forth in the Notes of such Series.
8.2. Optional Prepayments with Make-Whole Amount.
The Company may, at its option, upon notice as provided
below, prepay at any time all, or from time to time any part of,
the Notes of each Series, in an amount not less than $1,000,000
of the aggregate principal amount of the Notes of such Series
then outstanding in the case of a partial prepayment, at 100% of
the principal amount so prepaid, plus the Make-Whole Amount
determined for the prepayment date with respect to such principal
amount. The Company will give each holder of Notes of each
Series written notice of each optional prepayment under this
Section 8.2 not less than 30 days and not more than 60 days prior
to the date fixed for such prepayment. Each such notice shall
specify such date, the aggregate principal amount of the Notes of
each Series to be prepaid on such date, the principal amount of
each Note of such Series held by such holder to be prepaid
(determined in accordance with Section 8.3), and the interest to
be paid on the prepayment date with respect to such principal
amount being prepaid, and shall be accompanied by a certificate
of a Senior Financial Officer as to the estimated Make-Whole
Amount due in connection with such prepayment (calculated as if
the date of such notice were the date of the prepayment), setting
forth the details of such computation. Two Business Days prior
to such prepayment, the Company shall deliver to each holder of
Notes a certificate of a Senior Financial Officer specifying the
calculation of such Make-Whole Amount as of the specified
prepayment date. Any partial prepayment of a Series of Notes
pursuant to this Section 8.2 shall be applied in satisfaction of
required payments of principal of the Notes in such Series in
inverse order of their scheduled due dates.
8.3. Allocation of Partial Prepayments.
In the case of each partial prepayment of the Notes of any Series pursuant to Section 8.1 or 8.2, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes of such Series at the time outstanding in proportion, as nearly as practicable, to the respective unpaid outstanding principal amounts thereof.
8.4. Maturity; Surrender, etc.
In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note.
8.5. Purchase of Notes.
The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes.
8.6. Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to
Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context
requires.
"Designated Spread" shall mean 0% in the case of each Note of any Series unless the Confirmation of Acceptance with respect to the Notes of such Series specifies a different Designated Spread in which case it shall mean, with respect to each Note of such Series, the Designated Spread so specified.
"Discounted Value" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal of any Note, the Designated Spread over the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page PX1" on Bloomberg Financial Markets PX1 ("Bloomberg") (or such other display as may replace Page PX1 on Bloomberg) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (x) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (y) interpolating linearly between (1) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the duration closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any
Called Principal, the number of years (calculated to the
nearest one-twelfth year) obtained by dividing (i) such
Called Principal into (ii) the sum of the products obtained
by multiplying (a) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by
(b) the number of years (calculated to the nearest one-
twelfth year) that will elapse between the Settlement Date
with respect to such Called Principal and the scheduled due
date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1.
"Settlement Date" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
9.1. Compliance with Law.
The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failure to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
9.2. Insurance.
The Company will and will cause each of its Restricted Subsidiaries to maintain, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities engaged in the same or a similar business and similarly situated.
9.3. Maintenance of Properties.
The Company will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear) so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
9.4. Payment of Taxes.
The Company will and will cause each of its Subsidiaries to file all income tax or similar tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies payable by any of them, to the extent such taxes and assessments have become due and payable and before they have become delinquent, provided that neither the Company nor any Subsidiary need pay any such tax or assessment if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect.
9.5. Corporate Existence, etc.
Subject to Section 10.7, the Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Section 10.7, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect.
9.6. Information Required by Rule 144A.
The Company will, upon the request of the holder of any Note, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such holder and the Company may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Notes, except at such times as the Company is subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act. For the purpose of this paragraph, the term "qualified institutional buyer" shall have the meaning specified in Rule 144A under the Securities Act.
9.7. Covenant to Secure Notes Equally.
If the Company or any Restricted Subsidiary shall create or assume any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by Section 10.4 (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to this Agreement), the Company will make or cause to be made effective provisions whereby the Notes will be secured by such Lien equally and ratably with any and all other Indebtedness so long as such Indebtedness shall be so secured.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
10.1. Maximum Company Capitalization Ratio.
The Company shall not permit the Company's Capitalization Ratio to exceed 60% as of the end of any fiscal quarter during the term hereof.
10.2. Minimum Interest Coverage Ratio.
The Company shall not permit the ratio of EBITDA to Interest Expense, in each case calculated for the period of four consecutive fiscal quarters ending on the date of calculation, to be less than 1.75 to 1.00 as of the last day of any fiscal quarter during the term hereof.
10.3. Consolidated Net Worth.
The Company shall not permit Consolidated Net Worth at any time to be less than $530,000,000.
10.4. Limitation on Liens.
The Company shall not, and shall not suffer or permit any Restricted Subsidiary to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following ("Permitted Liens"):
(a) any Lien existing on property of the Company or any Restricted Subsidiary on the date of this Agreement and set forth in Schedule 10.4 securing Indebtedness outstanding on such date and any Lien renewing, extending or refunding such Lien, provided that (i) the principal amount of the Indebtedness secured by the subject Liens is not increased over the amount of the Indebtedness secured thereby immediately prior to such extension, renewal or refunding, (ii) such Lien is not extended to any other property and (iii) immediately after such extension, renewal or refunding, no Default or Event of Default would exist;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section 9.4;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's, operators' (including Liens arising under operating, pooling or unitizing agreements of a scope and nature customary in the oil and gas industry) or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;
(e) Liens (other than any Lien imposed by ERISA) in connection with workers' compensation laws, unemployment insurance and other social security or retirement benefits, or similar legislation;
(f) Liens on the property of the Company or its
Restricted Subsidiaries securing (i) the non-delinquent
performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, (ii) contingent
obligations on surety, reclamation and appeal bonds, and
(iii) other non-delinquent obligations of a like nature, in each
case, incurred in the ordinary course of business, provided all
such Liens in the aggregate would not (even if enforced) cause a
Material Adverse Effect;
(g) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Company and its Restricted Subsidiaries;
(h) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set- off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Company or any Subsidiary to provide collateral to the depository institution;
(i) Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and all such Liens in the aggregate at any time outstanding for the Company and its Restricted Subsidiaries do not exceed $50,000,000;
(j) Liens on assets of Persons which become Restricted Subsidiaries after the Effective Date or Liens existing on any property acquired by the Company or any Restricted Subsidiary at the time such property is acquired, provided that such Liens existed at the time the respective Persons became Subsidiaries or at the time such property was acquired, as applicable, and were not created in anticipation thereof; and
(k) other Liens securing Indebtedness or judgments otherwise permitted herein outstanding in compliance with Section 10.5.
10.5. Limitation on Priority Debt.
The Company will not at any time permit the aggregate outstanding principal amount of Priority Debt (excluding the Williston Basin Notes) to exceed 20% of Consolidated Net Worth.
10.6. Limitation on Sale of Assets.
The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Sale; provided, that so long as no Default or Event of Default exists both immediately prior to and after giving effect to any Asset Sale, the Company or any Restricted Subsidiary may make any Asset Sale if (1)(a) the Gross Proceeds Amount from such Asset Sale plus the Gross Proceeds Amounts from all other Asset Sales during the then current fiscal year do not exceed 15% of Consolidated Total Assets as at the end of the prior fiscal year and (b) the EBITDA attributable to such property or assets plus the EBITDA attributable to all other properties and assets subject to Asset Sales during the then current fiscal year does not exceed 15% of EBITDA in any of the three preceding fiscal years (beginning with the 2001 fiscal year), and (2)(a) the sum of all Gross Proceeds Amounts from all Asset Sales occurring after the Effective Date does not exceed 40% of Consolidated Total Assets as at the end of the prior fiscal year and (b) the EBITDA attributable to the property or assets the subject of such proposed Asset Sale for the fiscal year prior to such proposed Asset Sale plus the EBITDA from the property or assets the subject of Asset Sales after the Effective Date (in the case of each Asset Sale, for the fiscal year ending immediately prior to such Asset Sale) does not exceed 40% of EBITDA, in any of the three fiscal years preceding such proposed Asset Sale (beginning with the 2001 fiscal year); provided, further, that Asset Sales in excess of the foregoing limits may be made if the Excess Proceeds Amount (i) (x) is applied to a Property Reinvestment Application within six months (or 12 months if the Excess Proceeds Amount is invested, not later than the end of the sixth month, in United States Governmental Securities maturing within 365 days after the closing date of any such Asset Sale) after any such Asset Sale and (y) is held, free from any Liens, prior to such Property Reinvestment Application in a segregated bank account with a bank that is not a creditor of the Company or any Subsidiary or, in the case of United States Governmental Securities, in a segregated account with an Acceptable Broker-Dealer which is not a creditor of the Company or any Subsidiary; or (ii) applied to the prepayment of the Notes pursuant to Section 8.2 within 30 days after such Asset Sale causing the foregoing limits to be exceeded.
10.7. Consolidations and Mergers.
The Company shall not, and shall not suffer or permit any Restricted Subsidiary to, merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of, any Person, except:
(a) any Restricted Subsidiary may merge or consolidate with or into (i) the Company, provided that the Company shall be the continuing or surviving corporation, or (ii) any one or more Restricted Subsidiaries, provided that if any transaction shall be between a Restricted Subsidiary and a Wholly-Owned Restricted Subsidiary, the Wholly-Owned Restricted Subsidiary shall be the continuing or surviving corporation;
(b) any Restricted Subsidiary may convey, transfer, lease or otherwise dispose of all or substantially all of its assets in compliance with the provisions of Section 10.6;
(c) any Restricted Subsidiary may convey, transfer, lease or otherwise dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Company or another Wholly-Owned Restricted Subsidiary; and
(d) any Restricted Subsidiary may merge, consolidate or combine with or into any Person provided that the successor formed by such consolidation or combination or the survivor of such merger is a Restricted Subsidiary and the Company directly or indirectly through Wholly-Owned Restricted Subsidiaries owns at least the same percentage of outstanding stock of the successor or survivor Restricted Subsidiary as the Restricted Subsidiary involved in the consolidation, combination or merger;
provided that the foregoing restrictions shall not apply to the consolidation or merger of the Company with, or the conveyance, transfer or lease of substantially all of the assets of the Company in a single transaction or series of transactions to, any Person so long as:
(i) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease substantially all of the assets of the Company as an entirety, as the case may be (the "Successor Corporation"), shall be a solvent corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia;
(ii) if the Company is not the Successor Corporation, such corporation (x) shall have executed and delivered to each holder of Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes and (y) shall have caused to be delivered to each holder of any Notes an opinion of independent counsel, or of counsel to the Successor Corporation, which counsel and opinion must be reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; and
(iii)immediately before and after giving effect to such transaction no Default or Event of Default shall exist.
No such conveyance, transfer or lease of substantially all of the assets of the Company shall have the effect of releasing the Company or any Successor Corporation from its liability under this Agreement or the Notes.
10.8. Loans and Investments.
The Company shall not purchase, acquire or own, or suffer or permit any Restricted Subsidiary to purchase, acquire or own, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make any Acquisitions, or make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including any Affiliate of the Company, except for:
(a) investments in cash equivalents and short-term marketable securities pursuant to and in accordance with the terms of the Company's then-current investment policy duly adopted by the board of directors of the Company (the "Investment Policy") and investments in the MDU Resources Group, Inc. Benefits Protection Trust;
(b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business;
(c) advances, loans and other extensions of credit by the Company to any of its Wholly-Owned Restricted Subsidiaries or by any of its Wholly-Owned Restricted Subsidiaries to another of its Wholly-Owned Restricted Subsidiaries;
(d) equity investments in or capital contributions to any Wholly-Owned Restricted Subsidiary by the Company or any of its Wholly-Owned Restricted Subsidiaries;
(e) investments, advances, loans, extensions of credit or capital contributions incurred or made in order to consummate Acquisitions (other than any Acquisitions of an Unrestricted Subsidiary), provided that such Acquisitions are undertaken in accordance with all material applicable Requirements of Law and the prior, effective written consent or approval to such Acquisition of the board of directors or equivalent governing body of the acquiree is obtained;
(f) investments, advances, loans, extensions of credit or capital contributions by the Company in or to Unrestricted Subsidiaries (including, without limitation, making an investment in an Unrestricted Subsidiary by converting a Restricted Subsidiary to an Unrestricted Subsidiary) or acquisitions of equity interests in Unrestricted Subsidiaries, provided that at no time shall the EBITDA of all Unrestricted Subsidiaries for the period of four consecutive fiscal quarters most recently ended be greater than 33% of the EBITDA of the Company and its Subsidiaries for the period of four consecutive fiscal quarters most recently ended; or
(g) other investments provided that the aggregate amount of investments permitted by this clause (g) shall not at any time exceed 10% of Consolidated Net Worth.
10.9. Transactions with Affiliates.
The Company shall not enter into any material transaction or arrangement or series of related transactions or arrangements that in the aggregate would be material with any Affiliate of the Company, and the Company shall not suffer or permit any Restricted Subsidiary to enter into any material transaction or arrangement or series of related transactions or arrangements that in the aggregate would be material with any Affiliate of the Company other than another Restricted Subsidiary of the Company that is a Wholly-Owned Restricted Subsidiary, except (i) upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would obtain, taking into account all facts and circumstances, in a comparable arm's-length transaction with a Person not an Affiliate of the Company or such Restricted Subsidiary or (ii) (A) in the ordinary course and pursuant to the reasonable requirements of the business of Williston Basin Interstate Pipeline Company ("Williston Basin") as may be required by the Federal Energy Regulatory Commission or other appropriate Governmental Authorities having jurisdiction over Williston Basin, or (B) pursuant to that certain Asset Purchase Agreement, dated August 6, 1985, by and between Montana-Dakota Utilities Co. ("Montana- Dakota") and Williston Basin entered into in furtherance of the Revised Stipulation and Agreement of Settlement in FERC Docket No. CP82-487-000 et al. (the "Settlement Agreement"), to the extent that Article Twelve thereof requires Williston Basin, if and when it implements a pricing mechanism for Williston Basin owned production which results in prices higher than cost-of- service pricing for such production, to make a payment to Montana- Dakota which is equal in amount to the adjustment made by Montana- Dakota pursuant to Section 10.1 of said Settlement Agreement, provided, that all such transactions and agreements permitted by this clause (ii) do not, individually or in the aggregate, result in a Material Adverse Effect.
10.10. Use of Proceeds.
The Company shall not, and shall not suffer or permit
any Subsidiary to, use any portion of the proceeds of the Notes,
directly or indirectly, (i) to purchase or carry Margin Stock,
(ii) to repay or otherwise refinance Indebtedness of the Company
or others incurred to purchase or carry Margin Stock, (iii) to
extend credit for the purpose of purchasing or carrying any
Margin Stock, or (iv) to make any Acquisition that is opposed by
either the board of directors, or by stockholders possessing a
majority of the voting power of the outstanding voting stock, of
the entity that is subject to, or whose assets are the subject
of, such Acquisition.
10.11. Agreements Restricting Subsidiary Dividends.
With the exception of (a) the referenced sections of the existing agreements specified in Schedule 5.4, (b) Subsidiary Organization Documents and Requirements of Law and (c) agreements, instruments or other documents, evidencing Indebtedness having an aggregate principal amount not in excess of $15,000,000, to which any Person which becomes a Restricted Subsidiary after December 27, 1999 is a party, that existed at the time the Person became a Restricted Subsidiary and were not entered into in anticipation thereof, the Company agrees that it will not, and it will not permit any of its Restricted Subsidiaries to, be a party to or enter into any agreement, instrument or other document which contractually prohibits or restricts the ability of any Restricted Subsidiary to pay dividends or make any other similar distributions to the Company or any of its Restricted Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Restricted Subsidiary.
10.12. Restrictions on Subsidiary Guarantees.
The Company shall not permit any Restricted Subsidiary to guaranty any Indebtedness of the Company unless simultaneously with the issuance of any such third party guarantees (i) such Restricted Subsidiary issues a Subsidiary Guarantee to the holders of the Notes in respect of the Obligations and (ii) the beneficiaries of any such guaranty enter into an intercreditor agreement with the holders of the Notes that is satisfactory in form and substance to the Required Holders providing for, among other things, the sharing of all payments made under any guaranty of a Restricted Subsidiary.
10.13. Terrorism Sanctions Regulations.
The Company will not and will not permit any Subsidiary to (a) become a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or (b) engage in any dealings or transactions with any such Person.
11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal, Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any Note for more than 10 days after the same becomes due and payable; or
(c) (i) the Company defaults in the performance of or compliance with any term contained in Sections 10.1 through 10.12, inclusive, or Section 7.1(g); or
(d) the Company defaults in the performance of or
compliance with any term contained herein (other than those
referred to in paragraphs (a), (b) and (c) of this
Section 11) and such default is not remedied within 30 days
after the earlier of (i) a Senior Financial Officer
obtaining actual knowledge of such default and (ii) the
Company receiving written notice of such default from any
holder of a Note (any such written notice to be identified
as a "notice of default" and to refer specifically to this
paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or
(f) (i) the Company or any Restricted Subsidiary is in
default (as principal or as guarantor or other surety) in
the payment of any principal of or premium or make-whole
amount or interest on any Indebtedness that is outstanding
in an aggregate principal amount of at least $50,000,000
beyond any period of grace provided with respect thereto, or
(ii) the Company or any Restricted Subsidiary is in default
in the performance of or compliance with any term of any
evidence of any Indebtedness in an aggregate outstanding
principal amount of at least $50,000,000 or of any mortgage,
indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or
condition such Indebtedness has become, or has been declared
(or one or more persons are entitled to declare such
Indebtedness to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment,
or (iii) as a consequence of the occurrence or continuation
of any event or condition (other than the passage of time or
the right of the holder of Indebtedness to convert such
Indebtedness into equity interests), (x) the Company or any
Restricted Subsidiary has become obligated to purchase or
repay Indebtedness before its regular maturity or before its
regularly scheduled dates of payment in an aggregate
outstanding principal amount of at least $50,000,000, or (y)
one or more Persons have the right to require the Company or
any Restricted Subsidiary so to purchase or repay such
Indebtedness; or
(g) the Company or any Significant Subsidiary (i) is
generally not paying, or admits in writing its inability to
pay, its debts as they become due, (ii) files, or consents
by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any
other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction,
(iii) makes an assignment for the benefit of its creditors,
(iv) consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to
it or with respect to any substantial part of its property,
(v) is adjudicated as insolvent or to be liquidated, or
(vi) takes corporate action for the purpose of any of the
foregoing; or
(h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any Significant Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Significant Subsidiary, or any such petition shall be filed against the Company or any Significant Subsidiary and such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money aggregating in excess of $15,000,000 are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay;
(j) (i) an ERISA Event or ERISA Termination Event
shall occur with respect to a Pension Plan or Multiemployer
Plan which has resulted or would reasonably be expected to
result in liability of the Company under Title IV of ERISA
to the Pension Plan, Multiemployer Plan or the PBGC in an
aggregate amount in excess of 10% of Consolidated Net Worth;
(ii) the commencement or increase of contributions to, or
the adoption of or the amendment of, a Pension Plan by the
Company or an ERISA Affiliate which has resulted or could
reasonably be expected to result in an increase in Unfunded
Pension Liability among all Pension Plans in an aggregate
amount in excess of 10% of Consolidated Net Worth; or
(iii) the Company or an ERISA Affiliate shall fail to pay
when due, after the expiration of any applicable grace
period, any installment payment with respect to its
withdrawal liability under Section 4201 of ERISA under a
Multiemployer Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect; or
(k) there occurs any Change of Control; or
(l) a default shall occur under any Subsidiary Guarantee, or a Subsidiary Guarantee is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect, or a Subsidiary Guarantor contests in any manner the validity or enforceability thereof or denies that it has any further liability thereunder, or any event described in subsections (g) or (h) of this Section 11 occurs with respect to any Subsidiary Guarantor; or
(m) any Loan Document ceases to be in full force and effect or the Company contests in any manner the validity or enforceability thereof.
12. REMEDIES ON DEFAULT, ETC.
12.1. Acceleration.
(a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing, the Required Holders of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this
Section 12.1, whether automatically or by declaration, such Notes
will forthwith mature and the entire unpaid principal amount of
such Notes, plus (x) all accrued and unpaid interest thereon and
(y) the Make-Whole Amount determined in respect of such principal
amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case
without presentment, demand, protest or further notice, all of
which are hereby waived. The Company acknowledges, and the
parties hereto agree, that each holder of a Note has the right to
maintain its investment in the Notes free from repayment by the
Company (except as herein specifically provided for) and that the
provision for payment of a Make-Whole Amount by the Company in
the event that the Notes are prepaid or are accelerated as a
result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such
circumstances.
12.2. Other Remedies.
If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.
12.3. Rescission.
At any time after any Notes have been declared due and
payable pursuant to clause (b) or (c) of Section 12.1, the
Required Holders of the Notes, by written notice to the Company,
may rescind and annul any such declaration and its consequences
if (a) the Company has paid all overdue interest on the Notes,
all principal of and Make-Whole Amount, if any, on any Notes that
are due and payable and are unpaid other than by reason of such
declaration, and all interest on such overdue principal and Make-
Whole Amount, if any, and (to the extent permitted by applicable
law) any overdue interest in respect of the Notes, at the Default
Rate, (b) all Events of Default and Defaults, other than non-
payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to
Section 17, and (c) no judgment or decree has been entered for
the payment of any monies due pursuant hereto or to the Notes.
No rescission and annulment under this Section 12.3 will extend
to or affect any subsequent Event of Default or Default or impair
any right consequent thereon.
12.4. No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. Registration of Notes.
The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes.
13.2. Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $2,000,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $2,000,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2.
13.3. Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is a Prudential Affiliate, or a nominee of a Prudential Affiliate, or another holder of a Note with a minimum net worth of at least $50,000,000, a Prudential Affiliate's or such other holder's own unsecured agreement of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon.
14. PAYMENTS ON NOTES.
14.1. Place of Payment.
Subject to Section 14.2, payments of principal, Make- Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in New York, New York, at the principal office of The Bank of New York in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction.
14.2. Home Office Payment.
So long as any Purchaser shall be the holder of any
Note, and notwithstanding anything contained in Section 14.1 or
in such Note to the contrary, the Company will pay all sums
becoming due on such Note for principal, Make-Whole Amount, if
any, and interest by the method and at the address specified for
such purpose below such Purchaser's name in Schedule A, or by
such other method or at such other address as a holder of Notes
shall have from time to time specified to the Company in writing
for such purpose, without the presentation or surrender of such
Note or the making of any notation thereon, except that upon
written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any
Note, such Purchaser shall surrender such Note for cancellation,
reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1.
Prior to any sale or other disposition of any Note held by a
Purchaser, such Purchaser will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to
which interest has been paid thereon or surrender such Note to
the Company in exchange for a new Note or Notes pursuant to
Section 13.2. The Company will afford the benefits of this
Section 14.2 to any Institutional Investor that is the direct or
indirect transferee of any Note purchased by any Purchaser under
this Agreement and that has made the same agreement relating to
such Note as the Purchasers have made in this Section 14.2.
15. EXPENSES, ETC.
15.1. Transaction Expenses.
Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by a Purchaser or each other holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save any Purchaser and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by such Purchaser). The Company's obligations to pay the fees of special counsel to the Purchasers in connection with the negotiation, execution and delivery of this Agreement as required by this Section 15.1 shall be deemed to have been fully satisfied.
15.2. Survival.
The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of any Purchaser or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between the Purchasers and the Company and supersede all prior agreements and understandings relating to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1. Requirements.
This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived
(either retroactively or prospectively), with (and only with) the
written consent of the Company and the Required Holders, except
that (a) with the written consent of the holders of all Notes of
a particular Series, and if an Event of Default shall have
occurred and be continuing, of the holders of all Notes of all
Series, at the time outstanding (and not without such written
consents), the Notes of such Series may be amended, or the
provisions thereof waived, to change the maturity thereof, to
change or affect the principal thereof, or to change or affect
the rate or time of payment of interest on or any Make-Whole
Amount payable with respect to the Notes of such Series, (b)
without the written consent of the holder or holders of all Notes
at the time outstanding, no amendment to, or waiver of, the
provisions of this Agreement shall change or affect the
provisions of (i) Sections 8, 11(a), 11(b), 12, 17, or 20 insofar
as such provisions relate to proportions of the principal amount
of the Notes of any Series, or the rights of any individual
holder of Notes, required with respect to any declaration of
Notes to be due and payable or with respect to any consent,
amendment, waiver or declaration, or (ii) amend the definition of
"Change of Control" or any constituent definitions thereof,
(c) with the written consent of Prudential (and not without the
written consent of Prudential) the provisions of Section 2 may be
amended or waived (except insofar as any such amendment or waiver
would affect any rights or obligations with respect to the
purchase and sale of Notes which shall have become Accepted Notes
prior to such amendment or waiver), (d) with the written consent
of all of the Purchasers which shall have become obligated to
purchase Accepted Notes of any Series (and not without the
written consent of all such Purchasers), any of the provisions of
Sections 2, 3 and 4 may be amended or waived insofar as such
amendment or waiver would affect only rights or obligations with
respect to the purchase and sale of the Accepted Notes of such
Series or the terms and provisions of such Accepted Notes, and
(e) with the written consent of Prudential and Prudential
Affiliates only the provisions of Section 10.11 may be amended or
waived.
17.2. Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes or any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment.
17.3. Binding Effect, etc.
Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented.
17.4. Notes held by Company, etc.
Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent:
(i) if to a Purchaser or its nominee, to it at the address specified for such communications in Schedule A, or at such other address as such Purchaser or it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or
(iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Chief Financial Officer, or at such other address as the Company shall have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by a Purchaser on any Closing Day (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to any Purchaser, may be reproduced by such Purchaser by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and such Purchaser may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by a Purchaser in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential
Information" means (1) information delivered to Prudential or
PICA prior to December 27, 1999 that was clearly marked or
labeled or otherwise adequately identified as being confidential
information when delivered, to the extent that it contains
information that is proprietary in nature, and (2) information
delivered on and after December 27, 1999 to Prudential or PICA,
or any holder of Notes by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in
nature and that was clearly marked or labeled or otherwise
adequately identified when received by Prudential or PICA, or any
holder of Notes as being confidential information of the Company
or such Subsidiary, provided that such term does not include
information that (a) was publicly known or otherwise known to
Prudential or PICA, or any holder of Notes prior to the time of
such disclosure, (b) subsequently becomes publicly known through
no act or omission by Prudential or PICA, or any holder of Notes,
or any person acting on its behalf, (c) otherwise becomes known
to Prudential or PICA, or any holder of Notes other than through
disclosure by the Company or any Subsidiary or (d) constitutes
financial statements delivered to Prudential or PICA, or any
holder of Notes under Section 7.1 that are otherwise publicly
available. Prudential, PICA and any holder of Notes will
maintain the confidentiality of such Confidential Information in
accordance with procedures adopted by Prudential or PICA, or such
holder of Notes, respectively, in good faith to protect
confidential information of third parties delivered to Prudential
or PICA, or such holder of Notes, provided that Prudential or
PICA, or any holder of Notes may deliver or disclose Confidential
Information to (i) its directors, officers, employees, agents,
attorneys and affiliates (to the extent such disclosure
reasonably relates to the administration of the investment
represented by its Notes), (ii) its financial advisors and other
professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the
terms of this Section 20, (iii) any other holder of any Note,
(iv) any Institutional Investor to which it sells or offer to
sell such Note or any part thereof or any participation therein
(if such Person has agreed in writing prior to its receipt of
such Confidential Information to be bound by the provisions of
this Section 20), (v) any Person from which it offers to purchase
any security of the Company (if such Person has agreed in writing
prior to its receipt of such Confidential Information to be bound
by the provisions of this Section 20), (vi) any federal or state
regulatory authority having jurisdiction over it, (vii) the
National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that
requires access to information about its investment portfolio or
(viii) any other Person to which such delivery or disclosure may
be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to it, (x) in response
to any subpoena or other legal process, (y) in connection with
any litigation to which it is a party or (z) if an Event of
Default has occurred and is continuing, to the extent it may
reasonably determine such delivery and disclosure to be necessary
or appropriate in the enforcement or for the protection of the
rights and remedies under its Notes and this Agreement. Each
holder of a Note, by its acceptance of a Note, will be deemed to
have agreed to be bound by and to be entitled to the benefits of
this Section 20 as though it were a party to this Agreement. On
reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered
to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its
nominee), such holder will enter into an agreement with the
Company embodying the provisions of this Section 20.
21. SUBSTITUTION OF PURCHASER.
Each Purchaser shall have the right to substitute any
one of its Affiliates as the purchaser of the Notes that such
Purchaser has agreed to purchase hereunder, by written notice to
the Company, which notice shall be signed by both such Purchaser
and such Affiliate, shall contain such Affiliate's agreement to
be bound by this Agreement and shall contain a confirmation by
such Affiliate of the accuracy with respect to it of the
representations set forth in Section 6. Upon receipt of such
notice, wherever the word "Purchaser" (or a pronoun referring to
a Purchaser) is used in this Agreement (other than in this
Section 21), such word shall be deemed to refer to such Affiliate
in lieu of such Purchaser. In the event that such Affiliate is
so substituted as a purchaser hereunder and such Affiliate
thereafter transfers to such Purchaser all of the Notes then held
by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "Purchaser" (or a pronoun referring
to a Purchaser) is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such
Affiliate, but shall refer to such Purchaser, and such Purchaser
shall have all the rights of an original holder of the Notes
under this Agreement.
22. MISCELLANEOUS.
22.1. Successors and Assigns.
All covenants and other agreements contained in this Agreement by or on behalf of either of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not.
22.2. Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day.
22.3. Severability.
Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.
22.4. Construction.
Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.
22.5. Counterparts.
This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of two copies hereof, each signed by either, but together signed by both, of the parties hereto.
22.6. Governing Law.
This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding, to the extent permitted by the law of such State, choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.
23. CONDITIONS TO EFFECTIVENESS.
This Amended and Restated Master Shelf Agreement shall
be effective as of April 29, 2005 (the "Effective Date") if, on
or before April 29, 2005, the conditions set forth in this
Section 23 shall have been satisfied.
23.1. Secretary's Certificate.
The Company shall have delivered to Prudential a certificate, dated as of the Effective Date, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of this Agreement.
23.2. Opinion of Counsel.
Prudential shall have received an opinion in form and substance reasonably satisfactory to Prudential, dated the Effective Date from Paul K. Sandness, General Counsel of the Company, covering such matters incident to the transactions contemplated hereby as Prudential may reasonably request. The Company hereby directs such counsel to deliver such opinion. The Company has advised such counsel that Prudential and each holder receiving such an opinion will rely on such opinion, as of the date of such opinion.
* * * * * If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company.
Very truly yours,
CENTENNIAL ENERGY HOLDINGS, INC.
By: /s/ WARREN L. ROBINSON
Warren L. Robinson
Executive Vice President, Treasurer
and Chief Financial Officer
|
The foregoing is hereby agreed to as of the date thereof.
PRUDENTIAL INVESTMENT MANAGEMENT, INC.
By: /s/BRIAN N. THOMAS Vice President |
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/BRIAN N. THOMAS Vice President |
PRUCO LIFE INSURANCE COMPANY
By: /s/BRIAN N. THOMAS Vice President |
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
By: /s/BRIAN N. THOMAS Vice President |
GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY
By: Prudential Private Placement Investors, L.P. (as Investment Advisor)
By: Prudential Private Placement Investors, Inc.
(as its General Partner)
By: /s/BRIAN N. THOMAS Vice President |
GENERAL ELECTRIC LIFE AND ANNUITY ASSURANCE COMPANY
By: Prudential Private Placement Investors, L.P. (as Investment Advisor)
By: Prudential Private Placement Investors, Inc.
(as its General Partner)
By: /s/BRIAN N. THOMAS Vice President |
FIRST COLONY LIFE INSURANCE COMPANY
By: Prudential Private Placement Investors, L.P. (as Investment Advisor)
By: Prudential Private Placement Investors, Inc.
(as its General Partner)
By: /s/BRIAN N. THOMAS Vice President |
HARTFORD LIFE INSURANCE COMPANY
By: Prudential Private Placement Investors, L.P. (as Investment Advisor)
By: Prudential Private Placement Investors, Inc.
(as its General Partner)
By: /s/BRIAN N. THOMAS Vice President |
SECURITY LIFE OF DENVER INSURANCE
COMPANY, as successor by merger to Southland
Life Insurance Company
By: Prudential Private Placement Investors, L.P. (as Investment Advisor)
By: Prudential Private Placement Investors, Inc.
(as its General Partner)
By: /s/BRIAN N. THOMAS
Vice President
|
ING USA ANNUITY AND LIFE INSURANCE COMPANY,
f/k/a Golden American Life Insurance Company
By: Prudential Private Placement Investors, L.P. (as Investment Advisor)
By: Prudential Private Placement Investors, Inc.
(as its General Partner)
By: /s/BRIAN N. THOMAS
Vice President
|
RELIASTAR LIFE INSURANCE COMPANY
By: Prudential Private Placement Investors, L.P. (as Investment Advisor)
By: Prudential Private Placement Investors, Inc.
(as its General Partner)
By: /s/BRIAN N. THOMAS
Vice President
|
ING LIFE INSURANCE AND ANNUITY COMPANY
By: Prudential Private Placement Investors, L.P. (as Investment Advisor)
By: Prudential Private Placement Investors, Inc.
(as its General Partner)
By: /s/BRIAN N. THOMAS
Vice President
|
UNITED OF OMAHA LIFE INSURANCE COMPANY
By: Prudential Private Placement Investors, L.P. (as Investment Advisor)
By: Prudential Private Placement Investors, Inc.
(as its General Partner)
By: /s/BRIAN N. THOMAS
Vice President
|
MUTUAL OF OMAHA INSURANCE COMPANY
By: Prudential Private Placement Investors, L.P. (as Investment Advisor)
By: Prudential Private Placement Investors, Inc.
(as its General Partner)
By: /s/BRIAN N. THOMAS
Vice President
|
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:
"Acceptable Broker-Dealer" means any Person other than a natural person (i) which is registered as a broker or dealer pursuant to the Exchange Act and (ii) whose long-term unsecured debt obligations shall be rated "A" or better by S&P or "A2" or better by Moody's.
"Acceptance" is defined in Section 2.6.
"Acceptance Day" is defined in Section 2.6.
"Acceptance Window" is defined in Section 2.6.
"Accepted Note" is defined in Section 2.6.
"Acquisition" means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of 50% or more of the capital stock, partnership interests, membership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person provided that the Company or any Subsidiary is the surviving entity.
"Additional Reporting Subsidiary" is defined in Section 7.1(c).
"Affiliate" means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person. As used in this definition, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company.
"Agreement" is defined in Section 17.3.
"Asset Sale" means (x) any conveyance, transfer, lease
or other disposition (including, without limitation, by means of
a Sale-Leaseback Transaction) (collectively, for purposes of this
definition, a "transfer"), directly or indirectly, in one or a
series of related transactions, of (a) any Capital Stock of any
Restricted Subsidiary (including, without limitation, the
issuance thereof by such Restricted Subsidiary to any Person
other than the Company or a Wholly-Owned Restricted Subsidiary);
(b) all or substantially all of the properties of any division or
line of business of the Company or any Subsidiary; (c) any other
properties of the Company or any Restricted Subsidiary (other
than, in the case of this clause (c), (i) transfers of cash or
cash equivalents, (ii) sales of inventory or oil and gas
production in the ordinary course of business, (iii) any transfer
of properties of any Restricted Subsidiary to the Company or a
Wholly-Owned Restricted Subsidiary, (iv) sales of damaged, worn-
out or obsolete equipment that, in the Company's reasonable
judgment, are either no longer used or no longer useful in the
business of the Company or its Restricted Subsidiaries, and (v)
transfer of Capital Stock of Unrestricted Subsidiaries; or (y)
the change of designation of a Restricted Subsidiary to an
Unrestricted Subsidiary; provided that a change of designation of
a Restricted Subsidiary (herein the "Subject Subsidiary") to an
Unrestricted Subsidiary on any date ("Change Date") shall not
constitute an Asset Sale if, in the event that the Subject
Subsidiary had been an Unrestricted Subsidiary during the period
of four fiscal quarters most recently ended, the Company would
have been in compliance with Sections 10.1, 10.2 and 10.3
immediately prior to the proposed Change Date for the Subject
Subsidiary.
"Authorized Officer" shall mean (i) in the case of the Company, any officer of the Company designated as an "Authorized Officer" of the Company in the Information Schedule attached hereto or any vice president of the Company designated as an "Authorized Officer" of the Company for the purpose of this Agreement in an Officer's Certificate executed by the Company's chief executive officer or chief financial officer and delivered to Prudential, and (ii) in the case of Prudential, any officer of Prudential designated as its "Authorized Officer" in the Information Schedule or any officer of Prudential designated as its "Authorized Officer" for the purpose of this Agreement in a certificate executed by one of its Authorized Officers. Any action taken under this Agreement on behalf of the Company by any individual who on or after December 27, 1999 shall have been an Authorized Officer of the Company and whom Prudential in good faith believes to be an Authorized Officer of the Company at the time of such action shall be binding on the Company even though such individual shall have ceased to be an Authorized Officer of the Company, and any action taken under this Agreement on behalf of Prudential by any individual who on or after December 27, 1999 shall have been an Authorized Officer of Prudential and whom the Company in good faith believes to be an Authorized Officer of Prudential at the time of such action shall be binding on Prudential even though such individual shall have ceased to be an Authorized Officer of Prudential.
"Available Facility Amount" is defined in Section 2.1.
"Business Day" means (a) any day other than a Saturday,
a Sunday or a day on which commercial banks in New York City are
required or authorized to be closed, and (b) for the purposes of
Section 2.3 only a day on which Prudential is open for business.
"Called Principal" is defined in Section 8.6.
"Cancellation Date" is defined in Section 2.8(c).
"Cancellation Fee" is defined in Section 2.8(c).
"Capital Lease" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.
"Capitalization Ratio" means, with respect to any Person, the ratio of such Person's Total Debt to such Person's Total Capitalization.
"Capital Stock" of any Person means any and all shares, interests, participations or other equivalents in the equity interest (however designated) in such Person and any rights (other than debt securities convertible into an equity interest), warrants or options to acquire an equity interest in such Person.
"Centennial Exposure" means, at any time, the aggregate principal amount of (i) Notes outstanding at such time held by Prudential Financial Entities (other than Notes held for separate accounts), (ii) Accepted Notes which Prudential Financial Entities have agreed to purchase but which have not been purchased at such time (other than Accepted Notes to be purchased for separate accounts) and (iii) Other Company Notes outstanding at such time held by Prudential Financial Entities (other than Other Company Notes held for separate accounts).
"Change of Control" means the occurrence of any event whereby MDU Resources Group, Inc. ceases to own direct or indirect sole beneficial ownership (as defined under Regulation 13d-3 of the Exchange Act as in effect on the Effective Date) of at least 51% of (x) the combined voting power of the Company's securities which are entitled to vote generally in the election of directors of the Company and (y) each other class of equity securities of the Company.
"Closing Day" for any Accepted Note shall mean the Business Day specified for the closing of the purchase and sale of such Note in the Request for Purchase of such Note, provided that (i) if the Acceptance Day for such Accepted Note is less than five Business Days after the Company shall have made such Request for Purchase and the Company and the Purchaser which is obligated to purchase such Note agree on an earlier Business Day for such closing, the "Closing Day" for such Accepted Note shall be such earlier Business Day, and (ii) if the closing of the purchase and sale of such Accepted Note is rescheduled pursuant to Section 3.3, the Closing Day for such Accepted Note, for all purposes of this Agreement except Section 2.8(c), shall mean the Rescheduled Closing Day with respect to such Closing.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and the final rules and regulations promulgated thereunder from time to time.
"Company" means Centennial Energy Holdings, Inc., a Delaware corporation, until a Person becomes a successor in a transaction permitted by Section 10.7, and thereafter shall mean any such successor Person.
"Confidential Information" is defined in Section 20.
"Confirmation of Acceptance" is defined in Section 2.6.
"Consolidated Net Income" means, for any period, consolidated net income (or net loss) of the Company and its Restricted Subsidiaries for such period as determined in accordance with GAAP computed for the purposes of this definition without giving effect to extraordinary losses or extraordinary gains for such period.
"Consolidated Net Worth" means, at any time, the excess of total assets of the Company and its Restricted Subsidiaries over total liabilities of the Company and its Restricted Subsidiaries as of the last day of the fiscal quarter most recently then ended, determined on a consolidated basis in accordance with GAAP.
"Consolidated Total Assets" means, as of any time, the total amount of assets which would appear on a consolidated balance sheet of the Company at such time prepared in accordance with GAAP, less all assets of Unrestricted Subsidiaries.
"Default" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.
"Default Rate" means, with respect to the Notes of a Series, that rate of interest that is the greater (determined on a daily basis) of (i) 2.0% per annum over the stated rate of interest on the Notes of such Series or (ii) 2.0% over the rate of interest publicly announced by The Bank of New York in New York, New York as its "base" or "prime" rate.
"Delayed Delivery Fee" is defined in Section 2.8(b).
"Designated Spread" is defined in Section 8.6.
"Discounted Value" is defined in Section 8.6.
"EBITDA" means, for any period, the sum of (a) Consolidated Net Income for such period plus (b) all amounts treated as expenses for depreciation (including any non-cash charge relating to asset impairment determined in accordance with GAAP) and interest and the amortization of intangibles of any kind for such period to the extent included in the determination of Consolidated Net Income plus (c) all taxes accrued for such period on or measured by income to the extent included in the determination of Consolidated Net Income; provided that Consolidated Net Income shall be computed for purposes of this definition without giving effect to extraordinary losses or extraordinary gains for such period; and provided, further that, the term "EBITDA," when used in Section 10.8(f) with respect to the Unrestricted Subsidiaries of the Company, shall mean, for any period, EBITDA determined solely with respect to the consolidated financial results of the Unrestricted Subsidiaries in lieu of the consolidated financial results of the Company and the Restricted Subsidiaries, with such corresponding modifications to the definition of Consolidated Net Income as are applicable to effect such determination; and provided, further that, the term "EBITDA", when used in Section 10.8 (f) with respect to the Company and its Subsidiaries, shall mean, for any period, the EBITDA of the Company and all of its Subsidiaries, Restricted and Unrestricted, with such corresponding modifications to the definition of Consolidated Net Income as are applicable to effect such determination.
"Effective Date" is defined in Section 23.
"Environmental Laws" means all Federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, consent decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, releases or threatened releases of Hazardous Materials into the environment, including, without limitation, ambient air, soil, surface water, groundwater, wetlands, land or subsurface strata or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. Without limiting the foregoing, Environmental Laws shall include, but not be limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq., the Solid Waste Disposal Act, 42 U.S.C. Section 6901 et seq., the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq., the Clear Air Act, 42 U.S.C. 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. 2601 et seq., the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq., the Natural Gas Pipeline Safety Act, 49 App. U.S.C. Section 1671 et seq., the Hazardous Liquid Pipeline Safety Act, 49 App. U.S.C. 1811 et seq., the Occupational Safety and Health Act, 29 U.S.C. 651 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. 1801 et seq., in each case as amended from time to time, and any analogous foreign, state and local laws, and any rules or regulations from time to time promulgated thereunder.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the final rules and regulations promulgated thereunder from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under Section 414 of the Code.
"ERISA Event" means (a) a Reportable Event with respect
to a Pension Plan or a Multiemployer Plan; (b) a withdrawal by
the Company or any ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA)
or a cessation of operations which is treated as such a
withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by the Company or any ERISA Affiliate from a
Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; (d) the commencement of proceedings by the
PBGC to terminate a Pension Plan or Multiemployer Plan; (e) a
failure by the Company or an ERISA Affiliate to make required
contributions to a Pension Plan, Multiemployer Plan or other Plan
subject to Section 412 of the Code; (f) an event or condition
which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan or Multiemployer
Plan; (g) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon the Company or any ERISA Affiliate or
(h) an application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Code with
respect to any Plan.
"ERISA Termination Event" means the filing of a notice of intent to terminate, or the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA of, a Pension Plan or Multiemployer Plan.
"Event of Default" is defined in Section 11.
"Excess Proceeds Amount" means, at any time, the greater of (i) the excess, if any, of (A) the Gross Proceeds Amounts of all Asset Sales during the then current fiscal year over (B) 10% of Consolidated Total Assets as of the end of the prior fiscal year or (ii) the Gross Proceeds Amounts of all Assets Sales during the then current fiscal year multiplied by a fraction (x) the numerator of which is the excess, if any, of (A) the percentage of EBITDA attributable to the property and assets subject to such Asset Sales over (B) 15% of EBITDA for any of the three preceding fiscal years (beginning with the 1996 fiscal year) and (y) the denominator of which is the percentage of EBITDA for any of such three fiscal years attributable to the property and assets subject to such Asset Sales. In making any calculation pursuant to subclause (x) of clause (ii) of the preceding sentence, the fiscal year which results in the greatest excess shall be utilized, and the same such fiscal year shall be utilized for purposes of subclause (y) of said clause (ii).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Facility Fee" is defined in Section 2.8(a).
"Fair Market Value" means, at any time with respect to any property of any kind or character, the sale value of such property that would be realized in an arm's-length sale at such time between an informed and willing buyer and an informed and willing seller, under no compulsion to buy or sell, respectively.
"Financial Contract" means any agreement, device or arrangement providing for payments related to fluctuations of interest rates, including, but not limited to, interest rate swap or exchange agreements, interest rate cap or collar protection agreements and interest rate options.
"FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions.
"GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of August 18, 2004. The term "consistently applied," as used in connection therewith, means that the accounting principles applied are consistent in all material respects with those applied at prior dates or for prior periods. All references herein to "the Company and the Restricted Subsidiaries" for the purposes of computing the consolidated financial position, results of operations or other balance sheet or financial statement items (including without limitation the computation of Consolidated Net Worth, EBITDA, Interest Expense, Consolidated Net Income, Consolidated Total Assets, Total Debt and Total Capitalization) shall be deemed to include only the Company and the Restricted Subsidiaries as separate legal entities and, unless otherwise provided herein, shall not include the financial position, results of operations, cash flows or other such items of any other Person (including without limitation an Unrestricted Subsidiary), whether or not, in any particular instance, such accounting treatment would be in accordance with generally accepted accounting principles.
"Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.
"Gross Proceeds Amount" means, with respect to any Asset Sale, the aggregate amount of the proceeds received from such Asset Sale. For purposes of any calculation pursuant to clause (1)(a) or (2) of Section 10.6 or clause (i) of the definition of "Excess Proceeds Amount", such proceeds shall be deemed to equal the Fair Market Value of the property and assets subject to the Asset Sales with respect to which such calculation is being made, determined in good faith at the time of such Asset Sales by a Senior Financial Officer.
"Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor.
"Hazardous Material" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls).
"Hedge Treasury Note(s)" shall mean, with respect to any Accepted Note, the United States Treasury Note or Notes whose duration (as determined by Prudential) most closely matches the duration of such Accepted Note.
"holder" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1.
"Hostile Tender Offer" shall mean, with respect to the use of proceeds of any Note, any offer to purchase, or any purchase of, shares of capital stock of any corporation or equity interests in any other entity, or securities convertible into or representing the beneficial ownership of, or rights to acquire, any such shares or equity interests, if such shares, equity interests, securities or rights are of a class which is publicly traded on any securities exchange or in any over-the-counter market, other than purchases of such shares, equity interests, securities or rights representing less than 5% of the equity interests or beneficial ownership of such corporation or other entity for portfolio investment purposes, and such offer or purchase has not been duly approved by the board of directors of such corporation or the equivalent governing body of such other entity prior to the date on which the Company makes the Request for Purchase of such Note.
"Indebtedness" with respect to any Person means, at any time, without duplication,
(a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily Redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person, whether or not it has assumed or otherwise become liable for such liabilities (other than Indebtedness of others secured by Liens, neither assumed nor guaranteed by the Company or any Subsidiary nor with respect to which the Company or any Subsidiary pays principal and/or interest, existing upon real estate or rights in or relating to real estate acquired by the Company or any Subsidiary for substation, metering station, gathering line, transmission line, transportation line, distribution line or right of way purposes to the extent such Lien does not, or the foreclosure thereof could not, materially impair the value of such property or the use of such property for the purpose for which it was acquired by the Company or such Subsidiary);
(e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money);
(f) Swaps of such Person (excluding commodity swaps in the ordinary course of business (and for which such Person has production or products covered by such commodity swaps in sufficient volume to deliver under such commodity swaps) and non-speculative interest rate swaps);
(g) all Securitization Obligations of such Person;
(h) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (g) hereof; and
(i) Preferred Stock of any Restricted Subsidiary held by a Person other than the Company or a Wholly-Owned Restricted Subsidiary.
Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (h) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP.
"Institutional Investor" means any bank, trust company, savings and loan association or other financial institution, any insurance company, investment company, broker or dealer, pension plan, mutual fund or other similar financial institution, including, without limiting the foregoing, any "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act, which is or becomes a holder of any Note and any Prudential Affiliate.
"Interest Expense" means, for any period, the sum of
(a) gross consolidated interest expense of the Company and its
Restricted Subsidiaries determined in conformity with GAAP plus
(b) to the extent not otherwise included in the determination of
gross consolidated interest expense of the Company and its
Restricted Subsidiaries in accordance with GAAP, the cost to the
Company of, and the net amount payable (or minus the net amount
receivable) under, all Financial Contracts of the Company and its
Subsidiaries during such period (whether or not actually paid or
received during such period) plus (c) all dividends paid,
declared or otherwise accrued in respect of preferred stock of
the Company and any Restricted Subsidiary that is not a Wholly-
Owned Restricted Subsidiary plus the consolidated yield or
discount accrued during such period on all Securitization
Obligations.
"Investment Policy" is defined in Section 10.8.
"Issuance Period" is defined in Section 2.2.
"Knife River Notes" means each of the following notes of Knife River Corporation: the 7.10% Series B Senior Notes Due October 30, 2009, the 7.28% Series C Senior Notes Due October 30, 2012, the 6.43% Series D Senior Notes Due October 30, 2005, the 6.68% Series E Senior Notes Due October 30, 2006, the 6.73% Series F Senior Notes Due October 30, 2010, the 6.87% Series G Senior Notes Due October 30, 2013 and the 7.05% Series H Senior Notes Due October 30, 2018.
"Lien" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).
"Loan Documents" means this Agreement, the Notes and any and all Subsidiary Guarantees and the other documents and agreements contemplated hereby and executed by the Company in favor of Prudential or any holder of Notes.
"Make-Whole Amount" is defined in Section 8.6.
"Margin Stock" means "margin stock" as such term is defined in Regulation T, U or X of the FRB.
"Material" means material in relation to the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse
effect on (i) the business, property, condition (financial or
otherwise), results of operations of the Company and its
Restricted Subsidiaries taken as a whole, (ii) the ability of the
Company to perform its obligations under the Loan Documents, or
(iii) the validity or enforceability of any of the Loan Documents
or the rights or remedies of Prudential or the holders of Notes
thereunder.
"MDU Annual Report" means the Annual Report on Form 10- K of MDU Resources Group, Inc. most recently filed with the SEC.
"Montana-Dakota" is defined in Section 10.9.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" (within the meaning of Section 4001(a)(3) of ERISA) to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions.
"Notes" is defined in Section 1.
"Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Company to the holders of the Notes or any indemnified party hereunder arising under the Loan Documents.
"Officer's Certificate" means a certificate of a Senior Financial Officer, an Authorized Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate.
"Organization Documents" means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation.
"Other Company Notes" means (i) the 6.43% Senior Notes due October 30, 2005 of the Company, the 7.09% Senior Notes due March 29, 2011 of the Company, the 3.80% Senior Notes due June 27, 2008 of the Company, (ii) any other promissory notes of the Company issued pursuant to agreements, indentures or other instruments (other than this Agreement) and (iii) any other promissory notes of any Subsidiary of the Company (other than Williston Basin). As of December 15, 2004, $13,100,000 of Other Company Notes were part of the Centennial Exposure.
"PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in
Section 3(2) of ERISA) subject to Title IV of ERISA which the
Company or any ERISA Affiliate sponsors, maintains, or to which
it makes, is making, or is obligated to make contributions, or in
the case of a multiple employer plan (as described in Section
4064(a) of ERISA) has made contributions at any time during the
immediately preceding five plan years but excluding any
Multiemployer Plan.
"Permitted Liens" is defined in Section 10.4.
"Person" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof.
"PICA" shall mean The Prudential Insurance Company of America, a New Jersey corporation.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.
"Preferred Stock" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation.
"Principal Operating Subsidiaries" means each of (i) WBI Holdings, Inc., (ii) Fidelity Exploration & Production Company, and (iii) Knife River Corporation, and their respective permitted successors.
"Priority Debt" means (without duplication) the
aggregate of all Indebtedness of Restricted Subsidiaries of the
Company (other than redemption obligations in respect of
mandatory Redeemable Preferred Stock held by the Company or
Wholly-Owned Restricted Subsidiaries) plus all Preferred Stock of
Restricted Subsidiaries held by Persons other than the Company or
Wholly-Owned Restricted Subsidiaries plus all Indebtedness and
judgments secured by Liens other than Liens permitted by clauses
(a) through (j), inclusive, of Section 10.4.; provided, however,
that Priority Debt shall not include (X) Indebtedness represented
by Subsidiary Guarantees or guarantees of Restricted Subsidiaries
issued to third parties which are parties to an intercreditor
agreement contemplated by clause (ii) of Section 10.12 or
(Y) Indebtedness of Restricted Subsidiaries of the Company
represented by intercompany loans, advances and extensions of
credit made by the Company or any Wholly-Owned Restricted
Subsidiary to such Restricted Subsidiaries.
"property" or "properties" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.
"Property Reinvestment Application" means the application of an amount equal to the Excess Proceeds Amount to the acquisition by the Company or any Restricted Subsidiary, as the case may be, of assets (i) similar to those disposed of by such Person, or (ii) of a type used in the business of the Company as of the Effective Date or another business that is substantially similar thereto. For clarification, an exchange of property on which recognition of gain or loss would be exempted from recognition pursuant to Section 1031 of the Code shall constitute an Asset Sale and a Property Reinvestment Application.
"Prudential" means Prudential Investment Management, Inc., a New Jersey corporation.
"Prudential Affiliate" means (i) any corporation or other entity controlling, controlled by, or under common control with, Prudential and (ii) any managed account or investment fund which is managed by Prudential or a Prudential Affiliate described in clause (i) of this definition. For purposes of this definition the terms "control", "controlling" and "controlled" shall mean the ownership, directly or through subsidiaries, of a majority of a corporation's or other entity's voting stock or equivalent voting securities or interests.
"Prudential Financial Entity" shall mean (i) PICA, Pruco Life Insurance Company, Pruco Life Insurance Company of New Jersey and any other corporation or other entity controlling, controlled by, or under common control with, PICA. For purposes of this definition the terms "control", "controlling" and "controlled" shall mean the ownership, directly or through subsidiaries, of a majority of a corporation's or other entity's voting stock or equivalent voting securities or interests.
"Purchasers" means, with respect to any Accepted Notes, the Persons, either PICA or a Prudential Affiliate, who is purchasing such Accepted Notes.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor.
"Redeemable Preferred Stock" of any Person means any equity interest of such Person that by its terms (or by the terms of any equity interest into which it is convertible or for which it is exchangeable), or otherwise (including on the happening of an event), is required to be redeemed for cash or other property or is redeemable for cash or other property at the option of the holder thereof, in whole or in part, on or prior to the maturity date of any Note; or is exchangeable for Indebtedness at any time, in whole or in part, on or prior to the maturity date of any Note; provided, however, that Redeemable Preferred Stock shall not include any equity interest by virtue of the fact that it may be exchanged or converted at the option of the holder or of the Company for equity interests of the Company having no preference as to dividends, distributions or liquidation over any other equity interests of the Company.
"Reinvestment Yield" is defined in Section 8.6.
"Remaining Average Life" is defined in Section 8.6.
"Remaining Scheduled Payments" is defined in Section 8.6.
"Reportable Event" means any of the events set forth in
Section 4043(b) or 4043(c) of ERISA or the regulations
thereunder, other than any such event for which the 30-day notice
requirement under ERISA has been waived in regulations issued by
the PBGC.
"Request for Purchase" is defined in Section 2.4.
"Required Holders" means, with respect to the Notes, at any time, the holders of at least 51% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates).
"Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject.
"Rescheduled Closing Day" is defined in Section 3.2.
"Restricted Subsidiary" shall mean any Subsidiary (i)
which is a Subsidiary of the Company on December 27, 1999 or
which the Company has designated a Restricted Subsidiary by
notice in writing given to the holders of the Notes and (ii)
which the Company has not thereafter designated as an
Unrestricted Subsidiary; provided, however, a Subsidiary may not
be designated as a Restricted Subsidiary if (a) it had previously
been designated as a Restricted Subsidiary and had thereafter
been designated as an Unrestricted Subsidiary within the
preceding 365 days; (b) any of the representations and warranties
applicable to such Subsidiary and contained in Section 5 would be
false if all such representations and warranties were to be
remade and restated immediately following such designation; or
(c) such designation shall result in any Default or Event of
Default; provided, further, that a Subsidiary may not be
designated as an Unrestricted Subsidiary if (a) it had previously
been designated as an Unrestricted Subsidiary and had thereafter
been designated as a Restricted Subsidiary within the preceding
365 days; (b) any of the representations and warranties
applicable to such Subsidiary and contained in Section 5 would be
false if all such representations and warranties were to be
remade and restated immediately following such designation; or
(c) such designation shall result in any Default or Event of
Default. If the Company forms or acquires a new Subsidiary, such
Subsidiary will be a Restricted Subsidiary absent a designation
as an Unrestricted Subsidiary. Notwithstanding the foregoing,
Williston Basin may not be designated as a Restricted Subsidiary
so long as any Williston Basin Notes are outstanding; provided,
that the Company may designate Williston Basin as a Restricted
Subsidiary immediately after the Williston Basin Notes are repaid
in full without regard to the 365-day period specified above.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc.
"Sale-Leaseback Transaction" means, with respect to any Person, any direct or indirect arrangement pursuant to which properties are sold or transferred by such Person or a Subsidiary of such Person and are thereafter leased back from the purchaser or transferee thereof by such Person or one of its Subsidiaries.
"SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Securitization Obligations" means, with respect to any Securitization Transaction, the aggregate investment or claim held at any time by all purchasers, assignees or transferees of (or of interests in) or holders of obligations that are supported or secured by accounts receivable, lease receivables and other rights to payment in connection with such Securitization Transaction.
"Securitization Transaction" means any sale, assignment or other transfer by the Company or any Restricted Subsidiary of accounts receivable, lease receivables or other payment obligations owing to the Company or such Subsidiary or any interest in any of the foregoing, together in each case with any collections and other proceeds thereof, any collection or deposit accounts related thereto, and any collateral, guaranties or other property or claims in favor of the Company or such Subsidiary supporting or securing payment by the obligor thereon of, or otherwise related to, any such receivables.
"Security" has the meaning set forth in Section 2(1) of the Securities Act.
"Senior Financial Officer" means the President, the Financial Vice President, the Treasurer, Chief Financial Officer or the Controller of the Company.
"Series" is defined in Section 1.
"Settlement Agreement" is defined in Section 10.9.
"Settlement Date" is defined in Section 8.6.
"Significant Subsidiary" means at any time any Subsidiary or group of Subsidiaries the assets of which at such time constitute 10% or more of Consolidated Total Assets at such time or the net income of which constituted 10% or more of Consolidated Net Income for the preceding fiscal year.
"Source" is defined in Section 6.2.
"Structuring Fee" is defined in Section 2.8(d).
"Subsidiary" means, as to any Person, any corporation, association, limited liability company or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company.
"Subsidiary Guarantees" means the guaranty agreement of a Subsidiary in form and substance satisfactory to the Required Holders.
"Swap Contract" means swap agreements (as such term is defined in Section 101(53B) of the Bankruptcy Code) and any other agreements or arrangements designed to provide protection against fluctuations in interest or currency exchange rates or commodity prices, including, but not limited to, Commodity Contracts and Financial Contracts.
"Swaps" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined.
"Total Capitalization" means, with respect to the Company, the sum of (a) the total stockholders' equity of the Company and its Restricted Subsidiaries determined in accordance with GAAP plus (b) the Total Debt of the Company.
"Total Debt" means, with respect to the Company, the total consolidated Indebtedness of the Company and its Restricted Subsidiaries.
"United States Governmental Security" means any direct obligation of, or obligation guaranteed by, the United States of America, or any agency controlled or supervised by or acting as an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America, so long as such obligation or guarantee shall have the benefit of the full faith and credit of the United States of America which shall have been pledged pursuant to authority granted by the Congress of the United States of America.
"Unfunded Pension Liability" means the excess of a Pension Plan's benefit liabilities under Section 302(d)(7) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.
"Unrestricted Subsidiary" means any Subsidiary that is not a Restricted Subsidiary.
"Voting Stock" means, with respect to any Person, the shares of any class or classes of such Person having voting power (not depending on the happening of a contingency) for the election of the majority of the members of the board of directors, the managers, the trustees or any other governing body of such Person.
"WBI Metropolitan Notes" means the 7.45% Senior Notes due 2006 of Williston Basin payable to Metropolitan Life Insurance Company.
"Wholly-Owned Subsidiary" means, at any time, any Subsidiary 100% of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Subsidiaries at such time. "Wholly-Owned Restricted Subsidiary" means, at any time, any Restricted Subsidiary 100% of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Restricted Subsidiaries at such time.
"Williston Basin" is defined in Section 10.9.
"Williston Basin Notes" means the notes outstanding under the Williston Basin Shelf Agreement.
"Williston Basin Shelf Agreement" means the Master Shelf Agreement between Williston Basin and PICA dated as of October 10, 1996, as amended from time to time.
CREDIT AGREEMENT
among
MDU RESOURCES GROUP, INC.
as Borrower;
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent;
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
Closing Date: June 21, 2005
$100,000,000 Revolving Credit Facility
Arranged by
WELLS FARGO BANK, NATIONAL ASSOCIATION
as Sole Lead Arranger
TABLE OF CONTENTS
ARTICLE I Definitions
Section 1.1 Definitions
Section 1.2 Rules of Construction
ARTICLE II Amount and Terms of the Credit Facilities
Section 2.1 The Facility
Section 2.2 Procedure for Borrowings
Section 2.3 Interest on Notes
Section 2.4 Principal and Interest Payment Dates
Section 2.5 Level Status, Margins and Fee Rates
Section 2.6 Fees
Section 2.7 Prepayments
Section 2.8 Termination of Facility or Reduction of the Aggregate Facility
Amount
Section 2.9 Payments
Section 2.10 Increased Costs; Capital Adequacy; Funding Exceptions
Section 2.11 Funding Losses
Section 2.12 Discretion of Lenders as to Manner of Funding
Section 2.13 Conclusiveness of Statements; Survival of Provisions
Section 2.14 Computation of Interest and Fees
Section 2.15 Purpose of Borrowings
Section 2.16 Increase of Aggregate Facility Amount
ARTICLE III Conditions Precedent
Section 3.1 Initial Conditions Precedent
Section 3.2 Conditions Precedent to All Borrowings
ARTICLE IV Representations and Warranties
Section 4.1 Existence and Power
Section 4.2 Authorization of Borrowing; No Conflict as to Law or Agreements
Section 4.3 Legal Agreements
Section 4.4 Subsidiaries
Section 4.5 Financial Condition
Section 4.6 Adverse Change
Section 4.7 Litigation
Section 4.8 Environmental Matters
Section 4.9 Regulation U
Section 4.10 Taxes
Section 4.11 Titles and Liens
Section 4.12 Intellectual Property
Section 4.13 ERISA.
ARTICLE V Affirmative Covenants
Section 5.1 Reporting
Section 5.2 Books and Records; Inspection and Examination
Section 5.3 Compliance with Laws
Section 5.4 Payment of Taxes and Other Claims
Section 5.5 Maintenance of Properties
Section 5.6 Insurance
Section 5.7 Preservation of Corporate Existence
ARTICLE VI Negative Covenants
Section 6.1 Liens
Section 6.2 Investments
Section 6.3 Distributions
Section 6.4 Sale of Assets
Section 6.5 Transactions with Affiliates
Section 6.6 Consolidation and Merger
Section 6.7 Environmental Laws
Section 6.8 Restrictions on Nature of Business
Section 6.9 Consolidated Total Leverage Ratio
Section 6.10 Borrower Leverage Ratio
Section 6.11 Interest Coverage Ratio
ARTICLE VII Events of Default, Rights and Remedies
Section 7.1 Events of Default
Section 7.2 Rights and Remedies
ARTICLE VIII The Agent
Section 8.1 Authorization
Section 8.2 Distribution of Payments and Proceeds
Section 8.3 Expenses
Section 8.4 Payments Received Directly by Lenders
Section 8.5 Indemnification
Section 8.6 Exculpation
Section 8.7 Agent and Affiliates
Section 8.8 Credit Investigation
Section 8.9 Resignation and Assignment of Agent
Section 8.10 Defaults
Section 8.11 Obligations Several
ARTICLE IX Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies
Section 9.2 Amendments, Etc
Section 9.3 Notice
Section 9.4 Costs and Expenses
Section 9.5 Indemnification by Borrower
Section 9.6 Execution in Counterparts
Section 9.7 Binding Effect; Assignment and Participations
Section 9.8 Disclosure of Information
Section 9.9 Governing Law
Section 9.10 Consent to Jurisdiction
Section 9.11 Waiver of Jury Trial
Section 9.12 Severability of Provisions
Section 9.13 Prior Agreements
Section 9.14 Other Financing
Section 9.15 Termination of Existing Credit Facility
Section 9.16 Headings
|
CREDIT AGREEMENT
Dated as of June 21, 2005
MDU Resources Group, Inc., a Delaware corporation, Wells Fargo Bank, National Association, a national banking association, as administrative agent hereunder, and the Lenders, as defined below, agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions.
As used in this Agreement:
"Additional Lender" means a financial institution that
becomes a Lender pursuant to the procedures set forth in
Section 2.16 or 9.7(c).
"Advance" means an advance by a Lender to the Borrower pursuant to Article II.
"Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under the common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock or other equity interests, by contract or otherwise.
"Agent" means Wells Fargo acting in its capacity as administrative agent for itself and the other Lenders hereunder.
"Aggregate Facility Amount" means $100,000,000, as such amount may be reduced pursuant to Section 2.8 or increased pursuant to Section 2.16.
"Agreement" means this Credit Agreement.
"Applicable Rating" means (i) with respect to S&P, the rating designated by S&P as its corporate credit rating of the Borrower, (ii) with respect to Moody's, the rating designated by Moody's as its issuer rating of the Borrower, and (iii) with respect to Fitch, the rating designated by Fitch as its rating of the Borrower's senior unsecured debt.
"Assignment Certificate" has the meaning set forth in
Section 9.7(e).
"Authorizing Order" means any order of any public utilities commission or any other regulatory body having jurisdiction over the Borrower, authorizing and/or restricting the indebtedness that may be created from time to time hereunder (whether on account of Advances or otherwise).
"Base LIBO Rate" means the rate per annum for United States dollar deposits quoted by the Agent as the Interbank Market Offered Rate, with the understanding that such rate is quoted by the Agent for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of an Interest Period for delivery of funds on said date for a period of time approximately equal to the number of days in such Interest Period and in an amount approximately equal to the principal amount to which such Interest Period applies. The Borrower understands and agrees that the Agent may base its quotation of the Interbank Market Offered Rate upon such offers or other market indicators of the Interbank Market as the Agent in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Interbank Market.
"Borrower" means MDU Resources Group, Inc., a Delaware corporation.
"Borrower Leverage Ratio" means the ratio of Funded Debt to Capitalization, determined with respect to the Borrower alone (excluding its Subsidiaries, but including any divisions of the Borrower not constituting separate Persons) as at the end of each fiscal quarter of the Borrower.
"Borrowing" means a borrowing under Article II consisting of Advances made to the Borrower at the same time by each of the Lenders severally.
"Business Day" means a day other than a Saturday,
Sunday, United States national holiday or other day on which
banks in Minnesota are permitted or required by law to
close. Whenever the context relates to a LIBO Rate Funding
or the fixing of a LIBO Rate, "Business Day" means a day
(i) that meets the foregoing definition, and (ii) on which
dealings in U.S. dollar deposits are carried on in the
London interbank eurodollar market.
"Capitalization" means, with respect to any Person as of any Covenant Compliance Date, (i) Funded Debt of that Person, plus (ii) shareholders' equity of that Person (excluding any non-cash gain or loss resulting from the requirements of Financial Accounting Standards Board Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities"), all determined in accordance with GAAP. In determining Capitalization for purposes of calculating the Borrower Leverage Ratio, Funded Debt and equity attributable to any Subsidiary shall be excluded.
"Capitalized Lease" means any lease that in accordance with GAAP should be capitalized on the balance sheet of the lessee thereunder or for which the amount of the asset and liability thereunder as if so capitalized should be disclosed in a note to such balance sheet. All obligations under any lease that is treated as an operating lease under GAAP but pursuant to which the lessee thereunder retains tax ownership of the leased property for federal income tax purposes shall be treated as a Capitalized Lease for purposes of this Agreement.
"Change of Control" means, with respect to any
corporation, either (i) the acquisition by any "person" or
"group" (as those terms are used in Sections 13(d) and 14(d)
of the Exchange Act) of beneficial ownership (as defined in
Rules 13d-3 and 13d-5 of the Securities and Exchange
Commission, except that a Person shall be deemed to have
beneficial ownership of all securities that such Person has
the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or
indirectly, of 25% or more of the then-outstanding voting
capital stock of such corporation; or (ii) a change in the
composition of the board of directors of such corporation or
any corporate parent of such corporation such that
continuing directors cease to constitute more than 50% of
such board of directors. As used in this definition,
"continuing directors" means, as of any date, (i) those
members of the board of directors of the applicable
corporation who assumed office prior to such date, and
(ii) those members of the board of directors of the
applicable corporation who assumed office after such date
and whose appointment or nomination for election by that
corporation's shareholders was approved by a vote of at
least 50% of the directors of such corporation in office
immediately prior to such appointment or nomination.
"Code" means the Internal Revenue Code of 1986, and the regulations promulgated thereunder, as amended, reformed or otherwise modified from time to time.
"Commitment" means, with respect to each Lender, that Lender's commitment to make Advances pursuant to Article II.
"Compliance Certificate" means a certificate in
substantially the form of Exhibit C, or such other form as
the Borrower and the Required Lenders may from time to time
agree upon in writing, executed by the chief financial
officer of the Borrower, stating (i) that any financial
statements delivered therewith have been prepared in
accordance with GAAP (or, in the case of statements prepared
pursuant to Section 5.1(a)(iii), in accordance with FERC
Accounting Principles), subject to year-end adjustments,
(ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto and
(iii) all relevant facts in reasonable detail to evidence,
and the computations as to, whether or not the Borrower is
in compliance with the Financial Covenants.
"Consolidated Net Worth" means, at any time, the excess of total assets of the Borrower over total liabilities of the Borrower as of the last day of the fiscal quarter most recently then ended, determined on a consolidated basis in accordance with GAAP.
"Consolidated Total Leverage Ratio" means, as of any Covenant Compliance Date, the ratio of Funded Debt to Capitalization, determined on a consolidated basis with respect to the Borrower and all of its Subsidiaries.
"Covenant Compliance Date" means the last day of each fiscal quarter of the Borrower.
"Credit Exposure" means, with respect to any Lender at any time, (i) such Lender's Facility Amount (whether used or unused) at such time, or (ii) if the Commitments have terminated in their entirety, the aggregate outstanding principal amount of its Note at such time.
"Default" means an event that, with the giving of notice, the passage of time or both, would constitute an Event of Default.
"Distribution" means any payment made by the Borrower
on account of any equity interest in the Borrower, including
but not limited to any dividend and any payment in purchase,
redemption or other retirement of any stock or membership
interest.
"EBITDA" means, with respect to any period:
(i) (A) the after-tax net income of the Borrower for
such period, determined on an unconsolidated basis
in accordance with GAAP, excluding (B) non-
operating gains and losses (including
extraordinary or unusual gains and losses, gains
and losses from discontinuance of operations,
gains and losses arising from the sale of assets
other than inventory, and other non-recurring
gains and losses),
plus
(ii) the sum of the following to the extent
deducted in arriving at the after-tax net income
determined in clause (i)(A) of this definition
(but without duplication for any item):
(A) Interest Expense,
(B) federal, state and local income taxes paid by
the Borrower, and
(C) depreciation and amortization.
"Eligible Lender" means (a) a financial institution organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; and (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary.
"Environmental Claim" means a material claim, however asserted, by any governmental authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment.
"Environmental Law" means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1802 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Federal Water Pollution Control Act, 33 U.S.C. Section 1252 et seq., the Clean Water Act, 33 U.S.C. Section 1321 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., and any other federal, state, county, municipal, local or other statute, law, ordinance or regulation which in each case relates to human health or the environment, all as may be from time to time amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" means any trade or business (whether or not incorporated) that is, along with the Borrower, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in sections 414(b) and 414(c), respectively, of the Code.
"ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the commencement of proceedings by the PBGC to terminate a Pension Plan; (e) a failure by the Borrower or any ERISA Affiliate to make required contributions to a Pension Plan, Multiemployer Plan or other Plan subject to Section 412 of the Code; (f) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate; or (h) an application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code with respect to any Plan.
"ERISA Termination Event" means the filing of a notice
of intent to terminate a Pension Plan, or the treatment of a
plan amendment as the termination of a Pension Plan, under
Section 4041 or 4041A of ERISA.
"Event of Default" has the meaning specified in Section 7.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Credit Agreement" means the Credit Agreement dated July 18, 2003 among the Borrower, Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders, as defined therein, together with all amendments, modifications and restatements thereof.
"Existing Credit Facility" means the revolving credit facility arising under the Existing Credit Agreement.
"Facility" means the revolving credit facility established under Section 2.1.
"Facility Amount" means, (i) with respect to each original Lender hereunder, the amount set forth opposite that Lender's name in Exhibit A, (ii) with respect to each Additional Lender, the amount so designated on the applicable Assignment Certificate, or (iii) in the case of any Incremental Lender, such Incremental Lender's Facility Amount as determined pursuant to Section 2.16, in each case as such amount may be adjusted pursuant to Section 2.8, 2.16 or any Assignment Certificate.
"Facility Fee Rate" means a percentage, determined as set forth in Section 2.5.
"Federal Funds Rate" means at any time an interest rate per annum equal to the weighted average of the rates for overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day for such transactions received by the Agent from three federal funds brokers of recognized standing selected by it, it being understood that the Federal Funds Rate for any day which is not a Business Day shall be the Federal Funds Rate for the next preceding Business Day.
"Fee Letters" means one or more separate agreements between the Borrower and the Agent, setting forth the terms of certain fees to be paid by the Borrower to the Agent for the Agent's own behalf or for the benefit of the Lenders, as more fully set forth therein.
"FERC Accounting Principles" means the accounting requirements of the Federal Energy Regulatory Commission as set forth in its applicable Uniform System of Accounts and published accounting releases.
"Financial Covenant" means any of the Borrower's obligations set forth in Sections 6.9, 6.10 and 6.11 of this Agreement
"Fitch" means Fitch, Inc.
"Floating Rate" means, at any time, an annual rate equal to the sum of the Floating Rate Margin and the greater of:
(a) the Prime Rate,
or
(b) the Federal Funds Rate, plus 50 basis points (0.50%).
The Floating Rate shall change when and as the Prime Rate or Federal Funds Rate, as the case may be, or Floating Rate Margin changes.
"Floating Rate Funding" means any Borrowing, or any portion of the principal balance of the Notes, bearing interest at the Floating Rate.
"Floating Rate Margin" means a percentage, determined as set forth in Section 2.5.
"Funded Debt" of any Person means (without duplication) (i) all indebtedness of such Person for borrowed money (which shall, in the case of the Borrower, include but not be limited to all indebtedness under this Agreement, all indebtedness arising under the Mortgage Indentures, and all Subordinated Debt); (ii) indebtedness of such Person evidenced by bonds, notes or similar written instruments, whether or not representing obligations for borrowed money; (iii) all liabilities required to appear on such Person's balance sheet with respect to Capitalized Lease obligations of such Person; (iv) all indebtedness secured by a Lien on any property owned by such Person, whether or not such indebtedness has been assumed by such Person or is nonrecourse to such Person; (v) the face amount of all letters of credit and bankers' acceptances issued for the account of such Person, and without duplication, all drafts drawn thereunder; (vi) all obligations of such Person with respect to leases constituting part of a sale and leaseback arrangement; (vii) all net obligations of such Person under interest rate agreements or currency agreements; and (viii) guaranty obligations of such Person with respect to indebtedness for borrowed money of another Person (including affiliates).
"Funding" means a Floating Rate Funding or a LIBO Rate Funding.
"GAAP" means generally accepted accounting principles as in effect from time to time applied on a basis consistent with the accounting practices applied in the financial statements of the Borrower and its Subsidiaries referred to in Section 4.5.
"Incremental Lender" has the meaning set forth in
Section 2.16(b).
"Insolvency Proceeding" means, with respect to a Person, (a) any case, action or proceeding with respect to such Person before any court or other governmental authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit to creditors, composition, marshalling of assets for creditors, or other similar arrangement in respect of its creditors generally or any substantial portion of its creditors, undertaken under U.S. federal, state or foreign law, including the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101, et seq.).
"Interest Coverage Ratio" means, as of any Covenant
Compliance Date, the ratio of (i) EBITDA during the period
of 12 months ending on that Covenant Compliance Date, to
(ii) Interest Expense during such period.
"Interest Expense" means, with respect to any period, the aggregate interest expense (including capitalized interest) of the Borrower alone (i.e., on an unconsolidated basis) for such period, including but not limited to the interest portion of any Capitalized Lease; provided, however, that the foregoing shall be adjusted to reflect only the net effect of any interest rate swap, interest hedging transaction or other similar arrangement entered into by the Borrower to reduce or eliminate variations in its interest expenses.
"Interest Period" means, with respect to any LIBO Rate Funding, a period of one, two, three or six months beginning on a Business Day, as elected by the Borrower.
"Lenders" means Wells Fargo, acting on its own behalf
and not as Agent, each of the undersigned lenders, and any
financial institution that becomes a Lender pursuant to
Section 2.16 or 9.7(c), collectively.
"Level Status" means Level I, Level II, Level III, Level IV or Level V, each as determined pursuant to Section 2.5.
"LIBO Rate" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBO Rate Base LIBO Rate + LIBO Rate Margin
=
100% - LIBOR Reserve
Percentage
|
"LIBO Rate Funding" means any Borrowing, or any portion of the principal balance of the Notes, bearing interest at a LIBO Rate.
"LIBO Rate Margin" means a percentage, determined as set forth in Section 2.5.
"LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by the Agent for expected changes in such reserve percentage during the applicable Interest Period.
"Lien" means any mortgage, deed of trust, lien, pledge, security interest or other charge or encumbrance, of any kind whatsoever, including but not limited to the interest of the lessor or titleholder under any Capitalized Lease, title retention contract or similar agreement.
"Loan Documents" means this Agreement, the Notes and the Fee Letters.
"Margin" means the Floating Rate Margin or the LIBO Rate Margin, as the case may be.
"Material Adverse Effect" means a material adverse effect on (i) the condition (financial or otherwise), properties, or operations of the Borrower, (ii) the ability of the Borrower to perform its obligations under the Loan Documents, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agent or any Lender thereunder.
"Maturity Date" means the Revolving Period Termination Date.
"Maximum Aggregate Facility Amount" means $125,000,000, unless said amount is reduced pursuant to Section 2.8, in which event it means the amount to which said amount is reduced.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage Indentures" means (i) the Indenture of Mortgage dated as of May 1, 1939 executed by the Borrower and delivered to The New York Trust Company and A.C. Downing, as trustees thereunder, as heretofore amended and supplemented and as hereafter amended and/or supplemented from time to time, and (ii) the Indenture, dated as of December 15, 2003, executed by the Borrower and delivered to the Bank of New York, as trustee thereunder, as heretofore amended and supplemented and as hereafter amended and/or supplemented from time to time.
"Multiemployer Plan" means a "multiemployer plan" (within the meaning of Section 4001(a)(3) of ERISA) to which the Borrower or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions.
"Note" means a promissory note of the Borrower in the form of Exhibit B.
"Obligations" means each and every debt, liability and obligation of every type and description arising under or in connection with any of the Loan Documents which the Borrower may now or at any time hereafter owe to any Lender or the Agent, whether such debt, liability or obligation now exists or is hereafter created or incurred, whether it is direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole, joint, several or joint and several, and including but not limited to principal of and interest on the Notes, all fees due under this Agreement, any Fee Letter or any related agreement, and any obligation of the Borrower to the Agent or any Lender under any hedging arrangement entered into with the Agent or any Lender with respect to the Borrower's obligations arising under this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means a pension plan (as defined in
Section 3(2) of ERISA) subject to Title IV of ERISA which
the Borrower or any ERISA Affiliate sponsors, maintains, or
to which it makes, is making, or is obligated to make
contributions, or in the case of a multiple employer plan
(as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding
five (5) plan years but excluding any Multiemployer Plan.
"Percentage" means, with respect to each Lender, the ratio of (i) that Lender's Credit Exposure, to (ii) the aggregate Credit Exposure of all of the Lenders.
"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
"Plan" means an employee benefit plan (as defined in
Section 3(3) of ERISA) which the Borrower or any ERISA
Affiliate sponsors or maintains or to which the Borrower or
any ERISA Affiliate makes, is making, or is obligated to
make contributions and includes any Pension Plan but
excluding any Multiemployer Plan.
"Prime Rate" means, at any time, the rate of interest most recently announced within the Agent at its principal office as its "prime rate" or, if the Agent ceases to announce a rate so designated, any similar successor rate designated by the Agent. Such rate is one of the Agent's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof in such internal publication or publications as the Agent may designate.
"Principal Payment Date" means the first Business Day preceding each anniversary hereof.
"Rating Agencies" means Fitch, Moody's and S&P, collectively.
"Reportable Event" means any of the events set forth in
Section 4043(c) of ERISA or the regulations thereunder,
other than any such event for which the 30-day notice
requirement under ERISA has been waived in regulations
issued by the PBGC.
"Required Lenders" means one or more Lenders (including, where relevant, Additional Lenders and Incremental Lenders) having an aggregate Percentage in excess of 50%.
"Revolving Period Termination Date" means June 21, 2010.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill Companies.
"Solvent" means as to any Person at any time (a) the fair value of the property of such Person is greater than the amount of such Person's liabilities (including the probable liability of such Person on disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code; (b) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its property and pay its debts and other liabilities (including the probable liability of such Person on disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital.
"Subordinated Debt" means all indebtedness and other obligations of the Borrower which are subordinated in right of payment to all indebtedness of the Borrower to any Lender, on terms that have been approved in writing by the Required Lenders and that have been noted by appropriate legend on all instruments evidencing the Subordinated Debt.
"Subsidiary" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, by one of more of the Subsidiaries of the Person, or by a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Borrower.
"Unfunded Pension Liability" means the excess of a Pension Plan's benefit liabilities under Section 302(d)(7) of ERISA over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.
"Utilization Fee Rate" means a percentage, determined as set forth in Section 2.5.
"Wells Fargo" means Wells Fargo Bank, National Association, a national banking association and a party to this Agreement.
Section 1.2 Rules of Construction
For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:
(a) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular.
(b) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP.
(c) All references to times of day in this Agreement shall be references to Minneapolis, Minnesota time unless otherwise specifically provided.
ARTICLE II
Amount and Terms of the Credit Facilities
Section 2.1 The Facility.
Each Lender agrees, severally but not jointly, on the terms and
subject to the conditions hereinafter set forth, to make Advances
to the Borrower from time to time during the period from the date
hereof to and including the Revolving Period Termination Date in
an aggregate amount not to exceed at any time outstanding that
Lender's Facility Amount. Each Borrowing shall be in an amount
equal to an integral multiple of $500,000 and not less than
$1,000,000 (or such greater amount as may be required pursuant to
Section 2.3(b) if any part of such Borrowing will constitute a
LIBO Rate Funding). Through the Revolving Period Termination
Date, the facility established hereby shall be a revolving
facility; within the limits of the Aggregate Facility Amount, the
Borrower may borrow, prepay pursuant to Section 2.7 and reborrow
under this Section 2.1. The Advances made by each Lender shall be
evidenced by a Note, payable to the order of that Lender in the
face principal amount of that Lender's Facility Amount.
Notwithstanding any other provision of this Agreement to the
contrary, no Borrowing shall be effected on any Principal Payment
Date.
Section 2.2 Procedure for Borrowings.
Each Borrowing shall occur on prior written request from the Borrower to the Agent or telephonic request from any person purporting to be authorized to request Borrowings on behalf of the Borrower, which request shall specify the date of the requested Borrowing and the amount thereof. Except as set forth in Section 2.3(b), each such request by the Borrower shall be made not less than one Business Day before the date of the requested Borrowing. Promptly upon receipt of such request, the Agent shall advise each Lender of the proposed Borrowing. At or before 2:00 p.m. on the date of the requested Borrowing, each Lender shall provide the Agent at the principal office of the Agent in Minneapolis, Minnesota with immediately available funds covering such Lender's Percentage of such Borrowing. The Agent shall disburse the amount of the requested Borrowing by crediting the same to the Borrower's demand deposit account maintained with the Agent or in such other manner as the Agent and the Borrower may from time to time agree; provided, however, that the Agent shall have no obligation to disburse the requested Borrowing if any condition set forth in Article III has not been satisfied on the day of the requested Borrowing or if any Lender has failed to fund its Percentage of the requested Borrowing. The Borrower shall promptly confirm each telephonic request for a Borrowing by executing and delivering an appropriate confirmation certificate to the Agent. The Borrower shall be obligated to repay all Advances notwithstanding the failure of the Agent to receive such confirmation and notwithstanding the fact that the person requesting same was not in fact authorized to do so. Any request for a Borrowing shall be deemed to be a representation that the statements set forth in Section 3.2 are correct.
Section 2.3 Interest on Notes.
(a) Floating Rate Fundings. Unless the Borrower elects a LIBO Rate pursuant to this Section, the principal balance of the Notes shall bear interest at the Floating Rate.
(b) LIBO Rate Fundings. So long as no Default or Event of Default exists, the Borrower may request that a portion of any requested Borrowing constitute a LIBO Rate Funding, or may convert all or any part of any outstanding Floating Rate Funding into a LIBO Rate Funding, or may request that a LIBO Rate Funding be converted at the end of the applicable Interest Period to another LIBO Rate Funding, by giving notice to the Agent of such request or conversion not later than 10:30 a.m. on a Business Day which is at least three Business Days prior to the date of the requested Borrowing or conversion. Each such notice shall be effective upon receipt by the Agent, shall be in writing or by telephone or telecopy transmission, shall specify the date and amount of such Borrowing or conversion, and the Interest Period therefor. The Interest Period applicable to each LIBO Rate Funding shall begin on a Business Day, and the amount of each LIBO Rate Funding shall be an integral multiple of $1,000,000 and not less than $5,000,000. Subject to the terms and conditions hereof, the principal amount specified by the Borrower in the applicable request for a LIBO Rate Funding shall bear interest from and including the first day of the Interest Period specified therein to but not including the last day of such Interest Period, at the LIBO Rate applicable thereto, determined as set forth herein, (subject to fluctuations in the applicable Margin). Unless the Borrower requests a new LIBO Rate Funding in accordance with the procedures set forth above, or prepays the principal of an outstanding LIBO Rate Funding at the expiration of an Interest Period, the Lenders shall automatically and without request of the Borrower convert each LIBO Rate Funding to a Floating Rate Funding on the last day of the relevant Interest Period.
(c) Setting of LIBO Rates. The applicable LIBO Rate for each Interest Period shall be determined by the Agent between the opening of business and 12:00 noon on the second Business Day prior to the beginning of such Interest Period, whereupon notice thereof (which may be by telephone) shall be given by the Agent to the Borrower and each Lender. Each such determination of the applicable LIBO Rate shall be conclusive and binding upon the parties hereto, in the absence of demonstrable error. The Agent, upon written request of the Borrower, shall deliver to the Borrower a statement showing the computations used by the Agent in determining the applicable LIBO Rate hereunder.
(d) Limitations on LIBO Rate Fundings. In no event shall more than 6 LIBO Rate Fundings be outstanding at any one time. In no event may the Borrower request a LIBO Rate Funding if, after giving effect to such LIBO Rate Funding, the Borrower would be required to prepay a LIBO Rate Funding in order to make any regularly scheduled principal payment.
Section 2.4 Principal and Interest Payment Dates.
(a) Interest. Interest accruing on Floating Rate Fundings shall be due and payable on the last day of each calendar quarter. Interest on any LIBO Rate Funding shall be due and payable on the last day of the applicable Interest Period or, if such Interest Period is in excess of three months, on the last day of each three-month period during such Interest Period and on the last day of such Interest Period.
(b) Principal. The Borrower shall pay the principal balance of all Borrowings then outstanding in full on each Principal Payment Date.
Section 2.5 Level Status, Margins and Fee Rates.
(a) The Borrower's Level Status shall be determined on the basis of the Applicable Ratings established by the Rating Agencies, in accordance with the following table:
Level I Level II Level III Level IV Level V
A or A- or BBB+ or BBB or Less
S&P better better, better, better, than BBB
but less but less but less
than A than A- than
BBB+
A2 or A3 or Baa1 or Baa2 or Less
Moody's better better, better, better, than
but less but less but less Baa2
than A2 than A3 than
Baa1
Fitch A or A- or BBB+ or BBB or Less
better better, better, better, than BBB
but less but less but less
than A than A- than
BBB+
|
If the Applicable Ratings established by the Rating Agencies differ such that they do not fall within a single column in the table set forth above, the Borrower's Level Status shall be determined as follows:
(i) If the Applicable Ratings applied by any two of the Rating Agencies are in the same column, the Borrower's Level Status shall be determined by that column.
(ii) If the Applicable Ratings are each in separate columns, the highest and lowest columns shall be excluded, and the Borrower's Level Status shall be determined by the remaining Applicable Rating.
(b) In making the determinations under paragraph (a):
(i) If any of the Rating Agencies changes the meaning or designation for its Applicable Ratings referenced in paragraph (a), the criteria for Level Status in the table in paragraph (a) shall be adjusted in such manner as the Required Lenders may reasonably determine to correspond with the applicable rating designations used by the applicable Rating Agency in effect on the date hereof.
(ii) If one of the Rating Agencies ceases to rate the Borrower's long-term unsecured debt such that only two of the Rating Agencies are providing such Applicable Ratings, the Borrower's Level Status shall be determined as follows:
(A) If the Applicable Ratings provided by both of the remaining Rating Agencies are in the same column, the Borrower's Level Status shall be determined by that column.
(B) If the Applicable Ratings provided by the remaining Rating Agencies are in adjacent columns, the Borrower's Level Status shall be based on the leftmost of the columns.
(C) If the Applicable Ratings provided by the remaining Rating Agencies are separated by one or more columns, the Borrower's Level Status shall be based on the column to the immediate right of the leftmost applicable column.
Notwithstanding the foregoing, if the Applicable Rating established by either of the remaining Rating Agencies is in the rightmost column above, the Borrower shall be deemed to be at Level Status V.
(iii)If any two of the Rating Agencies ceases to establish its Applicable Rating, the Borrower shall be deemed to be at Level Status V.
(c) The Floating Rate Margin, LIBO Rate Margin, Facility Fee Rate and Utilization Fee Rate at any time shall be determined from time to time on the basis of the Borrower's Level Status, in accordance with the following table:
Level I Level II Level III Level IV Level V
Floating Rate
Margin 0% 0% 0% 0% 0%
LIBO Rate Margin
0.295% 0.400% 0.500% 0.600% 0.750%
Facility Fee Rate
0.080% 0.100% 0.125% 0.150% 0.200%
Utilization Fee
|
Rate 0.100% 0.100% 0.125% 0.125% 0.200%
(d) Upon the occurrence of any Default or Event of Default, and so long as such Default or Event of Default continues without written waiver thereof by the Lenders, a default increment equal to 200 basis points (2.00%) shall be added to the Floating Rate Margin and LIBO Rate Margin. Inclusion of such default increment shall not be deemed a waiver or excuse of any such Default or Event of Default.
Section 2.6 Fees.
(a) Facility Fee. The Borrower shall pay to the Agent, for the ratable benefit of the Lenders, a facility fee determined at an annual rate equal to the then-applicable Facility Fee Rate applied to the average Aggregate Facility Amount outstanding during such calendar quarter (or during such shorter period ending on the Revolving Period Termination Date). The facility fee shall be due and payable quarterly in arrears on the last day of each calendar quarter, and on the Maturity Date. The facility fee shall accrue at all times, including at any time during which any condition in Article III has not been satisfied.
(b) Utilization Fee. The Borrower shall pay to the Agent, for the ratable benefit of the Lenders, a utilization fee determined at an annual rate equal to the then- applicable Utilization Fee Rate applied to the actual daily aggregate principal balance of the Notes on each day that such aggregate principal balance exceeds 50% of the Aggregate Facility Amount in effect on such day. The utilization fee shall be due and payable quarterly in arrears on the last day of each calendar quarter, and on the Maturity Date. The utilization fee shall accrue at all times, including at any time during which any condition in Article III has not been satisfied.
(c) Fee Letters. The Borrower shall pay to the Agent all fees required to be paid pursuant to any Fee Letters.
(d) Audit Fees. Upon the occurrence of an Event of Default or at any time thereafter until such Event of Default is cured, the Borrower shall pay to the Agent, on written demand, reasonable fees charged by the Agent in connection with any audits or inspections by the Agent of any collateral or the operations or businesses of the Borrower, together with actual out-of-pocket costs and expenses incurred in conducting any such audit or inspection. All such audits and inspections shall be for the sole benefit of the Agent and the Lenders.
Section 2.7 Prepayments.
(a) Voluntary Prepayments. The Borrower from time to time may voluntarily prepay the Notes in whole or in part; provided that (i) prepayment of any Lender's Note must be accompanied by pro rata prepayment of each other Lender's Note, (ii) any prepayment of the full amount of any Note shall include accrued interest thereon, (iii) partial prepayment of any Floating Rate Funding shall be in an aggregate amount not less than $1,000,000, (iv) partial prepayment of any LIBO Rate Funding shall be in an aggregate amount not less than $5,000,000, and (v) any prepayment of any LIBO Rate Funding shall be made only upon three Business Days' notice to the Agent.
(b) Application of Prepayments. So long as no Default or Event of Default has occurred and is continuing hereunder, all prepayments hereunder shall be applied in such order of application as the Borrower may direct in writing. In all other cases, all prepayments hereunder shall be applied in the following order:
(i) First, to the principal installments of the Notes (and, if such Notes are payable in installments, will be applied to such installments in inverse order of their maturities).
(ii) Second, to accrued but unpaid interest on the Notes.
(iii)Third, to any remaining Obligations, in such order as the Agent may in its sole discretion designate.
Notwithstanding the foregoing, interest on any LIBO Rate
Funding prepaid hereunder and any compensation due under
Section 2.11 on account of prepayment of a LIBO Rate Funding
shall be paid with the same priority as the related
principal prepayment.
Section 2.8 Termination of Facility or Reduction of the Aggregate Facility Amount.
The Borrower may at any time and from time to time upon three Business Days' prior notice to the Agent permanently terminate the Facility in whole or permanently reduce the Aggregate Facility Amount in part, provided that (i) the Facility may not be terminated while any Borrowings remain outstanding, (ii) each partial reduction shall be in the amount of $5,000,000 or a multiple thereof, (iii) no reduction shall reduce the Aggregate Facility Amount to an amount less than the aggregate principal balance of the Notes outstanding at the time, (iv) any partial reduction of the Aggregate Facility Amount shall be applied pro rata as to each Lender's Facility Amount in accordance with that Lender's Percentage, and (v) each reduction in the Aggregate Facility Amount shall constitute a corresponding reduction in the Maximum Aggregate Facility Amount.
Section 2.9 Payments.
(a) Making of Payments. All payments of principal of and interest due under the Notes shall be made to the Agent at its principal office in Minneapolis, Minnesota, not later than 12:00 noon on the date due, in immediately available funds, and funds received after that hour shall be deemed to have been received by the Agent on the next following Business Day. The Borrower hereby authorizes the Agent to charge the Borrower's demand deposit account maintained with the Agent for the amount of any such payment on its due date, or (at the option of the Agent) to effect a Borrowing in such amount, all without receipt of any request for such charge or Borrowing, but the Lender's failure to so charge such account or effect such Borrowing shall in no way affect the obligation of the Borrower to make any such payment.
(b) Assumed Payments. Unless the Agent has been notified by a Lender or the Borrower prior to the date on which such Lender or the Borrower is scheduled to make payment to the Agent of (in the case of a Lender) the proceeds of an Advance to be made by it hereunder or (in the case of the Borrower) a payment to the Agent for the account of one or more of the Lenders hereunder (such payment by a Lender or the Borrower (as the case may be) being herein called a "Required Payment"), which notice shall be effective upon receipt, that it does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may (but shall not be required to), in reliance upon such assumption, make the amount thereof available to the intended recipient on such date and, if such Lender or the Borrower (as the case may be) has not in fact made the Required Payment to the Agent, the recipient of such payment shall, on demand, repay to the Agent the amount so made available together with interest thereon for each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate (i) equal to the Federal Funds Rate for such day, in the case of a Required Payment owing by a Lender, or (ii) equal to the applicable rate of interest as provided in this Agreement, in the case of a Required Payment owing by the Borrower.
(c) Setoff. The Borrower agrees that each Lender shall have all rights of setoff and bankers' lien provided by applicable law, and in addition thereto, the Borrower agrees that if at any time any amount is due and owing by the Borrower under this Agreement to any Lender at a time when an Event of Default has occurred and is continuing hereunder, any Lender may apply any and all balances, credits, and deposits, accounts or moneys of the Borrower then or thereafter in the possession of that Lender (excluding, however, any trust or escrow accounts held by the Borrower for the benefit of any third party) to the payment thereof.
(d) Due Date Extension. If any payment of principal of or interest on any Floating Rate Funding or any fees payable hereunder falls due on a day which is not a Business Day, then such due date shall be extended to the next following Business Day, and (in the case of principal) additional interest shall accrue and be payable for the period of such extension.
(e) Application of Payments. Except as otherwise provided herein, so long as no Default or Event of Default has occurred and is continuing hereunder, each payment received from the Borrower shall be applied to such obligation as the Borrower shall specify by notice received by the Agent on or before the date of such payment, or in the absence of such notice, as the Required Lenders shall determine in their discretion. Except as otherwise provided herein, after the occurrence of a Default or Event of Default, the Lenders shall have the right to apply all payments received by the Lender from the Borrower as the Required Lenders may determine in their discretion. The Borrower agrees that the amount shown on the books and records of the Agent and the Lenders as being the principal balance of and interest on the Notes shall be conclusive absent demonstrable error.
Section 2.10 Increased Costs; Capital Adequacy; Funding Exceptions.
(a) Increased Costs on LIBO Rate Fundings. If Regulation D of the Board of Governors of the Federal Reserve System or after the date of this Agreement the adoption of any applicable law, rule or regulation, or any change in any existing law, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall:
(i) subject that Lender to or cause the withdrawal or termination of any exemption previously granted to that Lender with respect to, any tax, duty or other charge with respect to its LIBO Rate Fundings or its obligation to make LIBO Rate Fundings, or shall change the basis of taxation of payments to that Lender of the principal of or interest under this Agreement in respect of its LIBO Rate Fundings or its obligation to make LIBO Rate Fundings (except for changes in the rate of tax on the overall net income of that Lender imposed by the jurisdictions in which that Lender's principal executive office is located); or
(ii) impose, modify or deem applicable any reserve
(including, without limitation, any reserve
imposed by the Board of Governors of the Federal
Reserve System, but excluding any reserve included
in the determination of interest rates pursuant to
Section 2.3), special deposit or similar
requirement against assets of, deposits with or
for the account of, or credit extended by, that
Lender; or
(iii)impose on that Lender any other condition affecting its making, maintaining or funding of its LIBO Rate Fundings or its obligation to make LIBO Rate Fundings;
and the result of any of the foregoing is to increase the
cost to that Lender of making or maintaining any LIBO Rate
Funding, or to reduce the amount of any sum received or
receivable by that Lender under this Agreement or under its
Notes with respect to a LIBO Rate Funding, then that Lender
will notify the Borrower of such increased cost and within
fifteen (15) days after demand by that Lender (which demand
shall be accompanied by a statement setting forth the basis
of such demand and representing that that Lender has made
similar demand on one or more other commercial borrowers
with revolving or term loans in excess of $1,000,000) the
Borrower shall pay to that Lender such additional amount or
amounts as will compensate that Lender for such increased
cost or such reduction; provided, however, that no such
increased cost or such reduction shall be payable by the
Borrower for any period longer than ninety (90) days prior
to the date on which notice thereof is delivered to the
Borrower. Each Lender will promptly notify the Borrower of
any event of which it has knowledge, occurring after the
date hereof, which will entitle that Lender to compensation
pursuant to this Section 2.10. If the Borrower receives
notice from any Lender of any event which will entitle that
Lender to compensation pursuant to this Section 2.10, the
Borrower may prepay any then outstanding LIBO Rate Fundings
or notify that Lender that any pending request for a LIBO
Rate Funding shall be deemed to be a request for a Floating
Rate Funding, in each case subject to the provisions of
Section 2.11.
(b) Capital Adequacy. If any Lender determines at any time that its Return has been reduced as a result of any Capital Adequacy Rule Change, that Lender may require the Borrower to pay it the amount necessary to restore that Lender's Return to what it would have been had there been no Capital Adequacy Rule Change. For purposes of this 2.10, the following definitions shall apply:
(i) "Return", for any calendar quarter or shorter period, means the percentage determined by dividing (A) the sum of interest and ongoing fees earned by a Lender under this Agreement during such period by (B) the average capital that Lender is required to maintain during such period as a result of its being a party to this Agreement, as determined by that Lender based upon its total capital requirements and a reasonable attribution formula that takes account of the Capital Adequacy Rules then in effect. Return may be calculated for each calendar quarter and for the shorter period between the end of a calendar quarter and the date of termination in whole of this Agreement.
(ii) "Capital Adequacy Rule" means any law, rule, regulation or guideline regarding capital adequacy that applies to any Lender, or the interpretation thereof by any governmental or regulatory authority. Capital Adequacy Rules include rules requiring financial institutions to maintain total capital in amounts based upon percentages of outstanding loans, binding loan commitments and letters of credit.
(iii)"Capital Adequacy Rule Change" means any change in any Capital Adequacy Rule occurring after the date of this Agreement, but does not include any changes in applicable requirements that at the date hereof are scheduled to take place under the existing Capital Adequacy Rules or any increases in the capital that any Lender is required to maintain to the extent that the increases are required due to a regulatory authority's assessment of that Lender's financial condition.
(iv) "Lender" includes (but is not limited to) the Agent, the Lenders, as defined elsewhere in this Agreement, and any assignee of any interest of any Lender hereunder and any participant in the loans made hereunder.
The initial notice sent by a Lender shall be sent as promptly as practicable after that Lender learns that its Return has been reduced, shall include a demand for payment of the amount necessary to restore that Lender's Return for the quarter in which the notice is sent, shall state in reasonable detail the cause for the reduction in that Lender's Return and that Lender's calculation of the amount of such reduction, and shall include that Lender's representation that it has made similar demand on one or more other commercial borrowers with revolving or term loans in excess of $1,000,000. Thereafter, that Lender may send a new notice during each calendar quarter setting forth the calculation of the reduced Return for that quarter and including a demand for payment of the amount necessary to restore that Lender's Return for that quarter. A Lender's calculation in any such notice shall be conclusive and binding absent demonstrable error.
(c) Basis for Determining Interest Rate Inadequate or Unfair. If with respect to any Interest Period:
(i) any Lender determines that deposits in U.S. dollars (in the applicable amounts) are not being offered in the London interbank eurodollar market for such Interest Period; or
(ii) any Lender otherwise determines that by reason of circumstances affecting the London interbank eurodollar market adequate and reasonable means do not exist for ascertaining the applicable LIBO Rate; or
(iii)any Lender determines that the LIBO Rate as determined by the Agent will not adequately and fairly reflect the cost to that Lender of maintaining or funding a LIBO Rate Funding for such Interest Period, or that the making or funding of LIBO Rate Fundings has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of that Lender materially affects such LIBO Rate Fundings;
then that Lender shall promptly notify the Borrower and (A) upon the occurrence of any event described in the foregoing clause (i) the Borrower shall enter into good faith negotiations with that Lender in order to determine an alternate method to determine the LIBO Rate for that Lender, and during the pendency of such negotiations with that Lender, the Lenders shall be under no obligation to make any new LIBO Rate Fundings, and (B) upon the occurrence of any event described in the foregoing clauses (ii) or (iii), for so long as such circumstances shall continue, the Lenders shall be under no obligation to make any new LIBO Rate Fundings.
(d) Illegality. If any change in (including the adoption of any new) applicable laws or regulations, or any change in the interpretation of applicable laws or regulations by any governmental authority, central bank, comparable agency or any other regulatory body charged with the interpretation, implementation or administration thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) of any such authority, central bank, comparable agency or other regulatory body, should make it or, in the good faith judgment of that Lender, shall raise a substantial question as to whether it is unlawful for that Lender to make, maintain or fund LIBO Rate Fundings, then (i) that Lender shall promptly notify the Borrower and the Agent, (ii) the obligation of the Lenders to make, maintain or convert into LIBO Rate Fundings shall, upon the effectiveness of such event, be suspended for the duration of such unlawfulness, and (iii) for the duration of such unlawfulness, any notice by the Borrower requesting the Lenders to make or convert into LIBO Rate Fundings shall be construed as a request to make or to continue making Floating Rate Fundings.
Section 2.11 Funding Losses.
Upon demand by any Lender (which demand shall be accompanied by a statement setting forth the basis for the calculations of the amount being claimed), the Borrower shall indemnify that Lender against any loss or expense which that Lender may have sustained or incurred (including, without limitation, any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by that Lender to fund or maintain LIBO Rate Fundings) or which that Lender may be deemed to have sustained or incurred, as reasonably determined by that Lender, (i) as a consequence of any failure by the Borrower to make any payment when due of any amount due hereunder in connection with any LIBO Rate Fundings, (ii) due to any failure of the Borrower to borrow or convert any LIBO Rate Fundings on a date specified therefor in a notice thereof or (iii) due to any payment or prepayment of any LIBO Rate Funding on a date other than the last day of the applicable Interest Period for such LIBO Rate Funding. For this purpose, all notices under Section 2.3(b) shall be deemed to be irrevocable.
Section 2.12 Discretion of Lenders as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain all or any part of its LIBO Rate Fundings in any manner it deems fit, it being understood, however, that for the purposes of this Agreement (specifically including, without limitation, Section 2.11 hereof) all determinations hereunder shall be made as if that Lender had actually funded and maintained each LIBO Rate Funding during each Interest Period for such LIBO Rate Funding through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the appropriate LIBO Rate for such Interest Period.
Section 2.13 Conclusiveness of Statements; Survival of Provisions.
Determinations and statements of any Lender pursuant to Sections 2.10 and 2.11 shall be conclusive absent demonstrable error. Without limiting the generality of the foregoing, the Borrower shall have no right to review any records of any Lender or its other customers to determine the accuracy of any statement by that Lender under Section 2.10(a) or 2.10(b) regarding that Lender's demands upon other customers of that Lender. Each Lender may use reasonable averaging and attribution methods in determining compensation pursuant to such Sections 2.10 and 2.11 and the provisions of Sections 2.10 and 2.11 shall survive termination of this Agreement.
Section 2.14 Computation of Interest and Fees.
All interest determined at the Floating Rate will be calculated based on the actual days elapsed in a year of 365 or 366 days, as the case may be. All interest determined at the LIBO Rate and all fees hereunder shall be computed on the basis of actual number of days elapsed in a year of 360 days.
Section 2.15 Purpose of Borrowings.
The proceeds of the initial Borrowing hereunder shall be used to pay in full all obligations of the Borrower outstanding under the Existing Credit Facility, if any. The proceeds of each other Borrowing (including the initial Borrowing, if no obligations described in the preceding sentence are outstanding on the date thereof) shall be used solely (i) to pay the Borrower's obligations under (A) its commercial paper program, (B) other short-term credit facilities, and (C) maturing long-term obligations, and (ii) for the general corporate purposes of the Borrower in the ordinary course of business.
Section 2.16 Increase of Aggregate Facility Amount.
(a) So long as no Default or Event of Default has occurred and is continuing, the Borrower may, upon at least 25 days' written notice to the Agent, propose to increase the Aggregate Facility Amount by a multiple of $5,000,000 that is not less than $15,000,000 and not greater than $25,000,000 (the amount of any such increase, the "Additional Facility Amount"). In no event shall any such increase cause the Aggregate Facility Amount to exceed the Maximum Aggregate Facility Amount. The Agent will promptly provide a copy of any such notice to each Lender. Each Lender may, not more than 20 days following such notice, elect by written notice to the Borrower and the Agent to increase its Facility Amount by a principal amount equal to its Percentage of the Additional Facility Amount. No Lender (or any successor thereto) shall have any obligation to increase its Facility Amount or its other obligations under this Agreement and the other Loan Documents, and any decision by a Lender to increase its Facility Amount shall be made in its sole discretion independently from any other Lender.
(b) If any Lender elects not to increase its Facility Amount pursuant to paragraph (a), the Borrower may designate another Eligible Lender (which may be, but need not be, one or more of the existing Lenders) that will, in the case of any such Person that is an existing Lender, increase its Facility Amount and in the case of any other such Person (an "Incremental Lender"), become a party to this Agreement; provided, however, that any Incremental Lender must in all respects be acceptable to the Agent, which acceptance will not be unreasonably withheld. The sum of the increases in the Facility Amounts of the existing Lenders pursuant to this paragraph (b) plus the Facility Amounts of the Incremental Lenders shall not in the aggregate exceed the unsubscribed amount of the Maximum Aggregate Facility Amount.
(c) An increase in the Aggregate Facility Amount pursuant to this Section 2.16 shall become effective upon the receipt by the Agent of an agreement in form and substance satisfactory to the Agent signed by the Borrower, by each Incremental Lender and by each other Lender whose Aggregate Facility Amount is to be increased, setting forth the new Facility Amounts of such Lenders and setting forth the agreement of each Incremental Lender to become a party to this Agreement and to be bound by all the terms and provisions hereof (a "Facility Increase Agreement"), together with a replacement or additional Note, as applicable, evidencing the new Facility Amount of each affected Lender, duly executed and delivered by the Borrower and such evidence of appropriate corporate authorization on the part of the Borrower with respect to the increase in the Aggregate Facility Amount and such opinions of counsel for the Borrower with respect to the increase in the Aggregate Facility Amount as the Agent may reasonably request.
(d) Upon the acceptance of the Facility Increase Agreement by the Agent, the Aggregate Facility Amount shall automatically be increased by the amount of the Facility Amounts added through such Facility Increase Agreement.
(e) Upon any increase in the Aggregate Facility Amount pursuant to this Section 2.16 that is not pro rata among all Lenders, within 5 Business Days, the Borrower shall prepay all Borrowings hereunder in their entirety and, to the extent the Borrower elects to do so and subject to the conditions specified in Section 3.2, the Borrower shall effect new Borrowings from the Lenders in proportion to their respective Facility Amounts after giving effect to such increase.
ARTICLE III
Conditions Precedent
Section 3.1 Initial Conditions Precedent.
The obligation of the Lenders to effect any Borrowing is subject to the condition precedent that each Lender shall have received on or before the day of the first Borrowing all of the following, each dated (unless otherwise indicated) as of the date hereof, in form and substance satisfactory to each Lender:
(a) The Notes, properly executed on behalf of the Borrower.
(b) A certificate of the secretary of the Borrower
(i) certifying that the execution, delivery and performance
of the Loan Documents and other documents contemplated
hereunder to which such corporation is a party have been
duly approved by all necessary action of the Board of
Directors of the Borrower, and attaching true and correct
copies of the applicable resolutions granting such approval,
(ii) certifying that attached to such certificate are true
and correct copies of the articles of incorporation and
bylaws of the Borrower and all Authorizing Orders, together
with such copies, and (iii) certifying the names of the
officers of the Borrower that are authorized to sign the
Loan Documents and other documents contemplated hereunder,
including requests for Borrowings, together with the true
signatures of such officers. The Lenders may conclusively
rely on such certificate until they shall receive a further
certificate of the Secretary or Assistant Secretary of the
Borrower canceling or amending the prior certificate and
submitting the signatures of the officers named in such
further certificate.
(c) Certificates of good standing of the Borrower, dated not more than ten days before such date.
(d) A signed copies of an opinion of Paul K. Sandness, general counsel for the Borrower, substantially in the form of Exhibit E-1, and the opinion of Thelen Reid & Priest LLP, special counsel to the Borrower, substantially in the form of Exhibit E-2, each addressed to the Lenders.
(e) All fees required to be paid as of the date hereof pursuant to this Agreement or any Fee Letter.
Section 3.2 Conditions Precedent to All Borrowings.
The obligation of the Lenders to effect any Borrowing shall be subject to the further conditions precedent that on the date of such Borrowing:
(a) the representations and warranties contained in Article IV (other than Section 4.6) are correct on and as of the date of such Borrowing as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date;
(b) the Borrower has delivered to the Agent an opinion in the form of Exhibit F hereto, duly executed by the general counsel or associate general counsel of the Borrower; and
(c) no event has occurred and is continuing, or would result from such Borrowing, which constitutes a Default or an Event of Default.
ARTICLE IV
Representations and Warranties
The Borrower represents and warrants to the Lenders as follows:
Section 4.1 Existence and Power.
The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified (i) will not permanently preclude the Borrower from maintaining any material action in any such jurisdiction even though such action arose in whole or in part during the period of such failure, and (ii) will not result in any other Material Adverse Effect. The Borrower has all requisite power and authority, corporate or otherwise, to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, the Loan Documents.
Section 4.2 Authorization of Borrowing; No Conflict as to Law or Agreements.
The execution, delivery and performance by the Borrower of the
Loan Documents and the borrowings from time to time hereunder
have been duly authorized by all necessary corporate action and
by all necessary public utilities commissions and any other
regulatory bodies having jurisdiction over the Borrower (except
as noted in Schedule 4.2 to the Agreement with respect to
Borrowings made after December 31, 2006), and do not and will not
(i) require any consent or approval of the stockholders of the
Borrower, or any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, other than Authorizing
Orders set forth in Schedule 4.2 that (except as noted therein
with respect to Borrowings made after December 31, 2006) have
been obtained and copies of which have been delivered to the
Agent pursuant to Section 3.1, (ii) violate any provision of any
law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve
System) or of any order, writ, injunction or decree presently in
effect having applicability to the Borrower or of the articles of
incorporation or bylaws of the Borrower, (iii) result in a breach
of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be
bound or affected, or (iv) result in, or require, the creation or
imposition of any Lien or other charge or encumbrance of any
nature (other than those in favor of the Agent to secure one or
more of the Obligations) upon or with respect to any of the
properties now owned or hereafter acquired by the Borrower.
Section 4.3 Legal Agreements.
This Agreement and the other Loan Documents constitute, the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except to the extent that such enforcement may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by general equitable principles.
Section 4.4 Subsidiaries.
Schedule 4.4 hereto is a complete and correct list of all present Subsidiaries and of the percentage of the ownership of the Borrower or any other Subsidiary in each case as of the date of this Agreement. Except as otherwise indicated in that Schedule, all shares of each Subsidiary owned by the Borrower or by any such other Subsidiary are validly issued and fully paid and nonassessable.
Section 4.5 Financial Condition.
The Borrower has heretofore furnished to the Lenders its audited consolidated financial statement as of December 31, 2004, and its unaudited interim financial statement as of March 31, 2005. Those financial statements fairly present the financial condition of the Borrower and its Subsidiaries on the dates thereof and the results of their operations and cash flows for the periods then ended, and were prepared in accordance with GAAP, except as expressly noted therein.
Section 4.6 Adverse Change.
There has been no material adverse change in the business,
properties or condition (financial or otherwise) of the Borrower
since the date of the latest financial statement referred to in
Section 4.5.
Section 4.7 Litigation.
Except as set forth in the Borrower's Annual Report on Form 10-K for the year ended December 31, 2004, or in any document subsequently filed pursuant to Section 13, 14 or 15(d) of the Exchange Act, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the properties of the Borrower, before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Borrower, would have a Material Adverse Effect.
Section 4.8 Environmental Matters.
The Borrower conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties and, as a result thereof, the Borrower has reasonably concluded that such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, exclusive of Environmental Claims as set forth in the Borrower's Annual Report on Form 10-K for the year ended December 31, 2004, or in any document subsequently filed pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Section 4.9 Regulation U.
The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Borrowing will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.
Section 4.10 Taxes.
The Borrower has filed all federal and other tax returns and reports required to be filed, and has paid all federal and other taxes, assessments, fees and other governmental charges levied or imposed upon it or its properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP and except those the failure to file or pay which would not have a Material Adverse Effect. There is no proposed tax assessment against the Borrower that would, if made, have a Material Adverse Effect.
Section 4.11 Titles and Liens.
To the Borrower's knowledge, without having undertaken any search of real property records for this purpose, the Borrower has good and sufficient title to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, and good title to all other property and assets reflected in the Borrower's most recent consolidated financial statements provided to the Lenders as owned by the Borrower, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and other than any sold, as permitted by Section 6.4. As of the date of this Agreement, the property of the Borrower is subject to no Liens other than a permitted pursuant to Section 6.1.
Section 4.12 Intellectual Property.
The Borrower owns or is licensed or otherwise has the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of its business, without conflict with the rights of any other Person, except to the extent that noncompliance would not have a Material Adverse Effect. To the knowledge of the Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Borrower infringes upon any rights held by any other Person, except to the extent that noncompliance would not have a Material Adverse Effect. No claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Borrower, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect.
Section 4.13 ERISA.
(a) Each Plan is in compliance in all material
respects with ERISA, the Code and other applicable federal
or state law. Each Plan which is intended to qualify under
Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service and,
to the best knowledge of the Borrower, nothing has occurred
which would or could reasonably be expected to cause the
loss of such qualification of any such Plan or related
trust.
(b) There are no pending or, to the best knowledge of the Borrower, threatened claims (other than routine claims for benefits in the ordinary course), actions or lawsuits, or action by any governmental authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. To the best knowledge of the Borrower, there has been no prohibited transaction within the meaning of Section 4975 of the Code or Section 406 ERISA or other material violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect.
(c) No Reportable Event has occurred or is reasonably expected to occur with respect to any Pension Plan.
(d) The aggregate Unfunded Pension Liability for all Pension Plans (calculated based on the most recent actuarial report for each Pension Plan) does not exceed $15,000,000.
(e) Neither the Borrower nor any ERISA Affiliate has incurred nor does it reasonably expect to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA).
(f) Neither the Borrower nor any ERISA Affiliate has
transferred any Unfunded Pension Liability to any Person or
otherwise engaged in a transaction that could be subject to
Section 4069 of ERISA.
(g) Neither the Borrower nor any ERISA Affiliate has incurred nor reasonably expects to incur any liability, other than Acquisition Liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability), under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan. As used in this paragraph, "Acquisition Liability" means liability immaterial to the Borrower, its business and operations when taken as a whole that is incurred in connection with an acquisition by the Borrower or any ERISA Affiliate.
ARTICLE V
Affirmative Covenants
So long as any Note shall remain unpaid or the Facility shall be outstanding, the Borrower will comply with the following requirements, unless the Required Lenders shall otherwise consent in writing:
Section 5.1 Reporting.
The Borrower will deliver to each Lender:
(a) As soon as available, and in any event within 120 days after the end of each fiscal year of the Borrower:
(i) A copy of the annual audit report of the Borrower and its Subsidiaries prepared on a consolidated basis with an unqualified opinion of independent certified public accountants selected by the Borrower and acceptable to the Required Lenders, which annual report shall include the consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, common stockholders' equity and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, all in reasonable detail and all prepared in accordance with GAAP.
(ii) A copy of the unaudited nonconsolidated balance sheets of the Borrower at the end of such fiscal year and the related unaudited nonconsolidated statements of income, retained earnings and cash flows of the Borrower for such fiscal year, in reasonable detail, all prepared in accordance with GAAP.
(iii)A copy of the annual audit report-regulatory basis of the Borrower with an unqualified opinion of independent certified public accountants selected by the Borrower and acceptable to the Required Lenders, which annual report shall include a copy of the balance sheet-regulatory basis of the Borrower as the end of such fiscal year and the related statements of income- regulatory basis, retained earnings-regulatory basis and cash flows-regulatory basis of the Borrower for the fiscal year then ended, all prepared in accordance with FERC Accounting Principles.
(b) As soon as available and in any event within 60 days after the end of each fiscal quarter of the Borrower:
(i) A copy of (A) the unaudited consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such quarter, (B) the related unaudited consolidated statements of income for such quarter, and (C) the related unaudited consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the year to date, all in reasonable detail and prepared in accordance with GAAP, subject to year-end audit adjustments.
(ii) A copy of (A) the unaudited nonconsolidated balance sheets of the Borrower at the end of such quarter, (B) the related unaudited nonconsolidated statements of income for such quarter, and (C) the related unaudited nonconsolidated statements of income, retained earnings and cash flows of the Borrower for the year to date, all in reasonable detail and prepared in accordance with GAAP, subject to year-end adjustments.
(c) Concurrently with the delivery of any financial statements under paragraph (a) or (b), a Compliance Certificate, duly executed by the chief financial officer of the Borrower.
(d) Promptly following the issuance thereof, a copy of any Authorizing Order not previously delivered to the Agent.
(e) Promptly upon their distribution, copies of all financial statements, reports and proxy statements which the Borrower shall have sent to its stockholders.
(f) Promptly after the sending or filing thereof, copies of all regular and periodic financial reports which the Borrower shall file with the Securities and Exchange Commission or any national securities exchange.
(g) Promptly upon becoming available, copies of any reports or applications filed by the Borrower with any governmental body if such reports indicate any material change in the business, operations, affairs or condition of the Borrower, or if copies thereof are requested by any Lender.
(h) Immediately after the commencement thereof, notice in writing of all litigation and of all proceedings before any governmental or regulatory agency affecting the Borrower of the type described in Section 4.7 or which seek a monetary recovery against the Borrower in excess of $1,000,000.
(i) As promptly as practicable (but in any event not later than five business days) after an officer of the Borrower obtains knowledge of the occurrence of any Default or Event of Default, notice of such occurrence, together with a detailed statement by a responsible officer of the Borrower of the steps being taken by the Borrower to cure the effect of such event.
(j) Promptly upon becoming aware of an ERISA Event (other than an event described in clause (c) of the definition of "ERISA Event" which has not resulted and would not reasonably be expected to result in a Material Adverse Effect), a written notice specifying the nature thereof, what action the Borrower has taken, is taking or proposes to take with respect thereto, and, when known, any action taken or threatened by the Internal Revenue Service, the PBGC or the Department of Labor with respect thereto.
(k) Promptly upon (i) the adoption of any Plan subject to Section 412 of the Code, or (ii) the adoption of any amendment to a Pension Plan or other Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability, written notice specifying the nature thereof.
(l) Upon request of any Lender, copies of the most recent annual report (Form 5500 Series), including any supporting schedules, filed by the Borrower or any ERISA Affiliate with the Internal Revenue Service with respect to any Plan.
(m) Such information (in addition to that specified elsewhere in this Section) respecting the financial condition and results of operations of the Borrower as any Lender may from time to time reasonably request.
Section 5.2 Books and Records; Inspection and Examination.
The Borrower will keep accurate books of record and account for itself in which true and complete entries will be made in accordance with GAAP and, upon request of any Lender, will give any representative of that Lender access to, and permit such representative to examine, copy or make extracts from, any and all books, records and documents in its possession, to inspect any of its properties and to discuss its affairs, finances and accounts with any of its principal officers, all at such times during normal business hours and as often as any Lender may reasonably request.
Section 5.3 Compliance with Laws.
The Borrower will comply with the requirements of applicable laws and regulations, except any law and regulation (i) the compliance with which is contested in good faith or the subject of a bona fide dispute, and (ii) the noncompliance with which would not have a Material Adverse Effect.
Section 5.4 Payment of Taxes and Other Claims.
The Borrower will pay or discharge, when due, (a) all taxes,
assessments and governmental charges levied or imposed upon it or
upon its income or profits, or upon any properties belonging to
it, prior to the date on which penalties attach thereto, (b) all
federal, state and local taxes required to be withheld by it, and
(c) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a Lien or charge upon any properties
of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim so long
as (x) the amount, applicability or validity of such tax,
assessment, charge or claim is being contested in good faith by
appropriate proceedings or is the subject of a bona fide dispute,
and (y) the Borrower has provided adequate reserves therefor in
accordance with GAAP, except (with respect to any of the
foregoing) to the extent that the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
Section 5.5 Maintenance of Properties.
Subject to transactions permitted by Sections 6.4, the Borrower shall maintain and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted, except to the extent that noncompliance would not have a Material Adverse Effect.
Section 5.6 Insurance.
The Borrower shall maintain with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as are customarily carried under similar circumstances by such other Persons, except to the extent that noncompliance would not have a Material Adverse Effect, and the Borrower will furnish any Lender upon request full information as to the insurance carried within 15 Business Days.
Section 5.7 Preservation of Corporate Existence.
Subject to transactions permitted by Section 6.4, the Borrower
shall (i) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its state
or jurisdiction of incorporation; (ii) preserve and maintain in
full force and effect all governmental rights, privileges,
qualifications, permits, licenses and franchises necessary or
desirable in the normal conduct of its business; and
(iii) preserve its business organization and goodwill; and
(iv) preserve or renew all of its registered patents, trademarks,
trade names and service marks; except, in each case, to the
extent that failure to do so does not have a Material Adverse
Effect.
ARTICLE VI
Negative Covenants
So long as any Note shall remain unpaid or the Facility shall be outstanding, the Borrower agrees that, without the prior written consent of the Required Lenders:
Section 6.1 Liens.
The Borrower will not create, incur or suffer to exist any Lien in, of or on the property of the Borrower, except:
(a) Liens for taxes, assessments of governmental charges or levies on its property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings.
(b) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not yet due and payable or remaining payable without penalty or which are being contested in good faith by appropriate proceedings.
(c) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation.
(d) Utility easements, buildings restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interference with the use thereof in the business of the Borrower.
(e) Purchase money Liens upon or in any property acquired or held by the Borrower in the ordinary course of business, provided that (i) no such Lien is created later than the 90th day following the acquisition or completion of construction of such property by the Borrower, and (ii) no such Lien extends or shall extend to or cover any property of the Borrower other than the property then being acquired, fixed improvements then or thereafter erected thereon and improvements and modifications thereto necessary to maintain such properties in working order.
(f) Liens incurred or deposits made in the ordinary course of business to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than Capitalized Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the incurrence of any Obligation.
(g) Liens resulting from judgments, unless such judgments are not discharged within 45 days; are not stayed pending appeal or otherwise being appropriately contested in good faith; or are not discharged within 45 days after expiration of any such stay.
(h) Liens created under or in connection with the Mortgage Indentures as such Mortgage Indentures exist on the date hereof, without regard to any waiver, amendment, modification or restatement thereof.
(i) Liens permitted under the Mortgage Indentures as such Mortgage Indentures exist on the date hereof, without regard to any waiver, amendment, modification or restatement thereof.
(j) Liens on any property of the Borrower (other than those described in subsection (e)) securing any indebtedness for borrowed money in existence on the date hereof and listed in Schedule 6.1 hereto.
Section 6.2 Investments.
The Borrower will not purchase or hold beneficially any stock or other securities or evidence of indebtedness of, make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any other Person, except:
(a) Investments in cash equivalents and short-term marketable securities pursuant to and in accordance with the terms of the Borrower's then-current investment policy duly adopted by the Board of Directors of the Borrower.
(b) Investments in the MDU Resources Group, Inc. Benefits Protection Trust in accordance with the Borrower's historical practices.
(c) Any existing investment by the Borrower in the voting stock, membership interests or other equity interests of any Subsidiary.
(d) Any investment by the Borrower in any Subsidiary after the date hereof, so long as (i) the entire amount of such investment is obtained from (A) the issuance of equity interests by the Borrower and/or (B) dividends or similar distributions paid to the Borrower by any other Subsidiary of the Borrower, in each case concurrent with the Borrower's investment in such Subsidiary, and (ii) no Default or Event of Default has occurred and is continuing when such investment is actually made. In the case of any investment funded as described in clause (i)(B), the applicable dividend or distribution and the corresponding investment shall be accurately and completely reflected on the books and records of the Borrower and the applicable Subsidiaries.
(e) Consolidations, mergers and acquisitions not prohibited by Section 6.6.
(f) Travel, relocation and similar advances made to officers and employees of the Borrower in anticipation of expenses to be incurred by such officers and employees, in each case in the ordinary course of the Borrower's business consistent with the Borrower's past practices.
(g) Advances in the form of progress payments, prepaid rent or security deposits.
(h) Evidences of indebtedness in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business.
(i) Investments made for the purpose of economic development, so long as the aggregate value of the investments permitted by this clause (i) does not exceed $10,000,000.
Section 6.3 Distributions.
The Borrower will not make any Distribution at any time following and during the continuance of any Default or Event of Default arising under paragraph (a), (b), (g) or (h) of Section 7.1.
Section 6.4 Sale of Assets.
The Borrower will not lease, sell or otherwise dispose of all, or a substantial portion of, its property, assets or business (whether in one transaction or in a series of transactions) to any other Person except for sales of inventory in the ordinary course of business. For purposes of this Section, "substantial portion" means assets (including other Persons) (i) representing more than 20% of the consolidated assets of the Borrower as reflected in the most recent consolidating financial statement of the Borrower referred to in Section 4.5, or (ii) responsible for more than 10% of the consolidated net sales or the consolidated net income of the Borrower as reflected in the financial statement referred to in clause (i) above.
Section 6.5 Transactions with Affiliates.
The Borrower shall not enter into any material transaction or
arrangement or series of related transactions or arrangements
that in the aggregate would be material with any Affiliate of the
Borrower, except (i) transactions upon terms no less favorable to
the Borrower than would obtain, taking into account all facts and
circumstances, in a comparable arm's-length transaction with a
Person not an Affiliate of the Borrower, (ii) investments in
Subsidiaries to the extent not prohibited by Section 6.2,
(iii) Distributions to the extent not prohibited by Section 6.3,
and (iv) payments required by regulatory rule or order; in the
case of clauses (i), (ii) and (iii), to the extent that such
payments are (x) made in the ordinary course of the Borrower's
business, (y) consistent with the Borrower's past practices, and
(z) fair and reasonable.
Section 6.6 Consolidation and Merger.
The Borrower will not consolidate with or merge into any Person,
or permit any other Person to merge into it, or acquire (in a
transaction analogous in purpose or effect to a consolidation or
merger) all or substantially all of the assets of any other
Person or any existing business (whether existing as a separate
entity, subsidiary, division, unit, line of business or
otherwise) of any Person; provided, however, that the
restrictions contained in this Section shall not apply to or
prevent the consolidation or merger of any Person with, or a
conveyance or transfer of its assets to, the Borrower so long as
(i) no Default or Event of Default exists at the time of, or will
be caused by, such consolidation, merger, conveyance or transfer,
(ii) the Borrower shall be the continuing or surviving
corporation, and (iii) the prior, effective written consent or
approval of the board of directors or equivalent governing body
of the other party to such consolidation, merger, conveyance or
transfer is obtained.
Section 6.7 Environmental Laws.
The Borrower will not cause or permit the conduct of its operations or the maintenance of any of its property to violate any Environmental Law, except to the extent that noncompliance would not have a Material Adverse Effect.
Section 6.8 Restrictions on Nature of Business.
The Borrower will not engage in any material line of business that is significantly different from that presently engaged in by the Borrower.
Section 6.9 Consolidated Total Leverage Ratio.
The Borrower will not at any time permit its Consolidated Total Leverage Ratio, determined as of any Covenant Compliance Date, to be greater than 0.65 to 1.
Section 6.10 Borrower Leverage Ratio.
The Borrower will not at any time permit the Borrower Leverage Ratio, determined as of any Covenant Compliance Date, to be greater than 0.65 to 1.
Section 6.11 Interest Coverage Ratio.
The Borrower will not at any time permit its Interest Coverage Ratio, determined as of any Covenant Compliance Date, to be less than 2.50 to 1.
ARTICLE VII
Events of Default, Rights and Remedies
Section 7.1 Events of Default.
"Event of Default", wherever used herein, means any one of the following events:
(a) Default in the payment of any principal of any Note when it becomes due and payable.
(b) Default in the payment of any interest on any Note when the same becomes due and payable and the continuance of such default for a period of two calendar days; or default in the payment of any fees required under Section 2.6 when the same become due and payable and the continuance of such default for a period of five calendar days.
(c) Default in the performance, or breach, of any covenant or agreement on the part of the Borrower contained in Article VI.
(d) Default in the performance, or breach, of any covenant or agreement of the Borrower in this Agreement (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and the continuance of such default or breach for a period of 30 days after the Lenders have given notice to the Borrower specifying such default or breach and requiring it to be remedied.
(e) Any representation or warranty made by the Borrower in this Agreement or by the Borrower (or any of its officers) in any certificate, instrument, or statement contemplated by or made or delivered pursuant to or in connection with this Agreement, shall prove to have been incorrect or misleading in any material respect when made.
(f) A default under either Mortgage Indenture or with respect to any other Funded Debt (other than any default dealt with elsewhere in this Section) and the expiration of the applicable period of grace, if any, specified in the applicable evidence of indebtedness, indenture or other instrument; provided, however, that no Event of Default shall be deemed to have occurred under this paragraph if the aggregate amount owing as to all such indebtedness as to which such defaults have occurred and are continuing is less than $15,000,000; provided further that if such default shall be cured by the Borrower, or waived by the holders of such indebtedness, in each case prior to the commencement of any action under Section 7.2 and as may be permitted by such evidence of indebtedness, indenture or other instrument, then the Event of Default hereunder by reason of such default shall be deemed likewise to have been thereupon cured or waived.
(g) The Borrower (i) ceases or fails to be Solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing.
(h) (i) Any involuntary Insolvency Proceeding is commenced or filed against the Borrower, or any writ, judgment, warrant of attachment, execution or similar process is issued or levied against a substantial part of the Borrower's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; or (ii) the Borrower admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Borrower acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or similar Person for itself or a substantial portion of its property or business.
(i) A Change of Control shall occur with respect to the Borrower.
(j) The Borrower shall fail within 45 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $10,000,000, which is not stayed on appeal or otherwise being appropriately contested in good faith.
(k) (i) An ERISA Event or ERISA Termination Event which has resulted or would reasonably be expected to result in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of 10% of Consolidated Net Worth; (ii) the commencement or increase of contributions to, or the adoption of or the amendment of, a Pension Plan by the Borrower or an ERISA Affiliate which has resulted or could reasonably be expected to result in an increase in Unfunded Pension Liability among all Pension Plans in an aggregate amount in excess of 10% of Consolidated Net Worth; or (iii) the Borrower's or an ERISA Affiliate's failure to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect.
(l) Any governmental authority or other administrative or legal authority having regulatory jurisdiction over the Borrower takes any action which has a Material Adverse Effect on the Borrower.
Section 7.2 Rights and Remedies.
Upon the occurrence of an Event of Default or at any time thereafter until such Event of Default is cured to the written satisfaction of the Required Lenders, the Agent may, with the consent of the Required Lenders, and shall, at the request of the Required Lenders, exercise any or all of the following rights and remedies:
(a) The Agent may, by notice to the Borrower, declare the Facility to be terminated, whereupon the same shall forthwith terminate.
(b) The Agent may, by notice to the Borrower, declare the entire unpaid principal amount of the Notes then outstanding, all interest accrued and unpaid thereon, and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such accrued interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower.
(c) The Lenders may exercise any other rights and remedies available to them by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default described in Section 7.1(g) or 7.1(h) hereof, the entire unpaid principal amount of the Notes then outstanding, all interest accrued and unpaid thereon, and all other amounts payable under this Agreement shall be immediately due and payable without presentment, demand, protest or notice of any kind.
ARTICLE VIII
The Agent
Section 8.1 Authorization.
Each Lender and the holder of each Note irrevocably appoints and authorizes the Agent to act on behalf of such Lender or holder to the extent provided herein or in any document or instrument delivered hereunder or in connection herewith, and to take such other action as may be reasonably incidental thereto. In furtherance of the foregoing, and not in limitation thereof, each Lender irrevocably (i) authorizes the Agent to execute and deliver and perform its obligations under this Agreement and each of the Loan Documents to which the Agent is a party, and to exercise all rights, powers and remedies that the Agent may have hereunder or thereunder, (ii) appoints the Agent as nominal beneficiary or nominal secured party, as the case may be, under the Loan Documents and all related UCC-1 financing statements, and (iii) authorizes the Agent to act as agent of and for such Lender for purposes of holding, perfecting and disposing of any collateral under the Loan Documents. As to any matters not expressly provided for by this Agreement or the Loan Documents, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders or, if so required pursuant to Section 9.2, upon the instructions of all Lenders; provided, however, that except for action expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action, and the Agent shall not in any event be required to take any action which is contrary to this Agreement, the Loan Documents or applicable law. The Agent shall not have a fiduciary relationship in respect of the Borrower or any Lender by reason of this Agreement.
Section 8.2 Distribution of Payments and Proceeds.
(a) After deduction of any costs of collection, as provided in this Agreement and the other Loan Documents, and any fee payable to the Agent in its capacity as such under this Agreement, any Fee Letter or any other agreement, the Agent shall remit to each Lender that Lender's Percentage of all payments of principal and interest and of all fees and other amounts payable hereunder for the benefit of the Lenders that are received by the Agent under the Loan Documents. Each Lender's interest in the Loan Documents shall be payable solely from payments, collections and proceeds actually received by the Agent under the Loan Documents; and the Agent's only liability to the Lenders hereunder shall be to account for each Lender's Percentage of such payments, collections and proceeds in accordance with this Agreement. If the Agent is ever required for any reason to refund any such payments, collections or proceeds, each Lender will refund to the Agent, upon demand, its Percentage of such payments, collections or proceeds, together with its Percentage of interest or penalties, if any, payable by the Agent in connection with such refund.
(b) Notwithstanding the foregoing, if any Lender has wrongfully refused to fund its Percentage of any Borrowing or other Advance as required hereunder, or if the principal balance of any Lender's Note is for any other reason less than its Percentage of the aggregate principal balances of the Notes then outstanding, the Agent may remit all payments received by it to the other Lenders until such payments have reduced the aggregate amounts owed by the Borrower to the extent that the aggregate amount owing to such Lender hereunder is equal to its Percentage of the aggregate amount owing to all of the Lenders hereunder. The provisions of this paragraph are intended only to set forth certain rules for the application of payments, proceeds and collections in the event that a Lender has breached its obligations hereunder and shall not be deemed to excuse any Lender from such obligations.
Section 8.3 Expenses.
All payments, collections and proceeds received or effected by the Agent may be applied, first, to pay or reimburse the Agent for all costs, expenses, damages and liabilities at any time incurred by or imposed upon the Agent in connection with this Agreement or any other Loan Document (including but not limited to all reasonable attorney's fees, foreclosure expenses and advances made to protect the security of any collateral). If the Agent does not receive payments, collections or proceeds sufficient to cover any such costs, expenses, damages or liabilities within 30 days after their incurrence or imposition, each Lender shall, upon demand, remit to the Agent its Percentage of the difference between (i) such costs, expenses, damages and liabilities, and (ii) such payments, collections and proceeds, together with interest on such amount for each day following the thirtieth day after demand therefor until so remitted at a rate equal to the Federal Funds Rate for each such day.
Section 8.4 Payments Received Directly by Lenders.
If any Lender or other holder of a Note shall obtain any payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise) on account of the Obligations other than through distributions made in accordance with Section 8.2, such Lender or holder shall promptly give notice of such fact to the Agent and shall purchase from the other Lenders or holders such participations in the Obligations held by them as shall be necessary to cause the purchasing Lender or holder to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender or holder, the purchase shall be rescinded and the purchasing Lender restored to the extent of such recovery (but without interest thereon).
Section 8.5 Indemnification.
Each Lender severally (but not jointly) hereby agrees to indemnify and hold harmless the Agent, as well as the Agent's agents, employees, officers and directors, ratably according to their respective Percentages from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgment, demands, damages, costs, disbursements, or expenses (including attorneys' fees and expenses) of any kind or nature whatsoever, which are imposed on, incurred by, or asserted against the Agent or its agents, employees, officers or directors in any way relating to or arising out of this Agreement or the Loan Documents, or as a result of any action taken or omitted to be taken by the Agent; provided, however, that no Lender shall be liable for any portion of any such losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, damages, costs disbursements, or expenses resulting from the gross negligence or willful misconduct of the Agent. Notwithstanding any other provision of the Loan Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action.
Section 8.6 Exculpation.
The Agent shall not be liable for any action taken or omitted to be taken by the Agent in connection with this Agreement or the Loan Documents, except for its own gross negligence or willful misconduct. The Agent shall be entitled to rely upon advice of counsel concerning legal matters, the advice of independent public accountants with respect to accounting matters and advice of other experts as to any other matters, and upon this Agreement, any Loan Document and any schedule, certificate, statement, report, notice or other writing which it believes to be genuine or to have been presented by a proper person. Neither the Agent nor any of its directors, officers, employees or agents shall (a) be responsible for any recitals, representations or warranties contained in, or for the execution, validity, genuineness, effectiveness or enforceability of this Agreement, any Loan Document, or any other instrument or document delivered hereunder or in connection herewith, (b) be responsible for the validity, genuineness, perfection, effectiveness, enforceability, existence, value or enforcement of any collateral security, (c) be under any duty to inquire into or pass upon any of the foregoing matters, or to make any inquiry concerning the performance by the Borrower or any other obligor of its obligations, or (d) in any event, be liable as such for any action taken or omitted by it or them, except for its or their own gross negligence or willful misconduct. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, the Agent in its individual capacity.
Section 8.7 Agent and Affiliates.
The Agent shall have the same rights and powers hereunder in its individual capacity as any other Lender, and may exercise or refrain from exercising the same as though it were not the Agent, and the Agent and its affiliates may accept deposits from and generally engage in any kind of business with the Borrower as fully as if the Agent were not the Agent hereunder.
Section 8.8 Credit Investigation.
Each Lender acknowledges that it has made such inquiries and taken such care on its own behalf as would have been the case had its obligations hereunder been incurred and the Advances made directly by such Lender to the Borrower without the intervention of the Agent or any other Lender. Each Lender agrees and acknowledges that the Agent makes no representations or warranties about the creditworthiness of the Borrower or any other party to this Agreement or with respect to the legality, validity, sufficiency or enforceability of this Agreement, any Loan Document, or any other instrument or document delivered hereunder or in connection herewith.
Section 8.9 Resignation and Assignment of Agent.
(a) The Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower and the Lenders. In the event of any resignation of the Agent, the Required Lenders shall as promptly as practicable appoint a successor Agent. If no such successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the resigning Agent's giving of notice of resignation, then the resigning Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof. Any such successor Agent shall have capital and retained earnings of at least $100,000,000.
(b) The Agent may, without the consent of the Borrower or the other Lenders, assign its rights and obligations as Agent hereunder and under the other Loan Documents to its parent or to any wholly owned subsidiary of its parent, and upon such assignment, the former Agent shall be deemed to have retired, and such wholly owned subsidiary shall be deemed to be a successor Agent. Any such successor Agent shall have capital and retained earnings of at least $100,000,000.
(c) Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon be entitled to receive from the prior Agent such documents of transfer and assignment as such successor Agent may reasonably request and the resigning or assigning Agent shall be discharged from its duties and obligations under this Agreement. After any resignation or assignment pursuant to this Section, the provisions of this Section shall inure to the benefit of the retiring Agent as to any actions taken or omitted to be taken by it while it was acting as Agent hereunder.
Section 8.10 Defaults.
The Agent shall not be deemed to have knowledge of the occurrence of a Default or an Event of Default unless the Agent has received notice from a Lender or the Borrower specifying the occurrence of such Default or Event of Default. In the event that the Agent receives such a notice of the occurrence of a Default or an Event of Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to Section 8.5 hereof) take such actions with respect to such Default as shall be directed by the Required Lenders; provided that, unless and until the Agent shall have received such directions, the Agent may take any action, or refrain from taking any action, with respect to such Default as it shall deem advisable in the best interest of the Lenders.
Section 8.11 Obligations Several.
The obligations of each Lender hereunder are the several obligations of such Lender, and neither any Lender nor the Agent shall be responsible for the obligations of any other Lender hereunder, nor will the failure by the Agent or any Lender to perform any of its obligations hereunder relieve the Agent or any other Lender from the performance of its respective obligations hereunder. Nothing contained in this Agreement, and no action taken by any Lender or the Agent pursuant hereto or in connection herewith or pursuant to or in connection with the Loan Documents shall be deemed to constitute the Lenders, together or with or without the Agent, as a partnership, association, joint venture, or other entity.
ARTICLE IX
Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies.
No failure or delay on the part of the Lenders in exercising any right, power or remedy under the Loan Documents shall operate as a waiver thereof; nor shall any Lender's acceptance of payments while any Default or Event of Default is outstanding operate as a waiver of such Default or Event of Default, or any right, power or remedy under the Loan Documents; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy under the Loan Documents. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law.
Section 9.2 Amendments, Etc.
No amendment or waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom shall be effective unless the same shall be in writing and signed by the Required Lenders (or by the Agent with the consent or at the request of the Required Lenders), and any such waiver shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.
Notwithstanding the foregoing:
(a) No such amendment or waiver shall be effective to do any of the following unless signed by each of the Lenders (or by the Agent with the consent or at the request of each of the Lenders):
(i) Increase the Facility Amount of any Lender or extend the Revolving Period Termination Date.
(ii) Permit the Borrower to assign its rights under this Agreement.
(iii) Amend this Section, the definition of "Required Lenders" in Section 1.1, or any provision herein providing for consent or other action by all Lenders.
(b) No such amendment or waiver shall be effective to do any of the following unless signed by each of the Lenders affected thereby (or by the Agent with the consent or at the request of each of such Lenders):
(i) Forgive any indebtedness of the Borrower arising under this Agreement or the Notes, or reduce the rate of interest or any fees charged under this Agreement or the Notes.
(ii) Postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, facility fees or other material amounts due to the Lenders (or any of them) hereunder or under any other Loan Document.
(c) No amendment, waiver or consent shall affect the rights or duties of the Agent under this Agreement or any other Loan Document unless in writing and signed by the Agent.
(d) No amendment, modification or (except as provided elsewhere herein) termination of this Agreement or waiver of any rights of the Borrower or obligations of any Lender or the Agent hereunder shall be effective unless the Borrower shall have consented thereto in writing.
Section 9.3 Notice.
Except as otherwise expressly provided herein, all notices and
other communications hereunder shall be in writing and shall be
(i) personally delivered, (ii) transmitted by registered mail,
postage prepaid, (iii) sent by Federal Express or similar
expedited delivery service, or (iv) transmitted by telecopy, in
each case addressed to the party to whom notice is being given at
its address or telecopier number (as the case may be) as set
forth in Exhibit A or in any applicable Assignment Certificate;
or, as to each party, at such other address or telecopier number
as may hereafter be designated in a notice by that party to the
other party complying with the terms of this Section. All such
notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally or by
mail, (ii) the date of receipt, if delivered by Federal Express
or similar expedited delivery service, or (iii) the date of
transmission if delivered by telecopy, except that notices or
requests to the Agent or any Lender pursuant to any of the
provisions of Article II shall not be effective until received.
Section 9.4 Costs and Expenses.
The Borrower agrees to pay on demand all reasonable costs and expenses incurred by the Agent in connection with the negotiation, preparation, execution, administration, amendment or enforcement of the Loan Documents and the other instruments and documents to be delivered hereunder and thereunder, including the reasonable fees and out-of-pocket expenses of counsel for any Lender with respect thereto, whether paid to outside counsel or allocated to the Agent by in-house counsel.
Section 9.5 Indemnification by Borrower.
The Borrower hereby agrees to indemnify the Agent and the Lenders and each officer, director, employee and agent thereof (herein individually each called an "Indemnitee" and collectively called the "Indemnitees") from and against any and all losses, claims, damages, reasonable expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by an Indemnitee in connection with or arising out of the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the use of the proceeds of any Borrowing hereunder (including but not limited to any such loss, claim, damage, expense or liability arising out of any claim in which it is alleged that any Environmental Law has been breached with respect to any activity or property of the Borrower), except to the extent that such loss, claim, damage, expense or liability was incurred as a result of the gross negligence or willful misconduct of the applicable Indemnitee. All obligations provided for in this Section shall survive any termination of this Agreement.
Section 9.6 Execution in Counterparts.
This Agreement and the other Loan Documents may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts of this Agreement or such other Loan Document, as the case may be, taken together, shall constitute but one and the same instrument.
Section 9.7 Binding Effect; Assignment and Participations.
(a) Generally. The Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights thereunder or any interest therein without the prior written consent of each of the Lenders, and (ii) except as set forth in this Section 9.7, no Lender may assign or grant any participation in any of its rights or obligations under any Loan Document.
(b) Participations. Any Lender may, at any time, grant participations in a portion of its Note and Commitment to any institutional investor on any date selected by such Lender. Any Lender proposing a participation hereunder shall give notice of such participation to the Agent at least ten Business Days prior to such participation (unless the Agent consents to a shorter period of time). Such notice shall specify the identity of the proposed purchaser of the participation and the amount of the proposed participation. No such partial participation shall be permitted if the principal amount thereof would be less than $5,000,000. No holder of any such participation, other than an affiliate of such Lender, shall be entitled to require such Lender to take or omit to take any action hereunder, except that such Lender may agree with such participant that such Lender will not, without such participant's consent, (i) forgive any indebtedness of the Borrower under this Agreement or the Notes, (ii) agree to reduce the rate of interest charged under this Agreement, or (iii) agree to extend the final maturity of any indebtedness evidenced by the Notes, except as expressly provided by the terms of the Loan Documents. No Lender shall, as between the Borrower and such Lender, be relieved of any of its obligations hereunder as a result of any such granting of a participation. The Borrower hereby acknowledges and agrees that any participant described in this Section will, for purposes of Section 2.10(b), be considered to be a Lender hereunder (provided that such participant shall not be entitled to receive any more than the Lender selling such participation would have received had such sale not taken place) and may rely on, and possess all rights under, any opinions, certificates, or other instruments or documents delivered under or in connection with any Loan Document (it being understood that each opinion delivered hereunder speaks only as of the date thereof).
(c) Assignments. Any Lender may, at any time, assign a portion of its Note and Commitment to an Eligible Lender (an "Applicant") on any date (the "Adjustment Date") selected by such Lender. Any Lender proposing an assignment hereunder shall give notice of such assignment to the Agent at least ten Business Days prior to such assignment (unless the Agent consents to a shorter period of time). Such notice shall specify the identity of such Applicant and the Percentage which it proposes that such Applicant acquire (which Percentage shall be the same for the Commitment and the Note held by the assigning Lender). No such partial assignment shall be permitted if, immediately after giving effect to such assignment, either the Credit Exposure of the Applicant or the Credit Exposure of the assigning Lender would be less than $5,000,000. The notice of assignment shall contain a representation by the Applicant to the effect that none of the consideration used to make the purchase of the Note and Commitment under the applicable assignment agreement constitutes "plan assets" as defined under ERISA and that the rights and interests of the Applicant in and under the Loan Documents will not be "plan assets" under ERISA. Any Lender making an assignment under this Section shall pay the Agent a transfer fee in the amount of $3,500 simultaneously with such assignment.
(d) Consents. Any assignment hereunder may be made, and any participation granted, only with the prior written consent of the Agent and the Borrower; provided, however, that (i) in no event shall such consent be unreasonably withheld, (ii) the consent of the Borrower shall not be required if any Default or Event of Default has occurred and is continuing at the time of such assignment or grant of participation, (iii) no such consent of the Borrower and the Agent shall be required for the assignment by any Lender of, or grant of a participation in, all or any part of its Commitment and Note to one or more other Persons that are Lenders immediately prior to such assignment, and (iv) no such consent of the Borrower and the Agent shall be required for the assignment by any Lender of, or grant of a participation in, all or any part of its Commitment and Note to one or more affiliates of such Lender, provided that, unless consented to by the Borrower and the Agent (which consent shall not be unreasonably withheld), no such assignment under this clause (iv) shall relieve the transferring Lender from its obligations hereunder.
(e) Assignment Certificate and Notes. To confirm the status of each Additional Lender as a party to this Agreement and to evidence the assignment in accordance herewith:
(i) the Borrower, such Lender, such Applicant, and the Agent shall, on or before the Adjustment Date, execute and deliver to the Agent an Assignment Certificate in substantially the form of Exhibit D (an "Assignment Certificate") (provided that the assignment will be effective without the signature of the Borrower or the Agent to the extent that the consent of the Borrower or the Agent, as the case may be, is not required hereunder); and
(ii) the Borrower will, at its own expense, execute and deliver to the Additional Lender a new Note, payable to the order of the Additional Lender in an amount corresponding to the applicable interest in the assigning Lender's rights and obligations acquired by such Applicant pursuant to such assignment, and, if the assigning Lender has retained interests in such rights and obligations, a new Note, payable to the order of that Lender in an amount corresponding to such retained interests. Such new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of the applicable Note to be replaced by such new Notes, shall be dated the effective date of such assignment and shall otherwise be in the form of the Note to be replaced thereby. Such new Notes shall be issued in substitution for, but not in satisfaction or payment of, the Notes being replaced thereby.
Upon the execution and delivery of such Assignment Certificate and such Notes, (a) this Agreement shall be deemed to be amended to the extent, and only to the extent, necessary to reflect the addition of such Additional Lender and the resulting adjustment of Percentages arising therefrom, (b) the assigning Lender shall be relieved of all obligations hereunder to the extent of the reduction of all obligations hereunder and to the extent of the reduction of such Lender's Percentage, and (c) the Additional Lender shall become a party hereto and shall be entitled to all rights, benefits and privileges accorded to a Lender herein and in each other document or instrument executed pursuant hereto and subject to all obligations of a Lender hereunder, including the right to approve or disapprove actions which, in accordance with the terms hereof, require the approval of the Required Lenders or all Lenders, and the obligations to make Advances hereunder.
(f) Federal Reserve Bank Security Interests. Notwithstanding the foregoing, each Lender may at any time grant a security interest in all or any portion of its rights under this Agreement and that Lender's Note in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.
(g) Borrower Cooperation. In order to facilitate the addition of Additional Lenders hereto, the Borrower shall cooperate fully with each Lender and the Agent in connection therewith and shall provide all reasonable assistance requested by each Lender and the Agent relating thereto, including, without limitation, the furnishing of such written materials and financial information regarding the Borrower as any Lender or the Agent may reasonably request, the execution of such documents as any Lender or the Agent may reasonably request with respect thereto, and the participation by officers of the Borrower in a meeting or teleconference call with any Applicant upon the reasonable request of any Lender or the Agent.
Section 9.8 Disclosure of Information.
The Agent and the Lenders shall keep confidential (and cause
their respective officers, directors, employees, agents and
representatives to keep confidential) all information, materials
and documents furnished by the Borrower, the Agent or the Lenders
(the "Disclosed Information"). Notwithstanding the foregoing, the
Agent and each Lender may disclose Disclosed Information (i) to
the Agent, any other Lender or any Affiliate of any Lender;
(ii) to legal counsel, accountants and other professional
advisors to the Agent or such Lender; (iii) to any regulatory
body having jurisdiction over any Lender or the Agent; (iv) to
the extent required by applicable laws and regulations or by any
subpoena or similar legal process, or requested by any
governmental agency or authority; (v) to the extent such
Disclosed Information (A) becomes publicly available other than
as a result of a breach of this Agreement, (B) becomes available
to the Agent or such Lender on a non-confidential basis from a
source other than the Borrower or a Subsidiary, or (C) was
available to the Agent or such Lender on a non-confidential basis
prior to its disclosure to the Agent or such Lender by the
Borrower or a Subsidiary; (vi) to the extent the Borrower or such
Subsidiary shall have consented to such disclosure in writing;
(vii) to the extent reasonably deemed necessary by the Agent or
any Lender in the enforcement of the remedies of the Agent and
the Lenders provided under the Loan Documents; or (viii) in
connection with any potential assignment or participation in the
interest granted hereunder, provided that any such potential
assignee or participant shall have executed a confidentiality
agreement imposing on such potential assignee or participant
substantially the same obligations as are imposed on the Agent
and the Lenders under this Section 9.8.
Section 9.9 Governing Law.
The Loan Documents shall be governed by, and construed in accordance with, the laws of the State of New York.
Section 9.10 Consent to Jurisdiction.
Each of the Borrower, the Agent and the Lenders irrevocably
(i) agrees that any suit, action or other legal proceeding
arising out of or relating to this Agreement or any other Loan
Document shall be brought in a court of record in Hennepin County
in the State of Minnesota or in the courts of the United States
located in such State, (ii) consents to the jurisdiction of each
such court in any suit, action or proceeding, (iii) waives any
objection which it may have to the laying of venue of any such
suit, action or proceeding in any such courts and any claim that
any such suit, action or proceeding has been brought in an
inconvenient forum, and (iv) agrees that a final judgment in any
such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law after all appeals have been
exhausted.
Section 9.11 Waiver of Jury Trial.
THE BORROWER, THE AGENT AND THE LENDERS HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT AND THE NOTES OR THE RELATIONSHIPS ESTABLISHED HEREUNDER.
Section 9.12 Severability of Provisions.
Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof.
Section 9.13 Prior Agreements.
This Agreement and the other Loan Documents and related documents described herein restate and supersede in their entirety any and all prior agreements and understandings, oral or written, between the Lenders and the Borrower.
Section 9.14 Other Financing.
If at any time from and after the effective date of this
Agreement, the Borrower shall enter into any trust indenture,
credit agreement or other agreement for, relating to, or amending
any terms or conditions applicable to any unsecured indebtedness
in an amount not less than $15,000,000, the Borrower shall
promptly so advise the Agent. Thereupon, if the Required Lenders
shall determine that such trust indenture, credit agreement or
other agreement includes covenants or defaults reasonably
determined by the Required Lenders to be more restrictive than
those provided for in Articles V and VI and shall request by
notice to the Borrower, the Borrower shall enter into an
amendment to this Agreement providing for substantially the same
such covenants and defaults as those provided for in such trust
indenture, credit agreement or other agreement, to the extent
required and as may be selected by the Required Lenders, such
amendment to remain in effect for the entire duration of the term
to maturity of such indebtedness (to and including the date to
which the same may be extended); provided, however, that if any
such trust indenture, credit agreement or other agreement shall
be modified, supplemented, amended or terminated so as to modify,
amend or eliminate such trust indenture or other agreement or any
such covenant, term, condition or default so made a part of this
Agreement, then, the Borrower shall give the Agent and the
Lenders prompt notice thereof and such modification, supplement
or amendment shall operate to modify, amend or eliminate such
covenants, term, condition or default as so made a part of this
Agreement. Notwithstanding the foregoing, in no event shall this
Section 9.14 be construed so as to require the Borrower at any
time to grant any Lien in favor of the Agent or the Lenders
hereunder.
Section 9.15 Termination of Existing Credit Facility.
Upon execution and delivery of this Agreement by each of the parties hereto and satisfaction of the conditions precedent set forth in Section 3.1, (i) the Existing Credit Facility shall be deemed terminated, and (ii) no Lender (as defined in the Existing Credit Agreement) shall have any further obligation with respect to the Existing Credit Facility. Notwithstanding the foregoing, the Borrower shall continue to have the obligation to pay any principal, interest, fees and other amounts remaining unpaid under the Existing Credit Facility, and the Lenders shall have no obligation to effect any Borrowing hereunder until such amounts have been paid in full or unless such amounts are paid in full by the proceeds of the first Borrowing hereunder.
Section 9.16 Headings.
Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.
(The balance of this page is intentionally left blank.)
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.
MDU RESOURCES GROUP, INC.
By /s/WARREN L. ROBINSON
Its Executive Vice President
and Chief Financial Officer
|
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Agent and as
a Lender
By /s/MARK H. HALLDORSON Its Vice President And By /s/JENNIFER D. BARRETT Its Vice President & Loan Team Manager |
ABN AMRO BANK N.V.
By /s/R. SCOTT DONALDSON Its Vice President By /s/TODD D. VAUBEL Its Assistant Vice President |
U.S. BANK NATIONAL ASSOCIATION
By /s/CHRISTINE GEER Its Assistant Vice President |
UNION BANK OF CALIFORNIA, N.A.
By /s/ROBERT J. COLE Its Vice President |
PURCHASE AND SALE AGREEMENT
BETWEEN
SMITH PRODUCTION INC.
AS SELLER
AND
FIDELITY EXPLORATION & PRODUCTION COMPANY
AS PURCHASER
Table of Contents
Exhibits
Definitions
Article 1 Purchase and Sale
Section 1.1 Purchase and Sale
Section 1.2 Assets
Section 1.3 Excluded Assets
Section 1.4 Effective Time
Section 1.5 Delivery and Maintenance of Records
Section 1.6 Proration of Costs and Revenues
Article 2 Purchase Price
Section 2.1 Purchase Price
Section 2.2 Adjustments to Purchase Price
Section 2.3 Allocation of Purchase Price
Section 2.4 Deposit
Article 3 Title Matters
Section 3.1 Seller's Title
Section 3.2 Defensible Title
Section 3.3 Permitted Encumbrances
Section 3.4 Notice of Title Defects
Section 3.5 Consents to Assignment and Preferential Rights to Purchase
Section 3.6 Casualty Loss
Section 3.7 Condemnation Loss
Section 3.8 Limitations on Applicability
Article 4 Environmental Matters
Section 4.1 Environmental Assessment
Section 4.2 Notice of Material Adverse Environmental Condition
Section 4.3 Environmental Remedies
Section 4.4 Limitations
Article 5 Representations and Warranties of Seller
Section 5.1 Disclaimers
Section 5.2 Existence and Qualification
Section 5.3 Power
Section 5.4 Authorization and Enforceability
Section 5.5 No Conflicts
Section 5.6 Purchaser's Liability for Brokers' Fees
Section 5.7 Litigation
Section 5.8 Taxes and Assessments
Section 5.9 Outstanding Capital Commitments
Section 5.10 Compliance with Laws
Section 5.11 Contracts
Section 5.12 Payments
Section 5.13 Gas Imbalances
Section 5.14 Governmental Authorizations
Section 5.15 Consents to Assignments and Preferential Purchase Rights
Section 5.16 Non-foreign Person
Section 5.17 Payout Balances
Section 5.18 Condemnation
Section 5.19 Bankruptcy
Section 5.20 PUHCA/NGA
Section 5.21 Investment Company
Section 5.22 Suspense Accounts
Article 6 Representations and Warranties of Purchaser
Section 6.1 Existence and Qualification
Section 6.2 Power
Section 6.3 Authorization and Enforceability
Section 6.4 No Conflicts
Section 6.5 Seller's Liability for Brokers' Fees
Section 6.6 Litigation
Section 6.7 Financing
Section 6.8 Texas Deceptive Trade Practices Consumer Protection Act
Section 6.9 No Reliance
Article 7 Covenants of the Parties
Section 7.1 Access
Section 7.2 Government Reviews
Section 7.3 Notification of Breaches
Section 7.4 Assignments and Bills of Sale
Section 7.5 Public Announcements
Section 7.6 Operation of Business
Section 7.7 Indemnity Regarding Access
Section 7.8 Gas Imbalances and Take-or-Pay Make-up Obligations
Section 7.9 Consents and Preferential Rights
Section 7.10 Tax Matters
Section 7.11 Further Assurances
Section 7.12 Transition Services
Section 7.13 Replacement of Bonds, Letters of Credit and Guarantees
Section 7.14 Like-Kind Exchange
Section 7.15 Arbitration
Article 8 Conditions to Closing
Section 8.1 Conditions of Seller to Closing
Section 8.2 Conditions of Purchaser to Closing
Article 9 Closing
Section 9.1 Time and Place of Closing
Section 9.2 Obligations of Seller at Closing
Section 9.3 Obligations of Purchaser at Closing
Section 9.4 Closing Payment and Post-Closing Purchase Price Adjustments
Article 10 Termination
Section 10.1 Termination
Section 10.2 Effect of Termination
Section 10.3 Distribution of Deposit Upon Termination
Article 11 Post-Closing Obligations; Indemnification; Limitations;
Disclaimers and Waivers
Section 11.1 Receipts
Section 11.2 Expenses
Section 11.3 Assumption and Indemnification
Section 11.4 Indemnification Actions
Section 11.5 Survival
Section 11.6 Recording
Section 11.7 Independent Investigation
Section 11.8 Disclaimer Regarding Information
Section 11.9 Waiver of Trade Practices Acts
Section 11.10 Post-Closing Audit Rights
Article 12 Miscellaneous
Section 12.1 Counterparts
Section 12.2 Notice
Section 12.3 Binding Agreement
Section 12.4 Expenses
Section 12.5 Change of Name
Section 12.6 Construction
Section 12.7 Governing Law
Section 12.8 Captions
Section 12.9 Waivers
Section 12.10 Assignment
Section 12.11 Entire Agreement
Section 12.12 Amendment
Section 12.13 No Third-Party Beneficiaries
Section 12.14 References
|
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement is by and between Smith Production Inc., a Texas corporation, and Fidelity Exploration & Production Company, a Delaware corporation.
In consideration of the mutual promises and other valuable consideration recited herein, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
DEFINITIONS
"AFE" shall mean authority for expenditure as used in
Section 5.9.
"Adjustment Period" shall mean the period of time commencing at the Effective Time and ending on the Closing Date as discussed in Section 2.2.
"Adjusted Purchase Price" shall mean the Purchase Price
after calculating and applying the adjustments set forth in
Section 2.2.
"Affiliates" with respect to any Person, means any person that directly or indirectly controls, is controlled by or is under common control with such Person.
"Agreement" shall mean this Purchase and Sale Agreement.
"Allocated Value" shall mean the allocation of the unadjusted Purchase Price among each of the Assets as described in Section 2.3.
"Assets" shall mean the property and property rights set forth in Section 1.2.
"Assignment and Bill of Sale" shall mean the conveyance document by which Seller conveys the Assets to Purchaser as described in Section 3.1(b).
"Assumed Obligations" has the meaning set forth in Section 11.3(a).
"Business Day" means each calendar day except Saturdays, Sundays, and Federal holidays.
"Closing" has the meaning set forth in Section 9.1(a).
"Closing Date" has the meaning set forth in Section 9.1(b).
"Closing Payment" has the meaning set forth in Section 9.4(a).
"Code" has the meaning set forth in Section 2.3(a).
"Confidentiality Agreement" has the meaning set forth in
Section 7.1(a).
"Contracts" has the meaning set forth in Section 1.2(d).
"Damages" has the meaning set forth in Section 11.3(e).
"Defensible Title" has the meaning set forth in Section 3.2.
"Deposit" has the meaning set forth in Section 2.4.
"DTPA" has the meaning set forth in Section 6.8.
"Effective Time" has the meaning set forth in Section 1.4.
"Environmental Assessment" has the meaning set forth in Section 4.1.
"Environmental Laws" means, as the same have been amended as
of the Effective Time, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq.; the Federal Water Pollution Control Act, 33
U.S.C. Section 1251 et seq.; the Clean Air Act, 42 U.S.C.
Section 7401 et seq. the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1471 et seq., the Toxic Substances
Control Act, 15 U.S.C. Section Section 2601 through 2629;
the Oil Pollution Act, 33 U.S.C. Section 2701 et seq.; the
Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001 et seq.; and the Safe Drinking Water
Act, 42 U.S.G. Section Section 300f through 300j; and all
similar Laws as of the Effective Time of any Governmental
Body having jurisdiction over the Properties addressing
pollution or protection of the environment and all
regulations implementing the foregoing.
"Environmental Liabilities" shall mean, with respect to the
Properties, any and all environmental response costs, costs
to cure, restoration costs, costs of remediation,
settlements, penalties, fines, attorney fees, and Damages
(i) related to a Material Adverse Environmental Condition
regardless of whether same occurred PRIOR TO, AT OR AFTER
THE EFFECTIVE TIME and/or (ii) incurred or imposed pursuant
to any claim or cause of action by a Governmental Body or
other Person for remediation or response costs or any
remediation obligation or Damages arising out of any
violation of any Environmental Law which is attributable to
the ownership or operation of the Properties PRIOR TO, AT OR
AFTER THE EFFECTIVE TIME.
"Equipment" has the meaning set forth in Section 1.2(f).
"Excluded Assets" has the meaning set forth in Section 1.3.
"Governmental Authorization" has the meaning set forth in
Section 5.14.
"Governmental Body" means any federal, state, local, municipal or other governmental regulatory agency, administrative agency, commission, court, tribunal, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing powers.
"HSR Act" means the Hart-Scott Rodino Antitrust Improvements Act of 1976 as discussed in Section 7.2.
"Hydrocarbons" shall mean oil, gas, condensate, other gaseous and liquids products and all products attributable thereto, produced from or attributable to the Properties.
"Indemnification Notice" has the meaning set forth in
Section 11.4(b).
"Indemnify" has the meaning set forth in Section 11.3(b).
"Indemnified Party" has the meaning set forth in Section 11.4(a).
"Indemnifying Party" has the meaning set forth in Section 11.4(a).
"Lands" has the meaning set forth in Section 1.2(a).
"Laws" means all statutes, rules, regulations, ordinances, orders, and codes of Governmental Bodies.
"Leases" has the meaning set forth in Section 1.2(a).
"Litigation Expenses" has the meaning set forth in Section 11.3(b)(ix).
"Material Adverse Environmental Condition" shall mean, with respect to the Properties, any violations of Environmental Laws; any condition that is required to be remediated or cured under applicable Environmental Laws in effect at the time of the Environmental Assessment; the failure to remediate or cure any condition that is required to be remediated or cured under applicable Environmental Laws in effect at the time of the Environmental Assessment; any action or proceeding before any Governmental Body alleging potential liability arising out of or resulting from any actual or alleged violation of, or any remedial obligation under, any Environmental Law with respect to the Properties or notice of same to Seller by any Person.
"Net Revenue Interest" shall mean an ownership interest, expressed either as a decimal or percentage, in the stream of revenues attributable to the Assets, net of all burdens, as discussed in Section 3.2(a).
"Permitted Encumbrances" has the meaning set forth in Section 3.3.
"Person" means any individual, firm, corporation,
partnership, limited liability company,
joint venture, association, trust, unincorporated
organization, government or agency or
subdivision thereof or any other entity.
"Properties" shall mean the Units, Leases, Lands and Wells.
"Property Costs" shall mean all operating expenses and
capital expenditures incurred in the ownership and operation
of the Assets and, where applicable, in accordance with the
relevant operating or unit agreement, and overhead costs
charged to the Assets under the relevant operating agreement
or unit agreement, if any. Property Costs shall include
costs of insurance and ad valorem, property, severance,
production and similar Taxes based upon or measured by the
ownership or operation of the Assets or the production of
Hydrocarbons therefrom, but excluding any other Taxes.
Property Costs shall not include liabilities and expenses
attributable to (i) claims, investigations, administrative
proceedings or litigation directly or indirectly arising out
of or resulting from actual or claimed personal injury or
death, property damage or violation of any Law, (ii)
obligations to plug wells, dismantle facilities, close pits
and restore the surface around such wells, facilities and
pits, (iii) obligations to remediate or cure any
contamination of groundwater, surface water, soil or
Equipment under applicable Environmental Laws, (iv)
obligations to furnish make-up gas according to the terms of
applicable gas sales, gathering or transportation contracts,
(v) gas balancing obligations, (vi) obligations related to
the Excluded Assets and (vii) obligations to pay Working
Interests, royalties, overriding royalties or other
interests held in suspense.
"Purchase Price" has the meaning set forth in Section 2.1.
"Purchaser" shall mean Fidelity Exploration & Production Company.
"Purchaser Indemnitees" shall mean Purchaser, its officers, directors, shareholders, members, employees, agents, representatives, Affiliates and subsidiaries.
"Purchaser's Indemnification Obligations" shall mean those obligations described in Section 11.3(b).
"Records" has the meaning set forth in Section 1.2(h).
"Seller" shall mean Smith Production Inc.
"Seller Operated Assets" shall mean Assets operated by Seller.
"Seller Indemnitees" shall mean Seller, its officers, directors, shareholders, members, employees, agents, representatives, Affiliates and subsidiaries.
"Seller's Indemnification Obligations" shall mean those obligations described in Section 11.3(c).
"Surface Contracts" has the meaning set forth in Section 1.2(e).
"Tabasco/Texan Gardens Field Agreement" shall mean that certain second Purchase and Sale Agreement between Seller and Purchaser covering all of Seller's interest in the Tabasco/Texan Gardens Field, located in Hidalgo County, Texas and Starr County, Texas, prepared contemporaneously with the preparation and execution of this Agreement.
"Tax(es)" means all federal, state, local and foreign income, profits, franchise, sales, use, ad valorem, property, severance, production, excise, stamp, documentary, real property transfer or gain, gross receipts, goods and services, registration, capital, transfer, or withholding Taxes or other governmental fees or charges imposed by any taxing authority, including any interest, penalties or additional amounts which may be imposed with respect thereto.
"Tax Returns" has the meaning set forth in Section 5.8.
"Third Party Claim" has the meaning set forth in Section 11.4(b).
"Title Benefit" shall mean any right or condition that
operates to increase the Net Revenue Interest of Seller in
any Property above the Net Revenue Interest shown on Exhibit
1.2(b), without causing a proportionate increase in Seller's
Working Interest as shown in Exhibit 1.2(b) as discussed in
Section 3.2.
"Title Benefit Amount" has the meaning set forth in Section 3.4(e).
"Title Benefit Notice" has the meaning set forth in Section 3.4(b).
"Title Claim Date" has the meaning set forth in Section 3.4(a).
"Title Defect" has the meaning set forth in Section 3.2.
"Title Defect Amount" has the meaning set forth in Section 3.4(d)(i).
"Title Defect Notice" has the meaning set forth in Section 3.4(a).
"Title Defect Property" has the meaning set forth in Section 3.4(a).
"Units" has the meaning set forth in Section 1.2(c).
"Wells" has the meaning set forth in Section 1.2(b).
"Working Interest" shall mean the gross leasehold ownership interest in the Leases, or, as the case may be, the gross ownership interest in fee minerals or other types of interests which are included within the Assets, as discussed in Section 3.2(b).
ARTICLE 1
PURCHASE AND SALE
Section 1.1 Purchase and Sale.
At the Closing, and upon the terms and subject to the conditions of this Agreement, Seller agrees to sell and convey the Assets to Purchaser and Purchaser agrees to purchase, accept and pay for the Assets.
Section 1.2 Assets.
As used herein, "Assets" means an undivided one-half of Seller's right, title and interest in the following property rights described in 1.2(a) through 1.2(h), inclusive, as follows:
(a) Oil, gas and mineral leases; subleases and other leaseholds; carried interests; farmout rights; options; and other properties and interests as described on Exhibit 1.2(a) attached hereto, subject to such depth limitations, exclusions and other restrictions as described on Exhibit 1.2 (a) (collectively, the "Leases") and all tenements, hereditaments and appurtenances belonging to the Leases, together with each and every kind and character of right, title, claim, and interest that Seller has in and to the Leases and the lands covered thereby, pooled, unitized or communitized therewith (the "Lands");
(b) Oil, gas, water, disposal or injection wells located on the Lands, whether producing, not producing, shut-in, temporarily abandoned or permanently abandoned, including the interests in the wells as described on Exhibit 1.2(b) attached hereto (the "Wells");
(c) Units which include all or portions of the Leases, Lands or Wells as described on Exhibit 1.2(c) attached hereto (the "Units") including production from any such Unit, whether such Unit production comes from Wells located on or off of a Lease, and all tenements, hereditaments and appurtenances belonging to the Units;
(d) Contracts, agreements, orders and instruments by which the Assets are bound or to which the Assets are subject, or that relate to or are otherwise applicable to the Assets, to the extent applicable to the Assets rather than Seller's other properties, including, without limitation, operating agreements, unitization, pooling and communitization agreements, declarations and orders, joint venture agreements, farmin and farmout agreements, water rights agreements, exploration agreements, participation agreements, exchange agreements, transportation or gathering agreements, agreements for the sale and purchase of oil, gas, casinghead gas or processing agreements to the extent applicable to the Assets or the production of oil and gas and other minerals and products produced in association therewith from the Assets (all of which are hereinafter collectively referred to as "Contracts") but excluding any Contracts to the extent transfer is restricted by third-party agreement or applicable law and the necessary consents to transfer are not obtained pursuant to Section 7.9; provided that "Contracts" shall not include the Leases;
(e) Easements, permits, licenses, servitudes, rights-of- way, surface leases and other surface rights ("Surface Contracts") appurtenant to, and used or held for use primarily in connection with the Properties, excluding any Surface Contracts to the extent transfer is restricted by third-party agreement or applicable law and the necessary consents to transfer are not obtained pursuant to Section 7.9;
(f) Equipment, machinery, fixtures, facilities and improvements located on the Properties including, without limitation, all tanks, boilers, injection facilities, saltwater disposal facilities, compression facilities, pumping units and engines, flow lines, pipelines, gathering systems, gas and oil treating facilities, machinery, power lines, telephone and telegraph lines, roads, and other appurtenances, but excluding (i) vehicles, (ii) computers and related peripheral equipment, (iii) communications equipment and (iv) communications licenses granted by the Federal Communications Commission or other governmental agency (subject to such exclusions, the "Equipment");
(g) Hydrocarbons produced from or attributable to the Properties from and after the Effective Time and all oil, gas, condensate and imbalances with co-owners and with pipelines and all make-up rights with respect to take-or-pay payments; and
(h) To the extent transferable, photocopies of all non-
proprietary and non-confidential lease files; land
files; well files; gas and oil sales contract files;
gas processing files; division order files; abstracts;
title opinions; land surveys; and non-confidential logs
related to the Assets listed above in subsections (a)-
(g), inclusive, but excluding (i) any books, records,
data, files, maps and accounting records to the extent
disclosure or transfer is restricted by third-party
agreement or applicable law and the necessary consents
to transfer are not obtained pursuant to Section 7.9,
(ii) proprietary engineering data, maps and reserve
studies, (iii) computer software, (iv) work product of
Seller's legal counsel (other than title opinions), (v)
records and documents relating to the negotiation and
consummation of the sale of the Assets and (vi)
corporate, financial, income and franchise tax and
legal records of Seller that relate to Seller's
business generally (whether or not relating to the
Assets) (subject to such exclusions, the "Records");
provided, however, that Seller may retain the originals
of such files and other records as Seller has
determined may be required for litigation, Tax,
accounting, and auditing purposes and provide Purchaser
with copies thereof, excluding, however, the Excluded
Assets (as defined in Section 1.3).
Section 1.3 Excluded Assets.
Notwithstanding the foregoing, the Assets shall not include the following listed items which are excepted and reserved to Seller and excluded from this Agreement (collectively, the "Excluded Assets"):
(a) The documents, files, records and information excluded in 1.2(h) above;
(b) The equipment, machinery, licenses, fixtures and other tangible personal property excluded in 1.2(f) above;
(c) All rights to any refund of Taxes or other costs or expenses borne by Seller or Seller's predecessors in interest and title attributable to periods prior to the Effective Time;
(d) All rights relating to the existing claims and causes of action described in Exhibit 5.7 hereto;
(e) Seller's bonds, letters of credit, guarantees, permits and licenses;
(f) All trade credits, account receivables, note receivables, take-or-pay amounts receivable, and other receivables attributable to the Assets with respect to any period of time prior to the Effective Time;
(g) All surface estate fee located on the Properties, including, without limitation, all buildings, structures and improvements located on the Properties;
(h) That certain 3-D seismic data and geophysical data covering approximately 57 square miles of land that was shot, acquired and processed by Synergy Exploration L.L.C. on behalf of Seller which covers the Properties and other land not covered by this Agreement; and
(i) All other items listed in Exhibit 1.3.
Section 1.4 Effective Time.
Seller shall transfer possession of the Assets to Purchaser at the Closing, but the effective time of the transfer of the Assets shall be May 1, 2005 at 7:00 a.m., local time at the location of the Properties (the "Effective Time").
Section 1.5 Delivery and Maintenance of Records.
(a) Seller shall deliver the Records to Purchaser within ten (10) days following Closing. Seller may retain original Records as set forth in Section 1.2(h) and copies of any Records.
(b) For seven (7) years following Closing, Purchaser shall (i) retain the Records, (ii) provide Seller, its officers, employees and representatives with access to the Records during normal business hours for review and copying at Seller's expense and (iii) provide Seller, its officers, employees and representatives with access to materials received or produced after Closing related to any claim for indemnification made under Section 11.3 of this Agreement (excluding, however, attorney work product and attorney-client communications with respect to any such claim being brought by Purchaser and information subject to an applicable confidentiality restriction in favor of third parties) for review and copying at Seller's expense.
Section 1.6 Proration of Costs and Revenues.
(a) Purchaser shall be entitled to all (i) Hydrocarbons
produced from or attributable to the Properties at and
after the Effective Time, (ii) proceeds from the sale
of Hydrocarbons at and after the Effective Time and
(iii) other income, proceeds, receipts and credits
earned with respect to the Assets at or after the
Effective Time. Purchaser shall be liable and
responsible for (and entitled to any refunds with
respect to) all Property Costs incurred at and after
the Effective Time.
(b) Seller shall be entitled to all (i) Hydrocarbons produced from or attributable to the Properties prior to the Effective Time, (ii) proceeds from the sale of Hydrocarbons prior to the Effective Time and (iii) other income, proceeds, receipts and credits earned with respect to the Assets prior to the Effective Time. Seller shall be liable and responsible for (and entitled to any refunds with respect to) all Property Costs incurred prior to the Effective Time.
(c) Right-of-way fees, insurance premiums and other Property Costs that are paid periodically and cannot be accurately identified as being incurred when paid shall be prorated based on the number of days in the applicable period falling before and the number of days in the applicable period falling at or after the Effective Time.
(d) Ad valorem, production, severance and similar Taxes shall be prorated based on the number of units actually produced, purchased or sold or proceeds of sale, as applicable, before, and at or after, the Effective Time. In each case, Purchaser shall be responsible for the portion allocated to the period at and after the Effective Time, and Seller shall be responsible for the portion allocated to the period before the Effective Time.
(e) For purposes of allocating production (and accounts receivable with respect thereto), under this Section 1.6, (i) liquid Hydrocarbons shall be deemed to be "from or attributable to" the Properties when they pass through the pipeline connecting into the storage facilities into which they are run and (ii) gaseous Hydrocarbons shall be deemed to be "from or attributable to" the Properties when they pass through the delivery point sales meters on the pipelines through which they are transported. Seller shall utilize reasonable interpolative procedures to arrive at an allocation of production when exact meter readings or gauging and strapping data is not available. Seller shall provide to Purchaser, no later than four (4) Business Days prior to Closing, all data necessary to support any estimated allocation, for purposes of establishing the adjustment to the Purchase Price pursuant to Section 2.2 hereof that will be used to determine the Closing Payment.
ARTICLE 2
PURCHASE PRICE
Section 2.1 Purchase Price.
The purchase price for the Assets (the "Purchase Price") shall be Seventy Million Seventy One Thousand Seven Hundred Sixty Four Dollars (U.S. $70,071,764.00) adjusted as provided in Section 2.2.
Section 2.2 Adjustments to Purchase Price.
The Purchase Price for the Assets shall be adjusted as follows:
(a) Reduced by the aggregate amount of the proceeds received by Seller from the sale of Hydrocarbons and other proceeds earned and attributable to the Assets during the Adjustment Period;
(b) Reduced in accordance with Section 3.5, by an amount equal to the Allocated Value of those Properties (i) with respect to which preferential purchase rights have been exercised prior to Closing or (ii) that cannot be transferred at Closing because consents to the assignments of those Properties have not been obtained;
(c) Reduced by the aggregate amounts payable to owners of working interests, royalties and overriding royalties and other interests in the Properties held in suspense by Seller as of the Closing Date unless the suspended funds are transferred by Seller to Purchaser on the Closing Date;
(d) Reduced by Seller's pro-rata share of ad valorem taxes;
(e) Reduced in accordance with Article 3 by amounts as remedies for Title Defects;
(f) Reduced in accordance with Article 4 pursuant to
Section 4.3 regarding environmental matters;
(g) Increased by the amount of all Property Costs which have been paid by Seller and incurred during the Adjustment Period, except for any Property Costs and other such costs already deducted in the determination of proceeds in Section 2.2(a);
(h) Increased or decreased, as appropriate, pursuant to the provisions of Section 7.8 dealing with gas imbalances and/or take-or-pay make-up obligations; and
(i) Increased by the amount of any Title Benefit pursuant to Section 3.4(e).
(j) Increased or decreased by other amounts mutually agreed to by Seller and Purchaser.
All such adjustments shall be determined in accordance with generally accepted accounting principles and Council of Petroleum Accountants Society (COPAS) standards.
The adjustment described in Section 2.2(a) shall serve to satisfy, up to the amount of the adjustment, Purchaser's entitlement under Section 1.6 to Hydrocarbon production from or attributable to the Properties during the Adjustment Period, and to the other income, proceeds, receipts and credits earned with respect to the Assets during the Adjustment Period. Purchaser shall not have any separate rights to receive any production or income, proceeds, receipts and credits with respect to which an adjustment has been made. Similarly, the adjustment described in Section 2.2(g) shall serve to satisfy, up to the amount of the adjustment, Purchaser's obligation under Section 1.6 to pay Property Costs and other costs attributable to the ownership and operation of the Assets which are incurred during the Adjustment Period. Purchaser shall not be separately obligated to pay for any Property Costs or other such costs with respect to which an adjustment has been made.
Section 2.3 Allocation of Purchase Price.
(a) Simultaneous with the execution of this Agreement,
Purchaser will deliver to Seller a draft allocation of the
unadjusted Purchase Price among each of the Assets, which has been
made in compliance with the principles of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"),
and the Treasury regulations thereunder. Within two (2)
Business Days after Seller has received Purchaser's
draft allocation, Seller and Purchaser will attempt to
agree on the final allocation of the unadjusted
Purchase Price among each of the Assets; provided,
however, that in no event shall any such allocation of
value be deemed final until Seller and Purchaser have
approved the same in writing. Once approved by all
parties, such allocation of value shall be attached to
this Agreement as Exhibit 2.3. The "Allocated Value"
for any Asset shall equal the portion of the unadjusted
Purchase Price allocated to such Asset on Exhibit 2.3,
increased or decreased by its respective proportionate
share of the price adjustments described in Section
2.2. After Seller and Purchaser have agreed on the
Allocated Values for the Assets, Seller and Purchaser
will be deemed to have accepted such Allocated Values
for purposes of this Agreement and the transactions
contemplated hereby. Seller, however, makes no
representation or warranty to Purchaser as to the
accuracy of such values. Seller and Purchaser agree (i)
that the Allocated Values shall be used by Seller and
Purchaser as the basis for notices to holders of
preferential rights to purchase and (ii) that neither
Seller nor Purchaser will take positions inconsistent
with the Allocated Values in notices to government
authorities, in audit or other proceedings with respect
to Taxes, in notices to holders of preferential rights
to purchase. Purchaser and Seller further agree that,
on or before the Closing Date, they will mutually agree
as to the further allocation of the Allocated Values
included in Exhibit 2.3 as to the relative portion of
those values attributable to leasehold costs and
depreciable Equipment.
(b) In the event that Seller and Purchaser are unable to agree as to the Allocated Values, at the sole election of Seller, (i) this Agreement may be terminated unilaterally by Seller, in which case Purchaser shall be entitled to an immediate refund of the Deposit from Seller, or (ii) the dispute may be submitted to arbitration as provided in Section 7.15 below.
Section 2.4 Deposit.
Concurrently with the execution of this Agreement, Purchaser shall wire transfer to Seller an earnest money deposit in an amount equal to five percent (5 %) of the Purchase Price (the "Deposit"). The Deposit shall be applied against the Purchase Price if the Closing occurs or shall be otherwise distributed in accordance with the terms of this Agreement.
ARTICLE 3
TITLE MATTERS
Section 3.1 Seller's Title.
(a) Seller represents and warrants to Purchaser that Seller's title to the Wells shown on Exhibit 1.2(b) and the Units shown on Exhibit 1.2 (c) as of the Effective Time is (and as of the Closing Date shall be) Defensible Title.
(b) The Assignment and Bill of Sale to be delivered by Seller to Purchaser shall be in form identical to the assignment shown on Exhibit 3.1(b) attached hereto and shall contain a special warranty of title by, through and under Seller, but not otherwise, to the Leases shown on Exhibit 1.2(a), subject to the Permitted Encumbrances. Otherwise, the Assignment and Bill of Sale shall be without warranty of title, express, implied, statutory or otherwise. The Assignment and Bill of Sale shall transfer to Purchaser all rights or actions on title warranties given or made by Seller's predecessors (other than Affiliates of Seller), to the extent Seller may legally transfer such rights.
(c) Purchaser shall not be entitled to protection under Seller's special warranty of title in the Assignment and Bill of Sale against any Title Defect reported by Purchaser to Seller under this Article 3. All reported Title Defects shall be covered by the provisions of Article 3 and are expressly excluded from protection under Seller's special warranty of title in the Assignment and Bill of Sale.
Section 3.2 Defensible Title.
As used in this Agreement, the term "Defensible Title" means that title of Seller which, subject to Permitted Encumbrances:
(a) Entitles Seller to receive a share of the Hydrocarbons produced, saved and marketed from any Unit or Well throughout the duration of the productive life of such Unit or Well after satisfaction of all royalties, overriding royalties, nonparticipating royalties, net profits interests or other similar burdens on or measured by production of Hydrocarbons (a "Net Revenue Interest") of not less than the Net Revenue Interest share shown in Exhibit 1.2(b) for the Wells and Exhibit 1.2(c) for the Units, except decreases in connection with those operations in which Seller may after the Effective Time be a non-consenting co-owner, decreases resulting from the establishment or amendment after the Effective Time of units, and decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past under deliveries;
(b) Obligates Seller to bear a percentage of the Property Costs relating to any Unit or Well not greater than the "Working Interest" shown in Exhibit 1.2(b) for Wells and Exhibit 1.2(c) for Units without increase throughout the productive life of such Wells or Units except increases resulting from contribution requirements with respect to defaulting co-owners under applicable operating agreements and increases that are accompanied by at least a proportionate increase in Seller's Net Revenue Interest; and
(c) Is free and clear of liens, encumbrances, obligations, security interests, pledges or other defects.
The term "Title Defect" shall mean any liens, encumbrances,
obligations, security interests, pledges or other defects,
including, without limitation, discrepancies in Net Revenue
Interest or Working Interest, that cause a breach of
Seller's representation and warranty of Defensible Title in
Section 3.1(a).
The term "Title Benefit" shall mean any right, circumstance or condition that operates to increase the Net Revenue Interest of Seller in any Property above that shown on Exhibit 1.2(b) and Exhibit 1.2(c), without causing a greater than proportionate increase in Seller's Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c).
Section 3.3 Permitted Encumbrances.
As used herein, the term "Permitted Encumbrances" shall mean any or all of the following:
(a) Royalties and any overriding royalties, reversionary interests and other burdens to the extent that they do not, individually or in the aggregate, reduce Seller's Net Revenue Interest below that shown in Exhibit 1.2(b) and Exhibit 1.2(c) or increase Seller's Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c) without a corresponding increase in the Net Revenue Interest;
(b) All Leases, unit agreements, pooling agreements, operating agreements, production sales contracts, division orders and other Contracts applicable to the Assets, to the extent that they do not, individually or in the aggregate, reduce Seller's Net Revenue Interest below that shown in Exhibit 1.2(b) and Exhibit 1.2(c) or increase Seller's Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c) without a corresponding increase in the Net Revenue Interest;
(c) Preferential rights to purchase the Assets with respect to which, prior to Closing, (i) waivers are obtained from the holders of such preferential rights to purchase and/or (ii) the appropriate time period for asserting such rights has expired without an exercise of such rights;
(d) Third-party consent to assignment requirements and similar restrictions with respect to which waivers or consents are obtained by Seller from the appropriate parties prior to the Closing Date or the appropriate time period for asserting the right has expired or which need not be satisfied prior to a transfer;
(e) Liens for current Taxes or assessments not yet delinquent or, if delinquent, being contested in good faith by appropriate actions;
(f) Liens or charges arising in the ordinary course of business for amounts not yet delinquent (including any amounts being withheld as provided by law), or if delinquent, being contested in good faith by appropriate actions;
(g) All rights to consent, by required notices to, filings with, or other actions by Governmental Bodies in connection with the sale or conveyance of oil and gas leases or interests therein if they are not required prior to the sale or conveyance;
(h) Rights of reassignment arising upon final intention to abandon or release the Assets, or any of them;
(i) Easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations to the extent that they do not, individually or in the aggregate, reduce Seller's Net Revenue Interest below that shown in Exhibits 1.2(b) and Exhibit 1.2(c) or increase Seller's Working Interest above that shown in Exhibits 1.2(b) and Exhibit 1.2(c) without a corresponding increase in Net Revenue Interest;
(j) Calls on production under existing Contracts;
(k) All rights reserved to or vested in any Governmental Body to control or regulate any of the Assets in any manner and all obligations and duties under all applicable laws, rules and orders of any such Governmental Body or under any franchise, grant, license or permit issued by any such Governmental Body;
(l) Any encumbrance affecting the Assets which is discharged by Seller prior to or at Closing or which is expressly assumed, bonded or paid by Purchaser prior to or at Closing;
(m) Any matters shown on Exhibit 1.2(a), Exhibit 1.2(b) and Exhibit 1.2(c); and
(n) Any other liens, charges, encumbrances, defects or irregularities which do not, individually or in the aggregate, materially detract from the value of or materially interfere with the use or ownership of the Assets subject thereto or affected thereby (as currently used or owned), which would be accepted by a reasonably prudent Purchaser engaged in the business of owning and operating oil and gas Assets, and which do not reduce Seller's Net Revenue Interest below that shown in Exhibit 1.2(b) and Exhibit 1.2(c), or increase Seller's Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c) without a corresponding increase in Net Revenue Interest.
Section 3.4 Notice of Title Defects.
(a) To assert a claim arising out of a breach of Seller's representation and warranty of Defensible Title in Section 3.1(a), Purchaser must deliver claim notices to Seller (each a "Title Defect Notice") on or before ten (10) Business Days prior to the Closing Date (the "Title Claim Date"), except as otherwise provided in Sections 3.5, 3.6 or 3.7. Each Title Defect Notice shall be in writing and shall include (i) a description of the alleged Title Defect(s), (ii) the Leases, Units or Wells affected by the Title Defect (each a "Title Defect Property"), (iii) the Allocated Values of each Title Defect Property, (iv) supporting documents reasonably necessary for Seller (as well as any title attorney or examiner hired by Seller) to verify the existence of the alleged Title Defect(s) and (v) the amount by which Purchaser reasonably believes the Allocated Values of each Title Defect Property are reduced by the alleged Title Defect(s) and the computations and information upon which Purchaser's belief is based. Purchaser shall be deemed to have waived all breaches of Seller's representation and warranty of Defensible Title in Section 3.1(a) of which Seller has not been given notice on or before the Title Claim Date.
(b) Seller shall have the right, but not the
obligation, to deliver to Purchaser on or before the
Title Claim Date with respect to each Title Benefit a
notice (a "Title Benefit Notice") including (i) a
description of the Title Benefit, (ii) the Leases,
Units or Wells affected, (iii) the Allocated Values of
the Units or Wells subject to such Title Benefit and
(iv) the amount by which the Seller reasonably believes
the Allocated Value of those Units or Wells is
increased by the Title Benefit, and the computations
and information upon which Seller's belief is based.
Seller shall be deemed to have waived all Title
Benefits of which it has not given notice on or before
the Title Claim Date.
(c) In the event that Seller receives a Title Defect Notice, Seller shall have the right, but not the obligation, to attempt, at its sole cost, to cure or remove any Title Defects of which it has been advised by Purchaser in the Title Defect Notice prior to Closing.
(d) Remedies for Title Defects.
In the event that any Title Defect is not waived by Purchaser or cured on or before Closing, Seller shall, at its sole election, select one of the following options which shall apply regarding uncured Title Defects:
(i) The Purchase Price shall be reduced by an amount agreed upon ("Title Defect Amount") pursuant to Section 3.4(g) or 3.4(i) by Purchaser and Seller as being the value of such Title Defect, taking into consideration the Allocated Value of the Property subject to such Title Defect, the portion of the Property subject to such Title Defect and the legal effect of such Title Defect on the Property affected thereby;
(ii) Purchaser and Seller shall enter into a separate written agreement whereby Seller will as soon as reasonably practicable after Closing, at the sole cost and expense of Seller, cure or remove such Title Defects to Purchaser's reasonable satisfaction; or
(iii) Seller shall retain the affected Property, in which event the affected Property shall be deleted from this Agreement and the Purchase Price shall be reduced by an amount equal to the Allocated Value of such affected Property.
In the event that Seller elects to proceed under
Section 3.4(d)(i) and, after a reasonable time for good
faith negotiation, Purchaser and Seller have failed to
agree on the amount by which the Purchase Price should
be reduced by Closing, then in such event, Seller, at
Seller's sole election, may select one of the other
options in 3.4(d), unilaterally terminate this
Agreement, in which case Purchaser shall be entitled to
an immediate refund of the Deposit from Seller, or the
dispute may be submitted to arbitration as provided in
Section 7.15.
(e) With respect to each Unit or Well affected by Title Benefits reported under Section 3.4(b), the Purchase Price shall be increased by an amount (the "Title Benefit Amount") equal to the increase in the Allocated Value for such Unit or Well caused by such Title Benefits, as determined pursuant to Section 3.4(h). The Closing Payment shall be increased by such Title Benefit Amount.
(f) Section 3.4(d) shall be the exclusive right and
remedy of Purchaser with respect to Seller's breach of
its warranty and representation of Defensible Title in
Section 3.1(a).
(g) The Title Defect Amount resulting from a Title Defect shall be determined as follows:
(i) if Purchaser and Seller mutually agree upon the Title Defect Amount, that amount shall be the Title Defect Amount;
(ii) if the Title Defect is a lien, encumbrance or other charge which is undisputed and the amount of same can be exactly determined and agreed upon by Purchaser and Seller, then the Title Defect Amount shall be the amount necessary to be paid to remove the Title Defect from the Title Defect Property;
(iii) if the Title Defect represents a discrepancy between (A) the Net Revenue Interest for any Title Defect Property (which has been agreed to by Seller and Purchaser) and (B) the Net Revenue Interest or percentage stated on Exhibit 1.2(b) and Exhibit 1.2(c), then the Title Defect Amount shall be the product of the Allocated Value of such Title Defect Property multiplied by a fraction, the numerator of which is the Net Revenue Interest for the Title Defect Property and the denominator of which is the Net Revenue Interest or percentage ownership stated on Exhibit 1.2(b) and Exhibit 1.2(c); and
(iv) if the Title Defect represents an obligation, encumbrance, burden or charge upon or other defect in title to the Title Defect Property of a type not described in subsections (i), (ii) or (iii) above, the Title Defect Amount shall be determined by taking into account the Allocated Value of the Title Defect Property, the portion of the Title Defect Property affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the Title Defect Property, the values placed upon the Title Defect by Purchaser and Seller and such other factors as are necessary to make a proper evaluation.
(h) The Title Benefit Amount for any Title Benefit shall be the product of the Allocated Value of the affected Unit or Well multiplied by a fraction, the numerator of which is the upwardly revised Net Revenue Interest and the denominator of which is the Net Revenue Interest stated on Exhibit 1.2(b) and Exhibit 1.2(c).
(i) Seller and Purchaser shall attempt to agree on all Title Defect Amounts and Title Benefit Amounts prior to Closing. If Seller and Purchaser are unable to agree by no later than two (2) Business Days prior to Closing, Seller, at Seller's sole election, may unilaterally terminate this Agreement, in which case Purchaser shall be entitled to an immediate refund of the Deposit from Seller, or the dispute may be submitted to arbitration as provided in Section 7.15.
(j) Notwithstanding anything to the contrary, there
shall be no adjustments to the Purchase Price or other
remedies provided by Seller for Title Defects unless
(i) each individual Title Defect exceeds $25,000.00 and
(ii) the aggregate amount of all uncured Title Defects
exceeds a deductible in an amount equal to two percent
(2%) of the Purchase Price, after which point Purchaser
shall be entitled to adjustments to the Purchase Price
or other remedies only with respect to Title Defects in
excess of such deductible. Notwithstanding anything to
the contrary, the aggregate Title Defect Amounts
attributable to the effects of all Title Defects upon
any Title Defect Property shall not exceed the
Allocated Value of the Title Defect Property.
Section 3.5 Consents to Assignment and Preferential Rights to Purchase.
(a) Seller shall exercise reasonable efforts to obtain all such permissions, approvals and consents by governmental authorities and others which are reasonably obtainable by Closing and are required to vest Defensible Title to the Assets in Purchaser. Seller shall notify Purchaser at least five (5) Business Days prior to Closing of all required third- party consents to the assignment of the Assets to Purchaser which have not been obtained and the Assets to which they pertain. In no event shall there be included in the Assignment and Bill of Sale at Closing any Asset subject to a consent requirement that provides that transfer of the Asset without consent will result in a termination or other material impairment of any rights in relation to such Asset. In cases where the Asset subject to such a requirement is a Contract and Purchaser is assigned the Assets to which the Contract relates, but the Contract is not transferred to Purchaser due to the unwaived consent requirement, Seller shall continue after Closing to use reasonable efforts to obtain such consent so that such Contract can be transferred to Purchaser upon receipt of such consent. In cases where the Asset subject to such a requirement is a Property and the third-party consent to the sale and transfer of the Property is not obtained prior to the Closing Date, Purchaser may elect to treat the unsatisfied consent requirement as a Title Defect by giving Seller notice thereof in accordance with Section 3.4(a), except that such notice must be given at least two (2) Business Days prior to the Closing Date. In such event, the failure to obtain such consent to assignment shall be treated as if the affected Assets were subject to a Title Defect that resulted in the complete loss of title to such Assets, the affected Assets shall be excluded from the Assignment and Bill of Sale and the Purchase Price shall be reduced under Section 2.2(b) by the Allocated Value for such Assets. If a consent requirement with respect to which a Purchase Price adjustment is made under Section 3.4 is subsequently satisfied prior to the date of the final adjustment to the Purchase Price under Section 9.4(b), Purchaser shall pay to Seller the amount of the previous reduction in the Purchase Price and the affected Assets shall be assigned to Purchaser.
(b) If any preferential rights to purchase any Assets are exercised prior to Closing, those Assets transferred to a holder of preferential right to purchase as a result of the exercise of such preferential rights shall be treated as if those Assets were subject to a Title Defect that resulted in the complete loss of title to such Assets, and the Purchase Price shall be reduced under Section 2.2(b) by the Allocated Value for such Assets. Seller shall convey such Assets to the holder of preferential right to purchase exercising the preferential right to purchase, and Seller shall retain the consideration paid by the holder of preferential right to purchase for such Assets.
Section 3.6 Casualty Loss.
After the date this Agreement is executed but prior to the
Closing Date, if any portion of the Assets is destroyed by
fire or other casualty, this transaction shall nevertheless
close. In the event that the loss resulting from the
casualty is an amount less than five percent (5%) of the
unadjusted Purchase Price, this transaction shall
nevertheless close and Seller shall have no obligation
regarding the casualty. In the event that the resulting loss
is an amount equal to or greater than five percent (5%)of
the unadjusted Purchase Price, Seller, at Seller's sole
election, shall select one of the following options which
shall apply to the casualty: (i) Seller shall cause the
Assets affected by such casualty to be repaired or restored
to at least its condition prior to such casualty, at
Seller's sole cost, as promptly as reasonably practicable
(which work may extend after the Closing Date); or (ii)
Seller shall, at Closing, pay to Purchaser all sums paid to
Seller by third parties by reason of such casualty and shall
assign to Purchaser all of Seller's right, title and
interest (if any) in insurance claims, unpaid awards, and
other rights against third parties other than Seller
Indemnitees arising out of the casualty; or (iii) Seller may
treat such casualty as a Title Defect with respect to the
affected Assets. In the event that Seller elects (i) or
(iii) above, Seller shall retain all rights to insurance and
other claims against third parties with respect to the
casualty.
Section 3.7 Condemnation Loss.
After the date this Agreement is executed but prior to the Closing Date, if any portion of the Assets is taken in condemnation or under right of eminent domain, this transaction shall nevertheless close. In such event, Seller, at Seller's sole election, shall select one of the following options which shall apply to the taking: (i) Seller shall, at Closing, pay to Purchaser all sums paid to Seller by third parties by reason of such taking and shall assign, transfer and set over to Purchaser all of Seller's right, title and interest (if any) in insurance claims, unpaid awards, and other rights against third parties other than Seller Indemnitees arising out of the taking; or (ii) Seller shall treat the taking as if the affected Assets were subject to a Title Defect that resulted in the complete loss of title to such Assets, and the Purchase Price shall be reduced under Section 2.2 by the Allocated Value for such Assets. In the case of (ii) above, Seller shall retain all rights to insurance and other claims against third parties with respect to the taking.
Section 3.8 Limitations on Applicability.
The Seller's representation and warranty of Defensible Title in Section 3.1(a) shall terminate as of the Title Claim Date and shall have no further force and effect thereafter. Thereafter, Purchaser's sole and exclusive remedies with regard to title to the Assets shall be the special warranty of title to the Leases contained in the Assignment and Bill of Sale.
ARTICLE 4
ENVIRONMENTAL MATTERS
Section 4.1 Environmental Assessment.
Purchaser may, at its option, inspect the Properties and cause an environmental assessment (the "Environmental Assessment") of all or any portion of the Properties to be conducted by a reputable environmental consulting or engineering firm approved in advance in writing by Seller. An Environmental Assessment shall be conducted at a time agreed to by Seller with a representative of Seller present. Purchaser shall provide Seller with a correct copy of any Environmental Assessment and all findings made in connection therewith. Except for such disclosure to Seller, Purchaser shall maintain the results of any Environmental Assessment and all findings made in connection therewith as strictly confidential. All information related an environmental assessment and all findings made in connection therewith shall be subject to the terms of the Confidentiality Agreement. Without the prior written consent of Seller, Purchaser shall not disclose the results of any Environmental Assessment and all findings made in connection therewith to any Person other than (i) the consultant that conducts the Environmental Assessment, (ii) Purchaser's lender (only in the events that (a) Purchaser's lender is lending money to Purchaser in connection with this Agreement and (b) provided Purchaser's lender first agrees in writing to keep such information confidential) and (iii) Seller. Any Environmental Assessment shall be conducted at the sole risk, cost and expense of Purchaser, and Purchaser shall Indemnify Seller from and against any and all losses arising from the Environmental Assessment as provided in Section 7.7 and Section 11.3(b).
Section 4.2 Notice of Material Adverse Environmental Condition.
Purchaser may notify Seller in writing on or before five (5) Business Days prior to Closing of any environmental matters disclosed by the Environmental Assessment that Purchaser reasonably believes in good faith may constitute a Material Adverse Environmental Condition. Such notice shall include a reasonably detailed description of all matters disclosed by the Environmental Assessment.
Section 4.3 Environmental Remedies.
If Purchaser delivers to Seller a notice pursuant to Section 4.2 that describes a Material Adverse Environmental Condition, then Seller shall, at its sole election, select one of the following options which shall apply to all Material Adverse Environmental Conditions:
(a) Seller shall reduce the Purchase Price by an amount agreed upon in writing by Purchaser and Seller as being a reasonable estimate of the cost of remediating or curing such Material Adverse Environmental Condition;
(b) Seller shall retain the Property that is subject to such Material Adverse Environmental Condition, in which event the affected Property shall be deleted from this Agreement and the Purchase Price shall be reduced by an amount equal to the Allocated Value of such affected Property;
(c) Seller shall perform or cause to be performed prior to Closing, at the sole expense of Seller, such operations as may be necessary to remediate or cure such Material Adverse Environmental Condition; or
(d) Seller shall enter into an agreement with Purchaser whereby Seller will as soon as reasonably practicable after Closing, at the sole cost and expense of Seller, perform or cause to be performed such operations as may be necessary to remediate or cure such Material Adverse Environmental Condition.
In the event that Seller elects to proceed under Section 4.3(a) and Purchaser and Seller have failed to agree on the amount by which the Purchase Price shall be reduced (which agreement Seller and Purchaser shall use good faith efforts to reach) by Closing, then, in such event, the dispute shall be submitted to arbitration as provided in Section 7.15.
Notwithstanding the foregoing, in the events that (i)
Purchaser conducts an Environmental Assessment on the
Properties which discloses environmental matters that
Purchaser reasonably believes in good faith may constitute a
Material Adverse Environmental Condition; (ii) Purchaser
delivers a notice to Seller as required in Section 4.2;
(iii) the cost of remediating the Material Adverse
Environmental Condition that is described in Purchaser's
notice pursuant to Section 4.2 and/or the Environmental
Liabilities attributable to the Material Adverse
Environmental Condition that is described in Purchaser's
notice pursuant to Section 4.2 exceed three percent (3%) of
the unadjusted Purchase Price; and (iv) Purchaser delivers
to Seller written notice of termination of this Agreement at
least five (5) Business Days prior to Closing Date, then, in
the event of the completion and satisfaction of each of the
four conditions listed above, Purchaser, at Purchaser's sole
election, may unilaterally terminate this Agreement without
liability to Seller. If Purchaser terminates this Agreement
pursuant to this section, Purchaser shall be entitled to a
prompt refund of the full amount of the Deposit from Seller.
Section 4.4 Limitations.
(a) This Article 4 is intended to be the sole and exclusive remedy that Purchaser Indemnitees shall have against Seller Indemnitees with respect to any matter or circumstance relating to Material Adverse Environmental Conditions, Environmental Liabilities, Environmental Laws, the release of materials into the environment, the protection of the environment or health or any matters that Purchaser could have included in a notice delivered pursuant to Section 4.2.
(b) Purchaser, on behalf of itself and each of the other Purchaser Indemnitees, hereby fully releases and discharges the Seller Indemnitees from any and all claims at Law or in equity, known or unknown, whether occurring before the Effective Time, existing at the Effective Time or arising after the Effective Time, contingent or otherwise, with respect to all matters relating to Material Adverse Environmental Conditions, Environmental Liabilities, Environmental Laws, the release of materials into the environment, the protection of the environment or health or any matters that Purchaser could have included in a notice delivered pursuant to Section 4.2 EVEN IF SUCH DAMAGES OR CLAIMS ARE CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT) OF SELLER INDEMNITEES OR THE STRICT LIABILITY OF SELLER INDEMNITEES.
(c) Purchaser acknowledges that Seller has not made and will not make any representation or warranty regarding any matter or circumstance relating to Material Adverse Environmental Conditions, Environmental Laws, the release of materials into the environment or protection of the environment or health, and that nothing in Article 5 or otherwise shall be construed as such a representation or warranty.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 5.1 Disclaimers.
(a) Except as set forth in Articles 3 and 5 of this Agreement, the certificate of Seller to be delivered pursuant to Section 9.2(d) or in the Assignment and Bill of Sale to be delivered by Seller to Purchaser hereunder, (i) SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE AND (ii) SELLER EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO PURCHASER OR ANY OF ITS AFFILIATES, EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES (INCLUDING, WITHOUT LIMITATION, ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO PURCHASER BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, ATTORNEY, CONSULTANT, REPRESENTATIVE OR ADVISOR OF SELLER OR ANY OF SELLER'S AFFILIATES).
(b) EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN
ARTICLE 3 OR THIS ARTICLE 5, WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, SELLER EXPRESSLY DISCLAIMS
ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
STATUTORY OR OTHERWISE AS TO (i) TITLE TO ANY OF THE
ASSETS, (ii) THE CONTENTS, CHARACTER OR NATURE OF ANY
DESCRIPTIVE MEMORANDUM, DOCUMENTS, REPORTS OF ANY
PETROLEUM ENGINEERING CONSULTANT OR ANY GEOLOGICAL,
GEOPHYSICAL OR SEISMIC DATA OR INTERPRETATION RELATING
TO THE ASSETS, (iii) THE QUANTITY, QUALITY OR
RECOVERABILITY OF HYDROCARBONS OR PETROLEUM SUBSTANCES
IN OR FROM THE ASSETS, (iv) ANY ESTIMATES OF THE VALUE
OF THE ASSETS OR FUTURE REVENUES THAT MAY BE
ATTRIBUTABLE TO THE ASSETS, (v) THE PRODUCTION OF
HYDROCARBONS OR PETROLEUM SUBSTANCES FROM THE ASSETS,
(vi) THE MAINTENANCE, STATE OR REPAIR OR LACK THEREOF,
PHYSICAL CONDITION, QUALITY, SUITABILITY FOR ANY
PURPOSE, DESIGN OR MARKETABILITY OF THE ASSETS, (vii)
THE CONTENT, CHARACTER OR NATURE OF ANY DESCRIPTIVE
MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS
PREPARED BY THIRD PARTIES, (viii) THE ACCURACY AND/OR
THE COMPLETENESS OF ANY OTHER MATERIALS OR INFORMATION
THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO
PURCHASER, ITS AFFILIATES OR ITS EMPLOYEES, AGENTS,
CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION
WITH THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION
RELATING THERETO, (ix) ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY
EQUIPMENT OR (x) ANY IMPLIED OR EXPRESS WARRANTY OF
FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT. IT IS
EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO
THAT PURCHASER SHALL BE DEEMED TO BE PURCHASING THE
EQUIPMENT AND PERSONAL PROPERTY IN ITS PRESENT STATUS,
CONDITION AND STATE OF REPAIR, "AS IS" AND "WHERE IS,"
WITH ALL FAULTS. PURCHASER HAS MADE OR CAUSED TO BE
MADE SUCH INSPECTIONS OF THE ASSETS AS PURCHASER DEEMS
APPROPRIATE.
(c) Any representation "to the knowledge of Seller" or "to Seller's knowledge" is limited to matters within the actual knowledge of the officers or management employees, including those with titles of "Manager", "Vice President" and "President," of Seller. Actual knowledge includes information actually personally known or information which should have been ascertained had a reasonable inquiry or investigation been undertaken. The standard of reasonableness is that which would be exercised by a reasonably prudent person who has been advised that the person is expected to make representations and warranties with respect to conditions and information relating to the Assets which are to be conveyed.
(d) Subject to the foregoing provisions of this Section 5.1, Seller represents and warrants to Purchaser the matters set out in this Article 5.
Section 5.2 Existence and Qualification.
Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of Texas. Seller is duly qualified to do business as a corporation in the respective jurisdictions where the Assets are located.
Section 5.3 Power.
Seller has the corporate power to enter into this Agreement, perform the terms of this Agreement and consummate the transactions contemplated by this Agreement.
Section 5.4 Authorization and Enforceability.
The execution, delivery and performance of this Agreement have been or by Closing will have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller (and all documents required hereunder to be executed and delivered by Seller at Closing will be duly executed and delivered by Seller) and this Agreement constitutes the valid and binding obligation of Seller, enforceable in accordance with its terms except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights and remedies of creditors generally as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). As evidence of the foregoing, Seller has delivered to Purchaser simultaneous with the execution of this Agreement a unanimous consent executed, adopted and approved by the board of directors of Seller which specifically approves the terms of this Agreement, the execution of this Agreement by Seller and the completion of the transaction contemplated by this Agreement.
Section 5.5 No Conflicts.
The execution, delivery and performance of this Agreement by Seller will not (i) violate any provision of the certificate of incorporation or bylaws of Seller, (ii) result in default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any note, bond, mortgage or indenture to which Seller is a party or which affect the Assets, (iii) violate any judgment, order, ruling, or decree applicable to Seller as a party in interest or (iv) violate any Laws, rule or decree applicable to Seller or any of the Assets, except for rights to consent by, required notices to, and filings with or other actions by Governmental Bodies where the same are not required prior to the assignment of oil and gas interests.
Section 5.6 Purchaser's Liability for Brokers' Fees.
Purchaser shall not have any responsibility, liability or expense, as a result of undertakings or agreements of Seller, for brokerage fees, finder's fees, agent's commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby.
Section 5.7 Litigation.
Except as set forth in Exhibit 5.7, (a) no investigation, proceeding, action, suit, or other legal proceeding of any kind or nature before any Governmental Body or arbitrator (including any take-or-pay claims) is pending and (b) no written notice from any Governmental Body or any other Person has been received by Seller claiming any violation of or noncompliance with any Laws with respect to the Assets.
Section 5.8 Taxes and Assessments.
With respect to all Taxes related to the Assets, Seller warrants and represents that (a) all reports, returns, statements (including estimated reports, returns or statements), and other similar filings (the "Tax Returns") relating to the Assets required to be filed on or before the Closing Date by Seller with respect to any Taxes have been or will be timely filed with the appropriate Governmental Body in all jurisdictions in which such Tax Returns are required to be filed; (b) such Tax Returns are true and correct in all material respects, and all Taxes reported on such Tax Returns have been paid; (c) there are not currently in effect any extension or waiver of any statute of limitations of any jurisdiction regarding the assessment or collection of any Tax; (d) there are no administrative proceedings or lawsuits pending against the Assets or Seller by any taxing authority; and (e) there are no liens on any of the Assets except for liens for Taxes not yet due.
Section 5.9 Outstanding Capital Commitments.
As of the Effective Time, there were no outstanding AFEs or other commitments, either singly or in the aggregate, to make capital expenditures in excess of $500,000.00 which are binding on the Assets.
Section 5.10 Compliance with Laws.
To the knowledge of Seller, the Assets operated by Seller have been and are currently in substantial compliance with the provisions and requirements of all Laws of all Governmental Bodies having jurisdiction with respect to the Assets.
Section 5. 11 Contracts.
Seller has paid its share of all costs including without limitation, Property Costs, payable by Seller and is not in default under any Leases and Contracts, except those being contested in good faith.
Section 5.12 Payments.
With respect to all Seller Operated Assets, all rentals, royalties, overriding royalty interests, production payments, and other payments due and/or payable by Seller to mineral, royalty and other interest owners prior to the Effective Time with respect to the Assets and the Hydrocarbons produced therefrom or attributable thereto have been properly and timely paid. Seller is not obligated under any contract or agreement for the sale of gas from the Assets containing a take-or-pay, advance payment, prepayment, or similar provision, or under any gathering, transmission, or any other contract or agreement with respect to any of the Assets to gather, deliver, process, or transport any gas without then or thereafter receiving full payment therefor.
Section 5.13 Gas Imbalances.
Exhibit 5.13 sets forth all of Seller's pipeline and production imbalances and penalties as of the Effective Time arising with respect to the Assets. Except as disclosed in Exhibit 5.13, as of the Effective Time, (i) no Person is entitled to receive any portion of the Seller's Hydrocarbons produced from the Assets or to receive cash or other payments to "balance" any disproportionate allocation of Hydrocarbons produced from the Assets under any operating agreement, gas balancing or storage agreement, gas processing or dehydration agreement, gas transportation agreement, gas purchase agreement, or other agreements, whether similar or dissimilar, (ii) Seller is not obligated to deliver any quantities of gas or to pay any penalties or other amounts, in connection with the violation of any of the terms of any gas contract or other agreement with shippers with respect to the Assets, and (iii) Seller is not obligated to pay any penalties or other payments under any gas transportation or other agreement as a result of the delivery of quantities of gas from the Wells in excess of the contract requirements.
Section 5.14 Governmental Authorizations.
Seller has obtained and is maintaining all federal, state and local governmental licenses, permits, franchises, orders, exemptions, variances, waivers, authorizations, certificates, consents, rights, privileges and applications therefor (the "Governmental Authorizations") that are presently necessary or required for the ownership and operation of the Seller Operated Assets. Seller has operated the Seller Operated Assets in accordance with the conditions and provisions of such Governmental Authorizations, and Seller has not received any notices of violations. No proceedings are pending or, to Seller's knowledge, threatened, that might result in any modification, revocation, termination or suspension of any such Governmental Authorizations or which would require any corrective or remediation action by Seller.
Section 5.15 Consents to Assignments and Preferential Purchase Rights.
Except as set forth on Exhibit 5.15, none of the Assets are subject to any preferential rights to purchase, restrictions on assignment or required third-party consents to assignment, which may be applicable to the transactions contemplated by this Agreement, except for governmental consents and approvals of assignments that are customarily obtained after Closing.
Section 5.16 Non-foreign Person.
Seller is not a "foreign Person" within the meaning of Sections 1445 and 7701of the Code.
Section 5.17 Payout Balances.
Exhibit 5.17 contains a complete and accurate list of the status of any "payout" balances, as of the Effective Time, for the Wells and Units subject to any reversion, adjustment at some level of cost recovery, payout or other event other than termination of a Lease by its terms.
Section 5.18 Condemnation.
To Seller's knowledge, there is no actual or threatened taking of any part of the Assets by reason of condemnation or eminent domain proceeding.
Section 5.19 Bankruptcy.
There are no bankruptcy, reorganization, or similar arrangement proceedings pending, being contemplated by or, to Seller's knowledge, threatened against Seller or any Affiliate of Seller.
Section 5.20 PUHCA/NGA.
Seller is not (a) a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company," or an "affiliate" of a "subsidiary" of a "holding company," or a "public-utility company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (b) subject in any respect to the provisions of said act. No consent is required in connection with the transaction contemplated hereby under the Natural Gas Policy Act of 1978, as amended. Seller is not an interstate pipeline company within the meaning of the Natural Gas Act of 1938.
Section 5.21 Investment Company.
Seller is not (a) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, or (b) subject in any respect to the provisions of said act.
Section 5.22 Suspense Accounts.
Except as described on Exhibit 5.22 attached hereto, there are no obligations to pay any interests of any kind held by Seller in suspense.
Section 5.23 Material Changes.
Except as provided for or disclosed in Exhibit 5.23 attached hereto and made a part hereof, between the date of execution of this Agreement and the Closing Date, there has not been and will not be any material adverse changes in he operations of the Properties by Seller, which change was not the result of an industry-wide development affecting other companies in the oil or gas industries.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller the following:
Section 6.1 Existence and Qualification.
Purchaser is a corporation organized, validly existing and in good standing under the laws of the state of its incorporation. Purchaser is duly qualified to do business as a corporation in the respective jurisdictions where the Assets are located.
Section 6.2 Power.
Purchaser has the corporate power to enter into this Agreement, perform the terms of this Agreement and consummate the transactions contemplated by this Agreement.
Section 6.3 Authorization and Enforceability.
The execution, delivery and performance of this Agreement have been or by Closing will have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser (and all documents required hereunder to be executed and delivered by Purchaser at Closing will be duly executed and delivered by Purchaser) and this Agreement constitutes the valid and binding obligations of Purchaser, enforceable in accordance with their terms except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights and remedies of creditors generally as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). As evidence of the foregoing, Purchaser has delivered to Seller simultaneous with the execution of this Agreement either a resolution or a unanimous consent executed, adopted and approved by the board of directors of Purchaser which specifically approves the terms of this Agreement, the execution of this Agreement by Purchaser and the completion of the transaction contemplated by this Agreement.
Section 6.4 No Conflicts.
The execution, delivery and performance of this Agreement by Purchaser, and the transactions contemplated by this Agreement will not (i) violate any provision of the certificate of incorporation or bylaws of Purchaser, (ii) result in a material default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license or agreement to which Purchaser is a party, (iii) violate any judgment, order, ruling, or regulation applicable to Purchaser as a party in interest, or (iv) violate any Law, rule or decree applicable to Purchaser or any of the Assets, except for rights to consent by, required notices to, and filings with or other actions by Governmental Bodies where the same are not required prior to the assignment of oil and gas interests.
Section 6.5 Seller's Liability for Brokers' Fees.
Seller shall not have any responsibility, liability or expense, as a result of undertakings or agreements of Purchaser, for brokerage fees, finder's fees, agent's commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby.
Section 6.6 Litigation.
As of the date of the execution of this Agreement there are (and as of the Closing Date there will be) no actions, suits or proceedings pending, or to Purchaser's knowledge, threatened in writing, before any Governmental Body or brought by any Person against Purchaser or any Affiliate of Purchaser with respect to this Agreement, the transaction contemplated by this Agreement or the Assets.
Section 6.7 Financing.
Purchaser has sufficient cash, available lines of credit or other sources of immediately available funds in United States dollars to enable it to pay the Closing Payment to Seller at the Closing.
Section 6.8 Texas Deceptive Trade Practices-Consumer Protection Act.
With respect to the Texas Deceptive Trade Practices-Consumer Protection Act, Tex. Bus. & Com. Code Ann. Section 17.41 et seq. (the "DTPA"), Purchaser acknowledges, represents and warrants that Purchaser is purchasing the goods and/or services covered by this Agreement for commercial or business use; that Purchaser has assets of $5 million or more according to its most recent financial statement prepared in accordance with generally accepted accounting principles; that Purchaser has knowledge and experience in financial and business matters that enable Purchaser to evaluate the merits and risks of a transaction such as this; and that Purchaser is not in a significantly disparate bargaining position with Seller.
Section 6.9 No Reliance.
Purchaser represents and warrants that Purchaser is
knowledgeable of the oil and gas business and of the usual
and customary practices of producers such as Seller.
Purchaser has been granted access to the Assets and the
Records of Seller relating to the Assets. In making the
decision to enter into this Agreement and consummate the
transactions contemplated hereby, Purchaser has relied
exclusively on Purchaser's own investigation and analysis of
the condition, value, characteristics and qualities of the
Assets. Accordingly, Purchaser acknowledges that Seller has
not made and Purchaser shall not rely upon any
representation or warranty, express, implied, at common law,
by statute or otherwise, other than the warranty made in
Section 3.1, the express representations and warranties made
in Article 5, the certificate of Seller to be delivered
pursuant to Section 9.2(d) and the special warranty of title
in the Assignment and Bill of Sale relating to the Assets.
ARTICLE 7
COVENANTS OF THE PARTIES
Section 7.1 Access.
(a) Between the date of execution of this Agreement and the Closing Date, Seller will give Purchaser and its representatives access to the Assets and the right to copy, at Purchaser's expense, the Records in Seller's possession, for the purpose of conducting an investigation of the Assets, but only to the extent that Seller may do so without violating any obligations to any third party and to the extent that Seller has authority to grant such access without breaching any restriction binding on Seller. Such access by Purchaser shall be limited to Seller's normal business hours, and any weekends and after hours requested by Purchaser that can be reasonably accommodated by Seller, and Purchaser's investigation shall be conducted in a manner that minimizes interference with the operation of the Assets. All information obtained by Purchaser and its representatives under this Section 7.1 shall be subject to the terms of Section 7.7 and the terms of that certain confidentiality agreement between Seller and Purchaser dated February 2, 2005 (the "Confidentiality Agreement").
(b) PURCHASER ACKNOWLEDGES THAT EXCEPT TO THE EXTENT CONTAINED IN AN EXPRESS REPRESENTATION IN ARTICLES 3 AND 5 OF THIS AGREEMENT, THE CERTIFICATE OF SELLER TO BE DELIVERED PURSUANT TO SECTION 9.2(d) OR THE ASSIGNMENT AND BILL OF SALE, SELLER HAS MADE NO REPRESENTATIONS OR WARRANTIES, WHETHER ORAL OR WRITTEN. SELLER DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE AS TO THE ACCURACY OR COMPLETENESS OF INFORMATION OBTAINED BY PURCHASER FROM SELLER OR AS TO SELLER'S TITLE TO THE ASSETS. IN ENTERING INTO AND PERFORMING THIS AGREEMENT, PURCHASER HAS RELIED AND WILL RELY SOLELY UPON ITS INDEPENDENT INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE ASSETS, THE VALUE OF THE ASSETS, AND SELLER'S TITLE THERETO AND UPON THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLES 3 AND 5 OF THIS AGREEMENT, THE CERTIFICATE OF SELLER TO BE DELIVERED PURSUANT TO SECTION 9.2(d) OR THE ASSIGNMENT AND BILL OF SALE.
Section 7.2 Government Reviews.
If applicable, this Agreement is subject to and conditioned upon compliance by Seller and Purchaser with the HSR Act. If required, Seller and Purchaser shall in a timely manner (a) make all required filings, if any, with and prepare applications to and conduct negotiations with, each governmental agency as to which such filings, applications or negotiations are necessary or appropriate in the consummation of the transactions contemplated hereby specifically including but not limited to the HSR Act, (b) provide such information as each may reasonably request to make such filings, prepare such applications and conduct such negotiations and (c) request early termination or waiver of any applicable waiting period under the HSR Act. Purchaser shall bear the cost of the HSR Act filing fee made in connection with this Agreement. Each party shall cooperate with and use all reasonable efforts to assist the other with respect to such filings, applications and negotiations.
Section 7.3 Notification of Breaches.
Until the Closing,
(a) Purchaser shall notify Seller promptly after Purchaser obtains actual knowledge that any representation or warranty of Seller contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Seller prior to or on the Closing Date has not been so performed or observed in any material respect.
(b) Seller shall notify Purchaser promptly after Seller obtains actual knowledge that any representation or warranty of Purchaser contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Purchaser prior to or on the Closing Date has not been so performed or observed in a material respect.
If any of Purchaser's or Seller's representations or warranties is untrue or shall become untrue in any material respect between the date of execution of this Agreement and the Closing Date, or if any of Purchaser's or Seller's covenants or agreements to be performed or observed prior to or on the Closing Date shall not have been so performed or observed in any material respect, but if such breach of representation, warranty, covenant or agreement shall (if curable) be cured by the Closing (or, if the Closing does not occur, by the date set forth in Section 9.1), then such breach shall be considered not to have occurred for all purposes of this Agreement.
Section 7.4 Assignments and Bills of Sale.
On the Closing Date, Seller shall execute and deliver to Purchaser:
(a) Assignments and Bills of Sale in sufficient number of originals to facilitate recording in each county in which the Properties are located and Assignments and Bills of Sale necessary to convey to Purchaser all federal or state leases, if any, in the form as prescribed by the applicable Governmental Body and otherwise acceptable to Purchaser and Seller.
Section 7.5 Public Announcements.
Neither party shall make any press release, public announcement or public disclosure regarding the existence of this Agreement, the contents hereof or the transaction contemplated hereby until the transaction contemplated by this Agreement has closed (i.e., the occurrence of Closing). In the event that the transaction contemplated by this Agreement closes, either party may make a press release, public announcement or public disclosure regarding this Agreement after the form and contents of the press release, public announcement or public disclosure have been approved in writing by the other party. In the event that the transaction contemplated by this Agreement fails to close, neither party shall make any press release, public announcement or public disclosure regarding the existence of this Agreement, the contents hereof or the transaction contemplated hereby. The foregoing provision shall not restrict disclosures by Purchaser or Seller which are required by applicable securities or other Laws or regulations of the applicable rules of any stock exchange having jurisdiction over the disclosing party or its Affiliates.
Section 7.6 Operation of Business.
This section left blank intentionally.
Section 7.7 Indemnity Regarding Access.
PURCHASER, ON BEHALF OF ITSELF AND THE PURCHASER INDEMNITEES, SHALL INDEMNIFY, HOLD HARMLESS, DEFEND, SAVE, RELEASE AND COVENANTS NOT TO SUE SELLER INDEMNITEES, THE OTHER OWNERS OF INTERESTS IN THE ASSETS, AND ALL SUCH PERSONS' DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES, FROM AND AGAINST ANY AND ALL DAMAGES ARISING FROM OR RELATED TO ACCESS TO THE ASSETS BY THE PURCHASER INDEMNITEES PURSUANT TO SECTION 7.1.
WITHOUT LIMITING THE FOREGOING, PURCHASER'S INDEMNIFICATION OF SELLER INDEMNITEES, THE OTHER OWNERS OF INTERESTS IN THE ASSETS, AND ALL SUCH PERSONS' DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES, SHALL INCLUDE INDEMNIFICATION AGAINST DAMAGES ARISING FROM OR RELATED TO PERSONAL INJURIES, DEATH, PROPERTY DAMAGE AND CLAIMS MADE BY LANDOWNERS WHO OWN LAND ADJACENT TO THE PROPERTIES ARISING FROM OR IN CONNECTION WITH ACTIVITIES, TESTS, ENVIRONMENTAL ASSESSMENTS OR OTHER OPERATIONS CONDUCTED BY PURCHASER OR PURCHASER'S REPRESENTATIVES RELATED TO THIS AGREEMENT.
PURCHASER'S INDEMNIFICATION OF SELLER INDEMNITEES, THE OTHER OWNERS OF INTERESTS IN THE ASSETS, AND ALL SUCH PERSONS' DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES, SHALL BE PURSUANT TO AND IN ACCORDANCE WITH ALL OF THE INDEMNIFICATION PROVISIONS SET OUT IN SECTION 11.3(b) AND SHALL INCLUDE, WITHOUT LIMITATION, INDEMNIFICATION AGAINST DAMAGES AND LITIGATION EXPENSES.
Section 7.8 Gas Imbalances and Take-or-Pay Make-up Obligations.
Subject to the adjustment to the Purchase Price as provided in this Section 7.8, Purchaser expressly assumes Purchaser's proportionate share of any and all obligations attributable to gas production imbalances with co-owners of the Properties and gas take-or-pay make-up obligations with purchasers or sellers of natural gas from the Properties. Should Purchaser (i) determine that the gas imbalance information set out on Exhibit 5.13 is inaccurate and (ii) deliver a written notice regarding the gas imbalance to Seller at least five (5) Business Days prior to Closing, Seller shall review Purchaser's information regarding the alleged gas imbalance. If it is determined that there is an inaccuracy as of the Effective Time in the gas imbalance set forth on Exhibit 5.13, then the Purchase Price shall be either increased (if there is aggregate underproduction) or decreased (if there is aggregate overproduction) on the basis of $4.00 per MMBtu. This adjustment to the Purchase Price shall be in full settlement of all production imbalances on the Assets. Notwithstanding anything to the contrary contained in this Section 7.8, there shall be no adjustment to the Purchase Price if it is determined that actual imbalance volumes are within 15% above or below those shown on Exhibit 5.13.
The adjustment to the Purchase Price as set forth in this
Section 7.8 is Purchaser's exclusive remedy for (i) any gas
imbalance, (ii) any breach of Seller's representation in
Section 5.13 and (iii) any affirmation of such
representations in the certificate of Seller to be delivered
pursuant to Section 9.2(d), and, at Closing, Purchaser shall
assume Purchaser's proportionate share of Seller's
overproduced or underproduced position in the Wells as of
the Effective Date, including the responsibility for the
payment of royalties with respect to any imbalance and any
obligation to balance, whether in cash or in kind. Purchaser
shall be deemed to have waived any breaches of Section 5.13
if Purchaser fails to give timely written notice to Seller
as provided above.
Section 7.9 Consents and Preferential Rights.
(a) Seller shall promptly prepare and send notices to the holders of any required consents to assignment of any Assets requesting such consents. Seller shall use reasonable efforts to obtain all such consents which are reasonably obtainable by Closing and are required to vest Defensible Title to the Assets in Purchaser. Purchaser shall cooperate with Seller in seeking to obtain such consents. In the event that Seller is unable to obtain such consents that are required to vest Defensible Title to the Assets, Purchaser may elect to treat the unsatisfied consent requirement as a Title Defect and the procedures set forth in Section 3.5(a) shall apply.
(b) Seller shall promptly prepare and send notices to the holders of any applicable preferential rights to purchase any Asset requesting waivers of such preferential rights to purchase. The consideration payable under this Agreement for any particular Assets for purposes of preferential purchase right notices shall be the Allocated Value for such Assets. Seller shall use reasonable efforts to cause such waivers of preferential rights to purchase (or the exercise thereof) to be obtained and delivered prior to Closing. Purchaser shall cooperate with Seller in seeking to obtain such waivers of preferential rights.
If the holder of a preferential right to purchase exercises such right, Seller shall tender to such third party the required interest in the affected Asset at a price equal to the Allocated Value (reduced appropriately, as determined by mutual agreement of Purchaser and Seller, if less than the entire Asset must be tendered), and to the extent that such preferential right to purchase is exercised and such interest in such Asset is actually sold to the third party so exercising such right, the Assets transferred will be treated as if subject to a Title Defect and the procedures set forth in Section 3.5(b) shall apply.
Should a holder of a preferential right to purchase
fail to exercise its preferential right to purchase as
to any portion of the Assets prior to Closing and the
time for exercise or waiver has not yet expired prior
to Closing, subject to the remaining provisions of this
Section 7.9, such Assets shall be included in the
transaction contemplated by this Agreement at Closing
and the following procedures shall be applicable:
(i) An Assignment and Bill of Sale from Seller to
Purchaser of the Assets affected by such preferential
right to purchase shall be delivered into an escrow
account, Purchaser shall take beneficial possession of
the affected Assets and Purchaser shall be entitled to
all production, income, proceeds, receipts and credits
to which Purchaser would be entitled under Section
11.1. Purchaser shall Indemnify Seller Indemnitees
against Damages for which Purchaser would be liable
under the terms of Sections 11.2 and 11.3 with respect
to the affected Assets. Record title to the affected
Assets shall not be transferred and the Assignment and
Bill of Sale shall not be released to Purchaser from
the escrow account until such preferential right to
purchase has been waived or has expired. PURCHASER'S
INDEMNIFICATION OF SELLER INDEMNITEES SHALL BE PURSUANT
TO AND IN ACCORDANCE WITH THE INDEMNIFICATION
PROVISIONS SET OUT IN SECTION 11.3(b) AND SHALL
INCLUDE, WITHOUT LIMITATION, INDEMNIFICATION AGAINST
DAMAGES AND LITIGATION EXPENSES.
(ii) Seller shall continue to use reasonable efforts to obtain the waiver of the preferential right to purchase and shall continue to be responsible for the compliance with the preferential right to purchase.
(iii) Should the holder of the preferential right to purchase exercise same, Purchaser and Seller agree to cause the affected Assets to be transferred to such holder on the terms and provisions set out herein and in the applicable preferential right to purchase provision. In such event, Seller shall pay the Allocated Value, subject to applicable adjustments, for such Asset to Purchaser, and Seller shall be entitled to retain the consideration paid for the affected Asset by the holder of the preferential right to purchase.
(iv) If the preferential right to purchase is waived after the Closing Date or if the time limit for the exercise of the preferential right to purchase expires without being exercised, Seller and Purchaser shall take all reasonable actions necessary to ensure that the affected Assets are promptly conveyed out of escrow to Purchaser.
(v) Once the provisions of subparagraph (iv) have been satisfied and all obligations in connection therewith have been fulfilled, the Closing shall be deemed to have occurred for all purposes hereunder with respect to the affected Assets.
Should any third party bring any suit, action or other proceeding seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated hereby in connection with a claim to enforce preferential rights, the Assets affected by such suit, action or other proceeding shall be excluded from the Assets transferred at Closing and the Purchase Price shall be reduced by the Allocated Value of such excluded Assets. Promptly after the suit, action or other proceeding is dismissed or settled or a judgment is rendered, Seller shall sell to Purchaser and Purchaser shall purchase from Seller all such Assets not being sold to the third party for a purchase price equal to the Allocated Value of such Assets, adjusted as provided in Section 2.2.
Section 7.10 Tax Matters.
(a) Subject to the provisions below, Seller shall be responsible for all Taxes attributable to all times prior to Effective Time, including without limitation, income Taxes arising as a result of the gain recognized on the transfer of the Assets. Purchaser shall be responsible for Purchaser's proportionate share of all such Taxes attributable to all periods of time at and after the Effective Time.
(b) This section left blank intentionally.
(c) This section left blank intentionally.
(d) Purchaser shall pay any sales, use, excise, registration, documentary, stamp or transfer Taxes, recording fees incurred and imposed with respect to the conveyance of the Properties contemplated hereby.
Section 7.11 Further Assurances.
After Closing, Seller and Purchaser shall take such further actions and execute, acknowledge and deliver all such further documents as are reasonably requested by the other party for carrying out the purposes of this Agreement or of any document delivered pursuant to this Agreement.
Section 7.12 Transition Services.
This section left blank intentionally.
Section 7.13 Replacement of Bonds, Letters of Credit and Guarantees.
None of the bonds, letters of credit and guarantees, if any, posted by Seller with Governmental Bodies and relating to the Assets shall be transferred to Purchaser.
Section 7.14 Like-Kind Exchange
Purchaser and Seller agree to use reasonable cooperation so
that the transfer of the Properties shall, at either party's
election, be accomplished in a manner enabling the transfer
of the Properties to qualify as a like-kind exchange of
property within the meaning of Section 1031 of the Code. If
such an election is made, the parties shall reasonably
cooperate to effect such like-kind exchange, which
cooperation shall include (i) having any cash payment be
paid directly from a 1031 account which has been established
with a qualified intermediary, as that term is defined in
Section 1031 of the Code, in a manner which enables such
transfer of the Properties to qualify as part of a like-kind
exchange of property within the meaning of Section 1031 of
the Code and (ii) assigning rights to the Properties to a
qualified intermediary or an escrow agent acting as a
qualified intermediary for the purpose of receiving an
assignment of the Properties in a manner which enables such
transfer of the Properties to qualify as part of a like-kind
exchange of property within the meaning of Section 1031 of
the Code. In such events, the parties shall cooperate in the
negotiation and execution of such additional documents.
Section 7.15 Arbitration.
Disputed matters related to Allocated Values in Section 2.3(b), remedies for Title Defect Amounts in Section 3.4(d), Title Benefits Amounts in Section 3.4(i), downward adjustment to the Purchase Price to reflect the costs of remediation in Section 4.3 and the final settlement statement in Section 9.4(b) may be submitted, as provided in the respective Sections listed above, to arbitration pursuant to the following provisions:
(a) The parties shall jointly select a mutually acceptable person as the sole arbitrator under this Agreement. If the parties are unable to agree upon the designation of one person as arbitrator, then each party shall appoint one arbitrator and the two arbitrators so chosen shall appoint a third arbitrator and the three arbitrators shall arbitrate any dispute.
(b) Any arbitration hearing shall be held in Houston, Texas at a location acceptable to the arbitrator.
(c) The arbitrator shall settle disputes in accordance with the Texas General Arbitration Act and the Rules of the American Arbitration Association. The decision of the arbitrator shall be binding upon the parties and may be enforced in any court of competent jurisdiction. Seller and Purchaser, respectively, shall bear their own legal fees and other costs incurred in presenting their respective cases. The charges and expenses of the arbitrator shall be shared equally by Seller and Purchaser.
(d) In fulfilling his duties hereunder, the arbitrator shall be bound by the terms of this Agreement. In fulfilling any of his arbitration duties, the arbitrator may consider such other matters as in the opinion of the arbitrator are necessary or helpful to make a proper evaluation. Additionally, the arbitrator may consult with and engage disinterested third parties, including, without limitation, petroleum engineers, attorneys and consultants, to advise the arbitrator.
(e) If any arbitrator selected hereunder should die, resign or be unable to perform his duties hereunder, the parties selecting such arbitrator shall select a replacement arbitrator. The aforesaid procedure shall be followed from time to time as necessary.
ARTICLE 8
CONDITIONS TO CLOSING
Section 8.1 Conditions of Seller to Closing.
The obligations of Seller to consummate the transactions contemplated by this Agreement are subject, at the option of Seller, to the satisfaction on or prior to Closing of each of the following conditions:
(a) Representations. The representations and warranties of Purchaser set forth in Article 6 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date;
(b) Performance. Purchaser shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;
(c) Pending Litigation. No suit, action or other proceeding by a third party, including any Governmental Body, seeking to restrain, enjoin or otherwise prohibit the conveyance of the Assets or the consummation of the transactions contemplated by this Agreement shall be pending;
(d) Deliveries. Purchaser shall have delivered to Seller duly executed counterparts of the Assignment and Bill of Sale and the other documents and certificates to be delivered by Purchaser under Section 9.3;
(e) Payment. Purchaser shall have paid the Closing Payment;
(f) HSR Act. Only if applicable, any waiting period applicable to the consummation of the transaction contemplated by this Agreement under the HSR Act shall have lapsed or terminated (by early termination or otherwise).
(g) Approval by Board of Directors. Purchaser shall have delivered to Seller either (i) a resolution executed by the board of directors of Purchaser which specifically approves the terms of this Agreement, the execution of this Agreement by Purchaser and the completion of the transaction contemplated by this Agreement or (ii) a unanimous consent of the board of directors of Purchaser which specifically approves the terms of this Agreement, the execution of this Agreement by Purchaser and the completion of the transaction contemplated by this Agreement.
(h) Tabasco/Texan Gardens Field Agreement. Contemporaneously with the preparation and execution of this Agreement, Purchaser and Seller have prepared a second Purchase and Sale Agreement covering all of Seller's interests in the Tabasco/Texan Gardens Field, Hidalgo County, Texas and Starr County, Texas. Closing of the transaction contemplated by the Tabasco/Texan Gardens Field Agreement shall occur simultaneously with the Closing of the transaction contemplated by this Agreement.
Section 8.2 Conditions of Purchaser to Closing.
The obligations of Purchaser to consummate the transactions contemplated by this Agreement are subject, at the option of Purchaser, to the satisfaction on or prior to Closing of each of the following conditions:
(a) Representations. The representations and warranties of Seller set forth in Article 5 shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (other than any representations and warranties that refer to a specified date which need only be true and correct on and as of such specified date);
(b) Performance. Seller shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;
(c) Pending Litigation. No suit, action or other proceeding by a third party (including any Governmental Body) seeking to restrain, enjoin or otherwise prohibit the conveyance of the Assets or the consummation of the transactions contemplated by this Agreement shall be pending;
(d) Deliveries. Seller shall have delivered to Purchaser duly executed counterparts of the Assignment and Bill of Sale and the other documents and certificates to be delivered by Seller under Section 9.2;
(e) HSR Act. Only if applicable, any waiting period applicable to the consummation of the transaction contemplated by this Agreement under the HSR Act shall have lapsed or terminated (by early termination or otherwise).
(f) Approval by Board of Directors. Seller shall have delivered to Purchaser a unanimous consent of the board of directors of Seller which specifically approves the terms of this Agreement, the execution of this Agreement by Seller and the completion of the transaction contemplated by this Agreement.
(g) Tabasco/Texan Gardens Field Agreement. Contemporaneously with the preparation and execution of this Agreement, Purchaser and Seller have prepared a second Purchase and Sale Agreement covering all of Seller's interests in the Tabasco/Texan Gardens Field, Hidalgo County, Texas and Starr County, Texas. Closing of the transaction contemplated by the Tabasco/Texan Gardens Field Agreement shall occur simultaneously with the Closing of the transaction contemplated by this Agreement.
ARTICLE 9
CLOSING
Section 9.1 Time and Place of Closing.
(a) Consummation of the purchase and sale transaction as contemplated by this Agreement (the "Closing"), shall take place at the offices of Seller located at 14425 Torrey Chase, Suite 190 Houston, Texas 77014, at 10:00 a.m., local time, on or before May 5, 2005 unless otherwise agreed to in writing by Purchaser and Seller.
(b) The date on which the Closing occurs is herein referred to as the "Closing Date."
Section 9.2 Obligations of Seller at Closing.
At the Closing, Seller shall deliver or cause to be delivered to Purchaser, among other things, the following:
(a) Assignment and Bill of Sale of the Assets, in sufficient number of originals to allow recording in all counties in which the Properties are located and other appropriate jurisdictions and offices, as applicable, duly executed by Seller;
(b) assignments, on appropriate forms, of state and of federal leases, if any, comprising portions of the Assets, duly executed by Seller; and
(c) a certificate duly executed by an authorized corporate officer of Seller, dated as of Closing, certifying on behalf of Seller that the conditions set forth in Sections 8.2(a) and 8.2(b) have been fulfilled.
Section 9.3 Obligations of Purchaser at Closing.
At the Closing, Purchaser shall deliver or cause to be delivered to Seller, among other things, the following:
(a) a wire transfer of the Closing Payment in immediately available U.S. dollars;
(b) copies of the Assignment and Bill of Sale of the Assets, duly executed by Purchaser, and
(c) a certificate duly executed by an authorized corporate officer of Purchaser dated as of Closing, certifying on behalf of Purchaser that the conditions set forth in Sections 8.1(a) and 8.1(b) have been fulfilled.
Section 9.4 Closing Payment and Post-Closing Purchase Price Adjustments.
(a) Not later than two (2) Business Days prior to the Closing Date, Seller shall prepare and deliver to Purchaser, based upon the best information available to Seller, a preliminary settlement statement estimating the Adjusted Purchase Price after giving effect to all Purchase Price adjustments set forth in Section 2.2 and the Deposit. The preliminary settlement statement delivered in accordance with this Section 9.4(a) shall constitute the dollar amount to be paid by Purchaser to Seller at the Closing (the "Closing Payment").
(b) As soon as reasonably practicable after the Closing
but not later than one hundred twenty (120) days
following the Closing Date, Seller shall prepare and
deliver to Purchaser a final settlement statement
setting forth the final calculation of the Adjusted
Purchase Price and showing the calculation of each
adjustment, based, to the extent possible on actual
credits, charges, receipts and other items before and
after the Effective Time and taking into account all
Title Defect and Title Benefit adjustments under
Section 3.4. Seller shall, at Purchaser's request,
supply reasonable documentation available to support
any credit, charge, receipt or other item. Not later
than the thirty (30) days following receipt of the
final settlement statement, Purchaser shall deliver to
Seller a written report containing any changes that
Purchaser proposes be made to the final settlement
statement. The parties shall undertake to agree on the
final statement of the Adjusted Purchase Price no later
than one hundred eighty (180) days after the Closing
Date. In the event that the parties cannot reach
agreement within such period of time, either party may
refer the remaining matters in dispute to arbitration
as provided in Section 7.15.
(c) All payments made or to be made hereunder to Seller shall be by electronic transfer of immediately available funds in U.S. dollars to:
JPMorgan Chase Bank
For account of Smith Production Inc.
Account No. 034 000 25957
ABA No. 113 0006 09
All payments made or to be made hereunder to Purchaser shall be by electronic transfer of immediately available funds to a bank and account specified by Purchaser in writing to Seller.
ARTICLE 10
TERMINATION
Section 10.1 Termination.
This Agreement may be terminated as follows:
(a) by the mutual prior written consent of Seller and Purchaser prior to Closing;
(b) by Seller in the events that (i) Closing has not occurred on the Closing Date; (ii) Seller is not otherwise in default under the provisions of this Agreement; and (iii) the Conditions of Seller to Closing in Section 8.1 have not been satisfied;
(c) by Purchaser in the events that (i) Closing has not occurred on the Closing Date; (ii) Purchaser is not otherwise in default under the provisions of this Agreement; and (iii) the Conditions of Purchaser to Closing in Section 8.2 have not been satisfied;
(d) by Seller pursuant to 2.3(b), 3.4(d) and 3.4(i); and
(e) by Purchaser pursuant to 4.3.
Section 10.2 Effect of Termination.
If this Agreement is terminated pursuant to Section 10.1, this Agreement shall become void and of no further force or effect except for the provisions of Section 5.6 (Purchaser's Liability for Brokers' Fees), Section 6.5 (Seller's Liability for Brokers' Fees), Section 7.7 (Indemnity Regarding Access) and Section 12.4 (Expenses) and the Confidentiality Agreement. The provisions and agreements listed in the preceding sentence shall survive the termination of this Agreement and shall continue in full force and effect. Seller shall be free immediately to enjoy all rights of ownership of the Assets and to sell, transfer, encumber or otherwise dispose of the Assets to any party without any restriction under this Agreement.
Section 10.3 Distribution of Deposit Upon Termination
(a) If Seller terminates this Agreement pursuant to Section 10.1(b), then Seller may retain the Deposit as liquidated damages free of any claims by Purchaser. Purchaser and Seller agree that the actual amount of damages resulting from such a termination would be difficult if not impossible to determine accurately because of the unique nature of this Agreement, the unique nature of the Assets, the uncertainties of applicable commodity markets and differences of opinion with respect to such matters, and the liquidated damages provided for herein are a reasonable estimate by the parties of such damages.
(b) If this Agreement is terminated for any reason other than the reasons set forth in Section 10.1(b), then Seller shall deliver the Deposit to Purchaser immediately free of any claims by Seller.
(c) Notwithstanding anything to the contrary in this Agreement, Purchaser shall not be entitled to receive interest on the Deposit, whether the Deposit is applied against the Purchase Price or returned to Purchaser pursuant to this Section 10.3.
(d) The retention of the Deposit by Seller or the return of the Deposit to Purchaser as described above shall constitute the only remedies of Purchaser and Seller, respectively, in the event of termination or breach of this Agreement. Purchaser and Seller hereby waive all other remedies that might be available to either party including, without limitation, remedies available in equity, at common law and by statute including litigation and specific performance.
ARTICLE 11
POST -CLOSING OBLIGATIONS; INDEMNIFICATION;
LIMITATIONS; DISCLAIMERS AND WAIVERS
Section 11.1 Receipts.
(a) All production from or attributable to the Assets (and
all products and proceeds attributable thereto) and all
other income, proceeds, receipts and credits earned with
respect to the Assets which are not reflected in the final
settlement statement to which Purchaser is entitled under
Section 1.6 shall be the sole property and entitlement of
Purchaser, and, to the extent received by Seller, Seller
shall fully disclose, account for and remit the same
promptly to Purchaser.
(b) All production from or attributable to the Assets (and
all products and proceeds attributable thereto) and all
other income, proceeds, receipts and credits earned with
respect to the Assets which are not reflected in the final
settlement statement to which Seller is entitled under
Section 1.6 shall be the sole property and entitlement of
Seller and, to the extent received by Purchaser, Purchaser
shall fully disclose, account for and remit the same
promptly to Seller.
Section 11.2 Expenses.
(a) All Property Costs which are not reflected in the final
settlement statement for which Seller is responsible under
Section 1.6 shall be the sole obligation of Seller, and
Seller shall promptly pay same, or if same have been paid by
Purchaser, Seller shall promptly reimburse Purchaser for and
hold Purchaser harmless from and against same.
(b) All Property Costs which are not reflected in the final settlement statement for which Purchaser is responsible under Section 1.6 shall be the sole obligation of Purchaser, and Purchaser shall promptly pay same, or if same have been paid by Seller, Purchaser shall promptly reimburse Seller for and hold Seller harmless from and against same.
(c) Seller is entitled to resolve all joint interest audits and other audits of Property Costs covering periods prior to the Effective Time.
Section 11.3 Assumption and Indemnification.
(a) In the event of Closing, as of the Effective Time, Purchaser shall become liable for, assume, perform and discharge all of the obligations and liabilities of Seller, known or unknown, with respect to the Assets, regardless of whether such obligations or liabilities arose prior to the Effective Time, at the Effective Time or after the Effective Time. Said obligations and liabilities are referred to as the "Assumed Obligations." Purchaser, however, does not assume any obligations or liabilities of Seller to the extent that they are attributable to or arise out of the:
(i) Excluded Assets; or
(ii) actions, suits or proceedings, if any, set forth on Exhibit 5.7, or
(iii) claims for wrongful death and/or personal injury related to the Properties which claims arose before the Effective Time; or
(iv) continuing responsibility of the Seller under
Section 11.2 or matters for which Seller is
required to Indemnify Purchaser under this Article
11.
(b) PURCHASER SHALL INDEMNIFY, COVENANT NOT TO SUE, SAVE, RELEASE, DEFEND, DISCHARGE AND HOLD SELLER INDEMNITEES HARMLESS (COLLECTIVELY, "INDEMNIFY") FROM AND AGAINST DAMAGES, INCURRED OR SUFFERED BY SELLER INDEMNITEES THAT ARE CAUSED BY, OR ARISE OUT OF OR RESULT FROM:
(i) THE ASSUMED OBLIGATIONS; OR
(ii) THE OWNERSHIP, USE OR OPERATION OF THE ASSETS AT AND AFTER THE EFFECTIVE TIME; OR
(iii) ENVIRONMENTAL LIABILITIES; OR
(iv) ACCESS TO THE ASSETS IN SECTION 7.7; OR
(v) PREFERENTIAL RIGHTS TO PURCHASE IN SECTION 7.9(b)(i); OR
(vi) PURCHASER'S OBLIGATIONS UNDER THIS AGREEMENT; OR
(vii) THE BREACH OF ANY OF PURCHASER'S COVENANTS OR AGREEMENTS CONTAINED IN ARTICLE 7 OF THIS AGREEMENT, SAVE AND EXCEPT FOR COVENANTS OR AGREEMENTS CONTAINED IN SECTION 7.7 (ACCESS TO THE ASSETS) AND SECTION 7.9(b)(i)(RELATED TO PREFERENTIAL RIGHTS TO PURCHASE) WHICH ARE COVERED ABOVE; OR
(viii) THE BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY PURCHASER IN ARTICLE 6 OF THIS AGREEMENT OR IN THE CERTIFICATE DELIVERED BY PURCHASER AT CLOSING PURSUANT TO SECTION 9.3(d)(CERTIFICATE OF CORPORATE OFFICER OF PURCHASER); OR
(ix) THE LITIGATION EXPENSES (DEFINED BELOW).
THE INDEMNIFICATION OBLIGATIONS OF PURCHASER IN THIS PARAGRAPH SHALL BE REFERRED TO HEREIN AS "PURCHASER'S INDEMNIFICATION OBLIGATIONS."
PURCHASER SHALL INDEMNIFY SELLER INDEMNITEES AGAINST DAMAGES FOR MATTERS COVERED BY PURCHASER'S INDEMNIFICATION OBLIGATIONS ARISING OUT AND RESULTING FROM:
1. THE NEGLIGENCE OF SELLER, WHETHER THE
NEGLIGENCE IS ORDINARY, ACTIVE, PASSIVE, JOINT,
CONCURRENT OR SOLE BUT EXCLUDING CLAIMS BASED ON
GROSS NEGLIGENCE; AND
2. THE STRICT LIABILITY OF SELLER, BUT EXCLUDING CLAIMS
BASED ON THE WILLFUL MISCONDUCT OF SELLER.
COSTS OF ATTORNEY FEES, COSTS OF COURT, EXPENSES FOR HIRING INVESTIGATORS AND INVESTIGATING, DEFENDING LITIGATION, PROSECUTING LITIGATION, HIRING EXPERT WITNESSES, COSTS OF SETTLEMENT AND ANY AND ALL COSTS AND EXPENSES PERTAINING TO ANY LITIGATION SHALL COLLECTIVELY BE REFERRED TO AS THE "LITIGATION EXPENSES." PURCHASER SHALL INDEMNIFY SELLER INDEMNITEES FROM AND AGAINST ALL LITIGATION EXPENSES ARISING FROM, BASED UPON, RELATED TO OR IN ANY WAY CONNECTED WITH PURCHASER'S INDEMNIFICATION OBLIGATIONS
IT IS UNDERSTOOD AND AGREED THAT PURCHASER'S OBLIGATION TO
INDEMNIFY SELLER INDEMNITEES FROM AND AGAINST THE LITIGATION
EXPENSES IS (I) SEPARATE AND APART FROM PURCHASER'S
OBLIGATION TO INDEMNIFY SELLER INDEMNITEES FROM DAMAGES AND
(II) IS NOT DEPENDENT UPON PURCHASER'S SUBSTANTIVE
OBLIGATION TO INDEMNIFY SELLER INDEMNITEES FROM AND AGAINST
DAMAGES. PURCHASER'S OBLIGATION TO INDEMNIFY SELLER
INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES SHALL
APPLY IRRESPECTIVE OF WHETHER THE SUBSTANTIVE INDEMNITY
OBLIGATION COMPLIES IN ALL RESPECTS WITH THE EXPRESS
NEGLIGENCE RULE. PURCHASER AND SELLER BOTH AGREE AND
STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH
AND SATISFIES ALL OF THE REQUIREMENTS SET FORTH IN ETHYL
CORP. V. DANIEL CONSTRUCTION CO., 725 S.W.2d 705 (TEX.1987)
AND ALL SUBSEQUENT CASES, DRESSER INDUSTRIES, INC. V. PAIGE
PETROLEUM, INC., 853 S.W. 2d 505 (TEX. 1993) AND ALL
SUBSEQUENT CASES AND ALL OTHER APPLICABLE REQUIREMENTS OF
TEXAS LAW.
PURCHASER 'S INDEMNITY OBLIGATIONS TO SELLER INDEMNITEES HEREUNDER SHALL BE LIMITED TO THE EXTENT OF PURCHASER'S PROPORTIONATE INTEREST IN ANY AFFECTED ASSETS.
PURCHASER AND SELLER BOTH AGREE AND STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE TEST, AND THAT THE PARTIES CLEARLY INTEND TO TRANSFER THE RISK OF LOSS FOR THE INDEMNITEE'S NEGLIGENCE.
PURCHASER AND SELLER BOTH AGREE AND STIPULATE THAT THESE INDEMNIFICATION PROVISIONS ARE CONSPICUOUS.
(c) SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES AGAINST AND FROM ALL DAMAGES INCURRED OR SUFFERED BY PURCHASER INDEMNITEES THAT ARE CAUSED BY, OR ARISE OUT OF OR RESULT FROM:
(i) THE OBLIGATIONS AND LIABILITIES DESCRIBED IN
SECTION 11.3(a)(i), 11.3(a)(ii) AND 11.3(a)(iii);
OR
(ii) SELLER'S BREACH OF ANY OF SELLER'S COVENANTS OR AGREEMENTS CONTAINED IN ARTICLE 7 OF THIS AGREEMENT; OR
(iii) THE BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY SELLER IN ARTICLE 5 OF THIS AGREEMENT OR IN THE CERTIFICATE DELIVERED BY SELLER AT CLOSING PURSUANT TO SECTION 9.2(d)(CERTIFICATE OF CORPORATE OFFICER OF SELLER); OR
(iv) SELLER'S OBLIGATIONS UNDER THIS AGREEMENT; OR
(v) THOSE CERTAIN LAWSUITS STYLED XTO Energy Inc. v Smith Production Inc.; Cause No. 2004-68579 in the District Court of Harris County, Texas; 281st Judicial District and Julie Dale, et al., v Smith Production Inc.; Cause No. DC-05-121 in the District Court of Starr County, Texas; 381st Judicial District; OR
(vi) LITIGATION EXPENSES.
THE INDENMIFICATION OBLIGATIONS OF SELLER IN THIS PARAGRAPH SHALL BE REFERRED TO HEREIN AS "SELLER'S INDEMNIFICATION OBLIGATIONS."
SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES AGAINST DAMAGES FOR MATTERS COVERED BY SELLER'S INDEMNIFICATION OBLIGATIONS ARISING OUT OF AND RESULTING FROM:
1. THE NEGLIGENCE OF PURCHASER, WHETHER THE
NEGLIGENCE IS ORDINARY, ACTIVE, PASSIVE, JOINT,
CONCURRENT OR SOLE BUT EXCLUDING CLAIMS BASED ON
GROSS NEGLIGENCE; AND
2. THE STRICT LIABILITY OF PURCHASER, BUT EXCLUDING
CLAIMS BASED ON THE WILLFUL MISCONDUCT OF
PURCHASER.
SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES ARISING FROM, BASED UPON, RELATED TO OR IN ANY WAY CONNECTED WITH SELLER'S INDEMNIFICATION OBLIGATIONS.
IT IS UNDERSTOOD AND AGREED THAT SELLER'S OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES IS (I) SEPARATE AND APART FROM SELLER'S OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM DAMAGES AND (II) IS NOT DEPENDENT UPON SELLER'S SUBSTANTIVE OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM AND AGAINST DAMAGES. SELLER'S OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES SHALL APPLY IRRESPECTIVE OF WHETHER THE SUBSTANTIVE INDEMNITY OBLIGATION COMPLIES IN ALL RESPECTS WITH THE EXPRESS NEGLIGENCE RULE. PURCHASER AND SELLER BOTH AGREE AND STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH AND SATISFIES ALL OF THE REQUIREMENTS SET FORTH IN ETHYL CORP. V. DANIEL CONSTRUCTION CO., 725 S.W.2d 705 (TEX.1987) AND ALL SUBSEQUENT CASES, DRESSER INDUSTRIES, INC. V. PAIGE PETROLEUM, INC., 853 S.W. 2d 505 (TEX. 1993) AND ALL SUBSEQUENT CASES AND ALL OTHER APPLICABLE REQUIREMENTS OF TEXAS LAW.
SELLER'S INDEMNITY OBLIGATIONS TO PURCHASER INDEMNITEES HEREUNDER SHALL BE LIMITED TO THE EXTENT OF SELLER'S PROPORTIONATE INTEREST IN ANY AFFECTED ASSETS.
SELLER AND PURCHASER BOTH AGREE AND STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE TEST AND THAT THE PARTIES CLEARLY INTEND TO TRANSFER THE RISK OF LOSS FOR THE INDEMNITEE'S NEGLIGENCE.
SELLER AND PURCHASER BOTH AGREE AND STIPULATE THAT THESE INDEMNIFICATION PROVISIONS ARE CONSPICUOUS.
(d) Notwithstanding anything to the contrary contained in this Agreement, in the event that Closing occurs, thereafter, this Section 11.3 shall be deemed to contain the parties' exclusive remedies against each other with respect to breaches of the representations, warranties, covenants and agreements of the parties contained in Articles 5, 6 and 7 and the affirmations of such representations, warranties, covenants and agreements contained in the certificate delivered by each party at Closing pursuant to Sections 9.2(d) or 9.3(d), as applicable.
The parties shall have all other remedies at law or in equity for breaches of all provisions of this Agreement other than Articles 5, 6 and 7. Notwithstanding anything to the contrary contained herein, none of Purchaser, Seller or any of their respective Affiliates shall be entitled to either punitive or consequential damages as a remedy in connection with a breach of any provision of this Agreement and/or the transactions contemplated hereby, and each of Purchaser and Seller, for itself and on behalf of its Affiliates, hereby expressly waives any right to punitive or consequential damages in connection with a breach of any provision of this Agreement and/or the transactions contemplated hereby.
(e) "Damages" shall mean the amount of any and all liability, loss, cost, diminution in value, expense, claim, demand, notice of violation, investigation by any Governmental Body, cause of action, administrative proceeding, payment, charge, obligation, fine, penalty, deficiency, award or judgment incurred or suffered by any Indemnified Party arising out of or resulting from the indemnified matter, including reasonable fees and expenses of attorneys, consultants, accountants or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity.
Section 11.4 Indemnification Actions.
All claims for indemnification under Section 11.3 shall be asserted and resolved as follows:
(a) For purposes of this Article 11, the term "Indemnifying Party" shall mean the party having an obligation to indemnify the other party pursuant to this Article 11, and the term "Indemnified Party" shall mean the party having the right to be indemnified by the other party pursuant to this Article 11.
(b) To make a claim for indemnification under Section 11.3, an Indemnified Party shall provide to the Indemnifying Party a written notice (the "Indemnification Notice") which specifies the basis of the Indemnified Party's entitlement to indemnification under this Agreement. In the event that the Indemnification Notice is based upon a claim by a third party against the Indemnified Party (a "Third Party Claim"), the Indemnified Party shall provide its Indemnification Notice promptly after the Indemnified Party has actual knowledge of the Third Party Claim and shall enclose a copy of all papers (if any) served with respect to the Third Party Claim; provided that the failure of any Indemnified Party to give notice of a Third Party Claim as provided in this Section 11.4 shall not relieve the Indemnifying Party of its obligations under Section 11.3 except to the extent such failure results in insufficient time being available to permit the Indemnifying Party to effectively defend against the Third Party Claim or otherwise prejudices the Indemnifying Party's ability to defend against the Third Party Claim.
(c) The Indemnifying Party shall have thirty (30) days from its receipt of an Indemnification Notice to notify the Indemnified Party whether it will assume the defense of the Indemnified Party against such Third Party Claim at the sole cost and expense of the Indemnifying Party. The Indemnified Party is authorized, prior to and during such thirty (30) day period, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and that is not prejudicial to the Indemnifying Party.
(d) If the Indemnifying Party assumes the defense of a Third Party Claim pursuant to an Indemnification Notice, the Indemnifying Party shall diligently defend, at its sole cost and expense, the Indemnified Party against the Third Party Claim. The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate in contesting any Third Party Claim which the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 11.4(d). An Indemnifying Party shall not, without the written consent of the Indemnified Party, (i) settle any Third Party Claim or consent to the entry of any judgment with respect thereto which does not include an unconditional written release of the Indemnified Party from all liability in respect of such Third Party Claim or (ii) settle any Third Party Claim or consent to the entry of any judgment with respect thereto in any manner that may materially and adversely affect the Indemnified Party (other than as a result of money damages covered by the indemnity).
(e) If the Indemnifying Party does not assume the
defense of the Indemnified Party against a Third Party
Claim or assumes the defense, but fails to diligently
prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend
against the Third Party Claim at the sole cost and
expense of the Indemnifying Party, with counsel of the
Indemnified Party's choice, subject to the right of the
Indemnifying Party to assume the defense of the Third
Party Claim at any time prior to settlement or final
determination thereof. If the Indemnifying Party has
not yet assumed the defense of the Indemnified Party,
the Indemnified Party shall send written notice to the
Indemnifying Party of any proposed settlement or final
determination of the Third Party Claim and the
Indemnifying Party shall have the option for ten (10)
days following receipt of such notice to (i) assume
defense against the Third Party Claim in writing and
(ii) if so assumed, reject, in its reasonable judgment,
the proposed settlement or final determination of the
Third Party Claim.
(f) In the event that the Indemnification Notice sets forth a claim for Damages based upon an inaccuracy or breach of a representation, warranty or covenant or obligation in this Agreement, the Indemnification Notice shall specify the representation, warranty, covenant or obligation which was inaccurate or breached. In such case, the Indemnifying Party shall have thirty (30) days from its receipt of the Indemnification Notice to (i) cure the Damages complained of, (ii) accept the claim for such Damages or (iii) dispute the claim for such Damages. If the Indemnifying Party does not notify the Indemnified Party within such thirty (30) day period that it has cured the Damages or that it disputes the claim for such Damages, the amount of such Damages shall conclusively be deemed a liability of the Indemnifying Party hereunder.
Section 11.5 Survival.
In the event of Closing:
(a) The representation and warranty of Seller in
Section 3.1(a)(Defensible Title) shall terminate on the
Title Claim Date (3.4(a)). The remainder of the
representations, warranties, covenants and agreements
provided for in this Agreement shall terminate upon
Closing except as may otherwise be expressly provided
herein.
(b) Purchaser's Indemnification Obligations in Section
11.3(b) shall terminate as of the times set out below
except in each case as to matters for which a specific
written claim for indemnity has been delivered to the
Indemnifying Party on or before such termination date:
11.3(b)(i), 11.3(b)(ii), 11.3(b)(iii) and 11.3(b)(iv)
shall not terminate and shall continue without time
limit; 11.3(b)(v) shall terminate six months after the
end of the term of the escrow described in 7.9(b)(i);
11.3(b)(vi), 11.3(b)(vii) and 11.3(b)(viii) shall
terminate six months after Closing; and 11.3(b)(ix)
shall continue in force and effect until the
termination of the survival period of each of the other
Purchaser's Indemnification Obligations in 11.3(b)(i)-
11.3(b)(viii), inclusive.
(c) Seller's Indemnification Obligations in Section 11.3(c) shall terminate as of the times set out below except as to matters for which a specific written claim for indemnity has been delivered to the Indemnifying Party on or before such termination date: 11.3(c)(i) and 11.3(c)(v) shall not terminate and shall continue without time limit; 11.3(c)(ii), 11.3(c)(iii) and 11.3(c)(iv) shall terminate six months after Closing; and 11.3(c)(vi) shall continue in force and effect until the termination of the survival period of each of the other Seller's Indemnification Obligations in 11.3(c)(i)- 11.3(c)(v), inclusive.
(d) The Confidentiality Agreement shall survive Closing.
(e) Except as provided above, all other provisions in
this Agreement shall terminate at Closing except for
the following provisions which shall survive Closing:
(i) Section 7.5 - Prohibition against Public Announcements
(ii) Section 7.11 - Further Assurances
(iii) Section 11.1 - Receipts
(iv) Section 11.2 - Expenses
(v) Section 11.4 - Indemnification Actions
(vi) Section 11.7 - Independent Investigation
(vii) Section 11.8 - Disclaimer Regarding Information
(viii) Section 11.9 - Waiver of Trade Practices Acts
(ix) Section 11.10 - Post-Closing Audit Rights
(x) Section 12.5 - Change of Name
(xi) Section 12.7 - Governing Law
Section 11.6 Recording.
As soon as practicable after Closing, Purchaser shall record the (i) Assignment and Bill of Sale in the appropriate counties as well as with all appropriate governmental agencies, (ii) forms prescribed by the applicable Governmental Body to transfer status of operator from Seller to Purchaser with respect to Seller Operated Assets that are wholly owned by Seller, and (iii) assignments necessary to convey to Purchaser all federal or state leases, if any, in the form as prescribed by the applicable Governmental Body and provide Seller with copies of all recorded or approved instruments.
Section 11.7 Independent Investigation.
In making the decision to enter into this Agreement and consummate the transactions contemplated hereby, Purchaser has relied exclusively on Purchaser's own investigation and analysis of the condition, value, characteristics and qualities of the Assets. Seller hereby expressly disclaims and negates any representation or warranty, express, implied, at common law, by statute or otherwise, other than the warranty made in Section 3.1, the express representations and warranties made in Article 5, the certificate of Seller to be delivered pursuant to Section 9.2(d) and the special warranty of title in the Assignment and Bill of Sale relating to the Assets.
Section 11.8 Disclaimer Regarding Information.
Seller hereby expressly negates and disclaims, and Purchaser hereby waives and acknowledges that Seller has not made, any representation or warranty, express or implied, relating to (a) the accuracy, completeness or materiality of any information, Records, data or other materials (written or oral) now, heretofore, or hereafter furnished to Purchaser by or on behalf of Seller or (b) production rates, recompletion or rework opportunities, decline rates, geological or geophysical data or interpretations, the quality, quantity, recoverability or cost of recovery of any Hydrocarbon reserves, any product pricing assumptions, or the ability to sell or market any Hydrocarbons after Closing.
Section 11.9 Waiver of Trade Practices Acts.
(a) The Purchaser's rights and remedies with respect to this Agreement and with respect to all acts or practices of Seller, past, present or future, in connection with this Agreement shall be governed by legal principles other than the DTPA. Purchaser hereby waives the applicability of the DTPA to this Agreement and any and all duties, rights or remedies that might be imposed by the DTPA, whether such duties, rights and remedies are applied directly by the DTPA itself or indirectly in connection with other statutes; provided, however, Purchaser does not waive Section 17.555 of the DTPA.
(b) Purchaser expressly recognizes that the price for which Seller has agreed to perform Seller's obligations under this Agreement has been predicated upon the inapplicability of the DTPA and Purchaser's agreement to waive the applicability of the DTPA. Purchaser further recognizes that Seller, in determining to proceed with the entering into of this Agreement, has expressly relied on such waiver by Purchaser and the inapplicability of the DTPA.
Section 11.10 Post-Closing Audit Rights.
Following Closing, Seller shall have the same rights of a non-operator as Purchaser has under joint operating agreements covering the Assets to audit the books and records of the operators of any of the Assets. Seller shall be entitled to collect from operators all amounts claimed due for any period of time prior to the Effective Time as a result of audits.
ARTICLE 12
MISCELLANEOUS
Section 12.1 Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement.
Section 12.2 Notice.
All notices which are required or may be given pursuant to this Agreement shall be sufficient in all respects if given in writing and delivered personally, by facsimile or by registered or certified mail, postage prepaid, as follows:
If to Seller:
Smith Production Inc.
14425 Torrey Chase, Suite 190
Houston, Texas 77014
Attention: Glenn R. Smith
Telephone: 281.583.0196
Facsimile: 281.893.6396
If to Purchaser:
Fidelity Exploration & Production Company
Attention: Darwin L. Subart
1700 Lincoln, Suite 4600
Denver CO 80203
Telephone: (303) 893-3313
Telecopy: (720)931-9646
Either Party may change its address by notice to the other in the manner set forth above. All notices shall be deemed to have been duly given at the time of receipt by the party to which such notice is addressed.
Section 12.3 Binding Agreement
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
Section 12.4 Expenses.
All expenses incurred by Seller in connection with or related to the authorization, preparation or execution of this Agreement, the Assignment and Bill of Sale delivered hereunder and the Exhibits hereto, and all other matters related to the Closing, including without limitation, all fees and expenses of counsel, accountants and financial advisers, shall be borne solely and entirely by the party incurring same.
Section 12.5 Change of Name.
As promptly as practicable, but in any case within thirty
(30) days after the Closing Date, Purchaser shall eliminate
Seller's name and any variants thereof from the Assets
acquired pursuant to this Agreement and, except with respect
to such grace period for eliminating existing usage,
Purchaser shall have no right to use any logos, trademarks
or trade names belonging to Seller or any of its Affiliates.
Section 12.6 Construction.
Both Seller and Purchaser have had (i) substantial input into the drafting and preparation of this Agreement and (ii) the opportunity to exercise business discretion in relation to the negotiation of the details of the transaction contemplated hereby. This Agreement is the result of arm's- length negotiations from equal bargaining positions and shall not be construed against either party.
Section 12.7 Governing Law.
This Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of Texas without regard to principles of conflicts of laws otherwise applicable to such determinations.
Section 12.8 Captions.
The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.
Section 12.9 Waivers.
Any failure by any party or parties to comply with any of its or their obligations, agreements or conditions herein contained may be waived in writing, but not in any other manner, by the party or parties to whom such compliance is owed. No waiver of, or consent to a change in, any of the provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
Section 12.10 Assignment.
No party shall assign all or any part of this Agreement, nor shall any party assign or delegate any of its rights or duties hereunder, without the prior written consent of the other party and any assignment or delegation made without such consent shall be void.
Section 12.11 Entire Agreement.
The Confidentiality Agreement, this Agreement and the documents to be executed hereunder and the Exhibits attached hereto constitute the entire agreement between the parties pertaining to the subject matter hereof, and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties pertaining to the subject matter hereof.
Section 12.12 Amendment.
(a) This Agreement may be amended or modified only by an agreement in writing executed by both parties.
(b) No waiver of any right under this Agreement shall be binding unless executed in writing by the party to be bound thereby.
Section 12.13 No Third-Party Beneficiaries.
Nothing in this Agreement shall entitle any Person other than Purchaser and Seller to any claims, cause of action, remedy or right of any kind.
Section 12.14 References.
In this Agreement:
(a) References to any gender include a reference to all other genders;
(b) References to the singular include the plural, and vice versa;
(c) Reference to any Article or Section means an Article or Section of this Agreement;
(d) Reference to any Exhibit means an Exhibit that is incorporated into and made a part of this Agreement;
(e) Unless expressly provided to the contrary, "hereunder", "hereof", "herein" and words of similar import are references to this Agreement as a whole and not any particular Section or other provision of this Agreement; and
(f) "Include" and "including" shall mean include or including without limiting the generality of the description preceding such term.
IN WITNESS WHEREOF, this Agreement has been signed by each of the parties hereto on the dates shown below to be effective as of the Effective Time.
SELLER: PURCHASER: Smith Production Inc. Fidelity Exploration & Production Company By: /s/ GLENN R. SMITH By: /s/ DARWIN L. SUBART Printed Name: Glenn R. Smith Printed Name: Darwin L. Subart Title: President Title: President Date: April 19, 2005 Date: April 19, 2005 |
PURCHASE AND SALE AGREEMENT
BETWEEN
SMITH PRODUCTION INC.
AS SELLER
AND
FIDELITY EXPLORATION & PRODUCTION COMPANY
AS PURCHASER
Table of Contents
Exhibits
Definitions
Article 1 Purchase and Sale
Section 1.1 Purchase and Sale
Section 1.2 Assets
Section 1.3 Excluded Assets
Section 1.4 Effective Time
Section 1.5 Delivery and Maintenance of Records
Section 1.6 Proration of Costs and Revenues
Article 2 Purchase Price
Section 2.1 Purchase Price
Section 2.2 Adjustments to Purchase Price
Section 2.3 Allocation of Purchase Price
Section 2.4 Deposit
Article 3 Title Matters
Section 3.1 Seller's Title
Section 3.2 Defensible Title
Section 3.3 Permitted Encumbrances
Section 3.4 Notice of Title Defects
Section 3.5 Consents to Assignment and Preferential Rights to Purchase
Section 3.6 Casualty Loss
Section 3.7 Condemnation Loss
Section 3.8 Limitations on Applicability
Article 4 Environmental Matters
Section 4.1 Environmental Assessment
Section 4.2 Notice of Material Adverse Environmental Condition
Section 4.3 Environmental Remedies
Section 4.4 Limitations
Article 5 Representations and Warranties of Seller
Section 5.1 Disclaimers
Section 5.2 Existence and Qualification
Section 5.3 Power
Section 5.4 Authorization and Enforceability
Section 5.5 No Conflicts
Section 5.6 Purchaser's Liability for Brokers' Fees
Section 5.7 Litigation
Section 5.8 Taxes and Assessments
Section 5.9 Outstanding Capital Commitments
Section 5.10 Compliance with Laws
Section 5.11 Contracts
Section 5.12 Payments
Section 5.13 Gas Imbalances
Section 5.14 Governmental Authorizations
Section 5.15 Consents to Assignments and Preferential Purchase Rights
Section 5.16 Non-foreign Person
Section 5.17 Payout Balances
Section 5.18 Condemnation
Section 5.19 Bankruptcy
Section 5.20 PUHCA/NGA
Section 5.21 Investment Company
Section 5.22 Suspense Accounts
Article 6 Representations and Warranties of Purchaser
Section 6.1 Existence and Qualification
Section 6.2 Power
Section 6.3 Authorization and Enforceability
Section 6.4 No Conflicts
Section 6.5 Seller's Liability for Brokers' Fees
Section 6.6 Litigation
Section 6.7 Financing
Section 6.8 Texas Deceptive Trade Practices Consumer Protection Act
Section 6.9 No Reliance
Article 7 Covenants of the Parties
Section 7.1 Access
Section 7.2 Government Reviews
Section 7.3 Notification of Breaches
Section 7.4 Letters-in-Lieu; Assignments and Bills of Sale; Operator
Section 7.5 Public Announcements
Section 7.6 Operation of Business
Section 7.7 Indemnity Regarding Access
Section 7.8 Gas Imbalances and Take-or-Pay Make-up Obligations
Section 7.9 Consents and Preferential Rights
Section 7.10 Tax Matters
Section 7.11 Further Assurances
Section 7.12 Transition Services
Section 7.13 Replacement of Bonds, Letters of Credit and Guarantees
Section 7.14 Like-Kind Exchange
Section 7.15 Arbitration
Article 8 Conditions to Closing
Section 8.1 Conditions of Seller to Closing
Section 8.2 Conditions of Purchaser to Closing
Article 9 Closing
Section 9.1 Time and Place of Closing
Section 9.2 Obligations of Seller at Closing
Section 9.3 Obligations of Purchaser at Closing
Section 9.4 Closing Payment and Post-Closing Purchase Price Adjustments
Article 10 Termination
Section 10.1 Termination
Section 10.2 Effect of Termination
Section 10.3 Distribution of Deposit Upon Termination
Article 11 Post-Closing Obligations; Indemnification; Limitations;
Disclaimers and Waivers
Section 11.1 Receipts
Section 11.2 Expenses
Section 11.3 Assumption and Indemnification
Section 11.4 Indemnification Actions
Section 11.5 Survival
Section 11.6 Recording
Section 11.7 Independent Investigation
Section 11.8 Disclaimer Regarding Information
Section 11.9 Waiver of Trade Practices Acts
Section 11.10 Post-Closing Audit Rights
Article 12 Miscellaneous
Section 12.1 Counterparts
Section 12.2 Notice
Section 12.3 Binding Agreement
Section 12.4 Expenses
Section 12.5 Change of Name
Section 12.6 Construction
Section 12.7 Governing Law
Section 12.8 Captions
Section 12.9 Waivers
Section 12.10 Assignment
Section 12.11 Entire Agreement
Section 12.12 Amendment
Section 12.13 No Third-Party Beneficiaries
Section 12.14 References
|
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement is by and between Smith Production Inc., a Texas corporation, and Fidelity Exploration & Production Company, a Delaware corporation.
In consideration of the mutual promises and other valuable consideration recited herein, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
DEFINITIONS
"AFE" shall mean authority for expenditure as used in
Section 5.9.
"Adjustment Period" shall mean the period of time commencing at the Effective Time and ending on the Closing Date as discussed in Section 2.2.
"Adjusted Purchase Price" shall mean the Purchase Price
after calculating and applying
the adjustments set forth in Section 2.2.
"Affiliates" with respect to any Person, means any person that directly or indirectly controls, is controlled by or is under common control with such Person.
"Agreement" shall mean this Purchase and Sale Agreement.
"Allocated Value" shall mean the allocation of the unadjusted Purchase Price among each of the Assets as described in Section 2.3.
"Assets" shall mean the property and property rights set forth in Section 1.2.
"Assignment and Bill of Sale" shall mean the conveyance document by which Seller conveys the Assets to Purchaser as described in Section 3.1(b).
"Assumed Obligations" has the meaning set forth in Section 11.3(a).
"Business Day" means each calendar day except Saturdays, Sundays, and Federal holidays.
"Closing" has the meaning set forth in Section 9.1(a).
"Closing Date" has the meaning set forth in Section 9.1(b).
"Closing Payment" has the meaning set forth in Section 9.4(a).
"Code" has the meaning set forth in Section 2.3(a).
"Confidentiality Agreement" has the meaning set forth in Section 7.1(a).
"Contracts" has the meaning set forth in Section 1.2(d).
"Damages" has the meaning set forth in Section 11.3(e).
"Defensible Title" has the meaning set forth in Section 3.2.
"Deposit" has the meaning set forth in Section 2.4.
"DTPA" has the meaning set forth in Section 6.8.
"Effective Time" has the meaning set forth in Section 1.4.
"Environmental Assessment" has the meaning set forth in Section 4.1.
"Environmental Laws" means, as the same have been amended as
of the Effective Time, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.;
the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq.; the Federal Water Pollution Control Act, 33
U.S.C. Section 1251 et seq.; the Clean Air Act, 42 U.S.C.
Section 7401 et seq. the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1471 et seq., the Toxic Substances
Control Act, 15 U.S.C. Section Section 2601 through 2629;
the Oil Pollution Act, 33 U.S.C. Section 2701 et seq.; the
Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001 et seq.; and the Safe Drinking Water
Act, 42 U.S.G. Section Section 300f through 300j; and all
similar Laws as of the Effective Time of any Governmental
Body having jurisdiction over the Properties addressing
pollution or protection of the environment and all
regulations implementing the foregoing.
"Environmental Liabilities" shall mean, with respect to the
Properties, any and all environmental response costs, costs
to cure, restoration costs, costs of remediation,
settlements, penalties, fines, attorney fees, and Damages
(i) related to a Material Adverse Environmental Condition
regardless of whether same occurred PRIOR TO, AT OR AFTER
THE EFFECTIVE TIME and/or (ii) incurred or imposed pursuant
to any claim or cause of action by a Governmental Body or
other Person for remediation or response costs or any
remediation obligation or Damages arising out of any
violation of any Environmental Law which is attributable to
the ownership or operation of the Properties PRIOR TO, AT OR
AFTER THE EFFECTIVE TIME.
"Equipment" has the meaning set forth in Section 1.2(f).
"Excluded Assets" has the meaning set forth in Section 1.3.
"Flores Field Agreement" shall mean that certain second Purchase and Sale Agreement between Seller and Purchaser covering an undivided fifty percent (50%) of Seller's interest in the Flores Field, located in Hidalgo County, Texas and Starr County, Texas, prepared contemporaneously with the preparation and execution of this Agreement.
"Governmental Authorization" has the meaning set forth in
Section 5.14.
"Governmental Body" means any federal, state, local, municipal or other governmental regulatory agency, administrative agency, commission, court, tribunal, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing powers.
"HSR Act" means the Hart-Scott Rodino Antitrust Improvements Act of 1976 as discussed in Section 7.2.
"Hydrocarbons" shall mean oil, gas, condensate, other gaseous and liquids products and all products attributable thereto, produced from or attributable to the Properties.
"Indemnification Notice" has the meaning set forth in
Section 11.4(b).
"Indemnify" has the meaning set forth in Section 11.3(b).
"Indemnified Party" has the meaning set forth in Section 11.4(a).
"Indemnifying Party" has the meaning set forth in Section 11.4(a).
"Lands" has the meaning set forth in Section 1.2(a).
"Laws" means all statutes, rules, regulations, ordinances, orders, and codes of Governmental Bodies.
"Leases" has the meaning set forth in Section 1.2(a).
"Litigation Expenses" has the meaning set forth in Section 11.3(b)(ix).
"Material Adverse Environmental Condition" shall mean, with respect to the Properties, any violations of Environmental Laws; any condition that is required to be remediated or cured under applicable Environmental Laws in effect at the time of the Environmental Assessment; the failure to remediate or cure any condition that is required to be remediated or cured under applicable Environmental Laws in effect at the time of the Environmental Assessment; any action or proceeding before any Governmental Body alleging potential liability arising out of or resulting from any actual or alleged violation of, or any remedial obligation under, any Environmental Law with respect to the Properties or notice of same to Seller by any Person.
"Net Revenue Interest" shall mean an ownership interest, expressed either as a decimal or percentage, in the stream of revenues attributable to the Assets, net of all burdens, as discussed in Section 3.2(a).
"Permitted Encumbrances" has the meaning set forth in
Section 3.3.
"Person" means any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, government or agency or subdivision thereof or any other entity.
"Properties" shall mean the Units, Leases, Lands and Wells.
"Property Costs" shall mean all operating expenses and
capital expenditures incurred in the ownership and operation
of the Assets and, where applicable, in accordance with the
relevant operating or unit agreement, and overhead costs
charged to the Assets under the relevant operating agreement
or unit agreement, if any. Property Costs shall include
costs of insurance and ad valorem, property, severance,
production and similar Taxes based upon or measured by the
ownership or operation of the Assets or the production of
Hydrocarbons therefrom, but excluding any other Taxes.
Property Costs shall not include liabilities and expenses
attributable to (i) claims, investigations, administrative
proceedings or litigation directly or indirectly arising out
of or resulting from actual or claimed personal injury or
death, property damage or violation of any Law, (ii)
obligations to plug wells, dismantle facilities, close pits
and restore the surface around such wells, facilities and
pits, (iii) obligations to remediate or cure any
contamination of groundwater, surface water, soil or
Equipment under applicable Environmental Laws, (iv)
obligations to furnish make-up gas according to the terms of
applicable gas sales, gathering or transportation contracts,
(v) gas balancing obligations, (vi) obligations related to
the Excluded Assets and (vii) obligations to pay Working
Interests, royalties, overriding royalties or other
interests held in suspense.
"Purchase Price" has the meaning set forth in Section 2.1.
"Purchaser" shall mean Fidelity Exploration & Production Company.
"Purchaser Indemnitees" shall mean Purchaser, its officers, directors, shareholders, members, employees, agents, representatives, Affiliates and subsidiaries.
"Purchaser's Indemnification Obligations" shall mean those obligations described in Section 11.3(b).
"Records" has the meaning set forth in Section 1.2(h).
"Seller" shall mean Smith Production Inc.
"Seller Operated Assets" shall mean Assets operated by Seller.
"Seller Indemnitees" shall mean Seller, its officers, directors, shareholders, members, employees, agents, representatives, Affiliates and subsidiaries.
"Seller's Indemnification Obligations" shall mean those obligations described in Section 11.3(c).
"Surface Contracts" has the meaning set forth in Section 1.2(e).
"Tax(es)" means all federal, state, local and foreign
income, profits, franchise, sales, use,
ad valorem, property, severance, production, excise, stamp,
documentary, real property transfer or gain, gross receipts,
goods and services, registration, capital, transfer, or
withholding Taxes or other governmental fees or charges
imposed by any taxing authority, including any interest,
penalties or additional amounts which may be imposed with
respect thereto.
"Tax Returns" has the meaning set forth in Section 5.8.
"Third Party Claim" has the meaning set forth in Section 11.4(b).
"Title Benefit" shall mean any right or condition that
operates to increase the Net Revenue Interest of Seller in
any Property above the Net Revenue Interest shown on Exhibit
1.2(b), without causing a proportionate increase in Seller's
Working Interest as shown in Exhibit 1.2(b) as discussed in
Section 3.2.
"Title Benefit Amount" has the meaning set forth in Section 3.4(e).
"Title Benefit Notice" has the meaning set forth in Section 3.4(b).
"Title Claim Date" has the meaning set forth in Section 3.4(a).
"Title Defect" has the meaning set forth in Section 3.2.
"Title Defect Amount" has the meaning set forth in Section 3.4(d)(i).
"Title Defect Notice" has the meaning set forth in Section 3.4(a).
"Title Defect Property" has the meaning set forth in Section 3.4(a).
"Units" has the meaning set forth in Section 1.2(c).
"Wells" has the meaning set forth in Section 1.2(b).
"Working Interest" shall mean the gross leasehold ownership interest in the Leases, or, as the case may be, the gross ownership interest in fee minerals or other types of interests which are included within the Assets, as discussed in Section 3.2(b).
ARTICLE 1
PURCHASE AND SALE
Section 1.1 Purchase and Sale.
At the Closing, and upon the terms and subject to the conditions of this Agreement, Seller agrees to sell and convey the Assets to Purchaser and Purchaser agrees to purchase, accept and pay for the Assets.
Section 1.2 Assets.
As used herein, "Assets" means all of Seller's right, title and interest in the following property rights described in 1.2(a) through 1.2(h), inclusive, as follows:
(a) Oil, gas and mineral leases; subleases and other leaseholds; carried interests; farmout rights; options; and other properties and interests as described on Exhibit 1.2(a) attached hereto, subject to such depth limitations, exclusions and other restrictions as described on Exhibit 1.2 (a) (collectively, the "Leases") and all tenements, hereditaments and appurtenances belonging to the Leases, together with each and every kind and character of right, title, claim, and interest that Seller has in and to the Leases and the lands covered thereby, pooled, unitized or communitized therewith (the "Lands");
(b) Oil, gas, water, disposal or injection wells located on the Lands, whether producing, not producing, shut-in, temporarily abandoned or permanently abandoned, including the interests in the wells as described on Exhibit 1.2(b) attached hereto (the "Wells");
(c) Units which include all or portions of the Leases, Lands or Wells as described on Exhibit 1.2(c) attached hereto (the "Units") including production from any such Unit, whether such Unit production comes from Wells located on or off of a Lease, and all tenements, hereditaments and appurtenances belonging to the Units;
(d) Contracts, agreements, orders and instruments by which the Assets are bound or to which the Assets are subject, or that relate to or are otherwise applicable to the Assets, to the extent applicable to the Assets rather than Seller's other properties, including, without limitation, operating agreements, unitization, pooling and communitization agreements, declarations and orders, joint venture agreements, farmin and farmout agreements, water rights agreements, exploration agreements, participation agreements, exchange agreements, transportation or gathering agreements, agreements for the sale and purchase of oil, gas, casinghead gas or processing agreements to the extent applicable to the Assets or the production of oil and gas and other minerals and products produced in association therewith from the Assets (all of which are hereinafter collectively referred to as "Contracts") but excluding any Contracts to the extent transfer is restricted by third-party agreement or applicable law and the necessary consents to transfer are not obtained pursuant to Section 7.9; provided that "Contracts" shall not include the Leases;
(e) Easements, permits, licenses, servitudes, rights-of- way, surface leases and other surface rights ("Surface Contracts") appurtenant to, and used or held for use primarily in connection with the Properties, excluding any Surface Contracts to the extent transfer is restricted by third-party agreement or applicable law and the necessary consents to transfer are not obtained pursuant to Section 7.9;
(f) Equipment, machinery, fixtures, facilities and improvements located on the Properties including, without limitation, all tanks, boilers, injection facilities, saltwater disposal facilities, compression facilities, pumping units and engines, flow lines, pipelines, gathering systems, gas and oil treating facilities, machinery, power lines, telephone and telegraph lines, roads, and other appurtenances, but excluding (i) vehicles, (ii) computers and related peripheral equipment, (iii) communications equipment and (iv) communications licenses granted by the Federal Communications Commission or other governmental agency (subject to such exclusions, the "Equipment");
(g) Hydrocarbons produced from or attributable to the Properties from and after the Effective Time and all oil, gas, condensate and imbalances with co-owners and with pipelines and all make-up rights with respect to take-or-pay payments; and
(h) To the extent transferable, all non-proprietary and non-confidential lease files; land files; well files; gas and oil sales contract files; gas processing files; division order files; abstracts; title opinions; land surveys; geologic data; that certain 3-D seismic data and geophysical data that was conveyed by Vastar Resources, Inc. to Seller pursuant to that certain Purchase and Sale Agreement between Vastar Resources, Inc., as Seller, and Smith Production Inc., as Purchaser, dated January 21, 1999 covering Tabasco Field and Texan Gardens Field and that certain letter agreement dated April 20, 1999 between Vastar Resources, Inc. and Smith Production Inc.; and non- confidential logs related to the Assets listed above in subsections (a)-(g), inclusive, but excluding (i) any books, records, data, files, maps and accounting records to the extent disclosure or transfer is restricted by third-party agreement or applicable law and the necessary consents to transfer are not obtained pursuant to Section 7.9, (ii) proprietary engineering data, maps and reserve studies, (iii) computer software, (iv) work product of Seller's legal counsel (other than title opinions), (v) records and documents relating to the negotiation and consummation of the sale of the Assets and (vi) corporate, financial, income and franchise tax and legal records of Seller that relate to Seller's business generally (whether or not relating to the Assets) (subject to such exclusions, the "Records"); provided, however, that Seller may retain the originals of such files and other records as Seller has determined may be required for litigation, Tax, accounting, and auditing purposes and provide Purchaser with copies thereof, excluding, however, the Excluded Assets (as defined in Section 1.3).
Section 1.3 Excluded Assets.
Notwithstanding the foregoing, the Assets shall not include the following listed items which are excepted and reserved to Seller and excluded from this Agreement (collectively, the "Excluded Assets"):
(a) The documents, files, records and information excluded in 1.2(h) above;
(b) The equipment, machinery, licenses, fixtures and other tangible personal property excluded in 1.2(f) above;
(c) All rights to any refund of Taxes or other costs or expenses borne by Seller or Seller's predecessors in interest and title attributable to periods prior to the Effective Time;
(d) All rights relating to the existing claims and causes of action described in Exhibit 5.7 hereto;
(e) Seller's bonds, letters of credit, guarantees, permits and licenses;
(f) All trade credits, account receivables, note receivables, take-or-pay amounts receivable, and other receivables attributable to the Assets with respect to any period of time prior to the Effective Time;
(g) All surface estate fee located on the Properties, including, without limitation, all buildings, structures and improvements located on said surface fee estate as more particularly described in Exhibit 1.3;
(h) That certain 3-D seismic data and geophysical data covering approximately 57 square miles of land that was shot, acquired and processed by Synergy Exploration L.L.C. on behalf of Seller which covers the Properties and other land not covered by this Agreement; and
(i) All other items listed in Exhibit 1.3.
Section 1.4 Effective Time.
Seller shall transfer possession of the Assets to Purchaser at the Closing, but the effective time of the transfer of the Assets shall be May 1, 2005 at 7:00 a.m., local time at the location of the Properties (the "Effective Time").
Section 1.5 Delivery and Maintenance of Records.
(a) Seller shall deliver the Records to Purchaser within ten (10) days following Closing. Seller may retain original Records as set forth in Section 1.2(h) and copies of any Records.
(b) For seven (7) years following Closing, Purchaser shall (i) retain the Records, (ii) provide Seller, its officers, employees and representatives with access to the Records during normal business hours for review and copying at Seller's expense and (iii) provide Seller, its officers, employees and representatives with access to materials received or produced after Closing related to any claim for indemnification made under Section 11.3 of this Agreement (excluding, however, attorney work product and attorney-client communications with respect to any such claim being brought by Purchaser and information subject to an applicable confidentiality restriction in favor of third parties) for review and copying at Seller's expense.
Section 1.6 Proration of Costs and Revenues.
(a) Purchaser shall be entitled to all (i) Hydrocarbons
produced from or attributable to the Properties at and
after the Effective Time, (ii) proceeds from the sale
of Hydrocarbons at and after the Effective Time and
(iii) other income, proceeds, receipts and credits
earned with respect to the Assets at or after the
Effective Time. Purchaser shall be liable and
responsible for (and entitled to any refunds with
respect to) all Property Costs incurred at and after
the Effective Time.
(b) Seller shall be entitled to all (i) Hydrocarbons produced from or attributable to the Properties prior to the Effective Time, (ii) proceeds from the sale of Hydrocarbons prior to the Effective Time and (iii) other income, proceeds, receipts and credits earned with respect to the Assets prior to the Effective Time. Seller shall be liable and responsible for (and entitled to any refunds with respect to) all Property Costs incurred prior to the Effective Time.
(c) Right-of-way fees, insurance premiums and other Property Costs that are paid periodically and cannot be accurately identified as being incurred when paid shall be prorated based on the number of days in the applicable period falling before and the number of days in the applicable period falling at or after the Effective Time.
(d) Ad valorem, production, severance and similar Taxes shall be prorated based on the number of units actually produced, purchased or sold or proceeds of sale, as applicable, before, and at or after, the Effective Time. In each case, Purchaser shall be responsible for the portion allocated to the period at and after the Effective Time, and Seller shall be responsible for the portion allocated to the period before the Effective Time.
(e) For purposes of allocating production (and accounts receivable with respect thereto), under this Section 1.6, (i) liquid Hydrocarbons shall be deemed to be "from or attributable to" the Properties when they pass through the pipeline connecting into the storage facilities into which they are run and (ii) gaseous Hydrocarbons shall be deemed to be "from or attributable to" the Properties when they pass through the delivery point sales meters on the pipelines through which they are transported. Seller shall utilize reasonable interpolative procedures to arrive at an allocation of production when exact meter readings or gauging and strapping data is not available. Seller shall provide to Purchaser, no later than four (4) Business Days prior to Closing, all data necessary to support any estimated allocation, for purposes of establishing the adjustment to the Purchase Price pursuant to Section 2.2 hereof that will be used to determine the Closing Payment.
ARTICLE 2
PURCHASE PRICE
Section 2.1 Purchase Price.
The purchase price for the Assets (the "Purchase Price") shall be Seventy Four Million Nine Hundred Twenty Eight Thousand Two Hundred Thirty Six Dollars (U.S. $74,928,236.00) adjusted as provided in Section 2.2.
Section 2.2 Adjustments to Purchase Price.
The Purchase Price for the Assets shall be adjusted as follows:
(a) Reduced by the aggregate amount of the proceeds received by Seller from the sale of Hydrocarbons and other proceeds earned and attributable to the Assets during the Adjustment Period;
(b) Reduced in accordance with Section 3.5, by an amount equal to the Allocated Value of those Properties (i) with respect to which preferential purchase rights have been exercised prior to Closing or (ii) that cannot be transferred at Closing because consents to the assignments of those Properties have not been obtained;
(c) Reduced by the aggregate amounts payable to owners of working interests, royalties and overriding royalties and other interests in the Properties held in suspense by Seller as of the Closing Date unless the suspended funds are transferred by Seller to Purchaser on the Closing Date;
(d) Reduced by Seller's pro-rata share of ad valorem taxes;
(e) Reduced in accordance with Article 3 by amounts as remedies for Title Defects;
(f) Reduced in accordance with Article 4 pursuant to
Section 4.3 regarding environmental matters;
(g) Increased by the amount of all Property Costs which have been paid by Seller and incurred during the Adjustment Period, except for any Property Costs and other such costs already deducted in the determination of proceeds in Section 2.2(a);
(h) Increased or decreased, as appropriate, pursuant to the provisions of Section 7.8 dealing with gas imbalances and/or take-or-pay make-up obligations; and
(i) Increased by the amount of any Title Benefit pursuant to Section 3.4(e).
(j) Increased or decreased by other amounts mutually agreed to by Seller and Purchaser.
All such adjustments shall be determined in accordance with generally accepted accounting principles and Council of Petroleum Accountants Society (COPAS) standards.
The adjustment described in Section 2.2(a) shall serve to satisfy, up to the amount of the adjustment, Purchaser's entitlement under Section 1.6 to Hydrocarbon production from or attributable to the Properties during the Adjustment Period, and to the other income, proceeds, receipts and credits earned with respect to the Assets during the Adjustment Period. Purchaser shall not have any separate rights to receive any production or income, proceeds, receipts and credits with respect to which an adjustment has been made. Similarly, the adjustment described in Section 2.2(g) shall serve to satisfy, up to the amount of the adjustment, Purchaser's obligation under Section 1.6 to pay Property Costs and other costs attributable to the ownership and operation of the Assets which are incurred during the Adjustment Period. Purchaser shall not be separately obligated to pay for any Property Costs or other such costs with respect to which an adjustment has been made.
Section 2.3 Allocation of Purchase Price.
(a) Simultaneous with the execution of this Agreement,
Purchaser will deliver to Seller a draft allocation of the
unadjusted Purchase Price among each of the Assets, which has been
made in compliance with the principles of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"),
and the Treasury regulations thereunder. Within two (2)
Business Days after Seller has received Purchaser's
draft allocation, Seller and Purchaser will attempt to
agree on the final allocation of the unadjusted
Purchase Price among each of the Assets; provided,
however, that in no event shall any such allocation of
value be deemed final until Seller and Purchaser have
approved the same in writing. Once approved by all
parties, such allocation of value shall be attached to
this Agreement as Exhibit 2.3. The "Allocated Value"
for any Asset shall equal the portion of the unadjusted
Purchase Price allocated to such Asset on Exhibit 2.3,
increased or decreased by its respective proportionate
share of the price adjustments described in Section
2.2. After Seller and Purchaser have agreed on the
Allocated Values for the Assets, Seller and Purchaser
will be deemed to have accepted such Allocated Values
for purposes of this Agreement and the transactions
contemplated hereby. Seller, however, makes no
representation or warranty to Purchaser as to the
accuracy of such values. Seller and Purchaser agree (i)
that the Allocated Values shall be used by Seller and
Purchaser as the basis for notices to holders of
preferential rights to purchase and (ii) that neither
Seller nor Purchaser will take positions inconsistent
with the Allocated Values in notices to government
authorities, in audit or other proceedings with respect
to Taxes, in notices to holders of preferential rights
to purchase. Purchaser and Seller further agree that,
on or before the Closing Date, they will mutually agree
as to the further allocation of the Allocated Values
included in Exhibit 2.3 as to the relative portion of
those values attributable to leasehold costs and
depreciable Equipment.
(b) In the event that Seller and Purchaser are unable to agree as to the Allocated Values, at the sole election of Seller, (i) this Agreement may be terminated unilaterally by Seller, in which case Purchaser shall be entitled to an immediate refund of the Deposit from Seller, or (ii) the dispute may be submitted to arbitration as provided in Section 7.15 below.
Section 2.4 Deposit.
Concurrently with the execution of this Agreement, Purchaser shall wire transfer to Seller an earnest money deposit in an amount equal to five percent (5 %) of the Purchase Price (the "Deposit"). The Deposit shall be applied against the Purchase Price if the Closing occurs or shall be otherwise distributed in accordance with the terms of this Agreement.
ARTICLE 3
TITLE MATTERS
Section 3.1 Seller's Title.
(a) Seller represents and warrants to Purchaser that Seller's title to the Wells shown on Exhibit 1.2(b) and the Units shown on Exhibit 1.2(c) as of the Effective Time is (and as of the Closing Date shall be) Defensible Title.
(b) The Assignment and Bill of Sale to be delivered by Seller to Purchaser shall be in form identical to the assignment shown on Exhibit 3.1(b) attached hereto and shall contain a special warranty of title by, through and under Seller, but not otherwise, to the Leases shown on Exhibit 1.2(a), subject to the Permitted Encumbrances. Otherwise, the Assignment and Bill of Sale shall be without warranty of title, express, implied, statutory or otherwise. The Assignment and Bill of Sale shall transfer to Purchaser all rights or actions on title warranties given or made by Seller's predecessors (other than Affiliates of Seller), to the extent Seller may legally transfer such rights.
(c) Purchaser shall not be entitled to protection under Seller's special warranty of title in the Assignment and Bill of Sale against any Title Defect reported by Purchaser to Seller under this Article 3. All reported Title Defects shall be covered by the provisions of Article 3 and are expressly excluded from protection under Seller's special warranty of title in the Assignment and Bill of Sale.
Section 3.2 Defensible Title.
As used in this Agreement, the term "Defensible Title" means that title of Seller which, subject to Permitted Encumbrances:
(a) Entitles Seller to receive a share of the Hydrocarbons produced, saved and marketed from any Unit or Well throughout the duration of the productive life of such Unit or Well after satisfaction of all royalties, overriding royalties, nonparticipating royalties, net profits interests or other similar burdens on or measured by production of Hydrocarbons (a "Net Revenue Interest") of not less than the Net Revenue Interest share shown in Exhibit 1.2(b) for the Wells and Exhibit 1.2(c) for the Units, except decreases in connection with those operations in which Seller may after the Effective Time be a non-consenting co-owner, decreases resulting from the establishment or amendment after the Effective Time of units, and decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past under deliveries;
(b) Obligates Seller to bear a percentage of the Property Costs relating to any Unit or Well not greater than the "Working Interest" shown in Exhibit 1.2(b) for Wells and Exhibit 1.2(c) for Units without increase throughout the productive life of such Wells or Units except increases resulting from contribution requirements with respect to defaulting co-owners under applicable operating agreements and increases that are accompanied by at least a proportionate increase in Seller's Net Revenue Interest; and
(c) Is free and clear of liens, encumbrances, obligations, security interests, pledges or other defects.
The term "Title Defect" shall mean any liens, encumbrances,
obligations, security interests, pledges or other defects,
including, without limitation, discrepancies in Net Revenue
Interest or Working Interest, that cause a breach of
Seller's representation and warranty of Defensible Title in
Section 3.1(a).
The term "Title Benefit" shall mean any right, circumstance or condition that operates to increase the Net Revenue Interest of Seller in any Property above that shown on Exhibit 1.2(b) and Exhibit 1.2(c), without causing a greater than proportionate increase in Seller's Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c).
Section 3.3 Permitted Encumbrances.
As used herein, the term "Permitted Encumbrances" shall mean any or all of the following:
(a) Royalties and any overriding royalties, reversionary interests and other burdens to the extent that they do not, individually or in the aggregate, reduce Seller's Net Revenue Interest below that shown in Exhibit 1.2(b) and Exhibit 1.2(c) or increase Seller's Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c) without a corresponding increase in the Net Revenue Interest;
(b) All Leases, unit agreements, pooling agreements, operating agreements, production sales contracts, division orders and other Contracts applicable to the Assets, to the extent that they do not, individually or in the aggregate, reduce Seller's Net Revenue Interest below that shown in Exhibit 1.2(b) and Exhibit 1.2(c) or increase Seller's Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c) without a corresponding increase in the Net Revenue Interest;
(c) Preferential rights to purchase the Assets with respect to which, prior to Closing, (i) waivers are obtained from the holders of such preferential rights to purchase and/or (ii) the appropriate time period for asserting such rights has expired without an exercise of such rights;
(d) Third-party consent to assignment requirements and similar restrictions with respect to which waivers or consents are obtained by Seller from the appropriate parties prior to the Closing Date or the appropriate time period for asserting the right has expired or which need not be satisfied prior to a transfer;
(e) Liens for current Taxes or assessments not yet delinquent or, if delinquent, being contested in good faith by appropriate actions;
(f) Liens or charges arising in the ordinary course of business for amounts not yet delinquent (including any amounts being withheld as provided by law), or if delinquent, being contested in good faith by appropriate actions;
(g) All rights to consent, by required notices to, filings with, or other actions by Governmental Bodies in connection with the sale or conveyance of oil and gas leases or interests therein if they are not required prior to the sale or conveyance;
(h) Rights of reassignment arising upon final intention to abandon or release the Assets, or any of them;
(i) Easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations to the extent that they do not, individually or in the aggregate, reduce Seller's Net Revenue Interest below that shown in Exhibits 1.2(b) and Exhibit 1.2(c) or increase Seller's Working Interest above that shown in Exhibits 1.2(b) and Exhibit 1.2(c) without a corresponding increase in Net Revenue Interest;
(j) Calls on production under existing Contracts;
(k) All rights reserved to or vested in any Governmental Body to control or regulate any of the Assets in any manner and all obligations and duties under all applicable laws, rules and orders of any such Governmental Body or under any franchise, grant, license or permit issued by any such Governmental Body;
(l) Any encumbrance affecting the Assets which is discharged by Seller prior to or at Closing or which is expressly assumed, bonded or paid by Purchaser prior to or at Closing;
(m) Any matters shown on Exhibit 1.2(a), Exhibit 1.2(b) and Exhibit 1.2(c); and
(n) Any other liens, charges, encumbrances, defects or irregularities which do not, individually or in the aggregate, materially detract from the value of or materially interfere with the use or ownership of the Assets subject thereto or affected thereby (as currently used or owned), which would be accepted by a reasonably prudent Purchaser engaged in the business of owning and operating oil and gas Assets, and which do not reduce Seller's Net Revenue Interest below that shown in Exhibit 1.2(b) and Exhibit 1.2(c), or increase Seller's Working Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c) without a corresponding increase in Net Revenue Interest.
Section 3.4 Notice of Title Defects.
(a) To assert a claim arising out of a breach of Seller's representation and warranty of Defensible Title in Section 3.1(a), Purchaser must deliver claim notices to Seller (each a "Title Defect Notice") on or before ten (10) Business Days prior to the Closing Date (the "Title Claim Date"), except as otherwise provided in Sections 3.5, 3.6 or 3.7. Each Title Defect Notice shall be in writing and shall include (i) a description of the alleged Title Defect(s), (ii) the Leases, Units or Wells affected by the Title Defect (each a "Title Defect Property"), (iii) the Allocated Values of each Title Defect Property, (iv) supporting documents reasonably necessary for Seller (as well as any title attorney or examiner hired by Seller) to verify the existence of the alleged Title Defect(s) and (v) the amount by which Purchaser reasonably believes the Allocated Values of each Title Defect Property are reduced by the alleged Title Defect(s) and the computations and information upon which Purchaser's belief is based. Purchaser shall be deemed to have waived all breaches of Seller's representation and warranty of Defensible Title in Section 3.1(a) of which Seller has not been given notice on or before the Title Claim Date.
(b) Seller shall have the right, but not the
obligation, to deliver to Purchaser on or before the
Title Claim Date with respect to each Title Benefit a
notice (a "Title Benefit Notice") including (i) a
description of the Title Benefit, (ii) the Leases,
Units or Wells affected, (iii) the Allocated Values of
the Units or Wells subject to such Title Benefit and
(iv) the amount by which the Seller reasonably believes
the Allocated Value of those Units or Wells is
increased by the Title Benefit, and the computations
and information upon which Seller's belief is based.
Seller shall be deemed to have waived all Title
Benefits of which it has not given notice on or before
the Title Claim Date.
(c) In the event that Seller receives a Title Defect Notice, Seller shall have the right, but not the obligation, to attempt, at its sole cost, to cure or remove any Title Defects of which it has been advised by Purchaser in the Title Defect Notice prior to Closing.
(d) Remedies for Title Defects.
In the event that any Title Defect is not waived by Purchaser or cured on or before Closing, Seller shall, at its sole election, select one of the following options which shall apply regarding uncured Title Defects:
(i) The Purchase Price shall be reduced by an amount agreed upon ("Title Defect Amount") pursuant to Section 3.4(g) or 3.4(i) by Purchaser and Seller as being the value of such Title Defect, taking into consideration the Allocated Value of the Property subject to such Title Defect, the portion of the Property subject to such Title Defect and the legal effect of such Title Defect on the Property affected thereby;
(ii) Purchaser and Seller shall enter into a separate written agreement whereby Seller will as soon as reasonably practicable after Closing, at the sole cost and expense of Seller, cure or remove such Title Defects to Purchaser's reasonable satisfaction; or
(iii) Seller shall retain the affected Property, in which event the affected Property shall be deleted from this Agreement and the Purchase Price shall be reduced by an amount equal to the Allocated Value of such affected Property.
In the event that Seller elects to proceed under
Section 3.4(d)(i) and, after a reasonable time for good
faith negotiation, Purchaser and Seller have failed to
agree on the amount by which the Purchase Price should
be reduced by Closing, then in such event, Seller, at
Seller's sole election, may select one of the other
options in 3.4(d), unilaterally terminate this
Agreement, in which case Purchaser shall be entitled to
an immediate refund of the Deposit from Seller, or the
dispute may be submitted to arbitration as provided in
Section 7.15.
(e) With respect to each Unit or Well affected by Title Benefits reported under Section 3.4(b), the Purchase Price shall be increased by an amount (the "Title Benefit Amount") equal to the increase in the Allocated Value for such Unit or Well caused by such Title Benefits, as determined pursuant to Section 3.4(h). The Closing Payment shall be increased by such Title Benefit Amount.
(f) Section 3.4(d) shall be the exclusive right and
remedy of Purchaser with respect to Seller's breach of
its warranty and representation of Defensible Title in
Section 3.1(a).
(g) The Title Defect Amount resulting from a Title Defect shall be determined as follows:
(i) if Purchaser and Seller mutually agree upon the Title Defect Amount, that amount shall be the Title Defect Amount;
(ii) if the Title Defect is a lien, encumbrance or other charge which is undisputed and the amount of same can be exactly determined and agreed upon by Purchaser and Seller, then the Title Defect Amount shall be the amount necessary to be paid to remove the Title Defect from the Title Defect Property;
(iii) if the Title Defect represents a discrepancy between (A) the Net Revenue Interest for any Title Defect Property (which has been agreed to by Seller and Purchaser) and (B) the Net Revenue Interest or percentage stated on Exhibit 1.2(b) and Exhibit 1.2(c), then the Title Defect Amount shall be the product of the Allocated Value of such Title Defect Property multiplied by a fraction, the numerator of which is the Net Revenue Interest for the Title Defect Property and the denominator of which is the Net Revenue Interest or percentage ownership stated on Exhibit 1.2(b) and Exhibit 1.2(c); and
(iv) if the Title Defect represents an obligation, encumbrance, burden or charge upon or other defect in title to the Title Defect Property of a type not described in subsections (i), (ii) or (iii) above, the Title Defect Amount shall be determined by taking into account the Allocated Value of the Title Defect Property, the portion of the Title Defect Property affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the Title Defect Property, the values placed upon the Title Defect by Purchaser and Seller and such other factors as are necessary to make a proper evaluation.
(h) The Title Benefit Amount for any Title Benefit shall be the product of the Allocated Value of the affected Unit or Well multiplied by a fraction, the numerator of which is the upwardly revised Net Revenue Interest and the denominator of which is the Net Revenue Interest stated on Exhibit 1.2(b) and Exhibit 1.2(c).
(i) Seller and Purchaser shall attempt to agree on all Title Defect Amounts and Title Benefit Amounts prior to Closing. If Seller and Purchaser are unable to agree by no later than two (2) Business Days prior to Closing, Seller, at Seller's sole election, may unilaterally terminate this Agreement, in which case Purchaser shall be entitled to an immediate refund of the Deposit from Seller, or the dispute may be submitted to arbitration as provided in Section 7.15.
(j) Notwithstanding anything to the contrary, there
shall be no adjustments to the Purchase Price or other
remedies provided by Seller for Title Defects unless
(i) each individual Title Defect exceeds $25,000.00 and
(ii) the aggregate amount of all uncured Title Defects
exceeds a deductible in an amount equal to two percent
(2%) of the Purchase Price, after which point Purchaser
shall be entitled to adjustments to the Purchase Price
or other remedies only with respect to Title Defects in
excess of such deductible. Notwithstanding anything to
the contrary, the aggregate Title Defect Amounts
attributable to the effects of all Title Defects upon
any Title Defect Property shall not exceed the
Allocated Value of the Title Defect Property.
Section 3.5 Consents to Assignment and Preferential Rights to Purchase.
(a) Seller shall exercise reasonable efforts to obtain all such permissions, approvals and consents by governmental authorities and others which are reasonably obtainable by Closing and are required to vest Defensible Title to the Assets in Purchaser. Seller shall notify Purchaser at least five (5) Business Days prior to Closing of all required third- party consents to the assignment of the Assets to Purchaser which have not been obtained and the Assets to which they pertain. In no event shall there be included in the Assignment and Bill of Sale at Closing any Asset subject to a consent requirement that provides that transfer of the Asset without consent will result in a termination or other material impairment of any rights in relation to such Asset. In cases where the Asset subject to such a requirement is a Contract and Purchaser is assigned the Assets to which the Contract relates, but the Contract is not transferred to Purchaser due to the unwaived consent requirement, Seller shall continue after Closing to use reasonable efforts to obtain such consent so that such Contract can be transferred to Purchaser upon receipt of such consent. In cases where the Asset subject to such a requirement is a Property and the third-party consent to the sale and transfer of the Property is not obtained prior to the Closing Date, Purchaser may elect to treat the unsatisfied consent requirement as a Title Defect by giving Seller notice thereof in accordance with Section 3.4(a), except that such notice must be given at least two (2) Business Days prior to the Closing Date. In such event, the failure to obtain such consent to assignment shall be treated as if the affected Assets were subject to a Title Defect that resulted in the complete loss of title to such Assets, the affected Assets shall be excluded from the Assignment and Bill of Sale and the Purchase Price shall be reduced under Section 2.2(b) by the Allocated Value for such Assets. If a consent requirement with respect to which a Purchase Price adjustment is made under Section 3.4 is subsequently satisfied prior to the date of the final adjustment to the Purchase Price under Section 9.4(b), Purchaser shall pay to Seller the amount of the previous reduction in the Purchase Price and the affected Assets shall be assigned to Purchaser.
(b) If any preferential rights to purchase any Assets are exercised prior to Closing, those Assets transferred to a holder of preferential right to purchase as a result of the exercise of such preferential rights shall be treated as if those Assets were subject to a Title Defect that resulted in the complete loss of title to such Assets, and the Purchase Price shall be reduced under Section 2.2(b) by the Allocated Value for such Assets. Seller shall convey such Assets to the holder of preferential right to purchase exercising the preferential right to purchase, and Seller shall retain the consideration paid by the holder of preferential right to purchase for such Assets.
Section 3.6 Casualty Loss.
After the date this Agreement is executed but prior to the
Closing Date, if any portion of the Assets is destroyed by
fire or other casualty, this transaction shall nevertheless
close. In the event that the loss resulting from the
casualty is an amount less than five percent (5%) of the
unadjusted Purchase Price, this transaction shall
nevertheless close and Seller shall have no obligation
regarding the casualty. In the event that the resulting loss
is an amount equal to or greater than five percent (5%)of
the unadjusted Purchase Price, Seller, at Seller's sole
election, shall select one of the following options which
shall apply to the casualty: (i) Seller shall cause the
Assets affected by such casualty to be repaired or restored
to at least its condition prior to such casualty, at
Seller's sole cost, as promptly as reasonably practicable
(which work may extend after the Closing Date); or (ii)
Seller shall, at Closing, pay to Purchaser all sums paid to
Seller by third parties by reason of such casualty and shall
assign to Purchaser all of Seller's right, title and
interest (if any) in insurance claims, unpaid awards, and
other rights against third parties other than Seller
Indemnitees arising out of the casualty; or (iii) Seller may
treat such casualty as a Title Defect with respect to the
affected Assets. In the event that Seller elects (i) or
(iii) above, Seller shall retain all rights to insurance and
other claims against third parties with respect to the
casualty.
Section 3.7 Condemnation Loss.
After the date this Agreement is executed but prior to the Closing Date, if any portion of the Assets is taken in condemnation or under right of eminent domain, this transaction shall nevertheless close. In such event, Seller, at Seller's sole election, shall select one of the following options which shall apply to the taking: (i) Seller shall, at Closing, pay to Purchaser all sums paid to Seller by third parties by reason of such taking and shall assign, transfer and set over to Purchaser all of Seller's right, title and interest (if any) in insurance claims, unpaid awards, and other rights against third parties other than Seller Indemnitees arising out of the taking; or (ii) Seller shall treat the taking as if the affected Assets were subject to a Title Defect that resulted in the complete loss of title to such Assets, and the Purchase Price shall be reduced under Section 2.2 by the Allocated Value for such Assets. In the case of (ii) above, Seller shall retain all rights to insurance and other claims against third parties with respect to the taking.
Section 3.8 Limitations on Applicability.
The Seller's representation and warranty of Defensible Title in Section 3.1(a) shall terminate as of the Title Claim Date and shall have no further force and effect thereafter. Thereafter, Purchaser's sole and exclusive remedies with regard to title to the Assets shall be the special warranty of title to the Leases contained in the Assignment and Bill of Sale.
ARTICLE 4
ENVIRONMENTAL MATTERS
Section 4.1 Environmental Assessment.
Purchaser may, at its option, inspect the Properties and cause an environmental assessment (the "Environmental Assessment") of all or any portion of the Properties to be conducted by a reputable environmental consulting or engineering firm approved in advance in writing by Seller. An Environmental Assessment shall be conducted at a time agreed to by Seller with a representative of Seller present. Purchaser shall provide Seller with a correct copy of any Environmental Assessment and all findings made in connection therewith. Except for such disclosure to Seller, Purchaser shall maintain the results of any Environmental Assessment and all findings made in connection therewith as strictly confidential. All information related an environmental assessment and all findings made in connection therewith shall be subject to the terms of the Confidentiality Agreement. Without the prior written consent of Seller, Purchaser shall not disclose the results of any Environmental Assessment and all findings made in connection therewith to any Person other than (i) the consultant that conducts the Environmental Assessment, (ii) Purchaser's lender (only in the events that (a) Purchaser's lender is lending money to Purchaser in connection with this Agreement and (b) provided Purchaser's lender first agrees in writing to keep such information confidential) and (iii) Seller. Any Environmental Assessment shall be conducted at the sole risk, cost and expense of Purchaser, and Purchaser shall Indemnify Seller from and against any and all losses arising from the Environmental Assessment as provided in Section 7.7 and Section 11.3(b).
Section 4.2 Notice of Material Adverse Environmental Condition.
Purchaser may notify Seller in writing on or before five (5) Business Days prior to Closing of any environmental matters disclosed by the Environmental Assessment that Purchaser reasonably believes in good faith may constitute a Material Adverse Environmental Condition. Such notice shall include a reasonably detailed description of all matters disclosed by the Environmental Assessment.
Section 4.3 Environmental Remedies.
If Purchaser delivers to Seller a notice pursuant to Section 4.2 that describes a Material Adverse Environmental Condition, then Seller shall, at its sole election, select one of the following options which shall apply to all Material Adverse Environmental Conditions:
(a) Seller shall reduce the Purchase Price by an amount agreed upon in writing by Purchaser and Seller as being a reasonable estimate of the cost of remediating or curing such Material Adverse Environmental Condition;
(b) Seller shall retain the Property that is subject to such Material Adverse Environmental Condition, in which event the affected Property shall be deleted from this Agreement and the Purchase Price shall be reduced by an amount equal to the Allocated Value of such affected Property;
(c) Seller shall perform or cause to be performed prior to Closing, at the sole expense of Seller, such operations as may be necessary to remediate or cure such Material Adverse Environmental Condition; or
(d) Seller shall enter into an agreement with Purchaser whereby Seller will as soon as reasonably practicable after Closing, at the sole cost and expense of Seller, perform or cause to be performed such operations as may be necessary to remediate or cure such Material Adverse Environmental Condition.
In the event that Seller elects to proceed under Section 4.3(a) and Purchaser and Seller have failed to agree on the amount by which the Purchase Price shall be reduced (which agreement Seller and Purchaser shall use good faith efforts to reach) by Closing, then, in such event, the dispute shall be submitted to arbitration as provided in Section 7.15.
Notwithstanding the foregoing, in the events that (i)
Purchaser conducts an Environmental Assessment on the
Properties which discloses environmental matters that
Purchaser reasonably believes in good faith may constitute a
Material Adverse Environmental Condition; (ii) Purchaser
delivers a notice to Seller as required in Section 4.2;
(iii) the cost of remediating the Material Adverse
Environmental Condition that is described in Purchaser's
notice pursuant to Section 4.2 and/or the Environmental
Liabilities attributable to the Material Adverse
Environmental Condition that is described in Purchaser's
notice pursuant to Section 4.2 exceed three percent (3%) of
the unadjusted Purchase Price; and (iv) Purchaser delivers
to Seller written notice of termination of this Agreement at
least five (5) Business Days prior to Closing Date, then, in
the event of the completion and satisfaction of each of the
four conditions listed above, Purchaser, at Purchaser's sole
election, may unilaterally terminate this Agreement without
liability to Seller. If Purchaser terminates this Agreement
pursuant to this section, Purchaser shall be entitled to a
prompt refund of the full amount of the Deposit from Seller.
Section 4.4 Limitations.
(a) This Article 4 is intended to be the sole and exclusive remedy that Purchaser Indemnitees shall have against Seller Indemnitees with respect to any matter or circumstance relating to Material Adverse Environmental Conditions, Environmental Liabilities, Environmental Laws, the release of materials into the environment, the protection of the environment or health or any matters that Purchaser could have included in a notice delivered pursuant to Section 4.2.
(b) Purchaser, on behalf of itself and each of the other Purchaser Indemnitees, hereby fully releases and discharges the Seller Indemnitees from any and all claims at Law or in equity, known or unknown, whether occurring before the Effective Time, existing at the Effective Time or arising after the Effective Time, contingent or otherwise, with respect to all matters relating to Material Adverse Environmental Conditions, Environmental Liabilities, Environmental Laws, the release of materials into the environment, the protection of the environment or health or any matters that Purchaser could have included in a notice delivered pursuant to Section 4.2 EVEN IF SUCH DAMAGES OR CLAIMS ARE CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT) OF SELLER INDEMNITEES OR THE STRICT LIABILITY OF SELLER INDEMNITEES.
(c) Purchaser acknowledges that Seller has not made and will not make any representation or warranty regarding any matter or circumstance relating to Material Adverse Environmental Conditions, Environmental Laws, the release of materials into the environment or protection of the environment or health, and that nothing in Article 5 or otherwise shall be construed as such a representation or warranty.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 5.1 Disclaimers.
(a) Except as set forth in Articles 3 and 5 of this Agreement, the certificate of Seller to be delivered pursuant to Section 9.2(d) or in the Assignment and Bill of Sale to be delivered by Seller to Purchaser hereunder, (i) SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE AND (ii) SELLER EXPRESSLY DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO PURCHASER OR ANY OF ITS AFFILIATES, EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES (INCLUDING, WITHOUT LIMITATION, ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO PURCHASER BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, ATTORNEY, CONSULTANT, REPRESENTATIVE OR ADVISOR OF SELLER OR ANY OF SELLER'S AFFILIATES).
(b) EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN
ARTICLE 3 OR THIS ARTICLE 5, WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, SELLER EXPRESSLY DISCLAIMS
ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
STATUTORY OR OTHERWISE AS TO (i) TITLE TO ANY OF THE
ASSETS, (ii) THE CONTENTS, CHARACTER OR NATURE OF ANY
DESCRIPTIVE MEMORANDUM, DOCUMENTS, REPORTS OF ANY
PETROLEUM ENGINEERING CONSULTANT OR ANY GEOLOGICAL,
GEOPHYSICAL OR SEISMIC DATA OR INTERPRETATION RELATING
TO THE ASSETS, (iii) THE QUANTITY, QUALITY OR
RECOVERABILITY OF HYDROCARBONS OR PETROLEUM SUBSTANCES
IN OR FROM THE ASSETS, (iv) ANY ESTIMATES OF THE VALUE
OF THE ASSETS OR FUTURE REVENUES THAT MAY BE
ATTRIBUTABLE TO THE ASSETS, (v) THE PRODUCTION OF
HYDROCARBONS OR PETROLEUM SUBSTANCES FROM THE ASSETS,
(vi) THE MAINTENANCE, STATE OR REPAIR OR LACK THEREOF,
PHYSICAL CONDITION, QUALITY, SUITABILITY FOR ANY
PURPOSE, DESIGN OR MARKETABILITY OF THE ASSETS, (vii)
THE CONTENT, CHARACTER OR NATURE OF ANY DESCRIPTIVE
MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS
PREPARED BY THIRD PARTIES, (viii) THE ACCURACY AND/OR
THE COMPLETENESS OF ANY OTHER MATERIALS OR INFORMATION
THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO
PURCHASER, ITS AFFILIATES OR ITS EMPLOYEES, AGENTS,
CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION
WITH THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION
RELATING THERETO, (ix) ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY
EQUIPMENT OR (x) ANY IMPLIED OR EXPRESS WARRANTY OF
FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT.
IT IS EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES
HERETO THAT PURCHASER SHALL BE DEEMED TO BE PURCHASING
THE EQUIPMENT AND PERSONAL PROPERTY IN ITS PRESENT
STATUS, CONDITION AND STATE OF REPAIR, "AS IS" AND
"WHERE IS," WITH ALL FAULTS. PURCHASER HAS MADE OR
CAUSED TO BE MADE SUCH INSPECTIONS OF THE ASSETS AS
PURCHASER DEEMS APPROPRIATE.
(c) Any representation "to the knowledge of Seller" or "to Seller's knowledge" is limited to matters within the actual knowledge of the officers or management employees, including those with titles of "Manager", "Vice President" and "President," of Seller. Actual knowledge includes information actually personally known or information which should have been ascertained had a reasonable inquiry or investigation been undertaken. The standard of reasonableness is that which would be exercised by a reasonably prudent person who has been advised that the person is expected to make representations and warranties with respect to conditions and information relating to the Assets which are to be conveyed.
(d) Subject to the foregoing provisions of this Section 5.1, Seller represents and warrants to Purchaser the matters set out in this Article 5.
Section 5.2 Existence and Qualification.
Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of Texas. Seller is duly qualified to do business as a corporation in the respective jurisdictions where the Assets are located.
Section 5.3 Power.
Seller has the corporate power to enter into this Agreement, perform the terms of this Agreement and consummate the transactions contemplated by this Agreement.
Section 5.4 Authorization and Enforceability.
The execution, delivery and performance of this Agreement have been or by Closing will have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller (and all documents required hereunder to be executed and delivered by Seller at Closing will be duly executed and delivered by Seller) and this Agreement constitutes the valid and binding obligation of Seller, enforceable in accordance with its terms except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights and remedies of creditors generally as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). As evidence of the foregoing, Seller has delivered to Purchaser simultaneous with the execution of this Agreement a unanimous consent executed, adopted and approved by the board of directors of Seller which specifically approves the terms of this Agreement, the execution of this Agreement by Seller and the completion of the transaction contemplated by this Agreement.
Section 5.5 No Conflicts.
The execution, delivery and performance of this Agreement by Seller will not (i) violate any provision of the certificate of incorporation or bylaws of Seller, (ii) result in default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any note, bond, mortgage or indenture to which Seller is a party or which affect the Assets, (iii) violate any judgment, order, ruling, or decree applicable to Seller as a party in interest or (iv) violate any Laws, rule or decree applicable to Seller or any of the Assets, except for rights to consent by, required notices to, and filings with or other actions by Governmental Bodies where the same are not required prior to the assignment of oil and gas interests.
Section 5.6 Purchaser's Liability for Brokers' Fees.
Purchaser shall not have any responsibility, liability or expense, as a result of undertakings or agreements of Seller, for brokerage fees, finder's fees, agent's commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby.
Section 5.7 Litigation.
Except as set forth in Exhibit 5.7, (a) no investigation, proceeding, action, suit, or other legal proceeding of any kind or nature before any Governmental Body or arbitrator (including any take-or-pay claims) is pending and (b) no written notice from any Governmental Body or any other Person has been received by Seller claiming any violation of or noncompliance with any Laws with respect to the Assets.
Section 5.8 Taxes and Assessments.
With respect to all Taxes related to the Assets, Seller warrants and represents that (a) all reports, returns, statements (including estimated reports, returns or statements), and other similar filings (the "Tax Returns") relating to the Assets required to be filed on or before the Closing Date by Seller with respect to any Taxes have been or will be timely filed with the appropriate Governmental Body in all jurisdictions in which such Tax Returns are required to be filed; (b) such Tax Returns are true and correct in all material respects, and all Taxes reported on such Tax Returns have been paid; (c) there are not currently in effect any extension or waiver of any statute of limitations of any jurisdiction regarding the assessment or collection of any Tax; (d) there are no administrative proceedings or lawsuits pending against the Assets or Seller by any taxing authority; and (e) there are no liens on any of the Assets except for liens for Taxes not yet due.
Section 5.9 Outstanding Capital Commitments.
As of the Effective Time, there were no outstanding AFEs or other commitments, either singly or in the aggregate, to make capital expenditures in excess of $500,000.00 which are binding on the Assets.
Section 5.10 Compliance with Laws.
To the knowledge of Seller, the Assets operated by Seller have been and are currently in substantial compliance with the provisions and requirements of all Laws of all Governmental Bodies having jurisdiction with respect to the Assets.
Section 5. 11 Contracts.
Seller has paid its share of all costs including without limitation, Property Costs, payable by Seller and is not in default under any Leases and Contracts, except those being contested in good faith.
Section 5.12 Payments.
With respect to all Seller Operated Assets, all rentals, royalties, overriding royalty interests, production payments, and other payments due and/or payable by Seller to mineral, royalty and other interest owners prior to the Effective Time with respect to the Assets and the Hydrocarbons produced therefrom or attributable thereto have been properly and timely paid. Seller is not obligated under any contract or agreement for the sale of gas from the Assets containing a take-or-pay, advance payment, prepayment, or similar provision, or under any gathering, transmission, or any other contract or agreement with respect to any of the Assets to gather, deliver, process, or transport any gas without then or thereafter receiving full payment therefor.
Section 5.13 Gas Imbalances.
Exhibit 5.13 sets forth all of Seller's pipeline and production imbalances and penalties as of the Effective Time arising with respect to the Assets. Except as disclosed in Exhibit 5.13, as of the Effective Time, (i) no Person is entitled to receive any portion of the Seller's Hydrocarbons produced from the Assets or to receive cash or other payments to "balance" any disproportionate allocation of Hydrocarbons produced from the Assets under any operating agreement, gas balancing or storage agreement, gas processing or dehydration agreement, gas transportation agreement, gas purchase agreement, or other agreements, whether similar or dissimilar, (ii) Seller is not obligated to deliver any quantities of gas or to pay any penalties or other amounts, in connection with the violation of any of the terms of any gas contract or other agreement with shippers with respect to the Assets, and (iii) Seller is not obligated to pay any penalties or other payments under any gas transportation or other agreement as a result of the delivery of quantities of gas from the Wells in excess of the contract requirements.
Section 5.14 Governmental Authorizations.
Seller has obtained and is maintaining all federal, state and local governmental licenses, permits, franchises, orders, exemptions, variances, waivers, authorizations, certificates, consents, rights, privileges and applications therefor (the "Governmental Authorizations") that are presently necessary or required for the ownership and operation of the Seller Operated Assets. Seller has operated the Seller Operated Assets in accordance with the conditions and provisions of such Governmental Authorizations, and Seller has not received any notices of violations. No proceedings are pending or, to Seller's knowledge, threatened, that might result in any modification, revocation, termination or suspension of any such Governmental Authorizations or which would require any corrective or remediation action by Seller.
Section 5.15 Consents to Assignments and Preferential Purchase Rights.
Except as set forth on Exhibit 5.15, none of the Assets are subject to any preferential rights to purchase, restrictions on assignment or required third-party consents to assignment, which may be applicable to the transactions contemplated by this Agreement, except for governmental consents and approvals of assignments that are customarily obtained after Closing.
Section 5.16 Non-foreign Person.
Seller is not a "foreign Person" within the meaning of Sections 1445 and 7701of the Code.
Section 5.17 Payout Balances.
Exhibit 5.17 contains a complete and accurate list of the status of any "payout" balances, as of the Effective Time, for the Wells and Units subject to any reversion, adjustment at some level of cost recovery, payout or other event other than termination of a Lease by its terms.
Section 5.18 Condemnation.
To Seller's knowledge, there is no actual or threatened taking of any part of the Assets by reason of condemnation or eminent domain proceeding.
Section 5.19 Bankruptcy.
There are no bankruptcy, reorganization, or similar arrangement proceedings pending, being contemplated by or, to Seller's knowledge, threatened against Seller or any Affiliate of Seller.
Section 5.20 PUHCA/NGA.
Seller is not (a) a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company," or an "affiliate" of a "subsidiary" of a "holding company," or a "public-utility company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (b) subject in any respect to the provisions of said act. No consent is required in connection with the transaction contemplated hereby under the Natural Gas Policy Act of 1978, as amended. Seller is not an interstate pipeline company within the meaning of the Natural Gas Act of 1938.
Section 5.21 Investment Company.
Seller is not (a) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, or (b) subject in any respect to the provisions of said act.
Section 5.22 Suspense Accounts.
Except as described on Exhibit 5.22 attached hereto, there are no obligations to pay any interests of any kind held by Seller in suspense.
Section 5.23 Material Changes.
Except as provided for or disclosed in Exhibit 5.23 attached hereto and made a part hereof, between the date of execution of this Agreement and the Closing Date, there has not been and will not be any material adverse changes in the operations of the Properties by Seller, which change was not the result of an industry-wide development affecting other companies in the oil or gas industries.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller the following:
Section 6.1 Existence and Qualification.
Purchaser is a corporation organized, validly existing and in good standing under the laws of the state of its incorporation. Purchaser is duly qualified to do business as a corporation in the respective jurisdictions where the Assets are located.
Section 6.2 Power.
Purchaser has the corporate power to enter into this Agreement, perform the terms of this Agreement and consummate the transactions contemplated by this Agreement.
Section 6.3 Authorization and Enforceability.
The execution, delivery and performance of this Agreement have been or by Closing will have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser (and all documents required hereunder to be executed and delivered by Purchaser at Closing will be duly executed and delivered by Purchaser) and this Agreement constitutes the valid and binding obligations of Purchaser, enforceable in accordance with their terms except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights and remedies of creditors generally as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). As evidence of the foregoing, Purchaser has delivered to Seller simultaneous with the execution of this Agreement either a resolution or a unanimous consent executed, adopted and approved by the board of directors of Purchaser which specifically approves the terms of this Agreement, the execution of this Agreement by Purchaser and the completion of the transaction contemplated by this Agreement.
Section 6.4 No Conflicts.
The execution, delivery and performance of this Agreement by Purchaser, and the transactions contemplated by this Agreement will not (i) violate any provision of the certificate of incorporation or bylaws of Purchaser, (ii) result in a material default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license or agreement to which Purchaser is a party, (iii) violate any judgment, order, ruling, or regulation applicable to Purchaser as a party in interest, or (iv) violate any Law, rule or decree applicable to Purchaser or any of the Assets, except for rights to consent by, required notices to, and filings with or other actions by Governmental Bodies where the same are not required prior to the assignment of oil and gas interests.
Section 6.5 Seller's Liability for Brokers' Fees.
Seller shall not have any responsibility, liability or expense, as a result of undertakings or agreements of Purchaser, for brokerage fees, finder's fees, agent's commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby.
Section 6.6 Litigation.
As of the date of the execution of this Agreement there are (and as of the Closing Date there will be) no actions, suits or proceedings pending, or to Purchaser's knowledge, threatened in writing, before any Governmental Body or brought by any Person against Purchaser or any Affiliate of Purchaser with respect to this Agreement, the transaction contemplated by this Agreement or the Assets.
Section 6.7 Financing.
Purchaser has sufficient cash, available lines of credit or other sources of immediately available funds in United States dollars to enable it to pay the Closing Payment to Seller at the Closing.
Section 6.8 Texas Deceptive Trade Practices-Consumer Protection Act.
With respect to the Texas Deceptive Trade Practices-Consumer Protection Act, Tex. Bus. & Com. Code Ann. Section 17.41 et seq. (the "DTPA"), Purchaser acknowledges, represents and warrants that Purchaser is purchasing the goods and/or services covered by this Agreement for commercial or business use; that Purchaser has assets of $5 million or more according to its most recent financial statement prepared in accordance with generally accepted accounting principles; that Purchaser has knowledge and experience in financial and business matters that enable Purchaser to evaluate the merits and risks of a transaction such as this; and that Purchaser is not in a significantly disparate bargaining position with Seller.
Section 6.9 No Reliance.
Purchaser represents and warrants that Purchaser is
knowledgeable of the oil and gas business and of the usual and
customary practices of producers such as Seller. Purchaser has been
granted access to the Assets and the Records of Seller relating to
the Assets. In making the decision to enter into this Agreement
and consummate the transactions contemplated hereby,
Purchaser has relied exclusively on Purchaser's own
investigation and analysis of the condition, value,
characteristics and qualities of the Assets. Accordingly,
Purchaser acknowledges that Seller has not made and
Purchaser shall not rely upon any representation or
warranty, express, implied, at common law, by statute or
otherwise, other than the warranty made in Section 3.1, the
express representations and warranties made in Article 5,
the certificate of Seller to be delivered pursuant to
Section 9.2(d) and the special warranty of title in the
Assignment and Bill of Sale relating to the Assets.
ARTICLE 7
COVENANTS OF THE PARTIES
Section 7.1 Access.
(a) Between the date of execution of this Agreement and the Closing Date, Seller will give Purchaser and its representatives access to the Assets and the right to copy, at Purchaser's expense, the Records in Seller's possession, for the purpose of conducting an investigation of the Assets, but only to the extent that Seller may do so without violating any obligations to any third party and to the extent that Seller has authority to grant such access without breaching any restriction binding on Seller. Such access by Purchaser shall be limited to Seller's normal business hours, and any weekends and after hours requested by Purchaser that can be reasonably accommodated by Seller, and Purchaser's investigation shall be conducted in a manner that minimizes interference with the operation of the Assets. All information obtained by Purchaser and its representatives under this Section 7.1 shall be subject to the terms of Section 7.7 and the terms of that certain confidentiality agreement between Seller and Purchaser dated February 2, 2005 (the "Confidentiality Agreement").
(b) PURCHASER ACKNOWLEDGES THAT EXCEPT TO THE EXTENT CONTAINED IN AN EXPRESS REPRESENTATION IN ARTICLES 3 AND 5 OF THIS AGREEMENT, THE CERTIFICATE OF SELLER TO BE DELIVERED PURSUANT TO SECTION 9.2(d) OR THE ASSIGNMENT AND BILL OF SALE, SELLER HAS MADE NO REPRESENTATIONS OR WARRANTIES, WHETHER ORAL OR WRITTEN. SELLER DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE AS TO THE ACCURACY OR COMPLETENESS OF INFORMATION OBTAINED BY PURCHASER FROM SELLER OR AS TO SELLER'S TITLE TO THE ASSETS. IN ENTERING INTO AND PERFORMING THIS AGREEMENT, PURCHASER HAS RELIED AND WILL RELY SOLELY UPON ITS INDEPENDENT INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE ASSETS, THE VALUE OF THE ASSETS, AND SELLER'S TITLE THERETO AND UPON THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLES 3 AND 5 OF THIS AGREEMENT, THE CERTIFICATE OF SELLER TO BE DELIVERED PURSUANT TO SECTION 9.2(d) OR THE ASSIGNMENT AND BILL OF SALE.
Section 7.2 Government Reviews.
If applicable, this Agreement is subject to and conditioned upon compliance by Seller and Purchaser with the HSR Act. If required, Seller and Purchaser shall in a timely manner (a) make all required filings, if any, with and prepare applications to and conduct negotiations with, each governmental agency as to which such filings, applications or negotiations are necessary or appropriate in the consummation of the transactions contemplated hereby specifically including but not limited to the HSR Act, (b) provide such information as each may reasonably request to make such filings, prepare such applications and conduct such negotiations and (c) request early termination or waiver of any applicable waiting period under the HSR Act. Purchaser shall bear the cost of the HSR Act filing fee made in connection with this Agreement. Each party shall cooperate with and use all reasonable efforts to assist the other with respect to such filings, applications and negotiations.
Section 7.3 Notification of Breaches.
Until the Closing,
(a) Purchaser shall notify Seller promptly after Purchaser obtains actual knowledge that any representation or warranty of Seller contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Seller prior to or on the Closing Date has not been so performed or observed in any material respect.
(b) Seller shall notify Purchaser promptly after Seller obtains actual knowledge that any representation or warranty of Purchaser contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Purchaser prior to or on the Closing Date has not been so performed or observed in a material respect.
If any of Purchaser's or Seller's representations or warranties is untrue or shall become untrue in any material respect between the date of execution of this Agreement and the Closing Date, or if any of Purchaser's or Seller's covenants or agreements to be performed or observed prior to or on the Closing Date shall not have been so performed or observed in any material respect, but if such breach of representation, warranty, covenant or agreement shall (if curable) be cured by the Closing (or, if the Closing does not occur, by the date set forth in Section 9.1), then such breach shall be considered not to have occurred for all purposes of this Agreement.
Section 7.4 Letters-in-Lieu; Assignments and Bills of Sale; Operator.
On the Closing Date, Seller shall execute and deliver to Purchaser:
(a) letters in lieu of division and transfer orders relating to the Assets on forms prepared by Seller and reasonably satisfactory to Purchaser to reflect the conveyance of the Assets contemplated hereby;
(b) Assignments and Bills of Sale in sufficient number of originals to facilitate recording in each county in which the Properties are located and Assignments and Bills of Sale necessary to convey to Purchaser all federal or state leases, if any, in the form as prescribed by the applicable Governmental Body and otherwise acceptable to Purchaser and Seller; and
(c) forms prescribed by the applicable Governmental Body to transfer status of operator from Seller to Purchaser with respect to Seller Operated Assets, including, without limitation, Form P-4 for the Railroad Commission of Texas, in the event such transfer is appropriate.
Section 7.5 Public Announcements.
Neither party shall make any press release, public announcement or public disclosure regarding the existence of this Agreement, the contents hereof or the transaction contemplated hereby until the transaction contemplated by this Agreement has closed (i.e., the occurrence of Closing). In the event that the transaction contemplated by this Agreement closes, either party may make a press release, public announcement or public disclosure regarding this Agreement after the form and contents of the press release, public announcement or public disclosure have been approved in writing by the other party. In the event that the transaction contemplated by this Agreement fails to close, neither party shall make any press release, public announcement or public disclosure regarding the existence of this Agreement, the contents hereof or the transaction contemplated hereby. The foregoing provision shall not restrict disclosures by Purchaser or Seller which are required by applicable securities or other Laws or regulations of the applicable rules of any stock exchange having jurisdiction over the disclosing party or its Affiliates.
Section 7.6 Operation of Business.
Until the Closing, Seller (i) will operate its business in
the ordinary course, (ii) will not, without the prior
written consent of Purchaser, which consent shall not be
unreasonably withheld, commit to any operation, or series of
related operations, which, either singly or in the
aggregate, are reasonably anticipated by Seller to require
future capital expenditures by the owner of the Assets in
excess of $500,000.00, or make any capital expenditures in
excess of $500,000.00 or terminate, materially amend,
execute or extend any material agreements affecting the
Assets, (iii) will maintain insurance coverage on the Assets
presently furnished by nonaffiliated third parties in the
amounts and of the types presently in force, (iv) will use
reasonable efforts to maintain all Leases in full force and
effect, (v) will maintain all material governmental permits
and approvals affecting the Assets, (vi) will not transfer,
farmout, sell, hypothecate, encumber or otherwise dispose of
any material Assets except for sales and dispositions of the
production of Hydrocarbons and Equipment made in the
ordinary course of business consistent with past practices
and (vii) will not commit to do any of the foregoing.
Purchaser's approval of any action restricted by this
Section 7.6 shall be considered granted within 10 days (unless a
shorter time is reasonably required by the circumstances and such
shorter time is specified in Seller's written notice) of Seller's
notice to Purchaser requesting such consent unless Purchaser notifies
Seller to the contrary during that period. In the event of an
emergency, Seller may take such action as a prudent operator would take
and shall notify Purchaser of such action promptly
thereafter.
Section 7.7 Indemnity Regarding Access.
PURCHASER, ON BEHALF OF ITSELF AND THE PURCHASER INDEMNITEES, SHALL INDEMNIFY, HOLD HARMLESS, DEFEND, SAVE, RELEASE AND COVENANTS NOT TO SUE SELLER INDEMNITEES, THE OTHER OWNERS OF INTERESTS IN THE ASSETS, AND ALL SUCH PERSONS' DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES, FROM AND AGAINST ANY AND ALL DAMAGES ARISING FROM OR RELATED TO ACCESS TO THE ASSETS BY THE PURCHASER INDEMNITEES PURSUANT TO SECTION 7.1.
WITHOUT LIMITING THE FOREGOING, PURCHASER'S INDEMNIFICATION OF SELLER INDEMNITEES, THE OTHER OWNERS OF INTERESTS IN THE ASSETS, AND ALL SUCH PERSONS' DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES, SHALL INCLUDE INDEMNIFICATION AGAINST DAMAGES ARISING FROM OR RELATED TO PERSONAL INJURIES, DEATH, PROPERTY DAMAGE AND CLAIMS MADE BY LANDOWNERS WHO OWN LAND ADJACENT TO THE PROPERTIES ARISING FROM OR IN CONNECTION WITH ACTIVITIES, TESTS, ENVIRONMENTAL ASSESSMENTS OR OTHER OPERATIONS CONDUCTED BY PURCHASER OR PURCHASER'S REPRESENTATIVES RELATED TO THIS AGREEMENT.
PURCHASER'S INDEMNIFICATION OF SELLER INDEMNITEES, THE OTHER OWNERS OF INTERESTS IN THE ASSETS, AND ALL SUCH PERSONS' DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES, SHALL BE PURSUANT TO AND IN ACCORDANCE WITH ALL OF THE INDEMNIFICATION PROVISIONS SET OUT IN SECTION 11.3(b) AND SHALL INCLUDE, WITHOUT LIMITATION, INDEMNIFICATION AGAINST DAMAGES AND LITIGATION EXPENSES.
Section 7.8 Gas Imbalances and Take-or-Pay Make-up Obligations.
Subject to the adjustment to the Purchase Price as provided in this Section 7.8, Purchaser expressly assumes any and all obligations attributable to gas production imbalances with co-owners of the Properties and gas take-or-pay make-up obligations with purchasers or sellers of natural gas from the Properties. Should Purchaser (i) determine that the gas imbalance information set out on Exhibit 5.13 is inaccurate and (ii) deliver a written notice regarding the gas imbalance to Seller at least five (5) Business Days prior to Closing, Seller shall review Purchaser's information regarding the alleged gas imbalance. If it is determined that there is an inaccuracy as of the Effective Time in the gas imbalance set forth on Exhibit 5.13, then the Purchase Price shall be either increased (if there is aggregate underproduction) or decreased (if there is aggregate overproduction) on the basis of $4.00 per MMBtu. This adjustment to the Purchase Price shall be in full settlement of all production imbalances on the Assets. Notwithstanding anything to the contrary contained in this Section 7.8, there shall be no adjustment to the Purchase Price if it is determined that actual imbalance volumes are within 15% above or below those shown on Exhibit 5.13.
The adjustment to the Purchase Price as set forth in this
Section 7.8 is Purchaser's exclusive remedy for (i) any gas
imbalance, (ii) any breach of Seller's representation in
Section 5.13 and (iii) any affirmation of such
representations in the certificate of Seller to be delivered
pursuant to Section 9.2(d), and, at Closing, Purchaser shall
assume Seller's overproduced or underproduced position in
the Wells as of the Effective Date, including the
responsibility for the payment of royalties with respect to
any imbalance and any obligation to balance, whether in cash
or in kind. Purchaser shall be deemed to have waived any
breaches of Section 5.13 if Purchaser fails to give timely
written notice to Seller as provided above.
Section 7.9 Consents and Preferential Rights.
(a) Seller shall promptly prepare and send notices to the holders of any required consents to assignment of any Assets requesting such consents. Seller shall use reasonable efforts to obtain all such consents which are reasonably obtainable by Closing and are required to vest Defensible Title to the Assets in Purchaser. Purchaser shall cooperate with Seller in seeking to obtain such consents. In the event that Seller is unable to obtain such consents that are required to vest Defensible Title to the Assets, Purchaser may elect to treat the unsatisfied consent requirement as a Title Defect and the procedures set forth in Section 3.5(a) shall apply.
(b) Seller shall promptly prepare and send notices to the holders of any applicable preferential rights to purchase any Asset requesting waivers of such preferential rights to purchase. The consideration payable under this Agreement for any particular Assets for purposes of preferential purchase right notices shall be the Allocated Value for such Assets. Seller shall use reasonable efforts to cause such waivers of preferential rights to purchase (or the exercise thereof) to be obtained and delivered prior to Closing. Purchaser shall cooperate with Seller in seeking to obtain such waivers of preferential rights.
If the holder of a preferential right to purchase exercises such right, Seller shall tender to such third party the required interest in the affected Asset at a price equal to the Allocated Value (reduced appropriately, as determined by mutual agreement of Purchaser and Seller, if less than the entire Asset must be tendered), and to the extent that such preferential right to purchase is exercised and such interest in such Asset is actually sold to the third party so exercising such right, the Assets transferred will be treated as if subject to a Title Defect and the procedures set forth in Section 3.5(b) shall apply.
Should a holder of a preferential right to purchase
fail to exercise its preferential right to purchase as
to any portion of the Assets prior to Closing and the
time for exercise or waiver has not yet expired prior
to Closing, subject to the remaining provisions of this
Section 7.9, such Assets shall be included in the
transaction contemplated by this Agreement at Closing
and the following procedures shall be applicable:
(i) An Assignment and Bill of Sale from Seller to
Purchaser of the Assets affected by such preferential
right to purchase shall be delivered into an escrow
account, Purchaser shall take beneficial possession of
the affected Assets and Purchaser shall be entitled to
all production, income, proceeds, receipts and credits
to which Purchaser would be entitled under Section
11.1. Purchaser shall Indemnify Seller Indemnitees
against Damages for which Purchaser would be liable
under the terms of Sections 11.2 and 11.3 with respect
to the affected Assets. Record title to the affected
Assets shall not be transferred and the Assignment and
Bill of Sale shall not be released to Purchaser from
the escrow account until such preferential right to
purchase has been waived or has expired. PURCHASER'S
INDEMNIFICATION OF SELLER INDEMNITEES SHALL BE PURSUANT
TO AND IN ACCORDANCE WITH THE INDEMNIFICATION
PROVISIONS SET OUT IN SECTION 11.3(b) AND SHALL
INCLUDE, WITHOUT LIMITATION, INDEMNIFICATION AGAINST
DAMAGES AND LITIGATION EXPENSES.
(ii) Seller shall continue to use reasonable efforts to obtain the waiver of the preferential right to purchase and shall continue to be responsible for the compliance with the preferential right to purchase.
(iii) Should the holder of the preferential right to purchase exercise same, Purchaser and Seller agree to cause the affected Assets to be transferred to such holder on the terms and provisions set out herein and in the applicable preferential right to purchase provision. In such event, Seller shall pay the Allocated Value, subject to applicable adjustments, for such Asset to Purchaser, and Seller shall be entitled to retain the consideration paid for the affected Asset by the holder of the preferential right to purchase.
(iv) If the preferential right to purchase is waived after the Closing Date or if the time limit for the exercise of the preferential right to purchase expires without being exercised, Seller and Purchaser shall take all reasonable actions necessary to ensure that the affected Assets are promptly conveyed out of escrow to Purchaser.
(v) Once the provisions of subparagraph (iv) have been satisfied and all obligations in connection therewith have been fulfilled, the Closing shall be deemed to have occurred for all purposes hereunder with respect to the affected Assets.
Should any third party bring any suit, action or other proceeding seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated hereby in connection with a claim to enforce preferential rights, the Assets affected by such suit, action or other proceeding shall be excluded from the Assets transferred at Closing and the Purchase Price shall be reduced by the Allocated Value of such excluded Assets. Promptly after the suit, action or other proceeding is dismissed or settled or a judgment is rendered, Seller shall sell to Purchaser and Purchaser shall purchase from Seller all such Assets not being sold to the third party for a purchase price equal to the Allocated Value of such Assets, adjusted as provided in Section 2.2.
Section 7.10 Tax Matters.
(a) Subject to the provisions below, Seller shall be responsible for all Taxes attributable to all times prior to Effective Time, including without limitation, income Taxes arising as a result of the gain recognized on the transfer of the Assets. Purchaser shall be responsible for all such Taxes attributable to all periods of time at and after the Effective Time.
(b) Seller shall pay to the appropriate Governmental Body all Taxes with respect to the Assets which are required to be paid prior to Closing and shall file all Tax Returns with respect to such Taxes. Seller shall deliver to Purchaser within thirty (30) days of filing copies of all Tax Returns filed by Seller after the Closing Date relating to the Assets and any supporting documentation provided by Seller to any taxing authorities.
(c) Ad valorem, property, severance, production and similar Taxes based upon or measured by the ownership or operation of the Assets or the production of Hydrocarbons therefrom shall be prorated between Purchaser and Seller as provided in Section 1.6. Purchaser shall pay all ad valorem taxes, and within thirty (30) days of paying, Purchaser shall deliver to Seller copies of receipts for payment of ad valorem taxes and any supporting documentation.
(d) Purchaser shall pay any sales, use, excise, registration, documentary, stamp or transfer Taxes, recording fees incurred and imposed with respect to the conveyance of the Properties contemplated hereby.
Section 7.11 Further Assurances.
After Closing, Seller and Purchaser shall take such further actions and execute, acknowledge and deliver all such further documents as are reasonably requested by the other party for carrying out the purposes of this Agreement or of any document delivered pursuant to this Agreement.
Section 7.12 Transition Services.
Before Closing, the parties shall negotiate a separate transition agreement containing mutually agreeable terms pursuant to which Seller shall continue to provide royalty accounting, accounts receivable and accounts payable services with respect to the Assets for a period not to exceed sixty (60) days following Closing in consideration for the charges stated in such transition agreement and the reimbursement of Seller's costs of providing such services.
Section 7.13 Replacement of Bonds, Letters of Credit and Guarantees.
None of the bonds, letters of credit and guarantees, if any, posted by Seller with Governmental Bodies and relating to the Assets shall be transferred to Purchaser. Purchaser shall obtain, or cause to be obtained in the name of Purchaser, replacements for such bonds, letters of credit and guarantees to permit the cancellation of the bonds, letters of credit and guarantees posted by Seller and to consummate the transactions contemplated by this Agreement.
Section 7.14 Like-Kind Exchange
Purchaser and Seller agree to use reasonable cooperation so
that the transfer of the Properties shall, at either party's
election, be accomplished in a manner enabling the transfer
of the Properties to qualify as a like-kind exchange of
property within the meaning of Section 1031 of the Code. If
such an election is made, the parties shall reasonably
cooperate to effect such like-kind exchange, which
cooperation shall include (i) having any cash payment be
paid directly from a 1031 account which has been established
with a qualified intermediary, as that term is defined in
Section 1031 of the Code, in a manner which enables such
transfer of the Properties to qualify as part of a like-kind
exchange of property within the meaning of Section 1031 of
the Code and (ii) assigning rights to the Properties to a
qualified intermediary or an escrow agent acting as a
qualified intermediary for the purpose of receiving an
assignment of the Properties in a manner which enables such
transfer of the Properties to qualify as part of a like-kind
exchange of property within the meaning of Section 1031 of
the Code. In such events, the parties shall cooperate in the
negotiation and execution of such additional documents.
Section 7.15 Arbitration.
Disputed matters related to Allocated Values in Section 2.3(b), remedies for Title Defect Amounts in Section 3.4(d), Title Benefits Amounts in Section 3.4(i), downward adjustment to the Purchase Price to reflect the costs of remediation in Section 4.3 and the final settlement statement in Section 9.4(b) may be submitted, as provided in the respective Sections listed above, to arbitration pursuant to the following provisions:
(a) The parties shall jointly select a mutually acceptable person as the sole arbitrator under this Agreement. If the parties are unable to agree upon the designation of one person as arbitrator, then each party shall appoint one arbitrator and the two arbitrators so chosen shall appoint a third arbitrator and the three arbitrators shall arbitrate any dispute.
(b) Any arbitration hearing shall be held in Houston, Texas at a location acceptable to the arbitrator.
(c) The arbitrator shall settle disputes in accordance with the Texas General Arbitration Act and the Rules of the American Arbitration Association. The decision of the arbitrator shall be binding upon the parties and may be enforced in any court of competent jurisdiction. Seller and Purchaser, respectively, shall bear their own legal fees and other costs incurred in presenting their respective cases. The charges and expenses of the arbitrator shall be shared equally by Seller and Purchaser.
(d) In fulfilling his duties hereunder, the arbitrator shall be bound by the terms of this Agreement. In fulfilling any of his arbitration duties, the arbitrator may consider such other matters as in the opinion of the arbitrator are necessary or helpful to make a proper evaluation. Additionally, the arbitrator may consult with and engage disinterested third parties, including, without limitation, petroleum engineers, attorneys and consultants, to advise the arbitrator.
(e) If any arbitrator selected hereunder should die, resign or be unable to perform his duties hereunder, the parties selecting such arbitrator shall select a replacement arbitrator. The aforesaid procedure shall be followed from time to time as necessary.
ARTICLE 8
CONDITIONS TO CLOSING
Section 8.1 Conditions of Seller to Closing.
The obligations of Seller to consummate the transactions contemplated by this Agreement are subject, at the option of Seller, to the satisfaction on or prior to Closing of each of the following conditions:
(a) Representations. The representations and warranties of Purchaser set forth in Article 6 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date;
(b) Performance. Purchaser shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;
(c) Pending Litigation. No suit, action or other proceeding by a third party, including any Governmental Body, seeking to restrain, enjoin or otherwise prohibit the conveyance of the Assets or the consummation of the transactions contemplated by this Agreement shall be pending;
(d) Deliveries. Purchaser shall have delivered to Seller duly executed counterparts of the Assignment and Bill of Sale and the other documents and certificates to be delivered by Purchaser under Section 9.3;
(e) Payment. Purchaser shall have paid the Closing Payment;
(f) HSR Act. Only if applicable, any waiting period applicable to the consummation of the transaction contemplated by this Agreement under the HSR Act shall have lapsed or terminated (by early termination or otherwise);
(g) Approval by Board of Directors. Purchaser shall have delivered to Seller either (i) a resolution executed by the board of directors of Purchaser which specifically approves the terms of this Agreement, the execution of this Agreement by Purchaser and the completion of the transaction contemplated by this Agreement or (ii) a unanimous consent of the board of directors of Purchaser which specifically approves the terms of this Agreement, the execution of this Agreement by Purchaser and the completion of the transaction contemplated by this Agreement; and
(h) Flores Field Agreement. Contemporaneously with the preparation and execution of this Agreement, Purchaser and Seller have prepared a second Purchase and Sale Agreement covering an undivided fifty percent (50%) of Seller's interests in the Flores Field, Hidalgo County, Texas and Starr County, Texas. Closing of the transaction contemplated by the Flores Field Agreement shall occur simultaneously with the Closing of the transaction contemplated by this Agreement.
Section 8.2 Conditions of Purchaser to Closing.
The obligations of Purchaser to consummate the transactions contemplated by this Agreement are subject, at the option of Purchaser, to the satisfaction on or prior to Closing of each of the following conditions:
(a) Representations. The representations and warranties of Seller set forth in Article 5 shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (other than any representations and warranties that refer to a specified date which need only be true and correct on and as of such specified date);
(b) Performance. Seller shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;
(c) Pending Litigation. No suit, action or other proceeding by a third party (including any Governmental Body) seeking to restrain, enjoin or otherwise prohibit the conveyance of the Assets or the consummation of the transactions contemplated by this Agreement shall be pending;
(d) Deliveries. Seller shall have delivered to Purchaser duly executed counterparts of the Assignment and Bill of Sale and the other documents and certificates to be delivered by Seller under Section 9.2;
(e) HSR Act. Only if applicable, any waiting period applicable to the consummation of the transaction contemplated by this Agreement under the HSR Act shall have lapsed or terminated (by early termination or otherwise);
(f) Approval by Board of Directors. Seller shall have delivered to Purchaser a unanimous consent of the board of directors of Seller which specifically approves the terms of this Agreement, the execution of this Agreement by Seller and the completion of the transaction contemplated by this Agreement; and
(g) Flores Field Agreement. Contemporaneously with the preparation and execution of this Agreement, Purchaser and Seller have prepared a second Purchase and Sale Agreement covering an undivided fifty percent (50%) of Seller's interests in the Flores Field, Hidalgo County, Texas and Starr County, Texas. Closing of the transaction contemplated by the Flores Field Agreement shall occur simultaneously with the Closing of the transaction contemplated by this Agreement.
ARTICLE 9
CLOSING
Section 9.1 Time and Place of Closing.
(a) Consummation of the purchase and sale transaction as contemplated by this Agreement (the "Closing"), shall take place at the offices of Seller located at 14425 Torrey Chase, Suite 190 Houston, Texas 77014, at 10:00 a.m., local time, on or before May 5, 2005 unless otherwise agreed to in writing by Purchaser and Seller.
(b) The date on which the Closing occurs is herein referred to as the "Closing Date."
Section 9.2 Obligations of Seller at Closing.
At the Closing, Seller shall deliver or cause to be delivered to Purchaser, among other things, the following:
(a) Assignment and Bill of Sale of the Assets, in sufficient number of originals to allow recording in all counties in which the Properties are located and other appropriate jurisdictions and offices, as applicable, duly executed by Seller;
(b) assignments, on appropriate forms, of state and of federal leases, if any, comprising portions of the Assets, duly executed by Seller;
(c) letters-in-lieu of transfer orders covering the Assets, duly executed by Seller;
(d) a certificate duly executed by an authorized corporate officer of Seller, dated as of Closing, certifying on behalf of Seller that the conditions set forth in Sections 8.2(a) and 8.2(b) have been fulfilled; and
(e) forms prescribed by the applicable Governmental Body to transfer status of operator from Seller to Purchaser with respect to Seller Operated Assets, including, without limitation, Form P-4 for the Railroad Commission of Texas, in the event such transfer is appropriate.
Section 9.3 Obligations of Purchaser at Closing.
At the Closing, Purchaser shall deliver or cause to be delivered to Seller, among other things, the following:
(a) a wire transfer of the Closing Payment in immediately available U.S. dollars;
(b) copies of the Assignment and Bill of Sale of the Assets, duly executed by Purchaser,
(c) copies of the letters-in-lieu of transfer orders covering the Assets, duly executed by Purchaser; and
(d) a certificate duly executed by an authorized corporate officer of Purchaser dated as of Closing, certifying on behalf of Purchaser that the conditions set forth in Sections 8.1(a) and 8.1(b) have been fulfilled.
Section 9.4 Closing Payment and Post-Closing Purchase Price Adjustments.
(a) Not later than two (2) Business Days prior to the Closing Date, Seller shall prepare and deliver to Purchaser, based upon the best information available to Seller, a preliminary settlement statement estimating the Adjusted Purchase Price after giving effect to all Purchase Price adjustments set forth in Section 2.2 and the Deposit. The preliminary settlement statement delivered in accordance with this Section 9.4(a) shall constitute the dollar amount to be paid by Purchaser to Seller at the Closing (the "Closing Payment").
(b) As soon as reasonably practicable after the Closing
but not later than one hundred twenty (120) days
following the Closing Date, Seller shall prepare and
deliver to Purchaser a final settlement statement
setting forth the final calculation of the Adjusted
Purchase Price and showing the calculation of each
adjustment, based, to the extent possible on actual
credits, charges, receipts and other items before and
after the Effective Time and taking into account all
Title Defect and Title Benefit adjustments under
Section 3.4. Seller shall, at Purchaser's request,
supply reasonable documentation available to support
any credit, charge, receipt or other item. Not later
than the thirty (30) days following receipt of the
final settlement statement, Purchaser shall deliver to
Seller a written report containing any changes that
Purchaser proposes be made to the final settlement
statement. The parties shall undertake to agree on the
final statement of the Adjusted Purchase Price no later
than one hundred eighty (180) days after the Closing
Date. In the event that the parties cannot reach
agreement within such period of time, either party may
refer the remaining matters in dispute to arbitration
as provided in Section 7.15.
(c) All payments made or to be made hereunder to Seller shall be by electronic transfer of immediately available funds in U.S. dollars to:
JPMorgan Chase Bank
For account of Smith Production Inc.
Account No. 034 000 25957
ABA No. 113 0006 09
All payments made or to be made hereunder to Purchaser shall be by electronic transfer of immediately available funds to a bank and account specified by Purchaser in writing to Seller.
ARTICLE 10
TERMINATION
Section 10.1 Termination.
This Agreement may be terminated as follows:
(a) by the mutual prior written consent of Seller and Purchaser prior to Closing;
(b) by Seller in the events that (i) Closing has not occurred on the Closing Date; (ii) Seller is not otherwise in default under the provisions of this Agreement; and (iii) the Conditions of Seller to Closing in Section 8.1 have not been satisfied;
(c) by Purchaser in the events that (i) Closing has not occurred on the Closing Date; (ii) Purchaser is not otherwise in default under the provisions of this Agreement; and (iii) the Conditions of Purchaser to Closing in Section 8.2 have not been satisfied;
(d) by Seller pursuant to 2.3(b), 3.4(d) and 3.4(i); and
(e) by Purchaser pursuant to 4.3.
Section 10.2 Effect of Termination.
If this Agreement is terminated pursuant to Section 10.1, this Agreement shall become void and of no further force or effect except for the provisions of Section 5.6 (Purchaser's Liability for Brokers' Fees), Section 6.5 (Seller's Liability for Brokers' Fees), Section 7.7 (Indemnity Regarding Access) and Section 12.4 (Expenses) and the Confidentiality Agreement. The provisions and agreements listed in the preceding sentence shall survive the termination of this Agreement and shall continue in full force and effect. Seller shall be free immediately to enjoy all rights of ownership of the Assets and to sell, transfer, encumber or otherwise dispose of the Assets to any party without any restriction under this Agreement.
Section 10.3 Distribution of Deposit Upon Termination
(a) If Seller terminates this Agreement pursuant to Section 10.1(b), then Seller may retain the Deposit as liquidated damages free of any claims by Purchaser. Purchaser and Seller agree that the actual amount of damages resulting from such a termination would be difficult if not impossible to determine accurately because of the unique nature of this Agreement, the unique nature of the Assets, the uncertainties of applicable commodity markets and differences of opinion with respect to such matters, and the liquidated damages provided for herein are a reasonable estimate by the parties of such damages.
(b) If this Agreement is terminated for any reason other than the reasons set forth in Section 10.1(b), then Seller shall deliver the Deposit to Purchaser immediately free of any claims by Seller.
(c) Notwithstanding anything to the contrary in this Agreement, Purchaser shall not be entitled to receive interest on the Deposit, whether the Deposit is applied against the Purchase Price or returned to Purchaser pursuant to this Section 10.3.
(d) The retention of the Deposit by Seller or the return of the Deposit to Purchaser as described above shall constitute the only remedies of Purchaser and Seller, respectively, in the event of termination or breach of this Agreement. Purchaser and Seller hereby waive all other remedies that might be available to either party including, without limitation, remedies available in equity, at common law and by statute including litigation and specific performance.
ARTICLE 11
POST -CLOSING OBLIGATIONS; INDEMNIFICATION;
LIMITATIONS; DISCLAIMERS AND WAIVERS
Section 11.1 Receipts.
(a) All production from or attributable to the Assets (and
all products and proceeds attributable thereto) and all
other income, proceeds, receipts and credits earned with
respect to the Assets which are not reflected in the final
settlement statement to which Purchaser is entitled under
Section 1.6 shall be the sole property and entitlement of
Purchaser, and, to the extent received by Seller, Seller
shall fully disclose, account for and remit the same
promptly to Purchaser.
(b) All production from or attributable to the Assets (and
all products and proceeds attributable thereto) and all
other income, proceeds, receipts and credits earned with
respect to the Assets which are not reflected in the final
settlement statement to which Seller is entitled under
Section 1.6 shall be the sole property and entitlement of
Seller and, to the extent received by Purchaser, Purchaser
shall fully disclose, account for and remit the same
promptly to Seller.
Section 11.2 Expenses.
(a) All Property Costs which are not reflected in the final
settlement statement for which Seller is responsible under
Section 1.6 shall be the sole obligation of Seller, and
Seller shall promptly pay same, or if same have been paid by
Purchaser, Seller shall promptly reimburse Purchaser for and
hold Purchaser harmless from and against same.
(b) All Property Costs which are not reflected in the final settlement statement for which Purchaser is responsible under Section 1.6 shall be the sole obligation of Purchaser, and Purchaser shall promptly pay same, or if same have been paid by Seller, Purchaser shall promptly reimburse Seller for and hold Seller harmless from and against same.
(c) Seller is entitled to resolve all joint interest audits and other audits of Property Costs covering periods prior to the Effective Time.
Section 11.3 Assumption and Indemnification.
(a) In the event of Closing, as of the Effective Time, Purchaser shall become liable for, assume, perform and discharge all of the obligations and liabilities of Seller, known or unknown, with respect to the Assets, regardless of whether such obligations or liabilities arose prior to the Effective Time, at the Effective Time or after the Effective Time. Said obligations and liabilities are referred to as the "Assumed Obligations." Purchaser, however, does not assume any obligations or liabilities of Seller to the extent that they are attributable to or arise out of the:
(i) Excluded Assets; or
(ii) actions, suits or proceedings, if any, set forth on Exhibit 5.7, or
(iii) claims for wrongful death and/or personal injury related to the Properties which claims arose before the Effective Time; or
(iv) continuing responsibility of the Seller under
Section 11.2 or matters for which Seller is
required to Indemnify Purchaser under this Article 11.
(b) PURCHASER SHALL INDEMNIFY, COVENANT NOT TO SUE, SAVE, RELEASE, DEFEND, DISCHARGE AND HOLD SELLER INDEMNITEES HARMLESS (COLLECTIVELY, "INDEMNIFY") FROM AND AGAINST DAMAGES, INCURRED OR SUFFERED BY SELLER INDEMNITEES THAT ARE CAUSED BY, OR ARISE OUT OF OR RESULT FROM:
(i) THE ASSUMED OBLIGATIONS; OR
(ii) THE OWNERSHIP, USE OR OPERATION OF THE ASSETS AT AND AFTER THE EFFECTIVE TIME; OR
(iii) ENVIRONMENTAL LIABILITIES; OR
(iv) ACCESS TO THE ASSETS IN SECTION 7.7; OR
(v) PREFERENTIAL RIGHTS TO PURCHASE IN SECTION 7.9(b)(i); OR
(vi) PURCHASER'S OBLIGATIONS UNDER THIS AGREEMENT; OR
(vii) THE BREACH OF ANY OF PURCHASER'S COVENANTS OR AGREEMENTS CONTAINED IN ARTICLE 7 OF THIS AGREEMENT, SAVE AND EXCEPT FOR COVENANTS OR AGREEMENTS CONTAINED IN SECTION 7.7 (ACCESS TO THE ASSETS) AND SECTION 7.9(b)(i)(RELATED TO PREFERENTIAL RIGHTS TO PURCHASE) WHICH ARE COVERED ABOVE; OR
(viii) THE BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY PURCHASER IN ARTICLE 6 OF THIS AGREEMENT OR IN THE CERTIFICATE DELIVERED BY PURCHASER AT CLOSING PURSUANT TO SECTION 9.3(d)(CERTIFICATE OF CORPORATE OFFICER OF PURCHASER); OR
(ix) THE LITIGATION EXPENSES (DEFINED BELOW).
THE INDEMNIFICATION OBLIGATIONS OF PURCHASER IN THIS PARAGRAPH SHALL BE REFERRED TO HEREIN AS "PURCHASER'S INDEMNIFICATION OBLIGATIONS."
PURCHASER SHALL INDEMNIFY SELLER INDEMNITEES AGAINST DAMAGES FOR MATTERS COVERED BY PURCHASER'S INDEMNIFICATION OBLIGATIONS ARISING OUT AND RESULTING FROM:
1. THE NEGLIGENCE OF SELLER, WHETHER THE NEGLIGENCE IS ORDINARY, ACTIVE, PASSIVE, JOINT, CONCURRENT OR SOLE BUT EXCLUDING CLAIMS BASED ON GROSS NEGLIGENCE; AND
2. THE STRICT LIABILITY OF SELLER, BUT EXCLUDING CLAIMS BASED ON THE WILLFUL MISCONDUCT OF SELLER.
COSTS OF ATTORNEY FEES, COSTS OF COURT, EXPENSES FOR HIRING INVESTIGATORS AND INVESTIGATING, DEFENDING LITIGATION, PROSECUTING LITIGATION, HIRING EXPERT WITNESSES, COSTS OF SETTLEMENT AND ANY AND ALL COSTS AND EXPENSES PERTAINING TO ANY LITIGATION SHALL COLLECTIVELY BE REFERRED TO AS THE "LITIGATION EXPENSES." PURCHASER SHALL INDEMNIFY SELLER INDEMNITEES FROM AND AGAINST ALL LITIGATION EXPENSES ARISING FROM, BASED UPON, RELATED TO OR IN ANY WAY CONNECTED WITH PURCHASER'S INDEMNIFICATION OBLIGATIONS
IT IS UNDERSTOOD AND AGREED THAT PURCHASER'S OBLIGATION TO
INDEMNIFY SELLER INDEMNITEES FROM AND AGAINST THE LITIGATION
EXPENSES IS (I) SEPARATE AND APART FROM PURCHASER'S
OBLIGATION TO INDEMNIFY SELLER INDEMNITEES FROM DAMAGES AND
(II) IS NOT DEPENDENT UPON PURCHASER'S SUBSTANTIVE
OBLIGATION TO INDEMNIFY SELLER INDEMNITEES FROM AND AGAINST
DAMAGES. PURCHASER'S OBLIGATION TO INDEMNIFY SELLER
INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES SHALL
APPLY IRRESPECTIVE OF WHETHER THE SUBSTANTIVE INDEMNITY
OBLIGATION COMPLIES IN ALL RESPECTS WITH THE EXPRESS
NEGLIGENCE RULE. PURCHASER AND SELLER BOTH AGREE AND
STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH
AND SATISFIES ALL OF THE REQUIREMENTS SET FORTH IN ETHYL
CORP. V. DANIEL CONSTRUCTION CO., 725 S.W.2d 705 (TEX.1987)
AND ALL SUBSEQUENT CASES, DRESSER INDUSTRIES, INC. V. PAIGE
PETROLEUM, INC., 853 S.W. 2d 505 (TEX. 1993) AND ALL
SUBSEQUENT CASES AND ALL OTHER APPLICABLE REQUIREMENTS OF
TEXAS LAW.
PURCHASER 'S INDEMNITY OBLIGATIONS TO SELLER INDEMNITEES HEREUNDER SHALL BE LIMITED TO THE EXTENT OF PURCHASER'S PROPORTIONATE INTEREST IN ANY AFFECTED ASSETS.
PURCHASER AND SELLER BOTH AGREE AND STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE TEST, AND THAT THE PARTIES CLEARLY INTEND TO TRANSFER THE RISK OF LOSS FOR THE INDEMNITEE'S NEGLIGENCE.
PURCHASER AND SELLER BOTH AGREE AND STIPULATE THAT THESE INDEMNIFICATION PROVISIONS ARE CONSPICUOUS.
(c) SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES AGAINST AND FROM ALL DAMAGES INCURRED OR SUFFERED BY PURCHASER INDEMNITEES THAT ARE CAUSED BY, OR ARISE OUT OF OR RESULT FROM:
(i) THE OBLIGATIONS AND LIABILITIES DESCRIBED IN
SECTION 11.3(a)(i), 11.3(a)(ii) AND 11.3(a)(iii);
OR
(ii) SELLER'S BREACH OF ANY OF SELLER'S COVENANTS OR AGREEMENTS CONTAINED IN ARTICLE 7 OF THIS AGREEMENT; OR
(iii) THE BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY SELLER IN ARTICLE 5 OF THIS AGREEMENT OR IN THE CERTIFICATE DELIVERED BY SELLER AT CLOSING PURSUANT TO SECTION 9.2(d)(CERTIFICATE OF CORPORATE OFFICER OF SELLER); OR
(iv) SELLER'S OBLIGATIONS UNDER THIS AGREEMENT; OR
(v) LITIGATION EXPENSES.
THE INDENMIFICATION OBLIGATIONS OF SELLER IN THIS PARAGRAPH SHALL BE REFERRED TO HEREIN AS "SELLER'S INDEMNIFICATION OBLIGATIONS."
SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES AGAINST DAMAGES FOR MATTERS COVERED BY SELLER'S INDEMNIFICATION OBLIGATIONS ARISING OUT OF AND RESULTING FROM:
1. THE NEGLIGENCE OF PURCHASER, WHETHER THE
NEGLIGENCE IS ORDINARY, ACTIVE, PASSIVE, JOINT,
CONCURRENT OR SOLE BUT EXCLUDING CLAIMS BASED ON
GROSS NEGLIGENCE; AND
2. THE STRICT LIABILITY OF PURCHASER, BUT EXCLUDING
CLAIMS BASED ON THE WILLFUL MISCONDUCT OF
PURCHASER.
SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES ARISING FROM, BASED UPON, RELATED TO OR IN ANY WAY CONNECTED WITH SELLER'S INDEMNIFICATION OBLIGATIONS.
IT IS UNDERSTOOD AND AGREED THAT SELLER'S OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES IS (I) SEPARATE AND APART FROM SELLER'S OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM DAMAGES AND (II) IS NOT DEPENDENT UPON SELLER'S SUBSTANTIVE OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM AND AGAINST DAMAGES. SELLER'S OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES SHALL APPLY IRRESPECTIVE OF WHETHER THE SUBSTANTIVE INDEMNITY OBLIGATION COMPLIES IN ALL RESPECTS WITH THE EXPRESS NEGLIGENCE RULE. PURCHASER AND SELLER BOTH AGREE AND STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH AND SATISFIES ALL OF THE REQUIREMENTS SET FORTH IN ETHYL CORP. V. DANIEL CONSTRUCTION CO., 725 S.W.2d 705 (TEX.1987) AND ALL SUBSEQUENT CASES, DRESSER INDUSTRIES, INC. V. PAIGE PETROLEUM, INC., 853 S.W. 2d 505 (TEX. 1993) AND ALL SUBSEQUENT CASES AND ALL OTHER APPLICABLE REQUIREMENTS OF TEXAS LAW.
SELLER'S INDEMNITY OBLIGATIONS TO PURCHASER INDEMNITEES HEREUNDER SHALL BE LIMITED TO THE EXTENT OF SELLER'S PROPORTIONATE INTEREST IN ANY AFFECTED ASSETS.
SELLER AND PURCHASER BOTH AGREE AND STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE TEST AND THAT THE PARTIES CLEARLY INTEND TO TRANSFER THE RISK OF LOSS FOR THE INDEMNITEE'S NEGLIGENCE.
SELLER AND PURCHASER BOTH AGREE AND STIPULATE THAT THESE INDEMNIFICATION PROVISIONS ARE CONSPICUOUS.
(d) Notwithstanding anything to the contrary contained in this Agreement, in the event that Closing occurs, thereafter, this Section 11.3 shall be deemed to contain the parties' exclusive remedies against each other with respect to breaches of the representations, warranties, covenants and agreements of the parties contained in Articles 5, 6 and 7 and the affirmations of such representations, warranties, covenants and agreements contained in the certificate delivered by each party at Closing pursuant to Sections 9.2(d) or 9.3(d), as applicable.
The parties shall have all other remedies at law or in equity for breaches of all provisions of this Agreement other than Articles 5, 6 and 7. Notwithstanding anything to the contrary contained herein, none of Purchaser, Seller or any of their respective Affiliates shall be entitled to either punitive or consequential damages as a remedy in connection with a breach of any provision of this Agreement and/or the transactions contemplated hereby, and each of Purchaser and Seller, for itself and on behalf of its Affiliates, hereby expressly waives any right to punitive or consequential damages in connection with a breach of any provision of this Agreement and/or the transactions contemplated hereby.
(e) "Damages" shall mean the amount of any and all liability, loss, cost, diminution in value, expense, claim, demand, notice of violation, investigation by any Governmental Body, cause of action, administrative proceeding, payment, charge, obligation, fine, penalty, deficiency, award or judgment incurred or suffered by any Indemnified Party arising out of or resulting from the indemnified matter, including reasonable fees and expenses of attorneys, consultants, accountants or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity.
Section 11.4 Indemnification Actions.
All claims for indemnification under Section 11.3 shall be asserted and resolved as follows:
(a) For purposes of this Article 11, the term "Indemnifying Party" shall mean the party having an obligation to indemnify the other party pursuant to this Article 11, and the term "Indemnified Party" shall mean the party having the right to be indemnified by the other party pursuant to this Article 11.
(b) To make a claim for indemnification under Section 11.3, an Indemnified Party shall provide to the Indemnifying Party a written notice (the "Indemnification Notice") which specifies the basis of the Indemnified Party's entitlement to indemnification under this Agreement. In the event that the Indemnification Notice is based upon a claim by a third party against the Indemnified Party (a "Third Party Claim"), the Indemnified Party shall provide its Indemnification Notice promptly after the Indemnified Party has actual knowledge of the Third Party Claim and shall enclose a copy of all papers (if any) served with respect to the Third Party Claim; provided that the failure of any Indemnified Party to give notice of a Third Party Claim as provided in this Section 11.4 shall not relieve the Indemnifying Party of its obligations under Section 11.3 except to the extent such failure results in insufficient time being available to permit the Indemnifying Party to effectively defend against the Third Party Claim or otherwise prejudices the Indemnifying Party's ability to defend against the Third Party Claim.
(c) The Indemnifying Party shall have thirty (30) days from its receipt of an Indemnification Notice to notify the Indemnified Party whether it will assume the defense of the Indemnified Party against such Third Party Claim at the sole cost and expense of the Indemnifying Party. The Indemnified Party is authorized, prior to and during such thirty (30) day period, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and that is not prejudicial to the Indemnifying Party.
(d) If the Indemnifying Party assumes the defense of a Third Party Claim pursuant to an Indemnification Notice, the Indemnifying Party shall diligently defend, at its sole cost and expense, the Indemnified Party against the Third Party Claim. The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate in contesting any Third Party Claim which the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 11.4(d). An Indemnifying Party shall not, without the written consent of the Indemnified Party, (i) settle any Third Party Claim or consent to the entry of any judgment with respect thereto which does not include an unconditional written release of the Indemnified Party from all liability in respect of such Third Party Claim or (ii) settle any Third Party Claim or consent to the entry of any judgment with respect thereto in any manner that may materially and adversely affect the Indemnified Party (other than as a result of money damages covered by the indemnity).
(e) If the Indemnifying Party does not assume the
defense of the Indemnified Party against a Third Party
Claim or assumes the defense, but fails to diligently
prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend
against the Third Party Claim at the sole cost and
expense of the Indemnifying Party, with counsel of the
Indemnified Party's choice, subject to the right of the
Indemnifying Party to assume the defense of the Third
Party Claim at any time prior to settlement or final
determination thereof. If the Indemnifying Party has
not yet assumed the defense of the Indemnified Party,
the Indemnified Party shall send written notice to the
Indemnifying Party of any proposed settlement or final
determination of the Third Party Claim and the
Indemnifying Party shall have the option for ten (10)
days following receipt of such notice to (i) assume
defense against the Third Party Claim in writing and
(ii) if so assumed, reject, in its reasonable judgment,
the proposed settlement or final determination of the
Third Party Claim.
(f) In the event that the Indemnification Notice sets forth a claim for Damages based upon an inaccuracy or breach of a representation, warranty or covenant or obligation in this Agreement, the Indemnification Notice shall specify the representation, warranty, covenant or obligation which was inaccurate or breached. In such case, the Indemnifying Party shall have thirty (30) days from its receipt of the Indemnification Notice to (i) cure the Damages complained of, (ii) accept the claim for such Damages or (iii) dispute the claim for such Damages. If the Indemnifying Party does not notify the Indemnified Party within such thirty (30) day period that it has cured the Damages or that it disputes the claim for such Damages, the amount of such Damages shall conclusively be deemed a liability of the Indemnifying Party hereunder.
Section 11.5 Survival.
In the event of Closing:
(a) The representation and warranty of Seller in
Section 3.1(a)(Defensible Title) shall terminate on the
Title Claim Date (3.4(a)). The remainder of the
representations, warranties, covenants and agreements
provided for in this Agreement shall terminate upon
Closing except as may otherwise be expressly provided
herein.
(b) Purchaser's Indemnification Obligations in Section
11.3(b) shall terminate as of the times set out below
except in each case as to matters for which a specific
written claim for indemnity has been delivered to the
Indemnifying Party on or before such termination date:
11.3(b)(i), 11.3(b)(ii), 11.3(b)(iii) and 11.3(b)(iv)
shall not terminate and shall continue without time
limit; 11.3(b)(v) shall terminate six months after the
end of the term of the escrow described in 7.9(b)(i);
11.3(b)(vi), 11.3(b)(vii) and 11.3(b)(viii) shall
terminate six months after Closing; and 11.3(b)(ix)
shall continue in force and effect until the
termination of the survival period of each of the other
Purchaser's Indemnification Obligations in 11.3(b)(i)-
11.3(b)(viii), inclusive.
(c) Seller's Indemnification Obligations in Section 11.3(c) shall terminate as of the times set out below except as to matters for which a specific written claim for indemnity has been delivered to the Indemnifying Party on or before such termination date: 11.3(c)(i) shall not terminate and shall continue without time limit; 11.3(c)(ii), 11.3(c)(iii) and 11.3(c)(iv) shall terminate six months after Closing; and 11.3(c)(v) shall continue in force and effect until the termination of the survival period of each of the other Seller's Indemnification Obligations in 11.3(c)(i)- 11.3(c)(iv), inclusive.
(d) The Confidentiality Agreement shall survive Closing.
(e) Except as provided above, all other provisions in this Agreement shall terminate at Closing except for the following provisions which shall survive Closing:
(i) Section 7.5 - Prohibition against Public Announcements
(ii) Section 7.11 - Further Assurances
(iii) Section 11.1 - Receipts
(iv) Section 11.2 - Expenses
(v) Section 11.4 - Indemnification Actions
(vi) Section 11.7 - Independent Investigation
(vii) Section 11.8 - Disclaimer Regarding Information
(viii) Section 11.9 - Waiver of Trade Practices Acts
(ix) Section 11.10 - Post-Closing Audit Rights
(x) Section 12.5 - Change of Name
(xi) Section 12.7 - Governing Law
Section 11.6 Recording.
As soon as practicable after Closing, Purchaser shall record the (i) Assignment and Bill of Sale in the appropriate counties as well as with all appropriate governmental agencies, (ii) forms prescribed by the applicable Governmental Body to transfer status of operator from Seller to Purchaser with respect to Seller Operated Assets that are wholly owned by Seller, and (iii) assignments necessary to convey to Purchaser all federal or state leases, if any, in the form as prescribed by the applicable Governmental Body and provide Seller with copies of all recorded or approved instruments.
Section 11.7 Independent Investigation.
In making the decision to enter into this Agreement and consummate the transactions contemplated hereby, Purchaser has relied exclusively on Purchaser's own investigation and analysis of the condition, value, characteristics and qualities of the Assets. Seller hereby expressly disclaims and negates any representation or warranty, express, implied, at common law, by statute or otherwise, other than the warranty made in Section 3.1, the express representations and warranties made in Article 5, the certificate of Seller to be delivered pursuant to Section 9.2(d) and the special warranty of title in the Assignment and Bill of Sale relating to the Assets.
Section 11.8 Disclaimer Regarding Information.
Seller hereby expressly negates and disclaims, and Purchaser hereby waives and acknowledges that Seller has not made, any representation or warranty, express or implied, relating to (a) the accuracy, completeness or materiality of any information, Records, data or other materials (written or oral) now, heretofore, or hereafter furnished to Purchaser by or on behalf of Seller or (b) production rates, recompletion or rework opportunities, decline rates, geological or geophysical data or interpretations, the quality, quantity, recoverability or cost of recovery of any Hydrocarbon reserves, any product pricing assumptions, or the ability to sell or market any Hydrocarbons after Closing.
Section 11.9 Waiver of Trade Practices Acts.
(a) The Purchaser's rights and remedies with respect to this Agreement and with respect to all acts or practices of Seller, past, present or future, in connection with this Agreement shall be governed by legal principles other than the DTPA. Purchaser hereby waives the applicability of the DTPA to this Agreement and any and all duties, rights or remedies that might be imposed by the DTPA, whether such duties, rights and remedies are applied directly by the DTPA itself or indirectly in connection with other statutes; provided, however, Purchaser does not waive Section 17.555 of the DTPA.
(b) Purchaser expressly recognizes that the price for which Seller has agreed to perform Seller's obligations under this Agreement has been predicated upon the inapplicability of the DTPA and Purchaser's agreement to waive the applicability of the DTPA. Purchaser further recognizes that Seller, in determining to proceed with the entering into of this Agreement, has expressly relied on such waiver by Purchaser and the inapplicability of the DTPA.
Section 11.10 Post-Closing Audit Rights.
Following Closing, Seller shall have the same rights of a non-operator as Purchaser has under joint operating agreements covering the Assets to audit the books and records of the operators of any of the Assets. Seller shall be entitled to collect from operators all amounts claimed due for any period of time prior to the Effective Time as a result of audits.
ARTICLE 12
MISCELLANEOUS
Section 12.1 Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement.
Section 12.2 Notice.
All notices which are required or may be given pursuant to this Agreement shall be sufficient in all respects if given in writing and delivered personally, by facsimile or by registered or certified mail, postage prepaid, as follows:
If to Seller:
Smith Production Inc.
14425 Torrey Chase, Suite 190
Houston, Texas 77014
Attention: Glenn R. Smith
Telephone: 281.583.0196
Facsimile: 281.893.6396
If to Purchaser:
Fidelity Exploration & Production Company
Attention: Darwin L. Subart
1700 Lincoln, Suite 4600
Denver CO 80203
Telephone: (303) 893-3313
Telecopy: (720)931-9646
Either Party may change its address by notice to the other in the manner set forth above. All notices shall be deemed to have been duly given at the time of receipt by the party to which such notice is addressed.
Section 12.3 Binding Agreement
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
Section 12.4 Expenses.
All expenses incurred by Seller in connection with or related to the authorization, preparation or execution of this Agreement, the Assignment and Bill of Sale delivered hereunder and the Exhibits hereto, and all other matters related to the Closing, including without limitation, all fees and expenses of counsel, accountants and financial advisers, shall be borne solely and entirely by the party incurring same.
Section 12.5 Change of Name.
As promptly as practicable, but in any case within thirty
(30) days after the Closing Date, Purchaser shall eliminate Seller's
name and any variants thereof from the Assets acquired pursuant to
this Agreement and, except with respect to such grace period for
eliminating existing usage, Purchaser shall have no right to
use any logos, trademarks or trade names belonging to Seller
or any of its Affiliates.
Section 12.6 Construction.
Both Seller and Purchaser have had (i) substantial input into the drafting and preparation of this Agreement and (ii) the opportunity to exercise business discretion in relation to the negotiation of the details of the transaction contemplated hereby. This Agreement is the result of arm's- length negotiations from equal bargaining positions and shall not be construed against either party.
Section 12.7 Governing Law.
This Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of Texas without regard to principles of conflicts of laws otherwise applicable to such determinations.
Section 12.8 Captions.
The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.
Section 12.9 Waivers.
Any failure by any party or parties to comply with any of its or their obligations, agreements or conditions herein contained may be waived in writing, but not in any other manner, by the party or parties to whom such compliance is owed. No waiver of, or consent to a change in, any of the provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
Section 12.10 Assignment.
No party shall assign all or any part of this Agreement, nor shall any party assign or delegate any of its rights or duties hereunder, without the prior written consent of the other party and any assignment or delegation made without such consent shall be void.
Section 12.11 Entire Agreement.
The Confidentiality Agreement, this Agreement and the documents to be executed hereunder and the Exhibits attached hereto constitute the entire agreement between the parties pertaining to the subject matter hereof, and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties pertaining to the subject matter hereof.
Section 12.12 Amendment.
(a) This Agreement may be amended or modified only by an agreement in writing executed by both parties.
(b) No waiver of any right under this Agreement shall be binding unless executed in writing by the party to be bound thereby.
Section 12.13 No Third-Party Beneficiaries.
Nothing in this Agreement shall entitle any Person other
than Purchaser and Seller to
any claims, cause of action, remedy or right of any kind.
Section 12.14 References.
In this Agreement:
(a) References to any gender include a reference to all other genders;
(b) References to the singular include the plural, and vice versa;
(c) Reference to any Article or Section means an Article or Section of this Agreement;
(d) Reference to any Exhibit means an Exhibit that is incorporated into and made a part of this Agreement;
(e) Unless expressly provided to the contrary, "hereunder", "hereof", "herein" and words of similar import are references to this Agreement as a whole and not any particular Section or other provision of this Agreement; and
(f) "Include" and "including" shall mean include or including without limiting the generality of the description preceding such term.
IN WITNESS WHEREOF, this Agreement has been signed by each of the parties hereto on the dates shown below to be effective as of the Effective Time.
SELLER: PURCHASER:
Smith Production Inc. Fidelity Exploration & Production
Company
By: /s/ GLENN R. SMITH By: /s/ DARWIN L. SUBART
Printed Name: Glenn R. Smith Printed Name: Darwin L. Subart
Title: President Title: President
Date: April 19, 2005 Date: April 19, 2005
|
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENTS
WHEREAS, on April 19, 2005, Smith Production Inc., as Seller, and Fidelity Exploration & Production Company, as Purchaser, entered into (i) a Purchase and Sale Agreement covering Tabasco Field and Texan Gardens Field having an Effective Time of May 1, 2005 at 7:00 a.m. and (ii) a Purchase and Sale Agreement covering Flores Field having an Effective Time of May 1, 2005 at 7:00 a.m. Said two Purchase and Sale Agreements are jointly referred to herein as the "Agreements";
WHEREAS, Smith Production Inc. and Fidelity Exploration & Production Company desire to amend the Agreements as provided in this First Amendment to Purchase and Sale Agreements (the "Amendment").
WHEREAS, all defined terms which are not defined in this Amendment shall have the same meaning as in the Agreements;
NOW THEREFORE, for valuable consideration received, Smith Production Inc. and Fidelity Exploration & Production Company hereby amend the Agreements as follows:
1. The first sentence in Section 3.4 (a) in both Agreements is deleted and replaced with the following:
"To assert a claim arising out of a breach of Seller's representation and warranty of Defensible Title in Section 3.1(a), Purchaser must deliver claim notices to Seller (each a "Title Defect Notice") on or before Tuesday, April 26, 2005 at 4:00 p.m. C.S.T. (the "Title Claim Date"), except as otherwise provided in Sections 3.5, 3.6 or 3.7."
2. The following language is added as Section 9.1 (c) to both Agreements:
"In the event that Purchaser delivers a Title Defect Notice to Seller, Seller shall have the option, at its sole election, to extend the Closing Date until May 10, 2005 at 10:00 a.m. local time. In the event that Seller elects to extend the Closing Date, Seller shall give written notice of such extension to Purchaser as provided in the Agreements."
As amended herein, the Agreements are hereby adopted, ratified and confirmed as being in full force and effect pursuant to their terms.
This Amendment shall be binding on Smith Production Inc., Fidelity Exploration & Production Company and their respective successors and assigns.
This Amendment may be executed in one or more counterparts, each of which shall have the same force and effect as an original.
IN WITNESS WHEREOF, this Amendment is executed by Smith Production Inc. and Fidelity Exploration & Production Company to be effective as of April 19, 2005.
Smith Production Inc.
By: /s/ GLENN R. SMITH Glenn R. Smith, President |
Fidelity Exploration & Production Company
By: /s/ MICHAEL C. CASKEY Michael C. Caskey, Executive Vice President and Chief Operating Officer |
Flores Field PSA
SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT
WHEREAS, on April 19, 2005, Smith Production Inc., as Seller, and Fidelity Exploration & Production Company, as Purchaser, entered into a Purchase and Sale Agreement covering Flores Field having an Effective Time of May 1, 2005 at 7:00 a.m. (the "Agreement");
WHEREAS, previously, Smith Production Inc. and Fidelity Exploration & Production Company amended the Agreement as provided in the First Amendment to Purchase and Sale Agreement;
WHEREAS, Smith Production Inc. and Fidelity Exploration & Production Company desire to amend the Agreement again as provided in this Second Amendment to Purchase and Sale Agreement (the "Amendment");
WHEREAS, all defined terms which are not defined in this Amendment shall have the same meaning as in the Agreement;
NOW THEREFORE, for valuable consideration received, Smith Production Inc. and Fidelity Exploration & Production Company hereby amend the Agreement as follows:
1. In Section 11.3(c)(v) in the Agreement, the following language is added after the final semi-colon and before the word "OR":
"Paul Lopez and Lisa Marie Acuna, v Smith Production Inc.; Cause No. CL-04-2679-E in the County Court at Law No. 5 of Hidalgo County, Texas;"
2. The following language is added to Exhibit 5.7 in the Agreement:
"Paul Lopez and Lisa Marie Acuna, v Smith Production Inc.; Cause No. CL-04-2679-E in the County Court at Law No. 5 of Hidalgo County, Texas."
As amended herein, the Agreement is hereby adopted, ratified and confirmed as being in full force and effect pursuant to their terms.
This Amendment shall be binding on Smith Production Inc., Fidelity Exploration & Production Company and their respective successors and assigns.
This Amendment may be executed in one or more counterparts, each of which shall have the same force and effect as an original.
IN WITNESS WHEREOF, this Amendment is executed by Smith Production Inc. and Fidelity Exploration & Production Company to be effective as of April 19, 2005.
Smith Production Inc.
By: /s/ GLENN R. SMITH Glenn R. Smith, President |
Fidelity Exploration & Production Company
By: /s/ DARWIN SUBART Darwin Subart, President |
MDU RESOURCES GROUP, INC.
DIRECTORS' COMPENSATION POLICY
Each Director who is not a full-time employee of the Company shall receive compensation made up of annual cash retainers, common stock and meeting fees. Each Director is also eligible for awards under the 1997 Non-Employee Director Long-Term Incentive Plan.
Annual Retainers and Stock Compensation
The Board service annual cash retainer shall be $20,000. The Lead Director shall receive an annual retainer of $33,000. The annual retainers for service as Chairman of the Compensation, Finance and Nominating and Governance Committees shall be $4,000. The annual retainer for service as Chairman of the Audit Committee shall be $8,000. Such retainers shall be paid in monthly installments.
The Amended and Restated Deferred Compensation Plan for Directors adopted on February 13, 1992, and effective January 1, 1992, as amended, permits a Director to defer all or any portion of the annual cash retainer, as well as meeting fees and any other cash compensation paid for service as a Director. The amount deferred is recorded in each participant's deferred compensation account and credited with income in the manner prescribed in the Plan. For further details, reference is made to the Plan, a copy of which is attached.
Each Director shall receive 2,700 shares of Common Stock on or about the 15th business day following the annual meeting of stockholders, pursuant to the Non-Employee Director Stock Compensation Plan, effective April 25, 1995, as amended, or the 1997 Non-Employee Director Long-Term Incentive Plan. A Director may decline a stock payment for any plan year, in writing in advance of the plan year to which stock payment relates. No cash compensation shall be paid in lieu thereof. By written election a Director may reduce the cash portion of the annual retainer and have that amount applied to the purchase of additional shares. The election must be made on a form provided by the administrative committee and returned to the committee by the last business day of the year prior to the year in which the election is to be effective. The election remains in effect until changed or revoked. No election may be changed or revoked for the current year, but may be changed for a subsequent year. For further details, reference is made to the Non-Employee Director Stock Compensation Plan, a copy of which is attached.
Board and Committee Meeting Fees
The fee for each Board meeting attended shall be $1,500 and for each meeting attended of each Committee of which the Director is a member, and for attendance at the Strategic Planning meeting, shall be $1,500, payable only to Directors who are not full-time employees of the Company.
Travel Expense Reimbursement
All Directors will be reimbursed for reasonable travel expenses including spouse's expenses (providing the spouse participates in ALL business, community, spouse-specific and social events), in connection with attendance at meetings of the Company's Board of Directors and its committees. If the travel expense is related to the reimbursement of commercial airfare, such reimbursement will not exceed full-coach rate. If the travel expense is related to reimbursement of non-commercial airfare, such reimbursement will not exceed the rate for comparable travel by means of commercial airline at the first- class rate.
Directors' Liability
Article Seventeenth of the Company's Restated Certificate of
Incorporation provides that no Director of the Company shall be
liable to the Company or its stockholders for breach of fiduciary
duty as a Director, with certain exceptions stated below.
Section 7.07 of the Company's Bylaws requires the Company to
indemnify fully a Director against expenses, attorneys fees,
judgments, fines and amounts paid in settlement of any suit,
action or proceeding, whether civil or criminal, arising from an
action of a Director by reason of the fact that the Director was
a Director of MDU Resources Group, Inc.
There are exceptions to these protections: breaches of the
Directors' duty of loyalty to the Company or its stockholders,
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law, violation of
Section 174 of the Delaware General Corporation Law (relating to
unlawful declaration of dividends and unlawful purchase of the
company's stock), and transactions from which the Director
derived an improper personal benefit (including short-swing
profits under Section 16(b) of the Securities Exchange Act of
1934).
The Company has and does maintain Directors' and Officers' liability insurance coverage with a $100,000,000 limit.
Insurance Coverages
The Company maintains the following insurance for protection of its Directors as they carry out the business of MDU Resources Group, Inc.
1. General liability and automobile liability insurance:
The Directors are afforded coverage under the general liability and automobile liability insurance of the Company. The policy limit is $75,000,000 in excess of self- insured retentions of $500,000 per occurrence for general liability and $250,000 per occurrence for automobile liability; or $1,000,000 per occurrence/$2,000,000 aggregate for general liability and $1,000,000 per occurrence for automobile liability, where we are carrying primary layer insurance coverage.
2. Fiduciary and employee benefit liability insurance:
The Directors are afforded coverage under the fiduciary and employee benefits liability insurance of the Company. The policy has a $35,000,000 limit with no deductible applicable to the Director.
3. Aircraft liability insurance:
The Company's existing aircraft liability insurance policy extends coverage while a non-owned* aircraft is used by a Director in traveling to and from Director or Board committee meetings. This insurance coverage constitutes excess liability coverage in the amount of $200,000,000.
*Non-owned aircraft is defined as: 1)
any aircraft registered under a "standard"
airworthiness certificate issued by the FAA;
2) aircraft with a seating capacity not
exceeding 40 seats; 3) aircraft that are not
owned by MDU Resources Group, Inc. or any of
its subsidiaries; 4) aircraft that are not
partly or wholly owned by or registered in
the Director's name or the name of any
Director's household member.
4. Travel and sojourn insurance:
All Directors are protected by a group insurance policy with coverage of $250,000 that provides 24-hour accident protection while traveling on Company business.
Coverage in all instances begins at the actual start of a business trip and ends when the Director returns to his/her home or regular place of employment.
The beneficiary of the insurance will be that beneficiary recorded on a beneficiary designation card provided by the Company.
5. Group life insurance:
All outside Directors are protected by a non-contributory group life insurance policy with coverage of $100,000.
The coverage begins the day the Director is elected to the Board of Directors and terminates when the Director ceases to be an outside Director.
A Certificate of Insurance shall be provided to the Director and the beneficiary of the insurance will be that beneficiary recorded on a beneficiary designation card provided by the Company.
This protection is considered taxable compensation under current tax laws. Consequently, the Company will provide each Director annually on Form 1099 the amount of taxable income related to this coverage.
MDU RESOURCES GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Twelve Months Year
Ended Ended
June 30, 2005 December 31, 2004
(In thousands of dollars)
Earnings Available for
Fixed Charges:
Net Income (a) $213,025 $ 184,805
Income Taxes 119,623 93,974
332,648 278,779
Rents (b) 10,664 10,194
Interest (c) 56,408 59,101
Total Earnings Available
for Fixed Charges $399,720 $ 348,074
Preferred Dividend Requirements $ 685 $ 685
Ratio of Income Before Income
Taxes to Net Income 150% 145%
Preferred Dividend Factor on
Pretax Basis 1,028 993
Fixed Charges (d) 72,602 72,877
Combined Fixed Charges and
Preferred Stock Dividends $ 73,630 $ 73,870
Ratio of Earnings to Fixed
Charges 5.5x 4.8x
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock Dividends 5.4x 4.7x
|
(a) Net income excludes undistributed income for equity investees.
(b) Represents interest portion of rents estimated at 33 1/3%.
(c) Represents interest, amortization of debt discount and expense on all indebtedness and amortization of interest capitalized, and excludes amortization of gains or losses on reacquired debt (which, under the Federal Energy Regulatory Commission Uniform System of Accounts, is classified as a reduction of, or increase in, interest expense in the Consolidated Statements of Income) and interest capitalized.
(d) Represents rents (as defined above), interest, amortization of debt discount and expense on all indebtedness, and excludes amortization of gains or losses on reacquired debt (which, under the Federal Energy Regulatory Commission Uniform System of Accounts, is classified as a reduction of, or increase in, interest expense in the Consolidated Statements of Income).
CERTIFICATION
I, Martin A. White, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MDU Resources Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 3, 2005 /s/ Martin A. White Martin A. White Chairman of the Board and Chief Executive Officer |
CERTIFICATION
I, Warren L. Robinson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MDU Resources Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 3, 2005 /s/ Warren L. Robinson Warren L. Robinson Executive Vice President and Chief Financial Officer |
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned, Martin A. White, the Chairman of the Board and Chief Executive Officer, and Warren L. Robinson, the Executive Vice President and Chief Financial Officer of MDU Resources Group, Inc. (the "Company"), DOES HEREBY CERTIFY that:
1. The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
IN WITNESS WHEREOF, each of the undersigned has executed this statement this 3rd day of August, 2005.
/s/ Martin A. White Martin A. White Chairman of the Board and Chief Executive Officer /s/ Warren L. Robinson Warren L. Robinson Executive Vice President and Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to MDU Resources Group, Inc. and will be retained by MDU Resources Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.